AGM 2015

May 12, 2015

Slides

The 2015 ConocoPhillips Annual Meeting of Stockholders is about to begin. To ensure your safety, please listen to the following information. In the unlikely event that the ballroom should need to be evacuated, there are several exits around the room indicated by lighted signs. Please proceed to the exit nearest you as directed by the meeting hosts, who will now stand so you may identify them. The meeting host may now be seated. We ask that you turn off all cell phones, pagers and similar devices during the meeting. No cameras or sound recording devices other than those used by ConocoPhillips personnel to record the proceedings are permitted. Quietly confident, and we don't take success for granted. We're always looking for a better way. We're doing somewhere and apply it elsewhere. We're determining what we do and driven by performance, but not at all costs. We do whatever it takes to get the job done safely. It's how we do it. We care deeply about the environment, so we're working hard to shrink our footprint and lessen our impact on the communities around us. We embrace a commitment to sustainable development. We know we can't do business any other way. There's a need for our kind of energy company, one that delivers strong performance and does what we do, it's how we do it. ConocoPhillips. Ladies and gentlemen, please welcome ConocoPhillips Corporate Secretary, Janet Langford Kelly. Good morning. This morning, we will be providing you with a review of the company's performance in 2014 and an update on our strategic plans. The review will include forward looking statements. This is our standard reminder that actual results can differ materially and you should refer to our filings with the SEC for factors that could cause actual results to differ from our projections. Now please join me in welcoming Ryan Edlance, Chairman and CEO of ConocoPhillips. Well, thank you and good morning. Thank you, Janet. And I'd welcome, ladies and gentlemen, I'm Ryan Lance, Chairman and CEO of ConocoPhillips. And it's my pleasure to invite you and welcome you to the 2015 Annual Stockholders Meeting. So first, I'd like to take the opportunity to introduce our Board of Directors. All of them are with us here today except for Mr. William E. Wade Jr. Who is scheduled to retire following the Annual meeting today. And as I introduce each Director, I'd like to ask them to stand, please face the audience and be recognized. Including myself, members of the Board that are present here today are Richard L. Armitage. Rich is the President of Armitage International and a former U. S. Deputy Secretary of State Richard H. Auchinleck, Dick is the retired President and Chief Executive Officer of Gulf Canada Resources Limited Charles E. Bunch. Chuck is the Chairman and Chief James E. Copeland, Jr. Jim is the retired Chief Executive Officer of Deloitte and Touche. John V. Faraci, John is the former Chairman and Chief Executive Officer of International Paper Company Jody L. Freeman, Jody is the Archibald Cox Professor of Law at Harvard Law School and the Founding Director of the Harvard Law School Environmental Law and Policy Program, Gaye Huey Evans. Gaye is the former Vice Chairman, Investment Banking and Investment Management of Barclays Capital and previously held positions with Citigroup and the UK Financial Services Authority Arjun N. Murti, Arjun is the retired partner of Goldman Sachs Robert A. Nibloc, Robert is the Chairman, President and Chief Executive Officer of Loews Company Incorporated and Harold J. Norvick, Harold is the retired Chairman and Partner of Econ Management AS and the retired Chairman, President and Chief Executive of STAT Oil. Please join me in willing to serve. Next, in addition to Janet Kelly and myself, whom you've already met, I'd like you to introduce you to the members of the ConocoPhillips executive leadership team. All of them are here today as well and I introduce each member, please stand and face the crowd and be recognized as well. So in addition to myself, Matt Fox, our Executive Vice President, Exploration and Production Al Hirschberg, our Executive Vice President of Technology and Projects Jeff Sheets, the Executive Vice President of Finance and our Chief Financial Officer Don Wallet, Executive Vice President, Commercial Business Development and Corporate Planning Andrew Lundquist, our Senior Vice President of Government Affairs Ellen DeSanctis, our Vice President, Investor Relations and Communications and James McMooren, our Acting Vice President of Human Resources, Real Estate and Facility Services. So please welcome our ELT as well. Thank you. So before I begin the formal part of the meeting, I'd like to share a presentation with you about our results in 2014, but more importantly, the direction that we're taking the company. We recently had the chance to describe that direction to our analysts in April and describe what we're doing in a new 3 year operating plan. So let me take a minute to go through that. Now our value proposition is very straightforward and the approach that we have to the business is aimed at being core energy holding. We know we're in a merger business, so return of capital to our shareholders is important. We're focused on margins. We're focused on returns. And we know we've got a sustained growth trajectory that I'll describe to you today. And this value proposition is really unchanged from when we launched as an independent E and P company now 3 years ago. It's about dividend, it's about growth and it's about profitability. Now that dividend is a bit unique in the business today. We believe we're in a mature business and for a company our size we think a meaningful return to shareholders is important. It enhances capital discipline within the company and it provides a predictable base of returns for our shareholders. It's differential to our independent peers as you can see on this chart here as we compare the red bar to the blue bars. And we've been able to grow our dividend over time because of the performance of the company. And let me take a minute just to reflect on that performance since the spin. I think we've delivered on all our operational or financial and the strategic targets that we set for ourselves. We grew our production by 3%, 9 major project startups, our Lower 40N conventionals grew by 123%. We delivered 9% increase in cash margin. That cash margin combined with that production growth delivered 10% operating cash flow growth. We increased the dividend by 11%. Strategically, we sold $14,000,000,000 of non core assets, coring up the portfolio and