Conocophillips · NYSE:COP
Conocophillips — Merger or Acquisition (September 2004)
35 slides from Conocophillips's merger presentation, Sep 30, 2004
Slide 1: September 30, 2004 Investor Supplement
September 30, 2004 Investor Supplement
Slide 2: Cautionary Statement
Cautionary Statement CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The following presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Sec
Slide 3: Agenda
Transaction Overview Investment Rationale LUKOIL - The Right Partner Summary of Deal Terms Equity Component Asset Component Impact to ConocoPhillips Agenda
Slide 4: Transaction Overview
Transaction Overview ConocoPhillips becomes strategic equity investor in LUKOIL ConocoPhillips is permitted to acquire up to 20% of LUKOIL equity capital pursuant to a comprehensive Shareholder Agreement Near-term target of 10% Acquired 7.6% of LUKOIL equity capital through government privatization
Slide 5: Transaction Structure
Transaction Structure Russian Asset JV Russian Gov't $382 MM $2.0 B 7.6% LUKOIL Equity Capital W. Qurna Field Equity in LUKOIL Tender / Market Purchases 2.4% LUKOIL Equity Capital $0.6 B Upstream Cooperation 30.0% Timan- Pechora Assets 17.5% 70.0% Note: $382 million for assets excludes ConocoPhillip
Slide 6: Ranking Total Reserves
Ranking Total Reserves 18 17 331.9 Russia 15 3 297.3 Saudi Arabia 17.6 5.8 225.1 Iran 17.2 3.2 133.2 UAE 15 6 130.8 Iraq 16.15 4.5 105.3 Kuwait 8 10.2 101.3 Venezuela 16.3 3.5 78.8 Qatar 5 13.5 51.6 US 11.7 9.7 43.2 Nigeria 12.6 12.4 37.2 Libya 11.5 12.5 35.8 Algeria 5 11.5 33.3 Mexico 18.5 12.8 32.
Slide 7: Investment Background
Investment Background Russia has vast resource potential A leader in reserves and production Accessible by private industry Not subject to OPEC constraints Russia has increasing access to export markets LUKOIL is the leading international oil and gas company in Russia Provides access to reserves at
Slide 8: Strategic Fit
Profitably grow reserves and production Build new legacy positions Secure major reserve positions Optimize legacy businesses (production efficiency & cost improvement) Strategic Fit ConocoPhillips Strategy Transaction Result Investment in substantial reserves and resources at attractive price and me
Slide 9: Enhanced Upstream Portfolio
Enhanced Upstream Portfolio Note: ConocoPhillips reserves are year-end 2003 Proved Reserves for major producing areas only. LUKOIL portfolio net to ConocoPhillips reflects 10% of 8 BBOE. Excludes resources associated with asset component (i.e., 30% interest in Timan-Pechora joint venture). Existing
Slide 10: LUKOIL Assets
LUKOIL Assets Moscow Murmansk Perm Refinery (240 MBOPD) Ukhta Refinery (74 MBOPD) Odessa Refinery (72 MBOPD) Burgas Refinery (214 MBOPD) Western Siberia 8,421 MMBO 1,285 BCF 68% of production Volga - Urals 2,455 MMBO 730 BCF 17% of production Caspian & Int'l. 932 MMBO 8,075 BCF 1% of production Tima
Slide 11: LUKOIL 2003 Reported Results
LUKOIL 2003 Reported Results Net Income 3,701 Cash from Operations 2,936 Capital Expenditures 3,018 Return on Average Capital Employed (%) 18.9 Finding and Development Costs ($/BOE) $2.15 $ millions unless otherwise noted Source: LUKOIL 2003 Annual Report and J. S. Herold Appraisal Report of 9-14-04
