(Reuters) – As solar panel prices continue to march lower, Chinese solar companies are struggling with heavy debt loads, triggering expectations many will be forced to seek a new infusion of funds through takeovers or mergers.

Suntech Power Holdings (STP.N: Quote, Profile, Research, Stock Buzz) could be liable for hundreds of millions in new payments after it disclosed a potential fraud by a partner, while peers such as LDK Solar (LDK.N: Quote, Profile, Research, Stock Buzz), JA Solar Holdings Co (JASO.O: Quote, Profile, Research, Stock Buzz), Trina Solar (TSL.N: Quote, Profile, Research, Stock Buzz) and Yingli Green Energy Holding Co (YGE.N: Quote, Profile, Research, Stock Buzz) are also feeling pressure.

With prices for solar panels barely covering the cost to build them, dozens of small Chinese solar companies are believed to have shut their doors, and equity investors have fled the sector, sending share prices of the U.S.-listed Chinese companies down more than 85 percent since early 2011.

Most of the Chinese solar companies will be able to stay open only if government lenders continue to keep lines of credit open despite forecasts of several more quarters of red ink.

“Solar as an industry is going to continue to grow,” said Brian Salerno, portfolio manager for Huntington EcoLogical Strategy ETF (HECO.K: Quote, Profile, Research, Stock Buzz). “However, my belief is that for most of that time it’s going to be profitless prosperity.”

Solar analysts have pointed to LDK Solar as also having one of the country’s most stretched balance sheets, with debt and other liabilities of $6.0 billion versus cash and equivalents of just $244 million.

JA Solar listed its debt and other liabilities at $1.5 billion versus cash on hand of $676 million at the end of the first quarter,

Trina Solar’s debt was a more modest $1.08 billion versus cash on hand of $490 million, while Yingli reported debt of $3.44 billion versus a cash position of $675 million at the end of the first quarter.

Suntech, which has the largest panel manufacturing capacity, may be on the hook for $690 million in collateral related to the possible fraud, and it also has a $541 million convertible bond payment in early 2013.

The company, which previously said it was in violation of some loan covenants, listed total debt and other liabilities of $3.58 billion, versus abut $474 million in cash on hand as of March 31, according to a filing with the U.S. Securities and Exchange Commission.

Beijing has provided billions of dollars in credit lines and other supports to its solar industry through state-run banks, prompting the U.S. government to impose import duties earlier this year after some U.S. manufacturers filed a trade complaint.

Though analysts and solar competitors outside of China have long viewed government bank credit lines as a major funding advantage for Chinese solar makers, that support has encouraged the industry there to overspend on new factories, leading to a glut of panels on the market.

Obtaining a clear picture of the Chinese companies’ debts can be difficult, analysts said, since debts they often listed as short-term liabilities are perpetually rolled forward, essentially making them long-term facilities.

“Trina is probably the best-positioned. The cost structure is great, and they don’t have as much debt as other vendors,” said Ben Schuman, analyst at Pacific Crest Securities.

Nearly every solar company has been losing cash because of the low panel prices, and policymakers in Beijing said last year they wanted to see a healthier industry develop, with a smaller number of large, strong players.

Whether that consolidation will be spurred by Beijing or the debt-holding banks remains unclear.

“That’s the million-dollar question,” said Schuman. “I don’t know if it’s really even a question of ‘if’ or ‘when,’ it’s more a question of how. Is this going to be forced consolidation, or a bailout of the debt by state-owned enterprises?”

BANKING ON THE BEST

Analysts said that at least for now, Beijing was not likely to let its leading solar players collapse.

“As long as the government has deep pockets – and they do – you might just have the walking dead,” Huntington’s Salerno said.

Local governments in China have also supported the companies in the industry that China sees as crucial to supplying electricity to its economy, but analysts said that support appears to focused on keeping the local job markets strong.

LDK Solar, which cut 5,000 jobs earlier this year, received a helping hand in July, when the government of Xinyu city, in Jiangxi province, announced it would use taxpayer funds to repay the company’s loans.

Still, Yingli Chief Financial Officer Bryan Li said the Chinese state-run banks and foreign debt providers appeared willing to support the companies with the best prospects, and wait for a sector shakeout to trim the weaker players.

“(The banks) all believe that solar is an emerging industry that has a bright future, and a much better future after the consolidation,” he told Reuters. “They don’t want to give up their debt presence in the solar sector.”

