ConocoPhillips · NYSE:COP
ConocoPhillips — Sanford C. Bernstein Strategic Decisions Conference 2010
56 slides from ConocoPhillips's conference presentation, Jun 3, 2010
Slide 1: Sanford C. Bernstein Strategic Decisions Conference
Sanford C. Bernstein Strategic Decisions Conference Jim Mulva Chairman & Chief Executive Officer June 3, 2010 New York, New York
Slide 2: Economic and Political Environment
Economic and Political Environment Long‐term demand for hydrocarbons expected to increase Near‐term energy demand increasing as economy recovers Near‐term U.S. natural gas surplus, strong worldwide natural gas demand growth Refining margins challenged near term Difficult political environm
Slide 3: Demand for Hydrocarbons
Demand for Hydrocarbons World Energy Demand World Oil Demand 350 Renewables 120 Developing Million Barrels Oil Equivalent per Day Nuclear OECD 300 Coal 100 Natural Gas Million Barrels Oil per Day Oil 250 80 200 60 150 40 100 20 50 0 0 2000 2015 2030 2000 2015 2030 Fossil fuels will still be 80% of t
Slide 4: Challenging Political Environment
Challenging Political Environment Increased fiscal take, higher taxes Climate change policy uncertainty Increased regulatory burden Restricted access Fuel‐specific mandates Gulf of Mexico Macondo incident Facing an increasing political headwind 3
Slide 5: Constrained IOC Access
Constrained IOC Access Reserves Today Many large resource countries Reserves held by not accessible by IOCs NOC reserves Russian companies (equity access) Some large resources 8% accessible at unattractive Full IOC 12% access terms 7% Worldwide competition from NOCs expanding outside host 73%
Slide 6: ConocoPhillips Today
ConocoPhillips Today $88 B Capital Employed International, integrated, major oil and gas company 7% • ~50 BBOE captured resources 25% E&P 64% • 10 BBOE reserves R&M LUKOIL Chemicals • 2.3 MBOED production Midstream Emerging Business • 3.0 MMBPD refining capacity Geographic Capital Employed Uniqu
Slide 7: Challenges for ConocoPhillips
Challenges for ConocoPhillips Exposure to N. America natural gas and refining Current ROCE below peer average Debt levels above target range Trading at discount to peer group Competition for new resources Balancing growth vs. returns 6
Slide 8: Strategic Options
Strategic Options Emphasize absolute production growth • Fully invest in available opportunities • Accept incremental projects with marginal economics • Higher leverage, no share repurchases Significant restructuring • Divest or spin out of significant business lines • Sale of legacy assets high
Slide 9: Key Strategic Objectives
Key Strategic Objectives Upstream • Exploit captured resource base • 100%+ organic reserve replacement • Grow production / share • Strengthen exploration results • Reduce operating costs • Improve returns on capital Downstream • Portfolio management • Margin enhancement • Reduce operating cost •
Slide 10: Near Term Initiatives
Near Term Initiatives Constrain capital program to highest return projects Execute $10 B two‐year asset sales program Reduce LUKOIL interest from 20% to 10% Reduce debt ratio to 20% Picture Increase distributions to shareholders Continue reducing costs $20 B available for share repurchas
Slide 11: Growth in Returns
Growth in Returns Improve portfolio via asset Capital Efficiency ‐ ROCE and CROCI sales program 25% ROCE CROCI Constrain capital / invest at 20% competitive F&D costs 15% Maximize asset uptime 10% Reduce operating costs 5% Modest increase in market 0% 2009 2012 2009 2012 returns Improved r
Slide 12: Asset Sales Program
