ASPHALT SUPPLY IN A VOLATILE OIL WORLD

Bill HaverlandBill HaverlandConocoPhillips CompanyConocoPhillips Company

Issues to be Discussed

Crude Oil SupplyCrude Oil SupplyCrude Oil PricingCrude Oil PricingRefining CapacityRefining CapacityProducts SupplyProducts SupplyProducts PricingProducts PricingFuture of the IndustryFuture of the Industry

CRUDE OIL SUPPLY

A WORLD LOOKA WORLD LOOK

Crude Oil Supply (2006)World Crude Oil ProductionWorld Crude Oil ProductionMillions of Barrels Per DayMillions of Barrels Per Day

World Proven Crude Oil World Proven Crude Oil ReservesReserves

Billions of BarrelsBillions of Barrels

W. Europe

US/Canada

Asia/PacificAfrica

Middle East

FSU/E. Europe

Latin America

11.3

6.310.6

8.49.8

FSU/E. Europe

W. Europe15 Latin

America

US/Canada

Asia/Pacific

Africa

Middle East

743

201

11679

10236

Asia/Pacific

Africa

26.0

12.6

Middle East

Total: 1,292 BBTotal: 85MMB/D

Crude Oil Demand

Demand has risen by 7 MMBD (9%) since 2002.Demand has risen by 7 MMBD (9%) since 2002.Demand at 85 MMBD or 98% of world daily Demand at 85 MMBD or 98% of world daily delivery capacity.delivery capacity.Vulnerable to supply disruptions caused by Vulnerable to supply disruptions caused by storms, accidents, breakdowns, political unrest.storms, accidents, breakdowns, political unrest.65% of proven reserves within national oil 65% of proven reserves within national oil companies and 16% held by Russia.companies and 16% held by Russia.Traditional companies have full access to 7% of Traditional companies have full access to 7% of reserves and 12% through partners (if allowed).reserves and 12% through partners (if allowed).

CRUDE OIL PRICING

WTI Price by Year

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WTI Price by Quarter

01020304050607080

1Q 20

01

1Q 20

02

1Q 20

03

1Q 20

04

1Q 20

05

1Q 20

06

REFINING CAPACITY

Topping RefineryTopping Refinery

DUCRUDE OIL

GASES NAPHTHA AND

6OIL or ASPHALT(if heavy crude)

GASOIL FEEDSTOCKS

650-

650+

“Tea Pot”Not A RefineryReally Just A

CrudeDistiller

Simple RefinerySimple Refinery

650- CRUNHT

KHT

DHT

GASES TO MOGAS

JET/KERO

6OIL or ASPHALT(if heavy crude)

TO NO.2

DUCRUDE OIL

650+

“Hydroskimming” Refinery,many exist all over the

world

CCU CCU -- ““ComplexComplex”” RefineryRefinery

CRUNHT

KHT

DHT

ALKY

CCU

DUCRUDE

OIL

GASES

VAC

GASES650-1050

TO MOGAS

TO MOGASJET/KERO

TO 2OILTO MOGAS

TO 2OIL

650-

650+

TO MOGAS

6OIL

ASPHALT

GASOLINEGASOIL

1050+

CCU/HCU/Coker CCU/HCU/Coker -- ““Very ComplexVery Complex”” RefineryRefineryISOM

CRUNHT

KHT

DHT

HCU

ALKY

CCU

DU

GASES

CRUDE OIL

GASES

VAC

GASES

650-750

750-1050

COKER

GASES

COKE

H2 PLANT

TCU/VIS

DEASPHALTER

TO MOGASTO MOGASTO MOGAS

TO MOGASTO MOGASTO MOGAS

TO 2OIL

MTBE

Refinery Yield (% of Crude Intake)

0%10%20%30%40%50%60%70%80%90%

100%110%120%

TOPPINGRFY

SIMPLERFY

CCU RFY COKERRFY

OTHERMOGASJETLT NAPHHVY NAPHGAS OILNO.2NO6 or AsphaltCOKE

U. S. Refining Capacity

14

14.5

15

15.5

16

16.5

17

17.5

18

18.5

1980 1995 2000 2006

more than 30less than 30Crude Dist Cap

Last New U. S. Refinery Built in 1976Source: Oil & Gas Journal

319

175 158 131

6065707580859095

100

1980 1985 1990 1995 2000 2005 2010 2015 2020

Total U.S. Capacity Utilization

Source: U.S. Department of Energy1 Percent utilization defined as: gross input to refineries /operable capacity.

