Category Archives: Oil prices

2018 was likely the most profitable year for U.S. oil producers since 2013

Repost from The Energy Mix
May 10, 2019, Principle contributor Jeff Barron
changes in liquids and gas production and return on equity for seleted U.S. producers
Source: U.S. Energy Information Administration, based on Evaluate Energy

Net income for 43 U.S. oil producers totaled $28 billion in 2018, a five-year high. Based on net income, 2018 was the most profitable year for these U.S. oil producers since 2013, despite crude oil prices that were lower in 2018 than in 2013 on an annual average basis.

Lower production costs per barrel of oil equivalent (BOE) and increased production levels contributed to a higher return on equity for these companies for the fourth quarter of 2018 than in any quarter from 2013 through 2018.

The companies included in the analysis are listed on U.S. stock exchanges, and as public companies, they must submit financial reports to the U.S. Securities and Exchange Commission. EIA calculates that these companies accounted for about one-third of total U.S. crude oil and natural gas liquids production in the fourth quarter of 2018. However, these companies were not selected as a statistically representative sample but instead because their results are publically available. Their results do not necessarily represent the U.S. oil production industry as a whole.

Most of these companies operate in Lower 48 U.S. onshore basins, with some in the Federal Offshore Gulf of Mexico and Alaska, and some in several other regions across the globe. Because of various corporate mergers and acquisitions in 2018, the number of U.S. producers that EIA examined in this analysis fell from 46 companies in 2017 to 43 companies in 2018.

The aggregated income statements for these 43 companies reveal a trend of relatively low increases in expenses directly related to upstream production in 2018. Although these upstream production expenses per barrel typically correlate with crude oil prices, the magnitude of these increases in 2018 was small compared with the increase in prices.

The annual average West Texas Intermediate (WTI) crude oil price increased 28% from 2017 to average $65 per barrel (b) in 2018, but expenses directly related to upstream production activities increased 16% between 2017 and 2018 to $24/BOE. When including depreciation, impairments, and other costs not directly related to upstream production, expenses for these 43 companies averaged $48/BOE in 2018, the lowest amount from 2013 to 2018.

In contrast to production expenses, between 2017 and 2018, upstream revenue for these 43 companies increased 31% to average $48/BOE in 2018, mainly because of the increases in average energy prices and production. As crude oil prices fell in late 2018, their upstream revenue declined 11% between the third and fourth quarters of 2018.

selected expenses and revenues for 43 oil companies
Source: U.S. Energy Information Administration, based on Evaluate Energy

However, this group of companies reported financially hedging nearly one-third of their fourth-quarter 2018 production at prices in the mid-$50/b range, offsetting revenue declines when WTI prices fell lower than $50/b by the end of the year. Consequently, even with their decline in upstream revenue in the last quarter of 2018, total revenue increased for these 43 companies because of the gains from financial derivatives.

Contributions to revenue from derivative hedges—which increase in value when prices decline—for these 43 companies reached the largest total for any quarter since the fourth quarter of 2014. Financial hedging can act like an insurance policy, reducing risk by stabilizing revenue for producers. When oil prices fall lower than the prices at which producers established a hedge, the producer effectively receives higher revenues than selling at market prices. When oil prices rise higher than the hedged price, hedging results in a loss that is treated as an operating expense.

More information on these 43 producers’ financial statements, including a comparison of these companies’ cash from operations relative to their capital expenditures, is available in This Week in Petroleum.

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    Bakken oil companies declare bankruptcy

    Repost from the Bismarck Tribune
    [Editor:  For an update, see also Bakken.com’s “Magnum Hunter warns of bankruptcy for gas companies” on 11/12/2015.  – RS]

    Bakken oil companies declare bankruptcy

    By Jessica Holdman, October 26, 2015 5:45 pm

    As crude oil prices hang low, about $43 per barrel Monday, some North Dakota operators are trying to divest interests in the Bakken.

    Two debt-heavy operators in the state, Tulsa, Okla.-based Samson Resources and Denver-based American Eagle Energy, filed for Chapter 11 bankruptcy, planning to sell off Bakken assets to pay back what they owe.

    Samson, with production acres in the Three Forks and Middle Bakken plays, has not yet succeeded in selling off acreage, spokesman Brian Maddox said.

    “We have not currently entered into agreements to divest other larger packages, including our Bakken, Wamsutter, San Juan and non-core Mid-Con assets, because we perceived the value offered was less than the value of retaining those properties when economic factors and the impact to our credit position were considered,” the company said in first-quarter 2015 filings with the U.S. Securities and Exchange Commission.

    “Even if we are successful at reducing our costs and increasing our liquidity through asset sales, we do not expect to have sufficient liquidity to satisfy our debt service obligations, meet other financial obligations and comply with restrictive covenants contained in our various credit facilities.”

    The company is the most recent operator in the state to declare bankruptcy, filing in mid-September in hopes of clearing more than $3.25 billion in debt.

    As part of the company’s restructuring agreement, second lien lenders own all of the equity of the reorganized company in exchange for providing at least $450 million of new capital to increase liquidity.

    “The steps we are taking will allow our company to maximize future opportunities and compete more effectively with significantly less debt on our balance sheet,” Randy Limbacher, CEO of Samson Resources, said in a statement. “We fully expect to operate our business as usual throughout this process and to emerge as a financially stronger company.”

