Released on October 15, 2009
(Next Release on October 21, 2009)

Large Earnings Declines in Second Quarter for All Segments of the Oil and Natural Gas Industry

Earnings of oil and natural gas producers, refiner/marketers and oil field companies fell sharply in the second quarter 2009 (Q209) from the second quarter of 2008 (Q208), continuing the trend towards lower profitability evident during the first quarter. These results are drawn from quarterly EIA reporting on the financial performance of energy companies that together represent about half of U.S. oil and gas production and the majority of U.S. refining.

Based on data available at the time of the publication of the quarterly reports, crude oil prices paid by U.S. refiners averaged $57.50 per barrel in Q209, down by more than half from the peak average of $118.16 per barrel recorded in Q208. (All prices and price changes are in constant Q209 dollars.) Natural gas wellhead prices averaged $3.44 per thousand cubic feet (Mcf) in Q209, compared to a peak average of $10.05/Mcf in Q208.

The large integrated and large independent producers in EIA’s Financial Reporting System survey reported earnings of $11.4 billion in Q209 for the oil and gas production segment, down from $33.6 billion in Q208 (Figure 1). In the refining and marketing segment, which includes the operations of large integrated and large independent refiners, earnings dropped to $0.5 billion in Q209 from $3.3 billion in Q208; domestic refining/marketing operations lost $0.1 billion in Q209 while foreign operations earned $0.5 billion, as refining margins generally declined. Smaller independent producers reported losses totaling over $0.3 billion in Q209, down from earnings of nearly $0.5 billion in Q208 (Figure 2). Reported net income of the majors and independent producers reflected write-downs of the value of their oil and gas reserve assets.

The majors’ upstream capital expenditures declined relative to Q208 but by much less than the fall in net income, and remained above the second quarter average for 2004-2008 (Figure 3). In particular, worldwide oil and gas production capital expenditures fell 25 percent relative to Q208, but increased 3 percent relative to the second quarter average for 2004-2008. Despite the decline in net income, worldwide refining/marketing investment by the majors rose slightly, by 2 percent, in Q209 relative to Q208, but dramatically (39 percent) relative to the second quarter average for 2004-2008.

Notwithstanding the reduction in capital expenditures, oil and natural gas production in Q209 continued to show growth. In both Q209 and Q109, the reporting companies’ aggregate domestic oil production, foreign oil production, domestic natural gas production, and foreign natural gas production all increased over the comparable quarter in the prior year, the only two quarters that has happened since Q401. As in Q109, only domestic oil production in Q209 remained below the average of the prior five first quarters. The increase in production, despite the sharp drop in capital expenditures, resulted from the lagged effects of higher capital expenditures in previous quarters based on relatively high prices.

Oil field company net income dropped 51 percent in Q209 from Q208 (Figure 2), as U.S. oil and gas rig counts each fell by about 50 percent (Figure 4), reflecting the decline in prices and producer earnings.

For more information, see the Financial News for Major Energy Companies, Second Quarter 2009 and the Financial News for Independent Energy Companies, Second Quarter 2009.

Gasoline and Diesel Prices Move Up
The U.S. average price for regular gasoline increased for the first time since the week of August 10, 2009. Although the price rose two cents to $2.49 per gallon, the national average remained 66 cents below the year ago price. On a regional basis, the changes were mixed, continuing to fall in the Rocky Mountains and the West Coast, while increasing in the East Coast, the Midwest, and along the Gulf Coast. On the whole, the average price on the East Coast was essentially unchanged at $2.41 per gallon. The average in the Midwest had the largest increase of any region, jumping eight cents to $2.44 per gallon. Despite a rise of three cents, at $2.32 per gallon, the average price on the Gulf Coast remained the lowest of any region. In the Rocky Mountains, the price slipped two cents to $2.48 per gallon. The price on the West Coast dropped the most of any region, falling a nickel to $2.90 per gallon. The average in California also fell a nickel to settle at $3.02 per gallon.

For the first time in six weeks, the national average price of diesel fuel increased. Moving up two cents to $2.60 per gallon, the average was $1.06 less than last year. On the East Coast, the average grew two cents to $2.61 per gallon, $1.10 less than a year ago. In the Midwest, the price also went up two cents to $2.58 per gallon, $1.06 below the average last year. Despite increasing a penny, the average price on the Gulf Coast remained the lowest of any region, at $2.53 per gallon. At $2.65 per gallon, the average in the Rocky Mountains went up half a cent. On the West Coast, the average moved up a penny to $2.73 per gallon and the average in California was essentially unchanged at $2.79 per gallon.

Propane Stocks Build Slightly
Total U.S. inventories of propane experienced a very slight build last week, bringing total stocks to 73 million barrels. The Midwest region dropped 0.5 million barrels, but each of the other regions experienced a build this week. The East Coast region had the greatest build with a 0.5 million barrel increase from last week, which essentially cancelled out the decline in the Midwest region. The Gulf Coast and Rocky Mountain/West Coast regions each had slight builds in stocks. Propylene non-fuel use inventories decreased their share of total propane/propylene inventories slightly from last week (from 3.1 percent to 2.9 percent).

Residential Heating Fuel Price Survey Begins for the 2009-10 Season
Residential heating oil prices increased during the week ending October 12, 2009. The U.S. average residential heating oil price gained 3.0 cents per gallon last week to reach 253.1 cents per gallon, which was 85.9 cents per gallon lower than the same time last year. Wholesale heating oil prices rose 7.6 cents per gallon to reach 193.9 cents per gallon, which was 41.2 cents per gallon lower than this time last year.

The average residential propane price increased last week, rising 2.0 cents to reach 208.0 cents per gallon. This was 52.3 cents per gallon lower than last year. Wholesale propane prices increased by 1.1 cents per gallon to 100.0 cents per gallon, which was 10.9 cents per gallon lower than last year.

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