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The following is a transcript of a presentation to Burlington Resources
Inc.'s employees at a Town Hall meeting held January 11, 2006, by J.J.
Mulva, Chairman, President and Chief Executive Officer of ConocoPhillips
and John Lowe, Executive Vice President, Planning, Strategy & Corporate
Affairs of ConocoPhillips and was first posted on Burlington Resources
Inc.'s intranet web site on January 16, 2006.
TOWN HALL MEETING
-----------------
JANUARY 11, 2006 -- 9:00 A.M.
ATTENDEES
BOBBY S. SHACKOULS
Chairman/CEO/President, Burlington Resources, Inc.
JAMES J. MULVA
Chairman/CEO/President, ConocoPhillips
JOHN LOWE
Executive V.P. of Planning, Strategy, and Corporate Affairs, ConocoPhillips
RANDY LIMBACHER
Executive Vice President/Chief Operating Officer-Burlington Resources
INTRODUCTION
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BOBBY S. SHACKOULS
------------------
Good morning, everybody, and Happy New Year! I'd like to thank all of you
for joining us this morning for our Web cast. I also would like to take
this opportunity to thank all of you for your patience and your support
during what I know has been a very anxious time in all of your lives since
we announced the transaction between ConocoPhillips and Burlington
Resources in mid-December. I also want to give a special thanks to both the
BR and the ConocoPhillips members of the integration team for their hard
work throughout the holiday season, and that work is continuing. I'd like
to also introduce Bill Wade, one of our BR directors, who has agreed to
serve on the ConocoPhillips board after the transaction is completed.
So, now without further delay, I would like to introduce Mr. Jim Mulva,
ConocoPhillips' Chairman and CEO. Jim has graciously agreed to take some of
his valuable time to tell BR employees about ConocoPhillips, their vision,
their extensive businesses around the world, their culture and their
values. This is a great opportunity for all of you to learn more about this
outstanding company. Now I traveled with Jim after the transaction was
announced to visit with investors and I can tell you that he is very
passionate about ConocoPhillips and he's also very passionate about the
upcoming combination of our two companies. Jim is joined this morning by
John Lowe, who is ConocoPhillips' Executive Vice President of Planning,
Strategy, and Corporate Communications, who will cover a bit of a primer on
the ConocoPhillips compensation and benefits programs. We also have with us
this morning Bob Ridge, ConocoPhillips' Vice President of HS&E, Sam
Falcona, who is ConocoPhillips Vice President of Communications, and Kristi
DesJarlais, ConocoPhillips manager of communications. Hopefully, some of
you have had a chance to meet these folks as you came into the building
this morning.
After Jim and John's prepared remarks, we will end the Webex. I'm sure that
all of you have a lot of questions and I'd also remind you that many of
those questions have been or are being addressed on our BR Employee
Resource site. In addition, Jim and his team expect to hold more employee
meetings over the next several weeks to cover the issues that may be on
your mind as we go through this transition. In fact, Jim and his team have
agreed to meet later this morning with the local members of our Team 60
Leadership Group for discussion of specific items that may be on folks'
minds. With that, I will now turn the podium over to Jim Mulva.
(Applause)
JAMES J. MULVA
--------------
TITLE SLIDE -- Bobby, thank you very much for the nice introduction. Bobby
and I have known each other for quite a number of years. We're good
friends. And I very much appreciate knowing and working with Bobby. I can't
really think of anything that's really more important for me to do today or
any other day than to spend time with all employees within ConocoPhillips
and certainly within Burlington Resources -- to be available to respond to
questions, concerns, anxieties, whatever it may be, as we go through the
time period until we combine the two companies and then go forward through
all the transition. We want to do this as quickly as we can and we want to
do it with complete transparency and openness of communication. Burlington
Resources, I will tell you for quite a number of years, has been a very,
very successful company. It accomplished a great deal and everyone who
works for Burlington or is a shareholder of Burlington or a contractor to
Burlington should be very proud of Burlington and its success and what's
been accomplished. Likewise, we're very proud of what ConocoPhillips has
accomplished. So, with the combination of our two companies, we are
creating a new frontier as part of our journey going forward, creating a
truly exciting company. Both companies have a very exciting, great future
ahead of them, combined. We're really very excited about what we're going
to be doing together. And we want to go through this process as quickly as
we can so that we're out working toward our objectives and meeting
expectations as quickly as possible.
As I said, it's a very important time to be spending together. I'll go
through this presentation as quickly as I can because a lot of this
information is available on our Web site. But I'll try to add some color to
what is ConocoPhillips and where we're going and why we are excited about
our future. Remember that until this merger is approved by the regulatory
authorities and by the shareholders of Burlington Resources, we must
continue to operate in every way as competitors. So our ability to add
additional information going forward is limited until the transaction is
approved and we are a combined company. But I'm going to try to do the very
best I can in terms of telling you about ConocoPhillips and then at the
end, after John Lowe goes through some overviews with respect to the
compensation and benefits of ConocoPhillips, I will come up and answer a
number of questions that have been given to us in advance.
CAUTIONARY STATEMENT. We always have to show, for legal reasons, our "Safe
Harbor". So that when we talk about the future we're in compliance with the
Securities and Exchange Commission.
COP AT A GLANCE. If we look very quickly at ConocoPhillips, as you can see,
it's a pretty sizeable company in terms of assets. If you take our third
quarter and just analyze it, our revenues are approaching $200 billion a
year -- a sizeable company. But I think what's really important is we come
from different heritages, and we really think that it's important to us to
operate as a smaller company in terms of our relationships with countries,
partners, and employees.
You can see that we operate in quite a number of countries. Our
headquarters is in Houston. And what you'll see in subsequent slides is
that we're really aggressively working toward growing and participating in
the energy business, both on the E&P side as well as in the downstream.
Downstream is refining and marketing, but our emphasis is primarily on the
refining side of the business. We also have exposure to the midstream
business with joint ventures with Duke, and in chemicals around the world
with Chevron. Our credit rating is "A", but as you'll see on subsequent
slides, we'd like to improve that over time.