Asset Sales Program $10 B two‐year program 2010 Potential Dispositions Asset Mix: Syncrude (9% interest) • $6 ‐ $8 B Exploration & Production • $2 ‐ $4 B Refining, Midstream, Other REX Pipeline (25% interest) 10% of Lower 48, Western Key Criteria: Canada gas portfolio • Lack of strategic fit R
Slide 13: LUKOIL – Sale of 10% Interest
LUKOIL – Sale of 10% Interest Maintain strategic alliance Maintain board representation / equity accounting Initiated open market sales in April 2010 Complete over 2010/2011 Tax efficient Proceeds used for share repurchase program 12
Slide 14: Optimizing Debt Level
Optimizing Debt Level Net‐Debt‐to‐Capital Ratio 35% Target 20% near term 30% 25% 20% Achieve 15% longer term 15% 10% 5% 90% fixed‐rate debt 0% COP TOT BP RDS CVX XOM 5.6% pre‐tax interest rate Rating A AA AA AA+ AA AAA Improving financial flexibility Fixed rate debt ratio and pre‐tax interes
Slide 15: Annual Dividend Increases
Annual Dividend Increases COP Quarterly Dividend Growth Eight consecutive annual Quarterly dividend (cents/share) 55 increases w th 50 gro 47 d l iz e a nnu a 41 Current Yield = 4.4% 3.5 % 1 36 31 25 <20% of operating cash flow 22 20 Annual increases expected '02 '03 '04 '05 '06 '07 '08 '09
Slide 16: Distributions – 2004 to 2009
Distributions – 2004 to 2009 Total Distributions as % of Cash From Operations 100% Net Share Repurchase 90% Dividends 80% 70% 60% 50% Peer Average = 45% 40% 30% 20% 10% 0% COP CVX TOT RDS BP XOM Capacity to increase distributions Source: Company filings. 15
Slide 17: 2010 / 2011 Sources and Uses of Cash
2010 / 2011 Sources and Uses of Cash $B 60 50 5 40 10 24 30 6 5–8 20 35 5 7 – 10 10 20 0 Cash From Asset Sales Capital Available Debt Share Remaining Operations & LUKOIL Program & Cash Reduction Repurchase Cash Dividends Cash from operations estimated as 2x 2010 First Call estimates 16
Slide 18: Continued Reduction in Costs
Continued Reduction in Costs Controllable Costs – $B Targeted Reductions – $B 14% Reduction ’08 to ‘09 7% operational + 7% market 15 1.0 2010 Goal +5% operational reduction Corporate 0.5 Downstream Upstream 10 0.0 2010 Controllable Interest Expense Cost Reductions Reductions** 5 2008 2009 2010 Targe
Slide 19: E&P Overview
E&P Overview Alaska North Sea Russia / Caspian 270 MBOED 390 MBOED 50 MBOED 6.0 BBOE Canada 2.3 BBOE 1.6 BBOE 290 MBOED 20.1 BBOE Lower 48 490 MBOED 4.4 BBOE Asia Pacific 170 MBOED 2.1 BBOE Total 2009 Production 1.85 MMBOED Middle East & Africa Australia 43 BBOE Resource Base 100 MBOED 90 MBOED 3.1
Slide 20: E&P Cash Margins - $/BOE
E&P Cash Margins ‐ $/BOE 1‐year 3‐year 5‐year 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 CVX COP TOT BP RDS XOM CVX COP XOM TOT BP RDS COP CVX XOM TOT RDS BP Consistent delivery of top quartile margins Cash contribution is calculated as income plus DD&A based on total BOE production. All compan
Slide 21: Discovered Resource
Discovered Resource YE2009 Resource by Product ‐ BBOE YE2009 Resource by Region ‐ BBOE Russia Middle East Caspian & Africa Asia Pacific Lower 48 Gas Alaska 37% Australia North Sea Liquids 63% Canada Arctic Canada Canada SAGD Gas Canada Syncrude 43 BBOE resource with long‐life, low‐decline assets Exc
Slide 22: Proved Reserves Replacement
Proved Reserves Replacement Reserves Replacement ‐ % 2010 ‐ 2014 Reserve Additions 200% Russia Exploration Caspian Middle East & Africa 150% Lower 48 Alaska Asia Pacific 100% Australia 50% North Sea Canada 0% 2005 ‐ 2009 2009 2010E ‐ 2014E F&D ($/BOE) 16.42 10.07 ~15.00 Reserves replacement >100% at
Slide 23: Production & Reserves Growth
