A COMPLETE INDUSTRY ANALYSIS

on

CONOCOPHILLIPS

Submitted by

Anubhav Dhyani - 25

Anupam Rozario - 26

Anupam Gogoi - 27

Company History

ConocoPhillips Company (NYSE: COP) is an American multinational energy corporation with its

headquarters located in the Energy Corridor district of Houston, Texas in the United States. It is also

one of the Fortune 500 companies and 22nd on Forbes Global 2000. ConocoPhillips is the fifth

largest private sector energy corporation in the world and is one of the six "supermajor" vertically

integrated oil companies. It sells fuel under the Conoco, Phillips 66 and Union 76 brands in North

America, and Jet in Europe. ConocoPhillips was created through the merger of Conoco Inc. and the

Phillips Petroleum Company on August 30, 2002.

ConocoPhillips traces its beginnings to 1875, when Conoco founder Isaac E. Blake envisioned an

idea to make kerosene available and affordable to townspeople in Ogden, Utah. Thirty years later,

the foundation for Phillips Petroleum Company began when brothers Frank and L.E. Phillips hit the

first of 81 wells without a dry hole. Nearly a century later, the two companies combined their

strengths to form what is now the third-largest energy company in the United States. The

ConocoPhillips merger, completed on Aug. 30, 2002, paved the path for the company’s current and

future success.

The years leading up to the formation of ConocoPhillips were marked by moments of triumph and

challenges. Several of these moments highlighted both Conoco and Phillips’ pioneering spirits.

Phillips led the path in innovation by becoming the first company to develop and market propane for

home heating and cooking, building the first long-

distance multiproduct pipeline and inventing a

process to make high-octane gasoline possible.

Conoco used its pioneering spirit to develop the first

filling station in the West, constructing what now is

one of the oldest operating refineries in the United

States and developing and receiving a patent for the

Vibrosis method of seismic oil exploration.

Together, the two companies helped make possible the current achievements of ConocoPhillips.

Since the merger, the company has continued to grow and make significant contributions to the

energy industry.

In 2006, Burlington Resources joined ConocoPhillips. The acquisition brought Burlington’s more

than 100 years of experience to ConocoPhillips and enhanced the company’s position as a leading

producer and marketer of natural gas. In recent years, ConocoPhillips began commercial production

of renewable diesel fuel, started the first Alpine satellite oil field, announced plans for a global water

sustainability center and formed a partnership with Tyson Foods, Inc. to produce next-generation

renewable diesel fuel. While ConocoPhillips’ history still is young, the histories of Conoco, Phillips

and Burlington provide a solid foundation for ConocoPhillips to leave a mark on the industry.

Conoco Inc.

Conoco Inc. began in 1875 as the Continental Oil and Transportation Co. Based in Ogden, Utah, the

company distributed coal, oil, kerosene, grease and candles to the West.

Phillips Petroleum Company

Phillips Petroleum Company traces its roots to Bartlesville, Okla., in the middle of Indian Territory.

In 1905, Frank Phillips and brother, L.E. hit their first gusher, the first of 81 wells in a row without

a single dry hole.

Burlington Resources

The seeds for Burlington Resources were planted in 1864 when U.S. President Abraham Lincoln

granted to Northern Pacific Railway Company, predecessor to Burlington Northern Railroad

Company, land and right-of-way to build a transcontinental railroad.

ConocoPhillips has a time-honored tradition of placing safety, health and environmental

stewardship at the top of our operating priorities. This will not change as we move forward

as an independent company. Our technical capability, asset quality and scale, and

financial strength are unmatched among independent upstream companies and uniquely

position us to compete anywhere in the world.

While North America is our home and provides the majority of our production, we are

active in almost 30 countries and in a wide range of geologic and geographic settings,

including some of the world’s most challenging areas. From the frozen Arctic to the arid

desert, we have a proven track record of responsibly and efficiently exploring for and

producing oil and natural gas.

Our production streams include light oil, heavy oil, oil sands, natural gas liquids,

conventional natural gas, coalbed methane, shale gas and oil, and liquefied natural gas

(LNG).

By combining our legacy strengths with the focus and culture of an independent company,

we believe we can unlock potential for all our stakeholders by helping to meet the world’s

energy needs.

