STOCK OPTION BASICS. ConocoPhillips Employees on the U.S. Payroll October 2006

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1 STOCK OPTION BASICS ConocoPhillips Employees on the U.S. Payroll October 2006 Table of Contents General Description of Stock Options... 1 Accessing Merrill Lynch... 2 Types of Stock Options... 4 Decision 1: When will you exercise your options?... 7 Decision 2: Which grants do you want to exercise?... 8 Decision 3: What different exercise methods can you use?... 8 Buy Stock by Sending Funds to Pay for Shares Exercise... 8 Cashless Sale Exercise... 9 Cashless Stock Exercise... 9 Stock Swap Exercise... 9 Exercise Modeling... 9 Decision 4: Will you use a limit order with a cashless exercise? Decision 5: What about your taxes at exercise? Decision 6: Where will your proceeds (stock/cash) be sent? Option Fees, Statements and Transaction Advices Sending Cash to Merrill Lynch for Cash Exercises Merrill Lynch Brokerage Accounts Book-Entry Account at Mellon Glossary...16 General Description of Stock Options Stock Option Basics gives you information about the different types of options, exercises, payment alternatives, tax treatments and distribution methods for ConocoPhillips employees on the U.S. payroll with stock options administered by Merrill Lynch. What is a stock option? A stock option is the right (but not an obligation) to purchase a specified number of shares of stock, at a specified price and during a specified time. The right to purchase each share of stock is referred to as an option. The purchasing process is called exercising your options. You may keep the stock that you purchase or sell it immediately. ConocoPhillips stock is listed on the New York Stock Exchange (NYSE) under the symbol COP. How do options become valuable? The higher the price ConocoPhillips stock rises above the grant price, the more valuable your options will be when you exercise. This rise in value is sometimes called the spread or gain. The chart on page 2 illustrates a rise in value. The chart is not a projection of how ConocoPhillips stock will perform. The graph ends at 10 years because ConocoPhillips options normally expire 10 years from the date they are granted. A termination of employment may Stock_Option_US October 2006.doc Page 1 of 17 Rev. 10/2006

2 shorten this time. Example of 10-Year Rise in Value of Stock Option What does it mean to exercise an option? The exercise of a stock option refers to a person exercising his or her right to purchase all or a portion of the stock covered by the option. The purchase price is the option s grant price times the number of options being exercised. A stock option may be exercised any time after the options become exercisable and before they expire. What stock conversions have occurred in the past? All options are for shares of ConocoPhillips stock. If you are a former Conoco participant, you may have options that were previously converted from DuPont to Conoco (1998 IPO) to ConocoPhillips (2002 merger) or Conoco to ConocoPhillips (2002 merger). The conversion factor from Conoco to ConocoPhillips stock was If you are a former Tosco participant, you may have options that were converted to Phillips in 2001 using a conversion factor of All Phillips options were converted to ConocoPhillips in 2002 using a one-for-one conversion factor. On June 1, 2005 a 2-for-1 split on the common stock of ConocoPhillips in the form of a 100 percent stock dividend was announced and was payable to stockholders on record as of May 16, A 100 percent stock dividend is a common way to implement a two-for-one stock split. On the Payment Date, each ConocoPhillips stockholder received one additional share of stock for each share owned as of the Record Date. Since there were twice as many shares after the split, each share was worth half of what it was worth immediately prior to the split, while the overall value of a stockholder's investment remained the same. Accessing Merrill Lynch There are three ways to access your stock options at Merrill Lynch online through the Internet, via e-stream, or by phone. If you want to review the COP stock you have in your brokerage account at Merrill Lynch, go to the section Merrill Lynch Brokerage Accounts. Merrill Lynch Service Hours Benefits OnLine Web portal is available virtually 24 hours a day, seven days a week. The system will be periodically unavailable, due to maintenance. IVR system is available virtually 24 hours a day, seven days a week. Participant Service Representatives are available virtually 24 hours a day, seven days a week. Stock_Option_US October 2006.doc Page 2 of 17 Rev. 10/2006

