01—Abstract
Summary
Summary of the 10-K/A filed April 15, 2009. Cited figures are marked; the original filing is the authoritative source.
This is Amendment No. 1 (Form 10-K/A) to ConocoPhillips' 2008 Annual Report.
It was filed to add separately audited financial statements of OAO LUKOIL, a significant equity affiliate, as required by Rule 3-09 of Regulation S-X, because LUKOIL's audit was not complete before the original February 25, 2009 filing deadline. The amendment does not change ConocoPhillips' own financial position, results, cash flows, or disclosures. It contains no ConocoPhillips financial statements, so investors should read it as supplemental information about a major affiliate rather than as an update to COP's results.
The LUKOIL statements show a company with strong top-line growth in 2008. Sales rose about 31.5% to $107.7 billiona, driven largely by higher commodity prices and acquisitions. Net income was $9.1 billion, down about 4% from $9.5 billion in 2007, as higher operating, transportation, and tax costs absorbed much of the revenue gain.
Operating cash flow increased to $14.3 billionb, and capital expenditures were $10.5 billion. Total assets grew to $71.5 billion and stockholders' equity to $50.3 billion, while long-term debt rose to $7.5 billion. The auditor, ZAO KPMG, issued an unqualified opinion dated March 31, 2009.
Several risk items stand out. LUKOIL recorded impairments in 2008, including $156 millionc on Timan-Pechora assets after a geological model revision, $58 million on U.S. retail stations, and $100 million of goodwill on the Beopetrol acquisition. Proved oil reserves declined to 14.5 billion barrels at year-end 2008 from 15.7 billion, while proved natural gas reserves increased to 29.1 trillion cubic feet.
The standardized measure of discounted future net cash flows fell sharply to $43.6 billiond from $76.7 billion, reflecting lower year-end prices and higher mineral extraction taxes. The filing also discloses Russian legal and tax uncertainty, pending anti-monopoly claims, and related-party transactions with ConocoPhillips and other affiliates.
02—Key points
Key Highlights
- Amendment No. 1 to the 2008 Form 10-K, filed solely to add audited LUKOIL financial statements under Rule 3-09; ConocoPhillips' own financials are unchanged and not included.
- LUKOIL 2008 sales rose about 31.5% to $107.7 billion from $81.9 billion, but net income declined about 4% to $9.1 billion from $9.5 billion.
- LUKOIL operating cash flow increased to $14.3 billion from $10.9 billion, funding $10.5 billion of capital expenditures.
- LUKOIL total assets reached $71.5 billion and stockholders' equity reached $50.3 billion at December 31, 2008, with total long-term debt of $7.5 billion.
- Impairments in 2008 totaled roughly $314 million, including $156 million on Timan-Pechora assets, $100 million of Beopetrol goodwill, and $58 million on U.S. retail stations.
- Proved oil reserves fell to 14.5 billion barrels from 15.7 billion, while proved natural gas reserves rose to 29.1 trillion cubic feet from 27.7 trillion.
- The standardized measure of discounted future net cash flows fell to $43.6 billion from $76.7 billion, largely due to lower year-end prices and higher mineral extraction taxes.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2008filed April 15, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $240.84B$187.44B | +28.5% |
| R&D Expenses | $209.00M— | — |
| SG&A Expenses | $2.23B$2.31B | −3.3% |
| Interest Expense | $1.19B— | — |
| Net Income | -$16.35B$11.89B | −237.5% |
| EPS (Basic) | $-10.73$7.32 | −246.6% |
| EPS (Diluted) | $-10.73$7.22 | −248.6% |
| Shares Outstanding (Basic) | 1.52B1.62B | −6.2% |
| Shares Outstanding (Diluted) | 1.52B1.65B | −7.4% |
05—Questions
Frequently Asked Questions
Why was this amended 10-K filed, and does it change ConocoPhillips' 2008 results?
It was filed to include audited financial statements of OAO LUKOIL under Rule 3-09 of Regulation S-X, which were not ready before the original February 25, 2009 deadline. The filing states that it does not update or modify ConocoPhillips' financial position, results of operations, cash flows, or disclosures, and it does not reflect events after the original filing date.
How financially strong is LUKOIL based on these statements?
LUKOIL had total assets of $71.5 billion, equity of $50.3 billion, and cash of $2.2 billion at year-end 2008. Long-term debt was $7.5 billion, and operating cash flow of $14.3 billion comfortably covered capital spending and dividends. Net income of $9.1 billion gave diluted EPS of $10.88, compared with $11.48 in 2007.
What risks does the LUKOIL filing highlight for investors?
Key risks include 2008 impairments, a decline in proved oil reserves, and a sharp drop in the discounted future cash flow measure. The auditor notes Russian tax and business-environment uncertainty, and the notes disclose anti-monopoly suits (claims of roughly $79 to $240 million), a long-running U.S. jurisdictional dispute over a diamond license, and Russian tax authorities taking a more assertive stance. Russia's federal income tax rate also changed on January 1, 2009, to 2.0% from 6.5%.
How is LUKOIL related to ConocoPhillips?
ConocoPhillips is a shareholder of LUKOIL under a 2004 shareholder agreement, and the two companies have a broad strategic alliance. In 2008 LUKOIL recorded related-party sales of $436 million and purchases of $1.9 billion from related parties, and its notes describe $2.2 billion of loans from ConocoPhillips, including $1.8 billion tied to the NMNG joint venture in Timan-Pechora, which LUKOIL consolidates.
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