US-based oil and gas producers and refiners reported higher second-quarter 2008 earnings as a group, but individual company results were highly varied. The combined earnings of a sample of these firms were up 10% from a year earlier. Meanwhile, a sample of producers and pipeline companies headquartered in Canada posted a collective 13% increase in net income for the second quarter, and a group of service and supply companies reported a combined earnings increase of nearly 5% from a strong year-earlier period.

High oil prices buoyed the combined second-quarter results of the operators, but downstream earnings were crushed by the high cost of inputs. Natural gas prices were up from the second quarter of last year, too, but many producers reported lower earnings as a result of hedging losses. Companies also incurred higher operating expenses, while higher feedstock costs pinched chemicals earnings.

Prices, margins

Commodity prices rallied in the first half of this year, suppressing demand for some petroleum products, especially motor gasoline in the US.

During the quarter ended June 30, 2008, the front-month futures price of crude on the New York Mercantile Exchange averaged $123.80/ bbl, up from $65.02/bbl in the second quarter of 2007.

Weak gasoline demand and high input costs heavily weighed on refining margins in the recent quarter. US East Coast cash refining margins sank 70% from the second quarter of last year to average $3.63/bbl, according to Muse, Stancil & Co.

Also in the second quarter of 2008, such margins declined 56% in the Midwest, 48% on the Gulf Coast, and 40% on the West Coast vs. the 2007 second quarter, according to Muse, Stancil & Co.

Natural gas futures on the NYMEX averaged $11.468/MMbtu in the recent second quarter compared with $7.655/ MMbtu a year earlier.

Integrated companies

The large, integrated oil companies in the sample of US-based operators reported stronger earnings as a result of higher oil and gas price realizations compared with those a year earlier, but all of them recorded meager downstream results.

The largest company in the group, ExxonMobil, reported record earnings of $11.68 billion for the second quarter, a 14% increase from a year earlier, as revenues gained 40% to top $138 billion. Downstream and chemicals earnings slumped, but record oil and gas realizations increased earnings by $6.1 billion.

ExxonMobil said that lower sales volumes, higher operating costs, and increased taxes reduced the company's earnings somewhat, as its total production decreased 8% from second-quarter 2007.

With net income of $6 billion, Chevron Corp. posted an 11% earnings increase from the second quarter of last year. The company's revenues climbed 48%, but downstream margins weighed on earnings.