W.B. Berry, Executive Vice President, Exploration and Production

Exploration and Production
Competing Globally and Achieving Results

Exploration and Production (E&P) operated well in 2003, allowing the company to fully benefit from higher crude oil and natural gas prices. In addition, E&P successfully met key project milestones and secured several new opportunities.

“E&P delivered strong results,” says Bill Berry, executive vice president of E&P. “In addition to solid financial earnings, we exceeded our production goal, met our disposition target and captured several new opportunities through exploration and business development. This high level of performance would not have been possible without the hard work of our employees around the globe, and our results are an indication of their strong commitment to operating excellence. Our robust performance also reflects the strength of our legacy assets, and we will continue to focus on large oil and gas projects with positive, long-term financial returns in order to grow E&P.”

ConocoPhillips produced approximately 1.59 million barrels of oil equivalent per day (BOEPD) in 2003, excluding Syncrude production of 19,000 barrels per day. The company replaced 106 percent of its 2003 production, and excluding sales and acquisitions, replaced 133 percent of production. Total proved reserves were 7.8 billion barrels of oil equivalent at year-end 2003, excluding 265 million barrels of Syncrude.

A large percentage of the company’s current proved production and reserves is derived from the legacy assets located in Alaska, U.S. Lower 48, North Sea, Canada, Venezuela and Indonesia. New legacy projects also are being developed in these areas, as well as the Asia Pacific region, the Caspian Sea, the Middle East and West Africa.

The company’s exploration and business development program is expected to drive future production and reserve growth. “We are exploring in areas with potentially large, high-value reserves, as well as areas where the scale of the prospect offers the opportunity to achieve low operating, finding and development costs,” explains Berry. “We also are placing a greater emphasis on the appraisal and development of undeveloped reserves in basins with high potential. This includes large, integrated liquefied natural gas (LNG) projects like Qatargas 3 that was announced in 2003.”

As the company maintains its existing legacy assets and develops new opportunities, it is committed to optimizing its operations. “We will focus on improving production efficiency, controlling costs, capturing additional synergies, minimizing the impact of decline in some of our mature legacy assets and investing in highly profitable opportunities,” says Berry. “Our objective is to drive continuous improvement in our operations and financial returns, in both the long term and short term.”

The heavy-oil upgrader for the Hamaca project in Venezuela is scheduled to start up in 2004. The facility will upgrade heavy crude oil into lighter crude oil that will be further processed into fuels and other products at U.S. refineries.

A worker puts the finishing touches on the hull of the Magnolia tension-leg platform in South Korea before being loaded for shipment to Texas. The Magnolia platform will be located in the Gulf of Mexico in nearly 4,700 feet of water — a record depth for this type of floating structure.

An expansion of the water and gas handling facilities at the Alpine field on Alaska’s North Slope will enable increased oil production from the field and help maintain reservoir pressure. Phase I of the project is expected to start up in 2004, and with the completion of Phase II in 2005, net production from the field is expected to increase by 26,000 BOEPD.

Appraisal of the giant Kashagan field in the Caspian Sea continued in 2003 while co-venturers progressed development plans for the project. Two additional significant discoveries were made in 2003 near the field.

Net crude oil production from the Peng Lai 19-3 field in China’s Bohai Bay averaged 14,800 barrels per day in 2003 after initial production began in late 2002. China is one of several key growth areas in the Asia Pacific region, where the company also has E&P projects under way in Australia, Indonesia, the Timor Sea and Vietnam.

His Excellency Abdullah Bin Hamad Al Attiyah, Second Deputy Prime Minister and Minister of Energy and Industry of Qatar, Chairman and Managing Director of Qatar Petroleum; and President and CEO Jim Mulva signed agreements for two major natural gas development projects in Qatar, including the development of the Qatargas 3 liquefied natural gas project and a gas-to-liquids plant.

E&P earnings improved primarily due to additional volumes as a result of the merger and higher realized worldwide crude oil and natural gas prices.

The Americas
Canada: Surmont Project Moving Forward
After securing the necessary regulatory approvals in 2003, the Surmont oil sands project located in Alberta, Canada, is moving forward. Construction of the facilities will begin in early 2004. Surmont is expected to begin production in 2006 and achieve peak net production of 47,000 barrels per day of bitumen, or heavy oil, in subsequent years as the project is fully developed.