Li said the company would post positive operating cash flow in the second half of 2012, but predicted new players would enter China’s solar sector to take over or buy into weaker companies.

“To a large extent, I think the capital will be coming from the state-owned companies, or large domestic groups,” Li said.

For its part, Yingli, which tapped China’s debt market for about $236 million in May, is not interested in linking up with other companies, he said, but may seek to acquire equipment at low cost to expand operations.

(Reporting by Matt Daily in New York; Editing by Patricia Kranz and Matthew Lewis)

(Reuters) – China’s Suntech Power Holdings (STP.N: Quote, Profile, Research), the world’s biggest solar panel maker but facing an acute financing shortfall, saw its funding prospects darken further after it disclosed this week it had probably been defrauded.

The company was already struggling with fast-dropping solar panel prices, new U.S. import duties and the threat of trade barriers in Europe. It needs to raise over half a billion dollars by next March to refinance maturing debt, but after discovering that bonds used as collateral for new solar projects were apparently fake, that task has become much harder.

Foreign capital markets and white knight merger partners are likely to shun the woe-begotten company, analysts said, leaving its best hope in a bailout from Chinese government bodies that themselves may face financial or political constraints.

“The prospects for the company continue to get bleaker by the day,” said Avian Securities analyst Mark Bachman.

“You’re dealing with a communist country, and you could be looking at (this becoming) a state-run company,” he said.

Whatever happens to Suntech could set the tone for sorting out the entire Chinese solar industry, the world’s largest but buckling under excess supplies that have sent panel prices plummeting as much as 60 percent over the last year and a half.

Analysts doubt the Chinese government will allow Suntech to go under, given its global standing, but Beijing signalled last year it expected the industry to consolidate around a few strong players that could reliably help to feed its ravenous energy requirements with renewable power sources.

Chinese lenders and government bodies have in the past been happy to support even heavily indebted solar players, amid a general reluctance to allow credit defaults. But Suntech’s case will be a test of industry experts’ views that this forbearance may be about to end, as fears mount over how it distorts risk.

“The presumption is that everything is too big to fail, and it’s a huge moral hazard,” said Patrick Chovanec, economics professor at Tsinghua University in Beijing.

“Everyone always assumes Beijing will always step in … This distorts perceptions of risk. It boils up a lot of confidence in an economy that wouldn’t otherwise exist if people felt exposed to real economic risks.”

The government also faces rising financial, political and diplomatic pressures over a possible bailout, which could add more problematic debt to overstretched local government or bank balance sheets, while irritating both local citizens and overseas trade partners who are increasingly sensitive to China’s use of public money to prop up private companies.

FAKE BONDS

Suntech said on Monday it was investigating whether its partner GSF Capital had lied about contributing 560 million euros ($690 million) in German bonds as collateral to secure financing for solar projects in Europe via a jointly owned fund.

Suntech shares tumbled more than 20 percent to an all-time low on Tuesday at $1.03 per share, a tiny fraction of their early 2008 peak at $90, and company analysts warned the decline may not be over.

Aaron Chew, analyst at Maxim Group, lowered his price target on Suntech shares to zero if the company cannot secure new financial help.

A spokesman for Suntech in China did not respond to a request for comment.

Suntech said it learned about the suspected fraud when it began trying to sell its 80 percent stake in the Global Solar Fund, which is 10 percent owned by GSF Capital Pte Ltd.

GSF Capital had pledged German bonds as collateral for a loan to the fund by China Development Bank, but Suntech, which guaranteed that loan, said documents verifying the bonds’ existence now appear to have been fabricated.

GSF Capital is operated by Javier Romero, who formerly worked under contract selling Suntech panels in Spain. Efforts to reach Romero for comment have been unsuccessful.

The remaining 10 percent of the Global Solar Fund is owned by Suntech’s founder, chairman and CEO, Zhengrong Shi.

Suntech needs the proceeds from the Global Solar Fund sale to cover $541 million in convertible bonds that come due in early 2013, although Suntech executives said on Monday they were seeking to secure new debt funding. The convertible bonds were trading at 45.8-50.7 cents on the dollar on Wednesday afternoon, indicating a deeply distressed company.

“We’re about to reach the breaking point,” said Maxim’s Chew.

