ConocoPhillips said Thursday that its upstream crude oil, natural gas and natural gas liquids production on a boe a day basis in the third quarter will be 6% below the second quarter — a drop it anticipated earlier this year.

Quarterly production, said the Houston-based major, was impacted by normal seasonal declines and scheduled maintenance activity in the United Kingdom, Alaska and Norway. Asset dispositions in the Lower 48 also impacted production in the quarter. ConocoPhillips will release its third quarter results on Oct. 29.

In the second quarter, ConocoPhillips upstream production was 1.64 MMboe/d, up slightly from the first quarter, including Canadian syncrude (see Daily GPI, July 31). Increased production in Venezuela was partially offset by seasonal declines in Alaska and the North Sea. U.S. Lower 48 gas prices averaged $5.10/Mcf in the second quarter, compared with $2.26 in 2Q02.

While production will be off, the major’s weighted U.S. refining margin is expected to be higher than the second quarter, which will be partially offset by lower marketing margins. The company’s average crude oil refining capacity utilization rate for the third quarter is expected to be in the mid-90% range.

Within its midstream/chemicals business segments, results will be down from the second quarter on lower equity earnings. This segment reflects ConocoPhillips’ 30.3% interest in Duke Energy Field Services, as well as consolidated midstream operations. Chemicals’ third quarter results are expected to decline on lower margins, partially offset by increased volumes.

Meanwhile, Corporate expenses from continuing operations are expected to be lower than those in the second quarter. The debt level is expected to be $18.9 billion, reflecting debt reductions of approximately $1.5 billion during the third quarter, combined with expected accounting changes that increased balance sheet debt by approximately $2.9 billion.

Overall, the producer expects that its synergy run rate from its merger “will remain on track to reach $1.25 billion per year by the end of 2003.”

Following the announcement, analyst Bruce Schwartz of Standard & Poor’s said the company’s outlook would remain unchanged. Schwartz noted that quarterly profitability and cash flow measures “should be strong as a result of increased crude oil price realizations and refining margins that should greatly exceed the revenue loss from lower U.S. natural gas prices.”

He also noted that the production declines in the quarter had been expected and said “volumes should improve” toward the end of the year.

“Overall, Standard & Poor’s believes that the interim update demonstrates that ConocoPhillips is continuing to exploit the robust pricing environment to fortify its financial position. However, no positive ratings actions are contemplated at this time as the company needs to further reduce its leverage on a sustained basis to merit a ratings upgrade.”

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