ConocoPhillips saw improvements in last half of 2016, but posts $3.6B loss

  • A truck passes a drill dig at the Kuparuk field operated by ConocoPhillips on the Alaska North Slope. The company reported 2016 earnings on Feb. 2 of a $3.6 billion loss companywide. The company did make $319 million in Alaska. (Photo/File/AJOC)

ConocoPhillips turned a $115 million profit in Alaska during the last quarter of 2016, but once again lost money overall, according to the company’s latest earnings report published Thursday.

For the fourth quarter at least, relatively higher oil prices helped keep the companywide losses to $35 million as opposed to the $1 billion-plus ConocoPhillips lost in each of the first three quarters of the year.

The Houston-based oil and gas major reported losses greater than $3.6 billion for the full year, with most of the negative returns attributed to its Lower 48 and Canada operations.

ConocoPhillips net income in Alaska was $319 million in 2016, which included a $56 million gain from selling its one-third share of the Cook Inlet Beluga gas field to Anchorage Municipal Light and Power and Chugach Electric Association. Its overall revenue was $24.3 billion in 2016.

Almost exclusively an exploration and production company, ConocoPhillips does not have the downstream and refined product business segments that have helped support some other large oil companies since energy prices started to fell in late 2014.

The full-year earnings translate to a loss of $2.91 cents per share. ConocoPhillips stock was generally steady and traded at $48.53 shortly after the financial report was released Feb. 2.

Despite another tough year — it lost $4.4 billion in 2015 — ConocoPhillips CEO Ryan Lance in a formal statement that significant changes the company has made in response to lower commodity prices are starting to pay off.

“For the second quarter in a row our cash from operating activities exceeded capital expenditures and dividends paid. Our capital intensity and cost structure are dramatically lower, we’ve decreased our dividend and our debt reduction and share buyback programs are underway,” Lance said.

Companywide, ConocoPhillips cut its operating and production expenses by 19 percent during the year and its $4.9 billion 2016 capital budget was less than half of the prior year. The company is also in the midst of a $3 billion stock buyback program.

ConocoPhillips finished 2016 with a 44 percent debt-to-capitalization ratio, which was mostly flat for the year but up from 38 percent a year ago. Its debt-to-capitalization ratio was 31 percent in the first quarter of 2015.

The company is projecting a $5 billion capital budget for this year, about $1 billion of which is likely to be apportioned for Alaska projects, ConocoPhillips Alaska President Joe Marushack said in mid-January. It spent $883 million on Alaska capital in 2016.

For the year, ConocoPhillips reported a negative 22.5 percent effective income tax rate on its Alaska business.

Company spokeswoman Natalie Lowman said that was primarily due to a 15 percent federal income tax credit for expenses related to enhanced oil recovery operations — common at the large North Slope legacy fields of Prudhoe Bay and Kuparuk where natural gas is reinjected to force oil out of the reservoirs.

The phased federal tax credit goes back to the early 1990s and fully kicks in when average oil prices are at or below $28 per barrel adjusted for inflation since 1991.

Lowman said the current enhanced recovery credit threshold is about $52 per barrel, which meant ConocoPhillips was able to capture it for much of 2016. The company received $41.93 per barrel for Alaska crude on the year, and $48.15 in the fourth quarter. Production was up about 3.1 percent, from 158,000 to 163,000 barrels per day in Alaska.

The company’s combined state-federal tax rate for the fourth quarter was 55 percent and ConocoPhillips paid $492 million in taxes and royalties to the State of Alaska in 2016, according to Lowman.

Last month Marushack announced a discovery of 300 million net barrels of oil in the National Petroleum Reserve-Alaska, which it has dubbed its Willow project.

Depending on how it is developed, Willow could produce up to 100,000 barrels per day. Conoco is also progressing its Greater Mooses Tooth 1 and 2 oil projects in the NPR-A; combined, the GMT developments could add upwards of 60,000 barrels of production to the trans-Alaska pipeline system, or TAPS, in the coming years.

Elwood Brehmer can be reached at [email protected].

02/02/2017 - 2:11pm