Exhibit 99.1
ConocoPhillips Reports Second Quarter Net Income of $1.1 Billion;
Solid Operating Performance Drives Debt Reduction
HOUSTON--(BUSINESS WIRE)--July 30, 2003--ConocoPhillips (NYSE:COP)
Earnings at a glance
Second Quarter Six Months
---------------------------- ----------------------------
2003 2002 2003 2002
-------------- ------------ -------------- ------------
Income from
continuing
operations $1,079 million $312 million $2,349 million $214 million
Income from
discontinued
operations $59 39 $81 35
Cumulative
effect of
change in
accounting
principle $- - $145 -
Net income $1,138 351 $2,575 249
- ----------------------------------------------------------------------
Diluted income
per share
Income from
continuing
operations $1.58 0.81 $3.44 0.55
Net income $1.66 0.91 $3.77 0.65
- ----------------------------------------------------------------------
Revenues $25.6 billion $10.5 billion $52.7 billion $18.9 billion
- ----------------------------------------------------------------------
ConocoPhillips (NYSE:COP) today reported second quarter net income
of $1,138 million, or $1.66 per share, compared with $351 million, or
91 cents per share, for the same quarter in 2002, which was prior to
the ConocoPhillips merger. Total revenues were $25.6 billion, versus
$10.5 billion a year ago. Income from continuing operations for the
second quarter was $1,079 million, or $1.58 per share, compared with
$312 million, or 81 cents per share, for the same period a year ago.
After-tax items impacting second quarter income from continuing
operations included charges of $135 million for merger-related
expenses and contingency accruals, as well as $25 million related to
marketing lease-loss accruals. Also included were the benefits of an
$87 million net gain from changes in certain international tax laws
and $55 million related to the Bayu-Undan project in the Timor Sea.
"We are pleased with our operating and financial performance
during the second quarter," said Jim Mulva, president and chief
executive officer. "Operationally, upstream production was 1.64
million barrels-of-oil-equivalent (BOE) per day during the quarter and
1.63 million BOE for the first half of 2003. Our refining and
marketing business also had another solid quarter as our refineries
ran at 96 percent of capacity.
"This operating performance combined with solid commodity prices,
disciplined capital spending, asset sales, and the financial benefits
of our synergy initiatives contributed to continued strong earnings
and allowed us to reduce our debt by $2.2 billion so far this year."
For the first six months of 2003, net income was $2,575 million,
or $3.77 per share, versus $249 million, or 65 cents per share, for
2002. Income from continuing operations was $2,349 million, or $3.44
per share, compared with $214 million, or 55 cents per share, for the
same period a year ago. Total revenues were $52.7 billion, versus
$18.9 billion a year ago.
The ConocoPhillips merger was consummated on Aug. 30, 2002, and
used purchase accounting to recognize the fair value of the Conoco
assets and liabilities. While the results of the second quarter and
first six months of 2003 reflect the operations of the combined
company, the second quarter of 2002, as well as the first six months
of 2002, reflect only Phillips' results, restated for discontinued
operations. Definitive sales agreements for all asset dispositions
required by the Federal Trade Commission (FTC) have now been executed
and, pending FTC approval, these agreements are expected to close by
the end of the third quarter.
The results of ConocoPhillips' business segments follow.
Exploration & Production (E&P)
Second quarter financial results: E&P income from continuing
operations in the second quarter was $1,070 million, down from $1,137
million in the first quarter of 2003 and up from $339 million in the
second quarter of 2002. The decrease from the first quarter was
primarily the result of lower realized crude oil and natural gas
prices and foreign currency exchange losses, partially offset by tax
law changes in certain jurisdictions and increased production.
Improved results from the second quarter of 2002 were due to higher
realized crude oil and natural gas prices, benefits from tax law
changes in certain jurisdictions, and increased production resulting
from the addition of the Conoco assets. Additionally, improvements
from prior periods reflect progress made on the implementation of
synergy initiatives.
ConocoPhillips' daily production for the quarter was slightly
above the first quarter, averaging 1.64 million BOE per day, including
Canadian Syncrude. Increased production primarily in Venezuela was
partially offset by seasonal declines in Alaska and the North Sea.
ConocoPhillips' second quarter 2003 average worldwide crude oil
sales price was $25.19 per barrel, down from $30.73 in the first
quarter of 2003. The company's U.S. Lower 48 and worldwide natural gas
prices averaged $4.72 and $3.93 per thousand cubic feet, respectively,
compared with $5.47 and $4.49 in the first quarter of 2003.
