ConocoPhillips continues to strengthen the focus on its upstream operations, after announcing it will take a $1.3 billion charge in the fourth quarter to shutter a “substantial” number of refining and marketing operations.
Set to announce quarterly and year-end earnings later this month, the fourth quarter guidance offered on Wednesday is for the first full quarter of operations since Conoco Inc. and Phillips Petroleum Co. merged last year.
The Houston-based producer said that as it realigns its business model, it will take a fourth quarter charge of up to $1.3 billion to close many of its refining and marketing operations. The gasoline station closings in certain geographic markets will allow the company to save money and compete more favorably with other major producers, it said. In the past two months, ConocoPhillips has laid out a plan to bolster its upstream business, and said that 75% of its budget this year will be directed toward the upstream (see NGI, Jan. 6).
Fourth quarter daily production is expected to be about 1.62 MMboe, in line with previous forecasts, the company said. For the upstream, ConocoPhillips reported improved natural gas prices, but lower than average crude prices. Overall, its daily production was “in line” with previously stated targets, “despite the negative impact from the ongoing labor strike in Venezuela.”
For the company’s midstream segment, the realized average natural gas liquids sales price for the fourth quarter is expected to be above third quarter prices, reflecting ConocoPhillips’ 30% interest in Duke Energy Field Services, as well as consolidated midstream operations.
The company’s weighted U.S. refining margin for the quarter is expected to improve over third quarter margins, and turnaround costs are expected to be about $15 million after tax, in line with previously stated targets. The costs exclude about $50 million after tax in downtime and lost “opportunity costs” associated with a power failure at its Humber refinery in the United Kingdom.
Operating and market conditions deteriorated in the fourth quarter for the company’s Chemicals segment, and it remains “negatively impacted by low margins and sluggish demand, reflecting the ongoing difficult market environment of this business.” This segment holds a 50% interest in Chevron Phillips Chemical Co.
When quarterly and year-end earnings are released on Jan. 29, ConocoPhillips expects to report a debt balance of $19.8 billion.
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