Conoco beats expectations as bigger oil rivals struggle

Thu Jan 30, 2014 4:00pm EST
 
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HOUSTON (Reuters) - Oil producer ConocoPhillips (COP.N: Quote) outshone larger competitors on Thursday with a quarterly profit that beat expectations as it moved to overcome the problems of high costs and lack of fresh reserves that have nagged at Exxon Mobil Corp (XOM.N: Quote) and Royal Dutch Shell (RDSa.L: Quote).

ConocoPhillips, the largest U.S. oil company without refining operations, said its profits were helped by the sale of its Algerian business and by higher crude oil production in North America.

The company shed its refining business in 2012 and has sold billions of dollars of lower-yielding assets to focus on more profitable oil production from North American shale basins such as the Eagle Ford in south Texas.

Analysts said Conoco's plan is beginning to pay off at a time when the industry faces pressure from shareholders to lift returns despite flat oil prices and rising costs for risky exploration work designed to replace reserves.

Conoco's profit in the fourth quarter was $2.5 billion, or $2.00 a share, compared with $1.4 billion, or $1.16 a share, a year earlier.

Excluding special items, profits inched down, though analysts characterized Conoco's reserve replacement ratio, a measure of a company's ability to find new oil and gas reserves to replace what is produced, as strong.

On a preliminary basis, Conoco's proved reserves rose 3 percent from a year earlier to 8.9 billion barrels of oil equivalent (BOE). Proved organic reserve additions are expected to be about 1.1 billion BOE for a replacement ratio of 179 percent of 2013 production.

In a note to clients, Ed Westlake of Credit Suisse dubbed Conoco the best performing large oil company, citing 7 percent growth in cash flow despite asset sales, a reduced share count and more cash on the balance sheet.

"I think we're seeing pretty good evidence that the strategy is working," Jeff Sheets, Conoco's chief financial officer, said, citing cash margin growth and expected gains in production.   Continued...

 
Smoke is released into the sky at the ConocoPhillips oil refinery in San Pedro, California March 24, 2012. REUTERS/Bret Hartman