ConocoPhillips said it expects its first quarter production to be flat with levels in the fourth quarter of 2004, but production for the year is expected to rise 3% compared to 2004 levels, excluding its 11.3% investment in Lukoil.

Greater production output in Venezuela and China this year is expected to be offset by the impact of unscheduled maintenance in Canada and reduced volumes in the United Kingdom and Norway, the company said in an interim update on Tuesday.

ConocoPhillips said among the major factors affecting first quarter financials were higher oil prices and lower U.S. natural gas prices. Brent crude prices were up $3.50/bbl compared to fourth quarter 2004 levels, while West Texas Intermediate was up $1.41/bbl. Henry Hub gas prices were down 80 cents/MMBtu from 4Q2004. Meanwhile, its first-quarter exploration expenses are expected to be lower than those of the prior quarter.

Other factors affecting its financials included higher U.S. refining margins, lower international refining margins, significantly lower worldwide marketing margins, a capacity utilization rate in the low 90% area and increased turnaround activity and costs. First quarter turnaround costs are expected to be $120 million before tax.

Refining margins should continue to benefit from increased heavy-light differentials, the company said. However, high crude costs continue to negatively impact segment earnings due to fixed-price products that do not necessarily move with the price of crude. The net refining margin improvements are expected to be offset by significantly lower worldwide marketing margins and increased turnaround activity. Increased turnaround activity is expected to reduce processed input and clean product yields.

ConocoPhillips also expects to see a net after-tax gain of $290 million in the first quarter related to its ownership in Duke Energy Field Services (DEFS) and DEFS’ sale of TEPPCO Partners LP. As of the end of the first quarter, its interest in DEFS remained at 30.3%. Additional transfers related to the restructuring are expected to occur in the second quarter of 2005, subject to regulatory approvals.

The company’s expected debt balance at the end of the first quarter is $14 billion. In addition, the average diluted shares outstanding during the first quarter are expected to be 711 million shares.

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