10-Q
CONOCOPHILLIPS (COP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
[
X
]
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2021
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number:
001-32395
ConocoPhillips
(Exact name of registrant as specified in its charter)
Delaware
01-0562944
(State or other jurisdiction of incorporation
or organization)
(I.R.S. Employer
Identification No.)
925 N. Eldridge Parkway
Houston
,
TX
77079
(Address of principal executive offices)
(Zip Code)
281
-
293-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed
by Section 13 or
15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter
period that
the registrant was required to file such reports),
and (2) has been subject to such filing
requirements for the
past 90 days.
Yes
[x] No [
]
Indicate by check mark whether the registrant
has submitted electronically every Interactive
Data File required
to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding
12
months (or for such shorter period that the registrant
was required to submit such files).
Yes
[x] No [
]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the
Exchange Act.
Large accelerated filer
[x]
Accelerated filer [
]
Non-accelerated filer [
]
Smaller reporting company
[
]
Emerging growth company
[
]
If an emerging growth company, indicate by check mark if the registrant has elected
not to use the extended
transition period for complying with any new
or revised financial accounting standards
provided pursuant to
Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the
Exchange
Act).
Yes
[
]
No
[x]
The registrant had
1,339,082,083
shares of common stock, $.01 par value,
outstanding at June 30, 2021.
CONOCOPHILLIPS
TABLE OF CONTENTS
Page
Commonly Used Abbreviations
………………………………………………………………………...
1
Part I—Financial Information
Item 1. Financial Statements
Consolidated Income Statement
……………………………………………………………………..
.
2
Consolidated Statement of Comprehensive Income
…………………………………………………
.
3
Consolidated Balance Sheet
…………………………………………………………………………
.
4
Consolidated Statement of Cash Flows
……………………………………………………………...
.
5
Notes to Consolidated Financial Statements
………………………………………………………...
.
6
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
…………………………………………………………………………
.
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
………………………………..
..
59
Item 4. Controls and Procedures
………………………………………………………………………
.
59
Part II—Other Information
Item 1. Legal Proceedings
……………………………………………………………………………..
.
59
Item 1A. Risk Factors
…………………………………………………………………………………
.
59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
………………………………...
.
60
Item 6. Exhibits
………………………………………………………………………………………..
.
61
Signature
………………………………………………………………………………………………….
.
62
1
Commonly Used Abbreviations
The following industry-specific, accounting and
other terms, and abbreviations may be commonly
used in this
report.
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
EUR
Euro
ASU
accounting standards update
GBP
British pound
DD&A
depreciation, depletion and
amortization
Units of Measurement
FASB
Financial Accounting Standards
BBL
barrel
Board
BCF
billion cubic feet
FIFO
first-in, first-out
BOE
barrels of oil equivalent
G&A
general and administrative
MBD
thousands of barrels per day
GAAP
generally accepted accounting
MCF
thousand cubic feet
principles
MBOD
thousand barrels of oil per day
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MMBOD
million barrels of oil per day
SAB
staff accounting bulletin
MBOED
thousands of barrels of oil
VIE
variable interest entity
MMBOED
equivalent per day
millions of barrels of oil
equivalent per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection Agency
ESG
Environmental, Social and
Corporate Governance
Industry
EU
European Union
CBM
coalbed methane
FERC
Federal Energy Regulatory
E&P
exploration and production
Commission
FEED
front-end engineering and design
GHG
greenhouse gas
FPS
floating production system
HSE
health, safety and environment
FPSO
floating production, storage and
ICC
International Chamber of
offloading
Commerce
G&G
geological and geophysical
ICSID
World Bank’s
International
JOA
joint operating agreement
Centre for Settlement of
LNG
liquefied natural gas
Investment Disputes
NGLs
natural gas liquids
IRS
Internal Revenue Service
OPEC
Organization of Petroleum
OTC
over-the-counter
Exporting Countries
NYSE
New York Stock Exchange
PSC
production sharing contract
SEC
U.S. Securities and Exchange
PUDs
proved undeveloped reserves
Commission
SAGD
steam-assisted gravity drainage
TSR
total shareholder return
WCS
Western Canada Select
U.K.
United Kingdom
WTI
West Texas
Intermediate
U.S.
United States of America
2
PART
I.
FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
Consolidated Income Statement
ConocoPhillips
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Revenues and Other Income
Sales and other operating revenues
$
9,556
2,749
19,382
8,907
Equity in earnings of affiliates
139
77
261
311
Gain on dispositions
59
596
292
554
Other income (loss)
457
594
835
(945)
Total Revenues and
Other Income
10,211
4,016
20,770
8,827
Costs and Expenses
Purchased commodities
2,998
1,130
7,481
3,791
Production and operating expenses
1,379
1,047
2,762
2,220
Selling, general and administrative expenses
117
156
428
153
Exploration expenses
57
97
141
285
Depreciation, depletion and amortization
1,867
1,158
3,753
2,569
Impairments
2
(2)
(1)
519
Taxes other than income
taxes
381
141
751
391
Accretion on discounted liabilities
63
66
125
133
Interest and debt expense
220
202
446
404
Foreign currency transaction (gain) loss
10
7
29
(83)
Other expenses
37
(7)
61
(13)
Total Costs and Expenses
7,131
3,995
15,976
10,369
Income (loss) before income taxes
3,080
21
4,794
(1,542)
Income tax provision (benefit)
989
(257)
1,721
(109)
Net income (loss)
2,091
278
3,073
(1,433)
Less: net income attributable to noncontrolling interests
-
(18)
-
(46)
Net Income (Loss) Attributable to ConocoPhillips
$
2,091
260
3,073
(1,479)
Net Income (Loss) Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
1.55
0.24
2.32
(1.37)
Diluted
1.55
0.24
2.31
(1.37)
Average Common
Shares Outstanding
(in thousands)
Basic
1,348,637
1,076,659
1,324,639
1,080,610
Diluted
1,353,201
1,077,606
1,329,507
1,080,610
See Notes to Consolidated Financial Statements.
3
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss)
$
2,091
278
3,073
(1,433)
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior
service credit included in net income (loss)
(10)
(8)
(19)
(16)
Net actuarial gain arising during the period
30
-
105
5
Reclassification adjustment for amortization of net actuarial
losses included in net income (loss)
63
18
88
36
Income taxes on defined benefit plans
(19)
(3)
(40)
(7)
Defined benefit plans, net of tax
64
7
134
18
Unrealized holding gain (loss) on securities
-
6
(1)
3
Income taxes on unrealized holding gain on securities
-
(2)
-
(1)
Unrealized holding gain (loss) on securities, net of tax
-
4
(1)
2
Foreign currency translation adjustments
96
309
165
(490)
Income taxes on foreign currency translation adjustments
-
-
-
2
Foreign currency translation adjustments, net of tax
96
309
165
(488)
Other Comprehensive Income (Loss), Net of
Tax
160
320
298
(468)
Comprehensive Income (Loss)
2,251
598
3,371
(1,901)
Less: comprehensive income attributable to noncontrolling interests
-
(18)
-
(46)
Comprehensive Income (Loss) Attributable to
ConocoPhillips
$
2,251
580
3,371
(1,947)
See Notes to Consolidated Financial Statements.
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
June 30
December 31
2021
2020
Assets
Cash and cash equivalents
$
6,608
2,991
Short-term investments
2,251
3,609
Accounts and notes receivable (net of allowance of $
2
and $
4
, respectively)
4,401
2,634
Accounts and notes receivable—related parties
123
120
Investment in Cenovus Energy
1,802
1,256
Inventories
1,138
1,002
Prepaid expenses and other current assets
849
454
Total Current Assets
17,172
12,066
Investments and long-term receivables
8,013
8,017
Loans and advances—related parties
59
114
Net properties, plants and equipment
(net of accumulated DD&A of $
65,572
and $
62,213
, respectively)
57,717
39,893
Other assets
2,442
2,528
Total Assets
$
85,403
62,618
Liabilities
Accounts payable
$
3,591
2,669
Accounts payable—related parties
22
29
Short-term debt
1,205
619
Accrued income and other taxes
1,406
320
Employee benefit obligations
571
608
Other accruals
1,355
1,121
Total Current Liabilities
8,150
5,366
Long-term debt
18,805
14,750
Asset retirement obligations and accrued environmental costs
5,819
5,430
Deferred income taxes
5,331
3,747
Employee benefit obligations
1,297
1,697
Other liabilities and deferred credits
1,725
1,779
Total Liabilities
41,127
32,769
Equity
Common stock (
2,500,000,000
shares authorized at $
0.01
par value)
Issued (2021—
2,087,542,804
shares; 2020—
1,798,844,267
shares)
Par value
21
18
Capital in excess of par
60,337
47,133
Treasury stock (at cost: 2021—
748,460,721
shares; 2020—
730,802,089
shares)
(48,278)
(47,297)
Accumulated other comprehensive loss
(4,920)
(5,218)
Retained earnings
37,116
35,213
Total Equity
44,276
29,849
Total Liabilities and Equity
$
85,403
62,618
See Notes to Consolidated Financial Statements.
5
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Six Months Ended
June 30
2021
2020
Cash Flows From Operating Activities
Net income (loss)
$
3,073
(1,433)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
3,753
2,569
Impairments
(1)
519
Dry hole costs and leasehold impairments
7
70
Accretion on discounted liabilities
125
133
Deferred taxes
567
(320)
Undistributed equity earnings
317
404
Gain on dispositions
(292)
(554)
(Gain) loss on investment in Cenovus Energy
(726)
1,140
Other
(688)
(244)
Working
capital adjustments
Decrease (increase) in accounts and notes receivable
(794)
1,746
Increase in inventories
(89)
(27)
Increase in prepaid expenses and other current assets
(388)
(149)
Increase (decrease) in accounts payable
323
(754)
Increase (decrease) in taxes and other accruals
1,144
(838)
Net Cash Provided by Operating Activities
6,331
2,262
Cash Flows From Investing Activities
Cash acquired from Concho
382
-
Capital expenditures and investments
(2,465)
(2,525)
Working
capital changes associated with investing activities
2
(251)
Proceeds from asset dispositions
160
1,313
Net sales (purchases) of investments
1,302
(1,030)
Collection of advances/loans—related parties
52
66
Other
86
(35)
Net Cash Used in Investing Activities
(481)
(2,462)
Cash Flows From Financing Activities
Repayment of debt
(44)
(214)
Issuance of company common stock
(25)
2
Repurchase of company common stock
(981)
(726)
Dividends paid
(1,171)
(913)
Other
3
(28)
Net Cash Used in Financing Activities
(2,218)
(1,879)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
9
(93)
Net Change in Cash, Cash Equivalents and Restricted Cash
3,641
(2,172)
Cash, cash equivalents and restricted cash at beginning of period
3,315
5,362
Cash, Cash Equivalents and Restricted Cash at End of Period
$
6,956
3,190
Restricted cash of $
95
million and $
253
million are included in the "Prepaid expenses and other current assets" and "Other assets" lines,
respectively, of our Consolidated Balance Sheet as of June 30, 2021.
Restricted cash of $
94
million and $
230
million are included in the "Prepaid expenses and other current assets" and "Other assets" lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2020.
See Notes to Consolidated Financial Statements.
6
Notes to Consolidated Financial Statements
ConocoPhillips
Note 1—Basis of Presentation
The interim-period financial information
presented in the financial statements included
in this report is
unaudited and, in the opinion of management,
includes all known accruals and adjustments
necessary for a fair
presentation of the consolidated financial position
of ConocoPhillips and its results of operations
and cash
flows for such periods.
All such adjustments are of a normal and recurring
nature unless otherwise disclosed.
Certain notes and other information have been
condensed or omitted from the interim
financial statements
included in this report.
Therefore, these financial statements should
be read in conjunction with the
consolidated financial statements and notes included
in our 2020 Annual Report on Form
10-K.
Note 2—Inventories
Inventories consisted of the following:
Millions of Dollars
June 30
December 31
2021
2020
Crude oil and natural gas
$
572
461
Materials and supplies
566
541
$
1,138
1,002
Inventories valued on the LIFO basis totaled
$
348
million and $
282
million at June 30, 2021 and December
31, 2020, respectively.
Note 3—Acquisitions and Dispositions
Acquisition of
Concho Resources Inc.
(Concho)
We completed our acquisition of Concho on
January 15, 2021
and as defined under the terms of the
transaction
agreement, each share of Concho common stock
was exchanged for
1.46
shares of ConocoPhillips common
stock, for total consideration of $
13.1
billion.
Total Consideration
Number of shares of Concho common stock
issued and outstanding (in thousands)*
194,243
Number of shares of Concho stock awards outstanding
(in thousands)*
1,599
Number of shares exchanged
195,842
Exchange ratio
1.46
Additional shares of ConocoPhillips common stock
issued as consideration (in thousands)
285,929
Average price per share of ConocoPhillips common stock**
$
45.9025
Total Consideration (Millions)
$
13,125
*Outstanding as of January 15, 2021.
**Based on the ConocoPhillips average stock price on January
15, 2021.
7
The transaction was accounted for as a business
combination under FASB ASC 805 using the acquisition
method, which requires assets acquired and liabilities
assumed to be measured at their acquisition date fair
values.
Fair value measurements were made for acquired
assets and liabilities, and adjustments to those
measurements may be made in subsequent periods,
up to one year from the acquisition date as
we identify new
information about facts and circumstances that existed
as of the acquisition date to consider.
Oil and gas
properties were valued using a discounted cash
flow approach incorporating market participant
and internally
generated price assumptions;
production profiles;
and operating and development cost assumptions.
Debt
assumed in the acquisition was valued based on
observable market prices.
The fair values determined for
accounts receivables, accounts payable, and most
other current assets and current liabilities
were equivalent to
the carrying value due to their short-term
nature.
The total consideration of $
13.1
billion was allocated to the
identifiable assets and liabilities based on their
fair values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
382
Accounts receivable, net
742
Inventories
45
Prepaid expenses and other current assets
37
Investments and long-term receivables
333
Net properties, plants and equipment
18,971
Other assets
62
Total assets acquired
$
20,572
Liabilities Assumed
Accounts payable
$
638
Accrued income and other taxes
49
Employee benefit obligations
4
Other accruals
510
Long-term debt
4,696
Asset retirement obligations and accrued environmental
costs
310
Deferred income taxes
1,123
Other liabilities and deferred credits
117
Total liabilities assumed
$
7,447
Net assets acquired
$
13,125
With the completion of the Concho transaction, we acquired proved
and unproved properties of approximately
$
11.8
billion and $
6.9
billion, respectively.
We recognized approximately $
157
million of transaction-related costs that
were expensed in the first quarter
of 2021.
These non-recurring costs related primarily
to fees paid to advisors and the settlement of
share-based
awards for certain Concho employees based
on the terms of the Merger Agreement.
In the first quarter of 2021, we commenced a restructuring
program,
the scope of which included combining
the operations of the two companies.
For the three-
and six-month periods ending June 30, 2021,
we
recognized non-recurring restructuring costs mainly
for employee severance and related incremental pension
benefit costs of approximately $
23
million and $
157
million, respectively.
8
The impact from these transaction and restructuring
costs to the lines of our consolidated income statement
for
the six-month period ending June 30, 2021, are below:
Millions of Dollars
Transaction Cost
Restructuring Cost
Total Cost
Production and operating expenses
$
70
70
Selling, general and administration expenses
135
52
187
Exploration expenses
18
4
22
Taxes other than income taxes
4
2
6
Other expenses
-
29
29
$
157
157
314
On February 8, 2021, we completed a debt exchange
offer related to the debt assumed from Concho.
As a
result of the debt exchange, we recognized an additional
income tax related restructuring charge of $
75
million.
See Note 18 for additional information.
From the acquisition date through June 30, 2021,
“Total Revenues and Other Income” and “Net Income (Loss)
Attributable to ConocoPhillips” associated with the
acquired Concho business were approximately
$
2,637
million and $
828
million, respectively.
The results associated with the Concho business
include a before- and
after-tax loss of $
305
million and $
233
million, respectively, on the acquired derivative contracts.
The before-
tax loss is recorded within “Total Revenues and Other Income” on our consolidated
income statement.
See
Note 10 for additional information.
The following summarizes the unaudited supplemental
pro forma financial information as if we had completed
the acquisition of Concho on January 1, 2020:
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
Total revenues and other income
$
4,065
11,365
Net loss
(229)
(619)
Net loss attributable to ConocoPhillips
(247)
(665)
$ per share
Earnings per share:
Three Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
Basic net loss
$
(0.18)
(0.49)
Diluted net loss
(0.18)
(0.49)
The unaudited supplemental pro forma financial
information is presented for illustration purposes
only and is
not necessarily indicative of the operating results
that would have occurred had the transaction been
completed
on January 1, 2020, nor is it necessarily indicative
of future operating results of the combined entity.
The
unaudited pro forma financial information
for the three-
and six-month periods ending June 30, 2020 is a result
of combining the consolidated income statement
of ConocoPhillips with the results of Concho.
The pro forma
results do not include transaction-related costs,
nor any cost savings anticipated as a result
of the transaction.
The pro forma results include adjustments to
reverse impairment expense of $
10.5
billion and $
1.9
billion
recorded by Concho in the six-month period ending
June 30, 2020, related to oil and gas properties
and
goodwill, respectively.
Other adjustments made relate primarily to
DD&A, which is based on the unit-of-
production method, resulting from the purchase
price allocated to properties, plants and equipment.
We
believe the estimates and assumptions are reasonable,
and the relative effects of the transaction are properly
reflected.
9
Assets Sold
In 2020, we completed the sale of our Australia-West asset and operations.
The sales agreement entitled us to
a $
200
million payment upon a final investment
decision (FID) of the Barossa development
project.
On March
30, 2021, FID was announced and as such,
we recognized a $
200
million gain on disposition in the first
quarter
of 2021.
The purchaser failed to pay the FID bonus when
due.
We have commenced an arbitration proceeding
against the purchaser to enforce our contractual right
to the $
200
million, plus interest accruing from the due
date.
Results of operations related to this transaction
are reflected in our Asia Pacific segment.
See Note 9 for
additional information.
In 2017, we completed the sale of our
50
percent nonoperated interest in the Foster Creek
Christina Lake
(FCCL) Partnership, as well as the majority of
our western Canada gas assets to Cenovus Energy (CVE).
Consideration for the transaction included a five-year, uncapped contingent payment. The contingent payment,
calculated on a quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average
crude price exceeds $52 CAD per barrel
. For the three- and six-months ended June
30, 2021, we recorded
contingent payments of $
68
million and $
94
million, respectively.
No
contingent payments were recorded in
2020.
Contingent payments are recorded as gain on dispositions
on our consolidated income statement and
reflected in our Canada segment.
Planned Dispositions
In July 2021, we entered into divestiture agreements
to sell our interests in certain noncore assets
in our Lower
48 segment.
Proceeds from these agreements total approximately
$
0.2
billion before customary adjustments.
The transactions are expected to close in the third
quarter of 2021.
Note 4—Investments, Loans and Long-Term Receivables
Australia Pacific LNG Pty Ltd (APLNG)
APLNG executed project financing agreements
for an $
8.5
billion project finance facility in 2012.
All
amounts were drawn from the facility.
