The Reality of the Worlds Gas Supply for LNG Turning LNG Projects into Reserves

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The Reality of the Worlds 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

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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
managements 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
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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 SECs 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.
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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
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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

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Worldwide Gas Consumption
323 bcfd
263 bcfd
Source Energy Information Administration
International Energy Outlook, 2004
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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
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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

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Key Upstream Variables for LNG Success For
Todays 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

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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

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Current Projected Global Gas Supply Trade
Routes
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World Proved Gas Reserves 6,040 TCF (Sources Oil
Gas Journal and IHS, 2005)
New LNG Countries (lt10 TCF) Peru Angola Equatorial
Guinea
Pipeline Gas Importer Or Zero Balance
LNG Exporters 12 Current 9 Future
Pipeline Exporters
LNG Importers
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Stranded Gas Fields 4 TCF or More
Source IHS
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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
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Conditions for Developing Stranded Gas Reserves
for LNG Projects, Given Existing Technology

• 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

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Undiscovered Gas Resources

• USGS 2000 World Energy Assessment
• TCF Undiscovered Gas Resources
• (F50 estimate Conventional)

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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

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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