ConocoPhillips’ Journey To Full Quantitative Assessment Of . PDF

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2010 DAAG ConferenceConocoPhillips’ journey to full quantitativeassessment of project cost and schedulePaul McNutt, Manager Project Risk & Reviews

CAUTIONARY STATEMENTFOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONSOF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995The following presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. You can identify ourforward-looking statements by words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions.Forward-looking statements relating to ConocoPhillips’ operations are based on management’s expectations, estimates and projections aboutConocoPhillips and the petroleum industry in general on the date these presentations were given. These statements are not guarantees of futureperformance and involve certain risks, uncertainties and assumptions that are difficult to predict. Further, certain forward-looking statements are basedupon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what isexpressed or forecast in such forward-looking statements.Factors that could cause actual results or events to differ materially include, but are not limited to, crude oil and natural gas prices; refining and marketingmargins; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gasdevelopment projects due to operating hazards, drilling risks, and the inherent uncertainties in interpreting engineering data relating to undergroundaccumulations of oil and gas; unsuccessful exploratory drilling activities; lack of exploration success; potential disruption or unexpected technicaldifficulties in developing new products and manufacturing processes; potential failure of new products to achieve acceptance in the market; unexpectedcost increases or technical difficulties in constructing or modifying company manufacturing or refining facilities; unexpected difficulties in manufacturing,transporting or refining synthetic crude oil; international monetary conditions and exchange controls; potential liability for remedial actions under existingor future environmental regulations; potential liability resulting from pending or future litigation; general domestic and international economic and politicalconditions, as well as changes in tax and other laws applicable to ConocoPhillips’ business; limited access to capital or significantly higher cost of capitalrelated to illiquidity or uncertainty in the domestic or international financial markets. Other factors that could cause actual results to differ materially fromthose described in the forward-looking statements include other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC), including our Form 10-K for the yearending December 31, 2008. ConocoPhillips is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-lookingstatements, whether as a result of new information, future events or otherwise.Cautionary Note to U.S. Investors – The U.S. Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, todisclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legallyproducible under existing economic and operating conditions. We may use certain terms in this presentation such as “oil/gas resources,” “Syncrude,”and/or “Society of Petroleum Engineers (SPE) proved reserves” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S.investors are urged to consider closely the oil and gas disclosures in our Form 10-K for the year ended December 31, 2008.Restricted confidential – Business InformationPage 2

Agenda and Messages Agenda Take-away Messages- The Challenge Embedding Quantitative Risk Assessments in an emerging ProjectDevelopment Organization- The Path The People, Processes, and Tools required to enact positive change- The Result Impact on Cost and Schedule Predictability- We have fundamentally restructured how risk is quantified andcommunicated to senior management- The central document is the Contingency Breakdown Report. It is acommitment between the Project Team and Senior ManagementRestricted confidential – Business InformationPage 3

The ConocoPhillips WaySAFEWe will not compromise on our commitment to execute projects safely anddeliver operating assets that are safe for people and for the environment.TRANSPARENTWe will openly and frequently communicate project status, priority risks,and issues.PREDICTABLEWe will consistently deliver on our promised AFD and AFE targets. We will consistently deliveroperability at or above the AFE target.COMPETITIVEWe will consistently deliver competitive projects from a safety, cost, schedule, and qualityperspective that outperform our industry peers.Restricted confidential – Business InformationPage 4

Project Portfolio Radar View Dec 2009TommelitenCOP OperatedRivers Phase IIEnochdhuBO No 3 ReformerEkofisk S. 2/4 ZSweeney GasificationDayung CompressionEkofisk 2/4LEkofisk Life of FieldBelanakJasmineAlpine WestWest Sak Phase 2VTS PipelineCO Boiler #1 ReplaceCCU1/CCU2 Heart cut Ref.Unit 3 FCC WGSEkofisk I Plat. Cat 2N-LNG 4&5 Su TuChristina Lake 1CAPI SeparatorUnit 27 FCC SCRCOREAtmospheric SCRTIER 4Define (Net ):Tier 1: 75MTier 2: 75M – 250MTier 3: 250M – 1BTier 4: 1BWI GBRPSR-2 RevampFaregh IIYanbuChristina Lake 1DPrudhoe I PadREX Golden PassSyncrude ERB-LNG Gas Supply El MerkNC-98EXECUTEB-LNG DNNorth GialoMackenzie GPKebabanganDofra JofraUgeFEL - 3AP-LNGSunriseKashagan Ph. 2Britannia LTCPetaiData Date: Dec 09TIER 3PetaiI PadPrudhoeDen15-1Shah N-LNG 6 GumusutQG3Statfjord Late LifeAlderLC ULSDBO GBRNew Vacuum FurnaceMalikai APSC Kashagan Ph. 1Clair RidgeWilhelmshavenHEPParsons Lake Bohai Bay 19-3Brodgar InfillTR Benzene SaturationPC Benzene ReductionFCC Wet GasHF Alky RevampNorth BelutEkofisk 2/4 VALookoutTIER 2BW MSAT -2 Benzene138kV upgradeEldfisk IITorCHP2Black – ActiveRed – On HoldTIER 1Surmont Ph. 2 BI Crude & Vac.News DS 1PJV / Non OperatedLEGENDPrint Date: Jan 10UpstreamFEL - 2UbahKentucky NGFEL – 0/1Restricted confidential – Business InformationPage 5Downstream7