The project financing facility has been restructured
over time and at
June 30, 2021, this facility was composed of a financing
agreement with the Export-Import Bank of
the United
States, a commercial bank facility and two
United States Private Placement note facilities.
APLNG made its
first principal and interest repayment in March
2017 and is scheduled to make bi-annual payments
until
September 2030.
At June 30, 2021, a balance of $
6.0
billion was outstanding on the current
facilities.
See
Note 8 for additional information.
During the fourth quarter of 2020, the estimated
fair value of our investment in APLNG declined
to an amount
below carrying value, primarily due to the weakening
of the U.S. dollar relative to the Australian
dollar.
Based
on a review of the facts and circumstances surrounding
this decline in fair value, we concluded the impairment
was not other than temporary under the guidance
of FASB ASC Topic
323, “Investments – Equity Method and
Joint Ventures.”
Due primarily to improved outlooks for
commodity prices and the strengthening of the
U.S.
dollar relative to the Australian dollar during the first
six months of 2021, the estimated fair
value of our
investment increased and is above carrying value
at June 30, 2021.
We will continue to monitor the
relationship between the carrying value and fair
value of APLNG.
At June 30, 2021, the carrying value of our equity
method investment in APLNG was
$
6.4
billion.
The
balance is included in the “Investments and long-term
receivables” line on our consolidated balance
sheet.
Loans and Long-Term Receivables
As part of our normal ongoing business operations,
and consistent with industry practice,
we enter into
numerous agreements with other parties to pursue
business opportunities.
Included in such activity are loans
made to certain affiliated and non-affiliated companies.
At June 30, 2021, significant loans to affiliated
companies included $
168
million in project financing to Qatar Liquefied
Gas Company Limited (3).
10
On our consolidated balance sheet, the long-term
portion of these loans is included in the “Loans
and
advances—related parties” line, while the short-term
portion is in the “Accounts and notes receivable—related
parties” line.
Note 5—Investment in Cenovus Energy
Our investment in CVE shares is carried on our
consolidated balance sheet at fair value of
$
1.8
billion based
on the closing price of $
9.58
per share on the NYSE on the last trading day of
the quarter.
At June 30, 2021
and December 31, 2020, we held
188
million and
208
million shares of CVE common
stock, respectively.
At
June 30, 2021, our investment approximated
9.3
percent of the issued and outstanding CVE common
stock.
During the second quarter, we sold
20
million shares of our CVE common stock, recognizing
proceeds of $
180
million, of which $
166
was received in the second quarter.
Subject to market conditions, we intend to
continue to decrease our investment over time.
All gains and losses are recognized within “Other income
(loss)” on our consolidated income statement.
Proceeds related to the sale of our CVE shares
are presented within “Cash Flows from
Investing Activities” on
our consolidated cash flow statement.
See Note 11 for additional information related to fair value
measurement.
Gains and losses recorded in other income (loss)
for our investment in CVE were:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Total net gain (loss) on equity securities
$
418
551
726
(1,140)
Less: Net gain on equity securities sold during
the period
(31)
-
(60)
-
Unrealized gain (loss) on equity securities still
held at
the reporting date
$
387
551
666
(1,140)
Note 6—Debt
Our debt balance at June 30, 2021, was $
20.0
billion compared with $
15.4
billion at December 31, 2020.
On January 15, 2021, we completed the acquisition
of Concho in an all-stock transaction.
In the acquisition,
we assumed Concho’s publicly traded debt, with an outstanding principal
balance of $
3.9
billion, which was
recorded at fair value of $
4.7
billion on the acquisition date.
Debt assumed consisted of the following:
●
3.75
% Notes due
2027
with principal of $
1,000
million
●
4.3
% Notes due
2028
with principal of $
1,000
million
●
2.4
% Notes due
2031
with principal of $
500
million
●
4.875
% Notes due
2047
with principal of $
800
million
●
4.85
% Notes due
2048
with principal of $
600
million
The adjustment to fair value of the senior notes
of approximately $
0.8
billion on the acquisition date will be
amortized as an adjustment to interest expense over
the remaining contractual terms of the
senior notes.
11
In the first quarter of 2021, we completed a debt
exchange offer related to the debt assumed from Concho.
Of
the approximately $
3.9
billion in aggregate principal amount of Concho’s senior notes
offered in the exchange,
98
percent, or approximately $
3.8
billion, were tendered and accepted.
The new debt issued by
ConocoPhillips had the same interest rates
and maturity dates as the Concho senior notes.
The portion not
exchanged, approximately $
67
million, remained outstanding across five series
of senior notes issued by
Concho.
The debt exchange was treated as a debt modification
for accounting purposes resulting in a portion
of the unamortized fair value adjustment of the Concho
senior notes allocated to the new debt
issued by
ConocoPhillips on the settlement date of the exchange.
The new debt issued in the exchange is fully
and
unconditionally guaranteed by ConocoPhillips
Company.
See Note 3 for additional information on our
Concho acquisition.
We have a revolving credit facility totaling $
6.0
billion with an expiration date of
May 2023
.
Our revolving
credit facility may be used for direct bank borrowings,
the issuance of letters of credit totaling
up to $
500
million, or as support for our commercial paper
program.
The revolving credit facility is broadly syndicated
among financial institutions and does not contain
any material adverse change provisions or any covenants
requiring maintenance of specified financial
ratios or credit ratings.
The facility agreement contains a cross-
default provision relating to the failure to pay principal
or interest on other debt obligations of $
200
million or
more by ConocoPhillips, or any of its consolidated
subsidiaries.
The amount of the facility is not subject to
redetermination prior to its expiration date.
Credit facility borrowings may bear interest at
a margin above rates offered by certain designated banks in the
London interbank market or at a margin above the overnight
federal funds rate or prime rates offered by
certain designated banks in the U.S.
The facility agreement calls for commitment
fees on available, but
unused, amounts.
The facility agreement also contains early
termination rights if our current directors or
their
approved successors cease to be a majority of
the Board of Directors.
The revolving credit facility supports our ability
to issue up to $
6.0
billion of commercial paper.
Commercial
paper is generally limited to
maturities of 90 days
and is included in the short-term debt on our consolidated
balance sheet. With $
300
million of commercial paper outstanding and
no
direct borrowings or letters of
credit, we had access to $
5.7
billion in available borrowing capacity under our revolving
credit facility at June
30, 2021.
At December 31, 2020, we had $
300
million of commercial paper outstanding
and
no
direct
borrowings or letters of credit issued.
In January 2021, Fitch affirmed its rating of our long-term debt as “A” with a “stable” outlook and affirmed its
rating of our short-term debt as “F1+.” On January 25, 2021, S&P revised its industry risk assessment of the
E&P industry to “Moderately High” from “Intermediate” based on a view of increasing risks from the energy
transition, price volatility, and weaker profitability. On February 11, 2021, S&P downgraded its rating of our
long-term debt from “A” to “A-” with a “stable” outlook and downgraded its rating of our short-term debt
from “A-1” to “A-2.” In May 2021, Moody’s affirmed its rating of our senior long-term debt of “A3” with a
“stable” outlook. Moody’s rates our short-term debt as “Prime-2.” We do not have any ratings triggers on any
of our corporate debt that would cause an automatic default, and thereby impact our access to liquidity, upon
downgrade of our credit ratings. If our credit ratings are downgraded from their current levels, it could
increase the cost of corporate debt available to us and restrict our access to the commercial paper markets. If
our credit rating were to deteriorate to a level prohibiting us from accessing the commercial paper market, we
would still be able to access funds under our revolving credit facility
.
At June 30, 2021, we had $
283
million of certain variable rate demand bonds (VRDBs)
outstanding with
maturities ranging through 2035.
The VRDBs are redeemable at the option of the
bondholders on any business
day.
If they are ever redeemed, we have the ability
and intent to refinance on a long-term basis,
therefore, the
VRDBs are included in the “Long-term debt” line
on our consolidated balance sheet.
12
Note 7—Changes in Equity
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended June 30, 2021
Balances at March 31, 2021
$
21
60,278
(47,672)
(5,080)
35,608
43,155
Net income
2,091
2,091
Other comprehensive income
160
160
Dividends paid ($
0.43
per common share)
(583)
(583)
Repurchase of company common stock
(606)
(606)
Distributed under benefit plans
59
59
Balances at June 30, 2021
$
21
60,337
(48,278)
(4,920)
37,116
44,276
For the six months ended June 30,
2021
Balances at December 31, 2020
$
18
47,133
(47,297)
(5,218)
35,213
29,849
Net income
3,073
3,073
Other comprehensive income
298
298
Dividends paid ($
0.86
per common share)
(1,171)
(1,171)
Acquisition of Concho
3
13,122
13,125
Repurchase of company common stock
(981)
(981)
Distributed under benefit plans
82
82
Other
1
1
Balances at June 30, 2021
$
21
60,337
(48,278)
(4,920)
37,116
44,276
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended June 30, 2020
Balances at March 31, 2020
$
18
47,027
(47,130)
(6,145)
37,545
72
31,387
Net income
260
18
278
Other comprehensive income
320
320
Dividends paid ($
0.42
per common share)
(455)
(455)
Distributions to noncontrolling interests and
other
(6)
(6)
Dispositions
(84)
(84)
Distributed under benefit plans
52
52
Other
1
1
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
-
31,493
For the six months ended June 30,
2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income
(1,479)
46
(1,433)
Other comprehensive loss
(468)
(468)
Dividends paid ($
0.84
per common share)
(913)
(913)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and
other
(32)
(32)
Dispositions
(84)
(84)
Distributed under benefit plans
96
96
Other
1
1
1
3
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
-
31,493
13
Note 8—Guarantees
At June 30, 2021, we were liable for certain
contingent obligations under various contractual
arrangements as
described below.
We recognize a liability, at inception, for the fair value of our obligation as a guarantor for
newly issued or modified guarantees.
Unless the carrying amount of the liability is noted
below, we have not
recognized a liability because the fair value of the
obligation is immaterial.
In addition, unless otherwise
stated, we are not currently performing with any
significance under the guarantee and expect future
performance to be either immaterial or have only
a remote chance of occurrence.
APLNG Guarantees
At June 30, 2021, we had outstanding multiple
guarantees in connection with our
37.5
percent ownership
interest in APLNG.
The following is a description of the guarantees
with values calculated utilizing June 2021
exchange rates:
●
During the third quarter of 2016, we issued a guarantee
to facilitate the withdrawal of our pro-rata
portion of the funds in a project finance reserve
account.
We estimate the remaining term of this
guarantee is
10 years
.
Our maximum exposure under this guarantee is
approximately $
170
million
and may become payable if an enforcement action
is commenced by the project finance lenders
against APLNG.
At June 30, 2021, the carrying value of this
guarantee was $
14
million.
●
In conjunction with our original purchase of an ownership
interest in APLNG from Origin Energy in
October 2008, we agreed to reimburse Origin
Energy for our share of the existing contingent liability
arising under guarantees of an existing obligation
of APLNG to deliver natural gas under several
sales
agreements with remaining terms of
1 to 21 years
.
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
to be $
710
million ($
1.3
billion in the event of intentional or reckless breach)
and would become payable if APLNG fails
to
meet its obligations under these agreements and
the obligations cannot otherwise be mitigated.
Future
payments are considered unlikely, as the payments, or cost of volume delivery, would only be
triggered if APLNG does not have enough natural
gas to meet these sales commitments and if
the
co-venturers do not make necessary equity contributions
into APLNG.
●
We have guaranteed the performance of APLNG with regard to certain other contracts
executed in
connection with the project’s continued development.
The guarantees have remaining terms
of
16 to
24 years or the life of the venture
.
Our maximum potential amount of future payments
related to these
guarantees is approximately $
180
million and would become payable if APLNG
does not perform.
At
June 30, 2021, the carrying value of these guarantees
was $
11
million.
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling approximately
$
740
million, which consist primarily of guarantees
of the residual value of leased office buildings, guarantees
of the
residual value of corporate aircrafts, and a guarantee
for our portion of a joint venture’s project finance reserve
accounts.
These guarantees have remaining terms of
two to five years
and would become payable if certain
asset values are lower than guaranteed amounts
at the end of the lease or contract term, business
conditions
decline at guaranteed entities, or as a result of nonperformance
of contractual terms by guaranteed parties.
At
June 30, 2021, the carrying value of these guarantees
was $
11
million.
Indemnifications
Over the years, we have entered into agreements
to sell ownership interests in certain
legal entities, joint
ventures and assets that gave rise to qualifying
indemnifications.
These agreements include indemnifications
for taxes and environmental liabilities.
Most of these indemnifications are related to
tax issues and the
majority of these expire in 2021.
Those related to environmental issues have terms
that are generally indefinite
and the maximum amounts of future payments are
generally unlimited.
See Note 9 for additional information
about environmental liabilities.
The carrying amount recorded for these indemnification
obligations at June
30, 2021, was $
50
million.
We amortize the indemnification liability over the relevant time period the
14
indemnity is in effect, if one exists, based on the facts
and circumstances surrounding each type of indemnity.
In cases where the indemnification term is
indefinite, we will reverse the liability when
we have information
the liability is essentially relieved or amortize
the liability over an appropriate time period
as the fair value of
our indemnification exposure declines.
Although it is reasonably possible future payments
may exceed
amounts recorded, due to the nature of the indemnifications,
it is not possible to make a reasonable estimate
of
the maximum potential amount of future payments.
Note 9—Contingencies and Commitments
A number of lawsuits involving a variety of claims
arising in the ordinary course of business
have been filed
against ConocoPhillips.
We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at
various active
and inactive sites.
We regularly assess the need for accounting recognition or disclosure of these
contingencies.
In the case of all known contingencies (other
than those related to income taxes), we accrue
a
liability when the loss is probable and the amount
is reasonably estimable.
If a range of amounts can be
reasonably estimated and no amount within the range
is a better estimate than any other amount,
then the low
end of the range is accrued.
We do not reduce these liabilities for potential insurance or third-party recoveries.
We accrue receivables for insurance or other third-party recoveries when applicable.
With respect to income
tax-related contingencies, we use a cumulative probability-weighted
loss accrual in cases where sustaining a
tax position is less than certain.
Based on currently available information, we believe
it is remote that future costs related to known
contingent
liability exposures will exceed current accruals by
an amount that would have a material adverse
impact on our
consolidated financial statements.
As we learn new facts concerning contingencies,
we reassess our position
both with respect to accrued liabilities
and other potential exposures.
Estimates particularly sensitive to future
changes include contingent liabilities
recorded for environmental remediation, tax and legal
matters.
Estimated future environmental remediation
costs are subject to change due to such factors
as the uncertain
magnitude of cleanup costs, the unknown time
and extent of such remedial actions that
may be required, and
the determination of our liability in proportion
to that of other responsible parties.
Estimated future costs
related to tax and legal matters are subject to
change as events evolve and as additional
information becomes
available during the administrative and litigation
processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations
and record accruals
for environmental liabilities based on management’s best estimates.
These estimates are based on currently
available facts, existing technology, and presently enacted laws and regulations,
taking into account
stakeholder and business considerations.
When measuring environmental liabilities,
we also consider our prior
experience in remediation of contaminated sites,
other companies’ cleanup experience, and data released
by
the U.S. EPA or other organizations.
We consider unasserted claims in our determination of environmental
liabilities, and we accrue them in the period they
are both probable and reasonably estimable.
Although liability of those potentially responsible
for environmental remediation costs is generally
joint and
several for federal sites and frequently so for other
sites, we are usually only one of many companies
cited at a
particular site.
Due to the joint and several liabilities, we could
be responsible for all cleanup costs related
to
any site at which we have been designated as a
potentially responsible party.
We have been successful to date
in sharing cleanup costs with other financially
sound companies.
Many of the sites at which we are potentially
responsible are still under investigation by the
EPA or the agency concerned.
Prior to actual cleanup, those
potentially responsible normally assess the
site conditions, apportion responsibility and determine
the
appropriate remediation.
In some instances, we may have no liability
or may attain a settlement of liability.
Where it appears that other potentially responsible
parties may be financially unable to bear their
proportional
share, we consider this inability in estimating
our potential liability, and we adjust our accruals accordingly.
As a result of various acquisitions in the past,
we assumed certain environmental obligations.
Some of these
environmental obligations are mitigated by indemnifications
made by others for our benefit, and some of the
indemnifications are subject to dollar limits
and time limits.
15
We are currently participating in environmental assessments and cleanups at numerous
federal Superfund and
comparable state and international sites.
After an assessment of environmental exposures
for cleanup and
other costs, we make accruals on an undiscounted
basis (except those acquired in a purchase
business
combination, which we record on a discounted
basis) for planned investigation and remediation
activities for
sites where it is probable future costs will be incurred
and these costs can be reasonably estimated.
We have
not reduced these accruals for possible insurance recoveries.
At June 30, 2021, our balance sheet included a total
environmental accrual of $
188
million, compared with
$
180
million at December 31, 2020, for remediation
activities in the U.S. and Canada.
We expect to incur a
substantial amount of these expenditures within
the next
30 years
.
In the future, we may be involved in
additional environmental assessments, cleanups
and proceedings.
Litigation and Other Contingencies
We are subject to various lawsuits and claims including but not limited to matters
involving oil and gas royalty
and severance tax payments, gas measurement and
valuation methods, contract disputes,
environmental
damages, climate change, personal injury, and property damage.
Our primary exposures for such matters
relate to alleged royalty and tax underpayments
on certain federal, state and privately owned
properties, claims
of alleged environmental contamination from
historic operations, and other contract disputes.
We will
continue to defend ourselves vigorously in these matters.
Our legal organization applies its knowledge, experience
and professional judgment to the specific
characteristics of our cases, employing a litigation
management process to manage and monitor the
legal
proceedings against us.
Our process facilitates the early evaluation and
quantification of potential exposures in
individual cases.
This process also enables us to track those cases that
have been scheduled for trial and/or
mediation.
Based on professional judgment and experience
in using these litigation management tools and
available information about current developments
in all our cases, our legal organization regularly assesses
the
adequacy of current accruals and determines if
adjustment of existing accruals, or establishment
of new
accruals, is required.
We have contingent liabilities resulting from throughput agreements with pipeline and
processing companies
not associated with financing arrangements.
Under these agreements, we may be required
to provide any such
company with additional funds through advances
and penalties for fees related to throughput capacity
not
utilized.
In addition, at June 30, 2021, we had performance
obligations secured by letters of credit of
$
222
million (issued as direct bank letters of
credit) related to various purchase commitments
for materials,
supplies, commercial activities and services incident
to the ordinary conduct of business.
In 2007, ConocoPhillips was unable to reach agreement
with respect to the empresa mixta structure
mandated
by the Venezuelan government’s Nationalization Decree.
As a result, Venezuela’s
national oil company,
Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’
interests in the Petrozuata and Hamaca heavy oil
ventures and the offshore Corocoro development project.
In
response to this expropriation, ConocoPhillips
initiated international arbitration on November 2,
2007, with the
ICSID.
On September 3, 2013, an ICSID arbitration tribunal
held that Venezuela unlawfully expropriated
ConocoPhillips’ significant oil investments
in June 2007.
On January 17, 2017, the Tribunal reconfirmed the
decision that the expropriation was unlawful.
