Related reports on the U.S. majorsOverview
| First Quarter 2009 Key Findings | |
| Net Income | $-7.0 billion |
| Revenues | $191.5 billion |
| Highlights | Major energy companies reported a 126-percent decrease in net income relative to first quarter of 2008. Further, this represents a 131-percent decrease relative to the first-quarter average for 2004-2008. |
| Return on sales (net income ÷ revenue) decreased from 8.0 percent to -3.7 percent in the first quarter of 2009 due to the 126 percent decrease in net income. | |
| The effects of higher worldwide refining margins and worldwide oil and natural gas production were overwhelmed by lower oil and natural gas prices and lower worldwide refinery throughput. | |
Nineteen major energy companies reported an overall net loss (excluding unusual items) of $7.0 billion on revenues of $191.5 billion during the first quarter of 2009 (Q109). The level of net income for Q109 was 126-percent lower than in the first quarter of 2008 (Q108) (Table 1) and was 131-percent lower than the first-quarter average for 2004-2008 after adjusting for inflation. Further, return on sales (net income ÷ revenue) fell from 8.0 percent in Q108 to -3.7 percent in Q109 due largely to the 126-percent decrease in net income. Net income for Q109 decreased as the effects of higher worldwide refining margins, and worldwide crude oil and natural gas production were overwhelmed by reduced oil and natural gas prices, and worldwide refinery throughput. This is the first net loss recorded by the majors since at least the fourth quarter of 1999.
Overall, the petroleum line of business (which includes both oil and natural gas production and petroleum refining/marketing) in Q109 saw net income decline 99 percent from the level of Q108. A $33.4-billion (110 percent) decrease in worldwide oil and natural gas production net income was slightly offset by a 1.6-billion (87 percent) increase in worldwide refining/marketing net income. All of the lines of business except for domestic and foreign refining/marketing operations (i.e., domestic and foreign oil and gas production, worldwide gas and power operations, and worldwide chemical operations) generated lower earnings in Q109 than in Q108. (Note: corporate net income and the total net income of the lines of business differ because (1) some items in corporate net income are nontraceable, such as interest expense, and are not allocated to lines of business, and (2) the number of companies reporting line-of-business net income varies.)
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The imported average crude oil price for Q109 dropped almost $50 per barrel (55 percent) relative to a year earlier (Table 2). (See the current and recent issues of the Short-Term Energy Outlook for an explanation of these price changes and those discussed below.) This is the fourth time in the past twenty-seven quarters (i.e., six and three-quarters years) that the price of crude oil was lower relative to the year-earlier quarter. (The first and second quarters of 2007, and the fourth quarter of 2008 were the only other exceptions since the second quarter of 2002.)
| Table 2. U.S. Energy Prices and the U.S. Gross Refining Margin | ||||||
| Q108 | Q109 | Percent Change | ||||
| U.S. Energy Pricesa | ||||||
| Imported Average Crude Oil Price ($/barrel) | 89.74 |
40.13 |
-55.3 |
|||
| Natural Gas Wellhead Price ($/thousand cubic feet) | 7.62 |
4.35 |
-42.9 |
|||
| U.S. Gross Refining Margin ($/barrel)b | 13.54 |
28.69 |
111.9 |
|||
| a Energy Information
Administration, Short-Term Energy Outlook, (May 12, 2009),
Table 2. b Compiled from data in Energy Information Administration, Petroleum Marketing Monthly, DOE/EIA-380 (Washington, DC), Table 1, Table 4 and Table 5; and Energy Information Administration, Monthly Energy Review, DOE/EIA-0035, (Washington, DC) Table 3.2. Note: The U.S. Gross Refining Margin is the difference between the composite wholesale product price and the composite refiner acquisition cost of crude oil. |
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Earnings from worldwide oil and natural gas production operations (i.e., upstream operations) for Q109 fell more than $33 billion relative to one year earlier. Domestic earnings fell more than $13 billion while foreign earnings fell $8 billion (earnings that cannot be allocated between domestic and foreign operations fell an additional $12 billion, resulting in an extremely large decrease of earnings and a loss of $3.0 billion. (Note: Worldwide write-downs due to impaired oil and natural gas reserves totaled more than $12 billion during Q109, which accounted for a large portion of the reported losses.)
