Lower Prices,Refining Margins To Hit Conoco 3Q Results

HOUSTON -(Dow Jones)- ConocoPhillips' (COP) third-quarter earnings will be hit by lower oil and natural gas prices, smaller refining profits and less production compared with the previous quarter, the company said Thursday.

The third-largest U.S. oil company by market value said in its interim update that quarterly output and refining margins, the difference between the crude oil refiners buy and the products they sell, will be slightly below the second quarter in part due to hurricane disruptions.

ConocoPhillips said its refining results will be reduced by about $200 million during the third quarter due to Hurricanes Gustav and Ike, which hit the coast of Louisiana and Texas on Sept. 1 and Sept. 13, respectively. The storms forced offshore producers to evacuate personnel and halt output, while refiners had to shut down coastal operations.

Conoco's 247,000-barrel-a-day refinery in Belle Chasse, La., for example, shut down for more than two weeks until Sept. 17 due to both storms. It is now producing at normal rates, according to the Department of Energy.

The Houston company also said Ike and Gustav translated into a 20,000 barrels of oil equivalent per day not produced.

Some analysts see Conoco's preliminary quarterly report as the bellwether for other major oil companies as all of them have experienced lower oil prices, tighter refining margins and disruptions in Gulf of Mexico output during the third quarter. However, analysts said ConocoPhillips might be the hardest hit as it has less international leverage than other majors such Exxon Mobil Corp. ( XOM), Chevron Corp. (CVX), Royal Dutch Shell (RDSA) or BP PLC (BP), which have a larger global presence.

Shares of Conoco recently were off 4.6% at $67.42.

"We are going to see all oil companies with exposure to the Gulf of Mexico reporting unusual costs," said Sal Ilacqua, analyst at Monness Crespi Hardt & Co. "The third-quarter results are going to be very confusing, while the real impacts could come in the fourth quarter."

During the first month of the quarter that ended Sept. 30, oil prices reached an all-time high of $147.27 a barrel, but prices ended the period with a drastic drop to below $95.

Although oil prices are still much higher than a year ago, analysts expect prices to keep below its all-time high for the rest of the year, which is expected to shrink companies' fourth-quarter earnings. These results are also expected to keep reflecting the effects of Ike and Gustav as almost 50% of oil and gas production was still off line in early October and it could take weeks until output returns to pre-storm levels.

Conoco will report third-quarter results on Oct. 22.

- By Isabel Ordonez, Dow Jones Newswires; 713-314-6090; isabel.ordonez@ dowjones.com