Production & Reserves Growth Production ‐ MBOED Proved Reserves ‐ BBOE 2.5 Liquids Gas Dispositions 12 2014E 5‐yr avg. RRR >100 % 10 2.0 Dispositions LNG 8 LNG 1.5 Gas 6 Gas 1.0 4 Heavy oil Heavy oil 0.5 2 Oil Oil 0.0 0 2008 2009 2010E 2014E 2019E 2009 2014E Excludes LUKOIL. 22
Slide 24: E&P Production per Share Growth
E&P Production per Share Growth 0.56 BOE Production / share Returns focus creates short‐ term production plateau 0.52 Share repurchases create near‐term production per 0.48 share growth 0.44 Long‐term production growth 0.40 2008 2009 2010 2011 2012 2013 2014 Share repurchases accelerate per sh
Slide 25: 2010 E&P Capital Program
2010 E&P Capital Program Capital ‐ $B Major Projects 12 10 Other FCCL 8 partnership 6 Kashagan Surmont 2 Jasmine, 4 Clair Ridge & GEA2 2 Qatargas 3 0 APLNG 2008 2009 2010 Bohai II Malaysia Maintenance Major projects Exploitation 1 Exploration L48 & Canada exploration1 Incremental $0.5 B Focusing on
Slide 26: L48 & W Canada Portfolio Advantages
L48 & W Canada Portfolio Advantages Net Acreage Positions – 000’s 22 MM net acres with extensive optionality and limited lease expiries Horn River 100 2.5 BBOE net proved reserves Montney 170 WCG Deep (85% proved developed) Basin 3,3001 ~30% of liquids production by Bakken volume 240 Signifi
Slide 27: L48 & W Canada Capital Programs
L48 & W Canada Capital Programs 2010 Capital Spend = $1.9 B1 2010 Production ~630 MBOED Offshore GOM Offshore GOM Bakken Other Panhandle Barnett Eagle Ford & other WCG conventional Permian Permian Eagle Ford WCG Other conventional San Juan Lobo San Juan Other Bakken Other Lobo WCG Deep Deep Basin Ba
Slide 28: Western Canada
Western Canada Brit Cash Margins ‐ $/BOE is h Co lum bia Horn River Albert 80 a Saskatchew an Northern Plains 60 40 $36 Montney Elmworth $14 $19 Deep Basin Grand Prairie 20 Kaybob Edson 0 1 Central Plains 2008 2009 2010E O’Chiese 2 O&O Taxes & other Cash Southern Plains Production3 ‐ MBOED 250 1.4
Slide 29: San Juan
San Juan Cash Margins ‐ $/BOE 80 60 40 $23 20 $17 $11 0 1 2008 2009 2010E 2 O&O Taxes & other Cash Gas Oil COP leasehold Production ‐ MBOED Largest consolidated acreage position 250 and producer in basin 200 150 24% 24% 24% 1.5 BBOE resource with ~2,500 low cost, 100 low risk drilling opportunit
Slide 30: Permian
Permian Cash Margins ‐ $/BOE 80 60 $36 40 $30 $22 20 0 1 2008 2009 2010E 2 O&O Taxes & other Cash Gas Oil COP leasehold Production ‐ MBOED Long‐life cash flow generation from 100 low decline, high liquids production 80 60 Large HBP3 leasehold of 1.1 MM acres 40 60% 61% 62% 20 0 0.5 BBOE net un
Slide 31: Eagle Ford
Eagle Ford Capital ‐ $ MM Austin Chalk 800 Incremental 600 400 Reallocated1 200 0 2010 2011 2012 Gas Oil COP leasehold Production ‐ MBOED Premier shale play acquired at ~$300/ac 25 20 68% Well results exceeding expectations 15 68% 10 5 Operated rig count increasing to 6 ‐ 8 68% 0 2010 2011 201
Slide 32: Bakken
Bakken Cash Margins ‐ $ / BOE 80 60 $52 $45 40 $32 20 COP minerals 0 1 2008 2009 2010E 2 O&O Taxes & other Cash Gas Oil COP leasehold Production ‐ MBOED Continued robust well results 25 20 COP operated rig count increasing to 5 15 10 86% 86% 5 87% 0.4 BBOE resource; ~1,700 well inventory 0 201
Slide 33: L48 & W Canada Resource Plays
L48 & W Canada Resource Plays Cost of service ($/MMbtu)1 COP acreage Other resource plays 10 1,300 M acres 3,300 M acres 170 M acres 240 M acres2 100 M acres 8 6 4 2 0 r le ie s r e ey an s 2) lle sin 3) M h g M a ko ie ve llu ga nc ur as m vil ar CB 1& tn CB vi Ju ss er Ba ar Ri ce ea W nb ko M rd
