康菲 (COP) 2002 Q1 法說會逐字稿

This is an unedited realtime transcript. An edited version with proper case and full speaker names will be available shortly.

Good morning ladies and gentlemen and thank you for standing by. Welcome to the conoco 1st quarter earnings conference call. Following the formal presentation, instructions will be given for the question and answer session.

If nip needs assistance at any time, please press the star followed by the zero for an operator.

I would like to turn the conference over to Mr. Tom hinge I will.

Good afternoon to those of you on the east coast.

As stephanie said I'm tom hinkle.

Joining me are my colleagues, gene hunt we were -- hurnt terrific and steve wallace.

We won't be going over a lot of numbers in the prepared remarks since we've already sent to you two documents that cover these items. First we have a again e-mailed to you and posted our our web site a spreadsheet.

Second, we posted our fact book on conoco's web site this morning.

Additionally a copy of these scripted remarks will be posted off the internet site and this will be avalable for replay until may 9th. We will be making forward-looking statements and we refer you to our safe harbor paragraphs in our annual report or this tela conference texas on our internet site.

I'm pleased to say that our speaker today is archie dunham.

Because he has an important meeting, he only has 15 minutes to spend with us this morning. So we'll start with archie making a few opening remarks and then taking a few minutes.

Questions. I'd ask you to limit your questions to those of a strategic nature. We'll would is detailed questions later.

Thank you, tom and good morning and good afternoon.

I appreciate all of you being on-line this morning. I'm please that our 1st quarter is over. As I said in the press release, it's our most difficult quarter in the last four years since becoming a public company again but it's probably the worst quarter the industry has had in the last 10-12 years.

We're all strauging to improve performance in a difficult environment.

The fundment tals have improved in the last 30-06 days so we're pleased about that going forward.

Integration with phillips continues to go on track. As I shared with you at our last hook up we have 70 teams in place. Hundreds of employees from both companies working nearly full-time making sure that on day one we'll be able to hit grounding and achieve the synergies we announced.

We've announced the first couple of layers of management and hopefully we'll announce other layers shortly. Might make just a couple of comments about core venture three in the middle east.

We have all of the senior members of the saudi government except for the king in houston this week traveling back and forth between kroy ford and college station.

We'll be meeting with the saudi government while they are here this week and we're making good progress on core venture three without question. Our project in canada continues on track. We've I think established excellent relationship with the people and with the other producer group and I think clearly without question it's our objective to bring a pipeline into the united states have it on-line in the next five years and I think we're on track to do that. Long-term, we're short of natural gas in north america and whether we have one pipeline or two, I think the market can use both so we're optimistic that will will be constructed over the next several of years.

Our time would be spent more beneficial if I could be responsive to your specific questions.

So why don't I stop at this point a give you an opportunity to ask questions for next 10 minute or so.

Thank you.

Label at this time well begin the question and answer session. If you have a question, please press it is star followed by the one. If you would like to decline, please press the star followed I by the two.

Your questions will be pulled in the order received and if you're using speaker equipment, you will need to lift of the hand set before placing the numbers.

The first question comes from tyler dan. Banc of america securities.

Hi, how are you all?

Good.

Archie while we have you, i just wand your view if you could on number one how you feel the preclosing integration process is going? And then in your commentary in press release, you mentioned some of the tensions in the middle east potentially having an impact on the oil tries price.

Can you give us your view on that as well?

On the mergers, things are going extremly well.

Jim noeks and the other functional leaders are fully engaged with their counterparts in phillips. We're making excellent progress I think on selecting the best people for all of our jobs.

We have a lot of qualified people from both companies you know we're looking at not only who is the best but who really wants to stay for a long period of time and make a long-term commitment to the company so that was very much in our consideration as well as a selected especially the senior managers of company.

But I think warren gaenld.

