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The Reality of the World’s Gas Supply for LNG Turning LNG Projects into Reserves

The Reality of the World’s Gas Supply for LNG Turning LNG Projects into Reserves. Colin McHattie Qatar Business Unit ConocoPhillips Petrochemical Feedstock Association of the Americas 12 th Annual Conference Barton Creek November 3, 2005.

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The Reality of the World’s Gas Supply for LNG Turning LNG Projects into Reserves

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  1. The Reality of the World’s Gas Supply for LNGTurning LNG Projects into Reserves Colin McHattie Qatar Business Unit ConocoPhillips Petrochemical Feedstock Association of the Americas 12th Annual Conference Barton Creek November 3, 2005

  2. CAUTIONARY STATEMENTFOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONSOF 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 Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. You can identify our forward-looking statements by words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions. Forward-looking statements relating to ConocoPhillips’ operations are based on management’s expectations, estimates and projections about ConocoPhillips and the petroleum industry in general on the date these presentations were given. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Factors that could cause actual results or events to differ materially include, but are not limited to, crude oil and natural gas prices; refining and marketing margins; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects due to operating hazards, drilling risks, and the inherent uncertainties in interpreting engineering data relating to underground accumulations of oil and gas; unsuccessful exploratory drilling activities; lack of exploration success; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; potential failure of new products to achieve acceptance in the market; unexpected cost increases or technical difficulties in constructing or modifying company manufacturing or refining facilities; unexpected difficulties in manufacturing, transporting or refining synthetic crude oil; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations; potential liability resulting from pending or future litigation; general domestic and international economic and political conditions, as well as changes in tax and other laws applicable to ConocoPhillips’ business. Other factors that could cause actual results to differ materially from those described in the forward-looking statements include other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC), including our Form 10-Q for the quarter ending June 30, 2005. ConocoPhillips is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Cautionary Note to U.S. Investors – The U.S. Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation such as “oil/gas resources,” “Syncrude,” and/or “Society of Petroleum Engineers (SPE) proved reserves” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K for the year ended December 31, 2004.

  3. IntroductionIs LNG Growth Sustainable? • An abundance of worldwide natural gas: Over 6,000 TCF* • Total capacity forecast to triple from approx. 140 MTPA (~18 bcfd, 7% world consumption) at the end of 2004 to an estimated 420 MTPA (~55 bcfd, 17% world consumption) by 2015** (assumed 130 mmcfd/MTPA for conversions) • Do projects have the reserves to maintain plateau production rates for 20-25 years or more? • Today LNG is affordable and gas supply is abundant, for projects being developed and planned in the 2005-2015 timeframe, but what about the next tranche of projects? Sources: * Oil & Gas Journal, January 2005 ** Compilation of public news reports and subscription information, 2005

  4. Attributes for Successful LNG Project Development Adequate Supply of Quality Gas Reserves • Integration & Optimization Along Value Chain • Suitable Loading & Unloading Ship Access • Project Financing • Stakeholder Relations • Support of Host Governments to Expedite Projects at Competitive Cost-of-Service to Markets • Appropriate LNG Technology • Project Management & Execution • Contracting & Procurement Strategies • Unit Cost Efficiencies • Marketing

  5. Worldwide Gas Consumption ~323 bcfd ~263 bcfd Source: Energy Information Administration International Energy Outlook, 2004

  6. Global LNG Supply Capacity & Demand Cedigaz Project up to 500 mtpa by 2030 Sources: Supply – Compilation of public news reports and subscription information, 2005 Demand – Derived from Flower LNG, IEA, Cedigaz, 2004-05

  7. What Gas Reserves are Available for LNG Supply? • Cumulative gas production 2005 through 2040 for current, planned & identified LNG projects will be ~ 920 TCF (based on 448 MTPA capacity, 2015) - this represents ~ 18% of forecasted consumption 2005-2040 (Slide 5 & 6 – data and sources) • Active LNG projects rely on supply from the remaining reserves of producing fields already dedicated to their projects • Developing Expansion/Brownfield & Planned projects (2005-2015) will rely on the commercialization of the remainder of known undeveloped (stranded) gas fields and the discovery of new reserves via exploration • Next tranche of projects 2015-2020 and beyond: Gas to come from more challenging environments and more complex project structures, with more aggregation of gas supply • Later tranche of projects 2020/25+: Associated gas, gas-cap, reservoir blowdown gas as oilfields decline, and new exploration discoveries

