For some, 2009 was the hangover, for others it spelled readjustment and recovery. Platts Top 250 Global Energy Rankings for 2010 might be taken as a survivors’ guide to the financial crisis. Energy demand slumped in the OECD, while elsewhere the growth rates of the fastest developing economies were all but cut in half. The 2010 rankings, which are based on financial reports from 2009, thus provide a relative picture of which energy industry sectors proved most resilient to the cataclysmic events of the past two to three years.
Illustrating the scale of the shock, Platts physical crude benchmark Dated Brent averaged $97.26 a barrel in 2008, its highest ever annual average, only to slump 36.5% in 2009 to $61.67/b, below the average price level seen in 2006. This took its toll. Total profits for the top ten companies, which are dominated by integrated oil and gas companies, dropped precipitously from $214.042 billion in 2008 to $136.018 billion in 2009.
If oil prices suffered, natural gas suffered more. Globally, natural gas demand experienced what the International Energy Agency called an unprecedented drop in demand. Ex-change-traded natural gas prices, particularly in the United States, plummeted in 2009 in both absolute terms and relative to oil. Profits and prices were hit by the combined success of US unconventional gas production, expanding LNG supply worldwide and diminishing demand.
By contrast, gas sellers dependent primarily on oil indexation and take-or pay contracts for their long-term sales found a measure of protection that others facing gas-to-gas competition did not. The coexistence of these two ways of pricing gas created distinct pressures, impacting on selling and acquisition strategies. The 2009 financial year stood out because of the huge disparity between spot gas, which was cheap, and relatively expensive prices for oil-linked long-term gas sales.
But one person’s loss is another’s gain. As feedstock prices fell from second-half 2008, the power sector, expecting some much-deserved relief, was instead caught in a pincer movement between a near total lack of liquidity in the banking sector and a precipitous drop in demand. It has taken all of 2009 for these companies to find their feet.
Some did so more quickly and effectively than others. As energy feedstock prices have remained relatively low in 2009, oil and gas profits have fallen from 2008, but power sector returns have revived from often negative territory, bringing utilities in many regions of the world back up the Platts rankings.
Nevertheless, the last two years have forced a strategic rethink on the part of utilities and independent power producers. The demand and price outlook remains depressed, challenging previous expansion plans, while the environment regarding carbon pricing in key jurisdictions remains as uncertain as it ever was.
Top Ten
Reigning supreme at the top of the rankings for the sixth consecutive year is US major ExxonMobil. Despite being fifth in terms of asset value, ExxonMobil came second in terms of both revenues and profits. Platts rankings are based on a combination of assets, revenues, profits and return on capital invested for listed companies with over $2 billion in assets. While ExxonMobil’s European gas production declined, the coming on stream of its giant LNG production facilities in Qatar have helped it retain a strong grip on European markets.
Second in the running is the now troubled UK major BP, which improved its position from fourth in the rankings in 2008. This reflects a strong performance in 2009 relative to its peers.
BP’s revenues dropped by a third, but profits by only little more than a fifth. Contrast this with Chevron and Shell, which moved down from second and third respectively to ninth and tenth. Both saw profits more than halve.
However, BP will struggle to retain its position in 2010. Since the start of the Macondo oil spill in the Gulf of Mexico in April, the US’s largest ever oil disaster, BP has rarely left the headlines. The company faces huge liabilities for the damage wrought by the spill. It is expected to weather the storm and resultant financial pressures, but set asides, expenditures and asset sales of around $20 billion will directly impact the company’s resource base and its long-term growth prospects, suggesting a drop in its ranking.
Nevertheless, it is important not to overstate the impact to a company of BP’s size. BP’s shares have already bounced from an apparent floor price, beyond which investors see value in the company. A $20 billion asset write down would shift BP only from fourth to fifth for that indicator. There is also a large gap between BP at third in terms of revenue and the China Petroleum & Chemical Corp which is fourth for this individual indicator.
If BP or one of the other western majors were to fall out of the top ten, who might take its spot? India’s Reliance Industries Ltd, which this year rose to 13th in the rankings from 25th last year, may be a good candidate. It has substantially increased its asset base from $37,188 million to $55,939 million last year and increased revenues on the back of that by almost 50%.