3 Using the Internet Everyone can access the Benefits OnLine Web portal through the Internet. Log on to This will take you directly to the Benefits OnLine login page. The first time you enter the site, use the account number (for U.S. employees, this is your Social Security number) and the Personal Identification Number provided to you. For your security, you will then be asked to setup a UserID and Password that you will use for future access. On the Home page, you may use QuickLinks to view stock option account information, model exercises, exercise your stock options and utilize other resources. Using the ConocoPhillips e-stream Additionally, active U.S. employees can access the Benefits OnLine portal through HR Express on the ConocoPhillips intranet site, e-stream. Logon to e-stream as you normally would, click on the HR Express (U.S.) in the Quick Picks menu in the left navigation column and choose Stock Programs from the left navigation. Click on the Stock Option Tab to view your current outstanding options. To go to Benefits OnLine, click on the link on the right side of the page. You will need to have your UserID and Password, as discussed above, when you enter from HR Express. Enhancements in early-2007 will improve the way you access your account through HR Express. Using the Telephone To access Merrill Lynch by phone, you will need your account number (without the COP stock symbol) and Personal Identification Number. Merrill Lynch Telephone Numbers Call toll free from the U.S., Puerto Rico or Canada : (877)STK-PLAN (877) Call from a ConocoPhillips ETN-equipped phone: ETN Call from outside the U.S. or Canada: OR Use the AT&T country codes plus the toll-free number Direct Dial: (609) Stock_Option_US October 2006.doc Page 3 of 17 Rev. 10/2006

4 Types of Stock Options You may have any of these types of grants: Non-qualified stock options (NQO) Incentive stock options (ISO) Stock appreciation rights (SAR) Note: ISOs are granted under special provisions of U.S. federal income tax laws; therefore, the special tax laws associated with them only apply to U.S. taxpayers. ConocoPhillips: All options issued by ConocoPhillips since February 2003 have been NQOs except to employees in some countries where only SARs can be used. Phillips: Prior to the February 2003 grant, Phillips issued ISOs up to IRS maximums and NQOs to the extent needed to complete the grant. Tosco: Generally followed practice similar to Phillips. Conoco: All options issued between 1998 and the merger were granted as NQOs. Previously, DuPont issued ISOs up to the legal maximum and NQOs for any remainder; therefore, you may have outstanding converted DuPont ISO grants. Global Shares were always NQOs. Grants under the Unit Option Plan were SARs. What are non-qualified options (NQOs)? NQOs are stock options that do not qualify for special tax treatment in the U.S. Federal Tax Code. When NQOs are exercised, Merrill Lynch will withhold applicable taxes from your proceeds and report compensation income (sometimes called the taxable gain or spread) to the company for W-2 purposes. The taxable gain is the difference between the option s grant price and the market price at the time of the exercise, multiplied by the number of options exercised. The income reporting and collection of taxes is required regardless of whether you hold some of the stock or immediately sell the stock acquired in the exercise. What are stock appreciation rights (SAR)? A SAR is a right of an individual to receive cash equal to the per share difference between the option price and the market price of the company s stock on the day you exercise an option (gain). It is similar to a stock option except that actual stock is not bought or sold as part of the exercise. Heritage Conoco Unit Options issued in the past are all SARs and are administered by Merrill Lynch. What are incentive stock options (ISOs)? Only applicable to U.S. employees The following was based on U.S. tax regulations in effect on January 1, 2006, and may no longer apply. For this and other reasons, you are strongly encouraged to seek advice from a competent tax consultant before making any decisions. ISO defined: An ISO is a stock option that meets certain requirements as specified in the U.S. Federal Tax Code. The exercise of an ISO does not result in a taxable gain to the employee if the stock obtained in the exercise is held for at least one year following the exercise and at least two years from the grant date. When you sell the stock after this holding period, the difference between the sales price and the original grant price will be taxable as a long-term capital gain or loss. Selling ISO stock prior to end of holding periods: If you sell or otherwise transfer stock acquired from the exercise of an ISO prior to the end of the holding period Stock_Option_US October 2006.doc Page 4 of 17 Rev. 10/2006