AN INTEGRATED MAJOR. How was ConocoPhillips formed? Let's go back to about
1999, to DEFS -- that's Duke Energy Field Services. That's where we took
the Phillips midstream business and put it with Duke in a joint venture,
which today we own 50 percent of. Phillips purchased ARCO Alaska, another
watershed event in many respects. CPC is the Chevron-Phillips chemical
joint venture. All of our worldwide chemical business is done on a 50-50
basis between ConocoPhillips and Chevron. Before the merger of Conoco and
Phillips, Conoco purchased Gulf Canada. Phillips then purchased TOSCO,
which was the largest independent refiner in the United States. With the
growth and development of the company, we felt very strongly that we needed
to be integrated. This was an opportunity to really enhance our integration
and our presence on the refining side in North America. Then after the
merger of Conoco and Phillips came the strategic alliance that was born
between ConocoPhillips and LUKOIL, a very large international Russian
company. And then came the most recent transaction announced in early
December of Burlington Resources. So this is the process and journey in
forming and creating a truly competitive integrated major.
CORPORATE STRATEGY. In terms of corporate strategy, we feel very strongly
about scale, scope and size. We believe that we need to be an international
company and we believe in integration. Integration means a strong E&P arm
and a strong refining and marketing part of the company. And we want to
aggressively grow the upstream and downstream parts of the company. On the
commercial side of our business, we believe very strongly -- and I'm just
going to give you very quickly the philosophy of it -- we want exploration
and production to go explore and find oil and gas. We want to exploit the
business development side, but the emphasis of the E&P arm is on finding
and developing oil and gas. Don't worry about getting the best price for
the oil and gas when it's sold in the marketplace. What we want the
refining and marketing arm to do is run those refineries day-in and day-out
as efficiently as possible and at a high reliability rate. Don't worry so
much about where you buy the crude oil to run through the refineries and
don't worry so much about where the refined products are sold. We have a
commercial organization that will sell the oil and gas production, buy the
crude oil for the refineries, and sell the refined products in the
marketplace. So, we want the upstream and downstream to concentrate on
operations and growth. We want commercial to maximize the value of the
product streams. Commercial doesn't have an income statement or report
results -- we just allocate back to E&P or refining and marketing the
higher realized prices that commercial is able to recognize and realize. As
I said earlier, we want to move toward a double-A credit rating. We feel
very strongly about the discipline. We're in a commodity market. So
whatever the marketplace gives us in oil and gas prices and crack spreads,
we must run good, efficient, reliable operations. And this is the important
last point on the slide. We think our success really is going to come from,
first, our people, our technology and our financial resources. And all of
this is about creating shareholder value.
STRATEGIC OBJECTIVES. Now for objectives, beginning with return on capital
employed. You see a subpoint there, a number. When we compare ourselves to
the peer group, the group includes the largest publicly traded companies in
the industry. We usually adjust the return on capital employed because a
lot of transactions over the last couple of years were done with purchase
accounting or pooling. So, if we want to compare apples and apples, we make
adjustments. But we want to be competitive on return on capital employed.
We want to see our debt ratio getting down into the mid to high teens. You
also see here the portfolio balance of the company, 65 percent in E&P, with
the combination of ConocoPhillips and Burlington that concentration is
going to be in excess of 70 percent. That's not a problem. By the way, I'm
saying right up front that we're not interested in selling ConocoPhillips
or Burlington Resources assets. We like all the assets that we have in
ConocoPhillips and in Burlington Resources. Though there might be a very
marginal, little piece of something that we sell - a very mature lease
holding or terminal in the refining/marketing side of the business. But we
like the asset base and we intend to keep it.
You see the other portfolio positions. We like to see our production
growing and we feel that with the growth programs of Burlington and of
ConocoPhillips, although we can be up and down a given year, we expect
growth of about three percent a year as we go forward. We also want to more
than replace our reserves and to do so with competitive finding and
development costs. Another point that's very important on that slide is
OECD. That means we operate in the more politically safe countries. While
we are going to be doing business around the world, we also like a very
strong position in North America -- a position that extends from Alaska
through Canada and the lower 48. We are also in Europe, particularly in E&P
in Norway, the U.K., and the Netherlands North Sea. We think this is a very
distinguishing characteristic about our company.
BALANCED PORTFOLIO. The right-hand side of this slide shows where
percentage-wise our capital was invested and the left-hand side shows where
the income came from during the first three quarters of 2005. As you can
see, it's relatively balanced between upstream, downstream and the joint
ventures.
CASH USE COMPARISON. In terms of what we do with our cash, we have a very
strong growth portfolio. So, as you see in the blue-shaded area, a lot of
our cash flow gets reinvested back into the business to grow upstream and
downstream. We also do some debt reduction. We don't spend as much money on
share repurchases because we have sufficient capital opportunities to grow
the company, but we believe very strongly in a competitive dividend and we
like to see annual increases in our dividends.
E&P STRATEGY. We also want to grow our production and reserves. We talk
about legacy positions. Historically, to us what a legacy position would be
is something with more normalized -- I'm not talking about a $60 oil price,
but lower oil and gas price assumptions -- that we could go into and make
investments such that we would see at least a hundred million dollars or
more a year of annualized income. In many respects, that required us to
make investments of as much as a billion dollars. What we're trying to do
is create a portfolio around the world that has quite a number of these
legacy asset positions, either from historically or new investments, to
grow these positions. We also want to continue to emphasize, maintain,
retain and even grow our legacy positions in OECD countries and other new
countries. And we know that it's very important on the more mature
operations to extend the life of the fields and add reserves in a very
efficient way.
INVESTING IN GROWTH. In terms of growth, I won't go through all these
projects, but one point that we think is very unique about ConocoPhillips
and what we also like about Burlington is the opportunity pipeline. We call
this our pipeline of projects, or pipeline of growth, that we can see
coming from gas. It can come from other international operations, from OECD
countries, not just for three to five years, but well into the next decade.
