Platts Top 250 Global Energy Company Rankings

IOGs captured nine out of the top ten spots while IPPs struggled in 2005 as the sector on a whole lost money. The E&P segment showed financial stability while GUs saw their financials climb. The Exxon Mobil Corp. continued its reign of the number one spot.

EXXON MOBIL CORP. CONSOLIDATED ITS HOLD on the top spot in the Platts 2006 Top 250 Energy Rankings. The U.S. giant kept its place as the most financially successful energy company in the world by posting 2005 revenues of $328.2 billion, profits which soared to $36.1 billion, and racking up the third highest return on invested capital (ROIC), at 29.9% of any energy company in the field. Exxon had assets worth $208 billion as of end 2005.

The mega-major has posted a string of record-breaking quarterly profits, most recently announcing yet another all-time corporate record in Third Quarter 2006, with $10.5 billion in profits on operations, up 26% on the same period in 2005.

ExxonMobil's stock price hit a new record of $72.33/share on the results, posted October 26, after earnings per share beat analyst estimates by 18 cents—at $1.77/share.

ExxonMobil's strategy in recent years has been simple but effective—aggressively divesting mature upstream properties, buying globally into acreage with long-term prospects, cutting its debt, buying back its shares, and keeping itself in the front rank technologically, for example by placing a large technological bet on the future of LNG.

Indeed, the company sees its future in further technological advance and in what chairman and CEO Rex Tillerson has called "energy interdependence."

"To reach the needed levels of (future) production worldwide, we must continue to innovate. And fostering innovation will require free trade and investment, open access, and international partnerships. Oil producers need consumers and oil consumers need producers," Tillerson commented in a speech earlier in 2006.

Most forecasts anticipate global energy demand growth of around 50% by 2030.

"Through partnerships between producing and consuming nations and through participation of international energy companies in developing national resources, we open up new opportunities for technology development and transfer, and ultimately new opportunities for economic progress," Tillerson said.

Industry segments analyzed

*Coal and combustible fuel companies

*Diversified utilities

*Electric utilities

*Exploration and production

*Gas utilities

*Independent power producers

*Integrated oil and gas companies

*Refining and marketing

*Storage and transfer companies

Leading financial indicators measured

*Assets

*Revenues

*Profits

*Return on invested capital

Strong Majors

It is no surprise, of course, that an integrated oil and gas player heads the Global Energy Top 250 in a year when oil prices hit all-time historical highs in outright terms, and indeed flirted with all-time "real price" highs not seen since the oil price crisis of the 1970s.

No surprise either that all nine of the remaining top ten spots are held this year by oil and gas companies, almost all of them in the top ten in 2005 as well.

Royal Dutch Shell plc came in a close second to Exxon, up four spots from its fifth place last year, largely because of the company's reorganization and reintegration—in previous years Netherlands-registered Royal Dutch was ranked separately from UK-registered Shell Transport and Trading, which placed eighth in 2005.

The combined Shell trails Exxon in total revenue and profits this year—though it would have ranked #1 last year in revenues—but leads the industry in total assets with $219.5 billion, just ahead of France's giant power company Electricité de France (EDF), which has assets of $215.7 billion.

BP, Total, ConocoPhillips, PetroChina, Chevron, ENI and Statoil ASA all also featured in the top 10 last year. Brazil's Petrobras was the only newcomer to the group, climbing three places to the number eight spot.

3. Compare Your Company's Key Financial Indicators With Industry Averages. Source: Platts

4. Leaders by Financial Indicator. Source: Platts

5. Leaders by Region. Source: Platts

Ups and Downs

Bigger changes in rankings don't really surface until we move outside the largest multinationals. In eleventh place, for instance, the U.S.'s Valero Energy Corp. has moved up a full six spots from 17 ^th last year.

And Valero is clearly aiming still higher. "Keep in mind that the 75,000 barrel per day Port Arthur expansion should be operating in the fourth quarter and that we will continue to benefit from the accretion from our share buyback program," commented Bill Kleese, Valero's Chief Executive Officer, earlier this year. "You can see why we expect 2006 to be another record year for Valero."

As a refiner and marketer, Valero is one of only three companies in the top 20 that is not classified as an Integrated Oil and Gas Company (IOG). It was joined in the 2006 top 20 by Electricité de France and UK diversified utility giant Centrica plc. EDF was previously unranked but comes in at number 17 this year with nearly $216 billion in assets and $4 billion in profits. Centrica slipped three spots from 15 to 18 in our current survey.

Meanwhile Marathon Oil Corp., a Texas-based IOG cracked the top 20 this year by climbing from 36th in 2005 to 12th this year. Marathon's profits more than doubled to $3 billion compared to its previous $1.2 billion.