using those proceeds to invest in high quality returns. We've increased the inventory of our unconventionals and low cost of supply sources of growth in the portfolio. And over this period, we replaced 153% of our reserves, pretty significant results for a company our size. Now we delivered, the market noticed and the shareholders were rewarded. This is a total shareholder return chart that includes share price appreciation plus dividends reinvested since the spin. And you can see that we outperformed both our E and P and our integrated peers as well as the S and P 500 Energy Index. Now admittedly this performance came during a period of relatively high stable prices. But rest assured we don't take this performance for granted and we are looking ahead. And that performance comes from a diverse, stable enviable position as an E and P company with size, scale and scope. We're not relying on any single geography, geology or product type. We produce today over 1,500,000 barrels a day from an 8 point 9,000,000,000 barrel reserve base and a 44,000,000,000 barrel resource base. 80% of our production and reserves come from countries in the OECD. We think that lowers the overall risk in the portfolio. We've got increasing capital flexibility, which in the world we think we're going into is a real advantage for our company. The balance sheet is strong. Financial strength is important to be able to steadily execute through the cycles. And we have significant technical capability and really a passion, culture and a capability around safe execution and delivery. And on the safety side, we're focused on continuous improvement. It's translated into strong results in 2014 and we're off to a good start in 2015. But of course, we'll never be satisfied until we reach 0 until each one of our family our friends, our contractors, our employees go home to their family and friends each night uninjured. That's our goal. That's what we're striving to do in our company. And we recently implemented what we call the 8 life saving rules, which we think will have a measurable difference on our future performance as we think ahead and trying to build defenses in place for all of our employees and our contractors. It's not just about safety, it's about protecting the environment. The sustainable development plans that we have in place as a company help us to be a better company today and they prepare us better for the future. We use company wide action plans to prioritize our efforts. In the past few years, since about 4 or 5 years, we've reduced 5,000,000 tons of greenhouse gases as a company. So we are focused on the things that matter and protecting the climate. We're continuing to have local, regional and global stakeholder engagement on key issues that affect our company and affect our industry as well. So sustainable development remains a core component of how we're going to run the company and it's even more important in the volatile price environment that we find ourselves today. Here's a picture of that. Clearly, things have changed and there's been a dramatic reduction in the price. Here we're showing Brent, WTI and Henry Dump prices. The forward curve has fallen as well and there's a lot of uncertainty in the future forecast as you can see out there. Now as a company, we don't plan and run the company on a single price deck. We run scenarios that are based on supply and demand fundamentals in terms of how we're going to react to what we believe is a more volatile world going forward. We want to be resilient as a company across a broad range of prices. That's how we intend to run the company. But for clarity, what we're planning on is lower prices with more volatility over the next few years. We think that's the world that we're going into. But we've got the flexibility in the portfolio in the company today to win into this kind of environment. When we came out in April, we talked about a new 3 year operating plan responding to the dramatic drop in prices that we've seen since late last year that's carried on into this year. And we talked a lot of things about things that are changing, but I want to also point out things that aren't changing in our plan and those are noted at the top part of this graphic. The dividend remains the top priority. It's core to our value proposition. We'll pay our shareholders first. We're going to focus on getting to cash flow neutrality in 2017. That's similar to the target we set ourselves out for when we spun the company in 2012. We've had to make some adjustments achieve that, but that's a stake in the ground that we've placed. We're focusing on costs and margins. They're important. They drive financial returns. And we consider the balance sheet to be an asset and we're committed to maintaining an A credit rating on that balance sheet. Now what is changing is in the bottom half of this slide. Due to the reduction in the commodity prices, we reacted quickly and we've reduced our capital from $16,000,000,000 to about $11,500,000 for the next 3 years. We plan to grow 2% to 3% this year with a target of 1,700,000 barrels a day by 2017. So we're still growing the company and I'll show you where that's coming from. We continue to benefit from high margin production adds that we have coming into the company that continue to grow our cash flows. We've embarked to capture deflation, reduce our controllable costs. It's really important to reestablish the margins in this business and have established the target of reducing our cost structure by $1,000,000,000 by 2016. The investments that we're making in the business are weighted towards more shorter cycle time projects, so we can increase the flexibility in the capital investments to react to commodity price movements either direction, whether they go up or whether they go down. We think this is a prudent response for and fiscal discipline. So let me describe some of those actions in a bit more detail. So the left bar is the $16,000,000,000 capital plan that we had in place when we spun the company. And you can see in the middle part how we've reduced and reallocated that capital and the middle bar shows the $11,500,000,000 of capital that we intend to spend over the next 3 years. And you can see that's the same in 2015 as it is in 2017, but an interesting thing is going on inside the portfolio. As major projects start to ramp down like Surmont and APLNG, we free up more capital flexibility in order to move that to the development drilling programs that provide more flexibility, higher returns and more confidence in our delivery on our production growth. So it is an acceleration