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Conoco profits fall in Alaska in 3Q Lower production, volatile prices and higher taxes end a run of increasingly profitable quarters Eric Lidji Petroleum News
Planned maintenance and an increased tax burden significantly decreased profits for ConocoPhillips Alaska in the third quarter of the year, according to data released Oct. 22.
The largest producer in the state earned $556 million over the three months ending Sept. 30, down 27 percent from the $765 million earned during the same period last year.
Companywide, ConocoPhillips earned $5.2 billion during the quarter, a 41 percent increase over the $3.7 billion earned during the same period last year.
ConocoPhillips is the first of the major oil companies to report third-quarter earnings, and typically the only major to report Alaska-specific figures in quarterly filings.
Summer production drops The third quarter of the year is typically a period of lower production in Alaska, because operators use the summer months for maintenance activities across the North Slope.
A two-day planned shutdown of the trans-Alaska oil pipeline in August, combined with regular maintenance work at the ConocoPhillips Alaska-operated Alpine field in the western North Slope, accelerated regular production declines during the quarter.
ConocoPhillips produced 231,000 barrels of liquids per day in Alaska during the third quarter of 2008, down 9.7 percent from the 256,000 barrels of crude oil and natural gas liquids produced on average each day over the same period last year.
The company recovered some of those losses through higher prices. The price of a barrel of Alaska North Slope crude oil delivered to the West Coast averaged $121.51 during the third quarter of 2008, up 65 percent over the average price from the same period last year.
The company might not be so lucky in the short term, though, because a recent drop in oil prices canceled out record highs hit this summer, keeping prices relatively even across the second and third quarters of this year after five consecutive quarters of rising prices.
Oil prices have fallen more than $25 a barrel since the fourth quarter began on Oct. 1.
Alaska accounted for 72 percent of domestic oil production and 5 percent of domestic gas production for ConocoPhillips during the quarter.
ConocoPhillips produced 102 million cubic feet of natural gas per day in Alaska during the third quarter of 2008, down 12 percent from the 116 million cubic feet produced on average each day over the same period last year.
Nationally, ConocoPhillips saw lower than expected production volumes because a pair of late summer hurricanes in the Gulf of Mexico forced companies to pause operations.
Sales at the Kenai liquefied natural gas plant held steady at 89 million cubic feet per day.
Tax impact year-over-year Oil prices during the third quarter still remained high enough to trigger new progressive elements of a revised tax code enacted by state lawmakers in November 2007.
Because major portions of the tax went into effect retroactively, ConocoPhillips bore the largest brunt of the tax during the fourth quarter of last year. Therefore, the revised tax covered profits from the third quarter of 2008, but not the same period last year, accounting for some of the discrepancy between production, prices and profits.
Exploration spending down ConocoPhillips spent $19 million in exploration charges during the third quarter of the year, down from $31 million spent during the third quarter of 2007.
Through the first nine months of the year, the company has spent $55 million on exploration charges in Alaska, down from $80 million over the same period last year.
Considering the size of the exploration programs sanctioned by the company for Alaska over the past two years, some of that decline may be related to increased tax credits for exploration expenses offered by the state through the revised tax passed last fall.
Nationally, ConocoPhillips spent $91 million on exploration during the quarter, down from $119 million spent during the same period last year. But worldwide, exploration expenses rose 22 percent in the quarter, signaling added investment outside the U.S.
ConocoPhillips spent $152 million on depletion, depreciation and amortization expenses in Alaska during the third quarter, down from $165 million over the same period in 2007.
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