In March 2019, the Tribunal unanimously ordered the
government of Venezuela to pay ConocoPhillips approximately $
8.7
billion in compensation for the
government’s unlawful expropriation of the company’s investments in Venezuela in 2007.
On August 29,
2019, the ICSID Tribunal issued a decision rectifying the award
and reducing it by approximately $
227
million.
The award now stands at $
8.5
billion plus interest.
The government of Venezuela sought annulment
of the award, which automatically stayed enforcement
of the award.
Annulment proceedings are underway.
16
In 2014, ConocoPhillips filed a separate and independent
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
Petrozuata and Hamaca projects.
The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed
ConocoPhillips approximately $
2
billion under their
agreements in connection with the expropriation of the
projects and other pre-expropriation fiscal
measures.
In
August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC
award, plus interest through the payment period, including initial payments totaling approximately $500
million within a period of 90 days from the time of signing of the settlement agreement. The balance of the
settlement is to be paid quarterly over a period of four and a half years.
To date, ConocoPhillips has received
approximately $
754
million.
Per the settlement, PDVSA recognized the ICC
award as a judgment in various
jurisdictions, and ConocoPhillips agreed to suspend
its legal enforcement actions.
ConocoPhillips sent notices
of default to PDVSA on October 14 and November
12, 2019, and to date PDVSA has failed
to cure its breach.
As a result, ConocoPhillips has resumed legal enforcement
actions.
ConocoPhillips has ensured that the
settlement and any actions taken in enforcement
thereof meet all appropriate U.S. regulatory
requirements,
including those related to any applicable sanctions
imposed by the U.S. against Venezuela.
In 2016, ConocoPhillips filed a separate and independent
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
Corocoro Project.
On August 2, 2019, the ICC Tribunal
awarded ConocoPhillips approximately $
33
million plus interest under the Corocoro contracts.
ConocoPhillips is seeking recognition and enforcement
of the award in various jurisdictions.
ConocoPhillips
has ensured that all the actions related to the award
meet all appropriate U.S. regulatory requirements,
including those related to any applicable sanctions
imposed by the U.S. against Venezuela.
The Office of Natural Resources Revenue (ONRR) has
conducted audits of ConocoPhillips’
payment of
royalties on federal lands and has issued multiple
orders to pay additional royalties to the federal
government.
ConocoPhillips and the ONRR entered into
a settlement agreement on March 23, 2021,
to resolve the dispute.
All orders and associated appeals have been withdrawn
with prejudice.
Beginning in 2017, cities, counties, governments
and other entities in several states in the U.S. have
filed
lawsuits against oil and gas companies, including
ConocoPhillips, seeking compensatory damages
and
equitable relief to abate alleged climate change impacts.
Additional lawsuits with similar allegations
are
expected to be filed.
The amounts claimed by plaintiffs are unspecified and
the legal and factual issues
involved in these cases are unprecedented.
ConocoPhillips believes these lawsuits are factually
and legally
meritless and are an inappropriate vehicle to address
the challenges associated with climate
change and will
vigorously defend against such lawsuits.
Several Louisiana parishes and the State of Louisiana
have filed
43
lawsuits under Louisiana’s State and Local
Coastal Resources Management Act (SLCRMA)
against oil and gas companies, including ConocoPhillips,
seeking compensatory damages for contamination
and erosion of the Louisiana coastline
allegedly caused by
historical oil and gas operations.
ConocoPhillips entities are defendants in
22
of the lawsuits and will
vigorously defend against them.
Because Plaintiffs’ SLCRMA theories are unprecedented,
there is uncertainty
about these claims (both as to scope and damages)
and we continue to evaluate our exposure in these
lawsuits.
In October 2020, the Bureau of Safety and Environmental
Enforcement (BSEE) ordered the prior owners of
Outer Continental Shelf (OCS) Lease P-0166,
including ConocoPhillips, to decommission
the lease facilities,
including two offshore platforms located near Carpinteria,
California.
This order was sent after the current
owner of OCS Lease P-0166 relinquished the lease
and abandoned the lease platforms and facilities.
BSEE’s
order to ConocoPhillips is premised on its connection
to Phillips Petroleum Company, a legacy company of
ConocoPhillips, which held a historical
25
percent interest in this lease and operated these
facilities, but sold
its interest approximately
30 years
ago.
ConocoPhillips has not had any connection to
the operation or
production on this lease since that time.
ConocoPhillips is challenging this order.
17
On May 10, 2021, ConocoPhillips filed
arbitration under the rules of the Singapore International
Arbitration
Centre (SIAC) against Santos KOTN Pty Ltd. and
Santos Limited for their failure to timely
pay the $
200
million bonus due upon a final investment decision
(FID) of the Barossa development project under
the sale
and purchase agreement.
Santos KOTN Pty Ltd. and Santos Limited
have filed a response and counterclaim,
and the arbitration is underway.
Note 10—Derivative and Financial Instruments
We use futures, forwards, swaps and options in various markets to meet our customer
needs, capture market
opportunities and manage foreign exchange currency
risk.
Commodity Derivative Instruments
Our commodity business primarily consists
of natural gas, crude oil, bitumen, LNG and NGLs.
Commodity derivative instruments are held at fair
value on our consolidated balance sheet.
Where these
balances have the right of setoff, they are presented on
a net basis.
Related cash flows are recorded as
operating activities on our consolidated statement
of cash flows.
On our consolidated income statement, gains
and losses are recognized either on a gross basis
if directly related to our physical business
or a net basis if held
for trading.
Gains and losses related to contracts that meet
and are designated with the NPNS exception are
recognized upon settlement.
We generally apply this exception to eligible crude contracts and certain gas
contracts.
We do not apply hedge accounting for our commodity derivatives.
The following table presents the gross fair values
of our commodity derivatives, excluding
collateral, and the
line items where they appear on our consolidated
balance sheet:
Millions of Dollars
June 30
December 31
2021
2020
Assets
Prepaid expenses and other current assets
$
685
229
Other assets
89
26
Liabilities
Other accruals
688
202
Other liabilities and deferred credits
64
18
The gains (losses) from commodity derivatives
incurred, and the line items where they appear
on our
consolidated income statement were:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Sales and other operating revenues
$
(100)
(50)
(379)
(3)
Other income (loss)
(1)
3
16
5
Purchased commodities
132
24
145
(2)
18
On January 15, 2021, we assumed financial derivative
instruments consisting of oil and natural gas
swaps in
connection with the acquisition of Concho.
At the acquisition date, the financial derivative
instruments
acquired were recognized at fair value as a net liability
of $
456
million with settlement dates under the
contracts through December 31, 2022.
During the first quarter of 2021, we recognized
a loss of $
173
million
on Concho derivative contracts with settlement
dates on or before March 31, 2021, and an additional
$
132
million loss related to all remaining Concho derivative
contracts with settlement dates subsequent
to March 31,
2021, for a total loss of $
305
million.
This loss associated with the acquired financial
instruments is recorded
within the “Sales and other operating revenues”
line on our consolidated income statement.
By the end of March 2021, all oil and natural
gas derivative financial instruments acquired from
Concho were
contractually settled.
In connection with the settlement, we issued
a cash payment of $
692
million in the first
quarter of 2021 and $
69
million in the second quarter of 2021.
Cash settlements related to the Concho
derivative contracts
are presented within “Cash Flows From
Operating Activities” on our consolidated cash
flow statement.
The table below summarizes our material net exposures
resulting from outstanding commodity
derivative
contracts:
Open Position
Long/(Short)
June 30
December 31
2021
2020
Commodity
Natural gas and power (billions of cubic feet equivalent)
Fixed price
18
(20)
Basis
(6)
(10)
Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for
the various accounts and
currency pools we manage.
The types of financial instruments in which we
currently invest include:
●
Time deposits: Interest bearing deposits placed with financial
institutions for a predetermined amount
of time.
●
Demand deposits: Interest bearing deposits placed
with financial institutions.
Deposited funds can be
withdrawn without notice.
●
Commercial paper: Unsecured promissory notes issued
by a corporation, commercial bank or
government agency purchased at a discount to
mature at par.
●
U.S. government or government agency obligations:
Securities issued by the U.S. government
or U.S.
government agencies.
●
Foreign government obligations: Securities
issued by foreign governments.
●
Corporate bonds: Unsecured debt securities
issued by corporations.
●
Asset-backed securities: Collateralized debt securities.
19
The following investments are carried on our
consolidated balance sheet at cost, plus accrued
interest and the
table reflects remaining maturities at June
30, 2021 and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-
Term Receivables
June 30
December 31
June 30
December 31
June 30
December 31
2021
2020
2021
2020
2021
2020
Cash
$
899
597
Demand Deposits
1,541
1,133
Time Deposits
1 to 90 days
4,104
1,225
1,537
2,859
91 to 180 days
270
448
Within one year
209
13
One year through five years
2
1
U.S. Government Obligations
1 to 90 days
16
23
-
-
$
6,560
2,978
2,016
3,320
2
1
The following investments in debt securities
classified as available for sale are carried at
fair value on our
consolidated balance sheet at June 30, 2021 and
December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
June 30
December 31
June 30
December 31
June 30
December 31
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
-
-
105
130
182
143
Commercial Paper
48
13
116
155
U.S. Government Obligations
-
-
2
4
8
13
U.S. Government Agency
Obligations
10
17
Foreign Government Obligations
10
-
-
2
Asset-backed Securities
2
-
52
41
$
48
13
235
289
252
216
Cash and Cash Equivalents and Short-Term Investments have remaining maturities
within one year.
Investments and Long-Term Receivables have remaining maturities
greater than one year through eight years.
20
The following table summarizes the amortized
cost basis and fair value of investments in
debt securities
classified as available for sale:
Millions of Dollars
Amortized Cost Basis
Fair Value
June 30
December 31
June 30
December 31
2021
2020
2021
2020
Major Security Type
Corporate bonds
$
286
271
287
273
Commercial paper
164
168
164
168
U.S. government obligations
10
17
10
17
U.S. government agency obligations
10
17
10
17
Foreign government obligations
10
2
10
2
Asset-backed securities
54
41
54
41
$
534
516
535
518
At June 30, 2021 and December 31, 2020, total unrealized
losses for debt securities classified as available
for
sale with net losses were negligible.
Additionally, at June 30, 2021 and December 31, 2020, investments
in
these debt securities in an unrealized loss
position for which an allowance for
credit losses has not been
recorded were negligible.
For the three-
and six-month periods ended June 30, 2021,
proceeds from sales and redemptions of investments
in debt securities classified as available for sale
were $
173
million and $
320
million, respectively.
For the
three-
and six-month periods ended June 30, 2020, proceeds
from sales and redemptions of investments in
debt
securities classified as available for sale were
$
126
million and $
189
million, respectively.
Gross realized
gains and losses included in earnings from those
sales and redemptions were negligible.
The cost of securities
sold and redeemed is determined using the specific
identification method.
Credit Risk
Financial instruments potentially exposed to concentrations
of credit risk consist primarily of cash equivalents,
short-term investments, long-term investments
in debt securities, OTC derivative contracts and trade
receivables.
Our cash equivalents and short-term investments
are placed in high-quality commercial paper,
government money market funds, government debt
securities, time deposits with major international
banks and
financial institutions, high-quality corporate
bonds,
foreign government obligations and asset-backed
securities.
Our long-term investments in debt securities
are placed in high-quality corporate bonds, U.S.
government and government agency obligations,
asset-backed securities, and time deposits
with major
international banks and financial institutions.
The credit risk from our OTC derivative contracts,
such as forwards, swaps and options, derives
from the
counterparty to the transaction.
Individual counterparty exposure is managed
within predetermined credit
limits and includes the use of cash-call margins when appropriate,
thereby reducing the risk of significant
nonperformance.
We also use futures, swaps and option contracts that have a negligible credit
risk because
these trades are cleared primarily with an exchange
clearinghouse and subject to mandatory margin
requirements until settled; however, we are exposed to the credit
risk of those exchange brokers for receivables
arising from daily margin cash calls, as well as for cash
deposited to meet initial margin requirements.
Our trade receivables result primarily
from our oil and gas operations and reflect a broad
national and
international customer base, which limits our
exposure to concentrations of credit risk.
The majority of these
receivables have payment terms of
30 days
or less, and we continually monitor this exposure
and the
creditworthiness of the counterparties.
We may require collateral to limit the exposure to loss including, letters
of credit, prepayments and surety bonds, as
well as master netting arrangements to mitigate
credit risk with
counterparties that both buy from and sell to
us, as these agreements permit the amounts
owed by us or owed
to others to be offset against amounts due to us.
21
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative
exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts
with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts
typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert
to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also
permit us to post letters of credit as collateral, such as transactions administered through the New York
Mercantile Exchange.
The aggregate fair value of all derivative
instruments with such credit risk-related contingent
features that were
in a liability position at June 30, 2021 and December
31, 2020, was $
86
million and $
25
million, respectively.
For these instruments,
no
collateral was posted at June 30, 2021 or December
31, 2020.
If our credit rating had
been downgraded below investment grade at June
30, 2021, we would have been required to post
$
70
million
of additional collateral, either with cash or letters
of credit.
Note 11—Fair Value
Measurement
We carry a portion of our assets and liabilities at fair value that are measured at the reporting
date using an exit
price (i.e., the price that would be received to sell
an asset or paid to transfer a liability) and disclosed
according to the quality of valuation inputs under
the following hierarchy:
●
Level 1: Quoted prices (unadjusted) in an active
market for identical assets or liabilities.
●
Level 2: Inputs other than quoted prices that
are directly or indirectly observable.
●
Level 3: Unobservable inputs that are significant
to the fair value of assets or liabilities.
The classification of an asset or liability
is based on the lowest level of input significant
to its fair value.
Those
that are initially classified as Level 3 are subsequently
reported as Level 2 when the fair value derived
from
unobservable inputs is inconsequential to the overall
fair value, or if corroborated market data becomes
available.
Assets and liabilities initially reported as Level
2 are subsequently reported as Level 3 if
corroborated market data is no longer available.
There were no material transfers into or
out of Level 3 during
the three- and six-month periods ended June 30, 2021,
nor during the year ended December 31, 2020.
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair
value on a recurring basis primarily include
our investment in
CVE common shares,
our investments in debt securities classified
as available for sale, and commodity
derivatives.
●
Level 1 derivative assets and liabilities primarily
represent exchange-traded futures and options that are
valued using unadjusted prices available from the
underlying exchange.
Level 1 also includes our
investment in common shares of CVE, which is valued
using quotes for shares on the NYSE, and our
investments in U.S. government obligations
classified as available for sale debt securities,
which are
valued using exchange prices.
●
Level 2 derivative assets and liabilities primarily
represent OTC swaps, options and forward purchase
and
sale contracts that are valued using adjusted exchange
prices, prices provided by brokers or pricing
service
companies that are all corroborated by market data.
Level 2 also includes our investments in debt
securities classified as available for sale including
investments in corporate bonds, commercial
paper,
asset-backed securities, U.S. government agency
obligations and foreign government obligations
that are
valued using pricing provided by brokers or pricing
service companies that are corroborated with
market
data.
22
●
Level 3 derivative assets and liabilities consist
of OTC swaps, options and forward purchase and
sale
contracts where a significant portion of fair
value is calculated from underlying market
data that is not
readily available.
The derived value uses industry standard methodologies
that may consider the historical
relationships among various commodities, modeled
market prices, time value, volatility factors and other
relevant economic measures.
The use of these inputs results in management’s best estimate of fair
value.
Level 3 activity was not material for all periods
presented.
The following table summarizes the fair value
hierarchy for gross financial assets and
liabilities (i.e.,
unadjusted where the right of setoff exists for commodity
derivatives accounted for at fair value on a recurring
basis):
Millions of Dollars
June 30, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in CVE shares
$
1,802
-
-
1,802
1,256
-
-
1,256
Investments in debt securities
10
525
-
535
17
501
-
518
Commodity derivatives
402
349
23
774
142
101
12
255
Total assets
$
2,214
874
23
3,111
1,415
602
12
2,029
Liabilities
Commodity derivatives
$
399
287
66
752
120
91
9
220
Total liabilities
$
399
287
66
752
120
91
9
220
The following table summarizes those commodity
derivative balances subject to the right of setoff as
presented on our consolidated balance sheet.
We have elected to offset the recognized fair value amounts for
multiple derivative instruments executed with the
same counterparty in our financial statements
when a legal
right of setoff exists.
Millions of Dollars
Amounts Subject to Right of Setoff
Gross
Amounts Not
Gross
Net
Amounts
Subject to
Gross
Amounts
Amounts
Cash
Net
Recognized
Right of Setoff
Amounts
Offset
Presented
Collateral
Amounts
June 30, 2021
Assets
$
774
28
746
464
282
-
282
Liabilities
752
26
726
464
262
17
245
December 31, 2020
Assets
$
255
2
253
157
96
10
86
Liabilities
220
1
219
157
62
4
58
At June 30, 2021 and December 31, 2020, we
did not present any amounts gross on our
consolidated
balance sheet where we had the right of setoff.
23
Reported Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial
instruments:
●
Cash and cash equivalents and short-term investments:
The carrying amount reported on the balance
sheet approximates fair value.
For those investments classified as available
for sale debt securities,
the carrying amount reported on the balance sheet
is fair value.
●
Accounts and notes receivable (including long-term
and related parties): The carrying amount
reported on the balance sheet approximates fair
value.
The valuation technique and methods used to
estimate the fair value of the current portion
of fixed-rate related party loans is consistent
with Loans
and advances—related parties.
●
Investment in CVE:
See Note 5 for a discussion of the carrying value and fair value of our investment
in CVE common shares.
●
Investments in debt securities classified as available
for sale: The fair value of investments in debt
securities categorized as Level 1 in the fair
value hierarchy is measured using exchange prices.
The
fair value of investments in debt securities
categorized as Level 2 in the fair value hierarchy
is
measured using pricing provided by brokers or
pricing service companies that are corroborated
with
market data.
See Note 10 for additional information.
●
Loans and advances—related parties: The carrying
amount of floating-rate loans approximates
fair
value.
The fair value of fixed-rate loan activity is
measured using market observable data and is
categorized as Level 2 in the fair value hierarchy.
See Note 4 for additional information.
●
Accounts payable (including related parties)
and floating-rate debt: The carrying amount of accounts
payable and floating-rate debt reported on the balance
sheet approximates fair value.
●
Fixed-rate debt: The estimated fair value of fixed-rate
debt is measured using prices available
from a
pricing service that is corroborated by market
data; therefore, these liabilities are categorized
as Level
2 in the fair value hierarchy.
●
Commercial paper: The carrying amount of our
commercial paper instruments approximates
fair value
and is reported on the balance sheet as short-term
debt.