 

 

Corporate Overview

ConocoPhillips explores for, produces, transports and markets crude oil, natural gas, natural gas

liquids, liquefied natural gas and bitumen on a worldwide basis. Key focus areas include safely

operating producing assets, executing existing major projects and exploring for new resources in

promising areas. The portfolio includes legacy assets in North America, Europe, Asia and

Australia; growing North American shale and oil sands businesses; a number of major

international development projects; and a global exploration program. ConocoPhillips conducts

exploration activities in 19 countries and produces hydrocarbons in 13 countries, with proved

reserves located in 15 countries as of Dec. 31, 2011. Headquartered in Houston, Texas,

ConocoPhillips has operations in almost 30 countries. As of May 1, 2012, the company had more

than 16,000 employees worldwide. ConocoPhillips common stock is listed on the New York

Stock Exchange under the ticker symbol COP.

2011 Accomplishments

Significant accomplishments in 2011 included

the following:

Maintaining commitment to operational

and personal safety.

Progressing portfolio repositioning. 

Enhancing margins through focused

capital investment. 

Replacing 120 percent of reserves on an

organic basis. 

Growing production and acreage in

liquids-rich North American shale

plays. 

Exploiting legacy positions and major

developments in North America, Europe

and Asia Pacific. 

Sanctioning the Australia Pacific LNG

project. 

Ramping up Canadian oil sands

production. 

 

Outlook

Returns

Execute disciplined capital program of

approximately $15 billion per annum. 

Continue optimization of the portfolio

and shift to high-margin production. 

Deliver per-unit margin, ROCE and

CROCE improvements. 

Growth

Achieve more than 100 percent reserve

replacement. 

Deliver absolute production growth of 3

to 5 percent CAGR from 2013.

Distributions

Execute up to $10 billion in asset sales

from 2012 onward. 

Repurchase shares, broadly tied to asset

sales.

Continuing progress on building high-

value exploration program.

.  

Target annual dividend increases. 

Type Public

Traded asNYSE: COP

S&P 500 Component

Industry Oil and gas

Predecessor(s)Conoco Inc.

Phillips Petroleum Company

Founded August 30, 2002[1]

HeadquartersHouston Energy Corridor,

Houston, Texas, U.S.

Area served Worldwide

Key peopleRyan Lance

(Chairman & CEO)

Products

Oil, natural gas, petroleum, lubricant,

petrochemical,

List of marketing brands

Revenue US$ 251.226 billion (2011)

Operating income US$ 23.001 billion (2011)

Net income US$ 12.436 billion (2011)

Total assets US$ 153.230 billion (2011)

Total equity US$ 65.224 billion (2011)

Employees 29,800 (2011)

Website ConocoPhillips.com

Financial Ratios

Upstream Activities

Conoco Phillips Exploration and Production (E&P) segment focuses on exploring, producing,

transporting and marketing natural gas, natural gas liquids, and most importantly crude oil on a

worldwide basis. Conoco Phillips has producing E&P operations domestically in the United States,

and internationally in Canada, United Kingdom, Norway, Australia, offshore Timor-Leste in the

Timor Sea, Indonesia, China, Vietnam, Libya, Nigeria, Algeria, and Russia. In addition, Conoco

Phillips is creating room for growth through key development projects in the Middle East, North

Africa, the Asia Pacific Region, and a global exploration program. The United States E&P operations

located in Alaska, Texas, and Oklahoma, and the Gulf of Mexico contribute to 40% of Conoco

Phillips E&P worldwide liquids production, and 41% of natural gas production. Conoco Phillips

European and Canadian operations accounts for 23% and 11% of the E&P production respectively,

and the rest comes from an even distribution of the remaining international operations. At the year

end of 2009, the E&P segment represented 66% of Conoco Phillips total assets. At the core of

Conoco Phillips business, in 2009, the E&P segment primarily maintains responsibility for 74% of

the net income accounting for $3.6 billion out of $4.86 billion total generated net income. The

profitability of E&P is directly correlated to crude oil and natural gas prices as commodities and the

nature of the industry crude oil and natural gas prices are controlled primarily by external forces such

as demand, supply, and consumer expectations. Some quick statistics on Conoco Phillips (excluding

LUKOIL) E&P assets include:

Reserves - 8.4 BBOE

Assets - $101 billion

Employees - 12,295

5- Year Reserve Replacement Average - 145%

Total Worldwide production - 1,854 MBOED

Crude oil and Natural gas Liquid Production - 968 MBD

Natural Gas Production - 4,877 MMCFD

Midstream Activities

The Midstream segment of Conoco Phillips purchases raw natural gas from producers and gathers

natural gas through extensive pipeline gathering systems. The gathered natural gas is processed to

extract natural gas liquids (NGL) such as ethane, propane, and butane, which are marketed as

chemical feedstock, fuel, and refinery blendstock. The remaining “residue” gas is marketed to utility

and industrial companies. This segment represents merely 1 percent of Conoco Phillips total assets

and is executed mainly through a 50% holding in DCP Midstream LLC. At the year end of 2009, the

midstream segment posted operating income of $313 million, which is only 6% of Conoco Phillips

bottom line. DCP Midstream is the leader for the midstream segment in the United States as the

largest natural gas gatherers and processors, NGL producer, and NGL marketers. Furthermore, the

gas is processed at 59 owned or operated DCP facilities where the gas is then transported and sold.

