ConocoPhillips Sees Profits Skyrocket

Second-quarter revenue soars to $71.4 billion, compared with $51 billion last quarter and $43.3 billion in the same quarter last year.
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ConocoPhillips

(COP) - Get Report

, the world's fourth-largest publicly traded oil company, announced Wednesday that its second-quarter earnings topped expectations and surged from the year-ago period.

Profits rose to $5.44 billion, or $3.50 a share, a 31.4% increase over last quarter and handily ahead of analyst estimates of $3.33.

The results clearly demonstrate to investors that Conoco has fully recovered from its nightmare second quarter in 2007, during which Venezuela expropriated $2.1 billion worth of its assets. The oil company was ultimately left with a dismal $301 million in net income, or 18 cents a share, in the year-ago-period.

Second-quarter revenue soared to $71.4 billion, compared with $51 billion last quarter and $43.3 billion in the same quarter last year.

Conoco's balance sheet has a heavier percentage of exploration-and-production assets than most other integrated supermajors, and its E&P segment kicked into high gear in the quarter, capitalizing on soaring global prices for crude oil and natural gas.

Net operating income from E&P activities were just under $4 billion, beating its first-quarter E&P results by 39%. Its E&P segment recorded a $2.4 billion loss during the same period last year.

A massive increase in Conoco's average realized sales prices for crude oil and natural gas were largely responsible for its E&P bonanza. The company earned an average of $123.98 a barrel on its sales of crude oil domestically, up from $97.94 a barrel in the first quarter and $64.89 a barrel a year ago.

Conoco's average realized price for oil in international markets was $119.24 a barrel during the period. It also averaged $10.94 per million cubic feet of natural gas in the recent period, up from $8.03 per MMCF last quarter and $7.55 per MMCF a year ago.

The large rise in U.S. natural gas prices was a boon for Conoco, which is the largest producer in the U.S. Conoco sold 4.8 billion cubic feet of natural gas per day during the quarter, down from 4.9 billion in the previous quarter and 5.1 billion a year ago. However, the uptick in the price of natural gas easily compensated for the production decline.

"Looking ahead to the third quarter, we anticipate the company's E&P segment production will be similar to the second quarter," said Conoco CEO Jim Mulva in a prepared statement. "We expect full-year 2008 production will be consistent with our operating plan. We anticipate exploration expenses to be approximately $375 million for the quarter."

Conoco earned $774 million from its Lukoil joint venture during the quarter, up from $710 million in the first quarter and $526 million a year ago. Midstream segment earnings were $162 million in the quarter, up from $137 million last quarter and $102 million in last year's period.

The company also made money last quarter from refining and marketing operations, which have weighed heavily on the firm's performance the recent reporting periods. Net income last quarter was $664 million, up from $520 million last quarter, but far below the $2.4 billion it earned in refining in the second quarter of 2007.

Conoco said that although worldwide refining margins are improving, market prices for the secondary petroleum products such as fuel oil, natural gas liquids and petroleum coke that Conoco refines haven't kept pace with the input cost of crude oil.

More large oil producers will be reporting their results in the coming days, including

Exxon Mobil

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,

Chevron

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and

BP

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.