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23/04/2012 20:37:00

2nd UPDATE: Conoco 1Q Profit Falls 3%; Misses Views

Related content

--Company misses analysts' expectations on lower upstream results ahead of split on May 1

--Company warns 2Q, 3Q output to be hit by maintenance and other factors

--2012 capex is expected to be $15 billion, up from previous guidance of $14.5 billion

(Updates with remarks from conference call starting in the 11th paragraph.)

By Isabel Ordonez and Ben Lefebvre


HOUSTON -(Dow Jones)- ConocoPhillips (COP) said Monday its first-quarter profit fell 3% as lower production and weaker refining margins offset higher oil prices, missing analysts' expectations in the final quarter before it splits into two companies.

Conoco reported a profit of $2.9 billion, down from $3 billion a year earlier. On a per-share basis, earnings improved to $2.27 from $2.09. Excluding asset-sale gains, partly offset by repositioning costs and write-downs, per-share earnings rose to $2.02 from $1.82. The adjusted earnings were below analysts' expectations of $2.08 a share.

Conoco missed expectations mainly due to lower-than-anticipated profits from its exploration-and-production segment, which was hit by a decline in output mainly due to asset sales. Conoco's exploration-and-production earnings of $2.13 billion were 3% down from the same period a year earlier and 14.5% below Barclays Capital's estimates of $2.49 billion.

The Houston company said sales and other operating revenue slipped 0.7% to $56.1 billion.

Conoco's quarterly results came about a week before it is scheduled to split into two publicly traded companies. On May 1, ConocoPhillips will become a pure exploration-and-production company, while its refining, midstream and chemicals segments will be part of a new company named Phillips 66. The move will mark the end of a three-year restructuring plan aimed at improving the company's finances and boosting shareholders' value.

The company reported average production for the first quarter of about 1.64 million barrels of oil equivalent a day, down 65,000 barrels a day and slightly above expectations.

Excluding dispositions and the suspension of operations at the Peng Lai Field in China's Bohai Bay during part of the recent quarter, production was 9,000 barrels of oil equivalent per day higher than a year earlier. Conoco said continuing development of U.S. shale fields and Canadian oil sands, combined with lower downtime and improved well productivity, more than offset normal field decline.

The company said Libyan operations continued to resume, with average production of 36,000 barrels of oil equivalent per day for the quarter, up from about 20,000 barrels of oil equivalent per day the fourth quarter. Operations there were halted in the year-earlier first quarter amid civil unrest. Conoco owns 16.33% of the Waha oil-field concessions in Libya, which had an average output of about 350,000 barrels of oil equivalent per day before last spring's unrest. Conoco's net production in Libya before the war was about 57,000 barrels of oil equivalent per day.

The company also said that by quarter-end, gross production from Peng Lai in China was 40,000 barrels per day following a resumption of production there during the quarter.

Conoco warned that production in the second and third quarter is expected to be hit by turnarounds, scheduled maintenance, seasonality and dispositions. Full-year production for 2012 is expected to be between 1.55 million barrels of oil equivalent per day and 1.60 million barrels of oil equivalent per day, dependent on the timing of dispositions, the company said.

Speaking to analysts on an earnings conference call, Conoco Chief Financial Officer Jeff Sheets said the company plans to continue shutting down its U.S. natural-gas production due to low commodity prices. The company's Asia-Pacific liquefied natural gas project offshore Australia, known as APLNG, is on schedule to see a final investment decision in the second quarter and to deliver first cargo in mid 2015, he said.

Conoco has been curtailing natural-gas production as prices continue to be depressed in a glut caused by the shale-gas revolution. Prices have been at their lowest levels in a decade despite production cuts from Conoco and other companies. The firm continues to shift drilling toward more profitable oil areas, Sheets said.

The company reiterated its target to sell $8 billion to $10 billion worth of assets in the next 12 months, and said it expects to repurchase $5 billion of its own shares in the first half of the year. "Timing of additional share repurchases will depend on timing of the dispositions," Sheets said.

Conoco said its 2012 capital expenditure budget is expected to be $15 billion, up from its previous guidance of $14.5 billion.

Conoco's downstream business, which purchases crude to process into petroleum products such as gasoline and diesel, posted adjusted earnings of $444 million, a decline of 7.5% driven by weaker refining margins.

The company's refineries will run at slightly more than 90% of capacity in the second quarter as the company takes about 140 million barrels a day in refining capacity offline for maintenance, Sheets said.

Conoco said it is extending its sale deadline for its refinery in Trainer, Pa., to late May due to strong interest from buyers. Media reports have focused on Delta Air Lines Inc. (DAL) as a possible buyer, with the airline considering using the 185,000 barrel-a-day refinery as a source of jet fuel. ConocoPhillips also continues to try to find a buyer for its 247,000 barrel-a-day refinery in Belle Chasse, La.

ConocoPhillips said its chemical joint venture with Chevron Corp. (CVX), Chevron Phillips Chemical Co., is still studying a potential $5 billion ethane cracker to be built in Cedar Bayou, Texas. A final investment decision will be made in late 2012, with any project taking up to four years to complete.

Shares were recently trading down 56 cents at $72.32.

-By Isabel Ordonez and Ben Lefebvre, Dow Jones Newswires; 713-547-9207; isabel.ordonez@dowjones.com

--Tess Stynes in New York contributed to this article.

(END) Dow Jones Newswires

April 23, 2012 14:37 ET (18:37 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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