We're in line. We're strategically aligned. All of the comments I getting very positive about the meetings that they have been having with their counterparts over the last several weeks and I'm confident that we're on track to achieve all of the synergies and we're going to be ready to hit ground running. The middle east I think is a very serious concern.

I meet with members of our government with senior administration officials with various members of congress.

I think the president has got a really tough job of trying to I think he is the only person that can bring about a peace treater between palestinians and the israelis.

It's number one priority i think for the president. I think he understand that. Condoleezza rice understand that and they are working hard to bring that b.

The crown prince is meeting with the president as we speak right now.

We've got to get that solved. I think if we don't get it solved, there is going to be a tremendous amount of instability in the region and it's going to have a very profound impact on prices.

But we don't have an alternative and we have to get that resolve. I think the president understand it and it's his number one priority on his list and he is working hard to get it accomplished.

Just a follow-up there related to--

Fair enough.

I'll let you keep going.

Thank you.

The next question comes from paul.

Hi. Two qechs one on the middle east situation.

Continue was negotiation on the saudi gas initiative -- are the focusing points on financial negotiation or do we look for some kind of an improved political background before any serious improvement can be made.

Second question given your exposure to, k can you comment on whether the recent tax law change has any--

On the saudi issue, I think most of the discussions revolve around the former of your issues, not the political situation.

Each of the core ventures have a different challenge.

Core venture three is progressing most rapidly. I think core venture two has some serious issues around acreage, quality of the acreage and I think that same thing is true in core venture one. We're making good progress on three and these are long-term strategic decisions and obviously we need peace in the middle east but confident in the long-term that by will have peace in the middle east so they still represent ago a an opportunity for the company.

In the uk I was disappointed in the prime minister's decision to increase the tax rates.

I think it's going to have a detrimental impact onpinvestment in the north sea long-term and I would encourage the government to rethink that issue and not implement the tax increase.

We have a lot of opportunities to invest around the world today as you know and we're going to invest where we get higher returns and I think that was a serious Miss calculation on the part of government.

Thank you.

The next question comes from doug harrison.

Good morning. You guys are obviously well positioned and while you mention the situation in your commentary, could you elaborate on the specific next steps that are needed for this project to begin construction and secondly, there was a resent judgment related to mtb contamination in california that was not significant unless it was applied to a larger base so could you comment on whether or not there is environmental policy difference that conoco may have relative to its peers and whether or not you think it's going to be material.

Just a brief comment on dense see you think our next step is to fully staff the project to open an office to continue to get alignment with our producing partners in the delta and we're working hard at doing that and hopefully you'll see additional information on that.

On ndbe I think conoco is and in a relatively good position versus our peers.

If you look on a national basis most of our outlets are not company owned outlets.

If you look at us on a relative basis we probably have less risks than our large peers.

But the whole debate around increasing the use of ethanol and the impact of the ethanol between ndbe -- liability.

Plaintiffs lawsuits. These are all issues that we continue to watch carefully but on a relative basis we're in good shape.

Thanks a lot guys.

Thank you.

The next question.

Good morning. It's almost a follow-up question to doug here. The 1st quarter was pretty nasty in terms of margins in the down stream in the u.S. Archie, does that lead you in way to reconsider the balance of businesses or the shape of the businesses specifically within the downstream at conoco.

In other words, are you looking at your retail network and thing perhaps of doing anything with that?

That's a good question and first, let me just praise the conoco downstream organization. I think we're one of the company companies that did generate a positive earnings and that's a reflection of the tremendous job of jim nokes and gary it edwards before him and making sure that we're focused and trying to create shareholder va.

I don't want to comment about the future other than than if I think you were to look at our past, the conduct the patdz that we've taken in the past to look at all of our portfolio and rash national the portfolio, i don't think the strategic long-range objectives that jim has for downstream are any different than mine and i think we're aligned and I'd rather you just wait and see what we do.

Time for one more question for archie.

The last question comes from al antoine.

