ConocoPhillips said Wednesday it lost $31.8 billion in the final three months of 2008 as the third-largest U.S. oil company recorded massive, previously disclosed one-time charges to write down assets and encountered sharply lower crude prices.
ConocoPhillips was the first of the major oil companies to report fourth-quarter earnings. Not everyone is expected to resort to the measures it has taken to ride out the recession – layoffs, asset writedowns, lower spending – but earnings across the board are forecast to be the worst in many quarters.
The Houston-based company’s net income for the October-December period amounted to a loss of $21.37 per share, compared with a profit of $4.4 billion, or $2.71 per share, during the same period a year earlier. Revenue fell 18 percent to $44.5 billion from $52.7 billion a year ago.
Excluding one-time items, adjusted earnings for the fourth quarter were $1.9 billion, or $1.28 a share, versus $4.1 billion, or $2.55 a share, a year ago.
Analysts surveyed by Thomson Reuters had been expecting earnings of $1.22 a share on revenue of $36.3 billion. Those forecasts typically exclude one-time items.
“Our financial performance for the quarter reflects the depressed economic conditions and business environment impacting not only our industry, but domestic and global markets as well,” chairman and chief executive Jim Mulva said in a statement.
In addition to the one-time charges, ConocoPhillips was hit hard by oil’s unprecedented plunge after peaking above $147 a barrel in July. When the fourth quarter began Oct. 1, crude was trading at around $100 a barrel. By year’s end, the price was down to $44.60, a decline of nearly 60 percent.
Also, operating costs haven’t fallen as quickly as oil and gas prices, placing another strain on profitability.
The oil and gas industry is trying to adjust to the recession by scaling back spending and eliminating jobs. So far, the cuts haven’t been as severe as some other sectors of the U.S. economy, but they’ve picked up in recent weeks as oil continues to hover around year-end prices.
What’s different for oil and gas producers, though, is the sharp reversal from favorable market conditions that fueled record profits as recently as last summer.
In a sign of how bad tumbling prices have hurt the industry, ConocoPhillips announced two weeks ago it was cutting 4 percent of its work force – about 1,300 workers – slashing capital spending by 18 percent and writing down the value of various assets by $34 billion.
It itemized the impairments in Wednesday’s report, citing the substantial decline in global equity markets, commodity prices and operating margins.
The biggest of the impairment charges was $25.4 billion to writedown the goodwill value of certain exploration and production assets, including those from ConocoPhillips’ $35.6 billion purchase of Burlington Resources in 2006.
Goodwill is the difference between the purchase price of a company and the book value of its tangible assets, such as equipment and real estate. Accounting rules require companies to take a look at the value of goodwill every year, and adjust for any declines on their financial statements.
ConocoPhillips also reduced the value of its equity investment in Russian oil producer Lukoil by $7.3 billion. Other writedowns totaling $1.3 billion included $537 million to lower the book value of two refineries.
Moody’s last week affirmed its corporate ratings for ConocoPhillips, noting the writedowns will affect the company’s “reported book equity but will have no impact on COP’s cash flow and liquidity.”
ConocoPhillips is the third-biggest U.S. oil company behind No. 1 Exxon Mobil Corp. and No. 2 Chevron Corp. To date, neither Exxon nor Chevron has announced layoffs, but their profits are expected to decline as well.
Exxon and Chevron are scheduled to report fourth-quarter results Friday. In Europe, giant Royal Dutch Shell PLC is on tap Thursday, and BP PLC is set to report next Tuesday.
On the operations side, ConocoPhillips said adjusted earnings at its exploration and production, or upstream, business fell 42 percent to $1.4 billion in the fourth quarter, crushed by lower oil and gas prices and higher exploration expenses.
On a positive note, upstream production for the quarter averaged 1.87 million barrels of oil equivalent per day, up from 1.84 million barrels a day in the year-ago period. The company attributed the increased to new production in the United Kingdom, Russia, Canada, Norway and Indonesia.
The company said it expects production for the first three months of 2009 to be near fourth-quarter levels.
Adjusted net income at the company’s refining and marketing, or downstream, arm fell 31 percent to $753 million from a year ago, in part because of lower U.S. “crack” spreads – the difference between what refiners pay for crude and receive for the gasoline they make.
For all of 2008, ConocoPhillips said it swung to a loss of $17 billion, or $11.16 a share, from a profit of $11.9 billion, or $7.22 a share, in 2007. On an adjusted basis, full-year earnings amounted to $16.4 billion, or $10.66 a share, up from $15.2 billion, or $9.21 a share, in the prior year.
Revenue last year rose 28 percent to $240.8 billion.
Shares rose 60 cents to $50.11 early Wednesday.