The company also owns an interest in a second oil sands operation — Syncrude Canada Ltd. — a joint-venture company that mines shallow deposits of oil sands, extracting the bitumen and upgrading it into a light crude called Syncrude. An expansion project is under way with production expected to be onstream in 2005.

In addition to heavy oil, the company is pursuing a major gas project in Canada. In 2003, ConocoPhillips and its co-venturers filed a preliminary information package to assist regulators in a formal review of a proposed 761-mile pipeline that could come online as early as 2009, bringing gas from the Mackenzie Delta region of the Canadian Arctic to Alberta. Within the Mackenzie Delta region, the company operates the onshore Parsons Lake field and holds substantial offshore resources.

Alaska: Alpine Expansion Project Under Way
As Alaska’s largest producer of oil and gas, ConocoPhillips has operations in three key areas of the North Slope — Western North Slope, Prudhoe Bay and Kuparuk — as well as in the Cook Inlet.

On the Western North Slope, a major expansion project is under way to increase oil production capacity from the Alpine field. Phase I of the project is expected to start up in 2004, and with the completion of Phase II in 2005, net production from the field is expected to increase by 26,000 BOEPD. Production from Alpine began in 2000, and the field reached a production milestone — its 100 millionth barrel — in late 2003. The Alpine field maintained an average net production of 64,500 BOEPD in 2003.

The Greater Prudhoe Area (GPA) consists of the Prudhoe Bay field, its satellites and the Greater Point McIntyre Area fields. The Prudhoe Bay satellites continued their strong performance in 2003 with net production of 16,200 BOEPD, and further development is planned in 2004. Average net production from GPA was 180,100 BOEPD in 2003.

The Greater Kuparuk Area (GKA) includes the Kuparuk field and four satellites. GKA reached a major milestone in early 2004, producing its 2 billionth barrel of crude oil. Development of the Palm discovery expanded the Kuparuk field and helped maintain GKA’s net production of 104,400 BOEPD in 2003.

In addition to its existing operations on the North Slope, the company is pursuing development opportunities for the significant Arctic natural gas resource in the Prudhoe Bay and Point Thomson areas. Federal and state fiscal and regulatory legislation is being pursued in order to facilitate a pipeline project that would deliver the gas to North American markets.

In 2003, ConocoPhillips renewed its right-of-way agreements for 30 years each on the Kuparuk, Alpine and Oliktok pipelines and the Trans Alaska Pipeline System (TAPS). The company also increased its ownership in TAPS from 26.8 percent to 28.3 percent.

ConocoPhillips’ natural gas operations in the Cook Inlet delivered average net production of 175 million cubic feet per day in 2003. Most of the gas is converted into LNG by the company’s facility in Kenai and shipped to Japanese utilities. The remainder is sold in the local market. The Kenai facility utilizes the company’s proprietary LNG technology and has operated for nearly 35 years.

U.S. Lower 48: Deepwater Project to Come Onstream in 2004
Magnolia, the company’s deepwater project in the Gulf of Mexico (GOM), is expected to begin production in 2004. Magnolia is located in nearly 4,700 feet of water — making it the world’s deepest tension-leg platform. Net production is expected to peak in 2005 at approximately 49,000 BOEPD.

In the GOM Green Canyon area, the company made a deepwater discovery with the Lorien well in 2003. Evaluation of the discovery is ongoing. Elsewhere in Green Canyon, the K2 accumulation is being evaluated for project sanctioning.

In the GOM Mississippi Canyon area, the company has an interest in Ursa — one of the largest fields in the Gulf. Ursa and the adjacent Princess development produced at an average net rate of 19,300 BOEPD in 2003.

Onshore, ConocoPhillips’ operations are primarily concentrated in four areas: South Texas, San Juan Basin, Permian Basin and the Texas/Oklahoma Panhandle. In these areas, the company’s principal focus is on efficiently developing and producing natural gas and liquids. Total onshore net production averaged 263,200 BOEPD in 2003.

Aiding its delivery of natural gas to the growing North American markets, ConocoPhillips is participating in several LNG receiving terminals in key ports, including Quintana, Texas. Pending regulatory and other approvals, the Quintana facility could begin commercial operations as early as 2007.

Venezuela: Building on a Solid Foundation
ConocoPhillips has a strong position in the heavy-oil business in Venezuela, with a significant ownership position in two of the four producing heavy-oil projects in the Orinoco Oil Belt — Petrozuata and Hamaca.

