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The Role of Eagle Ford and Texas in America’s Energy Renaissance World Affairs Council Helen Currie, Senior Economist August 21, 2014
1 Cautionary Statement The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict such as oil and gas prices; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips’ business and 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).
Use of non-GAAP financial information – This presentation may include non-GAAP financial measures, which help facilitate comparison of company operating performance across periods and with peer companies. Any non-GAAP measures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure in an appendix.
Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We use the term "resource" in this presentation that the SEC’s guidelines 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 and other reports and filings with the SEC. Copies are available from the SEC and from the ConocoPhillips website.
2 Discussion Topics
A Revolution of Enormous Scale
Texas Leads the Way
Benefits for the U.S., Texas and the World
ConocoPhillips’ Eagle Ford Business
There’s Power in Cooperation
3 North American Shale Plays
Source: U.S. Department of Energy, EIA 4 4 The Gas Side of the Revolution: Deep in the Heart of Texas
U.S. Natural Gas Production (Bcf per day) 70
60 Liard Basin Shale Horn River UnconventionalGas Montney 50
40 Marcellus Non-ConventionalShale Gas
Barnett 30 Fayetteville Haynesville Permian Basin Eagle Ford 20 2000 2003 2006 2009 2012
Production Data Source : U.S. Department of Energy, Energy Information Administration (EIA) 5 U.S. LNG Import / (Export) Projections
Historical U.S. Department of Energy Projections 20 2005
15
Net Importer 2007 10 2008
BCFd 5 2010
0 2013 Net Exporter
(5) 2014
(10) 2010 2015 2020 2025 U.S. is poised to become a net LNG exporter
Source: U.S. Dept. of Energy, Energy Information Administration 6 Global Natural Gas Prices
20 Japan LNG 18 16
14 12 10 U.K. Spot 8 6 Nominal $/MMbtu 4 2 U.S. 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Wide divergence between pricing in major markets
Source: Bloomberg 7 Proposed Natural Gas Liquefaction & Export Projects
• ~45 export projects have filed with authorities* in North America
• In the U.S. , DOE has permitted seven projects or >9 BCFD for non-Free Trade Agreement exports to date
• FERC approval on 3 projects, ~6 BCFD • Sabine Pass (under construction) • Freeport • Cameron
• Global LNG demand and competing supplies will restrict the number of projects built
>450 MTPA (~60 BCFD) of potential exports filed with authorities
*Filed with U.S. Federal Energy Regulatory Commission as or Canada National Energy Board as of July 2014. 8 8 Unconventional Resources: Size of Largest Plays
Bakken 7-45 BBOE Marcellus
Permian Basin 10-70 BBOE Eagle Ford 20-50 BBOE Oil Wells Gas Wells Condensate Wells Dry Holes
9 Texas Also Leads the Way in U.S. Oil Production Growth
Top Four Oil Producing States (million barrels per day)
3.0 Texas
2.5 NGL
2.0
1.5 Alaska North Oil Dakota 1.0 (crude & condensate)
0.5 California
0.0 Jan-1981 Jan-1989 Jan-1997 Jan-2005 Jan-2013 2013 1989 1997 1981 2005
Source : U.S. Department of Energy, Energy Information Administration (EIA) 10 U.S. Oil Production Projected to Exceed the 1970s Peak
U.S. Crude, Condensate and Natural Gas Liquids Production U.S. Department of Energy Forecast 18 16 High Resource 14 Case "Peak Oil" 12 10 U.S. Tight Oil 8 6 Conventional Production 4 Million Barrels Million Barrels per Day Alaska 2 Crude NGLs 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
Source: U.S. Department of Energy, EIA, Annual Energy Review 2013, Forecast from EIA Annual Energy Outlook 2014, Various forecasts 11 Growth in Production Restored U.S. Role as Oil Powerhouse
Crude, Condensate and NGLs Production for Top 10 Countries, 2013 12 11.0 NGLs 10.7 10.2 Crude Oil & Condensate 10
8
6
4.2 4.1 4 3.1 3.0 3.0 2.9 2.9
Million Barrels per Day per Barrels Million 2
