Hedges are a mixed blessing. Sure, they give you a measure of certainty around which you can plan and budget your business, but the trade-off for limiting your downside is that you generally also limit your upside. So even though 2005 was a year of sharp price increases in oil and natural gas prices, Amerada Hess (NYSE:AHC) didn't quite see all of the benefits.

Looking at Amerada's fourth quarter, though, revenue was still up more than 52% on solid results in both upstream operations (oil/gas production) and refining/marketing operations. Overall, companywide net income also nearly doubled.

In the upstream operations, net income jumped more than 41% despite a 9% drop in average daily production caused by the Gulf hurricanes and production declines in the North Sea area. Although prior hedging arrangements prevented Amerada from seeing the full benefit of the fourth quarter's higher oil prices, the company nevertheless did see 25% higher average prices, while realized natural gas prices more than doubled. In the marketing/refining business, earnings climbed about 146% on increases in both volumes and margins.

Amerada Hess has not historically been one of the top operators in the oil and gas sector, but the company does seem to be improving in meaningful ways. Though hedging stripped hundreds of millions of dollars of net income out of 2005 results, most of those hedges fall away in 2006, and the company should see a considerable jump in earnings.

Furthermore, although the company had some fairly unspectacular reserve replacement ratios in recent times, they too have improved. The company replaced 140% of its 2005 production and did so at a reasonable cost of $13.60 per barrel. Not all of this replacement was organic, and the company still has a reserve life of less than nine years, but progress is progress. What's more, the company has projected an increase in average daily production for the next year on the order of 10% or more.

Unfortunately for value hounds, these improvements have not gone unnoticed. While high energy prices should continue to be good news for pretty much any and every oil and gas company, I'd rather look in the direction of Canadian Natural Resources (NYSE:CNQ), XTO Energy (NYSE:XTO), or Occidental Petroleum (NYSE:OXY) today.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).