Slide 12: LUKOIL Reserves and Production
LUKOIL Reserves and Production LUKOIL Yukos TNK-BP Surgut Sibneft Tatneft 1.636 1.61917808 1.276 1.08 0.63 0.52 0.092 0.091187 0.073 0.22 0.03 0.02 1.728 1.7103653 1.349 1.31 0.66 0.54 LUKOIL Yukos TNK-BP Surgut Tatneft Sibneft 15.977 14.7 9 6.642 5.97 4.62 4.07883 1.3 0 1.968 0.25 0.16 20.056 16 9
Slide 13: LUKOIL Growth Profile
LUKOIL Growth Profile BP LUKOIL ENI TOT COP XOM CVX 2003 Production 1.597 1.606 Incremental Production 0.26 0.164615 2006E Production 1.857 1.7706 CAGR 0.07 0.05 0.05 0.04 0.03 0.03 0.025 Medium-Term Production CAGR Source: Company investor presentations. LUKOIL growth rate is only for oil productio
Slide 14: Significant Downstream Presence
Significant Downstream Presence Attractive margins due to proximity to Europe and export outlets Seven refineries; net capacity over 1 MMBOPD 4,600 service stations in Russia & E. Europe; ~2,000 in the NE US Total Refining Capacity LUKOIL 814 356 Yukos 1159 TNK-BP 865 Sibneft 475 Surgut 336 Source:
Slide 15: Summary of Deal Terms: Equity Component
Russian Asset JV Russian Gov't $382 MM $2.0 B 7.6% LUKOIL Equity Capital W. Qurna Field LUKOIL Equity in LUKOIL Tender / Market Purchases 2.4% LUKOIL Equity Capital $0.6 B Upstream Cooperation 30.0% Timan- Pechora Assets 17.5% 70.0% Summary of Deal Terms Equity Component
Slide 16: Equity Ownership
Equity Ownership ConocoPhillips may acquire up to 20% of LUKOIL equity capital; 10% near-term target; Equity accounting treatment assumed Acquisition Price / Methods Acquired 7.6% at government auction for $2.0 B; Additional 2.4% by tender or open market purchases; Future market purchases at ConocoP
Slide 17: Enhanced Governance: Board Representation
Board Representation ConocoPhillips to have proportionate Board representation; Extraordinary General Meeting to elect new directors Key Decisions Proposed Charter Amendments will provide for unanimous director consent for certain key decisions, designed to protect ConocoPhillips' investment Enhance
Slide 18: Charter Amendments
LUKOIL to seek Charter Amendments requiring unanimous Board approval for: Charter Amendments Subsequent changes to matters requiring unanimous Board consent under the LUKOIL charter Equity Issuances New share issuances exceeding 10% of LUKOIL's outstanding share capital in any 12-month period Extrao
Slide 19: Summary of Deal Terms: Asset Component
Summary of Deal Terms Asset Component Asset Component Asset Component Russian Asset JV Russian Gov't $382 MM $2.0 B 7.6% LUKOIL Equity Capital W. Qurna Field Equity in LUKOIL Tender / Market Purchases 2.4% LUKOIL Equity Capital $0.6 B Upstream Cooperation 30.0% Timan- Pechora Assets 17.5% 70.0% Note
Slide 20: Northern Timan-Pechora JV Assets Acquired
Assets Acquired ConocoPhillips to acquire 30% interest in Russian JV and Area of Mutual Interest covering current and future licenses in Northern Timan-Pechora Region Effective Date Asset deal effective when 7.6% of LUKOIL equity capital acquired at auction Completion Date Closing will occur upon re
Slide 21: ConocoPhillips LUKOIL JV Organization Chart
ConocoPhillips LUKOIL JV Organization Chart Note: DGD - Deputy General Director.