STABLE PRODUCTION BASE. Another of our strengths is the stability of our
production. This shows our production in OECD countries -- really in North
America, Norway and the U.K. Back four or five years ago, the thought was,
could we keep production at 1.2 billion barrels a day equivalent? And now
today, we can see ourselves doing that at least through 2006. That's rather
unique. So, we have good fields that offer new opportunities for us to
develop satellite fields, use new technology and conduct more exploitation,
along with very competitive finding and development costs. Adding what
Burlington has on top of this really strengthens and further complements
the uniqueness of our new company.
NEW LEGACY GROWTH AREAS. This slide shows the growth of new areas outside
the OECD. It's pretty significant growth in terms of production, and it's
spread out from the Middle East as well as many countries in Asia. I want
to talk about a few of the countries to give you a feel for some of the
large opportunities that we have.
VENEZUELA obviously is an interesting country. It has great opportunities
in terms of reserves exploitation potential, and it fits very nicely into
our oil business via our refineries that bring this oil from Venezuela to
the Gulf Coast. Petrozuata was a heritage Conoco heavy oil project. Hamaca
is a heritage heavy oil project from Phillips. So, you can see that we have
a very sizeable position in heavy oil production in Venezuela. Corcoro is a
new offshore oil field that's being developed, with production going to be
brought onstream in 2007. And in Plataforma Deltana we have discoveries and
reserves that will hopefully lead to gas development within the country and
the potential to export gas from Venezuela. So, Venezuela is an important
country to us. Obviously, we recognize that in many of these countries,
there's also offsetting political risk.
ASIA PACIFIC. In terms of Asia Pacific, what's unique about our company is
that through the Phillips and Conoco merger, we complemented each other so
well because Phillips was in China, Conoco was in Indonesia/Malaysia, and
Phillips was in the Timor Sea and Australia. So, you see the combination of
strengths we have from north to south Asia. In Australia, Bayu-Undan and
hopefully some other new opportunities make this a growth area for us, on
both the liquid and gas sides. And you can see that our first LNG project
is going to start this month, with the first cargo to Tokyo Electric, Tokyo
Gas in Japan. And you can see the volumes there. Indonesia is very sizeable
for us, but it's a tough business. We have some large projects and many
smaller projects that together give us a substantial and growing position.
In China, we have one of the largest heavy oil fields, which is going to be
brought onstream in a couple years. We have first and second phases of
production that will be pretty substantial for us. In the Asia-Pacific
area, some of the fields that we're developing have lower-quality oil. We
can sell it in the marketplace at a discount, or we can have the refineries
that we own run the oil, which gives us the opportunity to create more
value than taking a little bit of a hair cut in terms of the price of oil
from these fields.
ASIA PACIFIC EXPLORATION SUCCESS. Here's an interesting project that I
alluded to earlier. We started up the Bayu-Undan field a year or two ago on
liquids and now we're starting gas production, with the first LNG cargo
later this month. We have nice acreage positions in which we see further
development, with hopefully new trains of LNG from Darwin that we can sell
into the Asian markets and possibly even into the West Coast of the United
States over time.
RUSSIA AND CASPIAN. As I said, we did our transaction with LUKOIL in late
2004. We have a new field development in the Timan-Pechora area in the very
northern part of Russia. We're developing reserves that have already been
discovered and will then export that oil into the markets of Europe and
maybe North America in late 2007 or early 2008. Our ownership is up to 16.1
percent, and by agreement we can purchase up to 20 percent and we intend to
get to that level by the end of 2006. We have an exclusive equity
arrangement. We're the only company that could have equity ownership with
LUKOIL. Then we also have the Timan-Pechora area as a joint venture and
we're looking for other joint venture opportunities for oil and gas
developments inside and outside Russia. Kashagan is the largest field
that's been discovered in the last 30 years or so, and we have just over 9
percent ownership interest. This is the difficult one in terms of technical
challenges, location, costs and environmental challenges, but we believe
that long term, this field will be a real value creator for our company.
QATAR. In Qatar, we started off a number of years ago in the petrochemical
business, ethylene, high density polyethylene. We are now a very large
petrochemical player, and that led to us into gas development. We just
signed off last month on our final investment decision on the Qatargas 3
LNG project, in which we have 30 percent ownership, that will bring LNG
primarily to the Gulf Coast of the United States by about 2009. It's about
1.3 billion cubic feet a day. We're responsible for the development of this
project as well as Qatargas 4, which is a project between Qatar and Shell.
This is going to be an important addition to our reserves and production
and to value creation on the gas side of the business going forward.
LIBYA. We just announced in the latter part of December our re-entry into
Libya. The old Conoco had licenses in the Oasis group and ownership in Waha
concessions that go back decades. And because of sanctions, Conoco and
other American companies couldn't operate in Libya. That's now opened up,
so we've negotiated with the Libyans to extend our concessions another 25
years. We're going to have immediate production, but one of the things we
will be working on is putting our technology and financial resources to
work with the Libyans to increase production from these concessions
substantially. We think that will add a lot of reserves, production and
certainly value for our company. Also, we are not necessarily in this
group, but by ourselves looking for other opportunities to develop more oil
and gas opportunities there.
BR STRENGTHENS N.A. GAS POSITION. When we look at North America, Burlington
has a large presence in Canada and the lower 48 in terms of reserves and
production. So we gain the strengthening of the position that we already
have in both oil and gas through the combination of our companies in Canada
and the lower 48. Then long term, we see the development of gas resources
from the Arctic in terms of gas pipelines from Alaska and Canada, the
Mackenzie Delta. So, we have a uniquely strong position that as we see is
going to add reserves and production for quite a period of time.
WITH BR-MAJOR U.S. GAS SUPPLIER. Now, this slide is pretty important
because it shows the strategic thrust of how this all fits together so
well, why Burlington and ConocoPhillips complement each other so strongly
and why we're so excited about what we are doing here. This conventional
production can be oil, but we're talking about gas here. As you can see,
we've located all the different basins in which we are developing in a
conventional way a gas resource in Canada and the lower 48. But through LNG
projects, we're trying to also bring a lot of gas into the U.S. We need all
the gas we can get in the United States and in North America in the form of
LNG. That's why we see Qatar gas coming here potentially. We are also a
participant in a project in the Bering Sea, north of Russia. It's a
substantial development that could hopefully allow us to bring in gas from
Russia. We also hope to maybe bring in gas from other countries like
Venezuela and Nigeria and who knows, maybe even Libya. We want to be in the
gas market in every way, both conventionally through Burlington Resources
and ConocoPhillips, through LNG, and then long term, through bringing in
gas from the Arctic in pipelines from Alaska and the Mackenzie Delta in
Canada. As you can see, we're a very sizeable producer. We're going to be
the largest producer of gas. And we are in the midstream business where we
process the gas and clean it up, take the liquids out, and we're a leading
marketer of gas in the United States, in fact I think we're number two. So,
we tend to be a pretty significant player in the production, import and
marketing of gas.
