Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

ConocoPhillips (COP) Is Setting a New Standard for Big Oil

It’s been a month since the three biggest U.S.-based oil and gas producers told us about their second quarters. As you know, the results from Exxon Mobil Corporation (NYSE:XOM), the kingpin, were especially disappointing, given a 57% year-over-year free fall in earnings.

ConocoPhillips (NYSE:COP)

However, the third-largest member of the trio, ConocoPhillips (NYSE:COP), saw its adjusted earnings catapult by about 20%, in the process topping the consensus expectation by fully $0.12 a share. The primary reasons for the differences? The Houston-based company is in the final stages of a major restructuring that’s allowed it to jettison its occasionally erratic downstream operations, eliminate upstream properties that no longer fit its proverbial pistol, and focus on plays with the highest potential, both at home and abroad.

Please take these stations
As you know, nigh onto 18 months ago, ConocoPhillips (NYSE:COP) gifted its shareholders with a spinoff of its refining and marking operations. The result was the creation of Phillips 66 , which became the corporate home of 15 refineries, 10,000 branded marketing outlets, and 15,000 miles of pipeline. Phillips shares have been good to their holders, advancing by more than 70% since the company’s birth.

At the same time, Conoco has been actively pruning its upstream assets. In the process it’s added billions of dollars to its balance sheet and induced more than a little head scratching among energy investors. Many in that group had long accepted the integrated approach as a perfectly acceptable way for major oil and gas companies to conduct their businesses.

Far fatter margins
ConocoPhillips (NYSE:COP) hasn’t stopped at laying a comparative earnings hit on Exxon Mobil Corporation (NYSE:XOM) during reporting season. If you examine the two big companies’ results over the past four quarters you’ll note that the newly independent producer has chalked up an average operating margin of 24.6%, more than twice that of its bigger, integrated Texas neighbor.

I’m attributing that startling differential primarily to two factors: First, while Phillips 66 shares have obviously done nicely since they were created, that company’s operating margins barely top a 3% 12-month average. Obviously, then, Conoco has benefited by no longer being dragged down by puny downstream returns. And second, the company has been levitated by having trimmed marginal properties and pushed increased capital at those that are more promising.

Pruning properties
In early 2013, ConocoPhillips (NYSE:COP) unloaded its Cedar Creek Anticline properties to enhanced oil recovery specialist Denbury Resources Inc. (NYSE:DNR) for $1.7 billion.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.