ASPHALT SUPPLY IN A

VOLATILE OIL WORLD

Bill Haverland

ConocoPhillips Company

Issues to be Discussed

Crude Oil Supply

Crude Oil Pricing

Refining Capacity

Products Supply

Products Pricing

Future of the Industry

CRUDE OIL SUPPLY

A WORLD LOOK

Crude Oil Supply (2006)

World Crude Oil Production

Millions of Barrels Per Day

World Proven Crude Oil

Reserves

Billions of Barrels

W. Europe

US/Canada

Asia/Pacific Africa

Middle East

FSU/E. Europe

Latin

America

11.3

6.3

10.6

8.4 9.8

FSU/E.

Europe

W. Europe

15 Latin

America

US/Canada

Asia

/Pacific

Africa

Middle

East

743

201

116 79

102

36

Asia/Pacific

Africa

26.0

12.6

Middle East

Total: 85MMB/D Total: 1,292 BB

Crude Oil Demand

Demand has risen by 7 MMBD (9%) since 2002.

Demand at 85 MMBD or 98% of world daily

delivery capacity.

Vulnerable to supply disruptions caused by

storms, accidents, breakdowns, political unrest.

65% of proven reserves within national oil

companies and 16% held by Russia.

Traditional companies have full access to 7% of

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

0

10

20

30

40

50

60

70

80

1Q 2

001

1Q 2

002

1Q 2

003

1Q 2

004

1Q 2

005

1Q 2

006

REFINING CAPACITY

Topping Refinery

DU CRUDE OIL

GASES NAPHTHA

AND

6OIL or ASPHALT

(if heavy crude)

GASOIL

FEEDSTOCKS

650-

650+

“Tea Pot”

Not A Refinery

Really Just A

Crude

Distiller

Simple Refinery

650- CRU NHT

KHT

DHT

GASES TO MOGAS

JET/KER

O

6OIL or

ASPHALT

(if heavy crude)

TO NO.2

DU CRUDE OIL

650+

“Hydroskimming” Refinery,

many exist all over the

world

CCU - “Complex” Refinery

CRU NHT

KHT

DHT

ALKY

CCU

DU

CRUDE

OIL

GASES

VAC

GASES 650-

1050

TO MOGAS

TO MOGAS

JET/KER

O

TO 2OIL

TO MOGAS

TO MOGAS

TO 2OIL

650-

650+

6OIL

ASPHALT

GASOLINE

GASOIL

1050

+

CCU/HCU/Coker - “Very Complex” Refinery

ISOM

CRU NHT

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

MOGAS TO

MOGAS TO

MOGAS

TO

MOGAS TO

MOGAS TO

MOGAS

TO 2OIL

MTBE

Refinery Yield (% of Crude Intake)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

TOPPING

RFY

SIMPLE

RFY

CCU RFY COKER

RFY

OTHER

MOGAS

JET

LT NAPH

HVY NAPH

GAS OIL

NO.2

NO6 or Asphalt

COKE

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 30

less than 30

Crude Dist Cap

Last New U. S. Refinery Built in 1976

Source: Oil & Gas Journal

319

175 158 131

U. S. Asphalt Refining Capacity

72

98

60

42

1980 1995 2000 2006

400

450

500

550

600

650

700

750

800

# Refineries

Asphalt Capacity

Production Range: 600 B/D to 60,000 B/D

Source: Oil & Gas Journal

U. S. Refining Coking Capacity

50

58

5681

120

138

46

48

50

52

54

56

58

60

1995 2000 2006

0

20

40

60

80

100

120

140# Refineries w/Cokers

Coke Production, MT/D

U.S. Coker Construction Projects

2005 - 2011 Engineering, Procurement & Const. Phase

Total Refineries: 245 MB per day

Asphalt Refineries: 135 MB per day

Planning or Early Engineering Phase

Total Refineries: 176 MB per day

Asphalt Refineries: 121 MB per day

* Source: Argus Asphalt Report

PRODUCTS

SUPPLY/DEMAND

Supply Source for U. S. Demand

0

2

4

6

8

10

12

14

16

18

20

'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

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Gasoline Diesel Jet Resid Asphalt