5 (including charitable contributions and gifts but excluding a transfer to your spouse), the transaction is called a disqualifying disposition and the special tax considerations you had at the time of your exercise will be lost. You will be required to notify the ConocoPhillips Payroll Department of the disqualifying sale or transfer and they will report your compensation income in your W-2. Disqualification of ISO during an exercise: Depending on your situation, you may want to disqualify an ISO at the time of your exercise. Disqualification occurs if you select one of the two cashless exercise methods because shares of stock are sold during the exercise. In these circumstances, Merrill Lynch will automatically withhold required taxes from your proceeds and your taxable gain will be reported to the company for W-2 purposes. The ISO will not be disqualified if you use either the cash or stock swap exercise methods because no stock will be sold. Exercise methods are described later in this document. ISOs and impact on your Alternative minimum tax (AMT): Exercising an ISO and holding the stock may impact your AMT because the spread between exercise price and the original grant price is generally taxable under AMT, although not currently taxable for regular tax. Once again, you are strongly advised to consult your personal tax advisor for information regarding this issue. Limitation on exercising ISOs at retirement: Three months following your retirement, all ISOs you hold will become non-qualified. For exercises occurring three months or more following retirement, the compensation and withholding rules described for NQOs will apply. Your ISO record keeping: ISOs require careful record keeping to prove that the holding period was met and that their qualification status was maintained. You will need to track the options exercised as well as what you do with the proceeds when the stock is ultimately sold. Stock_Option_US October 2006.doc Page 5 of 17 Rev. 10/2006

6 Holding period requirements for the stock received in the exercise Tax treatment after termination Taxes at exercise Summary of Differences Between NQOs and ISOs 1 NQOs None The gain is taxed at exercise Gain is taxed at exercise as ordinary income. If stock is held after exercise, any post exercise appreciation may be subject to capital gains tax when sold. ISOs 2 years from the date of grant and at least 1 year from the date of exercise If not exercised within 3 months from termination, it will not qualify for ISO tax treatment at the time of exercise If stock is not sold in the exercise, no income tax will be due at that time. If the stock is held for the required holding periods (see above), the tax due when the shares are ultimately sold will be on the appreciation from the grant price and the sales price and may qualify for capital gains treatment. If holding periods are not met, the tax treatment will be as ordinary income on gain at exercise and capital gain on post-exercise appreciation only. 2 3 Could possibly be subject to AMT, but check with your tax advisor Subject to alternative No minimum tax (AMT) 1 The table is a summary based only on 2006 U.S. federal tax laws. Consult your tax advisor on how federal, state and local tax laws apply to your personal circumstances. 2 Tax will be automatically withheld by Merrill Lynch if stock is sold when the option is exercised. 3 If the sale of the stock results in a loss, consult a tax advisor. Stock_Option_US October 2006.doc Page 6 of 17 Rev. 10/2006

7 Decisions About Exercising Your Options Decision 1: When will you exercise your options? You should always refer to your grant s terms and conditions (award agreement) in any decision about stock options. The following are just some of the things you should consider when deciding if and when to exercise: Exercisability - A grant may include provisions that restrict when the options can be exercised. The most common restriction is having a minimum holding period before the options can be exercised (e.g., the grant becomes exercisable in increments over three years). You should consult the terms and conditions applicable for each grant to identify any exercise restrictions. Life of the grant - The normal term of a grant is 10 years from the grant date. The specific expiration date for each grant is shown on the Merrill Lynch website, as well as on the HR Express page on e-stream (intranet). If an option is not exercised by the expiration date of the option, it will be cancelled. As explained below, termination of employment may accelerate the date by which options must be exercised. Termination of employment - Termination of your employment could dramatically shorten the time you have to exercise your options. Depending on the type of termination, your options may expire as soon as the day you terminate. Options granted to heritage Tosco employees by Tosco might expire as soon as three months following termination of employment. o It is your responsibility to be familiar with terms and conditions of your option grants, including the expiration date and last day to exercise. Do not wait until the very last day to exercise. Circumstances out of the control of the company or Merrill Lynch may make it impossible to exercise by the prescribed time. If you miss the deadline, the company cannot extend the time to exercise regardless of the circumstances that caused you not to exercise before your options expired. Note for all situations: If the market is not scheduled to be open on the date that would have been the last day to exercise, the preceding market day will become the last day to exercise. Stock_Option_US October 2006.doc Page 7 of 17 Rev. 10/2006