ENHANCED BUSINESS MIX. What does the combination of the two companies do
for us? You can see here what happens to the portfolio in terms of capital
employed. We really like the strength of our North American and North Sea
reserves -- the OECD mix -- and we like the idea of having more gas in the
portfolio. It doesn't mean we're not interested in oil. We're interested,
and wherever we can find it, we'll invest and do it. But we also like the
idea of more gas in the portfolio.
PRO FORMA OPERATING IMPACT. To give you a feel for scope and size, this
shows that after the combination of the two companies, where we will stand
in terms of reserves and production compared to some of the largest
publicly traded companies in the world. Size is not as important as the
fact that we are really creating value for our shareholders and creating
competitive positions. And what we really like is that we're going to be
adding reserves and growing reserves and production going forward. It also
shows that we're a pretty sizeable company, but again, we want to continue
to operate and run more like a smaller company.
R&M STRATEGY. Our strategy in refining and marketing is to grow our
worldwide refining, starting from a very strong position in the United
States. We have 12 refineries along with a nice position in Europe, but we
are also expanding and looking for opportunities in the Middle East as well
as Asia. This is value chain optimization - running our refineries
efficiently and well at whatever the market gives you in terms of crack
spreads. Talking about crack spreads, what we're really saying is, what's
the value of your refined product versus the cost of crude oil that comes
into the refinery? We're very good at this business, and we're one of the
leaders in terms of return on capital employed.
U.S. REFINING SIZE AND SCOPE. This map shows where we're located in the
United States. We have a presence in all the different geographic regions.
So, we're not dependent upon just one market in terms of refining and
returns.
U.S. REFINING EXPANSION & UPGRADE. Before the emphasis that came this past
fall with respect to lack of refining capacity and investments in
refineries, we had already announced that we've been putting quite a bit of
money in the refining side of the business for a number of years. We
announced a $4-to-$5 billion program wherein we're going to add capacity,
but more importantly, enhance our capability in most of our refineries to
process the lower-quality oil feedstocks that are becoming more available
in the marketplace. You pay less for it, so you take that discount and you
run it through and if you've got the right equipment, deep conversion and
very sophisticated refineries, you produce transportation fuels. That
investment is pretty profitable and that's why we're improving the
capability of our refineries.
INTERNATIONAL REFINING & MARKETING. Internationally, you can see where we
are in Europe. We have refineries we own ourselves plus some joint
ventures, and a small position in Asia. At the time of the merger, we
didn't know what we were going to do with Asia, but what we're really
looking at now with this growth and development of our company is, how can
we further enhance and grow our position in Asia while earning good returns
on investment that help us with respect to integration of the E&P side of
Asia?
WILHELMSHAVEN ACQUISITION. We just announced around Thanksgiving that we
purchased the Wilhelmshaven Refinery in northern Germany. And it fits in
very nicely with respect to our refineries in Europe and how we develop and
refine product and blend stock between our refineries in the East Coast of
the United States and in Europe. And so we made this purchase. We're going
to make a pretty substantial investment to make it a neat conversion and a
very sophisticated refinery. We think this is really going to fit our
portfolio well, and help us develop our refining and marketing business,
and process the lower-quality crude oils potentially available from other
places in the world.
COMMERCIAL. In our commercial organization, we do not take positions in
terms of betting on whether we think the oil price is going to go up or
down, or the gas price or the crack spread. What we do is trade around our
physical assets. We trade with our volumes. And given the size of our E&P
operation, the size of our refineries, we do a lot of trading in the
marketplace and create value in that way. But then we allocate back the
value that we create to higher realized prices in the E&P side of the
business as well as refining. And we look for additional contributions from
our commercial operations as the company grows in subsequent years.
CHEVRON PHILLIPS CHEMICALS JV. Chevron Phillips Chemicals is a worldwide
joint venture between ConocoPhillips and Chevron. The chemicals marketplace
has improved in the last 12 or 18 months , so we've seen better financial
returns. This joint venture is making substantial new investments in the
Middle East because you get access to low-cost feedstock gas. The result is
we can export petrochemicals to Europe, the United States and primarily
Asia. So, we have a chemicals growth opportunity primarily in Asia.
DUKE ENERGY FIELD SERVICES JV. Duke Energy is a midstream joint venture.
We're the largest producer of natural gas liquids in North America. We look
for opportunities by which we can grow and run the business well in a way
that can improve our return on capital employed. We certainly like the
business.
TECHNOLOGY. As I said earlier, there are three things that really drive the
company. It's the people side of the company, technology and financial
resources. This slide merely shows all the different things that we are
doing as a company in terms of technology. We're always looking for the new
things that can help enhance our capability to compete as well as to
exploit and get more out of our assets both upstream and downstream.
FINANCIAL STRATEGY. We're pretty aggressive in terms of growing and
developing the company. With the acquisition of Burlington, of course,
we're taking on more debt, but we foresee very quickly retiring the debt
and getting right back to not only a strong A credit rating, but we would
expect over time to move toward a double-A credit rating. We believe
strongly in annual dividend increases, and to the extent that after we fund
our capital program and we have annual increases of dividends, if we
perhaps have cash left over, then we would consider share repurchases.
SPIRIT OF PERFORMANCE. It's hard to express with just a slide or two, or
orally in a short period of time, the culture of the company. When we went
through the merger of Conoco and Phillips, the companies were quite similar
in terms of the culture with respect to the importance of safety, ethics
and how we do financial reporting. There's just absolutely no compromise.
