14
Remarks by Marianne Kah Chief Economist Oil and Natural Gas Outlook March 4, 2015 Norwegian Finance Day
Remarks by Marianne Kah
Chief Economist
Oil and Natural Gas Outlook
March 4, 2015
Norwegian Finance Day
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 or the industries or markets in which we operate or participate in general. 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 may prove to be incorrect and 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). We caution you not to place undue reliance on our forward-looking statements, which are only as of the date of this presentation or as otherwise indicated, and we expressly disclaim any responsibility for updating such information.
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.
March 4, 2015 2
Resource Abundance Provides Many Investment Opportunities
60
80
100
120
140
160
180
200
600
800
1,000
1,200
1,400
1,600
1,800
1980 1985 1990 1995 2000 2005 2010 2015
Global Oil and Natural Gas Proved Reserves Oil, Billion barrels Gas, Trillion cubic meters
Last 10 Years: 25% increase in Oil 21% increase in Gas
3 March 4, 2015
Source: BP Statistical Review, 2014, proved reserves
Global reserves rising steadily for both oil and natural gas
Challenging Oil and Natural Gas Outlook
• Weak global oil fundamentals
• Weak N.A. natural gas market • Sufficient supplies available below $5/MMBtu prices
• Loosening international natural gas market • Pipeline and LNG supply competition
• Lower economic and gas demand growth
• Lower oil prices reducing LNG contract prices
• Environmental, cost and tax pressures
March 4, 2015 4
Drivers of Recent Brent Crude Price Decline
5
Confluence of Factors Causing Price Decline
• Slowing global economic growth
• Warm start to winter
• Rising U.S. tight oil production
• Temporary return of Libyan oil production
• OPEC decision at November 2014 meeting not to swing production
2014 $/Barrel
Economic Downturn
0.0
0.5
1.0
1.5
2.0
2.5Non-OPEC Supply
Growth in Global Oil Demand and Non-OPEC Supply
Million Barrels per Day
Source: IEA February 2015 Monthly Report; U.S. includes NGLs, Other includes biofuels, process gain & OPEC NGLs
$0
$25
$50
$75
$100
$125
$150
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
Brent Crude Price
Other
U.S. Demand
2014 2015
Dec. 2014
U.S.
Other
Feb. 2015
March 4, 2015
Some structural and some temporary factors
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
IMF’s Global GDP Growth
------------------------------ Date of Forecast -----------------------------
Apr. 2011
Sep. 2011
Apr. 2012
Oct. 2012
Apr. 2013
Oct. 2013
Apr. 2014
Oct. 2014
Downward Revisions to Global Economic Growth Forecasts
Downward revision has been a constant theme
2012
2013 2014
2015
Percent
6
Source: IMF semi-annual forecasts
March 4, 2015 D
Global Economic Growth Outlook
7
• Economic recoveries remain in 3-speed mode
o U.S. increasingly solid
o Europe and Japan stagnation is new normal
o China and other EM expanding at slower rates
•Downside risks outnumber upside
• International policy coordination will significantly impact outcomes
USA
China
Japan
Eurozone
Emerging Markets
-2
0
2
4
6
8
10
2011 2013 2015 2017 2019
Economic Growth: Moving to Sustainable Trajectories (% growth, real GDP, PPP)
Source: Oxford Economics
March 4, 2015
Weakening global economic growth has been a headwind to energy demand
0
5
10
15
20
0.0
0.5
1.0
1.5
1985 1995 2005 2014 Demand
Limited Responsiveness of Global Oil Demand to Lower Oil Prices
• Oil demand relatively insensitive to price
• Reduced oil intensity of global economy
• Positive income impacts could be offset by economic slowdown
• Lower consumer oil price decline outside the U.S.
• Strong U.S. dollar (in which oil priced)
• Developing nations removing subsidies and raising oil taxes
8
Sources: ConocoPhillips; Energy Intelligence Group; Oxford Economics
Limited global oil demand response to lower oil prices
Oil Intensity and Demand of Key Consumers
Industrialized
Developing
Demand in 2014, MMBD Barrels consumed per thousand U.S. 2010$ GDP
March 4, 2015
Global Crude Supply Disruptions vs. U.S. Tight Oil Growth
Source: U.S. Department of Energy, EIA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2011 2012 2013 2014 2015
Growth in U.S. Tight Oil Production
Increase in production since December 2009
U.S. tight oil production growth has offset most of the global supply disruptions
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2011 2012 2013 2014 2015
Growth in Global Supply Disruptions
Increase in losses since 2009
9 March 4, 2015
Million Barrels per Day Million Barrels per Day
U.S. Oil Production Was Set to Expand
Source: Rystad Energy Upstream Database
0
1
2
3
4
5
6
7
8
9
2008 2010 2012 2014 2016 2018 2020
Bakken
Eagle Ford
Other
Bakken, Permian, & Eagle Ford make up 75-80% of total U.S. tight oil production
Permian
Light Tight Oil Output could double by 2020
+83%
0
2
4
6
8
10
12
14
16
18
2005 2010 2015 2020 2025 2030
Mill
ion
Bar
rels
pe
r D
ay
Conventional Production
U.S. Tight Oil
NGLs
Alaska Crude
EIA’s High Resource Case
U.S. Crude, Condensate, Natural Gas Liquids Forecast
Source: U.S. Department of Energy, EIA Annual Energy Outlook 2014, various forecasts
Liquids production has returned to levels not seen since 1972
10 March 4, 2015
Brent Futures Price Curves vs. Actual Prices
11
0
20
40
60
80
100
120
140
May 2008 Futures
Nominal Dollars per Barrel
December 2008 Futures
Current Futures (02/27/15)
June 2014 Futures
Actuals
Futures prices are particularly poor predictors of the future during transitions
Source: InterContinental Exchange and Platts. Futures prices from 05/16/08, 12/24/08, 06/19/14, & 02/27/15
March 4, 2015
Brent Crude Price: External Expert Views
12
$40
$50
$60
$70
$80
$90
$100
$110
2014 2015 2016 2017 2018 2019 2020
Expert Range
Re
al 2
01
4 D
olla
rs p
er
Bar
rel
Brent Crude Price Views
Futures (02/27/15)
• Market expectations of recovery from very weak prices in 2015
• Wide range based on differing views on:
• Global economic recovery
• Oil supply and demand response to low oil prices
• Industry cost deflation
• Technology change impacting oil supply or demand
Wide range of external views
Sources: January–February 2015 forecasts from consultants , EIA and investment banks. Futures prices from 2/27/15
March 4, 2015
U.S. LNG Exports
Japan LNG
U.K. Spot
U.S.
0
2
4
6
8
10
12
14
16
18
20
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
No
min
al $
/MM
btu
Wide Divergence Between Pricing in Major Markets
Source: Bloomberg; U.S. Department of Energy, EIA, AEO 2005-2014
13
2005
2007
2008
2010
2013
(10)
(5)
0
5
10
15
20
2010 2015 2020 2025
Net Exporter
2014
Net Importer
Historical U.S. Department of Energy Projections
Bill
ion
Cu
bic
Fe
et p
er
Day
U.S. is poised to become an LNG exporter
March 4, 2015
Observations
• High cost of oil and gas supply wasn’t sustainable
• Oil market recovery driven mostly by supply response
• Global resource growth suggests increasingly intense competition among suppliers
• Resource-rich areas must offer compelling value proposition to attract investment
March 4, 2015 14
