ConocoPhillips - Zacks Investment Research

Fadel [email protected]

Robert Du Boff, CFA212 [email protected]

Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. See "Important Disclosures and Certifications" section at the end of this report forimportant disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risksto Price Target" sections at the end of this report, where applicable.

Stock Price Performance

Q3 Q1 Q2 Q348

56

64

72

80

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2011 2012

1 Year Price History for COP

Created by BlueMatrix

Company Description

ConocoPhillips is one of the world's largestenergy companies in market capitalization andis engaged in oil and gas exploration,production, processing, marketing andtransportation. It has more than 11 bboe ofreserves, 2.4 mmboed of production, 2.4 mmbdof refining capacity, and operates more than12,000 miles of pipelines and 80 storageterminals in the U.S.

October 28, 2011 ENERGY/OIL & GAS

Stock Rating:

OUTPERFORM12-18 mo. Price Target $90.00

COP - NYSE $72.85

3-5 Yr. EPS Gr. Rate NA

52-Wk Range $81.80-$58.37

Shares Outstanding 1,373.0M

Float 1,379.1M

Market Capitalization $100,024.8M

Avg. Daily Trading Volume 10,773,491

Dividend/Div Yield $2.20/3.02%

Fiscal Year Ends Dec

Book Value $48.43

2011E ROE 13.9%

LT Debt $23,150.0M

Preferred NA

Common Equity $66,326M

Convertible Available No

EPS Diluted Q1 Q2 Q3 Q4 Year Mult.

2009A 0.49 0.68 1.00 1.16 3.34 21.8x

2010A 1.47 1.67 1.50 1.32 5.96 12.2x

2011E 1.82A 2.41A 2.52A 2.15 8.89 8.2x

Prior (E) -- -- -- 1.83 8.27 8.8x

2012E 2.34 2.37 2.24 1.97 8.93 8.2x

Prior (E) 2.17 2.12 1.99 1.88 8.11 9.0x

ConocoPhillipsBuybacks Boost Per Share Growth & Valuation

SUMMARY

COP continues to progress its repositioning and restructuring program aimed at

creating value for its shareholders. It recently announced the future CEOs of its two

business segments, which will be separated into independent upstream and

downstream companies next summer. COP has sold its 20% stake in Lukoil and

$8B in assets and expects $1-$2B additional asset sales in the next six months.

Since the start of the share repurchase program last year, COP acquired 174

million shares, or 12% of the shares outstanding, for $12 billion, or $68/share. COP

expects 5% production growth per share next year as buybacks more than offset

production declines from asset sales.

KEY POINTS

■ 3Q11 Earnings. Adjusted earnings were $3.5B, or $2.52/share diluted, vs.

consensus's $2.18E, up 68% from 3Q10 and 5% sequentially. Versus 3Q10,

earnings benefited from higher prices, partially offset by lower volumes.

Sequentially, lower volumes and prices penalized earnings.

■ Production Volume. Averaged 1,538 mboed, down 10% and 6% respectively,

on loss of Libyan output, lower volumes in China, Russia, North Sea and

Alaska. Production was 52% liquids and 48% gas, 42% US and 58% foreign.

US production declined 5% and 2%, while foreign volumes fell 14% and 9%,

between periods.

■ Prices/Profits. Prices averaged $66.77/boe, 35% above 3Q10's, but down 6%

sequentially. Oil averaged $97.79/b and gas $5.45/mcf, up 45% and 20% from

3Q10, but down 6% and 1% sequentially. Profit averaged $15.49/boe, up 57%

and down 9%, $13.82/boe US and $16.69/boe foreign, up 62% and 59% from

3Q10, but down 5% and 11% sequentially.

■ Downstream. R&M profit of $1.2B, up sharply from prior periods, 93% in the

US. Chemical earnings were $197M, up 49% from 3Q10, but 1% below 2Q11's,

Midstream earnings were $137M, up 78% and 5%, respectively. Refinery

throughput was unchanged at 2.4 mmbd and sales averaged 3.2 mmbd, up

11% and 10%, respectively.

■ Stock Performance. COP shares have gained 7% YTD, compared with 8.9%

and 2.1% for the S&P 500. The shares are 11% off 12-month high and 24% off

low, compared with 9% and 32% for peers and 6% and 19% for the S&P.

EQUITY RESEARCH

QUARTERLY UPDATE

Oppenheimer & Co Inc. 300 Madison Avenue New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229

2

3Q11 Earnings

Adjusted earnings were $3.5 billion, or $2.52/share, up 54% from a year ago and 1% sequentially on

an absolute basis, and 68% and 5% on a per share basis, reflecting the impact of share buybacks.

Earnings were 59% upstream, 32% R&M, 5% Chemical and 4% Midstream. Earnings were about 60%

US and 40% International. Compared with a year ago, earnings in 3Q11 benefited from $686 million

higher E&P results, $928 million higher R&M results and $38 million in other items due to higher

Chemicals and Midstream results, partially offset by higher corporate expenses. These benefits were

partially offset by the absence of a $436 million contribution from the Lukoil stake, which has been sold.

