Super Majors Feel the Pinch in 2012

The annual 2012 results of the major players in the global oil and gas industry are out and a distinct picture on how the year has progressed can now be formed. At the top of the food chain, the super majors – consisting of Exxon Mobil, Shell, Total, BP and Chevron – turned out a meagre performance with a 13% drop in earnings for the group as a whole. Of this group, only Exxon Mobil recorded a gain on earnings from the previous year.

Trading conditions between 2011 and 2012 have remained very similar. Refining and marketing earnings are slightly higher on the back of higher margins and demand. The oil price, as per the WTI benchmark, has had a relatively steady performance, starting the year at $99, finishing at $92 and experiencing few supply or demand shocks in between. This is in contrast to gas prices that varied greatly in different areas of the world; The average US price fell 25% since last year (now less than $3/mcf) whilst prices for gas in Europe (over $11/mcf) and LNG cargoes to Asia (over $14/mcf) averaged much higher.

The diversity in the operations of the major companies safeguarded their earnings from the US and Canadian gas prices to a large extent but the North American independents could do little to keep the situation from hitting their earnings. The impact on Encana and Talisman, two companies who are both strongly weighted towards gas production in North America, was for Encana to report the lowest net income in the company’s history and for Talisman to report its lowest annual income since 1999. The drop in earnings for the super major group can, in addition to the low North American gas realisations, be attributed to a fall in the production rate for the group as a whole. Oil and gas production has now dropped by 3% for the group for two years in a row.

The earnings and production performance for the group may paint a slightly bleak picture of 2012 but this only tells one particular side of how 2012 fared for the oil industry. The credit crisis is becoming a more distant memory, the worries of further global economic depression never fully materialised and confidence in the industry is slowly building. This can be seen in total investments for the group, which are 37% higher than 2009 and 2% higher than 2011. All 5 companies in the group strengthened their balance sheets by decreasing net debt by 17% as a whole, with Exxon Mobil and Chevron now able to boast positive net debt positions.

The Super majors in Focus

Exxon Mobil continued its quiet dominance of their peer group with a 9.3% gain on earnings in 2011. The performance marks the third year in a row of year-on-year income rises for Exxon Mobil since the credit crisis hit the oil industry in 2009. Although the 2012 net income wasn’t enough to surpass the $45 billion that Exxon Mobil made in 2008 before the crisis took hold, the 2012 earnings per share was the largest in the company’s history, due to an extensive share buyback programme.

There was little to separate the next two largest publicly traded companies, Royal Dutch Shell and Chevron.  The two companies are remarkably similar in market capitalisation, weighting between their upstream and downstream segments and focus of their global operations and their respective net incomes for 2012 followed the same relationship, with reported earnings of $26.6 billion and $26.2 billion for the year.

BP’s annus horribilis may have been over 2 years ago in 2010 with the Horizon rig explosion, but 2012 will be another year that the company will be happy to bid farewell to. The year included yet more repercussions from the disaster with further charges of $5 billion and the lower asset base from the large divestiture programme inevitably fed through to the earnings which suffered a 55% drop. Following the disaster and its ramifications, BP is now a very different company to the one it was 3 years ago and with Petrobras now surpassing BP in terms of enterprise value and annual investment, the lines of what constitutes the super major group may have to be redrawn in the near future.

Evaluate Energy is a leading
data provider Oil & Gas professionals and the financial services
industry. The Oil Blog is written
by members of their team of professional analysts and provides comment
on market movement and industry trends within the oil industry.