So we then came up with the word SPIRIT to represent all the things that
are really important to us. Without going through each of the words on this
slide, I'll tell you what's absolutely most important to us.
One is SAFETY. We absolutely will not compromise on safety. And anyone in
the company who sees something that doesn't seem to look right has the
right and ability to shut anything down. Safety is absolutely most
important.
ETHICS. On ethics, if we're going to do something, we're going to do it
right. If we can't do it right, we're not going to do it. So, we don't want
in any way -- in any way -- to compromise anything ethically. Even if it's
a lucrative opportunity, we will not do it. We absolutely will walk away
from it, unless we know that we can do things in an ethical manner. This is
not just compliance with the law, compliance with the regulation. It can be
compliant, but you may not like the way it looks, may not quite like the
transaction. Ethically, we have to more than fulfill the requirements of
the rules and regulations. It's got to satisfy our willingness, our
ability, our comfort factor. If we don't like something, we don't like the
partner, don't like the basic opportunity or something about it ethically,
then we won't do it. So, SAFETY and ETHICS are absolutely important.
RELATIONSHIPS. We think this is very unique about our company, the
importance of relationships. We talk about relationships. That's
relationships with one another, relationships with employees, relationships
with contractors, relationships with partners, other companies we deal
with, and certainly with government. Although we're a pretty sizeable
company, on the other hand we want to operate and not lose the
characteristics of where we come from - a smaller company, responsive,
quick, in which everything and everyone is important to us. And so we
really push that. I frequently say that we want to be the company that
people want to work for; that communities want in their presence; they want
us to have operations and investments; and shareholders want to invest in
us. And all of that relates ultimately back toward relationships.
I may not have gone through all these points, but hopefully, I've given you
a little of the feel of this. Life is too short. We're either going to do
it safely and we're going to do it ethically or we're not going to do it.
OUR FOUNDATION FOR INTEGRITY. INTEGRITY. I frequently say this. I've kind
of changed my mind a little on this. But unless you have good health,
integrity and ethics, you don't have a lot to offer. On the other hand, you
may be in poor health, but still have a lot to offer people. So, I've kind
of modified that in a way. It's very important to be safe, have health, and
have ethics and integrity. And these are some of the things that we
religiously spend a lot of time and work on to make sure that we have
covered and done the right way. And this comes from all over the company,
and by the way our Board of Directors is very involved. Not just at board
meetings, but in visits and one-off meetings with management, leadership
and various facilities and operations we have in the company to make sure
that we walk the talk, that we are safe, and that we follow our ethics.
TOTAL SHAREHOLDER RETURN. Compare ourselves against this larger company
peer group. For three years, we've outperformed the peer group, but you
know, it's always "what about tomorrow and next year?" So, the clock has
started over again for this year.
RISING TO THE CHALLENGE. And really the bottom -- because this is the last
slide that I have -- the first bullet point says we really have to operate
well. So, there are a few fundamentals. You might step back and say, we
have very substantial operations around the world upstream and downstream,
but to get the value and the cash flow, we've got to run well and develop
income and cash flow that we can redeploy and put back into the business to
grow the company. So, that first bullet point is, we really have to have
operating excellence. And we spend a lot of time on this and on a
multi-year, credible maintenance program to keep our reliability up. And
then the second bullet point is well-defined sustainable growth -- how
we're going to grow and develop the company over the next three, five, and
hopefully 10 years. We won't get it perfect, but we've got to make sure we
make fundamentally the right investment decision to get that very important
growth of the company. And we also believe that it's important to have a
good financial plan that supports what we want to do in terms of growth and
development of the company. The yellow areas at the bottom go back to the
merger of Conoco and Phillips. We said what we wanted to do in '03, and
then in '04 we delivered performance, and in '05 we raised expectations.
So, it's a process and a journey. It's the same process and journey with
respect to the transaction of ConocoPhillips and Burlington.
CONCLUSION. That pretty well concludes what I had to say, but I would want
to pass along the following. As I said earlier when I started, Burlington
is a very successful company and we recognize that and respect what
Burlington has accomplished. Everyone should be very, very proud of what's
been accomplished here. You have a very interesting and a very unique
approach to how you grow and develop the business in Canada and the lower
48 and we think that approach is very integral and very important as we put
the two companies together. That approach and the expertise and creativity
of the human resources of Burlington are so important in making this
transaction successful and in meeting our expectations as we go forward not
just one, two, or three years, but three, five and ten years out in the
future. I'm going to stop now. John Lowe is going to go through some
comments with respect to compensation and benefits. Then I'll come back and
share with you some of the questions we've received and try to respond as
best we can, given that we still are competitors. And we're going to be
very careful legally in just what we say and how we respond until we get
regulatory and shareholder approval.
JOHN LOWE
---------
Thanks, Jim, and good morning. I'm not a compensation and benefits expert,
and I'm not going to cover everything in detail. I will say that the human
resource teams are working very diligently on this exercise and to get all
your questions answered, hopefully, very shortly. But I will give an
overview of a little of the ConocoPhillips philosophy on comp and benefits.
I'll dive into some of the details on some of these slides and then I'm
going to finish up with one slide on integration.
COMPENSATION/VCIP STRUCTURE. You can read all the words on these slides,
but I think the important thing is that we understand that we have to pay
competitively. We do a lot of benchmarking to make sure we are paying
competitively. So, that's the first point. The second is that pay for
performance is important. That is embedded into the philosophy. I'll get
into how the bonuses are calculated. We do have a lot of pay for
performance and so there is a lot of variability in what your pay may be. I
think the last point I'll make on this slide is, we are a culture of
accountability; however, it's not just that you get the results done. How
you get them done is also important.
On the compensation side, you've got two components of that. You've got the
base salary, and on that we benchmark against the major integrated
companies, the large E&Ps, and the Fortune 100 companies. So we factor all
that into the salary component and then we have a grade system with a
number of different grades. Everything is done competitively. Then we have
a variable component, an annual bonus plan that I'm going to talk about in
a minute. Overall compensation is set to be at the median of the peer
group.
VCIP HISTORICAL PAYOUT. This is a complicated slide. If we start at the
left-hand side, every employee has a salary and a targeted bonus number.
