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| 2002 Annual Report | 
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Exploration
and Production Exploration and Production’s (E&P) strategy for improving returns is focused on developing legacy assets while applying a disciplined approach to costs, capital spending and portfolio management. “Legacy assets are large oil and gas projects that can generate strong returns over 10 to 20 years or more and have the potential to generate new opportunities,” explains Bill Berry, executive vice president of E&P. The focus on large, profitable and sustainable assets will help lower costs, as well as guide the company’s capital spending decisions. ConocoPhillips already has begun evaluating its E&P portfolio and has been divesting the smaller, nonstrategic assets. At year-end 2002, E&P had completed more than $600 million of its goal of $1.5 billion to $2 billion worth of asset sales by the conclusion of 2003. In addition to its portfolio of legacy assets, ConocoPhillips is pursuing several exploration opportunities around the world. Most of ConocoPhillips’ exploration resources are committed to large, low- to medium-risk opportunities in proven and emerging exploration plays such as the Norwegian Sea, Caspian Sea, deepwater Gulf of Mexico and Niger Delta. In addition, the company continues to fund the best opportunities near its existing, high-value fields, and a limited number of high-value, higher-risk opportunities in frontier basins. “We’re developing a stronger, more focused portfolio going forward — one that is better positioned in key areas with a more consistent delivery,” says Berry. Global
Operations Produce Results, Additional Opportunities Alaska
Maintains Production, Keeps Costs Flat To maintain production, the company plans to enhance recovery in the three large, existing production areas on the North Slope — Prudhoe Bay, Kuparuk and the Western North Slope. Focused exploration drilling and further development of satellites near existing fields also are expected to help maintain production. Prudhoe Bay has the largest reserve base and is the most mature of the three North Slope production areas. Net production from the Greater Prudhoe Bay Area in 2002 averaged 189,000 BOEPD. “Our challenge at Prudhoe Bay is to manage production decline and costs as the area ages,” says Meyers. Development of new satellite fields and the heavy-oil West Sak field will sustain production from the Greater Kuparuk Area. The Palm exploration discovery, which is being developed as an extension of the Kuparuk field, began production in November at a net rate of 6,000 barrels of oil per day (BOPD) through the end of 2002. The Greater Kuparuk Area includes four company-operated satellite fields, with net production of 104,000 BOEPD during 2002. The Alpine field and five potential satellites drive growth in the Western North Slope area. ConocoPhillips expects to sanction the first expansion of the Alpine facilities in early 2003. In 2002, net production from Alpine was 63,000 BOPD. The company also operates in the Cook Inlet, where net natural gas production was 166 million cubic feet per day (MMCFD) in 2002. Polar Tankers Inc., a ConocoPhillips wholly owned subsidiary, operates a fleet of five vessels used to transport the company’s Alaska crude oil production to refineries on the U.S. West Coast and Hawaii. The double-hulled crude oil tanker Polar Resolution was brought into service in 2002, joining the Polar Endeavour tanker that began service in 2001. Three more Endeavour Class double-hulled tankers are scheduled to join the fleet over the next three years. Company
Pursuing Arctic Gas Developments ConocoPhillips and its co-venturers expect to file a preliminary information package for the Mackenzie Delta project with regulators in early 2003. Both federal enabling and fiscal legislation on the Alaska project are being pursued. Focusing
on Value in Canada Development is continuing on schedule for the Surmont and Syncrude oil sands projects, as well as the Parsons Lake gas project in the Mackenzie Delta. “We have to do a lot of things right to be successful in Canada,” says Henry Sykes, president of ConocoPhillips Canada. “We’re focused on value, not volume. We plan to reduce our operating costs significantly and sell more than $300 million of our nonstrategic conventional properties.” Following the merger, net production from Canada averaged 89,000 barrels of liquids per day (including Syncrude) and 468 MMCFD of natural gas. Lower
48: Legacy in Onshore Gas, Future in Deepwater “Our strategy is to efficiently exploit the company’s low-cost onshore leasehold position in the Lower 48,” says Jim McColgin, president of U.S. Lower 48 and Latin America. “However, as production declines onshore, ConocoPhillips is looking to the deepwater Gulf of Mexico for future growth.” At year-end, the company held interests in 391 blocks in the Gulf of Mexico, and exploration drilling was under way in several blocks. In addition to exploration drilling, development drilling is ongoing in the Magnolia and Princess fields, and appraisal drilling is under way on the K2 discovery. ConocoPhillips has a 75 percent interest in and is the operator of the Magnolia field, expected to come online in late 2004. A tension-leg platform will produce oil and natural gas from the field in nearly 4,700 feet of water — a record depth for this type of floating structure. ConocoPhillips has a 16 percent interest in Princess, a low-cost subsea development that produces through facilities in the nearby Ursa field. Princess came onstream in 2002 and will achieve peak net production of 6,500 BOEPD by 2004. The company has a nonoperated interest of 18.2 percent in the K2 field. Discovered in 1999, the field is under appraisal. Pursuing