Special Items. COP took charges of $837 million in 3Q11, which included $329 million charge related

to the Trainer refinery, a $279 million loss on the dilution of COP interest in APLNG, a $109 million

increase in deferred tax expense related to the UK supplemental tax, and losses on the sale of the

Wilhelmshaven refinery and cleanup costs of the Bohai Bay oil leak.

% of 2011E

3Q11 Total 3Q10 2Q11 2011E vs. 10

E&P US 817 22.0% 54% -6% 3,142 24%

Foreign 1,375 37.0% 41% -18% 6,018 41%

Total 2,192 58.9% 45% -14% 9,160 35%

R&M US 1,112 29.9% 459% 67% 2,729 202%

Foreign 84 2.3% 21% 14% 347 5%

Total 1,196 32.1% 346% 62% 3,076 150%

Chemical 197 5.3% 49% -1% 764 53%

Midstream 137 3.7% 78% 5% 470 54%

Emerging Business -2 -0.1% -90% -86% -33 NM

3,720 100% 89% 3% 13,437 53%

Corporate & Financing -267 -7.2% 65% 32% -1,100 -4%

Net Total 3,453 54% 1% 12,339 39%

EPS Diluted $2.52 68% 5% $8.89 49%

Source: Company data and Oppenheimer & Co. Inc. estimates.

3Q11 vs.

Table 1: Segment Earnings ($Millions)

E&P

Earnings. Adjusted earnings were $2.2 billion, up 45% from a year ago, but 14% lower sequentially.

Compared with a year ago, 3Q11 earnings benefited from $871 million higher prices and $85 million

lower DD&A rates, which were partially offset by increased dry hole costs and higher G&A. These

benefits were partially offset by $145 million in lower volumes and $125 million in higher UK taxes,

including $75 million applied to 2Q11 earnings and $50 million for 3Q11.

Production. Worldwide volumes averaged 1.5 mmboed, down 10% from a year ago and 6%

sequentially. The mix was 52% liquids and 48% gas, 42% US and 58% International. Compared with

3Q10, the lower production included 39 mboed from asset sales, slightly less than half is in North

American natural gas, 48 mboed loss of Libyan production and 24 mbd in Russia from poor reservoir

performance at the YK field. Curtailment due to lower natural gas prices reduced COP North America's

production by 28 mboed. Libya, Russia and North America natural gas are all low margin areas

averaging $10-$15/boe vs $27/boe for COP total, which accounted for half of YOY production decline.

COP production in China decreased by 32 mboed, mainly as a result of suspended operations in Bohai

Bay. Production is expected to resume near the end of the year or early next year Production also was

negatively impacted by 28 mboed in planned maintenance in the North Sea and unplanned down time

in Alaska and Indonesia, which are expected to return in 4Q11. These declines were partially offset by

increases from increased development drilling, improved well performance and new production,

primarily higher margin volume from Qatar and the Lower 48 liquids plays.

ConocoPhillips

3

% of 2011E

3Q11 Total 3Q10 2Q11 2011E vs. 10

US Oil & NGL (mbd) 373 24% -1% -3% 379 -3%

Gas (mmcf/d) 1,617 18% -11% -2% 1,570 -12%

Total (mboed) 643 42% -5% -2% 641 -7%

Foreign Oil & NGL (mbd) 432 28% -26% -13% 486 -18%

Gas (mmcf/d) 2,780 30% 1% -4% 2,915 3%

Total (mboed) 895 58% -14% -9% 972 -9%

Worldwide excl. Lukoil Oil & NGL (mbd) 805 52% -16% -9% 865 -12%

Gas (mmcf/d) 4,397 48% -4% -3% 4,485 -3%

Total (mboed) 1,538 100% -10% -6% 1,613 -8%


3Q11 vs.

Table 2: Production Profile

2011E

3Q11 3Q10 2Q11 2011E vs. 10

US Oil & NGL ($/b) $90.95 38% -8% $90.60 29%

Gas ($/mcf) $4.17 2% -1% $4.05 -6%

Total ($/boe) $63.30 34% -7% $63.51 25%

Foreign Oil & NGL ($/b) $103.70 52% -5% $85.47 36%

Gas ($/mcf) $6.19 28% 0% $5.94 14%

Total ($/boe) $69.26 36% -6% $69.21 29%

Worldwide Oil & NGL ($/b) $97.79 45% -6% $87.71 33%

Gas ($/mcf) $5.45 20% -1% $5.28 8%

Total ($/boe) $66.77 35% -6% $66.83 27%

* Excludes Lukoil


3Q11 vs.

Table 3: Average Realization ($/b)

Unit profit averaged $15.49, up 57% from a year ago period, but declined 9% sequentially, including

$13.82/boe in the US and $16.69/boe foreign, up 62% and 59% from a year ago, but down 5% and

11% sequentially.

