8-KEarnings & ResultsFinancial EventsExhibits & Filings

CONOCOPHILLIPS 8-K Report, Financial Results (Jan 16, 2009)

Filed January 16, 2009For Securities:COP

Summary

ConocoPhillips filed an 8-K on January 16, 2009, detailing significant events that will impact its fourth-quarter 2008 financial results. The company announced an estimated $7.3 billion noncash impairment charge related to its investment in OAO LUKOIL. This impairment stems from a substantial and prolonged decline in the market value of LUKOIL's American Depositary Receipts (ADRs) below the carrying value of ConocoPhillips' investment, indicating the decline is considered other-than-temporary. Furthermore, ConocoPhillips expects to record a substantial noncash goodwill impairment of approximately $25.4 billion for its Worldwide Exploration and Production (E&P) reporting unit. This impairment is a result of the annual goodwill impairment test, which indicated that the fair value of the E&P segment was below its carrying value, particularly exacerbated by challenging credit markets, reduced global economic activity, and significant declines in commodity prices and the company's market capitalization. Additional noncash impairments of approximately $1.8 billion are also anticipated due to reduced commodity prices, refining margins, and capital spending plans.

Key Highlights

  • 1ConocoPhillips will record an estimated $7.3 billion noncash impairment charge on its LUKOIL investment, reflecting a significant decline in LUKOIL's ADR market value below book value.
  • 2The company expects a substantial noncash goodwill impairment of approximately $25.4 billion for its Worldwide Exploration and Production (E&P) segment.
  • 3The goodwill impairment is driven by the annual impairment test, indicating the E&P reporting unit's fair value is below its carrying amount due to market conditions.
  • 4Additional noncash impairments totaling approximately $1.8 billion (pre-tax) are anticipated from reduced commodity prices, refining margins, and capital spending plans.
  • 5These impairment charges are noncash and are expected to be recognized in the fourth quarter of 2008 results.
  • 6The filing also mentions the company's 2009 capital program and fourth-quarter 2008 interim update, as detailed in a press release furnished with the 8-K.

Frequently Asked Questions

The primary reasons for the significant impairment charges are the substantial and prolonged decline in the market value of ConocoPhillips' investment in OAO LUKOIL and the results of the annual goodwill impairment test for the Worldwide Exploration and Production (E&P) segment. These declines are attributed to challenging credit markets, reduced global economic activity, falling commodity prices, and a decrease in the company's market capitalization.

ConocoPhillips expects to record an estimated noncash impairment charge of $7.3 billion related to its LUKOIL investment. This charge is noncash, meaning it does not involve current or future cash expenditures.

The company expects to record an estimated noncash goodwill impairment of approximately $25.4 billion for its Worldwide Exploration and Production (E&P) reporting unit. This impairment is also noncash.

No, the impairment charges for both the LUKOIL investment and goodwill are noncash items. ConocoPhillips does not expect them to result in current or future cash expenditures.