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Operating at a loss Low prices drive ConocoPhillips earnings into red despite uptick in production ERIC LIDJI For Petroleum News
ConocoPhillips Co. reported a $2 million loss from its Alaska operations in the first quarter, even as crude oil production increased from its North Slope fields.
A noteworthy increase in year-over-year production rates for the global oil company failed to offset a considerable decline in Alaska oil prices over the same period of time.
The company reported negative income of $52 million from its Alaska operations before income taxes and a 96.4 percent adjusted effective income tax rate for the region, which computes to a $2 million loss for the region during the first three months of the year.
Companywide, ConocoPhillips reported a nearly $1.5 billion loss on more than $5.1 billion in revenue from its global operations during the first quarter of the year.
Increasing in value With the current trends, Alaska has become a valuable legacy asset for the company.
Along with ConocoPhillips’ operations in Europe and North Africa, Alaska has “many of our legacy assets that still compete for capital,” Executive Vice President for Production, Drilling and Projects Al Hirshberg said during an April 28 earnings call for investors.
Presenting a strategy for how the company is responding to low oil prices, CEO Ryan Lance said, “Growth will come from investments in our large low cost of supply resource base. We continue to analyze and calibrate this resource base as we believe it holds profitable investment inventory to keep production or grow modestly, keep flat production or grow modestly for well over a decade. Within this captured resource base, we have a mix of flexible, short-cycle projects and lower risk, medium-cycle investment projects. We see a role for both of these types of assets in our portfolio. And finally, the key to being successful in a cyclical business is to have a sustained low-cost structure.”
Those assets include the Drill Site 2S project at the Kuparuk River unit, the CD5 project at the Colville River unit and the GMT-1 project at the Greater Mooses Tooth unit.
Production up, prices down The increased investment is yielding results.
ConocoPhillips produced 191,000 barrels of oil equivalent per day in Alaska in the first quarter, up less than 1 percent quarter-over-quarter and up 2.6 percent year-over-year.
The increase came entirely from crude oil production.
The company produced 170,000 barrels per day during the first quarter, up less than 1 percent quarter-over-quarter and up more than 4.1 percent year-over-year. Natural gas liquids production remained even quarter-over-quarter and year-over-year at 14,000 barrels per day. Natural gas production declined to 38 million cubic feet per day, down from 41 million in the fourth quarter of 2015 and 52 million in the first quarter of 2015.
But those increased were overshadowed by oil prices.
ConocoPhillips reported an average realized price of $35.54 per barrel for Alaska crude oil, which includes natural gas liquids. The price was down from $43.73 per barrel in the fourth quarter of 2015 and down from $50.74 per barrel in the first quarter of 2015.
The company reported an average realized price of $4.84 per thousand cubic feet for Alaska natural gas during the first quarter, up from $4.25 per thousand cubic feet during the fourth quarter of 2015 and down from $4.29 per thousand cubic feet in the first quarter of 2015. The Alaska natural gas price is set on contracts approved by regulators.
Spending up In addition to lower prices, ConocoPhillips spent more during the quarter.
The company reported $320 million in capital expenditures and investments during the first quarter, up from $267 million in the fourth quarter of 2015 but down from $402 million in the first quarter of 2015, when several large projects were under construction.
The company also reported $207 million in depreciation, depletion and amortization expenses from its Alaska operations during the first quarter, up from $199 million in the fourth quarter of 2015 and down from $140 million during the first quarter of 2015.
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