Brought lower due in part to a “major divestiture program” in its exploration and production portfolio, ConocoPhillips posted proved reserves of 7.8 billion boe at year-end 2002, down approximately 600 million boe from results at the end of 2001, which were 8.4 billion boe.

The company noted that 2001 and 2002 results do not include syncrude. U.S. Securities and Exchange Commission regulations define oil sands reserves as mining-related; therefore the oil sands associated with the company’s syncrude operations are not reported as part of the conventional oil and gas proved reserves base.

Due to the use of purchase accounting to recognize the fair value of the Conoco Inc. assets and liabilities, ConocoPhillips — which consummated its merger on Aug. 30, 2002 — posted its results for the 12 months of 2002 with eight months of activity for Phillips Petroleum Co. and four months of activity for ConocoPhillips. As a result of the merger, the combined company noted that 3.1 billion boe was added to the company’s worldwide proved reserves at an estimated finding-and-development (F&D) cost of $5.60 per boe.

“Reserves bookings in 2002 were anomalous when placed in the context of our past performance and future expectations,” said Bill Berry, executive vice president of Exploration & Production. “The company evaluates its reserve replacement performance over a long-term time frame. Using a longer-term time frame recognizes that large projects are commercialized over multi-year periods and better matches reserve replacement and spending patterns.”

In 2002, the company produced approximately 600 million boe. Reserves additions gained through extensions, discoveries and purchases were offset by project deferrals, reservoir performance revisions, production sharing contract oil price effects, and deferred timing on major project approvals. In addition, the company cited its major divestiture program designed to focus its exploration and production portfolio on lower-cost legacy assets as reason for the reserve decline year-over-year.

Despite dropping reserve levels, Standard & Poor’s Ratings Services (S&P) said that its ratings and outlook on ConocoPhillips (A-/Stable/A-2) would remain unchanged.

The agency said it has not changed the rating or outlook on the company because:

However, S&P noted that “continued poor reserve replacement or difficulties achieving production forecasts could prompt Standard & Poor’s to reconsider the appropriateness of its ConocoPhillips ratings.”

ConocoPhillips said from 1998 through 2002 the company has replaced 216% of its production at an average estimated F&D cost of $5.40 per boe. Excluding the effects of acquisitions and dispositions over the same period, the company said it replaced 103% of its production at an average estimated F&D cost of $8.05 per boe.

“Going forward, we expect reserves additions from the advancement of several legacy projects,” Berry said. “We are poised to continue substantial reserves growth in the future from our existing base.”

He added that reserve additions in 2003 are expected from Kashagan in Kazakhstan, Corocoro in Venezuela, the Ekofisk growth project in Norway and, assuming ratification of the Timor Sea Treaty, the Bayu-Undan gas export project.

“The outlook beyond 2003 also is favorable, consistent with the plans outlined at the company’s meeting with analysts in November 2002,” Berry said. “ConocoPhillips’ legacy project advancements include additional satellite field developments in Alaska, development of Surmont heavy oil in Canada, Phase II of the Bohai development in China, additional gas sales in the Corridor block in Indonesia, and gas from Canada’s Mackenzie Delta. Furthermore, we have substantial known gas resources awaiting commercialization including the Brass LNG project in Nigeria, development of the Sunrise field in the Timor Sea, and Arctic gas from Alaska’s North Slope.”

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