* Q2 adjusted net profit 2.7 bln euros vs consensus 2.62 blneuros
* First year-on-year rise in output since 2010
* CEO says further changes in downstream business necessary
* Q2 dividend 0.59 euros a share
* Shares flat
By Michel Rose
PARIS, July 26 (Reuters) - French oil group Total reported a drop in second-quarter profits on Friday, hit by afall in oil prices that offset its first rise in output in threeyears.
Europe's third-largest oil company after Royal Dutch Shell and BP said its second-quarter adjusted netprofit fell 3 percent to 2.7 billion euros ($3.57 billion), onthe back of a 4 percent decline in revenue to 47 billion euros.
Brent crude oil prices hit a nine-month low below$100 a barrel at the beginning of the second quarter but are nowback up to $107.30.
Production rose 1 percent from the same quarter a year ago,the first year-on-year rise since 2010 thanks to the re-start ofthe Elgin gas field in the North Sea last March after ayear-long shutdown, improved security conditions at Total'sYemen liquefied natural gas complex and the first cargo shippedfrom its Angola LNG project.
The rise to 2.29 million barrels of oil equivalent a day waswelcomed by analysts, as investors have doubted Total couldreach its oil and gas output growth target of 2-3 percent thisyear and its longer-term goal for 3 million barrels of outputcapacity in 2017.
"Finally a quarter of production growth from Total driving abetter than expected number.. it's important to get visibleevidence of this growth because the market just hasn't believedit," said Oswald Clint of Bernstein in London.
Total regularly missed its oil and gas production targets inthe past, and shares are currently trading at 40 euros, valuingthe stock at 7.9 times 12-month forward earnings, still a 16percent discount on average to its global peers.
Shares in Total edged down 0.1 percent by 0924 GMT, as thebroader European oil and gas sector gained 0.2 percent.
"Very good robust results from Total," said Jason Kenney ofSantander. "Hopefully the company's back on form ready fordelivery in 2014."
Analysts expect the group to reap the benefits from a moreaggressive exploration strategy from the second half of thisyear, when it hopes to see the first oil from the Kashaganproject in Kazakhstan and higher production from Nigeria.
The Paris-based group also said it was studying the launchof the Yamal LNG project in Russia and Canada's Fort Hillsmining project before the end of the year.
FURTHER CHANGES DOWNSTREAM
Margins at the group's refining business were down, fallingto $24.1 per tonne in the second quarter, compared to $26.9 atonne in the first quarter. Total has been restructuring itsrefining business in a bid to reduce exposure to unprofitableEuropean refineries.
"The downstream reaped the initial benefits of therestructuring program even though further changes are stillnecessary to strengthen our position," Chief ExecutiveChristophe de Margerie said in a statement on Friday.
Earlier this year, de Margerie had said on radio that heexpected Total and other oil majors to shut down more refineriesin Europe over the next few years due to falling fuelconsumption.
Total has pledged not to close any refinery in France forfive years after it shut the Dunkirk refinery in 2010, butEurope is suffering from overcapacity because of the economicslowdown and as exports to the United States have dried up.
The group said it would pay a second-quarter dividend of0.59 euros per share in December, the same as in the firstquarter.
Analysts on average expected adjusted net profit to fall 8.4percent to 2.62 billion euros on revenue of 39 billion euros,with a dividend of 0.6 euros per share, according to ThomsonReuters I/B/E/S.
BP (BP.)
