Heading into the rush for positive year-end production and reserves growth, major oils had irked the expectations of some stock-performance analysts. Fluctuating gas prices and political factors caused a mixed bag of production-growth results for the integrateds in the third quarter. While some E&P segments performed at or just below analysts' expectations, a select few did well in keeping production steady.

Where analyst meetings once may have provided valuable insight for investors about earnings and production projections, in the third-quarter round, major oil companies "have become victims of their own failures," reported Paul Sankey, an analyst for Deutsche Bank.

"The missed targets of the past have left companies deeply nervous of committing the worst sin of all: overpromising and underdelivering. It is not just production-growth misses. After the promises of 'mid-teens returns' at $16 oil of the late 1990s, companies are also reluctant publicly to set either returns targets or name what oil price they will use to set those targets."

In spite of the tight-lipped nature of the meetings, Sankey has great expectations from Marathon Oil Co., and called its operational performance outstanding. "Now, the company is in position to roll out a 2010 production profile, whilst on track to grow production 17% in 2007...Marathon is now within 10% of our $95 price target, just short of a Buy."

Major growth projects-Alvheim in Norway and Alba in Equatorial Guinea-were moving in the fourth quarter as scheduled and within budget, and are to help drive production growth in 2007 and support the 9% annual growth through 2010, Sankey said. Also, during a conference call, management announced an integrated oil-sands deal on the horizon-one that will likely involve various upstream partners-he added.

Meanwhile, Sankey reported concerns about ConocoPhillips. "We warned on ConocoPhillips, based on increased tax in Alaska, Venezuela and the North Sea, dreadful natural gas prices in the San Juan Basin, awful East Coast refining, and little defensive marketing."

He had a Hold on COP shares. "The most disappointing element of the quarter has been U.S. gas prices, which are even worse in the Rockies and San Juan Basin where ConocoPhillips' huge Burlington Resources position is suffering. Alaska is [also] a hit, not so much from the 36% stake in Prudhoe Bay, but from the under-appreciated tax increase imposed by the state government (that) will be recorded this (fourth) quarter for both second and third quarter (2006), in addition to U.K. tax charges."

Jacques Rousseau and Eitan Bernstein, analysts with Friedman, Billings, Ramsey Group & Co. Inc., had an Outperform and an $86 price target on COP shares. They reported, "Upstream results were negatively impacted by unplanned downtime in Alaska and other areas, and oil production volumes-excluding Lukoil-averaged 2.04 million barrels equivalent per day in the (third) quarter, 5% below second-quarter 2006 levels...."

On the other hand, at the end of the quarter, ConocoPhillips owned 19% of Lukoil and should reach its target of 20% by year-end, they added. The interest could add substantial value to ConocoPhillips, in light of Lukoil's strong upstream production-volume growth rate and expectation that Russia's gas prices should rise in the coming years, they said.

The pair had a Market Perform and a $54 target on Occidental Petroleum, which reported upstream operating earnings of $1.9 billion during the quarter, along with average production of 587,000 barrels equivalent (BOE) per day, 14% above that of third-quarter 2005. The production boost was largely due to its acquisition of Vintage Petroleum and a re-entry into Libya. Management expected fourth-quarter 2006 upstream volumes to range between 610,000 and 620,000 BOE per day.

While ExxonMobil reported a fairly strong quarter, Rousseau and Bernstein believe the result was driven by the downstream and chemicals divisions. They raised their earnings-per-share estimate from $6.30 to $6.40 and their price target from $74 to $76 with an Outperform on XOM shares.

In the upstream, XOM's production averaged 4 million BOE per day in third-quarter 2006, 10% ahead of the same period in 2005. Earnings in the downstream and chemicals divisions also hit records, at $2.7 billion and $1.4 billion, respectively.

The company managed to buy back $7 billion of its stock during the third quarter, "which equates to an annual run-rate of 7% of total shares outstanding. We expect this run-rate to continue, given the company's strong balance sheet, with $37 billion of cash and only $9 billion of debt," the FBR analysts reported.

As for Hess Corp., Sankey said the list of the company's risks is long: "high impact deepwater exploration-a problem this quarter; the potential for problems at the company's huge Hovensa refinery; heavy exposure to Equatorial Guinea, Libya and Malaysia amongst others; and the risk of an oil-price collapse if rising spare capacity and falling demand generate a market-share war in OPEC that drives prices lower."

In spite of these factors, he upgraded HES to Buy. "Although it does not fit our key investment themes, particularly on high free cash flow and high cash returns to shareholders, the valuation discount, at some 30% to net asset value, is excessive...We believe management should consider asset disposals to unlock shareholder value if equity valuation does not improve." He had a $50 target on HES shares.