2011E

3Q11 3Q10 2Q11 2011E vs. 10

E&P US ($/boe) $13.82 62% -5% $13.43 33%

Foreign ($/boe) $16.69 59% -11% $16.97 56%

Total ($/boe) $15.49 57% -9% $15.56 47%

R&M US ($/b) $6.07 459% 65% $3.78 201%

Foreign ($/b) $2.24 20% 17% $2.27 -5%

Total ($/b) $5.42 345% 61% $3.52 144%

Midstream $/mcf of throughput $0.49 76% 4% $1.69 52%


3Q11 vs.

Table 4: Unit Profitability

ConocoPhillips

4

R&M

Earnings of $1.2 billion, the bulk of which was in the US, benefited from 92% capacity utilization and

higher refining margins cause by a record WTI-Brent discount. Compared with the year-ago period,

earnings increased by $928 million, almost entirely from higher refining margins, especially in the US,

where margins more than doubled. Earnings also benefited from increased volumes, lower operating

costs and higher capacity utilizations. Other items, mainly foreign exchange, negatively impacted

earnings. Earnings also benefited from $120 million inventory hedging gains. Net income was $4.08/b,

and cash contributions averaged $4.79/b in 3Q11, mainly due to higher margins. COP expects unit

profit and cash contributions to improve as a result of the sale of the Trainer refinery.

Realized margins were $13.70/b, compared with the regionally weighted indicator margin of $28.47/b,

up 110% and 30% from the prior periods. The indicator margin was 186% and 20% above the prior

periods. US margins were the highest in the Mid-continent and lowest on the West Coast. Foreign

margins were $6.50/b, up 47% and 54% from prior periods.

2011E

3Q11 3Q10 2Q11 2011E vs. 10

US Indicators East Coast $33.70 281% 33% $23.86 141%

Gulf Coast $31.76 326% 26% $22.24 179%

Mid-Continent $34.12 222% 25% $24.30 156%

West Coast $11.78 -21% -26% $12.70 -3%

US Indicator Average $28.47 186% 20% $21.01 104%

COP Realized U.S. Average $13.70 110% 30% $10.27 47%

Differential -52% -22% 20%

Foreign Indicators NW Europe Crack $13.09 33% 10% $10.53 9%

Singapore $17.53 58% -1% $15.94 44%

COP Realized Foreign Average $6.50 47% 54% $6.87 -18%


3Q11 vs.

Table 5: Refining Margins

Throughput volume averaged 2.4 mmbd, flat with the two prior periods. US throughput volume was 2

mmbd, or 83% of total, up 1% from the prior periods. Foreign volume averaged 407 mbd, unchanged

from a year ago period, but down 4% sequentially. Product sales volume averaged 3.2 mmbd, up 11%

and 10% from the prior periods. US volumes averaged 2.4 mmbd, or 77% of total, up 1% YOY, but

down 1% sequentially. Foreign volumes averaged 746 mbd, up 62% and 77%, respectively.

% of 2011E

3Q11 Total 3Q10 2Q11 2011E vs. 10

Throughput US (mbd) 1,986 83% 1% 1% 1,923 -1%

Foreign (mbd) 407 17% 0% -4% 418 9%

Total (mbd) 2,393 100% 0% 0% 2,341 1%

Sales US (mbd) 2,443 77% 1% -1% 2,434 2%

Foreign (mbd) 746 23% 62% 77% 593 16%

Total (mbd) 3,189 100% 11% 10% 3,027 4%


3Q11 vs.

Table 6: Refining Profile

R&M unit profit averaged $5.42/b, up 345% and 61% from prior periods. US profits were $6.07/b, 459%

and 65% higher than the prior periods and foreign profit averaged $2.24/b, up 20% and 17%

respectively.

ConocoPhillips

5

COP has 2 mmbd refining capacity in the US with 10 wholly owned refineries and 50% interest in two

other refineries, Wood River, IL (306 mbd) and Borger, TX (146 mbd). Its regional capacity is 21% East

Coast, 37% Gulf Coast, 21% Central Region, and 21% West Coast. COP has interests in four foreign

refineries with net capacity of 426 mbd, two wholly owned; Humber, UK (221 mbd) and Whitegate in

Cork, Ireland (71 mbd) and an 18% stake in a refinery in Germany (58 mbd) and 47% in another in

Malaysia (76 mbd). COP sold the Wilhelmshaven refinery in Germany in 3Q11 and is putting the

Trainer refinery near Philadelphia for sale, which will be shut down if not sold. This is consistent with its

repositioning strategy to reduce refining capacity by selling or shutting down underperforming assets.

The upgrading project at the Wood River refinery will increase clean product yield by converting

asphalt into clean product, increasing the yield to 83% from 78%. Gross crude capacity increases to

365 mbd. It has 80 mbd coking capacity and increased clean product production by 50 mbd with 20

mbd diesel and 30 mbd gasoline. It can run more Canadian crude because of increased coking

capacity, but there's also a big uplift in clean product yield from reducing the bottoms and producing

more gasoline and diesel.

