Johnny BradberryConocoPhillipsOctober 27, 2003

Gas Supply Outlookfor the Gulf of Mexico

Fundamentals/Current Situation

Supply Sources

Hurdles/Challenges

Perspectives

Outline

ANDERSON

The Arthur Anderson partner was on his phone when he said,

“Ship the Enron documents to the Feds,”

but his secretary heard,

“Rip the Enron documents to shreds.”

It turns out that it was all just acase of bad cellular.

Sprint PCS The clear alternative to

cellular℠

Source: MMS 2003

GOM Field Discoveries

Discovered

1947-1959

1960-1969

1970-1979

1980-1989

1990-2000

Source: MMS

GOM Gas Reserves & Production Reserves Additions by Discovery Year Annual Gas Production

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20000.0

2.0

4.0

6.0

8.0

0.0

2.0

4.0

6.0

8.0

Annual Gas Production (TCF)

Annual Reserves Additions (TCF)

Annual Gas Production (TCF)Proved Gas Reserves (TCF)

50

100

150

200

250

300

350

400

0

20

40

60

80

100

120

140

160

While Number of GOM Shelf Discoveries Has Increased, Field Size Has Dropped

0

1950-1959 1960-1969 1970-1979

Nu

mb

er o

f N

ew F

ield

Dis

cove

ries

Averag

e Re serves P

er Field

(MM

BO

E)

Number of New Fields Average Field Size

# New fields

1980-2003Avg. field size

Source: MMS/PFC Energy Consultants

Discoveries & Reserves – GOM Deepwater

1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 2000-2002

Nu

mb

er o

f N

ew F

ield

Dis

cove

ries

0

30

60

90

120

Averag

e R

eserves p

er Field

(m

mb

oe)

Number of New Fields Average Field Size

Average Field Size(Right Axis)

Number New Fields(Left Axis)

Number Of Fields Discovered & Average Reserves per Field By Decade

Deepwater (Water Depths At Least 1,000 Feet)

Includes Proved & Probable Reserves

10

20

30

40

50

60

70

0

Source: MMS/PFC Energy Consultants

Source: MMS/PFC Energy Consultants

Total Shallow Water Portion (< 1000') Deepwater Portion (> 1, 000 ft)

Gas Production from the Shelf is Declining While Deepwater Gas Production is Rising Gulf of Mexico Gas Production

Total vs. Shelf and Deepwater

278 381 560846 999 1,180 1,269

4,955 5,015 4,6245,078 5,145

5,041 5,057

3,3553,8353,946

4,2054,481

4,8004,764

0

1,000

2,000

3,000

4,000

5,000

6,000

BC

F /

Yea

r

1996 1998 2000 2002(est.)

1997 1999 2001

Source: NPC 2003

U. S. and Canadian Natural Gas Supply

0

1

2

3

4

5

6

7

2000 2005 2010 2015 2020 2025

Sources of Incremental Natural Gas Supply,2000-2025 (trillion cubic feet)

Gulf Slope

Source: NPC 2003

Mountain

Alaska

Other Lower 48

Source: MMS

GOM Areas

Western Gulf

Central Gulf

Eastern Gulf

Florida

GOM ShelfVery mature 70% of current GOM supplyRapid declineCurrent reservesDrilling pace/successRig availabilityNew discoveries small in size

Some shallow undiscovered reserves anddeep shelf potential >50 TCF (MMS 2000)

Difficult drillingAging infrastructureRig availability for deepAcreage position

Most majors have substantially decreased positionIndependents dominate

Status:

Prize:

Challenges:

Who:

Deepwater30% of current supplyCurrent reservesProjects under developmentDiscovery pace Predominantly an oil play - associated gas

>135 TCF potential (MMS 2000)Large reservoirsLeverage existing discoveries

High cost per well/developmentTechnology not here yet for ultra deepProject cycle time

Predominantly majors but independents aggressively moving in

Status:

Prize:

Challenges:

Who:

600' WD

Jolliet

4000' WD

URSA

GULF OF MEXICO

DEEPWATER DEPOSITIONAL MODEL

CON9606_22.CVS

7000' WD

G I 43

New Orleans

Target Size Differences: Grand Isle 41\43\47 vs. URSA

• URSA:

Appx 400 MMBOE 10-50 MBOEPD/well

Single structure Up to 11 wells15 years to recover

.