So, that may be 7 1/2 percent, it may be 10 percent, it may be 12 1/2
percent of your salary, but you have a salary and you're going to have a
target bonus. The entire organization from the lowest grade level to the
CEO has the same compensation structure. The variable pay is all done the
same.
So, you have two pieces to the variable payout each year. One is the
corporate piece. That's based upon our performance versus the peer group on
shareholder return and return on capital employed. The other component, as
Jim mentioned, is safety. So, health, safety and environmental performance
is the other factor in the corporate award. And each business unit will
have their own set of matrices. For the E&P business unit, that's primarily
return on capital employed and how you managed your per-unit costs. And the
way that this works, we actually take the price out of it. So, you don't
get the benefit of $60 oil prices or $10 gas prices, but you also don't get
punished for low prices. So, if crack spreads are poor, but you operate
well and meet your targets, you're going to be rewarded for that. We take
those results -- whether you met your objectives, or didn't meet your
objectives. Management can give further discretion if you performed
extraordinarily in that year. So, the awards can actually go all the way up
to 200 percent of target. Further to that, if you had a strong individual
year, you can get up to another 50 percent adjustment to the target.
So, at the end of the day, you take your salary and your target award, and
you take the percentage of that target and that calculates the final award.
In 2002, the year of the ConocoPhillips merger, we just had a very few
months as a combined company. So, we gave everyone in the organization the
same target. There's a lot of variability to the 2003 and 2004 awards.
Everyone gets the corporate award. So, you can see that we're number one in
shareholder return in our peer group, number one in return on capital
employed in the peer group. So, we did very well on the corporate side if
you add on top of that the business unit average. So, what this means is if
your target bonus was 10 percent in 2003, on average, employees would have
received a 15.2 percent bonus in 2004. On average, you would have received
a 17 percent level. That's how the math works.
BENEFIT PLANS. Let me talk a little bit about benefit plans. As part of the
overall benchmarking, making sure that we're being compensated
appropriately, we have very strong benefit plans at ConocoPhillips that
include the retirement plan, the savings plan, your normal insurance plans,
etc. If we look at the ConocoPhillips suite of benefits versus the peer
group, we are essentially at the average. So, we're very competitive with
our peer group. If you put ConocoPhillips at 100 percent and this is all
externally generated, if you compare that to the Burlington set of
comparable benefits, Burlington would be at 92 percent. I'm going to talk
about the big differences a little bit. ConocoPhillips has a very high
savings matching program. We also have a higher cash balance credit and
then we have our contribution to retiree medical. If you take the 92
percent versus 100 percent, those are the three big drivers. We both have
comparable insurance plans, etcetera.
RETIREMENT PLAN. Let me talk a little bit about transition. For Burlington
Resource employees, you're not going to lose out on your years of service
for retirement calculations. You're going to have continuity in paid
holidays and all that type of stuff. I've got another slide on that. But
everything is going to flow through to where all the years of service are
credited. So, whether you're in the cash balance plan or the final average
earnings and FAE plan -- all your prior years of service, the same formula,
nothing on that's going to change.
SAVINGS PLAN. On the savings plan, our targets have two components. There's
one component on ESOP where you put in 1 percent. The target on that is 8
percent matching. Then there's another match program where you put in 1.25
percent and you get matched 1.25 percent. If you add that up, you put in
2.25 percent versus a match target of 9.25 percent. The last actual payout
that we had on that -- the majority of this is an ESOP plan, so the stock
performance does have an impact on the payout was announced last June.
Based on the share price at that point in time, if you'd have put in 2.25
percent, you actually would have gotten 14 percent. So, it's a very strong
program. And you do have some optionality on withdrawals, exchanges. You
can actually borrow money from the savings plan.
MEDICAL COVERAGE. I'm not going to get into all the details here, but
essentially, what the company offers is you can take the old style,
traditional insurance coverage and you're going to pay a lot for that
coverage, or you can go to the other extreme and get the bare minimum, very
high deductibles, and you'll pay little for that. And it's your choice for
the most part what you want to do anywhere in between.
SUBSIDIZED RETIREE MEDICAL. There is a subsidized retiree medical. You have
to meet some requirements -- you have to be 50 years old and the
combination of your age and years of service have to add up to 65. As I
said earlier, all the BR experience counts toward all of these
calculations. Retirees can purchase retiree life at the active employee
group rate until you turn 65. So, there are some retiree medical benefits
at ConocoPhillips.
OTHER INSURANCE BENEFITS. I'm not going to go through all these, but these
are fairly standard insurance benefits. The HR people are going to line
this up side by side. You're probably going to find one that isn't as good
and you'll find one that might be a little bit better. All in all, I think
this is a very competitive set of benefits. I'll let you look at those for
a minute.
BRIDGING OTHER BENEFITS. I mentioned this earlier. As far as bridging the
other benefits, that's all going to happen, whether it's vacation pay,
holiday pay, you know, all of the other things we do have. This isn't an
exhaustive list, whether it's educational assistance, whether it's matching
gift program. ConocoPhillips has all of these types of programs that you'd
participate in. Flexible work schedule, I think -- I don't know if Jim's
going to talk about that at all or not, but -- versus a 9/80, what we have
out in West Houston is a 19/30. It means you can take a floating day during
the month rather than a fixed Friday. It doesn't apply to all of us
apparently. (Laughter)
DISCLAIMER. Here's a disclaimer. We're working very hard and we actually
are making some progress through the integration teams and through Bill
Usher and Karen Knickel. And I think we're making some progress and
hopefully, we'll be able to share a lot more specific information with
everyone soon.
INTEGRATION STRUCTURE. I'll finish up with one slide here on integration.
And Randy and I have been leading the integration effort and the teams have
worked very hard. We set up the teams before the holidays. Many of them
worked through the holidays. They've created the sub-teams. I've got 37
sub-teams here that have been formally named. There's a lot more people
than that that are actually working very hard on the transaction. This is
kind of the structure of how we're operating the integration. You can see
that for the actual filing of the S-4, the filing of Hart-Scott-Rodino,
those activities are taking place outside of the integration teams. We're
doing our best to communicate what we can. We know we can always do better.
