e425
Filed by ConocoPhillips
pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities and Exchange Act of 1934, as amended
Subject Company: Burlington Resources Inc.
Commission File No.: 1-9971
The following is a transcript, made available to employees of Burlington
Resources on January 16, 2006, of remarks by J.J. Mulva, Chairman, President and Chief Executive
Officer of ConocoPhillips to Burlington Resources employees at a Town Hall meeting held January 11,
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
Bobby S. Shackouls
Good morning, everybody, and Happy New Year! Id 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.
Id 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
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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 hes 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 Johns prepared remarks, we will end the Webex. Im sure that all of you have a lot
of questions and Id 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. Were good friends. And I very much appreciate knowing and
working with Bobby. I cant really think of anything thats 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 whats been accomplished. Likewise, were
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. Were really
very excited about what were going to be doing together. And we want to go through
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this
process as quickly as we can so that were out working toward our objectives and meeting
expectations as quickly as possible.
As I said, its a very important time to be spending together. Ill go through this
presentation as quickly as I can because a lot of this information is available on our Web site.
But Ill try to add some color to what is ConocoPhillips and where were 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 Im 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 were in compliance with the Securities and Exchange Commission.
COP at a Glance. If we look very quickly at ConocoPhillips, as you can see, its 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 whats really important is we
come from different heritages, and we really think that its 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 youll see in subsequent slides is that were 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 youll see on subsequent slides, wed like
to improve that over time.
An Integrated Major. How was ConocoPhillips formed? Lets go back to about 1999, to DEFS
thats Duke Energy Field Services. Thats 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
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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 Im 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. Dont worry about getting the best price for the oil and gas when its 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. Dont worry so much
about where you buy the crude oil to run through the refineries and dont 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 doesnt 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. Were 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
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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. Thats not a problem. By the way, Im saying right up front that were 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
thats 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, its 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 dont 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
Im 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 were 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
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countries and other new countries. And we know that its 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 wont 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. Thats 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. Its pretty
significant growth in terms of production, and its 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 thats
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, theres also offsetting political risk.
Asia Pacific. In terms of Asia Pacific, whats 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
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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 its
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 were
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. Heres an interesting project that I alluded to earlier. We
started up the Bayu-Undan field a year or two ago on liquids and now were 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. Were
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. Were the only company that could have
equity ownership with LUKOIL. Then we also have the Timan-Pechora area as a joint venture and were
looking for other joint venture opportunities for oil and gas developments inside and outside
Russia. Kashagan is the largest field thats 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. Its about 1.3 billion cubic feet a day. Were 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
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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 couldnt operate in Libya. Thats now opened up, so
weve negotiated with the Libyans to extend our concessions another 25 years. Were 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 were so excited about what we are doing here. This
conventional production can be oil, but were talking about gas here. As you can see, weve 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, were 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. Thats
why we see Qatar gas coming here potentially. We are also a participant in a project in the Bering
Sea, north of Russia. Its 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,
were a very sizeable producer. Were 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 were a
leading marketer of gas in the United States, in fact I think were number two. So, we tend to be a
pretty significant player in the production, import and marketing of gas.
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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 doesnt mean were not interested in oil. Were interested, and wherever we can
find it, well 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 were going to be adding reserves and growing reserves and production going
forward. It also shows that were 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 were
really saying is, whats the value of your refined product versus the cost of crude oil that comes
into the refinery? Were very good at this business, and were one of the leaders in terms of
return on capital employed.
U.S. Refining Size and Scope. This map shows where were located in the United States. We have a
presence in all the different geographic regions. So, were 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 weve 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 were 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 youve got the right equipment, deep conversion and very sophisticated
refineries, you produce transportation fuels. That investment is pretty profitable and thats why
were improving the capability of our refineries.
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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 didnt know what we were going to do with Asia, but what were 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. Were 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
weve 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. Were 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. Its the
people
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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. Were 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. Were pretty aggressive in terms of growing and developing the company. With
the acquisition of Burlington, of course, were 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. Its 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. Theres 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, Ill tell you whats absolutely most important to us.
