ASPHALT SUPPLY IN A ASPHALT SUPPLY IN A VOLATILE OIL WORLDVOLATILE OIL WORLD

Bill HaverlandBill HaverlandConocoPhillips CompanyConocoPhillips Company

Issues to be DiscussedIssues 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/DemandCrude Oil Supply/Demand

Crude Oil SupplyCrude Oil Supply2008 Forecasted World 2008 Forecasted World

Crude & Gas Oil Crude & Gas Oil ProductionProduction

Millions of Barrels Per Day

2007 World Crude & Gas 2007 World Crude & Gas Oil ProductionOil Production

Millions of Barrels Per DayMillions of Barrels Per DayMillions of Barrels Per Day

Non-OPEC

OPEC

FSU

36.7

36.6

12.6

Non-OPEC

OPEC

FSU

37.3

37.2

13.0

Total: 86 MMB/D Total: 87.5 MMB/DSource: US DOE

Crude Oil SupplyCrude Oil SupplyThe world will rely on OPEC to increase The world will rely on OPEC to increase production to meet the 2008 Demandproduction to meet the 2008 DemandOnly Saudi Arabia, Kuwait, & UAE have Only Saudi Arabia, Kuwait, & UAE have notable reliable spare capacitynotable reliable spare capacityNigeria and Iraq have capability to Nigeria and Iraq have capability to increase supply, but are likely to remain increase supply, but are likely to remain unreliableunreliableNonNon--OPEC supply vs. projections have OPEC supply vs. projections have disappointed in recent yearsdisappointed in recent yearsCanada is becoming increasingly Canada is becoming increasingly importantimportant

Crude Oil DemandCrude Oil Demand

World demand has risen by 8.4 MMBD World demand has risen by 8.4 MMBD (10+%) over the past 5 years(10+%) over the past 5 years2008 Projected Demand at 87.5 MMBD, 2008 Projected Demand at 87.5 MMBD, within a couple million barrels per day of within a couple million barrels per day of the world daily deliverable capacitythe world daily deliverable capacityVulnerable to supply disruptions caused by Vulnerable to supply disruptions caused by storms, accidents, breakdowns, political storms, accidents, breakdowns, political unrestunrestDriven by developing countriesDriven by developing countries

Crude Oil DemandCrude Oil Demand(MBPD)(MBPD)

Source: Goldman Sachs/IEA

Crude Oil PricesCrude Oil Prices

WTI Price by QuarterWTI Price by Quarter

0102030405060708090

100

1Q 20

01

1Q 20

02

1Q 20

03

1Q 20

04

1Q 20

05

1Q 20

06

1Q 20

07

LightLight--Heavy Crude PricesHeavy Crude Prices

0

10

20

30

40

50

60

70

80

90

100

1Q 02

3Q 02

1Q 03

3Q 03

1Q 04

3Q 04

1Q 05

3Q 05

1Q 06

3Q 06

1Q 07

3Q 07

WTIMAYABOWWTI-BOW

RefiningRefining

Topping RefineryTopping Refinery

DUCRUDE OIL

GASES NAPHTHA AND

650-

650+

Not A RefineryReally Just A

CrudeDistiller

GASOIL FEEDSTOCKS

6OIL or ASPHALT(if heavy crude)

Simple RefinerySimple Refinery

650- CRUNHT

KHT

DHT

GASES MOGAS

JET/KERO

NO.2

6OIL or ASPHALT(if heavy crude)

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

MOGAS

MOGAS

JET/KERO

2OILMOGAS

650-

650+

ASPHALT

GASOLINEGASOIL

1050+

2OIL

MOGAS

6OIL

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

ISOM

CRUNHT

KHT

DHT

HCU

ALKY

CCU

DU

GASES

GASES

VAC

GASES

650-750

750-1050

COKER

GASES

CRUDE OIL

COKE

H2 PLANT

TCU/VIS

DEASPHALTER

MOGAS

MOGAS

JET/KERO

MOGAS

MOGAS

MOGAS

2OIL

MTBE

Refinery Yield Refinery Yield (% of Crude Intake)(% 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 CapacityU. S. Refining Capacity

14

14.5

15

15.5

16

16.5

17

17.5

18

18.5

1980 1995 2000 2006

# Of RefineriesCrude Dist Cap

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

319

175 158131

U. S. Asphalt Refining CapacityU. 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 CapacityU. S. Refining Coking Capacity