of value with greater flexibility to adjust if necessary as prices change either up or down. Now this slide shows the regional perspective of that revised capital allocation. So on the left, you see the average between 2015 17 and it's capital reported by segment that we report in our quarterly reports. You see that 40% of it is going to the lower 40 8% and the rest is relatively evenly split amongst all the other regions. And I think that demonstrates the diversification in the portfolio. On the right hand side, you still see despite the lower capital, we're growing from 1,500,000 to 1,700,000 barrels a day. Production from legacy areas like Alaska and Europe remain relatively flat and the growth over this timeframe comes from our Lower forty 8 Canada and Asia Pacific positions. So if you think about this, let me translate that into the cash flow neutrality by 2017 that we think is important. This is a bit more complicated slide, so let me walk you through it from the left to the right. So if you look back in 2014, we had to pick some prices with which to demonstrate our ability to get to cash flow neutrality. And you see on the slide, we picked $75 Brent, $70 WTI and $3.50 Henry Hub North American gas price. Now if you remember back to those price forecasts, that represents somewhere below the bottom half of those forecasts going forward. So we think it's a reasonably conservative price deck to make plans around 2014 was a little over $16,000,000,000 If you say what would that cash flow have been in that kind of a price rule, it was $12,500,000 Now as we move from 1.5000000 to 1 point to 1,700,000 barrels a day, we had 200,000 barrels a day of growth and that brings with it over $3,000,000,000 or $2,000,000,000 of cash flow. The operating cost reductions that we've announced add another $1,000,000,000 and that's offset a little bit by the 30,000 barrels a day of gas production that we lose over this time frame because we're not putting much investments to maintain our production in the natural gas business. So you see that the CFO, the cash from operation grows from $12,500,000 to 15,500,000 dollars by 2017 and that's more than enough to cover an $11,500,000,000 capital program and the dividend that we're paying to our shareholders. Now if we look about how that's allocated across all the regions around the world, I'm going to start with our Lower forty eight operation. We've reduced the CapEx in the Lower forty eight to about $4,000,000,000 in response to the commodity price reductions that we've seen over the last few months, but you see that rises to 5,000,000,000 dollars by 2017. Net increased spend is being directed to those high margin liquid unconventional programs that we have in the portfolio. Very little is going to gas development as I mentioned earlier. And that result gives you the mix that you see in the upper right hand corner of this slide, a 13% increase in liquids as we move from 2014 to 2017. Another key highlight is that last bullet. We've done enough appraisal work now in the Permian Delaware Basin to have identified over 1,000,000,000 barrels of resource opportunity for the company, a pretty considerable add that we'll start exploiting and start developing over the next few years. And we have really a sizable base on which to draw from future liquids growth in the company. Lower forty eight is not the only place where we have a large resource position. We have 2 vast resource positions in Canada in the old sands and the unconventionals as well. There we plan to spend about $1,300,000,000 a year over this time frame, the next 3 years. We'll have major projects coming on like Sermon II that come on and that capital rolls off and we're able to redirect that into other areas of the portfolio. First steam for Surmont II is expected in the middle part of this year, so we're on track for start up. We see production growing by 80,000 barrels a day by 2017 and we have an interesting exploration opportunity off Nova Scotia that we'll be drilling later next year. Now let's move to Asia Pacific and the Middle East, one of our fastest growing regions in the company. Big project down there is APLNG. This is the coalbed methane LNG project on Curtis Island in Queensland, State of Australia. And it's on track for start up later this year as well. So overall capital is declining in this region, but production is growing and that's driven by the start up of projects like APLNG and high value projects we have in Malaysia, China and Indonesia. And the base is underpinned by legacy LNG production from Darwin and our cutter development in that country. And you can see we expect to produce over 400,000 barrels a day by 2017. Move to Alaska. We're the largest producer today and have been for a number of years in Alaska. It's a core area with legacy cash flows. Recently improved fiscal terms in Alaska has allowed us to direct more investments back up to Alaska and you can see that that's holding production flat again through 2017. This is a 40 year old basin for the company. We have projects like CD-five, Drillsight 2S, 1H News, some coming on this year, some coming on over this 3 year period. Our Greater Musos Tooth 1 or GMT-1 project is progressing to sanction hopefully later this year early next year. And longer term, we're looking at monetizing North Slope Gas, the Alaska LNG project and trying to bring that down to Tidewater and export it in the form of LNG. We're currently in pre feed in that project, very big project, takes a lot of study. Now finally, if we move to other legacy areas, let's move to Europe. And certainly, we've had a resurgence there in activity with 3 projects starting up this year, Elden Fisk 2 in Norway, Brodgar, Enoch do on the U. K. Side. These projects that are coming online, the development drilling that we're doing will keep production nearly flat through 2017 as well. With future growth coming from projects in Norway and in the U. K, Clare Ridge in the UK, Asda Hahnstein on the Norwegian side. And recent changes in the UK tax law has actually given us an encouraging step for a very mature basin that future investments can roll into the sector. Now we have gone through some pretty major cost reduction efforts in both Norway and the U. K, but it's important in these mature basins to maintain your margin and maintain your operability. So that's a quick tour around each one of the 5 regions that we're investing in. Let me finish with exploration. So through 2017, our intention today is to spend about $1,500,000,000 a year on exploration and appraisal. That's about $1,000,000,000 less than what I was