Perc

ent u

tiliz

atio

n1

History

Forecast (DOE)

90%

• Demand growth has outpaced capacity expansion• Investment focused on clean fuels• Insufficient global capacity to process more difficult crudes

U. S. Asphalt Refining Capacity

72

98

60

42

1980 1995 2000 2006400

450

500

550

600

650

700

750

800

# RefineriesAsphalt Capacity

Production Range: 600 B/D to 60,000 B/DSource: Oil & Gas Journal

U. S. Refining Coking Capacity

50

585681

120138

46

48

50

52

54

56

58

60

1995 2000 20060

20

40

60

80

100

120

140# Refineries w/CokersCoke Production, MT/D

U.S. Coker Construction Projects2005 - 2011

Engineering, Procurement & Const. PhaseEngineering, Procurement & Const. PhaseTotal Refineries: 245 MB per dayTotal Refineries: 245 MB per dayAsphalt Refineries: 135 MB per dayAsphalt Refineries: 135 MB per day

Planning or Early Engineering PhasePlanning or Early Engineering PhaseTotal Refineries: 176 MB per dayTotal Refineries: 176 MB per dayAsphalt Refineries: 121 MB per dayAsphalt Refineries: 121 MB per day

* * Source: Argus Asphalt ReportSource: Argus Asphalt Report

PRODUCTS SUPPLY/DEMAND

Supply Source for U. S. Demand

02468

101214161820

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

MM

B/D

Domestic Crude Production Imported Crude Imported Products

U. S. Product Demand, MB/D

0100020003000400050006000700080009000

10000

Gasoline Diesel Jet Resid Asphalt

1995200020042005

Historical Asphalt Supply/DemandMillions Tons - Liquid

0

10

20

30

40

50

60

1980 1995 2000 2003 2005 2006

SupplyDemand

Source: Oil & Gas Journal

PRODUCTS PRICING

Prices by Quarter

2030405060708090

100

1Q 20

00

1Q 20

01

1Q 20

02

1Q 20

03

1Q 20

04

1Q 20

05

1Q 20

06

WTIGasoline

Prices by Quarter

0102030405060708090

1Q '0

0

1Q '0

1

1Q '0

2

1Q '0

3

1Q '0

4

1Q '0

5

1Q '0

6

WTIGasolineAsphalt

Asphalt vs Coker Feed Value

0102030405060708090

Jan-02

May

-02Sep

-02Ja

n-03M

ay-03

Sep-03

Jan-04

May

-04Sep

-04Ja

n-05M

ay-05

Sep-05

Jan-06

May

-06Sep

-06

WTIP&P MC Avggulf coast coker value

Economic Analysis – 2005 YE

Gasoline/Diesel PricingGasoline/Diesel Pricing

Jan., 06 Price: $70.00/BBLJan., 06 Price: $70.00/BBLLess Distribution: 6.00/BBLLess Distribution: 6.00/BBL

Net to Refinery: $64.00/BBLNet to Refinery: $64.00/BBL

Kansas Asphalt PricingKansas Asphalt Pricing

12/05 YTD: $32.94/BBL*12/05 YTD: $32.94/BBL*($35/Ton): 6.25/BBL($35/Ton): 6.25/BBL

$26.69/BBL$26.69/BBL

Lost Value: $37.31/BBLLost Value: $37.31/BBL

** Source Source –– Poten & PartnersPoten & Partners

Coking Economics – 2005 YE30,000 BBLS/Day Asphalt Production30,000 BBLS/Day Asphalt ProductionX 70%X 70% Gasoil ProductionGasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel21,000 BBLS Gasoil for Gasoline/DieselX $37.31X $37.31/BBL Gasoline/Diesel diff. To Asphalt/BBL Gasoline/Diesel diff. To Asphalt

