Nove b m er 21, Yun K Kan g Jessie i Y Yoh

Transcription

1 Energy for tomorrow November 21, 2008 Yun Kang Jessie Yoh

2 Industry Overview Company Overview Thesis Analysis Risks Q & A AGENDA

3 WHY CONOCO? Leader in refining process provides natural hedge against falling oil prices Expansion of exploration and production projects will reap benefits in the long run Highly diversified in production and presence Long-term play

4 INTEGRATED PROCESS: OIL Oil and gas business has 3 segments Exploration and Production (E&P): Upstream Dominated by state-owned firms Transportation, Storage, Trading: Midstream Refining and Marketing (R&M): Downstream Dominated by publicly owned firms Crude Reserves E&P Transport R&M Your car or home

5 REFINING

6 BIG OIL Supermajors: the 6 largest non-state owned energy companies Involved in all steps of production with Involved in all steps of production with international operations

7 OIL VOCABULARY International vs. National Oil Companies IOC s are 1/3 more efficient at converting oil reserves into actual production Types of Crude Light and sweet: most sought-after type Heavy: viscose, high refining cost Sour: contains H 2 S, must be sweetened Liquefied Natural Gas (LNG)

8 TRENDS Demand side pressures Chinese oil subsidies to boost demand 90% of growth from Asia, South America, Middle East Energy usage per capita by non-oecd consumers will increase by 41% Supply side pressures OPEC Maturing oil fields Slowdown in discovery and production

9 COMPANY HISTORY Conoco founded in 1875 Based in Utah and distributed coal, oil, kerosene, grease, and candles to the West Phillips founded in 1905 Roots in Oklahoma and initially hit 81 wells in a row filled with petroleum. ConocoPhillips merger formed in August 2002 Burlington Resources joins ConocoPhillips in 2006

10 COMPANY OVERVIEW Second-largest integrated oil company in US, fourth largest in the world US s second-biggest oil refiner North thamerica s largest natural gas producer Demand for LNG estimated to increase by more than 4% annually until 2030 Operates in 41 countries 71% of revenues from US operations

11 SEGMENTS Exploration and Production Explores for and produces crude oil and natural gas Midstream Gathers, processes and markets natural gas 50% equity stake in DCP Midstream Refining and Marketing Purchases, refines, and markets crude oil and petroleum products COP: 96% refinery utilization rate Industry average: 90%

12 SEGMENTS CONT D LUKOIL Investment 20% equity investment in OAO LUKOIL International integrated oil and gas company based in Russia Chemicals Manufactures and markets petrochemicals and plastics 50% equity in Chevron Phillips Chemical Co. Emerging Markets Investment in new technologies and Investment in new technologies and businesses outside normal operations

13 LUKOIL 2 nd largest non-state publicly traded producer of oil and gas 20% equity stake by COP Produces 19% of COP daily production 444,000 BOE per day Recent milestones: 6 new oil, natural gas, and condensate fields New natural gas field in Uzbekistan Plans to increase all oil refining capacities in Russia by million tons per year by 2016

14 BURLINGTON The nation s largest independent natural gas exploration and production company prior to acquisition. Low operating cost earned it the reputation as the Wal-Mart of the natural gas industry Utilization of innovative, technologically advanced excavation methods and adopted new horizontally drilling techniques.

15 GEOGRAPHICAL BREAKDOWN Downstream (R&M) 12 US refineries, 5 global Aggregate crude oil processing capacity of 2,700,000 BD Refined product sales in 2007= 3.2 million Upstream (E&P) 68.5 million net developed and undeveloped acres in 23 countries Produced hydrocarbons in 16 and proved reserves in 3 additional countries average crude and gas production: 1.88 MBOD

16 NELSON COMPLEXITY FACTOR

17 R&M COMPARISON

18 REV/NI BREAKDOWN Revenue Breakdown Net Income Breakdown 0% 2% 0% -8% Downstream Upstream 14% 3% 0% 3% Downstream Upstream 24% Midstream 47% LUKOIL Emerging Businesses Midstream 66% Chemicals Excise Taxes 33% Chemicals Emerging Businesses

19 ACQUISITIONS & ALLIANCES 2006 acquisition of Burlington Resources for $43.8 billion 2007 acquisition of a 20% equity stake in OAO LUKOIL Joint projects with Abu Dhabi National Oil Co. and Saudi Arabia s Aramco Abu Dhabi Shah gas field Yanbu Export Refinery Project in Saudi Arabia

20 RECENT DEALS November 2008, signed 3 year agreement with alternative fuel company Develop network of propane fuel pumps for commercial transportation industry COP to supply propane Origins Energy 50% JV Australasian coal seam gas (CSG) to LNG Largest CSG reserves base in Australia

21 THESIS Growth potential strong pipeline Projects in Middle East, Baltic, Asia Sound balance sheet and cash High cash flow from operations High interest coverage Marginal cost of oil production

22 Conoco Shell Exxon OUR PIPELINE

23 Qatargas 3 PROJECT PIPELINE LNG project with Qatar Petroleum 1.4 MCF per day North Caspian Sea Production Sharing Agreement Off coast of Kazakhstan Maximum gross crude oil capacity: 1.5 MBD In Phase 1 field development

24 FINANCIALS Debt to capital ratio: 19% Industry average: 12% High cash flow from operations Interest coverage ratio: Credit rating: A Continual dividend increase

25 ECONOMIC FUNDAMENTALS Marginal cost of producing a barrel of oil, from exploration to marketing $70-80 in North America $1-2 in Saudi Arabia Marginal cost depends on economies of scale and type of oil Sweet/Light oils in Middle East are cheaper to extract and refine

26 Natural disasters RISKS Disrupt midstream operations Investor sentiment Geopolitical i l risk Alternative energy Environmental regulations

27 MITIGATIONS Minor impact of hurricanes on production Russian ruble has modestly declined d relative to other currencies Low oil prices offset by higher-than h industry average R&M margin Already began environmental initiatives which led to better efficiency

28 CONCLUSION ConocoPhillips is a leader in the refining segment Growth potential from production pipeline Synergies from strategic t acquisitions iti and partnerships

29 Q & A

30 COP V. CRUDE OIL PRICES

31 PROVED RESERVES Reserves with reasonable certainty of oil 78% of proved undeveloped d reserves associated with 10 major development areas and investment in LUKOIL

32 DECLINE OF THE RUBLE

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45 HOW TO VALUE AN OIL COMPANY Supply and demand of oil Production volumes Reserve replacement % of oil produced replaced per year through exploration or acquisitions Upstream performance ratio Crack spread Marketing margin