Earnings from worldwide refining and marketing operations (i.e., downstream operations) increased 87 percent between Q108 and Q109 (Table 2) despite decreased refinery throughput. Domestic and foreign refining/marketing earnings both increased in Q109 relative to a year earlier despite lower refinery throughput and resulted in an increase of more than $1 billion to $3.4 billion (Table 1).
Profits from domestic downstream operations in Q109 were more than three times higher than in Q108, increasing more than $1.4 billion from Q108 (Table 1). The performance of the eleven companies that reported U.S. refining/marketing earnings was somewhat mixed as only seven of the companies reported higher earnings in Q109 than in Q108. Higher earnings were attributed to increased refining marketing margins, which were somewhat offset by lower marketing margins and refinery throughput. The four companies that reported lower earnings indicated that lower corporate refinery throughput (at least partially due to planned turn-arounds) and sales (at least partially due to lower demand and divestitures), and lower Gulf Coast refining margins were among the reasons for lower earnings.
Earnings from foreign downstream operations increased 14 percent between Q108 and Q109 (Table 1). European and Asia/Pacific refining margins increased while refinery throughput fell, putting mixed pressure on earnings. Against this varied industry background, four of the five companies reported higher earnings than a year earlier. Higher refining and sales margins, and lower expenses were noted in the press releases as reasons for increased earnings.
Worldwide Downstream Natural Gas and Power
Worldwide downstream natural gas and power earnings declined 29 percent (Table 1) due to lower revenues and higher operating costs. The results were almost uniform as 10 of the 11 companies that provided earnings information reported lower earnings in Q109 than in Q108. Company press releases attributed lower earnings to higher operating costs, lower processing and storage revenues, and impaired Venezuelan assets. The company reporting higher earnings cited increased sales of pipeline capacity and trading gains.
Earnings from chemical operations decreased due to lower sales volumes and margins. All of the 6 companies reporting results for this line of business recorded lower earnings, resulting in a 67-percent decline in earnings from the majors' chemical operations relative to Q108 (Table 1). Among the reasons given for lower earnings were lower commodity margins and lower sales volumes.
Note: The non-cash charge resulted from application of the ceiling test as prescribed by the Securities and Exchange Commission (SEC) for companies that follow the full-cost method of accounting. Under the full-cost method of accounting, a company's net book value of its oil and gas properties, less related deferred income taxes, may not exceed a calculated "ceiling." The test is performed separately for each country in which the company operates. The ceiling is the estimated after-tax stream of future net revenues from proved oil and gas properties, discounted at 10 percent per year using costs and prices held flat, plus the cost of unevaluated properties. Any excess is written off as a non-cash expense. The expense may not be reversed in future periods, even though higher oil and gas prices may subsequently increase the ceiling. Full-cost companies must use the prices in effect at the end of each accounting quarter to calculate the ceiling value of reserves. Future net revenues are calculated assuming continuation of prices and costs in effect at the time of the calculation, except for changes that are fixed and determinable by existing contracts. Although the SEC recently modified its rules applicable to the ceiling test, the new rules do not take effect until year-end 2009.
Devon Energy, http://investor.dvn.com/phoenix.zhtml?c=67097&p=irol-newsArticle&ID=1284909&highlight= (as of May 12, 2009).
The "Financial News for Major Energy Companies" is issued quarterly to report recent trends in the financial performance of the major energy companies. These include the respondents to Form EIA-28 (Financial Reporting System (FRS)), with the exception of the FRS companies that do not issue quarterly earnings releases or do not provide separate information for the company's U.S. operations.
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Contact:
Neal Davis
neal.davis@eia.doe.gov
Fax: (202) 586-9753