The Role of Eagle Ford and Texas in America s Energy Renaissance World Affairs Council Helen Currie, Senior Economist August 21, 2014

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1 Move cursor here to read speaker notes; right click to see entire note The Role of Eagle Ford and Texas in America s Energy Renaissance World Affairs Council Helen Currie, Senior Economist August 21,

2 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

3 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

4 North American Shale Plays Source: U.S. Department of Energy, EIA 4 4

5 The Gas Side of the Revolution: Deep in the Heart of Texas 70 U.S. Natural Gas Production (Bcf per day) Liard Basin Horn River Montney 60 Shale Unconventional Gas 50 Marcellus 40 Non-Shale Conventional Gas Permian Basin Barnett Fayetteville Haynesville 30 Eagle Ford Production Data Source : U.S. Department of Energy, Energy Information Administration (EIA) 5

6 U.S. LNG Import / (Export) Projections 20 Historical U.S. Department of Energy Projections 2005 BCFd Net Importer (5) Net Exporter (10) U.S. is poised to become a net LNG exporter Source: U.S. Dept. of Energy, Energy Information Administration 6

7 Global Natural Gas Prices Nominal $/MMbtu Source: Bloomberg 7 Japan LNG U.K. Spot Wide divergence between pricing in major markets U.S.

8 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

9 Unconventional Resources: Size of Largest Plays Bakken 7-45 BBOE Marcellus Permian Basin BBOE Eagle Ford BBOE Oil Wells Gas Wells Condensate Wells Dry Holes 9

10 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 Oil (crude & condensate) Alaska North Dakota 0.5 California Jan Jan Jan Jan Jan-1981 Source : U.S. Department of Energy, Energy Information Administration (EIA) 10

11 U.S. Oil Production Projected to Exceed the 1970s Peak 18 U.S. Crude, Condensate and Natural Gas Liquids Production U.S. Department of Energy Forecast Million Barrels per Day "Peak Oil" Alaska Crude U.S. Tight Oil Conventional Production NGLs High Resource Case Source: U.S. Department of Energy, EIA, Annual Energy Review 2013, Forecast from EIA Annual Energy Outlook 2014, Various forecasts 11

12 Growth in Production Restored U.S. Role as Oil Powerhouse Crude, Condensate and NGLs Production for Top 10 Countries, NGLs Crude Oil & Condensate Million Barrels per Day Saudi Arabia Russia United States China Canada Iraq Iran UAE Mexico Kuwait OPEC Neutral Zone production split between Saudi Arabia and Kuwait. Source: IEA for OPEC Crude Production, Rystad Energy for NGLs and Non-OPEC 12

13 North American Oil Independence Likely by Demand Million Barrels per Day Net Imports Source: PIRA Energy Group 13

14 Eagle Ford Oil and Natural Gas Production 3.0 Oil Production 7 Natural Gas Production Million Barrels per Day Crude and Condensate NGL BCFD Dry Gas Source: Rystad Energy 14

15 Eagle Ford Drilling Efficiency Improvements 1,200 1,000 Oil Initial Production Rate (Barrels per Day) 300% Increase from Drilling Days (Spud to Rig Release) 48% Decrease from 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

16 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

17 Benefits for U.S. from Unconventional Reservoirs Revolution Economic Energy Security Environmental U.S. Jobs and GDP U.S. Net Energy Imports U.S. CO 2 Emissions (MTPA) 35 Quadrillion BTUs 30 6,200 6, ,800 5,600 5,400-12% Chemicals & Manufacturing , Source = U.S. EIA, From Total Energy 5 Other Benefits of Natural Gas Clean-burning Source = U.S. EIA Small water usage footprint No solid waste Enables wind & solar power 17

18 In-Migration of Manufacturing: U.S. Industrial Re-shoring U.S. Manufacturing PMI consistently ahead vs China since early 2011 U.S. Manufacturing Employment: gained over a half-million jobs since Above 50 = Expansion 13.8 (millions) 55 U.S China Below 50 = Contraction Source: Markit 18 Source: U.S. Bureau of Labor Statistics

19 Natural Gas Liquids: A Key to Revitalizing U.S. Manufacturing NGL output grew 40% Chemicals feedstock costs favor U.S. Price ratio of Mt. Belvieu purity ethane vs. Singapore naphtha Million Barrels per Day Million Barrels per Day U.S. is now a net exporter of LPGs 0.25 Net Importer (0.05) Net exporter (0.15) Source: EIA Field Production of natural gas liquids and LPG net imports. Bloomberg Mt. Belvieu ethane and Singapore naphtha prices. 19

20 Global Crude Supply Disruptions vs. U.S. Tight Oil Growth Growth in Global Supply Disruptions (MMBD) Growth in U.S. Tight Oil Production (MMBD) Increase in losses since December Increase in production since December 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

21 U.S. Light Crude Oil Production vs. Light Refinery Runs Light Crude Runs w/o substantial refinery investment Light Crude Production Million Barrels per Day 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

22 Crude Oil Market Price Outlook 140 Brent Price Outlook (2014 $ per Barrel) 5 WTI-Brent Price Differential (2014 $ per Barrel) (5) 80 (10) 60 (15) 40 (20) Discounted domestic prices threaten investment in U.S. crude production Brent ICE and NYMEX WTI Futures as of 8/8/

23 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 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,

24 Basins With Assessed Shale Oil & Shale Gas Resources Source: U.S. Energy Information Administration, U.S. Geological Survey & ARI; May

25 Global Shale Resources Technically Recoverable Shale Gas Resources 7,795 TCF Technically Recoverable Shale Oil Resources 345 Billion Barrels RoW 23% China 14% RoW 21% Russia 22% Russia 4% South Africa 5% Australia 6% Mexico 7% Canada 7% U.S. 15% Argentina 10% Algeria 9% Canada 3% Mexico 4% Venezuela 4% Australia 5% Libya 7% Argentina 8% China 9% U.S. 17% (58) Substantial shale potential exists in many countries around the globe Source: ARI for U.S. Department of Energy, EIA, June

26 Texas: From Rags to Riches (in only 5 Years) OPEC Members December 2009 December 2012 December 2013 December 2014 Saudi Arabia Iran Iraq UAE Kuwait Nigeria Venezuela Angola Algeria Qatar Libya Ecuador 1.1 MMBO per Day 2.2 MMBO per Day 2.8 MMBO per Day 3.4 MMBO per Day Texas Already > Norway Mexico U.K Brazil 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

27 Importance of Oil & Natural Gas to the Texas Economy Largest U.S. energy producer. 1 st in oil & condensate 2 MMBOD (31% of U.S. total in 2012) 1 st 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 Employs 1.9 million Texans Drives ancillary industries Generates billions in royalties & severance tax revenue Oil Fields Gas Fields Oil & gas have made Texas an economic success compared to rest of U.S. Source: U.S. Dept. of Energy, EIA, PWC 27

28 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 investment 1 $20-25/BOE full-cycle F&D cost 1 28 Note: Data are average.

29 ConocoPhillips in Eagle Ford Communities Mitigating Impacts Enhancing Quality of Life Truck Traffic Reduction Percent Daily Oil Production Trucked Feb 2013 Feb % 56% (while production increased more than 40%) 29

30 There s Power in Cooperation Engagement and Dialogue Education and Transparency 30

31 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

32 Questions & Answers World Affairs Council Helen Currie, Senior Economist August 21,