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EIA ReportsU.S. DEPARTMENT OF ENERGY Profitability of Major U.S. Energy Companies Highest Since 1979-1981 Oil Price Escalations
Net income of two dozen major U.S. energy companies was a record $32.0 billion in 1996, with overall profitability reaching the highest level since the oil price escalations of 1979-1981 (see Figure), according to data collected by the Energy Information Administration (EIA) and published in the newest edition of Performance Profiles of Major Energy Producers 1996.
As in 1979-1981, the growth in the majors' income came largely from their oil and gas production operations, which benefited from higher oil and gas prices in 1996. Higher earnings also reflected the gains from continued cost-cutting in the 1990's. During the 1979-1981 period of peak profitability, the majors' cost more than doubled for extracting oil and gas and for replacing reserves used up in production. In contrast, extraction costs and reserve replacement costs in 1996 hardly changed from prior-year levels. The majors' worldwide cost of extracting oil and gas was $4.20 per barrel in 1996, 2 percent above extraction costs in 1995, while the majors' worldwide cost of adding reserves (3-year average basis) through exploration and development was $4.33 per barrel, down 1 percent. Higher oil and gas prices offered incentives for increased drilling and accelerated development of reserves. At the same time, record cash flow of $64.2 billion provided added funds for capital spending generally in 1996. Also, advancing technologies applied to the discovery and development of oil and gas resources as well as increasingly hospitable investment environments in a variety of resource-rich locales offered longer term incentives for exploration and development. The majors increased their worldwide exploration and development expenditures by $6.1 billion from 1995 expenditures, to $31.7 billion in 1996, the second-highest level in a decade. In the United States, expenditures for offshore locales, primarily the Gulf of Mexico, were up 42 percent while onshore spending remained flat. Abroad, increases in exploration and development spending were concentrated in the Asia-Pacific region, South America, and Africa. The majors' sharpest cutback in capital expenditures among energy businesses was in U.S. refining. This cutback largely reflected the completion of projects related to environmental quality requirements. The majors' capital expenditures for U.S. refining in 1996, at $2.1 billion, not only were down 41 percent from 1995 expenditures and down $3.0 billion from the most recent peak in spending in 1992, but, when adjusted for inflation, were at their lowest level over the 1974-1996 period of FRS data collection. Performance Profiles of Major Energy Producers 1996 discusses these and other key financial developments in detail and reviews the major energy companies' activities in petroleum, natural gas, coal, other energy, and nonenergy businesses. The report includes a chapter on foreign direct investment in U.S. energy assets. This information was previously provided in a separate annual publication, Profiles of Foreign Direct Investment in U.S. Energy. Performance Profiles of Major Energy Producers 1996 can be accessed via the Worldwide Web at http://www.eia.doe.gov. The direct Internet address is: http://www.eia.doe.gov/emeu/perfpro/pp96/indexpp.html. Copies of the published report will be available from the U.S. Government Printing Office, 202-512-1800, or through EIA's National Energy Information Center, 202/586-8800, on or about February 4, 1998.
EIA Program Contact: Jon A. Rasmussen, 202/586-1449 EIA-98-06 Contact:
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The 24 companies, commonly called "the majors," are those that are required to report financial and operating data annually via EIA's Financial Reporting System (FRS). The majors in 1996 had sales of $541 billion, produced over half of U.S. total crude oil and natural gas liquids and 43 percent of U.S. natural gas, and owned nearly two-thirds of U.S. refining capacity. Eighty-five percent of the operating revenues of these major companies derives from energy sales, with the rest coming mainly from chemicals.