$783,510 per day added margin$783,510 per day added margin

$1 Billion / $783,510 = 1,276 days (3.5 years payoff) $1 Billion / $783,510 = 1,276 days (3.5 years payoff)

Economic Analysis – Recent Update

Gasoline/Diesel PricingGasoline/Diesel Pricing

Jan., 07 Price: $62.75/BBLJan., 07 Price: $62.75/BBLLess Distribution: 6.00/BBLLess Distribution: 6.00/BBL

Net to Refinery: $56.75/BBLNet to Refinery: $56.75/BBL

Kansas Asphalt PricingKansas Asphalt Pricing

12/06 MTD: $49.11/BBL*12/06 MTD: $49.11/BBL*($35/Ton): 6.25/BBL($35/Ton): 6.25/BBL

$42.86/BBL$42.86/BBL

Lost Value: $13.89/BBLLost Value: $13.89/BBL

** Source Source –– Poten & PartnersPoten & Partners

Coking Economics – Recent Update

30,000 BBLS/Day Asphalt Production30,000 BBLS/Day Asphalt ProductionX 70%X 70% Gasoil ProductionGasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel21,000 BBLS Gasoil for Gasoline/DieselX $13.89X $13.89/BBL Gasoline/Diesel diff. To Asphalt/BBL Gasoline/Diesel diff. To Asphalt

$291,690 per day added margin$291,690 per day added margin

$1 Billion / $291,690 = 3,428 days (9.4 years payoff) $1 Billion / $291,690 = 3,428 days (9.4 years payoff)

FUTURE OF THE INDUSTRY

Current Realities

Crude production at maximum rates based on Crude production at maximum rates based on exiting infrastructureexiting infrastructureU.S. refining running at maximum capacityU.S. refining running at maximum capacityNo new refineries in the near termNo new refineries in the near termExisting refinery expansions must fill gapExisting refinery expansions must fill gapIncrease crude capacity and conversion Increase crude capacity and conversion capabilities to meet light product demandcapabilities to meet light product demandAsphalt must keep pace with conversion feed Asphalt must keep pace with conversion feed values to encourage productionvalues to encourage productionAsphalt not as politically charged as fuelsAsphalt not as politically charged as fuels

Factors Influencing Asphalt Price

Absolute price of crude (WTI benchmark)Absolute price of crude (WTI benchmark)Light/Heavy crude price differentialLight/Heavy crude price differentialLight product Light product ““crack spreadcrack spread””Coking economicsCoking economicsImpact of clean fuels (sweet Impact of clean fuels (sweet crudescrudes))Heavy crude availability (Venezuela)Heavy crude availability (Venezuela)Transportation costsTransportation costsSupply/DemandSupply/Demand

Future For Asphalt

More heavy crude being run (availability and price)More heavy crude being run (availability and price)Clean fuels capital behind refiners, upClean fuels capital behind refiners, up--graders next?graders next?Asphalt is more expensive in a $60.00+ crude worldAsphalt is more expensive in a $60.00+ crude worldAsphalt has to trend faster with crude oil pricesAsphalt has to trend faster with crude oil pricesAsphalt has to be more competitive with light productsAsphalt has to be more competitive with light productsTransportation costs rising Transportation costs rising –– Rail, Barge, TerminallingRail, Barge, TerminallingRefiners less willing to shoulder price riskRefiners less willing to shoulder price riskState asphalt price indexes reduce supplier/contractor risk State asphalt price indexes reduce supplier/contractor risk

QUESTIONS

Worldwide Coker Additions

Refinery Coker Additions Refinery Coker Additions –– 1,570M Barrels1,570M BarrelsCrude Crude UpgradersUpgraders -- 1,214M1,214MTotal Total ResidResid Destruction Destruction -- 2,784M*2,784M*

*Reduces world asphalt and #6 oil supply*Reduces world asphalt and #6 oil supplySource Source –– Argus Asphalt ReportArgus Asphalt Report

Light-Heavy Product Price Spread Drives Refinery Investment Cycle

0

5

10

15

20

25

30

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

1995-2000Six New Cokers