Archie, there are two new areas where conoco is doing pilot work and has big plans.

The carbon fine gas to liquids.

I wonder how the phillips merger might impact both of those efforts.

Obviously the integration teams in the emerging business areas will be looking at not only phillips gtl and conoco gtl but the other opportunities.

Phillips has we think excellent sel vel moveal technology that we can look at across the full system.

But we'll look all the of those emerging technologies and select those that are best but at this point I don't think we have any expectation that anything is going to happen other than than our continuing full speed ahead.

Not only do we think it's best by think most of the third party consultants, little and systems and others and the work that they've done has all confirmed that our technology is the best in the industry and we agree with that.

Thank you, archie very much.

We appreciate you being here.

And we'll let him go and let's now briefly discuss the quarter results. Steer for this quarter and the rest of the industry versus the 1st quarter last year waspsimple. A very tough upstream operating environment character lies had by lower prices coupled with a very difficult downstream environment with poor margins.

None thes less conoco once again performed well and we increased our production by over 25%. Net income before special items for the quarter total $55 million or 9 cents per diluted share some 91% below the 1st quarter of 2001. These results include a non cash charge of $102 million or 16 cents a share for the market to market portion of the canada program we initiated last year. Without the impact our earnings would have $157 million or 25 cents a share. Let's now move directly to a discussion of the segment results.

First upstream. There are two big factors that explain a large part of the verify yuns -- verify yanks. By far the most important factor is the decline in crude oil and natural gas prices. As you can see at variance analysis this accounts for $291 million of lower earnings and the gulf canada hedge.

I'll say more about it later but the impact was a negative 10 $2 million.

We can explain almost $400 of

the $425 million verify yaks. For the remainder of this up stream discussion I'm going the talk about three important areas that will be of interest.

Aspect total production including canadian syncrude was up significantly versus the first quarter of last year.

Archltd 860,000 boe essay day. This is up over 25% from 2001 q1 based largely on the gulf canada acquisition but slightly down about 3.5% from the 4th quarter as was expected due to our recent kiss position effort.

The -- it keeps us well on target for delivering between 305 and 315 million boes.

Looking forward we expect a minor dip in production from the current level due to the normal seasonal reduced demand.

In the fourth quarter, we expect to benefit from the normal increased from seasonal winter energy demand and we also expect to bring on an unusual number of new fields all of which are in development right now.

They are el about a south.

Vie count and cms 3 in the uk. The second agreement in indonesia and one in raush yeah. -- russia.

Secondly we're off to a good start for exploration in 2002 with four discoveries out of eight so far. We also continue to have excellent success in venezuela and gulf of mexico -- dwelling. On top of this early success, there is still a lot of excitement remaining in our exploration program for the remainder of the year with several high potential wells in the deep gulf of mexico norway and malaysia yet to be drilled.

For us, it means several hundred million barrels in size each.

These wells and continuing appraisal of past large discoveries should add up to another good year. Now the last thing I want to talk about in the upstream section is the gulf canada hedging program we put in place last year to protect the gulf canada acquisition against a significant decline in crude and natural gas prices.

As we've discussed before there are two accounting components. The mark to mark proportion and the revenue portion. We're required to reflect any change in the market value in earnings.

Since at the close of business on march 31st this year crude oil and natural gas pricers were significantly higher than at the end of the quarter 2001. The total mark declined about $102.5 million and we took this 16 per share hit into earnings. While setting that was the fact that $19.5 million or 3 cents per share was included revenue through all production. The net loss of $82.6 million or 13 cents a share is refledged in upstream earnings. Despite this loss the hedge remains in the money with a pretax value value of $164 million at quarter end and a valuable piece of insurance for conoco.

It continues to provide a hedge against price decreases.

For those of you who would like to review of this in more detail we've included a table as an attachment to the press relee.S in addition, find -- on our web site detailing our hedge positions and how they are account for.

