October 28, 2009 / 4:47 PM / in 8 years

WRAPUP 2-Oil price,refinery pain shrink oil company profits

* Drop in oil, refinery margins hit Conoco, PetroChina

* Britain’s BG output lags, but LNG helps

* ConocoPhillips sees improvement in energy demand

By Matt Daily

NEW YORK, Oct 28 (Reuters) - Weaker crude oil prices and slumping margins at refineries knocked quarterly earnings lower at ConocoPhillips COP.N, PetroChina 601857.SS and Hess Corp HES.N, while Britain’s BG Group BG.L said its liquefied natural gas arm helped prop up profits.

Oil prices have risen in recent weeks as the global economy has shown signs of rebounding, but prices in the third quarter averaged just half the level of a year earlier, when they reached record highs.

Still, demand for gasoline, diesel and other fuels suffered as businesses and consumers tightened their purse strings, more than halving margins at plants that process crude oil.

Conoco, which has said it will put $10 billion of assets up for sale, posted a 71 percent drop in third-quarter profit, its bottom line hurt by weak prices for natural gas as well as crude oil. [ID:nN28295910]

But the company struck a more positive note about the market’s fundamentals on a conference call with investors.

“I‘m pleased to say that, as we have progressed through the year, we have begun to see some positive signs with respect to improvement in the global economy and corresponding energy demand,” said Sig Cornelius, Conoco’s chief financial officer. “While there are still some challenges for North American natural gas marketing and refining, the picture today looks more encouraging than earlier in the year.”

Among the oil majors, Conoco is perhaps the most exposed to natural gas prices, largely because of acquisitions it made in recent years.

Conoco Chief Executive James Mulva told a conference call the company would consider selling its stake in a Canadian oil sands project, as well as some of its refining assets. Analysts have speculated that some of its North American natural gas assets may also go on the block.

“I think that with their acquisition spree, they’re suffering from a hangover and they’re going to focus on developing what they have,” said Peter Andersen, portfolio manager at Congress Asset Management in Boston, which manages $5 billion and owns shares of Conoco and BP Plc BP.L.

PetroChina 0857.HK PTR.N, the world’s second most valuable oil and gas producer after Exxon Mobil XOM.N, posted a 23.5 percent drop in quarterly net profit. [ID:nHKG140384]

Like top Asian refiner Sinopec Corp 600028.SS 0386.HK SNP.N, PetroChina, the country’s No. 2 refiner, benefited after Beijing raised gasoline and diesel prices by 4 percent to 5 percent in September, the fourth increase this year.

Hess reported a 56 percent drop in third-quarter profit as the weak global economy knocked crude oil prices down from last year, but earnings topped analysts’ forecasts. [ID:nN28261344]

Canada’s No. 4 oil and gas producer, Nexen Inc NXY.TO, said third-quarter profit tumbled 86 percent, in line with analysts’ expectations. Its shares slipped about 1 percent. [ID:nBNG449399]

Exxon is scheduled to report earnings on Thursday.

LNG SUPPORT

Gas producer BG said quarterly earnings fell 44 percent, but its LNG business received a boost from contracts that were concluded ahead of the downturn that hit prices for the fuel. [ID:nLS609784]

BG’s output climbed 5 percent in the quarter to 615,000 barrels of oil equivalent per day, but fell short of analysts’ forecast for a rise of more than 7 percent.

That production miss was largely due to a delay in the start-up of its Hasdrubal, Tunisia, gas project, which was pushed back to November from August. Weak demand for gas due the economic slump has also been a drag.

BG shares fell 3.4 percent to 1,094 pence in London, while Conoco shares dropped 2.7 percent to $49.52 and American Depositary Receipts of PetroChina fell 5.1 percent to $123.63 in New York.

Nexen shares fell 1.6 percent to C$23.60 in Toronto, and Hess shares dropped 2.2 percent to $56.54. (Reporting by Matt Daily in New York, Anna Driver in Houston, Tom Bergin in London, Sui-Lee Wee in Hong Kong and Ashutosh Joshi in Bangalore; Editing by Steve Orlofsky and John Wallace)

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