Conocophillips · NYSE:COP
Conocophillips — Investor Presentation (March 2012)
45 slides from Conocophillips's investor presentation, Mar 5, 2012
Slide 1: Investor Update
Investor Update Jim Mulva Chairman & Chief Executive Officer March 5, 2012 New York, NY 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
Slide 2: Introduction
Introduction Update on Company o Strong operational and financial performance o On target to execute repositioning o No change in strategy or direction Update on repositioning o Creating two leading energy companies o Spin enhances both companies’ ability to compete and execute o Unique opportun
Slide 3: ConocoPhillips Today
ConocoPhillips Today Cash from Operations (2011) Strong OECD‐based cash flow 19% Improving margins and returns OECD 81% Growth per share Non‐OECD $90 B Capital Employed (2011) Shareholder focus 5% Continued non‐core asset sales 25% E&P 70% Positioned for absolute growth R&M Other 3
Slide 4: Repositioning Rationale – 2009
Repositioning Rationale – 2009 Align portfolio with view of opportunities Rapid response to change in economic circumstances o Financial crisis / share price undervalued > Utilize cash from asset sales to bring debt down and aggressively grow shareholder distributions through share buyback and d
Slide 5: 3 Year Repositioning Plan: 2010 – 2012
3 Year Repositioning Plan: 2010 – 2012 Portfolio Optimization Balance Sheet Monetize non‐core assets Reduce debt Position for organic growth Strengthen financial flexibility Focus capital toward E&P Increase liquidity Reduce exposure to refining Returns Enhancement Distributions Impr
Slide 6: Progress through 2011 – Right on Target
Progress through 2011 – Right on Target Portfolio Optimization Balance Sheet LUKOIL interest sold for $9.5 B Debt reduced by $6 B $10 B of non‐core asset sales Debt / cap of 26% 129% average organic RRR1 2010 / 2011 Liquidity2 increased by $6 B to $13 B Announced spin of Downstream Ret
Slide 7: 2010 – 2011 Allocation of Capital
2010 – 2011 Allocation of Capital $B 70 CFO exceeds Capex and Dividends by $5 B Asset sale proceeds plus LUKOIL used for 60 1 $15 B share repurchase plus debt reduction 39% of CFO & proceeds returned to shareholders 50 20 25 68% of CFO reinvested (peers 75%) 40 Debt at target level 30 7 6
Slide 8: Shifting Capital to Higher Returns
Shifting Capital to Higher Returns % of Total Capital Program 100% 90% 80% 70% 71% 60% 79% Liquids, International 86% Gas and Other 50% 40% 30% 12% 20% 10% 10% 7% L48 Gas / Canada Gas 17% 11% 7% R&M 0% 2009 2010 2011 7% ROCE 10% ROCE 14% ROCE Portfolio shift helps drive margin and returns improvemen
Slide 9: Enhancing Returns
Enhancing Returns Capital Efficiency Reduced refining and N. A. gas 25% ROCE CROCE Continued capital discipline 20% Improved cash margins 15% Share repurchase accelerates 10% improvement 5% 0% 2009 2010 2011 2009 2010 2011 Continued focus on improving returns 9
Slide 10: Leading Returns Improvement
Leading Returns Improvement Peer‐leading improvement in ROCE from 2010 to 2011 Percent Change 2011 vs 2010 ROCE CROCE 35% 26% 25% 13% 9% 5% 6% 1% -2% -7% -6% -9% COP RDS CVX XOM TOT BP *All companies adjusted to exclude certain non‐core‐earnings impacts. All peer adjustments are based solely on pu
Slide 11: Strong Financial Flexibility
Strong Financial Flexibility Year‐End Debt Debt‐to‐Capital Ratio ($ B) (%) 35 35 31 30 29 30 25 26 25 24 23 25 20 20 15 15 10 10 5 5 0 0 2009 2010 2011 2009 2010 2011 Reduced debt and increased financial flexibility 11
Slide 12: Delivering Asset Sales Program
