C. C. Reasor
So, we'll go ahead and get started if everybody's ready and is -- can find a seat. I'd like to say good afternoon, and welcome to those of you in the room, as well as those listening on the web to ConocoPhillips Investor Update. We plan to take the next hour to go over our plans for enhancing returns and growing earnings, as well as shareholder distributions. I'm here today with Jim Mulva, ConocoPhillips Chairman and CEO. And the material that you'll see presented today can be found on ConocoPhillips' website, along with a transcript of the presentation and the question-and-answer session.
The Safe Harbor language that you see on this slide is a reminder that we will be making forward-looking comments, as part of the presentation and a part of the Q&A, and actual results may differ materially from the expectations we share today. Sources of these differences can be found on this slide, as well on our -- as well as our filings with the SEC.
So now it's my honor and pleasure to introduce Jim Mulva.
James J. Mulva
Okay, Clayton. Thank you very much. I appreciate seeing everyone here in -- for the ConocoPhillips Investor Update Meeting here in New York City. And I also welcome all those who are participating or listening in to our webcast that's made available to everyone around the world.
For myself, I've been making financial presentations for more than 2 decades, and I've always enjoyed close association of working with the financial community. It's actually my last presentation on ConocoPhillips, because as you'll see in the update that I'm going to go through in the slides, we're right on schedule with respect to our repositioning and completing our spin transaction in about 2 months' time. And so I'd like to dedicate most of my presentation primarily to ConocoPhillips as the integrated company that you know and provide an update with respect to the strategies and plans, and then as well as update on the spin transaction.
So -- and 2 things that I'm really going to spend most of my time covering on has to do with update on the company. Irrespective of moving from the integrated company that you know into the splitting or the spin transaction of the Upstream and the Downstream part of the company, essentially, the strategies remain the same for both Upstream and Downstream. We've had pretty strong operating and financial performance as we went through 2011, and we're -- although results, certainly, are not available for the first quarter, we're off to a good start, January and February.
In terms of the update on repositioning, as you know, we believe we're creating 2 of -- very competitive, large energy companies, Upstream and Downstream: the Upstream company you know so well as Conoco Phillips is going to be led by Chairman and CEO, Ryan Lance; the Downstream company known as Phillips 66, led by Chairman designated and CEO, Greg Garland. We believe that the spin transaction and splitting the 2 very different businesses, Upstream and Downstream is going to enhance us to follow the strategies of both Upstream and Downstream even better and continue to create value for our shareholders.
So what I'd like to do now is -- I've got about 40 slides, and I'm going to through the 40 slides rather quickly, and then leave sometime within this hour to address some questions or observations you may have. I'm going to talk about the ConocoPhillips that you know today and see today, and I'll start off with a pie chart, the upper right-hand side of the slide. And it just shows where do we get our cash from operations. And the company, essentially, has been structured over many decades, continues with a strong emphasis on OECD. And we like that because of -- from a perspective of realizations, both Upstream and Downstream, as well as, we believe, the political risk is somewhat different than non-OECD countries.
The bottom right part of that slide shows that for our company today, we have about $90 billion of invested capital, with the -- primarily, most of it directed towards exploration and production. We continue on -- if we were to continue on as an integrated company, it will become more and more E&P and less Downstream.
So the bullet points that you see on the right-hand side of the slide, the OECD-centric invested portfolio, a lot of emphasis over the last several years. And we'll talk quite a bit more about this, in terms of improving our returns, how we invest capital, how we monetize some of the more mature assets but there -- improve the returns on the portfolio and all the metrics associated with production Upstream or Downstream and metrics per share. And you'll also hear that we feel we're quite well positioned to grow both Upstream and Downstream from the position that we're at, particularly when we complete our 3-year repositioning at the end of this year, 2012.
I'd like to do is just talk a few moments about the rationale for the repositioning, as well as the splitting of the company, the spin transaction between Upstream and Downstream. As a result of the deep financial crisis in the latter part of 2008, we assessed our company, ConocoPhillips, and we had a number of alternatives. You could say irrespective of the financial and economic situation continue to just pretty aggressively spend capital just to grow the company. Or we go the other way, where we can put a lot more emphasis on returns and more and more focus on capital discipline, maybe about the same size, a little bit smaller company, emphasis on returns or -- and we felt that a balanced approach was the right way: continue to spend money, emphasize returns and capital discipline.
And so that first bullet point you see at the top of that slide, we really assessed the company, and we looked at the company, and we said given, I think, our production early 2009 x-LUKOIL ownership, was about 1.8 million BOE a day. And we said, "Do we believe we have the legacy assets and the new opportunities to continue at 1.8 million BOE a day or higher?" And we said, "No, we don't think that's the right size for our E&P company." We thought that emphasis on looking at our legacy assets and improving returns, somewhat lower production volume, would better fit both the legacy assets and the growth opportunities going forward. I'm going to talk more about this in a few moments in a few slides.
And then because of the deep financial crisis, the middle part of that slide, we felt, we didn't know -- I mean, as you recall, even some were looking at not only the deep recession but the possibility of a depression. So we felt we needed to adjust pretty quickly our portfolio and our company to adapt to whatever we thought the financial business environment was, and we did not like our share price. So we felt it made a lot of sense for us to really push hard on improving returns, distributions to our shareholders, stronger balance sheet, less debt, more liquidity. And then we start -- we looked at the market price and we said natural gas prices probably are going to be under a great deal of pressure, because of the economic situation, as well as the development of technology in North America for unconventional gas, and then ultimately, oil. And then we thought there'd be continued pressure on refining margins.
So as you see, the bottom part of the slide is a focus on how we spent our money and how we adapted the portfolio to the best returns and the best projects. And we took some pretty difficult decisions saying we're going to exit certain projects or get out of or sell certain assets, so as to improve returns on the portfolio. And we felt that this 3-year period of time, 2010, '11 and '12 -- and remember, we now have about 9 months to go in 2012, will really position the company at the end of this year with the platforms, both Upstream and Downstream, to grow absolute volumes.
So what was this 3-year repositioning plan, most of you are pretty familiar with? I'm going to go up on the upper left-hand side of this slide in portfolio optimization. And we said sell non-core assets, position for growth. Essentially, 90% of our capital spending is directed towards exploration and production and reduce our exposure to refining. In the upper right-hand side of the slide, the balance sheet, less debt, carry more cash, more liquidity. In the bottom left, improve returns. And then distributions, the bottom right, pretty aggressive on distributions and that is continue to increase the dividend. We like the discipline of raising the dividend every year and pretty aggressively. And we're going to fund our share repurchase program by asset dispositions. We're going to use our cash flow from operation to fund capital spending, as well as the dividends -- pay for the dividends, and improve per share metrics.
So how well have we done for the first 2 years of this 3-year period of time? So this is 2010, 2011, you see atop of the slide, we see we're right on target. Yes. If you look at the upper left-hand side of the slide, we've essentially monetized $20 billion of assets. $9.5 billion of our 20% ownership in LUKOIL, and we sold it for about $1 billion more than we paid for it. And so far, through 2011, we sold $10 billion of non-core assets, but we continue to spend money in our E&P business. We've more than replaced our reserves, and then we announced the spin of the Downstream.
