ConocoPhillips reports 54% increase in third quarter earnings

Friday, October 29th 2004, 11:17 am
By: News On 6

HOUSTON (AP) _ ConocoPhillips, the nation's third largest oil company, reported a 54 percent jump in third-quarter profits, beating Wall Street expectations as it benefited from high oil and natural gas prices.

But ConocoPhillips shares sank as the price of oil declined Wednesday, analysts said.

ConocoPhillips said it earned $2.01 billion, or $2.86 a share, for the July-September period, up from $1.31 billion, or $1.90 per share, a year ago.

Revenues for the quarter were $34.7 billion compared to $26.5 billion during the same period a year ago.

Analysts surveyed by Thomson First Call were expecting earnings of $2.58 a share.

ConocoPhillips shares initially rose as high as $86.77 in early trading but reversed course by late morning. They closed down $1.01, or 1.2 percent, at $84.92 in late trading on the New York Stock Exchange.

The stock price decline came as oil futures prices sank. Crude for December delivery fell $2.71, or 4.9 percent, to settle at $52.46 a barrel on the New York Mercantile Exchange. The record Nymex settlement price of $55.17 was reached Friday and matched Tuesday.

``You have got all the oil stocks soft today,'' said John Parry, a senior analyst with John S. Herold. ``Crude is down and in a very real sense you may have come off the best quarter of the year for virtually everybody.''

ConocoPhillips said its earnings rise in the third quarter was primarily due to higher crude oil and natural gas prices. It said reduced production was offset by sales volumes, which exceeded production by 19,000 barrels per day. Reduced benefits from tax law changes in the second quarter and reduced foreign exchange gains during the third quarter offset the increased earnings, the Houston-based company said.

``Our financial position continues to steadily improve, and our return on capital employed remains strong and competitive,'' said Jim Mulva, chairman and chief executive officer.

Mulva said the company generated $4.4 billion in cash from operations, invested $1.6 billion in capital projects, paid $296 million in dividends and increased its cash balance to $3.3 billion during the third quarter.

The increase in the company's cash balance was in anticipation of its increased investment in Russia's Lukoil _ the world's No. 2 oil company by reserves, he said.

ConocoPhillips recently won an auction to buy about 7.6 percent of Lukoil's stock. The transaction, Russia's biggest privatization to date, laid the groundwork for ConocoPhillips to eventually own 20 percent of Lukoil.

``We are right on track to increase that ownership to 10 percent by the end of this year,'' Mulva said Wednesday, adding more details will be provided Nov. 17 when the company's analysts are set to meet in New York.

In addition to gaining representation on Lukoil's board, the acquisition allows ConocoPhillips to book a proportion of Lukoil's revenues and massive reserves of 20.1 billion barrels.

Mulva said $170 million of the $188 million earned in the third quarter by the company's exploration and production unit was based on the high price of oil.

Fadel Gheit, a senior energy analyst with Oppenheimer & Co., said the company is ``on the right track'' and its third quarter earnings, like other oil companies, were boosted by firmer oil prices. He said ConocoPhillips should be able to increase its production through the investment in Lukoil.

``The impact of oil prices is enormous for these companies,'' Gheit said. ``For every $1 increase, you are talking about a $1 million a day increase in earnings.''

Gheit, however, said $50 a barrel oil is not sustainable and at some point the ``bubble'' will burst.

``Right now oil companies are enjoying an unprecedented boom time,'' he said. ``I just hope they use the money wisely because there will be a rainy day.''

ConocoPhillips, which is smaller than rivals Exxon Mobil Corp. and ChevronTexaco Corp., said its third quarter results also reflected pretax exploration costs, totaling $205 million. Those costs included the write-off of the Zafar-Mashal well and some leasehold impairments.

During the first nine months of 2004, ConocoPhillips earned $5.70 billion, or $8.16 per share, up from $3.71 billion, or $5.43 per share, during the first nine months of 2003. Revenue rose to $96.8 billion from $79.1 billion a year ago.