(Adds CEO and analyst's comments, details of refinery costs, dividend. Changes dateline, previous TORONTO)
By Jeffrey Jones
CALGARY, Alberta, July 24 (Reuters) - Petro-Canada's PCA.TO second-quarter profit jumped by more than three-quarters as oil prices surged, but weakness in refining and marketing tempered results, the country's No. 4 oil producer and refiner said on Thursday.
Petro-Canada also said the cost of its nearly completed refinery overhaul in Alberta had climbed by 14 percent to C$2.5 billion ($2.5 billion), partly due to poor labor productivity in the booming western province.
Still, the company rewarded shareholders with a 54 percent boost in its quarterly dividend to 20 Canadian cents a share and lifted the bottom end of its 2008 output target range.
Petro-Canada shares rose 30 Canadian cents to C$46.90 on the Toronto Stock Exchange on Thursday. They are down 12 percent so far this year.
"They are raising their (production) guidance, which is good," FirstEnergy Capital Corp analyst William Lacey said. "On the capital cost going up on the Edmonton refinery conversion project, I think everyone was waiting for that."
Chief Executive Ron Brenneman said Petro-Canada is starting to see dwindling gasoline demand in response to record prices, especially in the East. That has affected everything from sales at its gas pumps to revenues at its convenience stores.
"The fall-off in demand is putting a lot of downward pressure on gasoline margins, but distillate margins are holding up reasonably well, so we're running our refineries to preferentially produce diesel," Brenneman told analysts.
Quarterly net income rose to C$1.5 billion, or C$3.10 a share, from year-earlier of C$845 million, or C$1.71 a share.
Operating earnings were C$1.2 billion, or C$2.38 a share, up 43 percent from C$805 million, or C$1.63 a share.
Analysts polled by Reuters Estimates had forecast, on average, earnings of C$2.50 a share.
Cash flow, a glimpse into an oil company's ability to fund development, increased 36 percent to C$1.9 billion, or C$4.09 a share, from C$1.4 billion, or C$2.74 a share.
Petro-Canada and its rivals have reaped rewards from oil prices that soared 90 percent to a record quarterly average of $123.80 a barrel. Natural gas prices in Canada also surged, averaging C$9.68 per gigajoule, a 44 percent gain from 2007.
The company said it expects 2008 capital spending to reach C$6.2 billion, up from its C$5.3 billion December estimate.
Production in the quarter averaged 414,000 barrels of oil equivalent a day, down 2.5 percent from a year earlier.
It narrowed its 2008 production forecast to a range of 400,000 to 420,000 barrels of oil equivalent per day, an increase of 10,000 barrels a day at the bottom end.
Petro-Canada has staked much of its future on its extensive oil sands holdings, and has retooled its Edmonton, Alberta, refinery to run crude derived from such resources exclusively. It has said it plans to shut the 125,000 barrel a day plant down in August to tie in the new equipment.
But labor productivity was weaker than expected and it was forced to do additional work and rework, lifting costs.
Meanwhile, a lengthy labor dispute at its Montreal refinery has delayed plans to add a heavy-crude processing unit there.
Petro-Canada has been evaluating building a coker unit at the plant, but has been prevented from doing any site work during the lockout, which began last November.
If the company goes ahead with the project, it would likely start up sometime in 2010 rather than the previous target of the fourth quarter of 2009, Brenneman said.
$1=$1.01 Canadian Additional reporting by Frank Pingue; Editing by Peter Galloway