A small bump in oil prices early in the year helped ConocoPhillips earn $195 million from its Alaska operations during the second quarter - up from the first quarter of the year but down considerably from a year ago, when oil prices topped $100 per barrel.
The largest oil company in the state had earned $145 million in the first quarter of this year and $627 million in the second quarter of last year. With global oil prices depressed, Alaska remained one of the most profitable segments in the company’s portfolio.
By comparison, after adjustments, ConocoPhillips reported a loss of $293 million from its Lower 48 operations and a loss of $60 million from its Canadian operations, and gains of $328 million from its Asia Pacific and Middle Eastern operations and $71 million from its European operations during the second quarter. Companywide, ConocoPhillips reported a net loss of $179 million on $8.6 billion in revenue, down from nearly $2.1 billion in net income on $14.7 billion in revenue in the second quarter of 2014.
The quarterly figures come shortly after ConocoPhillips announced it would begin marketing its Cook Inlet properties later this year, as part of a companywide divestment effort. Asked during a quarterly earnings teleconference about managing operating costs, CEO Ryan Lance said the company was analyzing its portfolio to understand what ventures that made sense for an integrated company might no longer make sense now that ConocoPhillips is a large independent exploration and production company.
“We’ve done a pretty good job of building that model on our Lower 48 unconventional business. We’re going to extend that across the whole company with less of a one-size-fits-all and more of a fit-for-purpose design, recognizing that an asset in the Lower 48 is different than an asset in the North Sea or up in Alaska or offshore Australia,” he said.
Projects advancing
ConocoPhillips produced 174,000 barrels of oil equivalent per day in Alaska in the second quarter, down 19,000 barrels or nearly 10 percent from the same period in 2014.
The decline came from maturing fields and planned downtime related to maintenance work at the Prudhoe Bay and Kuparuk River units that will continue into the third quarter and was partially offset by improved well performance, according to the company.
In the second quarter, the company reached important milestones on two major North Slope projects by drilling the initial wells at the CD-5 satellite at the Colville River unit and the Drill Site 2S project at the Kuparuk River unit. Both should come online this year.
ConocoPhillips produced 154,000 barrels of oil per day in Alaska during the second quarter, down from 163,000 bpd in the first quarter and 170,000 bpd in the second quarter of 2014. The company also produced 13,000 barrels per day of natural gas liquids, down from 14,000 bpd in the first quarter and 16,000 bpd in the second quarter of 2014.
By comparison, in the second quarter, the company produced 209,000 bpd in the Lower 48, 13,000 bpd in Canada, 91,000 bpd in Norway and 29,000 bpd in the United Kingdom.
ConocoPhillips produced 41 million cubic feet per day of natural gas in Alaska during the second quarter, down from 52 mmcf per day in the first quarter and 45 mmcf per day in the second quarter of 2014. Those declines came even as ConocoPhillips restarted the Kenai liquefied natural gas terminal and exported two shipments during the quarter.
By comparison, in the second quarter, the company produced 1.5 billion cubic feet of natural gas per day in the Lower 48 and 768 mmcf per day in Canada.
Companywide, ConocoPhillips produced nearly 1.6 million barrels of oil equivalent per day in the second quarter, down slightly from the first quarter and nearly even with the second quarter of 2014. Alaska accounted for nearly 11 percent of total production.
Prices recovering some
Earnings certainly would have fallen farther without a bump in oil prices.
ConocoPhillips reported an average sales price of $61.51 per barrel during the second quarter for Alaska crude oil, which includes natural gas liquids. The average price was $50.74 per barrel in the first quarter and $108.93 per barrel in the second quarter of 2014.
By comparison, the company reported average sales prices of $52.01 per barrel for oil and $15.29 per barrel for natural gas liquids in the Lower 48 and $46.58 per barrel for oil and $19.23 per barrel for natural gas liquids in Canada during the second quarter.
ConocoPhillips reported an average sales price of $4.50 per thousand cubic feet for natural gas in Alaska during the quarter, up from $4.29 per mcf in the first quarter and down from $6.03 per mcf in the second quarter of 2014. Alaska gas prices are set on long-term contracts using indices tied to Lower 48 markers and approved by regulators.
By comparison, the company reported an average sales price of $2.38 per mcf in the Lower 48 and $1.88 per mcf in Canada, where natural gas is traded on a sport market.
Spending down
With CD-5 and DS-2S under way, Alaska spending is down.
ConocoPhillips reported $379 million in capital spending in Alaska in the quarter, down from $402 million in the first quarter and $390 million in the second quarter of 2014.
By comparison, the company spent $882 million in the Lower 48, $432 million in the Asia Pacific and the Middle East, $367 million in Europe and $272 million in Canada.
Companywide, ConocoPhillips spent $2.4 billion on capital expenses during the quarter.
The company also reported $158 million in depreciation, depletion and amortization expenses from its aging Alaska operations in the first quarter of this year, up from $140 million in the fourth quarter of last year and $135 million in the first quarter of last year.
ConocoPhillips reported an effective income tax rate of 36.3 percent for its Alaska operations during the second quarter - up from 35.2 percent in the first quarter and up from 35.6 percent in the second quarter of 2014. The Alaska tax rate was lower than the companywide effective income tax rate of 54.9 percent across all operating regions.