Project Presence Across the WorldAlyeska Pipeline Service Co. (APSC) StrategicReconfigurationAlpine West (Alpine Satellite CD-5)Denali ANS Gas PipelinePrudhoe Gas Partial ProcessingPrudhoe I-Pad DevelopmentLookout (Alpine Satellite CD-6)Beaufort Offshore (Amauligak)Christina Lake - Phase 1CFoster Creek - Phases 1DSyncrude Emissions Reduction (SER)Christina Lake - Phase 1DMackenzie Gas Pipeline & GatheringParsons LakeSurmont Phase 2Syncrude Mildred Lake North Mine Train ReplacementSurmont FMPThornburyEkofisk I Platform Removal Cat.2Statfjord Late LifeEkofisk 2/4 VAEkofisk Accommodation 2/4LEkofisk South 2/4 ZEldfisk IIKashagan Phase 1BTC ExpansionKashagan Phase 2Kazakhstan Caspian TransportationYK (Yuzhno-Khylchuyuskow) FieldImmingham combine Heat & Power (CHP2)WH - Upgrader ProjectVTS PipelineHarrisonAL Control System Upgrade PH1 & PH 2AL FCC Wet Gas ScrubberBI Low Sulfur Gasoline Phase 2BG Gasoline Benzene ReductionKentucky New GasSF Hydrocracker Expansion Project (HEP)SW Sulfur Recovery Unit SRUSW Unit #3 FCC WGSWR CCU1 and CCU2 Concent Decree ImprovementsWR Coker and Refinery Expansion (CORE)BI New Crude & Vacuum UnitLC Ultra Low Sulfur DieselPC Benzene ReductionTR HF Alky RevapRockies Express (REX) PipelineGolden Pass LNG TerminalUrsa (Waterflood)Sweeney GasificationYA Export RefineryQatar Gas 3 LNGAbu Dhabi Shah FieldEMK EL MERKN-LNG Gas Supply Train 6N-LNG Gas Supply Trains 4&5Brass LNG Downstream (2 Trains)Brass LNG Gas Supply UpstreamDownstreamML PSR-2 RevampBohai Bay 19-3 Phase IINorth Belut DevelopmentGumusut - SabahSu Tu Den (NE) - Block 15-1Belanak LPG - FSOSouth Sumatra Liquids Transportation (SSLT)Kebabangan Integrated Oil & GasMalikai Discovery - SabahSu Tu Trang - Block 15-1Australia LNG (APLNG) UpstreamAustralia LNG (APLNG) DownstreamAustralia LNG (APLNG) PipelineGreater SunriseUpstream*FEL 0/1FEL 2FEL 3Execute234234TIERRestricted confidential – Business InformationData from eReport Sep/09Page 64

2,0001,500HeadcountGlobal ProjectDevelopment HeadcountProject Development People and Portfolio Direction1985190518341811a 108 B net portfolio with an985935764950annual capital spend of 4-8 B net1,000500839807750681Trends for 2010-2012 include:-Replacing contractors with employees01312032502402006200720082009YearCentral PD OrgGlobal PD CommunityContractor Staff on PMTsTOTAL 79,863 MMNo. of Projects10015 14,84510 15,74817 8,6096040-Gain transparency and predictability-Central organization at steady state-Focus on quality implementation(99 projects)80-Enhance the COP-way-The toolkit largely built, limit changes120Global Project Portfolioby PhaseWe are 1800 people managing-Charles Rivers validated pathforward-New and challenging opportunities-Average project size is increasing 27,753 MM(49 projects)33 13,900-New country entry (Abu Dhabi, KSA)10176 6,251 12,671 51 7,99225 7872024 26,761-Largest ever operated in existingBUs (Surmont 2, APLNG)0UpstreamExecuteDownstreamFEL 0FEL Restricted1 FEL 2confidentialFEL 3 – Business InformationPage 711

