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ConocoPhillips has a sustainable business model. The company has been able to provide superior returns to its investors over the years along with the certainty that it will continue providing such returns. The company offers a solid dividend yield of almost 4%, which reflects the payout ratio of 40%. In addition, the company is also determined to increase the production with a CAGR of 3-5% by 2017. It shall be desirable to take a look at the company's ongoing projects to figure out whether or not the steps taken by the company would lead it to meet the production target.

ConocoPhillips is the world's largest exploration and production E&P based on production and proved reserves. The figure below demonstrates the proved reserves of the company as of the latest disclosure.

Source: Company's Presentation

Historical performance

The third quarter performance is marked with increased earnings of 40% mainly due to higher commodity prices and greater production. The increase in production was due to new production from major developments mainly from the Lower 48 and Latin America.

During the quarter, income from the Lower 48 and Latin America increased by 174% compared to the results of the same quarter of the previous year. This also includes after tax gains on the disposition of Conoco's investment in Phoenix Park amounting to nearly $288 million. Similarly, income from the Canadian operations were also profitable mainly due to a $461 million after tax gain on the disposition of Clyden undeveloped oil sands.

The disposal of unprofitable businesses from its operations will remove the extra burden on the company's operations. The disposing of unproductive assets will not only result in cost efficiencies but will also allow the company to spend more capital expenditures on the company's more profitable and efficient operations. Now let us take a quick overview of the company's priorities with regards to spending its capital budget in 2014.

Capital Spending Priorities

ConocoPhillips (NYSE:COP) has refocused its capital budget to grow production from its assets in North America. It announced a 2014 capital budget of $16.7 billion and also affirms production growth target. The company aimed to spend 55% of the budget in North America while 45% of the budget was allocated for Europe, Asia Pacific and other International businesses. The breakdown of the 2014 Capex budget, category wise, is as follows:

The company aims to spend 90% of the development drilling program's budget in North America, particularly in the Eagle Ford. It shall be desirable to conduct a thorough analysis of 2014's capital budget.

Eagle Ford

COP has increased its investment in the company's successful drilling program in Eagle Ford, Bakken and Permian. Eagle Ford is the company's highest quality of unconventional play. During the third quarter of 2013, the company reported an increased production from the eagle shale by 66%. Due to the abundant resources, the company planned to drill around 140 wells in the region by the end of the current year which will be translated into the production growth of CAGR 16% by 2017. Moreover, the company is expecting that the production from this region will account for 60% of the future production.

Geographical Diversification

In addition to Eagle Ford, Permian and Bakken, the company is also expecting to add 400 MBOED by 2017. The company has diversified its market exposure as it has brought lower risk geographies and geologies to its production. The breakdown of additional production coupled with the geographical location is given below.

Source: Company's Presentation at Bank of America

The chart above represents the contribution of each country to the net production by 2017.

Jasmine Field Start up In Line to Achieve Production Target

The company announced production startups and first gas from the Jasmine field in the United Kingdom. The startup represents another important milestone for the company. Going forward, the company expects net production of approximately 40,000 barrels of oil equivalent per day. With the production of Jasmine field the company is on track to achieve the annual production growth target of 3 to 5 percent through 2017.

Conclusion

The company's growth projects are progressing well and are focused in the right direction to meet the production target of 400 MBOED by 2017. In addition, Eagle Ford, Bakken and Permian are also well positioned to deliver record production.

During the quarter, the company reported a higher cash margin by more than $3 per barrel compared to last year. While I believe that going forward the margin will further improve as the company continues to increase production from the liquid-rich shale plays. Having said so, I expect that the company is on track to grow production by the targeted CAGR of 3-5% in 2017. Similarly, the capital expenditures are intelligently allocated and reflect the company's future progress.

With the current dividend yield of 4%, the company seems to be an attractive investment opportunity for income-seeking investors while with the ongoing growth projects, I expect that there is an ample opportunity for growth-seeking investors as well.

Source: ConocoPhillips: On Track To Meet Production Target