MORGAN STANLEY RESEARCH

CONOCOPHILLIPS (COP.N): EARNINGS STRONG; MAINTAIN OVERWEIGHT

Strong 1Q Results: COP's Q1 2006 EPS of $2.34/share was in line consensus expectations. We are maintaining our 2006, 2007 and mid-cycle EPS estimates at $9.15/share, $8.75/share and $6.20/share, respectively.

E&P Results Strong: Results in E&P exceeded expectations as higher production combined with rising prices for petroleum to more than offset higher costs. Results in R&M were below expectations due to turnarounds, but offset by stronger results in Midstream and Chemicals.

COP, MRO and XOM Favorites: Integrated Oils COP (O, PT $80), MRO (O, PT $87) and XOM (O, PT $78) represent our top picks in the sector.

Maintain Attractive View on Integrated Oils and R&M: Integrated Oils appear 15% undervalued based on normalized returns on capital. Independent R&M represents the best value per unit of return in Energy.