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COP touts satellites As ConocoPhillips rolls out earnings it announces two potential satellites Eric Lidji For Petroleum News
ConocoPhillips is reporting adjusted earnings of $494 million from its Alaska segment during the third quarter, a year-over-year decline despite a small bump in production.
ConocoPhillips produced 178,000 barrels of oil equivalent per day in Alaska during the third quarter, up 2,000 boe per day over the third quarter of 2012. The company attributed the bump to “less turnaround activity partially offset by normal field decline.” While production rose year-over-year, it fell 19,000 boe per day quarter-over quarter, which is typical for the third quarter on the Alaska North Slope because of summer maintenance.
The decline in profits appears to be the result of both increased spending in Alaska, as well as progressively higher tax payments triggered by higher summer oil prices.
ConocoPhillips said it plans to add a drilling rig at the Kuparuk River unit in January in addition to a rig it added at the unit earlier this year. The earlier rig addition has been responsible for some 1,600 barrels per day of new production, according to the company.
Early engineering Also, the company is conducting early engineering on two satellite fields.
The Shark Tooth or Drill Site 2S project in the southwest corner of Kuparuk would create 230 jobs during construction and cost some $600 million to bring online by late 2015, according to the company. The satellite would produce 8,000 bpd at its peak. The Greater Mooses Tooth project in the National Petroleum Reserve-Alaska would create more than 400 jobs during construction and cost some $900 million to bring online by late 2017, according to the company. The satellite would produce some 30,000 bpd at its peak.
The goal is to make a decision by late 2014 whether to sanction either or both of the projects.
“The likelihood of these projects moving ahead is greatly improved by the passage of SB21 (the More Alaska Production Act),” ConocoPhillips Alaska President Trond-Erik Johansen said in a statement. “New projects like these will create jobs for Alaskans and Alaska businesses, add new revenue for the state and put more oil down TAPS. I expect that we will have more new production investments to announce in the future.”
Companywide, ConocoPhillips reported $2.48 billion in profits for the quarter and produced some 1.5 million barrels of oil equivalent per day across its portfolio.
Earnings down ConocoPhillips saw a dip in earnings during the quarter.
The $494 million in third quarter profits is down from $585 million in the second quarter, and $535 million from the third quarter of last year. The company reported pre-tax income of $787 million from its Alaska segment during the quarter, down from more than $1 billion in the second quarter, and $820 million from the third quarter of last year.
Those figures still leave Alaska as one of ConocoPhillips’ most profitable segments.
The company reported adjusted earnings of $857 million for the Asia Pacific and Middle East, $284 million for Europe, $210 million for the Lower 48 and $181 for Canada.
Production up ConocoPhillips reported quarterly declines, but annual gains in Alaska production.
The company produced 161,000 barrels per day of oil during the third quarter, down from 176,000 bpd in the second quarter but up from 157,000 bpd during the third quarter of last year. The quarter-over-quarter decline is the result of turnarounds at the Prudhoe Bay and Kuparuk River units, which proved to be less disruptive than similar work in 2012.
By comparison, ConocoPhillips continued to narrow the gap between Alaska and Lower 48 oil production by producing 153,000 bpd from its Lower 48 oil properties, an ongoing increase led by unconventional oil production from the Bakken and Eagle Ford plays.
Companywide, ConocoPhillips produced 571,000 bpd of oil during the quarter.
For natural gas liquids, ConocoPhillips produced 11,000 bpd in Alaska during the third quarter, down from 15,000 bpd in the second quarter but up from 10,000 bpd in the third quarter of 2012. Companywide, ConocoPhillips produced 160,000 bpd of NGLs in the quarter.
Finally, ConocoPhillips produced 35 million cubic feet per day of natural gas in Alaska during the third quarter, down from 38 mmcf per day during the second quarter and down from 51 mmcf per day during the third quarter of last year. The large annual decline is the result of slowing and later stopping liquefied natural gas exports earlier this year.
Companywide, ConocoPhillips produced some 4 billion cubic feet per day of natural gas during the quarter, with some 1.5 bcf per day coming from its Lower 48 operations.
Selling to Asia? ConocoPhillips saw increases in all commodity prices during the quarter.
The company averaged $110.95 per barrel for Alaska crude and natural gas liquids, up from $106.09 during the second quarter and $106.53 during the third quarter of 2012.
By comparison, ConocoPhillips averaged $100.25 per barrel for Lower 48 crude. The disparity is partly caused by the blended oil and natural gas liquids stream in Alaska.
During an Oct. 31 earnings call, several analysts asked whether ConocoPhillips was considering alternative options for Alaska North Slope crude oil, such as Asia.
“It’s an option that we know is out there,” Chief Financial Officer Jeff Sheets said. “I can’t say that we’ve thoroughly investigated it or tried to make it happen, but we know that we could.” With Alaska North Slope crude currently trading relatively even with Brent prices, the point is moot for the time being, but should Alaska prices dip to $5 or more per barrel below Brent prices, markets in Asia could be attractive, Sheets added.
For Alaska gas, ConocoPhillips averaged $4.09 per thousand cubic feet during the third quarter, up from $4.03 during the second quarter and $3.97 in the third quarter of 2012.
By comparison, ConocoPhillips averaged $3.39 per mcf for its Lower 48 gas during the quarter. Historically, Lower 48 gas traded at a premium to Alaska supplies, but increased Lower 48 supplies as a result of unconventional gas production and recent Alaska contracts indexed to oil have changed the balance, giving Alaska prices the premium.
Taxes higher than profits Those higher prices contributed to higher tax rates for ConocoPhillips.
The company reported paying an adjusted effective income tax rate of 37.1 percent for Alaska, a figure that rises to 57.8 percent if taxes other than income taxes are included.
The rates for the second quarter were 35.7 percent and 52.9 percent, respectively.
By comparison, ConocoPhillips paid an adjusted effective income tax rate of 70.4 percent in Europe, 39.6 percent in the Lower 48 and Latin America, 31.5 percent in the Asia Pacific and Middle East, 28.7 percent in Canada and 48.7 percent as an average across all properties. The company only provides an average total tax rate for its Alaska segment.
ConocoPhillips paid some $900 million in taxes and royalties in Alaska in the third quarter, including $652 million in state obligations and $250 million in federal taxes.
ConocoPhillips reported capital expenditures of $291 million in Alaska for the quarter, up from $283 million in the second quarter and $208 million in the third quarter of 2012.
By comparison, ConocoPhillips spent some $1.2 billion in the Lower 48 and Latin America, $1.1 billion in the Asia Pacific and Middle East, $791 million in Europe, $505 million in Canada and some $4.4 billion across all of its properties during the quarter.
In addition to its capital program, ConocoPhillips reported $124 million in depreciation, depletion and amortization expenses in Alaska during the quarter, down from $135 million in the second quarter but up from $117 million in the third quarter of 2012.
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