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United States‐Indonesia
Energy Investment Roundtable
Natural Gas Pricing and Policy
February 6, 2012
Jim Taylor
President IPA / ConocoPhillips Indonesia
The following presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. You can identify our forward-looking statements by words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions. Forward-looking statements relating to ConocoPhillips’ operations are based on management’s expectations, estimates and projections about ConocoPhillips and the petroleum industry in general on the date these presentations were given. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements.
Factors that could cause actual results or events to differ materially include, but are not limited to, crude oil and natural gas prices; refining and marketing margins; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects due to operating hazards, drilling risks, and the inherent uncertainties in interpreting engineering data relating to underground accumulations of oil and gas; unsuccessful exploratory drilling activities; lack of exploration success; potential disruption or unexpected technical difficulties in developing new products and manufacturing processes; potential failure of new products to achieve acceptance in the market; unexpected cost increases or technical difficulties in constructing or modifying company manufacturing or refining facilities; unexpected difficulties in manufacturing, transporting or refining synthetic crude oil; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations; potential liability resulting from pending or future litigation; general domestic and international economic and political conditions, as well as changes in tax and other laws applicable to ConocoPhillips’ business.
Other factors that could cause actual results to differ materially from those described in the forward-looking statements include 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), including our Form 10-K for the year ending December 31, 2009. ConocoPhillips is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
Cautionary Note to U.S. Investors – The U.S. Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We may use certain terms in this presentation such as “oil/gas resources,” “oil in place,” “recoverable bitumen,”“exploitable bitumen in place,” and “bitumen in place” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. The term “reserves,” as used in this presentation, includes proved reserves from Syncrude oil sands operations in Canada which are currently reported separately as mining operations in our SEC reports. Under amendments to the SEC rules, mining oil sands reserves will no longer be reported separately. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K for the year ended December 31, 2009.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
40
45
50
55
60
65
1970 1975 1980 1985 1990 1995 2000 2005 2010
Bcf / day
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$ / mmBtu
US Lower 48 Natural Gas Production
2
15 years of growth enabled by:•Market based pricing • Tax incentives for tight gas and Unconventional CBM
Technology innovated from 1980’s incentives
helped drive further shale success
Source: US Department of Energy, Energy Information Administration
Government ceilings on gas pricing reduced
supply
Enabliing Policy and Regulations •Deregulating Prices•Incentives for unconventional gas
80
60
40
20
0
US Natural Gas Supply Sources
Billion cubic feet per day
U.S Natural Gas Pipeline Infrastructure
4
Over 300,000 miles of Pipelines
US Infrastructure Growth
Source: INGAA Foundation, Inc
40
45
50
55
60
1970
1975
1980
1985
1990
1995
2000
2005
2010
Dai
ly P
rod.
(BC
F)
The "Unconventional Reservoir" Revolution:Impact on the North American Natural Gas Market
Rapid supply growth
Supply greater than demand
Natural gas price collapse
LNG imports no longer needed
Arctic pipelines no longer needed
Increase in exports to Mexico
LNG exports being considered
>> share of electric gen. market
Chemical industry rejuvenation
40
45
50
55
60
1970
1975
1980
1985
1990
1995
2000
2005
2010
Dai
ly P
rod.
(BC
F)
U.S. Natural Gas Production
Y2KPredictions
Artist Drawing of LNG Import Terminal
6,000
7,000
8,000
9,000
10,000
11,000
12,000
1970
1975
1980
1985
1990
1995
2000
2005
2010
Bar
rels
Oil
Per D
ay (T
hous
ands
)Unconventional Reservoirs Produce Liquids Also
U.S. = World’s Largest Producer(11,300 MBOPD Peak Rate)
Uncon. Res.2 (+600)Deep Water (+100)
1 Data from BP 2011 Statistical Review of World Energy; Oil includes condensate & NGLs; split between Unconv. Res. and Deep Water is approximate2 “Uncon. Res.” = Unconventional Reservoirs, which include shale and carbonate source rocks, CBM and ultra-tight sandstones and carbonates
