By the OGJ Online Staff
HOUSTON, Oct. 22 -- Conoco Inc. said lower prices for crude and North American natural gas contributed to sharply reduced earnings for the third quarter, down by almost half from the same period in 2000.
Third quarter net income was $257 million, 48% less than the $497 million Conoco declared for the third quarter 2000. Revenue for the third quarter was $9.7 billion, down from $10.7 billion for third quarter 2000.
Conoco noted that special items for the quarter were $147 million, mostly associated with the company's $6.7 billion (Can.) acquisition of Gulf Canada Resources Ltd. and related actions to reduce debt (OGJ Online, May 29, 2001). Net income before special items was $404 million, down 23% from the same quarter a year ago.
"Conoco had an excellent quarter despite a struggling economy, suppressed demand, and lower prices for crude oil and natural gas. Downstream earnings, aided by solid US refining margins and higher international upstream production, underpinned the quarter," said Archie W. Dunham, Conoco's chairman and CEO.
The company said that during the quarter, it disposed of:
-- certain shallow water Gulf of Mexico oil and gas properties
-- its interests in a base oil and wax manufacturing joint venture with Citgo Petroleum Corp.
-- its interests in a coalbed methane and gas gathering system partnership
Conoco also said it achieved first production from the Castricum-Zee field off the Netherlands; made a discovery on Block 15-1 off Viet Nam and declared another find on the same block, Sutu Den, commercial; extended a field off Indonesia; and moved forward with development of the Clair discovery on the UK continental shelf and the Belanak natural gas development off Indonesia.
The company noted that, as part of the Mackenzie Delta Producers Group, it signed a memorandum of understanding with the Northwest Territories' indigenous peoples that provides a framework to develop the proposed Mackenzie Valley gas pipeline in Canada (OGJ Online, Oct. 5, 2001).
Conoco's upstream segment earned $370 million before special items, down 20% from the same period last year. It said increased production partially offset the fall in prices and higher costs. Exploration expense was $109 million, up 35%, reflecting the addition of Gulf Canada and higher dry hole costs.
The company's worldwide net realized crude oil price decreased 20% to $21.65/bbl. Worldwide net realized natural gas price declined 14% to $2.87/Mcf, resulting from a 28% decrease in US natural gas prices to $2.81/Mcf, partially offset by international gas prices of $2.91/Mcf, a rise of 12%.
Overall, total production for the quarter of 831,000 boe/d, including syncrude, was up 34% from 619,000 boe/d during the same period last year. The acquisition added about 209,000 boe/d, in line with previous expectations.
Third quarter downstream earnings of $185 million increased 16%, due to improved refinery optimization and stronger US inland refining margins.
US downstream earnings of $104 million improved by 42%, benefiting from strong margins in inland markets and the fall in crude oil prices, which strengthened coproduct margins. Domestic refinery throughputs declined 4% to 559,000 b/d, due to downtime at the Ponca City, Okla., facility.
International downstream earnings decreased $6 million to $81 million due to weaker refining margins in Europe and Asia. Weaker margins were partly offset by improved refinery operations and marketing margins. International throughputs were up slightly to 341,000 b/d, reflecting the return of the UK Humber refinery to full capacity during the quarter.
Corporate operating and nonoperating expenses totaled $130 million, up $44 million, as the company incurred increased interest expense on debt to finance the Gulf Canada acquisition.
Dunham said that in the fourth quarter, production (including syncrude) is expected to be up 8-10% over the third quarter.
"Fourth quarter earnings continue to be under price pressure with demand impacted by market uncertainty associated with recent events," Dunham said. "Crude prices have continued to slide pending further OPEC action, but natural gas prices have strengthened from their early September lows, reversing some of the third quarter decline. Global refined product demand is expected to remain weak due to seasonal patterns, compounded by slowing economies," he said.
"Exploration in the fourth quarter remains very active with 17 wells drilling, including five appraisal wells, in the US, Canada, Viet Nam, Indonesia, and Venezuela," he said.
