Conocophillips Britannia Northsea

Britannia Satellites North Sea, U.K. Source: ConocoPhillips.

The world's largest independent oil and gas company delivered unexpectedly strong third-quarter results before the opening bell this morning. ConocoPhillips (NYSE:COP) reported adjusted earnings per share of $1.29, which was about a dime higher than analysts expected. The company also reiterated its guidance of 3%-5% production and margin growth over the next few years. Let's drill down a bit deeper on the quarter.

The numbers that matter
Despite weaker oil prices, ConocoPhillips reported third-quarter adjusted earnings of $1.6 billion, or $1.29 per share. These results were slightly weaker than the third quarter of last year, when the company earned $1.8 billion, or $1.47 per share. However, what is not reflected in this quarter's adjusted earnings is the gain the company recorded on the sale of its Nigerian business. If we add that back in, third-quarter earnings were $2.7 billion, or $2.17 per share, which was well ahead of last year's third quarter earnings of $2.5 billion, or $2 per share.

Fueling the company's stronger than expected income in the third quarter was the continued surge in production from the Eagle Ford and Bakken shale plays. Production in those two fields rose 33% from last year's third quarter.

  Eagleford Conocophillips

Eagle Ford shale drilling. Source: ConocoPhillips.

ConocoPhillips' production also benefited from the start-up of production at Foster Creek Phase F in the Canadian oil sands and the Britannia Long-Term Compression Project in the North Sea.

Overall, all of these developments pushed ConocoPhillips' production up to 1.473 million barrels of oil equivalent per day, or BOE/d. Adjusted for downtime, that represented a 4% increase over last year's third quarter, which was right in the middle of the company's target range.

Exploration update
Exploration for new sources of oil and gas is the lifeblood of companies like ConocoPhillips. The company noted some rather mixed results from that pursuit in the third quarter. The good news is that the company discovered a new working petroleum system offshore Senegal at the FAN-1 exploration well. The company isn't yet sure if the well will prove to be commercial, but the find is compelling enough to continue drilling in the region. 

Finding noncommercial oil is always a risk, and that's exactly what happened to the company's Coronado prospect in the Gulf of Mexico during the quarter. The prospect, which was discovered with Chevron (NYSE:CVX) and Anadarko (NYSE:APC) last year, proved not to be worth pursuing after further tests. The company expensed the initial wildcat well as nothing more than a dry hole. Still, ConocoPhillips has three other compelling prospects under appraisal and well over 2 million acres spread across the Gulf as it continues to explore for oil.

Conocophillips Gulf Of Mexico

Source: ConocoPhillips Investor Presentation.

The outlook
ConocoPhillips expects its strong growth to continue. The company began production from the Gumusut-Kakap floating production system in Malaysia earlier this month, and it expects to start production at Kebabangan before the end of the year. The addition of production from these two projects, when combined with continued growth from shale, is expected to push fourth-quarter production up to 1.545 million-1.575 million BOE/d.

This was a pretty strong quarter for ConocoPhillips. Its focus on high-margin oil production in U.S. shale plays, along with project start-ups, helped the company deliver stronger than expected earnings. The company expects these strong results to continue in the current quarter. Its focus remains on growing production that yields higher margins, which should enable the company to continue to deliver strong profitability amid weaker than expected oil prices.

Matt DiLallo owns shares of ConocoPhillips. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.