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ConocoPhillips 2Q profit falls 33 pct

By Chris Kahn
AP Energy Writer / July 25, 2012
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NEW YORK—ConocoPhillips said Wednesday that net income fell 33 percent in the second quarter as it shed assets and sold oil and natural gas at lower prices.

Its results beat Wall Street estimates, but analysts said they're concerned that the company hasn't cut back on spending in response to the drop in revenues. Shares fell 2.6 percent Wednesday.

Chairman and CEO Ryan Lance said his company should spend about $16 billion this year on exploration, production and other projects. Lance, who took over ConocoPhillips from Jim Mulva in the second quarter, said it's important to keep investing in the future even though commodity prices have dropped.

"For this reason we do not think it is prudent to reduce our capital spending at this time," Lance said in a conference call.

The company said crude prices dropped by 6.5 percent while natural gas fell by 19.8 percent in the second quarter, when compared with the same period last year. Prices for other liquid hydrocarbons such as natural gas liquids and bitumen fell during the quarter as well.

Oil prices continue to fall on concerns that China's economy will slow down and Europe will fall back into recession.

"As oil prices go down, people are raising red flags about Conoco that they cannot keep spending like they are," Oppenheimer & Co. analyst Fadel Gheit said. "They either need to cut spending, sell assets or borrow money. None of the above is very pleasant."

ConocoPhillips already has been aggressively selling refineries, pipelines and other assets over the past few years to remake itself as an independent oil and gas producer. It has sold more than $20 billion in assets and investments since 2010, and the company plans to sell billions more this year.

The asset sales should generate more cash, but Gheit said it might be a lot less than expected. The value of oil and gas wells tends to rise and fall with commodity prices.

"If everyone knows they're selling, they may be forced to accept a price that's lower than they wanted," he said.

During the second quarter, overall production declined by 6 percent, in part because of ConocoPhillips's asset sales. A decline in the price of oil and gas trimmed sales even further.

As a result, the Houston company earned $2.27 billion, or $1.80 per share. That compared with $3.4 billion, or $2.41, a year earlier. Revenue fell 14 percent to $15.17 billion.

Excluding special items, ConocoPhillips earned $1.22. Analysts expected earnings of $1.20 per share on revenue of $9.06 billion, according to FactSet.

ConocoPhillips also spun off its downstream business, which includes refineries and pipelines, during the quarter. It made the split on April 30, and ConocoPhillips' second-quarter results include just one month of downstream earnings. The same period in 2011 includes a full three months of downstream results.

The downstream business is now called Phillips 66.

Shares fell by $1.40, or 2.6 percent, to close at $53.24 Wednesday.

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