TonyM
10-24-2007, 09:17 AM
Oct. 24 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil producer, said net income fell 5.2 percent as refined fuel prices failed to keep pace with gains by crude, narrowing profit margins on gasoline and diesel.
Third-quarter profit fell to $3.67 billion, or $2.23 a share, from $3.88 billion, or $2.31, a year earlier, Houston- based ConocoPhillips said today in a statement. Revenue fell 4.2 percent to $46.1 billion.
``Gasoline prices weren't moving at all like oil prices were, and that normally means the refining and marketing guys are going to take a hit,'' Philip Weiss, an analyst at Argus Research Corp. in New York, said before the results were released. ConocoPhillips has the second-largest U.S. refining capacity, behind only San Antonio-based Valero Energy Corp.
Gasoline futures in New York traded 2.7 percent higher, on average, than a year earlier, compared with a 6.4 percent gain by oil futures. ConocoPhillips also saw oil and natural-gas output fall on downtime at fields from Alaska to the North Sea and a decision in June to exit Venezuela.
Net income included gains from asset sales and tax benefits. The company also said on Oct. 3 that shares outstanding likely would be 1.8 percent lower than a year earlier, boosting per-share profit.
The company was expected to earn $2.18 a share, the average of 15 analyst estimates compiled by Bloomberg.
Big Oil
ConocoPhillips is first among the three largest U.S. oil producers to report third-quarter earnings. Exxon Mobil Corp. of Irving, Texas, plans to report on Nov. 1, and San Ramon, California-based Chevron Corp. is scheduled for Nov. 2.
U.S. refiners during the quarter wrestled to maintain profitability as oil prices jumped to a record high during the period, a trend that has persisted. The gap between prices for crude and refined fuels narrowed to $6.65 per barrel on average at the end of the third quarter from $20.71 at the start, based on futures contracts.
That decline has continued, with the margin standing at $4.75 a barrel at the end of last week after oil futures climbed above $90 a barrel for the first time.
A typically weak period for refiners, between the end of the summer driving season and the start of heating demand, is being exacerbated by a slowing economy, said Robert Goodof, who helps manage $22 billion at Loomis Sayles & Co. in Boston. Gasoline demand for the four weeks ended Oct. 12 was down 0.5 percent from a year earlier, on average, while jet-fuel demand was down 3.9 percent, the U.S. Energy Department said.
`Issues Are Real'
``The refining issues are real,'' said Goodof, whose holdings include about 550,000 ConocoPhillips shares. ``The economy is slowing.''
Anther factor was a narrowing of the price difference between heavy, sulfur-laden crude and lighter oils. Some U.S. refineries have been re-engineered to run the heavy oil because it costs less to buy. When the price difference between heavy and light crudes narrows, profit margins slip.
During the quarter, the difference between heavy Mexican oil used by ConocoPhillips and the lighter U.S. benchmark narrowed by 17 percent, the company said on Oct. 3.
Oil and gas production fell 10 percent from a year earlier to the equivalent of 1.8 million barrels of crude a day, not including the company's stake in Russian oil producer OAO Lukoil, ConocoPhillips said.
Venezuela Exit
Exiting Venezuela accounted for about half of the drop, as ConocoPhillips refused to sign contracts under pressure from President Hugo Chavez's government that would have given it a lower share of production. Declines in Alaska, the U.K. and the Timor Sea made up the rest of the drop.
The company's purchase in March 2006 of Burlington Resources Inc. weighted output toward natural gas, futures prices for which averaged 0.9 percent higher than a year earlier. Oil futures rose 6.4 percent to $75.15 a barrel, on average, setting a record high.
With the acquisition, the share of output ConocoPhillips gets from gas rose to 42 percent last year from 35 percent in 2005.
``A company that was a little more heavily weighted toward oil would be able to withstand that lower production better than ConocoPhillips, given that oil prices outperformed gas prices,'' Weiss said.
The Burlington purchase left ConocoPhillips with $27.1 billion in debt at the end of last year, and the company has said it will spend more than $7 billion this year trimming it. ConocoPhillips said debt at the end of the third quarter was $21.9 billion.