Profitability, however, remains low in relation to its asset base and revenues. Regulated prices in the company’s domestic market may hold Reliance back.
While the top ten rankings remain the preserve of the integrated oil and gas companies, one intruder is evident: German electric utility E.ON AG moved from 45th in last year’s rankings to 6th this year, the only non-IOG company in the top ten, although it is a sizeable gas producer. The company’s revenues fell only modestly, from $120.806 billion in 2008 to $115.772 billion in 2009, but E.ON AG successfully squeezed out $12.045 billion in profit, more than 600% above the previous year.
This also made E.ON first among electric utilities, having been seventh the previous year. However, E.ON has seen a see-saw ride. Reporting profits of $9,991 million in 2007 on revenues of $100,651 million, profits slumped to just $1,929 million in 2008. Last year saw a remarkable recovery from an asset base that had shrunk to $187,476 million from $222,178 million in 2008. E.ON has seen extremes -- 2008’s performance was particularly poor relative to its peers, the rebound in 2009 unusually good.
The slump in profits in 2008 was largely the result of unexpected goodwill impairments relating to acquisitions and to losses from non-operating earnings. In its 2008 annual report, E.ON reported losses attributable to currency differences of €7,879 million ($10,037 million) and to derivative financial in-
Asia on the Ascendant
It is clear that Asia as a whole has substantially improved its position in the global energy firmament over the course of 2009. Of the top ten Asian companies regionally, nine improved their global ranking; of the top 20, 15 improved their global position; while if new entrants are included, out of the top 50 Asian companies, as many as 40 of the top 50 gained a higher global ranking this year to the detriment of other regions. There are now 68 Asian companies in the Platts top 250, compared with 55 last year.
The Asian top ten remains dominated by Chinese and Indian companies. PetroChina Co Ltd retains the top spot, while the China Petroleum & Chemical Corp comes in second, ousting CNOOC Ltd, which falls to sixth place. India’s Reliance Industries Ltd moved from fourth to third, while India’s Oil and Natural Gas Corp Ltd rises from fifth to fourth. Two companies have moved out of the Asian top ten: the India Oil Corp Ltd, which may reflect late financial reporting of its 2009 results, and Japan’s Tonen General Sekiyu Corp which fell from ninth in the regional Asian rankings to 57.
The latter saw a precipitous decline in revenues and profits in 2009, which might be taken as emblematic of the shift taking place within the downstream sector. In this sector -- refining and marketing -- many Asian companies saw their global ranking rise, but their position regionally against energy companies in other sectors declined.
Of the top Asian R&M companies, only three improved their rankings both globally and regionally: India’s Reliance Industries, Taiwan’s Formosa Petrochemical and South Korea’s GS Holdings. Four Asian R&M companies fell in both the regional and global rankings: India Oil Corp., South Korea’s SK Energy Co. Ltd and S-Oil Corp, and India’s Hindustan Petroleum Corp. Ltd. Nevertheless, Asia, and India in particular, continues to dominate the R&M sector with all five of the top R&M companies hailing from Asia, three of those from India.
The fastest rising company in Asia this year was Australia’s Origin Energy Ltd, which jumped from 201st last year to 45th in the global rankings, and from 47th to eighth regionally, owing to an extraordinary turnaround in profitability.
This was the result of one-off factors for a company that was the target of a hostile and unsuccessful takeover attempt by BG Group in 2008. Of the A$6,941 million ($6,422 million) recorded profits in the financial year ending June 1, 2009, A$6,700 million reflected a gain resulting from the dilution of Origin’s interest in Australia Pacific LNG following US major ConocoPhillips subscription for shares to form a 50:50 joint venture.
Nevertheless, Origin’s underlying profits were also up by 20% at $530 million and further gains have been posted for first-half 2010. Origin’s high place in the Asian and global Platts rankings is exaggerated this year by its asset sale related profits, but this is still a company on the rise, one with the cash, assets and partners to expand.
It may drop back in the rankings next year, but the company has laid the basis for long-term growth that is likely to put it on a steady improving trend.
