Released on September 22, 2010
(Next Release on September 29, 2010)

Second Quarter Energy Earnings Consistent Across Business Segments

Earnings of major U.S. oil and natural gas producers in the second quarter of 2010 (Q210) were up significantly from the second quarter of 2009 (Q209), but still well below average earnings for the second quarter over the last 5 years (Figure 1). Additionally, the earnings of refiner/marketers and oil field companies (oil field companies provide drilling and other services to producers) increased even more sharply in Q210 compared to year-earlier levels, although worldwide refining/marketing net income has fallen significantly from its level over the 2005 to 2007 period. These results are drawn from quarterly EIA reporting on the financial performance of energy companies (see the Financial News for Major Energy Companies, Second Quarter 2010 and the Financial News for Independent Energy Companies, Second Quarter 2010) that together represent about half of U.S. oil and gas production and about three-quarters of U.S. refining.

Reported increases in net income of the majors and independent producers reflected higher crude oil and natural gas prices along with increased oil and natural gas production levels resulting from the lagged effects of significant capital expenditures in recent years, during a period of historically high prices. Based on data available at the time of the publication of the quarterly reports, crude oil prices paid by U.S. refiners averaged $74.33 per barrel in Q210, above the average of $57.92 per barrel over the second quarter of 2009. (All prices and price changes in this report are expressed in real (inflation adjusted) terms using Q210 dollars.) Natural gas wellhead prices averaged $4.07 per thousand cubic feet (Mcf) in Q210, compared to the average of $3.47/Mcf in Q209. Smaller independent producers, whose results are not shown in Figure 1, reported earnings of $0.9 billion in Q210, the highest second quarter earnings over the last 6 years, rebounding from losses of $0.3 billion in Q209.

Turning from earnings to investment, the majors’ upstream capital expenditures in Q210 increased relative to Q209 (Figure 2) and also were higher than the second quarter average for 2005-2009. In particular, oil and gas production capital expenditures increased 16 percent relative to Q209, and increased 19 percent relative to the second quarter average for 2005-2009. For the refining/marketing segment, the $2.5 billion level of investment by the large integrated and large independent refiners was the lowest since Q107, but was approximately equal to average quarterly investment over the period Q100-Q207 and was 9 percent lower than the second quarter average for 2000-2009.

Net income of selected oil field companies increased 12 percent from Q209 to $2.5 billion (Figure 3) but remained 27 percent lower than the second quarter average over 2005-2009. The increase was strongly supported by higher U.S. oil and gas rig counts and higher worldwide rig counts.

Retail Gasoline Price Remains Steady as Diesel Price Increases
At $2.72 per gallon, the U.S. average price for regular gasoline was virtually unchanged from last week but was $0.17 above last year at this time. Regional price changes were mixed; the East Coast price moved 2 cents higher to $2.64 per gallon and the Midwest average decreased 3 cents to $2.75 per gallon. Although the Gulf Coast tallied the largest increase (almost a nickel), the price remained the lowest of any region at $2.58 per gallon. The Rocky Mountain price was essentially unchanged at $2.83 per gallon. The West Coast and California averages each fell about 2 cents to $2.96 per gallon and $3.01 per gallon, respectively.

The U.S. average price for diesel fuel increased 2 cents to $2.96 per gallon, $0.34 above last year. The East Coast and Midwest prices climbed about 2 cents to $2.95 per gallon and $2.94 per gallon, respectively. The Gulf Coast price stayed at $2.89 per gallon after a slight increase. The Rocky Mountain average grew about a cent to $3.04 per gallon. The West Coast average moved 2 cents higher to $3.12 per gallon, while the average in California inched up nearly a penny to $3.15 per gallon.

Propane Stocks Remain Static
Total U.S. inventories of propane remained at 63.7 million barrels after experiencing another calm week with no aggregate changes to stocks. With only a few weeks remaining in the traditional build season, the Nation’s stockpile of propane heading into the winter heating season is about four percent below the most recent 5-year monthly average. Regional activity was a wash, as the Midwest stocks grew by 0.2 million barrels and stocks in the Rocky Mountain/West Coast region were up by 0.1 million barrels. These increases were offset by the Gulf Coast region falling by 0.3 million barrels. East Coast stocks were down slightly. Propylene non-fuel use inventories represented 4.0 percent of total propane/propylene stocks.

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