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TheStreet Open House

How ConocoPhillips Can Blow Past Its 52-Week High

Stocks in this article: COP CLR EOG

NEW YORK (TheStreet) -- ConocoPhillips (COP - Get Report), the world's largest independent energy producer, is looking to higher-margin production to get bigger.

Over the next four years, ConocoPhillips expects to increase its output at a compounded annual growth rate of between 3% and 5%. This will be driven by 20% per year growth in output from the Eagle Ford, Bakken and the Canadian oil sands at the same time it cuts its lower-margin gas output by an average of 6% per year through 2017.

During this period, the company said it will spend nearly $16 billion each year on capital expenditures, 95% of which will flow towards lucrative projects with margins of more than $30 per barrel. Moreover, 30% of its annual capital budget will go towards the development of its assets in the Eagle Ford, Bakken and Canadian oil sands.

As a result, the company wants to expand its margins by between 3% and 5% every year through 2017. This will also lead towards average annual cash margin growth of between 6% and 10%.

ConocoPhillips will release its results for the first quarter on May 1. Its shares, currently around $74, are up over 29% in the last 12 months and nearly 5% for the year to date. Although shares are trading close to 52-week high of $74.95, they are priced just 11.5 times trailing earnings, lower than the industry's average of 14.8 times, according to data compiled by Thomson Reuters. So they can easily blow past the current high as the company ramps up its efforts.

For the first quarter of 2014, ConocoPhillips has forecast production from continuing operations of 1.5 million barrels of oil equivalents, a 2% increase from the previous quarter. The production growth, however, can be offset from the planned downtime as it works on some of its newer projects. Overall, the company has planned 20% more downtime in 2014 than 2013.

For the full fiscal year, analysts are expecting earnings of $6.02 per share, according to data compiled by Thomson Reuters, an increase from adjusted earnings of $5.70 per share in 2013.

Over the last three years, ConocoPhillips has been able to significantly grow its reserve base through exploration and production, as opposed to acquisitions. This is evident in its three-year average organic reserve replacement ratio of 151%. The company's reserve base now stands at 8.9 billion barrels of oil equivalents.

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