“I don’t think bankruptcy actually happens per se, but there’s got to be a major recapitalization,” he said, with potentially a large, financially stable partner buying into the sector.

Chinese banks have eagerly lent to the solar industry, which globally accounts for less than 1 percent of generating capacity but is expected to grow as much as four-fold over the next five years. As European governments rolled back subsidies while panel production capacity ballooned, however, profit margins nearly vanished last year for solar manufacturers while renewable energy prices tumbled about 40 percent.

Many companies, including smaller Chinese players, have been put out of business, and industry experts have said Chinese lenders are unlikely to continue granting new loans that may never be repaid.

But another company that analysts said faced acute funding problems, LDK Solar (LDK.N: Quote, Profile, Research), was able to raise 500 million yuan ($78.5 million) last December by issuing three-year domestic medium-term notes (MTN) at 6.8 percent, cheaper than the one-year commercial paper funding rate of 7.59 percent it achieved on October 19, even though its access to offshore capital markets was cut off as doubts mounted.

LDK Solar’s outstanding 1.2 billion yuan of synthetic yuan bonds due in February 2014 traded at 44.2-47.8 cents on the dollar at the time.

LDK was thrown another lifeline last month when the government of Xinyu city, in central China’s Jiangxi province, said it would use taxpayer funds to repay LDK’s loans.

Reports of this possibility were followed by criticism in the local media, and a statement on the city’s moves was subsequently removed from the website of the Xinyu People’s Congress.

A government official in the eastern Chinese city of Wuxi, where Suntech is based, told Reuters on Wednesday that Suntech had briefed the government about the situation but could not say what measures authorities might take. He added that the Wuxi government had a relatively detached relationship with companies operating in the city.

Suntech, which said in its annual filing in April that it was in violation of some of its bank loan covenants, has posted four quarters of losses, and Wall Street expects it to remain in the red through 2013.

($1 = 0.8120 euros, 6.3685 Chinese yuan)

(Additional reporting by Leonora Walet and; Kelvin Soh in Hong Kong, Kazunori Takada and Samuel Shen in Shanghai; Editing by Edmund Klamann)

(Reuters) – Refining company Valero Corp (VLO.N: Quote, Profile, Research, Stock Buzz) on Tuesday posted a higher quarterly profit that topped expectations and said it would split off its retail business, lifting its shares 6 percent.

The company, which owns retail stations in the United States and Canada, said it is considering different methods for the split, including a spin-off that would give its shareholders ownership in the retail business.

“This aligns perfectly with what investors want to see from Valero right now, which is return of capital and liquidity events. That’s why it is being met with a positive response,” said Dahlman Rose & Co analyst Sam Margolin, who rates the shares a “Buy.”

Retail businesses similar to Valero’s trade at higher valuations than refining companies, so spinning off the stores will help unlock value. Valero’s retail business has an enterprise value of around $3 billion to $4 billion, analysts said.

Valero will keep its wholesale fuel marketing business and shed its stores that sell gasoline and convenience store items like soda and candy bars, marking a departure from some of its peers like Tesoro Corp (TSO.N: Quote, Profile, Research, Stock Buzz) who are growing retail operations.

“We are the manufacturing company with a wholesale marketing business,” Valero Chief Executive Officer Bill Klesse told investors on a conference call. “We are not going to be selling Twinkies and beer and cigarettes. We are going to leave that to the retail group.”

Retail outlets are typically viewed as an outlet for fuels produced at a company’s refineries. Those stores allow refiners to keep utilization rates up even when demand slows, a situation that puts them at an advantage to competitors without stores.

“Valero isn’t going to have that guaranteed offtake, but it sounds as if they can make it up with their wholesale business and exports,” Allen Good, analyst at Morningstar, said.

Valero operates nearly 1,000 U.S. stores, with a heavy concentration in Texas. In Canada, it has 775 units, the company said.

Credit Suisse Securities (USA) LLC is advising Valero in connection with the retail split, which is expected to take 6 months.

San Antonio-based Valero reported a second-quarter profit of $831 million, or $1.50 per share, compared with $745 million, or $1.30 per share, a year earlier.

Analysts on average had expected a profit of $1.43 per share, according to Thomson Reuters I/B/E/S.

“In the refining segment, throughput and cash operating expenses performed better than company guidance,” analysts at energy investment bank Simmons & Co told clients in a research note.