Petrozuata — a joint venture with Petroleos de Venezuela S.A. (PDVSA) — produced an average of 51,600 net barrels of oil per day (BOPD) in 2003. Hamaca, a joint venture with PDVSA and ChevronTexaco, produced an average of 22,100 net BOPD in 2003. Hamaca’s net production is expected to increase to 71,000 BOPD after an upgrader facility is completed in 2004.

Offshore, the company is operator of the Corocoro field in the Gulf of Paria West Block, a recent conventional oil discovery. The Phase I development plan for Corocoro received government approval in 2003.

Complementing its position in Corocoro and the Gulf of Paria West Block, the company acquired a 37.5 percent interest in the adjacent Gulf of Paria East Block in 2003. Exploration drilling is under way.

Building on the strength of its heavy- and conventional-oil projects, the company expanded its natural gas position by acquiring a 40 percent interest in Block 2 of Plataforma Deltana. Plataforma Deltana is a major natural gas region on Venezuela’s continental shelf that is near the Corocoro field. Appraisal work will begin in 2004. Natural gas from Plataforma Deltana will likely be processed into LNG for export to the United States.

Europe and Africa
North Sea: Ekofisk Growth Project and Britannia Satellite Development Add Value
A growth project that will increase recovery of oil and gas from the Greater Ekofisk Area operations in the Norwegian North Sea is under development. The growth project includes the construction of a new steel wellhead and processing platform, and an overall capacity increase as a result of modifications at several existing facilities and the drilling of 25 new wells. First production from the new platform is expected in 2005. In 2003, the Greater Ekofisk Area reached a significant milestone — producing its 2 billionth barrel of crude oil. Average net production from the Greater Ekofisk Area was 147,700 BOEPD in 2003.

Elsewhere in the Norwegian North Sea, the Grane field began production ahead of schedule in 2003. Net production from Grane was 4,900 BOEPD at year-end 2003. Peak production of 14,000 BOEPD is expected in 2005.

The Britannia field, one of the largest gas and gas condensate fields on the U.K. continental shelf, marked five years of production in 2003. Britannia’s net production averaged 79,600 BOEPD in 2003. ConocoPhillips and its co-venturers sanctioned development of the Britannia satellite fields Brodgar and Callanish in 2003. Pending government approval, first production from the two satellites could be as early as 2007.

The Clair field is under development offshore the Shetland Islands in the Atlantic Margin. The platform and associated facilities will be installed in 2004, with first production anticipated in late 2004 and net peak production of 14,000 BOEPD anticipated in 2005.

Nigeria: LNG Facility Being Studied
ConocoPhillips and its co-venturers signed a Heads of Agreement to progress the development of an LNG facility in Nigeria’s central Niger Delta. The agreement covers the front-end engineering and design studies for the facility, which could include two trains, each nominally sized at 5 million metric tons per year. The engineering studies are expected to be completed in 2005, and the facility could start up in 2009.

The LNG facility will allow ConocoPhillips to monetize uncommitted and underutilized gas from its onshore leases, and could expand to handle gas from future exploration in deep water offshore and other sources. The company acquired two highly prospective deepwater blocks in 2003 in the western Niger Delta, bringing ConocoPhillips’ total number of blocks in the area to four. Exploration drilling is scheduled to begin in 2004.

Asia Pacific
China: Bohai Bay Production Increases
ConocoPhillips is building on its success in Bohai Bay. Phase I production from the Peng Lai 19-3 field continued to ramp up and produced 14,800 net BOPD in 2003. Preliminary engineering for Phase II production is under way. Peng Lai 19-3 began production in 2002.

In the South China Sea, the company set a new record for extended reach drilling of a horizontal well. Completed in March 2003, the A23 well was drilled to a satellite oil field as part of the development program for the Xijiang 24-3 field. The Xijiang development consists of three fields, and in 2003, had an average net production of 10,900 BOPD.

Indonesia: Belanak Development Taking Shape
As the largest foreign leaseholder in Indonesia, ConocoPhillips’ assets are concentrated in two key areas: the West Natuna Sea and South Sumatra. A third area, offshore East Java, is the focus of exploration and appraisal activity.

The Belanak oil and gas field is the largest development in the West Natuna Sea. The development will utilize one of the largest and most complex floating production, storage and offloading vessels ever built. Production is expected to begin in 2005. The natural gas from the Belanak field is being combined with existing developments in the area and sold under long-term contract to Singapore and Malaysia.

