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Conoco's offspring set to prosper Add to ...

At first glance ConocoPhillips, which will split in two on May 1, is going out with a whimper. A decline in first-quarter profit to $2.9-billion (U.S.) reflected sliding output and weakness in refining. But underlying growth trends in chemicals and U.S. oil could boost prospects at the slimmed-down Conoco and at Phillips 66, the new standalone refiner.

A 3-per-cent fall in profit from the same period in 2011 was not the ideal way for retiring chief executive James Mulva to end his decade at the helm of the third-largest U.S. oil firm. Oil and gas production slipped slightly from a year earlier, and was close to stagnant even adjusting for disposals and the shutdown of a field in China. Profit also fell in refining and marketing, dipping 7.5 per cent.

Yet there were glimmers of hope for each of the $90-billion Conoco’s two offspring. Behind the uninspiring production figures, there were promising signs for the exploration and production firm that will retain the ConocoPhillips name and may be worth $60-billion, according to Morningstar. The company is already the top producer in the United States’ hottest oil shale areas like the Bakken in North Dakota and the Eagle Ford in Texas. Eagle Ford production, for instance, is up 11 per cent just since the end of the first quarter and is expected to double in 2012. That will help put within reach the firm’s goal of lifting production by 3 per cent to 5 per cent a year.

Meanwhile, Phillips 66 is keen to avoid low refining valuations by focusing investor attention on its burgeoning chemical and pipeline businesses. An increase in the share of the Phillips 66 business lines’ profit from these dynamic segments to 41 per cent, up from 35 per cent a year ago, will help make this story more credible. And chemical sector profits, boosted by surging demand from emerging markets and cheap gas feedstock at home, climbed 13 per cent from the first quarter of 2011. Pipeline profit did even better, rising by a quarter.

Mr. Mulva may not be ending his tenure with a bang. But the two companies he has nursed into their separate existences look as though they’re well positioned to do his legacy proud.

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