Bloomberg News

Conoco Profit Exceeds Analysts’ Estimates as Crude Rises

July 27, 2011

(Updates with closing stock price in seventh paragraph.)

July 27 (Bloomberg) -- ConocoPhillips, the U.S. oil company that plans to spin off its refining business in 2012, reported lower second-quarter profit that surpassed analysts’ expectations as higher crude prices and refining margins helped compensate for shrinking production.

Net income fell to $3.4 billion, or $2.41 a share, from $4.16 billion, or $2.77, a year earlier, when asset sales boosted earnings, Houston-based ConocoPhillips said today in a statement. Per-share profit, adjusted for one-time gains or losses, was 20 cents more than the average of 20 analysts’ estimates compiled by Bloomberg.

Earnings from producing oil and gas climbed 72 percent, excluding one-time items, from a year earlier to $2.5 billion in the second quarter. Daily output of oil and natural gas fell 5.4 percent, largely because of an asset-sale program announced in 2009. Oil futures in New York averaged $102.34 a barrel in the second quarter, 31 percent higher than the $78.05 a barrel a year earlier.

“The robust crude-oil pricing environment certainly helped the E&P (exploration and production) side of the house and the improved refining margins also helped,” said Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago.

Refining Spinoff

The company said July 14 that it plans to separate its refining and marketing holdings into a new publicly traded company in the first half of next year. Conoco said that segment’s earnings, excluding one-time costs and gains, rose to $740 million from $720 million.

“The jury will be out as to whether the spinoff ultimately does add to shareholder value,” Bern said.

ConocoPhillips fell 48 cents to $73.13 at 4:15 p.m. in New York Stock Exchange composite trading. Shares are trading below the $74.40 closing price on July 13, the day before the company announced plans for the refining spinoff.

“The reaction that we’ve seen so far doesn’t really influence any of our views about what we think is going to be the right long-term answer,” Chief Financial Officer Jeff Sheets said today in a telephone interview.

ConocoPhillips expects to have sold as much as $17 billion in assets by the end of 2012, including about $7 billion sold last year, as it plans continued share repurchases and growth.

Well-Positioned

“ConocoPhillips is operating very well across the board and they’re positioning the company ahead of the spinoff to be two strong companies,” said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “buy” rating on ConocoPhillips shares and doesn’t own any.

ConocoPhillips hasn’t yet decided where some of its assets will go when the separation occurs, including a chemicals joint venture with Chevron Corp. and a pipeline venture with Spectra Energy Corp.

Overall revenue in the second quarter climbed 34 percent from a year earlier to almost $67 billion. The company’s chemicals earnings, excluding one-time costs and gains, rose 44 percent to $199 million, while pipeline profits more than doubled to $130 million.

The company has said production of oil and gas isn’t expected to rise until 2013. Daily output for this year may be 1.63 million to 1.65 million barrels of oil equivalent, Sheets said today on a conference call with analysts and investors. That’s less than an earlier forecast of about 1.7 million barrels a day that didn’t factor in unrest in Libya and certain asset sales.

North American Production

ConocoPhillips said it has shifted production from North American natural gas to output with higher margins, such as oil- sands crude and petroleum liquids. The company said it has added some 340,000 acres this year in developing North American projects.

ConocoPhillips leads major U.S. oil companies in reporting second-quarter earnings. Exxon Mobil Corp., the largest U.S. oil company, plans to release results tomorrow, and Chevron Corp., the second-biggest company, is scheduled to issue a quarterly report on July 29.

In addition to asset sales, ConocoPhillips this year completed the sale of its 20 percent stake in OAO Lukoil, a Russian oil producer.

--Editors: Susan Warren, Jasmina Kelemen

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net. msg edw


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