ConocoPhillips

Capex

ConocoPhillips approved a 2008 capital budget of $14.3 billion, including cash capital expenditures and capitalized interest. Loans to affiliates and contributions to fund the upstream business venture with EnCana add an additional $1.0 billion, bringing the total authorized capital program to $15.3 billion.

Approximately 80 percent of the company’s 2008 total authorized capital program will be allocated to its Exploration and Production segment. The Refining and Marketing segment will receive about 18 percent, with the remaining being spent in Emerging Businesses and Corporate. Additional details on the capital program for each of the company’s business segments are provided below.

Exploration and Production (E&P)
E&P’s 2008 capital budget is expected to be $11.0 billion, including capitalized interest of $0.6 billion. This, combined with approximately $0.4 billion for loans to affiliates and the company’s $0.6 billion of contributions to the upstream business venture with EnCana, results in a total E&P capital program of $12.0 billion. This program, and the regional totals below, include the capital allocated for the company's global gas activities, as well as $1.6 billion for worldwide exploration activities.

In the U.S. Lower 48, the company intends to spend about $3.3 billion, primarily on its ongoing development programs, including those in the Bossier and Lobo trends and the San Juan, Permian, Fort Worth and Piceance basins. Funds also will be spent on the development of new projects, including the Rockies Express natural gas pipeline project.

Spending of $2.2 billion in Canada will primarily focus on ongoing development programs in the Western Canada gas basins and progression of heavy oil projects, including those associated with the EnCana business venture.

About $1.8 billion has been allocated for projects in the North Sea, including the continued development of the J-Block fields, Britannia and its satellite fields, and existing and new opportunities in the Ekofisk area.

Within the Asia Pacific region, the company anticipates expenditures of approximately $1.7 billion. The majority of the funding will support the continued development of Bohai Bay in China; oil and gas reserves offshore in Block B and onshore South Sumatra in Indonesia; and fields offshore Malaysia and Vietnam.

In the Russia and Caspian Sea region, about $1.3 billion of capital spending will primarily support the continued development of the Kashagan field in the Caspian Sea and the Yuzhno Khylchuyu field in northern Russia.

E&P capital spending of $1 billion in Alaska is expected to be primarily directed toward the development of the Alpine satellites and the West Sak heavy-oil field, as well as continued development within the existing Prudhoe Bay and Kuparuk areas.

In the Middle East and Africa, the company estimates it will spend approximately $0.7 billion, primarily on the continued development of the Qatargas 3 project in Qatar, the Waha Concessions in Libya, and several onshore developments in Nigeria.

Refining and Marketing (R&M)
The 2008 capital program for R&M is approximately $2.8 billion, including capitalized interest of $0.1 billion.

The company has allocated about $1.6 billion for U.S. refining, primarily for projects related to sustaining and improving the existing business with a focus on reliability, energy efficiency, capital maintenance and regulatory compliance. Work continues at a number of refineries on projects to increase crude oil capacity, expand conversion capability and increase clean product yield.

International R&M is expected to spend approximately $0.4 billion, with a focus on projects related to reliability, safety and the environment, as well as an upgrade project at the Wilhelmshaven, Germany, refinery and the advancement of a full-conversion refinery project in Yanbu, Saudi Arabia.

The remaining $0.8 billion of R&M capital is for projects in the company’s domestic transportation and marketing businesses, including the Keystone crude oil pipeline project.

Emerging Businesses and Corporate
The 2008 capital program for Emerging Businesses and Corporate is approximately $0.5 billion. The majority of the spending is earmarked for power generation, primarily for the second phase of an expansion project at the company’s Immingham Combined Heat and Power plant in the United Kingdom.

In Corporate, capital expenditures are expected to be primarily for global information systems and services projects.

Energy Resource Development
In addition to the research and development funds already dedicated to projects as part of the 2008 capital program, the company will again allocate more than $150 million for research efforts focused on the development of unconventional oil and gas resources and the development of new energy sources, such as alternatives and renewables.

“ConocoPhillips believes a number of energy sources are necessary to meet the demands of consumers,” said Mulva. “We are committed to diversifying our energy resource development and improving energy efficiency, and doing so in an environmentally responsible manner.”

Asset Rationalization Program 
The company's asset rationalization program is expected to generate proceeds of approximately $3.1 billion during 2007. In 2008, ConocoPhillips anticipate completing the disposition of their U.S. retail assets, and will continue to evaluate additional opportunities to optimize and strengthen the company's asset portfolio.

Production

2007 4th quarter daily production from the E&P segment, including Canadian Syncrude and excluding the LUKOIL Investment segment, averaged 1.84 million barrels of oil equivalent (BOE) per day, an increase from 1.76 million BOE per day in the previous quarter, and a decrease from 2.05 million BOE per day in the fourth quarter of 2006. The production increase from the previous quarter was primarily due to increased volumes from the United Kingdom and Alaska, reflecting seasonality and less planned and unplanned downtime.

Crude oil production in 2006 averaged 972,000 barrels per day (BD), gas production averaged 4.97 billion cubic feet per day (BCFD), and natural gas liquids production averaged 136,000 BD. Benefiting 2006 production was the addition of volumes from the Burlington Resources assets, which substantially increased the company's presence in North America. Additionally, the company re-entered Libya's Waha concessions and increased production from the Bayu-Undan field in the Timor Sea.

2005 4Q E&P daily production, including Canadian Syncrude and excluding LUKOIL, averaged 1.59 million barrels of oil equivalent (BOE) per day, up from 1.52 million BOE per day in the prior quarter. Compared with the previous quarter, output from the United Kingdom and Alaska was approximately 66,000 BOE per day greater, primarily due to less maintenance and seasonality. Production in the fourth quarter of 2005 was relatively flat compared to the fourth quarter of 2004.

Reserves

ConocoPhillips reported 2007 net proved reserve additions of 1.338 billion barrels of oil equivalent (BOE), including equity affiliates. The company’s reserve replacement ratio was 159 percent, based on 842 million BOE of production. The amounts above exclude 16 million BOE of 2007 Venezuelan production and 1.089 billion BOE of reserves associated with the expropriation of the company’s Venezuelan oil projects. The reserve replacement ratio including the impact of the expropriation was 29 percent. ConocoPhillips’ total proved reserves at year-end 2007 were 10.6 billion BOE.

ConocoPhillips’ organic reserve replacement ratio, which excludes sales, acquisitions, and the Venezuela impacts noted above, was 122 percent. Sales of reserves during the year were related to producing assets sold as part of the company’s asset rationalization program. Acquisitions were mainly Canadian oil sands reserves associated with the upstream EnCana business venture.

Year-end proved reserves exclude 0.2 billion barrels associated with the company’s Canadian Syncrude operations. U.S. Securities and Exchange Commission (SEC) regulations define the company’s Syncrude operations as mining related; therefore, these operations are not reported as part of the company’s oil and gas proved reserves.

Total reserve additions, including revisions, improved recovery, purchases, and extensions and discoveries, were 1.433 billion BOE. Costs incurred are expected to be $16.292 billion. The company’s five-year average reserve replacement was 176 percent and its estimated five-year average finding and development cost per BOE was $10.11.

For 2006, the company's reserve replacement was more than 300 percent, reflecting the Burlington Resources acquisition and increased ownership in LUKOIL. Total reserves were 11.2 billion BOE at year-end. E&P capital program funding totaled $10.2 billion during 2006, with a capital program budget of $11.4 billion for 2007.

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