Related reports on the U.S. majorsOverview
| Third Quarter 2008 Key Findings | |
| Net Income | $48.0 billion |
| Revenues | $428.8 billion |
| Highlights | Major energy companies reported a 82-percent increase in net income relative to third quarter of 2007. Further, this represents a 102-percent increase relative to the third-quarter average for 2003-2007. |
| Return on sales (net income ÷ revenue) increased from 8.8 percent to 11.2 percent in the third quarter of 2008 due to the 82 percent increase in net income. | |
| The effects of higher refining margins, oil and natural gas prices, and worldwide natural gas production more than offset lower worldwide oil production and refining throughput. | |
Nineteen major energy companies reported overall net income (excluding unusual items) of $48.0 billion on revenues of $428.8 billion during the third quarter of 2008 (Q308). The level of net income for Q308 was 82-percent higher than in the third quarter of 2007 (Q307) (Table 1) and was 102-percent higher than the third-quarter average for 2003-2007 after adjusting for inflation. Further, return on sales (net income รท revenue) rose from 8.8 percent in Q307 to 11.2 percent in Q308 due largely to the 82-percent increase in net income. Net income for Q308 increased as the effects of higher refining margins, crude oil and natural gas prices, and worldwide natural gas production overwhelmed the effects of lower worldwide crude oil production and worldwide refining throughput.
Overall, the petroleum line of business (which includes both oil and natural gas production and petroleum refining/marketing) net income almost doubled between Q307 and Q308. A $23.2-billion (110 percent) increase in worldwide oil and natural gas production net income was augmented by a 3.7-billion (62 percent) increase in worldwide refining/marketing net income. All of the lines of business, with the exception of chemical operations (i.e., domestic and foreign oil and gas production, domestic and foreign refining/marketing, and worldwide gas and power operations), generated higher earnings in Q308 than in Q307. (Note: corporate net income and the total net income of the lines of business differ because (1) some items in corporate net income are nontraceable, such as interest expense, and are not allocated to lines of business, and (2) the number of companies reporting line-of-business net income varies.)
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The imported average crude oil price for Q308 increased $43.20 per barrel (61 percent) relative to a year earlier (Table 2). (See the current and recent issues of the Short-Term Energy Outlook for an explanation of these price changes and those discussed below.) This is the twenty-third time in the past twenty-five quarters (i.e., six and one-quarter years) that the price of crude oil was higher relative to the year-earlier quarter. (The first and second quarters of 2007 were the only exceptions since the second quarter of 2002.)
| Table 2. U.S. Energy Prices and the U.S. Gross Refining Margin | |||
| Q307 | Q308 | Percent Change | |
| U.S. Energy Pricesa | |||
| Imported Average Crude Oil Price ($/barrel) | 70.38 |
113.58 |
61.4 |
| Natural Gas Wellhead Price ($/thousand cubic feet) | 5.90 |
8.80 |
49.2 |
| U.S. Gross Refining Margin ($/barrel)b | 18.49 |
20.51 |
10.9 |
| a Energy Information
Administration, Short-Term Energy Outlook, (November 12, 2008),
Table 2. b Compiled from data in Energy Information Administration, Petroleum Marketing Monthly, DOE/EIA-380 (Washington, DC), Table 1, Table 4 and Table 5; and Energy Information Administration, Monthly Energy Review, DOE/EIA-0035, (Washington, DC) Table 3.2. Note: The U.S. Gross Refining Margin is the difference between the composite wholesale product price and the composite refiner acquisition cost of crude oil. |
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Earnings from worldwide oil and natural gas production operations (i.e., upstream operations) more than doubled between Q307 and Q308. Much higher foreign earnings magnified an even greater (in terms of the nominal change) increase in domestic earnings, resulting in an increase of more than $23.2 billion to $44.2 billion.
Earnings from worldwide refining and marketing operations (i.e., downstream operations) increased 62 percent between Q307 and Q308 (Table 2) due to generally higher refining margins. Both domestic and foreign earnings were higher in Q308 than a year earlier and resulted in an increase of about $3.7 billion to $9.8 billion (Table 1).
Profits from domestic downstream operations in Q308 were almost 50 percent higher than in Q307. Putting upward pressure on earnings was the $2.02/per barrel (11 percent) increase in the industry-wide gross margin (Table 2). Reduced refinery throughput by the included companies put offsetting (downward) pressure on earnings. The net effect of these and other factors was that U.S. refining/marketing earnings in Q308 were about $2 billion higher than in Q307 (Table 1). The performance of the eleven companies that reported U.S. refining/marketing earnings was consistent as nine of the companies reported higher earnings in Q308 than in Q307. Higher corporate refinery throughput and margins were noted in press releases by the companies reporting higher earnings. The two companies that reported lower earnings indicated lower West Coast and Gulf Coast margins and sales volumes among reasons for reduced profits.
Earnings from foreign downstream operations increased 89 percent between Q307 and Q308 (Table 1). Higher European refining margins, which increased $2.79 per barrel, put upward pressure on earnings while a 3-percent reduction in refinery throughput (Table 1) and lower Asia/Pacific refining margins, which fell $1.03 per barrel, put downward pressure on earnings. Against this mixed industry background, all 5 companies reported higher earnings than a year earlier. Factors leading to higher earnings, such as lower turn-around costs and higher margins, were noted in the press releases.
Worldwide Downstream Natural Gas and Power
Worldwide downstream natural gas and power earnings increased 48 percent (Table 1) due to mark-to-market gains. The results were consistent as 8 of the 9 companies that provided earnings information reported higher earnings. Higher earnings were attributed to mark-to-market gains and other factors such as higher natural gas liquids throughput and prices received, additional pipeline capacity, lower operating expenses, and higher liquefied natural gas sales. Lower crude oil marketing margins was noted by the company reporting lower earnings.
Earnings from chemical operations decreased due to lower sales volumes and margins. Four of the six companies reporting results for this line of business recorded lower earnings, resulting in a 20-percent decline in earnings from the majors' chemical operations relative to Q307 (Table 1). The major reasons for lower earnings were lower margins on some products, including chlorine, and sales volumes. Higher earnings were due to higher margins on other products, including caustic soda
About this Report
The "Financial News for Major Energy Companies" is issued quarterly to report recent trends in the financial performance of the major energy companies. These include the respondents to Form EIA-28 (Financial Reporting System (FRS)), with the exception of the FRS companies that do not issue quarterly earnings releases or do not provide separate information for the company's U.S. operations.
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Contact:
Neal Davis
neal.davis@eia.doe.gov
Fax: (202) 586-9753