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ConocoPhillips (COP) is the largest independent E&P company based on production and proved reserves. ConocoPhillips is also one of the more shareholder friendly companies out there, with its large dividend and share buybacks. Since its spin-off of its refining segment Phillips 66 (PSX) in 2012, ConocoPhillips has been rebalancing its asset portfolio, and moving towards lower risk areas. As of quarter-end, ConocoPhillips' quarterly dividend was $0.66 per share, for a dividend yield of about 4.40%.

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ConocoPhillips is funding this shift via asset dispositions. ConocoPhillips has already announced 4 major transactions that total more than $9.6B. These assets that ConocoPhillips has disposed of were seen by the company as being non-strategic, due to low margins, and or being in high-risk areas. ConocoPhillips plans to deploy these funds to higher margin projects, mostly in North America.

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ConocoPhillips shareholders have recently received some very good news. On March 19, ConocoPhillips announced a significant oil discovery from a deepwater well drilled in the Gulf of Mexico. According to the press release, this discovery could be a major event, as the well may have a large economic impact. Below is the relevant quote:

ConocoPhillips today announced a significant oil discovery from its recently drilled Shenandoah appraisal in the deepwater Gulf of Mexico. The WR51-2 Shenandoah appraisal well encountered more than 1,000 feet of net pay in high-quality Lower Tertiary-aged reservoirs.

"The potential of the Shenandoah discovery, combined with very positive indicators of hydrocarbons in the nearby Coronado well, further strengthens our position in the Lower Tertiary Play," said Larry Archibald, senior vice president, Exploration. "We believe this discovery could be material and, together with the doubling of our deepwater Gulf of Mexico acreage position in the last two years, reinforces our global exploration strategy of getting into the right plays early in their life-cycle. Today's announcement is an important first step in demonstrating our ability to grow a high-value Gulf of Mexico portfolio through organic exploration."

The Shenandoah appraisal well, located in Walker Ridge Block 51, was drilled to a total depth of 31,405 feet in approximately 5,800 feet of water. The well was about one mile southwest and approximately 1,700 feet structurally down-dip from the 2009 Shenandoah-1 discovery well. Log and pressure data collected in the Shenandoah-2 well indicate high-quality reservoir and fluid properties similar to those encountered in the discovery well. Logs indicate that the targeted Lower Tertiary sands were full to base with hydrocarbons and there was no evidence of an oil-water contact. ConocoPhillips holds a 30 percent working interest in Shenandoah. Other co-owners are Anadarko Petroleum Corporation (NYSE: APC), 30 percent working interest and operator; Cobalt International Energy, L.P. (NYSE: CIE), 20 percent; Marathon Oil Company (NYSE: MRO), 10 percent; and Venari Offshore LLC, 10 percent.

As if this good news were not enough, a few days later, on March 25, ConocoPhillips announced another major oil discovery in the Gulf of Mexico:

ConocoPhillips today announced another oil discovery in the deepwater Gulf of Mexico. The WR98-1 Coronado wildcat exploration well encountered more than 400 feet of net pay. On March 19, 2013, ConocoPhillips announced an oil discovery at the nearby WR51-2 Shenandoah appraisal well that encountered more than 1,000 feet of net pay in high-quality Lower Tertiary-aged reservoirs. ConocoPhillips holds a 30 percent working interest in Shenandoah.

The Coronado well, located in Walker Ridge Block 98, was drilled to a total depth of 31,866 feet, in 6,127 feet of water. The well is located approximately 190 miles off the coast of Louisiana and approximately 12 miles southeast of the Shenandoah discovery. Results from the Coronado well are still being evaluated, and additional appraisal will be needed to determine the full extent of the resource. ConocoPhillips holds a 35 percent working interest in Coronado. Other co-owners are Chevron Corporation (NYSE: CVX), 40 percent working interest and operator; a subsidiary of Anadarko Petroleum Corporation , 15 percent; and Venari Offshore LLC, 10 percent.

Even though ConocoPhillips holds a 30% and 35% working interest in these wells, these discoveries seem to have been a needle mover, as ConocoPhillips' stock had initially risen about 2% on news of the announcements, though the stock has given back some of the gain since then. Some of the other co-owners of the wells also saw their stocks rise, with Anadarko Petroleum rising 3%, Cobalt International rising 8%, though Marathon Oil declined 3.60% and Chevron was flat.

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These discoveries are not the only thing ConocoPhillips has going for it. ConocoPhillips is also shifting a large amount of its capex to mostly U.S.-based development projects. ConocoPhillips has targeted 45% of its capital spending be deployed to developmental projects through 2017. ConocoPhillips is targeting production from these projects of about 600 MBOED by 2017, with 60% of this production growth coming from the lower 48 states.

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These new investments should drive forward ConocoPhillips' margins and production. Total production is expected to grow 3-5%, from a current 1.2 MMBOED to an estimated 1.9 MMBOED by 2017. By 2017, these projects are expected to add about $6B of incremental cash flow for ConocoPhillips. By 2017, ConocoPhillips plans to have shifted its assets primarily to oil, oil sands, and other liquids.

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Conclusion

In my opinion, ConocoPhillips is making all the right moves. It is getting rid of low-margin, high-risk assets, that are quite frankly, mostly located in the middle of nowhere, and focusing on proven North American liquids-rich energy plays. In terms of risk-reward, ConocoPhillips has relatively low-risk, and offers low medium to high long-term returns. While hardly an exciting stock, ConocoPhillips is paying you to wait, with its current 4.4% yield. I would add to ConocoPhillips on any major pullback.

Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.

Source: ConocoPhillips Is Making All The Right Moves