United States ‐ Indonesia Energy Investment Roundtable Natural Gas Pricing and Policy February 6, 2012 Jim Taylor President IPA / ConocoPhillips Indonesia
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 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-K for the year ending December 31, 2009. 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,” “oil in place,” “recoverable bitumen,” “exploitable bitumen in place,” and “bitumen in place” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. The term “reserves,” as used in this presentation, includes proved reserves from Syncrude oil sands operations in Canada which are currently reported separately as mining operations in our SEC reports. Under amendments to the SEC rules, mining oil sands reserves will no longer be reported separately. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K for the year ended December 31, 2009.
US Lower 48 Natural Gas Production $ / mmBtu Bcf / day Technology innovated 65 $9 from 1980’s incentives helped drive further shale $8 success 60 $7 15 years of growth enabled by: • Market based pricing $6 • Tax incentives for tight gas 55 and Unconventional CBM $5 $4 Government 50 ceilings on gas $3 pricing reduced $2 supply 45 $1 Enabliing Policy and Regulations • Deregulating Prices 40 $0 • Incentives for unconventional gas 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: US Department of Energy, Energy Information Administration 2
US Natural Gas Supply Sources Billion cubic feet per day 80 60 40 20 0
U.S Natural Gas Pipeline Infrastructure Over 300,000 miles of Pipelines 4
US Infrastructure Growth Source: INGAA Foundation, Inc
The "Unconventional Reservoir" Revolution: Impact on the North American Natural Gas Market � Rapid supply growth 60 60 U.S. Natural Gas Production Daily Prod. (BCF) Daily Prod. (BCF) 55 55 � Supply greater than demand 50 50 � Natural gas price collapse Y2K Predictions 45 45 � LNG imports no longer needed 40 40 � Arctic pipelines no longer needed 1970 1970 1975 1975 1980 1980 1985 1985 1990 1990 1995 1995 2000 2000 2005 2005 2010 2010 � Increase in exports to Mexico � LNG exports being considered � >> share of electric gen. market � Chemical industry rejuvenation Artist Drawing of LNG Import Terminal
Unconventional Reservoirs Produce Liquids Also 12,000 U.S. = World’s Largest Producer (11,300 MBOPD Peak Rate) Barrels Oil Per Day (Thousands) 11,000 10,000 9,000 8,000 Uncon. Res. 2 (+600) Deep Water (+100) 7,000 6,000 1970 1975 1980 1985 1990 1995 2000 2005 2010 1 Data from BP 2011 Statistical Review of World Energy; Oil includes condensate & NGLs ; split between Unconv. Res. and Deep Water is approximate 2 “Uncon. Res.” = Unconventional Reservoirs, which include shale and carbonate source rocks, CBM and ultra-tight sandstones and carbonates
U.S. Drilling Fleet Deployment in Response to the "Liquids from Unconventional Reservoirs" 1,800 - More rigs are drilling for oil than gas for first time since early 1990’s 1,600 - Over 1,000 rigs are drilling for oil; highest number in over 25 years 1,400 - Additional rigs being deployed for oil drilling at a rapid pace Gas Wells 1,200 Drilling Rig Count 1,000 800 600 Liquids from Unconventional Reservoirs Breakthrough 400 Oil Wells 200 $150 per barrel oil 0 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 From Baker Hughes’ website
Gas Infrastructure in Indonesia 100 ° E THAILAND 106 ° E 112 ° E 118 ° E 124 ° E 130 ° E 136 ° E KAMPUCHEA 12 ° N VIETNAM PHILIPPINES SOUTH CHINA SEA THAILAND Philippines Malaysia BRUNEI 6 ° N Banda Aceh M A DARUSALAM L A C C SABAH A S T R Philippines Arun A T I Indonesia LNG Malaysia Medan Indonesia Kuala Lumpur Toba Lake SARAWAK C E L E B E S S E A Bontang S U M A T R A SINGAPORE Manado LNG Kuching HALMAHERA BATAM MAKASSAR STRAIT Pontianak 0 ° Padang Donggi K A L I M A N T A N LNG Tangguh Palu Jambi LNG Palangkaraya SULAWESI BANGKA Palembang Jayapura Banjarmasin PAPUA Bengkulu Kendari Ambon J A V A S E A Tanjungkarang Ujungpandang B A N D A S E A 6 ° S MADURA Semarang Bandung Yogyakarta A R A F U R A LOMBOK Denpasar S E A Mataram Dili Masela Kupang FLNG TIMOR I N D I A N O C E A N 12 ° S
PRINCIPAL INDUSTRY ISSUES TO BE ADDRESSED � GR NO. 79/2010 ON COST RECOVERY AND INCOME TAX - Opposes existing PSCs and creates uncertainty of future PSCs � AMENDMENT TO LAW NO.22/2011 ON OIL AND GAS � Minimal changes required � APPROVAL AND REGULATORY ENVIRONMENT - Move from managing costs to managing production � MARKET BASED GAS PRICING NEEDED TO BE COMPETITIVE - To ensure investment is made to explore for and develop gas the price needs to be competitive � LICENSE EXTENSIONS NEED TO BE TRANSPARENT AND EARLY - Delays in extension process put investment and production � BANK INDONESIA REGULATION OF FOREIGN EXCHANGE PROCEEDS - PSC rights should be preserved
CONCLUSIONS � INDONESIA HAS STRONG ECONOMIC GROWTH OF 6.5% in 2011 • Economy’s energy needs are growing and more oil and gas are needed • Transitioning from revenue generator to economic enabler will take time � HYDROCARBON PRODUCTION HAS BECOME MORE DIFFICULT • Mature fields are declining • New opportunities are in more challenging areas (remote, offshore, East) • Unconventional developments are untested and require a lot of wells, technology and infrastructure � EXPLORATION INVESTMENT AND PRODUCTION HAS DECLINED • Fiscal policies need to be competitive to attract necessary investment � MANAGING COST RECOVERY IS NOT SUPPORTING PRODUCTION INCREASES � MARKET BASED PRICING, SUPPORTING REGULATIONS AND INCENTIVES HAS GENERATED SIGNIFICANT INVESTMENT AND NEW SUPPLIES OF NATURAL GAS AND LIQUIDS PRODUCTION IN THE US � THE CREATION OF NEW SUPPLIES OF OIL AND GAS CAN BENEFIT ECONOMIC GROWTH & THE PEOPLE OF INDONESIA
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