ConocoPhillips Fourth-Quarter 2005 Interim Update

This update is intended to give an overview of market and operating conditions experienced by ConocoPhillips (NYSE:COP) during the fourth quarter of 2005. The market indicators and company estimates may differ considerably from the company's actual results scheduled to be reported on Jan. 25, 2006.

Highlights - Fourth-Quarter 2005 vs. Third-Quarter 2005

  • Exploration and Production
  • Lower crude oil prices.
  • Higher natural gas prices.
  • Higher worldwide production, as expected.
  • Significantly higher exploration expenses.
  • Refining and Marketing
  • Lower worldwide refining margins.
  • Higher U.S. and international marketing margins.
  • Lower worldwide capacity utilization rate in the high 80-percent range, including hurricane impacts.
  • Increased turnaround activity and hurricane-related maintenance costs.
  • LUKOIL Investment
  • Ownership of 16.1 percent at year end.
  • Midstream / Chemicals
  • Midstream results expected to be higher than previous quarter, including a gain from Duke Energy Field Services' formation of a master limited partnership.
  • Chemicals results anticipated to be higher than previous quarter.
  • Corporate
  • Debt balance of approximately $12.5 billion.

Exploration and Production (E&P)

The table below provides market price indicators for crude oil and natural gas. The company's actual crude oil and natural gas price realizations may vary from these market indicators due to quality and location differentials, as well as to the effect of pricing lags. During the fourth quarter, the domestic gas differentials between the company's primary production areas and the Henry Hub market indicator widened.

Market Indicators

                                                  4Q  vs. 3Q
                               4Q 2005   3Q 2005     2005    4Q 2004
Dated Brent ($/bbl)            $56.90     61.54     (4.64)    44.00
WTI ($/bbl)                     59.99     63.05     (3.06)    48.29
ANS USWC ($/bbl)                57.87     60.79     (2.92)    42.61
Henry Hub first of month
 ($/mcf)                        13.00      8.53      4.47      7.07
                                                       Source: Platts

The company expects fourth-quarter crude oil and natural gas production to be 1.6 million barrels of oil equivalent (BOE) per day and full-year 2005 production to be 1.56 million BOE per day. These production estimates include Syncrude, but exclude LUKOIL.

Fourth-quarter production will be higher than that of the previous quarter as a result of maintenance completed during the third quarter in the North Sea, as well as the prior quarter impact of unplanned downtime and seasonality in Alaska.

The partner-operated Ursa field currently is producing at approximately 80 percent of pre-Hurricane Katrina production levels, or 15,000 net barrels per day. The company-operated Green Canyon field remains shut-in for hurricane-related repairs, with minimal production impact of approximately 1,000 barrels per day. Both fields are expected to return to normal production levels in the first quarter of 2006.

Fourth-quarter exploration expenses are expected to be approximately $220 million, primarily due to increased dry-hole costs, leasehold impairments and other exploration activity. Full-year exploration expenses are anticipated to be about $650 million.

Refining and Marketing (R&M)

The table below provides market indicators for regions where the company has significant refining operations. The Weighted U.S. 3:2:1 margin is based on the geographical location and capacity of ConocoPhillips' U.S. refineries. Realized refining margins may differ due to the company's specific locations, configurations, crude oil slates or operating conditions. In addition, the company's refining configuration generally yields somewhat higher distillate volumes and lower gasoline volumes than those implied by the market indicators shown below.

Market Indicators ($/bbl)

                                                  4Q vs. 3Q
                               4Q 2005   3Q 2005     2005    4Q 2004
Refining Margins
  East Coast WTI 3:2:1          $ 9.32     14.81     (5.49)    5.73
  Gulf Coast WTI 3:2:1           10.27     17.42     (7.15)    4.09
  Mid-Continent WTI 3:2:1        11.93     17.06     (5.13)    5.52
  West Coast ANS 3:2:1           16.29     26.61    (10.32)   17.25
  Weighted U.S. 3:2:1            11.69     18.51     (6.82)    7.24
  NW Europe Dated Brent 3:1:2    13.68     16.53     (2.85)   15.24
WTI/Maya differential (trading
 month)                          16.75     15.48      1.27    15.99
U.S. Wholesale Gasoline
 Marketing                        3.98      0.42      3.56     1.97
                                                       Source: Platts

Worldwide refining margins for the fourth quarter are expected to be significantly lower than the third quarter, as indicated in the table above. Despite continued strong heavy-light crude oil differentials, refining margins decreased below pre-hurricane levels. Worldwide marketing margins improved over those in the third quarter. Turnaround costs are expected to be approximately $90 million before-tax. Hurricane-related maintenance expenditures for the quarter are estimated to be $100 million before-tax, excluding insurance accruals discussed below.

The company's average crude-oil refining capacity utilization rate for the fourth quarter is expected to be lower, in the high 80-percent range, primarily as a result of the impact of Hurricanes Katrina and Rita on the company's Gulf Coast refining capacity.

ConocoPhillips' 247,000-barrel-per-day Alliance refinery located in Belle Chasse, La., has begun the restart process, with partial operations expected in late January and full operations around the end of the first quarter.


The company's debt balance at the end of the fourth quarter is expected to be approximately $12.5 billion. The average diluted shares outstanding during the fourth quarter is expected to be 1,407 million shares.

Other items affecting the quarter include approximately $55 million in environmental and legal accruals. Increased mutual insurance premiums incurred during the quarter are expected to be substantially offset by insurance recoveries recognized in the same period. The majority of these expenses will be reported in the operating segment results.