I think we've now got websites set up with both companies and we'll be
populating those websites with information as best we can and as soon as we
can. So, with that, Jim, I'll turn it back over to you to answer a few
questions.
JIM MULVA
---------
John, thank you. A number of questions have come in apparently. Let me try
to run through those in the time we have. And as I said, it's difficult for
us to get too detailed because we still need to be operating as competitors
until we're approved regulatory-wise and shareholder-wise.
Q: What are the plans for the employee selection process and is it best
players play? So, will our folks be able to compete for COP openings and
when will this start occurring?
Well, I can tell you from our experience of development over the years of
ConocoPhillips, we very much look at and objectively, we pick what -- we
believe all employees are good. So, we're trying to pick the best players
for the right spots in the positions. And I think if you'll do a little bit
of checking, you will find that if you look at the company today, there are
Phillips employees, there are Conoco employees, there are TOSCO employees,
there are ARCO employees, and because TOSCO is made up of refineries that
were purchased from other companies, there are former Exxon, Unocal and BP
employees, and so if you look at our company today, it is made up of the
cultures of many other companies. Everyone comes from a minority
representation of the past, but we will work very hard to share a fairness
with all in considering and picking the best individuals for each of the
slots. By the way, a very key point is when we talk about the importance
and uniqueness of the BR approach, expertise, and people and the importance
of having all that combination brought to the company, that certainly will
all be taken into consideration.
With respect to the organization, the determination of the structure and
the office locations and then, ultimately, who are the best individuals to
fill in all those slots, a key player in all this is Randy Limbacher, also
working with John Lowe and others in ConocoPhillips, but if you follow what
I just said, Randy is a very key player in determination of all of that,
along with the entire integration team. We expect all of this to be shared
and pulled out in a very transparent way, as quickly as possible. Second
question.
Q: When will we know the leadership teams of the new organizations?
I'd go back to Randy again and we're working very closely on this. I'm
looking through the notes that I have been given because the dates kind of
change. The Integration Team comes up and says, "Well, we think we'll have
this sorted out by this date," and we say, "No, not fast enough. We've got
to go more quickly." (laughs) So, the latest is that we expect the North
American leadership team to be announced very soon -- Randy, very soon. And
then, if you go down, not only the high-level organization of North
America, but go down one and two levels below Randy, we expect to have that
by the early part of February. So, we're really talking about leadership
down multiple levels within two or three weeks and hopefully, the sooner,
the better because everyone wants to do this as quickly as we can.
Q: What is the status of Burlington offices?
ConocoPhillips worldwide headquarters is in West Houston. We do strategic
shared services in Oklahoma -- Bartlesville. That was the old headquarters
of Phillips. There are a lot of facilities and capabilities there, and we
continue to follow that path because it makes sense to do it there -- it's
low-cost, very efficient, reliable and we will continue to do that. There's
no change in what the company direction has been over the last several
years. But Randy, again, has the responsibility for recommending the
structure. In other words, where are the field locations and how will they
be structured? That is really for him -- working with the Integration Team
-- to decide, but again, it comes back under the umbrella of the importance
of the Burlington approach and the expertise and everything about how we
make sure that we accomplish all the objectives that Burlington has had as
well as those of the combined companies.
Q: What will happen in non-North America?
This is the international side of Burlington. Most likely, it's all going
to be merged or put together with the existing offices of ConocoPhillips.
How that's done, I don't know exactly, but I'm trying to give you kind of a
direction of where we're headed.
Q: Will people have transition roles?
Transition takes some time. It's going to have an impact with respect to
Fort Worth. I don't know exactly all of the details or timing, but the Fort
Worth office will probably eventually be closed and those functions
transferred to Bartlesville or elsewhere. However, we also have constraints
with respect to what we can all do in West Houston because we're in the
process of not only renovating, but expanding our position at West Houston.
We have to be careful that, first and foremost, we continue to operate the
business in the right way, but directionally, you can see where we are
headed. Another question.
Q: Can you explain the move to Bartlesville?
I get asked that question a lot over the years. Again, we feel very
strongly about this centralization of the shared services concept. When we
say "shared services," we're not talking about just in the United States.
We're talking about the world and our ability to deliver back-office
services such as human resources, IT and accounting with low turnover and
at low cost. Our ability to service the company worldwide is pretty
efficient. We have about 2,200 employees in Bartlesville. We announced, I
think late last year, or the middle of last year, about 500 more employees
moving to Bartlesville, so we'll have the capability of handling more in
our West Houston complex. We have quite a number of employees that are in
other locations outside of the West Houston complex and we're trying to
bring them all together at one centralized location and that's where we can
move forward by moving additional shared services up to Oklahoma. If you
want to know more about this, I guess we have fairs -- not job fairs -- but
fairs about the locations in West Houston as well as Bartlesville.
Q: What about the ConocoPhillips comp and benefit programs?
John Lowe went through this. The slides will be obviously made available to
you, but we have a lot to do with respect to communicating exact benefits
to individual employees. This was just a start. We understand we have a lot
of work to do around communication and we will do that in a very open way
as quickly as we can.
Q: Can you talk about ConocoPhillips' work schedules and dress code?
Obviously, I didn't get the message today. I thought it said to me, "wear a
coat and tie" and so I showed up in a coat and tie. Not many other people
did, but you know, it's not the first time that I'm out of step with
everyone else. What we do is business casual. I know Burlington Resources
is also business casual. Obviously, when you have guests or others coming
in, you dress appropriately.
With respect to the 9/80 vs.19/30, I guess it will come out in time on how
that's all worked out with employees. But obviously, we understand the
importance of flexible schedules and the difficulties at times with making
appointments when you live and work in a large community like Houston.
Another question:
Q: What's the criteria for making investment decisions at ConocoPhillips?
I come from a financial background and any opportunity that we really
believe is good and makes sense for the company strategically and long
term, and is a great stride for the shareholder, we'll do. We'll find the
money to do it. In the past, we've been pretty aggressive in that regard,
but still we do a pretty rigorous approach with respect to this. If it fits
strategically, we ask do we like it, is it a good-quality asset, is it a
good investment opportunity? We do qualitative and quantitative risk
assessments, political risks, all of that. We'll continue to do that, but I
don't think you're going to find that this is necessarily any different
than what Burlington has done historically over time.