COP owns a 50% interest in the Seaway Crude Pipeline operated by Enterprise, which owns the other

50% interest. COP has been discussing the sale of its 50% interest in the pipeline, which supplies its

Ponca City, Oklahoma Refinery (187 mbd). The sale of the pipeline would increase the cost of

supplying this refinery, which will be part of the calculation on whether to sell the pipeline.

Chemicals

Earnings were $197 million in 3Q11, up 49% from a year ago, but down 1% sequentially, marking the

third consecutive quarter of earnings close to $200 million level. This is mainly due to higher ethylene

margins and increased equity earnings from CPChem's interest in the Q-Chem II project in Qatar.

Midstream

Earnings were $137 million in 3Q11, up 78% from a year ago period and 5% sequentially, mainly due

to higher NGL prices and higher trading and marketing results.

Operations Update

US Liquids-Rich Plays. COP continues to ramp up drilling activity levels in the Lower 48 liquids rich

shale plays with 3Q11 production of 31 mboe/d, including 77% liquids, using 15 rigs and is adding

another rig in 4Q11. September production averaged 36 mboed including 10-12 mboed of curtailments

due to third party trucking constraints. COP is working on expanding transportation capacity both near

and long term and expects to reach 100 mboed of production by 2013. COP also expects to increase

drilling activity, adding more rigs and expanding production in the Bakken, Barnett and Permian.

Bakken Production averaged 20 mboed and 30-day rate is about 950 boed per well, 90% oil, and COP

has six rigs drilling and plans to add another rig in 4Q11 to have seven by the end of this year.

Production from the three plays is 100 mboed and is expected o reach 250 mboed by 2013. including

70% oil.

COP continues to pursue high quality unconventional opportunities and has so far in 2011 added

400,000 acres in North America shale plays in areas that include Avalon, Wolfcamp, Niobrara in the

Lower 48, Duvernay and Canol in Canada. Approximately 60% of the North America acreage COP

acquired in 2011 is in Canada.

UK North Sea. COP has a 24% interest in the Claire Ridge project, operated by BP, which received

government approvals in October. Gross peak production is expected to reach 120 mboed.

ConocoPhillips

6

Australia. COP approved the final investment decision for the initial train of the two train APLNG

project, which has an estimated net production of 115-120 mboed. With 25 years' economic life and

low F&D cost, this project provides long-term earnings and cash flow and competitive LNG returns. A

tight labor market, strong currency, and cost inflation are major issues in doing business in Australia

and COP, is trying to do as much of the project outside of Australia as possible. These were the reason

that 2012 E&P CAPEX was raised from the $13 billion to $15 billion. Almost 65% of the project costs

are denominated in Australian dollars.

COP entered a joint venture in the Goldwyer shale project in the Canning Basin in Western Australia.

COP will fund exploration in exchange for a 75% interest and will have the right to become the operator

following the initial drilling program. .

Exploration. The Coronado well offshore GOM was spudded earlier this month, and drilling results are

expected in 1Q12. In Poland, a fourth well has been successfully drilled, and COP will begin several

frac stages over the 1500 feet lateral section in 4Q11. In Australia, drilling operations will begin at

Poseidon in 1Q12 as part of a 5-7-well appraisal program. In the N Block in Kazakhstan, the Salton

well is expected to spud in 1Q12. COP drilled a dry hole in the Arafura Sea, offshore Indonesia and

has not current plans for additional activity.

Guidance

R&M pre-tax turnaround expenses year-to-date were $200 million and are expected to be close to

$300 million for the full year, down from the previous guidance of $350 million. COP expects refinery

capacity utilization in 4Q11 in the 91-93% range. The core project construction at the Wood River

refinery remains on schedule for completion this month with startup continuing as planned and

completion is expected in mid-November. Production is expected to average 1.56 to 1.58 mmboed in

4Q11 and 1.61 to 1.62 mmboed for the full year. Bohai Bay current production is 15 mbd as a result of

reduced reservoir pressures in the field, and COP is developing revised field operating plans. COP

expects a 5% increase in 2011 production per share from 2010 level, excluding the impact of the lost

production in Libya. COP expects 2011 DD&A of $8 billion, corporate expense of $1.1 billion, and

capital Investments of $13.5 billion.

Financial Condition

Operating cash flow was $5.8 billion, which funded $3.8 billion in capital spending, including $3.5 billion

in E&P, $900 million dividends and $3.2 billion in share repurchases. COP purchased 46 million shares

in 3Q11, or 3% of its shares outstanding. Since the start of the share repurchase program last year,

COP has acquired 174 million shares, or 12% of the shares outstanding for $12 billion, or $68/share.

Cash balance was $6 billion, total debt was $23.2 billion, and debt-to-cap ratio was 26%. ROACE was

16%, including 15% for E&P and 21% for R&M.

