ConocoPhillips' (NYSE: COP) spinoff of its refining and marketing arm created lots of ripples. Investors were wary about the company's performance post-spinoff and are hoping for better figures. With third-quarter earnings lower than the year-ago period, Mr. Market might feel a little shaky.

A look at the numbers
Numbers can be deceptive. Although earnings for the quarter at $2.6 billion were down from $3 billion in the third quarter of 2010, if you eliminate the nonrecurring items -- which are primarily gain on asset dispositions and impairments -- Conoco's performance deserves applause. For the quarter, ConocoPhillips posted adjusted earnings of $3.5 billion or $2.52 a share, an increase of 68% compared with the same period last year. Exploration and production adjusted earnings grew by 46% to $2.19 billion for the quarter on the back of higher prices.

Leaky output
Conoco's production suffered in various regions, including Libya, China, the North Sea, Russia, and Alaska. This offset E&P revenues.

The production slide has been industrywide, engulfing even ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX). ExxonMobil experienced a 7% dip in production while Chevron's output went down to 2.6 million barrels of net oil equivalent from 2.74 million barrels per day in the previous year.

Global output declined 10% to 1.54 million barrels of oil equivalent per day versus the same period a year ago. This was primarily because of a decrease in BOE per day from Libya, Russia, and North America natural gas reserves.

Betting big on E&P
There is a silver lining, though; new production projects are around the corner. In the first nine months of 2011, the company spent $8.6 billion on E&P operations alone. This comprises 87% of its total expenditures for the nine months ending September 2011, up from 78% for the same period last year. I am also betting on the E&P sector since it will see robust growth in the future, thanks to huge gas reserves and the increasing demand for LNG around the world.

The company has new production coming from major projects, primarily higher-margin production from Qatar and the lower 48 in the United States. During the quarter, ConocoPhillips sanctioned the Australia Pacific LNG project. APLNG holds one of the largest coal seam gas reserve positions in Australia and is strategically located near Asia, a region with the highest demand for LNG. This is a great opportunity for the company to enhance its top line.

In exploration, the company enhanced its shale position and resumed deepwater Gulf of Mexico drilling activities. The Coker and Refinery Expansion project at the Wood River Refinery is expected to be complete by October. The CORE project will increase the refinery's crude capacity by 50,000 barrels per day.

R&M performance
Earnings from the refining and marketing business, which will start operating as a separate company next year, usually stay behind E&P earnings. But in the third quarter, R&M performed better than E&P. Refining and marketing adjusted earnings increased by 346% because of better R&M margins globally. If you compare it across the industry, you will find that R&M revenues of oil majors such as Exxon and Chevron also went up.  

Foolish takeaway
Investors should keep an open eye on this stock. ConocoPhillips is a company with a strong business model and has a solid footing around the globe. The company is continuously taking steps to operate as effectively and efficiently as possible. This combined with the impending spinoff should take ConocoPhillips to new heights.

To stay up to speed on how the monumental spinoff works out for ConocoPhillips, click here to add it to your stock watchlist.