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How ConocoPhillips Can Blow Past Its 52-Week High

Stocks in this article: COP CLR EOG

ConocoPhillips's acreage at Eagle Ford and Bakken lies in the geologic sweet spots of the plays. At Bakken, the company has around 600,000 net acres and has forecast drawing nearly 600 million barrels.

Earlier this month, the company increased its Eagle Ford shale resource base by 40% to 2.5 billion barrels of oil equivalent. ConocoPhillips has forecast production of 250,000 barrels of oil equivalents per day by 2017 from Eagle Ford, a significant increase from the current rate of 160,000 barrels per day.

Overall, ConocoPhillips is expecting recovery of 3.1 billion barrels of oil equivalents from Eagle Ford and Bakken. Both of these assets are heavily weighted towards oil, which represents 59% of the company's Eagle Ford product mix and 83% of Bakken product mix.

Investors should note that during an analyst meeting held earlier this month, ConocoPhillips's management said that they have just booked 20% of their unconventional reserves at Eagle Ford and Bakken. Therefore, ConocoPhillips will likely report more reserve upgrades from Eagle Ford and Bakken in the coming months. Eventually, once the entire acreage is booked, the company's asset base could climb by as much as five times.

Over the next four years, ConocoPhillips said it will spend a quarter of its capital budget on these two plays: $3 billion per year on Eagle Ford and $1 billion per year on Bakken. Subsequently, the company's output from Bakken and Eagle Ford is expected to double between 2013 and 2017.

In the meantime, other leading players in the Bakken and Eagle Ford are also expecting considerably higher production in the coming years. Bakken's largest leaseholder, Continental Resources (CLR), is on track to double its output by 2017. Similarly, Eagle Ford-focused EOG Resources (EOG) could continue to outperform its peers in terms of more than 30% annual growth of crude oil production.

Besides the unconventional plays, ConocoPhillips could also more than double its output from the Canadian oil sands between 2013 and 2017. Unlike other reserves, the development of oil sands requires significant upfront investment, but this is a high margin operation with very little decline rates.

ConocoPhillips expects to invest $800 million per year on oil sands, which will create a 21% increase in production, compounded annually, for the four years ending 2017. By then, ConocoPhillips will start generating $1 billion on free cash flow each year from oil sands.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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