ConocoPhillips Refining Dampens Company's Earnings

ConocoPhillips, the third largest energy company in the U.S., is expected to post higher fourth-quarter earnings as soaring crude oil prices offset declining crude oil production and big losses anticipated in the company's refining operations.

The Houston-based crude oil and natural gas company will release its fourth-quarter and full year 2011 results before the market opens Wednesday.

In Barclays Capital recent equity research report on the company, ConcoPhillip's earnings per share are anticipated to come in at $1.82. That number is above the company's own projections which anticipates its per share earnings at $1.78.

ConocoPhillips' net income from producing crude oil and natural gas is anticipated to rise to $2.2 billion, or 19 percent over last year. The report assumes the company's operations in China will remain halted and production from Libya will remain well below average, according to Barclays Capital.

The report estimates the company's production will dip slightly by 9 percent over the previous year, totaling 1.5 million barrels equivalent a day. But despite high crude prices, the company's revenue is expected to take a harsh hit from a decline in the industry's refining capacity.

The same report anticipated the company will see an 84 percent drop in profit from transporting, processing and marketing crude oil and natural gas to $182 million. That number is down $25 million from a year ago and $1.01 billion less than the company's third quarter.

But thanks to high crude prices, ConocoPhillips' net income is expected to end on a high note, with the company's fourth quarter earnings likely to exceed its year to year quarterly net income.

Fadel Gheit, an analyst with Oppenheimer mirrored the Barclays report, saying ConocoPhillips will make approximately $1 billion less in revenue overall during the fourth quarter than it did the quarter before.

The reason, Gheit said, is due to a collapse in the oil industry's refining.

Charlie Drevna, president of the American Fuel and Petrochemical Manufactures Association, formerly the National Petrochemical and Refiners Association, said oil companies and refiners across the country are hampered by federal regulations that make refining more expensive and not economically viable in light of the country's economic conditions.

We haven't fully recovered as a nation from the price shocks of summer 2008, Drevna said, who added the country's lingering economic slump is not helping.

People without jobs, tend to not drive and buy goods that would, as Drevner put it, prompt a greater demand in oil products. That is just an overall economic reality right now.

The Wall Street Journal reported on Monday fuel demand was flat, which the newspaper said will cut into refiner and companies' refining profit margins.

ConocoPhillips is preparing for the dimming prospects for its downstream business by cutting capacity.

In October, ConocoPhillips announced it was idling and hoping to sell its Trainer refinery, as well as the facility's pipelines and terminals in Southern Pennsylvania. The facility can refine 185,000 barrels-per-day, and if the company cannot sell it by April, ConocoPhillips will permanently close it.

The company is joined by Sunoco which is intending to close its refineries to the East, and BP which is intending to purge its assets and sell a refinery in California and Texas by 2013.

ConocoPhillips is also planning to spin off its refining business.

In midday trading, ConocoPhillips shares were were down eight cents to $70.47.