Released on December 16, 2009
(Next Release on December 23, 2009)

Third Quarter Earnings Decline 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 third quarter 2009 (Q309) compared to a year ago, continuing the trend towards lower profitability evident during the first half of 2009. 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 $66.37 per barrel in Q309, down by more than forty percent from the $113.52 per barrel recorded in the third quarter of 2008 (Q308). (All prices and price changes are in constant Q309 dollars.) Natural gas wellhead prices averaged $3.17 per thousand cubic feet (Mcf) in Q309, compared to an average of $8.86/Mcf in Q308.

The large integrated and large independent producers in EIA’s Financial Reporting System survey reported earnings of $15.8 billion in Q309 for the oil and gas production segment, down from $42.7 billion in Q308 (Figure 1). In the refining and marketing segment, which includes the operations of large integrated and large independent refiners, earnings dropped to $0.4 billion in Q309 from $9.7 billion in Q308; domestic refining/marketing operations lost $0.2 billion in Q309 while foreign operations earned $0.6 billion, as refining margins generally declined. Smaller independent producers reported income totaling over $0.2 billion in Q309, down from earnings of nearly $3.1 billion in Q308 (Figure 2). Reported net income of the majors and independent producers reflected revenues that have fallen (due to lower prices) faster than have operating costs.

The majors’ upstream capital expenditures declined relative to Q308 but by much less than the fall in net income, and were about equal to the third quarter average for 2004-2008 (Figure 3). In particular, worldwide oil and gas production capital expenditures fell 35 percent relative to Q308 and by a much smaller 1 percent relative to the third quarter average for 2004-2008. Despite the 96 percent decline in net income, worldwide refining/marketing investment by the majors only fell 5 percent in Q309 relative to Q308, but remained well above (34 percent) the third quarter average for 2004-2008.

Notwithstanding the reduction in capital expenditures, oil and natural gas production in Q309 continued to show growth. In each of this year’s quarters (Q109, Q209, and Q309) 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 and are the only quarters in which this has happened since Q401. Further, domestic and foreign oil and gas production in Q309 all exceeded the third-quarter average over the previous five years. The increases in production, despite the sharp drop in capital expenditures, resulted from the lagged effects of higher capital expenditures in earlier periods.

Oil field company net income dropped 43 percent in Q309 from Q308 (Figure 2), as U.S. oil and gas rig counts in total fell by about 50 percent (Figure 4) from their peak level, reflecting the decline in prices and producer earnings. The latest data show that U.S. rig counts have recently increased, albeit slowly.

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

U.S. Average Gasoline and Diesel Prices Slip
Dropping three and one half cents to $2.60 per gallon, the U.S. average price for regular gasoline was $0.94 higher than the price a year ago. Prices declined in all regions of the country. The price on the East Coast decreased almost three cents to $2.62 per gallon. The largest decrease in price occurred in the Midwest where the average fell to $2.52 per gallon, a drop of a nickel. On the Gulf Coast, the average went down over four cents to $2.47 per gallon. In the Rocky Mountains, the average price dropped two cents to $2.54 per gallon. On the West Coast, the average slipped a penny to $2.85 per gallon while the California price fell a cent to $2.90 per gallon.

The national average price for diesel fuel fell for the sixth consecutive week, dropping two cents to $2.75 per gallon. The average is $0.33 per gallon higher than last year at this time. Average prices fell between two and three cents per gallon in all five principal regions of the country. On the East Coast, in the Midwest, and in the Rocky Mountains, prices fell over two cents to $2.77, $2.72, and $2.78 per gallon, respectively. On the Gulf and West Coasts, the averages slipped about three cents to $2.70 and $2.86 per gallon, respectively. The average in California declined roughly three cents to $2.92 per gallon.

Inventories of Propane Experience a Large Draw
Last week propane inventories experienced the largest weekly draw since February 2007, falling below the lower limit of the average range for the first time this year. Total U.S. inventories decreased 4.0 million barrels to 57.4 million barrels. The Gulf Coast regional stocks dropped 2.2 million barrels and the Midwest region declined 1.1 million barrels. The East Coast and Rocky Mountain/West Coast regions each drew 0.3 million barrels of inventory. Propylene non-fuel use inventories increased their share of total propane/propylene inventories from 3.5 percent to 4.2 percent.

Residential Heating Oil Prices Decrease
Residential heating oil prices dropped during the week ending December 14, 2009. The average residential heating oil price fell 1.5 cents per gallon to reach 274.8 cents per gallon, which was 27.8 cents per gallon higher than the same time last year. Wholesale heating oil prices decreased 9.8 cents per gallon to reach 197.0 cents per gallon, 39.3 cents per gallon higher than at this time last year.

The average residential propane price increased 1.8 cents per gallon to reach 235.5 cents per gallon. This was an increase of 1.4 cents per gallon compared to the same period last year. Wholesale propane prices fell 3.6 cents per gallon to 124.8 cents per gallon. This was an increase of 45.8 cents per gallon when compared to the December 15, 2008 price of 79.0 cents per gallon.

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