Bloomberg News

Conoco Profit Falls on Asset Sales as Refining Income Rises

October 26, 2011

(Updates with closing share price in seventh paragraph.)

Oct. 26 (Bloomberg) -- ConocoPhillips, the U.S. oil company that plans to spin off its fuel-making business in 2012, said third-quarter profit declined mainly on asset sales as refining income surged.

Net income dropped 14 percent to $2.62 billion, or $1.91 a share, from $3.06 billion, or $2.05, a year earlier, Houston- based ConocoPhillips said in a statement today. Excluding items such as asset sales and higher taxes in the U.K., profit was about $2.52 a share, 34 cents higher than the average of 18 analysts’ estimates compiled by Bloomberg.

ConocoPhillips is moving ahead with plans to spin off its refining business in the first half of next year so the company can focus on producing oil and natural gas. Refining earnings, excluding one-time costs and gains, jumped to about $1.2 billion in the quarter from $268 million a year earlier. That topped an estimate from Oppenheimer & Co. by almost 40 percent.

“Refining and marketing was a leader in beating expectations,” said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “buy” rating on ConocoPhillips shares and owns none. “That segment is hitting on all cylinders right now and it’s poised to be well positioned post-spinoff next year.”

WTI-Brent Advantage

Refiners who operate inland plants benefited more in the period because their crude supplies were priced off of the less- expensive West Texas Intermediate benchmark as Brent crude prices soared. ConocoPhillips’ refinery operations include plants in Oklahoma, Illinois and Texas.

Brent crude futures, a benchmark oil price used by much of the world, surged 46 percent from a year earlier to average $112.09 a barrel in the third quarter, about $22 a barrel higher than WTI prices.

ConocoPhillips climbed 1.7 percent to $71.89 at the close of trading in New York. Before today, the stock had climbed 3.8 percent this year.

ConocoPhillips is in the midst of a three-year plan to sell $15 billion to $20 billion of assets by the end of 2012 to position itself for future growth. The company said it has cut its daily refining capacity by about 500,000 barrels since 2009 to 2.2 million, with further reductions possible in coming years.

An expansion at its Wood River refinery is set for completion this month, with project startup work expected to be finished by mid-November. The gross capital spending for that project is about $3.8 billion, the company said.

Asset Sales

ConocoPhillips has idled its Trainer refinery in Pennsylvania as it seeks to sell that facility, citing a difficult market on the U.S. East Coast.

The company has completed about $8 billion in asset sales in its divestiture program and plans $1 billion to $2 billion in the fourth quarter or in the first quarter of 2012, Chief Financial Officer Jeff Sheets said on a conference call with analysts and investors today. He said holdings in Vietnam and Kazakhstan fit some criteria of assets that may be sold.

ConocoPhillips also is marketing its 50 percent stake in the Seaway pipeline for a possible sale, Sheets said. The company owns the pipeline, which takes crude from the Gulf Coast to Oklahoma, along with Enterprise Products Partners LP, the operator.

“We’re starting with discussions with them and lining up the rest of our sales process,” Sheets said in a telephone interview today.

Rising Revenue

The company said its revenue increased 28 percent from a year earlier to $63.6 billion in the third quarter. Excluding one-time items, profit from producing oil and gas rose 46 percent to $2.19 billion in the quarter.

ConocoPhillips said production in the third quarter fell to about 1.54 million barrels of oil equivalent a day from 1.72 million barrels a year earlier. The decline occurred as the company dealt with suspended production related to an oil leak at an offshore project in China, as well as maintenance in Alaska.

Full-year output may be equivalent to 1.61 million to 1.62 million barrels of oil day, the company said. That’s lower than a 2011 forecast given in July of as much as 1.65 million barrels a day. Sheets said effects from the production suspension in China likely will carry into 2012.

Assessing Libya

Unrest in Libya caused ConocoPhillips to suspend production there earlier this year. The company’s net oil output from Libya averaged about 46,000 barrels a day in 2010, according to a regulatory filing. Sheets said ConocoPhillips is assessing the situation in Libya and doesn’t have a timetable on when production may restart.

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

ConocoPhillips leads major U.S. oil companies in reporting third-quarter earnings. Exxon Mobil Corp., the largest U.S. oil company, plans to release results tomorrow, and Chevron Corp., the second-biggest, is scheduled to issue a quarterly report on Oct. 28.

--Editors: Susan Warren, Jessica Resnick-Ault

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


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