Two previously unranked IOGs cracked the top 50 this year, New York-based Hess Corp. (45) and Spain's CEPSA (50). Gaz de France was not listed in last year's rankings but managed a comfortable 28th on its first appearance.

6. Leaders—Coal and Combustible Fuels. Source: Platts

Gulf Coast Woes

The effects of Hurricanes Katrina and Rita made themselves clearly felt in the ranking of utilities in the Gulf Coast region of the United States (data for 2006's survey is from the previous calendar year's financials). Mississippi-based Entergy Corp., for instance, dropped from 68th in 2005's survey to 86th this year.

Clearly, though, it has no intention of staying there.

"Significant progress has been achieved in initiatives aimed at both recovering from the effects of last year's storms and positioning Entergy to be fully prepared for future challenges," said J. Wayne Leonard, Entergy's chairman and chief executive officer. "Actions consistent with our regulatory compacts are being taken and we continue to aggressively pursue Community Development Block Grants and the securitization of restoration costs to mitigate the storms' effects on our customers' bills. All the while, we remain focused on delivering reliable service, growing our nuclear business, and creating value for our shareholders."

Segment by Segment…

Rankings in the Platts Top 250 are based on assets, revenues, profits, and return on invested capital. All four measures show an industry for the most part in very strong growth mode for the reporting year 2005, with the Integrated Oil and Gas companies—as discussed—leading the field.

Indeed, sixteen of the Top 20 companies are IOGs. The 32 IOGs in the Top 250 overall have average company assets of $58 billion (up from an average of $53 billion in 2005), average annual revenues of nearly $68 billion, up from $62 billion in the 2005 rankings, and profits of $6.9 billion compared to 2005's average of $5.3 billion.

The majors saw higher return on investment, too, clocking up 18.07% on average compared with last year's 16.01%.

In terms of sheer financial muscle, no other segment of the energy industry comes close to this group. While there are twice as many actual Electric Utilities (EU) in the Top 250, the dynamics of the power industry make for much lower averages in the sector's key financials.

Profits for EUs averaged only one eighth of the level of the integrated majors, clocking in at $900 million, compared with the IOGs' $6.9 billion. EU revenues were relatively flat, at $10.8 billion, just 6% up on 2005's $10.2 billion. But the average value of assets in the sector rose by 12.6% over the year, from $25.2 billion to $28.3 billion.

The 35 Diversified Utilities (DU) covered in this year's rankings also showed growth in some areas. Average assets were up strongly in value to $24.6 billion (from an average of $20 billion last year); revenues grew over 10% to average close to $11 billion, while profits grew a modest 3% to $710 million from $687 million last year. But return on invested capital was down from 7.7% in 2004 to an average of just 5.8% in 2005—a 24% drop.

Picking a trend in the DU sector is tricky, however—the group spans such a wide range of companies: from European giants such as Germany's RWE AG, with its asset base worth $136 billion, to Vectren Corp. of Indiana or Italy's ASM SpA, which have assets valued at $3.8 and $3.7 billion respectively. That diversity shows up in a highly mixed bag of ROIC figures.

Australian Gas & Light Co., for instance, which was the number one diversified utility in Asia this year, pushed itself to pole position in part through its impressive 18.4% return on invested capital, rivaling Britain's Centrica, which came in at 19.8%, a performance which propelled it to the top slot overall, despite its relatively small size.

These two utilities outperformed all other Diversified Utility players by a factor of 100% on this metric, with most returning only between 2% and 7%. French giant Suez came in only second in the sector, for example, despite having four times the assets and twice the revenues of Centrica.

Only one sector shows a negative trend: for the most part the financials for Independent Power Producers (IPP) have taken a dive, with the sector as a whole losing money. A combined average of profits for the 17 IPPs in this year's survey was negative $80 million, down from last year's $214 million average, a drop of 137%. There were also three fewer IPPs who made it into the Top 250 at all.

The IPPs reported average assets of $12.8 billion, and revenues of $5.5 billion.

However their ROIC figure rose to 7.5% from a negative 132.3% in the previous year. This rebound is probably attributable to the fact that last year IPP Georgia-based Mirant Corp. scored a negative 2,733.3 % ROIC and has dropped out of the rankings for 2006.

Showing financial stability, meanwhile, with very strong profit growth this year was the Exploration and Production (E&P) segment. E&P companies reported average assets of $11 billion—up from $10.6 billion last year, and revenues reaching $5 billion, up 8% on the previous year. Profits, however, went from $856 million last year to $1.12 billion in this year rankings, a jump of an average 32%.