0 Saudi Russia United China Canada Iraq Iran UAE Mexico Kuwait Arabia States
OPEC Neutral Zone production split between Saudi Arabia and Kuwait. Source: IEA for OPEC Crude Production, Rystad Energy for NGLs and Non-OPEC 12 North American Oil Independence Likely by 2020
30
25 Demand 20
15 Net Imports 10
5 Million Barrels per Day per Barrels Million
0
-5 1990 1995 2000 2005 2010 2015 2020 2025 2030
Source: PIRA Energy Group 13 Eagle Ford Oil and Natural Gas Production
Oil Production Natural Gas Production 3.0 7
6 2.5 NGL 5 2.0
4
1.5 BCFD 3
1.0 Million Barrels per Day per Barrels Million 2 Dry Gas Crude and Condensate 0.5 1
0.0 0 2008 2011 2014 2017 2020 2008 2011 2014 2017 2020
Source: Rystad Energy 14 Eagle Ford Drilling Efficiency Improvements
Oil Initial Production Rate Drilling Days (Barrels per Day) (Spud to Rig Release) 1,200 60 300% Increase from 48% Decrease from 2008 - 2013 2008 - 2013 1,000 50
800 40
600 30
400 20
200 10
0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Source: IHS Inc. Use of this content authorized in advance by IHS; further use or redistribution strictly prohibited without written permission from IHS. All rights reserved Enerdeq Database 8/9/13. Play level month averages. IP rate – Initial 24 hour production rate for wellhead crude. 15 Burgos Basin, Mexico – Agua Nueva Play (Eagle Ford)
• The Burgos Basin is directly across the border from south Texas
• Many petroleum plays proven in south Texas are present there
• Most published interpretations indicate the Upper Cretaceous & Agua Nueva sediments (Eagle Ford equivalent) extend across the basin
• PEMEX has identified an Agua Nueva play by drilling several wells
• The Agua Nueva’s full potential is unproven to date
16 Benefits for U.S. from Unconventional Reservoirs Revolution Economic Energy Security Environmental
U.S. Jobs and GDP U.S. Net Energy Imports U.S. CO2 Emissions (MTPA)
35 Quadrillion BTUs 6,200
6,000 30
5,800 25 -12% 5,600 20 5,400 15 5,200 Chemicals & Manufacturing 1995 2000 2005 2010 10 Source = U.S. EIA, From Total Energy Other Benefits of Natural Gas 5 • Clean-burning • Small water usage footprint 0 1983 1993 2003 2013 • No solid waste • Enables wind & solar power Source = U.S. EIA
17 In-Migration of Manufacturing: U.S. Industrial “Re-shoring”
U.S. Manufacturing PMI consistently ahead U.S. Manufacturing Employment: gained vs China since early 2011 over a half-million jobs since 2010
(millions) 60 13.8 Above 50 = Expansion U.S. 55 13.4
50 13.0 China 45 12.6
40 12.2
35 11.8
Below 50 = Contraction 30 11.4 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014
Source: Markit Source: U.S. Bureau of Labor Statistics 18 Natural Gas Liquids: A Key to Revitalizing U.S. Manufacturing
Chemicals feedstock costs favor U.S. NGL output grew 40% 2008 - 2013 0.8 Price ratio of Mt. Belvieu purity ethane vs. Singapore naphtha 2.6 0.6
2.4 0.4
0.2 2.2
0.0 2.0 2003 2005 2007 2009 2011 2013 U.S. is now a net exporter of LPGs
1.8 0.25 Net Importer Million per Million Barrels Day 0.15
1.6 0.05
MillionBarrels per Day (0.05) 1.4 Net exporter 2008 2009 2010 2011 2012 2013 (0.15) 2005 2007 2009 2011 2013
Source: EIA Field Production of natural gas liquids and LPG net imports. Bloomberg Mt. Belvieu ethane and Singapore naphtha prices. 19 Global Crude Supply Disruptions vs. U.S. Tight Oil Growth
Growth in Global Supply Growth in U.S. Tight Oil Disruptions (MMBD) Production (MMBD) 4.0 4.0 Increase in losses since Increase in production since December 2009 3.5 December 2009 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
U.S. tight oil production growth has offset most of the global supply disruptions
Source: PIRA Energy Group; oil is crude only, excludes NGLs and condensates. 20 U.S. Light Crude Oil Production vs. Light Refinery Runs
Light Crude Runs w/o substantial refinery investment Light Crude Production 8.5
8.0
7.5
7.0
6.5
6.0
Million Barrels Million Barrels per Day 5.5
5.0
