Of the three remaining US-based supermajor oil companies, Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP), Conoco has surfaced as the one facing the most serious problems going forward. Today the company announced its plans for “creating and delivering value to our shareholders,” according to the company’s chairman and CEO.

Conoco’s plan includes the following actions:

• Asset sales
• Debt reduction
• Enhanced return on capital employed
• Increased dividends
• Share buybacks

The headline news is Conoco’s sale of half its 20% share in Russia’s OAO LUKOIL. In addition, the company will sell an additional $10 billion in exploration assets. Some of the proceeds from the asset sales will be used to reduce debt, but the company did not give a specific number.

As of the end of December, Conoco’s long-term debt totaled nearly $27 billion, almost three times more than Chevron and nearly four times as much as Exxon. Conoco’s debt is mostly the result of its 2005 $35.6 billion purchase of Burlington Resources.

Conoco’s clear objective, based on today’s news, is to dress up its balance sheet and to hold on to its investors while it does so.

The company plans to sell about $10 billion worth of assets in 2010 and 2011, approximately $5 billion worth per year. The sale of half its stake in LUKOIL could bring in another $5 billion.

Conoco is also banking on a recovery in natural gas prices and in refining margins to bump up its return on capital. That’s not all, though. The company also expects to improve its returns “by continuous improvement in operating efficiencies, constrained capital expenditures, reduced operating costs, and a shift in the company’s portfolio to 85 percent E&P over time.” The company’s current upstream operations represent about two-thirds of Conoco’s portfolio.

Conoco officials did not say exactly how the company could sell of producing assets, reduce capital expenditure, and, at the same time, increase its per share production growth by 3% this year and 3%-5% in succeeding years. That’s where the $5 billion share buyback comes in.

The company also expects to move 10 billion barrels of oil equivalent from the resources column to the reserves column, which it says would grow production by 2%-3%. That could be true, but Conoco didn’t offer any details, nor did it specify how it planned to make the investment necessary to make that gain at the same time that it plans to “constrain” capital expenditures.

Conoco’s enormous debt load has significantly affected both the company’s prospects and the decisions it is forced to make going forward. The company essentially admits in its statement today that its earlier plan to fund capital expenditures from operating cash flow is not going to happen. Here’s the sentence: “Significant cash flow is expected to be generated from operating activities, the sale of 10 percent of LUKOIL, and asset sales over the next two years.”

Conoco reported $12.5 billion in cash flow from operations in 2009. Capital expenditures came in at almost $11 billion. That doesn’t leave much to pay, and in fact increase, dividends. Conoco has no choice but to shed assets as it tries to buy time to turn is operations around.

What Conoco is proposing to do over the next two years could in fact turn the company around. But a lot depends on factors that are really beyond the Conoco’s control. Can it really convert 10 billion barrels of resources into reserves? Can it shed its remaining marketing assets for a decent price? Can it generate enough cash to reduce its crushing debt? None of these is a slam dunk.

Tell us what you think here.

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