ConocoPhillips ( COP) reported earnings for the third quarter of 2007 that were 5% below a year earlier, mostly as a result of lower realized margins in the oil company's refining and marketing business.

Conoco earned $3.67 billion, or $2.23 a share, in the most recent quarter, down from $3.88 billion, or $2.31 a share, during the same period a year ago. Analysts were looking for $2.17. Revenue fell to $46.1 billion from $48.1 billion last year.

Daily production from the exploration and production segment, including Canadian syncrude but excluding the Lukoil contribution, averaged 1.8 million barrels of oil equivalent a day, a decline from 1.9 million a day in the previous quarter and 2 million one year ago.

Production was hurt in part by Conoco's departure from Venezuela, whose oil industry is being nationalized by the Hugo Chavez government, and also by maintenance that had to be performed.

Income from refining and marketing was $1.30 billion in the quarter, vs. $2.36 billion in the second quarter and $1.46 billion in the third quarter of 2006. Low refining margins were responsible for the decline, according to a company press release.

E&P activities generated $2.08 billion in income, compared with $1.90 billion during the same period last year. The company earned $104 million from its midstream operations in the quarter, down 38% year over year because of a favorable tax adjustment in 2006.

Conoco's chemical segment saw earnings fall to $110 million from $142 million last year.

Speaking on a morning conference call, CEO James Mulva said Conoco generated a return on capital employed of 13% during the third quarter. That was slightly less than the 15% return earned during the first half of 2007, and below the 20% return its peer group had in the first two quarters.

During the third quarter, Conoco made capital investments intended to shore up its refining infrastructure. It made major modifications to its Borger, Texas, refinery "to efficiently produce ultra-low-sulfur diesel fuel, lower costs and process more heavy, sour crude oils," said Mulva.

Mulva also said he expects E&P throughput to improve in the fourth quarter.

"We anticipate the company's fourth-quarter E&P segment production will be 50,000 to 60,000 barrels of oil equivalent per day higher than the third quarter as a result of normal seasonality and the successful completion of our summer maintenance program."

Conoco repurchased $2.5 billion worth of stock during the quarter. Its shares were recently trading 1.6% lower at $81.92.