Fourth quarter and year-end financial results for ConocoPhillips are good examples of how natural disasters and political turmoil can impact operations both for the long and short term. Newly merged major ConocoPhillips saw its earnings drop sharply because of natural disasters in the Gulf of Mexico and Alaska, and political unrest in Venezuela. Meanwhile, Unocal Corp.’s earnings were positively impacted by higher commodity prices and better-than-expected production.

ConocoPhillips reported a fourth-quarter loss of $410 million (60 cents/share), compared with net income of $162 million (42 cents) for the same period of 2001. Excluding the special items that totaled $1.2 billion, fourth quarter income was $747 million ($1.10), compared with $212 million (55 cents). The special items included $31 million (4 cents) of earnings from marketing assets that will be sold or discontinued. Total revenues were $23.5 billion, versus $8.7 billion a year ago.

“Our first full quarter of operation as ConocoPhillips went well,” said CEO Jim Mulva. “Our upstream production was in line with our target volume of 1.62 MMboe/day. Our Alaska operations safely weathered a significant earthquake, and our production operations in Venezuela were shut down without incident as a result of recent events. Downstream, we ran at 89% of capacity and managed our crude oil supply in spite of events in Venezuela.” Mulva said the company, which officially merged on Aug. 30, 2002, will continue to evaluate its asset portfolio to sell off assets that don’t meet earnings targets. In the final quarter of 2002, ConocoPhillips sold more than $600 million of its upstream business and disposed of a “substantial” number of service stations, he noted.

For year-end 2002, ConocoPhillips reported net income of $1.5 billion ($3.11/share), with 485.5 million shares outstanding, compared with 2001 net operating income of $1.7 billion ($5.68), based on 295 million shares. Including special items, the company had a loss of $277 million (minus 57 cents), compared with net income of $1.7 billion ($5.63) for 2001. Total revenues were $57.2 billion, versus $24.8 billion in 2001.

Within exploration and production (E&P), the major’s fourth quarter income was $824 million, up from $244 million in 4Q01. Net operating income was higher due to increased boe production with the new Conoco assets, as well as higher commodity prices. Its fourth quarter average worldwide crude oil sales price was $25.31/bbl, and the company’s U.S. Lower 48 and worldwide natural gas prices averaged $3.43/Mcf and $3.27/Mcf, respectively.

Daily production for the quarter averaged 1.62 MMboe, in line with previously stated targets, despite the negative impact of recent events in Venezuela. “Upstream, we expect our production to be approximately 1.55 MMboe/d for the first quarter of 2003,” said Mulva, who added that the estimate assumes Venezuela operations will not resume in the first quarter.

Midstream net operating income was $20 million, up from $11 million in the third quarter of 2002 and $19 million in the fourth quarter of 2001. The improvement was due to the addition of Conoco’s midstream operations and higher natural gas liquids prices, partly offset by lower equity earnings from Duke Energy Field Services LLC (DEFS), in which ConocoPhillips is a partner. For all of 2002, midstream decreased to $55 million, from $120 million in 2001. The addition of the Conoco midstream operations was more than offset by a decline in DEFS’ net operating income as a result of a drop in DEFS’ natural gas liquids prices and higher operating expenses.

The Emerging Businesses segment had a net operating loss of $40 million in the quarter, versus a loss of $3 million in 4Q01. For the year, the segment had a net operating loss of $64 million, compared with a loss of $12 million in 2001. Increased costs were attributed to the company’s gas-to-liquids addition, as well as carbon fibers and power generation activities.

Unocal’s fourth quarter special items included a net gain of $16 million from asset sales, offset by $26 million for environmental issues, $8 million in costs related to the acquisition of the outstanding minority interest in Pure Resources,Inc., common stock and $9 million for uninsured losses due to hurricane damage in the Gulf of Mexico last September. The independent benefited in the quarter from high commodity prices, lower exploration expenses and higher international natural gas production, along with improved margins in oil and gas marketing activities. However, gains were partially offset by lower North American production volumes and higher pension-related costs.

Unocal’s North America production averaged 223,000 boe/d in the quarter, down from 279,000 boe/d for the same period of 2001. The lower production mostly came from a decline in Unocal’s Muni field in the Gulf of Mexico, which reached peak production rates in the third quarter of 2001. There also were other natural declines in existing fields and hurricane-related production cutbacks in Gulf operations.

For the full-year 2002, Unocal’s preliminary unaudited net earnings were $331 million ($1.34/share diluted), compared with $615 million ($2.50/share) for the same period in 2001. Excluding special items, discontinued operations and the cumulative effect of an accounting change, Unocal’s adjusted after-tax earnings from continuing operations were $426 million ($1.72), compared with $753 million ($3.04) for 2001. Full-year 2002 revenues from continuing operations were $5.25 billion, compared with $6.75 billion in 2001.

Cash flow from operating activities for the full-year 2002 was $1.57 billion, down from $2.13 billion for 2001. This decrease primarily reflected lower North America natural gas production volumes and prices. Capital spending was $1.67 billion for the full-year 2002, compared with $1.73 billion in 2001, which excluded $646 million for major acquisitions. The company’s total consolidated long-term debt (including current maturities) was $3.0 billion at the end of 2002, compared with $2.91 billion at year-end 2001.

For the first quarter, Unocal is forecasting production in the range of 455,000-465,000 boe/d. Adjusted earnings are expected to range between 60-70 cents in the quarter, comparable to analysts’ estimates of 66 cents on average. The first quarter earnings forecast by Unocal assumes average crude oil prices of $33/bbl and North American natural gas prices of $5.25/MMBtu.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.