Tomahawk, WI 11/04/2013 (BasicsMedia) – ConocoPhillips (NYSE:COP) explores for, produces and markets crude oil and natural gas throughout the world. The company has a market cap of $89 billion, and its stock price is around $73.

On October 31, 2013 Conoco reported third quarter earnings. During the quarter, the company had revenues of $15.47 billion up from $15.09 billion in the third quarter of 2012. Conoco’s net income was $2.48 billion up from $1.8 billion in the prior year and its earnings per share came in at $1.47 up from $1.38 in 2012.

The Conoco Phillips Rebalancing Plan

Conoco is in the midst of a major portfolio rebalancing. It is abandoning its high risk foreign exploration projects for safer and more profitable projects back in the United States. Conoco is currently involved in deals to sell assets in Kazakhstan, Algeria, Nigeria, Indonesia and Libya. Oil production in these nations had not met expected levels due to civil unrest and political disruptions. All told the company expects to receive $9 billion from the sell of these asset sales.

Conoco is not the only U. S. exploration company that is abandoning risky foreign exploration projects. Other oil producers like Occidental Petroleum Corp. (OXY), Hess Corporation (HES) and Apache Corporation (APA) have also sold foreign assets in order to escape exposure from the conflict and political risk of third world countries. Conoco like its competitors, have come to realize that investing in projects like the shale oil fields of the U. S. can be more predictable and more profitable than investing abroad.

Conoco’s rebalancing plan seems to be working. During the quarter, the company’s production levels were just about flat, despite the fact that the company lowered its production forecast mainly because of “ongoing production disruptions” in Libya. The problems that the company is having in Libya reinforce the need for a rebalancing of its assets. During the third quarter Conoco did have some success in selling underperforming foreign assets. It sold its undeveloped Clyden oil sands leasehold in Canada to Exxon Mobil Corporation (NYSE:XOM) and Imperial Oil Limited (USA) (NYSEMKT:IMO). It was also able to complete the sale of its Phoenix Park assets which were located in Trinidad and Tobago.

Conoco’s Third Quarter Highlights

The success of Conoco’s U. S. assets were the highlight of the third quarter earnings call. The third quarter production reports from its Eagle Ford, Bakken, and Permian Basin shale deposit showed that oil production was 40% higher on a year over year basis.  The largest jump was in the Eagle Ford shale reserve where production was up 66% year over year.


During the third quarter Conoco increased its net income by a surprising 39% on a year over year basis. The company also made good progress in its plans to sell off under-producing assets. In addition to selling assets in Canada, Trinidad and Tobago, it closed a deal for the sale of its Kashagan business for about $5.4 billion on October 31st.

It appears that Conoco will be able to continue to sale assets and increase its U. S. oil production. This will enable the company to stay on track towards its goal of boosting production and margins by 3%-5% annually through 2017.  If Conoco can meet its production goals, its stock price which is up by over 25% over the last 52 weeks, should continue to rise. Conoco is a relatively safe investment with a hefty 3.74% dividend yield. I predict that it will reach $80 a share by the end of 2013, and I rate it as a buy.

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