talking about at the same time last year in response to what we've seen in the markets. We've reduced our unconventional appraisal pace across the U. S. And Canada and we're limiting new conventional access into the company. But despite that, it's going to be a pretty significant year in the exploration place despite the reduced capital that we're seeing. We've got a very active program in our deepwater channel both in Senegal and are continuing some unconventional exploration across North America and have just recently completed a well in Colombia. And we are doing some conventional exploration in Alaska, Europe and Asia Pacific. So a busy year coming up in 2015 for exploration and as we continue on for the next couple of years. So I need to leave you with a couple of messages. Hopefully, we've gotten it's come through that the dividends are top priority. We'll pay our shareholders first. We will reach cash flow neutrality by 2017. It's important to do that as a company. Part of that includes capturing cost reduction and improving our returns. And I want to assure you with our 44,000,000,000 barrel resource base and if you watch the analyst presentation, we peeled that back for everybody to show the power of that resource base, the opportunity set that's in that to deliver long term sustainable growth for the company. But as the video said when it started, it's not just about what we're doing to deliver on our results as a company, but it's also how we perform as a company and what it means to us. And that's anchored in our values and that's our spirit values. It's really what does drive us as a company, how we behave and how we act with all our stakeholders. It's about safety, it's people, integrity, responsibility, innovation and teamwork. So I thank you for your patience to go through a little bit of that. It kind of completes the look about the portfolio, our plans, what we're doing to invest in growth, drive returns, drive cash flow and drive additional margins that result in dividends and value back to our shareholder. There will be an opportunity at the end for some questions and answers, but right now I'd like to move into the formal part of the meeting. So now I'd like to call the meeting to order. We'll first present the 3 proposals submitted by management for approval and then I'll ask each of the stockholder representatives present today to come forward to present their proposals. Now we found that the best way to ensure we have plenty of time at the end for comments on any of the proposals as well as questions you may have for me is to save those comments and questions to the Q and A sessions after the proposals have been presented. After that Q and A period, we'll take the ballots from everyone in the audience who haven't already voted by proxy and announce those results of the voting. So Janet, can you please report whether a quorum is present for the conduct of business? Our Inspector of Elections reports that stockholders entitled to cast more than 86 percent of the votes eligible to be cast at this meeting are present in person or represented by proxy. Therefore, a quorum is present and the meeting may proceed. Thank you. The meeting will now consider the 7 business items on the agenda. We will present each of the business items 1 at a time. When a stockholder presenting the proposal or their representative is recognized, a meeting host will provide them with a microphone. Please state your name and verify that you're a stockholder or a representative of a stockholder. If you are a representative, please state the name of the stockholder that you represent. Item 1 on the agenda is a proposal to elect 11 directors to serve the term of 1 year. As indicated in the proxy statement, the Board of Directors recommends that the stockholders elect the director nominees. Item 2 on the agenda is a proposal to ratify the appointment of Ernst and Young as the company's independent registered public accounting firm for 2015. The Audit and Finance Committee reappointed Ernst and Young to serve as ConocoPhillips' independent registered public accounting firm for 2015 and available to answer any questions you may have for them during the stockholder question and answer session. Item 3 on the agenda is an advisory proposal to approve the compensation of the named executive officers as disclosed in the proxy statement. As indicated in the proxy statement, the Board of Directors recommends that the stock will result in favor of this proposal. Item 4 on the agenda is for the company to provide an annual report on payments used for lobbying and grassroots lobbying. I believe Steve Mason is here to introduce this proposal and make a brief supporting statement. Steve? Good morning, Mr. Lance, Board members and fellow shareholders. My name is Steve Mason. I am here on the proxy of Walden Asset Management and I move item number 4 on the agenda. This resolution on behalf of Walden Asset Management and 9 other co filers. Walden Asset Management based in Boston is a long term owner of ConocoPhillips shares, presently owning approximately 690,000 shares. Walden appreciates ConocoPhillips' leadership on environmental, social and governance issues and the ongoing constructive dialogue investors have with ConocoPhillips' management on issues like indigenous peoples' rights, climate change, fracking and political spending and lobbying. As you see, this company's disclosure on lobbying. This is the 4th year this resolution has been presented to ConocoPhillips receiving a 25% vote last year. The concern about company lobbying, especially by oil and gas companies on climate change, has expanded rapidly. For example, the CDP survey, which ConocoPhillips fills out annually and is supported by investors globally with over $95,000,000,000,000 of assets under management, has specific questions about company lobbying directly and through trade associations on climate issues and the principles for responsible investments, which has a global investor membership of $45,000,000,000,000 in assets has just started a new initiative focusing on global oil and gas companies and their lobbying on climate. Climate lobbying is being scrutinized as never before. But none of us can tell what our company's lobbying record looks like without more information. We heartily commend ConocoPhillips for its transparency on political spending, but our company disclosure on lobbying has significant gaps. For example, in our report, there is no summary of the issues ConocoPhillips lobbies on. We don't know what our priorities are. And it is unclear if our Board Public Policy