Third Quarter Energy Earnings Consistent Across Business Segments


Earnings of major energy producers in the third quarter of 2010 (Q310) were up significantly from the third quarter of 2009 (Q309), but still well below average earnings for the third quarter over the last 5 years (Figure 1). The earnings of major refiner/marketers also increased sharply in Q310 compared with year-earlier levels, although refining/marketing net income has fallen significantly from its level over the 2005 to 2008 period. These results are drawn from the quarterly reports on financial performance collected by the U.S. Energy Information Administration (EIA) from major energy producers that in total represent about 40 percent of U.S. oil and natural gas production and about three quarters of U.S. refining. (See the Financial News for Major Energy Producers, Third Quarter 2010.)

Reported increases in net income of the major energy producers reflected higher crude oil and natural gas prices. Further, the lagged effects of significant capital expenditures in recent years, during a period of historically high prices, led to higher oil and natural gas production levels, which further increased earnings. Based on data available at the time of the publication of the quarterly reports, crude oil prices paid by U.S. refiners averaged $73.32 per barrel in Q310, above the average of $67.16 per barrel over the third quarter of 2009. [All prices and price changes in this report are expressed in real (inflation adjusted) terms using Q310 dollars.] Natural gas wellhead prices averaged $4.12 per thousand cubic feet (Mcf) in Q310, compared with the average of $3.21 per Mcf in Q309.

Turning from earnings to investment, the major producers from which EIA collects data reported higher capital expenditures in Q310 relative to Q309 (Figure 2), which were also higher than the third quarter average for 2005-2009. In particular, oil and gas production capital expenditures increased 59 percent relative to Q309, and increased 47 percent relative to the third quarter average for 2005-2009. Meanwhile, the major refiners’ capital expenditures of $3 billion were above the levels of Q110 and Q210, but were lower than every quarterly investment level over the period Q207 to Q409.

Retail Gasoline Price Falls for the First Time in Nine Weeks While Diesel Prices Continue to Increase
The U.S. average retail price for a gallon of gasoline fell for the first time in nine weeks, decreasing almost a penny versus last week to $3.10 per gallon, $0.44 per gallon higher than last year at this time. The biggest decrease was on the Gulf Coast where prices were down almost three cents on the week. Gasoline prices on the East Coast dropped about two cents, while prices in the Midwest were almost flat versus last week. Moving in the other direction, the West Coast saw a six-tenths of a cent gain, while gasoline was up more than a penny in the Rocky Mountains.

Diesel prices continued their upward march with the national average retail price adding almost a penny to last week’s price. At $3.44 per gallon, diesel is $0.66 higher than last year at this time. Prices were up across the country, led by the East Coast where diesel registered almost a cent and a half gain. The Rocky Mountains and Midwest both notched increases of almost a penny. Rounding out the regions, the Gulf Coast and West Coast both saw diesel prices increase two-tenths of a cent.

Residential Heating Fuel Prices Increase
Residential heating oil prices continued to rise during the period ending January 31, 2011. The average residential heating oil price increased to $3.52 per gallon, about $0.05 per gallon over last week and $0.66 per gallon more than last year at this time. Wholesale heating oil prices increased by $0.06 per gallon last week, reaching a price shy of $2.81 per gallon. This is $0.80 per gallon higher than last year’s price.

The average residential propane price increased by nearly $0.02 per gallon to reach a price close to $2.82 per gallon. This was an increase of $0.14 per gallon compared to the $2.68 per gallon average from the same period last year. Wholesale propane prices decreased with the overall price at $1.42 per gallon. This was a decline of about $0.03 per gallon compared to the February 1, 2010 price of $1.46 per gallon.

Propane Inventories Fall Again

U.S. inventories of propane continued to drop last week as total stocks fell 3.9 million barrels to end at 37.9 million barrels in total. The largest decline happened in the Midwest region where stocks dropped 2.1 million barrels. The Gulf Coast region also experienced a large decrease of 1.8 million barrels. The Rocky Mountain/West Coast region withdrew 0.1 million barrels of stocks, while East Coast inventories grew by 0.2 million barrels. Propylene non-fuel use inventories represented 6.7 percent of total propane inventories.