How did the acquisition of Burlington Resources impact ConocoPhillips' financial results?

The acquisition of Burlington Resources Inc., completed on March 31, 2006, for $33.9 billion, significantly increased ConocoPhillips' asset base, proved reserves (adding approximately 2 billion barrels of oil equivalent), and production, particularly in North American natural gas. Its results are reflected in the E&P segment from the second quarter of 2006 onwards, contributing to higher overall revenues and net income for the nine-month period. The acquisition also led to a substantial increase in the company's debt levels and goodwill on the balance sheet.

What is the company's outlook on commodity prices, particularly crude oil and natural gas?

For the third quarter of 2006, crude oil prices remained strong, supported by global economic growth and geopolitical uncertainties, although they began to decline towards the end of the quarter. Natural gas prices decreased in the third quarter due to high storage levels and a lack of hurricane disruptions. Management noted that while favorable prices contributed to strong performance, they are subject to market conditions beyond the company's control, and a decline in prices would likely impact cash from operations.

How has ConocoPhillips managed its increased debt load following the Burlington Resources acquisition?

ConocoPhillips financed a significant portion of the Burlington Resources acquisition through debt, leading to a substantial increase in total debt. To manage this, the company utilized cash from operations, drew upon revolving credit facilities and commercial paper programs, and issued new debt securities. The company repaid significant bridge facilities used for the acquisition and expects its existing liquidity sources to be adequate for its ongoing capital program and debt payments.

Are there any significant new accounting standards or policies that impact the financial reporting?

Yes, ConocoPhillips adopted EITF Issue No. 04-13 concerning the accounting for purchases and sales of inventory with the same counterparty, effective April 1, 2006, which required net reporting for certain transactions. The company also adopted SFAS No. 123(R) for share-based payments on January 1, 2006, using a modified-prospective transition method. Neither adoption had a material impact on net income or financial statements. Additionally, the company noted upcoming adoptions of SFAS No. 157 (Fair Value Measurements), SFAS No. 158 (Employers' Accounting for Defined Benefit Pension Plans), and FASB Interpretation No. 48 (Accounting for Uncertainty in Income Taxes) which are under evaluation.

COP 10-Q Quarterly Report Q3 FY2006 — Revenue, Net Income, EPS

Summary

ConocoPhillips reported solid financial results for the third quarter and first nine months of 2006, driven by strong performance in its Exploration and Production (E&P) and Refining and Marketing (R&M) segments. The company successfully integrated the significant acquisition of Burlington Resources Inc., which closed on March 31, 2006, adding substantial natural gas reserves and production. Despite a decline in natural gas prices, higher crude oil prices and improved marketing margins contributed to increased net income year-over-year. While revenues saw a slight dip in the third quarter due to accounting changes, overall revenues for the nine-month period increased, reflecting higher commodity prices and the impact of the Burlington acquisition. The company's balance sheet shows a substantial increase in assets and liabilities, largely attributable to the acquisition. ConocoPhillips also generated strong operating cash flows, enabling it to manage its increased debt levels and continue investing in capital programs and returning capital to shareholders through dividends and share repurchases.

Key Highlights

1Completed the significant $33.9 billion acquisition of Burlington Resources Inc. on March 31, 2006, which substantially increased the company's proved reserves, particularly in North American natural gas.
2Reported net income of $3.876 billion for the third quarter of 2006, an increase from $3.800 billion in the prior year's quarter. Nine-month net income was $12.353 billion, up from $9.850 billion in the same period last year.
3Exploration and Production (E&P) segment performance was strong, driven by higher crude oil prices, although natural gas prices saw a decline.
4Refining and Marketing (R&M) segment showed resilience with improved marketing margins, though refining margins weakened slightly in the third quarter.
5Total debt increased significantly to $27.8 billion from $12.5 billion at year-end 2005, largely due to debt financing for the Burlington Resources acquisition.
6Generated $15.879 billion in cash from operating activities for the first nine months of 2006, a 23% increase year-over-year.
7Introduced new accounting standards, including EITF Issue No. 04-13 for inventory purchases/sales and SFAS No. 123(R) for share-based compensation, with no material impact on financial statements.

CONOCOPHILLIPS Quarterly Report for Q3 Ended Sep 30, 2006

Summary

Key Highlights

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