Valero said its retail arm reported record quarterly operating income of $172 million, up from $135 million a year earlier, or about 12.6 percent of its second-quarter profit.

The company also raised its quarterly dividend by 17 percent to 17.5 cents per share.

Shares in Valero rose 6 percent to $27.72 in New York Stock Exchange trading.

(Reporting by Matt Daily in New York; Additional reporting by Anna Driver in Houston and Michael Erman in New York; Editing by Gerald E. McCormick, John Wallace, Sofina Mirza-Reid, Dale Hudson and Jim Marshall)

U.S. natural gas prices tumbled to their lowest in a decade
during the second quarter as output from vast new shale rock
fields overwhelmed demand.

For big buyers of gas, such as power producer Calpine Corp
and chemicals maker LyondellBasell Industries NV
, the drop below $2 per million British thermal units was
a boon to profits.

LyondellBasell said its cost to produce ethylene, a key
chemical used to make plastics and many other consumer goods,
fell 46 percent in the United States during the second quarter.

That helped the company top Wall Street estimates, even as
the weak economy dented its revenues, and its shares rose more
than 9 percent in afternoon trading.

For Calpine, whose fleet of power plants relies heavily on
natural gas, the cheap fuel helped it win market share from
coal-fired power plants.

“Natural gas generation is becoming the preferred generation
of choice since it is cheaper, more efficient, more flexible and
environmentally cleaner than coal,” Calpine Chief Executive Jack
Fusco told a conference call.

For decades, coal-fired power plants supplied about half the
U.S. power market, but that has shrunk as vast new supplies of
natural gas have come on line.

U.S. power production from natural gas matched the output
from coal-fired plants for the first four months of 2012, with
each of the fuels contributing 32 percent of the nation’s power,
according to data released earlier this month by the Department
of Energy’s Energy Information Administration.

Still, natural gas prices have already started to rise,
largely because companies such as Exxon Mobil Corp,
Chevron Corp and other producers have chopped spending
on new wells.

“It’s pure supply-demand economics,” said Mike Kelly, an
analyst with Global Hunter Securities in Houston. “The cure for
low gas prices is low gas prices.”

PAIN AT THE WELLHEAD

The cheap gas caused some acute pain for producers over the
past few months.

Chevron, which boosted its U.S. natural gas presence with
the $3.2 billion purchase of Atlas Energy last year, said its
sales price for the fuel fell by 50 percent to $2.17 from a year
ago.

Exxon Mobil, which jumped to the top among U.S. producers
with its 2010 purchase XTO Energy, said its U.S. oil and gas
earnings tumbled 53 percent, largely from the weakness in gas
prices.

Exxon CEO Rex Tillerson has said the low prices in the
second quarter did not cover production costs and told an
audience in June that producers were “losing their shirts” in
natural gas.

But the pain for the big producers is abating because
natural gas prices have rebounded more than 20 percent since
mid-June to about $3.04. NYMEX futures prices show the prices
likely rising to $3.50 by the end of the year.

That rise cannot come soon enough for U.S. coal producers,
whose shares have been hammered largely by the declining demand
for electricity producing thermal coal.

So far this year, the Dow Jones U.S. Coal Index,
which includes Alpha Natural Resources Inc, Peabody
Energy Corp and Patriot Coal Corp, has
plummeted 43 percent and hit a four-year low earlier this week.

Arch Coal Inc, which rallied 30 percent on Friday
a fter dropping to a 12-year low on Thursday, posted a second
quarter loss on Friday, largely due to costs associated with
shutting down unprofitable mines.

But it still managed to beat the gloomy Wall Street
forecasts and it held out hope the recent rise in natural gas
prices would create an opening for its lower-priced Powder River
Basin coal.

“We’re not bringing on a lot of additional production at
this point,” CEO John Eaves told a conference call. “We’re not
going to do that until we see more sustained demand moving
forward. And, hopefully, we’ll see that in 2013, 2014.”

(Reuters) – Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz) profit fell 7 percent in the second quarter as oil prices weakened, the No. 2 U.S. oil company said on Friday, and oil and gas output will fall short this year, but margins are strong for the smaller refining business.

Like larger rival Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz), Chevron did face weak prices for U.S. natural gas prices. But Chevron is far less reliant on it, with just 5 percent of its reserves in North American gas, compared with 18 percent for Exxon.