Slide 34: L48 & W Canada Value Proposition
L48 & W Canada Value Proposition Portfolio Returns (CROCI1) 30% 1.4 Generate cash for global growth Cash Contribution 1.2 25% 1.0 Provide capital optionality Indexed (2010 = 1) 0.8 CROCI 20% Capital Invested Deliver competitive returns 0.6 0.4 15% Exploit resource plays 30% 31% 33% 0.2 32% 1
Slide 35: Canadian SAGD Production Growth
Canadian SAGD Production Growth MBOED (NBR)1 MBOED (NBR)1 140 2007 to 2014 350 2007 to 2019 Saleski CAGR ~20% CAGR ~20% (WI 100%) 120 Syncrude 300 (WI 9.03%) 100 250 80 200 Thornbury Surmont (WI100%) (WI 50%) 60 150 40 Christina Lake 100 Surmont (WI 50%) 4.7 20 50 0 Clyden 0 Clyden (WI 100%) 2007 (W
Slide 36: Australia Pacific LNG
Australia Pacific LNG APLNG Resource Maturation ‐ TCF Over 8 MM gross acres 35 30 LNG marketing progressing 25 3 LNG trains & existing contracts1 20 2 LNG trains & existing contracts1 15 Proposed Australian tax 10 Total 3P reserves creates uncertainty 5 0 Transaction YE2009 YE2014E Proved Prob
Slide 37: Exploration
Exploration 2009 Results 2010 Exploration Spending – $1.3B1 • Poseidon and Tiber significant discoveries • Resource additions exceeded 2009 production ILX2 & other • Step change improvement in finding costs Building deeper portfolio focused on material Appraisal exploration opportunities • Kazak
Slide 38: 2010 Exploration & Appraisal Activity
2010 Exploration & Appraisal Activity Alaska Chukchi Sea: Environmental North Atlantic & Europe and drilling studies UK & Norway: Central Graben HPHT Mid‐Norway Eastern Canada: Laurentian basin Poland: Shale gas North America onshore Horn River Basin Caspian Sea Eagle Ford, Bakken, Bar
Slide 39: Gulf of Mexico
Gulf of Mexico COP Leases COP Producing Assets COP Exploration Activity ~1% of COP 2009 production COP Refining Assets Lake Charles Alliance DEEPWATER HORIZON Drilling moratorium LOOP New regulations Magnolia Shenandoah Ursa K2 Tiber ConocoPhillips direct impacts Coronado 80 miles CONOCOPHIL
Slide 40: Downstream Improvement Initiatives
Downstream Improvement Initiatives 2008 Solomon Operating Cost Peer Ranking Reduce operating expenses Alliance • Material, service and s Billings supply costs ent Borger vem Ferndale • Streamline organization m pro Humber gI Dr iv in Lake Charles • Energy efficiency San Francisco Melaka MiRO • Tec
Slide 41: Downstream Portfolio Management
Downstream Portfolio Management Asset sales Asset Sales1 ‐ $B • $5 B+ of assets sold since 2003 1.6 • $1 B in asset sales in 2010 1.2 • Evaluating further dispositions 0.8 0.4 Implement portfolio options at 0.0 the right time and value 2003 2004 2005 2006 2007 2008 2009 2010E • COP refinery comb
Slide 42: Taking Decisive Action
Taking Decisive Action Sell assets and reduce debt Increase ROCE / CROCI 10 BBOE resources to reserves in 10 years Grow production per share 3% per year Increase distributions Closing the valuation gap 41
Slide 43: Appendix
Sanford C. Bernstein Strategic Decisions Conference Appendix June 3, 2010 New York, New York
Slide 44: 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, as amended and Section 21E of the Securities E
Slide 45: Definitions
Definitions RESOURCE The company uses the term “resources” in this presentation. The company has estimated its total resources based on a system developed by the Society of Petroleum Engineers. The system classifies recoverable hydrocarbons into six categories based on their status at the time of re
Slide 46: 2010 Sensitivities