    According to 2012 reports, Samson had 400,000 acres in the Bakken. Later that year, it would sell 116,000 acres, primarily in Divide and Williams counties, to Continental Resources for $650 million. No other sale of assets has been reported by the company since then.

    And no substantial plans have been announced as to the fate of what does remain, Maddox said.

    “We are planning on a Dec. 3 emergence date,” he said of bankruptcy proceedings.

    Between June and late September, 10 oil and gas companies have filed for bankruptcy — 19 have filed in the past year since mid-October.

    American Eagle Energy, which buys and develops oil wells in the Bakken, was the fourth, filing in mid-May.

    American Eagle missed an interest payment on its debt. It listed assets of $222 million and liabilities of $215 million at the time of filing.

    American Eagle held 54,262 acres in the Bakken in late 2014. In early 2015, it sold 1,185 leasehold acres in Divide County for $9.5 million.

    American Eagle could not be reached for comment.

    Outside of those companies filing for bankruptcy, Occidental Petroleum Corp. agreed to sell all of its North Dakota shale oil acreage and assets to private equity fund Lime Rock Resources for $500 million, according to the Reuters news agency. The sale includes 300,000 acres and a recently built, 21,000-square-foot regional office building in Dickinson.

    Locally based MDU Resources Corp. is also trying to sell off its oil and gas exploration subsidiary, Fidelity Exploration and Production Co., but has not announced a deal to date.

    MDU is scheduled to report its most recent quarterly results next week.

     

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      Does zero Bakken crude for Irving Oil indicate a trend?

      Repost from Railway Age
      [Reference:  see the 8/20/15 Wall Street Journal article, Canada’s Largest Refinery Shifts from Bakken Shale Oil to Brent Crudes.  – RS]

      Does zero Bakken crude for Irving Oil indicate a trend?

      By  William C. Vantuono, Editor-in-Chief, August 28, 2015
      Irving Oil Ltd. Saint John, N.B. refinery
      Irving Oil Ltd. Saint John, N.B. refinery

      Irving Oil Ltd., operator of Canada’s largest crude oil refinery, has stopped importing crude oil sourced from the Bakken shale formation in North Dakota and shipped by rail in favor of cheaper crudes from such producers as OPEC, “reflecting a shift in crude costs affecting East Coast refiners during a global slump in oil prices,” the Wall Street Journal recently reported.

      The 320,000-barrel-a-day refinery in Saint John, N.B., one of the biggest by volume in North America, had been receiving 100,000 barrels a day by rail, a high reached two years ago that was only temporarily affected by the Lac Mégantic disaster. (The Montreal, Maine & Atlantic crude oil train that derailed on July 6, 2013, claiming 47 lives, was bound for the refinery). Today, CBR shipments the refinery are zero, a move “that reflects shifting economics in the energy industry even as the price of oil—including Bakken crude—has slumped to six-year lows,” said the WSJ. “About 90% of the crude oil Irving currently buys is shipped by sea from such producers as Saudi Arabia and those in western Africa, with the remainder coming by rail from such western Canadian oil-sands operators as Syncrude Canada Ltd. and Royal Dutch Shell PLC. A year ago, Bakken crude made up about 25% of Irving’s feedstock and in 2013 it supplied nearly one-third of its procurement volume, or about 100,000 barrels a day. ‘The Bakken price has gone up’ relative to other crudes when CBR costs are factored in,’ [an Irving Oil executive] said.”

      “A once-yawning gap, between the cost of oil produced in North America and overseas crudes priced at the Brent global benchmark, has narrowed since 2013,” the WSJ noted. “Refiners on North America’s east coast can now import crude shipped by sea for less than the cost of shipping it by rail from shale oil producers in North Dakota and elsewhere in the U.S.”

      Production of U.S. shale oil, especially that from the Bakken, led to CBR shipments increasing exponentially due to a lack of pipelines. CBR is more expensive than by shipping by pipeline and even by ship, and fewer refiners are willing to pay a premium for CBR. <p< Whether Irving Oil’s decision to abandon Bakken crude for a single refinery reflects a broader trend that will affect CBR movements remains to be seen. Two other refiners have followed suit, but the situation may not be permanent.

      “Refiners PBF Energy Inc. and Phillips 66 both said they increased procurement of overseas crudes at the expense of CBR in the second quarter, though they signaled it is unclear if that will continue throughout the rest of the year,” the WSJ reported. “‘Our ability to source sovereign waterborne crudes was far more economic to the East Coast facilities, and that’s what we did,’ PBF Energy CEO Tom Nimbley said in late July. Phillips 66 CEO and Chairman Greg Garland told investors last month, ‘We actually set [crude-by-rail] cars on the siding. We brought imported crudes in the system.’ But, he added, ‘I’d say given where our expectations are for the third quarter, I’d say cars are coming off the sidings, and we’re going to import less crude.’”

      CBR traffic has dropped substantially compared to last year, “reflecting both the worsening economics of CBR and better pipeline access to refineries on the Gulf of Mexico,” the WSJ noted. According to Association of American Railroads figures, U.S. Class I railroads originated 111,068 carloads of crude oil in the second quarter of 2015, down 2,201 carloads from the first quarter and some 21,000 fewer carloads than the peak in 2014’s third quarter.

       

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