DCP Midstream is also a leading distributor of propane, and is traded on the New York Stock

Exchange under the symbol DPM.

Downstream Activities

Refining and Marketing (R&M) is the segment of Conoco Phillips that centers on refining crude oil

into gasoline, kerosene, diesel, and other types of fuels and feedstocks previously mentioned. Conoco

Phillips is the second largest refiner operating in the United States processing crude oil at a capacity

nearly 2 million barrels daily (MMBD) domestically, and the world’s fourth largest nongovernment

controlled refiner processing almost 2.7 MMBD internationally. Furthermore, transportation,

purchasing and distribution, and the development of downstream technology all fall under this

category. Refining and Marketing accounts for 24% of Conoco Phillips total assets at the year end of

2009. Due to high fuel prices in 2009, Conoco Phillips posted only $37 of operating income from the

R&M segment, which is less than 1% of the total net income at year end demonstrating how capital

intensive the refining process is. Marketing includes retail with outlets throughout Europe and North

America, and wholesale segmentation. Retail outlets consist of both company and dealer owned

establishments. Transportation of products to Conoco Phillips customers consists of company- owned

and common carrier pipelines, a tanker fleet, terminals, truck and railcars. These allow

ConocoPhillips a wide variety of transportation options and help maintain an extensive supply chain.

As a leader in the oil industry, ConocoPhillips deals in the sale of both crude and processed oil and

fuel products in both the retail and wholesale markets. At the year end of 2009, R&M marketed

gasoline, diesel and aviation fuel through approximately 9,900 retail and wholesale outlets globally.

The majority of these sites utilize the Phillips 66, Conoco, or 76 brands in the United States, and JET

brand in Europe. ConocoPhillips’ wholesale operations utilized a network of marketers operating

approximately 7,680 outlets that provide a refined product such as gasoline, and diesel from

company-owned refineries. Conoco Phillips also buys and sells petroleum products in the spot

market. Furthermore, ConocoPhillips produces products which are marketed on both a branded and

unbranded basis. In addition to gasoline and diesel, ConocoPhillips also produces and markets

aviation gasoline. At the end of the 2009, aviation gasoline and jet fuel were sold through

independent marketers at approximately 710 Phillips 66 branded locations in the United States. In

2006, Conoco Phillips decided to divest 830 U.S. company-owned and company-operated retail, and

dealer-operated outlets to new or existing wholesale marketers. Of the 830 sites, nearly 100 dealer-

operated sites remain for sale in 2010. Some quick statistics on Conoco Phillips 2009 year end R&M

segment include:

12 U.S. refineries

5 international refineries in 4 countries

Approximately 8,500 U.S. marketing outlets

Approximately 1,400 International marketing outlets

U.S. crude processing capability 2 MMBD

International crude processing 0.7 MMBD

Assets $37 billion

Employees 11,700

Key products

o Gasoline, diesel and jet fuel, LPGs, base oils, lubricants, solvents, aviation gasoline,

and premium fuel grade petroleum cokes

Value Chain Analysis

Delivering Shareholder Value :

ConocoPhillips’ strategy is focused on a disciplined approach to capital investment, maintenance of a

strong balance sheet and growing distributions to our shareholders. We are prioritizing our

investments on the highest-returning projects to improve our return on capital employed (ROCE) and

capital efficiency

We continue to optimize the portfolio, selling non-core holdings, and using these proceeds to fund

debt reductions and increase distributions to our shareholders through share repurchases. With our

strong financial position, our ability to add new reserves at competitive finding and development

costs, and our emphasis on operating excellence and cost control, we are well positioned to continue

creating shareholder value.

Optimizing the Asset Portfolio

Through nearly a decade of rapid growth driven by organic development, mergers and acquisitions,

ConocoPhillips built a substantial asset portfolio that extends throughout the energy value chain. We

are optimizing this portfolio by focusing on assets that offer the highest returns and growth potential,

Exploration

and

Production

Exploration

and

Production

Developing

Our People

Developing

Our People

Leveraging

Technology

Leveraging

Technology

Delivering Shareholder Value

Delivering Shareholder Value

while selling non-core holdings. We are forming a more focused asset base that drives improved

capital efficiency.

