Major and diversified oil companies' liquids production grew 4.36% in the first quarter year-over-year but gas production fell 4.81%. On the strength mostly of higher commodity prices earnings rose 8.13%, on revenues that were 8.24% higher. ConocoPhillips' earnings were up almost 27%, and analysts say the company performed better than expected thanks mainly to the downstream segment, especially in the United States. Upstream, the company's liquids production was up 1.66% year-over-year, and its gas production was down 5.34%. Paul Y. Cheng, an analyst with Lehman Brothers, says he is concerned that the company may not be able to meet its production targets next year. "Although ConocoPhillips has done a remarkable job in executing its large merger over the past year and a half, we are concerned that it may not be able to hit its intermediate-term production growth target of 5% per year in 2005 and 2006. We also think the stock is fully valued following its sharp run-up since early 2003." Marathon Oil showed strong signs from its upstream segment, especially internationally. "We think the stock will react favorably as investors focus on management's upstream turnaround story, while attributing the poor downstream performance to a particularly heavy maintenance period," Cheng says. Marathon should be the best performer in the group during the next 12 months as management continues to execute on its upstream strategy, which is to reduce exposure in mature noncore areas and focus on high-return projects in growth areas, he adds. The company has divested assets in North America and purchased interests in West Africa and Russia, and 2004 represents a key execution year, he says. Jacques Rousseau, an analyst with Friedman Billings Ramsey, also says Marathon is a company to watch this year. "Marathon remains one of our top picks in the integrated-oils sector...," he says. Marathon's recent bid to buy out Marathon-Ashland Petroleum increases the company's overall earnings power and return on capital employed.