ConocoPhillips' (NYSE:COP) fourth quarter and full-year earnings rose on thicker margins due to better volume-mix. The company's production from continued operations, adjusted for asset dispositions and disruptions in Libya, for the full year grew marginally by 1% year-on-year. While price realizations remained largely flat, adjusted diluted earnings per share (EPS) of $5.70 grew more than 6% y-o-y. The company expects its 2014 full-year production volume to be 3-5% higher than 2013 levels. 
We currently have a $79 price estimate for ConocoPhillips, which is around 20% above its current market price. We will be soon updating our price estimate based on the recent earnings announcement.
Better Volume Mix Drives Thicker Margins
ConocoPhillips' volume-mix improved on higher proportion of liquids as production growth mostly came from the liquids-rich unconventional plays in the Lower 48 and oil sands in Canada. The company's 2013 full-year production from continuing operations grew by 30 thousand barrels of oil equivalent per day (MBOED), net of field declines. Although not substantial, the growth in production came from the right areas, which boosted its operating margins.
In North America, where natural gas prices are heavily depressed compared to international markets, the company's natural gas production declined by 16 MBOED, while liquids production from the Lower 48 and Canada increased by 49 and 21 MBOED, respectively. This boosted ConocoPhillips' 2013 cash margins by almost $3 to $28.55 per barrel of oil equivalent (BOE). It should be noted that this improvement in cash margins came at a time when average price realizations remained largely flat y-o-y. 
Going forward, we expect ConocoPhillips' cash margins to expand further as the company continues to work on the development of the liquids-rich shale plays in the Lower 48. Liquids now represent over 50% of the total hydrocarbons produced from the Lower 48 region, compared to just over 45% at the end of 2012, and their production has been growing steadily over the last few quarters. In 2013, crude oil production from the Lower 48 region grew by 24% y-o-y, while total hydrocarbon production from the region increased by just around 7%. ConocoPhillips expects the ongoing development activities in the Lower 48 region to boost its production volume by ~365 thousand barrels of oil equivalent per day (MBOED) by 2017. 
Restructuring, New Project Updates
ConocoPhillips' plans to boost its total production volume by ~400 MBOED by 2017 from strategically aligned new projects. The company recently started production from the Jasmine gas and condensate field in the "J-Block" area of the central U.K. North Sea. Earlier in 2013, it also announced the start-up of its Canadian oil sands Christina Lake Phase E project and the Ekofisk South in Norway. (See: ConocoPhillips' European Assets To Boost Earnings Growth Next Year) During the fourth quarter earnings call, ConocoPhillips announced that the Siakap North-Petai (NYSE:SNP) and the Gumusut projects in Malaysia are expected to start production in the first half of this year. Other new projects lined up for 2014 start-up include the KBB platform to support the Kebabangan gas field development in Malaysia, the Foster Creek Phase F project in Canada and the Britannia Long-Term Compression project in Europe. 
ConocoPhillips also took up a major strategic restructuring of its portfolio in 2012 as it decided to increase its focus on projects based in regions with stable governments and predictable regulatory frameworks such as North America and Australia, in order to reduce its operational risks. As a part of this restructuring program, the company announced transactions involving disposition of non-strategic assets worth over $14 billion. During the fourth quarter earnings call, ConocoPhillips announced that it successfully closed deals worth over $10 billion in 2013, and that apart from the sale of Nigerian oil fields, which is expected to generate $1.8 billion, all other transactions announced as a part of this restructuring process are complete.