In June, the Norway Removal Grant Act (1986) was repealed. This
resulted in a net after-tax benefit of $87 million in the second
quarter. Also in the second quarter, in connection with the Bayu-Undan
project, Australia and Timor-Leste ratified the treaty between the two
nations governing fiscal and other arrangements in the Timor Sea, and
the company received final approvals from the relevant authorities to
proceed with the gas development phase of the project. The company
recognized a $55 million benefit related to restructuring of ownership
interest and other matters associated with the Bayu-Undan project.
Six months financial results: E&P income from continuing
operations for the first six months of 2003 was $2,207 million, up
from $481 million in 2002, primarily due to additional volumes from
the Conoco operations, higher realized worldwide crude oil and natural
gas prices, and tax law changes.
ConocoPhillips' average worldwide crude oil price was $27.82 per
barrel for the first six months of 2003, compared with $21.90 for
2002. The company's U.S. Lower 48 and worldwide natural gas prices
averaged $5.10 and $4.21 per thousand cubic feet, respectively, versus
$2.26 and $2.27 in 2002.
Midstream
Second quarter financial results: Midstream income from continuing
operations was $25 million, down from $31 million in the first quarter
of 2003 and up from $12 million in the second quarter of 2002. The
decrease from the first quarter was due primarily to lower natural gas
liquids prices. The increase over the second quarter of 2002 was
primarily due to higher natural gas liquids prices for Duke Energy
Field Services, LLC (DEFS).
Six months financial results: Midstream operating results
increased to $56 million, from $24 million in 2002. Contributing to
the increase were higher equity earnings from DEFS and the addition of
the Conoco midstream operations.
Refining and Marketing (R&M)
Second quarter financial results: R&M income from continuing
operations was $301 million, down from $371 million in the previous
quarter and improved from $68 million in the second quarter of 2002.
The decline in second quarter R&M earnings compared with the first
quarter of 2003 was primarily driven by lower worldwide refining
margins. These lower margins were partially offset by higher sales
volumes, higher U.S. and international marketing margins, and lower
utility and turnaround costs. The improved results over the second
quarter of 2002 were attributable to the addition of the Conoco
assets, higher refining and marketing margins, and business
improvements, which included the benefits from progress made on
implementing synergy initiatives. These improvements were partially
offset by higher refining utility costs and marketing lease-loss
accruals.
The refinery crude oil capacity utilization rate averaged 96
percent, compared with 92 percent last quarter. After-tax turnaround
costs were $26 million and $40 million in the second quarter and first
quarter of 2003, respectively.
Six months financial results: R&M income from continuing
operations for the first six months of 2003 increased to $672 million,
compared with a loss of $19 million in the first half of 2002. The
addition of the Conoco assets, as well as increased refining and
marketing margins, contributed to the increase. These increases were
partly offset by higher utility costs and lease-loss accruals on the
company's marketing operations.
Chemicals
Second quarter financial results: The Chemicals segment, which
reflects the company's 50 percent interest in Chevron Phillips
Chemical Company LLC, reported income from continuing operations of
$12 million, compared with a loss of $23 million in the first quarter
of 2003 and income of $7 million in the second quarter of 2002.
Improvements from the first quarter were the result of higher margins
as feedstock and utility costs trended downward. Second quarter 2003
results included approximately $6 million of after-tax charges related
to severance and contingency accruals. The increase from the second
quarter of 2002 primarily reflects higher margins, particularly in
olefins and polyolefins.
Six months financial results: During the first six months of 2003,
the Chemicals segment had a loss from continuing operations of $11
million, compared with a loss of $4 million for the same period a year
ago. The increased loss was primarily due to higher feedstock and
utility costs in 2003, especially in the first quarter.
Emerging Businesses
The Emerging Businesses segment had a loss from continuing
operations of $23 million in the second quarter of 2003, compared with
losses of $34 million in the first quarter of 2003 and $3 million in
the second quarter of 2002. The improvement from the first quarter was
primarily attributable to a reduction in carbon fibers expenses, as
well as reduced costs associated with a gas-to-liquids plant. The
increased costs from the second quarter of 2002 resulted from the
addition of the Conoco assets.
Corporate and Other
Second quarter after-tax Corporate expenses from continuing
operations were $306 million, compared with $212 million in the
previous quarter and $111 million in the second quarter of 2002.
Contributing to the increase over the first quarter was a $39 million
charge to accelerate the recognition of certain pension costs, which
was required by accounting rules due to the number of employee
retirements associated with the merger. In addition, Corporate
expenses increased due to a $35 million charge for restructuring
accruals and $41 million of additional merger-related expenses.
Corporate charges were reduced by lower interest expense and gains on
foreign currency transactions. The increase over the second quarter of
2002 included expenses associated with the addition of the Conoco
assets, pension charges and other merger-related expenses.