Committee oversees lobbying like they do political spending. We also appreciate that ConocoPhillips along with other companies files a quarterly report with the Senate detailing that quarter's expenditures to influence legislation, but these reports are very hard to decipher. How simple it would be to do a little chart on the lobbying expenditures ConocoPhillips has had in the last 3 years. For example, our company spent approximately $12,000,000 in lobbying from 2011 to 2014 and $1,000,000 in the Q1 of 2015, no small sum. Neither does ConocoPhillips disclose specific dollar amount of dues payments to trade associations that engage in lobbying nor the percentage of those dues used for lobbying. We do have a list of the major trade associations where our company pays over $50,000 in dues, but we have no sense of the size of these dues. For example, is it $50,000 or $500,000 or the percent of company money spent on lobbying by these trade associations. As a result, shareholders have a very incomplete picture of how company funds are used to influence the legislative process. And ConocoPhillips is a key member of some major trade associations that play a substantial role in shaping elections and influencing public policy. Those trade associations also have a very powerful voice on climate change. For example, 8. This is an integrity problem for ConocoPhillips because the chamber has an active campaign opposing effective environmental regulation. Actually sued the EPA when it attempted to exercise its authority to regulate certain greenhouse gas emissions and threatens to sue the EPA on its new climate initiative on power plants. In conclusion, as investors, we urge our company to carefully review our lobbying and public policy advocacy to ensure it does not work against needed solutions for climate change. Thank you. Thank you, Mr. Mason. The Board's response to this proposal begins on Page 76 of the proxy statement. The Board recommends that you vote against this proposal. Item number 5 on the agenda is Item number 5 on the agenda is a proposal for the Board to adopt a policy that if there is a change of control, there will be no accelerated vesting of performance based shares or units granted any senior executive or rather allow for a partial pro rata vesting up to the time of termination. Hopefully, I don't butcher this, but is Greg Kincheski here today? And he'll provide introduce the proposal to make a brief supporting statement. You came pretty close, Mr. Chairman. Okay. Sorry. Kincheski. Kincheski, thank you. And there's a person whose name is Ches. You want to know if they can ski and you ask Ken Cheski. Okay. Irish school teacher came up with that. It had my dad and my uncles and my aunts in class before me. I'm here on behalf of the Amalgamated Bank's Longview LargeCap 500 Index Fund, which owns 239,000 shares of ConocoPhillips stock. As the Chairman pointed out, this is seeking a change in policy from the company. Currently, there can be accelerated vesting of all performance awards equity awards, if there's a change in control. What this proposal seeks is to shift. Now it's not seeking a forfeiture of those awards, no forfeiture, but it's simply saying let's do it on a pro rata basis. Figure out how much of that performance has been achieved and use that to calculate the awards. That way there's no windfall and there's no forfeiture. It's aimed at trying to strike a balance. Now in the company's response, it points out that the Board believes that the overall terms of the program as it is are market competitive. And to that, I will respectfully point out that a number of ConocoPhillips peers, Chevron, ExxonMobil, EOG Resources, Apache, Hess, Valero and Occidental version of pro rata vesting. And we would urge the Board to do the same in the future. Thank you very much. Thank you, Greg. The Board's response to this proposal begins on page 77 of the proxy statement. The Board recommends a vote against this proposal. Item 6 on the agenda is a proposal for the Human Resources and Compensation Committee to adopt a policy that will not use any metric based on reserves to determine incentive compensation for executives without adjusting under a demand reduction Thank you. Reverend Lang. Good morning, Mr. Chairman, members of the Board, fellow shareholders. Thank you for this opportunity to visit with you. I'm the Rev. Mark Amesten Lang, Co Minister of Emerson Unitarian Universalist Church here in Houston and which is a member congregation of the Unitarian Universalist Association, the shareholder whom I represent today. I hereby move our proposal, shareholder proposal number 6 on your proxy card, which requested the company adopt a policy for executive compensation that will not reward executives for reserve additions that are not economically producible under scenario. As a manager of the endowments entrusted to us by our congregations, we take our fiduciary duty seriously. That means we want to ensure that the companies in our portfolio increasingly incorporate the effect of climate change on their businesses. And as a religious organization, Unitarian Universalists are committed to an even greater responsibility, the stewardship of the Earth itself. I was thinking about what it would be like if we were at a shareholder meeting about 30 years ago and think about how the landscape has shifted politically, economically and the market as well. And what will our market what will our corporate shareholder meeting look like 30 years from now? What issues will we be addressing? There is enormous risk obviously with climate change and nearly all nations signed the Cancun agreement increase in global temperature should be below 2 degrees Celsius. The International Energy Agency tells us that no more than 1 third of proven reserves of fossil fuels can be consumed prior to 2,050 if the world is to achieve that 2 degrees Celsius goal. This means that over the coming decades there will be increased pressure to realign the global energy picture. At some point, governments will increasingly act to limit emissions. It's also a bet that humanity will choose to will not choose to cause grievous harm to the planet, its creatures and human civilization rather than act. Clearly, this is unthinkable. We want to sell oil to somebody, we need the somebodies to sell it to. HBC, Standard and Poor's, the International Energy Agency and other analysts anticipate declining long term demand for fossil fuels as national governments and international agencies create incentives for the reduction of greenhouse gas emissions. This certainly will not happen overnight, but the long term trend is clear at least on a livable planet. Fossil fuels are an important energy source that has brought great benefits to humankind, but it will be increasingly replaced by renewables over the coming decades. We and many other shareholders are concerned that Conoco's current compensation incentive structures could reward executives for committing the company's capital to exploring for and developing reserves that will eventually not be economically viable under a reduced demand scenario. Shareholders need to know that the company has structured its compensation incentive for a dynamic and changing global energy environment that rewards prudence in the commitment of capital expenditures. Therefore, we urge you to vote for item number 6 on your proxy card. Thank you. Thank you, Reverend Lang. The Board's response to this proposal begins on Page 79 of the proxy statement. The Board recommends that you vote against this proposal. Item 7 on the agenda is a proposal for the Board to adopt and present for shareholder approval a proxy access by law. Greg Kincheski is here to introduce this proposal and make a brief supporting statement. Thank you, Mr. Chairman. I'm here at this proposal on behalf of New York City Comptroller Scott Stringer and the trustees of the New York City Pension Funds. They're very long term shareholders of ConocoPhillips. They own over 2,700,000 shares of the company. Now Proposal 7 calls for a proxy access by law to enable share owners that have collectively held can be a group, collectively held at least 3% of the company for 3 years to include a limited number of director candidates on the management's own proxy card. This is not aimed at a takeover. This is not a takeover. It's for minority representation on the board and it's designed to give substantial long term share owners a more meaningful voice in nominating and electing directors. Because under the current system, absent meaningful proxy access, essentially the director election particular proposal from the New York City Funds because they are concerned about its exposure to risks related to climate change. As Lord Brown, the former CEO of BP warned in the speech last year, extractive industries need to take climate change more seriously or face an existential threat to their business. Now, while ConocoPhillips received this proposal because of our concerns about climate risk, we do believe proxy access is a fundamental right and it should be in place at all companies regardless of their governance or industry or performance. Frankly, nearly 100 companies this year are receiving this type of proposal. So it isn't like ConocoPhillips is just sticking out like a sore thumb. It's part of an overall engagement. A report in 2014 14 by the CFA Institute found that proxy access, if adopted market wide, has the potential to raise U. S. Market capitalization by as much as $140,000,000,000 That report also found that in other markets around the world where proxy access is allowed, it is used infrequently and with little disruption. Now the proposed by law includes appropriate safeguards to prevent abuse. There's reasonable ownership and holding requirements. It also includes remember I said this was not a takeover. It includes a 25 percent limit on shareowner nominees to ensure that it doesn't facilitate a disruptive change in control. It's not the point at all. And finally and most importantly, any shareowner nominees would still have to garner broad shareowner support before he or she could join the Board. Now these terms were not selected arbitrarily. They are in fact a mirror reflection of a rule that was proposed by the Securities and Exchange Commission following extensive analysis and public comment that determined the 3% ownership threshold for 3 years was the appropriate number. This year already already this year a growing number of companies in various industries and of various sizes have agreed to voluntarily adopt proxy access for the 3% 3 year standard. Recent examples are Abercrombie and Fitch, Bank of America, Big Lots, First Merit, General Electric, Kindred Healthcare, Prudential Financial, Splunk, Staples, Wendy's, Whiting Petroleum and Yum! Brands. In response to shareholder engagement, the boards of these companies have demonstrated their commitment to an accountable system of corporate governance that fosters long term value creation and we urge the Board of ConocoPhillips to do the same. Thank you very much. Thank you. The Board's response to this proposal begins on Page 81 of the proxy statement. The Board recommends that you vote against this proposal. So now it's time to take some general questions and comments from your stockholders. Please approach the microphone nearest you and a host will help you assist. Please note that if any stockholder has not delivered his or her proxy, you may cast your vote by ballot at this meeting. If you already submitted a valid proxy, your vote can be cast as indicated on your proxy card. You do not have to vote by ballot unless you wish to change your prior proxy vote. If you need a ballot, please stand or raise your hand and a meeting host will provide you with a ballot. And at the end of the question and answer period, we'll collect those ballots. So I open it up to our shareholders for questions. Good morning. I'm Jimmy Dunn. I'm a happy stockholder from Houston. It's good to be here today. First of all, before I have my question, I want to quote from Jack Ma. He's the Founder of Alibaba. I love to say Alibaba. But anyway, he has some very good quotes for this company too. And the hard times we face today with low prices of oil, we need to remember this quote. Today will be a hard rainy day. Tomorrow will be a stormy day. The next day will be sunshine. So let's look forward to the sunshiny days. Amen. His other quote is that your company should always put the customer first. An employee should not work to please his boss. The customer the employee should work to please the customer and then you'll have a good prosperous company. For my question now on proposal 3, the advisory approval of executive compensation, how exactly does that work? Do we actually have a vote on proposed executive compensation? Could you please explain that to us? Yes. So the compensation is determined by the Board of Directors for the named executive office for myself and the some of the ELT members that you see here today. We benchmark ourselves against the 5 largest independent and the 5 integrated companies. The Board assesses that and recommends a pay structure the company. And as stockholders, you get a chance to vote on that annually through the say on pay provision that was in the proxy item number 3 that you quoted today. Thank Thank you very much. Thank you. Steve? I can't resist an empty microphone and I stand here as myself this time. My name is Steve Mason. I'm Director of Socially Responsible Investing Activities for Church of the Brogan Benefit Trust located in Elgin, Illinois and a group of shareholders who have been in an ongoing conversation with ConocoPhillips on a matter of mutual concern, which is being a good neighbor, in our case, dealing with the rights of indigenous peoples. And I stand here to say thank you to you and the company for the way in which it is engaging us and being in conversation with us on this issue and others actually of mutual concern. I'll let them speak for themselves. And acknowledge that since last year when we were here things have gone a little differently than we anticipated at that time as you've already acknowledged. And to affirm the importance of planning as is true in personal and often corporate reality, life's what happens while you're making plans, but that ironically reaffirms the importance of those planning activities. So as we are looking at the important core functions of the company, I simply appreciation for the company continuing to interact with us in the area of human rights. And as I was pleasantly surprised to see in the opening video, it's not what we do, it's how we do it. And I affirm that and look forward to continuing conversations. Thank you, Steve. Appreciate the comments. Any other questions, please? My name is Gov Clements. I'm from Houston, Texas. I'm a shareholder. I'm marking my 50th year as a Phillips shareholder. Go back to old Bartlefield, Oklahoma. I don't represent anybody except myself. I just want you to know I appreciate the company. I appreciate the leadership it has taken and I love those dividends. Just keep them coming. Thank you. Thank you. Any other questions? Good. Seeing none. Thank you. I'm sorry. I didn't see you over there. Thank you. Good morning. My name is Matt Perrin. I live here in Houston and I've been a shareholder for a while. And I was at the Phillips 66 meeting last week also. And I'm one of those people that I'm really not very fond of the way the executive compensation package is going. And you've heard a lot of over the years, there's been a lot of people not happy with that. They feel it's excessive. And looking at this, it seems to be similar to Phillips 66 and a lot of other companies. Your base salary is $1,700,000 That's a lot of money. And except for Mr. Fox, who is with the exploration and production, he was the only one who got a bonus. Basically no one gets a bonus, but all these other add ons, you go from $1,700,000 for your basic salary. By the end of the year, it's over $27,000,000 And I'm a small businessman myself and I just could never see myself going to one of my customers and telling them this is what I'll sign a contract for. And by the end of the deal, I'm telling them I want 27 times as much money. But this is you're an executive of the 3rd largest oil company, so I understand how all that works. But me, I just think it's excessive and it's with these other companies that are used as justification, well, AT and T and these other companies do it and look how much they're getting, it just seems to just wealthy and the gladiators, which in today's society, here in the States, it seems to me politicians, the elite executives, the wealthy and the professional athletes. And then there's the rest of us and the disparity between people that work and people that are ahead somewhat and people that are in your category, I don't really see a justification for that much money being ahead of anything. Mr. Tillerson Rex Tillerson of Exxon, his is quite a bit too. And as I read all this, even if something were to happen and you for whatever reason step down, you would still be getting tens, if not 100 of 1,000,000 of dollars. Again, executive compensation, you all make your own rules, you set your own pay scale. And kind of like the people in Washington, we don't ever get to vote on their pay. They make their own things. And I've often wondered who owns the controlling shares of the stock? It seems because every year I've come here, every year I've owned shares in ConocoPhillips and Phillips 66 and even before the merger, you guys always get everything you want, but not one time I don't believe has the other people that have had proposals, they never get anything. Of course, it's the election. They have the votes, but anyway, and I am a little nervous. I'm not real good at microphones and speaking. But that's one of my concerns. I just feel that I mentioned this last week, even someone in your position, as an example, to make half that much say hypothetically half of $27,000,000 is $13,500,000 or more. The other $13,500,000 could make millionaires out of 13 other people, 0.5000000aire out of 26 other people, 56 other people could be quarter millionaires and on and on. It just seems like and I've heard that over and over again, 3% of the people have all the money. And the rest of us, we worry about old age, Social Security, are we going to have enough? And then there's this group of people who have just seemed to be running away with all the money. And it just doesn't seem right. And to me, that's just not what America is all about. And but I'm sure you've heard this before and people have complained. How do you feel about how do you really feel about that? What is I mean, I would take the money too, the money you want to pay me. But honestly, that's an awful lot of money, Mr. Lance. And thank you for letting me share voice my concern. No. Thank you for your comments. I appreciate you getting up and speaking your mind like that. I think I would assure our shareholders and you ask who our major shareholders were held by major institutions, but we're also a bit unique that 30% or more are retail shareholders like yourself and you get a vote every year on the pay as I described earlier. And I would just assure our shareholders that our Board takes this very seriously and the Chairman of the Comp Committee is here today as well and they take their job very seriously. So it's important in this business to attract top talent. It's important to pay competitively and we do that at all levels of the organization starting with self all the way down to the petro technical, the financial, the accountants, everybody in our company, we try to pay at a fair competitive level based on the salaries that we think are out there