Phillips, Conoco Stumble

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Phillips, Conoco Stumble

BARTLESVILLE, Okla. -- In what is likely to become a trend over the next two weeks as other Big Oil companies report second-quarter earnings, Phillips Petroleum Co. and Houston-based Conoco Inc. each reported a sharp decline in sales and profits.

Phillips and Conoco, which announced plans last year to merge to create the third-largest U.S. oil company, said a slow economy and drop in air travel have hurt the industry. Phillips' second-quarter profits fell 43 percent while Conoco's dropped 76 percent, declines that both companies blamed on another dismal stretch for the refining and marketing business.

Already under pressure from the weak economy, demand for refined fuels such heating oil and jet fuel has taken a beating from the mild winter and slowdown in air travel that followed the attacks of Sept. 11.

Phillips and Conoco are not the only companies suffering. When Exxon Mobil Corp. reports its second-quarter results next week it is expected to show a 27 percent decline in profits, Reuters reported.

"This demonstrates that the major oil companies are still under tremendous pressure with respect to refining, marketing and chemical profit margins," analyst Michael Young, of Gerard Klauer Mattison & Co., told Reuters, adding that the overall energy business is not likely to improve anytime soon. "This industry has a couple of tough years in front of it."

Young is forecasting lower energy prices in the years to come unless there is a dramatic turnaround in worldwide oil demand, the report said.

Conoco was the harder hit of the two oil companies by lower energy prices and the slump in refining profit margins in the second quarter. Conoco's net income dropped to $130 million, or 20 cents a share, from $552 million a year earlier. Revenue fell 8 percent to $9.7 billion, the company said.

"It was a difficult quarter due to weak refining margins, especially in the United States," Conoco Chairman and CEO Archie Dunham said in a statement. But Dunham added that the company is "comfortable that over time inventories and margins will return to more normal levels as economies around the globe improve."

Net income at Phillips fell to $351 million from $619 million in the second-quarter of last year. Total revenue rose to $11.6 billion from $5.4 billion a year ago.

Phillips' Chief Executive Officer Jim Mulva blamed part of the profit decline on the poor results from the refining and marketing business, but said "continued improvement in the U.S. economic climate" could change that in future quarters.

By then, Phillips and Conoco may have completed a combination their executives are billing as a merger of equals. The deal in still awaiting regulatory approval, but is expected to close in the second half of the year. Once it does, ConocoPhillips will trail only Exxon Mobil and ChevronTexaco Corp. in the ranks of the largest U.S. oil companies.

The combination has set a goal at $750 million in annual cost savings from the deal, and plans call for oil and gas production to rise by 4 percent a year.