One is safety. We absolutely will not compromise on safety. And anyone in the company who
sees something that doesnt seem to look right has the right and ability to shut anything
down. Safety is absolutely most important.
Ethics. On ethics, if were going to do something, were going to do it right. If we cant
do it right, were not going to do it. So, we dont want in any way in any way to
compromise anything ethically. Even if its 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. Its
got to satisfy our willingness, our ability, our comfort factor. If we dont like something,
we dont like the partner, dont like the basic opportunity or something about it ethically,
then we wont 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. Thats relationships with one another,
relationships with employees, relationships with contractors, relationships with partners,
other companies
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we deal with, and certainly with government. Although were 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, Ive given you a little of the feel of
this. Life is too short. Were either going to do it safely and were going to do it ethically or
were not going to do it.
Our Foundation for Integrity. Integrity. I frequently say this. Ive kind of changed my
mind a little on this. But unless you have good health, integrity and ethics, you dont have a lot
to offer. On the other hand, you may be in poor health, but still have a lot to offer people. So,
Ive kind of modified that in a way. Its 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, weve outperformed the peer group, but you know, its 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, weve 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 were going to grow and develop the company over
the next three, five, and hopefully 10 years. We wont get it perfect, but weve 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 its important to have a good financial plan that supports what
we want to do in terms of growth
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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, its a process and a journey. Its 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
whats 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. Im going to stop now. John Lowe is going to go
through some comments with respect to compensation and benefits. Then Ill come back and share with
you some of the questions weve received and try to respond as best we can, given that we still are
competitors. And were 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. Im not a compensation and benefits expert, and Im 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. Ill dive into some of
the details on some of these slides and then Im 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, thats the first point. The second is that pay for
performance is important. That is embedded into the philosophy. Ill 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 Ill make on this slide is, we are a culture of
accountability; however, its not just that you get the results done. How you get them done is also
important.
On the compensation side, youve got two components of that. Youve 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
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number of different grades. Everything is done competitively. Then we have a variable component, an
annual bonus plan that Im 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 youre 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. Thats 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, thats 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 dont get the benefit of $60 oil prices or $10 gas prices, but you also dont get punished for
low prices. So, if crack spreads are poor, but you operate well and meet your targets, youre going
to be rewarded for that. We take those results whether you met your objectives, or didnt 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. Theres a lot of variability to the 2003 and 2004 awards. Everyone gets the corporate
award. So, you can see that were 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. Thats how the math works.
Benefit Plans. Let me talk a little bit about benefit plans. As part of the overall
benchmarking, making sure that were 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
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average. So, were 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. Im 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,
youre not going to lose out on your years of service for retirement calculations. Youre going to
have continuity in paid holidays and all that type of stuff. Ive got another slide on that. But
everything is going to flow through to where all the years of service are credited. So, whether
youre in the cash balance plan or the final average earnings and FAE plan all your prior years
of service, the same formula, nothing on thats going to change.
Savings Plan. On the savings plan, our targets have two components. Theres one component on ESOP
where you put in 1 percent. The target on that is 8 percent matching. Then theres 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 youd have put in 2.25
percent, you actually would have gotten 14 percent. So, its a very strong program. And you do have
some optionality on withdrawals, exchanges. You can actually borrow money from the savings plan.
Medical Coverage. Im 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 youre 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 youll pay little for that. And its 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. Im not going to go through all these, but these are fairly
standard
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insurance benefits. The HR people are going to line this up side by side. Youre probably
going to find
one that isnt as good and youll find one that might be a little bit better. All in all, I think
this is a very competitive set of benefits. Ill let you look at those for a minute.
