The ConocoPhillips merger was consummated on Aug. 30, 2002, and used purchase accounting to recognize the fair value of the Conoco Inc. assets and liabilities. Therefore, results for the 12 months of 2002 include eight months of activity for Phillips Petroleum Company and four months of activity for ConocoPhillips. Primarily as a result of the merger, 3.1 billion BOE was added to the company's worldwide proved reserves at an estimated finding-and-development (F&D) cost of $5.60 per BOE.
To provide meaningful prior-period comparisons, the company is providing the following pro forma operating information. This pro forma information was prepared by combining the historical statistical information of Conoco and Phillips for all reporting periods presented.
On a pro forma basis at the end of 2001, ConocoPhillips' reserves were 8.4 billion BOE, excluding syncrude. In 2002, the company produced approximately 0.6 billion BOE. During the year, reserves were added through extensions and discoveries, improved recovery and limited strategic purchases. However, these reserves additions were offset by project deferrals, reservoir performance revisions, production sharing contract oil price effects, and deferred timing on major project approvals. In addition, the company began a major divestiture program designed to focus its exploration and production portfolio on lower-cost legacy assets. Consequently, reserves at the end of 2002 were 7.8 billion BOE, excluding syncrude.
For the five-year period from 1998 through 2002, ConocoPhillips replaced 216 percent of its production at an average estimated F&D cost of $5.40 per BOE. Excluding the effects of acquisitions and dispositions over the same period, the company replaced 103 percent of its production at an average estimated F&D cost of $8.05 per BOE.
"Reserves bookings in 2002 were anomalous when placed in the context of our past performance and future expectations," said Bill Berry, executive vice president of Exploration & Production. "The company evaluates its reserve replacement performance over a long-term time frame. Using a longer term time frame recognizes that large projects are commercialized over multi-year periods and better matches reserve replacement and spending patterns.
"Going forward, we expect reserves additions from the advancement of several legacy projects. We are poised to continue substantial reserves growth in the future from our existing base."
Reserves additions in 2003 are expected from Kashagan in Kazakhstan, Corocoro in Venezuela, the Ekofisk growth project in Norway and, assuming ratification of the Timor Sea Treaty, the Bayu-Undan gas export project.
Berry concluded, "The outlook beyond 2003 also is favorable, consistent with the plans outlined at the company's meeting with analysts in November 2002. ConocoPhillips' legacy project advancements include additional satellite field developments in Alaska, development of Surmont heavy oil in Canada, Phase II of the Bohai development in China, additional gas sales in the Corridor block in Indonesia, and gas from Canada's Mackenzie Delta. Furthermore, we have substantial known gas resources awaiting commercialization including the Brass LNG project in Nigeria, development of the Sunrise field in the Timor Sea, and Arctic gas from Alaska's North Slope."
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