2011E

3Q11 3Q10 2Q11 2011E vs. 10

Cash Balance 3,437 -57% -38% 1,859 -80%

Total Debt 23,150 -2% 0% 22,650 -4%

Net Debt 19,713 20,791

Equity 66,326 -5% -6% 69,994 1%

Net Debt Ratio 22.0% - - - -

Operating Cash Flow 5,767 20% -4% 21,600 13%

CFPS $4.21 31% -1% $15.56 21%

Free Cash Flow -1,730 NM 123% -2,921 NM

CAPEX 3,617 46% 25% 13,093 22%

Share Repurchase 3,189 278% 2% 10,950 187%

Total Dividend 900 10% -2% 3,637 15%


3Q11 vs.

Table 7: Financials ($millions)

ConocoPhillips

7

Asset Sales. COP has sold $8 billion of assets since it unveiled its restructuring program last year and

expects to sell $1-$2 billion of assets in 4Q11. It is on track to sell $15-$20 billion of assets before the

end of 2012. COP expects to repurchase shares in 4Q11 similar to 3Q11 and to complete the $11

billion share repurchase program this year.

Relative Valuation

COP shares are trading in line with major oils' average multiples on P/E and P/CF based on 2012

consensus estimates. The company has a higher net debt ratio than most of its peers, but slightly lower

ROACE, slightly lower unit profit from upstream and higher from downstream. The implied reserve

value (IRV), adjusted for a 15:1 oil:gas ratio, is $21.50/boe, slightly below the peer average of $22.

COP plans to split itself into two standalone companies, upstream and downstream, by the middle of

next year and has designated the CEOs of both companies, which we believe to be excellent choices.

The E&P company will be the largest independent in the US with production almost double the closest

competitor, and the downstream company will be the largest in market value and second largest in

refining capacity.

ConocoPhillips

8

Source: Company data and Oppenheimer & Co. Inc. estimates. Source: Company data and Oppenheimer & Co. Inc. estimates.



Peer Comparisons

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

XOM CVX RDSA BP COP

$ m

m

Exhibit 5: 2011E CAPEX

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

CVX XOM RDSA BP COP

$/b

bl

Exhibit 3: 2011E E&P Unit Profit

0%

25%

50%

75%

100%

RDSA BP XOM COP CVX

Exhibit 6: 2011E CAPEX/Operating Cash Flow

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

CVX BP COP RDSA XOM

$/b

bl

Exhibit 4: 2011E R&M Unit Profitofit

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

XOM BP RDSA CVX COP

mb

oe

d

Exhibit 2: 2011E Production

Liquids Gas

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

XOM CVX RDSA BP COP

$ m

m

Exhibit 1: 2011E Net Income

ConocoPhillips

9

Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates.



-10%

-5%

0%

5%

10%

15%

20%

CVX XOM RDSA COP BP

Exhibit 7: Net Debt Ratio

0

50

100

150

200

250

300

350

400

450

XOM RDSA CVX BP COP

$ b

n

Exhibit 8: Market Capitalization

0

2

4

6

8

10

12

BP CVX RDSA COP XOM

Exhibit 9: 2012 Consensus P/E

0

1

2

3

4

5

6

7

8

BP RDSA COP CVX XOM

Exhibit 10: 2012 Consensus P/CF

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

BP XOM COP CVX RDSA

$/b

bl

Exhibit 11: Implied Reserve Value

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

RDSA BP COP CVX XOM

Exhibit 12: Dividend Yield

ConocoPhillips

10

2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E

E&P Total 4,169 1,915 1,517 1,506 1,854 6,792 2,197 2,551 2,192 2,221 9,160 2,198 2,142 2,187 2,195 8,721

R&M Total 173 21 736 268 207 1,232 480 740 1,196 660 3,076 847 932 711 344 2,834

Chemicals 248 110 138 132 118 498 193 199 197 175 764 190 190 190 190 760

Midstream 225 77 61 77 91 306 73 130 137 130 470 140 140 140 140 560

Emerging Business 3 6 (10) (20) (35) (59) (7) (14) (2) (10) (33) 0 0 0 0 -

Segment Earnings 4,818 2,129 2,442 1,963 2,235 8,769 2,936 3,606 3,720 3,176 13,437 3,375 3,404 3,227 2,869 12,875

Lukoil Investment 1,184 387 430 436 (1) 1,252 2 0 0 0 2 0 0 0 0 0

Corporate (1,006) (308) (365) (162) (305) (1,140) (304) (203) (267) (326) (1,100) (300) (300) (300) (300) (1,200)

Operating earnings 4,996 2,208 2,507 2,237 1,929 8,881 2,634 3,403 3,453 2,850 12,339 3,075 3,104 2,927 2,569 11,675

Shares Outstanding 1,498 1,504 1,501 1,493 1,466 1,491 1,445 1,412 1,370 1,327 1,388 1,317 1,307 1,304 1,304 1,308

$3.34 $1.47 $1.67 $1.50 $1.32 $5.96 $1.82 $2.41 $2.52 $2.15 $8.89 $2.34 $2.37 $2.24 $1.97 $8.93