Total debt at the end of the second quarter was $17.6 billion,
$600 million lower than the end of the previous quarter and $2.2
billion below year-end 2002. This improvement resulted from strong
operating performance, solid commodity prices, disciplined capital
spending and asset sales. At the end of the second quarter, the
company's debt-to-capital ratio was 35 percent, down from 36 percent
at the end of the first quarter.
The company's second quarter effective tax rate of 38.4 percent
was lower than that of the first quarter primarily due to the impact
of changes in tax legislation in Norway and a higher proportion of
income from lower-tax-rate jurisdictions in the second quarter.
Discontinued Operations
Second quarter 2003 earnings from discontinued operations were $59
million, compared with $22 million in the first quarter. The
improvement was primarily related to higher marketing margins. Both
first and second quarter earnings were negatively impacted by
approximately $25 million due to lease-loss accruals on the company's
downstream marketing operations.
Outlook
Mr. Mulva concluded:
"A strong operating performance during the first half of the year,
combined with above-average crude oil and natural gas prices and solid
refining and marketing margins, allowed us to generate net cash from
operating activities of $5.4 billion. This enabled us to fund $2.9
billion in capital expenditures, reduce debt by $2.2 billion, and pay
$540 million in dividends. During this period, we improved our
debt-to-capital ratio from 39 percent to 35 percent. As previously
reported, implementation of two new accounting rules in the third
quarter will increase our balance sheet debt by about $3 billion,
however we expect our off-balance-sheet debt and minority interest to
concurrently decrease by a similar amount. Our debt targets remain
unchanged, and we still plan to reduce our debt-to-capital ratio to 30
percent over the next several years.
"We continue to strengthen our upstream portfolio through legacy
project advancement and planned asset dispositions, as well as through
efforts aimed at growing our worldwide natural gas business. For
example, we announced a major integrated liquefied natural gas project
in Qatar, and the Mackenzie Delta participants submitted a Preliminary
Information Package, in connection with a pipeline, required for the
ultimate development of this area.
"Downstream, we continue to make progress toward achieving higher
mid-cycle margin returns through cost reduction and integration
efforts. We are also looking to optimize capital spending required for
clean fuels projects through implementing best practices. As
announced, we reached an agreement to sell certain retail and dealer
marketing sites in the Northeast, and are on track with our plan to
rationalize a substantial portion of our U.S. retail marketing
assets."
ConocoPhillips is an integrated petroleum company with interests
around the world. Headquartered in Houston, the company had
approximately 55,800 employees, $81 billion of assets, and $105
billion of annualized revenues as of June 30, 2003. For more
information, go to www.conocophillips.com.
ConocoPhillips' quarterly conference call is scheduled for noon
Central today. To listen to the conference call and to view related
presentation materials, go to www.conocophillips.com and click on the
"Second Quarter Earnings" link.
For financial and operational tables, go to
www.conocophillips.com/news/nr/earnings/highlights/2q03earnings.html.
For detailed supplemental information, go to
www.conocophillips.com/news/nr/earnings/detail/2q03summary.xls.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This update contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements, such as "however
we expect our off-balance-sheet debt and minority interest to
concurrently decrease by a similar amount" and "we still plan to
reduce our debt-to-capital ratio to 30 percent over the next several
years" involve certain risks, uncertainties and assumptions that are
difficult to predict. Further, certain forward-looking statements are
based on assumptions as to future events that may not prove to be
accurate. Therefore, actual outcomes and results may differ materially
from what is expressed or forecast in such forward-looking statements.
Economic, business, competitive and regulatory factors that may affect
ConocoPhillips' business are generally as set forth in ConocoPhillips'
filings with the Securities and Exchange Commission (SEC).
ConocoPhillips is under no obligation (and expressly disclaims any
such obligation) to update or alter its forward-looking statements
whether as a result of new information, future events or otherwise.
Cautionary Note to U.S. Investors -- The SEC permits oil and gas
companies, in their filings with the SEC, to disclose only proved
reserves that a company has demonstrated by actual production or
conclusive formation tests to be economically and legally producible
under existing economic and operating conditions. Production is
distinguished from oil and gas production because SEC regulations
define Syncrude as mining-related and not part of conventional oil and
natural gas reserves. We use certain terms in this release, such as
"including Canadian Syncrude" that the SEC's guidelines strictly
prohibit us from including in filings with the SEC. U.S. investors are
urged to consider closely the disclosure in the company's periodic
filings with the SEC, available from the company at 600 North Dairy
Ashford Road, Houston, Texas 77079. This information can also be
obtained from the SEC by calling 1-800-SEC-0330.
CONTACT: ConocoPhillips, Houston
Kristi DesJarlais (media), 281-293-4595
or
Clayton Reasor (investors), 212-207-1996