ConocoPhillips’ operating costs in 2Q2009 fell by more than 15% companywide from a year ago, but the “impact of lower natural gas prices in North America created a significant headwind for us,” the company’s CFO said Wednesday.

The Houston-based producer’s 2Q2009 net earnings totaled $1.3 billion (87 cents/share), compared with $5.4 billion ($3.50) in 2Q2008. Revenues dropped to $35.4 billion from $71.4 billion.

ConocoPhillips’ U.S. oil and gas quarterly output fell slightly to 771 million boe/d from 787 million boe/d a year earlier. Natural gas production from Alaska and the Lower 48 states was 2,095 MMcf/d, down from 2,132 MMcf/d in 2Q2008. Canadian gas output rose slightly quarter/quarter to 1,174 MMcf/d from 1,055 MMcf/d. Worldwide gas production, including equity affiliate volumes, was slightly higher at 5,051 MMcf/d, compared with 4,818 MMcf/d in 2Q2008.

U.S. exploration results were impacted by realized gas prices that fell dramatically from a year ago, CFO Sig Cornelius said during a conference call with investors and analysts.

The company’s realized U.S. gas prices averaged $3/Mcf in 2Q2009, compared with $9.69 a year earlier. On average the producer received $6.38/Mcf for its Alaska gas in 2Q2009, well ahead of the $3.81 received in the year-ago period. However, realized gas prices in the Lower 48 states averaged only $2.97/Mcf, compared with $9.74 in 2Q2008.

Like other North American gas producers, ConocoPhillips has adjusted its rig count lower, which in turn will affect 2009 total output, said Cornelius.

“I think the general trend in U.S. natural gas activity levels is that the base decline rates are starting to make an impact,” he said. ConocoPhillips’ gas drilling is forecast to be around 10% lower this year versus 2008. “That’s down from what we thought it would be in the first quarter.” If gas prices were to remain at low levels, the company would adjust by drilling more oil wells.

In any case, ConocoPhillips doesn’t foresee any problems related to high U.S. gas storage inventories this year.

“We think if we do get into a situation where there is a storage overflow, it will certainly be a signal to the market, and price signals as a result,” Cornelius said. “We would certainly then adjust based on market signals rather than operational constraints. We continue to look at our portfolio on a lease by lease basis…We are following the market closely and we believe we are on top of the situation.”

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