• Grand Isle 41/43/47

Appx 830 MMBOE .5-5 MBOEPD/ well

54 platforms +500 wells/+180 active

-60-70 years to recover

Recovery/well: 1.7MMBOE/well

Rec./well: 10-40 MMBOE/compl

Technological Advances - Drilling

Sea bed is 1-2 miles below the rig:

Requires the latest in:

•Marine Riser Technology

•BOP Control Technology

•Casing & Mud Program Design

•Dual Gradient Drilling

•AHC (Active Heave Compensated)

•Vessel Positioning

• FPSO and Shuttling• Subsea Processing & Metering• Seabed Storage• Multiphase Flow• Deepwater Pipeline• Expandable Casing• Dual Gradient Drilling

Technological Advances - Production

High Tech……High Cost• What’s the most notable difference between deepwater and

shallower operations? The answer is resoundingly…..Costs!

• DW dev. well cost: $25MM-$40MM– Shelf, avg dev. well : $5MM-10MM

• DW drilling costs: $250M-$400M/day

– on shelf : $100M-$140M/day

– with rig rates on shelf being only $30-40M/day compared to DW rates

of $120-$220M/day

Deepwater - The Industry Responsibility

Safe, Environmentally Sensitive, Cost Effective Innovation

Eastern Gulf of Mexico

Currently off limits

25 TCF potential (NPC 2003) Can leverage existing infrastructure

Gaining access Time to drill ready/total cycle time Restrictions/permitting Drilling

Mixture of majors and independents

Status:

Prize:

Challenges:

Who:

Supply Dichotomy?

We Can’t Wait Too Long!!!

It’s part of my long-range escape plan.

I’ve been considering living

on the ground, becoming a

carnivore and developing a

civilization…what do you think?

It’s part of my long-range escape plan.

Delivering Supply Won’t Be Easy

Shelf

Deepwater

EGOM

Cycle time

Technology

Geology/Drilling

Permitting

Cycle time

Aging infrastructure

/cost

Gaining Access

Cost

Mature

Delivering Supply Won’t Be Easy

Shelf

Deepwater

EGOM

Cycle time

Technology

Geology/Drilling

Permitting

Cycle time

Gaining Access

Cost

MatureAging

infrastructure/cost

ConocoPhillips Position

Not a DominantPosition

$

?

Discovered 46 TCF

Potential >210 TCF

Supply Source Overview

>50 TCF Shallowand Deep Potential

35 TCF Discovered

11 TCFDiscovered

25 TCFPotential

>135 TCF Potential

Shelf

Deepwater

EGOM

GOM/Supply

Source: MMS

Shelf

Production declining rapidly. Aggressive shallow drilling essential to help offset base decline. Deep gas is critical to filling supply expectation in the near term.

Look for Independents to pick up pace – particularly deep drilling.

Majors could re-enter - deep potential and improved incentives.

Deepwater

Gas production important in filling void created by shelf decline.

Majors likely to stay primarily deepwater focused.

Once EGOM moratorium is lifted, it will take time to supply gas.

Perspectives to Leave You With

New technology an important part of the supply formula.

Resource availability still a critical issue.

Need improved regulatory permitting/approval process.

Despite hurdles, outlook for GOM supply to satisfy forecasted demand is optimistic.

Perspectives to Leave You With

BACKUP

200

400

600

800

1000

1991 1993 1995 1997 1999 2001 2003*

U.S

. G

as R

igs

12

13

14

15

16

17

18

19

20

U.S

. Pro

duct

ion

- T

CF

Current Rig Count = 747

U.S. Rig Count and Production

*Avg. consultants estimate for 2003 U.S. Production

20

25

30

35

40

45

50

1991 1992 1993 1994 1995 1996 1997 1998 1999

• Natural gas well production rates have

been declining steadily

• Rapid decline of productive capacity requires drilling more

and more wells to maintain a given level

of gas production

Source: EIA

US well production half-life*

* Months to reach 50% of initial production rate

Months

0

5

10

15

20

25

30

1994 1995 1996 1997 1998 1999 2000 2001 2002*

Source: Salomon Smith Barney, Aug 16, 2002

U.S. gas production additions per rigAvg. MMCF/d added per active rig

* Estimate

0

2

4

6

8

10

12

14

16

18

20

1995 1996 1997 1998 1999 2000 2001

0

5

10

15

20

25

• US gas production remained flat

between 1995 and 2001

• However, it took a massive drilling

effort to maintain the production flat

Source: EIA

Drilling has failed to increase productionGas Production, Tcf/year Well Completions, ‘000/year

Rig Counts Slow to Respond

0

200

400

600

800

1000

1200

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03

0

1

2

3

4

5

6

7

8

9

10NYMEX Gas Price, $/MMBtuUS Gas Rig Count