Results of Operations

Consolidated Results

A summary of the company's net income (loss) by business segment follows:

2008 vs. 2007

The lower results in 2008 were primarily the result of:

  • A $25,443 million before- and after-tax goodwill impairment of all E&P segment goodwill. This impairment was recorded during the fourth quarter.
  • A $7,410 million before- and after-tax impairment of our LUKOIL investment taken during the fourth quarter.
  • Lower U.S. refining margins in our R&M segment.
  • An increase in other asset impairments, predominantly in our E&P and R&M segments.

 

These items were partially offset by:

  • Higher crude oil, natural gas and natural gas liquids prices, benefiting our E&P, Midstream and LUKOIL Investment segments. Commodity price benefits were somewhat counteracted by increased production taxes.
  • A 2007 complete impairment ($4,588 million before-tax, $4,512 million after-tax) of our oil interests in Venezuela, resulting from their expropriation on June 26, 2007.

 

2007 vs. 2006

The lower results in 2007 were primarily the result of:

  • The complete impairment of our oil interests in Venezuela.
  • Lower crude oil production in the E&P segment.
  • Higher production and operating expenses, higher production taxes, and higher depreciation, depletion and amortization expense in the E&P segment.

 

These items were partially offset by:

  • The net benefit of asset rationalization efforts in the E&P and R&M segments.
  • Higher realized crude oil, natural gas, and natural gas liquids prices in the E&P segment.
  • Higher realized worldwide refining margins, including the benefit of planned inventory reductions, in the R&M segment.
  • Increased equity earnings from our investment in LUKOIL due to higher estimated commodity prices and volumes, and an increase in our average equity ownership percentage.

Statement of Operations Analysis

2008 vs. 2007

Sales and other operating revenues increased 28 percent in 2008, while purchased crude oil, natural gas and products increased 37 percent. These increases were mainly the result of higher petroleum product prices and higher prices for crude oil, natural gas and natural gas liquids.

Equity in earnings of affiliates decreased 16 percent in 2008, reflecting:

  • Lower results from WRB Refining LLC, due to lower margins and a decline in equity ownership in accordance with the designed formation of the venture.
  • Lower results from CPChem, due to higher operating costs, lower specialties, aromatics and styrenics margins, and lower olefins and polyolefins volumes.
  • The absence of earnings from our heavy oil joint ventures expropriated by Venezuela in 2007.
  • Increased losses related to our Naryanmarneftegaz (NMNG) joint venture as a result of higher production taxes and increased depreciation, depletion and amortization (DD&A) costs during the startup and early production phase of the Yuzhno Khylchuyu (YK) field.

 

These negative results were somewhat offset by improved results from the FCCL Oil Sands Partnership, DCP Midstream, LUKOIL (excluding the investment impairment), and CFJ Properties.

Other income decreased 45 percent during 2008, mainly due to a lower net benefit from asset rationalization efforts, the release in 2007 of escrowed funds associated with our Hamaca joint venture in Venezuela, and the settlement of retroactive adjustments for crude oil quality differentials on Trans-Alaska Pipeline System shipments (Quality Bank) in 2007.

Exploration expenses increased 33 percent during 2008, reflecting increased dry hole costs and higher expenses for post-discovery feasibility and development planning studies.

Impairments increased from $5,030 million in 2007 to $34,539 million in 2008. This increase reflects a $25,443 million goodwill impairment recorded during 2008 in our E&P segment. Also contributing to the increase was a $7,410 million impairment of our LUKOIL investment taken during 2008. These 2008 impairments were partially offset by a 2007 impairment of $4,588 million related to the expropriation of our oil interests in Venezuela.

Other impairments increased $1,244 million during 2008 primarily due to property impairments taken in response to a significantly diminished outlook for crude oil and natural gas prices, refining margins and power spreads, as well as in response to revised capital spending plans. For additional information, see Note 7 — Investments, Loans, and Long-Term Receivables, Note 9 — Goodwill and Intangibles, and Note 10 — Impairments, in the Notes to Consolidated Financial Statements.

Interest and debt expense decreased 25 percent in 2008, primarily due to lower average interest rates, as well as the absence of 2007 interest expense related to the Alaska Quality Bank settlements.