Q2 2011 Earnings Call
July 27, 2011 11:00 am ET
Jeffrey Sheets - Chief Financial Officer and Senior Vice President of Finance
Clayton Reasor -
Edward Westlake - Crédit Suisse AG
Philip Weiss - Argus Research Company
Douglas Leggate - BofA Merrill Lynch
Doug Terreson - ISI Group Inc.
Paul Sankey - Deutsche Bank AG
Blake Fernandez - Howard Weil Incorporated
Iain Reid - Jefferies & Company, Inc.
Previous Statements by COP
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Thank you, Kim. Good morning, and welcome to ConocoPhillips Second Quarter Earnings Conference Call. We appreciate your interest in our company. I'm joined today by Jeff Sheets, Senior Vice President of Finance and our Chief Financial Officer. As we normally do, we'll provide a summary of our key financial and operating results for the second quarter as well as an outlook for the remainder of 2011. We'll also provide you with a brief update on the repositioning of ConocoPhillips as 2 separate leading energy companies as we announced 2 weeks ago. You can find our presentation material in the Investor Relations section of the ConocoPhillips website.
Before we get started, I'd like to take a look at the Safe Harbor statement that we've shown on the next slide. It's a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session. Actual results may differ materially from what we present today, and factors that could cause actual results to differ are included in this slide as well as in our filings with the SEC.
So with that, I'll turn the call over to Jeff Sheets, who will take you through our prepared remarks and presentation. Jeff?
Thanks, Clayton. I'll start on Slide 2, which highlights some of our second quarter results. During the second quarter, we had adjusted earnings of $3.4 billion. That's $2.41 a share. That compares to adjusted earnings of $1.63 a share in the second quarter of 2010. During the quarter, we generated cash from operations of $4.44 per share. This was a good quarter for the company. We ran well both in E&P and R&M. Second quarter production was 1.64 million BOE per day. Our global refining utilization was 91% during the quarter. We generated $6.3 billion in cash from operations. Our annualized return on capital employed was 15% for the quarter, and our cash return on capital employed was 24% . Also, during the quarter, we distributed $4 billion in cash to our shareholders in the form of shareholder distributions -- share repurchases and dividends. Our repurchase of 42 million shares this quarter represented about 3% of our shares outstanding. In our earnings release this morning, we highlighted that in addition to creating value for our shareholders at ConocoPhillips, activities also contribute substantially to job creation and economic growth. Slide 3 recaps some of the numbers associated with our activities for the first half of the year.
During the first half of 2011, the company spent $6.5 billion on operating expenses, which supported 30,000 jobs at ConocoPhillips, as well as jobs that are suppliers and contractors. A further $6.1 billion was invested in capital projects, which help to create new energy supplies, and also fuel additional job creation. $7.7 billion was paid to local state and federal governments in the form of income production and severance tax. And in addition, ConocoPhillips distributed $6.6 billion to a wide shareholder base, which includes numerous state and local pensions and the investment firms, which benefited millions of individual U.S. investors and retirees.
So let's turn to Slide 4 to discuss some of the details of our performance for the quarter. Our total company adjusted earnings were $3.4 billion. That's up about $950 million compared to the second quarter last year. Our E&P segment was improved over a $1 billion due to higher prices, which were offset by higher taxes. R&M adjusted earnings were basically unchanged from a year ago.
In the second quarter of 2010, our earnings included $430 million related to our ownership interest in LUKOIL. And since we have now sold our interest in LUKOIL, we don't have similar earnings as part of our second quarter 2011 results. Our other segments adjusted earnings improved by $290 million as result of lower corporate expenses, higher and then higher chemicals and mid-stream earnings.
So next, we'll look at more in detail our segment earnings, starting with production in our Upstream business, which is highlighted on Slide 5. The second quarter production was 1.64 million BOE per day. That's down 5% or 93,000 BOE per day from the second quarter of last year. The decline from the second quarter last year was a result of asset dispositions and the loss of our production from Libya. Asset dispositions made a big impact to production by around 62,000 BOE per day. This primarily reflects dispositions in Canada in the Lower 48. Of that 62,000 BOE per day, 16,000 BOE per day was North America natural gas.
So if you exclude the impact of our asset dispositions and the loss of production from Libya, our second quarter 2010 production would have been 1.623 million BOE per day. In the second quarter of 2011, we produced 1.64 million BOE per day. And the changes there include a decline of 28,000 BOE per day in our North America natural gas production, which was offset by an increase, a net increase of 45,000 BOE per day of liquids production and International gas production. So stepping back and looking at all the changes from 2010 to 2011 second quarter numbers, you can see that the declines in production that we've had are primarily attributed to declines in North America natural gas production and a loss of our production in Libya, which are both relatively lower margin portions of our portfolio. Looking at our production on a per-share basis, we see that our production has increased 4% from the second quarter of 2010 to the second quarter of 2011.