ConocoPhillips Net Rises 51%

Growth was driven by surging results in exploration and production and refining.
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Updated from 9:11 a.m. EST

ConocoPhillips'

(COP) - Get Report

fourth quarter earnings surged 51% from a year ago, driven by skyrocketing natural gas and crude prices.

Fourth-quarter earnings were $3.68 billion, or $2.61 a share, compared with $2.43 billion, or $1.72 a share, a year ago. On average, analysts surveyed by Thomson First Call were forecasting earnings of $2.62 a share in the latest quarter. Fourth-quarter revenue was $52.2 billion, compared to $40.1 billion a year ago.

Shares of ConocoPhillips erased their gains in morning trading and were recently falling 87 cents, or 1.3%, to $63.61 on lower crude prices.

In exploration and production, fourth-quarter earnings were $2.43 billion, up from $1.67 billion a year ago. The gain reflected higher crude and natural gas prices partially offset by lower values of British natural gas contracts, and higher depreciation and exploration costs.

High commodity prices are a blessing and a curse, driving up both profits and costs for contractors, drilling and rigs. Until crude prices drop, costs should continue climbing.

"We are seeing quite a bit of pressure on the cost side from marketing and production," said Jim Mulva, ConocoPhillips' chairman and chief executive officer, in a conference call Wednesday.

Still, skyrocketing profits helped Conoco to buy natural-gas producer

Burlington Resources

(BR) - Get Report

for $35.6 billion last month. Conoco CEO Jim Mulva said at the time that he expects natural gas prices to remain above $7 to $8 per million British thermal units over the next three years. Natural gas hit an all-time high of $15.78 on Dec. 13, but has since settled below $9.

Fourth-quarter exploration and production income was 6% higher than the previous period because of higher natural gas prices and volumes. The increase was offset by lower crude prices and higher exploration and depreciation expenses.

Income from continuing operations in refining and marketing jumped to $1.06 billion from $753 million a year ago, but was down 24% from the third quarter. Refining margins fell from the third quarter because hurricane damage kept costs high and production low.

The amount of crude processed at refineries worldwide fell to 88% from 95% in the third quarter. The company's Alliance refinery in Belle Chasse, La., has restored partial operations and should return to full operation by the end of March. The 257,000-barrel-per-day refinery was closed after gulf hurricanes damaged oil platforms, pipelines and refineries in August.

Conoco's quarterly production of 1.9 million barrels per day was relatively flat compared to the same period last year.