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Tumbling crude hurts oil companies in 2008

Tumbling crude hurts oil companies in 2008

Oil companies may have notched extraordinary profits in 2008, but their shares have largely tumbled with the price of crude as a broad recession cut into demand globally.
Oil giant Chevron Corp. is a prime example. As crude approached its all-time record above $147 a barrel in early July, Chevron shares were trading near $98, only a few dollars below their highest close of the year.
Since then, amid fears of a prolonged global recession and crumbling worldwide demand, crude prices have plunged more than 70 percent.
In a corresponding collapse, Chevron shares have slid nearly 50 percent since July _ even after the company posted the largest quarterly profit in its 129-year history in the third quarter.
"This was a year unlike any other _ one extreme at the beginning of the year on the upside, another at the end on the downside," said Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service.
The Dow Jones Wilshire U.S. Oil & Gas Index _ which tracks 290 companies that find, produce and refine fossil fuels _ fell 37 percent in 2008.
An index of large integrated companies like Chevron and Exxon Mobil Corp. fell 23 percent for the same period, and another that tracks oil equipment and service companies fell a whopping 60 percent.
The Standard & Poor's 500 index fell about 39 percent, and the Dow Jones Total Market Index fell 40 percent, in the same time frame.
Analysts and industry executives say any rebound for the oil and gas sector in 2009 will be tied to the global economy.
After ending 2007 near $96 a barrel, oil reached triple digits for the first time two days into the new year. Many observers say crude's meteoric rise to $147.27 was a classic bubble led by speculators.
Tight credit has made it impossible for many smaller producers to finance new projects. Look for some of these companies to be snapped up by larger, bargain-hunting rivals in the year ahead.
The cash-rich oil giants are in far better shape to ride out the downturn.
"The thing to keep in mind is the majors don't tailor their capital spending plans around short-term prices," said Brian Youngberg, an energy analyst at Edward Jones. "I really don't see any significant pull back unless we have a prolonged drought in prices."
The major oil companies posted massive profits in 2008. Exxon Mobil earned $14.83 billion in the third quarter, shattering its own record for the biggest profit from operations by a U.S. corporation. In the same quarter, Chevron, Exxon Mobil, BP PLC, Royal Dutch Shell PLC and ConocoPhillips posted combined earnings of $44.4 billion, up 58 percent from the same period in 2007.
Still, their shares have tumbled along with the broader markets. Shares of Exxon Mobil, the world's largest publicly traded oil company, fell 15 percent in 2008. Chevron slid about 20 percent.
Among independent producers _ which focus solely on exploration and production _ Chesapeake Energy Corp. was one of the biggest losers, hurt by the collapse in natural gas prices. Shares of Chesapeake, the nation's largest natural-gas producer, traded as high as $74 in July before tanking. More recently, they've hovered around $15 per share.
The company's plummeting stock price forced chief executive Aubrey McClendon to sell nearly his entire stake in the company in October to satisfy margin loan requirements. McClendon has vowed to rebuild his stake.
Chesapeake has been raising money by selling some of its rights to natural gas deposits, and McClendon insists the company is financially sound.
"The overall economy is what's going to drive this sector in 2009," said Jeff Tillery, an analyst with securities firm Tudor Pickering Holt & Co. "Improving demand is what's needed for commodity prices to stabilize, and that stabilization, in turn, will help stocks."