Another strong riser was Taiwan’s Formosa PetroChemical, toughing it out in a sector experiencing fierce competition. Formosa PetroChemical improved its global ranking from 113th to 49th, and its regional ranking from 18th to 9th. Despite revenues dropping by about 27% in 2009, profits rose almost threefold. Revenues have also picked up in 2010 from the declines seen in 2008, although in its second-quarter 2010 results, operating profits in its key refining segment were down.
A significant trend has been the relative rise in the regional rankings of Japanese electric utilities, benefiting from the fall in feedstock prices last year. Tokyo Electric Power Co moved up from 20th in the regional rankings to eleventh, Kansai Electric Power Co from 25th to 12th and Chubu Electric Power Co from 27th to 13th. Power prices in the only partially deregulated Japanese electricity market tend to lag fuel source prices by between three to four months. Japan’s electric utilities were thus hammered in 2008 -- Tokyo, Kansai and Chubu all reported losses for the year -- but benefited in 2009.
New Asian Entrants
Of the new Asian entrants, five are from China, five from southeast Asia, one from India and one from Australia. China’s new entrants are without exception independent power producers -- Shenzhen Energy Group Co Ltd, Huadian Power International Group Ltd, GD Power Development Co and Shenergy Co Ltd. All have been listed on the Shanghai Stock Exchange for some years. In India, the new entrant was also a power company, Tata Power, the country’s largest integrated private power company. Both the Indian and Chinese power sectors are on rapidly expanding paths, suggesting strong growth prospects for the two countries’ electric utilities and IPPs.
In Japan, the Nippon Oil Corp and Nippon Mining Holdings were reorganized to become JX Holdings, while the Hokkaido Electric Power Co returned to the Global top 250. A new Japanese entrant to the top 250 came in the form of the Japan Petroleum Exploration Co, reflecting its increased size with the acquisition in 2009 of the oil product sales units of a Mitsubishi Materials subsidiary. The company has also taken on a 30% interest in the Garraf oil field in Iraq to be developed with Malaysia’s Petronas and a domestic Iraqi oil company, which should promise future growth in its production base.
The number of southeast Asian companies in the top 250 rose from four to nine, two being added in Thailand, one in Indonesia and one in Malaysia, while the Philippines gained its first company in the top rank -- the Manila Electric Co, the country’s largest distributor of electricity. For Thailand, Thai Oil made a reentry, while PTT Aromatics and Refining Plc was ranked 156th overall and 45th in Asia, reflecting the amalgamation of the Aromatics Public Company Ltd and Rayong Refinery Public Company Ltd.
For Malaysia, Diversified Utility YTL Corp Berhad rejoined the Platts 250 at 237, having last been included in 2007 when its ranking was 216. Indonesia also saw an addition -- the only one in the Coal and Combustible Fuels segment -- miner Adaro Energy Tbk entered the ratings at 158th. Adaro, Indonesia’s second largest coal miner, is also the ninth fastest growing company in the top 250 with a 3-year CGR of 40.3%. This year the company signed up to a joint-venture agreement with Australian mining major BHP Billiton to develop resources estimated at 774 million mt, suggesting further growth to come.
BRICs to the Fore
Within the global top 20, eleven companies are from the BRICs -- Brazil, Russia, India and China -- compared with just six the year before. Moreover, while BRICs still account for four of the top ten, all are rising; Russia’s Gazprom gained six places to come third in the top 250 rankings, Brazil’s Petrobras rose five places, PetroChina was up two places and the China Petroleum and Chemical Corp jumped from 23rd place last year to eighth in the global rankings this year.
What these BRIC companies have in common is that, despite all being listed, they are all ultimately state-controlled entities. They all benefit from varying degrees of protection in what are generally large and expanding domestic markets, the Chinese economy being particularly dynamic in terms of oil demand growth. The western majors, while global in reach, exist in more competitive environments, where oil demand declined in 2008 and 2009 and, in Europe and Japan at least, appears to be on a long-term downward trend.
However, the BRIC companies equally have distinct characteristics that make them unique. Gazprom is a gas company rather than an IOG. It can claim in 2009 to have been the world’s most profitable listed energy company. It is expanding the size of its oil subsidiary Gazprom Neft, but its oil arm is listed and reported separately. Petrobras sits on some of the largest oil discoveries in recent decades and has a state willing to strengthen its hold on its domestic upstream. The emergent Chinese companies also have strong state support, but more importantly lie at the heart of the world’s most dynamic economy in terms of car ownership and transportation demand growth.