1995

2000

2004

2005

Historical Asphalt Supply/Demand Millions Tons - Liquid

0

10

20

30

40

50

60

1980 1995 2000 2003 2005 2006

Supply

Demand

Source: Oil & Gas Journal

PRODUCTS PRICING

Prices by Quarter

20

30

40

50

60

70

80

90

100

1Q 2

000

1Q 2

001

1Q 2

002

1Q 2

003

1Q 2

004

1Q 2

005

1Q 2

006

WTI

Gasoline

Prices by Quarter

0

10

20

30

40

50

60

70

80

90

1Q '0

0

1Q '0

1

1Q '0

2

1Q '0

3

1Q '0

4

1Q '0

5

1Q '0

6

WTI

Gasoline

Asphalt

Asphalt vs Coker Feed Value

0

10

20

30

40

50

60

70

80

90

Jan-0

2

May

-02

Sep-0

2

Jan-0

3

May

-03

Sep-0

3

Jan-0

4

May

-04

Sep-0

4

Jan-0

5

May

-05

Sep-0

5

Jan-0

6

May

-06

Sep-0

6

WTI

P&P MC Avg

gulf coast coker value

Economic Analysis – 2005 YE

Gasoline/Diesel Pricing

Jan., 06 Price: $70.00/BBL

Less Distribution: 6.00/BBL

Net to Refinery: $64.00/BBL

Kansas Asphalt Pricing

12/05 YTD: $32.94/BBL*

($35/Ton): 6.25/BBL

$26.69/BBL

Lost Value: $37.31/BBL

* Source – Poten & Partners

Coking Economics – 2005 YE

30,000 BBLS/Day Asphalt Production

X 70% Gasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel

X $37.31/BBL Gasoline/Diesel diff. To Asphalt

$783,510 per day added margin

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

Economic Analysis – Recent Update

Gasoline/Diesel Pricing

Jan., 07 Price: $62.75/BBL

Less Distribution: 6.00/BBL

Net to Refinery: $56.75/BBL

Kansas Asphalt Pricing

12/06 MTD: $49.11/BBL*

($35/Ton): 6.25/BBL

$42.86/BBL

Lost Value: $13.89/BBL

* Source – Poten & Partners

Coking Economics – Recent Update

30,000 BBLS/Day Asphalt Production

X 70% Gasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel

X $13.89/BBL Gasoline/Diesel diff. To Asphalt

$291,690 per day added margin

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

FUTURE OF THE INDUSTRY

Current Realities

Crude production at maximum rates based on

exiting infrastructure

U.S. refining running at maximum capacity

No new refineries in the near term

Existing refinery expansions must fill gap

Increase crude capacity and conversion

capabilities to meet light product demand

Asphalt must keep pace with conversion feed

values to encourage production

Asphalt not as politically charged as fuels

Factors Influencing Asphalt Price

Absolute price of crude (WTI benchmark)

Light/Heavy crude price differential

Light product “crack spread”

Coking economics

Impact of clean fuels (sweet crudes)

Heavy crude availability (Venezuela)

Transportation costs

Supply/Demand

Future For Asphalt

More heavy crude being run (availability and price)

Clean fuels capital behind refiners, up-graders next?

Asphalt is more expensive in a $60.00+ crude world

Asphalt has to trend faster with crude oil prices

Asphalt has to be more competitive with light products

Transportation costs rising – Rail, Barge, Terminalling

Refiners less willing to shoulder price risk

State asphalt price indexes reduce supplier/contractor risk

QUESTIONS

Worldwide Coker Additions

Refinery Coker Additions – 1,570M Barrels

Crude Upgraders - 1,214M

Total Resid Destruction - 2,784M*

*Reduces world asphalt and #6 oil supply

Source – Argus 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

1995-2000 Six New Cokers

60

65

70

75

80

85

90

95

100

1980 1985 1990 1995 2000 2005 2010 2015 2020

Total U.S. Capacity Utilization

Source: U.S. Department of Energy 1

Percent utilization defined as: gross input to refineries /operable capacity.

Perc

en

t u

tilizati

on

1

History

Forecast (DOE)

90%

• Demand growth has outpaced capacity expansion

• Investment focused on clean fuels

• Insufficient global capacity to process more difficult crudes