As Split Nears, ConocoPhillips Sees Mixed Results in First-Quarter 2012 from Stronger Crude, Weaker Natural Gas

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Researched by Industrial Info Resources (Sugar Land, Texas)--As it prepares to split into two independent energy companies next month, ConocoPhillips (NYSE:COP) (Houston, Texas) saw stronger crude oil prices more than offset by sharp declines in the natural gas market in the first quarter of 2012, leading to overall results that were mostly flat when compared to the same period last year. Net income was reported to be $2.94 billion, a 3.01% decrease from first-quarter 2011.

Total revenues stood at $58.35 billion for the quarter, a 0.18% increase from the same period last year. In addition to the weakened natural gas market, ConocoPhillips was affected negatively by reduced volumes, higher taxes and a widening spread between crude oil and bitumen prices. However, stronger crude oil and liquefied natural gas prices offset much of the losses, and the company gained $987 million from asset sales during the quarter, mostly from the selling of its Vietnamese business unit. The Refining & Marketing segment was affected negatively by lower refining margins, although marketing margins improved. The Chemicals segment reported record earnings of $218 million, due to higher margins.

Production stood at 1.64 million barrels of oil equivalent per day, a 3.81% decrease from first-quarter 2011. The biggest reason for the drop was the suspension of operations at the Peng Lai Field in Bohai Bay, in China's Yellow Sea, which saw massive oil spills last year. Most of this decrease was offset by ongoing development at U.S. shale plays and the Canadian oil sands, particularly at the Eagle Ford, Bakken and Permian plays, which together are contributing about 135,000 barrels of oil equivalent per day. ConocoPhillips also reported lower downtime and stronger well performance at its North American sites. Operations also resumed in Libya, where ConocoPhillips saw a major slowdown in production during the revolution.

Industrial Info is tracking more than $37.4 billion in active ConocoPhillips projects, including $1 billion in Phase II expansions at the company's Surmont Oil Sands steam-assisted gravity drainage production site, which is near Fort McMurray, Alberta. The projects involve drilling more than 100 wells and constructing a gathering system and plant, which will have a production capacity of 83,000 barrels per day (BBL/d) of bitumen from oil sands, increasing capacity from 27,000 to 110,000 BBL/d. It is estimated to be completed in October 2014.

"In North America, we've initiated seven pilot programs in some of our emerging plays, and we continue to pursue high-quality, liquids-rich, unconventional opportunities globally," said Jeff Sheets, the senior vice president of finance and the chief financial officer for ConocoPhillips, in a conference call.

Steady net income improvements in the Exploration & Production and Midstream segments were countered by losses in other segments and $239 million gained in first-quarter 2011 from the company's investment in Russia's LUKOIL.

• The Exploration & Production segment reported net income of $2.55 billion, an 8.33% increase from first-quarter 2011:
• The U.S. Exploration & Production business reported net income of $870 million, a 0.81% increase from the same period last year.
• The International Exploration & Production segment reported net income of $1.68 billion, a 12.69% increase from first-quarter 2011.
• The Midstream segment reported net income of $93 million, a 27.4% increase from the same period last year.
• The Refining & Marketing segment reported net income of $452 million, a 6.22% decrease from first-quarter 2011.
• The Chemicals segment reported net income of $218 million, a 12.95% increase from the same period last year.
• Emerging businesses reported a net loss of $14 million, compared with a $7 million loss in first-quarter 2011.
• Corporate and other expenses were reported to be $360 million, an 18.42% increase from the same period last year.

On May 1, 2012, ConocoPhillips will split into two companies: ConocoPhillips and Phillips 66. The company invested $4.2 billion in an Exploration & Production capital program in first-quarter 2012, and it expects the program for the new ConocoPhillips, which will be an upstream company, to total about $15 billion for the full year. As the company expects production in the second and third quarters to be affected by major turnarounds, planned maintenance, dispositions and seasonal issues, full-year production is expected to be between 1.55 million and 1.6 million barrels of oil equivalent per day.

Phillips 66 will be a downstream company specializing in refining, marketing, midstream and chemicals businesses. "In Refining & Marketing, we expect turnaround activity in the second quarter to be approximately $140 million pre-tax, and global refining capacity utilization is anticipated to be in the low 90s [percentages]," Sheets said in the conference call. "The majority of the turnaround activity is expected to be in our international operations next quarter." He added that the new company is expected to see about $450 million pre-tax in turnaround expenses.

For more information, visit Industrial Info's North American Oil & Gas Production Project Database.

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