8 Merrill Lynch s transaction hours: You must establish an account Limited Individual Investor Account at Merrill Lynch prior to exercising your options. Please keep in mind this process can take up to 3 days. So please set up your account well in advance of a desire to trade. Exercises submitted between 8:30 a.m. and 2:45 p.m. (U.S. Central time) on NYSE trading days will normally be completed in that day s trading. Exercises submitted at any other time would be executed the next time the NYSE opens for trading. Trading on the NYSE normally ends at 3 p.m., however, if you want an exercise to be processed on that same day you must complete your exercise through Merrill Lynch no later than 2:45 p.m. Merrill Lynch uses the remaining 15 minutes to complete transactions that day (e.g. time for stock sales to be made before the market closes). The 2:45 p.m. deadline is when the transaction must be completed and any stock sales are ready to be sent to the market. It is not when you place the phone call or log on to the Web site. Please do not wait until the last minute because your transaction may not be completed in time. Caution: Do not wait to exercise until the end of the day or until the day your grant is to expire. Circumstances beyond the control of the company or Merrill Lynch may make it impossible to exercise by the prescribed time. If you miss these deadlines, the company cannot extend the time to exercise regardless of the circumstances. Decision 2: Which grants do you want to exercise? You should consider at least four things when deciding which grant to exercise: Look at when your grants are scheduled to expire so you don t overlook a grant nearing its expiration date. Review the grant s terms and conditions to see if there is an exercise schedule that might prevent you from exercising all or part of a grant. See if the grant is in the money (i.e., current market price is higher than the grant price). You cannot exercise a grant that is not in the money (underwater). If you still have ISOs, you should consider whether you want to exercise an ISO or an NQO grant or both. You also should ask your tax or financial advisor if you should disqualify an ISO using one of the cashless exercise methods, thus treating it as an NQO for tax purposes. Decision 3: What different exercise methods can you use? For NQO exercises, all of the exercise methods below are available. For ISO exercises, you are limited to the cash and stock swap exercise methods if you want to preserve ISO treatment. If you use either of the cashless methods where stock is sold, when you exercise an ISO, the shares sold will be disqualified and the gain on those shares will be taxed at the time of the exercise just like an NQO. Buy Stock by Sending Funds to Pay for Shares Exercise You pay the exercise cost (number of options being exercised multiplied by the grant price) with your own cash by sending a check, or wiring the funds, to Merrill Lynch prior to your exercise. Your payment must be in U.S. dollars only. Your shares will be delivered to you (see section on delivering stock). If you are exercising an NQO, you will also be responsible for required withholding taxes. See Decision 5 for a description of the methods you can use to pay your taxes. Stock_Option_US October 2006.doc Page 8 of 17 Rev. 10/2006

9 CAUTION: Merrill Lynch will not execute your trade until the funds are in your Limited Individual Investor Account. Cashless Exercise You pay the option cost, taxes and any fees by selling shares from your exercise. There is one method for paying taxes (see Decision 5). You can select one of two cashless exercise methods: Cashless Full Sale or Cashless Hold Stock (Sell to Cover). Cashless Sale Exercise All of the stock is sold. The proceeds are used to pay the exercise cost, tax withholding and fees; the remaining funds are paid to you in cash. Cashless Hold Exercise (Sell to Cover): Only the shares needed to cover the exercise cost, tax withholding and fees are sold. The remaining shares will be delivered to you. Stock Swap Exercise You pay the option cost (number of options being exercised multiplied by the grant price) by tendering shares of ConocoPhillips stock. A stock swap does not require you to physically surrender shares of stock. You pay the exercise cost by attesting (stating) that you own enough shares of ConocoPhillips stock, valued at the average of the high and low market price on the day you exercise. The number of shares required to pay the exercise price is subtracted from the total number of shares you receive through the exercise. The remaining stock, minus any tax withholding, is delivered to you. Attestation can be accomplished by faxing a completed Attestation Form to Merrill Lynch. This form confirms you own the stock and where it is held (i.e., brokerage account). A form is not required if the stock is in an account at Merrill Lynch, because the PSR can see it in your bookentry account. If you need a form, the Merrill Lynch PSR can fax it to you or you can print it from e-stream > Businesses > Human Resources > Global Compensation > Stock Options. What shares can be used for attestation? The stock used for attestation must be in your name only, and you must have owned the stock for at least six (6) months. For ISO exercises, you must have owned the stock form at least one (1) year if the shares were acquired through a prior ISO exercise. Restricted stock may NOT be used for attestation. Note: For a more detailed look at Stock Swaps, go to e-stream > Businesses > Human Resources > Global Compensation > Stock Options. Exercise Modeling Exercise modeling allows you to see an estimate of what the results would be if you performed a particular exercise on that day. You are not actually exercising; just looking at an estimate of an exercise would look like. You may model as many times as you like. Merrill Lynch makes it easy for you to model exercises online. If you are already logged onto your account at Merrill Lynch, click on Model/Exercise from the Home page. Select the transaction type, the awards you want to transact, the specific awards you wish to model and the modeling criteria. Then select Calculate Results. A screen will appear and will display all the details about what the exercise you selected would look like. You can model any exercise Stock_Option_US October 2006.doc Page 9 of 17 Rev. 10/2006

