USA: ConocoPhillips Earnings Down

ConocoPhillips reported fourth-quarter 2012 earnings of $1.4 billion, or $1.16 per share, compared with fourth-quarter 2011 earnings of $3.4 billion, or $2.56 per share.

Fourth-quarter 2011 reported earnings included downstream results prior to the separation of Phillips 66 on April 30, 2012.

Excluding special items, fourth-quarter 2012 adjusted earnings were $1.8 billion, or $1.43 per share, compared with fourth-quarter 2011 adjusted earnings of $2.1 billion, or $1.55 per share. Special items for the current quarter included disposition-related impairments partially offset by tax impacts, net benefits related to legal claims and settlements, and discontinued operations.

Following recently announced agreements to dispose of the company’s interests in the Kashagan Field and the Algeria and Nigeria business units, the associated earnings and production impacts for these assets have been reported as discontinued operations. This decreased adjusted earnings for fourth-quarter 2012 by $27 million, or $0.02 per share.

Full-year 2012 earnings were $8.4 billion, or $6.72 per share, compared with full-year 2011 earnings of $12.4 billion, or $8.97 per share. Reported earnings for 2012 and 2011 included four months and 12 months of downstream results, respectively. Full-year 2012 adjusted earnings were $6.7 billion, or $5.37 per share, compared with full-year 2011 adjusted earnings of $8.0 billion, or $5.75 per share.

Reserves Update

Preliminary year-end 2012 proved reserves are 8.6 billion barrels of oil equivalent (BOE). Proved organic reserve additions for 2012 are expected to be 942 million BOE, representing an organic reserve replacement ratio of 156 percent of 2012 production, including fuel gas. Sales completed during 2012, net of purchases, reduced reserves by 83 million BOE, giving a total reserve replacement ratio of 142 percent.

Organic reserves were added across the portfolio, adding approximately:

•     500 million BOE in Canada, primarily in the oil sands, with ongoing expansion phases at Foster Creek and Christina Lake, and following Phase A sanction at Narrows Lake;
•     230 million BOE in Lower 48, mostly in liquids-rich shale plays, including the rapidly growing Eagle Ford and Bakken;
•     100 million BOE in Asia Pacific, with progress at Australia Pacific LNG and multiple projects in Malaysia, including the recently online Gumusut Field and under-construction Malikai development; and
•     50 million BOE across multiple developments in Europe, including the Jasmine Field where first production is expected in 2013.

Final information related to the company’s 2012 oil and gas reserves as well as finding and development costs will be provided in ConocoPhillips’ Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission in late February.

Operations Update

Lower 48 and Latin America – Fourth-quarter production was 475 thousand barrels of oil equivalent per day (MBOED), an increase of 31 MBOED compared to the same period of 2011. Significant growth continues from the ramp up of core shale plays in the Eagle Ford and Bakken. For the quarter, these shale plays delivered approximately 113 MBOED, a 71 percent increase compared to the fourth quarter of 2011. During the quarter, Eagle Ford averaged 89 MBOED, achieving a peak daily rate of more than 100 MBOED, while Bakken averaged 24 MBOED. Earlier this month, the company announced an agreement to sell its Cedar Creek Anticline properties for $1.05 billion, with closing expected by the end of the first quarter of 2013.

Canada – Quarterly production increased by 17 MBOED over the same period in 2011, to 281 MBOED. The company’s oil sands programs continue to perform strongly, with average production exceeding 100 MBOED for the quarter. Surmont 2 construction continued on schedule and FCCL expansion progressed with the sanctioning of Christina Lake Phase F and Narrows Lake Phase A.

The production mix in the Lower 48 and Canada continues to shift from natural gas to liquids. For the quarter, total liquids production in these segments increased by 21 percent compared to the same period in 2011, resulting in the liquids percentage of production increasing from 43 percent to 48 percent.

Alaska – Fourth-quarter production was 222 MBOED, down 15 MBOED compared to the same period in 2011, primarily reflecting normal field decline, partially offset by reduced downtime. During the quarter, the Alpine West CD5 Project was sanctioned.

Asia Pacific and Middle East – Quarterly production was 322 MBOED, up 32 MBOED compared to the fourth quarter of 2011. Fourth-quarter 2012 production reflects stabilized production at Peng Lai and growth from Panyu, which more than offset the impact of the Vietnam disposition earlier in the year. During the quarter, first oil was achieved from the early production system at the deepwater Gumusut oil field in Malaysia, representing the first field online of four developments currently in execution. Additionally, new long-term sales agreements were secured for QatarGas 3 LNG volumes, and the Australia Pacific LNG Project continued on schedule with further progress on upstream and downstream developments.

Europe – Production for the quarter was 216 MBOED, down 61 MBOED compared to the same period a year ago, reflecting the impact of normal field decline, higher downtime in the United Kingdom, and dispositions. Development continued at Clair Ridge and Jasmine in the United Kingdom, and Ekofisk South and Eldfisk II in Norway.

Other International – Production from continuing operations was 50 MBOED in the fourth quarter of 2012, an increase of 24 MBOED compared to the same period in 2011. This reflects the resumption of production in Libya earlier this year following the civil unrest in 2011, offset by lower production from Russia due to the sale of our interest in NaryanMarNefteGaz in the third quarter of 2012. This segment also included fourth-quarter 2012 production related to discontinued operations of 41 MBOED.

Unconventional exploration – Testing continues across shale plays in North America. Fourth-quarter Lower 48 activity focused on drilling in the Permian Basin Wolfcamp and Niobrara plays. In the Niobrara, the company has accumulated approximately 130,000 acres. Drilling continues in Canada’s Duvernay formation, Poland’s Baltic Basin and Australia’s Canning Basin. In China, ConocoPhillips entered into a joint study agreement on a potential shale gas opportunity in the Sichuan Basin, covering approximately one million acres.

Conventional exploration – The company expects to increase its acreage in the deepwater Gulf of Mexico by approximately 375,000 acres to 1.9 million acres, reflecting successful participation in two lease sales in the central and western zones during the second half of 2012. Also in the deepwater Gulf of Mexico, drilling continued at the Coronado and Shenandoah prospects. The company also advanced its conventional exploration program internationally. ConocoPhillips was awarded two new licenses in the Central North Sea during the U.K.’s 27th licensing round, and appraisal drilling continued in the Browse Basin in Australia. In Angola, rig access was secured and plans are underway to commence drilling in early 2014 on the company’s prospective deepwater acreage. The company also signed a new production sharing contract as operator for exploration of Block SB311 in Malaysia.

“We ended 2012 with another strong quarter,” said Ryan Lance, chairman and chief executive officer. “We achieved our production targets, continued to successfully execute our growth projects and drilling programs, and announced significant progress on our asset disposition program. Our quarterly production from continuing operations is growing and we delivered strong organic reserve replacement. These achievements reflect our strategic focus on organic growth and the strength of our resource base. We remain committed to our goals of delivering 3 to 5 percent volume and margin growth, with a compelling dividend.”

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LNG World News Staff, January 31, 2013