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ConocoPhillips’ Exploration and Production
(E&P) business met each of its key objectives
in 2004, solidly advancing its strategy of profitably
growing production and reserves while improving
cost and production efficiency.
“E&P performed very well in 2004,
allowing ConocoPhillips to capture the full benefit
of higher crude oil and natural gas prices,” says
Bill Berry, executive vice president of E&P. “In
a year when we had significant planned maintenance
and upgrades that temporarily interrupted the
normal operation of several assets, we operated
efficiently. We completed the maintenance and
upgrade work on schedule, achieved our production
objective, controlled costs and progressed our
major projects, bringing online three world-scale,
world-class projects — Hamaca, Bayu-Undan
and Belanak. Together, these three projects will
contribute about 115,000 barrels of oil equivalent
per day to ConocoPhillips’ 2005 net production
and help drive our future production growth.”
Building on its 2004 performance, the business
is committed to continuous improvement. “Our
adjusted return on capital employed (ROCE) was
very competitive with our peers in 2004,” says
Berry. “To improve adjusted ROCE further,
we need to remain disciplined on capital, manage
our operating costs and increase our production
efficiency.”
Effective knowledge management and technology
also are helping to drive business improvement. “It’s
about utilizing the capabilities we have to increase
production and lower costs,” says Berry. “Our
employees are some of the most highly capable
people in the industry. E&P’s 2004
results directly reflect their hard work and
expertise. Going forward, I believe we can drive
our performance to an even higher level by more
efficiently leveraging the organization’s
knowledge and technical capabilities.”
In 2004, the business demonstrated its commitment
to delivering long-term growth with competitive
returns by pursuing new opportunities in Russia,
Libya, Malaysia and other areas.
“We manage the E&P business with a long-term
view,” says Berry. “We are always looking
five to 10 years into the future for opportunities to replace the reserves
we are producing today.”
E&P plans to grow production, including Syncrude,
by about 4 percent in 2005 and 5 percent in 2006,
with continued, long-term growth at an average
rate of approximately 3 percent per year.
According to Berry, the strength and longevity
of the company’s asset portfolio help to
distinguish ConocoPhillips from its competition. “We
have a well-defined set of strong projects in
development that will come online over the next
several years, and we are constantly looking
for new opportunities. Taking this type of long-term
view ensures that we are delivering growth that
is sustainable and operating our business in
a way that drives shareholder value.”
Several of ConocoPhillips’ legacy assets — large
oil and gas projects with positive, long-term
financial returns — are located in Organization
for Economic Co-operation and Development (OECD)
member nations, providing a stable production
base for the company. Assets located in Alaska,
the U.S. Lower 48, Canada and the Norwegian and
U.K. sectors of the North Sea together generate
approximately 75 percent of the company’s
existing production.
“While some of these assets are maturing,
they still have a lot of life left,” explains
Berry. “With advancements in technology driving
greater production efficiency and new projects
coming on in each of these regions, we expect the
combined production from North America and the
North Sea to remain relatively stable for the next
several years.”
In 2004, ConocoPhillips advanced three key projects — the
West Sak heavy-oil program, Alpine capacity expansion
and Alpine satellite development — that
will strengthen the company’s position
as the largest producer in Alaska.
Production from the West Sak field is expected
to more than double its current level by 2007,
as Alaska’s largest-ever heavy-oil development
program progresses. Drilling and facility construction
on two West Sak drill sites began in 2004.
The capacity expansion project under way on the
Alpine field will increase both the oil handling
and seawater injection capacities of the field’s
facilities. In addition to completing Phase I of the expansion project
in 2004, a significant portion of Phase II also was completed. The remaining
Phase II work should be finished in 2005. In addition to the capacity expansion,
development of the Alpine satellites Fiord and Nanuq is moving forward
after the necessary approvals were secured in 2004. First production from
the satellites is anticipated in 2006.
The Magnolia project is helping to sustain production from the U.S. Lower
48. Located in the Gulf of Mexico, Magnolia began producing in late 2004
via a tension-leg platform in 4,700 feet of water, a world record for this
type of platform. Peak production is expected in 2005.
In Canada, construction of the facilities for the Surmont oil sands project
began on schedule in 2004, while construction continued on the Syncrude
oil sands expansion. First production from both projects is anticipated
in 2006.
Several projects are sustaining the company’s production in the North
Sea. In the Atlantic Margin, the Clair field is expected to begin producing
in early 2005 and to reach peak production in 2006. In the U.K. North Sea,
government approvals were granted in 2004 for two projects — the
development of the Saturn Unit Area in the U.K. southern North Sea and
the development of Britannia satellites Callanish and Brodgar in the U.K.
central North Sea. First production from the Saturn project is expected
in late 2005, and first production from the Britannia satellites is scheduled
for processing through the Britannia facilities in 2007.
In the Norwegian sector of the North Sea, a new platform jacket was installed
in 2004 to enable first production from the Ekofisk growth project in 2005.
In addition to the construction and installation of a platform, the Ekofisk
growth project includes an overall capacity increase as a result of modifications
at several existing facilities and the drilling of approximately 25 new
wells.
Elsewhere in the Norwegian North Sea, the Alvheim field’s development
plan received government approval in 2004. First production from Alvheim
is anticipated in 2007.
Projects in Venezuela and the Asia Pacific region
are strengthening the company’s asset portfolio,
increasing production and adding value to ConocoPhillips’ bottom
line.
In Venezuela, the company is building on the
success of Petrozuata, its first heavy-oil project
in the region, with the startup of the heavy-oil
upgrader for the Hamaca project in late 2004. “Petrozuata
has been operating well and even achieved record
volumes in 2004, producing more than it has any
year since its 1998 startup,” says Berry. “Hamaca
is ramping up nicely and the heavy-oil upgrader
should reach full capacity in 2005.”