10 method and any of your grants. If you select Continue to Exercise, the screens will direct you through the exercise process. A Merrill Lynch PSR can also price model for you if you prefer to do it on the phone. Decision 4: Will you use a limit order with a cashless exercise? For a cashless exercise, there are two types of orders and each has different timing. Real Time Market Order If you complete the exercise after 8:30 a.m. and before 2:45 p.m. U.S. Central time on a day the NYSE is open, the shares of stock from your exercise will be sold soon after your exercise has been entered on that same trading day. You get the actual sales price of your stock. In the unlikely event that the sale of your stock cannot be completed before the market closes, the sale will be carried over to the next trading day and entered soon after the market opens. Limit Order If the market price of ConocoPhillips stock meets or exceeds your Limit Order price on the NYSE, Merrill Lynch will automatically initiate your exercise. Merrill Lynch has two types of limit orders: 1) Good for a day - your order is good for the day in which it is placed, and 2) Good for 30 days - where it stays in force for 30 days. You may cancel at any time before the price is reached or your order expires. At the end of the period you selected, your order will be cancelled automatically. Note: If the price is reached and there is only a portion of shares available at that price - the order will be filled partially. Decision 5: What about your taxes at exercise? NQOs are taxed at exercise On an NQO, your taxable gain is the difference between the market value at the time of exercise and the grant price multiplied by the number of options exercised. This taxable income is included on your W-2 as ordinary income and will be subjected to federal and FICA tax withholding and other required withholding. Stock_Option_US October 2006.doc Page 10 of 17 Rev. 10/2006

11 Starting in 2003, federal tax on the income from an NQO exercise was withheld at a flat 25 percent. At the time you submit your NQO exercise request, you can choose to increase your federal tax withholding above 25 percent, but it will be in effect only for that exercise. If your taxable year to date income reaches $1 million, taxes on the income over $1 million are withheld at 35 percent. ISOs are normally not taxed at exercise If you use a cash or stock swap exercise, the tax on ISOs is deferred until the stock is sold in the future. If the required holding periods are met, ISO stock will be taxed at the capital gain rate when it is sold. If the holding periods are not met, the ISOs will be disqualified and taxed the same as an NQO. There are three ways to pay your taxes at the time of exercise. As shown in this chart, the exercise method you use determines how you can pay your taxes. Options exercised Three Ways to Pay Your Taxes at Exercise Cash Cashless full sale EXERCISE METHOD Cashless hold stock Stock swap NQO C, W S S C, W Qualified ISO No tax N/A N/A No tax Disqualified ISO 1 N/A S S (tax is only due on stock sold) N/A 1 An ISO is disqualified at the time of exercise when you use an exercise method or a tax payment method that involves selling stock, no matter how it is done. The act of selling the stock is what disqualifies the ISO. S sell stock to pay your taxes. C pay cash to pay your tax with a U.S. dollar certified bank check or wire. W use Share Withholding. Instead of selling stock from your exercise to pay the tax withholding, the company withholds stock equal to the required withholding. This reduces the number of shares you receive from the exercise. If you use Share withholding you cannot increase your Federal tax rate like you can in the other methods. N/A Not applicable Decision 6: Where will your proceeds (stock/cash) be sent? Stock proceeds Stock received from an option exercise (cash, cashless hold and stock swap methods) will be deposited automatically into a Merrill Lynch brokerage in your name that you have previously established. Stock will be in your brokerage account the morning of the fourth day after exercise date; for example, exercise on Tuesday, your stock will be in your Merrill Lynch account on Friday. Once your stock is credited to your brokerage account, you can do any of transactions listed below by calling Merrill Lynch. Keep your stock in your book-entry account at Merrill Lynch at no cost Sell all or some of your stock through Merrill Lynch Stock_Option_US October 2006.doc Page 11 of 17 Rev. 10/2006

