ConocoPhillips Oil & Gas Markets Outlook

Oil & Gas Markets Outlook National Ocean Industries Association Dr. Helen Currie, Senior Economist January 31, 2017

2

Oil Market

3

Global Oil Market: The Past Decade Global Oil Prices and Volatility

% Volatility

Price/Bbl

100

$150 Brent Crude Oil Price (left hand scale)

$125

80

$100

60

$75 40 $50 20

$25

Oil Volatility Index (right hand scale)

$0

0 2007

4

Source: Bloomberg

2008

2009

2010

2011

2012

2013

2014

2015

2016

Global Oil Market: Rebalancing and Recovery Imminent?

Rebalancing Begins in 2017: OPEC Cuts Will Help to Lower Global Inventories (MMBD)

99

2.0

98

1.5

Production (left axis)

97

Production w/Full OPEC + non-OPEC cuts

96

95

93

1Q

2Q

3Q 2015

5

(0.5) (1.0)

Inventory Draw w/Full OPEC + non-OPEC cuts

92

Source: COP, IEA, OPEC

4Q

1Q

2Q

3Q 2016

4Q

0.5

0.0

Bars are Inventory Build/Draw (right axis)

Demand (left axis)

94

1.0

(1.5) 1Q

2Q

3Q 2017

4Q

U.S. Crude Oil Production Expected to Grow EIA Projects Significant Upside to U.S. Oil Production with Additional Efficiency and Technological Improvements (MMBD)

15

High Resource & Technology EIA Base Case

10 Prior Base Case

5

0 2005 6

2010

Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

2015

2020

2025

2030

U.S. Crude Oil Production Growth Led by Onshore Fields Lower-48 Offshore vs Onshore Oil Production (MMBD)

Challenges to Offshore development vs Onshore Unconventional Plays:

14 Onshore High Case

12

• High initial capital

10

commitments

8

Onshore

• Relatively long lead times 6

• Less flexibility 4

• Greater complexity

Offshore High Case

2

Offshore

0 2015 7

2020

Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

2025

2030

U.S. Unconventional, Light Tight Oil Plays Account for Future Growth Lower-48 Oil Production by Region (MMBD)

Key Issues in Projecting Future Tight Oil Supply:

4.0 3.5

• Pace and Magnitude of

High Resource/Technology Cases

3.0

additional technology &

Permian

efficiency improvements

2.5 Bakken, Niobrara/Rockies

2.0

• Cost escalation as activity Gulf Coast

1.5

accelerates

1.0

• Infrastructure needs

East & West Coasts

0.5

• Environmental compliance

Midcontinent

0.0 2015 8

2020

Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

2025

2030

Lower-48 Unconventional Oil Breakeven Costs Contribution to Drop in Median Breakeven Cost of Five Major U.S. Unconventional Plays ($WTI/bbl) $90

• Higher well productivity o High-grading o Well design (lateral length, proppant intensity)

$80 $70

• Cost deflation

$60

o Equipment o Labor

$50 $40 $30

• Efficiency gains

$20

o Less waste in materials and equipment downtime

$10 $0 3Q 2014

9

Higher Cost Deflation Productivity

1Q 2016

Source: ConocoPhillips based on IHS Energy “Why US Crude Oil Supply Is Ready to Resume Growth” November 2016

Efficiency Gains

o Better integrated supply chain

Incremental Global Oil Supply for 2020 Higher Cost Supplies Must Compete with Relatively Low Dost U.S. Tight Oil (Indicative Volume, Cost Range by Category)

L48 Tight Play

Existing

OPEC

Deepwater

Oil Sands

Other Non-OPEC

$80 Oil Sands

$60 $40 $20 Existing

$0 65

Russia Mexico

Saudi Arabia Gulf States

70

75

Ghana Azerbaijan

U.S. Tight Oil

80

Algeria Venez.

Nigeria

US & Canada

U.S. Tight Oil

85

Brazil GOM

90

Million Barrels per Day 8

Source: ConocoPhillips Chief Economists Office, Rystad Ucube; gross production growth before declines, boxes are indicative of the types of assets from each category not a fully inclusive list

95

U.S. Tight Oil

China Other Non-OPEC

$100

100

Other Deepwater

$120

Other OPEC

Real 2015 $/bbl

$140

Global Oil Demand Global Oil Demand Growth

 Global oil demand has responded positively to low oil prices

2.0

Total Growth

Annual Growth in MMBD

1.6

Other Non-OECD

1.2

India 0.8 China

 Ongoing risks to oil demand growth  Decelerating global economy 

0.4

Anti-trade policies

Other OECD U.S.

