First quarter 2000 income triples from first quarter 1999

Energy Information Administration’s combined figures for 15 major oil and gas companies show majority of growth from worldwide upstream operations

The U.S. Department of Energy’s Energy Information Administration said overall net income (excluding unusual items) for 15 major petroleum companies more than tripled in the first quarter of 2000 compared to the first quarter of 1999, to $9.4 billion.

In its first quarter report the agency said the majority of the increase was contributed by the majors’ worldwide upstream operations and noted that increased earnings from both domestic and foreign upstream operations were greatly aided by higher crude oil prices.

Domestic upstream earnings also rose because of higher natural gas prices. Earnings from chemical operations, the majors’ second-largest operation (in terms of earnings), increased due to higher margins.

Similarly, net income associated with domestic downstream operations increased as product sales increased and the late-quarter reduction in crude oil prices elevated domestic refining margins. However, foreign refining and marketing continued to be characterized by low margins and low product sales, leading to declining net income.

Crude price more than double first quarter 1999

The average crude oil price of first quarter 2000 was even greater than the nine-year high achieved in the fourth quarter of 1999, but began falling in early March. Although member countries of the Organization of Petroleum Exporting Countries did not formally agree to production quota increases until March 23, crude oil prices began falling several days earlier in anticipation of the formal announcement.

Meanwhile, another relatively mild winter (as occurred a year earlier) along with relatively greater stock levels for natural gas (compared to crude oil and petroleum products) resulted in natural gas wellhead prices increasing only 28 percent relative to the first quarter in 1999.

Prices more than offset some production declines

Domestic upstream accounted for more than two-fifths of corporate net income for the majors during the first quarter of 2000.

Higher prices received, lower operating costs (lower exploration costs were noted by Conoco and Phillips), and increased production were cited by the majors as chief reasons for increased profitability of foreign oil and gas operations, which also contributed about 40 percent of corporate net income during the first quarter of 2000, the EIA said.

Downstream dichotomy emerges as domestic downstream earnings recover, but foreign downstream earnings continue to decline. Earnings from domestic refining and marketing operations recovered in the first quarter of 2000, growing almost 70 percent compared to the first quarter of 1999 on the strength of BP Amoco, ExxonMobil, and USX/Marathon, whose increased earnings overwhelmed reduced earnings of the other eight companies reporting domestic downstream operating results.

The reporting companies credited the late-quarter decline in crude oil prices for the 17 percent increase in refiner margins (the difference between the composite wholesale product price and the composite refiner acquisition cost of crude oil) relative to first quarter 1999.

Other reasons for the first quarter 2000 increase in domestic downstream net income reported by the companies were increased product sales and lower operating costs.

Alternatively, earnings from foreign refining and marketing operations fell almost 60 percent compared to first quarter 1999. The most commonly cited reasons were reduced product sales and lower refining margins (as high crude oil prices were coincident with large product stock levels, which put downward pressure on product prices).