DD&A 9,295 2,318 2,280 2,246 2,216 9,060 2,070 2,075 1,870 1,896 7,911 1,761 1,759 1,768 1,772 7,060

Dry hole 903 244 119 171 150 684 50 89 151 125 415 160 160 160 160 640

Deferred Taxes 227 98 111 152 118 479 87 429 293 126 935 136 138 130 114 518

Cash Flow 15,421 4,868 5,017 4,806 4,413 19,104 4,841 5,996 5,767 4,997 21,600 5,132 5,160 4,985 4,615 19,893

$10.30 $3.24 $3.34 $3.22 $3.01 $12.81 $3.35 $4.25 $4.21 $3.77 $15.56 $3.90 $3.95 $3.82 $3.54 $15.21

CAPEX (12,011) (2,480) (2,194) (2,484) (3,575) (10,733) (2,884) (2,893) (3,617) (3,699) (13,093) (3,660) (3,660) (3,910) (3,910) (15,140)

Acquisitions/Sales 0 0 5,811 6,290 3,139 15,240 1,787 162 209 1,000 3,158 1,000 1,000 1,000 1,000 4,000

Share Repurchase/Issuance 0 0 (364) (844) (2,608) (3,816) (1,636) (3,125) (3,189) (3,000) (10,950) (750) (750) (250) 0 (1,750)

Dividend (2,832) (744) (816) (816) (799) (3,175) (944) (917) (900) (876) (3,637) (948) (941) (939) (939) (3,767)

578 1,644 7,454 6,952 570 16,620 1,164 (777) (1,730) (1,578) (2,921) 774 809 886 766 3,236

Pretax Income 9,537 4,166 4,730 5,274 4,292 18,462 5,796 6,192 5,180 5,377 22,545 5,802 5,856 5,523 4,847 22,029

Interest Expense 1,289 301 349 264 273 1,187 232 232 232 227 922 223 219 218 218 877

DD&A 9,295 2,318 2,280 2,246 2,216 9,060 2,070 2,075 1,870 1,896 7,911 1,761 1,759 1,768 1,772 7,060

EBITDA 20,123 6,785 7,359 7,784 6,782 28,710 8,099 8,499 7,282 7,500 31,379 7,786 7,834 7,510 6,838 29,968

$13.44 $4.51 $4.90 $5.21 $4.63 $19.26 $5.60 $6.02 $5.32 $5.65 $22.60 $5.91 $5.99 $5.76 $5.24 $22.91

US Liquids (mbd) 418 403 382 375 398 389 364 383 373 396 379 404 395 396 409 401

US Gas (mmcfd) 2,021 1,799 1,822 1,820 1,669 1,777 1,589 1,651 1,617 1,426 1,570 1,479 1,535 1,503 1,327 1,461

Total US (mboed) 755 703 686 678 676 686 629 658 643 634 641 650 650 647 631 645

Foreign Liquids (mbd) 572 637 594 581 566 594 560 498 432 456 486 499 499 519 531 512

Foreign Gas (mmcfd) 2,856 2,927 2,719 2,745 2,922 2,828 3,080 2,901 2,780 2,901 2,915 2,843 2,828 2,782 2,830 2,821

Total Foreign (mboed exc. Lukoil) 1,048 1,125 1,047 1,039 1,053 1,066 1,073 982 895 940 972 972 971 983 1,003 982

Total Production (mboed) 1,803 1,828 1,733 1,717 1,729 1,751 1,702 1,640 1,538 1,573 1,613 1,623 1,621 1,630 1,633 1,627

Lukoil (mboed) 437 443 443 422 0 326 0 0 0 0 0 0 0 0 0 0

Total Production (mboed incl.Lukoil) 2,240 2,271 2,176 2,139 1,729 2,077 1,702 1,640 1,538 1,573 1,613 1,623 1,621 1,630 1,633 1,627

Brent ($/B) $62.12 $76.24 $78.30 $77.39 $87.54 $80.16 $105.36 $118.06 $113.67 $112.36 $112.36 $109.91 $107.47 $105.07 $103.48 $106.48

WTI ($/b) $61.74 $78.67 $77.78 $76.03 $85.06 $79.38 $94.08 $102.53 $89.56 $86.30 $93.12 $88.94 $89.18 $88.94 $88.33 $88.84

Henry Hub ($/mcf) $4.03 $5.30 $4.09 $4.38 $3.80 $4.39 $4.14 $4.36 $4.19 $3.71 $4.10 $3.91 $3.91 $4.02 $4.24 $4.02

Source: Company report and Oppenheimer & Co. Inc. estimates.