You look at the upper right-hand side of the slide, we've reduced our debt. We have a debt ratio pretty similar to where we'd like to be. I think longer term, we like 20% to 25%. And we've increased our cash and liquidity backup lines. We don't think we're going to experience another deep financial crisis like the latter part of 2008, but I will tell you today, we're both Upstream and Downstream, much better positioned for such a situation than we were in the latter part of 2008.
In the bottom left, you can see returns on -- on the portfolio. I have a few slides coming up on how we've improved our ROCE and cash ROCE, improved our margins. When we look at improving our margins, generally for us, a ballpark, about 2/3 comes from commodity prices, about 1/3 through self-help. But we have been investing in the higher returns. And as we sell off the more mature assets, we see better realizations, with the emphasis more on liquids. You can see the projects that we've canceled or parted from.
And then the bottom right, distribution. We've been pretty aggressive on distributions to our shareholders. Just since 2009, you can see 32% increase in dividends. I've got a slide coming up on that. Through 2011, $15 billion of share repurchase, which is -- represents about 15% of outstanding shares. And then, because we like per share metrics, if you adjust for the Libya production -- by the way, Libya production is coming back, you can see that even though we sold assets and less absolute production, we've been aggressive on share repurchase, so their growth per share -- production per share is an increase.
So let's talk about allocators of capital. We think we've done a pretty good job on allocating capital, so this is the 2-year time period, this bar chart, 2010-2011. So we start on the left-hand side of the slide, you say what was the cash position at the end of 2009? $1 billion. In 2 years, 2010, 2011, we generated $37 billion in cash from operations, the $20 billion from dispositions. Capital program for 2 years, $25 billion, and the $7 billion is 2 years of dividends. We reduced our debt, $15 billion for share repurchase and finished the end of last year with $6 billion in cash.
I think the upper right-hand ticker box is pretty interesting and important. And it shows that our -- as we go -- went through the 2-year period in time, our cash from operations exceeded what we spend in capital and dividends by $5 billion. And you can see, we returned quite a bit of proceeds back to our shareholders from asset dispositions in a form of dividends and share repurchase.
Now let's take a look at how we spent -- been spending our money. Said we've been shifting our money towards E&P -- more and more towards E&P, with money spent in the Downstream, essentially, to maintenance capital. And our capital spending in E&P has been directed more towards a high-return, more of the liquid-oriented type projects. And you can just see what's taken place as we went through 2009, '10 and '11, where the money's been spent predominantly towards liquids or LNG-type projects, where the pricing is tied more to liquids than it is towards just pure gas and gas competition. Less money spent on North America pure natural gas refining market. You see the ROCEs at the bottom. Like I said before, the improvement, about 2/3 of that comes from commodity price, about 1/3 through our own self-help by assets we sell and by the investments we make in changing our portfolio.
So what have we done in terms of returns for the company? I'll draw your attention over the right-hand side of the slide. It just shows what happened to our ROCE and our cash ROCE. Remember, 2/3 is commodity prices, crack spreads and 1/3 self-help. On the left-hand side of the slide, you can just see I've covered most of these points, but the emphasis that we've been placing is we change the portfolio and make our capital investments.
Just to demonstrate what a given year can mean by -- and you want to do this year in and year out, because as you, really, on a sustained basis change and improve your ROCE and cash ROCE, you've got to do it year-after-year. But this just shows percentage change, not app. This is percentage change of cash ROCE shown in green and the ROCE. And this is something that we watch pretty carefully, and we need to do this each year. And as we do it each year, this is how over a multi-year period of time, we believe it will be understood and recognized in the marketplace. And this is both Upstream and Downstream in terms of value creation for our shareholders.
In terms of our financial flexibility in our balance sheet, the left-hand side of the slide just shows over this 3-year period of time and 2 years of our 3-year repositioning. Our debt's at $23 billion. Now you're going to see in the subsequent slide, that when we do a spin transaction, about $6 billion -- $5 billion, $6 billion is going to be upstreaming cash from Phillips 66, the Downstream company, to ConocoPhillips. And so debt will come down from $23 billion to about $18 billion.
Debt to capital ratio stays about the same. You'd say, "Well, we don't pay out all of our earnings in the form of dividends." That's true, you would think debt ratio's getting better. But because of pretty aggressive buying, 15% of our outstanding shares back has resulted in an equity basis that doesn't change that much relative to outstanding debt, is why the debt ratio has stayed where it is.
Now a little more color on our asset disposition program. Left-hand side of the slide, it shows what we sold. LUKOIL, $10 billion of asset dispositions in cumulatively '10 and '11. For 2012, our plan is to sell $12 billion -- $10 billion of assets. So when you add up the 3 years, it's going to be $30 billion of dispositions. Now what's the criteria? Non-strategic, mature, high cost. We want to get fair value, or we won't sell it. And we're not interested in selling an asset and paying all the money in the form of taxes. So it's got to be tax efficient.
And essentially, what we're finding is if we go beyond another $10 billion this year, then we get into potentially selling legacy assets that have -- may get a really good price. We're going to pay so much in taxes, it's not good for the shareholder. Now it does make sense each year to be looking out, go 2013, 2014, is there $1 billion or $2 billion that becomes mature that you should be selling anyway. But the big asset disposition program, the $10 billion this year pretty well completes the program for the 3-year period of time.
A ticker box in the upper right-hand side of the slide, says from the time we start, these 2 years -- now it's not LUKOIL, but this is non-LUKOIL, we sold about 113,000 BOE a day of production. And we sold it looking at reserves for about $20 a barrel. Now you're going to see our asset -- our share repurchase, we believe we're buying our shares at about $10 a barrel, which shows you this on this next slide.
Left-hand side of the slide shows how we ramped up our share repurchase, as we've gone through this 2011, 2012 time period. Reduce shares outstanding 15%. As I said, we think we're buying barrels back, our own barrels that we know pretty well. And they're high-realization barrels at $10 a barrel. We've been funded through sale of LUKOIL, 20% of ownership of LUKOIL and asset dispositions. So for 2012, our plan is to sell $10 billion in assets and buy $10 billion of our shares in. And what we're telling you is our plan is to do half of that, $5 billion of share repurchase through the first and the second quarter of this year. And then the remaining $5 billion is done, as we go through the remainder of this year, as we time it with the dispositions of our $10 billion of assets, as we go through 2012.
What's happened to production per share growth, which has been one of the important things that we talk about? Now look at the graph on the right-hand side of this slide. And for the 3-year period of time, '10, '11 and '12, the way we get BOE production per share to grow is a result of -- even though production's going down, we bought more shares back, so we're actually increasing the production per share during this 3-year repositioning time period of '10, '11 and '12. Then we get absolute growth in production starting in 2013. And that's going to be somewhere between 3%, 4%, 5% a year.
You say, "Well, how certain are you?" That's the result of approved projects that we have been building over the last several years. Those are the metrics that come from what we have been spending money on and will spend money on. It's not assuming exploration success, buying resources or assets. This is the result that comes from investments that we've been making in our capital program. So in the early time period, that comes from share repurchase, that's essentially finishing in big numbers at the end of 2012, absolute growth starting in 2013, about 5% average growth.
Dividends. Well, we've been pretty aggressive on dividends. We go back to a time period on the left-hand side of the slide when we did the merger. And it just shows over this period of time, 230% increase. That's a growth rate, about 14%. We like the discipline of annual increases in dividends, and you're going to see that going forward from both Ryan Lance and Greg Garland for ConocoPhillips and Phillips 66, the discipline of growth in dividends.
