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On Feb 22 we reaffirmed our long-term Neutral recommendation on ConocoPhillips (COP - Analyst Report) − a major U.S. exploration and production company. The reiteration was backed by the company’s better-than-expected fourth quarter 2012 results, initiatives toward liquids-rich plays and pipeline of projects. These were, however, partially dampened by a weak production level.

Why the Reiteration?

ConocoPhillips reported its fourth quarter financial results on Jan 30. Adjusted earnings came in at $1.43 per share, surpassing the Zacks Consensus Estimate of $1.41. Robust production of crude oil from high-margin areas like the Eagle Ford and Bakken supported the outperformance.

Moreover, ConocoPhillips’ initiatives toward liquids-rich plays are gaining momentum through the Eagle Ford, Bakken and North Barnett shale plays. During the fourth quarter, Eagle Ford and Bakken shale plays delivered significant results contributing 113 thousand BOE per day (MBOE/d) to the total production. This represents a 71% improvement from the year-ago level.

Eagle Ford production reached a key milestone of 100 MBOE/d during the fourth quarter and Bakken averaged 24 MBOE/d. In Canada and the lower 48 U.S. states, the percentage of liquids in production increased to 48% from 43% in the year-ago quarter.

The company remains on-track with major growth projects that are expected to offset production declines and diversify its portfolio. These projects include the Eagle Ford and Bakken plays, Canadian Oil Sands, the North Sea projects, APLNG and the Malaysian deepwater projects.

ConocoPhillips has completed around $12 billion worth asset sale of its total divestiture program. Although the generated proceeds are likely to offset the financing gap for 2013 to a great extent, it could adversely affect the production level.

The company managed to increase volumes marginally in the fourth quarter of 2012, however, the level dropped more than 2% in the full year. The decline was mainly due to the impact of divestitures. ConocoPhillips does not also expect meaningful production growth during 2013 based on asset dispositions and downtime in the North Sea.

We see no earnings momentum for the stock over the last 30 days for the first quarter of 2013. The Zacks Consensus Estimate for the first quarter is currently pegged at $1.42 per share, reflecting a year-over-year decrease of 29.6%. For full-year 2013, the Zacks Consensus Estimate is $5.43 per share, reflecting a year-over-year increase of 1.2%. Over the last 30 days, Zacks Consensus Estimate for 2013 has gone down by 3.5% from $5.62 per share.

Other Stocks to Consider

Currently, the shares of ConocoPhillips retain a Zacks Rank #3 (Hold).

However, there are certain other pipeline companies like Total SA (TOT - Analyst Report), Range Resources Corporation (RRC - Analyst Report) and PostRock Energy Corporation that offer value and are worth buying now. Total and PostRock sport a Zacks Rank #2 (Buy), while Range Resources carries a Zacks Rank #1 (Strong Buy).

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