Phillips profits drop with energy prices; production matches 2000 quarter

Higher output in Alaska and Norway brought liquids production up 3 percent in fourth quarter; but lowered gas output in other areas reduced the total flow

By Allen Baker

PNA Contributing Writer

Phillips Petroleum Co. reported a 78 percent drop in fourth quarter profits as lower energy prices and slimmer refinery margins took a toll.

The company, based in Bartlesville, Okla., earned $162 million in the period, a decline of 88 percent from the $744 million in profits a year ago. Special items cut $65 million from the results this quarter, while they contributed $43 million a year ago.

The fourth quarter net was less than half the $364 million Phillips earned in the third quarter of 2001.

For the year, Phillips had a profit of $1.66 billion, down 11 percent from the $1.86 billion for 2000.

The company got an average of $18.98 a barrel for its crude in the quarter, down 36 percent from $29.93 a year earlier. Lower 48 natural gas brought $2.06 per thousand cubic feet, 59 percent below the $4.98 in the 2000 quarter. That cut upstream operating income to $244 million, down 65 percent from $695 million in the last quarter of 2000.

“Also affecting earnings was the narrowing of motor fuel, distillates and other petroleum product margins,” said Phillips Chief Executive Jim Mulva.

“Our average crack spread was down 51 percent from the same quarter last year, and in December, our crack spreads were at some of the lowest levels we’ve seen in years.”

So despite the addition of the former Tosco refineries for the full fourth quarter, operating income from refining, marketing and transportation dropped 23 percent in the quarter to $96 million from $125 million. A $66 million gain from inventory liquidation in the 2000 quarter helped the results in the 2000 quarter, though. Without that item, profits from the sector would have shown a 63 percent increase.

Production remains flat

Higher output in Alaska and Norway brought liquids production up 3 percent in the fourth quarter. But gas output was lower in the United States and United Kingdom, and the company sold gas-producing properties in Canada, reducing the total flow.

The company’s joint venture chemicals business, a partnership with Chevron, showed a loss of $17 million for the quarter, down from a $41 million loss a year ago.

Phillips’ interest in Duke Energy Field Services showed a net operating income of $14 million, half the total a year earlier due to lower prices for natural gas liquids.

The company has budgeted $3.5 billion for capital investments, about 75 percent of that allocated to exploration and production, with the rest going to downstream projects. Those plans could be affected by the planned merger with Conoco, expected to close in the second quarter of the year. The companies say they expect $750 million in savings from that merger.

Revenues for the quarter rose 59 percent to $9.96 billion from $6.25 billion, reflecting the Tosco acquisition. For the year, revenues were up 16 percent to $26.87 billion from $23.08 billion.

Phillips cut its debt-to-capital ratio to 37 percent at the end of 2001, compared with 51 percent a year earlier, the company said. Assets rose to $35 billion at the end of last year from $20.5 billion at the end of 2000, mostly due to the purchase of the Tosco refining operations.