Current yield, you see, some can say, "Well, can we afford the this level of dividends?" It represents 20% of cash flow, which is right in the middle of the -- what the IOCs do, in terms of how much cash goes back to the shareholder in the form of dividends.
So what's left to do in 2012, 9 months to go? Upper left-hand side: Complete the asset disposition program, continue to progress our big projects that we're doing in E&P and we're -- we keep working on how can we rationalize the refining portfolio and what's going to become Phillips 66?
Balance sheet, upper right. No material change. We're not interested in -- paying a lot of money, a premium, to retire low-cost debt. But when it comes forth, then we'll repay it. We like the idea of maintaining a fair degree of amount of cash, both Upstream and Downstream, or ConocoPhillips integrated you see today. We have a lot of backup lines, not very expensive to carry it.
Bottom left. Emphasis on returns, no change in that. And distributions, just if there's no change in dividend at ConocoPhillips. And as we've said, ConocoPhillips' Upstream company will continue the current dividend that you know today and receive. The Downstream company is going to have a dividend of $0.20 a quarter, $0.80 annually. And if you keep your shares Upstream and Downstream, then your dividends increase 15%.
So as I said, both companies, like the idea of discipline of raising dividends each year. Probably, it's going to be more modest than it has been in the past for both Upstream and Downstream, but they like the discipline in doing that. As I said earlier, complete the $10 billion of share repurchase, $5 billion by the end of June of this year. And the timing of the remaining $5 billion is with -- tied to the completion of our asset disposition $10 billion program.
So if you look at this 3-year period of time, kind of summarizing, but most of this was in the prior slides. Upper left-hand side, $30 billion of dispositions. We're positioning both Upstream and Downstream for growth, execute the spin. Upper right, the balance sheet. Strong, reduce debt as it matures. The bottom left. Improve our returns. We've already improved our realizations, and that's because of the projects we have. The emphasis on upgrading the portfolio and emphasis on liquids. Distributions, bottom right. Strong dividend increase and a very sizable share repurchase program, which represents 25% of shares repurchased over a 3-year period of time.
I said a few moments ago, but I'll say it again, this next slide shows, we think we've been pretty good allocators of capital, as we responded from the time period of the deep financial crisis, late 2008. Left-hand side of the slide. This is the cash sources, so let me explain cash sources. You see there our 2010 Analyst Meeting. Two years ago, we said, if you look through this 3-year period of time, we think our cash from operation, about $55 billion. And we said, we'll sell about $15 billion of assets. Our current update today, we're telling you, the cash from Operations, not that dissimilar to what we said 2 years ago, we're working to sell $30 billion of assets, dispositions instead of $15 billion.
What are we going to use the cash for? Right-hand side of the slide. Two years ago, we said we'll spend capital in the neighborhood of, slide shows, $40-plus billion. Share repurchase was time-related to what asset dispositions were, $16 billion. Well, if you look at our update, the spending is similar to what we said 2 years ago but more share repurchases, because we've upped the amount of asset dispositions.
The slide we like to talk about and show, what are some of the key performance metrics, because we follow these very carefully. This is how we hold ourselves accountable too for compensation and our targets within the company, so we share them with the x [indiscernible] -- there shouldn't be any difference in what our targets and expectations are.
So E&P production. This is a new update. For 2012, we think it's going to be about 1.55 million BOE a day for 2012. So it's somewhat updated from what you've heard in the last -- say, the last conference call for fourth quarter financial results and conference call. Annual E&P production per share. Well, it goes up, not because the absolute level is production going up, it goes up because of the share repurchase program. Cash margins. We think our cash margin's going to be pretty similar to this past year, because oil price is a little bit higher, natural gas prices, somewhat lower, bringing our refining capacity down 2 million barrels a day and our returns about the same as last year -- and that is the Downstream does pretty well, not only in a crack spread but very strong Midstream and Chemical margins. In the Upstream part of the company, stronger oil prices, somewhat lower net U.S. natural gas prices. Buy $10 billion of our shares in. The end of this year, our shares outstanding, 1.11 billion shares outstanding.
The dividend increase, let me explain that. 15%, that's really the Downstream, the plus is a more modest increased assumption for increased dividend for ConocoPhillips. The 15% is what I referred to earlier on Phillips 66.
So when we finish this 3-year repositioning 9 months from now, we'd really think we position -- and we got to go back to the objective is position E&P for the right financial structure and asset base, legacy assets and growth opportunities to then embark upon on absolute growth going forward in 2013. We think -- this goes back now 2 years from the time we announced the 3-year program. We think it's been recognized, and we've done reasonably well in the marketplace. It just shows what our annual return has been from the time we said, "This is what we're going to do on a 3-year period of time." And then we show how we compare with our existing peer group, which is the large IOCs. And then you see the general equity market.
But now what I'd like to do is -- giving you that background. I'm going to move now towards the spin transaction, tell you a little bit more about the 2 companies, and then update you with respect to our timing of how this is all going to come forth, because we're right on our schedule. Creation of 2 leading energy companies. If you look at it on the left-hand side of the slide, we set it up where ConocoPhillips, you see, will own -- has the ownership of both Upstream and Downstream companies you see today. And the footnote shows at the end of January, our shares outstanding, 1.28 billion shares outstanding. Well, following our share repurchase program that I've been telling you about for -- as we go through the first and the second quarter, you can assume that probably, the shares outstanding when the spin takes place could be less than 1.28 billion shares.
And then the right-hand side of the slide. You can see then how it works, because the way the spin transaction is established for every 2 shares of ConocoPhillips that you have, you will receive 1 share of Phillips 66. Now we think the spin transaction is really an efficient way to accomplish repositioning.
And what are we really trying to do? We see 2 different businesses, Upstream and Downstream. By doing the spin transaction, repositioning, better returns, allocate our capital even better, we think the marketplace does like pure plays. There are going to be more and more focus on the pure-play companies from the leadership of both Upstream and Downstream, more transparency. We do think that Phillips 66 is going to have more opportunity that it wouldn't have in the integrated company to participate more, I would say, in the midstream and the petrochemical business to make investments in growth opportunities than they would in the integrated company. It does not mean that they're going to increase investment and exposure to the refining side of the business.
Let's talk now about the new ConocoPhillips, the E&P company. Bar chart, upper right, 8.4 billion barrels reserves. I believe, Exxon just came out and said 24.3 billion, somewhat a little bit more than 24 billion of reserves. So about 1/3 the size in proven reserves of ExxonMobil. You see our production, we said production is going to be 1.55 million BOE a day in 2012. And it just shows we're -- it's a good diversified portfolio. We're lowering the emphasis of natural gas, the light blue at 25% as we invest our money going forward as our ability to sell some of our more mature positions.
Now the bullet points. We think we have the scope, size, diversified portfolio to do any type of project anywhere in the world. We have the people, the resource and technology. Our plans over the next 5 years is -- more than replace our reserves. We've been doing that. I have a slide. I want to get into that in a moment. And we feel we have a strong balance sheet to accomplish all this. When the spin initially occurs, the dividend continues to be the same. We know the share price will not be the same share price you see today. So we expect the dividend yield on ConocoPhillips Upstream company after the spin probably going to be a little bit more than 4%.
