ConocoPhillips (COP) — one of the world’s largest energy companies — reported robust first-quarter 2010 results, reflecting significantly higher crude oil prices and lower operating costs, partially offset by a decline in production volumes and lower worldwide refining margins.
Earnings for the third largest U.S. oil company after ExxonMobil Corp. (XOM) and Chevron Corp. (CVX) came in at $1.47 per share (excluding certain charges), surpassing the Zacks Consensus Estimate of $1.38 and significantly above the year-ago profit of 56 cents. Quarterly revenue, at $44.8, was up from $30.7 billion in the year-ago quarter.
E&P
The Exploration and Production (E&P) segment reported earnings of $1.8 billion during the quarter, up significantly from the year-ago level of $700 million. The increase was mainly driven by higher crude oil and natural gas liquids prices, partially offset by lower volumes.
Daily production from the E&P segment averaged 1.83 million barrels of oil equivalent (MMBOE), down from 1.93 MMBOE in the year-ago quarter. This reflects the impact of normal field declines, the increased impact from production sharing agreements, and unplanned downtime due to weather conditions, partially offset by higher production from China and Canadian oil sands.
R&M
The Refining and Marketing (R&M) segment reported a loss of $4 million, compared to a profit of $205 million in the year-ago quarter. The international loss in the segment was partially offset by profit from domestic operations. Overall market conditions for the segment continued to be weak during the quarter; however, light-heavy crude quality spreads widened and results benefited from lower costs and improved clean product yields.
Domestic refining crude oil capacity utilization rate for the quarter averaged 88% (reflecting economic run cuts and turnaround activity), compared to 80% a year earlier. International capacity utilization rate averaged 48%, down from 85% last year, primarily due to turnaround activity in the company’s joint-venture refineries in Malaysia and Germany, as well as the shutdown of the Wilhelmshaven, Germany refinery due to market conditions. Worldwide utilization averaged 78%, compared to 81% in the year-ago period.
Midstream
The Midstream segment (which includes the company’s 50% interest in DCP Midstream LLC) contributed $77 million to the net income during the quarter, down approximately 37.4% year over year, as the economic downturn and commodity-price weakness has led to less pipeline transportation.
LUKOIL Investment
ConocoPhillips’ earnings from its LUKOIL Investment segment came in at $387 million, up significantly from the prior-year profit of just $8 million.
Chemicals
The Chemicals unit reported earnings of $110 million as against $23 million a year ago, benefiting from improved market conditions.
Balance Sheet
During the quarter, ConocoPhillips generated cash from operations of $3.0 billion. As of Mar 31, 2010, the company had $29.0 billion in debt, with a debt-to-capitalization ratio of 31%. During the quarter, Conoco paid $700 million in dividends and invested $2.5 billion in capital expenditures.
Outlook
In an effort to strengthen its financial position and improve its balance sheet, Conoco intends to sell $10 billion of assets in 2010 and 2011. As part of that effort, the company has recently entered into an agreement to sell its stake in a Canadian oil sands project for $4.65 billion. Conoco has also started initiatives to offload half of its 20% stake in LUKOIL, a major Russian integrated oil and gas company.
In view of the increasingly bearish outlook for the marketing and refining operations, ConocoPhillips has also taken the decision to streamline its loss-making downstream portfolio, a plan that has been followed by several other oil majors, including Royal Dutch Shell PLC (RDS.A) and Chevron. As of now, the company has decided to boost focus on the more lucrative and well performing ‘upstream’ exploration and production end of the business.
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