Delivering Asset Sales Program LUKOIL proceeds of $9.5 B Announced $10 B program for 2010/11 2010 / 2011 disposition results o Proceeds of $7 B in 2010 / $3 B in 2011 ~$113,000/BOED production Expect 2012 asset sales of $10 B ~$20/BOE reserves Total of $30 B over 3‐year period Selectio
Slide 13: Share Repurchase Program
Share Repurchase Program Cumulative Share Repurchases ($ B) 16 $15 B share repurchases 14 Reduced outstanding shares 15% 12 Purchased reserves @ ~$10/BOE 10 Funded with proceeds from asset 8 sales and LUKOIL share sale 6 $10 B repurchases in 2012 4 o $5 B in first half of year 2 o Timing o
Slide 14: Production per Share Growth
Production per Share Growth BOE Production / Share 2010 – 2012 asset sales program 0.60 decreased production 0.56 G R CA $25 B share repurchase program 0.52 5% during 2010 – 2012 increasing 0.48 production per share 0.44 Absolute production growth in 2013 forward 0.40 0.36 2010 2011 2012E 2014
Slide 15: Annual Dividend Increases
Annual Dividend Increases COP Quarterly Dividend Growth (cents/share) 66 230% increase / 14% CAGR 55 50 Nine consecutive annual 47 increases 41 36 Current yield = 3.5% 31 22 25 ~20% of operating cash flow 20 Annual increases expected '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Current yield ba
Slide 16: Remaining 2012 Initiatives
Remaining 2012 Initiatives Portfolio Optimization Balance Sheet 2012 asset sales of $10 B No material change Progress major E&P projects Retire debt as it matures Rationalize low margin refineries Maintain significant liquidity Returns Enhancement Distributions Increase ROCE Spin cre
Slide 17: Execution of Plan: 2010 – 2012
Execution of Plan: 2010 – 2012 Portfolio Optimization Balance Sheet Monetized $30 B, including LUKOIL Debt reduced Positioned E&P for future organic growth Liquidity and financial flexibility Reduced exposure to refining increased Execute Downstream spin / grow Midstream and Chemicals Re
Slide 18: Plan Execution – Good Allocators of Capital
Plan Execution – Good Allocators of Capital $ B 2010 – 2012 90 Add'l B/S Cash 80 Debt Reduction B/S Cash Asset 70 $ 30 B Dividends Sales Debt Reduction Asset $ 15 B 60 Sales Dividends Share $ 25 B 50 Share Repurchase $ 16 B Repurchase 40 30 CFO CFO 20 Capex Capex 10 Cash Sources Cash Uses 0 2010 Ana
Slide 19: Key Performance Metrics
Key Performance Metrics 2010 2011 2012 Key Metrics Actual Actual Outlook E&P Production – MMBOED 1.75 1.62 1.55 Annual E&P Production per Share 0.44 0.45 0.50 E&P Cash Margin – $/BOE $21 $28 $281 Refining Crude Capacity – MMBPD – YE Exit Rate 2.7 2.2 2.0 ROCE 10% 14% 14%1 CROCE 20% 23% 23%1 Annual S
Slide 20: Value Creation Through Repositioning
Value Creation Through Repositioning Performance of $100 invested in October 2009 180 Total Shareholder Return COP Peers S&P 500 Annual return: 24% 160 140 14% 12% 120 100 80 2009 2010 2011 2012 Market expectation of continued strong returns Peers include ExxonMobil, BP, Chevron, Total and Royal Dut
Slide 21: Creation of Two Leading Energy Companies
Creation of Two Leading Energy Companies Special dividend of Phillips 66 shares to COP shareholders 1 share of Phillips 66 per 2 shares of COP owned at record date $6 B of cash transferred to COP, majority subsequently used for COP debt repayment Before Spin After Spin COP COP Shareholders Sha
Slide 22: Spin – Efficient Repositioning
Spin – Efficient Repositioning Improve returns – capital allocation Provide pure‐play investment opportunity Strengthen strategic focus Increase transparency of assets and results Enable Phillips 66 to pursue / capture new opportunities Enhance value recognition of Chemicals and Midstrea
Slide 23: The New ConocoPhillips
