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ConocoPhillips (COP)

Q4 2010 Earnings Call

January 26, 2011 11:00 am ET


J. Mulva - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jeffrey Sheets - Chief Financial Officer and Senior Vice President of Finance

Clayton Reasor -


Edward Westlake - Crédit Suisse AG

Douglas Terreson - ISI Group Inc.

Philip Weiss - Argus Research Company

Mark Gilman - The Benchmark Company, LLC

John Herrlin - Merrill Lynch

Paul Cheng

Faisel Khan - Citigroup Inc

Paul Sankey - Deutsche Bank AG

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Blake Fernandez - Howard Weil Incorporated

Iain Reid - Jefferies & Company, Inc.



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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 ConocoPhillips Earnings Conference Call. My name is Regina, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today's event, Mr. Clayton Reasor, Vice President of Corporate and Investor Relations. You may proceed, sir.

Clayton Reasor

Well, good morning, and welcome to ConocoPhillips Fourth Quarter Earnings Conference Call. We'll begin by thanking you for your interest in the company. I'm joined today by Jeff Sheets, Senior Vice President of Finance and Chief Financial Officer. In this morning, we'll provide a summary of our key financial and operating results for the fourth quarter and full year 2010, and as well as provide some outlook for 2011. As in the past, you can find presentation materials on the IR section of the ConocoPhillips website.

Before we get started, I'd like you to take a look at the Safe Harbor statement on Slide 2. It's a reminder that we'll be making forward-looking statements during the presentation and Q&A. Actual results may differ materially from what's presented today. And factors that could cause actual results to differ are included in our filings with the SEC. Now I'd like to turn the call over to Jeff Sheets to take you through our prepared remarks and presentation.

Jeffrey Sheets

Thanks, Clayton. I'll start on Slide 3, which is a summary of our fourth quarter results and highlights. So during the fourth quarter, our earnings after adjusting for special items were $1.9 billion, which is $1.32 a share. That's up from $1.20 a share for the fourth quarter a year ago. Cash from operations for the fourth quarter were $6.2 billion, and annualized cash return on capital employed for the quarter was 19%.

Upstream production for the quarter was 1.73 million BOE per day, which is slightly up from last quarter and down from the fourth quarter a year ago. And yesterday, we reported our E&P organic reserve replacement number as 138% for 2010.

Our refineries ran well during the quarter, and we completed major turnaround at five of our domestic refineries. We also progressed our disposition program during the fourth quarter with $1.2 billion in cash proceeds from asset dispositions and $1.9 billion of LUKOIL share sales. But for the year, we generated cash proceeds of $7 billion from asset dispositions and $8.3 billion of sale of LUKOIL shares. So we ended the year with $10.4 billion in cash and short-term investments.

Turning to Slide 4. We'll review the company adjusted earnings comparing fourth quarter 2010 to fourth quarter 2009. So total company adjusted earnings were $1.9 billion, which is up $100 million fourth quarter over fourth quarter, with both E&P and R&M improved from over a year ago. Our E&P segment was up $146 million due to higher commodity prices, partially offset by lower production volumes. Compared to the fourth quarter of last year, our R&M segment generated $411 million more earnings this quarter primarily due to higher refining margins.

A significant difference between the fourth quarter of 2010 and 2009 is that in the fourth quarter of 2010, we no longer used equity accounting for our interest in LUKOIL due to our sale of the shares of LUKOIL. So that reduced the fourth quarter earnings compared to last year by $457 million. So if you exclude the impact of LUKOIL and you look at the fourth quarter earnings of last year before LUKOIL earnings and compare that to this year's fourth quarter, we were up 43% fourth quarter over fourth quarter.

Now we'll take a look at upstream production on the next slide, Slide 5. Fourth quarter production was 1.73 million barrels per day. That's down 5% or 99,000 BOE per day. This quarter production was higher than the third quarter production due primarily to the startup of the Qatargas 3 project. Production in QG3 came online earlier and higher than we have projected.

So looking at the year-over-year change, you can see from the chart that 18,000 BOE per day reduction were due to market factors, which include increased royalties at FCCL, FCCL curtailments of our Western Canadian gas production and some PSC price impacts. As of the end of December, all of our Western Canadian gas production was back online.

So for 2010, we sold assets with a run rate production of around 50,000 barrels per day, with 25,000 barrels per day, that coming from Syncrude, which we sold around midyear, and about 25,000 BOE per day associated with assets in Lower 48 in Western Canada that we sold primarily over the course of the fourth quarter. So the impact of these asset sales on fourth quarter production was 37,000 BOE per day. During the quarter, we also closed on the -- as I mentioned before, we closed on six -- on asset sales of $1.2 billion. That was made up of several different packages. We had six different packages in the Lower 48 and four different packages in Western Canada that made up those asset sales.

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