Improving Capital Efficiency

Earning an attractive ROCE is essential for capital intensive industries. To improve capital efficiency

and ROCE, we are diligently allocating investment funds to the highest-returning opportunities in our

portfolio. In today’s energy market, these are upstream projects focused on North American liquids

production and major international resource development.

Enhancing Financial Flexibility

A strong balance sheet provides the financial flexibility needed to capture emerging opportunities and

strategically adapt to changing markets. In 2010, we enhanced ConocoPhillips’ financial strength by

using our operating cash flow and asset-sale proceeds to reduce debt, return the debt-to-capital ratio

to its target range of 20 to 25 percent, and build a substantial balance of available cash. We are well

positioned for future opportunities.

Leveraging Technology:

Seismic Processing

ConocoPhillips continues building on our long history of innovation by developing and applying

state-of the- art acquisition and imaging techniques, such as reverse time migration and Life of Field

Seismic, that aim to improve our exploration success and resource recovery. The largest-ever

offshore, fiber-optic, permanent seismic reservoir monitoring installation was successfully finished

during 2010 at our Ekofisk Field in the North Sea.

Environmental Stewardship

Environmental stewardship is a key focus area. Our research spans water conservation, greenhouse

gas emissions reduction and removal of trace impurities from oil and gas. We are also exploring

highly efficient means of energy generation to maximize the value of energy resources, such as using

nano-materials in natural-gas-powered fuel cells.

Enhanced Recovery

ConocoPhillips continues leveraging our expertise with new research to increase ultimate total oil

recovery from our assets. Current areas of research include development of advanced nano-polymers,

microbial-enhanced oil recovery, chemical flooding and reservoir management systems.

Oil sands

We are developing technology to maximize production from our oil sands resources while

minimizing the environmental footprint. Innovative methods being researched include direct steam

generation, enhanced steam-assisted gravity drainage and radio frequency heating. We are also

utilizing our refining expertise to maximize the production of transportation fuels from each barrel of

heavy oil produced.

Biosciences

Our research efforts include developing stimulants that can be injected downhole to facilitate

microbial activity and enhance production. We are also working to leverage existing core refining

skills and infrastructure by producing biofuels, and funding research into fuel production from non-

food biomass and algae sources.

Developing Our People:

Diversity

We have achieved substantial progress in enhancing the diversity of our work force in terms of

capabilities, geographic origins, educational qualifications, race and gender. This will remain a

priority for us in the future. The five-year strategic plans of our business units and corporate staffs

include specific people plans that incorporate objectives regarding diversity and inclusion,

recruitment, employee retention and training and development.

Recruitment and Training

To ensure we attract a world-class work force, we recruit from dozens of universities worldwide,

advertise job openings on our Web site and more than 500 other employment sites, and utilize

targeted searches to fill critical jobs. Once employees are on board, we provide educational and

development opportunities intended to enable each person to realize their maximum potential. Career-

long training is part of the ConocoPhillips culture.

Exploration and Production

Operational excellence remains a core focus, and improvements in employee safety and

environmental performance.

ConocoPhillips’ E&P investments are directed toward domestic and international producing regions,

conventional as well as unconventional oil and natural gas reservoirs, and a combination of new and

legacy opportunities.

Refining and Marketing

R&M colleagues worked to enhance reliability by implementing risk-reduction techniques, ramping

up integrity programs and reinforcing a strong safety culture that empowers employees to intervene

when necessary to stop any unsafe work practices. As a result of such initiatives, R&M achieved a 27

percent improvement in safety performance during 2010, while also improving clean product yield.

On the environmental front, R&M took significant steps during 2010 to reduce the footprint of our

assets through selective investments. For example, at the Borger Refinery in Texas, R&M completed

a project to reduce benzene in gasoline. The project improves energy efficiency while removing 90

million pounds of benzene per year and reducing the benzene concentration in Borger’s gasoline

products by 70 percent. At the Wood River Refinery in Illinois, a second wet gas scrubber was

installed to reduce sulfur and particulate emissions. This and other projects have led to an overall 80

percent reduction in sulfur emissions since 2002.

COMMERCIAL

Our Commercial organization manages the company’s worldwide commodity portfolio. It partners

with our upstream, downstream and midstream businesses by providing expertise in optimization,

supply and marketing, while also opportunistically trading around our assets. In 2010, the

Commercial business was restructured on a global basis to increase focus on external markets as well

as the internal value chain. Our trading and supply functions are now positioned for sustained global

growth across our operations in North America, Europe, the Middle East and Asia.

For over a decade, ConocoPhillips has had in place key strategic alliances to provide access to

resources and opportunities in the Chemicals and Midstream segments.

