ConocoPhillips' (NYSE: COP) strategy to buy back shares is proving to be a smart move. The third-largest integrated oil and gas company in U.S. -- gearing up to spin off its midstream and downstream segments into a separate entity -- is trimming its assets, and the results are there for everyone to see.

Trimming the flab
For the first quarter, net income stood at $2.9 billion, which is a tad lower than the $3.0 billion in the year-ago quarter. However, earnings per share clocked in at $2.27, a 9% improvement from $2.09 a year ago. Over the same period, revenue growth was flat despite lower production levels, thanks to higher crude oil prices.

However, I'm not too concerned with the production drop given the asset dispositions undertaken. Production in the first quarter fell 65,000 barrels of oil equivalent per day to 1.64 million Boe/d. Apart from asset dispositions worth $1.1 billion this quarter, the company lost out on production from the Peng Lai field off China. The field, in which Conoco holds a 49% stake with Chinese state-owned CNOOC (NYSE: CEO) holding the rest, is still limping back to full-scale production after a leak was detected last year. With a total production capacity of 122,000 Boe/d, the field was producing 40,000 Boe/d in the first quarter.

Conoco, however, claims that excluding these dispositions and the suspension of the Peng Lai operations, daily production did increase by 9,000 barrels. That's impressive. Production in the Eagle Ford, Bakken, and Permian shale plays has gone up and is expected to go up further. Additionally, the Canadian oil sands have witnessed a 5,000-barrel increase in daily production from last year's fourth quarter.

On the right track
I believe Conoco is on the right track in its quest to become an independent upstream company. The company is aiming to complete share repurchases of approximately $5 billion by the end of this year's second quarter. That, coupled with attractive prospects in North America, the North Sea, and Australia, should favor Conoco in the long run as it positions itself as a premier upstream company. Investors should keep an eye on the company.

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