2010 Sensitivities $MM $1/BBL Crude Worldwide E&P 150 Worldwide R&M (fixed (fixed & & other other co‐products) co‐products) (20) Net Crude Impact 130 $1/MMBtu Natural Gas Worldwide E&P 600 Worldwide R&M (utilities) (utilities) (100) Net Gas Impact 500 $1/BBL Gulf Coast Crack Refining Margins (95% (9
Slide 47: 2010 Other Drivers
2010 Other Drivers Selected Items Estimates Pre‐Tax Expense Estimates Corporate: $1.2 B (after‐tax) Turnaround costs: $0.5 B Pension funding: $0.7 B Exploration expenses1: $1.3 B • US: $0.5 B DD&A: $9.2 B • Int’l: $0.2 B 1 Includes dry hole and lease impairment costs 46
Slide 48: COP Non-GAAP Reconciliations
COP Non‐GAAP Reconciliations Consolidated COP 2008 2009 Earnings (loss) $ (16,998) 4,858 Less: Goodwill impairment 25,443 - LUKOIL investment impairment 7,410 - Impairments - other 1,292 729 Net gain on asset sales/share issuance (814) (175) Severance accruals 99 (40) Adjusted earnings $ 16,432 5,37
Slide 49: COP Non-GAAP Reconciliations
COP Non‐GAAP Reconciliations 2005 2006 2007 2008 2009 1 GAAP R&M U.S. Net Income - $MM 3,329 3,915 4,615 1,540 (192) GAAP R&M U.S. Net Income - $ / BBL 3.31 3.95 4.96 1.76 (0.22) non-core earnings impacts - $MM gains and (losses) on asset dispositions 16 121 32 asset impairments (227) (12) (370) (11
Slide 50: COP Non-GAAP Reconciliations
COP Non‐GAAP Reconciliations Consolidated COP 2009 GAAP ROCE 6% non-core earnings impacts - $MM gains and (losses) on asset dispositions 87 asset impairments (729) tax legislation / regulatory / other 26 ROCE 7% Consolidated COP 2009 GAAP CFOA - $MM 12,479 GAAP cash interest payments - $MM 998 GAAP
Slide 51: COP Non-GAAP Reconciliations
COP Non‐GAAP Reconciliations Lower 48 2008 2009 GAAP CFOA - $MM 5,895 2,514 GAAP CFOA - $ / BOE 32.40 14.12 excluded GAAP items - $MM asset impairments 620 5 non-cash working capital 96 (191) 1 non-working capital adjustments 53 83 E&P Cash Contribution - $/BOE 28.18 14.70 W Canada 2008 2009 GAAP CF
Slide 52: Major Projects
Major Projects Significant Project Gross Peak Start‐ Current Project Region WI% Production Up (start date) Phase MBOED Golden Pass 12 ‐ Construction Lower 48 Eagle Ford 95 TBD1 Appraise Canada Christina Lake C 50 402 Execute Qatar Qatargas 3 30 260 Execute 2010‐ 2011 Libya Faregh 2 16 40 Execute Wes
Slide 53: Major Projects
Major Projects Significant Project Gross Peak Start‐ Current Project Region WI% Production Up (start date) Phase MBOED Lower 48 Tiber 18 TBD1 Appraise Foster Creek F/G/H 50 902 Optimize Christina Lake D 50 402 Execute Christina Lake E/F/G 50 1202 Optimize Narrows Lake A/B 50 802 Appraise Surmont II
Slide 54: Major Projects
Major Projects Significant Project Gross Peak Start‐ Current Project Region WI% Production Up (start date) Phase MBOED Prudhoe WRD1 36 20 – 25 Define ANS Gas 36 600 – 700 Appraise Alaska WNS Developments2 78 35 – 40 Define Kuparuk Viscous Oil3 56 20 – 30 Appraise Jasmine 37 80 – 90 Define 2012+ Unit
Slide 55: Major Projects
Major Projects Significant Project Gross Peak Start‐ Current Project Region WI% Production Up (start date) Phase MBOED Kashagan 1 8 4501 Execute Kashagan 2 8 10501 Optimize Russia / Caspian Kalamkas 8 70 – 90 Appraise Aktote 8 70 – 90 Appraise Kairan 8 60 – 80 Appraise Algeria El Merk (EMK) 17 60 Ex
Slide 56: Major Projects
Major Projects Significant Project Gross Peak Start‐ Current Project Region WI% Production Up (start date) Phase MBOED Gumusut 33 140 Execute Kebabangan 301 130 – 140 Define Malikai 35 60 – 70 Define Malaysia Ubah 35 30 – 50 Appraise Petai ‐ Pisagan 35 30 – 50 Appraise Kamunsu East 30 60 – 80 Apprai
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