ConocoPhillips bounced back from year-ago losses on stronger oil prices and better-than-expected results from its cost reduction plans, the Houston-based producer said last week.

Profits in the final quarter of 2009 reached $1.22 billion (81 cents/share), compared with a year-ago loss of $31.76 billion (minus $21.37). The loss a year ago followed $34 billion in asset write-offs; the latest period included $575 million in write-offs. Revenue in the period was $43.6 billion, down from $44.9 billion in 4Q2008.

The producer benefited from rising oil prices in the last three months of 2009 and also from its year-long cost-cutting efforts. ConocoPhillips outdid itself in cutting costs last year, trimming expenses by 12%, or $1.09 billion ($1.7 billion adjusted for severance costs), exceeding a $1.4 billion (10%) target. Market factors such as foreign currency and lower energy costs contributed about 60% of the reductions. In addition, savings were realized through the renegotiation of service and supply contracts, workforce reductions and an ongoing focus on costs, the company said.

Oil and gas production in 4Q2009 fell to around 1.83 million boe/d from 1.87 million boe/d a year earlier. Natural gas prices averaged $4.93/Mcf in the quarter, down 23% from 4Q2008. For the year, however, output was 1.85 million boe/d, compared with 1.79 million boe/d in 4Q2008.

“Our upstream business performed well during this quarter and throughout 2009,” said CEO Jim Mulva. Exploration and production (E&P) full-year output was 65,000 boe/d higher than 2008 production “due to project ramp-ups and high operating efficiency. North American natural gas prices were improved slightly from the third quarter but for the year still lagged behind 2008 levels, negatively impacting both 2009 production volumes and earnings.”

Clayton Reasor, vice president of corporate affairs, presided over the conference call with financial analysts. He pointed to reductions in North American natural gas output as one reason the company’s E&P output fell 2% quarter/quarter.

In North America, “voluntary gas curtailments began in August, and at year-end 145 MMcf/d had been curtailed,” Reasor said. The lower production cut into gas sales, and “market factors worked against us.” All of the shut-in gas has since been restarted. “North American gas prices were a challenge for the year, but we benefited from changes and cost savings.”

ConocoPhillips “exceeded E&P production goals,” Reasor said. “We performed well in 2009 despite difficult economic conditions. We initially expected production to be flat from 2008, and we delivered slightly more than 2% growth [year/year] because of operational efficiency. We expect to return to more normalized production that was achieved in 2008 in large part this year with reduced North American drilling…We have a good portfolio of projects, and we will continue to deliver, but we do plan to reduce capital spending in the more mature assets.”

Although E&P spending is to “remain relatively flat” this year, the company still has several exploratory development programs ongoing in the United States and Canada, said Reasor. Among projects being developed in the United States are the deepwater Lower Tertiary Trend in the deepwater Gulf of Mexico (GOM) and the emerging Eagle Ford Shale natural gas play in South Texas.

“We’ve adjusted our capital plans for this business to ensure we remain cash positive,” he said. “Through all of these steps, we’re confident of our ability to operate in this challenging environment.”

In related news, ConocoPhillips and Norway’s Statoil ASA agreed last week to a swap of sorts, with Statoil agreeing to buy a quarter interest in 50 of ConocoPhillips’ leases in the Chukchi Sea offshore Alaska. In turn, the Houston-based producer would take a stake in some of Statoil’s leases in the Lower Tertiary Trend. No financial details were disclosed.

ConocoPhillips, which bought the Chukchi Sea leases in a federal auction two years ago, would operate and retain control of the Alaska drilling projects. Initial drilling is scheduled to begin there in 2012. Statoil, which is considered the world’s largest offshore operator, would become the fourth largest operator in Alaska when the transaction with ConocoPhillips is completed, the company said.

In the second transaction, ConocoPhillips agreed to buy a half-stake in 16 Statoil-operated GOM leases and acquire Statoil’s 25% stake in each of five additional leases that ConocoPhillips operates.

Statoil and ConocoPhillips have conducted joint operations on the Norwegian continental shelf for more than 30 years.

“The Chukchi Sea in Alaska is a new frontier area for all operators,” said Tony Dore, who heads Statoil’s North American exploration group. “By adding on these leases to the 16 we already have in Chukchi, we have now acquired a sizable acreage portfolio to explore in the coming years.”

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