These 50/50 joint ventures are:

Chevron Phillips Chemical Company LLC (CPChem) – This joint venture with Chevron

Corporation is one of the world’s top producers of a wide range of petrochemicals, with

operations worldwide.

DCP Midstream, LLC (DCP Midstream) – This joint venture with Spectra Energy is the

largest natural gas liquids (NGL) producer in the United States, one of the largest natural gas

gatherers and processors, and a leading NGL marketer.

These alliances provide the ability to leverage financial and operational scale, and build key

relationships across the energy sector. They also improve market access for our production, provide

opportunities for our commercial business, and serve as a buffer against commodity price volatility.

Corporate citizenship

R&M is an active stakeholder in local communities, and participates in citizen advisory panels in

most refining communities. Through these panels, residents, business owners and community leaders

work with ConocoPhillips personnel to address concerns, answer questions and participate in local

events. R&M also strives to enhance the long-term well-being of the communities in which our

employees live and work.

Industry Analysis Using Porter’s Five Forces

The competitive force in the industry was evaluated by employing Porter’s Five Forces Model.

Porter’s model measures competitive force through the means of; barriers to entry, bargaining power

of suppliers, bargaining power of buyers, threat of substitutes, and degree of rivalry. These forces are

used to measure opportunity with respect to the Integrated Oil and Gas environment Conoco Phillips

engages in.

Barriers to Entry: High

The threat of new businesses emerging within the integrated petroleum industry is quite high for

several reasons. First of all, start up costs for a new company would be astronomical. In 2009,

Conoco Phillips spent nearly $143 billion on their total cost of goods sold49. Furthermore,

Exploration and Production costs are capital intensive. Conoco Phillips implemented a capital

program funding for 2010 of $11.2 billion of which 86% for support to Exploration and Production,

and 12% allocated to Refining50. A new startup company would have to have the finances or access

to finances in order to compete with the “supermajors” such as Conoco Phillips. In addition,

integrated petroleum companies have a competitive advantage concerning; technical expertise for

exploration and extraction of oil, financial advantage of cash flow to operations, and investment-

grade credit rankings. Investment grade rankings are necessary for financing debt. For example, in

2009 Conoco Phillips had a debt ratio nearly 40%, which means the firm does not have enough

working capital, or cash to finance operations or the company is making better use of their cash.

Either way, the integrated petroleum industry is highly capital intensive.

Bargaining Power of Suppliers: Medium

Suppliers to vertically integrated industries include services from companies such as Schlumberger

and Halliburton for technical hardware. Since there is a limited amount of suppliers who provide

technical equipment and the demand for technical supplies is high, means the suppliers wield some

leverage regarding technical hardware and support.

Bargaining Power of Buyers: Low

Buyers of oil and gas products range from individual users to large corporations and governments.

With the demand of fuel products extremely high at a current global consumption rate of 31 billion

barrels of crude annually, and the price of fuel being driven by market factors oil industries have little

control of demonstrates that customers have little bargaining power when it comes to the price of

fuel. Until there is a proven fuel substitute, customers will continue to pay for the high cost of oil. In

addition, as refining costs increase, oil companies can to pass these rising costs on to consumers who

demand it.

Threat of Substitutes: Low

As of yet, there are very few substitutes for oil. Although technology is moving extremely fast in the

area of renewable energy, no ready replacement for oil has been discovered as of yet. Bio-fuel is

offering some competition to the traditional means of energy, however, bio-fuel, so far at the least is

no real threat to the oil market or industry. Consequently, there is no immediate threat of substitution.

Degree of Rivalry: Medium

The vertically integrated oil and gas industry has many competitors which are spread out

domestically, and internationally implying a high degree of rivalry. The degree of rivalry is medium

and not high since most of the companies already have a specific market to sell to, and really do not

have a definitive method to differentiate oil or brand name from competitors, other than brand loyalty

and price. Oil companies try to differentiate and market their oil with additives, however, these

benefits are difficult to quantify by the customer and thus render little advantage. Until peak oil is a

major concern, the degree of rivalry will be medium.

Five Forces Summary

The oil and gas industry is an attractive business opportunity. At this moment in time, and for the

next decade as the world demands energy via crude oil, the vertically integrated oil companies will be

able to meet the demand. With the barriers to entry and substitution risk remaining high there is little

room in the near future for the threat of competition or substitution. The vertically integrated oil

companies are in the best position to profit in the future as oil becomes scarcer. In the future, as oil

becomes in short supply, the integrated companies will be in the best position to profit. Furthermore,

the integrated companies can purchase the assets of smaller distressed oil companies as they deplete

their reserves, and struggle to find new oil. As Conoco Phillips business model is discussed, it will

become clear that Conoco Phillips is in a nice position to gain advantage in relation to their

competition.

