July 7 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, said second-quarter production rose from a year earlier as new projects came online.

Output of oil and natural gas climbed to the equivalent of 1.86 million barrels of crude a day, Houston-based ConocoPhillips said today in a statement. That compares with production of 1.75 million barrels in the second quarter of 2008. The company said in April that second-quarter output would be below the first quarter’s in part because of maintenance.

Projects in countries including Russia, Vietnam and China helped boost production to 1.93 million barrels of oil equivalent a day in the first quarter from 1.87 million in the fourth quarter of 2008, ConocoPhillips said on April 23. The numbers exclude the company’s stake in Russia’s OAO Lukoil. ConocoPhillips has said it expects to top a production forecast of 1.8 million barrels of oil a day for 2009.

“The production seems to be on track with what they said,” said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on ConocoPhillips shares and owns none. “They seem to be delivering on that front.”

ConocoPhillips said its second-quarter refining and marketing results were hurt by a “compressed” gap between light and heavy crude, which Weiss said narrowed the discount that benefits heavy refiners. Weiss said other negative factors include having “relatively high” gasoline inventory levels and low distillate margins because of reduced industrial demand.

Refiner Profit Margins

The company said its average worldwide crude refining capacity utilization rate was in the “upper-80-percent range.” The rate outside the U.S. was in the “low-70-percent range,” which was affected by turnaround work in Europe and run cuts at its plant in Wilhelmshaven, Germany. The domestic rate was in the “low-90-percent range,” the company said. Turnaround costs for the second quarter were about $120 million before taxes.

Market indicators for fuel prices and crude costs show profit margins for U.S. refiners narrowed by 29 percent from a year earlier, the company said. ConocoPhillips is the second- largest U.S. refiner, behind San Antonio, Texas-based Valero Energy Corp.

ConocoPhillips said its Lukoil results will have a $192 million gain after Lukoil’s profit exceeded the estimate included in ConocoPhillips’s first-quarter earnings.

In May, ConocoPhillips President John Carrig said the company expects to do a “little” better than meeting its 2009 production forecast of 1.8 million barrels a day. Daily output was 1.79 million barrels in 2008.

Exploration Expenses

Excluding one-time costs and gains, ConocoPhillips is expected to earn 75 cents a share in the second quarter, the average of 12 analyst estimates compiled by Bloomberg. The company is scheduled to report earnings July 29. Exploration expenses for the quarter are expected to be about $225 million before taxes, the company said.

Oil futures traded in New York averaged $59.79 a barrel in the second quarter, down 52 percent from $123.80 a year earlier. The average was $43.31 in the first quarter of this year.

ConocoPhillips fell 84 cents, or 2.1 percent, to $39.99 in composite trading on the New York Stock Exchange, as oil futures fell 1.8 percent in New York.

Exxon Mobil Corp. and Chevron Corp. are the biggest U.S. oil companies.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

Last Updated: July 7, 2009 16:45 EDT