Now let's move on to downstream. Said simply the market environment was dreadful. Refining markets -- refining margins were down 50 first versus the first quarter of 2001.

The heavy light difference shls were down 350%. Although they still average over $5 a barrel well within what we would consider a normal range.

As you know that is quite important to conoco since we process a high proportion of price advantaged heavy and a said I can krudz. In europe, the margin average a negative 84 cents a barrel the lowest it's been in over a decade. Give thin environment we're pleased that conoco's worldwide downstream operations ran well enough to make a profit.

The analysis for this quarter versus last year's 1st quarter is quite straightforward. As you can see the combined impact the of all of the environmental factors including the u.S. Gulf coast spread, the brent crack in margin, the singapore spread, co-product margins, crude factors and the refining margings redude earnings by about $125 million more than the total variance. Somewhat off setting these factors were improved earnings from our various downstream equity companies.

As you can see therefore almost the entire variance story for the downstream operations can be accounted for by environmental factors.

The real story is that conoco downstream can make money even in this appalling business environment.

The analysis of this quarter's results versus last quarter is similar with one exception.

It shows that the main neck active a feblt was the combined effect after all environmental factors. Marketing margins impaired us only modestly by $26 million reflecting our limited expor pose you are to marketing in the u.S. As you may remember in 2001 q4 we had an earnings impairment due to drawing crude of products during a period of falling prices. That was not case this quarter and represents a positive $37 million swing in earnings.

There was a significant benefit due to lower overhead and operating costs. There were some seasonal costs include included in 2001 q4 but the significant decline reflects the -- to control and reduce its cost.

I would summarize our downstream results this way.

First a with other companies with downstream operations, the difficult operating environment hurpt us. However by having excellent fine reese and very little company owned retail marketing we were able to mitigate the declines and turn in a modest profit.

Secondly our assets continues to perform well and we have every expectation they will continue to do so.

Lastly, cost control continues to be the prime focus for downstream and jim nokes is kmitsd to have one of the most efficient downstream praises in the world.

Here are some brief comments. For emergencying businesses the increases versus the same quarter 2001 are due to the -- of the gas to liquid plant.

The cost of construction are being expensed as rnd. Corporate expenses rose versus this quarter versus last year including information management, minority interest costs, legal costs and the like.

We improved slightly due to the absence of seasonal lehigher charges this quarter. Our full 2002 guidance for the corporate segment is now 150 to $160 million increased to include the minority interest cost. Our non operating expense are exchange gains and losses in norway and canada. Although you may have expected increased interest expense over 2001 q1 could you to the increase debt connected to the canada acquisition, it remains relatively flat.

This is due to the low rates&& and the varied tax efficient way the tax structure.

That conclude my prepared remarks. I'd like to remind everybody of our new procedure for taking questions. We sent those procedures to everyone last week but I would like to take a moment to remind everyone.

We hope will give all callers an opportunity to ask questions and not force some to hold in a long queue. First each caller will be allowed to ask one and only one question each time.

After you've asked a question, you're free to rejoin the queue. We'll deem the so-called two part questions as two questions and answer only one part of that question. Now we gave you a little leeway during archie's segments but not now.

We'll allow a single qualification -- clarification. Let's take the first question.

I'd like to remind everyone if you have a question please press the star followed I the one on your phone.

And the first question come from steven pfeiffer.

You guys are tough.

I'll keep it to one. The size of the divestmeants that you have in the u.S. If you can help us reconcile the dip specifically what went down in divestmeants--

Sure.

Let me turn to the right haeng page here.

I'm having a hard time finding my page here.

Let me give you a breakdown and I'll break it down between areas and also between oil and gas divestitures as well. On the oil side on the permian basins in, we had 1398,000 barrels a day and gulf of mexico was about 9.7.

On the gas side in the permian we had.1 million barrels of sorry thousands barrel of oil equivalence elk basin was.4. Gulf of mexico 6.7 and low bow was 3.3.