Project Risk and Reviews enable transparentcommunication and improve project predictability2007 to 200920102011 Risk ManagementRisk ManagementRisk Management Risk Register 1.0 then 2.0 Contingency BreakdownReport established 2008 Contingency Drawdown 2009 Emphasize execution riskmanagement with coordinators Introduce management reserveand stretch targetsEngagements & Reviews Thorough post auditscomplete the cycle onprojects risked in FEED Expansion to project drillingand portfolio-level riskingEngagements & Reviews Enhance Engagement Plan quality, Engagements & Reviewsdepth, and coverage Reviews are inclusive of partners Formalize review framework Seamless integration with PAGand other corporate functions Expand Legends and define roleversus consultant Engagement Process andPlanning established 2008 AFF review dropped and fit-forpurpose reviews emphasized Legends Program startedPeople and Training Central team of 4 riskspecialists and 4 Upstream BUspecialists established Central engagement managerteam of 6 established, rolesdefined and codifiedPeople and Training Expand training to teamsthrough Capstone (PDC), onlineaids, and thorough Standardsand Procedures Enable risk coordinators onprojectsRestricted confidential – Business InformationPage 8People and Training Best project engineers arerotating through coordinatorand specialist roles Best project managers arerotating through asengagement managers

Cost build-up illustration and definitionsP50 Total Installed Cost*Project Development Manages FIC for projects 75 MM netDrilling Cost(if applicable)Contingency(Sum of Uncertainties)Schedule Risk EventsCost Risk EventsEstimate VarianceFacilityCostEstimatePremiseManagement Reserve(Sum of Risk Events)Stretch Target(Premise plus Variance )*All cost elements include associated escalationRestricted confidential – Business InformationPage 9P50 Facilities Installed Cost(Stretch Target plusManagement Reserve)

Contingency Breakdown Report (CBR)is the transparent nd CostVarianceCost RiskEventsExplanatoryNotesScheduleVariance andRisk sExcludedRisksSummaryRestricted confidential – Business InformationPage 10

Risk Management InterfaceseReportingQuantified Risk DetailsRisk ModelRisk RegisterModeling ResultsCBRRiskRegisterModelingResultsDrawdown ChartRisk RegisterProgress CurveEPMSContingencyModeling ResultsRestricted confidential – Business InformationPertMasterPage 11

The result of changes to date is that projectperformance is improving significantlyCost and Schedule Performance versusFunding (Predictability)Cost and Schedule Performance versusPeers (Competitiveness)40%40%Over budget / ahead ofscheduleOver budget /behind scheduleAvg.Higher costs /longer duration30%30%Cost Variance versus PeersCost Variance From Original Funding2003-06Higher costs / shorterduration20%10%Target0%Avg.Since 200620%Avg.2003-200610%Avg.Since 20060%Target-10%-10%Under budget / aheadof schedule-20%-20%-10%Lower costs /shorterdurationUnder budget /behind schedule0%10%20%Duration Variance From Original Funding30%40%-20%-20%-10%Lower costs/ longerduration0%10%20%Duration Variance versus PeersAccording to Charles Rivers Associates:“ConocoPhillips’ Project Development Organization is on the rightpath to effectively support world class project delivery”Data is averaged on a cost-weighted basis for projects greater than 75 MM netRestricted confidential – Business InformationPage 1230%40%

Back-up SlidesRestricted confidential – Business InformationPage 13

PRR Organizational ChartManager Project Riskand ReviewsPaul McNuttAdmin. Assist.Barbara MartinEngagement andReviews SupervisorKendra LemaRisk SpecialistSupervisorJeff CookeLukoil SecondeesEngagement ManagerTom IndelicatoRisk SpecialistJohn ClowardEngagement ManagerOddvar KnardalRisk SpecialistTodd BilsteinEngagement ManagerJohn PickeringRisk SpecialistDon ParkerEngagement ManagerNasser FahmyPortfolio AnalystMireya KumarEngagement ManagerLorena Van MetrePortfolio AnalystChris CooperRestricted confidential – Business InformationPage 14

As expected, the data show a tendency forcontingency to decline over stage gates3050%45%2540%2030%1525%y -0.027x e GateNumber of CBRsPercent of P50 TICTwo standard deviation error barRestricted confidential – Business InformationPage 154-Post-AFENumber of CBRsPercent of P50 TIC35%

Risk Category DefinitionsStrategicless tangibleHarder to quantifyTacticaltangibleEasier to quantifyOrganizationalStakeholder“Degree of complexity”“Degree of control”What people, processes, or toolsdo we lack to successfully executethe project?Who influences our projectoutcomes?Examples:Team selection, change management,processes and proceduresExamples:Partner misalignment, permit delaysDefinitionTechnical“Degree of readiness”“Degree of difficulty”What are we building? How readyare we?How difficult is it to complete theproject?Examples:Scope defined, contracts,onshore/offshoreExamples:Arctic conditions, pipe corrosionInternalExternalRestricted confidential – Business InformationPage 16

The percent of total number of uncertaintiesidentified by type has remained quite stable acrosstime periodsPercen

Risk Management •Thorough post audits complete the cycle on projects risked in FEED •Expansion to project drilling and portfolio-level risking Risk Management • Risk Register 1.0 then 2.0 • Contingency Breakdown Report established 2008 • Contingency Drawdown 2009 Risk Management •Emphasize execution risk management with coordinators