Bridging Other Benefits. I mentioned this earlier. As far as bridging the other benefits, thats
all going to happen, whether its vacation pay, holiday pay, you know, all of the other things we
do have. This isnt an exhaustive list, whether its educational assistance, whether its matching
gift program. ConocoPhillips has all of these types of programs that youd participate in. Flexible
work schedule, I think I dont know if Jims 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 doesnt apply to all of us apparently. (Laughter)
Disclaimer. Heres a disclaimer. Were working very hard and we actually are making some progress
through the integration teams and through Bill Usher and Karen Knickel. And I think were making
some progress and hopefully, well be able to share a lot more specific information with everyone
soon.
Integration Structure. Ill 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. Theyve created the sub-teams. Ive got 37
sub-teams here that have been formally named. Theres a lot more people than that that are actually
working very hard on the transaction. This is kind of the structure of how were 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. Were doing our best to
communicate what we can. We know we can always do better. I think weve now got websites set up
with both companies and well be populating those websites with information as best we can and as
soon as we can. So, with that, Jim, Ill 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, its difficult for us to get too detailed because we still need to
be operating as competitors until were 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? |
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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, were trying
to pick the best players for the right spots in the positions. And I think if youll 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? |
Id go back to Randy again and were working very closely on this. Im 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 well have this sorted out by this date, and we say, No, not fast enough. Weve
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, were 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
its
17
low-cost, very efficient, reliable and we will continue to do that. Theres 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, its all going to be merged or put
together with the existing offices of ConocoPhillips. How thats done, I dont know exactly, but
Im trying to give you kind of a direction of where were headed.
Q: |
|
Will people have transition roles? |
Transition takes some time. Its going to have an impact with respect to Fort Worth. I dont 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 were 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, were not talking
about just in the United States. Were 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 well 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 were trying to bring them all together at one centralized location and thats
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
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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 didnt 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, its not the first time that
Im 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 thats 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: |
|
Whats 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, well
do. Well find the money to do it. In the past, weve 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. Well continue to do that, but I dont
think youre 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 Ive already addressed that. We like the assets of ConocoPhillips; we like the assets of
Burlington. So, we dont have plans to sell assets.
Q: |
|
What are the Burlington employee retention programs? |
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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, whats the answer to that? The answer was: Were working on it and
it will happen soon, which may be acceptable from you (Randy and John) to me, but its 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. Weve 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, well be able to get back to you with something more specific. Ill jump
the gun on them. I mean, everybody in this room is saying: Hey, I want to know whats going to
happen to me and when. And what were targeting right now is for everybody to have that
information in hand by April 1. Weve got to work our way backwards from there. The HR people are
working very, very hard to mesh these things together. So, be patient. Were moving fast on this.
James J. Mulva
Randy, thank you. Hopefully, I have tried to convey to you to some extent ConocoPhillips where
weve come from, how we were formed the excitement that I really have about what were going to
become. Ive said this actually over the last 10, 20, 30 years. Ive 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 cant 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. Its 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 cant 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 everythings done in a safe and reliable way
is important.
20
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 doesnt mean the individual employees 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, Im going to stop for now and I think, Bobby, youre 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 couldnt 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 Id
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 the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1195
Except for the historical and factual information contained herein, the matters set forth in
this communication, including statements as to the expected benefits of the acquisition such as
efficiencies, cost savings, market profile and financial strength, 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. You should not place undue
reliance on these forward-looking statements, which speak only as of the date of this press
release. Unless legally required, ConocoPhillips undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It
ConocoPhillips will file a 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 AND PROXY
STATEMENT WHEN THEY BECOME AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION. You will be able to obtain the documents free of charge
at
21
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.
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 Shareholders Meeting. Information about the directors
and executive officers of Burlington Resources and their ownership of Burlington Resources stock is
set forth in the proxy statement for Burlington Resources 2005 Annual Meeting of Stockholders.
Investors may obtain additional information regarding the interests of such participants by reading
the Form S-4 and proxy statement for the merger when they become available.
Investors should read the Form S-4 and proxy statement carefully when they become available
before making any voting or investment decisions.
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