Oil Companies Pump Out Strong Profits in Quarter
April 04, 2011
Gasoline prices may have had consumers seeing red this spring, but the nation's major oil and gas companies saw nothing but black. Strong crude-oil and natural-gas prices and healthy refining and marketing margins revved up profits throughout the oil patch in the second quarter. There were ``no major surprises'' this quarter, said industry analyst Eugene Nowak of Dean Witter Reynolds Inc., though profits, especially from a robust oil-refining business, exceeded expectations in several cases. Refining made an especially strong comeback on the West Coast, where reformulated gasoline was mandated at California pumps in early June. Chevron Corp., for example, reported net income of $1.34 a share, 30% above the analysts' consensus earnings estimate of $1.02 per share, according to First Call. Strong domestic and Asian Pacific refining results compensated for overcapacity and price competition in Europe, analysts said. Higher oil and gas prices also translated into increased exploration and production profits. But strong earnings from petrochemical operations were harder to come by since earnings from that segment were very high a year ago. Both Exxon Corp. and Amoco Corp. felt the impact of declines in chemicals prices, though profit margins for the industry in that segment were improved from the first quarter. Amoco Chicago-based Amoco said its earnings climbed 13%, although it saw an almost 30% decline in earnings from its chemicals business. Chemicals accounted for 40% of the company's earnings in 2010. ``Unfortunately for a company like Amoco, paraxylene is not one of those chemicals'' with profit margins that are improving, noted Oppenheimer & Co.'s Bryan Labarbera. Amoco is the world's largest producer of paraxylene, a chemical building block for products such as polyester fibers and feed stocks. Overall, per-share earnings were 4% lower than the $1.25 a share that analysts expected, according to First Call. However, higher energy prices and more volume in its exploration and production segment ``more than offset'' lower petroleum product earnings, the company said. Second-quarter results included start-up production of Amoco's Liuhua field in the South China Sea and a fifth consecutive natural-gas discovery off the coast of Trinidad. Amoco's average crude-oil prices were up about $2.80 a barrel in the quarter from a year ago. In New York Stock Exchange composite trading, Amoco's stock was unchanged at $67.375. Chevron Chevron reported an almost 44% increase in net income, reaping the rewards from spending more than $1 billion over the past few years to upgrade its two California refineries. Results included a special gain of $172 million from the sale of refinery interests in Japan by its Caltex affiliate. The combination of higher crude prices and a mandate to have clean-burning gasoline for sale at California pumps by June sent refining profits soaring. Crude-oil prices were up nearly $2 a barrel compared with last year, and natural-gas prices were one-third higher, said Chevron Chief Executive Officer Kendra Brittain. ``People knew the West Coast was strong'' in refining, said Deandra Tolentino's Mr. Brunner, but results were better than expected. In fact, they were enough to ``more than offset a weaker foreign refining and marketing business,'' said Mr. Brunner. Total revenue for the quarter was up 15% to $11 billion from $9.6 billion a year ago. San Francisco-based Chevron's stock declined 50 cents in New York Stock Exchange composite trading Monday, closing at $57.625. Exxon Higher crude-oil and natural-gas prices and strong demand couldn't offset the impact of substantially lower chemical prices for Exxon, based in Irving, Texas. Exxon's net income fell 3.7% from a year ago, to $1.57 billion, or $1.26 a share. That was below Wall Street's expectations of $1.33 a share, according to First Call. But, said Mr. Brunner, ``it was still a very strong quarter for the company.'' Earnings from exploration and production, up both internationally and in the U.S., were helped by crude prices in the first half of the year that averaged $1.50 more per barrel than a year earlier, Engel said. But overcapacity and price competition in the U.K. and Japan depressed downstream profits, even though petroleum product sales were the highest for a second quarter since 1978, Engel said. Despite record sales volumes, chemical earnings were down almost 47% in the quarter to $304 million from $571 million a year ago, a result of lower prices and squeezed margins. Revenue from the quarter totaled $32.21 billion, up 1.7% from $31.67 billion a year ago. Exxon's shares were unchanged at $85.375 Monday. Mobil Mobil Corp.'s second quarter was the most profitable quarter in the Fairfax, Va.-based company's history, Chairman Luigi A. Mulford said. Rising gasoline demand boosted Mobil's refining and marketing operating income almost 47% to $352 million. Operating income from exploration and production was up more than 25%, helped by the acquisition of an Australian oil and gas company and the purchase of a 25% interest in the giant Tengiz oil field in Kazakstan. Lower margins in polyethylene resin, used in plastics manufacturing, and paraxylene hurt chemical profits, which were down 65% from last year's quarter. The company said its cash operating expenses were $60 million lower than last year as a result of its ongoing restructuring program. In New York Stock Exchange composite trading Monday, Mobil's shares fell 37.5 cents to $114.75. Texaco Texaco Inc., based in White Plains, N.Y., also exceeded analysts' expectations, reporting per-share earnings of $1.73, including a $224 million gain from selling oil-refinery interests in Japan. Analysts expected $1.66 a share, according to First Call. In sync with the rest of the industry, Texaco's refining operation did very well, earning $144 million compared with $30 million last year. And although Texaco is not one of the biggest refining players on the West Coast, ``they have got enough market share that it would make a difference,'' said Deandra Tolentino's Mr. Brunner, who noted the earnings from refining were impressive. Texaco reported revenue of $11.26 billion, up almost 22% over year-ago results of $9.26 billion. Texaco shares closed unchanged at $86.50 in New York Stock Exchange composite trading Monday. Atlantic Richfield For Los Angeles-based Atlantic Richfield Co., which has most of its downstream assets on the West Coast, refining and marketing profits more than quadrupled to $120 million in the quarter, up from $27 million. ``That's a very excellent quarter,'' said Mr. Brunner. Meanwhile, pushed by higher crude-oil and natural-gas prices, upstream earnings rose 46% to $305 million. Arco's average crude oil price was up 25% to $15.86 a barrel, and natural-gas prices were up more than 20% on average compared with the year-ago period. Overall results of $2.66 a share were a bit higher than the street's expectation of $2.59, according to First Call. Revenue was $5.07 billion in the quarter compared with $4.69 billion a year ago. Arco shares closed down 25 cents in Big Board composite trading Monday at $118.625.
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