Go Downstream With 4 Big Oil Companies

Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

2012 was a big year in the oil industry. ConocoPhillips spun off Phillips 66, the Keystone XL Pipeline stayed in the news, fracking became more cost-effective, crude dropped, gas prices hit a record high, and there was a drilling boom. So which big oil companies fared best?

ExxonMobil (NYSE: XOM) is now the most valuable company in the world (surpassing Apple). The company earned $44.88 billion in profit in 2012, just shy of its 2008 record high of $45.22 billion.

Exxon’s oil production was down 6% to $7.76 billion from 2011. Normally, oil and gas production (upstream) is the more profitable part of the business, however, in 2012, the refining side (downstream) did better.  Falling crude prices are responsible for the production declines. The refineries brought in $1.77 billion in the fourth quarter, a marked increase from $425 million the year earlier.

Overall, fourth quarter 2012 earnings were over $9.9 billion, up 6% from the fourth quarter of 2011. Full year 2012 earnings were $44.9 billion, up 9% from 2011, with record earnings per share of $9.70.

The refining business also helped Chevron (NYSE: CVX) see improved income in the fourth quarter of 2012. Chevron's Q4 earnings rose 41% to $7.25 billion, the highest fourth quarter profit in company history.

Fuel refining and other downstream activities helped propel the fourth quarter net income to a five year high of almost $9.95 billion for Exxon and a record $7.25 billion for Chevron. The company reported upstream earnings of $6.8 billion (up from $5.7 billion in 2011), and downstream earnings of $925 million (up significantly from a loss of $61 million in 2011) for the fourth quarter.

Chevron’s full year profit just barely missed matching the 2011 record high. The company's annual profit of $26.2 billion was 3% lower than last year's $26.9 billion net.

It was a Good Year to Go Downstream

Exxon and Chevron have not sold off refineries or re-segmented their refining divisions like other companies have. Marathon Oil (NYSE: MRO) and ConocoPhillips (NYSE: COP) chose to divide their companies to make refining its own stand-alone entity. ConocoPhillips separated its refining division to create Phillips 66 which has worked out well for Phillips 66. However, it is notable that the two companies that did not give in to the trend (Exxon and Chevron) had the best years.

ConocoPhillips reported fourth quarter earnings of $1.43 billion, down 57% from $3.39 billion from the year previous. However, the 2011 fourth quarter earnings still included downstream results prior to the separation of Phillips 66 on April 30, 2012, so the comparison isn’t quite applicable. Therefore, excluding special items related to the split, earnings were $1.76 billion, down from $2.05 billion.

For 2012 full year, the company reported earnings of $8.43 billion, down from $12.44 billion. Revenue declined by 6% to $62 billion, considerably missing analysts’ estimates of revenue of $92.83 billion.

Marathon Oil Company spun off its downstream division into Marathon Petroleum (NYSE: MPC) in June 2011. The upstream company reported fourth quarter earnings of $322 million, down 41% from $549 million the year earlier. The upstream company reported a $755 million profit, up from a $75 million loss the same quarter the year previous.

In a side-by-side comparison we see that in upstream earnings Exxon was down 6% to $7.76 billion, Chevron improved $1.1 billion, ConocoPhillips decreased by $290 million, and Marathon Oil’s earnings decreased 41% to $322 million. Meanwhile, the downstream segment improved dramatically- Exxon increased nearly 400%, Chevron improved by $986 million, Phillips 66 reported fourth quarter earnings of $708 million, compared to adjusted earnings of $379 million during the fourth quarter of 2011, and Marathon Petroleum posted an $830 million improvement.

Fluctuating crude prices have left a mark on even the biggest oil and gas corporations. But even in spite of these unstable prices the corporations reported some of their highest earnings ever. Big Oil continues to be a safe, smart, long-term investment.

ErinAnnie has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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