Prices

Cash Flow/Share

EBITDA/Share

Free cash flow

Net Operating Inc ($mm)

EPS diluted

Cash Flow

Production

ConocoPhillipsIncome and Operating Model

ConocoPhillips

11

COP Stock Price $71.35 /sh Dividend $3,453 mm Oil Gas* Total

Shares Outstanding 1,308 mm Yield 3.7% Volume mbd mmcfd mboed Mix

Market Capitalization $98 bn Income Tax Rate 47% US 401 2,359 794 49%

2012E CAPEX $15,140 mm Cash (6/30/11) $6,172 mm Other** 512 1,923 833 51%

RM&T Estimate $2,834 mm Net Debt $17,420 mm Total 913 4,282 1,627 100%

Chemicals Estimate $760 mm Net Debt Ratio 14% Mix 56% 44%

Midstream Estimate $560 mm *US and Canada **Excludes Lukoil production

Oil Gas

$/b $/mcf $mm $/sh $mm $/sh $mm $/sh $mm $/sh P/E P/CF EV/EBITDA

110 5.00 15,017 $11.48 23,383 $17.88 36,243 $27.71 4,790 $3.66 6.2 4.0 2.9

4.50 14,875 $11.37 23,235 $17.76 35,978 $27.50 4,642 $3.55 6.3 4.0 3.0

4.00 14,734 $11.26 23,087 $17.65 35,712 $27.30 4,494 $3.44 6.3 4.0 3.0

3.50 14,592 $11.16 22,940 $17.54 35,447 $27.10 4,346 $3.32 6.4 4.1 3.0

3.00 14,451 $11.05 22,792 $17.42 35,181 $26.89 4,199 $3.21 6.5 4.1 3.0

100 5.00 13,599 $10.40 21,902 $16.74 33,581 $25.67 3,308 $2.53 6.9 4.3 3.2

4.50 13,457 $10.29 21,754 $16.63 33,315 $25.47 3,161 $2.42 6.9 4.3 3.2

4.00 13,316 $10.18 21,606 $16.52 33,050 $25.27 3,013 $2.30 7.0 4.3 3.2

3.50 13,174 $10.07 21,459 $16.40 32,784 $25.06 2,865 $2.19 7.1 4.3 3.2

3.00 13,033 $9.96 21,311 $16.29 32,518 $24.86 2,718 $2.08 7.2 4.4 3.3

90 5.00 12,141 $9.28 20,380 $15.58 30,844 $23.58 1,786 $1.37 7.7 4.6 3.4

4.50 11,999 $9.17 20,232 $15.47 30,578 $23.38 1,638 $1.25 7.8 4.6 3.5

4.00 11,858 $9.07 20,084 $15.35 30,313 $23.17 1,491 $1.14 7.9 4.6 3.5

3.50 11,717 $8.96 19,936 $15.24 30,047 $22.97 1,343 $1.03 8.0 4.7 3.5

3.00 11,575 $8.85 19,789 $15.13 29,782 $22.77 1,195 $0.91 8.1 4.7 3.6

80 5.00 10,644 $8.14 18,816 $14.38 28,033 $21.43 223 $0.17 8.8 5.0 3.8

4.50 10,502 $8.03 18,668 $14.27 27,767 $21.23 75 $0.06 8.9 5.0 3.8

4.00 10,361 $7.92 18,521 $14.16 27,502 $21.02 (73) ($0.06) 9.0 5.0 3.9

3.50 10,219 $7.81 18,373 $14.05 27,236 $20.82 (221) ($0.17) 9.1 5.1 3.9

3.00 10,078 $7.70 18,225 $13.93 26,971 $20.62 (368) ($0.28) 9.3 5.1 3.9

70 5.00 9,107 $6.96 17,211 $13.16 25,148 $19.22 (1,382) ($1.06) 10.2 5.4 4.2

4.50 8,966 $6.85 17,063 $13.04 24,882 $19.02 (1,530) ($1.17) 10.4 5.5 4.3

4.00 8,824 $6.75 16,916 $12.93 24,616 $18.82 (1,678) ($1.28) 10.6 5.5 4.3

3.50 8,683 $6.64 16,768 $12.82 24,350 $18.61 (1,825) ($1.40) 10.7 5.6 4.4

3.00 8,541 $6.53 16,620 $12.71 24,084 $18.41 (1,973) ($1.51) 10.9 5.6 4.4

Sensitivity

Oil ($80-$90/b) 1,497 $1.14 1,564 $1.20 2,811 $2.15 3-Year 9.6 5.9 4.7

Gas ($3-$3.5/mcf) 141 $0.11 148 $0.11 266 $0.20 5-Year 9.6 5.6 4.8

Source: Company information and Oppenheimer & Co. estimates. Oil price is NYMEX WTI. Assumes a 20% premium for Brent.

Production Profile

Earnings Cash Flow EBITDA Free Cash

ConocoPhillips

Oil and Gas Price Sensitivity Analysis - 2012

Multiples

ConocoPhillips

12





5-Year Operating Summary

ConocoPhillips

$0

$3

$6

$9

$12

$0

$4

$8

$12

$16

$20

2007 2008 2009 2010 2011E

($/s

hare

)

($bn)

Earnings Summary

Income EPS

$4

$6

$8

$10

$12

$14

$16

$0

$5

$10

$15

$20

$25

$30

2007 2008 2009 2010 2011E

(CA

PE

X $

bn)

(Cash F

low

$bn)

CAPEX

Cash Flow CAPEX

$0

$4

$8

$12

$16

$20

$0

$5

$10

$15

$20

$25

$30

2007 2008 2009 2010 2011E

($/s

hare

)

($bn)