And you add that all up and it's rounded. About 24-25,000 barrels a day of disposition impact.

Now that's sort of just the year-end. We also as you know have the poke hon taas earlier and that was about 3.3.

So that gives you a summary. Between all of that steefrks i think what you ought to take away is that almost all of the reduction is accounted for by the disposition program.

And those went out roughly towards the end of last year?

And essentially at the end of the 4th quarter with the exception of poke an taas.

The next question comes from aubrey fine.

Jp more began.

Dave are you on the line?

Heal queue ff on his own. Thanks.

The next question comes from mark flanary.

It's credit seas first boston.

I assume how are you isn't my first question.

No. Good point.

I want to talk about the refinery the international number was I think better than people expected. Are you benefiting from the fact that you take a lot of -- into that refinery or is there something going on that we don't see in the normal northwest european refining margins.

You have hit on one of the reasons that weld talk about for our excellent performance internationally. And indeed you are correct because we purchased a lot of resaid into the refinery that does help it and reprocessed that into specialty products most importantly koch and you know that the koch prices do not fluctuate as much with change in crude prices.

The koch prices tends to be stable throughout the calendar year.

There are some changes but they tend to be fairly stable and that of course helped us as well. And beside that of course the refineries ran very well.

I think as you know we have a pretty good reputation for running our refineries at very high capacities and not just the uk but all of the refineries around the world ran at good height and utilization numbers so I would say those are the factors that contributed to that excellent performance.

Greater.

The next question comes from michael mayor.

Prudent shl.

Can you bring us through this increased guidance on the corporate charges please?

I can tell you a little bit about that. It's all associated with a minority interest, mike and that was a financing vehicle.

A tax efficient financing vehicle that we put in place 5 -- and it's going to end up reducing our over all expenses for sure but it shows up in non op as opposed to other parts of our balance sheet.

So it is discussed in the annual report so there is no much more I want to say at this point.

Thank you.

The next question comes from matthew war burton.

Good afternoon.

Just a quick question.

The henlings worked against you in the 1st quarter. Given while the price environment is both on oil and gas looking forward, what sort of circumstances would force conoco or maefrk conoco decide to close out those hedges and run fully exposed for the rest of the year.

Matthew, it's a good question and it's one bob goldman and his team continuously monitor the situation.

On the hedges.

We're -- I can't really sit here and tell you exactly what circumstances would have to occur before we decide to close it out.

I'd speculating. But bob and his team are going to be continuing to watch it and if it comes to a point where they feel that the -- most of the value of the hedge has been has come to conoco, they may make a decision to go ahead and close it out but i can't speculate with you on the criteria that would get you there.

thank you.

The next question please.

Good morning. Tom, couple of questions, what is the impact of fas 142 on your 1st quarter earnings?

I'm afraid I don't even know what fas 142 is.

It's the provision that eliminates the requirement or amortized goodwill.

My friends here tell me that the impact was actually zero.

Okay.

Next question.

I can only get you one question.

Got to stick to the rules joolt next question comes from doug harrison. Tom I have a question about european refining a and marketing. Specifically margins have been pretty poor especially in the uk and germany which are two of your companies that are key and we've seen the trends improved although I wanted to get clarification on that point and the key competitive features.

I think we can keep it one question. You know, you point out that germany and the uk are important.

Uk is not important us to any more since we've sold off all but just a handful of stations in the uk so we're not subject to the uk any more. Germany of course continues to be a difficult operating environment just because of the price war that was implemented a couple elf years ago now and but we're continuing to be hopeful that that will go away and germany remains an attractive market for us. I think going forward the I'm not sure what I can tell but the european environment to be honest other than that like i said the german market is very important us to and the german market is very competitive and we continue to be hopefully though that this price war will end relatively soon and we can go back to the kinds of attractive margins that we saw in prior years.

Okay.

