Conoco Announces Fourth Quarter and Full Year 1999 Results* Fourth Quarter Earnings Soar to $.51 Per Share Versus $.12 Last Year* Record Quarterly Operating Income* Annual Operating Income Tops $1 Billion on Record Revenues of $27 Billion* Full Year Production Up 9 PercentHOUSTON (Jan. 26, 2000) -- Conoco (NYSE: COC.A) (NYSE:COC.B) today announced fourth quarter 1999 net income of $324 million or $.51 per diluted share, compared to a loss of $263 million last year. Net income before special items was 310 percent higher than the $79 million, or $.12 per share, earned in the fourth quarter of the prior year on a pro forma basis. There were no special items in fourth quarter 1999. After-tax operating income before special items for the quarter was a record $384 million, four times higher than the $95 million earned in 1998. Revenues for the quarter were more than $8 billion, a 44 percent increase compared to 1998, on higher crude oil, natural gas and product prices. Full year 1999 net income was $744 million, or $1.17 per diluted share, 65 percent above last year. Before special items, net income was $782 million or $1.23 per diluted share, 18 percent above the $663 million, or $1.04 per diluted share, earned in 1998 on a pro forma basis. After-tax operating income before special items for the year was $1 billion, 27 percent or $216 million higher than prior year results. Revenues for the year exceeded $27 billion, also a record, and were 18 percent higher than in 1998."Conoco's industry-leading production growth allowed the company to capture the full benefit of rising oil prices in the second half of the year, resulting in record quarterly operating income," said Archie W. Dunham, Conoco Chairman, President and Chief Executive Officer. "The year's 9 percent growth in production was exactly on target, coming primarily from the Britannia and Viking Phoenix fields in the North Sea, the Ursa field in the Gulf of Mexico, and the Petrozuata joint venture in Venezuela. We remain committed to a production growth profile that is atop the industry and generates significant value for our shareholders," he added. "I'm also very excited about our exploration successes this year, which were highlighted by significant discoveries in Indonesia, the deepwater Gulf of Mexico and the United Kingdom. These successes bode well for future reserve replacement as the discoveries move toward commercialization and development," he said. The Houston-based executive indicated downstream operations were hampered by oversupply and an inability to raise prices concurrent with feedstock cost increases. "While downstream faced a very harsh environment throughout the year, I am pleased with how the organization continued to improve our refining and marketing operations," he said. Dunham said constant attention to cost containment resulted in an overall decrease in operating costs of 20 cents per barrel during the year. "We will never stop looking for ways to reduce costs," he said.Other business highlights during the year included: * Major progress was made toward expanding the company's Southeast Asia upstream operations.-- A recently concluded farm-in for a large share of an oil producing field in the Cuu Long Basin offshore Vietnam will yield immediate production. Additionally, a Heads of Agreement was signed with Petrovietnam and the Korea National Oil Company to explore Block 16-2 offshore Vietnam, paving the way for Conoco to become operator with a 40-percent working interest in the block. This summer, the company will drill its first exploration well in Block 15-1, also in the Cuu Long Basin. -- Five natural gas discoveries were made in Indonesia's West Natuna Sea, which could eventually produce as much as an additional 2 trillion cubic feet of gas for the developing Asian gas market. The company concluded a major gas sales contract to Singapore earlier in the year and is actively pursuing additional long-term contracts in the region.* A rigorous rationalization program of natural gas gathering and processing assets during the year will result in the recently announced disposition of non-strategic assets in Oklahoma. Additionally, the company strengthened its natural gas business in western Canada with an acquisition from Renaissance Energy that doubled Conoco Canada's natural gas production and increased estimated reserves in Canada by 60 percent.* Engineering and design on a major natural gas development project in Syria is nearing completion and construction will begin later this year. Coupled with Conoco's longtime presence in Dubai, the service contract in Syria demonstrates the company's intention to capture an expanded position in the Middle East.* A highly successful research and development program produced a revolutionary low-cost, petroleum-based carbon fiber using several of the company's proprietary processes for carbon upgrading. The new fiber has unique applications in the electronics, composite materials, plastics, automotive, construction, and transportation industries. The company announced plans to construct an 8 million-pound-per-year carbon fibers manufacturing facility near its Ponca City, Okla., refinery.* Production continued to increase in Venezuela's Petrozuata heavy oil joint venture, which reached 90,000 barrels per day by the end of 1999. Construction of a heavy oil upgrader is about 85 percent complete. Higher prices for early production crude oil is offsetting a significant portion of the cost increase caused primarily by the overvalued bolivar. Modifications are progressing at Conoco's Lake Charles, La., refinery to handle syncrude from Petrozuata.* Construction was completed on a 440-megawatt cogeneration plant in Corpus Christi, Texas; plans were announced to build a 420-megawatt cogeneration plant in Orange, Texas.* Construction is progressing at the Humber refinery in the United Kingdom to produce a new generation of clean fuels several years ahead of rigorous new European Union fuel specifications. * During the year, Conoco received the following industry awards:-- Top ranking among 14 of the world's largest oil companies by Schroder & Co. for exploration and production performance during the past five years.-- The premier position for European refiners by Wood MacKenzie, which measured 19 international oil companies' refining operations for net cash margin per barrel.