In South Sumatra, ConocoPhillips is developing the Corridor Block and the large Suban gas field. The company successfully drilled the Suban-8 exploration well and progressed Phase II development plans in 2003. Gas produced in South Sumatra is currently sold domestically to Caltex and exported to Singapore. A Heads of Agreement signed in 2003 provides for future gas sales to West Java.

Net production in Indonesia averaged 58,500 BOEPD in 2003.

Vietnam: Su Tu Den Production Begins, Discovery Made Nearby
Production from the Su Tu Den field — located in the Cuu Long Basin offshore Vietnam — began ahead of schedule in 2003. At year-end, average net production from Su Tu Den was 15,700 BOPD. Additional development and appraisal wells are planned in 2004 for the Su Tu Den field and the adjacent Su Tu Vang field.

In late 2003, ConocoPhillips and its co-venturers made a discovery in the nearby Su Tu Trang field. Technical evaluation of Su Tu Trang’s reservoir potential is ongoing.

Elsewhere in the Cuu Long Basin, the company has an interest in the Rang Dong field. Field facilities were upgraded in 2003 to enable gas lift, gas export and water injection. Net average production at year-end was 14,300 BOEPD.

Timor Sea: First Liquids Production from Bayu-Undan
Production from Phase I of Bayu-Undan, a major natural gas and gas liquids development in the Timor Sea, began in February 2004. Phase I consists of a gas-recycle facility producing and processing wet gas; separating, storing and marketing condensate, propane and butane; and reinjecting dry gas back into the reservoir. Full gross daily design rates of 1.1 billion cubic feet (BCF) of gas; 115,000 barrels of combined condensate, propane and butane; and 950 million cubic feet of dry gas recycled into the reservoir are anticipated in 2004.

Phase II of the Bayu-Undan project was approved in 2003. This phase includes a 3.52 million-ton-per-year LNG facility near Darwin, Australia, as well as a gas pipeline from Bayu-Undan to Darwin and the LNG facility. LNG shipments to customers in Japan are expected to begin in 2006, when construction of the facility is complete.

Middle East, Russia and Caspian Region
Russia: Satellite Fields Come Onstream Under Budget, Ahead of Schedule
Two new satellite fields — East Kolva and Dyusushev — began production in 2003, several months ahead of schedule and at a lower cost than budgeted. Production from the fields is tied to the Ardalin field processing facility. In 2003, Ardalin and its satellites averaged net production of 13,600 BOEPD. Located in the Timan-Pechora basin in northern Russia, the fields are operated by the Polar Lights Company, a joint venture in which ConocoPhillips owns 50 percent.

Caspian Sea: Two Discoveries Made Near Giant Kashagan Field
Two discoveries — Aktote-1 and Kashagan Southwest-1 — were made in the North Caspian Sea in late 2003 near the giant Kashagan field that was declared a commercial discovery in 2002. An appraisal plan is being prepared for each of these discoveries. Additionally, work on the Kairan exploration well progressed in 2003.

In 2003, ConocoPhillips was one of five co-venturers in the Republic of Kazakhstan’s North Caspian Sea Production Sharing Agreement (PSA) to exercise its pre-emptive rights in the sale of BG International’s interest in the PSA. Upon completion of the pre-emption transactions, the company’s interest will increase from 8.33 percent to 10.19 percent.

Qatar: Agreements Signed for LNG Facility, GTL Plant
ConocoPhillips has signed a Heads of Agreement (HOA) with Qatar Petroleum for the development of Qatargas 3 — a large-scale LNG project — and a Statement of Intent for the construction of a gas-to-liquids (GTL) plant.

The Qatargas 3 project includes facilities to produce gas from Qatar’s North field, yielding about 7.5 million tons of LNG per year, in a new, world-class LNG train to be constructed at Ras Laffan Industrial City. The LNG would be shipped from Qatar to the United States in a fleet of state-of-the-art LNG carriers. ConocoPhillips would purchase the LNG and be responsible for marketing it within the United States. Average gross daily sales volumes are expected to be approximately 1 BCF per day, with startup anticipated in 2009. The HOA provides the framework for the necessary project agreements and the completion of key feasibility studies.

The GTL plant would use the technology proven at ConocoPhillips’ GTL demonstration plant in Ponca City, Okla. Engineering and design studies are under way. The GTL chemical conversion turns natural gas into clean fuels that can be economically delivered to markets around the world.