Conoco Profit Tops Analysts’ Estimates on Production

ConocoPhillips (COP), which spun off its refining business in April, reported third-quarter profit that exceeded analysts’ estimates after it said petroleum production was at the high end of an earlier forecast.

In its first full quarter after the spinoff, net income fell 31 percent to $1.8 billion, or $1.46 a share, from $2.62 billion, or $1.91, a year earlier, the Houston-based oil and natural gas producer said in a statement today. Profit excluding one-time items such as a gain from asset sales was $1.44 a share, 25 cents more than the average of 18 analysts’ estimates compiled by Bloomberg.

Production was the equivalent of 1.525 million barrels of oil equivalent a day, compared to the company’s forecast in July that daily output in the quarter might be as low as 1.475 million barrels. ConocoPhillips said production in the fourth quarter is expected to be higher than in the third quarter. Output in the quarter from its Bakken and Eagle Ford shale projects in North America doubled from a year earlier.

“I thought it was a very good quarter,” said Brian Youngberg, an analyst with Edward Jones in St. Louis who has a buy rating on ConocoPhillips shares and owns none. “Production was at the high end of their guidance. Their strategy to focus more on North American oil production is off to a good start.”

Largest Independent

ConocoPhillips created a new company, Phillips 66 (PSX), by spinning off its refining, chemical and pipeline businesses on April 30. Third-quarter results at ConocoPhillips didn’t include earnings from its former operations, though they were included in the results a year earlier.

ConocoPhillips is now the largest U.S. oil and gas producer, based on market value, that doesn’t have refineries or a chemical unit. The company has been selling assets and remaking itself as part of a three-year plan to boost returns.

The company plans to complete $8 billion to $10 billion of asset sales by the end of 2013. It generated $2.1 billion from asset sales in the first nine months of this year, according to today’s statement.

ConocoPhillips’ third-quarter production was aided by output in China and Libya, and from oil sands, Chief Financial Officer Jeff Sheets said in a telephone interview today. Some maintenance was completed faster than expected, he said.

The company said capital spending this year will be $15.5 billion to $16 billion, reflecting some possible acreage acquisitions. Spending may be in a similar “neighborhood” next year, Sheets said.

Dividend Yield

In presentation slides, ConocoPhillips said it remains “highly committed to profitable growth and sector-leading yield.” The company’s dividend yield is about 4.6 percent at today’s stock price.

The dividend yield may decline some as the stock rises, Chairman and Chief Executive Officer Ryan Lance told analysts on a conference call today.

ConocoPhillips wants to be in a position to have annual dividend increases in future years, Sheets said.

Brent crude futures, a benchmark oil price used by much of the world, fell 2.4 percent from a year earlier to average $109.42 a barrel in the third quarter. Gas futures traded in New York dropped 29 percent from a year earlier to average $2.893 per million British thermal units.

ConocoPhillips rose 2.2 percent to $57.16 at the close in New York.

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

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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