Now we do think that we're really well positioned, uniquely positioned. I want explain this in the next slide. So look at the right-hand side of the slide. So what's unique? What we put on there in the light blue are the IOC peer group. And then we put the large independent E&P companies. Now ConocoPhillips is about twice the size and production as the largest independent E&P company. What's unique about our position is we see growth coming 2 ways. One, we're pretty aggressive on shareholder distributions. And that's shown by the dividend yield on the x axis.
Our growth. Our growth is a little more than 4% going forward. So certainly, distributions and growth, very competitive on the IOC side. In terms of the independents, we're on the low side of growth, well that's 4% or 5% -- 3% to 4%, 5% on growth. But our distributions, we're giving growth each year, and we're giving growth in distributions that you don't get from the pure independent. That's what's unique about us -- is growth. What does growth mean? It's value creation. It's going to come from distributions. And it's going to come from absolute growth.
Now if you look at the bullet points on the left-hand side of the slide, 3% to 5% production growth, next 5 years. And then you see the margin enhancement. That's a flat price environment. That comes just by bringing on the new projects we've been investing on, which is essentially mostly liquid oriented.
Shareholder distributions. Pretty well already talked about that. But most of the share repurchase, essentially, is done at the end of this year. Share repurchases going forward, after 2013, is after you give consideration to your capital investment opportunities, increasing your dividend, then you say, "What has commodity price environment given to us?" Probably, there's always an interest in offsetting dilution that comes from compensation programs.
Reserve replacement. Right-hand side of the slide. Next 5 years, we see we have the projects identified to more than replace our reserves organically. It's organically, it's not the assumption that we're going to buy some asset to accomplish reserve replacement. We think we can do this, identified plans, $20 a barrel.
And you see on the left-hand side of the pie chart where reserve additions are coming from. So continued, same basic program that we've had all along. The Lower 48, by the way, most of that reserve replacement and growth is coming from Bakken, Permian and Eagle Ford, as well as other new areas. Canada is really coming from our SAGD position, Foster Creek, Christina Lake and Sermont [ph]. Alaska, we just have some satellite investment opportunities. Australia is really coming from our LNG projects. Europe-Africa, what's very interesting about Europe-Africa is we'll be redoing Ekofisk, adding reserves and restraining and constraining the fall off in production. As the fields mature, we'll be adding Jasmine. And we're very excited about the growth opportunities for the Clair. Asia-Pacific, of course, there's things that we do also in addition to LNG in Australia, Indonesia and Malaysia.
So investing in growth. Left-hand side of the slide. This year, somewhere between $14 billion and $15 billion towards E&P. And then you can see how it's broken down to the maintenance, exploitation, major projects and exploration. On the major projects, the -- I'll say the middle upper right-hand side of the slide, it just shows where the money's being spent by identified projects. By the way, it's a good time to stop here, but I'm just giving you some summary overview of Upstream and Downstream. And you're going to hear later part in this presentation very detailed presentations, strategies, plans, capital investment and how we handle sources and use of funds is going to be provided by Ryan Lance. In a few more weeks, in Downstream, Greg Garland as well.
Exploitation. Well, you could argue exploitation growth, or is it exploitation. But we put Eagle Ford, Bakken, Permian, some of our big programs -- it's down in exploitation. Now all of these projects, when you look at all of them, both major projects in exploitation, that bottom ticker box is really important, because on our pricing assumption and environment -- and we're not assuming growth or higher prices than we've experienced not just now but say, back in 2011. Full cycle we're getting 20% returns on these investments. So these are good projects.
Now growth from major projects. You can see on the left-hand side of the slide, where the growth is coming from. But I think one -- the second point -- the second bullet point up there's really important. Now, they yellow, the natural decline if we make no investment in exploitation is 10% decline year-to-year. But our exploitation, the projects that we've identified for exploitation, they're identified projects. Through exploitation, we can hold our production flat. And the red are the growth projects. And those are the identified projects, you could say we have and continue to invest in. So this is how we get our growth. But I think the second point, essentially, no decline in our base production after we spend our money on exploitation.
Absolute production growth. Well, you can see 3% to 5%, as we go through these 3 to 5-year time period. That second bullet point pretty important. 85% of the growth is really coming from liquids or LNG projects, where the price is tied to liquids. The reason North American gas is not coming down is because when we make our investments in Eagle Ford, we know that we're going to get some natural gas. So we're not investing on pure natural gas in North America, but we do -- gas production stays pretty steady, because the gas comes out, associated gas production with the liquids coming from our unconventional oil investments.
Improvement in cash margins. This is pretty interesting, because it just shows, and this assumes a flat price environment, just by the projects we're investing in and when we bring them on, it just shows the red as we go through time, cash margins continued to increase, cash margin less than $30 a barrel go down. The right-hand side of the slide shows well, how is this happening? Of course, you want to be in the upper right, and that's where we're investing. Those are the projects we have in the portfolio. It shows what the cash margins are, and you could see we're increasing production. Obviously, the disposition candidates are the things that we've been -- we're working on that would be part of our $10 billion asset disposition program left to go. And North American gas, the only reason it's in positive production, a small amount of production, is because the associated gas gets produced with the liquids.
Just a slide on exploration, because you're going to get a lot on exploration in a few weeks from Ryan Lance and his team but unconventional exploration. Well, we really like our position in Eagle Ford, Bakken and Permian. We'd like to do even more. As you can see, we're looking for the new Eagle Fords. We've acquired a lot of acreage. Our production, I think, at the end of last year, from Eagle Ford, 50,000 barrels a day, and we'll be at 100,000 barrels a day by the end of this year. Everything that we see at Eagle Ford, that meets our expectations or probably even exceeds our expectations, because we've seen a pretty good pricing environment.
Then to the bottom part of this slide, conventional deepwater. We really like the acreage that we picked up, the 2 blocks in Angola. And I believe the blocks associated or near these blocks have had some recent exploration success. So we're just so we're just as excited about as Angola as we were when -- we've been chasing after this opportunity for the last several years. And we've been pretty aggressive bidders and the deep -- and the Paleogene and the Gulf of Mexico. And we like the acreage that we've been picking up.
And then the other area is -- the bottom part of that slide. Clair, in the U.K. sector of the North Sea. BP talked about this I think last year. We've got a pretty significant presence in Clair, and we see a lot of opportunity for adding reserve production and growth. This is going to be a really good part of our portfolio in this part of the world. And we like the acreage that we picked up in the most recent round in Norway. So you see we've added quite a bit of resources, resources not -- the objective in the bottom of this slide is convert these resources towards reserves. But you'll get a lot more update on exploration in a few weeks from Ryan Lance and his team.
Now the next slide, when we look at ConocoPhillips, the Upstream part of the company, we think there's real opportunities for differential value creation. So when we set this slide up, we look at what's the enterprise value of ConocoPhillips today? And we say, it's around $115 billion. You take the market value of the company, and you add the net debt to get to about $115 billion. And we say, it's just an assumption. 75% is going to be ConocoPhillips, somewhere like that. 25% is going to be Phillips 66. That's how you get to about $90 billion. And all we have done is we put different metrics on this slide that analysts and shareholders, buy and sell side use. We put the pure independent E&Ps in dark blue, the IOCs in light blue, and we say, we execute the plan, and we've just shown you the slides. And we think we have an opportunity to move the enterprise value pretty significantly, whether you look at it as some blend of pure E&P or IOCs. The facts are we're competing -- doesn't say we're competing with the larger and the smaller companies that do E&P business.
