NEW YORK (Reuters) - ConocoPhillips <COP.N>, the third-largest U.S. oil company, said on Thursday its first- quarter earnings rose 17 percent as much higher oil and natural gas prices outweighed weak profits from gasoline production.
By Michael Erman
NEW YORK (Reuters) - ConocoPhillips <COP.N>, the third-largest U.S. oil company, said on Thursday its first- quarter earnings rose 17 percent as much higher oil and natural gas prices outweighed weak profits from gasoline production.
Oil prices have increased nearly six-fold since 2002 on surging demand from emerging economies, supply concerns and the weak dollar. They were at or near record levels for most of the first quarter and surged to a record of nearly $120 earlier this week.
Net income in the quarter rose to $4.14 billion, or $2.62 a share, from $3.55 billion, or $2.12 a share, in the year earlier period. Revenue in the quarter rose 33 percent to $54.88 billion.
!ADVERTISEMENT!Excluding one-time items, the company earned about $2.56 a share, ahead of the average forecast of analysts, who had expected it to bring in about $2.41 a share, according to Reuters Estimates.
Gene Pisasale, who helps manage $12 billion at PNC Capital Advisors, said the company's exploration and production (E&P) results were a "blowout," and made up the difference between the reported results and analyst estimates.
"The fundamentals for the industry are among the best ever on the upstream," Pisasale said, referring to the business.
In refining and marketing, he said, "the challenge in the coming quarter will be to try to pass through most of the crude increases at the pump, but as we see prices increase and gasoline volumes decelerate that's going to continue to be a challenge."
E&P GIVES, BUT REFINING TAKES
Benchmark U.S. oil prices averaged nearly $98 a barrel during the quarter, up nearly 70 percent from a year earlier. Conoco earned around $92.88 per barrel for its oil during the quarter.
The company's average price for natural gas also rose 26.5 percent in the quarter to $8.03 per thousand cubic feet.
But margins to produce gasoline have plummeted as refiners struggled to push through higher crude costs to customers. According to U.S. data, first-quarter gasoline prices rose only 33 percent year over year, less than half crude's rise.
Profits from the company's exploration and production business rose 24 percent to $2.89 billion in the quarter.
ConocoPhillips, the second-largest U.S. refiner, said earnings from its refining and marketing business fell nearly 55 percent to $520 million.
"ConocoPhillips has the highest exposure to (refining and marketing) among the major integrateds, but having said that, they also have the highest exposure to North American oil and gas production," said Oppenheimer & Co analyst Fadel Gheit, who has a "perform" rating on the company.
Gheit said North American production is preferable to foreign holdings because of lower tax rates and reduced risk.
"I expect them to have another record year, despite the weakness in refining and marketing," he added.
PRODUCTION TO DIP IN Q2
Net income from the company's 20 percent stake in Russia's Lukoil <LMOH.MM> nearly tripled to $710 million.
Oil and gas production, excluding Lukoil production, was down over 11 percent at 1.79 million barrels of oil equivalent per day, mostly due to the loss of projects that were taken over by the Venezuelan government.
Conoco estimated its share of the Russian company's production was 459,000 barrels of oil equivalent per day.
The company expects second quarter production to be lower than the first quarter because of scheduled maintenance.
And despite the record crude prices, Chief Executive Jim Mulva does not plan to increase capital spending to look for more oil.
"We're very satisfied and think we've got the right capital structure," Mulva said on a conference call with analysts. "So if we find that we have more cash flow it's not really going to be going towards capital spending, it's going to be going towards more distributions to the shareholder in the form of share repurchase."
The company already plans to buy back around $10 billion of its shares this year.
ConocoPhillips shares fell $1.38, or 1.6 percent, to $83.10 in afternoon trading on the New York Stock Exchange.
(Reporting by Michael Erman, editing by Dave Zimmerman/Andre Grenon)
