ConocoPhillips' decision to shrink the company by selling off billions in assets starting two years ago contributed to an 18 percent drop in profits during the second quarter this year, though the results still beat expectations.
The Houston oil and natural gas company on Wednesday reported earnings of $3.4 billion, or $2.41 per share, for the April-June period. That compares with $4.2 billion, or $2.77 per share, for the same part of 2010 when Conoco reported $2.9 billion in asset sales.
Revenue increased 34 percent to $67 billion.
Analysts expected earnings of $2.20 per share on revenue of $57.9 billion, according to FactSet.
Conoco has been aggressively reshaping its business since 2009, selling billions of dollars in mostly international assets that haven't been as profitable as others, while snapping up untapped fields in North America. The company also announced earlier this month that it would follow rival Marathon Oil and split into two companies: one that focuses on exploration and production, and another that refines oil into gasoline and other fuels.
"We believe our investors will see significant long-term benefit from this repositioning," Jim Mulva, Conoco's Chairman and CEO, said.
Conoco plans to release more details about the split, including who will lead each company, later this year.
Wall Street has cheered the company's moves, though asset sales have reduced the company's global oil production as crude prices have risen. Oil and gas production dropped 25 percent year-over-year to 1.64 million barrels of oil equivalent per day. During that time, oil prices rose 46 percent to an average $103.90 per barrel and natural gas prices climbed 20 percent to $5.50 per 1,000 cubic feet.
Although shrinking the company may cut into profits, Oppenheimer & Co. analyst Fadel Gheit said it still makes sense. As oil prices rise, Gheit said, international oil fields aren't worth as much to U.S. companies like Conoco as their fields in the U.S. Foreign countries generally charge higher royalties, he said, and many require oil companies to cut back on production as prices rise.
"Once oil prices go over $60 per barrel, most of the upside goes to the (foreign) government, not the oil company," Gheit said.
When the split is complete next year, Conoco will be a smaller independent oil producer that's focused on extracting oil in the U.S., Gheit said. "They're going to go back to their roots," he said.
Earnings dropped 39 percent to $2.52 billion at Conoco's exploration and production operation.
Meanwhile, Conoco's refining business reported $766 million in earnings compared with a $279 million loss a year ago, due to higher prices for gasoline, diesel, jet fuel and other refined products. Earnings rose 44 percent to $199 million at Conoco's chemicals business, as well.
Shares fell 48 cents to close at $73.13 Wednesday.