The New ConocoPhillips Large, diversified and international Reserves – 8.4 BBOE (YE 2011) reserve and resource position OECD 21% Non‐OECD 100%+ reserve replacement Growing production and margins 79% Ability to execute projects on a global scale Production – 1.55 MMBOED (2012E) Financial ca
Slide 24: Positioned to Create Differential Value
Positioned to Create Differential Value Cash flow growth Unique Position o Production CAGR of 3 – 5% the next 5 years 10% o Margin CAGR of 5% over the next 5 years Production Growth Target (flat price environment) 8% E&Ps o Financial strength to fund growth through 6% COP the cycle 4% Strong sha
Slide 25: Continued Strong Reserve Replacement
Continued Strong Reserve Replacement Reserves replacement above 100% at competitive F&D costs ($20/BOE) 3.6 BBOE reserves additions expected in 2012 – 2016 Reserves Additions Reserves Replacement1 140% (2012E through 2016E, BBOE) Asia 120% Pacific Europe & 100% Africa 80% Australia Lower 48 60%
Slide 26: Investing in Growth
Investing in Growth 2012E Capital Major Projects $14 ‐ $15 B $5‐6 B FCCL Exploration $2 B Surmont 2 & Appraisal Clair Jasmine Ekofisk South Indonesia Eldfisk II Malaysia Major APLNG Projects $5‐6 B Asia Pacifc North Sea SAGD Major Projects Exploitation West Africa $5 B Asia P Norway Alaska Western C
Slide 27: Growth from Major Projects
Growth from Major Projects 900 MBOED added from drilling and projects between 2012 and 2016 Decline after exploitation capital ~0% By Project Type Major Projects (MMBOED) 400 Alaska 350 MBOED Future impact from SAGD 1.8 300 potential 2012 0.4 dispositions 250 North Sea Major 1.5 0.2 projects 200
Slide 28: Absolute Production Growth
Absolute Production Growth 300 MBOED growth from 2012 to 2016, production CAGR of 3‐5% Liquids and LNG account for 85% of the growth MMBOED 1.8 LNG › L48 liquids and international projects 1.5 drive production CAGR of 4‐6% for Liquids L48 + Canada liquids & LNG 1.2 Liquids › North American natur
Slide 29: Improvement in Cash Margins
Improvement in Cash Margins Shift to high margin production results in 5% cash margin CAGR By Cash Margin Growing Production in Higher (MMBOED) Margin Areas 2012‐2016 Production Change, MBOED 2012 Flat Price Conditions 1.8 150 L48 Liquid Rich 1.5 100 Asia Pacific LNG Oil Sands 1.2 Cash Margin < $3
Slide 30: Exploration Success Enhances Growth
Exploration Success Enhances Growth Unconventional exploration o Pilot programs in 5 new plays in North America > Encouraging early results in all pilots (including Avalon and Duvernay) o Acquired significant acreage positions in liquids rich plays > Acquired over 500,000 net acres in North Americ
Slide 31: Differential Value Creation
Differential Value Creation COP Enterprise Value Implied Current Opportunity Using Range of Peer Metrics EV EV E&Ps EV/DACF EV/DACF IOCs E&P EV/ Reserves Reserves P/E PE EV, $B $50 $70 $90 $110 $130 $150 Opportunity to increase shareholder value Includes sampling of integrated (BP, CVX, RDS, TOT, XO
Slide 32: Phillips 66 – Uniquely Integrated Downstream
Phillips 66 – Uniquely Integrated Downstream Capital Employed by Region (2011) Industry‐leading R&M, Chemicals and Midstream Int'l businesses 19% Returns‐focused U.S. Opportunities for growth 81% Competitive position Net Income (2011) Financial strength and flexibility Chemicals 14% o Cred
Slide 33: Leading Downstream Company
Leading Downstream Company R&M Midstream Chemicals 15 refineries (11 in US) Operations managed mainly 50/50 JV with Chevron ‐ CPChem Nelson complexity average of 11 through DCP Midstream, a 50/50 North America’s largest producer JV with Spectra Energy of high density polyethylene 2.2 MMB
Slide 34: Creating Differential Value
