Company declares adjusted earnings of US$2.7bn for 4Q11. R&M activities generate adjusted earnings of US$201m, income per barrel drops to US$0.70/bbl in 4Q11.

During a conference call to discuss ConocoPhillips’ 4Q11 results, a company spokesperson said that the spinning-off of Conoco’s R&M activities into Phillips 66 is expected to occur in 2Q12, “possibly as early as May”. The use of cash to be allocated to Phillips 66 has yet to be decided, but currently the first US$1–2 billion is expected to be spent on debt reduction as opposed to share buybacks.

ConocoPhillips will provide more information to the analyst community regarding the spin-off in March-April.

When asked about the sales of the Trainer and the Alliance refineries, the company spokesperson said that the deadlines were coming up. When asked if there will be news shortly about this development, by an analyst, the question was answered with a “Maybe.”

The company’s refining and marketing segment saw adjusted earnings of US$201 million in 4Q11, slightly down from the US$207 million seen in 4Q10. Conoco’s refining margins improved on year in the US, up US$0.31/bbl to US$7.86/bbl, but those experienced by its international R&M activities fell by US$6.46/bbl to US$7.91/bbl. The company indicates that while volumes and operating costs improved in 4Q11 compared with 4Q10, margins and other market impacts, combined with other factors, worked to reduce earnings.

The spokesperson said that with the exception of the mid-continent, the refining environment was generally worse in 4Q11 than 4Q10. Costs related to turnaround activities came to US$90m for 4Q11, down from US$207 million in 4Q10. Total turnaround expenses for 2011 came in at US$297 million compared with US$459 million in 2010. The company is looking for ways to increase its margins such as advantaged crudes and increasing refining complexity.

ConocoPhillips reports a refining utilisation of 94% for 4Q11. Utilisation for 2011 averaged 92% in 2011, compared with 81% in 2010. Worldwide crude inputs averaged 2.166mbpd in 2011, slightly up on the 2.156mbpd seen in 2010.

Total product sales rose from 1.292mbpd to 1.306mbpd in 2011. Cash contribution and income per barrel from its refining and marketing activities for that period came in at US$1.50/bbl and US$0.70/bbl, compared with the US$4.79/bbl and US$4.08/bbl seen in 3Q11. These new figures are close to those seen in 4Q10 (US$1.50/bbl and US$0.70/bbl, respectively).

For 2011, Conoco reports R&M net income of US$3.751 billion compared with US$192 million for 2010. R&M cash contribution for 2011 was US$3.04/bbl, against US$1.85/bbl in 2010.

The GAAP average capital employed by Conoco’s R&M sector dropped from US$22.439 billion in 2001 to US$20.947 billion in 2011 (down US$1.49 billion, or 6.65%).

The company as a whole expects to make incremental asset sales of US$5–10 billion in 2012, as part of its 2010–12 three-year repositioning plan. It generated a 13% return on capital employed (ROCE) in 4Q11. ConocoPhillips has reduced its refining capacity by 500,000bpd since 2009.

Annualised return on capital employed (ROCE) and annualised GAAP (generally accepted accounting principles) ROCE for R&M came at 13% and 18% for 2011, compared with 16% and 14% for Conoco’s E&P operations. This represents a marked improvement from 2010, when R&M saw annualised ROCE and annualised GAAP ROCE of 5% and 1%, respectively.

In 2012, turnaround costs are expected to come in at US$450 million, with 40% being spent in 1Q12. Total downstream capital spend is expected to be around US$1 billion for 2012. The company’s global refinery utilisation is predicted to be in the low 90s.