Chevron’s second-quarter oil and gas production fell to 2.62 million barrels of oil equivalent per day from 2.69 million bpd a year earlier, and it surprised few investors by saying it would fall short of its 2012 target of 2.68 million bpd.

George Kirkland, the vice chairman who also runs Chevron’s production arm, blamed that on a shutdown of its Frade field in Brazil after a spill there, third-quarter maintenance work at the 300,000-bpd Tengizchevroil plant in Kazakhstan, and a delay to the startup of its $10 billion Angola LNG project.

Kirkland now expects the first shipment of liquefied natural gas in September from Angola LNG, in which Chevron holds a 36.4 percent stake. The first exports had been previously expected in June.

But Chevron shares rose percent on Friday, after it easily topped Wall Street estimates, even if its average price for U.S. natural gas fell by 50 percent.

“I thought it was an outstanding quarter,” said Edward Jones analyst Brian Youngberg. “The downstream (refining) was the main reason for the beat.”

Cheaper oil has helped refining by lowering the input costs. Gulf Coast margins have also been lifted by rising U.S. gasoline exports, which have run at a rate of 56,000 barrels per day this year — double the average of the same period for the past five years, according to the Energy Information Administration.

Overall, Chevron said its second-quarter net income fell to $7.2 billion, or $3.66 per share, from $7.7 billion, or $3.85 per share, in the year-ago quarter. Analysts, on average, had forecast $3.24 per share, according to Thomson Reuters I/B/E/S.

The oil and gas production business had an 18 percent profit drop to $5.6 billion, while its downstream business saw profit jump 80 percent to $1.88 billion.

U.S. downstream operations saw profits rise 42 percent, and profits from the rest of the world more than doubled to $1.1 billion, helped by an asset sale in South Korea.

Chevron said earlier this month that industry benchmark margins on the Gulf Coast rose more than $4 per barrel to $24.89, while West Coast margins improved to $21.32 per barrel, their highest three-month average in four years.

Its largest refinery is in Mississippi, with 330,000 bpd of capacity, while its two California plants can together refine 518,000 bpd.

Profits at Exxon fell short of expectations on Thursday as oil and gas output sagged and its chemical unit faced weak margins.

Shares of Chevron were 0.6 percent higher at $108.95 in afternoon trading.

(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Gerald E. McCormick, John Wallace and David Gregorio)

(Reuters) – Exxon Mobil Corp, the world’s largest publicly traded oil company, posted lower-than-expected quarterly earnings on Thursday as its oil and gas output sagged and weak margins hurt its chemicals business.

Weaker global oil prices have weighed on earnings across the sector and Exxon also felt the sting of decade-low U.S. natural gas prices, especially in the United States where it is the largest producer of the fuel.

The company, which has pledged to spend a record $37 billion this year as it brings new projects on line in countries including Canada, Papua New Guinea and the Gulf of Mexico said oil and gas output fell 5.6 percent to 4.15 million barrels oil equivalent per day during the quarter.

“I think the big issue for the oil majors is they need high oil prices for all these exploration costs to pay off,” said Michael Yoshikami, CEO of investment advisor Destination Wealth Management. “At $100 to $110 (per barrel), I think they are fine.”

Exxon is hoping those new projects will boost its long-term oil and gas output, since Wall Street has long pointed to weak growth as a problem for the oil majors.

Analysts honed in on those figures again, but saw other issues as well.

“Production was a little light,” Pavel Molchanov, analyst at Raymond James, said. “The real swing versus our estimates was chemicals.”

Chemical demand in Europe was weak and commodity margins were pinched in Europe and Asia, David Rosenthal, an investor relations executive with Exxon, told investors on a conference call.

The Irving, Texas, company reported a second-quarter profit of $15.9 billion, or $3.41 per share, up from $10.68 billion, or $2.18 per share, a year earlier.

Profit was boosted by a $7.5 billion gain related to the sale of a stake in its Japanese refining and chemicals business, and tax items.

Excluding those one-time gains, Exxon earned $8.4 billion, or $1.80 per share. On that basis, analysts’ average forecast was $1.95, according to Thomson Reuters I/B/E/S.

Excluding one-time items, earnings from the company’s chemical operations totaled $820 million, nearly 33 percent below Raymond James’ estimate for the unit, Molchanov said.

Analysts at Barclays had looked for Exxon to report chemical earnings of $859 million.