4.5 2012 2013 2014 2015 2016 2017 2018 2019 2020 Light crude production will eventually exceed refiner ability to process it without substantial refining investments or crude exports Source: Turner, Mason and Co., November, 2013, higher production case 21 Crude Oil Market Price Outlook Brent Price Outlook WTI-Brent Price Differential (2014 $ per Barrel) (2014 $ per Barrel) 140 5
120 0
100 (5)
80 (10)
60 (15)
40 (20) 2005 2010 2015 2020 2009 2012 2015 2018 Discounted domestic prices threaten investment in U.S. crude production Brent ICE and NYMEX WTI Futures as of 8/8/2014 22 Benefits of U.S. Crude Oil Exports
Would lower consumer fuel costs at the pump by $18 billion annually
U.S. economy could gain $135 billion and about one million jobs at its peak . For Texas: $19 billion & 117,000 jobs
Reduce nation’s oil import bill by $67 billion annually
Increase government revenues by $1.3 trillion between 2016-2030
Strengthen U.S. geopolitical position More jobs & economic development would result from continued growth in U.S. oil production
Source: IHS Global Inc., “U.S. Crude Oil Export Decision: Assessing the Impact of the Export Ban and Free Trade on the U.S. Economy,” May 29, 2014 23 Basins With Assessed Shale Oil & Shale Gas Resources
Source: U.S. Energy Information Administration, U.S. Geological Survey & ARI; May 2013 24 Global Shale Resources
Technically Recoverable Shale Gas Technically Recoverable Shale Oil Resources – 7,795 TCF Resources – 345 Billion Barrels
China RoW 14% RoW 21% Russia 23% 22%
Argentina 10% Canada Russia 3% 4% Mexico Algeria U.S. South Africa 4% 5% 9% Venezuela 17% 4% (58) Australia Australia 6% 5% U.S. China Mexico Libya 9% 7% 15% 7% Canada Argentina 7% 8%
Substantial shale potential exists in many countries around the globe
Source: ARI for U.S. Department of Energy, EIA, June 2013 25 Texas: From Rags to Riches (in only 5 Years)
OPEC Members December 2009 December 2012 December 2013 December 2014 Saudi Arabia Iran 3.4 MMBO Iraq per Day UAE 2.8 MMBO Kuwait per Day Nigeria Texas Already > Venezuela Norway U.K Mexico Brazil Angola 2.2 MMBO Algeria per Day Qatar 1.1 MMBO per Day Libya Ecuador
OPEC nations listed in rank order from largest producer (Saudi Arabia) to smallest as of mid-year 2013
Source : U.S. Department of Energy, Energy Information Administration (EIA); except 2014, which is extrapolated 26 Importance of Oil & Natural Gas to the Texas Economy
Largest U.S. energy producer. . 1st in oil & condensate – 2 MMBOD (31% of U.S. total in 2012) . 1st in natural gas – 21 BCFD (29% of U.S. total in 2012)
Largest U.S. energy consumer . Uses 3.9 TCF of gas yearly (15% of U.S. total) . Uses 1.28 billion barrels of oil yearly (18.9% of U.S. total)
Nearly half of Texas’ electricity generated by natural gas
Significant economic contributions from oil and natural gas . $144 billion in labor income Oil Fields . Employs 1.9 million Texans Gas Fields . Drives ancillary industries . Generates billions in royalties & severance tax revenue
Oil & gas have made Texas an economic success compared to rest of U.S. Source: U.S. Dept. of Energy, EIA , PWC 27 ConocoPhillips’ Eagle Ford Position
221,000 net acres 2.5 BBOE net EUR >3,000 identified drilling locations Outlook based on 12-rig program $3 B annual capital investment1 $20-25/BOE full-cycle F&D cost
1
Note: Data are 2014-2017 average . 28 ConocoPhillips in Eagle Ford Communities Mitigating Impacts Enhancing Quality of Life Truck Traffic Reduction
Percent Daily Oil Production Trucked Feb 2013 Feb 2014 98% 56% (while production increased more than 40%)
29 There’s Power in Cooperation Engagement and Dialogue Education and Transparency
30 Take-away Messages
Revolution of enormous scale
Texas is leading the way
Economic, energy security and environmental benefits
Need for U.S. crude exports
Eagle Ford growth to continue
ConocoPhillips working to be a responsible community partner
There’s power in cooperation
31 Questions & Answers
World Affairs Council Helen Currie, Senior Economist August 21, 2014
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