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FINANCIAL TIMES: Conoco to cut estimate at key Canadian oil field: “…reflects the increasing sensitivity to regulatory scrutiny of reserves after the large cuts in reserve estimates made last year by Royal Dutch/Shell.” ( 7 Jan 05


By Doug Cameron in Houston

Published: January 7 2005


ConocoPhillips plans to cut its estimate of reserves at a key Canadian oil field after a slide in the expected value of production.


The group said it "anticipates a negative revision" of the proved crude oil reserves from the Surmont field in Alberta, which it operates in partnership with Total of France and US-based Devon Energy.


The announcement, in a mid-quarter update, highlights the requirement of the Securities and Exchange Commission for oil companies to use year-end prices for reserve estimation. It also reflects the increasing sensitivity to regulatory scrutiny of reserves after the large cuts in reserve estimates made last year by Royal Dutch/Shell.


The Surmont field is due to start production next year, with reserves of heavy bitumen previously estimated at 5bn barrels.


ConocoPhillips said year-end estimates for Canadian bitumen were "unusually low" and the revision would mean that net reserve additions would now be below the level of oil and gas production last year. It did not reveal the scale of the revision but said Surmont remained "a valuable asset" in its overall portfolio.


The company said group-wide production rose to 1.6bn barrels in the fourth quarter of 2004, rising from the 1.56bn barrels recorded in a third quarter, hampered by heavy maintenance at projects in Alaska and the North Sea. This excludes the contribution from Lukoil, the Russian energy group in which ConocoPhillips now has a 10 per cent stake.


The recovery in production coincided with a rise in crude oil and natural gas prices above the record levels of the prior quarter. West Texas Intermediate crude averaged $48.29 a barrel in the fourth quarter, compared with $43.86 in the three months to September 30, which could see the major oil companies report record profits for the fourth quarter.


The rising profitability has allowed oil companies to strengthen their balance sheets and ConocoPhillips said its debt-to-capital ratio would fall to 26 per cent at year-end from 28 per cent at the end of the prior quarter. The company has lowered its target range from 25-30 per cent to 20-25 per cent and many analysts expect it to launch a share buy-back programme if the ratio falls to 20 per cent. It will report fourth-quarter earnings on January 26.


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