12 Transfer all or some of your stock to your private stockbroker Go the Merrill Lynch Brokerage Account for a more detailed description of Merrill Lynch s brokerage account accounts and how to move stock into and out of your account. Cash proceeds Cash received from an exercise will be delivered to you in the same manner as your normal payroll, for U.S. payroll. If you have direct deposit, the cash proceeds will be sent directly to the same bank account, otherwise, a check will be mailed to the home address on file at ConocoPhillips. Option Fees, Statements and Transaction Advices Fees during an exercise ConocoPhillips pays the exercise administrative transaction fee charged by Merrill Lynch for performing the exercise. You pay the sales commission per share of stock sold as well as the small Securities & Exchange Commission fee and a $5.35 postage & handling fee. The sales commission will be based on a real-time environment and charged at the following rates effective October 2, Cashless Exercises Transacted via Benefits OnLIne: Commission rate of $.03 per share Cashless Exercises Transacted via a Participant Service Representative: Number of shares sold Commission per share sold 1 24,999 $.05 25,000 49,999 $.04 More than 50,000 $.03 Note: These commissions only apply to stock sold during an exercise. Statements and Transaction Advices Transaction Advices After an exercise, you will get a Transaction Advice. It will give you the details of your exercise, including your gain, taxes and fees. If you receive cash proceeds by check, the details of your transaction will be included with your check. Statements on demand At any time, you can contact a Merrill Lynch Participant Service Representative or go online to request an up-to-date statement. The statement should be delivered by mail within approximately 10 business days. You can also screen print a current summary of your options directly off the Benefits OnLine Web portal. You are encouraged to use this Web site for the most up-to-date information about your account. A fee will apply for requested duplicate hard copy statements. Stock_Option_US October 2006.doc Page 12 of 17 Rev. 10/2006

13 Sending Cash to Merrill Lynch for Cash Exercises ConocoPhillips participants may deposit cash for a cash purchase exercise three ways. First they can mail a check made payable to Merrill Lynch referencing the participant's retail account number. Second, they deposit a check in person at a Merrill Lynch branch office with cashier functions. Finally, they can initiate a wire transfer with their financial institution, which is usually available same day or next business day for option exercise depending on when the wire is initiated. Remember that only U.S. dollars can be sent as payment. Check Deposits By Mail (U.S. Postal or private overnight): Please reference the retail account number and mail to: Merrill Lynch Financial Services Attn: Cashiering Dept Merrill Lynch Drive MSC 04-3S-D Pennington, NJ Check Deposits via Branch Office: Make check payable to Merrill Lynch and note the retail account number. The closest Branch office to ConocoPhillips Headquarters is: Merrill Lynch (Houston Westlake) 580 Westlake Park Blvd. Suite1100/1630 Houston, Texas Phone number: Wire Transfer Inbound: If you want to direct a Federal Fund wire into your Merrill Lynch account, please provide the instructions below to the sending financial institution. These instructions must be followed exactly to ensure quick and accurate execution of your transfer. Mellon Bank 500 Ross Street Pittsburgh, PA ABA Routing # (For International Wires add: Swift # MELN-US3P) For Credit to Merrill Lynch Account No Further Credit to {Client Name and Merrill Lynch Account Number} Please Note: The only field you need to provide is the "Further Credit to" field. You will be required to give your name and the Merrill Lynch account number into which you want to receive the Federal Fund wire. Failure to give the correct number can result in the wire being returned to the sending financial institution. Stock_Option_US October 2006.doc Page 13 of 17 Rev. 10/2006