Cash Flow Summary

Cash Flow CFPS

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2007 2008 2009 2010 2011E

ROACE

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011E

(mboed)

Production Profile

Natural Gas Oil

$0

$4

$8

$12

$16

$20

2007 2008 2009 2010 2011E

Unit Profit

E&P R&M

0.0

0.1

0.2

0.3

0.4

0.5

0.6

2007 2008 2009 2010 2011E

(boed /

share

)

Production per Share

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011E

Refining Throughput

ConocoPhillips

13

Investment Thesis

COP plans to split itself into two separate companies by spinning off its downstream business to its shareholders in a tax-free

distribution. The separation is expected to be effective in mid-2012, which we think will create two strong companies, including the

largest E&P company in terms of production, proved reserves and market value, and the second-largest refiner in the US. We estimate

that both companies will have strong balance sheets and higher dividend yields than their peer average, which we expect to result in

multiple expansion. We believe a successful implementation of the divestiture program and the use of proceeds to reduce debt and

supplement operating cash flow in funding profitable growth could provide the needed catalyst to boost stock performance further.

Price Target Calculation

Our $90/share price target is 10x our 2012 earnings estimate of $8.93/share, 5.9x operating cash flow, and 3.9x enterprise

value/EBITDA, all in line to below the peer average of both E&P and R&M groups and within the company's three and

five-year averages.

Key Risks to Price Target

These risks include: 1) lower oil and gas prices and crack spreads, 2) declines in oil and gas production, 3) increased

maintenance and unscheduled downtime, and 4) increased cost of doing business as a result of government action,

including taxation and regulations.

Important Disclosures and CertificationsAnalyst Certification - The author certifies that this research report accurately states his/her personal views about the

subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no

part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views

contained in this research report.

Potential Conflicts of Interest:

Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm

including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation

based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any

research analyst and any member of his or her household from executing trades in the securities of a company that such

research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an

officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in

covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long

position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in

options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the

foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of

interest.

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:

Stock Prices as of October 28, 2011

Enterprise Products Partners (EPD - NYSE, 44.95, OUTPERFORM)BP plc (BP - NYSE, 44.65, OUTPERFORM)Chevron Corporation (CVX - NYSE, 108.97, OUTPERFORM)ExxonMobil Corporation (XOM - NYSE, 81.88, OUTPERFORM)Royal Dutch Shell plc (RDS.A - NYSE, 73.31, OUTPERFORM)

ConocoPhillips

14

15

30

45

60

75

90

2009 2010 2011 2012

01/07/09O:$64

04/14/09P:NA

04/13/10O:$70

01/31/11O:$82

07/15/11O:$90

Rating and Price Target History for: ConocoPhillips (COP) as of 10-27-2011

Created by BlueMatrix

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer &

Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price

histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research

Department, Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential

conflict of interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments,

and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to

a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than

higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy,

aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness

perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

ConocoPhillips

15

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 331 55.50 147 44.41

PERFORM [P] 256 43.00 83 32.42

UNDERPERFORM [U] 9 1.50 3 33.33

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not

correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned

buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Company Specific DisclosuresThe analyst/associate/member of the analyst's or associate's household owns a long position in COP.

The analyst/associate/member of the analyst's or associate's household owns a long position in BP.

The analyst/associate/member of the analyst's or associate's household owns a long position in CVX.

An employee of Oppenheimer & Co. Inc. who reports to the Research Analyst covering Chevron Corp. (CVX) has a long

position in common equity security of the Company.

The analyst/associate/member of the analyst's or associate's household owns a long position in XOM.

The analyst/associate/member of the analyst's or associate's household owns a long position in RDS/A.

In the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for EPD.

The Oppenheimer & Co. Inc. analyst(s) who covers this company also has a long position in COP, BP, CVX, XOM, and

RDS/A.

A member of the household of an Oppenheimer & Co. Inc. research analyst who covers this company has a long position

in COP, BP, CVX, XOM, and RDS/A.

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3

months from EPD.

In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for EPD.

In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from EPD.

ConocoPhillips

16

Additional Information Available

Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017,

Attention: Equity Research Department, Business Manager.

Other DisclosuresThis report is issued and approved for distribution by Oppenheimer & Co. Inc. Oppenheimer & Co. Inc transacts Business on all Principal

Exchanges and Member SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients of

Oppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction

where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors.

This report does not take into account the investment objectives, financial situation or specific needs of any particular client of

Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not

rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the

merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to

act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in

this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs,

objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and

encourage investors to seek the advice of a financial advisor.Oppenheimer & Co. Inc. will not treat non-client recipients as its clients

solely by virtue of their receiving this report.Past performance is not a guarantee of future results, and no representation or warranty,

express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned

in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize

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loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or

regulations applicable to Oppenheimer & Co. Inc.All information, opinions and statistical data contained in this report were obtained or

derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or

statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report

provided by Oppenheimer & Co. Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions

and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without

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in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with

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Copyright © Oppenheimer & Co. Inc. 2011.

ConocoPhillips

http://www.opco.com

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