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ACES eats $234 million in Conoco profits Retroactive taxes account for $95 million; company still earns $2.255 billion in Alaska on high prices and steady production Eric Lidji Petroleum News
A revised production tax enacted by Alaska lawmakers last year kept $234 million out of ConocoPhillips’ pockets in the final quarter of 2007, the company reported on Jan. 23.
But even with the hit, the major American oil company reported an annual income of $2.255 billion from exploration and production activities in Alaska in 2007, a 3.9 percent drop from the $2.347 billion earned in 2006.
Company-wide, ConocoPhillips reported income of $11.89 billion across its global operations for the year, a 23.5 percent decline from the $15.55 billion the company reported for 2006, a drop the company attributed to the loss of its Venezuelan operations early in 2007.
Conoco first to report impact of ACES As the first major oil company to report fourth quarter and year-end financial figures from 2007, ConocoPhillips’ figures provide an early look from an industry perspective at the impact of recent revisions to Alaska’s oil and gas taxes.
Dubbed Alaska’s Clear and Equitable Share, the changes increased the base tax rate on oil production from 22.5 percent to 25 percent and, among other things, limited certain deductions and added retroactive elements.
The most recent forecast from state economists estimated the tax would bring an additional $1.5 billion in oil revenues in the current year.
The full impact will be known in the coming weeks as Shell and Marathon report fourth quarter earnings on Jan. 31, with ExxonMobil and Chevron reporting on Feb. 1 and BP set for Feb. 5.
Alaska income down for the quarter In the fourth quarter of 2007, ConocoPhillips reported income of $448 from exploration and production in Alaska, a 4.6 percent drop from the $470 million earned in the fourth quarter of 2006.
The company partially attributed the decline to additional income generated in the third quarter from a one-time Alaska Quality Bank adjustment on trans-Alaska oil pipeline shipments.
Even with the production taxes, though, ConocoPhillips reported company-wide income of $4.37 billion for the fourth quarter, a 36.7 percent increase over the fourth quarter of 2006.
Still, Chairman and CEO Jim Mulva said profits could have been higher.
“The fourth quarter earnings were negatively impacted by the effect of the tax changes in Alaska, which increased our production taxes,” Mulva said during a conference call with analysts on Jan. 23.
Of the $234 million after tax impact, $95 million applied to earlier reporting periods as a result of the retroactive elements of the tax.
“We also had increased production taxes in the fourth quarter, the result of higher crude oil prices and production volumes,” Mulva said. “The majority of this is related to Alaska.”
Alaska oil and natural gas production down ConocoPhillips produced a daily average of 261,000 barrels a day of crude oil in Alaska in 2007, down slightly from the daily average of 263,000 barrels reported for 2006, but still making Alaska the most productive oil region in the world for the company.
Including its equity affiliates, ConocoPhillips averaged 854,000 bpd in oil production globally for the year, a 12 percent decline from 2006.
In addition to oil, ConocoPhillips averaged 19,000 bpd in natural gas liquids in Alaska, including reinjected volumes sold from one lease to another, for 2007, up slightly from the previous year.
But while oil production in Alaska held fairly steady, natural gas production dropped.
ConocoPhillips reported producing a daily average of 110 million cubic feet of natural gas in Alaska in 2007, down from an average 145 million cfpd produced in 2006.
In the fourth quarter of the year, ConocoPhillips produced an average of 102 million cfpd of natural gas, down from an average of 131 million cfpd produced in the fourth quarter of 2006.
Altogether, the company reported average daily production of 1.84 million barrels of oil equivalent, down 210,000 boe from the fourth quarter of 2006, but up 8,000 boe from the third quarter of 2007.
ConocoPhillips attributed that slight rise primarily “to increased volumes from the United Kingdom and Alaska, reflecting seasonality and less planned and unplanned downtime.”
Oil prices jumped in fourth quarter Escalating oil prices fueled much of ConocoPhillips’ profits.
In the fourth quarter of 2007, the company reported an average delivered price on the West Coast of $87.88 — a 54 percent increase over the average price of $57 reported for the same period in 2006 and a 19.5 percent increase over the average price of $73.57 reported in the third quarter of 2007.
For the year, Alaska North Slope oil delivery prices showed a more modest gain, averaging $69.75 for 2007, an 11.3 percent increase from the $62.66 reported in 2006.
ConocoPhillips reported an average price of $3.68 per thousand cubic feet of Alaska natural gas in 2007, up slightly from $3.59 in 2006. Prices nearly doubled in the fourth quarter averaging $4.12, up 91.6 percent from $2.15 in the third quarter of the year.
Kenai LNG sales dropped, prices jumped ConocoPhillips reported declines for the year and the fourth quarter in sales from the liquefied natural gas facility in Kenai.
Daily sales in 2007 averaged 85 million cubic feet, down nearly 25 percent from 113 million in 2006. For the fourth quarter, sales averaged 78 million cfpd, down 12.5 percent from 88 million during the same period in 2006.
The company sold that LNG for an average price of $6.21 per mcf in 2007, a 21-cent increase from 2006. The average sale price of $7.28 for the fourth quarter of 2007 is a 95-cent increase from the fourth quarter of 2006 and a $1.27 increase over the third quarter of 2007.
Company-wide for the United States, ConocoPhillips sold 340,000 bpd of oil in the fourth quarter in 2007, down from 380,000 sold in the third quarter of the year.
“Our crude sales volumes in the U.S. were about 40,000 barrels a day lower than the prior quarter due to the timing of shipments in Alaska,” Mulva said. “Essentially, we sold more in the third quarter, caught up in the fourth. So essentially if you look at it as an overlift or underlift, we’re just balanced as we go from ‘07 into ‘08.”
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