ConocoPhillips , the third-largest U.S. oil company, on Wednesday said it will sell its entire stake in Russian oil major Lukoil in a bid to boost shareholder returns and reported better-than-expected quarterly profit.

The Houston company, which has a two-year plan to shrink debt by divesting $10 billion in assets, said it will sell 40 percent of its 20 percent stake in Lukoil back to the company for $3.44 billion. Conoco will sell the balance of its stake in open market transactions by the end of 2011, with proceeds going to share repurchases, the company said.

This is a positive because there was some question about them keeping half of their stake, Brian Youngberg, oil analyst with Edward Jones, said. While it has been a good investment for the company, it hasn't been a great investment and this move reduces the company's risk profile.

Previously, Conoco said it would sell half of its Lukoil shares.

Given the expected business environment and our stated strategy to enhance returns and increase distributions, we have made the decision to sell our entire stake in Lukoil, Jim Mulva, Conoco's chief executive, said in a statement.

Lukoil will use its own funds and an unsecured loan to repurchase the shares from Conoco, the company said.

Conoco's earnings were boosted by higher crude oil profit and its refining business. Margins to process fuels like diesel improved globally, the oil company said.

Conoco posted a second-quarter net profit of $4.2 billion, or $2.77 per share, compared with $859 million, or 57 cents per share a year earlier.

Excluding items, it earned $2.5 billion, or $1.67 per share. Analysts on average had expected a profit of $1.56 per share, according to Thomson Reuters I/B/E/S.

The company's refining unit had a profit of $736 million in the second quarter, up sharply from $20 million in the year-ago period. Profit in the oil and gas unit was $1.52 billion, up from $776 million a year earlier.

Oil and gas output in the quarter was 1.73 million barrels of oil equivalent (BOE) per day, down 7.5 percent from a year ago.

Conoco shares rose 23 cents to $54.71 in early trading on the New York Stock Exchange, outperforming a flat performance in the Chicago Board Options Exchange index of oil companies <.OIX>.

(Additional reporting by Dmitry Zhdannikov in Moscow, editing by Dave Zimmerman)