ConocoPhillips (NYSE:COP) is scheduled to announce its third quarter earnings on October 31. Average West Texas Intermediate (WTI) oil prices have been up ~15% year-on-year during the third quarter and will boost crude oil revenues. On the other hand, average natural gas spot prices during the third quarter have been approximately 25% higher than in the prior year’s quarter, which will have a positive impact on revenues from the spot sales of natural gas.
We expect ConocoPhillips to post higher liquids (crude oil and natural gas liquids) production volume during the quarter, primarily due to the ramp up of its Lower 48 operations in the U.S. We will also be looking for an update on the company’s major new projects and ongoing restructuring program aimed at improving overall profitability.
Our $70 price estimate for ConocoPhillips is almost in line with its current market price.
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Lower 48 To Boost Production
ConocoPhillips’ Lower 48 business is organized within four regions covering the Gulf Coast, Mid-Continent, Rockies and San Juan. Combined with Latin America, it contributes ~30% to the company’s total production volume.  We expect ongoing field development activities at liquids-rich plays in the Eagle Ford, Bakken and the Permian basin to deliver strong production growth during the third quarter. Production from these plays grew by 47% y-o-y during the second quarter. The company also reported that it had as many as 11 rigs operating at both the Bakken as well as the Eagle Ford plays at the end of the second quarter. 
The production of liquids from the Lower 48, which now represent ~50% of total hydrocarbons produced by the segment, has been growing steadily over the last few quarters. It grew by 19% during the first six months of the year. Because of its liquid-rich reserves, production growth from the Lower 48 segment not only boosts ConocoPhillips’ net production volume, but it also improves the company’s operating margins. This is also the reason why the company spent almost 40% of its total capital expenditures on the Lower 48 segment during the first six months of this year. 
Project, Restructuring Updates
ConocoPhillips plans to boost its total production volume by ~400 MBOED by 2017 from the strategically aligned new projects. We will be looking for an update on the company’s ongoing development programs and new projects slated for start-up this year. ConocoPhillips announced the start-up of its Canadian oil sands Christina Lake Phase E project and the Ekofisk South in Norway recently. Other projects slated for this year include Jasmine in the U.K., and SNP and the Gumusut projects in Malaysia. 
We will also be looking for an update on the ongoing restructuring program at ConocoPhillips, which is aimed at increasing its focus on the development of higher margin, lower risk projects. The company has announced asset sales in Algeria, Nigeria and Kazakhstan and Trinidad & Tobago, to focus on projects based in regions with stable governments and predictable regulatory frameworks such as North America and Australia. ConocoPhillips also announced the sale of its Clyden oil sands leasehold in Canada, to focus on the development of higher margin shale reserves in the U.S. As a part of this restructuring program, the company has announced transactions involving nonstrategic assets worth over $14 billion. However, proceeds of more than $10 billion were still to be received by the end of the second quarter. Notes: