WRAPUP 4-Conoco, Occidental profits rise with oil prices

Wed Jan 26, 2011 5:02pm EST

* Conoco results in line with Wall Street view

* Hess Q4 profit lower, misses Street view

* Oxy Q4 output short of target, spending higher

* Oxy to boost 2011 capex by 50 pct, Conoco's up 30 pct

* Occidental shares flat; Conoco, Hess higher (Adds investor comment, Conoco CFO interview)

By Anna Driver and Braden Reddall

HOUSTON/SAN FRANCISCO, Jan 26 (Reuters) - ConocoPhillips (COP.N) and Occidental Petroleum (OXY.N) reported higher profits on a rise in oil prices, spurring hefty investments in drilling that may lead to higher equipment and service costs.

Shares of Conoco, the third-largest U.S. oil company, rose 3 percent as it promised more stock buybacks. Rival Occidental's were flat as its production disappointed investors and it outlined big spending plans for 2011.

Oil prices spiked in the past year, with the U.S. benchmark averaging $85 per barrel in the fourth quarter, up 12 percent from a year earlier. Global crude demand rose in 2010 and could grow by 1.5 percent in 2011, according to a January report from the U.S. Energy Information Administration.

This year and next will be good for oil and the companies that produce it, said Hodges Capital Management oil analyst Mike Breard. "The impression is that the bigger companies are going to have bigger budgets," he said. "They have decided that higher oil prices are here to stay."

Conoco plans 2011 capital expenditures of about $13 billion, up more than 30 percent, while Occidental plans to boost spending this year by more than half to $6.1 billion.

Occidental is a handy way to bet on oil, according to Stephen Davis of Alpine Mutual Funds, who believes the oil prices depend on whether the economy in China, the world's fastest-growing fuel market, slows gently or not.

"If China has a soft landing, oil will be $110-$115 in 12 months," Davis said.

Still, rising costs remain a worry given the aggressive spending plans. Both Hess Corp (HES.N), which also reported results on Wednesday, and Occidental saw higher expenses dent their fourth-quarter exploration profits.

Oilfield services companies have said that some of their U.S.-based equipment is "sold out," with more in development, but not ready to deploy.

An Oxy executive spoke of cost pressure for certain rigs in its Texas and New Mexico acreage, while Conoco Chief Financia Officer Jeff Sheets, in an interview with Reuters, pointed to rising costs in hot areas like Texas's Eagle Ford shale and North Dakota's Bakken shale. [ID:nN26294098]

The oil-rich Bakken has seen a race for development in response to pricier crude, and Alpine's Davis noted that Hess had an advantage of establishing itself there decades ago.

"They've locked in a lot of their costs, which is going to be a big issue for the Bakken producers," Davis said. "When everyone else is scrambling for equipment, they will have it locked up."

MORE BUYBACKS FOR CONOCO

Conoco's (COP.N) profit rose 54 percent, 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 buying back shares, cutting debt and selling assets, said it would spend most of its $10.4 billion in cash and short-term investments on more buybacks. [ID:nN26278783]

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

Conoco generated $15.4 billion in proceeds in 2010 from sales -- $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.

For Los Angeles-based Occidental, quarterly earnings rose 29 percent from a year ago to $1.21 billion. [ID:nN26288380]

Hess's earnings, which missed estimates, were hurt by a charge to cut capacity at its Hovensa refinery in St. Croix, and charges for two failed wells off Brazil. [ID:nN26279887]

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 and Hess shares both rose about 3 percent, while Occidental's stock was a few cents lower at $97.09. (Additional reporting by Matt Daily in New York and Braden Reddall in San Francisco. Editing by Maureen Bavdek, John Wallace and Robert MacMillan)