Conoco earnings rise
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Production increases, higher prices and lower tax rate yield rise in profits
For Petroleum News
ConocoPhillips Co. reported adjusted earnings of $167 million from its Alaska operations in the second quarter, triple its earnings from a year ago on higher production and prices.
The largest independent exploration and production company in the world is expecting even greater production increases in the near future. The company has completed facilities at the 1H NEWS development at the Kuparuk River unit and expects to bring the project online as scheduled by the end of this year. The company has also completed “key infrastructure components” at the GMT-1 development at the federal Greater Mooses Tooth unit and expects the project to come online as schedule in late 2018.
The company credited “increased efficiency” at the two projects with contributing to a decline in capital spending relative to operating cash flow over the past four quarters.
Earning and taxesConocoPhillips reported earning $215 million in revenue before income taxes from its Alaska operations during the second quarter, up from $6 million during the first quarter and $98 million during the second quarter of 2016. Income taxes and other tax adjustments brought the earnings down to $167 million in the second quarter, up from $99 million during the first quarter and $54 million during the second quarter of 2016.
The earnings made Alaska the second most profitable segment for ConocoPhillips after its Asia Pacific and Middle East segment, which earned $212 million during the quarter.
All told, ConocoPhillips reported $178 million in adjusted earnings, reflecting a $72 million loss in the Lower 48 and a $215 million loss in its corporate segment.
The company reported an effective income tax rate of 7.4 percent in Alaska during the second quarter, up from negative 50.1 percent during the second quarter of 2016. With other taxes, the company reported a 32.2 percent tax rate in Alaska in the second quarter, up from 15.5 percent during the second quarter of 2016. The company also reported a 22.3 percent adjusted effective income tax rate in Alaska during the second quarter, up from negative 28.5 percent during the second quarter of 2016. The adjusted rate in Alaska is lower than all major operating regions except the negative 83.2 percent rate in Canada.
Asked about the impact of recent tax changes in Alaska, ConocoPhillips’ Executive Vice President of Production, Drilling and Projects Al Hirschberg said that the changes made so far “really don’t have any significant impact on us and so haven’t had an impact on our plans in Alaska with what’s happened so far.” But, he added, ConocoPhillips continues to watch the debate and is “pretty sensitive to the fiscal regime up there.”
Hirschberg credited Senate Bill 21 with allowing the company to increase its capital spending in Alaska and to devote a greater portion of its total capital spending to Alaska in recent years. “And if the tax regime changes, we would, of course, have to reevaluate that,” Hirschberg added. “We have forward projects where we have control of the pace.”
ConocoPhillips spent $229 million on capital expenditures and investments in Alaska during the second quarter, up from $228 million in the first quarter and $183 million in the second quarter of 2016. The Alaska capital-spending program accounted for 22.4 percent of the $1.02 billion spent across all segments in the second quarter this year, up from 16.1 percent of $1.13 billion spent companywide in the second quarter of last year.
The company reported $216 million in depreciation, depletion and amortization expenses in Alaska in the second quarter, down from $235 million in the same period last year.
Production and pricesConocoPhillips produced 184,000 barrels of oil equivalent per day in Alaska in the second quarter, down quarter-over-quarter for maintenance but up year-over-year.
The company produced 179,000 boe per day in the second quarter of 2016 and 191,000 boe per day in the first quarter of this year. Alaska accounted for 12.8 percent of total company production of 1.437 million boe per day during the quarter, up from 11.5 percent in the second quarter of 2016.
The growth in Alaska production came despite sharp declines in natural gas production.
ConocoPhillips produced 169,000 barrels of oil per day in Alaska in the second quarter, up from 163,000 bpd in the second quarter of 2016 and down from 175,000 bpd in the first quarter of this year. By comparison, the company produced 179,000 bpd in the Lower 48 and 136,000 bpd in Europe and North Africa. All told, ConocoPhillips produced 590,000 bpd in the second quarter.
The company also produced 14,000 bpd of natural gas liquids from its Alaska operations during the second quarter of the year, down from 15,000 bpd in the first quarter and up from 11,000 bpd during the second quarter of 2016.
The company produced only 7 million cubic feet of natural gas per day in Alaska during the second quarter, even with the first quarter but down from 27 million cubic feet per day during the second quarter of 2016, reflecting the end of liquefied natural gas sales.
ConocoPhillips reported an average realized price of $49.95 per barrel for Alaska crude oil during the second quarter, down from $52.09 in the first quarter and up from $44.39 during the second quarter of 2016. Alaska crude oil prices include natural gas liquids.
The company reported a natural gas price of $1.43 per thousand cubic feet, down from $3.53 per mcf in the first quarter and $4.82 during the second quarter of 2016. The sharp decline in prices reflects the end of Cook Inlet natural gas production for the company.