Weakness in the chemicals market was also evident in the earnings of Dow Chemical Co, which reported a 34 percent drop in quarterly profit, missing Wall Street forecasts.

Earlier on Thursday, Royal Dutch Shell posted lower-than-expected quarterly earnings of $5.7 billion, hurt by maintenance costs and shutdowns in the U.S. Gulf, where the company has some of its most profitable production, and in Australian Liquefied Natural Gas.

Exxon’s earnings from U.S. oil and gas production tumbled by more than half in the second quarter to $678 million, largely due to the steep decline in prices of natural gas.

The company is the nation’s largest producer of natural gas, but Chief Executive Officer Rex Tillerson warned last month that prices were too low to allow the industry to cover the cost of finding and producing new supply.

“We are all losing our shirts today,” Tillerson said at the time.

Exxon shares rose 0.8 percent to $85.94 in midday trading on the New York Stock Exchange, helped by a rebound in oil futures prices.

(Reporting By Anna Driver in Houston and Matt Daily in New York; editing by John Wallace and Marguerita Choy)

(Reuters) – Lower oil prices shrank quarterly profits at ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) and Hess Corp (HES.N: Quote, Profile, Research, Stock Buzz), and both companies raised their 2012 spending plans in a bid to increase crude production.

Global oil prices weakened in the second quarter as tensions in the Middle East around Iran eased and the economic outlook soured, but prices have rebounded a bit in July.

Conoco said it would spend $16 billion this year, up from an earlier projection of $15 billion. The Houston company was a big buyer in the most recent U.S. Gulf of Mexico lease sale and also added to its deepwater position in Angola, Chief Financial Officer Jeff Sheets said in an interview.

“We’ve had a fairly significant spend building up the exploration portfolio this year,” Sheets said, noting that the timing of planned asset sales had also affected capital expenditures.

Second-quarter earnings at both companies topped Wall Street expectations, but analysts at Barclays characterized Conoco’s earnings as “neutral.”

Hess’ production came in better than expected as its output in North Dakota’s Bakken field surged and Libyan production came back on line. The company raised it 2012 spending estimate by 25 percent, to $8.5 billion.

Shares of Conoco were down 2.7 percent to $53.19 in afternoon trading. Hess shares were up 4.9 percent at $46.07.

Conoco, reporting earnings for the first time since shedding its refining and chemicals businesses, said oil and gas output slipped below its full-year production goal as asset sales, maintenance and curtailed gas production weighed. But the company said its new projects were coming on line as planned.

“I think Conoco operated well in this transition period,” said Brian Youngberg, an oil analyst at Edward Jones in Saint Louis. “Their projects are on time and progressing toward operation in the future.”

Conoco profit fell 32 percent to $2.3 billion, or $1.80 per share. Excluding one-time items, earnings per share were $1.22, beating analysts’ average forecast by 5 cents, according to Thomson Reuters I/B/E/S.

The company’s oil and gas output for the quarter fell 6 percent to 1.54 million barrels of oil equivalent (BOE), below its 2012 target of 1.55 to 1.6 million BOE but matching Wall Street expectations.

“Our production was on target, our major growth projects are on track, and we are continuing to add to our conventional and unconventional exploration inventory,” Conoco Chief Executive Ryan Lance said in a statement.

Conoco’s average price for crude fell to $105.56 per barrel in the second quarter, down $7.39 from a year earlier, while its average natural gas price dropped 20 percent to $5.50 per thousand cubic feet.

Conoco’s quarterly figures included one month of the refining operations, which were split off at the end of April.

The bulk of Hess’ spending increase will come in the Bakken, where leases it has signed require it to drill in order to hold onto the land, the company told investors on a conference call. It is also changing its well completion process and using a more expensive material in hydraulic fracturing.

“We’re in investment mode now, primarily due to the Bakken.” CEO John Hess told investors.

The company now expects to spend $3 billion in the Bakken this year, up from a previous estimate of $2 billion.

Hess’ profit in the second quarter fell nearly 10 percent to $549 million, or $1.61 per share.

The New York company’s oil and gas production jumped 15 percent to 429,000 barrels of oil equivalent per day. Analysts at Barclays had expected 403,000 BOE.

The higher-than-expected production helped push earnings past Wall Street expectations. Excluding one-time items, Hess had a profit of $1.72 per share, topping analysts’ average forecast of $1.38.

