ConocoPhillips approves a 2009 capital budget of $11.7 billion, including cash capital expenditures and capitalized interest. Loans to affiliates and contributions to fund an upstream business venture with EnCana add an additional $0.8 billion, bringing the total authorized capital program to $12.5 billion.

“We have created a self-sustaining, competitive international integrated energy company, and our long-term strategy remains unchanged. Through organic growth and prior business transactions, we have the resources and opportunities to grow,” said Jim Mulva, chairman and chief executive officer. “Our planned 2009 capital program is structured to continue funding significant projects that will grow and develop the company, while deferring or slowing some projects and other programs. Our existing portfolio of high-quality assets enables us to replace reserves and maintain current production levels in a low price environment. We are positioning ourselves in the current business environment to live within our means in order to maintain financial strength. We are doing this by reducing our cost structure, addressing our balance sheet, and continuing to manage the company through prudent capital discipline.

“As a result of the current business environment’s impact on our operating and capital plans, we expect to reduce about 4 percent of our overall employee work force. This reduction does not include any impact from asset sales, as we do not anticipate any material dispositions during 2009 beyond the completion of our U.S. retail asset disposition. We also intend to reduce our contractor headcount.

“With the recent substantial decline in commodity prices and worldwide equity markets, we expect to recognize several significant noncash impairments in the fourth quarter. The largest of these is a $25.4 billion after-tax impairment to goodwill related to our E&P segment. We also plan to reduce the carrying value of our equity investment in LUKOIL by $7.3 billion after-tax, and record other asset impairments totaling $1.3 billion after-tax. These impairments are primarily a function of falling commodity prices and the decline in the market capitalization of ConocoPhillips and of LUKOIL. These noncash charges do not impact the strategic value of ConocoPhillips’ assets, including our LUKOIL Investment; our estimated resource base of more than 50 billion barrels of oil equivalent; or our ability to generate cash flow.

“This decline in commodity prices also will impact our 2008 oil and gas reserve reporting, as some reserves, primarily in North America and our LUKOIL Investment segment, will be removed from our proved reserves based upon year-end prices. We estimate our organic reserve additions and acquired reserves less dispositions will be approximately 80 percent to 85 percent of our 2008 production, and we continue to expect that over the long-term we will replace more than 100 percent of our production. As required by current rules, year-end proved reserve volumes are calculated using prices on a single day – December 31, 2008. These rules result in an overall preliminary 2008 reserve replacement ratio in the range of 25 percent to 30 percent. We estimate the 2008 reserve revisions due to price would have been minimal if we were able to apply the 12-month-average pricing provisions of the oil and gas reserve reporting rules recently promulgated by the U.S. Securities and Exchange Commission, which are expected to be effective for fiscal 2009.

“We completed $15.2 billion of share repurchases in 2007 and 2008 under the programs announced in 2007. As market conditions warrant, we will consider increasing our dividend, paying down debt, and increasing our capital program, as well as repurchasing shares. Our year-end debt-to-capital ratio, including the effects of the fourth-quarter impairments, is projected to be 33 percent; our debt-to-capital ratio target of 20 percent to 25 percent remains unchanged.

“We look forward to discussing our 2009 capital, operating and financial plans in greater detail when we meet with the investment community on March 11 in New York.”

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