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ConocoPhillips results set stage for refinery spinoff

Earlier this month, ConocoPhillips announced plans to split off its refining business as a stand-alone publicly traded company. Rick Wilking/Reuters


ConocoPhillips Co., which has plans to spin off its refining business, reported a lower quarterly profit that topped Wall Street expectations as higher crude oil prices helped its exploration and production business.

Demand for fuel in developing countries including China and India and a recovering global economy have contributed to a rise in crude prices. Benchmark WTI oil averaged about $102 (U.S.) a barrel in the second quarter, up 32 per cent from a year ago, and natural gas prices rose 6 per cent.

"Most of the beat was in exploration and production and midstream," Fadel Gheit, oil analyst at Oppenheimer & Co, said Wednesday. "Industry fundamentals have improved. Oil prices are higher and refining margins are higher than they were last year.

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The oil company's shares were up 0.1 per cent at $73.76 Wednesday morning when most other energy stocks were lower.

Earlier this month, ConocoPhillips announced plans to split off its refining business as a stand-alone publicly traded company in an effort to improve investment returns for shareholders.

That plan comes on the heels of another. In 2010, ConocoPhillips said it would sell mature assets and use the proceeds to buy back its shares, a strategy dubbed "shrink-to-grow" by some analysts.

But investors have so far not been convinced by ConocoPhillips' plan to shed its refining business. Since the plan was announced on July 14, the company's shares have fallen nearly 3 per cent.

Brian Youngberg, analyst at A.G. Edwards in St. Louis, said the second-quarter results set the company on a good path toward separation, expected early next year.

"Production was down, but better than I had expected, and midstream doubled earnings," Mr. Youngberg said. "I really don't see anywhere they came up short. It helps position the company as it moves toward 2012."

Jeff Sheets, ConocoPhillips' chief financial officer, said in an interview that the company has received "generally positive comments" on its intention to shed the refining business from its institutional investors.

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The third-largest U.S. oil company reported a second-quarter profit of $3.4-billion, or $2.41 per share, compared with $4.2-billion or $2.77 a year earlier.

Analysts on average expected ConocoPhillips to report a profit of $2.19 per share, according to estimates gathered by Thomson Reuters I/B/E/S.

The Houston-based company said its exploration and production earnings were $2.5-billion, higher than the $2.4 billion that analysts at Barclays Capital had expected, but lower than a year ago.

Output in the quarter was 1.64 million barrels oil equivalent (boe) per day, down from 1.73 million barrels in the same period a year ago. Loss of production from Libya and asset sales contributed to the decline.

For the full year, the oil company expects oil and gas production of 1.625 million boe per day to 1.65 million boe per day, analysts were told on a conference call.

The company's gas gathering and storage - or midstream - business more than doubled, earning $130-million. Its refining and marketing unit had a profit of $766-million, compared with a year-ago loss of $279-million..

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The rise of ConocoPhillips shares on Wednesday morning contrasted with the fall in the CBOE index of oil companies , which was down nearly 2 per cent.


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