ConocoPhillips Reports $31.8B Net Loss in Fourth Quarter '08



ConocoPhillips has reported a fourth-quarter net loss of $31,764 million, or $21.37 per share. This compared with net income of $4,371 million, or $2.71 per share, for the same quarter in 2007. Revenues were $44.5 billion, versus $52.7 billion a year ago.

As previously communicated, the company's fourth-quarter 2008 results include certain items related to the substantial decline in global equity markets, commodity prices, and margins, as well as the company's asset rationalization efforts and revised capital plans. These after-tax items were comprised of:

  • A $25,443 million impairment of all Exploration & Production (E&P) segment goodwill.
  • A $7,410 million impairment of the book value of the company’s investment in OAO LUKOIL (LUKOIL), reducing the book value to market value.
  • Other asset impairments totaling $1,251 million, consisting of:
  • $599 million in E&P, primarily related to producing properties in the U.S. Lower 48 and Canada;
  • $537 million in Refining and Marketing (R&M), primarily related to reductions in the book value of two refineries;
  • $85 million in Emerging Businesses for a U.S. cogeneration power plant; and
  • $30 million in Corporate.
  • Severance accruals of $99 million.
  • A $525 million net benefit from asset rationalization efforts.

Fourth-quarter 2008 adjusted earnings were $1,914 million or $1.28 per share. This compares with fourth-quarter 2007 adjusted earnings of $4,108 million, or $2.55 per share.

"Our financial performance for the quarter reflects the depressed economic conditions and business environment impacting not only our industry, but domestic and global markets as well," said Jim Mulva, chairman and chief executive officer. "However, we ran well during the quarter, as our upstream business produced 2.32 million BOE per day, including our share of LUKOIL's production, resulting in full year production of 2.23 million BOE per day.

"During the quarter, we invested $8.7 billion in our capital program, including funding for the transaction with Origin Energy. We repurchased $0.7 billion of ConocoPhillips common stock and paid $0.7 billion in dividends. This primarily reflects the use of $3.1 billion of cash generated from operations, a debt increase of $5.4 billion, and $0.9 billion in proceeds from asset dispositions. We ended the quarter with debt of $27.5 billion, a debt-to-capital ratio of 33 percent, and a cash balance of $0.8 billion."

For 2008, the company recorded a net loss of $16,998 million, or $11.16 per share, compared with 2007 net income of $11,891 million, or $7.22 per share. Full-year 2008 adjusted earnings were $16,432 million, or $10.66 per share. This compares with full-year 2007 adjusted earnings of $15,152 million, or $9.21 per share. Revenues were $240.8 billion, versus $187.4 billion a year ago.

The results for ConocoPhillips' business segments follow.

Exploration and Production

Fourth-quarter financial results: The E&P segment reported a fourth-quarter net loss of $24,293 million, compared with net income of $3,928 million in the previous quarter and $2,608 million in the fourth quarter of 2007. Fourth-quarter 2008 E&P adjusted earnings were $1,392 million, compared with adjusted earnings of $3,818 million in the previous quarter and $2,385 million in the fourth quarter of 2007.

Fourth-quarter 2008 adjusted earnings were lower than third-quarter 2008 adjusted earnings due to significantly lower commodity prices, partially offset by lower production taxes and higher volumes. Fourth-quarter 2008 adjusted earnings were lower than fourth-quarter 2007 adjusted earnings primarily due to lower commodity prices and higher exploration expenses, partially offset by lower production taxes and higher volumes.

Daily production from the E&P segment, including Canadian Syncrude, averaged 1.87 million barrels of oil equivalent (BOE) per day, an increase from 1.75 million BOE per day in the previous quarter and 1.84 million BOE per day in the fourth quarter of 2007. When compared with the previous quarter, production from new developments, primarily in the United Kingdom, Vietnam, Canada, and China, more than offset the impact of field decline. Production also increased due to improved well performance and seasonality in Alaska and the U.S. Lower 48, as well as less planned and unplanned downtime. When compared with the fourth quarter of 2007, production from new developments, primarily in the United Kingdom, Russia, Canada, Norway, and Indonesia, more than offset the impact of field decline.

Before-tax exploration expenses were $473 million in the fourth quarter of 2008, compared with $267 million in the previous quarter and $268 million in the fourth quarter of 2007. The increases from the previous quarter and the fourth quarter of 2007 were primarily due to higher dry hole costs and lease impairments.

Twelve-month financial results: The E&P segment had a net loss for 2008 of $13,479 million, compared with net income of $4,615 million in 2007. The 2008 E&P adjusted earnings were $12,072 million, while 2007 adjusted earnings were $8,483 million. The increase was primarily due to higher commodity prices, partially offset by higher production and other taxes, lower volumes, increased operating and exploration costs, and higher depreciation expense.

Full-year 2008 E&P segment production averaged 1.79 million BOE per day, which includes the impact of higher commodity prices on production sharing contracts, as well as downtime resulting from hurricanes. Excluding these impacts, production would have averaged 1.81 million BOE per day. Full-year 2007 E&P segment production averaged 1.88 million BOE per day, which includes two quarters of production related to the company’s expropriated Venezuelan assets.

Outlook

Mr. Mulva concluded, "We have created a self-sustaining, competitive international integrated energy company, and our long-term strategy remains unchanged. Through organic growth and prior business transactions, we have the resources and opportunities for long-term growth. Our existing portfolio of high-quality assets enables us to replace reserves, maintain current production levels, and responsibly deliver energy to consumers in a low price environment. In light of the current business environment, we are reducing our cost structure and constraining capital to live within our means.

"We anticipate the company's first-quarter E&P segment production will be near fourth-quarter 2008 production, and we expect exploration expenses to be around $400 million for the quarter. Downstream, we anticipate the worldwide refining crude oil capacity utilization rate in the first quarter to be in the low-80-percent range due to planned turnaround activity in the United States and continued economic run reductions at the Wilhelmshaven refinery. Turnaround costs are expected to be approximately $225 million before-tax for the quarter.

"We look forward to discussing our 2009 capital, operating and financial plans in greater detail when we meet with the investment community on March 11 in New York."
 


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