The following table summarizes the net fair
value of financial instruments (i.e., adjusted
where the right of
setoff exists for commodity derivatives):
Millions of Dollars
Carrying Amount
Fair Value
June 30
December 31
June 30
December 31
2021
2020
2021
2020
Financial assets
Investment in CVE shares
$
1,802
1,256
1,802
1,256
Commodity derivatives
310
88
310
88
Investments in debt securities
535
518
535
518
Loans and advances—related parties
168
220
168
220
Financial liabilities
Total debt, excluding finance leases
19,135
14,478
23,376
19,106
Commodity derivatives
271
59
271
59
24
Note 12—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the
equity section of our consolidated balance
sheet included:
Millions of Dollars
Defined
Benefit Plans
Net Unrealized
Gain (Loss) on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2020
$
(425)
2
(4,795)
(5,218)
Other comprehensive income (loss)
134
(1)
165
298
June 30, 2021
$
(291)
1
(4,630)
(4,920)
The following table summarizes reclassifications
out of accumulated other comprehensive loss and into
net
income (loss):
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Defined benefit plans
$
42
8
54
16
The above amounts are included in the computation of net periodic benefit
cost and are presented net of tax expense of $
11
million and $
2
million for the three-month periods ended June 30, 2021 and June 30, 2020,
respectively, and $
15
million and $
4
million for the six-month
periods ended June 30, 2021 and June 30, 2020, respectively
.
See Note 14 for additional information.
Note 13—Cash Flow Information
Millions of Dollars
Six Months Ended
June 30
2021
2020
Cash Payments
Interest
$
464
397
Income taxes
107
761
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(5,439)
(7,021)
Short-term investments sold
6,842
6,147
Long-term investments purchased
(149)
(208)
Long-term investments sold
48
52
$
1,302
(1,030)
See Note 3 for additional information on cash and non-cash changes to our consolidated balance sheet
associated with our Concho acquisition.
25
Note 14—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
Pension Benefits
Other Benefits
2021
2020
2021
2020
U.S.
Int'l.
U.S.
Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended June 30
Service cost
$
18
16
21
13
1
-
Interest cost
15
20
17
20
1
1
Expected return on plan assets
(20)
(30)
(21)
(34)
-
-
Amortization of prior service credit
-
-
-
-
(10)
(8)
Recognized net actuarial loss
12
8
13
5
1
-
Settlements
42
-
-
-
-
-
Net periodic benefit cost
$
67
14
30
4
(7)
(7)
Six Months Ended June 30
Service cost
$
39
31
42
27
1
1
Interest cost
28
40
34
42
2
3
Expected return on plan assets
(44)
(60)
(42)
(71)
-
-
Amortization of prior service credit
-
-
-
-
(19)
(16)
Recognized net actuarial loss
27
16
25
11
1
-
Settlements
44
-
1
(1)
-
-
Curtailments
12
-
-
-
-
-
Special Termination Benefits
9
-
-
-
-
-
Net periodic benefit cost
$
115
27
60
8
(15)
(12)
The components of net periodic benefit cost, other
than the service cost component, are included
in the “Other
expenses” line item on our consolidated income statement.
During the three-month period ended June 30,
2021, lump-sum benefit payments exceeded the sum
of
service and interest costs for the year for the
U.S. qualified pension plan and a U.S. non-qualified
supplemental
retirement plan.
As a result, we recognized a proportionate share
of prior actuarial losses from other
comprehensive income as pension settlement
expense of $
42
million.
In conjunction with the recognition of
pension settlement expense, the fair market
values of the pension plan assets were updated
and the pension
benefit
obligations of the U.S. qualified pension plan
and the U.S. non-qualified supplemental
retirement plan
were remeasured at June 30, 2021.
At the measurement date, the net pension liability
decreased by $
30
million, primarily a result of better actual return
on assets compared with the expected return,
partially offset
by a decrease in the discount rate, resulting
in a corresponding increase to other comprehensive
income.
As part of our restructuring program, we concluded
that actions taken during the first quarter
of 2021, would
result in a significant reduction of future service
of active employees in the U.S. qualified
pension plan, a U.S.
nonqualified supplemental retirement plan and the
U.S. other postretirement benefit plans.
As a result, we
recognized an increase in the benefit obligation
as a curtailment loss of $
12
million on the U.S. pension benefit
plans in the first quarter of 2021.
In conjunction with the recognition of curtailment
losses, the fair market
values of pension plan assets were updated, and the
pension benefit obligations of the U.S. qualified
pension, a
U.S. nonqualified supplemental retirement
plan and the U.S. other postretirement benefit
plans were
remeasured.
At March 31, 2021, the net pension liability decreased
by $
76
million, primarily as a result of
discount rate increases for each plan offset by lower than
premised return on assets on the U.S. qualified
pension plan, resulting in a corresponding increase
to other comprehensive income.
26
The relevant discount rates are summarized in
the following table:
June 30
March 31
December 31
Discount rate
2021
2021
2020
U.S. qualified pension plan
%
2.65
3.00
2.40
U.S. nonqualified pension plan
2.15
2.40
1.85
U.S. postretirement benefit plans
*
2.80
2.20
* Not remeasured at June 30, 2021.
During the first six months of 2021, we contributed
$
269
million to our domestic benefit plans and $
63
million
to our international benefit plans.
In 2021, we expect to contribute a total of approximately
$
365
million to
our domestic qualified and nonqualified pension
and postretirement benefit plans and $
97
million to our
international qualified and nonqualified pension
and postretirement benefit plans.
Severance Accrual
The following table summarizes our severance
accrual activity for the six-month period
ended June 30, 2021:
Millions of Dollars
Balance at December 31, 2020
$
24
Accruals
102
Benefit payments
(91)
Balance at June 30, 2021
$
35
Accruals include severance costs associated with
our restructuring program.
Of the remaining balance at June
30, 2021, $
20
million is classified as short-term.
See Note 3 for information relating to our Concho
acquisition.
Note 15—Related Party Transactions
Our related parties primarily include equity method
investments and certain trusts for the benefit
of employees.
Significant transactions with our equity affiliates
were:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Operating revenues and other income
$
24
21
40
38
Purchases
3
-
3
-
Operating expenses and selling, general and administrative
expenses
63
12
89
27
Net interest (income) expense*
-
(2)
(1)
(4)
*We paid interest to, or received interest from,
various affiliates.
See Note 4 for additional information on loans to affiliated companies.
27
Note 16—Sales and Other Operating Revenues
Revenue from Contracts with Customers
The following table provides further disaggregation
of our consolidated sales and other operating
revenues:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Revenue from contracts with customers
$
7,753
1,919
14,914
6,830
Revenue from contracts outside the scope of ASC
Topic 606
Physical contracts meeting the definition of a derivative
1,754
856
4,728
2,152
Financial derivative contracts
49
(26)
(260)
(75)
Consolidated sales and other operating revenues
$
9,556
2,749
19,382
8,907
Revenues from contracts outside the scope of ASC
Topic 606 relate primarily to physical gas contracts at
market prices which qualify as derivatives accounted
for under ASC Topic 815, “Derivatives and Hedging,”
and for which we have not elected NPNS.
There is no significant difference in contractual
terms or the policy
for recognition of revenue from these contracts
and those within the scope of ASC Topic 606.
The following
disaggregation of revenues is provided in conjunction
with
Note 17—Segment Disclosures and Related
Information
:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic 606
by Segment
Lower 48
$
1,345
698
3,811
1,674
Canada
207
121
510
300
Europe, Middle East and North Africa
202
37
407
178
Physical contracts meeting the definition of a derivative
$
1,754
856
4,728
2,152
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic 606
by Product
Crude oil
$
178
26
302
118
Natural gas
1,504
763
4,231
1,853
Other
72
67
195
181
Physical contracts meeting the definition of a derivative
$
1,754
856
4,728
2,152
28
Practical Expedients
Typically,
our commodity sales contracts are less than
12 months in duration; however, in certain specific
cases may extend longer, which may be out to the end of
field life.
We have long-term commodity sales
contracts which use prevailing market prices at the time of delivery, and under these contracts, the market-
based variable consideration for each performance obligation (i.e., delivery of commodity) is allocated to each
wholly unsatisfied performance obligation within the contract.
Accordingly,
we have applied the practical
expedient allowed in ASC Topic 606 and do not disclose the aggregate amount of the transaction price
allocated to performance obligations or when we expect to recognize revenues that are unsatisfied (or partially
unsatisfied) as of the end of the reporting period.
Receivables and Contract Liabilities
Receivables from Contracts with Customers
At June 30, 2021, the “Accounts and notes receivable”
line on our consolidated balance sheet,
includes trade
receivables of $
3,504
million compared with $
1,827
million at December 31, 2020, and includes
both
contracts with customers within the scope of ASC
Topic 606 and those that are outside the scope of ASC
Topic 606.
We typically receive payment within 30 days or less (depending on the terms of the invoice) once
delivery is made.
Revenues that are outside the scope of ASC Topic 606 relate primarily to
physical gas sales
contracts at market prices for which we do not
elect NPNS and are therefore accounted for
as a derivative
under ASC Topic 815.
There is little distinction in the nature
of the customer or credit quality of trade
receivables associated with gas sold under contracts
for which NPNS has not been elected
compared to trade
receivables where NPNS has been elected.
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology
to customers related
to the optimization process for operating LNG
plants.
The agreements typically provide for negotiated
payments to be made at stated milestones.
The payments are not directly related to our
performance under the
contract and are recorded as deferred revenue
to be recognized as revenue when the customer
can utilize and
benefit from their right to use the license.
Payments are received in installments over the construction period.
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
97
Contractual payments received
7
Revenue recognized
(62)
At June 30, 2021
$
42
Amounts Recognized in the Consolidated
Balance Sheet at June 30, 2021
Current liabilities
$
42
For the six-month period of 2021, we recognized revenue of $62 million in the “Sales and other operating
revenues” line on our consolidated income statement. No revenue was recognized during the three-month
period ended June 30, 2021. We expect to recognize the contract liabilities as of June 30, 2021, as revenue
during 2022.
29
Note 17—Segment Disclosures and Related Information
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on
a worldwide
basis.
We manage our operations through
six
operating segments, which are primarily defined
by geographic
region: Alaska; Lower 48; Canada; Europe,
Middle East and North Africa; Asia Pacific;
and Other
International.
Corporate
and Other represents income and costs not
directly associated with an operating segment,
such as
most interest income and expense;
premiums on early retirement of debt; corporate
overhead and certain
technology activities, including licensing revenues;
and unrealized holding gains or losses
on equity securities.
Corporate assets include all cash and cash equivalents
and short-term investments.
We evaluate performance and allocate resources based on net income (loss) attributable
to ConocoPhillips.
Intersegment sales are at prices that approximate
market.
Effective in the third quarter of 2020, we restructured our
segments to align with changes to our internal
organization.
The Middle East business was realigned from
the Asia Pacific and Middle East segment to the
Europe and North Africa segment.
The segments have been renamed the Asia Pacific
segment and the Europe,
Middle East and North Africa segment.
We have revised segment information disclosures and segment
performance metrics presented within our results
of operations for the prior comparative periods.
On January 15, 2021, we completed our acquisition
of Concho, an independent oil and gas exploration
and
production company with operations across New
Mexico and West Texas.
Results of operations for Concho
are included in our Lower 48 segment for the current
period.
Certain transaction and restructuring costs
associated with the Concho acquisition are included
in our Corporate and Other segment.
See Note 3 for
additional information.
30
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Sales and Other Operating Revenues
Alaska
$
1,418
419
2,551
1,532
Intersegment eliminations
-
19
-
19
Alaska
1,418
438
2,551
1,551
Lower 48
5,889
1,433
12,402
4,536
Intersegment eliminations
(2)
(28)
(4)
(38)
Lower 48
5,887
1,405
12,398
4,498
Canada
802
165
1,669
678
Intersegment eliminations
(352)
-
(657)
(180)
Canada
450
165
1,012
498
Europe, Middle East and North Africa
1,165
288
2,143
888
Asia Pacific
630
450
1,207
1,453
Other International
2
1
3
4
Corporate and Other
4
2
68
15
Consolidated sales and other operating revenues
$
9,556
2,749
19,382
8,907
Sales and Other Operating Revenues by Geographic Location
(1)
United States
$
7,308
1,844
15,015
6,061
Australia
-
168
-
605
Canada
450
165
1,012
498
China
171
67
326
213
Indonesia
207
132
403
336
Libya
290
-
520
44
Malaysia
252
83
478
299
Norway
618
242
1,030
688
United Kingdom
257
46
593
156
Other foreign countries
3
2
5
7
Worldwide consolidated
$
9,556
2,749
19,382
8,907
Sales and Other Operating Revenues by Product
Crude oil
$
5,797
1,216
10,292
4,660
Natural gas
2,812
1,190
7,323
2,845
Natural gas liquids
325
84
562
235
Other
(2)
622
259
1,205
1,167
Consolidated sales and other operating revenues by product
$
9,556
2,749
19,382
8,907
(1) Sales and other operating revenues are attributable to countries based on the location of
the selling operation.
(2) Includes LNG and bitumen.
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
371
(141)
530
(60)
Lower 48
1,175
(365)
1,643
(802)
Canada
102
(86)
112
(195)
Europe, Middle East and North Africa
207
25
360
226
Asia Pacific
175
648
492
920
Other International
(5)
(6)
(9)
22
Corporate and Other
66
185
(55)
(1,590)
Consolidated net income (loss) attributable to ConocoPhillips
$
2,091
260
3,073
(1,479)
31
Millions of Dollars
June 30
December 31
2021
2020
Total Assets
Alaska
$
14,636
14,623
Lower 48
32,309
11,932
Canada
6,991
6,863
Europe, Middle East and North Africa
8,616
8,756
Asia Pacific
10,721
11,231
Other International
239
226
Corporate and Other
11,891
8,987
Consolidated total assets
$
85,403
62,618
Note 18—Income Taxes
Our effective tax rate was
32
percent in the three-month period ended June 30,
2021 and was negative for the
comparable period of 2020.
Both periods were primarily impacted by shifts
in our before-tax income between
higher and lower tax jurisdictions as well as the
change in our U.S. valuation allowance
driven by the fair
value measurement of our CVE common shares.
Our effective tax rates for the six-months ended June 30,
2021 and 2020 were
36
percent and
7
percent,
respectively and both periods were impacted by the
same items noted above.
Additionally, our effective tax
rate for the six-month period ended June 30, 2021
was adversely impacted by $
75
million due to incremental
interest deductions from the exchange of debt
acquired from Concho offsetting U.S. foreign source revenue
that would otherwise have been offset by foreign tax credits.
The six-month period ending June 30, 2020, was
also impacted by the tax effect of the gain on disposition
recognized for Australia-West assets.
For additional
information relating to the debt exchange, see Note 6.
During the three and six-month periods of 2021,
our valuation allowance decreased by $
87
million and $
151
million, respectively, compared to a decrease of $
117
million and an increase of $
229
for the same periods of
2020.
The change to our U.S. valuation allowance
for all periods relates primarily to the fair
value
measurement of our CVE common shares and
our expectation of the tax impact related
to incremental capital
gains and losses.
The Company has ongoing income tax audits
in a number of jurisdictions. The government
agents in charge of
these audits regularly request additional time
to complete audits, which we generally grant, and conversely
occasionally close audits unpredictably.
Within the next twelve months we may have audit periods close
that
could significantly impact our total unrecognized
tax benefits. The amount of such change
and the associated
impact on our financial statements is not estimable
at this time.
Our deferred tax liability increased by approximately
$
1.1
billion as part of the liabilities assumed through
our
Concho acquisition.
Additionally, our reserve for unrecognized tax benefits increased by $
150
million related
to tax credit carryovers acquired from Concho
that we do not expect to recognize.
For additional information
relating to the Concho acquisition, see Note 3.
32
Item 2.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s
Discussion and Analysis is the company’s analysis of its financial performance and of
significant trends that may affect future performance.
It should be read in conjunction with the financial
statements and notes.
It contains forward-looking statements including, without limitation,
statements relating
to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform
Act of 1995.
The words “anticipate,”
“believe,” “budget,” “continue,” “could,” “effort,”
“estimate,” “expect,” “forecast,” “goal,” “guidance,”
“intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,”
“target,” “will,” “would,” and similar expressions identify forward-looking statements.
The company does
not undertake to update, revise or correct any of the forward-looking information unless required to do so
under the federal securities laws.
Readers are cautioned that such forward-looking statements should be read
in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995,” beginning on page
57.
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
BUSINESS ENVIRONMENT AND EXECUTIVE
OVERVIEW
ConocoPhillips is the world’s largest independent E&P company with operations
and activities in 15 countries.
Our diverse, low cost of supply portfolio includes
resource-rich unconventional plays in North
America;
conventional assets in North America, Europe,
and Asia; LNG developments; oil sands in
Canada; and an
inventory of global conventional and unconventional
exploration prospects.
Headquartered in Houston, Texas,
at June 30, 2021, we employed approximately
10,100 people worldwide and had total assets
of $85 billion.
Completed Acquisition of Concho Resources Inc.
On January 15, 2021, we completed our acquisition
of Concho Resources Inc. (Concho), an independent
oil
and gas exploration and production company
with operations across New Mexico and West Texas.
The
addition of complementary acreage in the
Delaware and Midland Basins creates a sizeable
Permian presence to
augment our leading unconventional positions
in the Eagle Ford, Bakken and Montney.
Since the closing of the transaction, we have made
significant progress in integrating the two
companies and
have exceeded our own expectations in realizing
synergies and savings that should have long lasting positive
effects on our business.
We previously announced an expected $750 million of annual cost and capital
savings
by 2022.
However, due to additional benefits anticipated from further cost, capital,
and margin improvements,
we now expect approximately $1 billion in annual
synergies and savings by 2022.
See Note 3 for additional
information related to our Concho acquisition.
Overview
While commodity prices continued to improve
in the second quarter of 2021, we believe that
prices will
remain cyclical and volatile.
Our view is that a successful business strategy
in the E&P industry must be
resilient in lower price environments, while
also retaining upside during periods of higher prices.
As such, we
are unhedged, remain disciplined in our investment
decisions and are monitoring market
fundamentals,
including OPEC plus updates regarding supply
guidance,
inventory levels, and capital restraint across
the
industry.
Demand is still recovering but has yet to reach
pre-pandemic levels.
The speed and extent of this
recovery will be influenced by whether and at what
pace the COVID-19 restrictions that
have reduced
economic activity and depressed the demand for
our products globally are eased.
33
As the macro energy environment continues to evolve,
we have embraced what we believe sector leadership
requires and we call it our triple mandate.
We believe ConocoPhillips can play a valued role in whatever
pathway the energy transition takes by investing in the lowest
cost of supply barrels to help meet global energy
demand, delivering competitive returns of and on capital,
and achieving our net-zero ambition on our gross
operated (scope 1 and 2) emissions.
Our triple mandate is supported by financial principles
and allocation priorities that should allow
us to deliver
superior returns through the price cycles.
Our financial principles consist of maintaining
balance sheet
strength, providing peer-leading distributions,
making disciplined investments, and delivering ESG excellence,
all of which are in service of delivering financial
returns.
Our acquisition of Concho further reinforced
our
value proposition.
In the second quarter, total company production was 1,588
MBOED, including 435
MBOED from the Permian Basin, resulting in cash
provided by operating activities of $4.3 billion.
In the six-
month period ended June 30, 2021, we have
generated $6.3 billion in cash provided by operating
activities,
returning $1.2 billion to shareholders through dividends
and $1 billion through share repurchases.
We ended
the quarter with cash, cash equivalents and short-term
investments totaling $8.9 billion.