Notably, if Gazprom and Gazprom Neft were listed as one entity, the combined company would come first in terms of both assets and profits and move from 13th to seventh in terms of revenues. Its ROIC would improve, but remain below that of ExxonMobil.
It might prove enough to come top of the global rankings, although ExxonMobil will in 2010 absorb unconventional gas producer XTO Energy, increasing its overall asset base and revenues. Just as oil major ExxonMobil expands its gas operations, gas major Gazprom is expanding its oil segment.
Otherwise, Russian oil companies did less well than their competitors. Rosneft and TNK-BP, the latter perhaps still suffering from the 2008 conflict between its Russian and its UK shareholders, slipped in the rankings, while Lukoil and Gazprom Neft were pretty much static. Surgutneftegaz rose, but late reporting meant the use of 2008 data, which would be likely to flatter any oil company, owing to higher oil prices in that financial year. This stands in stark contrast to the positive performance of Russian companies in the gas, power and transport sectors.
Speedy Growth
If oil and gas companies generally dominate the energy sector as a whole, their lack of presence among the top fastest growing companies is noticeable, although it is easier for small companies to show increases in growth measured in percentage terms. In Asia, eleven of the top 20 fastest growing companies are involved in the power sector, but only four in oil and gas, whether up or downstream. Five are in the coal and combustible fuels sector, reflecting the presence of the world’s first and third largest coal industries in China and India respectively and the coal export industries of Australia and Indonesia.
Of the five C&CF companies in the fastest growing Asian companies, three are Chinese and two Indonesian. Coal outside Asia figures little, only US company Patriot Coal Corp registering in the Americas. Patriot is growing fast through the development of assets in Appalachia and the Illinois basin, but it is involved in the controversial practice of mountain top removal mining. This is coming under greater environmental and regulatory scrutiny, which may threaten its future growth prospects.
Brazil’s Storage and Transfer company Ultrapar Participacoes SA tops the Americas fastest growing list with a 3-year CGR of 96.0%. Texan R&M company NuStar Energy LP takes up second place, while Canada’s oil sands-based Suncor is the only IOG in the top ten Americas list.
In Asia, the front runner is the Hong Kong-based IPP China Resources Power Holdings, with a 3-year CGR of 50.5%. Thailand’s PTT Aromatics & Refining Plc takes second place, and Indonesia’s Adaro Energy Tbk third. There are no IOG or E&P companies in the Asian top 20 fastest growing company rankings, which are dominated by power sector firms.
In Europe and the Middle East, power companies are again to the fore, making up seven of the top ten fastest growing companies. Russian companies are particularly prominent: of the top ten, RusHydro JSC comes first with a 3-yr CGR of 77.8%, despite a major accident in August 2009, which took offline the company’s 6.4 GW Sayano-Shushenskaya hydro plant and resulted in the deaths of 75 people. Despite this setback the company managed to increase its overall power output in 2009 by 1.7%.
Moscow United Electric Power came in third with 50.0%, E&P and gas specialist company Novatek Oao is sixth with 22.3% and S&T firm AK Transneft Oao is ninth with 20.1%.
This reflects opportunities arising from the deregulation of Russia’s power generating and distribution industries and the willingness of the state to allow the emergence of independent Russian companies in niche areas of markets still dominated by state-controlled giants.
Spain’s Iberdrola continued its strong growth performance. Iberdrola SA is ranked fifth with a 3-year CGR of 30.6%, while its separately listed Iberdrola Renewables SA came fourth with a 3-year CCR of 42.4%. The Abu Dhabi National Energy Co came second with 50.4%.
Sectoral Leaders
While scoring well in terms of fastest growing companies, the C&CF segment in fact declined relative to other segments in the rankings. The average ranking of C&CF companies registering in the top 250 fell from 128.4 last year to
140.6 this year, a lower number denoting a higher ranking. China Shenhua Energy Co Ltd kept its top spot in this segment, but US company Peabody dropped from second to fourth and was replaced by another Chinese company China, Coal Energy Co, in the second slot.