Creating Differential Value Repositioning portfolio / improving returns o Growing investments in Midstream and Chemicals > DCP and CPChem have announced multi‐billion dollar growth projects o Reduce refining exposure o Aggressively manage cost structure Operational diversification and financial
Slide 35: Competitive Position
Competitive Position Global Refining Capacity 6,000 (MBD) 5,000 ROW Segment Adjusted Earnings Asia 4,000 10,000 (2009‐2011 Average, $MM) Europe 3,000 N.A. 2,000 1,000 7,500 Transportation Retail XOM BP VLO PSX CVX MPC TSO Midstream 5,000 Chemical / Ethanol U.S. Refining Capacity 2,500 (MBD) R&M Padd
Slide 36: Operational and Financial Metrics
Operational and Financial Metrics 2011 2012 Key Metrics Outlook 2015+ Actual Advantaged Crude 54% 62% 65%+ Distillate Yield 40% 40% 42% Debt, $B ‐‐ 8 6 Cash, $B ‐‐ 2 3 Debt / Total Capitalization ‐‐ ~30% <25% Credit Ratings ‐‐ BBB/Baa1 BBB+/Baa1 ROCE 14% 15%+1 15%+ R&M % Capital Employed2 84% 81% 70
Slide 37: Differential Value Creation
Differential Value Creation PSX Enterprise Value Implied Using Current Opportunity Range of Peer Metrics EV EV EV/CF P/E EV, $B $10 $20 $30 $40 Opportunity to enhance value recognition of all segments Current EV based on COP non‐E&P EV estimate from various analyst reports. Includes sampling of R&M
Slide 38: Path Forward – Update on Spin Transaction
Path Forward – Update on Spin Transaction Credit ratings received by S&P and Moody’s o COP maintains A & A1 / PSX receives BBB / Baa1 Phillips 66 bank financing in place Phillips 66 intends to access debt capital markets pre‐spin Expect favorable ruling from IRS and SEC clearance in March o
Slide 39: Complete COP Repositioning in 2012
Complete COP Repositioning in 2012 ConocoPhillips Continued focus on shareholder distributions o Progress share repurchase program of $10 B in 2012 > Expect $5 B in share repurchase through June > Additional share repurchase dependent on asset sales timing o Modest dividend increase Complete ass
Slide 40: History of Differential Value Creation
History of Differential Value Creation Performance of $100 invested in July 1999 500 Total Shareholder Return Repositioning COP Peers S&P 500 Annual return: 13% 400 300 9% 200 2% 100 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Positioned to continue to outperform Peers in
Slide 41: Appendix
Investor Update Appendix March 5, 2012 New York, NY
Slide 42: COP Non GAAP Reconciliations
COP Non GAAP Reconciliations 2009 2010 2011 GAAP E&P Net Income1 - $MM 3,604 9,198 8,242 GAAP E&P Net Income1 - $ / BOE 5.33 14.38 13.95 non-core earnings impacts - $MM (gains) and losses on asset dispositions (55) (3,151) 113 asset impairments / cancelled projects 613 723 683 tax legislation / regu
Slide 43: COP Non GAAP Reconciliations
COP Non GAAP Reconciliations ROCE 2009 2010 2011 Numerator ($MM) Net income 4,492 11,417 12,502 After-tax interest expense 838 772 632 GAAP ROCE earnings 5,330 12,189 13,134 Non-core earnings impacts 616 (2,533) (279) Adjusted earnings 5,946 9,656 12,855 Adustment to exclude LUKOIL (1,219) (1,252) (
Slide 44: COP Non GAAP Reconciliations
COP Non GAAP Reconciliations R&M - ROCE Midstream - ROCE 2011 2011 Numerator ($MM) Numerator ($MM) Net income 3,853 Net income 403 After-tax interest expense - After-tax interest expense - GAAP ROCE earnings 3,853 GAAP ROCE earnings 403 Non-core earnings impacts (1,134) Non-core earnings impacts - A
Slide 45: COP Non GAAP Reconciliations
COP Non GAAP Reconciliations CROCE 2009 2010 2011 Numerator ($MM) EBIDA1 14,624 21,248 21,068 Non-core earnings impacts 616 (2,533) (279) Adjusted EBIDA 15,240 18,715 20,789 Adustment to exclude LUKOIL (1,219) (1,252) (239) Adjusted EBIDA excluding LUKOIL 14,021 17,463 20,550 2 GAAP CFOA 12,479 17,0