In February 2021, we resumed our share repurchase
program at an annualized level of $1.5 billion
which was
increased in the second quarter to an annualized level
of $2.5 billion for 2021.
Additionally, in May 2021 we announced a paced monetization program related
to the 208 million shares of
Cenovus Energy (CVE) common shares owned at that time.
We plan to fully dispose of our CVE shares by
year-end 2022, however, the sales pace for the remaining shares will be guided
by market conditions, and we
retain discretion to adjust accordingly.
The proceeds from this disposition will be deployed
towards
incremental share repurchases.
During the second quarter of 2021 we sold 20 million
shares or approximately
10 percent of the shares held at December 31, 2020
for $180 million.
Based on current market conditions, in
2021 we anticipate $1 billion in proceeds to be directed
towards our existing share repurchase authorization,
bringing our total 2021 share repurchases to an estimated
$3.5 billion.
See Note 5 for additional information
on our investment in CVE.
These share repurchases along with our annual
dividend of $2.3 billion amount to a total of approximately
$6
billion in planned distributions for 2021.
In May 2021,
we demonstrated our commitment to preserving
our ‘A’
-rated balance sheet by announcing our
intent to reduce the company’s gross debt by $5 billion over five years through
natural and accelerated
maturities.
In June 2021, we affirmed our commitment to ESG leadership
and excellence,
and to the specific targets that
we set in October 2020 when we became the first
U.S.-based oil and gas company to adopt a Paris-aligned
climate-risk strategy.
Our commitment includes:
●
Net-zero ambition for operational (scope 1 and
2) emissions by 2050 with active advocacy
for a price
on carbon to address end-use (scope 3) emissions;
●
Targeting a reduction in operational greenhouse gas emissions intensity by 35 to 45 percent
from 2016
levels by 2030;
●
Zero routine flaring by 2030, with an ambition
to get there by 2025;
●
10 percent reduction target for methane emissions intensity
by 2025, in addition to the 65 percent
reductions we have made since 2015;
●
Adding continuous methane monitoring devices to
our operations with a focus on the larger Lower 48
facilities;
●
Formation of a dedicated low carbon technology
organization responsible for identifying and
prioritizing global emissions reduction initiatives
and opportunities associated with the energy
transition including carbon capture, utilization
and storage (CCUS) and hydrogen;
and
●
ESG performance in executive and employee
compensation programs.
34
-
1
2
3
4
20
40
60
80
Q2'19
Q3'19
Q4'19
Q1'20
Q2'20
Q3'20
Q4'20
Q1'21
Q2'21
WTI/Brent
$/Bbl
WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices
Quarterly Averages
WTI - $/Bbl
Brent - $/Bbl
HH - $/MMBTU
HH
$/MMBTU
Operationally, we remain focused on safely executing the business.
Production was 1,588 MBOED in the
second quarter of 2021, an increase of 607 MBOED
or 62 percent, compared with the second quarter
of 2020,
primarily due to the acquisition of approximately
330 MBOED in the Permian Basin from
our Concho
acquisition and the absence of last year’s economic curtailments
driven by weakness in oil prices
predominantly in operated North American assets.
We re-invested $1.3 billion back into the business in the form of capital expenditures
during the second
quarter, with over half of our investments focused on flexible,
short-cycle unconventional plays in the Lower
48 segment where our production is liquids-weighted
and is accessible to both domestic and export
markets.
For the full year, driven by efficiencies we have already captured from the
Concho transaction,
we have
reduced our 2021 capital guidance to $5.3 billion
and cost guidance to $6.1 billion for 2021.
Business Environment
Commodity prices are the most significant
factor impacting our profitability and related reinvestment
of
operating cash flows into our business.
Among other dynamics that could influence
world energy markets and
commodity prices are global economic health, supply
or demand disruptions or fears thereof caused
by civil
unrest, global pandemics, military conflicts,
actions taken by OPEC plus and other major
oil producing
countries, environmental laws, tax regulations,
governmental policies, and weather-related disruptions.
Our
strategy is to create value through price cycles
by delivering on the financial,
operational and ESG priorities
that underpin our value proposition.
Our earnings and operating cash flows generally
correlate with price levels for crude oil
and natural gas, which
are subject to factors external to the company and over
which we have no control.
The following graph depicts
the trend in average benchmark prices for WTI
crude oil, Brent crude oil and Henry Hub natural
gas:
Brent crude oil prices averaged $68.83 per barrel
in the second quarter of 2021,
an increase of 136 percent
compared with $29.20 per barrel in the second quarter
of 2020.
WTI at Cushing crude oil prices averaged
$66.07 per barrel in the second quarter of 2021,
an increase of 137 percent compared with $27.85
per barrel in
the second quarter of 2020.
Oil prices increased alongside the ongoing global
economic recovery following
2020’s COVID closures as well as OPEC plus supply restraint.
35
Henry Hub natural gas prices averaged $2.83
per MMBTU in the second quarter of 2021,
an increase of 65
percent compared with $1.71 per MMBTU in the second
quarter of 2020.
Henry Hub prices have increased
due to healthy domestic demand accompanied
by record levels of feedgas demand for LNG exports
to Europe
and Asia.
Our realized bitumen price averaged $37.60 per barrel
in the second quarter of 2021,
an
increase of
approximately $61 per barrel compared with negative
$23.11 per barrel in the second quarter of 2020.
The
increase in the second quarter of 2021 was driven
by higher blend price for Surmont sales,
largely attributed to
a strengthening of WTI price and reduced unutilized
transportation costs which negatively impacted
our
realized bitumen price in 2020.
We continue to optimize bitumen price realizations through the utilization of
downstream transportation solutions and implementation
of alternate blend capability which results in lower
diluent costs.
Our total average realized price was $50.03 per
BOE in the second quarter of 2021,
increased in comparison
with $23.09 per BOE in the second quarter of
2020.
Key Operating and Financial Summary
Significant items during the second quarter
of 2021 and recent announcements included
the following:
●
Delivered strong operational performance across the
company’s asset base, including successful
planned maintenance turnarounds, resulting in second
quarter production of 1,547 MBOED,
excluding
Libya.
●
Net cash provided by operating activities was $4.3
billion, exceeding capital expenditures
and
investments of $1.3 billion.
●
Distributed $1.2 billion to shareholders, comprised
of $0.6 billion in dividends and $0.6 billion
in
share repurchases.
●
Ended the quarter with cash and cash equivalents
totaling $6.6 billion and short-term investments
of
$2.3 billion, equaling $8.9 billion in ending cash,
cash equivalents and short-term investments.
●
Entered into divestiture agreements during July for
certain Lower 48 noncore assets totaling
approximately $0.2 billion, subject to customary
closing adjustments, as part of the company’s plan to
generate $2 to $3 billion in disposition proceeds
over the next 18 months.
Outlook
Capital,
Cost and Production
In June 2021, due to realizing synergistic savings from
our Concho acquisition earlier than anticipated,
we
announced reductions
of full year 2021
operating plan capital and cost guidance by
a combined $300 million.
Capital guidance was reduced to $5.3 billion
and cost guidance to $6.1 billion for the full
year 2021.
Third-quarter 2021 production is expected to be 1.48
to 1.52 MMBOED,
reflecting seasonal turnarounds
planned in Alaska and the Asia Pacific region.
This production guidance excludes Libya and
assumes that
previously announced divestitures close during
the third quarter of 2021.
All other guidance items are
unchanged.
Depreciation, Depletion and Amortization
DD&A expense was $1.9 billion in the second quarter
of 2021.
Proved reserves estimates were updated in the
current quarter utilizing historical twelve-month
first-of-month average prices, which decreased
second quarter
DD&A expense by approximately $160 million
before-tax.
Depending on price fluctuations, we would expect
reserve estimates to either increase or decrease.
36
RESULTS OF OPERATIONS
Effective with the third quarter of 2020, we have restructured our segments to align with
changes to our
internal organization.
The Middle East business was realigned from the Asia Pacific and Middle East
segment
to the Europe and North Africa segment.
The segments have been renamed the Asia Pacific segment
and the
Europe, Middle East and North Africa segment.
We have revised segment information disclosures and
segment performance metrics presented within our results of operations for the
prior comparative periods.
Unless otherwise indicated, discussion of results for the three-
and six-month periods ended June 30, 2021, is
based on a comparison with the corresponding periods of 2020.
Consolidated Results
A summary of the company's net income (loss)
attributable to ConocoPhillips by business segment
follows:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Alaska
$
371
(141)
530
(60)
Lower 48
1,175
(365)
1,643
(802)
Canada
102
(86)
112
(195)
Europe, Middle East and North Africa
207
25
360
226
Asia Pacific
175
648
492
920
Other International
(5)
(6)
(9)
22
Corporate and Other
66
185
(55)
(1,590)
Net income (loss) attributable to ConocoPhillips
$
2,091
260
3,073
(1,479)
Net income (loss) attributable to ConocoPhillips
in the second quarter of 2021 increased $1,831 million.
Earnings were positively impacted by:
●
Higher realized commodity prices.
●
Higher sales volumes, primarily due to our
Concho acquisition and absence of production
curtailments
in our operated North American assets.
For additional information related to our Concho acquisition,
see Note 3.
Second quarter 2021 net income increases were partly
offset by:
●
Higher DD&A expenses primarily due to our
Concho acquisition and the absence of production
curtailments in our operated North American assets,
partially offset by lower rates driven from price-
related reserve revisions due to higher commodity
prices in 2021.
●
Higher production and operating expenses and
taxes other than income taxes, primarily
due to our
Concho acquisition and the absence of production
curtailments in our operated North American
assets.
●
Absence of a $597 million after-tax gain on dispositions
related to our Australia-West divestiture in
May 2020.
Net income (loss) attributable to ConocoPhillips
in the six-month period ended June 30, 2021, increased
$4,552 million.
In addition to the items detailed above, earnings
were positively impacted by:
●
A gain of $726 million after-tax on our CVE
common shares, compared with an after-tax
loss of
$1,140 million in the first half of 2020.
For discussion of our CVE common shares, see Note 5.
●
Lower impairments by $519 million,
primarily due to the absence of impairments to noncore
gas
assets in our Lower 48 segment.
37
In addition to the items detailed above, the increases
in earnings in the six-month period ended
June 30, 2021,
were partly offset by:
●
Restructuring and transaction expenses of approximately
$261 million after-tax related to our Concho
acquisition and mark-to-market impacts on certain
key employee compensation programs.
●
Realized losses on hedges of $233 million after-tax
related to derivative positions assumed through
our Concho acquisition.
These derivative positions were settled
entirely within the first quarter of
2021.
See Note 10 for additional information.
See the “Segment Results” section for additional
information.
Income Statement Analysis
Unless otherwise indicated, all results in Income Statement Analysis
are before-tax.
Sales and other operating revenues for the three-
and six-month periods of 2021 increased $6,807
million and
$10,475 million,
respectively, mainly due to higher realized commodity prices and higher sales
volumes in the
Lower 48, primarily related to our Concho acquisition
and the absence of production curtailments in
our
operated North American assets.
Equity in earnings of affiliates for the three-month period
of 2021 increased $62 million primarily due to
higher earnings driven by higher LNG and crude
prices, partially offset by a higher effective tax rate related
to
equity method investments in our Europe, Middle
East, and North Africa segment.
For the six-month period
of 2021, Equity in earnings of affiliates decreased $50 million
primarily due to lower earnings driven by lower
LNG lagging contract prices in 2021 when compared
with the same periods in 2020.
Gain on dispositions for the three-
and six-month periods of 2021 decreased $537
million and $262 million,
respectively, primarily due to the absence of a $587 million gain associated with
our Australia-West
divestiture.
The six-month decrease was partially offset by recognition
of a $200 million FID bonus associated
with our Australia-West divestiture in the first quarter of 2021.
Other income (loss) for the three-month period
of 2021
decreased $137 million and for the six-month
period
increased $1,780 million.
During these periods in 2021, we recognized
gains of $418 million and $726
million,
respectively, on our CVE common shares, compared with a gain of $551 million
and loss of $1,140
million,
respectively, for the same periods in 2020.
Purchased commodities for the three- and six-month
periods of 2021 increased $1,868 million
and $3,690
million, respectively, primarily due to higher gas and crude prices.
In the six-month period of 2021, higher
prices were partly offset by lower crude oil volumes purchased.
Production and operating expenses for the three-
and six-month periods of 2021
increased $332 million and
$542 million, respectively, primarily due to costs associated with additional
volumes in our operated North
American assets related to our Concho acquisition
and the absence of production curtailments.
Selling, general and administrative expenses increased
$275 million in the six-month period of 2021,
primarily
due to higher costs associated with compensation
and benefits, including mark-to-market impacts
of certain
key employee compensation programs,
and transaction and restructuring expenses
associated with our Concho
acquisition.
Exploration expenses for the six-month period of 2021
decreased $144 million, primarily due to the
absence of
an unproved property impairment and dry hole expenses
related to the Kamunsu East Field in Malaysia
and the
absence of charges associated with the early termination
of our 2020 winter exploration program in Alaska.
38
DD&A for the three-
and six-month periods of 2021 increased $709
million and $1,184 million, respectively,
mainly due to higher production volumes in the
Lower 48 associated with our Concho acquisition
and higher
volumes in each of our North American assets
due to the absence of production curtailments,
Montney ramp
up and Kelt acquisition in Canada.
These increases were partly offset by lower rates from
price-related reserve
revisions in Lower 48 and Canada.
Impairments decreased $520 million in
the six-month period of 2021, primarily due to the
absence of a $511
million impairment of certain non-core gas assets
in our Lower 48 segment.
Taxes other than income taxes for the three-
and six-month periods of 2021 increased
$240 million and $360
million, respectively, primarily due to higher sales volumes in Lower 48 from
our Concho acquisition,
the
absence of production curtailments
in all of our North American assets and higher commodity
prices.
Foreign currency transaction (gain) loss in the
six-month period of 2021 was a loss of $29 million
compared
with a gain of $83 million in the six-month period
of 2020.
This increase of $112 million was primarily due to
the absence of gains recognized from foreign currency
derivatives and other foreign currency remeasurements.
See
Note 18—Income Taxes
for information regarding our income tax provision
(benefit) and effective tax
rate.
39
Summary Operating Statistics
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Average Net Production
Crude oil (MBD)
Consolidated operations
836
460
820
551
Equity affiliates
13
14
13
13
Total crude oil
849
474
833
564
Natural gas liquids (MBD)
Consolidated operations
120
85
113
101
Equity affiliates
8
8
8
7
Total natural gas liquids
128
93
121
108
Bitumen (MBD)
68
34
69
50
Natural gas (MMCFD)
Consolidated operations
2,209
1,221
2,142
1,429
Equity affiliates
1,051
1,056
1,066
1,046
Total natural gas
3,260
2,277
3,208
2,475
Total Production
(MBOED)
1,588
981
1,558
1,135
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
Consolidated operations*
$
65.54
25.10
61.60
38.81
Equity affiliates
64.10
25.32
62.03
38.52
Total crude oil
65.51
25.10
61.60
38.80
Natural gas liquids (per bbl)
Consolidated operations
25.62
8.29
25.06
10.85
Equity affiliates
44.12
23.93
46.53
32.38
Total natural gas liquids
26.87
9.88
26.68
12.63
Bitumen (per bbl)
37.60
(23.11)
34.09
(3.09)
Natural gas (per MCF)
Consolidated operations*
4.25
2.64
4.56
3.19
Equity affiliates
3.97
3.90
3.76
4.65
Total natural gas
4.16
3.22
4.29
3.81
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical,
lease rental, and other
$
56
94
134
215
Leasehold impairment
1
-
1
31
Dry holes
-
3
6
39
$
57
97
141
285
*Average sales prices, including the impact of hedges settling per initial contract
terms in the first quarter of 2021 assumed in our Concho
acquisition, were $60.59 per barrel for crude oil and $4.50 per mcf for natural gas for the six-month
period ended June 30, 2021.
As of March
31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
See Note 10 for additional information.
40
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on
a worldwide
basis.
At June 30, 2021, our operations were producing
in the U.S., Norway, Canada, Australia, Indonesia,
China, Malaysia,
Qatar and Libya.
Total production of 1,588 MBOED increased 607 MBOED or 62 percent in
the second quarter of 2021 and
423 MBOED or 37 percent in the six-month period
of 2021,
primarily due to:
●
Higher volumes in the Lower 48 due to our
Concho acquisition.
●
Higher volumes in our operated North American
assets and Malaysia due to the absence
of production
curtailments.
●
New wells online in the Lower 48, Canada,
Norway, Malaysia, and Australia.
●
Higher production in Libya due the absence of
a forced shutdown of the Es Sider export terminal
and
other eastern export terminals after a period of
civil unrest.
The increase in the second quarter and in the six-month
period of 2021 was partly offset by:
●
Normal field decline.
●
Disposition activity primarily related to our
Australia-West divestiture completed in the second
quarter of 2020.
In addition to the items detailed above, in the six-month
period of 2021, production also decreased
due to:
●
Higher unplanned downtime in the Lower 48
due to Winter Storm Uri, which impacted production by
approximately 50 MBOED in the first quarter
of 2021.
Production excluding Libya for the second quarter
of 2021 was 1,547 MBOED, an increase of 566
MBOED
from the same period a year ago.
After adjusting for closed acquisitions and dispositions
as well as estimated
impacts from the 2020 curtailment program, second-quarter
2021 production increased 46 MBOED or 3
percent.
This increase was primarily due to new production
from the Lower 48 and other development
programs across the portfolio, partially offset by normal
field decline.
Production from Libya averaged 41
MBOED.
Production excluding Libya for the six-month period
of 2021 was 1,518 MBOED, an increase
of 388 MBOED
from the same period a year ago.
After adjusting for closed acquisitions and dispositions,
estimated impacts
from the 2020 curtailment program and Winter Storm Uri impacts
from 2021, production increased 18
MBOED.
This increase was primarily due to new production
from the Lower 48 and other development
programs across the portfolio, partially offset by normal
field decline.
Production from Libya averaged 40
MBOED.
41
Segment Results
Alaska
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net income (loss) attributable to ConocoPhillips
($MM)
$
371
(141)
530
(60)
Average Net Production
Crude oil (MBD)
184
153
187
175
Natural gas liquids (MBD)
15
13
16
16
Natural gas (MMCFD)
11
8
10
8
Total Production
(MBOED)
201
167
205
192
Average Sales Prices
Crude oil ($ per bbl)
$
67.87
26.81
63.93
42.52
Natural gas ($ per MCF)
4.53
2.56
3.17
2.82
The Alaska segment primarily explores for, produces, transports
and markets crude oil, NGLs and natural gas.
As of June 30, 2021, Alaska contributed 20 percent
of our consolidated liquids production and less
than 1
percent of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Alaska increased $512 million
in the second quarter of 2021
and increased $590 million in the
six-month period of 2021, respectively.
Earnings were positively impacted by:
●
Higher realized crude oil prices.
●
Higher volumes due to the absence of production
curtailments.
●
Lower exploration expenses due to the absence
of charges associated with the early cancellation of our
2020 winter exploration program.
Partly offsetting the increase in earnings was:
●
Higher DD&A expenses primarily driven
by higher production volumes and higher rates.
