The loss from discontinued operations was $3.7 million ($0.02 per diluted share) in the fourth quarter 2012, compared to income of $4.0 million ($0.02 per diluted share) in the 2011 fourth quarter. The 2012 quarterly results included income tax adjustments related to the Company’s former U.S. oil refineries which were sold in 2011, mostly offset by profits from U.K. oil and gas production operations. The quarterly profit a year ago was primarily attributable to results of the U.K. oil and gas production operations. The sale of these U.K. oil and gas assets is expected to be completed during the first quarter 2013.
Year 2012 vs. Year 2011
Exploration and Production (E&P)The Company’s E&P continuing operations earned $905.0 million for the full year 2012 compared to $614.2 million in 2011. The improvement in 2012 earnings versus 2011 was primarily attributable to higher oil production and lower impairment and exploration expenses in 2012, plus income tax benefits recognized in the current year related to U.S. tax deductions for losses incurred in Republic of the Congo and Suriname. The current year also benefited from marginally higher average crude oil sales prices. The 2011 period included a $13.1 million after-tax gain on sale of gas storage assets in Spain. Unfavorable effects in 2012 included lower North American natural gas sales prices and higher extraction expenses, with the latter caused by increased production levels and higher overall per-unit depreciation rates. Total exploration expense was $380.9 million in 2012, down from $489.4 million in 2011. Exploration costs were lower in the current year due to more drilling success in 2012, plus lower geophysical expense in the Gulf of Mexico, Malaysia, Brunei and the Kurdistan region of Iraq. Total worldwide production in 2012 was 194,278 barrels of oil equivalent per day, an 8% increase from 179,388 barrel equivalents produced in 2011. Total crude oil, condensate and gas liquids production averaged 112,591 barrels per day in 2012, an increase of 9% compared to the 2011 level of 103,160 barrels per day. The increase in the current year was mostly attributable to higher production in the Eagle Ford Shale area of South Texas and at the Kikeh field, offshore Sabah, Malaysia. Natural gas sales volumes increased from 457 million cubic feet per day in 2011 to 490 million cubic feet per day in 2012. The 7% increase in gas volumes in the current year was primarily attributable to higher production in the Tupper area and the Eagle Ford Shale. Natural gas volumes would have increased more in 2012 but for the fact that the Company voluntarily shut-in certain wells and significantly reduced development drilling in Western Canada due to depressed North American natural gas sales prices.