26 Jan 2012: ConocoPhillips said Wednesday its fourth-quarter earnings rose 66% thanks to higher oil prices and despite a drop in production and weak refining profits.

The Houston-based company reported a profit of $3.39 billion, or $2.56 a share, up from $2.04 billion, or $1.39 a share, a year earlier. Revenue rose 17% to $62.39 billion.

Excluding gains on asset sales and other items, earnings rose to $2.02 a share from $1.32 a share. Adjusted earnings beat analysts' expectations of $1.76 a share thanks to better-than-anticipated exploration-and-production results and a smaller-than-expected drop in refining profits, said Brian Youngberg, an analyst at Edward Jones.

Conoco's fourth-quarter results marked the end of a year in which major oil companies' earnings soared, driven by high oil prices due to improved energy demand in emerging markets. The average price at which Conoco, the third-largest U.S. oil company by market value, sold a barrel of oil in the fourth quarter jumped 22.4% to $96.42 from the same period a year earlier.

But Conoco's results also showed that high oil prices can be a double-edged sword for the majors—potentially weighing on profits of their huge refining arms at a time of weak demand for fuel. While Conoco's exploration-and-production arm's fourth-quarter adjusted earnings rose 27%, its downstream business—which purchases crude to process into petroleum products such as gasoline and diesel—posted a 2.9% drop in profit.

The trend of rising fourth-quarter earnings on the back of high oil prices and regardless of weak refining results is expected to be repeated by larger rivals Chevron Corp. and Exxon Mobil Corp. when they report earnings Friday and Tuesday, respectively.

Higher crude prices helped Conoco more than offset a 7.6% decline in fourth-quarter production to 1.6 million barrels of oil equivalent per day. The company said its total 2011 production was also 1.6 million barrels of oil equivalent per day, down 7.6% down from 2010.

Quarterly and annual production were hit by asset sales and the company's decision to limit its natural-gas production in the U.S. and Canada due to low commodity prices, and curtailment of its Libyan production due to political unrest. The decrease was partially offset by new production from major projects, the company said. Excluding the impact of dispositions and the suspension of operations in Libya, Conoco said fourth-quarter production fell 1%.

Conoco said it plans to curb only a small portion of its natural-gas production in Canada and the lower 48 states due to lower commodity prices.

"We will have some shut-ins of natural gas going forward," said Conoco Chief Financial Officer Jeff Sheets on a conference call with analysts. "It's going be on the order of 100 million cubic feet a day or something like 15,000 to 20,000 (barrels of oil equivalent) per day going forward."

Conoco's fourth-quarter natural-gas production for Canada and the lower 48 states was about 2.5 billion cubic feet per day, or about 410,000 barrels of oil equivalent per day.

Conoco said it was difficult to shut-in more natural-gas production because the bulk of its current output is linked to oil-liquids production, which is profitable, Mr. Sheets said. A significant part of Conoco's natural-gas production is also operated by partners who don't want to cut back and lose the cash flow associated with it, he said.

The company also said it expects to have a total oil and natural-gas production of 1.6 million barrels of oil equivalent per day this year, unchanged from 2011. It said it expects to sharply increase production in the Eagle Ford Shale and the Permian Basin in Texas and the Bakken Shale in North Dakota.

Conoco said some production from its Bohai Bay platform off China is still shut down despite a settlement with the Chinese government to pay damages over spills there. About 33,000 barrels of oil equivalent a day were still shut down in the fourth quarter due to spills from June; the company expects that figure to go down this quarter. Following the spill, Conoco initially shut down about 50,000 barrels per day when it closed the platform last year, the company said.

The company said its previously announced spinoff of its refining arm could happen as soon as May. Phillips 66, the new refining company, is likely to focus on spending its extra cash flow on reducing debt rather than in repurchasing shares, the company added.

Conoco is in the midst of a three-year restructuring plan that, in addition to splitting into two companies, comprises the sale of up to $20 billion in assets in order to shore up finances and make itself more attractive to investors.

The company said it ran its refineries nearly full-out in the fourth quarter, despite what is considered a stagnant fuel market in most of the world. The company said overseas refineries ran at 98% of their capacity during the quarter, while its U.S. refineries ran at 93%, well above the national average of 85% for the quarter. It expects to have a global-refining capacity in the low-90% range this year.

Separately Wednesday, Occidental Petroleum Corp. reported fourth-quarter earnings rose 35%.

Occidental reported a fourth-quarter profit of $1.63 billion, or $2.01 a share, up from $1.21 billion, or $1.49 a share, a year earlier. Per-share earnings from continuing operations rose to $2.02 from $1.47, as revenue improved 19% to $6.03 billion.

Revenue in the company's main oil and gas segment rose 27% as profit increased 52%. Chemical sales grew 9.8%, pushing profit up 30%.

Occidental's earnings have continued to improve on increased production in the U.S. and as the company has posted strong results in its chemicals business. The company in October took the first step toward restarting production at a Libyan oil field it partially owns, making it the first U.S. company to get some Libyan crude production going again since Moammar Gadhafi's overthrow.

Average daily oil and natural-gas production grew 4.8% from a year earlier to 748,000 barrels of oil equivalent per day on higher domestic volume, partially offsetting lower volume in the Middle East, North Africa and Colombia. Average prices increased 25% for oil, while natural-gas liquids prices rose 12% world-wide.

Meanwhile, Hess Corp. swung to an unexpected loss in the fourth quarter as the oil explorer reported wider losses at its marketing-and-refining business amid the closing of the Hovensa refinery.

Hess is among a number of large oil companies that have been increasing spending to fund exploration programs and the development of shale-gas properties in the U.S.

In September, Hess agreed to pay more than $1.34 billion in a pair of transactions that netted it 185,000 acres in the Utica Shale in Ohio, where appraisal activity was expected to begin during the latest quarter.

Hess recently unveiled plans to close the Hovensa LLC refinery in St. Croix, U.S. Virgin Islands, among the casualties in an industry beset by stagnant fuel demand and thinning profit margins. The refinery is a joint venture with Venezuelan state-owned oil company Petroleos de Venezuela SA and had racked up $1.3 billion in losses over the past three years amid weak demand for refined petroleum products.

Hess reported a loss of $131 million, or 39 cents a share, compared with year-earlier earnings of $58 million, or 18 cents a share. The latest period included losses of $598 million related to the closing of the Hovensa refinery.

Revenue increased 1.5% to $8.82 billion.

The exploration-and-production business, which accounts for most of the bottom line, reported earnings rose 25% thanks to higher prices and despite production falling 13%.

—Tess Stynes, Ben Lefebvre and Ben Fox Rubin contributed to this article.

By Wall Street Journal.