ConocoPhillips — 2009 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended September 30, 2009. The interim financial statements are unaudited. Unless otherwise noted, amounts are in millions of dollars.
Financial results
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Sales and operating revenues | $40,173 | $70,044 | $106,362 | $196,338 |
| Income before income taxes | $2,947 | $9,482 | $7,363 | $26,862 |
| Net income attributable to ConocoPhillips | $1,503 | $5,188 | $3,641 | $14,766 |
| Diluted earnings per share | $1.00 | $3.39 | $2.43 | $9.50 |
| Operating cash flow | Not provided separately | Not provided separately | $7,385 | $19,536 |
| Capital expenditures and investments | Not provided separately | Not provided separately | $8,176 | $10,535 |
- Cash flow and liquidity: Nine-month operating cash flow fell 62%. Investing activities used $7,429; financing activities used $168. Cash declined $114 from year-end 2008 to $641. September 30 current assets were $22,253 versus current liabilities of $24,656.
- Debt and capital: Total debt was $30,458, up $3,003 from December 31, 2008; debt-to-capital remained 33%. Commercial paper outstanding was $2,342, down from $6,933 at year-end. The company reported $5.5 billion of available revolving-credit borrowing capacity.
- Other balance-sheet figures: Total assets were $152,427, total liabilities $90,330, and total equity $62,097. Dividends paid were $0.47 per share in Q3 and $1.41 per share for the first nine months.
Material changes versus 2008
- Q3 revenue declined 43% and nine-month revenue declined 46%; management attributed the reductions principally to lower commodity prices. Net income attributable to ConocoPhillips fell 71% in Q3 and 75% for the nine-month period.
- Worldwide E&P earnings were $978 in Q3 versus $3,928 a year earlier. Worldwide E&P production averaged 1.754 million BOE per day, including equity affiliates, up from 1.724 million; lower prices more than offset higher international volumes.
- R&M earnings were $99 in Q3 versus $849, reflecting weak refining and marketing margins. Midstream earnings were $62 versus $173, mainly due to lower natural-gas-liquids prices. Chemicals earnings improved to $104 from $46.
- Interest and debt expense rose 41% in Q3 and 39% over nine months, primarily because of higher average debt. The effective tax rate was 48% in Q3 and 50% year to date, versus 45% for both comparable 2008 periods.
Outlook, risks and unusual items
- Management expected Q4 2009 E&P production to exceed Q3 production and forecast full-year E&P production more than 3% above 2008. Full-year 2009 R&M crude-oil capacity utilization was expected in the mid-80% range, affected by maintenance and potentially weak margins.
- The preliminary 2010 capital program was $11 billion, including capital spending, investments and principal contributions on a joint-venture acquisition obligation. In October 2009, the company announced a plan to raise approximately $10 billion from asset sales over two years, with proceeds targeted for debt reduction.
- Management said fourth-quarter annual impairment reviews could result in significant noncash impairments of properties or equity investments; the potential amount was not reliably estimable. Commodity prices, refining margins and foreign-exchange assumptions were key sensitivities.
- Material exposures include a $1,001 environmental accrual, expected to be spent largely over the next 30 years; contingent guarantees, including up to $850 for Qatargas 3 and up to $480 for Rockies Express; and a $7.5 billion FCCL contribution obligation plus interest, payable over 10 years beginning in 2007.
- Ecuador formalized its takeover of the company’s assets in Blocks 7 and 21 after the company recorded a $51 impairment in Q2. The company also exercised its contractual right to acquire PDVSA’s 50% interest in Merey Sweeny; legal challenges were expected, and equity-method accounting continued pending resolution.
- Management considered it remote that known legal and other contingencies would exceed accruals by an amount materially adverse to the consolidated financial statements. It cautioned that environmental, climate-change, commodity-price, project, political, regulatory and financing risks could affect results. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether commodity prices and refining margins recover, and how they affect earnings and operating cash flow.
- Delivery of the production outlook, project execution and the possibility of year-end impairments.
- Progress, timing and realized proceeds from the announced asset-sale plan and intended debt reduction.
- Debt maturities, commercial-paper access and capacity to fund the 2010 program, dividends and FCCL obligations.
- Developments in the Ecuador and PDVSA disputes, environmental exposures, and the Qatargas 3 and Rockies Express guarantees.