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Lower prices drag Phillips’ profits down
Allen Baker PNA Contributing Writer
With a drop of nearly $5 in the price of each barrel of oil sold, profits at Phillips Petroleum Co. slid to $364 million in the third quarter. That's down 15 percent from the $426 million earned a year earlier. Operating earnings before special items were $378 million in the third quarter, compared with $505 million a year ago and $601 million in the second quarter of this year.
Revenues, which include half a month’s worth of cash flow from the Tosco refinery acquisition, reached $6.2 billion, up 8 percent from the $5.7 billion a year earlier. Second-quarter revenues were just $5 billion.
The revenue increase came despite a much lower price for the company’s oil and gas. Crude brought an average of $24.64 per barrel in the quarter, down from $29.44 a year earlier. Phillips got $25.83 for its oil in the second quarter.
Natural gas sold for an average of $2.53 per thousand cubic feet ($2.48 overseas) compared with $3.83 in the 2000 quarter and $3.31 in the second quarter of this year.
Oil production was up slightly despite scheduled maintenance shutdowns at Alpine and elsewhere, but gas production declined due to lower output in the United States and Norway, as well as the sale of Canadian properties at the end of last year.
Daily production was 780,000 barrels of oil equivalent, down from 787,000 a year earlier and far below the 845,000 barrels the company produced daily in the first quarter.
While Phillips CEO Jim Mulva predicted three months ago that the company would be back to the first-quarter number in the fourth quarter, he’s changed his tune a bit now, projecting 825,000 barrels daily in this current period. The gain from the just-completed quarter comes from normal seasonal improvements, a return to normal production at Alpine and other fields, and new production from Venezuela.
The addition of the former Tosco refineries on Sept. 14 boosted profits from refining, marketing and transportation by $36 million. But the total for the quarter, $110 million, was down from the second quarter, when that segment returned $196 million. Compared with last year’s third quarter, however, the profit figure was up $43 million, or 64 percent.
Debt-to-capital ratio improved Looking ahead, Phillips executives see major benefits from the Tosco deal.
“We now have a coast-to-coast refining and marketing presence, providing enhanced supply chain flexibility,” Mulva notes. “Moving forward, our focus will be on integrating our RM&T assets and capturing $250 million of before-tax recurring synergies.”
Phillips lost $27 million from its share of the joint chemicals operation with Chevron, compared with a profit of $15 million a year ago and a loss of $23 million in the second quarter this year.
The gas gathering, processing and marketing segment, another joint venture arrangement, brought in $23 million, down from $28 million in the same period a year ago. That erosion was due to lower margins.
Despite the $7 billion Tosco acquisition, Phillips improved its debt-to-capital ratio to 34 percent from 45 percent at the end of the second quarter. Operating cash flow for the quarter totaled $1.4 billion.
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