ConocoPhillips 3Q earns double

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Posted: Oct 27, 2010 3:36 PM
ConocoPhillips 3Q earns double

ConocoPhillips on Wednesday said earnings more than doubled for the third straight quarter as oil prices rebounded from their 2009 lows.

The Houston oil company is the first major integrated company to report income for the July-September period, and its hefty profit suggests that Big Oil will be able to shrug off expenses from the Gulf of Mexico drilling moratorium and low natural gas prices. Exxon Mobil and Royal Dutch Shell will announce their quarterly earnings on Thursday. Chevron reports on Friday.

Integrated oil companies are involved in all phases of the business, from exploration and production to refining and marketing.

Conoco reported net income of $3.06 billion, or $2.05 per share for the third quarter. That compares with $1.47 billion, or 97 cents per share, in the year-ago period. Excluding gains from asset sales and other special items, Conoco made $2.23 billion, or $1.50 per share, in the third quarter. Analysts, who typically exclude special items, expected earnings of $1.46 cents per share on revenue of $45.6 billion.

Revenue totaled $49.55 billion, up from $41.27 billion in the same quarter last year.

Conoco earnings got a big boost from the sale of Lukoil shares. Company officials said earlier this year that they planned to part ways with Russia's largest private oil company. So far they've sold $6.4 billion of Lukoil shares, with a net gain of $874 million in the third quarter from the sales. Conoco expects to sell its 50 million remaining shares by the end of 2011.

Conoco also benefited as crude prices jumped 11.7 percent year-over-year to an average of $76.24 per barrel. Prices have more than doubled since bottoming out below $34 per barrel in February 2009.

The company saw increased profits in the third quarter in its production, pipelines, chemicals and refining businesses. However, historically low natural gas prices continue to make gas wells less profitable, and Conoco said it has started to cut back on natural gas production.

"The prices you see today are really unsustainable," Jim Mulva, Conoco chairman and CEO, said in a conference call with Wall Street analysts. Conoco will look for prices to increase before it turns back to natural gas, he said: "We need to see price levels at $4 or $5" per 1,000 cubic feet. Natural gas futures traded for about $3.75 per 1,000 cubic feet Wednesday on the New York Mercantile Exchange.

Analyst Fadel Gheit with Oppenheimer & Co. said the rest of the industry is doing the same. Every petroleum driller is looking for wells with more oil than gas right now because oil generates much higher profits, he said.

Mulva also told analysts that the company will continue to sell refineries even though its fuel-making business nearly tripled profits year-over-year to $268 million. In fact it will try to accelerate the pace of asset sales.

"The refining business is still volatile," Gheit said. "Historically, it never generated decent returns. Never. And it takes billions of dollars just to be maintained. It's like a tread mill _ you're running so hard just to stay in place. Everyone realizes this now."

Overall, the company produced 1.72 million barrels of oil and gas per day, down from 1.79 million barrels in the third quarter of 2009. Conoco blamed natural declines in some of its oil and gas fields, primarily in North America and Europe. It also has sold off some petroleum-producing assets.

Mulva said the slide in production should be offset over the next several years with new offshore production operations in southeast Asia, liquefied natural gas projects in Qatar and Australia as well as shale and oil sands development in North America. Conoco expects to produce about 1.71 million barrels of oil and gas per day in the final three months of the year.

Conoco shares fell 82 cents to $60 in afternoon trading, following the broader market lower. Shares in energy companies dropped, as oil prices tumbled below $82 a barrel.