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Vol. 21, No. 7 Week of February 14, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

COP earns just $4M

Oil prices drive profits to extreme lows; oil production up in 4th quarter

ERIC LIDJI

For Petroleum News

ConocoPhillips Co. reported $482 million in adjusted earnings from its Alaska operations in 2015. But that figure fails to fully capture the topsy-turvy nature of the past year.

The largest oil company in Alaska posted a $67 million loss from its Alaska operations before income taxes and just $4 million in unadjusted earnings for the year. After-tax adjustments totaling $478 million led to the adjusted earnings statement for the year.

By comparison, in 2014, ConocoPhillips reported $3.122 billion in revenue from its Alaska operations before income taxes, more than $2 billion in adjusted earnings.

Companywide, ConocoPhillips reported a loss of more than $4.4 billion on $29.5 billion in revenue in 2015, down from more than $6.8 billion in profits on more than $52.5 billion in revenue in 2014. Those changes are largely the result of oil prices, which have been harsher and more persistent than the company predicted. “Just a few months ago, we thought the market would rebalance by the second half of 2016. Now it looks like that could stretch into 2017,” Chairman and CEO Ryan Lance said in a Feb. 4 conference call.

Production up

Those zigzagging earnings for 2015, and the stark contrast between 2014 and 2015 earnings, reflect the direct and indirect effects of low crude oil prices around the world.

Directly, prices drove down profits. ConocoPhillips reported an average realized price of $43.73 per barrel for Alaska crude oil in the fourth quarter of 2015, down from $74.07 per barrel in the fourth quarter of 2014. The decline was even sharper year over year: an average price of $51.61 per barrel in 2015, down from $97.68 per barrel in 2014.

The decline masks an otherwise remarkable fact: ConocoPhillips increased total production quarter over quarter and year over year in the last three months of 2015.

ConocoPhillips produced 190,000 barrels of oil equivalent per day in the fourth quarter of 2015, up from 160,000 barrels per day in the third quarter and up from 186,000 barrels per day in the fourth quarter of 2014. The quarterly gain reflects slower summer production as North Slope operators perform maintenance. But the yearly gains are the result of increased production from developing drilling and the start up of the CD-5 pad.

The gains were limited to liquids production.

ConocoPhillips produced 169,000 barrels of oil per day during the fourth quarter of 2015, up from 144,000 bpd the third quarter and 164,000 bpd during the fourth quarter of 2014. The company also produced 14,000 bpd of natural gas liquids in the fourth quarter, up from 10,000 bpd in the third quarter and even with fourth quarter production in 2014. The Alaska crude oil price reflects a combination of oil and natural gas liquids, which are blended during transportation.

ConocoPhillips produced 41 million cubic feet of natural gas per day from its Alaska operations during the fourth quarter, up from 34 million cubic feet per day in the third quarter but down from 49 million cubic feet per day in the fourth quarter of 2014.

Those production declines correlate to a decline in prices. The company reported an average price of $4.25 per thousand cubic feet in the fourth quarter of 2015, down from $5.01 per thousand cubic feet in the fourth quarter of 2014. The annual prices were similar: $4.33 per thousand cubic feet in 2015 and $5.42 per thousand cubic feet in 2014.

The small rise in fourth quarter liquids production failed to change the overall trajectory of the year, which lacked growth in all three commodities. ConocoPhillips produced 178,000 barrels of oil equivalent per day (158,000 barrels per day oil, 13,000 barrels per day natural gas liquids and 42 million cubic feet natural gas) during 2015, down from 183,000 barrels of oil equivalent per day (162,000 barrels per day oil, 13,000 barrels per day natural gas liquids and 49 million cubic feet per day natural gas) during 2014.

Chukchi Sea and taxes

The yearend figures include other oddities.

The largest “adjustment” to earnings in 2015 was $412 million in “impairments” posted in the fourth quarter. Those are primarily associated with ConocoPhillips’ decision to abandon its Chukchi Sea exploration program. The company canceled the program in part because of prices and in part because of a challenging regulatory environment.

ConocoPhillips reported an effective tax rate of 23.1 percent for Alaska in the fourth quarter of 2015 and 98.6 percent for the entire year and an adjusted effective income tax rate of minus 2.8 percent for the fourth quarter and 28.7 percent for the entire year. Those figures represent Alaska’s share within the global company. All told, ConocoPhillips Alaska Inc. paid a 49 percent tax rate for the year and 48 percent tax rate for the fourth quarter and paid $673 million in taxes and royalties in 2015, of which $665 million went to the state of Alaska, according to the company. Including capital expenses, ConocoPhillips Alaska spent more than $100 million more than it made during 2015.

By comparison, ConocoPhillips reported an effective tax rate of 44.2 percent in the fourth quarter of 2014 and 49.4 percent for the entire year in Alaska and an adjusted effective income tax rate of 31.5 percent for the fourth quarter and 34.6 percent for the entire year.



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