SWOT Analysis

Strengths

Strong market position- The sheer size of Conoco Phillips is strength. The company stands as the

second largest oil company in the United States. Conoco Phillips operates in over thirty countries,

posses 9,900 retail and wholesale outlets which it distributes the company’s gas.

Wide geographical presence- As they have 19 refineries around the world. The enormous size of the

company allows it access to access various gas exploration sites and a steady source of revenue.

Extensive refining and marketing operation- Conoco Phillips owns a 20 % interest in LUKOIL

ConocoPhillips leverages this investment to diversify risk as LUKOIL invests heavily in more risky

investments such as exploration in Soviet bloc nations. Strong cash position- Conoco Phillips 20

percent interest allows COP to benefit from the successful investments of LUKOIL without risking

too much if an investment results in negative profits. Thus far Conoco Phillips has a maintained a

healthy relationship with the Russian government by offering LUKOIL expertise in the oil industry.

Weaknesses

Volatility in Oil price- A major weakness for Conoco Phillips is the volatility in oil price. While

Conoco Phillips unlevered beta (The unlevered beta is the beta of a company without any debt.

Unlevering a beta removes the financial effects from leverage) is relatively high for the industry at

1.21 and thus more exposed to market fluctuation then what first might be supposed. When oil prices

are high, Conoco Phillips reports profits above expectations. However when oil prices are low,

Conoco Phillips shows significantly lower revenues. Conoco Phillips dependency on oil prices

combined with highly volatile price fluctuations of oil prices can lead to a riskier business model than

the beta would actually suggest. Because Conoco Phillips main source of business is oil, it would be

nearly impossible for this oil giant to completely negate its exposure to oil price fluctuations.

Decline in Oil production and declining reserves - As we know Oil is not a renewable source of

energy, and most of the oil companies are facing this issue and getting into alternate sources of

energy

Opportunities

Exploration and Production- It is the focus of Conoco Phillips opportunity for growth. Presently,

Conoco Phillips is reinvesting in E&P, with a focus on its core business segments. This strategy is a

direct result from the broader economic forces that have retarded the commodities market. Net

positive projects are not being shelved as demonstrated in the $11.2 billion invested in capital

expenditures in 2009; however completion rates are being extended as Conoco Phillips tries to

maximize their payback with a pickup in the commodities market and the greater economy. With that

being said, there are a few growth opportunities in emerging businesses that Conoco Phillips would

like to or is pursuing, namely: emerging businesses, trading, fuel technology, and gas-to-liquids and

power generation.

The emerging business segment- It invests in areas other than Conoco Phillips’ existing enterprises.

In 2009, this meant a focus toward the completion of the Immingham Combined Heat and Power

facility, which will add 450 megawatts of electric capacity and 200 tons of steam to the UK’s Huber

refinery which brings the total capacity to 1,180 megawatts. A second project taken on by Conoco

Phillips is E-Gas technology, a proprietary venture for producing electric power and chemical

manufacturing using synthetic gas.

While Conoco Phillips will continue to look for alternatives from its core businesses as a means of

hedging against future developments, for the time being Conoco Phillips primary means of growth

will be exploration and the refining of harvested crude during peak demand periods. At the end of

2009, Conoco Phillips had proven reserves over 8 billion barrels, which placed it eighth among top

oil producers. Although Conoco Phillips has higher refining capabilities than most of its competitors,

getting more from a barrel of heavy crude for example, Conoco Phillips will need to continue to find

new fields either through exploration, acquisition or lease. Impediments to growth include high

volatility in the commodities market, uncertainty in exploration, limitations to the speed of

development for new energy sources as well as their associated technologies and finally, political

changes within the host nation of the corporation and its subsidiaries. While the value chain of oil

production is producer driven, without global demand, there will be little the industry can do to push

product onto consumers. Additionally, since exploration, development, refining and storage capacity

all take years to establish, Conoco Phillips will need to plan for the next phase in economic growth

independent of current conditions.

Increasing demand for refined products from Developed nations- Developing nations poses an

opportunity for Conoco Phillips. As nations such as China and Brazil continue to grow and develop

they will have a growing demand for petroleum. Conoco Phillips can capitalize on this increase in

demand by preparing for additional demand. One way that Conoco Phillips could do this would be by

building refinery factories in China and thus capitalize on a developing market.