Production
Average production increased 34 MBOED in the second quarter of 2021 and 13 MBOED
in the six-month
period of 2021, respectively.
The increase was primarily due to:
●
Absence of curtailments at our operated assets.
Partly offsetting the increase in production was:
●
Normal field decline.
42
Lower 48
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
1,175
(365)
1,643
(802)
Average Net Production
Crude oil (MBD)
454
166
435
218
Natural gas liquids (MBD)
97
64
89
77
Natural gas (MMCFD)
1,459
486
1,389
582
Total Production
(MBOED)
794
311
755
392
Average Sales Prices
Crude oil ($ per bbl)*
$
64.13
19.87
60.17
32.92
Natural gas liquids ($ per bbl)
24.62
6.95
24.34
9.81
Natural gas ($ per MCF)*
3.27
1.18
3.88
1.36
*Average sales prices, including the impact of hedges settling per initial contract
terms in the first quarter of 2021 assumed in our Concho
acquisition, were $58.25 per barrel for crude oil and $3.78 per mcf for natural gas for the six-month
period ended June 30, 2021.
As of March
31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
See Note 10 for additional information
.
The Lower 48 segment consists of operations located
in the U.S. Lower 48 states, as well as producing
properties in the Gulf of Mexico.
As of June 30, 2021, the Lower 48 contributed
53 percent of our
consolidated liquids production and 65 percent
of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from the Lower 48 increased $1,540 million
in the second quarter of 2021 and increased $2,445
million in the six-month period of 2021, respectively.
Earnings were positively impacted by:
●
Higher sales volumes of crude oil and natural gas
due to our Concho acquisition and the absence
of
production curtailments.
●
Higher realized crude oil, natural gas, and NGL
prices.
Partly offsetting the increase in earnings was:
●
Higher DD&A expenses primarily due to higher
production from our Concho acquisition
and absence
of production related curtailment partially
offset by lower rates from price-related reserve revisions.
●
Higher production and operating expenses and
taxes other than income taxes, primarily
due to higher
production from our Concho acquisition and the absence
of production curtailments.
In addition to the items detailed above, in the six-month
period of 2021, earnings also increased due to:
●
The absence of $399 million in after-tax impairments
related to certain noncore gas assets in the Wind
River Basin operations area.
In addition to the items detailed above, in the six-month
period of 2021, earnings also decreased due
to:
●
Realized losses on hedges related to derivative
positions acquired in our Concho acquisition.
See
Note 10 for additional information.
●
Higher selling, general and administrative
expenses, primarily due to transaction and restructuring
charges related
to our Concho acquisition.
For additional information see Note 3.
43
Production
Average production increased 483 MBOED and 363 MBOED in the three-
and six-month periods of 2021,
respectively, primarily due to:
●
Higher volumes due to our Concho acquisition.
●
New wells online from our development programs
in Eagle Ford, Permian and Bakken.
●
Absence of curtailments.
These production increases were partly offset by:
●
Normal field decline.
In addition to the items detailed above, in the six-month
period of 2021, production also decreased
due to:
●
Higher unplanned downtime, primarily due to
Winter Storm Uri.
Planned Dispositions
In July 2021, we entered into divestiture agreements
to sell our interests in certain noncore assets
in our Lower
48 segment.
Proceeds from these agreements total approximately
$0.2 billion before customary adjustments.
The transactions are expected to close in the third
quarter of 2021.
Canada
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
102
(86)
112
(195)
Average Net Production
Crude oil (MBD)
9
5
10
4
Natural gas liquids (MBD)
4
2
4
1
Bitumen (MBD)
68
34
69
50
Natural gas (MMCFD)
84
40
87
30
Total Production
(MBOED)
95
48
98
60
Average Sales Prices
Crude oil ($ per bbl)
$
56.87
8.69
51.66
15.39
Natural gas liquids ($ per bbl)
27.14
1.64
26.19
1.89
Bitumen ($ per bbl)
37.60
(23.11)
34.09
(3.09)
Natural gas ($ per MCF)
2.26
0.79
2.32
1.05
Average sales prices include unutilized transportation costs.
Our Canadian operations mainly consist of the
Surmont oil sands development in Alberta
and the liquids-rich
Montney unconventional play in British Columbia.
As of June 30, 2021, Canada contributed
8 percent of our
consolidated liquids production and 4 percent
of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Canada increased $188 million
and $307 million,
respectively, in the three-
and six-month
periods of 2021.
Earnings were positively impacted by:
●
Higher realized bitumen and crude oil prices.
●
After-tax gains on disposition related to contingent
payments of $52 million and $72 million
in the
three-
and six-month periods of 2021, respectively, associated with the sale of certain
assets to CVE in
2017.
See Note 3 for additional information about the transaction.
44
Partly offsetting the increase in earnings was:
●
Higher production and operating expenses primarily
due to the absence of production curtailment
and
increased Montney production.
●
Higher DD&A expenses primarily driven
by higher production volumes partially offset by lower rates
from price-related reserve revisions.
●
Absence of a $48 million refund from the Alberta
Tax & Revenue Administration.
Production
Average production increased 47 MBOED in the second quarter of 2021
and increased 38 MBOED in the six-
month period of 2021, respectively.
The production increase was primarily due to:
●
Absence of curtailments at our Surmont operated
asset.
●
Wells online from Pad 2 and 3 in the Montney.
●
Production from our Kelt acquisition in the third
quarter of 2020.
●
Improved well performance at our Surmont operated
asset.
Europe, Middle East and North Africa
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
*
2021
2020
*
Net Income Attributable to ConocoPhillips
($MM)
$
207
25
360
226
Consolidated Operations
Average Net Production
Crude oil (MBD)
120
75
118
84
Natural gas liquids (MBD)
4
5
4
5
Natural gas (MMCFD)
297
264
303
287
Total Production
(MBOED)
173
124
172
137
Average Sales Prices
Crude oil ($ per bbl)
$
66.34
32.32
62.48
44.70
Natural gas liquids ($ per bbl)
39.49
16.76
38.21
18.75
Natural gas ($ per MCF)
7.17
2.21
6.58
3.03
*Prior periods have been updated to reflect the Middle East Business Unit
moving from Asia Pacific to the Europe, Middle East and North Africa
segment.
See Note 17 for additional information on our segments.
The Europe,
Middle East and North Africa segment consists
of operations principally located in the Norwegian
sector of the North Sea and the Norwegian Sea,
Qatar, Libya and commercial operations in the U.K.
As of
June 30, 2021, our Europe,
Middle East and North Africa operations contributed
12 percent of our
consolidated liquids production and 14 percent
of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Europe,
Middle East and North Africa increased by
$182 million and $134 million in the three-
and six-month periods of 2021, respectively.
Earnings were positively impacted by:
●
Higher realized natural gas, crude oil and NGL
prices.
●
Higher LNG sales prices, reflected in equity in
earnings of affiliates.
45
Partly offsetting the increase in earnings was:
●
Higher taxes.
●
Higher DD&A expenses and production and operating
expenses.
●
Absence of foreign currency gains.
Consolidated Production
Average consolidated production increased 49 MBOED and 35 MBOED in the three-
and six-month periods
of 2021, respectively.
The production increase was primarily due:
●
Higher production in Libya due to the absence
of a forced shutdown of the Es Sider export terminal
and other eastern export terminals after
a period of civil unrest.
●
Improved well performance in Norway.
●
New production from Norway drilling activities
including the completion of our Tor II redevelopment
project first achieved in December 2020.
Partly offsetting the increase in production was:
●
Normal field decline.
Asia Pacific
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
*
2021
2020
*
Net Income Attributable to ConocoPhillips
($MM)
$
175
648
492
920
Consolidated Operations
Average Net Production
Crude oil (MBD)
69
61
70
70
Natural gas liquids (MBD)
-
1
-
2
Natural gas (MMCFD)
358
423
353
522
Total Production
(MBOED)
129
133
129
159
Average Sales Prices
Crude oil ($ per bbl)
$
67.72
27.98
64.01
43.02
Natural gas liquids ($ per bbl)
-
27.90
-
33.21
Natural gas ($ per MCF)
6.32
4.74
6.10
5.45
*Prior periods have been updated to reflect the Middle East Business Unit
moving from Asia Pacific to the Europe, Middle East and North Africa
segment.
See Note 17 for additional information on our segments.
The Asia Pacific
segment has operations in China, Indonesia,
Malaysia and Australia.
As of June 30, 2021, Asia
Pacific contributed 7 percent of our consolidated
liquids production and 17 percent of our
consolidated natural
gas production.
46
Net Income (Loss) Attributable to ConocoPhillips
Earnings decreased $473 million in the second
quarter of 2021 and decreased $428 million
in the six-month
period of 2021,
respectively.
Earnings were negatively impacted by:
●
Absence of a $597 million after-tax gain related
to our Australia-West divestiture.
●
Lower earnings due to our Australia-West divestiture completed in the second quarter
of 2020.
●
Higher taxes associated with higher production and
prices in Malaysia and Indonesia.
Partly offsetting the decrease in earnings was:
●
Higher crude oil and natural gas prices.
●
Lower production and operating expenses related
to our Australia-West divestiture.
In addition to the items detailed above, in the six-month
period of 2021, earnings also decreased due
to:
●
Lower equity in earnings of affiliates, primarily due to lower
LNG lagging contract prices, partly offset
by increased LNG sales volumes.
In addition to the items detailed above, in the six-month
period of 2021, earnings also increased due to:
●
A $200 million gain on disposition related
to a FID bonus from our Australia-West divestiture.
For
additional information related to this FID bonus,
see
Note 3
and
Note 9
.
●
Lower exploration expenses, due to the absence
of an unproved property impairment and dry hole
expenses related to the Kamunsu East Field in Malaysia.
Consolidated Production
Average consolidated production decreased 4 MBOED and 30 MBOED in the three-
and six-month periods of
2021, respectively.
The production decrease was primarily due to:
●
The divestiture of our Australia-West assets that contributed 24 MBOED in the second
quarter and 35
MBOED in the six-month period of 2020.
●
Normal field decline.
Partly offsetting the decrease in production was:
●
Absence of curtailments in Malaysia.
●
Bohai Bay development activity in China.
●
Increased production in Malaysia associated
with Malakai Phase 2 first production and ramp-up.
Other International
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(5)
(6)
(9)
22
The Other International segment consists of exploration
and appraisal activities in Colombia and Argentina as
well as contingencies associated with prior operations
in other countries.
Earnings from our Other International operations
increased $1 million and decreased $31 million
in the three-
and six-month periods of 2021, respectively.
The decrease in earnings was primarily due to the absence
of a
$29 million after-tax benefit to earnings from the
dismissal of arbitration related to prior operations
in Senegal
recognized in the first quarter of 2020.
47
Corporate and Other
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
Net interest expense
$
(181)
(174)
(451)
(329)
Corporate general and administrative expenses
(65)
(90)
(194)
(40)
Technology
(4)
(9)
37
(8)
Other income (expense)
316
458
553
(1,213)
$
66
185
(55)
(1,590)
Net interest expense consists of interest and financing
expense, net of interest income and capitalized
interest.
Net interest expense increased by $7 million
and $122 million in the three-and six-month
periods of 2021,
respectively, primarily due to higher debt balances assumed due to our Concho
acquisition.
For additional
information regarding the debt acquired in our Concho transaction, see Note 6.
Corporate G&A expenses include compensation
programs and staff costs.
These expenses decreased by $25
million in the three-month period of 2021 primarily
due to mark to market adjustments associated
with certain
compensation programs.
For the six-month period of 2021, Corporate
G&A expenses increased by $154
million primarily due to restructuring expenses
associated with our Concho acquisition.
For additional
information about restructuring expenses, see Note 14.
Technology includes our investment in new technologies or businesses, as well
as licensing revenues.
Activities are focused on both conventional and tight
oil reservoirs, shale gas, heavy oil, oil
sands, enhanced
oil recovery, as well as LNG.
Earnings from Technology increased $45 million in the six-month period of
2021 primarily due to higher licensing revenues.
Other income (expense) or “Other” includes certain
corporate tax-related items, foreign currency
transaction
gains and losses, environmental costs associated
with sites no longer in operation, other costs not
directly
associated with an operating segment, premiums
incurred on the early retirement of debt, holding
gains or
losses on equity securities, and pension settlement
expense.
“Other” decreased by $142 million in the second
quarter of 2021, primarily due to an after-tax
gain of $418 million on our CVE common shares
in the second
quarter of 2021
compared with an after-tax gain of $551 million
in the same period of 2020 as well as the
absence of the release of a $92 million deferred
tax asset related to our Australia-West divestiture in the second
quarter of 2020.
In the six-month period of 2021, “Other”
increased by $1,766 million,
primarily due to an
after-tax gain of $726 million on our CVE common
shares in the six-month period of 2021, and
the absence of
a $1,140 million after-tax loss on those shares
in the six-month period of 2020.
48
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
June 30
December 31
2021
2020
Cash and cash equivalents
$
6,608
2,991
Short-term investments
2,251
3,609
Total debt
20,010
15,369
Total equity
44,276
29,849
Percent of total debt to capital*
31
%
34
Percent of floating-rate debt to total debt
5
%
7
*Capital includes total debt and total equity.
To meet our short-
and long-term liquidity requirements, we look
to a variety of funding sources, including
cash generated from operating activities,
our commercial paper and credit facility programs,
and our ability to
sell securities using our shelf registration
statement.
During the first six months of 2021, the primary uses
of
our available cash were $2,465 million to support
our ongoing capital expenditures and investments
program;
$1,171 million to pay dividends,
approximately $1.0 billion of hedging, transaction
and restructuring costs,
and $981 million to repurchase common stock.
During the first six months of 2021, our cash and
cash
equivalents increased by $3,617 million to
$6,608 million.
At June 30, 2021, we had cash and cash equivalents
of $6.6 billion, short-term investments of $2.3
billion, and
available borrowing capacity under our credit facility
of $5.7 billion, totaling over $14
billion of liquidity.
We
believe current cash balances and cash generated
by operations, together with access to
external sources of
funds as described below in the “Significant Changes
in Capital” section, will be sufficient to meet our
funding
requirements in the near- and long-term, including our capital
spending program, dividend payments and
required debt payments.
Significant Changes in Capital
Operating Activities
Cash provided by operating activities was $6,331
million for the first six months of 2021, compared
with
$2,262 million for the corresponding period of 2020.
The increase in cash provided by operating activities
is
primarily due to higher realized commodity prices
and higher sales volumes mostly due to our acquisition
of
Concho.
The increase in cash provided by operating activities
was partly offset by the settlement of all oil and
gas hedging positions acquired from Concho,
normal field decline, transaction and restructuring
costs, and the
divestiture of our Australia-West assets.
Our short-
and long-term operating cash flows are highly
dependent upon prices for crude oil, bitumen, natural
gas, LNG and NGLs.
Prices and margins in our industry have historically
been volatile and are driven by
market conditions over which we have no control.
Absent other mitigating factors, as these prices
and margins
fluctuate, we would expect a corresponding change
in our operating cash flows.
49
The level of absolute production volumes, as
well as product and location mix, impacts our cash flows.
Future
production is subject to numerous uncertainties, including,
among others, the volatile crude oil and natural
gas
price environment, which may impact investment
decisions; the effects of price changes on production
sharing
and variable-royalty contracts; acquisition and disposition
of fields; field production decline rates; new
technologies; operating efficiencies; timing of startups
and major turnarounds; political instability;
impacts of
a global pandemic; weather-related disruptions;
and the addition of proved reserves through exploratory
success and their timely and cost-effective development.
While we actively manage these factors, production
levels can cause variability in cash flows, although
generally this variability has not been as significant
as that
caused by commodity prices.
To maintain or grow our production volumes, we must continue to add to our
proved reserve base.
See the
“Capital Expenditures and Investments” section,
for information about our capital expenditures
and
investments.
On January 15, 2021, we assumed financial derivative
instruments consisting of oil and natural gas
swaps in
connection with our acquisition of Concho.
At March 31, 2021, all oil and natural gas derivative
financial
instruments acquired from Concho were contractually
settled.
In the first six months of 2021, we paid $761
million relating to these settlements.
See Note 10 for additional information.
Investing Activities
For the first six months of 2021, we invested $2.5
billion in capital expenditures.
Our 2021 operating plan
capital expenditures is currently expected to be
$5.3 billion compared with $4.7 billion
in 2020.
See the
“Capital Expenditures and Investments” section,
for information about our capital expenditures
and
investments.
We completed our acquisition of Concho on January 15, 2021.
The assets acquired in the transaction included
$382 million of cash.
See Note 3 for additional information.
In May 2021, we announced a paced monetization
of our investment in CVE common shares with
the plan to
direct proceeds toward our existing share repurchase
authorization program.
We expect to fully dispose of our
CVE shares by year-end 2022, however, the sales pace will
be guided by market conditions, and we retain
discretion to adjust accordingly.
In the second quarter of 2021, we sold 20 million
of these shares,
representing approximately 10% of the shares held
at December 31, 2020, for $180 million
of proceeds.
See
Note 5 for additional information.
We invest in short-term investments as part of our cash investment strategy, the primary objective of which is
to protect principal, maintain liquidity and provide
yield and total returns; these investments include
time
deposits, commercial paper, as well as debt securities classified
as available for sale.
Funds for short-term
needs to support our operating plan and provide resiliency
to react to short-term price volatility are invested
in
highly liquid instruments with maturities within
the year.
Funds we consider available to maintain resiliency
in longer term price downturns and to capture
opportunities outside a given operating plan
may be invested in
instruments with maturities greater than one year.
Investing activities in the first six months of 2021
included net sales of $1,302 million of investments.
We sold
$1,403 million of short-term instruments
and invested $101 million in long-term instruments.
See Note 10 for
additional information.
50
Financing Activities
We have a revolving credit facility totaling $6.0 billion, expiring in May 2023.
Our revolving credit facility
may be used for direct bank borrowings, the issuance
of letters of credit totaling up to $500 million, or
as
support for our commercial paper program.
The revolving credit facility is broadly syndicated
among financial
institutions and does not contain any material
adverse change provisions or any covenants
requiring
maintenance of specified financial ratios or credit
ratings.
The facility agreement contains a cross-default
provision relating to the failure to pay principal or interest
on other debt obligations of $200 million or more
by ConocoPhillips, or any of its consolidated subsidiaries.
The amount of the facility is not subject to
redetermination prior to its expiration date.
Credit facility borrowings may bear interest at a margin above
rates offered by certain designated banks in the
London interbank market or at a margin above the overnight
federal funds rate or prime
rates offered by
certain designated banks in the U.S.
The facility agreement calls for commitment
fees on available, but
unused, amounts.
The facility agreement also contains early termination
rights if our current directors or their
approved successors
cease to be a majority of the Board of
Directors.
The revolving credit facility supports ConocoPhillips
Company’s ability to issue up to $6.0 billion of
commercial paper.
Commercial paper maturities are generally
limited to 90 days.
With $300 million of
commercial paper outstanding and no direct borrowings
or letters of credit, we had $5.7 billion in
available
borrowing capacity under the revolving credit facility
at June 30, 2021.
We may consider issuing additional
commercial paper in the future to supplement our
cash position.
On January 15, 2021, we completed the acquisition
of Concho in an all-stock transaction.
