The profits of major energy companies in the United States declined in 2002 for the second year in a row, according to Performance Profiles of Major Energy Producers 2002 from the Energy Information Administration (EIA). Income from both oil and gas production ("upstream") and petroleum refining and marketing ("downstream") operations fell.

Major U.S. energy companies annually report financial and operating information about their major lines of business -- including petroleum and other energy operations, and nonenergy businesses -- to the EIA’s Financial Reporting System (FRS). Based on data in the FRS, Performance Profiles of Major Energy Producers 2002 presents a comprehensive annual financial review and analysis of the domestic and worldwide activities and operations of the major U.S.-based energy-producing companies. Although the focus is on 2002 activites and results, important trends prior to that time and emerging issues relevant to U.S. energy company operations are also discussed.

This year's publication includes seven special analytical topics.

	Special Topics Finding Costs Increased in Most Regions. The Gulf of Mexico--Do Technology and Recent Economics Favor Oil Reserves Over Natural Gas? Natural Gas Supply--A New Paradigm? Canada’s McKenzie Delta--One Part of Future Natural Gas Supply? FRS Company Production From Renewables. Recent Upstream Mergers: A Tradeoff Between Growth and Profitability? LNG--A Future for the FRS Companies?

Earnings
The year 2002 began with the world oil market in a state of excess supply. Global petroleum inventories were above normal levels. In the United States, petroleum stocks at the beginning of 2002 were over nine percent higher than at the beginning of 2001. Natural gas in working storage opened the year at its highest level since 1990.

Although crude oil and natural gas prices climbed during the year, market conditions depressed the earnings of the FRS energy companies in 2002. Net income of the FRS companies totaled $20.6 billion, 45 percent below the result achieved in 2001 and 61 percent below the 2000 level.

On a constant-dollar basis, 2002 represented the lowest level of net income achieved since 1998 and the eighth-lowest level over the 1974-through-2002 period of FRS data collection.

Unusually, both upstream and downstream earnings declined. Net income from oil and gas production was down by over $4 billion, a 21-percent decrease, largely due to a glut of natural gas in the United States in the first half of 2002. Overall refining/marketing net income declined by almost $17 billion, or 111 percent. Domestic refiner margins were squeezed as petroleum product prices declined while crude oil prices increased.

Both foreign and domestic operations registered a steep decline, with domestic refining/marketing net income falling to a loss of $0.3 billion, an all-time low for U.S. refining/marketing profitability over the 1977-to-2002 period of FRS line-of-business data collection. These historic losses for domestic refining/marketing are especially surprising considering that 2001 was the second-most profitable year ever for U.S refining/marketing, reflecting continuing cost-cutting efforts.

Energy Trading
The demise of energy trading activities across the energy industry, driven by the collapse of the Enron Corporation in late 2001, also negatively affected many of the overall financial results in 2002 for the FRS companies. Although only a small minority of FRS companies were significantly involved in energy trading, the drop in cash flow for those FRS companies involved in energy trading exceeded that of all other FRS companies combined.

Further, net income from the FRS companies' "other energy" line of business (now largely consisting of electric power and energy trading activities) plunged from a gain of $2.0 billion in 2001 to a loss of $1.5 billion in 2002.

Capital Expenditures
Despite lower profits, capital expenditures of the FRS companies remained high due to acquisitions, totaling $98 billion in 2002, 11 percent below the all-time high of $110 billion reached in 2001.

The U.S. Onshore region continued to be the most popular upstream target of investment. While most FRS companies reduced their spending in the U.S. Offshore region, several projects in the Gulf of Mexico moved ahead in 2002.

The largest cutback was for projects in the Canadian region. Exploration and development spending in the Other Western Hemisphere region (mostly South America) declined 43 percent. Spending in the Other Eastern Hemisphere region (mostly for Asian-Pacific projects) was up 22 percent in 2002, and spending for OECD Europe (mostly in the North Sea) increased by $0.9 billion, or 19 percent, over 2001 levels.

Performance Profiles of Major Energy Producers, 2002, DOE/EIA-0206(04); 125 pages, 55 tables, 38 figures.