Producing heavy crude from oil shale- It is another opportunity for Conoco Phillips. Conoco

Phillips has been ramping up its ability to refine heavy crude for some time. This increase in capacity

has been done largely in anticipation of Canada’s heavy oil sands becoming a higher percentage of

the world’s oil supply. Because Conoco Phillips foresaw this trend before it actually began to develop

the company is in a unique position to gain market share as the propensity continues.

Agreement with Archer Daniels Midland Company for Biofuel- The Company announced that

they agreed to collaborate on the development of renewable transportation fuels from biomass,

creating a partnership between the biggest U.S. ethanol producer and one of the biggest oil refiners.

The collaboration will research and seek to commercialize two components of a next-generation

biofuel production process:

Threats

Competition- Conoco Phillips faces significant amounts of competitive pressure from companies

such as Exxon-Mobil, Chevron, Royal Dutch, and British Petroleum. Due to the similarity of the

quality of oil, it is nearly impossible for ConocoPhillips to segment itself in the oil industry.

Consequently, all of ConocoPhillips rival corporations are extremely competitive with the firm. The

one fact that offsets this is that there is a strong barrier to entry into the oil industry. It costs a

significant amount of money to locate and drill oil wells. As a result, not many businesses can readily

enter the oil market. This means that while the industry is indeed highly competitive, the cost

prohibits many new entries into the market.

Environmental regulations & Technology- The modern world desires to find renewable sources of

energy. As of yet, that desire has been left largely unmet, leaving oil the predominant source of

energy. However, if the world discovers a renewable source of energy and produces it on a mass

scale, this breakthrough could jeopardize the entire oil industry. Conclusively, ConocoPhillips and its

competitors are in an extremely precarious situation. Currently, technology already slightly affects oil

companies’ revenues. Bio-fuel is being utilized and researched at an ever growing rate. Oregon

already mandates gas used for cars contain 10% ethanol. More states will likely to follow suit,

especially as cars become more adept at functioning with ethanol blended fuel. Another current

technology threat is that the vehicle industry will continue to make more oil efficient cars. If this

trend of increasing vehicles fuel efficiency continues, the revenues of Conoco Phillips will eventually

be harmed.

Economic slowdown in the US and EU- Its a threat as most of the clients are from these two

geographical areas and it is affecting the company as people's disposable income is reducing and the

labour cost of the company is on rise

TOWS Matrix

SO strategies

Explore Developed nations- They can also start to make their mark in developing countries by

building refineries in countries like china and capitalize developing market.

Promote new and emerging opportunities for supply chain companies – for example in offshore

wind, carbon capture & storage (CCS) and decommissioning

Create Competitive advantage in Heavy crude Oil- They foresaw the trend to extract heavy crude

from oil shale with the help of their advanced R&D department, they should work extensively along

with renewable sources to create Competitive advantage for themselves

Find new Fields- Conoco Phillips will need to continue to find new fields either through exploration,

acquisition or lease.

ST strategies

Create Entry barrier for alternative energy companies- As we can see that the threats is posed by

the competitors but the entry barrier is very high as it costs a lot of money to locate and drill oil. and

it's strength is its sheer size and it's there in various countries also it can negate the competition

through LUKOIL's investments. They should also create high entry barriers for the companies who

are getting into renewable sources of energy by using their enormous strength and R&D facilities to

create infrastructure in that area also.

Focus on Exploring more alternative source of energy- With its huge reserves it is already

investing in new technologies like bio-fuel and other alternate technologies.

WO strategies

Invest heavily in renewable energy sources to negate Volatility in oil prices- Volatility in oil price

cannot be negated but by investing heavily in new technology, they can move to other markets which

will help them moderating the risk associated.

Economies of Scale- They can also reduce the risk through economies of scale by expanding to

developed nations

WT strategies

Minimize threats from competitors- By investing in newer technologies they can minimize the

threats from the competitors as they can have new technologies which may not be there in other

competitors like bio-fuel and heat and power facility.

Identify clear priorities for innovation and accelerating technology deployment – including long-

term research & development plan and greater co-ordination of public funds to support rise in

recovery rates with a minimum long-term target of 50 per cent

Corporate Strategies implemented

RepositioningConoco Phillip are pursuing a plan to create two leading energy companies. They are moving the

assets and businesses related to our downstream functions to a separate legal entity that will be

distributed, or “spun off,” as a new publicly-traded company. The strategy will position

ConocoPhillips as an upstream company and will create a new downstream company.

Under the plan, ConocoPhillips will be a large and geographically-diverse pure play Exploration &

Production (E&P) company, with strong returns and investment opportunities. As a separate

company, the downstream company will be a low-cost, integrated business with refining,

marketing, transportation, midstream and chemicals businesses, an investment grade credit rating

and significant financial flexibility.

