The report, "Financial News for Independent Energy Companies," analyzes third quarter earnings reports from 45 independent energy companies. It shows their earnings grew by 106 percent over the same time period in 2004 as crude oil and natural gas prices and gross refining margins increased sharply.
The independents include oil and natural gas producers, oil field service companies and refiner/marketers that are typically smaller than the oil and gas majors. The independents do not have integrated production and refining operations.
The new EIA analysis comes on the heels of record third-quarter profits for major oil companies -- Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co., Shell Oil Co. and BP America Inc. Their combined $80 billion profit made headlines last month as Americans were paying record high gas prices and spurred a Senate hearing and calls for a windfall profits tax.
The EIA report's author, Bob Schmitt, said the independent companies' profits are not easy to compare to those of the majors. Here is how he explained the complication in an e-mail: "We'd have to define what we mean by the sector -- what size threshold to use; the population of companies in this sector we defined would change as they grow, merge, go out of business, etc." Furthermore, he added, the companies represented in the new survey also have interests in other businesses.
Of the 45 companies in the EIA survey, only three producers reported negative earnings due to declines in the market value of their derivative holdings -- contracts tied to the prices of natural gas or crude oil -- and production declines caused by strong hurricanes that slammed their facilities on the Gulf Coast.
Specifically, the 20 oil and gas producers reported third quarter income of $630 million on revenues of $3.8 billion, an increase of 42.8 percent and 39.7 percent, respectively, over 2004 figures. Twenty-one oilfield companies reported income of $2.5 billion on revenue of $19.7 billion, an increase of 119.4 percent and 25.7 percent, respectively. And four refiners reported income of $250 million on revenue of $6 billion, an increase of 315.8 percent and 52.2 percent.
All told, the independent energy companies' net income was $3.4 billion on revenues of $29.5 billion, an increase of 106.1 percent and 32.1 percent, respectively. The report says independent oil and gas producers' earnings got boosted by a 47 percent increase in the price of crude oil and a 50 percent hike in the price of natural gas over 2004 levels. For the oil field companies, the jump in earnings came from higher drilling rig counts, which rose 16 percent between the third quarters of 2004 and 2005, a rate just shy of the worldwide growth rate of 18 percent.
"Higher rig counts and the resulting higher demand for rig services directly increased the demand for the equipment and service supplied by oil field companies," the report says. "This increase in demand raised day rates on equipment and margins on overall operations, thereby increasing companies' profits."
For refiners, the report says earnings growth was driven by an increase in average refining margins, which is the difference between the composite wholesale refined petroleum product price and the composite refiner acquisition cost of crude. Refining margins rose because the increase in refined product prices, which adds the price of crude oil and the gross refining margin more than offset the increase in the price of crude oil. Reprinted from E&E News PM with permission from Environment & Energy Publishing, LLC. www.eenews.net . 202/628-6500.
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