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Vol. 15, No. 19 Week of May 09, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

CPAI: $517 million in 1Q

Higher prices nearly double quarterly profits despite falling production

Eric Lidji

For Petroleum News

Boosted by higher oil prices, ConocoPhillips earned $517 million in Alaska in the first quarter of 2010, more than double what the company earned in the first quarter of 2009.

However, profits fell about 4 percent from the $536 million ConocoPhillips earned in Alaska the fourth quarter of 2009, the result of steadily declining oil production.

Companywide, ConocoPhillips earned more than $2 billion in profits in the first quarter of the year, up from $800 million over the same period in 2009. While profits almost tripled year over year, total revenues increased 46.5 percent between 2009 and 2010.

ConocoPhillips spent $183 million on exploration and production expenses in Alaska during the quarter, compared to $254 million in the first quarter of 2009. Spending fell much more drastically in the Lower 48, but increased slightly outside the United States.

Oil production keeps falling

ConocoPhillips, the biggest oil producer in Alaska, produced an average of 247,000 barrels of liquids per day in the state during the first three months of the year, down about 10 percent from the 275,000 bpd produced during the same period of 2009 and down about 2 percent from the 252,000 bpd produced during the final three months of 2009.

However, those declines fall in line with companywide production in the first quarter, which fell by 97,000 barrels of oil equivalent per day year over year. Around 29,000 boepd, or 30 percent of the decline, can be attributed to market forces like production sharing contracts and royalty agreements, while another 12,000 boepd comes from assets changes, like the privatization of oil resources in Ecuador, and planned maintenance, according to Clayton Reasor, ConocoPhillips’ vice president of corporate affairs.

“The remaining decrease of 56,000 boe per day was due to normal field decline, primarily in the UK, Lower 48 and Alaska,” Reasor said in an April 29 conference call.

Reasor said production declines are expected in the second quarter as well.

“Areas that will contribute to the decrease include North America natural gas, Western North Slope and Prudhoe Bay due to seasonal maintenance and normal decline,” he said.

The company reported an average sale price of $77.25 per barrel for Alaska North Slope crude oil during the first quarter of the year, up slightly from $74.35 per barrel in the fourth quarter of 2009 and nearly double $41.75 per barrel in the first quarter of 2009.

Alaska gas now premium

ConocoPhillips produced 94 million cubic feet of natural gas per day on average in Alaska in the first quarter of the year, down from 95 mmcfpd produced in the fourth quarter of 2009, but up from 92 mmcfpd produced in the first quarter of last year.

The company reported an average price of $5.28 per thousand cubic feet for Alaska natural gas. In a rare occurrence, Alaska prices roughly matched those in the Lower 48, where ConocoPhillips reported an average price of $5.21 per mcf in the first quarter.

Alaska gas prices, set by regulators in long-term contracts rather than on a spot market, have been historically well below the national average. That trend is starting to reverse, though. In the first quarter of 2009, ConocoPhillips sold Alaska natural gas for an average price of $7.69 per mcf and Lower 48 gas for an average price of $3.76 per mcf.

ConocoPhillips reported sales of 56 mmcf per day from the liquefied natural gas facility on the Kenai Peninsula in the first quarter of 2010, up from 43 mmcfpd in the first quarter of 2009, when several severe and extension winter cold snaps forced diversions to local gas markets, but down from 64 mmcfpd in the relatively warmer fourth quarter of 2009.

Offshore and gas pipeline

In the Alaska Arctic offshore, ConocoPhillips said it expects a final court decision on the Chukchi Sea in late 2010, which, if favorable for the company, could allow for drilling by 2012.

On ConocoPhillips’ project with BP to build a natural gas pipeline from the North Slope to southern markets, called Denali, ConocoPhillips CEO Jim Mulva said “it remains to be seen whether we participate and how” in the open season planned for this summer.

Denali is competing against a state-backed project by TransCanada and ExxonMobil.

While ConocoPhillips won’t say yet whether it will commit its natural gas to either of the two proposed pipelines, including its own, Mulva added, “I do expect, though, that the open season for both of the projects will probably have rather conditional participation or acceptances because we really don’t know with any certainty what really are not only the commercial but the fiscal rules and regulations associated with the pipelines.”

Asked if ConocoPhillips had been talking to with Exxon, presumably about merging the projects, Mulva said the companies have kept to themselves, adding “It’s a very upfront competition between Denali and the other competing project. Obviously, when it will be executed it will be one project, not two. How that comes together remains to be seen.”

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