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Big energy companies had a bad year in 2002 Slim refining margins cut income sharply, U.S. Energy Information Administration report shows Allen Baker Petroleum News Contributing Writer
In the roller-coaster world of the oil industry, 2002 was not a good year. For the 28 biggest U.S. oil companies, net income was $20.6 billion, a decline of 45 percent from their $37.7 billion in earnings for 2001. It was also just 39 percent of the $53.2 billion those companies earned in 2000, the industry’s peak year.
The new report from the Energy Information Administration gives a comprehensive look at what went wrong for oil firms in 2002, before the turnaround in the industry last year.
With stable and higher prices in 2003, profits rebounded to the extent that ExxonMobil alone made $21.5 billion — more than all 23 companies made the year before, when the oil giant still collected more than half of the profits for the entire group. Supply and demand The 2002 compilation is a reminder of what a relatively small change in worldwide energy supplies can do to prices and profitability.
“The primary explanation for the steep decline in net income was the excess supply of petroleum (crude oil and refined products) at the beginning of 2002 that squeezed refining margins … for most of 2002,” the report says.
“Beginning-of-year petroleum inventories in 2002 (excluding government stockpiles) among the industrialized nations of the Organization for Economic Cooperation and Development were near a 5-year maximum,” the report notes. In the United States, stocks of motor gasoline, distillate fuel and crude oil were at the top of their ranges. Natural gas in working storage in the United States opened the year at the highest level since 1990.”
All that took a while to work out of the system, and downstream operations bore the brunt.
Refining and marketing income plummeted in 2002, with the 23 companies showing a loss of about a third of a billion dollars that year from downstream operations, compared with a profit of $12.8 billion the year before. That accounted for two-thirds of the decline in net income for the companies that year. Natural gas glut There was also a glut of natural gas in the first half of 2002, the report notes. That seems like ancient history now, with tight supplies in North America and increasing imports of liquefied natural gas expected to supply significant amounts of U.S. demand going forward.
But gas prices slumped to $2.35 per thousand cubic feet in January of 2002, down 66 percent from the wellhead price the previous January. For the year as a whole, gas yields averaged $3.07 per thousand cubic feet, a decline of 23 percent from the 2001 average. There went $4 billion in upstream profit for the companies.
On the oil side, revenues declined slightly as volumes slid 4 percent while the average U.S. wellhead price rose 2 percent. Lifting costs changed little in 2002, with a small decline in the United States offset by a small increase in foreign operations.
The demise of Enron didn’t help 2002 numbers either. The companies’ take from energy trading, electric power, and so on moved from a positive $2 billion to a loss of $1.5 billion as Williams, ChevronTexaco and other companies were caught in the Enron fallout. Less investment Capital spending by the 28 companies on the Energy Department list slid to $98 billion in 2002, from $110 billion in 2001. That was a decline of 9 percent overall from 2001’s record figure.
But the difference wasn’t across the board. Canadian spending slid 37 percent that year and onshore U.S. investment dropped 17 percent, though that category still remained the largest. The Gulf of Mexico remained a favorite target, so offshore spending stayed about even with 2001.
Outside the United States, instability in Venezuela apparently put a dent in spending in South America, as exploration and development spending in that category dropped 43 percent. But the companies added 22 percent to their investment in the Asian Pacific region, and spending in the North Sea drove the European figure up nearly a billion dollars, or 19 percent. Big piece of economy While the 28 companies studied by the Energy Department represent just a small fraction of the industry, they carry a big share of the load. Those 23 companies accounted for 49 percent of U.S. liquids production, 45 percent of natural gas extraction, and 84 percent of U.S. refining capacity.
Their operating revenues, even in 2002, amounted to $699 billion, or 10 percent of the total revenue for the Fortune 500 largest U.S. corporations.
The group ranges from giants such as ExxonMobil and ConocoPhillips to smaller firms such as XTO Energy and Tesoro Petroleum.
The full report can be found at www.eia.doe.gov/emeu/perfpro/
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