That answers me question.

Thanks.

The next question is a follow-up from steven pfeiffer.

You mentioned the lower overhead in the rm sectors.

I know it's a variance. Can you help us maybe with what you think the underlying cost structure has changed if you have some kind of unit matrix or otherwise that would be helpful.

It's a good question and I'm not sure I can answer it to your satisfaction.

As we looked at the reductions for downstream, it was a whole slew of small reductions all across the board which I think frankly is a very positive sign steve, because it is i think a reflection of jim nokes and the entire team trying to cut out costs all across the system.

I wish I could give like a dollar per barrel or a full dollar amount on what we think the norm is here but I'm not sure I can do that.

Is a look at what the total cost are for r & m downstream right now, I think you're not far from what I think you would consider something relatively "Normal" but there are going to be seasonalal fluk situation and with the summer driving season coming up, we may get fluk situation there as well.

Okay.

Thank you.

The next question comes from bob goodof. Quick comment on the exploration expense and your outlook for the year?

I'm let my friend Mr. Law less take care of that.

We had slightly higher than the 1st quarter of '01 in exploration expenses.

Probably a rereflection of normal exploration expenses for 1st quarter '02.

We had a back end loaded program and you can see that in the numbers on the table.

This year it looks to be spread out more evenly and the 1st quarter is probably more normal. The 2nd quarter will be lighter and the third and 4th quarter will be a little heavier but it is spread out over the year so look for an amount just I'll's talk about on an exploration budget basis, we are down this year about $100 million versus last year so total explore racial budget being about $500 million as compared to $600 million and some of that is the synergies that we talked about before with gulf canada so we're doing what we were saying.

Reducing those exploration expenses from the combination of the two companies. One thing that I learned that I didn't know that i found interesting is that 1st quarter is going to end up being seasonably higher than it was normally for conoco because we've got more stuff in gulf canada and they tend to do eye a winter drilling program and that tend to add to the expenses.

So that's part of the explanation.

250 is a good good estimate.

Well.

I would take the -- we have the cap x number that we gave you for exploration wave talked about total spend. The one thing that expense that you're going to have to think but is how much dry hole.

Of course we never know that. It's the combination of that plus the dry hole that will lead the to that ultimate expense.

You're not far off.

In the range.

Thank you.

The next question comes from william fair.

Wh reeves & co..

Good morning and good afternoon and congratulations on your strict enforcement of the new call in policy.

Thank you for that.

We appreciate that. It's terrific despite the fact that jack is probably ---- [ laughter ] Prospects for asset sales further from what has been already accomplished.

These are the strong price environment and the strong strip over the next say 12 months.

Thank you.

As you know we have talked about a billion dollar asset distribution program and we've -- at least 3/4 of the way there give or take now.

Going forward, we will continue to take a look at rationalization of our portfolio.

We're not right now -- we don't feel under any significant pressure to continue to dispose of a lot of properties.

Prior to the phillips merger, you can imagine it makes more sense to wait a little while, join the two companies together and then optimize across both companies.

You never know what you might end up decided to keep or not keep in one company versus the other.

Obviously there per some parts of the world where we have assets where we'll continue to try to market them and rash ayes our portfolio.

But I wouldn't look for a significant increase in our dispositions between now and the time we do the merger were phillips.

Thank you.

You're welcome.

.

The next question from don neiman.

Good morning, guys. I cap.

Hi, don.

This is a lazy man's -- but can you give us the domestic realization for crude and gas prior to the benefits from hedging.

Sure.

Can do. In fact I'll give the impact of the hedge specifically and let me just in the united states, the impact of the gulf canada hedge was 10 cents mcf.

And therefore on total it was 6 cents mcf. The impact on crude was only in the usa it was $5.31. In the u.S. Now you average that it's about 50 cents. About there was no interest national impact.

$5.31. Okay.

Yes in the us.

Thanks.

The next question comes from paul chang.

