Corporate functions incurred net costs of $15.2 million in the 2012 second quarter compared to net costs of $23.4 million in the 2011 second quarter, with the improved result in 2012 attributable to both lower net interest expense and favorable impacts on transactions denominated in foreign currencies. Net interest expense was favorable in 2012 primarily due to a higher proportion of financing costs being capitalized to ongoing oil development projects offshore Malaysia. Foreign currency effects were an after-tax gain of $10.7 million in the 2012 quarter compared to an after-tax gain of $4.9 million in the 2011 quarter.
First Six Months 2012 vs. First Six Months 2011
Exploration and Production (E&P)The Company’s E&P business earned $551.7 million in the first six months of 2012 compared to earnings of $503.7 million in the same period of 2011. Earnings in 2012 were favorably affected by higher average sales prices for crude oil and Sarawak natural gas compared to a year ago. The Company also benefited from higher crude oil and natural gas sales volumes in 2012 compared to 2011. North American natural gas prices were much weaker in 2012 than the previous year, but sales prices were higher for natural gas production in Malaysia in the current period. Exploration expenses were $149.6 million in 2012, down from $218.8 million in 2011, with the lower costs in the 2012 period primarily related to unsuccessful 2011 wildcat drilling offshore Indonesia and Suriname. The 2011 period included a $13.1 million after-tax gain on sale of gas storage assets in Spain. Worldwide production averaged 191,836 barrels of oil equivalents per day during the first six months of 2012 compared to 176,272 barrel equivalents per day in the same period a year ago. Crude oil and gas liquids production for the first six months of 2012 averaged 105,751 barrels per day compared to 103,725 barrels per day in 2011. The oil production increase in 2012 was mostly caused by higher crude oil volumes produced in the Eagle Ford Shale. Additionally, crude oil production in 2012 was higher in all areas of Malaysia. However, production in the Gulf of Mexico was lower in the current year due to continued field decline for mature properties. Also, crude oil production at the Azurite field in Republic of the Congo was lower in the current year due to decline and one well being offline since March 2012 pending a mechanical workover. Natural gas sales volumes were 516 million cubic feet per day in 2012 compared to 435 million cubic feet per day in 2011, with the increase primarily resulting from additional gas volumes produced at Tupper West in British Columbia. Tupper West came on production in February 2011. Crude oil and condensate sales prices averaged $97.21 per barrel in the 2012 period compared to $93.04 per barrel in 2011. North American natural gas was sold at an average price of $2.36 per MCF in 2012, significantly lower than the $4.30 per MCF in 2011. Sales prices for Sarawak natural gas production averaged $7.80 per MCF during the first six months of 2012 compared to $6.15 per MCF during 2011.