ConocoPhillips, the third largest U.S. oil company by market value, reported a surge in 2Q2008 net income on higher commodity prices. Overall, the Houston-based major’s North American natural gas production was down from a year ago, but the decline was partially offset by higher output from the company’s holdings in the San Juan Basin.

U.S. production averaged 787,000 boe/d, in the quarter, compared with 848,000 boe/d in 2Q2007. U.S. gas production totaled 2,132 MMcf/d, compared with 2,319 MMcf/d a year earlier. Alaska gas output totaled 98 MMcf/d, compared with 100 MMcf/d a year ago; Lower 48 gas output was 2,034 MMcf/d, down from 2,219 MMcf/d in 2Q2007. ConocoPhillips’ Canadian gas volumes averaged 1,055 MMcf/d, down from 1,133 MMcf/d in 2Q2007. Kenai, AK, liquefied natural gas (LNG) sales volumes reached 72 MMcf/d in 2Q2008, which was flat from a year earlier.

Worldwide, production averaged 1.75 million boe/d, down from 1.91 million boe/d in 2Q2007. The decrease, said the company, “was primarily due to downtime associated with planned and unplanned maintenance activities, mainly in the United Kingdom, Norway, Alaska and Canada.”

CEO Dave O’Reilly told energy analysts during a conference call last week that ConocoPhillips has a “nice portfolio of both conventional and nonconventional assets in North America that we need to exploit over the next couple of years. We spread this out in a way to make sure we do it well.

“We don’t want to give up the opportunity to drill wells” in Canada or the United States, he said. “There’s a question of how fast we go, but we have a great portfolio…where we plan to do aggressive exploitation. We do continue to pick up acreage, but our approach is to quietly do that, not only in existing areas but also in what will become the new hot areas in the future.”

ConocoPhillips won’t likely be looking for large North American acquisitions, he said.

“We have made large acquisitions of assets in the past, but I don’t think the environment is right to do that for shareholders,” O’Reilly said. “We will concentrate more on organic growth, as we’ve outlined.”

The integrated major’s U.S. onshore has operations in the San Juan, Piceance, Wind River, Williston, Anadarko, Permian, Fort Worth, Uinta and Black Warrior basins, as well as the Guymon-Hugoton trend in the panhandles of Texas and Oklahoma; the Lobo trend in South Texas; the Bossier trend in East Texas; Louisiana; and the Texas Gulf Coast. ConocoPhillips also is Alaska’s largest oil and gas producer, and it has extensive Gulf of Mexico operations.

The company reported net income of $5.44 billion ($3.50/share), compared with $301 million (18 cents) in 2Q2007. The results jumped from a year ago because ConocoPhillips’ quarterly earnings in 2007 included a write-down of $4.81 billion from the expropriation of Venezuelan oil projects. Adjusted for the item, earnings a year ago were $2.90/share. Revenue in 2Q2008 rose 51% to $71.4 billion.

The producer’s U.S. gas prices averaged $9.69/Mcf in 2Q2008, well ahead of the $6.49 of a year ago. ConocoPhillips fetched $9.74/Mcf for gas in the Lower 48, up from the $6.51/Mcf that it received in 2Q2007. ConocoPhillips’ Alaskan LNG sold for $7.15/Mcf, up from $5.86 a year ago.

Asked about the current operating environment for energy companies in the United States, O’Reilly said he thought public opinion was beginning to favor more energy exploration.

“First of all, public opinion is moving pretty fast here in the last few months, they are understanding the challenge, the issues, of the high cost of oil and gas,” he said. “Washington [DC] and the states are open to more acreage opening up, which is what the industry has always been looking for. We’ve always had a lot of resources, lots of indigenous resources, so this is very, very encouraging. Hopefully, we’ll see more movement on that.”

Of a possible windfall profits tax, high fuel prices make the subject “an easy one to talk about,” said O’Reilly. “On the other hand, the companies are reinvesting income back into the development of energy both downstream and upstream, and we need the cash to reinvest. It costs a lot more to do work to create a barrel of oil than it did in the past. The tax is not warranted and it would come at a huge cost to the capital costs of what it takes to produce oil and gas.

“Furthermore, windfall profits taxes have been tried and they didn’t work. They led to less supply, and they had a higher impact on the costs of energy. It’s important to get that message out. I don’t think it’s warranted, and people have to understand what [Congress] is talking about.”

O’Reilly said it is “encouraging” that there appears to be a “swing in public opinion” in favor of more U.S. drilling. “The media has become more balanced,” he said. “For the American public, it has been a hardship, the cost of energy, particularly for those with less income.”

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.