Impact

The transaction will create two strong, independent companies positioned to compete most effectively

in the changing energy environment. Both companies will be uniquely positioned in their respective

industries, with the management focus, financial strength and technical capability to successfully

invest in the industry’s highest returning projects. We see significant long-term benefit from this

repositioning and expect that others will too. More details on how this move unlocks potential to

create shareholder value is available on the ConocoPhillips Investor Relations website.

When the repositioning is completed, ConocoPhillips shareholders will keep their ConocoPhillips

shares (which will be the pure-play upstream company), and will also receive shares of the new

downstream company in a 2:1 ratio.

During the transition process consumers should continue to expect reliable, quality ConocoPhillips

branded fuels and other consumer products (which all lie within the downstream business). These will

not be affected. We believe that this transaction will better position both businesses to meet the needs

of consumers and the marketplace. Energy prices and supply are determined by market conditions,

including the price of crude oil and world demand. ConocoPhillips’ repositioning will not impact

these market dynamics

The Strategic plan covers the first phase (from 2008 to 2013) of our long-term effort to slow, stop

and ultimately reverse the rate of growth of GHG emissions from our operations. During this period,

they anticipate that governmental climate change policies and regulations will become increasingly

well-defined in the countries in which they operate. Key elements of the plan include:

• Equipping for a low-emission world: Using technology and resources to understand the business

implications of climate change, and integrating that understanding into our business strategy, long-

range planning, project development, and operations processes and practices.

• Reducing our emissions: Evaluating GHG reduction opportunities, developing plans for our

operations and implementing reduction projects.

• Pursuing new business opportunities: Analyzing the full range of new business opportunities that

may emerge in a low-carbon economy and making investment decisions in a timely, strategic manner.

• Leveraging carbon trading and technology innovation: Optimizing the value of emission

allowances and offsets, and pursuing the research, development and deployment of technology to

both manage our own emissions and drive development of potential new .business opportunities.

Paradigm Strategic Plans

ConocoPhillips CEO James Mulva signaled a dramatic shift in course for the nation's third-largest oil

company, saying that after years of bulking up through acquisitions, it is now focused on being a

smaller, leaner business that takes better care of its shareholders.

Under the two-year program, the company is considering selling the bottom 10 percent of its

producing assets in North America and some natural gas properties in the North Sea It may also

unload pipelines and terminals in the U.S. and its 9 percent stake in Syncrude, a joint venture to

develop oil sands in Canada, as well as other assets.

The company intends to retain a “strategic relationship” with Russia's Lukoil, in which it owns a 20

percent stake, and has no immediate plans to sell oil refineries in the U.S. or abroad, Mulva said.

However, it could look to sell less sophisticated and less competitive refineries beginning in 2012,

once the struggling refining business improves and valuations for facilities rise, he said.

ConocoPhillips underscore challenges facing major oil and gas companies and may even call into

question the bigger-is-better, integrated business model that has prevailed in the oil industry for

decades. International oil companies including Exxon Mobil Corp., Chevron Corp. and BP have

vastly increased their size in recent decades to expand their global reach, reduce costs and diversify

asset bases as it's gotten harder to find and develop reserves. ConocoPhillips, Houston's largest public

company, with $225 billion in revenue last year, has followed the same course. In 2006, it purchased

Burlington Resources for $35.6 billion in a deal that expanded its natural gas holdings in the U.S. but

was criticized for being too costly and loading the company with too much debt. In the last quarter of

2008, the company had to write down $34 billion in assets stemming mostly from the Burlington

deal.

Now, ConocoPhillips appears to be embracing a business model more akin to smaller, independent

oil companies, which many investors prefer because they are more nimble and likely to deliver better

returns.

ConocoPhillips, the second-largest U.S. oil refiner, said it has no plans to close refineries

permanently, despite a sharp downturn in the business that led Valero Energy and Sunoco to shutter

plants. But it strongly hinted it could sell plants in coming years.

ConocoPhillips had cut its 2010 capital spending budget by 12 percent to $11 billion. The move,

along with the asset sales, is designed to reduce debt, improve financial flexibility and boost

shareholder value.

When the biggest international companies were scrambling to buy whatever they could, whether it

was oil sands in Canada, deep water fields off the Brazilian coast or shale gas in the US. But all these

assets were more expensive to develop and had longer lead times. It had become harder for

ConocoPhillips to keep up with its much bigger peers.

ConocoPhillips has decided to sell , fixing a goal of $17bn of disposals by 2012.The shrink-to-grow

strategy caused the ConocoPhillips share price to outperform its peers over the past year. The

decision to split the company into two new entities led its shares to surge.