ConocoPhillips (NYSE:COP) reported fourth-quarter earnings today, and as expected, profits and realized oil prices both fell. But lower prices may not be the major integrated oil company's biggest problem.

In the fourth quarter, ConocoPhillips earned $3.2 billion, or $1.91 per diluted share, on $41.5 billion in revenues. In the year-ago quarter, it had earned $3.7 billion, or $2.61 per diluted share, on $51.3 billion in revenues. The largest drag on profits came from the U.S. exploration and production (E&P) operations, which fell $453 million sequentially; management blamed bad weather in Alaska for the shortfall.

How did lower oil prices affect the company? Management didn't provide year-over-year info, but they did compare this quarter to the previous one. The worldwide realized price of a barrel of oil dropped $9.94 to $55.10 from the third quarter, and the crack spread for refining also dropped $2.71 to $11.39 per barrel. These price changes, changes in margins, and other market impacts reduced earnings by $1.2 billion from the third quarter of 2006.

While this significant slump in profitability can be a frustrating part of operating in the energy industry, it's a dilemma shared by all participants there. ConocoPhillips's greater concern may be its dearth of organic reserve replacement. The company announced earlier in the month that it added 2.5 billion barrels of oil equivalent (BOE) to its proven reserves by the end of fiscal 2006. However, 2.4 billion of those came from acquisitions.

In the conference call, CEO Jim Mulva had a simple response to this unwelcome news: It's going to be lumpy. Mulva recommended viewing ConocoPhillips' organic reserve replacement on a rolling five-year average, which he stated has increased by 65%. That would amount to a compounded average growth rate of 10.5%. Unfortunately, since the oil company has already guided down its capital budget for fiscal 2007, it's becoming evident that ConocoPhillips is having trouble replacing its reserves at reasonable cost levels. This doesn't bode well for the company's ability to match its higher long-term growth rate of reserve replacements by developing existing properties.

ConocoPhillips might resume healthy growth in its reserves without acquisitions. But if it can't, it will struggle to compete profitably with major rivals ExxonMobil (NYSE:XOM), BP (NYSE:BP), and Chevron (NYSE:CVX). From a shareholder perspective, that would mean less cash to return to its investors or plow into increased growth projects. This might be much ado about nothing, but for now, I think it warrants increased scrutiny.

For related Foolishness:

Fool contributor Matthew Crews welcomes your feedback -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy.