DBRS Updates Report on ConocoPhillips

DBRS has today updated the report on ConocoPhillips (COP or the Company). The credit quality of the Company is based on (1) its global scope with Organization for Economic Cooperation and Development (OECD) weighted operations, (2) balanced portfolio and product mix and (3) good financial profile and solid cash flow. Despite these strengths, the Company’s rating is limited by (1) its limited financial flexibility post-spinoff, (2) relatively higher cost structure (as compared to peers) and (3) political and business risks associated with international operations.

As of May 1, 2012, the spinoff previously announced by the Company (please see DBRS’ ConocoPhillips report dated February 28, 2012) was completed. Although the Company now operates as two separate entities (ConocoPhillips and Phillips 66), financial results for Q1 2012 still reflect the Company as an integrated entity. As such, financial results referenced in the report, and the underlying analysis, continue to refer to the integrated Company.

Based on Q1 2012 results, cash flow from operations is not expected to be sufficient to fully fund capex ($15 billion for 2012) or increased dividends (estimated at $4 billion). The Company also intends to repurchase between $5 billion and $10 billion in shares. Sales of assets ($8 billion to $10 billion for 2012) are expected to be used to fund any shortfall in cash flow. Should proceeds of asset sales not be sufficient to fund the shortfall, DBRS would expect COP to manage the capex and share buyback programs within the context of the current “A” rating.

Post-spinoff, COP has indicated its intention to continue to maintain a strong financial profile within the “A” credit rating category, as well as a debt-to-capital ratio below 30%. DBRS estimates COP’s (as an independent oil and gas operator) debt-to-capital for March 31, 2012, to be approximately 31%, based on pro forma calculations.

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

This rating did not include issuer participation and is based solely on publicly available information.

The applicable methodology is Rating Oil and Gas Companies (April 2011), which can be found on our website under Methodologies.