DBRS Places ConocoPhillips “A” Long-Term Ratings Under Review – Developing, Confirms Commercial Paper Rating

DBRS has today placed the Unsecured Long-Term Notes & Debentures rating of ConocoPhillips (COP or the Company) and the Senior Unsecured Notes and Debentures rating of Burlington Resources Inc. (BR – COP’s wholly owned subsidiary) Under Review with Developing Implications. (The BR rating is based on the guarantee of COP.) Concurrently, DBRS has confirmed COP’s Commercial Paper rating at R-1 (low) with a Stable trend. The rating actions follow COP’s announcement that its board has approved a proposal to separate COP’s refining and marketing (R&M) and exploration and production (E&P) businesses into two pure-play, stand-alone, highly focused, publicly traded corporations via a tax-free spinoff of the R&M business (the Transaction). The Transaction is expected to close in the first half of 2012, subject to regulatory and other approvals (shareholder approvals are not required as stated by COP).

COP publicly stated that the two new companies would retain sufficient size and scope and free cash flow generating abilities to support future growth opportunities. The E&P company’s strategy to grow production and reserves (current production of approximately 1.7 million barrels of oil equivalent per day (boe/d) and proved reserves of about 8.3 billion boe at YE2010), to continue to sell non-core assets, to improve returns and to increase shareholder distributions would not change. The E&P business would remain a large and geographically diverse pure-play E&P company (see the COP rating report dated April 29, 2011 for more details on COP’s current operations). As a separate company, the R&M business would retain its predominantly North American focus, with 16 refineries worldwide (crude distillation capacity of approximately 2.4 million barrels per day (b/d)), including two joint-venture refineries (Wood River, Illinois, and Borger, Texas) owned with Cenovus Energy Inc. (Cenovus - rated A (low) with a Stable trend).

DBRS does not currently anticipate that the proposed spinoff will result in rating downgrades for the remaining E&P company if the Transaction proceeds as expected. The following key factors will be the focus of DBRS’s review:

(1) Satisfactory capital structures, with appropriate allocation of assets and debt to maintain financial profiles, remain consistent with the current credit ratings.

(2) DBRS’s expectation and management’s commitment that future capital investment programs, share repurchases and other related activities will be managed within the context of current target metrics (including debt-to-capital of 20% to 25%). For instance, further share repurchases (authorized for up to $10 billion) would primarily be funded by proceeds from asset sales as publicly stated.

(3) Liquidity arrangements commensurate with capital growth requirements will be instituted before Transaction closing.

(4) Legal, tax, contractual and regulatory matters are satisfactorily resolved, including the satisfactory resolution of the joint-venture arrangements with Cenovus.

Notes:
The Senior Unsecured Notes and Debentures of Burlington Resources Inc. are guaranteed by ConocoPhillips.

All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.