Driving the production increase was a jump in output at the Bakken, to 55,000 BOE per day from 25,000 BOE last year.

(Reporting By Matt Daily in New York and Anna Driver in Houston; editing by John Wallace)

Conoco, reporting earnings for the first time since shedding
its refining and chemicals businesses, saw its oil and gas
output slip below its full-year production goal as asset sales,
maintenance and curtailed gas production weighed. But the
company said its new projects were coming on line as planned.

“I think Conoco operated well in this transition period,”
said Brian Youngberg, an oil analyst at Edward Jones in Saint
Louis. “Their projects are on time and progressing toward
operation in the future.

Hess’ production in the quarter came in better than expected
as its output in North Dakota’s Bakken field surged and Libyan
production came back on line.

Hess shares rose 4.4 percent to $45.85 in early trading,
while Conoco shares were down 1 percent at $54.08.

Conoco profit fell 32 percent to $2.3 billion, or $1.80 per
share. Excluding one-time, earnings per share were $1.22,
beating analysts’ average forecast by 5 cents, according to
Thomson Reuters I/B/E/S.

The company’s oil and gas output for the quarter fell 6
percent to 1.54 million barrels of oil equivalent (BOE), below
its 2012 target of 1.55 to 1.6 million BOE but matching Wall
Street expectations.

“Our production was on target, our major growth projects are
on track, and we are continuing to add to our conventional and
unconventional exploration inventory,” Conoco Chief Executive
Ryan Lance said in a statement.

Conoco’s average price for crude fell to $105.56 per barrel
in the quarter, down $7.39 from a year earlier, while its
average natural gas price dropped 20 percent to $5.50 per
thousand cubic feet.

Conoco’s quarterly figures included one month of the
refining operations, which were split off at the end of April.

Hess’ profit in the quarter fell nearly 10 percent to $549
million, or $1.61 per share.

The New York company’s oil and gas production jumped 15
percent to 429,000 barrels of oil equivalent per day. Analysts
at Barclays had expected 403,000 BOE.

Driving that increase was the jump in production at Hess’s
properties in the Bakken field, where output rose to 55,000 BOE
per day from 25,000 BOE last year.

(Reuters) – Halliburton Co (HAL.N: Quote, Profile, Research, Stock Buzz) posted a quarterly profit on Monday that topped Wall Street forecasts, helped by increased activity outside North America, where it expected margins would start recovering by early next year.

Shares of Halliburton, the world’s second-largest oilfield services company behind Schlumberger (SLB.N: Quote, Profile, Research, Stock Buzz), rose 2.5 percent despite a decline in oil prices weighing down the sector .

Halliburton had warned last month that a shortage of guar beans in India would depress margins at its pressure pumping operations in shale fields, a key profit driver for the company.

Guar, which is also used to make sauces and ice cream, is a key part of the hydraulic fracturing fluids that have been in high demand due to a boom in U.S. drilling and well development.

Chief Executive David Lesar said on a conference call that the company’s decision to stockpile guar over the quarter meant it would be absorbing the higher guar costs for the rest of the year, even though prices were now declining. He referred to the elevated guar costs as like moving a “pig through the python.”

“With 20/20 hindsight, simply put, we made the wrong decision. The result is we bought too much guar too early and paid too much for it,” Lesar said. “I want to be clear with you — I supported and agreed with the decision to secure the strategic guar reserve, and I will take the heat for it.”

Halliburton has said previously that the guar system can account for as much as 30 percent of the overall fracking price.

The shortage hurt earnings at its industry-leading fracking business and pulled profits slightly below the year-ago level. That compared with the results from Schlumberger and Baker Hughes Inc (BHI.N: Quote, Profile, Research, Stock Buzz), which both posted higher profits on Friday, also lifted by strength outside North America.

COULD HAVE BEEN WORSE

Still, Halliburton’s North American results were not as weak as many company watchers had feared.

“North American margin degradation was less than expected,” Barclays analyst James West said in a note to investors. At its current share price “we believe Halliburton represents compelling value.”

Halliburton has benefited from its leading position in North America in recent years as oil and gas producers poured money into developing shale fields, although its rising costs and a steep drop in natural gas prices have crimped profits this year.

Net profit slipped to $737 million, or 79 cents per share, from $739 million, or 80 cents per share, a year before. Profit from continuing operations was 80 cents per share, beating the 75 cents that analysts on average had forecast, according to Thomson Reuters I/B/E/S.