Production in Venezuela’s Orinoco Oil Belt and Offshore A national labor strike temporarily shut down Petrozuata and Hamaca operations from December into February. Prior to the shutdown, combined net production from the projects was approximately 78,000 BOPD. Both projects resumed limited operations in February. Petrozuata, a joint venture with Petroleos de Venezuela S.A. (PDVSA), began production in 1998. Hamaca, a joint venture with PDVSA and ChevronTexaco, began production in 2001 and is expected to increase its net production to 60,000 BOPD after construction of the upgrader facility is completed in late 2004. ConocoPhillips is evaluating the option to add a second upgrader — a move that could potentially double Hamaca’s production. Offshore Venezuela, ConocoPhillips is pursuing the development of the Corocoro field in the Gulf of Paria. Full government approval of the project is expected in 2003, with the first phase of production expected to begin in 2005. Two exploration wells are planned to assess additional opportunities in the Gulf of Paria in 2003. Europe,
Russia and Caspian Legacy
Assets Anchor North Sea Production “Britannia and Ekofisk provide a significant production base that will allow us to capture new growth opportunities in the North Sea,” says Steve Theede, president of Europe, Russia and Caspian. “Both have substantial proved reserves and production life remaining. We expect North Sea production to increase through a combination of new opportunities, enhanced recovery at Ekofisk and new Britannia satellites.” Net production in 2002 from the Greater Ekofisk Area in the Norwegian North Sea increased to 127,000 barrels of liquids per day and 133 MMCFD of natural gas. An optimization plan for the Ekofisk field was submitted for review to the Norwegian government in December. ConocoPhillips has a 35.11 percent interest in Ekofisk. In December, cumulative gross gas production from the Britannia field in the U.K. North Sea reached 1 trillion cubic feet since the field’s startup in 1998. The company is assessing the development of the Britannia satellite fields Callanish and Brodgar, which could come online as early as 2006. ConocoPhillips has a 58.7 percent interest in Britannia. Development of the Clair field continues, with the first phase of production expected in 2004. Clair is located on the U.K. continental shelf and has net proved reserves of 24 million barrels of petroleum liquids. Two of the five satellites in the Caister Murdoch System III natural gas development in the U.K. North Sea began producing in 2002. The Hawksley field came onstream in September and the Murdoch K field followed in December. Peak net production from the two fields was 175 MMCFD of gas at year-end. The Jade field in the U.K. North Sea came onstream in February 2002 and reached peak production in July. Net production was 62 MMCFD of gas and 5,200 BOPD at the end of 2002. In 2002, ConocoPhillips increased its interest from 18.3 percent to 24.3 percent in the Heidrun oil and natural gas field offshore Norway in the Norwegian Sea. Russian
Satellite Field Comes Onstream Kashagan
Discovery Declared Commercial A second discovery was made in the Caspian Sea near the Kashagan field in October. The Kalamkas-1 discovery was the first exploration well on the Kalamkas prospect. Evaluation of this discovery is under way. Asia
Pacific First
Oil from China’s Bohai Bay Phase II development plans are under way and will incorporate knowledge gained from the Phase I drilling and production results. Exploration drilling in the Bohai block will continue in 2003. Gas
Key to Growth in Indonesia Gas deliveries from Block B to Singapore began in 2001, while deliveries to Malaysia began in August 2002. Development of the Belanak field is under way, with first production expected in late 2004. Belanak will support the Block B gas contracts, as well as increase oil and gas liquids production. ConocoPhillips will begin delivering gas from Sumatra to Singapore in late 2003, following the completion of a pipeline. Ongoing development of the Suban field in South Sumatra will provide for additional gas contracts. Net production in Indonesia averaged 14,700 BOPD and 217 MMCFD of gas for the last four months of 2002. Growth
Continues in Vietnam Bayu-Undan
Project Taking Shape Net daily production from Phase I is expected to average 32,900 barrels of condensate and liquefied petroleum gas in 2004. A wellhead platform was placed on site in 2002, and a new floating storage and offloading (FSO) facility will be towed to the field in mid-2003. Product will be offloaded from the FSO to shuttle tankers for shipment to markets throughout Asia. In March 2002, ConocoPhillips signed an agreement with two Japanese utilities for the sale of 3 million tons of LNG per year for 17 years. This sales agreement allows the company to move ahead with Phase II of the project once the remaining legal, regulatory and fiscal issues are resolved. Elsewhere in the Timor Sea, ConocoPhillips and its co-venturers continue to evaluate commercial development options for the natural gas and associated liquids from the Greater Sunrise fields. Africa and
the Middle East Natural
Gas and Exploration Opportunities in Nigeria A new LNG facility near the Brass River crude oil terminal could come onstream as early as 2008. Nigeria maintained its net production in 2002, averaging 38,200 BOEPD. Discovery
Made Offshore Cameroon Middle
East Offers Legacy Potential |
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