140.6 this year, a lower number denoting a higher ranking. China Shenhua Energy Co Ltd kept its top spot in this segment, but US company Peabody dropped from second to fourth and was replaced by another Chinese company China, Coal Energy Co, in the second slot.
Canada’s Cameco rose from eighth to fifth, but US company Arch Coal dropped out of the top 250 and thus out of the sectoral rankings as well. Patriot Coal Corp and Indonesia’s Adaro Energy Tbk were both new entrants to the sectoral leader board.
Diversified Utilities appear to have weathered the financial crisis and ensuing recession relatively well. The top ten average ranking in this category strengthened from 60.6 last year to 51 this year. Within the sector, RWE of Germany and GDF Suez of France retained their first and second places respectively.
The UK’s Centrica Plc was a strong riser, moving from 145 to 42 in the global rankings, as it returned to profitability, taking fourth place in the top ten DUs. Veolia Environment was another new entrant, while MidAmerican Energy Holdings of Iowa and France’s Suez Environment dropped out of the leader board.
Electric Utilities also did well in 2009. The average ranking for the top ten companies improved from 37.8 to 27.2. This was clearly helped by the rise of UK utility Scottish and Southern from 127 in the global rankings to 23, which helped place it fifth in the EU segment, and E.ON, which moved from 45th to sixth, the only non-IOG to make it into the top ten globally, also putting it first in the EU segment.
IPPs, too, improved their overall position, with the average top ten ranking strengthening from 119.1 last year to 94.9 this year.
There was considerable movement within the group. Maryland-based Constellation Energy Group Inc can be particularly pleased with its exceptional rise from 185th last year to 31st, putting it in the number one slot sectorally for IPPs.
Having suffered a tough price and liquidity environment, along with the rest of the US power sector in 2008, Constellation’s restructuring appears to have brought quick benefits. Although revenue dropped from $19,818 million in 2008 to $15,599 million in 2009, profits turned from a loss of $1,301 million to a gain of $4,503 million.
A notable facet of this sector was the entry to the top ten of two Chinese companies, Huaneng Power International and Hong Kong-based China Resources Power Holdings. Last year, there were only two non-OECD IPPs in the top ten -- Chile’s Endesa and Brazil’s Tractebel Energia SA -- now there are four.
The Chinese companies saw a strong recovery in profits in 2009 as international feedstock prices dropped from the highs of 2008, returning a profit margin to regulated domestic power prices. Leaving the top tier were the UK’s Drax Group, Spain’s Iberdrola Renewables and US IPP Mirant Group.
By contrast, in all of the oil and gas segments -- IOGs, E&P, R&M and S&T -- the average ranking of the top ten companies weakened. This can largely be explained by the rise in oil and gas prices in 2008 delivering windfall profits, and then the subsequent fall in profits in 2009 as oil and gas prices dropped.
In the S&T segment there were no new entrants. Russia’s Transneft stayed on top. The most notable change was Enbridge’s elevation from fourth to second and Williams Companies’ journey in the opposite direction from second to ninth. US pipeline companies look certain to see increased costs arising from stricter safety regulation following Enbridge’s two oil spills in 2010 and Pacific Gas & Electric’s fatal gas line explosion in San Bruno, California.
For Gas Utilities, Eni’s takeover of Belgium’s Distrigas left a vacant spot in the top ten that was filled by the Netherlands’ Gasunie. Spain’s Gas Natural remained at the top, with India’s Gail (India) Ltd moving up from fifth to second.
More change was seen in the IOGs and E&P sectors. For IOGs, Russia’s Rosneft and Italy’s Eni were nudged out of the top ten, while Russia’s Lukoil moved up to come 10th in the sector. The China Petroleum and Chemical Corp also moved into the top ten group, taking seventh place.
The balance has shifted to five companies each for BRIC versus OECD IOGs in the top ten, but Gazprom, the world’s biggest gas producer and exporter, which has taken big strides out of its European comfort zone with LNG trade and supply in Asia and the US, now occupies third place and Brazil’s Petrobras fourth, as opposed to eighth and sixth last year, while BP’s second place is clearly under threat.
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