Revenue rose 22 percent to $7.2 billion, well above the $6.96 billion analysts had predicted.

A drop of the nearly 5 percentage points in North American margins was partially offset by increased profitability in other markets, particularly Europe, Africa and Russia and other former Soviet states. Guar accounted for about two-thirds of the margin depression in North America, Halliburton said.

Halliburton earned more than three-quarters of its 2011 income in North America, compared with about 40 percent for Schlumberger.

See graphic: link.reuters.com/gyr59s

“North America is still going to be a good market for Halliburton and international will be where the growth comes from,” said Scott Gruber, an analyst with Sanford Bernstein in New York, though he added that he preferred Schlumberger shares.

Overall, Halliburton’s plans are unchanged. It is targeting $3.6 billion to $3.8 billion in capital expenditure this year — tightening the range from $3.5 billion to $4 billion previously.

Halliburton’s shares, down 11 percent in 2012 through Friday, gained 2.5 percent to $31.58 in morning trading. Schlumberger was down 1.2 percent, retreating from its two-month high on Friday.

(Reporting by Matt Daily in New York, Swetha Gopinath in Bangalore and Braden Reddall in San Francisco; Editing by Maureen Bavdek)

Shares of Halliburton, the world’s second-largest oilfield
services company behind Schlumberger, rose 2.5 percent
despite a decline in oil prices weighing down the sector.

Halliburton had warned last month that a shortage of guar
beans in India would depress margins at its pressure pumping
operations in shale fields, a key profit driver for the company.

Guar, which is also used to make sauces and ice cream, is a
key part of the hydraulic fracturing fluids that have been in
high demand due to a boom in U.S. drilling and well development.

Chief Executive David Lesar said on a conference call that
the company’s decision to stockpile guar over the quarter meant
it would be absorbing the higher guar costs for the rest of the
year, even though prices were now declining. He referred to the
elevated guar costs as like moving a “pig through the python.”

“With 20/20 hindsight, simply put, we made the wrong
decision. The result is we bought too much guar too early and
paid too much for it,” Lesar said. “I want to be clear with you
– I supported and agreed with the decision to secure the
strategic guar reserve, and I will take the heat for it.”

Halliburton has said previously that the guar system can
account for as much as 30 percent of the overall fracking price.

The shortage hurt earnings at its industry-leading fracking
business and pulled profits slightly below the year-ago level.
That compared with the results from Schlumberger and Baker
Hughes Inc, which both posted higher profits on Friday,
also lifted by strength outside North America.

COULD HAVE BEEN WORSE

Still, Halliburton’s North American results were not as weak
as many company watchers had feared.

“North American margin degradation was less than expected,”
Barclays analyst James West said in a note to investors. At its
current share price “we believe Halliburton represents
compelling value.”

Halliburton has benefited from its leading position in North
America in recent years as oil and gas producers poured money
into developing shale fields, although its rising costs and a
steep drop in natural gas prices have crimped profits this year.

Net profit slipped to $737 million, or 79 cents per share,
from $739 million, or 80 cents per share, a year before. Profit
from continuing operations was 80 cents per share, beating the
75 cents that analysts on average had forecast, according to
Thomson Reuters I/B/E/S.

Revenue rose 22 percent to $7.2 billion, well above the
$6.96 billion analysts had predicted.

A drop of the nearly 5 percentage points in North American
margins was partially offset by increased profitability in other
markets, particularly Europe, Africa and Russia and other former
Soviet states. Guar accounted for about two-thirds of the margin
depression in North America, Halliburton said.

Halliburton earned more than three-quarters of its 2011
income in North America, compared with about 40 percent for
Schlumberger.

“North America is still going to be a good market for
Halliburton and international will be where the growth comes
from,” said Scott Gruber, an analyst with Sanford Bernstein in
New York, though he added that he preferred Schlumberger shares.

Overall, Halliburton’s plans are unchanged. It is targeting
$3.6 billion to $3.8 billion in capital expenditure this year –
tightening the range from $3.5 billion to $4 billion previously.

Halliburton’s shares, down 11 percent in 2012 through
Friday, gained 2.5 percent to $31.58 in morning trading.
Schlumberger was down 1.2 percent, retreating from its two-month
high on Friday.