Phillips Announces 2002 Budget

The board of directors of Phillips Petroleum Company has approved $3.5 billion for capital projects in 2002. This exceeds estimated 2001 capital spending of $3.1 billion.

The larger capital program for 2002 reflects increased spending on development of legacy exploration and production assets in Venezuela, China and the Timor Sea, in addition to a full year of funding for downstream projects resulting from the September 2001 acquisition of Tosco Corporation.

"Over the past two years, we have undertaken an aggressive transformation, and our 2002 capital budget reflects those changes," said Jim Mulva, chairman and chief executive officer. "Acquisitions in both our upstream and downstream businesses have enhanced an already strong portfolio of capital projects which together provide the foundation for substantial organic growth. Our capital program has grown accordingly to take advantage of these excellent opportunities in our expanded portfolio as well as our improved cash flow and the enhanced overall financial condition of the company. We are confident that the projects already under way, as well as those identified for future development, will enable continued financial benefits to all stakeholders."

The company will allocate 74 percent of its 2002 capital budget to exploration and production activities. Refining, marketing and transportation will receive 24 percent of the budget, while 2 percent will be reserved for general corporate purposes. Fifty-seven percent of the budget is targeted for projects in the United States.

E&P's 2002 capital budget is $2.6 billion, $52 million higher than estimated 2001 spending. Forty-three percent of E&P's budget is targeted domestically, with Alaska operations receiving 72 percent of planned U.S. spending.

Phillips has budgeted $238 million for exploration activities worldwide, with 31 percent of that amount allocated domestically. More than half of the domestic total will provide for a significant exploration program in Alaska with wells planned in the National Petroleum Reserve-Alaska and on the North Slope. Outside the United States, significant exploration expenditures are planned in Kazakhstan, Angola and Norway.

The company intends to spend $807 million for its Alaska operations. Large projects include the ongoing construction of four Millennium Class tankers to transport crude oil to the U.S. West Coast, development of the Meltwater, Palm and West Sak fields in the Greater Kuparuk Area, development of the Borealis field in the Greater Prudhoe Bay Area, and capacity expansion at the Alpine field on the western North Slope.

In the Lower 48 states, capital expenditures will be focused on exploration and development of coalbed methane assets in the Rocky Mountain region and continued exploitation of the company's acreage positions in the San Juan Basin, Permian Basin, Texas Panhandle, northern Louisiana, and the upper Texas Gulf Coast.

E&P is directing $1.5 billion to the development of international projects. The majority of these funds will go toward developing legacy asset positions, including the Bayu-Undan liquids development and gas recycling project in the Timor Sea, the Hamaca heavy-oil development in Venezuela, and the Bohai Bay oil development in China. North Sea projects include development of the Jade field in the British sector and further development of the Ekofisk and Eldfisk fields in the Norwegian sector.

The 2002 budget for RM&T is $839 million, which reflects a significant increase over 2001 estimated spending of $521 million. The 2001 estimate does not include calendar-year capital spending by Tosco prior to completion of the acquisition by Phillips on September 14. Domestic spending is expected to consume 96 percent of the RM&T budget, with the remainder allocated to the Whitegate refinery in Ireland.

The company will direct 73 percent of the RM&T budget to refining, with marketing due to receive 19 percent and the remainder to fund transportation and group projects. The largest refining projects include construction of a fluid catalytic cracking unit at the Ferndale refinery, a diesel hydrotreater at the San Francisco refinery, and a low-sulfur gasoline project at the Wood River refinery. Construction of a pipeline connection at Wichita, Kan., will be the key project for transportation. There are no material marketing projects.

Corporate expenditures will comprise 2 percent of the budget in 2002, equal to the percentage estimate for 2001. Corporate expenditures include the capital budgets of the corporate staffs.