50

5856

1.681.96

2.33

46

48

50

52

54

56

58

60

1995 2000 20060

0.5

1

1.5

2

2.5# Refineries w/CokersCoker Capacity MBPD

Source: Oil & Gas Journal & EIA

Historical Asphalt Historical Asphalt Supply/DemandSupply/Demand

Millions Tons Millions Tons -- LiquidLiquid

0

10

20

30

40

50

60

1980 1995 2000 2003 2005 2006

SupplyDemand

Source: Oil & Gas Journal/Asphalt Institute

Crude/Product PricesCrude/Product Prices

0102030405060708090

100

1Q'02

1Q'03

1Q'04

1Q'05

1Q'06

1Q'07

WTIGasolineAsphaltGC 3%

Coking Economic ExampleCoking Economic Example

Gasoline/Diesel PricingGasoline/Diesel Pricing

DEC., 07 Price: $98.50/BBLDEC., 07 Price: $98.50/BBLLess Distribution: $6.00/BBLLess Distribution: $6.00/BBL

Net to Refinery: $92.50/BBLNet to Refinery: $92.50/BBL

70% Coker Yield:70% Coker Yield: 21,000 BPD21,000 BPD

Gasoline/Gasoline/DslDsl Net: $1,942,500Net: $1,942,500

Kansas City Asphalt PricingKansas City Asphalt Pricing

DEC 07:DEC 07: $50.90/BBL*$50.90/BBL*($45/Ton): $8.04/BBL($45/Ton): $8.04/BBL

$42.86/BBL$42.86/BBL

Asphalt Make 30,000 BPDAsphalt Make 30,000 BPD

Asphalt Net $1,285,800Asphalt Net $1,285,800

Lost Value: $656,700 per dayLost Value: $656,700 per day

** Source Source –– Poten & PartnersPoten & Partners

Current Coking Economic Example Current Coking Economic Example ContinuedContinued

$656,700 per day added $656,700 per day added marginmargin

$1 Billion / $656,700 = 1,523 $1 Billion / $656,700 = 1,523 days (4.2 years payoff) days (4.2 years payoff)

U.S. Coker Construction U.S. Coker Construction Projects 2005 Projects 2005 -- 20112011

Planning, Engineering, or Planning, Engineering, or Construction PhaseConstruction PhaseTotal Refineries: 360 MB per dayTotal Refineries: 360 MB per dayAsphalt Refineries: 197 MB per dayAsphalt Refineries: 197 MB per day

Source: Argus Asphalt ReportSource: Argus Asphalt Report

FUTURE OF THE FUTURE OF THE INDUSTRYINDUSTRY

Current RealitiesCurrent RealitiesCrude oil and refined products are a part of a Crude oil and refined products are a part of a global marketglobal marketCrude production is near maximum rates based Crude production is near maximum rates based on existing infrastructureon existing infrastructureU.S. refining running at maximum capacity (less U.S. refining running at maximum capacity (less turnaround & unplanned down time activities)turnaround & unplanned down time activities)No new refineries in the near termNo new refineries in the near termMany refinery expansions plannedMany refinery expansions plannedAsphalt must keep pace with conversion feed Asphalt must keep pace with conversion feed values to encourage productionvalues to encourage productionItIt’’s all about hydrocarbon values all about hydrocarbon value

Factors Influencing Asphalt Factors Influencing Asphalt PricePrice

Absolute price of crude (WTI)Absolute price of crude (WTI)Light/Heavy crude price differential Light/Heavy crude price differential and heavy crude availabilityand heavy crude availabilityRelative prices of other refined Relative prices of other refined products (gasoline, 6 Oil)products (gasoline, 6 Oil)Refinery configuration/reliabilityRefinery configuration/reliabilityLogistical costsLogistical costsSupply/demandSupply/demand

Future For AsphaltFuture For AsphaltMany refinery expansion/coker projects Many refinery expansion/coker projects plannedplannedMore heavy crude being run More heavy crude being run Asphalt is more expensive in a $90.00+ crude Asphalt is more expensive in a $90.00+ crude worldworldAsphalt has to trend faster and be more Asphalt has to trend faster and be more competitive with product/crude pricescompetitive with product/crude pricesTransportation costs rising Transportation costs rising –– Rail, Barge, Rail, Barge, TerminallingTerminallingHigh volatility will dominate the market High volatility will dominate the market

QUESTIONSQUESTIONS