ConocoPhillips (COP) has warned of weak third quarter results on the back of poor North American natural gas prices. The company also said that total volumes may fall approximately 5% sequentially to 1.78 million barrels of oil equivalent per day (MMboe/d) due to seasonal planned maintenance activities, particularly in the United Kingdom and Alaska. Conoco expects third quarter exploration expenses would be around $400 million before taxes.

Continued low worldwide distillate margins and narrow light-heavy crude differentials would hurt Refining and Marketing results in the quarter. Conoco's worldwide refinery utilization rates are expected to be in the upper 80% range (88% in the second quarter). The domestic and international utilization rates are expected to be in the lower 90% range (93% in the second quarter) and upper 70% range (72% in the second quarter), respectively. The company also said its midstream and chemicals earnings are expected to be slightly higher than in the second quarter.

We are maintaining our Neutral recommendation for ConocoPhillips shares ahead of the third quarter results. The finalization of the ADNOC (Abu Dhabi National Oil Company) deal in July to develop the Shah Gas Field project in the United Arab Emirates (UAE) at an estimated cost of $10 billion will help the company to access the lucrative international regions, in our view. However, the company's heavy exposure to the tentative U.S. natural gas (more than one-third of its total volume) and refining markets are some of the competitive disadvantages.