This summary is based on the third quarter fiscal 2008 earnings call conducted by ConocoPhillips Inc. (COP) on October 22, 2008.
Management:
GM of IR: Gary Russell
Chairman and CEO: Jim Mulva
COO: John Carrig
SVP of Finance and CFO: Sig Cornelius
Key Investors Issues
- EPS were $3.39 a share compared to $2.23 a share last year.
- Net income rose to $5.19 billion from $3.67 billion in the year-ago period.
- Revenue rose to $71.4 billion from $47.9 billion a year ago.
Third Quarter Highlights
Net income was $5,188 million, or $3.39 per share.
- This compared with $3,673 million, or $2.23 per share, for the same quarter in 2007.
- Revenues were $70 billion, versus $46.1 billion a year ago.
Upstream business continued to benefit from the strong commodity price environment and the company produced 2.2 million BOE per day, including an estimated 0.4 million BOE per day from LUKOIL Investment segment.
- In downstream business, the company benefited from stronger global marketing margins and was able to improve overall realized refining margin in spite of a decrease in global refining crack spreads. Worldwide refining crude oil capacity utilization rate was 87%, reflecting the impact of hurricane-related downtime.
- The company generated $7.5 billion of cash from operations. This enabled it to invest $4 billion in exploring for and developing oil and natural gas supplies, enhancing refining capabilities, and fostering emerging technologies. It also enabled it to repurchase $2.5 billion of ConocoPhillips common stock and pay $0.7 billion in dividends. The company ended the quarter with debt of $22.1 billion and a debt-to-capital ratio of 19%.
Exploration and Production net income was $3,928 million, compared with $3,999 million in the previous quarter and $2,082 million in the third quarter of 2007.
- The decrease from the second quarter of 2008 was primarily due to lower crude oil and natural gas prices, partially offset by a net benefit from asset rationalization efforts, favorable foreign exchange impacts, and lower production taxes. The increase from the third quarter of 2007 was primarily due to higher commodity prices, partially offset by higher production taxes, increased operating costs, and lower volumes.
- Daily production from the E&P segment, including Canadian Syncrude, averaged 1.75 million barrels of oil equivalent (BOE) per day, similar to both the previous quarter and the third quarter of 2007. When compared with the previous quarter, production from new developments in the United Kingdom, Russia and Norway largely offset planned and unplanned downtime, which included hurricane disruptions in the U.S. Lower 48, as well as normal field decline. The production impact from hurricane disruptions was approximately 17,000 BOE per day.
- When compared with the third quarter of 2007, production from new developments in the United Kingdom, Russia, Indonesia, Norway and Canada was less than impacts from normal field decline, unplanned downtime, and production sharing contracts.
- Before-tax exploration expenses were $267 million compared with $288 million in the previous quarter and $218 million in the third quarter of 2007.
Midstream net income was $173 million, compared with $162 million in the previous quarter and $104 million in the third quarter of 2007.
The increases from the previous quarter and the third quarter of 2007 were primarily due to higher realized natural gas liquids prices, partially offset by lower volumes largely due to hurricane disruptions, as well as higher operating costs.
Refining and Marketing net income was $849 million, compared with $664 million in the previous quarter and $1,307 million in the third quarter of 2007.
- The increase in net income from the previous quarter was primarily due to improved global realized marketing margins and lower turnaround costs, which were partially offset by lower refining volumes. The decrease in net income from the third quarter of 2007 was primarily due to a lower net benefit from the company’s asset rationalization efforts, the absence of a third-quarter 2007 German tax legislation benefit, and lower refining volumes.
- The U.S. realized refining margin was lower than the previous quarter as the benefit from higher clean product yields and improved margins for secondary products was more than offset by the narrowing of heavy crude differentials and inventory impacts related to the decrease in crude and refined product prices. The international realized refining margin was higher than the previous quarter due to the reduction of temporary inventory builds and improved clean product yields.
- The domestic refining crude oil capacity utilization rate was 90%, a 4% decrease from the previous quarter. The decrease was primarily due to hurricane impacts of approximately 6%, partially offset by lower turnaround activity. The international crude oil capacity utilization rate was 75%, down from 88% in the previous quarter as weak hydro-skimming margins continued to impact utilization at the company''s Wilhelmshaven, Germany, refinery.
- Worldwide, R&M’s refining crude oil capacity utilization rate was 87%, compared with 93% the previous quarter and 94% in the third quarter of 2007. Before-tax turnaround costs were $73 million in the third quarter of 2008, compared with $170 million in the previous quarter and $27 million in the third quarter of 2007.
LUKOIL Investment segment net income was $438 million, compared with $774 million in the previous quarter and $387 million in the third quarter of 2007.
- The results include ConocoPhillips’ estimate of its equity share of OAO LUKOIL’s (LUKOIL) income for the third quarter based on market indicators and LUKOIL’s publicly available operating results. The decrease in net income from the previous quarter was primarily due to lower estimated volumes and realized prices, as well as higher estimated operating costs and taxes. The increase in net income from the third quarter of 2007 was primarily due to higher estimated realized prices, partially offset by higher estimated taxes and operating costs, as well as lower estimated volumes.
- ConocoPhillips estimated its equity share of LUKOIL production was 422,000 BOE per day and its share of LUKOIL daily refining crude oil throughput was 228,000 barrels per day.
Chemicals net income was $46 million compared with $18 million in the previous quarter and $110 million in the third quarter of 2007.
The increase from the previous quarter was primarily due to higher olefins and polyolefins margins, partially offset by lower aromatics and styrenics margins, costs associated with the decommissioning of an asset, and hurricane impacts. The decrease from the third quarter of 2007 was primarily due to higher utility costs and lower aromatics and styrenics margins.