The earnings statement was released before the opening of regular U.S. stock market trading. ConocoPhillips shares yesterday rose 10 cents to $83.22 on the New York Stock Exchange.
Third-quarter profit fell to $3.67 billion, or $2.23 a share, from $3.88 billion, or $2.31, a year earlier, Houston- based ConocoPhillips said today in a statement. Revenue fell 4.2 percent to $46.1 billion.
``Gasoline prices weren't moving at all like oil prices were, and that normally means the refining and marketing guys are going to take a hit,'' Philip Weiss, an analyst at Argus Research Corp. in New York, said before the results were released. ConocoPhillips has the second-largest U.S. refining capacity, behind only San Antonio-based Valero Energy Corp.
Gasoline futures in New York traded 2.7 percent higher, on average, than a year earlier, compared with a 6.4 percent gain by oil futures. ConocoPhillips also saw oil and natural-gas output fall on downtime at fields from Alaska to the North Sea and a decision in June to exit Venezuela.
Net income included gains from asset sales and tax benefits. The company also said on Oct. 3 that shares outstanding likely would be 1.8 percent lower than a year earlier, boosting per-share profit.
The company was expected to earn $2.18 a share, the average of 15 analyst estimates compiled by Bloomberg.
Big Oil
ConocoPhillips is first among the three largest U.S. oil producers to report third-quarter earnings. Exxon Mobil Corp. of Irving, Texas, plans to report on Nov. 1, and San Ramon, California-based Chevron Corp. is scheduled for Nov. 2.
U.S. refiners during the quarter wrestled to maintain profitability as oil prices jumped to a record high during the period, a trend that has persisted. The gap between prices for crude and refined fuels narrowed to $6.65 per barrel on average at the end of the third quarter from $20.71 at the start, based on futures contracts.
That decline has continued, with the margin standing at $4.75 a barrel at the end of last week after oil futures climbed above $90 a barrel for the first time.
A typically weak period for refiners, between the end of the summer driving season and the start of heating demand, is being exacerbated by a slowing economy, said Robert Goodof, who helps manage $22 billion at Loomis Sayles & Co. in Boston. Gasoline demand for the four weeks ended Oct. 12 was down 0.5 percent from a year earlier, on average, while jet-fuel demand was down 3.9 percent, the U.S. Energy Department said.
`Issues Are Real'
``The refining issues are real,'' said Goodof, whose holdings include about 550,000 ConocoPhillips shares. ``The economy is slowing.''
Anther factor was a narrowing of the price difference between heavy, sulfur-laden crude and lighter oils. Some U.S. refineries have been re-engineered to run the heavy oil because it costs less to buy. When the price difference between heavy and light crudes narrows, profit margins slip.
During the quarter, the difference between heavy Mexican oil used by ConocoPhillips and the lighter U.S. benchmark narrowed by 17 percent, the company said on Oct. 3.
Oil and gas production fell 10 percent from a year earlier to the equivalent of 1.8 million barrels of crude a day, not including the company's stake in Russian oil producer OAO Lukoil, ConocoPhillips said.
Venezuela Exit
Exiting Venezuela accounted for about half of the drop, as ConocoPhillips refused to sign contracts under pressure from President Hugo Chavez's government that would have given it a lower share of production. Declines in Alaska, the U.K. and the Timor Sea made up the rest of the drop.
The company's purchase in March 2006 of Burlington Resources Inc. weighted output toward natural gas, futures prices for which averaged 0.9 percent higher than a year earlier. Oil futures rose 6.4 percent to $75.15 a barrel, on average, setting a record high.
With the acquisition, the share of output ConocoPhillips gets from gas rose to 42 percent last year from 35 percent in 2005.
``A company that was a little more heavily weighted toward oil would be able to withstand that lower production better than ConocoPhillips, given that oil prices outperformed gas prices,'' Weiss said.
The Burlington purchase left ConocoPhillips with $27.1 billion in debt at the end of last year, and the company has said it will spend more than $7 billion this year trimming it. ConocoPhillips said debt at the end of the third quarter was $21.9 billion.
The earnings statement was released before the opening of regular U.S. stock market trading. ConocoPhillips shares yesterday rose 10 cents to $83.22 on the New York Stock Exchange.