Conoco, Oxy profits shrink, but beat the Street

NEW YORK (Reuters) - The steep drop in oil prices hammered ConocoPhillips (COP.N) and Occidental Petroleum (OXY.N) earnings down 80 percent, but they still managed to outshine Wall Street's dreary expectations.

Global economic weakness has cut demand for oil and ample amounts of crude in storage has helped send oil prices down 56 percent in the first quarter from the previous year.

The International Energy Agency expects global oil demand will fall by 3 percent in 2009, to 2.4 million barrels.

Still, Conoco's earnings of $840 million, or 56 cents per share, were welcomed by the market, which sent its shares 4.3 percent higher. Excluding charges, those earnings were 50 cents per share, topping analysts' forecast of 39 cents per share.

ConocoPhillips, the third-largest U.S. oil company, also said its oil and gas production would drop in the second quarter, and that its refineries would operate well below year-ago levels.

Helping its earnings was an increase in production to 1.93 million barrels of oil equivalent per day, up 58,000 BOE from the fourth quarter.

Conoco, which has said it had cut jobs and was reducing spending, "remains focused on maintaining operational excellence, implementing identified cost reduction initiatives, optimizing our capital program and progressing major development projects," Chief Executive Jim Mulva said.

Shares of Occidental, which posted earnings of $368 million, erased modest gains to slip about 0.6 percent. Its earnings per share of 50 cents easily topped analysts' forecast of 37 cents.

Occidental said it was negotiating with oilfield service companies to reduce costs by 20 percent to 25 percent, and expects the impact of this to be felt over the rest of 2009.

The Standard & Poor's energy index was up 1.1 percent, bringing its year-to-date loss to 10.3 percent.

DRILLERS HOLD FAST

Diamond Offshore Drilling Inc (DO.N), the world's No. 2 offshore driller, topped analysts' forecast with a 20 percent jump in quarterly profit as its fleet of floating rigs that operate in deep waters saw earnings rise, offsetting weakness in its shallow water jack-up rig business.

Diamond also maintained its special cash dividend of $1.875 per share, reassuring analysts that its cash flow remained strong. Its shares climbed more than 3 percent.

"Given the company's substantial exposure to the deepwater market, the large special dividend and the compelling valuation ... we continue to rate the stock an 'Outperform'," Macquarie Securities analyst Angie Sedita said in a note to investors.

Many oilfield service companies such as Halliburton (HAL.N) have seen their revenue and earnings suffer in recent months as the pullback in pricing has prompted energy producers to cut or slow spending on new projects.

National Oilwell Varco (NOV.N) said its earnings rose and topped analysts forecasts as its backlog of work compensated for declines in new orders, but a steep drop in pricing for land-based rigs was likely to trim margins through the end of the year. That pressured its shares 10 percent lower.

"It's a cyclical business that can bite and right now it's biting hard, but it never bites forever," Clay Williams, the company's chief financial officer told a conference call.

"2009 will continue to be very challenging. We're just glad that it's almost one-third over already," he added.

Driller Ensco International (ESV.N) said its average rates for its jack-up rigs rose in the first quarter from a year earlier, and it was preparing to start operations on the first of seven new deepwater rigs.

Ensco posted a 19 percent drop in first quarter profit, but still beat analysts' forecasts. Its shares slipped 1.5 percent.

(Reporting by Matt Daily, Anna Driver in Houston and Braden Reddall in San Francisco; editing by Patrick Fitzgibbons and Dave Zimmerman)