ConocoPhillips , the third largest U.S. oil company, said on Wednesday fourth-quarter earnings fell 13% on lower natural gas prices and shrinking gasoline margins, but beat recently reduced Wall Street expectations.
The Houston-based company also said it expects its oil and gas production to drop in the first quarter from fourth quarter levels.
Net income fell to $3.2 billion, or $1.91 a share, from $3.68 billion, or $2.61 a share, a year earlier.
The results included impairment charges of 17 cents a share. Excluding these charges, the company earned $2.08 a share.
Revenue fell 19% to $41.5 billion from $51.3 billion a year ago.
According to Thomson Financial, analyst were looking for a profit of $1.95 a share. That estimate, which typically excludes charges, had been reduced by analysts after the company announced weaker-than-expected production for the quarter earlier this month.
"Earnings have peaked, at least temporarily, unless commodity prices rebound to higher levels," said Howard Weil analyst Gene Gillespie.
The drop in profit -- the first since late 2002 -- came as U.S. oil prices retreated from a more than four-year bull market.
"I think the street was too bearish on the downstream operations," said Mercantile Trust energy analyst Gene Pisasale, using the industry term to refer to the company's refining and marketing operations. "If you look at the numbers, year-over-year the street was expecting them to be down 27% and margins weren't down nearly that much."
ConocoPhillips said it produced 2.49 million barrels of oil equivalent per day (boepd) in the quarter, including about 440,000 boepd from its stake in Russia's Lukoil.
The price the company received for its crude oil in the quarter was $55.10, up from $53.05 in the year earlier quarter. Its average gas price fell to $6.12 per thousand cubic feet, down from $7.94 per thousand cubic feet in 2005.
It said it expects first-quarter production to slip from those levels, hurt by downtime in the North Sea, OPEC production quota reductions in Venezuela and Libya, and other factors.
The company said that the currently announced quotas, if carried through until the end of the quarter, will hurt first-quarter production by about 30,000 boepd.
ConocoPhillips said its refineries operated at about 94% of capacity in the quarter. It expects its refineries to also run in the mid-90% range in the first quarter.
The company said its refining margins for gasoline in the United States fell to $11.39 per barrel from $12.71 per barrel in 2005. International refining margins fell to $6.22 per barrel in the quarter from $8.95 per barrel in the year-earlier period.
U.S. oil prices fell sharply toward the end of the third quarter and spent much of the fourth quarter hovering around $60 a barrel, roughly in line with year-earlier prices. U.S. crude has again dropped sharply in the first quarter, trading at around $55 a barrel.
Since the end of the third quarter, ConocoPhillips shares are up about 8.7%, outperforming the CBOE oil index, which rose about 7% in the same period.
ConocoPhillips expects to repurchase about $750 million of its stock in the first quarter.