  8. Key Upstream Variables for LNG SuccessFor Today’s Developing Projects • Deliverability of reservoir affects well count & platform count, if offshore; onshore vs. offshore costs • Associated / Non-associated (generally utilize non-associated gas) • Associated gas generally not an option, but in countries with high oil production and no regional markets, there is pressure to develop LNG projects • Condensate gas ratio drives up to 35% of revenue stream • 10 – 60 bbl/mmscf • Adequate reserves for project sales life: • Sustainable plateau rates for 25 years; minimize late life costs

  9. Required Gas-In-Place and Produced Reserves for 20, 30, & 40 Year Plateau Rates • Selected 0.175 bcfd / 1 MTPA as a median value for these reserve conversions

  10. Current & Projected Global Gas Supply & Trade Routes

  11. World Proved Gas Reserves 6,040 TCF(Sources: Oil & Gas Journal and IHS, 2005) New LNG Countries (<10 TCF) Peru Angola Equatorial Guinea Pipeline Gas Importer Or Zero Balance LNG Exporters 12 Current 9 Future Pipeline Exporters LNG Importers

  12. Stranded Gas Fields: 4 TCF or More Source: IHS

  13. Stranded Non-Associated Gas Fields • 10 fields are in Russia, but only 2 - Shtokman, the largest at ~87 TCF* and Lunskoye, being developed for Sakhalin2 - are conducive to LNG projects, the other 7 under development or being designated for pipeline export from either ice-locked West Siberia or land-locked East Siberia • 4 fields are in Australia, 2 of which, Greater Gorgon and Jansz Fields (at ~ 40 TCF combined*) are dedicated to the planned Gorgon LNG project; the other 2, Scott Reef and Evans Shoals, are approx. 12 TCF each, and both are under consideration for new greenfields projects • 3 fields are in Iran, although these may be a low priority compared to developing the South Pars field • The other 5 fields are either dedicated to future pipeline sales, or are too sour or too high in inerts for LNG projects • Of the smaller fields (under 10 TCF) there are a few now being developed for new greenfield projects such as Indonesia Irian Jaya, Peru, Angola, and Equatorial Guinea; the majority of the other fields are in Russia and the Middle East; Australia has several prospects for LNG * Source: IHS

  14. Favorable Adequate GIP fields High producibility reservoirs Rich in liquids Onshore field, proximal to coast Offshore fields, grouped together, proximal to coast Proximal to market Close to other stranded gas fields & gas exploration potential Good contract terms Low unit costs Existing infrastructure Good port access for loading Unfavorable High domestic gas demand Proximal to pipelines Land-locked Deepwater fields Associated gas Ice-locked; Permafrost Greenfield project Small fields “Dry” or lean gas High % of inerts Multiple fields / ownership Re-injection needs Geopolitical risk Conditions for Developing Stranded Gas Reserves for LNG Projects, Given Existing Technology

  15. Undiscovered GasResources • USGS 2000 World Energy Assessment • TCF Undiscovered Gas Resources • (F50 estimate; Conventional)

  16. Sourcing New Gas Supplies for LNG Projects • Invigorate exploration programs for large fields in under-explored gas-prone provinces, in addition to exploring near markets & existing infrastructure • Increased accessibility to international oil & gas companies by host governments and NOCs • Support project commerciality by developing new technologies for development in deepwater, small fields (1-5 TCF), tight reservoirs, and ice-locked regions • Develop more associated gas and more gas-cap gas as oil production depletes, and, in new oil field developments, develop the associated gas for an LNG project early in field life

  17. In Conclusion • LNG production & demand as a percentage of all global gas production is likely to increase 3-fold from 6% today by 2040 • The majority of gas potentially available for new LNG projects is expected to come from underdeveloped or “stranded” undeveloped gas fields in Russia, Qatar, Iran, Nigeria, & Algeria & to a lesser degree, Egypt, Australia, Trinidad, Libya, & Bolivia • Gas supply for the mid to long term, the tranche of new LNG projects, to be developed for start-up 2015 & beyond, is not clearly identified • Paradoxically, potential for oversupply in near-term could dampen further incentives to appraise & develop new reserves • Declines in mature LNG supplies will likely also have an impact • Despite perceptions of a huge worldwide reserve base of cheap & readily available gas for future LNG projects, these supplies are not necessarily unlimited

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