That profit jump is the product of two factors: higher outright oil prices, and a huge jump in competitive demand for E&P know-how. That demand is behind phenomena such as Kerr McGee's jump from 129 ^th in the field to 87 ^th in the 2006 rankings—a jump that makes a lot of sense out of Anadarko's move to acquire the company in June this year.

Similar leaps in ranking are apparent elsewhere in the E&P sector. For instance, the U.S.'s Talisman Energy Inc., XTO Energy Inc., Chesapeake Energy Corp., and Noble Energy Inc., together with Australia's Santos all moved up either 29 or 30 places.

Gas Utilities meanwhile show strong rises in their financials across the board, but in particular in revenue growth, where on average they charted an astonishing 71% average increase, to just under $6.1 billion, as gas prices flirted with record peaks in 2005. Profits were up 37%, averaging $397 million over the twenty-three companies which ranked in the Top 250.

In Coal and Combustible Fuels, a couple of players were edged out of the Top 250 altogether in this sector's 2006 rankings, making a year-on-year comparison difficult, with only four companies left in the rankings. Of those who stayed, two chalked up substantial financial gains, with Pennsylvania's Consol Energy Inc. moving up 62 places in the rankings, and Peabody Energy improving its placing by 48 places. China's Yanzhou Coal Mining Co. Ltd. slipped back 44 places, but still collected the highest ranking in the entire Asian region in the sector. Also somewhat adrift was Canada's Cameco Corp.

Interestingly, largely because of the two Top 250 drop-outs in this sector, the group as a whole recorded an average 102% increase in profits in the 2006 rankings, and a 40% increase in revenues. Peabody upped its revenues 28% between 2004 and 2005; Consol increased revenues by 25%

The 26 Refining and Marketing companies covered by the Platt survey also posted striking financial growth over the past year. Their profits increased on average to $22.4 billion, up 52% from $14.7 billion last year. Revenues and asset values were both up 24%

Seventeen ranked Storage and Transfer companies showed an average increase in profits from $327 million to $355 million, a respectable 9% jump. But like almost all players involved in oil and gas, revenues jumped strongly—up 41%—despite the fact that ROIC for the sector slipped back 5% year on year.

Overall, 2005 was an exceptional growth year for the energy industry, as the 2006 rankings reflect. Next year's scores will likely show another strong boost to the industry's financials as further commodity price rises translate into revenue, profit and asset growth.

Beyond that, however, the future looks less certain. How the top players fare in the event of a sudden and dramatic price crash—always a possibility in today's volatile markets—will perhaps be the measure of the sheep and the goats over the coming two to three years.

7. Diversified utilities Source: Platts

8. Exploration and Production. Source: Platts

9. Electric utilities Source: Platts

10. Gas Utilities. Source: Platts

Where the Numbers Came From

This third annual survey of global energy companies by Platts Energy Insight magazine measures companies' financial performance using four metrics: asset worth, revenues, profits, and return on invested capital (ROIC). All companies on the list have assets greater than US$2 billion. The underlying data comes from the Compustat database compiled and maintained by Standard & Poor's (S&P), which, like Platts, is a division of The McGraw-Hill Companies.

Energy companies were grouped according to their Global Industry Classification Standard (GICS) code. Each company's GICS appears in the right-hand column of Table 1. The six codes found in Table 1 are: C&CF (coal and combustible fuels), DU (diversified utility), EU (electric utility), E&P (exploration & production company), GU (gas utility), IPP (independent power producer), IOG (integrated oil and gas company), R&M (refining and marketing company), and S&T (storage and transfer company). How a company is described is somewhat subjective and is based on how it generates most of its revenues.

Because the survey is global, and because all countries do not share a standard financial reporting standard, the data used is from the full year of 2005. Since then, material changes in a company's financial health may have occurred, and any evaluation should take that into account. Data for U.S. companies in the tables came from SEC Form 10K.

The company rankings are derived by adding each company's numerical ranking for asset worth, revenues, profits, and ROIC. The overall rank of 1 is assigned to the company with the lowest total, 2 to the next lowest and so on.

ROIC figures—widely regarded as a driver of cash flow and value—were calculated using the following equation:

ROIC = [(Income before extraordinary items) – (Available for common stock)] ÷ (Total invested capital) x 100

Where "Income before extraordinary items" is net income less preferred dividends and "Total invested capital" is the sum of total long-term debt, preferred stock (value), minority interest, and total common equity.

A final note: The Compustat database is not comprehensive, and as a result some companies in developing countries such as Russia or China may not be represented. S&P is making every effort to add those firms to the database as soon as reliable data on them is available.

11. Integrated Oil and Gas. Source: Platts

12. Independent Power Producers. Source: Platts

13. Refining and Marketing. Source: Platts

14. Storage and Transfer. Source: Platts