I'd like to move now to Phillips 66, the Downstream part of the company. The pie chart. The upper right-hand side of the slide. You can see most of the portfolio is invested in United States. And the shaded area, some of the refining investments in Europe and our share of investments, very profitable investments, in petrochemicals though our joint venture with Chevron in Chemicals. Income, you can see where the income's coming from.
Now let's look at the bullet points on the left-hand side of the slide. What's really interesting about -- what's really exciting about this Downstream company, this is not a pure refining company. This is an integrated Downstream. It has refining and it has a very good competitive profitable Midstream and Chemical business. The objective is no different than for ConocoPhillips or the Upstream company. It's going to be very returns-focused, shareholder friendly and we just received our Moody's and S&P ratings for our Phillips 66 and we feel that's well positioned. And if you look at the Downstream company, there's good or better than any Downstream company. And you can see what the shareholder distribution in the form of dividend will be.
I'm not going to spend too much time on this slide, talk a little bit about this -- what we see is a differentiating and a very competitive leading Downstream company, Refining and Marketing. Pretty complex refining system. And last year, our ROCE was 13%. But this company is going to have less refining going forward.
Midstream. Two bullet points I have point out. The largest gas gatherer and processor in the United States, a lot where just NGL producer in the U.S. And we do this through our joint venture DCP with Spectra and we see -- given unconventional liquids in North America. Real opportunity for feedstock to participate in Midstream business, and we've been very good at this historically. And you can see the returns and we expect the returns to continue to be pretty good on this business.
Chemicals. We have always been strong in Chemicals. And now we think we're really well poised in North America for new crackers. We do this business with Chevron, and we're both very interested in growing this business. And we see, because of an advantage position, not only in the Middle East but here in North America, the continued good returns in the Chemical business.
Creating differential value, no different than E&P. The repositioning. You're going to see more investment proportionately towards Midstream and Chemicals through those joint ventures, aggressively manage the cost. We think diversification, strong balance sheet, is really going to position this company to create value.
Shareholder distributions. This is always a differentiator. We feel pretty strong about this in terms of dividends, and to the extent that cash is available after meeting all its dividends and capital requirements, the liquidity can be looking at purchasing shares.
Competitive position. The left-hand side of the slide just shows the segment adjusted earnings. You can see it pretty sizable Downstream, certainly bigger than the pure play independent refiners. And then you see the diversification of its portfolio. Looks more like some of the large integrateds in the form of Downstream. Upper right-hand side of the slide, you can see that our size is somewhere between Valero and Chevron. And refining capacity bottom right, a lot of exposures to the Pad 2, 3 and 4, where the crack spreads are certainly better than what we've been experiencing on the coast.
Downstream. We like these kinds of slides on metrics because this is what we hold ourselves accountable to. When we can then process more advantaged crude through our refineries, we know we're more profitable. And operating a clean product to form a [indiscernible] -- that's profitable. You can a see strong balance sheet, see the credit ratings and returns. And you can see what time this portfolio is going to shift more toward Midstream in petrochemicals.
Differential value creation. I won't go through in detail but the bottom shows a footnote. If we say, "what is the peer group?" It's not just the refining side. You can pick up some midstream companies that are available, as well as chemical companies and just say, all right, this goes back of $90 billion, of $115 billion of ConocoPhillips you know today is Upstream. You've got $24 billion, $25 billion towards Phillips 66. That's its enterprise value. How does it compare with the peer group that's listed on at the bottom? We think there's a lot of opportunity that once the marketplace understands and sees how strong these businesses are and how they perform, that we can create a lot of value for the shareholders.
So now, what do we need to do in terms of an update on the spin transaction? So I'm going to go through this. So this is really the schedule, what remains over the next 2 months or so. We've got the credit ratings from Standard & Poor's and Moody's: ConocoPhillips, no change, A and A1; Downstream, BBB, Baa1. The bank financing is all in place to do the spin transaction. If you look at access to debt capital markets. We recognize that fixed rate debt markets and short-, medium-, long-term maturities is pretty good. So we'd like to be looking at Phillips 66 possibly, accessing these fixed-rate markets before the spin because you can put in place -- and we would think is a fixed, low-cost capital structure for the Downstream.
We've been working hard from the time we announced the spin with the IRS and the SEC, and we expect clearances from both of them in March. Our next ConocoPhillips board meeting is scheduled April 4. At which time, we would expect to have these clearances and approvals, so our board would then approve the transaction with an effective date 1st of May. You're going to get a very full update on Phillips 66 from Greg Garland. It will be an update on Phillips 66. It will not be an update on ConocoPhillips, the integrated company. This is the last presentation on ConocoPhillips as an integrated company.
When-issued trading. Timing on that is April 12. Ryan Lance and his team will come and give you complete presentation starting the week of April 16, and that's going to be about ConocoPhillips, the Upstream company, not ConocoPhillips, the integrated company. Record date, April 16. Earnings release, that's ConocoPhillips integrated earnings release for first quarter results on April 23. Distribution date is April 30 after market closes. May 1, first trading. The dividends for ConocoPhillips that you know will continue on the same dates and the first dividend from Phillips 66 is going to be in the third quarter.
So what do we have left to do? Well, certainly on the Upstream company, if you look at this, complete our share repurchase, our assets, dispositions, spending our money on our best projects, executing them on schedule and on budget. Completing, as I said, asset dispositions. Capital spending, $14 billion, $15 billion. Downstream company, same things that we've outlined, ready to go up and running. Integrated company, a unique opportunity for growth, both absolute growth and value to the shareholders.
I've one last slide. This is kind of reflective slide and it just shows -- we have been on this journey for 12 years or so. So you go back to 1999. So been in a lot of different transactions, mergers, acquisitions, ventures that have been done through this time period to create the ConocoPhillips that you know today. It just shows what our returns have been compared to the peer group and general equity market. And I really call your attention to the last couple of years when we had the deep financial crisis in late 2008, where we felt so strong that we were going to come up and did come forth with our 3-year repositioning plan. And we feel it's the right plan, and a spin transaction is a right plan for ConocoPhillips. I'm not saying it's the right plan for any other company, it's the right plan for our company. And we believe that it's recognized reasonably well in the marketplace for how we've performed over the last several years. And what we are creating is 2 very strong companies, well positioned with legacy assets, growth opportunities, strong balance sheet and a culture for being friendly to the shareholders. So we're in a great position to build off what we've already put in place over this last number of years. So I'm going to stop now and take whatever questions you may have, and then we'll wrap up this analyst meeting. Doug?
C. C. Reasor
So yes, we've got mics for you. Please identify yourself and your affiliation.
Douglas Terreson - ISI Group Inc., Research Division
I'm Doug Terreson from ISI. So Jim, first congratulations on your career performance. From what I can tell, there's been about $50 billion of economic value created on your watch and that's a pretty exclusive club really for any corporate leader, not just energy. So my question is on the divestiture plan specifically, the implications for returns and value creation as the company divests some of these low-return, nonstrategic assets and redeploys the proceeds into more productive areas. And so, have you tried to isolate just what the divestiture plan will do for returns or profits per barrel, because it looks like most of it is going to be a 2012 item? And also, do you have any Refining and Marketing divestitures in the plan this year?