14 Merrill Lynch Brokerage Accounts Where your stock goes after a cashless hold, cash or stock swap exercise As explained in Decision 6, stock proceeds from an option exercise (cash, cashless-hold and stock swap methods) will be deposited automatically into your brokerage account Merrill Lynch. How to transfer stock to your personal broker Call your broker who will be responsible for moving your stock from Merrill Lynch. Request your broker to submit an electronic request to move the stock from Merrill Lynch. If the person you speak to seems unfamiliar with the process, ask to speak to someone from their back office responsible for stock transfers. Provide your broker information similar to the following list. This can be obtained by calling a Merrill Lynch PSR, from a Benefits OnLine site screen print, your Merrill Lynch statement or from the transaction advice you received following an option exercise. 1) Your name as shown on the Merrill Lynch account 2) Merrill Lynch Account #: 5RK-XXXXX if opened online, if account was opened by paperwork 5RL-XXXXX 3) The number of shares you want transferred Note: If your broker has questions, have the broker call Merrill Lynch at If your broker wants you to use a process that requires a Medallion Guarantee, you can obtain one from your broker or from many financial institutions including credit unions. Some credit unions/banks, however, have limits on the value they can guarantee (e.g., $100,000). To consolidate your shares of unrestricted ConocoPhillips stock held in your Mellon Investor Services account or other brokerage accounts with Merrill Lynch, you must first establish a Merrill Lynch Limited Individual Investor Account. Next, contact a Merrill Lynch Participant Service Representative, who will instruct you on how to complete the broker-to-broker transfer. You will need your most recent account statement(s) reflecting your share balance. This consolidation will be completed at no cost to you. Mellon Investor Services will continue to serve as ConocoPhillips transfer agent. As transfer agent, Mellon tracks all of the Company s stockholders and facilitates distribution of dividends, the issuance and transfer of shares, and the proxy process. Dividends (default is cash) The default has been set for you to receive dividends in cash (or check). You can also have your dividends reinvested as additional stock (including fractional). Contact Merrill Lynch to change your preference. Book-Entry Account at Mellon If you continue to hold unrestricted ConocoPhillips stock in your book-entry account at Mellon you may access your account through Hr Express. A book-entry account is part of the Direct Registration system ConocoPhillips has established with Mellon. Direct Registration allows a stockbroker to buy, hold and sell stock on a company without the need of a broker. Stock_Option_US October 2006.doc Page 14 of 17 Rev. 10/2006

15 Accessing My Book-Entry Account at Mellon From the Web: Log on to the HR Express application on e-stream, or go directly to Mellon through the provided link on the Internet. On the Your Accounts page, your stock should show under Equity Holdings. Click Details to view your balances, request statements and buy/sell additional COP stock. By Telephone: this number will take you directly to the book-entry and Direct Registration section of Mellon. Book-entry account transactions Buy more COP stock Sell your stock Transfer stock into your account * Transfer stock out of your account * An example could be former Conoco participants who have stock at American Century Brokerage and want to move it to Mellon. Dividends (default is cash) The default has been set for you to receive dividends in cash (check). You can also have your dividends reinvested as additional stock (including fractional). Contact Mellon to change your preference. How to transfer stock to your personal broker Call your broker who will be responsible for moving your stock from Mellon. Request your broker to submit an electronic request to move the stock from Mellon. If the person you speak to seems unfamiliar with the process, ask to speak to someone from their back office responsible for stock transfers. Provide your broker information similar to the following list. This can be obtained by calling a Mellon CSR, from a Mellon Web site screen print, your Mellon statement or from the transaction advice you received following an option exercise. 1) Your name as shown on the Mellon account 2) Mellon Account Key: Example = SMITHJOHNJ ) Mellon Account #: Normally your Social Security number 4) The number of shares you want transferred Note: If your broker has questions, have the broker call Mellon at If your broker wants you to use a process that requires a Medallion Guarantee, you can obtain one from your broker or from many financial institutions including credit unions. Some credit unions/banks, however, have limits on the value they can guarantee (e.g., $100,000). Stock_Option_US October 2006.doc Page 15 of 17 Rev. 10/2006