In the acquisition,
we assumed Concho’s publicly traded debt, which was recorded at fair value
of $4.7 billion on the acquisition
date.
In June 2021, we reaffirmed our commitment to preserving
our ‘A’-rated balance sheet with the intent to
reduce gross debt by $5 billion over the next five
years, driving a more resilient and efficient
capital structure.
See Note 3 for additional information on our Concho acquisition and
see Note 6 for additional information on
the debt.
In January 2021, Fitch affirmed its rating of our long-term
debt as “A” with a “stable” outlook and affirmed its
rating of our short-term debt as “F1+.” On January
25, 2021, S&P revised its industry risk
assessment of the
E&P industry to “Moderately High” from “Intermediate”
based on a view of increasing risks from the energy
transition, price volatility, and weaker profitability.
On February 11, 2021, S&P downgraded its rating of our
long-term debt from “A” to “A-” with a “stable”
outlook and downgraded its rating of
our short-term debt
from “A-1” to “A-2.”
In May 2021, Moody’s affirmed its rating of our senior long-term debt of
“A3” with a
“stable” outlook.
Moody’s rates our short-term debt as “Prime-2.”
We do not have any ratings triggers on any
of our corporate debt that would cause an automatic
default, and thereby impact our access to liquidity, upon
downgrade of our credit ratings.
If our credit ratings are downgraded from their
current levels, it could
increase the cost of corporate debt available to
us and restrict our access to the commercial
paper markets.
If
our credit rating were to deteriorate to a level
prohibiting us from accessing the commercial
paper market, we
would still be able to access funds under our revolving
credit facility.
Certain of our project-related contracts, commercial
contracts and derivative instruments contain
provisions
requiring us to post collateral.
Many of these contracts and instruments permit
us to post either cash or letters
of credit as collateral.
At June 30, 2021 and December 31, 2020,
we had direct bank letters of credit of $222
million and $249 million, respectively, which secured performance obligations
related to various purchase
commitments incident to the ordinary conduct of
business.
In the event of credit ratings downgrades, we
may
be required to post additional letters of
credit.
Shelf Registration
We have a universal shelf registration statement on file with the SEC under which
we have the ability to issue
and sell an indeterminate amount of various types
of debt and equity securities.
51
Guarantor Summarized Financial Information
We have various cross guarantees among our Obligor group; ConocoPhillips,
ConocoPhillips Company and
Burlington Resources LLC, with respect to publicly
held debt securities.
ConocoPhillips Company is 100
percent owned by ConocoPhillips.
Burlington Resources LLC is 100 percent owned by
ConocoPhillips
Company.
ConocoPhillips and/or ConocoPhillips Company
have fully and unconditionally guaranteed the
payment obligations of Burlington Resources
LLC, with respect to its publicly held debt
securities.
Similarly,
ConocoPhillips has fully and unconditionally
guaranteed the payment obligations of ConocoPhillips
Company
with respect to its publicly held debt securities.
In addition, ConocoPhillips Company
has fully and
unconditionally guaranteed the payment obligations
of ConocoPhillips with respect to its publicly
held debt
securities.
All guarantees are joint and several.
The following tables present summarized financial
information for the Obligor Group, as defined
below:
●
The Obligor Group will reflect guarantors and
issuers of guaranteed securities consisting of
ConocoPhillips, ConocoPhillips Company and
Burlington Resources LLC.
●
Consolidating adjustments for elimination
of investments in and transactions between the collective
guarantors and issuers of guaranteed securities
are reflected in the balances of the summarized
financial information.
●
Non-Obligated Subsidiaries are excluded
from the presentation.
Upon completion of the Concho acquisition
on January 15, 2021, we assumed Concho’s publicly traded debt
of approximately $3.9 billion in aggregate principal
amount, which was recorded at fair value
of $4.7 billion
on the acquisition date.
We completed a debt exchange offer that settled on February 8, 2021, of which 98
percent, or approximately $3.8 billion in aggregate
principal amount of Concho’s notes, were tendered and
accepted for new debt issued by ConocoPhillips.
The new debt issued in the exchange is fully
and
unconditionally guaranteed by ConocoPhillips
Company.
Both the guarantor and issuer of the exchange debt
is reflected within the Obligor Group presented
here.
See
Note 3
and
Note 6
for additional information
relating to the Concho transaction.
Transactions and balances reflecting activity between the Obligors
and Non-Obligated Subsidiaries are
presented below:
Summarized Income Statement Data
Millions of Dollars
Six Months Ended
June 30, 2021
Revenues and Other Income
$
13,054
Income (loss) before income taxes
3,138
Net income (loss)
3,073
Net Income (Loss) Attributable to ConocoPhillips
3,073
52
Summarized Balance Sheet Data
Millions of Dollars
June 30
December 31
2021
2020
Current assets
$
10,597
8,535
Amounts due from Non-Obligated Subsidiaries, current
585
440
Noncurrent assets
58,272
37,180
Amounts due from Non-Obligated Subsidiaries, noncurrent
8,326
7,730
Current liabilities
5,322
3,797
Amounts due to Non-Obligated Subsidiaries, current
2,004
1,365
Noncurrent liabilities
25,829
18,627
Amounts due to Non-Obligated Subsidiaries, noncurrent
7,526
3,972
Capital Requirements
For information about our capital expenditures
and investments, see the “Capital Expenditures
and
Investments” section.
Our debt balance at June 30, 2021, was $20.0
billion, compared with $15.4 billion at December
31, 2020.
The
net increase is primarily due to $4.7 billion of
debt assumed in the Concho acquisition.
The current portion of
debt, including payments for finance leases, is
$1,205 million.
Payments will be made using current cash
balances and cash generated by operations.
For additional information regarding debt, see Note 6.
We believe in delivering value to our shareholders through a growing and sustainable
dividend supplemented
by additional returns of capital, including share repurchases.
In 2020, we paid $1.8 billion, equating to $1.69
per share of common stock, in dividends.
We anticipate returning $2.3 billion to shareholders in the form of
dividends in 2021.
In the first six months of 2021, we paid
dividends totaling $1.2 billion, the equivalent of
$0.86 per share. On July 13, 2021, we announced
a quarterly dividend of $0.43 per share, payable
September
1, 2021.
In late 2016, we initiated our current share repurchase
program, which has a total program authorization
to
repurchase $25 billion of our common stock.
As of June 30, 2021, our plan is to repurchase approximately
$3.5 billion in 2021 and we anticipate funding
approximately $1.0 billion of that amount
through proceeds
from the sales of our CVE common stock.
The pace of CVE share sales will be guided
by market conditions,
and we retain the discretion to adjust accordingly.
In the six months ended June 30, 2021, we repurchased
17.7 million shares at a cost of $981 million, $159
million of which was funded using CVE share
proceeds.
Since the inception of the program, we have repurchased
206 million shares at a cost of $11.5 billion.
Our dividend and share repurchase programs are
subject to numerous considerations, including
market
conditions, management discretion and other factors.
See “Item 1A—Risk Factors – Our ability to declare
and
pay dividends and repurchase shares is subject to
certain considerations” in Part I—Item
1A in our 2020
Annual Report on Form 10-K.
53
Capital Expenditures and Investments
Millions of Dollars
Six Months Ended
June 30
2021
2020
Alaska
$
463
732
Lower 48
1,480
1,130
Canada
68
142
Europe, Middle East and North Africa
257
251
Asia Pacific
148
188
Other International
18
63
Corporate and Other
31
19
Capital expenditures and investments
$
2,465
2,525
During the first six months of 2021, capital expenditures
and investments supported key exploration and
development programs, primarily:
●
Development and appraisal activities
in the Lower 48, primarily Permian, Eagle Ford, and Bakken.
●
Appraisal and development activities
in Alaska related to the Western North Slope and development
activities in the Greater Kuparuk Area.
●
Appraisal activities in liquids-rich plays and optimization
of oils sands development in Canada.
●
Continued development activities across assets
in Norway.
●
Continued development activities in China, Malaysia
and Indonesia.
In February 2021, we announced 2021 operating
plan capital expenditures of $5.5 billion.
In June 2021, we
reduced capital guidance to $5.3 billion, recognizing
synergistic savings from our Concho acquisition.
Contingencies
A number of lawsuits involving a variety of claims
arising in the ordinary course of business
have been filed
against ConocoPhillips.
We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain
chemical, mineral and petroleum substances
at various active
and inactive sites.
We regularly assess the need for accounting recognition or disclosure of these
contingencies.
In the case of all known contingencies (other
than those related to income taxes), we accrue
a
liability when the loss is probable, and the amount
is reasonably estimable.
If a range of amounts can be
reasonably estimated and no amount within the range
is a better estimate than any other amount,
then the low
end of the range is accrued.
We do not reduce these liabilities for potential insurance or third-party recoveries.
We accrue receivables for insurance or other third-party recoveries when applicable.
With respect to income
tax-related contingencies, we use a cumulative probability-weighted
loss accrual in cases where sustaining a
tax position is less than certain.
Based on currently available information, we believe
it is remote that future costs related to known
contingent
liability exposures will exceed current accruals by
an amount that would have a material
adverse impact on our
consolidated financial statements.
For information on other contingencies, see Note 9.
54
Legal and Tax Matters
We are subject to various lawsuits and claims including but not limited to matters
involving oil and gas royalty
and severance tax payments, gas measurement and
valuation methods, contract disputes,
environmental
damages, climate change, personal injury, and property damage.
Our primary exposures for such matters
relate to alleged royalty and tax underpayments
on certain federal, state and privately owned
properties,
claims
of alleged environmental contamination from
historic operations,
and other contract disputes.
We will
continue to defend ourselves vigorously in these matters.
Our legal organization applies its knowledge, experience
and professional judgment to the specific
characteristics of our cases, employing a litigation
management process to manage and monitor the
legal
proceedings against us.
Our process facilitates the early evaluation and
quantification of potential exposures in
individual cases.
This process also enables us to track those cases that
have been scheduled for trial and/or
mediation.
Based on professional judgment and experience
in using these litigation management tools and
available information about current developments
in all our cases, our legal organization regularly assesses
the
adequacy of current accruals and determines if
adjustment of existing accruals, or establishment
of new
accruals, is required.
Environmental
We are subject to the same numerous international, federal, state and local environmental
laws and regulations
as other companies in our industry.
For a discussion of the most significant
of these environmental laws and
regulations, including those with associated remediation
obligations, see the “Environmental” section in
Management’s Discussion and Analysis of Financial Condition and Results
of Operations on pages 64–66
of
our 2020 Annual Report on Form 10-K.
We occasionally receive requests for information or notices of potential liability
from the EPA and state
environmental agencies alleging that we are
a potentially responsible party under the Federal
Comprehensive
Environmental Response, Compensation and
Liability Act (CERCLA) or an equivalent
state statute.
On
occasion, we also have been made a party to cost
recovery litigation by those agencies or by private
parties.
These requests, notices and lawsuits assert potential
liability for remediation costs at various sites
that typically
are not owned by us, but allegedly contain waste attributable
to our past operations.
As of June 30, 2021, there
were 15 sites around the U.S.
in which we were identified as a potentially responsible
party under CERCLA
and comparable state laws.
At June 30, 2021, our balance sheet included a total
environmental accrual of $188 million,
compared with
$180 million at December 31, 2020, for remediation
activities in the U.S. and Canada.
We expect to incur a
substantial amount of these expenditures within
the next 30 years.
Notwithstanding any of the foregoing, and as
with other companies engaged in similar businesses,
environmental costs and liabilities are inherent
concerns in our operations and products, and there
can be no
assurance that material costs and liabilities
will not be incurred.
However, we currently do not expect any
material adverse effect upon our results of operations or financial
position as a result of compliance with
current environmental laws and regulations.
Climate Change
Continuing political and social attention to the
issue of global climate change has resulted in
a broad range of
proposed or promulgated state, national and international
laws focusing on GHG reduction.
These proposed or
promulgated laws apply or could apply in countries
where we have interests or may have interests
in the future.
Laws in this field continue to evolve, and
while it is not possible to accurately estimate either
a timetable for
implementation or our future compliance costs
relating to implementation, such laws, if
enacted, could have a
material impact on our results of operations and
financial condition.
For examples of legislation or precursors
for possible regulation and factors on which the
ultimate impact on our financial performance
will depend, see
the “Climate Change” section in Management’s Discussion and Analysis
of Financial Condition and Results of
Operations on pages 67–69 of our 2020 Annual
Report on Form 10-K.
55
Climate Change Litigation
Beginning in 2017, governmental and other entities
in several states in the U.S. have filed lawsuits against
oil
and gas companies, including ConocoPhillips,
seeking compensatory damages and equitable
relief to abate
alleged climate change impacts.
Additional lawsuits with similar allegations
are expected to be filed.
The
amounts claimed by plaintiffs are unspecified and the legal
and factual issues involved in these cases are
unprecedented.
ConocoPhillips believes these lawsuits are
factually and legally meritless and are an
inappropriate vehicle to address the challenges associated
with climate change and will vigorously defend
against such lawsuits.
Several Louisiana parishes and the State of Louisiana
have filed 43 lawsuits under Louisiana’s State and Local
Coastal Resources Management Act (SLCRMA)
against oil and gas companies, including ConocoPhillips,
seeking compensatory damages for contamination
and erosion of the Louisiana coastline
allegedly caused by
historical oil and gas operations.
ConocoPhillips entities are defendants in
22 of the lawsuits and will
vigorously defend against them.
Because Plaintiffs’ SLCRMA theories are unprecedented,
there is uncertainty
about these claims (both as to scope and damages)
and we continue to evaluate our exposure in these
lawsuits.
Company Response to Climate-Related Risks
The company has responded by putting in place
a Sustainable Development Risk Management
Standard
covering the assessment and registering of significant
and high sustainable development risks based
on their
consequence and likelihood of occurrence.
We have developed a company-wide Climate Change Action Plan
with the goal of tracking mitigation activities
for each climate-related risk included in the corporate
Sustainable Development Risk Register.
The risks addressed in our Climate Change Action
Plan fall into four broad categories:
●
GHG-related legislation and regulation.
●
GHG emissions management.
●
Physical climate-related impacts.
●
Climate-related disclosure and reporting.
Emissions are categorized into three different scopes.
Gross operated scope 1 and scope 2 GHG
emissions
help us understand our climate transition
risk.
●
Scope 1 emissions are direct GHG emissions
from sources that we own or control.
●
Scope 2 emissions are GHG emissions from
the generation of purchased electricity or
steam that we
consume.
Scope 3 emissions are indirect emissions
from sources that we neither own nor control.
56
We announced in October 2020 the adoption of a Paris-aligned climate risk framework
with the objective of
implementing a coherent set of choices designed
to facilitate the success of our existing exploration
and
production business through the energy transition.
Given the uncertainties remaining about how the
energy
transition will evolve, the strategy aims to be robust
across a range of potential future outcomes.
The strategy is comprised of four pillars:
●
Targets:
Our target framework consists of a hierarchy of targets, from a long-term
ambition that sets
the direction and aim of the strategy, to a medium-term performance target for GHG emissions
intensity, to shorter-term targets for flaring and methane intensity reductions. These
performance
targets are supported by lower-level internal business
unit goals to enable the company to achieve the
company-wide targets.
We have set a target to reduce our gross operated (scope 1 and 2) emissions
intensity by 35 to 45 percent from 2016 levels by
2030, with an ambition to achieve net-zero
operated
emissions by 2050.
We have joined the World
Bank Flaring Initiative to work towards zero
routine
flaring of gas by 2030.
●
Technology choices: We
expanded our Marginal Abatement Cost Curve process
to provide a broader
range of opportunities for emission reduction
technology.
●
Portfolio choices:
Our corporate authorization process requires
all qualifying projects to include a
GHG price in their project approval economics.
Different GHG prices are used depending on the
region or jurisdiction.
Projects in jurisdictions with existing GHG
pricing regimes incorporate the
existing GHG price and forecast into their
economics.
Projects where no existing GHG pricing
regime exists utilize a scenario forecast from
our internally consistent World Energy Model.
In this
way, both existing and emerging regulatory requirements are considered in our decision-making.
The
company does not use an estimated market cost
of GHG emissions when assessing reserves
in
jurisdictions without existing GHG regulations.
●
External engagement:
Our external engagement aims to differentiate ConocoPhillips
within the oil and
gas sector with our approach to managing climate-related
risk.
We are a Founding Member of the
Climate Leadership Council (CLC), an international
policy institute founded in collaboration
with
business and environmental interests to develop
a carbon dividend plan.
Participation in the CLC
provides another opportunity for ongoing dialogue
about carbon pricing and framing the issues
in
alignment with our public policy principles.
We also belong to and fund Americans For Carbon
Dividends, the education and advocacy branch of
the CLC.
57
CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF
THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements
within the meaning of Section 27A of the Securities
Act of
1933 and Section 21E of the Securities Exchange
Act of 1934.
All statements other than statements of
historical fact included or incorporated by reference in
this report, including, without limitation,
statements
regarding our future financial position, business
strategy, budgets, projected revenues, projected costs and
plans, objectives of management for future operations,
the anticipated benefits of the transaction
between us
and Concho Resources Inc. (Concho), the anticipated
impact of the transaction on the combined company’s
business and future financial and operating results,
the expected amount and the timing of synergies from
the
transaction are forward-looking statements.
Examples of forward-looking statements contained
in this report
include our expected production growth and
outlook on the business environment generally, our expected
capital budget and capital expenditures, and discussions
concerning future dividends.
You can often identify
our forward-looking statements by the words “anticipate,”
“believe,” “budget,” “continue,” “could,” “effort,”
“estimate,” “expect,” “forecast,” “intend,” “goal,”
“guidance,” “may,” “objective,” “outlook,” “plan,”
“potential,” “predict,” “projection,” “seek,” “should,”
“target,” “will,” “would” and similar expressions.
We based the forward-looking statements on our current expectations, estimates
and projections about
ourselves and the industries in which we operate in
general.
We caution you these statements are not
guarantees of future performance as they involve
assumptions that, while made in good faith,
may prove to be
incorrect, and involve risks and uncertainties
we cannot predict.
In addition, we based many of these forward-
looking statements on assumptions about future events
that may prove to be inaccurate.
Accordingly, our
actual outcomes and results may differ materially from
what we have expressed or forecast in the forward-
looking statements.
Any differences could result from a variety of factors
and uncertainties, including, but not
limited to, the following:
●
The impact of public health crises, including pandemics
(such as COVID-19) and epidemics and any
related company or government policies or
actions.
●
Global and regional changes in the demand, supply, prices, differentials or other market
conditions
affecting oil and gas, including changes resulting from a
public health crisis or from the imposition or
lifting of crude oil production quotas or other
actions that might be imposed by OPEC
and other
producing countries and the resulting company
or third-party actions in response to such changes.
●
Fluctuations in crude oil, bitumen, natural gas,
LNG and NGLs prices, including a prolonged
decline
in these prices relative to historical or future
expected levels.
●
The impact of significant declines in prices for
crude oil, bitumen, natural gas, LNG and NGLs,
which
may result in recognition of impairment charges on
our long-lived assets, leaseholds and
nonconsolidated equity investments.
