CPAI profits fall in 1st quarter

Company earns $244 million in Alaska, down 60 percent from 2008; taxes lower on prices

Eric Lidji

Petroleum News

ConocoPhillips earned $244 million in Alaska in the first three months of the year, down nearly 60 percent from the $603 million the company earned in the first quarter last year.

The drop reflects lower oil prices, but those lower prices also meant lower taxes in Alaska, helping the company turn a profit in the United States. ConocoPhillips reported a loss of $71 million from first-quarter exploration and production work in the Lower 48.

Companywide, ConocoPhillips reported earning $840 million in net income on $30.7 billion in revenues. The company produced 2.36 million barrels of oil equivalent.

ConocoPhillips earned $456 million in Alaska in the fourth quarter of 2008.

The figures come from financial filings released April 23.

The drop in earnings follows a volatile year for oil, where prices peaked near $150 per barrel, only to fall to around $30 per barrel and eventually level off around $50 per barrel.

ConocoPhillips reported a price of $41.75 per barrel for Alaska North Slope crude oil delivered to West Coast markets during the first quarter of this year, down from $64.13 in the fourth quarter of 2008 and $95.47 per barrel in the first quarter of last year.

But while oil prices in Alaska fell with those around the world, natural gas prices rose.

ConocoPhillips reported selling Alaska natural gas for an average price of $7.69 per thousand cubic feet during the first quarter of the year, up from a price of $4.31 per mcf in the first quarter of last year and a price of $4.90 per mcf in the last quarter of 2008.

By comparison, the average natural gas price in Alaska during the first three months of the year was more than double the price of $3.76 per mcf reported in the Lower 48.

The Cook Inlet natural gas market is isolated from the rest of the country. Contracts with local distributors last for years, and prices are approved, though not set, by state regulators.

One of the local contracts is indexed to summer oil prices, which accounts for the jump in natural gas prices in Alaska even as natural gas prices fell across the rest of the country.

Almost half of ConocoPhillips’ Cook Inlet natural gas is liquefied and shipped to the Far East. The company sold its Alaska LNG for an average price of $6.29 per mcf in the first quarter of the year, down from $8.65 per mcf in the last quarter of 2008 and $6.72 in the first quarter of 2008. ConocoPhillips recently extended its sales contract with two Japanese utilities through March 2011, Bloomberg reported in January.

The drop in oil prices created a smaller tax burden for ConocoPhillips year over year.

A new production tax system implemented in Alaska in recent years is based on a formula that increases the tax rate when prices rise and decreases it when prices fall.

“Consistent with the lower price environment, we had a benefit of $153 million on production taxes, primarily in Alaska,” John Carrig, president and chief operating officer of ConocoPhillips said during a conference call with analysts on April 23.

ConocoPhillips reported producing an average of 254,000 barrels of crude oil per day in Alaska during the first quarter of 2009, equal to the first quarter of last year, but down slightly from the 258,000 bpd produced in the last quarter of 2008.

The company produced 92 million cubic feet per day of natural gas in Alaska in the first quarter of the year, down from 100 million cubic feet produced in the first quarter of last year, but up from 88 million cubic feet produced during the last quarter of 2008.

The company sold 43 million cubic feet per day as liquefied natural gas from its facility on the Kenai Peninsula in the first quarter of the year, down from 63 million cubic feet sold in the first quarter of 2008 and 74 million cubic feet sold in the last quarter of 2008.

The company spent $34 million on “exploration charges” in Alaska the first quarter of the year, up from $11 million in the first quarter of last year, but down from $45 million in the fourth quarter of 2008. The company budgeted $832 million for 2009 capital projects in Alaska, part of a $9.5 billion capital program the company doesn’t expect will change.

That spending plan had been around 20 percent higher before prices fell. Asked where ConocoPhillips might cut this year if needed, Carrig said, “We’d take a rigorous look across the board and would cut — without getting in to where — we would cut where we thought it made the most sense. I don’t want to try to pre-judge that at this moment.”