John A. Carrig, Executive Vice President, Finance, and Chief Financial Officer
	ConocoPhillips’ total debt at the end of 2002 was $19.8 billion. The company assumed $12 billion in connection with the merger. The company plans to reduce its existing debt by approximately $2 billion over the next two years by utilizing a portion of operating cash flow and cash flow from asset sales.
	ConocoPhillips’ common stockholders’ equity was $29.5 billion, and its total debt as a percent of capital was 39 percent at year-end 2002. The company plans to lower its existing debt-to-capital ratio to the mid-30 percent range over the next several years through a combination of debt reduction and earnings growth.

Financial Strategy
Emphasis on Discipline

ConocoPhillips’ financial strategy emphasizes discipline — on costs, capital spending and the balance sheet — in an effort to reduce debt and improve returns to shareholders.

“The overriding emphasis throughout the company is to improve our return on capital employed (ROCE) to be competitive with the largest companies in the industry,” says John Carrig, executive vice president of Finance and chief financial officer. “We’ve already begun implementing the steps necessary to meet this objective, like announcing a lower, more disciplined capital budget for 2003 and an asset disposal program designed to high-grade the asset base. This includes divesting a substantial number of retail marketing outlets and higher-cost, shorter-lived Exploration and Production (E&P) properties.”

ConocoPhillips’ capital budget of $6.6 billion is $2 billion less than the combined capital budgets of the two merged companies. Seventy-five percent of the company’s 2003 capital budget is dedicated to E&P, which has historically provided higher returns than other businesses. “Our capital program is value-oriented,” says Carrig. “We want attractive returns for every dollar spent.”

The company plans to increase its midcycle ROCE over the next several years from the current levels to better compete with the best-performing companies in the sector. The company expects to achieve a higher ROCE through capital discipline, synergy capture and sales of low-returning assets.

At the end of 2002, the company’s total debt was $19.8 billion. In 2003, the company plans to apply a portion of operating cash flow and cash flow from asset sales toward reducing the debt. This should bring the debt down to approximately $18 billion to $19 billion by year-end 2003. In 2004, the company expects another $1 billion of debt reduction from capturing a full year of cost synergies, improved cash flow and additional asset sales. 

“Reducing debt should result in a much stronger share price, while providing more flexibility to weather a downturn in crude oil and natural gas prices,” explains Carrig. “Less debt also allows for consistent capital funding and the flexibility to take advantage of new opportunities.”

With lower debt, ConocoPhillips’ credit rating should improve. “Stronger ratings will give us more financial flexibility and attract a wider base of shareholders,” says Carrig.

In addition to ConocoPhillips’ commitment to reduce debt and control costs, the company also is committed to providing benefits for employees and retirees. The company will invest approximately $350 million annually over the next five years in its U.S. pension and employee benefit funds, ensuring strong support of these programs.

Says Carrig, “Our outlook is good. We have excellent management and strong oversight from proven control systems in place. We need to maintain our focus on discipline with regard to costs, capital spending and the balance sheet. We have a solid plan to improve returns, and we have the experience and the will to make it work.”