Companies with an interest in the US downstream sector have seen a general, significant improvement in performance in Q3 2014 according to a new analysis from Evaluate Energy. The main players, which include super majors BP, Chevron (CVX), ExxonMobil (XOM), Royal Dutch Shell (RDS) and Total (TOT), as well as a handful of domestic players (see note 1), showed a combined increase in adjusted global downstream earnings (see note 2) this quarter.
The boosted earnings recorded by the US refiners in Q3 2014 is mainly attributable to the well-publicised fall in realised oil prices, which has resulted in lower operating costs and higher margin for companies in the downstream sector in general.
European oil majors, BP, Shell and Total, saw their downstream adjusted earnings more than double to US$1.783 billion, US$1.515 billion and US$1.162 billion respectively from Q2 2014. The US-based super majors, Chevron and ExxonMobil, followed a similar trend, also reporting strong increases in their adjusted downstream earnings to US$ 1.387 billion and US$1.384 billion respectively in Q3 2014. Year on year things look even more positive; the total pre-tax adjusted downstream earnings achieved by the super majors in Q3 2014 totalled nearly US$6.9 billion, whereas in Q3 2013 the total was only US$2.9 billion. The overall improvement in the super majors’ downstream performance stands in stark contrast to recent upstream results, which were conversely affected by lower oil prices.
Other US downstream companies such as Phillips 66 (PSX), Tesoro Petroleum Corp (TSX), Valero Energy (VLO) and Western Refining (WNR)) saw their pre-tax adjusted earnings rise by 61%, 50%, 54% and 25% respectively from Q2 2014. Also, smaller US refiners (not included in the above chart), Alon USA (ALJ), Calumet Specialty Products Partners (CLMT), Delek US Holdings (DK), saw their downstream earnings increase to US$ 142.8 million, US$ 135.9 million and US$157.0 million, respectively. It is also important to note that Q3 was not perfect for all US refiners; Hollyfrontier and Marathon Petroleum both reported declines in Q3 2014 of 7.66% and 15.08% from Q2 respectively – attributed to higher operating costs incurred during the quarter – despite an overall improvement in results since Q1. Another US-based downstream company that did not have a good third quarter was CVR Energy (CVI), who recorded a fall by 83% in its downstream adjusted earnings on a year to year basis. This fall was attributable to the disrupted operations in late July at the company’s Coffeyville refinery in Kansas.
But, overall, Q3 2014 was clearly a good one for US refiners. However, while these positive results for Q3 2014 are a good thing, uncertainty still remains in the downstream sector, not only due to the volatility of oil prices, but also due to a problem of over-supply. Refining companies worldwide have been vulnerable to over-capacity for quite a long time now and with new projects due to come onstream next year in the Middle Eastern and Asia Pacific regions, this pressure will only increase.