James J. Mulva
Well, first, thank you for the nice comments. Most of the dispositions this year are E&P oriented and they would be oriented towards assets that we have that have lower returns or do not have the upside potential or where we -- without the upside potential. And we look at and we say -- and obviously, if we're looking at selling $10 billion of assets, we have more in mind that we look to the marketplace to show it to the marketplace because we know that if we can't get the right price, we wouldn't sell. So most of the program is E&P. Most of it is either mature or potentially not quite yet ready to go and we just don't see the returns that meet the portfolio. I think, it's probably best for Ryan to address specifically that, I'm just so -- in general, responding to your view that most of your question. Most of the dispositions this year are E&P oriented. They are not the legacy assets with the high existing production that we have in the returns today. The Downstream, we are looking at. Continue to rationalize the Downstream portfolio. We're not going to wait until we continue to work on this before the spin and after the spin. And Greg Garland will give you much more update per the schedule that we just outlined.
Paul Sankey - Deutsche Bank AG, Research Division
Jim, Paul Sankey of Deutsche Bank. On the asset disposals, I'm sure you quite consciously raised the disposition target to $10 billion from the previous range of $5 billion to $10 billion, is that right? For this year?
James J. Mulva
That's right. We look at what it is we would like to sell that meets our longer-term objectives of what type of portfolio we want to see that has the legacy assets and the opportunities. And we think that's about $10 billion. And we're just giving you updated numbers by saying our target for this year is to sell $10 billion in assets.
Paul Sankey - Deutsche Bank AG, Research Division
And I guess that would imply that you've got more than $10 billion in assets on the market at this time?
James J. Mulva
Well, they're not necessarily on the market. But there are things -- some are on the market and some that we consider looking at potentially selling. And we recognize it, and we have in the past, look back 2 years or so. There are some things that we have tried to dispose of but we didn't get the right price. It didn't make sense to sell at a distressed price, so we kept it. So we have in mind, if we're going to accomplish $10 billion, we have more than $10 billion that we're willing to expose to the market to see what does the market really like. And one of the things we find, it's rather interesting that all you need is one potential buyer that really likes an asset. You don't need to have 2 or 3 but one that really likes an asset. We looked in the past, and in some cases, we've been pleasantly surprised at some of the realizations that we've got for what we sold. So we will test the market with more assets at $10 billion to accomplish the objective.
Paul Sankey - Deutsche Bank AG, Research Division
Right. I guess that would finally mean that you, longer term, beyond your watch if you like, there would be the potential for further asset disposals of the kind of stuff that, at the moment, isn't getting the right price. But in due course, could be -- continued to be disposed. I'm thinking of the fact that you said that future buyback will tend to be dependent on further asset disposals.
James J. Mulva
What we're really saying is through experience, if we expose more than $10 billion in dispositions, we find that we feel pretty certain that we can do $10 billion. But the fact that we will expose more than $10 billion, we find that we won't sell because we can't get the right price and we'll retain it. And it doesn't mean that just a few months later, you're going to go back out and get the price you want. So that's why I said earlier that once we finish this process at the end of this year, the amount of asset disposition -- we like the portfolio. So it then goes forward as not $5 billion or $10 billion each year going forward, it's $1 billion or $2 billion or something that becomes more mature and redeploy.
Blake Fernandez - Howard Weil Incorporated, Research Division
Jim, it's Blake Fernandez with Howard Weil. I guess I had a question for you on the assets, the $10 billion of assets for sale. Can you quantify what percentage of that is subject to North American gas prices? And the second question I have for you is on the Gulf of Mexico. I know, historically, you had talked about potentially expanding there. We've seen no M&A transactions. So are you just taking more of an organic approach to growing in the Gulf?
James J. Mulva
What we find on asset dispositions, it's pretty difficult. We'd like to sell some of just pure gas, more mature properties that we have in North America. But on the other hand, we've accomplished most of whatever we felt we could sell with the gas prices we see today. You don't get the interest or the price level that you would expect. So when we look at our $10 billion of asset disposition, it doesn't have a lot of just North America pure natural gas. In terms of our interest in Deepwater Gulf of Mexico, we look back at what took place in the Macondo incident. We thought there would be opportunities for us to farm in, to acquire some participation and interest of things that we would like. It just hasn't materialized quite like we thought or would have expected. We were prepared and ready to do so. We had said to the financial community that we'd be willing to spend $2 billion or $3 billion if we can, in total, to get into the right things that we'd like and to improve our Deepwater position in the Gulf of Mexico. But it just hasn't materialized. So therefore, we've done it by participation in lease sales. And we're pretty pleased with what we've accomplished. But in terms of -- in our plans, Ryan will update you and he'll meet with you in the next several weeks. But we don't have in mind that -- huge acquisitions or that to accomplish that objective and be part of Gulf of Mexico.
Robert A. Kessler - Simmons & Company International, Research Division
Jim, it's Robert Kessler of Tudor, Pickering, Holt. Everything I've heard so far from Phillips 66 is about the value through an integrated downstream business. And everything I've heard from ConocoPhillips over the last year is about the value through disintegration. Today, MLP is traded about 3x the cash flow of integrated downstream companies. So my question is, when will Phillips 66 harvest that value gap for shareholders?
James J. Mulva
Well, I think that Phillips 66 that you're going to see and I presented here, we feel pretty strongly is the right position for us to be in -- and you're saying further adjustment to the portfolio of Phillips 66, right?
Robert A. Kessler - Simmons & Company International, Research Division
Right. I mean just simply on the market today, not even counting further growth through reinvestment and growing opportunity set for liquids movement and processing in North America, but just take what you've got today, not just DCP, but what you've got buried in the rest of the Downstream portfolio and just start dropping down assets and do an MLP. You can still grow if you want, but there's value on the table today.
James J. Mulva
Yes. I think you'll continue to see what we have done in the Midstream through DCP. That's worked pretty well. I don't think you're going to see that in the joint venture with Chevron on Chemicals. We really like how we're doing the business in petrochemicals with Chevron. Whether there's opportunity to doing things like that, MLPs and some of the, I'll say, the refining Downstream part of this company, certainly they will be evaluating and looking at it. I think it's probably more appropriate for Greg to respond to that in a few weeks' time.
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
Jim, it's Doug Leggate from Bank of America. I've got one point of clarification, and one philosophical question, if I may? The point of clarification on the asset sales, has there actually been a volume change or is it more a reflection of the significantly higher commodity expectations you might have in terms of those disposals? Has the volume assumption gone up, more assets? Or is it the same assets with a higher price?
James J. Mulva
Help me a little bit.
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
You talked about $5 billion to $10 billion of asset sales. Now you seem to have skewed up towards $10 billion. So is there actually more asset sales or is it the same sales with the higher-price assumption?
James J. Mulva
Probably both. What has materialized over the last, say, 2 or 3 years for us is some of the projects that we've been investing in, long-term projects we question and starting to come to conclusion. Do they really fit the portfolio? So we've been going through this journey in the last 2 or 3 years. We are putting more focus on maybe there are some things that we should part with more than we thought 1 or 2 years ago that we can redeploy in better opportunities in the company. That's one thing. And then the second is, with the pricing environment, we look at things that just get a little more mature and we look at the pricing environment that we didn't expect that we see today. 12 months ago and we ask ourselves maybe, is this a good opportunity for us? So it's both.
