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ConocoPhillips (Justin Sullivan/2008 Getty Images)
ConocoPhillips (Justin Sullivan/2008 Getty Images)

Conoco, Occidental earnings rise with oil price Add to ...

U.S. oil companies ConocoPhillips Co. and Occidental Petroleum Corp. reported higher quarterly earnings on rising crude oil prices and increased demand thanks to the improving global economy.

Conoco shares rose strongly as the company reiterated its plans to buy back more shares, though Occidental's stock declined as its production fell short of expectations and it outlined plans to spend heavily this year.

Oil prices have risen sharply over the past year, with benchmark U.S. crude averaging about $85 (U.S.) per barrel in the fourth quarter, up 12 per cent from a year earlier.

As the world economy recovers, oil demand is rising. Global crude demand rose in 2010 and is forecast to grow by 1.5 per cent in 2011, according to a January report from the U.S. Energy Information Administration.

"I think 2011 and 2012 will be really good years," said Mike Breard, an oil analyst with Hodges Capital Management in Dallas. "The impression is that the bigger companies are going to have bigger budgets. They have decided that higher oil prices are here to stay."

Conoco is targeting 2011 capital expenditure of about $13-billion, a rise of more than 30 per cent, while Occidental plans to boost spending this year by more than half to $6.1-billion.

Still, rising costs may be a worry given all the aggressive spending plans. Both Hess Corp., which also reported results on Wednesday, and Occidental saw fourth-quarter exploration profits dented by higher expenses.

An Occidental executive said he was seeing a little bit of cost pressure for certain rigs in its Texas and New Mexico acreage, even if those cost pressures were not yet widespread.

Conoco's profit rose 54 per cent, helped by proceeds from asset sales, strong oil prices and higher refining margins. The results were in line with Wall Street estimates.

Conoco, which is in the midst of a two-year plan to improve returns by buying back shares, cutting debt and selling assets, said it would spend the bulk of its $10.4-billion in cash and short-term investments on more stock buybacks.

The company, which is also selling out of Russia's Lukoil, said its stake was 2 per cent at the end of 2010 and it plans to dispose of that this quarter. Its stake was once 20 per cent.

Conoco generated $15.4-billion in proceeds in 2010 from divestitures - $8.3-billion from Lukoil share sales and $7.1-billion from asset sales. The Houston company spent nearly $4-billion to buy back 65 million of its shares in 2010.

Occidental's quarterly earnings rose 29 per cent from a year ago to $1.21-billion. The company said it increased crude output by 5 per cent in 2010.

The Los Angeles-based company, which recently beat out larger rivals such as Royal Dutch Shell PLC to win a 40 per cent interest in Abu Dhabi's $10-billion Shah gas project, said quarterly results were helped by an 11 per cent increase in the price it received for its crude oil.

Occidental's share of the cost of the project, due to start up in 2014, will be equivalent to its stake.

"And no production for four years. So it will be a drag," chief operating Officer Stephen Chazen said, but he anticipated growth from its other properties would "easily overcome that."

Hess earnings were hurt by a charge to reduce capacity at its Hovensa refinery in St. Croix, and charges for two failed wells offshore Brazil. Hess's profit fell short of Wall Street estimates.

Still, the company increased its proved reserves to 1.54 billion barrels of oil equivalent at the end of the year, up from 1.44 billion a year earlier.

Conoco shares rose 3 per cent to $69.49 on the New York Stock Exchange. Hess shares rose 3 per cent to $79.52, but shares of Occidental fell 1.9 per cent to $95.34 as its quarterly production fell short of its expectations.

The company produced 753,000 barrels of oil equivalent per day (boed) in the fourth quarter. Oxy had predicted output of 760,000 to 770,000 boed in October, though that assumed average third-quarter prices, and higher oil prices decrease its share of certain production contracts.

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