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800Ja
n-88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Dril
ling
Rig
Cou
nt
U.S. Drilling Fleet Deployment in Response to the"Liquids from Unconventional Reservoirs"
- More rigs are drilling for oil than gas for first timesince early 1990’s- Over 1,000 rigs are drilling for oil; highest number in over 25 years- Additional rigs being deployed for oil drilling at a rapid pace
$150 per barrel oil
Liquids from UnconventionalReservoirs Breakthrough
Gas Wells
Oil Wells
From Baker Hughes’ website
Gas Infrastructure in Indonesia
PHILIPPINESSOUTH CHINA SEA
PhilippinesIndonesia
KAMPUCHEA
VIETNAM
THAILAND
Medan
Tanjungkarang
Palembang
Bengkulu
Padang
Kuala Lumpur
MALACCA STRAIT
Yogyakarta
Ujungpandang
Palu
Jayapura
PAPUA
SULAWESI
B A N D A S E A
A R A F U R AS E A
C E L E B E S S E A
Kuching
Palangkaraya
Banjarmasin
BRUNEIDARUSALAM
MAK
ASSA
R
STR
AIT
J A V A S E A
K A L I M A N T A N
SARAWAK
MalaysiaIndonesia
Semarang
S U M A T R A
Bandung
Jambi
6° S
12° S
0°
12° N
6°N Banda Aceh
112° E100° E 106° E
I N D I A N O C E A N
118° E 124° E 130° E 136° E
SINGAPORE
Pontianak
Kendari
Kupang
MataramDenpasar
Manado
Ambon
SABAH
Toba Lake
Dili
TIMOR
PhilippinesMalaysia
THAILAND
HALMAHERA
LOMBOK
BATAM
BANGKA
MADURA
MaselaFLNG
DonggiLNG
TangguhLNG
BontangLNG
ArunLNG
PRINCIPAL INDUSTRY ISSUES TO BE ADDRESSED
GR NO. 79/2010 ON COST RECOVERY AND INCOME TAX- Opposes existing PSCs and creates uncertainty of future PSCs
AMENDMENT TO LAW NO.22/2011 ON OIL AND GASMinimal changes required
APPROVAL AND REGULATORY ENVIRONMENT - Move from managing costs to managing production
MARKET BASED GAS PRICING NEEDED TO BE COMPETITIVE- To ensure investment is made to explore for and develop gas the price needs to be competitive
LICENSE EXTENSIONS NEED TO BE TRANSPARENT AND EARLY - Delays in extension process put investment and production
BANK INDONESIA REGULATION OF FOREIGN EXCHANGE PROCEEDS- PSC rights should be preserved
CONCLUSIONS
INDONESIA HAS STRONG ECONOMIC GROWTH OF 6.5% in 2011 • Economy’s energy needs are growing and more oil and gas are needed
• Transitioning from revenue generator to economic enabler will take time
HYDROCARBON PRODUCTION HAS BECOME MORE DIFFICULT • Mature fields are declining
• New opportunities are in more challenging areas (remote, offshore, East)
• Unconventional developments are untested and require a lot of wells, technology and infrastructure
EXPLORATION INVESTMENT AND PRODUCTION HAS DECLINED • Fiscal policies need to be competitive to attract necessary investment
MANAGING COST RECOVERY IS NOT SUPPORTING PRODUCTION INCREASES
MARKET BASED PRICING, SUPPORTING REGULATIONS AND INCENTIVES HAS GENERATED SIGNIFICANT INVESTMENT AND NEW SUPPLIES OF NATURAL GASAND LIQUIDS PRODUCTION IN THE US
THE CREATION OF NEW SUPPLIES OF OIL AND GAS CAN BENEFIT ECONOMICGROWTH & THE PEOPLE OF INDONESIA
TERIMA KASIH
Lower‐48 Natural Gas Production
13
Source: US Department of Energy, Energy Information Administration
U.S Natural Gas Storage Infrastructure
14
Over 4 Trillon Cubic Feet of Working Gas Storage Capability
LNG Indonesia
Malaysia
Indonesia
PHILIPPINESSOUTH CHINA SEA
PhilippinesIndonesia
KAMPUCHEA
VIETNAM
THAILAND
Medan
Tanjungkarang
Palembang
Bengkulu
Padang
Kuala Lumpur
MALACCA STRAIT
Yogyakarta
Ujungpandang
Palu
Jayapura
PAPUA
SULAWESI
B A N D A S E A
A R A F U R AS E A
C E L E B E S S E A
Kuching
Palangkaraya
Banjarmasin
BRUNEIDARUSALAM
MAK
ASSA
R
STR
AIT
J A V A S E A
K A L I M A N T A N
SARAWAK
MalaysiaIndonesia
Semarang
S U M A T R A
Bandung
Jambi
6° S
12° S
0°
12° N
6°N Banda Aceh
112° E100° E 106° E
I N D I A N O C E A N
118° E 124° E 130° E 136° E
SINGAPORE
Pontianak
Kendari
Kupang
MataramDenpasar
Manado
Ambon
SABAH
Toba Lake
LOCATION MAP
P A C I F I C O C E A N
J A V A
EAST TIMORFLORES
SUMBA
SUMBAWABALI
BURU
SERAM
TANIMBAR
Samarinda
Balikpapan
NATUNA
Surabaya
BandarSeri Begawan
VietnamMalaysia
MLAYSIA
Indo
nesi
aPa
pua
New
Gui
nea
0 500
KM
INDONESIA
ACREAGE
Dili
TIMOR
PhilippinesMalaysia
THAILAND
HALMAHERA
LOMBOK
BATAM
BANGKA
MADURA
COPI Acreage
LNG PLANT
Pakanbaru
Nila PSC
South China Sea"B" PSC (Ext)
South Jambi PSC
Corridor PSC
Block 'A' PSC
Corridor TAC
Pangkah PSC
Sakakemang JOB
Banyumas PSC
Ketapang PSC
Warim PSC
Jakarta
12/02/2004 S:\TIS\.........\DESIGNER\GENERAL\COPI_ACREAGE.DSF (P3)
TangguhLNG Plant
DonggiLNG Plant
BontangLNG Plant
NatunaLNG Plant
MaselaLNG Plant
ArunLNG Plant
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Ja
n-88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Perc
enta
ge o
f Tot
al R
igs
(%)
Utilization of the U.S. Rig Fleet: Gas versus Oil
- More rigs drilling for oil than gas for first time since early 1990’s- Fleet switched from 90% gas / 10% oil in 2005, to 54% oil / 46% gas today
$150 per barrel oil
Liquids from UnconventionalReservoirs Breakthrough
Gas Wells
Oil Wells
From Baker Hughes’ website