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
Great. My philosophical question is really about the cash power of the portfolio that you're leaving behind and it really goes back to your emphasis on growth per share and when you came up with a strategy a couple of years ago, how the market would reward you for growth per share. Again, I don't want to try and mess this question up too much, but if I look at the exploitation capital, net of your actual CapEx spending, you could probably achieve the same per share growth without any absolute growth. So why is the right thing to redeploy capital on a very large portfolio and essentially come in at the low end of your [indiscernible] peer group in terms of our growth on the top line, when you can complete very effectively by a flat production profile, buying back stock in the way that you've done over the last couple of years?
James J. Mulva
Well, it's a good question. What we see though is the opportunities for 20% return on capital employed projects, that we should be doing these projects. And that's how we really develop and generate what's our capital spend. And then once we do those projects, the way I'm answering it, the cash that's available, we want to increase the dividend then we look at share repurchase. They're really driven. It's really driven. What you're saying is you can -- instead of growing to 1.8 billion BOE a day, take the capital and keep buying your shares in, right? That's what you're saying. But we look at it and we say, well, most of that share repurchase is done through asset dispositions and what we've done for 3 years. But the projects that we're investing in, we really do believe have really great returns. Now one of the things that was a prior question, why did you go from $5 billion to $10 billion in asset dispositions? One, either we've get -- we've -- more and more focus on which projects we want to do, we've upped the amount of asset dispositions. If you actually look at that slide earlier in the deck, when we went to the marketplace in the analyst presentation 2 years ago, we said we thought we'd be spending -- sell $15 billion. And you saw the share repurchase. We essentially almost doubled it. So we're doing pretty much what you've said. But we've really positioned the company now, we've found the sweet spot. It's not 1.4 million BOE, not 1.5 million, it's not 1.8 million. We think the bottom is 1.55 million. And now the volume increase is a result of the projects we really want to invest in. It's not saying that we want the number to be 1.8 million or 1.7 million. It's the result of the opportunities we see and we want to invest in.
Arjun N. Murti - Goldman Sachs Group Inc., Research Division
Jim, it's Arjun Murti with Goldman Sachs. My question was -- it's really a little bit of a strategic question. The ship has sailed to some degree on this, but there is obviously been a dramatic change in the U.S. energy outlook with dramatic crude oil and liquids growth. My question is really why didn't you contemplate keeping the Midstream and at least a couple of the Mid-Continent refineries within the Upstream business? Your Cenovus joint venture certainly benefits from that integration, getting oil and liquids out of the Eagle Ford and the Bakken. If there is a value in integration, it is right now in North America. And at least our view is it's early days in the shale revolution. So certainly 10 or 15 years from now, I can see why it might not make sense. But you do have the assets now, why not have kept some of these assets within the Upstream company?
James J. Mulva
Different businesses. I've been with the company now almost 39 years. I came up through this side of Phillips petroleum. Historically, we're really one of the starters of innovative gas, gas liquids business, the business you're talking about. The gas and gas liquids business, the Midstream business, the petrochemical business, the refining, is a very different from exploration production. And if we look at the growth opportunities going forward in this part of the business in North America, I think being a part of the culture and the mentality of a Downstream is different from a business in the Upstream. And therefore, in the Upstream, the focus is exploring, finding, producing. Historically in the past, over decades, the E&P approach is to not invest in much money as that. It's not as attractive, as lucrative as it is generally in -- viewed right or wrong in the E&P business. It's a different business. And so when you see what has happened, this is my own view of what's taken place over the last decade, we, as an industry -- as a company and as an industry, have not seen or gone after the opportunities other than pure E&P. And now that's why you find very successful companies, like Enterprise, Kinder Morgan, whatever, in a whole space have developed incredible value for shareholders. I just think the businesses makes more sense tied to the Chemical-type people, the Midstream-type people, even the refining side than it does in the E&P side. And that they will -- for us, to have spent billions of dollars as an integrated company in that business, the question would be what is the company doing and what is the strategy and what is its plan? And the other is, we wanted to make sure -- we know that ConocoPhillips Upstream company. You look at our legacy assets, growth opportunity, we've got a great story. Downstream company, we want to create a Downstream company that's really sustainable. It's going to compete against the enterprises, the petrochemical companies, and all of those companies. And we want to create a Downstream company that scope, size, sustainability that it could really grow value and participate in these businesses. And we felt that it's not just a pure refining company. We want an integrated Downstream to go after the opportunities. So it's -- I'm trying to answer your question, you may not quite completely see it the same way, but it's really the culture and the approach of 2 different types of businesses and who, we believe, will more aggressively go after that space and make investments, operate and create value.
Edward Westlake - Crédit Suisse AG, Research Division
It's Ed Westlake, Crédit Suisse. I'm going to say a different kind of thank you, which is thanks for 20 years of reading all our research. Not, only 2 years of mine. The question I had is that, still when you read that research, I think perhaps a little bit of skepticism about your asset portfolio or even your ability to grow out to 2015 and beyond. So what do you think, as you read that, do you think that the key resource positions Conoco has, which the market is not getting as they look at the share price today?
James J. Mulva
Well, I don't think -- as a company, we always feel we can do better, both on not only how we manage a company, we think we do a pretty good job of that, how we lead the company, but maybe we don't communicate as well as we should. I think you're going to see more granularity, more information as a pure play ConocoPhillips E&P company. We will be forced to communicate and show more about our portfolio. When you come into a conference or a presentation, you've got 30 minutes, you've got to talk about the entire company, integrated company. You go at a 30,000-foot level versus getting down to detail that really show what value does SAGD. We have a SAGD position that's pretty equivalent to Cenovus. You look at the market value of Cenovus, I'm not so sure that the marketplace really understands the strength of our position in SAGD in Canada. So we just need to do a better job. What's differentiating for us is that SAGD position that we have in Canada, opportunities to make good investments in the North Sea, our unconventional oil, our Eagle Ford position is right at the top of the best. And we are doing -- finding and looking at the next Eagle Fords. And we've got some great things that we're doing in Asia-Pacific, Malaysia, we continue to do well in Indonesia. LNG project was essentially sold. We sold the 2 trains out of APLNG. So these are differentiating things for us. But I think, by the pure play companies, we are forced and will communicate much better and describe and communicate to the marketplace what those legacy assets are and what those opportunities are. And the marketplace will force discipline in terms of not only communicating but ensuring that when we say these are the assets we want to keep and these are where the places we want to invest, will force us even further to better perform and create and invest in a way to create more value for the shareholders. We do that well, really do that well than the marketplace will see it and we'll be return -- returns will be enhanced. We look at our company today. We know exactly what we want to do for the next 3 to 5 years. The projects are there. The real question is, years 5 through 10, 10 through 15. We want more and better exploration results and we want to make sure that when we make our investments and we have opportunities to go into discovered resources, that we get what we want in terms of returns. It's not important whether production is 1.6 million, 1.8 million, 1.75 million. What's important that returns are really good, it's sustainable and realizations are high. Mark?
I had 2 questions. A specific question and one that's a little more philosophical. Have you received your private letter ruling from the IRS? I haven't seen anything...
James J. Mulva
No. The slides indicated we expect to get our approvals from the IRS and the SEC as we go through the March time period.
Do you expect that what you will receive from the IRS will have anything to say about the ability to buy shares back and any impact it might have on the tax-free status in transaction?