In the Asia Pacific region, major projects are
under way in the Timor Sea, Indonesia, China
and Vietnam. “Asia Pacific is one of the
most dynamic areas for the company right now,” says
Berry. “We have a number of exciting ventures
in the region that should afford us significant
near-term and long-term production growth.”
Anchoring the company’s recent growth in
the region is the Bayu-Undan field located in
the Timor Sea between Timor-Leste and Australia.
Liquids production from the field began in early
2004 and reached full design rates in September.
Liquefied natural gas exports are expected to
begin in 2006 and gas production should reach
plateau in 2009.
ConocoPhillips is one of the largest foreign
leaseholders in Indonesia, with 13 exploration
and production licenses at year-end 2004. A new,
world-class floating production, storage and
offloading vessel was put into service in late
2004, supporting liquids production from the
Belanak field in Block B in the West Natuna Sea.
Significant activity continued in both China
and Vietnam in 2004. The company approved the
second development phase of the Peng Lai 19-3
field in China’s Bohai Bay in late 2004
and secured government approval in early 2005.
Phase II development incorporates knowledge gained
from Phase I drilling and production results
and is expected to increase the field’s
output over several years. In Vietnam, production
increased significantly from the Su Tu Den field
in 2004 and appraisal work continued on the block.
At the nearby Rang Dong field, water injection
was started to enhance production.
ConocoPhillips is participating in key projects
in resource-rich areas such as the Caspian
Sea and northern Russia and pursuing opportunities
in other promising areas, including Libya.
Following the receipt of government approval
in early 2004, development plans for the Kashagan
oil field are moving forward. Located in the
Caspian Sea, Kashagan is one of the world’s
largest discoveries in the last 30 years.
 In addition to forming a broad-based strategic
alliance and equity agreement with the Russian
company LUKOIL in 2004, ConocoPhillips and LUKOIL
agreed to form an upstream joint venture to develop
resources in the northern part of Russia’s
Timan-Pechora oil and gas province. When finalized,
ConocoPhillips expects to own a 30 percent economic
interest in the joint venture.
“We have a long history of successfully doing
business in Russia, and this joint venture offers
us the opportunity to work with a quality partner
on new prospects,” says Berry.
The companies also intend to seek the right to
develop the giant West Qurna field in Iraq. ConocoPhillips
and LUKOIL will cooperate with the Iraqi government
to confirm LUKOIL’s rights under its production
sharing agreement (PSA) related to the field.
ConocoPhillips and its co-venturers are pursuing
re-entry into the Waha concession in Libya, and
discussions with the Libyan authorities are ongoing.
ConocoPhillips consolidated its global gas activities
under one organization in 2004. “Natural
gas is expected to play an increasingly important
role in the company’s future in terms
of reserves, production and capital requirements,” explains
Berry. “Coordinating gas projects across
regional and business lines allows us to better
leverage our capabilities throughout the value
chain, utilize the company’s size and
scale, and apply improvements in technology.”
The company is pursuing several liquefied natural
gas (LNG) projects. ConocoPhillips’ first
LNG facility in Kenai, Alaska, has been operational
for 35 years. The company’s second facility,
under construction in Darwin, Australia, is intended
to liquefy natural gas from the company’s
Bayu-Undan field for delivery to customers in
Japan beginning in 2006.
Plans for LNG facilities in Qatar and Nigeria
and a gas-to-liquids project in Qatar were advanced
in 2004. ConocoPhillips and its co-venturers
also are studying options to commercialize the
gas resources from the Plataforma Deltana field
offshore Venezuela, and the company signed a
Memorandum of Understanding with Russian gas
company Gazprom to study the development of the
Shtokman field in the Barents Sea.
Additionally, ConocoPhillips is pursuing several
potential sites for regasification facilities
in key U.S. locations, including offshore Alabama
and Louisiana, and onshore Texas and California.
Federal approval on the Freeport, Texas, regasification
facility was finalized in January 2005, and construction
began the same month. Commercial startup is expected
in 2008, and ConocoPhillips has capacity rights
for 1 billion cubic feet of gas per day.
The company made significant strides on its major
gas pipeline projects in 2004, filing applications
for regulatory approval on a proposed Mackenzie
Valley pipeline in Canada and securing federal
enabling legislation on a pipeline from Alaska’s
North Slope.
In Indonesia, ConocoPhillips secured its fourth
major domestic gas supply contract in 2004, strengthening
the company’s role as a leading gas producer
in the region. Under this contract, ConocoPhillips
plans to supply the industrial markets in West
Java and Jakarta with approximately 850 billion
net cubic feet of gas over 17 years, beginning
in 2007.
In 2004, exploration and business development
activities successfully added significant hydrocarbon
resources at a competitive cost that will become
the feedstock for future ConocoPhillips developments.
More than 50 exploration and appraisal wells
were drilled in 2004, and the company secured
new acreage in the National Petroleum Reserve — Alaska;
the deepwater Gulf of Mexico; Alberta, Canada;
and the Timor Sea.
Two significant deepwater discoveries offshore
Malaysia were announced in 2004 — the Gumusut
field in Sabah Block J and the Malikai field
in Sabah Block G. Appraisal activities are under
way on both discoveries.
In the Caspian Sea, the company and its co-venturers
completed the final exploration commitment well
in the North Caspian Sea PSA in mid-2004. With
a 100 percent success rate, the exploration campaign
on the PSA — spanning 1998 to 2004 — resulted
in the discovery of the Kashagan, Kalamkas More,
Aktote, Kairan and Kashagan Southwest fields.
ConocoPhillips will continue its exploration
and business development efforts in 2005, with
plans to drill more than 50 wildcat and appraisal
wells.
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