Will ConocoPhillips Split Improve Dismal Earnings?

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Falling refining margins, surging administrative expenses, and lower oil and gas output combined to produce a disappointing first quarter for ConocoPhillips (NYSE:COP).

Net income fell 2 percent to $2.94 billion ($2.27 a share) from $3.03 billion ($2.09 a share) in the year ago period. Excluding items, earnings were only $2.02 a share, off the average analyst estimate by 6 cents. Administrative expenses rose sharply by 37 percent to $685 million, surpassing by a wide margin an estimate of $500 million by Raymond James.

Refining profit dropped significantly by 6.2 percent to $452 million, this too being much worse than the estimate of over $600 million by Raymond James. Falling margins came on top of lower production volumes of oil and gas, which fell by 3.8 percent, equivalent to about 1.64 million barrels of oil per day.

Production profits from oil and gas fell 3 percent from last year to $2.13 billion. Profits in the chemicals business climbed 13 percent to $218 million.

The disappointing results come ahead of the company’s move to spin off and list separately its refining and pipelines businesses. Stacey Hudson, a research associate at Raymond James said the earnings report “just kind of looks bad” considering the company is about to spin off its refining unit.

Phillips 66 (PSX-W), the spun-off entity, is to list for regular trading on May 1.

The three-year restructuring is expected to focus ConocoPhillips on exploration and production activities.

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