0.0

 Strong U.S. dollar weakens demand response outside U.S.  Removal of subsidies in many developing countries hurts demand when oil prices recover

(0.4) (0.8) 2012 11

 Demand grew solidly in 2015-2016

2013

2014

2015

2016

Source: U.S. Department of Energy, EIA, Short-Term Outlook, January 2017

2017f

2018f

Global Economy: Slowing Growth Prospects Scenarios for Global Growth 4.0 3.8

 The IMF consistently lowered growth projections for 2015 and 2016

% real GDP, PPP

Slowing Growth Fiscal in the Global Loosening Economy (10%) Brexit slows EU (5%)

Base (40%)

3.6

Secular Stagnation (10%)

3.4

China Tightens (15%)

3.2 3.0

Strong US AntiTrade Stance (3%)

2.8 2015 12

Sources: Oxford Economics

2016

2017

2018

2019

2020

 The IMF lowered its GDP forecast for 2016 by 0.2% in its January 2016 forecast.  Downside risks to the economic outlook: o Secular stagnation o Hard landing in China’s slowdown o European immigration crisis and Brexit o Anti-trade policies

Natural Gas Markets

13

Resilience of U.S. Shale Gas Production for Major Plays Marcellus Type Curves

50

BCFD

40

30

Permian Niobrara Eagle Ford Bakken Utica Haynesville Marcellus

MCFD

U.S. Shale Gas Production from Top Unconventional Plays

1

3

5

7

9

11

13

15

Associated Gas & Legacy Production

Permian Associated Gas Type Curves

MCFD

Shale Gas Plays

700 600 500 400 300 200 100 0 1

3

5

7

9

11

13

15

Production Month

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 14

17

Production Month

20

10

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

Source: EIA Drilling Productivity Report, January 2017. Type Curves based on data from DrillingInfo

2015

2013

2011

17

North American Natural Gas Production Outlook The Future of North American Production is Shale (Bcf/day)

140

Marcellus is the Growth Leader

Growth in production 2016-2030 (Bcf/day)

20

120 15

100 Shale Gas

80

10

60

5

40

Gas from Tight Oil

15

2018

2021

2024

Source: Wood Mackenzie; U.S. and Canada production combined

2027

2030

Bakken

MidCon

Permian

Haynesville

2015

Eagle Ford

0

Canada

Other

Utica

20

Marcellus

0

U.S. Natural Gas Demand Outlook 18

Demand Growth Led by Export Markets and Power (Bcfd) 8

16

Transport

14

Other

12 10 8

East Coast

Res/Comm Other

Industrial

Power

4

Power Mexico

Mexico

4 LNG exports

2

LNG exports

0

0 2016-2020 16

Gulf Coast

6

6

2

Almost 9 Bcfd (70 MTPA) Lower-48 Liquefaction Capacity Online by 2020 (Bcfd)

2020-2030

Source: IHS Energy, December 2016 N.A. Natural Gas Brief. The use of this content was authorized in advance by IHS Markit.

Any further use or redistribution of this content is strictly prohibited without written permission by IHS. All rights reserved

2016

2017

2018 Source: Wood Mackenzie

2019

2020

Global LNG Supply-Demand Balance Global Cumulative Growth 2015-2025 180 Net growth 160 140

Other Pacific Other

MTPA

120 100

Europe Australia Americas

80 60 40

Other Asia U.S.

Existing Excess

20 0 (20)

16

New Excess Other Atlantic Middle East

Japan, Korea, Taiwan

Supply

Demand

Source: IHS Energy. The use of this content was authorized in advance by IHS Markit.

Any further use or redistribution of this content is strictly prohibited without written permission by IHS. All rights reserved

Excess Supply

Summary Oil • Prices may continue to experience elevated volatility o Uncertain government policies create headwinds for oil markets

• U.S. production growth expected to be focused onshore o Ongoing improvements to technology, productivity and costs will drive growth in U.S. Light Tight Oil

Natural Gas • Shale gas will continue to be a game-changer o U.S. and Canada will continue to be well supplied by shale resources

• Global gas markets will be more highly linked as LNG trade grows 18