ConocoPhillips beat Wall Street forecasts in the second quarter, with income up 51% on high commodity prices and strong results in its marketing and refinery businesses. And even though production fell sequentially on planned and unplanned maintenance, CEO Jim Mulva said he expects the company’s total 2005 oil and natural gas output to increase 3% over 2004.

In North America, ConocoPhillips reported 2Q2005 natural gas production of 1.343 Bcf/d, down slightly from 1.373 Bcf/d for the same period of 2004. In the Lower 48, output was 1.195 Bcf/d, down from 1.226 Bcf/d in 2Q2004. In Alaska, output fell to 148 MMcf/d, down from 147 MMcf/d a year earlier.

Natural gas liquids production in North America fell to 47,000 bbl/d in 2Q2005, down slightly from 49,000 bbl/d in 2Q2004. Meanwhile, liquefied natural gas sales worldwide grew to 96 MMcf/d in 2Q2005, up from 82 MMcf/d in 2Q2004.

“We had a strong quarter,” said Mulva. “Upstream, we ran as expected. The total company produced 1.76 MMboe/d, including 1.54 MMboe/d from our Exploration and Production (E&P) segment and an estimated 0.22 MMboe/d from our LUKOIL (Russian) investment segment. At the same time, we completed planned and unplanned maintenance in our E&P business and finalized the formation of the Naryanmarneftegaz joint venture to develop resources in the Timan-Pechora region of Russia.”

The Houston-based major reported 2Q income of $3.138 billion ($2.21/share), compared with $2.075 billion ($1.48) in 2Q2004. Total revenues were $42.6 billion, versus $31.9 billion a year ago. Income from continuing operations was $3.131 billion ($2.21/share), compared with $2.013 billion ($1.44) for the same period a year ago.

Mulva noted that the company’s financial position has continued to improve, “and our return on capital employed remains strong and competitive. We ended the quarter with a debt-to-capital ratio of 22%. During the quarter, we generated $2.8 billion in cash from operations, invested $3.1 billion in capital projects and investments, paid $432 million in dividends and repurchased $382 million of ConocoPhillips common stock.”

ConocoPhillips will continue to grow its assets with “disciplined capital spending,”said Mulva. “We expect stronger oil and gas production in the second half of 2005, with full-year production to be approximately 3% higher than that of 2004, excluding the impacts of LUKOIL.”

E&P income from continuing operations in the quarter was $1.929 billion, up from $1.787 billion sequentially from 1Q2005, and up from $1.35 billion in 2Q2004. The producer attributed the sequential increase primarily on higher realized prices, partially offset by lower volumes and lower gains on asset sales. In addition, 2Q2005 results benefited from lower exploration expenses.

ConocoPhillips’ E&P daily production, including Canadian Syncrude and excluding the LUKOIL segment, averaged 1.54 MMboe/d, down from 1.60 MMboe/d sequentially from 1Q2005, and down slightly from 1.56 MMboe/d from a year ago, but the company said the decline was expected.

Compared with the previous quarter, the company experienced higher output during 2Q2005 from the Lower 48, Canada and Venezuela. The increases were more than offset by approximately 45,000 boe/d of planned downtime, primarily in the Timor Sea, Alaska and Norway, as well as approximately 25,000 boe/d of unscheduled downtime in Norway, Alaska and the United Kingdom. The decrease from 2Q2004 was attributed to lower production in the North Sea and Alaska, partially offset by increased production in Venezuela, the Timor Sea and the Lower 48.

Earlier this month, the company increased its ownership in Duke Energy Field Services (DEFS) to 50% from 30.3%. “This increase in our strategic interest emphasizes our commitment, along with Duke Energy, to make DEFS the industry’s top performing U.S. midstream gas company,” Mulva said.

Midstream income was $68 million, down sequentially from $385 million in 1Q2005, but up from $42 million in 2Q2004. The sequential decrease was primarily the result of the 1Q2005 net benefit to ConocoPhillips associated with a restructuring of its ownership in DEFS, including DEFS’ sale of its interest in TEPPCO. The increase over 2Q2004 was due primarily to higher natural gas liquids prices in both DEFS and the company’s consolidated operations.

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