Wednesday, oil giant ConocoPhillips (COP) reported a surge in its second-quarter profit as record crude prices boosted earnings at its exploration and production business.
The Houston, Texas-based ConocoPhillips is the first of the three major U.S. oil giants to report financial results. The biggest, Exxon Mobil Corp. (XM) of Irving, Texas, is scheduled to announce its second-quarter financial results on July 31, while San Ramon, California-based Chevron Corp. (CVX) is expected to release its second-quarter number the following day. Benefited by soaring oil and gas prices, oil companies such as Exxon Mobil and Chevron are expected to report substantially higher second-quarter profits.
Though rising crude prices are benefiting oil companies' upstream business, the margins to produce gasoline have plummeted, with refiners struggling to pass through higher crude costs to customers.
ConocoPhillips, the third-largest U.S. oil company, reported second-quarter net income of $5.439 billion, or $3.50 per share, up from $301 million, or $0.18 per share, for the same quarter in 2007, which included a $4.512 billion impairment associated with the company's Venezuelan operations. Second-quarter 2007 earnings adjusted for the Venezuela impairment totaled $4.813 billion, or $2.90 per share. On average, 14 Wall Street analysts surveyed by Thomson Financial expected earnings of $3.40 per share for the second quarter.
Quarterly revenues were $71.4 billion, a surge from $47.4 billion a year ago. The company produced 2.2 million barrels of oil equivalent, or BOE, per day, including an estimated 0.4 million BOE per day from its LUKOIL Investment segment.
The company's Exploration and Production, or E&P, business delivered second-quarter net income of $3.999 billion, compared to a net loss of $2.404 billion in the second quarter of 2007, including Venezuela impairment charges. Second-quarter 2007 earnings adjusted for Venezuela impairment charges were $2.108 billion.
Higher commodity prices for crude oil and natural gas lifted results, partially offset by higher production taxes, lower volumes, and increased operating costs. The price of crude oil increased more than 35% during the second quarter from the preceding quarter, and more than 75% from the same period last year, positively impacting the bottom line of the company.
Daily production, including Canadian Syncrude, averaged 1.75 million BOE per day, a decrease from 1.91 million BOE per day in the second quarter of 2007. The lower production was primarily due to the expropriation of the company's Venezuelan oil projects, as well as normal field decline. Venezuelan President Hugo Chavez seized fields operated by ConocoPhillips and Exxon Mobil last year after the companies refused to sign new contracts giving the government a larger stake.
Energy companies are struggling to increase production as oil-rich governments restrict access to the world's largest fields and there is growing competition from emerging- countries like India and China.
Looking ahead to the third quarter, ConocoPhillips expects that E&P segment production would be similar to the second quarter. The company expects full-year 2008 production to be consistent with its operating plan.
Refining and Marketing business yielded net income of $664 million in the second quarter, down from $2.358 billion last year. As expected, the results reflected significantly lower U.S. refining and marketing margins apart from lower net benefit from the company's asset rationalization efforts and higher turnaround and utility costs.
ConocoPhillips' investment in LUKOIL delivered net income of $774 million, up from $526 million in the second quarter of 2007. For the second quarter of 2008, ConocoPhillips estimated its equity share of LUKOIL production was 448,000 BOE per day and its share of LUKOIL daily refining crude oil throughput was 215,000 barrels per day, or BPD.
Meanwhile, ConocoPhillips' Chemicals business posted lower net income of $18 million in the second quarter, compared to $68 million in the year-ago quarter. The results were negatively impacted by lower margins for benzene and polyethylene as a result of significant increases in feedstock costs, as well as higher utility and turnaround costs.
For the first-six months, ConocoPhillips reported net income of $9.578 billion, or $6.11 a share, higher than $3.847 billion, or $2.31 a share, a year ago, including the Venezuelan charge. Revenue rose to $126.3 billion from $88.7 billion in the same period last year.
The company generated $5.4 billion of cash from operations during the quarter and repurchased $2.5 billion of common stock. The company ended the quarter with debt of $21.9 billion and a debt-to-capital ratio of 19%.
ConocoPhillips expects to buyback between $2 billion and $3 billion of common stock during the third quarter, which is in line with its $10 billion authorized share repurchase program for 2008.
ConocoPhillips is an international, integrated energy company with interests around the world. Headquartered in Houston, the company has approximately 33,100 employees, $190 billion of assets, and $253 billion of annualized revenues as of June 30, 2008.
The company recently signed an interim agreement with Abu Dhabi National Oil Company to develop the Shah gas field in Abu Dhabi. The project will include the construction of a new 1 billion-cubic-feet-per-day natural gas processing plant at Shah, new natural gas and liquid pipelines, and sulfur-exporting facilities at Ruwais, United Arab Emirates.
ConocoPhillips also recently signed a Memorandum of Understanding with Petrobras, the leading Brazilian energy company, to work together in oil and gas exploration, production, refining, marketing and transportation projects, as well as sugar-based ethanol production.
In North America, through its joint ventures with TransCanada, the company plans to expand the Keystone crude oil pipeline system and provide additional capacity of 500,000 BPD from Western Canada to the U.S. Gulf Coast. When completed in 2012, this expansion is expected to boost the capacity of the Keystone pipeline system to approximately 1.1 million BPD.
ConocoPhillips stock is down $1.07 or 1.27% and currently trading at $83.24. In the past 52-weeks, the stock has been trading between $67.85 and $95.96.
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