James J. Mulva
We expect -- what we are doing in the spin transaction is a typical spin transaction. It's been done before by many other people and we expect a ruling approval in a way that is commensurate with just the normal spin transaction. Get into more details on that I think is something to be covered later. Another thing, Mark, you say and people have asked me about this, "Well you retire." You don't retire. You just do different things. Because I think, I'm talking philosophically now, I think you get old if you really quit and don't do something. That's how you get old quickly. I'm now going to be really busy doing a lot of things. And so I look forward to it. Like all organizations and companies, I've been doing this for a long time. I've enjoyed it. It's been a great run working with people like yourselves and most interesting people and the most, probably, without any doubt the most interesting challenging industry in the world. And you do this around the world. It's very intoxicating. The people you work with, the technology, financial resources, the political aspects of it all. But there comes a time when it's important to have -- to turn it over to younger people, a new set of eyes. And I think the company is just extremely well positioned. I think we've done a pretty good job as a company, as a team, responding to the economic environment and what took place in 2008 and worldwide situation in a way that we've created value for the shareholder, but really positioned the company really well going forward. And so really excited about that. And I think what you're going to hear from the presentation from Ryan Lance and Greg Garland, that enthusiasm, an excitement of what both of them are going to be doing as pure play companies for the shareholders. So it's really good for the company. It's good for them and the new leadership team. A lot of new opportunities both in ConocoPhillips and Phillips 66. And for myself, I have to say, I look forward to all the things that are going to be just different and interesting. I expect to stay young by keeping my mind in the game.
My philosophical question goes back to the partnerships now with Cenovus, originally negotiated with Encana. At the time they were negotiated, it was predicated, I believe at the time, on attempting to preserve some degree of integration between the Upstream and the Downstream as a natural hedge against what might or might not happen with respect to North American heavy crude prices. Under the split transaction, it puts that in an entirely different light. And I guess I'm curious as to whether you see the possibility that Ryan in his strategy for COP going forward might not want to be quite as aggressive in pushing ahead the oil sands growth side of the story, particularly in light of the kind of pricing that we're seeing with respect to Canadian heavy and some of the issues relating to the ability to get it to market?
James J. Mulva
Well, you make interesting points. When we did the transaction with Encana, Encana liked the idea of exposing and being an owner of part refining from the integration side. And we have refineries and we said, we like to tie these into the oil sands production. But we look at the company today, maybe not in the same way. You could always go in the marketplace and try to do some amount of engineering on achieving or protecting yourself over the -- you like the crack spreads, you like the prices on the Upstream side. We've never been the ones to do that. I think what we see in terms of the differentials, WTI versus Brent, that's going to continue for some period of time but the market has a way of correcting. I think what you're going to hear from Ryan on the Upstream side is our position in SAGD is really the premier properties. They're more manufacturing-type production. They have a low-cost structure, high returns. I don't think you're going to see a change in terms of his approach to how he wants to invest and continue to grow the Upstream part of the business and SAGD. But probably a question that's more appropriate for Ryan to answer when you meet with him in a few weeks than it is for myself. But it terms of our basic approach at strategy, yes, we see anomalies, pretty substantial anomalies in the marketplace today and differences of differentials. But historically, it hasn't changed to what we want to accomplish in doing the Upstream part of the business.
Evan Calio - Morgan Stanley, Research Division
It's Evan Calio, Morgan Stanley. I appreciate that we'll get more detail on April 16 and you've provided a lot of information on the forward returns, forward growth, cash margins. I guess, going forward, do you see the $14 billion to $15 billion CapEx supporting the absolute 3% to 5% growth? Meaning do you think you've positioned the company to deliver the growth, as well as the yield on a reasonable commodity scenario, free cash flow-wise?
James J. Mulva
Well, we think the $14 billion, $15 billion is the right number for us for 2012. Of course, the number could go up with exploration success, some kind of opportunity or -- just like this past year, we looked at $500 million to $1 billion of spending on things like Eagle Ford. We look at how well -- how quickly can we spend the money? Can we get the wells drilled? Can we evacuate the product from the production? So it can move around some. It's tied to the opportunity set. And we think those kind of numbers are pretty good going forward. But Ryan will give you a good update on that, what you can expect when you go beyond 2012. It's not really right for me to get into that because is -- I don't want to take away his thunder and his whole approach and his leadership and what he's going to say in a few weeks' time. What I'm really trying to do -- it's a good opportunity for me today to do 2 things. To find a way of talking with the financial community and say thank you, I appreciate the several decades of working with all of you. Many of you that I've worked with a long time ago have already retired as well and gone off to do other things. But the 2 things I want to tell you is the company's doing really well and we're right on schedule for the spin transaction. Giving you some update on numbers and update on schedules, what you can expect. And then to tell you in just a few weeks' time, not 2 or 3 or 6 months' time, you're going to get the detail of the Upstream and the Downstream, and it's not really appropriate or right for me to start talking about these presentations when they are being developed even today, better and better to respond to each of your unique questions that have already come up here today. In a way, it's good that these questions come up today because I can assure you they will be ready and prepared to respond to you when the questions come in a few weeks' time. And whether it's evasive or whatever, it's not really evasive, I have my own points of view or whatever. But you know when your time comes, May 1 that you're going to retire. It's really shifting quickly toward the new leadership team of Ryan and Greg, and it's for them to respond to those questions. And some of which is a personal opinion and review. And it's not really all that relevant what I have to say today versus the new leadership. Paul?
Paul Y. Cheng - Barclays Capital, Research Division
Two quick questions. One, earlier, you had just update the number. I think, previously, that we're talking about a 1.6 million barrel per day for this year, now just 1.55 million. I think the budget is $14 billion, yes, $14 billion, $15 billion. So is the slide in lower production just all reflected on the asset sales or just relate to other reasons? And there seems like a range, the high end, is that related to exploration or would it relate to production in the lower 48? What kind of increase we may be talking about comparing to the official budget?
James J. Mulva
You mean the 1.55 million?
Paul Y. Cheng - Barclays Capital, Research Division
1.55 million compared to previously. I think in the fourth quarter conference call, the expectation for this year production is about 1.6 million before dispositions. So I guess the question is, is that primarily reflecting the disposition?
James J. Mulva
The one point -- Clayton just responded. The fourth quarter conference call we said 1.6 million BOE a day before dispositions. And what we're really telling you, it's a better production number because it's 1.55 million after consideration of dispositions.
Paul Y. Cheng - Barclays Capital, Research Division
Okay. So that's primarily is the differences between the 2 numbers. Second question, just curious, at the time when you decided to go down beneath that this is the best path of separating out the company into 2, and you have already pointed out the example that your oil sand property, you said, John mentioned Cenovus and Cenovus is a $30 billion market company, it'll be trading at a very high multiple. Is there any point that at the time of consideration that instead of just have 2 separate company and the Upstream you even separate into several different pure play. I'm trying to understand that, is that even a consideration within management or that you think the economy of scale is still too important?
James J. Mulva
Well, that comes up from time to time, even in the last several years as we looked at our company, people have said, "Well, maybe you have an international, domestic, you have Asia-Pacific. You change -- you further break ConocoPhillips Upstream into different separate entities in some form or another to create more value for the shareholder." We study, we looked at that. But that's a question that really -- you ought to ask Ryan, and he'll be prepared to respond to that.
Okay, I think that pretty well covers it. We may have a few moments afterward, we can talk to each other. So thank you very much for attending and your interest in ConocoPhillips. Thank you.
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