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3Q11 Natural Gas Update

3Q11 Natural Gas Update. August 2011 Dr. Jim Duncan. CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

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3Q11 Natural Gas Update

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  1. 3Q11 Natural Gas Update August 2011 Dr. Jim Duncan

  2. CAUTIONARY STATEMENT FOR 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; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets. 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-K for the year ending December 31, 2010. 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 may 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, 2010.

  3. Today’s Topics Q on Q … Review…YoY? Tactical Sitrep The Economy NG Supply Bubble Update Global NG/CL Market Drivers What Might Happen Next?

  4. This Summer 2011 Winter Season DOWNWARD Summer Scorecard Last Summer 2010 ECONOMY WEATHER DEMAND STORAGE SUPPLY Price Pressure DOWNWARD Ref: Various Sources

  5. 2011 YTD Summary • Shale gas has been a game changer in the natural gas industry… • Market is well-supplied • Demand is brisk after colder-than-expected winter and warm summer • Longer term technical signals suggest bounce • Forward curve pivot • Re-test of $3.80 for 3rd time forecast bounce • Supportive Weather • Volatility has reappeared…

  6. The Economy & Money Flows

  7. U.S. Economy Stumbling? Source: Bureau of Labor Statistics

  8. Commodities Have Been Strong

  9. But Could There Be Weakness Ahead? 52 week avg CRB Weekly Chart

  10. Supply

  11. Vertical Horizontal Shift to shale Rig Count Distribution Source: Baker Hughes

  12. Shift to oil Rig Count Distribution Average Weekly Change Since 2011 + 8 Oil - 1 Gas Source: Baker Hughes

  13. Gas Rig Count Flat to Lower Week Number

  14. Muskwa (Horn River) Montney Bakken Antrim Geologic Age Mancos Marcellus Niobrara Tertiary Cretaceous Jurassic Lewis Woodford Triassic Fayetteville Carboniferous Miss-Devonian Barnett Haynesville Devonian Ordovician Eagle Ford Cambrian The North American Shale Re-evolution

  15. Storage: Increasing Supply Cushion • The 44 Bcf injection last week brought supplies to 2,758 Bcf…186 Bcf behind 2010 and 68 Bcf below the 5-year average • IF NOTHING CHANGES, may be hard to refill storage to last year’s levels due to being only 4 Bcfd oversupplied • As of 2011, ~ 4.4 Tcf of working gas capacity with ~ 100 Bcfd of withdrawal capability serves U.S. markets Source: US Energy Information Agency

  16. Global Shale Implications

  17. Global Shale Reserves

  18. $12.1 B Foreign Investment In U.S. Shale BHP Plans to Acquire Petrohawk PetroChina/Encana Reliance/Atlas ITOCHU/MDU Resources Statoil/Chesapeake CNOOC/Chesapeake BG/EXCO BHP/Chesapeake Statoil/Talisman Reliance/Pioneer CNOOC/Chesapeake BG/EXCO KNOC/Anadarko

  19. LNG (Import)/Export Balances TCF per Year Source: EIA

  20. Recoverable Shale Reserves: 6622 Tcf Source: EIA

  21. Global Gas Prices UK $8.21 Korea Everett Spain $4.27 $11.17 Cove Pt $8.71 $4.13 China Japan Gulf Altamira $11.47 $11.27 $3.92 $4.14 As of 8/28/2011

  22. U.S. LNG Import Projections 66 MTPA 39 MTPA Source: EIA Shale Gas has already added significant volumes of LNG to the marketplace

  23. North American Liquefaction Projects Kitimat 5 MTPA Sabine Pass 15 MTPA Freeport 10 MTPA 1.4 BCF/D Could add more LNG into the global marketplace Source: DOE

  24. Demand

  25. Update/Remove Greater Than Normal Nuke Outages

  26. Summer 2009 Winter 2009-2010 Summer 2010 Winter 2010-2011 Summer 2011 Coal to Natural Gas Competition

  27. Price

  28. Natural Gas Weekly Chart Source: CME/NYMEX

  29. 52 week avg Natural Gas Weekly Chart-12 Month Strip Staying in the box … Source: CME/NYMEX

  30. Pivot Point Natural Gas Forward Curve Source: CME/NYMEX

  31. Natural Gas Forward Curve Source: CME/NYMEX

  32. Natural Gas Forward Curve Source: CME/NYMEX

  33. Trading Activity Remains in Front Months Source: CME/NYMEX

  34. Oil

  35. Crude Oil Weekly Chart 52 week avg Source: CME/NYMEX

  36. Crude Oil/Natural Gas Ratio Ratio broke trend line and moving avg support … Source: CME/NYMEX

  37. Crude Oil Price Timeline Financial Crisis Debt Concerns Global Demand Growth and Increased Investment in Commodities First Gulf War Arab Spring Second Gulf War

  38. The Arab Spring Close interconnection between regional states through finance, security, labor, language, culture as well as the demonstration effect has led to rapid contagion Unlike Eastern Europe in 1989, future trajectories are likely to be more uneven owing to wide variance in local conditions

  39. WTI-Brent Spread Brent reflects geopolitical risk, WTI only a U.S. benchmark … Source: CME/NYMEX

  40. OPEC Spare Capacity Available Light Algeria: Production 1,460 mb/d, spare capacity 0 mb/d UAE: Production 2,500 mb/d, spare capacity 230 mb/d Qatar: Production 820 mb/d, spare capacity 150 mb/d Saudi Arabia: Production 9,100 mb/d, spare capacity 3,400 mb/d Libya: Lost production 1,350 mb/d Kuwait: Production 2,430 mb/d, spare capacity 200 mb/d Syria: Production 340 mb/d, spare capacity 0 mb/d Oman: Production 800 mb/d, spare capacity 0 mb/d Yemen: Production 220 mb/d, spare capacity 0 mb/d Iran: Production 3,690 mb/d, spare capacity 0 mb/d Heavy Sour Sweet Solid bubbles = Available spare capacity Circles = Production OPEC has enough spare capacity to meet the loss of most other Middle East producers, though with relatively sour barrels Source: PFC Energy

  41. Weather

  42. This Summer

  43. Cyclogenesis…Beginning of Season

  44. Cyclogenesis…Beginning of July

  45. Cyclogenesis…Height of Season

  46. African Sand Layer…Less Active…On Schedule

  47. Sahel Percolating

  48. Sahel is Definitely More Active

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