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COPYRIGHT 2005 Hart Publications, Inc.
Financially, the independent oils have been making slow but steady improvements during the past few years, but in 2004 they were practically unstoppable. Free-flowing cash and commodity prices were working in the independents' favor, and the stage was set for a surge in exploration efforts.
Yet instead of deploying large amounts of E&P capital into more drilling, many independents turned to lower-risk methods of growth that offered limited production, but far less strain on the balance sheets.
Net sales revenues for the group jumped 25% to $87 billion last year, compared with $70 billion the year before and $51.7 billion in 2002, according to Evaluate Energy, a London-based firm that offers strategic, financial and operating analysis of companies in the energy space. Net income growth managed to outpace revenue growth, climbing a whopping 57% in 2004 to $16.5 billion.
Return on equity rose to 20.3% from 13.7% the prior year, and return on capital for the group grew to 15%, up from 11% in 2003 and 7% in 2002. For the first time in the group's history, these figures are close to those typically generated by the integrated majors, says Richard Krijgsman, Evaluate Energy chief executive officer.
From a financial standpoint, the group is breaking old records and, more importantly, setting the stage for new financial trends. "The financial strength of the group increased very significantly in 2004," Krijgsman says. "[It] has steadily been getting better and this year, for the first time in many years, it is enjoying more inbuilt financial flexibility."
Market capitalization was up 38% at $192 billion, with the smaller players showing the fastest growth. This group included Berry Petroleum Co., Denbury Resources Inc. and Vintage Petroleum Inc. Though larger companies with international projects--such as Apache Corp., Anadarko Petroleum and Unocal--grew also, their rate of growth was below average, Krijgsman says.
A company's debt capacity, or how much money a company could raise if it sustained its ratio of net debt to capital employed at 35%, is one measure Evaluate Energy uses to gauge financial strength. In 2004 the independents managed to bring their debt capacity up to $5.9 billion. This is a significant climb out of a previous hole: in 2003 the group's debt capacity sat at a negative $7.2 billion; in 2001, it was an eye-popping negative $13.1 billion.
While the cost of West Texas Intermediate (WTI) oil rose 32% to more than $41 in 2004, crude price realizations for the group grew at a much slower rate. Krijgsman says this is partly due to hedging activities.
"In addition, the overall level of crude-price realizations for these...
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