Ly man brothers.

On the international -- can you give me a rough estimate that how much you earned in the retail and how much you earn in the refining side.

Again I apologize but we don't account for as you know, conoco does not account in that way.

We have regional accounting.

We don't break out refining from marketing at all. So even if I did are tried i couldn't give you the number. I might make a comment on this right now. In the new conoco phillips organization we're going to be returning to a more functional organization and functional accounting so we will be able to break that out for you post the merger.

Can you tell us in the retail side how bad the situation was in the 1st quarter?

Comparing to the 4th quarter perhaps?

I believe if I'm not mistaken the variance our variance was like $25 million or something.

From quart to quarter.

On the retail side?

On the marketing side.

Correct.

And that's about all I can give for you on that.

Okay.

Very good. Thank you.

You're welcome.

The next question comes from fill botch.

Company is ryan beck. Afternoon.

I'll try to ask the second question bill would have gotten the chance to ask it. If I heard right, you mentioned that there were four discovery's could you name them and summarize.

We'll be happy to do that I'll let steve talk about that. The four discovery's two in canada in our foothill trend. There were on our greg antler and grand cash acreage.

What's appealing is they ae a follow on to the solomon discovery and we're starting to get a handle on just exactly what success looks like there. We had one two small snuggle one in norway and one in the netherlands.

Okay.

Thanks very much.

The next question comes from stanley harbor son.

Hello everybody.

The reason Mr. Farer was complimentary about your new policy is that he has very few questions.

We'll let you guys fight that out.

He is not here so I can say that.

I'm waiting for the next offering of the carbon samples. I want to talk about vietnam. What is the status with the development or the play as it were because it's pretty unique the last several years in vietnam and it looked to be very perspective.

Specifically the--

Yes.

We've had two nice discoveries.

It's it's not two questions, you can go ahead.

We've praised it.

It's declared commercial.

A development going forward. It's on track. I believe it's scheduled for first production in 2004. It's going to be two platforms well head platforms feeding back to a floating storage s.

-- system. It's 250 million barrel oils equivalent.

Shallow water. We're right on track. Very hppy about that. The second discovery is going to be appraised this year. Very likely in some way connected to the other discovery.

It's 150 to 300 million barrels and we're going to drill another exploration well between the two of them this year.

So all totaled if that's successful, we could be talking about developing 6-800 million barrels in that area over the next several years.

Thank you very much.

Okay.

The next question comes from mick griffin. To what extents would the refining margins improved in queue two.

Can you give us some color. U.S. Versus europe.

Let me kind of hop in a little bit nick.

We're going to have to wait and see. If you would have asked me a couple of weeks ago, u.S. Was coming back strong. But it seems to be volatility there.

Front cracking margin is back negative again. Singapore 3241 probably couldn't be any worse.

But it's hard to tell. We're optimistic that it's going to be better but there is clearly volatility in there. I had hoped for a nice smooth ride from what I saw four weeks ago but I think improving but with volatility is the only way I can phrase it.

And if you want to turn to page 10 of the fact book we did give a quick run through of the indicators through april 22nd.

You can see almost all of them are improved with the exception of the wtai maya differential.

So we've got our fingers crossed.

Thank you.

The next question comes from jim how man.

Pleat state your company name followed by your question.

Good afternoon -- with respect to the phillips merger can you give us a quick update on the regulatory process and if you care to the federal trade commissions of inquiry.

I can give you everything that I know at the moment which is all of the regulatory approves within the exception of the ftc have been received and waved them in hand for a while.

The ftc, we completed only only the first request for information but also the second question for information.

We completed that a few weeks ago. And we are awaiting their -- first reply ply back us to.

So there is not much more i can say about it. A lot of stuff that I u see in the press is idle speculation by people that don't know what is going on.

We're pretty anxious lea waiting to hear from them.

Thank you.

The next question comes from deen donly man.

