Royal Dutch Shell Plc  .com Rotating Header Image

ConocoPhillips Plans $34 Billion in Charges


JANUARY 17, 2009

In a sign that global economic woes are hobbling even the once-mighty oil industry, ConocoPhillips on Friday said it would slash its capital budget and lay off 4% of its work force, or about 1,350 workers. The company also will take several one-time charges, totaling $34 billion, against fourth-quarter earnings.

The charges are an admission that many of the assets acquired by the company over the past few years were no longer worth as much as once thought. As noncash impairments, the charges won’t drain the company’s coffers but will increase debt ratios and could affect its financial strength.

The recession and global financial crisis are taking a toll on energy companies after several years of rising oil and natural-gas prices, and ConocoPhillips is the first of the world’s major publicly traded oil companies to respond with big cutbacks. Houston-based ConocoPhillips also had been the most aggressive of these global companies, making several large acquisitions in recent years and accumulating more debt than its peers.

The company set its 2009 capital budget at $12.5 billion, an 18.3% reduction from 2008. “We are positioning ourselves in the current business environment to live within our means in order to maintain financial strength,” said Chairman and Chief Executive James J. Mulva in a statement.

ConocoPhillips, with a market capitalization of about $74 billion, is the third-largest U.S. based oil company by market value after Exxon Mobil Corp. and Chevron Corp. The move raises questions about whether other global energy producers, such as Chevron and Royal Dutch Shell PLC, might take similar steps in coming weeks.

ConocoPhillips plans to take a $25.4 billion after-tax impairment, erasing all the goodwill assigned to its exploration and producing assets. The write-down relates to several transactions but because of its size largely is connected to its 2005 acquisition of North American natural-gas producer Burlington Resources Inc.

It is also taking a $7.3 billion noncash charge related to its stake in Russian producer OAO Lukoil. The value of Lukoil shares fell 67% in the final six months of 2008, leading ConocoPhillips to take a charge related to its 20% ownership stake.

The company also said it replaced about 25% to 30% of its production with new reserves in 2008, meaning that for every four barrels of oil it pumped out of the ground, it replaced only one barrel for future production. Much of the lower reserves are because the company could no longer count some North American reserves, following current Securities and Exchange Commission rules.

Write to Russell Gold at [email protected]

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Comment Rules

  • Please show respect to the opinions of others no matter how seemingly far-fetched.
  • Abusive, foul language, and/or divisive comments may be deleted without notice.
  • Each blog member is allowed limited comments, as displayed above the comment box.
  • Comments must be limited to the number of words displayed above the comment box.
  • Please limit one comment after any comment posted per post.