ConocoPhillips Co. reported $99 million in adjusted earnings from its Alaska operations in the first quarter, an improvement over 2016 earning but down from recent quarters.
The most active producer in Alaska was helped by increased oil production and improved oil prices, but would have posted a loss without a large impairment and tax adjustments.
Companywide, ConocoPhillips reported $790 million in net income during the quarter.
The production trend should continue over the near term, if projects currently underway reach completion. The company said it had completed ice road construction at the GMT-1 pad at the Greater Mooses Tooth unit, which means that the project remains on track for a startup date in late 2018. The 1H NEWS drill site facility at the Kuparuk River unit is “ready for startup” at the end of this year. The company has also completed a 3-D seismic survey over the Greater Mooses Tooth unit, including its Willow discovery.
Asked whether the company was doing anything to promote increased production in the immediate future, Executive Vice President of Production, Drilling and Projects Alan J. Hirschberg cited a “continuous” program of rotary drilling and coiled tubing drilling “driven by different kinds of new technology that allow you to see where to drill.”
Hirschberg was also asked about two liquefied natural gas projects in Alaska - the efforts to sell the Kenai LNG plant in Nikiski and to build an LNG project from the North Slope.
Reiterating previous statements from ConocoPhillips, Hirschberg said that the Kenai LNG facility “might have more value to others,” adding that potential buyers had already expressed interest. Describing the shortcomings of the facility, he said that the facility had “started up in the late 1960s” and that “the area has sort of run out of gas to feed it.”
Although the Cook Inlet natural gas market faced supply shortages as recently as 2009, the arrival of many new players since that time has changed market dynamics. Hilcorp Alaska LLC is currently supplying most utility demand in the region, and several smaller independents have publicly blamed those contracts for slowing regional exploration.
The Kenai LNG plant is also thought to require considerable upgrades to crucial components in order to remain a reliable system for the long term. And, although the plant was pioneering when it was commissioned, it is now much smaller than rival plants.
In the past year, ConocoPhillips sold its major Cook Inlet properties - the North Cook Inlet unit that traditionally supplied the Kenai LNG plant and the Beluga River unit.
On the Alaska LNG project, Hirschberg reiterated support for current plans.
Production, prices up
The recent production bump from the CD-5 pad at the Colville River unit and the Drill Site 2S project at the Kuparuk River unit continue to reap benefits for ConocoPhillips.
The company produced 191,000 barrels of oil equivalent per day in Alaska during the first quarter of this year, equal to overall production rates from the first quarter of 2016 and up from 187,000 barrels of oil equivalent per day during the fourth quarter of 2016.
Given the sale of its natural gas properties, the combined figures obscure a noteworthy increase in oil production. ConocoPhillips produced 175,000 barrels of oil per day in Alaska during the first three months of this year, up from 170,000 barrels per day during both the first quarter (year over year) and fourth quarter (quarter over quarter) of 2016.
By comparison, the company produced 176,000 barrels of oil per day from its Lower 48 properties during the first quarter of the year. During the first quarter of 2016, the company produced 32,000 barrels per day more in the Lower 48 and it did in Alaska.
The company also produced 15,000 barrels of natural gas liquids per day, up from 14,000 barrels per day in the first quarter of 2016 and equal to the fourth quarter of 2016.
ConocoPhillips produced just 7 million cubic feet of natural gas per day in Alaska during the first quarter of the year, down from 38 million cubic feet per day in the first quarter of last year and down from 16 million cubic feet per day in the fourth quarter of last year.
In the first quarter, Alaska accounted for nearly 12 percent of total company production, 29 percent of total oil production and less than 1 percent of total gas production.
Although still low by historic standards, oil prices are also improving for ConocoPhillips.
The company reported an average sales price of $52.09 per barrel from its Alaska operations during the first quarter, up from $32.54 per barrel in the first quarter of 2016.
The Alaska prices, which includes natural gas liquids, is higher than the average price the company realized for Lower 48 and Canadian crude oil, but lower than the average price from its European and North African, and its Asia Pacific and Middle East segments.
ConocoPhillips also reported an average Alaska natural gas price of $3.53 per thousand cubic feet, down from $4.84 per thousand cubic feet during the first quarter of 2016.
Deferred taxes
ConocoPhillips reported $6 million in earnings before income taxes from its Alaska operations during the quarter, which translated to a loss of $11 million after income taxes.
But the company also reported an impairment of $174 million and a $64 million deferred tax adjustment, which together combined for a $110 million adjustment in the quarter.
The company reported an effective income tax rate of 295.2 percent for its Alaska operations during the quarter, down to 111.9 percent including taxes other than income taxes, likely the result of the deferred adjustment. The company reported an adjusted effective income tax rate of 44.9 percent for its Alaska operation, which was lower than the rates for Canada (50.9 percent) and Europe and North Africa (67.8 percent) but higher than the Lower 48 (36.1 percent) and Asia Pacific and Middle East (36.6 percent).
ConocoPhillips reported $228 million in capital expenditures and investments in Alaska during the quarter, down from $320 million spent in the first quarter of last year. The spending would have been higher this year if the company had not deferred plans to drill the proposed Putu No. 1 exploration well, which is now pending a regulatory decision.
The capital spending in Alaska during the first quarter was higher than any other segment except for the Lower 48, where the company spent $325 million during the quarter.
The company also reported $234 million in depreciation, depletion and amortization expenses during the quarter, up from $207 million in the first quarter of last year.