Could you talk about cora cora and what is going on there.

Maybe you can discuss it from a guy geologic, political and economic standpoint and and give us a time line on when we're likely to hear some important news.

Sure.

I'll start it and then turn it over to steve a little bit.

And he can fill in some of the blanks. As you know, don, the corp what cora discovery is a big discovery and we're waiting for archie to do that topless snow boarding to celebrate the size of that discovery.

Having said that we are in the midst of our appraisal drilling program and everything remains positive.

On the political front and I'll turn it over to steve and let him tell you more about the technical side.

On the political front there hasn't been that much impact for all of the upsets and uncertainties that you've seen recently.

The new hydro carbon law doesn't impact it. It has been grand fathered under the old laws.

There may be some positive impact on because of the other recent law changes down there. I think that remains to be seen a little bit.

But we're hopeful that that's the case. As I think we've said more than once on cora cora, we continue to work with the government down there and to ensure that the project is commercial and positive for us.

We believe that it will be at the end of the day and that we'll probably go ahead with the project but let me turn it over to steve and let him tell you more the technical aspects.

It's -- we're finishing up the appraisal program.

They were all successful more so than expected.

We went ahead with an extended well test in which one well was producing and another well was monitoring.

Got excellent results showing that the reservoirs are continues was. So on a technical basis it's good news all around for us. The engineers and scientists are working on the plan and what it might look like what the alternative options are at this time so very much in the preliminary engineering stage.

And I think at this point we're optimistic about it being a very big field for us.

We're looking for sanction here.

This calendar year.

I'm not making a guarantee by any means but that's what we're looking for.

The next question comes from pat may geary. Fort washington. Can you talk more about venezuela and what you guys are filling about the risk down there?

Be glad to. I was talking to some of our friends down there in venezuela over the last 24 hours. And obviously the country is pretty calm right now but the over all situation does remain volatile.

We are very seriously monitoring that situation. Chavez has made some very important positive steps down there as you may have seen in the newspapers.

He is has appointed alley rodriguez as head of -- there have been some changes in the national assembly down there and obviously conoco has very good relationships with the new president and the board of directors of p rerks da vesa.

We also have good working relationships with peep the on the board and we've built up those relationships.

We really don't see any impact on -- and as I said before or on our plans on the the cora cora asset because the contracts are being respected down there.

We had very little impact on our operations over the recent period of unrest down there.

Is a mentioned I think to several other people, we took a short turn around at our -- upgrader at -- which was planned anyway for some part of the year and thought it was clever of the folks down there to make sure that that turn around took place during the time of uncertainty and now we have it behind us and we don't have to worry about it going forward.

There was no planned impact as a result of that unrest. So going forward, we're optimistic and we continue to view venezuela as a very important part of our portfolio.

Thank you.

The next question comes from paul--

Just a quick follow up question on the uk tax. Can you give give us some quantification as far as the impact on your effective tax rate because of the change as a whole and whether there will be any tax effect in '02 or '03?

Sure.

Right now I must emphasize that these are still preliminary numbers and can't emphasize that enough. But at the moment we ain anticipate over the 3/4 -- the last 3/4 of the year that the total impact over those 3/4 could be be in the neighborhood of pick a number between 40 and $45 million hit against earnings in 2002.

There is also going to end up being a one time adjustment to the deferred tax account because of the change in the tax laws as well. So on the cash side, we're still working on that paul and I'll try to get back to you as soon as we get a number number on that.

Great.

There are no further questions at this time.

Please continue.

It's a good time to end it.

We're within two minutes or so of 12:30 so again thank you for listening to our tela conference and as always we're ready to take your follow up questions this afternoon and over the next few days.

So thanks againand we'll talk to you later.

Thank you, sir.

Ladies and gentlemen, this concludes the conoco 1st quarter results quarter recall. Please dial 303-590.

3000. The access code is 460838. 460828.

Thank you.