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ConocoPhillips Q1 2010 Earnings Call Transcript

ConocoPhillips Q1 2010 Earnings Call Transcript

ConocoPhillips (COP)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET


Clayton Reasor – VP, Corporate Affairs

Jim Mulva – Chairman and CEO


Doug Terreson – ISI

Jason Gammel – Macquarie

Doug Leggate – Bank of America Merrill Lynch

Arjun Murti – Goldman Sachs

Jacques Rousseau – RBC

Paul Cheng – Barclays Capital

Mark Gilman – Benchmark

Neil McMahon – Sanford Bernstein

Ed Westlake – Credit Suisse

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Good day, ladies and gentlemen, and welcome to the Q1 2010 ConocoPhillips earnings conference call. My name is Chris, and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Clayton Reasor, Vice President of Corporate Affairs. Please proceed.

Clayton Reason

Thanks Chris, and thanks everybody for participating in our first quarter conference call. I am joined today by Jim Mulva, our Chairman and CEO, and this morning we will be discussing the Company's first quarter results and status on the strategic initiatives we shared at our March 24th analyst day.

A summary of key financial and operating results for the quarter will be provided as well as our outlook for the remainder of 2010. As in the past, you can find the presentation materials on the IR section of the ConocoPhillips website. In an addition to the presentation material, we plan to use our website to provide information that was part of our quarterly interim update prior to discontinuing its issuance earlier this year.

Please refer to our Safe Harbor statement in the appendix of this presentation on slide 17. It's a reminder that we will be making forward-looking statements during the presentation and Q&A. Our actual results may differ materially from what we present, and also in the appendix that are non-GAAP reconciliations footnoted throughout the presentation for your reference.

Moving to slide two, summary of our results and highlights for the quarter. You will see adjusted earnings for the first quarter were $2.2 billion or $1.47 a share, which excludes the charges of $110 million for ending our participation in the Yanbu and Shah projects. Cash from operations were $3 billion.

Our company's capital efficiency increased as annualized cash return on capital invested improved to 21%. Our E&P production, excluding LUKOIL was 1.83 million BOE per day, and in spite of the challenging downstream environment, the competitiveness of our refineries allowed us to run at 88%.

I'm going to now turn to slide three. Total earnings for our company were $2.098 billion, up $1.3 billion compared to last year. The majority of our earnings were generated by our Exploration and Production business. Our E&P segment improved by $1.132 billion, primarily due to the increase in crude prices. Compared to the first quarter of last year, R&M income fell $209 million; weaker refining and marketing margins more than offset lower operating costs.

Our equity earnings for LUKOIL investment were up $379 million compared to the first quarter of 2009. As I mentioned earlier, this quarter we had charges of $110 million for exiting the Shah and Yanbu projects. So adjusting for that, you can see this quarter's earnings were $2.208 billion. Total company controllable costs were lower by about $40 million year-on-year and $110 million sequentially if you eliminate the impact of foreign exchange and higher utility and fuel costs.

Moving to slide four, total company cash flow. You can see in the first quarter, we generated $3 billion in cash from operations. This included a $979 million negative impact from an increase in working capital. This increase in working capital is driven by the growth in seasonal operational inventory levels and in support of our commercial business consistent with what we've done in the past.

We expect a substantial portion of this inventory to be worked off by year-end. Our capital program totaled $2.480 billion for the quarter, in line with our 2010 budget of $11.2 billion. And while debt-to-cap ratio remained flat, our absolute debt level increased slightly due to the increase in working capital I mentioned earlier.

We paid $744 million in dividends, compared to $696 million paid in the first quarter of 2009. Our first quarter 2010 cash position ended at $855 million. Now let's review our total company production for the first quarter on slide five. As expected first quarter 2010, E&P production was 1.83 million BOE per day, down 5% or 97,000 BOE per day from the first quarter of 2009.

Compared to last quarter, E&P production was virtually flat. Looking at the sources behind the year-over-year decline, 29,000 BOE per day can be attributed to market factors including production and sharing contracts in Indonesia and royalty impacts in Canada. Portfolio changes mainly due to the expropriation of our assets in Ecuador decreased production by about 9,000 BOE per day and higher planned maintenance, primarily in Australia, decreased our production by 3,000 BOE per day.

The remaining decrease of 56,000 BOE per day was due to normal field decline, primarily in the UK, lower 48, and Alaska, mitigated by new production form Phase 2 of our Bohai Bay project in China and our Foster Creek, Christina Lake SAGD developments in Canada. Production from FCCL Oil properties increased nearly 50% on a net after-royalty basis in the first quarter of 2010, compared to the same period of 2009.

The Foster Creek project achieved payout for royalty purposes in the first quarter. It's the industry's largest SAGD project to reach payout today, and is leading the way in implementing innovative technologies that lower operating costs and reduced our impact on the environment. In the Bakken Shale, we spud three wells during March bringing our total 2010 well count to six.

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