Source: ConocoPhillips.

ConocoPhillips (NYSE:COP) announced second-quarter results on July 31. The independent oil and gas giant reported earnings of $2.1 billion, or $1.67 per share. However, adjusted for one-time items, the company's second-quarter earnings were $1.61 per share, which was 14% higher than last year's second quarter. Despite that strong growth, investors sold the stock off -- it has fallen more than 4% since hitting a new 52-week high prior to releasing second-quarter results. That sell-off, however, might just be a buying opportunity, as the company's results are a very good indication to long-term investors that its strategic plan is delivering real results.  

Delivering growth that matters
Over the past year, ConocoPhillips' oil and gas production is up 6.5% after adjusting for the issues it's having in Libya. Of that growth, 2.5% came from reducing downtime, so the company's true growth was 4%. That growth, however, isn't simply growth for the sake of a higher number. The company has really focused its investments on its highest-margin projects. Because of that, ConocoPhillips is expected to grow both production and margins by 3%-5% each year through 2017, which should yield overall cash flow growth of about 6%-10% annually.

Leading the way is the company's high-margin U.S. shale position. ConocoPhillips has grown its production in the Eagle Ford and Bakken shale by 38% over the past year to an average of 208,000 barrels of oil equivalent, or BOE per day. That production delivers more than $40 per BOE in margin, which is among the best margins in the company's portfolio. This is why ConocoPhillips is investing 45% of its capital spending plan on these assets as well as LNG, which also delivers margins of $40 per BOE while only spending 5% of its capital on North American natural gas, which delivers margins of just $10-$15 per BOE. The focus on growing its highest-margin production is working, as the following slide indicates.

Source: ConocoPhillips Investor Presentation (link opens a PDF).

As the chart on the right-hand slide shows, the company has pushed its overall cash margin per barrel up from $28.58 to $29.28 over the past year when normalizing prices.

That number should continue to move higher as ConocoPhillips focuses on North American shale plays like the Bakken and Eagle Ford, where it expects to deliver 22% annual production growth through 2017. Because of that focus, as well as its investments in other high-margin projects, the company expects to produce $20 billion-$23 billion in annual cash flow by 2017. That's well ahead of the $15.8 billion the company produced last year. Needless to say, ConocoPhillips' growth will really move the needle.

Looking further afield
While ConocoPhillips' current plan takes it through 2017, it has its eye on growth beyond that date as it remains focused on finding high-margin assets to fuel future growth. The company is taking a balanced approach as it is searching out new shale plays in the U.S., Canada, Colombia, and Poland as well as looking for deepwater discoveries in the Gulf of Mexico, Canada, Angola, and Senegal.

The hope is the company's exploration program will find the next Eagle Ford or Bakken shale play as well as an offshore oil field that has the margins of Malaysia or the North Sea, which produce margins between $30 and $40 per BOE. Finding the next high-margin growth asset is a real key to the company's ability to grow beyond 2017. So far, the company has made a lot of progress on that front, having made several large discoveries in the Gulf of Mexico along with delivering promising well results in shale plays in the Permian Basin, Niobrara, and two Canadian shale plays. Because of this, the company's future results should continue to grow stronger with no end in sight.