After reporting a small loss during the first quarter, ConocoPhillips reported adjusted earnings of $54 million from its Alaska operations in the second quarter of the year.
Taking into account a one-time $93 million tax adjustment, the largest independent exploration and production company in the world reported $147 million in quarterly earnings from Alaska - the highest for any segment. The company reported a $2 million loss in the first quarter. The increased profits, which are below levels from a year ago, came from a combination of generally higher production and higher crude oil prices.
ConocoPhillips produced 179,000 barrels of oil equivalent per day from its Alaska operations during the second quarter, down from 191,000 boepd in the first quarter and up from 174,000 boepd during the second quarter of 2015. Alaska accounted for nearly 12 percent of the 1.5 million boepd the company produced across its entire global operations during the second quarter, up from nearly 11 percent during the second quarter of last year.
‘Strong production’
The increase in production over a year ago is attributable to crude oil developments.
ConocoPhillips produced 163,000 barrels per day in the second quarter - down from 170,000 bpd in the first quarter and up from 154,000 bpd in the second quarter of 2015. Alaska accounted for more than 27 percent of global oil production for the company during the quarter, up from more than 25 percent a year ago.
The annual increase came from “ongoing strong production” at the Drill Site 2S project at the Kuparuk River unit and the CD-5 development at the nearby Colville River unit.
But all other commodities fell.
When it comes to natural gas liquids, ConocoPhillips produced 11,000 bpd during the second quarter - down from 14,000 bpd during the first quarter and down from 13,000 bpd during the second quarter of last year. And with its era as a Cook Inlet operator nearing an end, the company produced just 27 million cubic feet per day during the second quarter - down from 38 million cubic feet per day in the first quarter and down from 41 million cubic feet per day during the second quarter of 2015.
Increased prices
With all three commodities declining quarter-over-quarter, the increase in profits is largely a credit to an increase in liquids prices - even if those prices remain depressed.
ConocoPhillips reported an average realized price of $44.39 per barrel from its Alaska operations during the quarter - up from $32.54 per barrel during the first quarter and down from $61.51 during the second quarter of 2015. The Alaska crude oil price includes natural gas liquids, which are combined with crude oil in the trans-Alaska oil pipeline.
By comparison, the $44.39 per barrel price for Alaska beats the company average of $42.72 per barrel across all operations and is considerably higher than the average Lower 48 price of $39.50 per barrel and the average Canadian price of $37.70 per barrel.
Alaska natural gas is showing an even more dramatic premium. ConocoPhillips reported an average realized price of $4.82 per thousand cubic feet from its Alaska operations during the second quarter, compared to an average price of $2.49 per thousand cubic feet for the entire company. During the quarter, the average Lower 48 price was $1.70 per thousand cubic feet and the average Canadian price was 95 cents per thousand cubic feet.
The stark difference is structural: while natural gas is traded on an open market in the Lower 48, it is sold in Alaska through multiyear contracts with regulated prices.
And while ConocoPhillips reported a 2 cent per barrel decline from the first quarter, prices rose from $4.50 per thousand cubic feet during the second quarter of 2015.
Expenses down
Also helping were lower expenses during the quarter.
ConocoPhillips reported earning $98 million before income taxes from its Alaska operations during the second quarter of the year and $147 million after taxes.
The discrepancy comes from a negative 50.1 percent effective income tax rate from Alaska operations during the quarter. Including other taxes, the company reported an average tax rate of 15.5 percent from its Alaska operations during the quarter. The unusual negative tax rate is an anomaly. “These are driven by federal enhanced oil recovery credits and a one-time special item adjustment relating to the recognition of deferred taxes from prior years. There is no cash impact to the state of Alaska related to these items,” spokeswoman Natalie Knox Lowman told Petroleum News in an email.
And with the winter exploration season now over, capital investments fell to $183 million - down from $320 million in the first quarter and down from $379 million in the second quarter of 2015. Alaska continues to be a focal point. The investment this quarter represented 19 percent of the $1.1 billion the company spent across all segments in the second quarter of this year, whereas the $379 million investment in the second quarter of 2015 was nearly 16 percent of the $2.4 billion the company spent across all segments.
ConocoPhillips reported $235 million in depreciation, depletion and amortization expenses in Alaska during the second quarter of this year in Alaska - up from $207 million in the first quarter and up from $158 million in the second quarter of last year.