Slide 22: Northern Timan-Pechora JV
Northern Timan-Pechora JV SPE proved oil reserves of 1.2 BBO gross* Current production of 10,000 BOPD gross First new production expected in 2007; increases to ~200 MBOPD by 2008-2011 Over 4 MM acres Exported through expanded terminal at Varandey MOSCOW Existing ConocoPhillips Joint Venture (Polar L
Slide 23: Timan-Pechora JV Net Production
Timan-Pechora JV Net Production 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2003 Production 1.597 1.606 4.5 5.1 6.4 14.9 53.9 55.9 57.4 60.9 61.5 60.5 59.1 $1.5B net capital over next 10 years Net SPE proved reserves 374 MMBO Expected 500+ MMBO upside resource potential Note: Net numbers
Slide 24: West Qurna
West Qurna - 2 Source: Wood Mackenzie 2004. Turkey Saudi Arabia Iraq Syria Kuwait City Basra Rumailah FIeld West Qurna Baghdad Potential extension of giant 22 BBOE Rumailah Field LUKOIL and ConocoPhillips to jointly pursue West Qurna - 2 PSA in Iraq Subject to confirmation from the Iraqi government
Slide 25: Impact on ConocoPhillips: Strategic Fit
Profitably grow reserves and production Build new legacy positions Secure major reserve positions Optimize legacy businesses (production efficiency & cost improvement) Strategic Fit Impact on ConocoPhillips ConocoPhillips Strategy Transaction Result Investment in substantial reserves and resources a
Slide 26: Transaction Metrics
Transaction Metrics Transaction Value / BOE ConocoPhillips / LUKOIL $3.74 $1.28 TNK - BP $4.05 $1.77 BP / Slavneft $5.48 $3.42 Yukos / Sibneft $6.18 $3.00 Source for precedent transactions: J. S. Herold, with Transaction Value including both upstream and downstream operations. Note: Assumes purchase
Slide 27: Enhances ConocoPhillips Production Growth
Enhances ConocoPhillips Production Growth Source: Company data. Note: ConocoPhillips estimates include Syncrude and equity affiliates; LUKOIL estimates include oil only. 2003 production adjusted for dispositions. 2004 includes three months of 10% of LUKOIL; 2005-06 includes 10% of LUKOIL for full ye
Slide 28: Impact on ConocoPhillips Key Financial Metrics
Impact on ConocoPhillips Key Financial Metrics Source: Estimates per Wall Street consensus (9/24/04) and ConocoPhillips balance sheet data as of 06/30/04. Assumes purchase price of $2.6 B funded with debt financed at 3%, LUKOIL effective tax rate of 29%, and LUKOIL dividend payout ratio of 20%. Cono
Slide 29: Impact of LUKOIL Net Income on ConocoPhillips Financial Results
Impact of LUKOIL Net Income on ConocoPhillips Financial Results LUKOIL Net Income - First Call Consensus 3,760 3,096 ConocoPhillips' 10% Share 376 310 Incremental DD&A from Purchase Accounting Write-up (77) (68) Incremental DD&A Adjusting Reserves from SPE to SEC (47) (41) Tax on Dividends Paid to C
Slide 30: Potential for Significant Reserve Additions
Potential for Significant Reserve Additions Est. SEC proved License Extensions / Dev. Plans LUKOIL SPE proved reserves Probable & Possible Total Resources 8 West 3 8 North 3 20.1 9.1 20.1 15.3 35.4 2003 2010+ Source: LUKOIL 2003 annual report. Note: SEC proved reserve range based on ConocoPhillips e
Slide 31: Reserves and Production
Reserves and Production Note: Reserves are YE 2003 numbers; Expected reserve increase is based on 10% of 8 BBOE. Production is actual 2003 BOEPD average. *Pro forma assumes 10% equity investment in LUKOIL and equity accounting. OECD Russia Other non-OECD 2003 Year End 5690 825 2114 Pro Forma* Reserv
Slide 32: Debt/Capital Ratios
1/1/2003 YE 2003 YE 2004 pro forma Equity 30.74 32.66 34.62 Debt Debt 22.6 17.8 15.5 1/1/2003 YE 2003 YE 2004 pro forma Equity 30 35 40 Debt Debt / Cap Ratio 0.39 Equity $ B Balance sheet debt $ B 1/1/2003 YE 2003 YE 2004 pro forma Debt to capital ratio % Debt/Capital Ratios Includes $3.0B Total Tra
Slide 33: Compelling Strategic Opportunity
Compelling Strategic Opportunity Strategic position in resource-rich company with substantial upside Leading Russian international oil and gas company 20.1 BBOE SPE proved reserves - 95% in Russia Major player in Timan-Pechora and Caspian growth areas Ability to influence and drive improvements Char
Slide 34: Appendix
Appendix 34
Slide 35: 2004 Return on Capital Employed Adjusted for Purchase Accounting
2004 Return on Capital Employed Adjusted for Purchase Accounting Note: ConocoPhillips 2004 Net Income is based on First Call Consensus as of 9/24/04. Actual 1Q and 2Q results subtracted from First Call to estimate 3Q and 4Q net income. Minority interest and interest expense for 2004 based on annuali
ConocoPhillips — Merger or Acquisition (September 2004) on 6ix