“Significantly lower” worldwide refining margins and poorer-than-expected results in midstream and chemicals operations will push ConocoPhillips’ earnings lower in 4Q2006, the producer warned last week. ConocoPhillips also blamed a combination of “declining well performance and drilling results” in Canadian Rockies Foothills’ natural gas exploration and development activities, which will result in a $90 million after-tax quarterly charge.

The Houston-based producer, which previously forecast oil and gas output would rise in 4Q2006, is scheduled to report its quarterly earnings on Jan. 24.

Overall, worldwide production has been “similar” to results in 3Q2006, ConocoPhillips noted. However, lower crude oil prices and flat quarter-over-quarter gas prices, when combined with asset impairment and higher exploration expenses, will lead results lower. ConocoPhillips’ market indicators put Henry Hub gas prices at $6.56/Mcf in 4Q2006, which was 2 cents lower than the $6.58/Mcf in the previous quarter. Dated Brent oil prices were pegged at $59.68/bbl in the final quarter, down from $69.49/bbl in 3Q2006.

“Fourth-quarter production on a barrel-of-oil equivalent per day basis, including Syncrude [in Canada] and excluding Lukoil, is anticipated to be similar to the previous quarter,” ConocoPhillips stated. “Increased production from Alaska and the United Kingdom is expected to be offset by lower production from the Timor Sea, U.S. Lower 48 and Libya. In Alaska, increased production from the resumption of operations at Prudhoe Bay was partially offset by weather-related transportation delays. Production from the Timor Sea was negatively affected by production sharing contract impacts.”

The company said it spent about $16.5 billion on its capital programs in 2006, which is considerably higher than the $11.8 billion planned this year. The company last month lowered its 2007 budget after completing a planned 20% equity investment in Russia’s OAO Lukoil Holdings (see NGI, Dec. 11, 2006). However, CEO Jim Mulva said then that escalating costs could impact new oil and gas developments worldwide.

Exploration expenses are expected to be $350 million before-tax in the final quarter. The company, which has been undertaking a large share repurchase program in the past year, estimated the number of weighted-average diluted shares outstanding in the final quarter is expected to be 1.673 billion. The debt balance is expected to be $27.1 billion for year-end 2006.

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