ConocoPhillips Reports 1st Quarter Earnings of $840MM

ConocoPhillips reported first-quarter earnings of $840 million, or $0.56 per share. This compared with earnings of $4,139 million, or $2.62 per share, for the same quarter in 2008. Revenues were $30.7 billion, versus $54.9 billion a year ago.

"Although we delivered solid operational performance in our upstream business during the first quarter, lower commodity prices and realized margins negatively impacted our financial results," said Jim Mulva, chairman and chief executive officer. "Our upstream business produced 2.4 million BOE per day, including our share of LUKOIL's production. In the downstream business, our worldwide refining crude oil capacity utilization rate was 81 percent, reflecting planned turnaround activity.

"During the quarter, we generated $1.9 billion in cash from operations, which included a $0.8 billion reduction in cash from operations related to changes in working capital. Our capital program was $3.1 billion and we paid $0.7 billion in dividends. We ended the quarter with debt of $29.4 billion, a debt-to-capital ratio of 34 percent and a cash balance of $0.8 billion."

The results for ConocoPhillips' business segments follow. In this release, we use the term adjusted earnings. A reconciliation of adjusted earnings to earnings appears at the conclusion of the release.

Exploration and Production (E&P)

The E&P segment reported first-quarter earnings of $700 million, compared with adjusted earnings of $1,392 million in the previous quarter and earnings of $2,887 million in the first quarter of 2008. Fourth-quarter 2008 reported earnings reflected a loss of $24,293 million.

First-quarter 2009 earnings were lower than fourth-quarter 2008 adjusted earnings primarily due to lower commodity prices, partially offset by lower operating costs, lower production taxes and higher volumes. First-quarter 2009 earnings were lower than first-quarter 2008 earnings primarily due to significantly lower commodity prices, partially offset by lower production taxes, higher volumes and lower operating costs.

Daily production from the E&P segment, including Canadian Syncrude, averaged 1.93 million barrels of oil equivalent (BOE) per day, 58,000 BOE per day higher than the previous quarter. The increase was mainly due to production from new developments, primarily in Russia, Vietnam and China. Production also increased due to the impact of production sharing contracts, and less planned and unplanned downtime, partially offset by field decline.

First-quarter 2009 production increased 131,000 BOE per day, compared with the first-quarter of 2008, due to new developments primarily in the United Kingdom, Russia, Norway, Vietnam, China and Canada, which more than offset the impact of field decline. Production also increased due to less unplanned downtime and the impact of production sharing contracts.

Before-tax exploration expenses were $225 million in the first quarter of 2009, compared with $473 million in the previous quarter and $309 million in the first quarter of 2008.

LUKOIL Investment

The LUKOIL Investment segment had earnings of $48 million in the first quarter, compared with adjusted earnings of zero in the previous quarter and earnings of $710 million in the first quarter of 2008. Fourth-quarter 2008 reported earnings reflected a loss of $7,410 million. The first-quarter 2009 results include ConocoPhillips' estimated equity share of OAO LUKOIL's (LUKOIL) income based on market indicators, LUKOIL's publicly available operating results, and other publicly available information.

First-quarter 2009 earnings were higher than fourth-quarter 2008 adjusted earnings primarily due to lower estimated taxes and the favorable impact of basis difference amortization. This increase was partially offset by lower estimated realized prices and volumes, as well as the fourth-quarter 2008 $101 million positive impact from the alignment of estimated income to LUKOIL's reported results. First-quarter 2009 earnings were lower than first-quarter 2008 earnings primarily due to lower estimated realized prices and higher estimated operating costs, partially offset by lower taxes.

For the first quarter of 2009, ConocoPhillips estimated its equity share of LUKOIL production was 439,000 BOE per day and its share of LUKOIL daily refining crude oil throughput was 203,000 barrels per day.

Emerging Businesses

The Emerging Businesses segment's first-quarter earnings were zero, compared with adjusted earnings of $60 million in the previous quarter and earnings of $12 million in the first quarter of 2008. Fourth-quarter 2008 reported earnings reflected a loss of $25 million. First-quarter 2009 earnings were lower than fourth-quarter 2008 adjusted earnings primarily due to lower international power generation results. First-quarter 2009 earnings also were lower than first-quarter 2008 earnings primarily due to lower domestic power generation results.

Corporate and Other

First-quarter Corporate expenses were $259 million after-tax, compared with adjusted Corporate expenses of $354 million in the previous quarter and Corporate expenses of $179 million in the first quarter of 2008. Fourth-quarter 2008 reported Corporate expenses were $388 million after-tax. First-quarter 2009 expenses were lower than fourth-quarter 2008 adjusted expenses mainly due to reduced foreign exchange losses and lower corporate costs. First-quarter 2009 expenses were higher than first-quarter 2008 expenses primarily due to higher net interest expense.

Outlook

Mr. Mulva concluded: "ConocoPhillips remains focused on maintaining operational excellence, implementing identified cost reduction initiatives, optimizing our capital program, and progressing major development projects. Our strategy has enabled us to perform well during the current economic downturn, and we are well positioned to attain our long-term plans when the global economy recovers in the future.

"Looking ahead to next quarter, we expect the company's second-quarter E&P segment production will be lower than the first quarter, primarily due to planned maintenance and seasonality. However, full-year production is expected to be slightly higher than 2008. Exploration expenses are anticipated to be approximately $325 million for the quarter.

"In our downstream refining business, we expect the worldwide refining crude oil capacity utilization rate to be in the upper-80-percent range during the second quarter and turnaround costs to be approximately $125 million before-tax for the quarter."
 

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