-- The inaugural "Explorers of Houston Award for Leadership and Innovation" from the Petroleum Equipment Suppliers Association, which cited "the tremendous steps taken by Conoco to become the energy company of the next millennium." The following commentary compares segment results for the fourth quarter and full year 1999 with fourth quarter and full year 1998, respectively, after excluding the earnings impact of special items. Special items for 1999 and 1998 are detailed in the attached tables.FOURTH QUARTER 1999Upstream For the quarter, Upstream earned $347 million, versus $68 million last year, as a result of higher prices and lower exploration costs. U.S. earnings were $135 million, up 229 percent, due to higher crude oil and natural gas prices, along with lower exploration costs, partly offset by lower U.S. natural gas volumes. International upstream earned $212 million, versus only $27 million last year, primarily as a result of higher crude oil prices, in addition to increased natural gas volumes and lower exploration costs. Worldwide net realized crude oil prices more than doubled to $23.48 per barrel. Worldwide natural gas prices of $2.49 per thousand cubic feet were 16 percent higher, as the 41 percent increase in U.S prices was tempered by lower international prices.Overall, the company maintained total production at 641,000 barrels-of-oil-equivalent per day for the quarter. Petroleum liquids production was down 2 percent to 359,000 barrels per day (bpd), with international production down the same percentage due to lower cost recovery volumes in Indonesia and natural declines in other areas. These were partly offset by the growth in production from Petrozuata. Worldwide natural gas production rose 2 percent to 1.7 billion cubic feet per day, as international gas volumes rose at a rate of 19 percent, with strong growth coming from the Britannia, Viking Phoenix and Vampire fields. As expected, U.S. natural gas production declined 10 percent because of reduced drilling activity in the Lobo South Texas gas field earlier in the year and property dispositions. DownstreamDownstream earned $72 million, an increase of 36 percent, due to improving heavy sour crude differentials, higher refining throughput and strong year-end product sales of lower cost inventories. International earnings increased 56 percent during the period to $53 million. However, U.S. downstream earnings of $19 million remained flat with last year, as margins for coke and other products were impacted by higher crude costs. Worldwide refinery inputs increased 4 percent to 868,000 bpd over the same period in 1998. During the quarter, planned shutdowns occurred at the Humber, U.K.; Lake Charles, La.; and Ponca City, Okla., refineries, although U.S. and European refineries continued to operate at very high utilization rates.Corporate and OtherCorporate and Other operating expenses were $35 million, compared to $26 million last year, primarily due to higher administrative costs associated with staffing corporate activities resulting from the split-off from DuPont and an increase in variable compensation. Interest and non-operating expenses of $60 million were down slightly from last year.FULL YEAR 1999UpstreamFor the year, Upstream earned a record $845 million, up 72 percent on higher crude oil prices, increased volumes and lower exploration expenses. These improvements were partly offset by higher production costs associated with the increased volumes and lower gains from asset dispositions this year. U.S. earnings were $311 million, up 33 percent due to higher crude oil and natural gas prices and lower exploration expenses, partly offset by lower volumes. International upstream earned $534 million, up 107 percent as a result of higher crude oil prices and increased crude oil and natural gas volumes. These improvements were tempered by lower realized natural gas prices and higher volume-related production costs. Worldwide net realized crude oil prices increased 42 percent for the year to $17.51 per barrel. Worldwide net realized natural gas prices of $2.12 per thousand cubic feet were 5 percent below last year. The one-percent increase in U.S natural gas prices was more than offset by a 17 percent drop in international prices that were down largely due to contractual terms renegotiated in 1998, as well as weaker demand.Overall, the company's total production was up 9 percent to 636,000 barrels-of-oil-equivalent per day, driven by the 18 percent rise in worldwide natural gas production. Worldwide natural gas production rose to 1.7 billion cubic feet per day, as international gas volumes jumped 49 percent, with the increased production coming from the Britannia, Viking Phoenix and Vampire fields in the North Sea. Even with reduced development drilling in the Lobo South Texas gas field due to lower gas prices, U.S. natural gas production was down only one percent. Net petroleum liquids production was up 3 percent to 359,000 barrels per day (bpd), with international production rising 6 percent due to higher North Sea and Petrozuata volumes. DownstreamDownstream earned $255 million, down 32 percent because of lower refining margins partly offset by higher sales volumes of lower cost inventories. U.S. downstream earnings fell 39 percent to $126 million, while international earnings were $129 million, down 23 percent. Worldwide refinery inputs were 874,000 bpd, an increase of 6 percent. Corporate and OtherCorporate and Other operating expenses were $91 million for the year, an increase of $17 million over last year, due to increased administrative costs associated with becoming an independent company and higher overall variable compensation. Interest and non-operating expenses of $227 million were $155 million higher than last year, reflecting the increase in interest expense, as debt was only outstanding for half of 1998. Also, prior year results included $27 million in exchange gains tied to DuPont intercompany loans eliminated as part of the separation. Current year results do not include comparable gains.Other Financial Highlights During the year, the company generated $2.2 billion of cash provided by operations, $800 million more than last year.Capital expenditures totaled $1.8 billion, as the company exercised restraint throughout the year, even after the improvement in crude oil prices. Coupled with stronger prices in the second half of the year and improved working capital, the reduction in capital spending allowed the company to reduce its debt to $4.7 billion from a peak of $5.1 billion reported in June. Cash ended the year at $317 million. "Looking ahead, Conoco will continue to enhance its investment portfolio while exercising capital discipline," Dunham said. "We will spend capital only when it creates value for our shareholders, such as the recent acquisition of natural gas assets from Renaissance which provided immediate synergistic benefits to the company's Canadian operations. We will continue to evaluate opportunities, many of them stemming from industry consolidations, but we will take advantage of opportunities only when they are strategically attractive and create value," he concluded.
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