Q: Are there any planned sales of BR assets?
I think I've already addressed that. We like the assets of ConocoPhillips;
we like the assets of Burlington. So, we don't have plans to sell assets.
Q: What are the Burlington employee retention programs?
The merger agreement provided for a retention program because we know the
competitive nature of human resources in the world and certainly within
certain disciplines, but the success of our combined company again goes
back to the importance of having our people, our human resources, all the
technology and financial resources.
Q: When will we get an integration time line or a list of milestones?
John and Randy, I guess, what's the answer to that? The answer was: We're
working on it and it will happen soon, which may be acceptable from you
(Randy and John) to me, but it's not acceptable for most employees. We will
see to it -- Randy?
RANDY LIMBACHER
---------------
In a nutshell, our next integration meeting is on the 19th of this month.
We've asked each of our teams to come back and give a proposed time line.
The planning people are going to integrate those time lines and hopefully,
we'll be able to get back to you with something more specific. I'll jump
the gun on them. I mean, everybody in this room is saying: "Hey, I want to
know what's going to happen to me and when." And what we're targeting right
now is for everybody to have that information in hand by April 1. We've got
to work our way backwards from there. The HR people are working very, very
hard to mesh these things together. So, be patient. We're moving fast on
this.
JAMES J. MULVA
--------------
Randy, thank you. Hopefully, I have tried to convey to you to some extent
ConocoPhillips -- where we've come from, how we were formed -- the
excitement that I really have about what we're going to become. I've said
this actually over the last 10, 20, 30 years. I've worked for the company
now coming up in June, 33 years, but I really would say that because of the
growth and development of the company, I can't see a more exciting time for
our company going forward -- our combined company going forward -- and the
opportunities for individuals to participate not only where you are today,
but where you may want to be tomorrow or the next day, even so far as
different business lines and other parts of the world. It's truly exciting
in that regard. This really concludes what we had for our overview today at
the Town Hall Meeting. I really look forward to coming back pretty
routinely and more quickly and definitely in smaller groups. I wish I could
be even more open about the company, but again for regulatory reasons, I
can't until the transaction is approved. Until then, I know Bobby, myself,
and Randy appreciate the professionalism and the importance of the company
in terms of meeting expectations. Making sure everything's done in a safe
and reliable way is important.
One other thing, I did say that I wanted to make sure I cover the culture
of the company. The culture of the company as I look at it is that the
company comes first. The individual comes second. It doesn't mean the
individual employee's not important. Yes, we all have confidence, we all
have egos, but most importantly if we want to see the company become
successful, we stress team work, we stress relationships. And we do have
strong faith in the development of the company. Employees certainly will be
recognized and we want to see the growth and development of each employee
so that they can become what they want to become. So, I'm going to stop for
now and I think, Bobby, you're going to close it out. Thank you very much
for a very nice, warm welcoming to myself and to the integration teams over
the last several weeks. We couldn't have asked for anything more and
hopefully, in a reciprocal way, I hope that we are responding and opening
up in a transparent way that is welcoming to each and every employee of
Burlington. Thank you. (Applause)
BOBBY SHACKOULS
---------------
Thank you, Jim and John. I really appreciate you taking time out of your
busy schedules and I'd like to ask all of you to join me in thanking them
as well. (Applause)
That concludes this presentation.
(Town Hall Meeting concluded)
------------------------------------------------------------------------------
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING
INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical and factual information contained
herein, the matters set forth in this filing, including statements as to
the expected benefits of the acquisition such as efficiencies, cost
savings, market profile and financial strength, timing expectations to
complete the merger, and the competitive ability and position of the
combined company, and other statements identified by words such as
"estimates, "expects," "projects," "plans," and similar expressions are
forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially, including required approvals by
Burlington Resources shareholders and regulatory agencies, the possibility
that the anticipated benefits from the acquisition cannot be fully
realized, the possibility that costs or difficulties related to the
integration of Burlington Resources operations into ConocoPhillips will be
greater than expected, the impact of competition and other risk factors
relating to our industry as detailed from time to time in each of
ConocoPhillips' and Burlington Resources' reports filed with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. Burlington Resources Inc.
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction, ConocoPhillips has
filed a preliminary registration statement on Form S-4, Burlington
Resources will file a proxy statement and both companies will file other
relevant documents concerning the proposed merger transaction with the
Securities and Exchange Commission (SEC). INVESTORS ARE URGED TO READ THE
FORM S-4, PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION REGARDING THE MERGER.
Investors may obtain free copies of the Form S-4, proxy statement and the
other documents at the website maintained by the SEC at www.sec.gov. In
addition, you may obtain documents filed with the SEC by ConocoPhillips
free of charge by contacting ConocoPhillips Shareholder Relations
Department at (281) 293-6800, P.O. Box 2197, Houston, Texas, 77079-2197.
You may obtain documents filed with the SEC by Burlington Resources free of
charge by contacting Burlington Resources Investor Relations Department at
(800) 262-3456, 717 Texas Avenue, Suite 2100, Houston, Texas 77002, e-mail:
IR@br-inc.com.
INTEREST OF CERTAIN PERSONS IN THE MERGER
ConocoPhillips, Burlington Resources and their respective
directors and executive officers, may be deemed to be participants in the
solicitation of proxies from Burlington Resources' stockholders in
connection with the merger. Information about the directors and executive
officers of ConocoPhillips and their ownership of ConocoPhillips stock will
be set forth in the proxy statement for ConocoPhillips' 2006 Annual Meeting
of Stockholders. Information about the directors and executive officers of
Burlington Resources and their ownership of Burlington Resources stock is
set forth in Burlington Resources' proxy statement for its 2005 annual
meeting, which was filed with the SEC on March 10, 2005. Investors may
obtain additional information regarding the interests of such participants
by reading the Form S-4 and proxy statement for the merger.
Investors should read the Form S-4 and proxy statement carefully
before making any voting or investment decision.