ConocoPhillips (COP)

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ConocoPhillips (COP)

Q4 2011 Earnings Call

January 25, 2012 11:00 am ET

Executives

C. C. Reasor - Vice President of Investor Relations, Strategy & Corporate Affairs

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

Analysts

Evan Calio - Morgan Stanley, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Iain Reid - Jefferies & Company, Inc., Research Division

Mark Gilman - The Benchmark Company, LLC, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Philip Weiss - Argus Research Company

Paul Sankey - Deutsche Bank AG, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Faisel Khan - Citigroup Inc, Research Division

Presentation

Operator

Welcome to the Fourth Quarter ConocoPhillips Earnings Conference Call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Clayton Reasor, Vice President of Corporate and Investor Relations. Mr. Reasor, you may begin.

C. C. Reasor

Great. Good morning. Welcome to ConocoPhillips' fourth 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 CFO. This morning, we'll provide a summary of our key financial and operating results for the fourth quarter, as well as our outlook for 2012. As in the past, you can find our presentation material on the Investor Relations section of ConocoPhillips' website. Please take a look at the Safe Harbor statement that we have on the bottom of this slide. It's a reminder that we'll be making forward-looking statements during the presentation and during the question-and-answer session. And actual results may be materially different from what's presented today. And factors that could cause actual results to differ are included here, as well as in our filings with the SEC.

So with that, I'll turn the call over to Jeff Sheets to take you through our fourth quarter results. Jeff?

Jeffrey Wayne Sheets

Thanks, Clayton. I'll start with an overview of our fourth quarter, which is on Slide 2. During the quarter, our earnings adjusted for special items were $2.7 billion or $2.02 a share. That's up from $1.9 billion or $1.32 a share in the fourth quarter of last year. Our annualized return on capital employed was 13%. We generated cash from operations of $5.8 billion, which is $4.39 per share.

In E&P, our production of 1.6 million BOE per day was higher than the prior quarter and slightly above our expectations. In R&M, our global refining capacity utilization rate was 94%. We made significant progress on our asset disposition program with the sale of the Colonial, Seaway Crude and Seaway Products pipelines for $2.4 billion in proceeds during the quarter. Our repurchase of 46 million shares is quite a represented 3% of our shares outstanding, and we ended the year with $6.4 billion in cash and short-term investments.

So I'll turn to Slide 3 and talk about those earnings in more detail. Reported earnings for the quarter were $3.4 billion, which included $723 million of special items. Special items included $1.5 billion in net gains from asset sales, largely resulting from the pipeline dispositions I just mentioned. We also had $649 million of impairments. The large impairments included $395 million related to our investment in the Naryanmarneftegaz joint venture in Russia and $190 million for certain conventional and natural gas properties in Canada. Other special items in Q4 included $101 million in settlement and other costs related to the Bohai Bay incident and $25 million related to our repositioning efforts. So taking these special items into account, adjusted earnings were $2.7 billion, which is about $750 million higher than the fourth quarter of 2010. Our E&P segment improved by around $500 million, primarily due to stronger crude oil and LNG prices, offset by higher taxes. R&M's fourth quarter adjusted earnings of $200 million were basically unchanged from a year ago. And combined, our other segments contributed about $250 million to the increase in earnings this quarter, and we'll go through more detail on that on some subsequent slides.

So let's go to Slide 4 and look at our 2011 full year earnings. So full year 2011 adjusted earnings were $12 billion, which were more than $3 billion improved from 2010. All of our business segments generated better financial results in 2011 than in 2010. So excluding the LUKOIL segment, for which we stopped recording equity earnings in the fourth quarter of 2010 and which had $1.25 billion of earnings in Q4 '10, our adjusted earnings increased by $4.6 billion from 2010 to 2011.

So next, we'll go through some detail on our segment earnings and we'll start with the production levels in our Upstream business which are highlighted on Slide 5. Fourth quarter production was 1.6 million BOE per day. That's down 8% compared to the fourth quarter of last year. If you exclude the impact of dispositions and the suspension of our operations in China and Libya, production was down 1% over this time period. Asset dispositions reduced production by about 30,000 BOE per day. 14 or so of that was from North America natural gas production. In Libya, production was down 43,000 BOE per day compared to the same period last year. Production in Libya started again in late November and continues to ramp up and current production levels are around 20,000 BOE per day. In Russia, we continue to have difficulties with the reservoir in the YK field, and our production was down 23,000 BOE per day in that area. In Bohai Bay, our production was 38,000 BOE per day, lower than a year ago. ConocoPhillips continued the depressurization plan for the field and continues to work with our co-venture and regulatory agencies related to Bohai Bay. So excluding these items I just discussed, increases in production from exploitation drilling, well performance and production from major projects offset decreases associated with decline and downtime.

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