with our independent and our integrated peers. So it's important for us to attract that talent and it's important to us to make sure that we are paying competitive, so we don't lose our top talent to other companies. And I would just assure you that the Board takes that very seriously. They look at that data once or twice each year to make sure that our salaries are competitive with our competition. So we can make sure that our company is getting the best talent in this business and we're able to reward, attract and retain the best talent in this business. Please. Good morning, Mr. Chairman. My name is Terry Applegate. I'm a stockholder of 50 8 shares, I believe. My question is, what is the policy for director ownership of Conoco Phillips shares. If we're correctly, approximately half of the Board owns no shares. No, I don't think that's right. I think the actual number Janet probably has the actual number. You may be confused because we have the Director shares are referred to as restricted stock units. But the policy is that Board must hold the stock that they are granted within the 1st 5 years of their service. So they all actually have a substantial I understand the difference between shares and restricted shares. I've had because if you if the price goes down on a restricted share, you don't lose money at that moment in time. It just doesn't have value in the future. Is that a correct statement? No. No. I mean the restricted share acts just like any other share of stock. Its value goes up and down. The directors all are required to hold shares of the company. They're required for 5 years. After 5 years, they can choose to elect what they do with those shares, but they have a requirement to hold those shares. And they're just like a regular share stock. They're just restricted in a period of time. And do they receive those restricted shares as compensation for being directors? Not until the restrictions lapse. Do they have do they pay for those restricted shares? No. They're part of the director's compensation. Okay. That was my question. So in essence, they don't have any skin in the game other than their time for what they put in as being a Director. No. They also receive a base salary annually in addition to the shares that they receive for their service to the company. Okay. I had this conversation 3 or 4 years ago with Mr. Armitage. And he said, I own so very few shares compared to the rest of these people because they're all high powered individuals and have made very, great successes of themselves and I've been a public servant. And but he said, I went out and bought these shares and he has about the same number of shares as I directly owned because that's what you do as a Director. And I guess my question is, if these are astute business people, why have they not invested in the company? Well, I think they are invested in the company by the shares that they receive annually as part of that compensation. So they have a direct influence and a direct impact on the company in terms of their participation in our share programs. What they do individually in terms of buying shares, I leave to the individual directors. But rest assured their compensation is always is also a benchmark against our peer group and that consists of shares, so they have an active participation in the company. Thank you. Anything else? All right. Thank you. I appreciate your input. If you have further questions and comments following the meeting, please come to the front of the room and representatives of the company will be happy to discuss them with you. We will now take a vote on all the proposals properly presented at the meeting today and I declare that the polls are now open. If you have not completed your ballots, please do so at this time. The meeting hosts will collect ballots. If you have them, please pass them to the center. Thank you. Any others to collect? We'll give the gentleman a chance to vote your proxy and we'll go ahead and declare the you're going to turn in your proxy, sir? Okay. Please do so before I declare the polls closed. We will say that the Inspector of Elections has filed certifications of the preliminary votes or results of the voting. So Janet, would you please read those preliminary results? Yes, Mr. Chairman. The preliminary results based on the voting of shares represented by valid proxies on file and tabulated at the meeting this morning show that each of the 11 nominees for election have been elected as directors to serve a 1 year term expiring at next year's annual meeting. Each director nominee received at least 95% of the votes present at today's meeting. The appointment of Ernst and Young as the independent registered public accountant firm for ConocoPhillips for 2015 has been ratified having received the favorable vote of more than 98% of the votes present at today's meeting. The advisory approval of executive compensation has passed with more than 93% of the votes present at today's meeting cast in favor of the proposal. The stockholder proposal for the Board to provide a report on payments used for lobbying and grassroots lobbying has not passed, with more than 76% of the votes present at today's meeting abstaining or casting a vote against proposal. The stockholder proposal for the Board to adopt a policy that there is a change of control, there will be no accelerated vesting of performance based shares or units granted to any senior executive has not passed, with more than 71% of the votes present at today's meeting abstaining or cast against the proposal the stockholder proposal for the Human Resources and Compensation Committee to adopt a policy that it will not use any metric based on reserves to determine incentive compensation for executives without adjusting under demand reduction scenario has not passed with more than 94% of the votes present at today's meeting abstaining or cast against the proposal. The stockholder proposal for the to adopt and present for shareholder approval, a proxy access by law, has passed with more than 50 3% of the votes present at today's meeting cast in favor of the proposal. Mr. Chairman, that concludes the report of preliminary voting. Details of the preliminary results will be available for all stockholders in our filings with the SEC within 4 business days. Stockholders may also obtain voting results by calling or writing the Office of the Corporate Secretary. So thank you, Janet, and thank you all. That completes the business scheduled for today. Our meeting is now adjourned. And thank you all for taking your time to attend our 2015 Annual Stockholders Meeting.