16 This document contains summaries of the plans and programs as they exist at the time of final editing, October While every effort has been made to assure the accuracy of the book, if there is any conflict between the information in the book and the official documents governing the plans and programs, the official documents will control. Nothing in this document is intended to create or affect an employment relationship between ConocoPhillips, or its subsidiaries and affiliates, and any person. The sponsors of the plans and programs have reserved the right to amend or terminate any plan or program at any time, at the sole discretion of each, in accordance with the terms of the plan or program. Neither Merrill Lynch nor ConocoPhillips and their representative provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax, accounting or legal statements made herein. Glossary Alternative Minimum Tax (AMT): In the context of stock options, AMT pertains to the exercise of incentive stock Options where the resulting stock is held and not sold. The excess of the market value of the options over the option exercise price, while not taxable for the regular income tax liability calculation, is an item of tax preference that must be taken into account in the taxpayer s AMT calculation. Based on 2006 U.S. tax regulations. attestation: To show proof of ownership of stock to be used for a stock swap. An optionee may submit a form declaring ownership. This avoids surrendering a physical stock certificate for the stock used to exercise the option. Use of attestation depends on your plan rules. cash exercise: The optionee remits funds to cover option costs and any applicable tax withholding in return for the stock. No stock is sold. cashless for cash exercise: See cashless full sale. cashless for stock: See cashless hold exercise. cashless sale: All stock received on exercise is sold and the optionee will receive the funds net of all option costs and applicable tax withholding and fees. cashless hold (sell to cover): A transaction in which an optionee exercises a stock option and simultaneously sells enough stock to pay the option costs and any applicable tax withholding and fees. The remaining stock is issued to the optionee. cashless sell stock: See cashless full sale. disqualified ISO: An ISO that has been exercised with its resulting stock sold before the required holding periods were met. If an ISO is disqualified upon exercising, it is taxed like an NQO. In most cases, termination of employment also can trigger the disqualification of an ISO after three months. exercise: To purchase the stock offered in your stock option grant at the option price. exercise schedule: A schedule setting forth when, and to what extent, options become available for exercising. For example, a schedule could show that one-third of a grant becomes available on the first anniversary of the grant, another third of the grant becomes available on the second anniversary and the final third of the grant becomes available on the third anniversary of the grant. Stock_Option_US October 2006.doc Page 16 of 17 Rev. 10/2006

17 expiration date: The day your options expire and can no longer be exercised. If the expiration date falls on a day the NYSE is not open, the last day to exercise your option is the last day the market is open prior to the expiration date. fair market value: The average of the high price and the low price for ConocoPhillips stock during a day of trading on the New York Stock Exchange. grant date: The date that a stock option is awarded or granted. grant price: The fixed price at which you can purchase shares of stock under a stock option. Also known as the option price or strike price. incentive stock option (ISO): An ISO is a specific form of option defined by the Internal Revenue Code. If certain holding period rules are followed, you generally do not incur regular federal tax liability at the time of exercising an ISO, although you could be subject to the alternative minimum tax at exercise. market price: This is the fair market value per share used in your exercise. It is the actual sales price when stock is sold in the exercise. non-qualified stock option (NQO): An option that receives no special tax treatment. The gain (which is the difference between the fair market value at the time of exercise and the grant price, multiplied by the number of options exercised) is included on the taxpayer s W-2. option price or strike price: See grant price. proceeds: The total amount you receive from the exercise of your option, less any fees. stock appreciation right (SAR): An SAR is a right of an individual to receive cash equal to the per share difference between the option price and the market price of the company s stock on the day you exercise an option (gain). It is similar to a stock option except that actual stock is not bought or sold as part of the exercise. Unit options issued by Conoco in the past are SARs. share withholding: Shares of stock that are withheld from an option exercise (cash or stock swap methods) to pay for any applicable tax withholding, option cost and fees. spread: The per share difference between the option price and the market price of the company s stock on the day you exercise an option. stock option: The right to purchase stock at a specified price over a certain period. stock swap exercise: An exercise type in which shares of company stock already owned are delivered by attestation (see above), in lieu of cash to pay for the exercise of stock options. Prior to being used in the exercise, swapped shares normally have been held more than six months [twelve months if the shares came from an exercise of an incentive stock option (ISO)]. Stock_Option_US October 2006.doc Page 17 of 17 Rev. 10/2006