Oct. 23 (Bloomberg) -- Petro-Canada, the country's third- largest oil company, said third-quarter profit rose 61 percent from a year earlier on higher prices, beating analyst estimates.

Net income climbed to C$1.25 billion ($990 million), or C$2.56 per diluted share, from C$776 million, or C$1.58 diluted, the Calgary-based company said today in a statement. Revenue climbed 51 percent to C$8.29 billion. Petro-Canada was expected to earn C$2.29 per share, the average estimate of 15 analysts surveyed by Bloomberg.

Profit gained as oil advanced more than 57 percent in the quarter from a year earlier and gas rose 44 percent. About 72 percent of Petro-Canada's daily output comes from oil wells.

``The operating results were driven by higher oil and gas prices and increased refining and marketing margins,'' said Mark Heim, an analyst at Macquarie Group Ltd. in Calgary, who rates the shares a ``buy'' and owns an undisclosed number of them.

The results included a C$103 million foreign-exchange loss, a C$128 million derivative loss in its refining and marketing business, a C$160 million gain in mark-to-market valuation of stock-based compensation and a C$91 million gain on the sale of assets.

Earnings from oil sands more than doubled to C$235 million, while international and offshore profit rose 35 percent to C$397 million. Refining and marketing earnings fell 2.9 percent to C$101 million.

Production was a ``little better than expected'' and ``cash generation was a little weaker,'' said Mark Gilman, an analyst at the Benchmark Co. LLC in New York, who has a ``sell'' rating on the shares and doesn't own any.

Fort Hills

Petro-Canada Chief Executive Officer Ronald Brenneman said today on a conference call that while the company may go ahead with a bitumen mine at its Fort Hills oil-sands project, the decision whether to proceed with the upgrader may be delayed. A decision is expected in the fourth quarter, Brenneman said. The company may buy an upgrader, used to process the tar-like oilsands, rather than build one, he said.

Petro-Canada holds a 60 percent stake in the Alberta venture, along with partner UTS Energy Corp. UTS last month raised the project's cost estimate to C$23.8 billion from C$14.1 billion. The project targets production of 280,000 barrels of crude a day by 2015. Petro-Canada expects total output of 420,000 barrels of oil equivalent a day this year.

Andrea Ranson, a spokeswoman for Petro-Canada, said yesterday in an interview that the company's Terra Nova and MacKay River projects have been operating near full capacity. She said, however, that the projects have had a history of delays.

No `Major Turnarounds'

No ``major turnarounds'' are planned for the rest of 2008 at North American natural-gas and oil-sands projects, or at the East Coast Canada and refining units, the company said today in the statement.

Oil prices averaged $118.22 a barrel in the third quarter. They have fallen more than 50 percent since touching an all-time high of $147.27 on July 11, because of concern that a global recession will slash demand for oil. The Organization of Petroleum Exporting Countries, which produces 40 percent of the world's oil, will ``most probably'' decide to trim output at its meeting in Vienna tomorrow, OPEC's president, Chakib Khelil, said.

Petro-Canada's output dropped 3 percent to 424,000 barrels of oil equivalent a day in the third quarter. The company's oil fetched C$114.11 a barrel, 54 percent more than a year ago, while its gas sold for C$8.68 per thousand cubic feet, up 64 percent.

Petro-Canada rose C$2.39, or 9.4 percent, to C$27.80 in Toronto trading. The stock has dropped 48 percent this year.

Imperial Oil Ltd., 70 percent-owned Exxon Mobil Corp., is Canada's largest oil company by 2007 sales, followed by EnCana Corp.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.

Last Updated: October 23, 2008 16:13 EDT