●
Potential failures or delays in achieving expected
reserve or production levels from existing
and future
oil and gas developments, including due to operating
hazards, drilling risks and the inherent
uncertainties in predicting reserves and reservoir
performance.
●
Reductions in reserves replacement rates, whether
as a result of the significant declines in commodity
prices or otherwise.
●
Unsuccessful exploratory drilling activities
or the inability to obtain access to exploratory acreage.
●
Unexpected changes in costs or technical requirements
for constructing, modifying or operating E&P
facilities.
●
Legislative and regulatory initiatives
addressing environmental concerns, including initiatives
addressing the impact of global climate change or further
regulating hydraulic fracturing, methane
emissions, flaring or water disposal.
●
Lack of, or disruptions in, adequate and reliable
transportation for our crude oil, bitumen, natural
gas,
LNG and NGLs.
●
Inability to timely obtain or maintain permits,
including those necessary for construction, drilling
and/or development, or inability to make capital
expenditures required to maintain compliance
with
any necessary permits or applicable laws or regulations.
58
●
Failure to complete definitive agreements and feasibility
studies for, and to complete construction of,
announced and future E&P and LNG development
in a timely manner (if at all) or on
budget.
●
Potential disruption or interruption of our operations
due to accidents, extraordinary weather events,
civil unrest, political events, war, terrorism, cyber attacks,
and information technology failures,
constraints or disruptions.
●
Changes in international monetary conditions and
foreign currency exchange rate fluctuations.
●
Changes in international trade relationships,
including the imposition of trade restrictions
or tariffs
relating to crude oil, bitumen, natural gas,
LNG, NGLs and any materials or products (such
as
aluminum and steel) used in the operation of our
business.
●
Substantial investment in and development use
of, competing or alternative energy sources, including
as a result of existing or future environmental
rules and regulations.
●
Liability for remedial actions, including removal
and reclamation obligations, under existing
and
future environmental regulations and litigation.
●
Significant operational or investment changes imposed
by existing or future environmental
statutes
and regulations, including international agreements
and national or regional legislation and regulatory
measures to limit or reduce GHG emissions.
●
Liability resulting from litigation, including the
potential for litigation related to the
transaction with
Concho, or our failure to comply with applicable
laws and regulations.
●
General domestic and international economic and
political developments, including armed
hostilities;
expropriation of assets; changes in governmental
policies relating to crude oil, bitumen, natural
gas,
LNG and NGLs pricing; regulation or taxation;
and other political, economic or diplomatic
developments.
●
Volatility
in the commodity futures markets.
●
Changes in tax and other laws, regulations (including
alternative energy mandates), or royalty rules
applicable to our business.
●
Competition and consolidation in the oil and gas
E&P industry.
●
Any limitations on our access to capital or increase
in our cost of capital, including as a result
of
illiquidity or uncertainty in domestic or international
financial markets or investment sentiment.
●
Our inability to execute, or delays in the completion,
of any asset dispositions or acquisitions
we elect
to pursue.
●
Potential failure to obtain, or delays in obtaining,
any necessary regulatory approvals for pending
or
future asset dispositions or acquisitions,
or that such approvals may require modification
to the terms
of the transactions or the operation of our remaining
business.
●
Potential disruption of our operations as a result
of pending or future asset dispositions or acquisitions,
including the diversion of management time and
attention.
●
Our inability to deploy the net proceeds from any
asset dispositions that are pending or
that we elect to
undertake in the future in the manner and timeframe
we currently anticipate, if at all.
●
Our inability to liquidate the common stock issued
to us by Cenovus Energy as part of our sale of
certain assets in western Canada at prices we deem
acceptable, or at all.
●
The operation and financing of our joint ventures.
●
The ability of our customers and other contractual
counterparties to satisfy their obligations to
us,
including our ability to collect payments
when due from the government of Venezuela or PDVSA.
●
Our inability to realize anticipated cost savings
and capital expenditure reductions.
●
The inadequacy of storage capacity for our products,
and ensuing curtailments, whether voluntary
or
involuntary, required to mitigate this physical constraint.
●
Our ability to successfully integrate Concho’s business and fully achieve
the expected benefits and
cost reductions associated with the transaction
with Concho in a timely manner or at all.
●
The risk that we will be unable to retain and hire
key personnel.
●
Unanticipated difficulties or expenditures relating to integration
with Concho.
●
Uncertainty as to the long-term value of our common
stock.
●
The diversion of management time on integration-related
matters.
●
The factors generally described in Part I—Item 1A
in our 2020 Annual Report on Form
10-K and any
additional risks described in our other filings
with the SEC.
59
Item 3.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Information about market risks for the six months
ended June 30, 2021, does not differ materially
from that
discussed under Item 7A in our 2020 Annual Report
on Form 10-K.
Item 4.
CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure information required
to be disclosed in
reports we file or submit under the Securities
Exchange Act of 1934, as amended (the Act),
is recorded,
processed, summarized and reported within the
time periods specified in SEC rules and forms,
and that such
information is accumulated and communicated
to management, including our principal executive
and principal
financial officers, as appropriate, to allow timely decisions
regarding required disclosure.
At June 30, 2021,
with the participation of our management, our Chairman
and Chief Executive Officer (principal executive
officer) and our Executive Vice President and Chief Financial Officer (principal financial
officer) carried out
an evaluation, pursuant to Rule 13a-15(b) of
the Act, of ConocoPhillips’ disclosure controls
and procedures (as
defined in Rule 13a-15(e) of the Act).
Based upon that evaluation, our Chairman and
Chief Executive Officer
and our Executive Vice President and Chief Financial Officer concluded our disclosure
controls and
procedures were operating effectively at June 30, 2021.
There have been no changes in our internal
control over financial reporting, as defined
in Rule 13a-15(f) of the
Act, in the period covered by this report that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART
II.
OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
There are no new material legal proceedings
or material developments with respect to
matters previously
disclosed in Item 3 of our 2020 Annual Report on
Form 10-K.
Item 1A.
RISK FACTORS
There have been no material changes from the
risk factors disclosed in Item 1A of our 2020
Annual Report on
Form 10-K.
60
Item 2.
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Millions of Dollars
Period
Total Number of
Shares
Purchased
*
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value
of Shares That
May Yet Be
Purchased Under the
Plans or Programs
April 1-30, 2021
2,425,224
$
51.54
2,425,224
$
13,983
May 1-31, 2021
2,933,604
55.35
2,933,604
13,821
June 1-30, 2021
5,313,280
59.86
5,313,280
13,503
10,672,108
10,672,108
*There were no repurchases of common stock from company employees in connection with the company's broad-based employee incentive plans.
In late 2016, we initiated our current share repurchase
program, which has a total program authorization
of $25
billion of our common stock.
In February 2021, we resumed our share repurchase
program to an annualized
level of $1.5 billion which was increased in June
to an annualized level of $2.5 billion.
In May 2021, we
announced a plan to dispose of our 208 million
CVE shares by year-end 2022.
The sales pace will be guided
by market conditions, with ConocoPhillips
retaining discretion to adjust accordingly.
The proceeds from this
disposition will be deployed towards incremental
share repurchases.
At June 30, 2021, we had repurchased $11.5
billion of shares, with $13.5 billion remaining
under our current
authorization.
Repurchases are made at management’s discretion, at prevailing
prices, subject to market
conditions and other factors.
Except as limited by applicable legal requirements,
repurchases may be
increased, decreased or discontinued at any time
without prior notice.
Shares of stock repurchased
under the
plan are held as treasury shares.
See the “Our ability to declare and pay dividends
and repurchase shares is
subject to certain considerations” section in Risk
Factors on page 31 of our 2020 Annual Report
on
Form 10-K.
61
Item 6.
EXHIBITS
10.1*
Compensation Resolutions regarding Matthew J. Fox, dated April 8, 2021.
10.2*
Form of Aircraft Time Sharing Agreement by and between certain executives and
ConocoPhillips, dated June 21, 2021.
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
32*
Certifications pursuant to 18 U.S.C. Section 1350.
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Schema Document.
101.CAL*
Inline XBRL Calculation Linkbase Document.
101.LAB*
Inline XBRL Labels Linkbase Document.
101.PRE*
Inline XBRL Presentation Linkbase Document.
101.DEF*
Inline XBRL Definition Linkbase Document.
104*
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
62
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this
report
to be signed on its behalf by the undersigned thereunto
duly authorized.
CONOCOPHILLIPS
/s/ Kontessa S. Haynes-Welsh
Kontessa S. Haynes-Welsh
Chief Accounting Officer
August 5, 2021
d063021dex101
Exhibit 10.1
ConocoPhillips
925 N. Eldridge Parkway
Houston, TX 77079
www.conocophillips.com
The Human Resources and Compensation Committee approved the following
actions to
facilitate an orderly transition of responsibilities
from Matt Fox, Executive
Vice President and
Chief Operating Officer upon retirement:
●
A proration for the Performance
Share Units for the 2021-2023 Performance Period of
the Performance Share Program, waiving
the usual requirement for at least one year of
employment with regard to an award
to avoid forfeiture
of the award,
all other terms
and conditions for this award remain unchanged; and
●
A proration for the 2021 Executive
Restricted Stock Unit award where the number of
units retained will be determined by multiplying the original number of units by a
fraction, the numerator of which is the number of full months of employment from
February 1, 2021 and the date of retirement and the denominator of 12, all other terms
and conditions for this award remain unchanged.
d063021dex102
Exhibit 10.2
TIME SHARING AGREEMENT
This
Time
Sharing
Agreement
(the
“
Agreement
”)
is
entered
into
as
of
the
last
date
set
forth
under
the
signatures
of
the
parties,
by
and
between
_____________
,
with
offices
at
_____________
(“
Lessor
”),
and
_____________
,
with
a
business
address
of
_____________
(“
Lessee
”).
RECITALS
WHEREAS
_____________
(“
Owner
”)
is
the
registered
owner
of
the
aircraft
(“
Aircraft
”) listed on
Exhibit B
attached hereto; and
WHEREAS, Lessee desires to lease said Aircraft with flight crew from
Lessor pursuant to
this Agreement
on a
non-exclusive time-sharing
basis as
defined in
14 C.F.R.
§ 91.501(c)(1)
of
the Federal Aviation Regulations (“
FAR
”);
The parties agree as follows:
1.
Provision of
Aircraft; Term
. Lessor
agrees to
lease the
Aircraft to
Lessee pursuant
to the provisions of 14 C.F.R. § 91.501(c)(1) and, in accordance with Section 7 hereof, to provide
a fully qualified flight crew for all
operations. This Agreement shall commence on
the date hereof
(the “
Effective Date
”), and continue
for the remaining
portion of the
Calendar Year
(“
Calendar
Year
” being defined as
the period beginning January
1
st
of each year
and ending December 31
st
of
the
same
year).
Thereafter,
this
Agreement
shall
automatically
renew
on
January
1
st
of
each
subsequent Calendar
Year,
unless and
until terminated
pursuant to
the terms
of this
Agreement.
Except as otherwise provided in Section 9, either party may at any time terminate this Agreement
upon ten (10) business days’
written notice to the other party.
2.
Reimbursement
.
Lessee
shall
pay
Lessor
for
each
flight
conducted
under
this
Agreement
(including
all
applicable
“deadhead”
positioning
flights)
as
agreed
by
Lessor
and
Lessee, but
NOT MORE THAN
the amount authorized by 14 C.F.R.
§ 91.501(d). The expenses
authorized by 14 C.F.R. § 91.501(d) include:
(a)
Fuel, oil, lubricants, and other additives;
(b)
Travel expenses of the crew,
including food, lodging and ground
transportation;
(c)
Hangar and tie down costs away from the Aircraft’s base of operation;
(d)
Insurance obtained for the specific flight;
(e)
Landing fees, airport taxes, and similar assessments;
Exhibit 10.2
(f)
Customs, foreign permit, and similar fees directly related to the flight;
(g)
In
-
flight food and beverages;
(h)
Passenger ground transportation;
(i)
Flight planning and weather contract services; and
(j)
An additional charge equal to
100% of the expenses
listed in
subsection
(a)
of this Section 2.
3.
Expenses; Invoicing; Taxes
. Lessor will pay all expenses related to the
operation
of the Aircraft when
incurred and will
provide an invoice
to Lessee for the
expenses enumerated
in Section
2 as
well as
all applicable
FET and
any other
applicable Taxes (as such
terms are
defined
herein),
and Lessee
shall pay
to Lessor
all such
invoiced amounts
upon Lessee’s
receipt of
such
invoices, all in accordance with Lessor’s internal procedures.
Except
as
may
otherwise
be
specifically
provided
in
14
C.F.R.
§
91.501
,
but
notwithstanding anything else to the
contrary herein, and whether or not
such Taxes
are invoiced
to
Lessee
in
accordance
with
this
Section
3,
Lessee
shall
be
responsible
for,
and
agrees
to
indemnify,
defend,
and
hold
Lessor
harmless
from
and
against,
and
shall
pay
to
Lessor
in
accordance with this Section 3
(or, in all other cases, to
the applicable authority when
due) the full
amount of any
and all
FET (as defined
herein), sales,
use, retail, excise,
value added
tax (VAT),
or other taxes, fees, duties, claims, or charges of
any and every kind or nature whatsoever as well
as any penalties, interest and
attorneys’ fees relating thereto that
are or may be assessed,
levied, or
imposed by any federal, foreign, national, state, county, district, city, local, or other governmental
authority
or
jurisdiction
or
airport
as
a
result
of
this
Agreement
and/or
any
flights
conducted
pursuant to
this Agreement.
Without
limiting the
generality of
the foregoing,
Lessor and
Lessee
specifically acknowledge that
all flights under
this Agreement shall
be subject to
commercial air
transportation excise taxes pursuant to
26 U.S. Code § 4261 (any and all such taxes, “
FET
”)
.
The
indemnities
and
Lessee’s
obligations
set
forth
in
this
Section
3
shall
survive
the
termination of this Agreement.
4.
Flight
Requests
.
Lessee
will
provide
Lessor
with
requests
for
flight
time
and
proposed flight schedules in
accordance with Lessor’s internal
procedures and as
far in advance of
any given
flight as
possible. Requests
for flight
time shall
be in
a form,
whether written
or oral,
mutually convenient to,
and agreed upon
by the
parties and in
accordance with
Lessor’s internal
procedures.
5.
Flight
Scheduling
.
Lessor
shall
have
final
authority
over
the
scheduling
of
the
Aircraft, provided that
Lessor will
use reasonable
efforts to
accommodate Lessee’s
needs and
to
avoid conflicts in scheduling, consistent
with Lessor’s (and any other
operator and/or lessee of
the
Aircraft’s)
use
of
the
Aircraft
and
as
permitted
by
(and subject
to
the
requirements
of)
Owner.
Exhibit 10.2
Lessor shall have no obligation under this Agreement to arrange for
or to provide air travel in the
event that the Aircraft
is unavailable to satisfy
Lessee’s requests
for flight time
for any reason or
if Owner otherwise does not consent to such use.
6.
Aircraft
Maintenance
.
Lessor
shall
be
solely
responsible
for
securing
repairs,
maintenance,
preventive
maintenance
and
required
or
otherwise
necessary
inspections
of
the
Aircraft, and
shall take
such requirements
into account
in scheduling
the Aircraft.
No repair, period
of
maintenance,
preventive
maintenance,
or
inspection
shall
be
delayed
or
postponed
for
the
purpose
of
scheduling
the
Aircraft,
unless
said
repair,
maintenance, or
inspection
can be
safely
conducted at
a later
time in
compliance with
all applicable
laws and
regulations, and
within the
sound discretion of the pilot in command.
7.
Flight Crew
. Lessor shall provide to
Lessee a qualified flight crew for
each flight
undertaken under this Agreement.
8.
Operational
Authority
.
In
accordance
with
the
applicable
FARs,
the
qualified
flight crew
provided by
Lessor will
exercise all
of its
duties and
responsibilities in
regard to
the
safety of
each flight conducted
hereunder. Lessee specifically agrees
that the flight
crew, in its sole
discretion, may terminate any flight, refuse to commence any flight, or take other action which in
the considered judgment of the
pilot in command is necessitated
by considerations of safety.
The
pilot
in
command
shall
have
final
and
complete
authority
to
delay
or
cancel
any
flight
for
any
reason or
condition
which
in
his judgment
would compromise
the
safety of
the
flight.
No
such
action
of
the
pilot
in
command
shall
create
or
support
any
liability
for
loss,
injury,
damage, or
delay to
Lessee or
any other
person. The
parties further
agree that
Lessor shall
not be
liable for
delay or failure
to furnish
the Aircraft and
crew pursuant to
this Agreement when
such failure is
caused by the demands of the Lessor’s
(or any other operator or lessee of the
Aircraft’s) business
operations
requiring
use
of
the
Aircraft,
actions
or
inactions
(including
the
withdrawal
or
withholding
of,
or
refusal
to
provide,
consent)
of
Owner,
government
regulation
or
authority,
mechanical difficulty,
war, civil commotion,
strikes or labor disputes, weather conditions, acts
of
God, or any other cause or occurrence beyond Lessor’s reasonable control.
9.
Insurance
. At
all times
during the
term of
this Agreement,
Lessor shall
maintain
the following insurance coverages from insurance carriers acceptable to Lessee:
(a)
Aircr
aft Physical
Damage insurance in
an amount
at least equal
to the fair
market value of the Aircraft; and
(b)
Aircraft
Liability
Insurance
–
Combined
Single
Limit
Bodily
Injury
and
Property
Damage,
Including
Passengers,
of
at
least
$100,000,000
for
each
occurrence.
Such coverage shall:
i.
Be
primary,
non-contributing
with
any
insurance
maintained
by
Lessee;
ii.
Name Lessee and his guests as additional insureds;
Exhibit 10.2
iii.
Expressly waive subrogation against Lessee; and
iv.
Provide at
least thirty
(30) days
advance written
notice to
Lessee of
any material changes, cancellation, or non-renewal.
If
requested
in
writing
by
Lessee,
Lessor
shall
furnish
Lessee
with
duly
executed
certificates
evidencing
all
required
insurance
coverages,
limits
and
requirements,
together
with
satisfactory evidence
of the
premium payment.
Lessee retains
the right
to terminate
this Agreement
immediately if Lessor fails to
provide adequate and proper evidence of required
insurance within
a reasonable time after Lessee’s written request for such evidence.
Lessor shall also bear the
cost of paying any deductible amount
on any policy of insurance
in the event of a claim or loss.
Each liability
policy shall
be primary
without right
of contribution
from any
other insurance
which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof,
except the
limits of
liability,
shall operate
in the
same manner
as if
there were
a separate
policy
covering each insured.
10.
Lessee Warranties
. Lessee warrants that:
(a)
Lesse
e
will
use
the
Aircraft
for
and
on
account
of
Lessee
and
Lessee’s
guests’
personal
travel
needs
and
will
not
use
the
Aircraft
for
the
purpose
of
providing
transportation of passengers or cargo in air commerce for compensation or hire; and
(b)
Lessee will
refrain from incurring any mechanics
or other lien and shall
not
attempt
to
convey,
mortgage,
assign
or
lease
the
Aircraft
or
create
any
kind
of
lien
or
security
interest involving the Aircraft or
do anything or take any
action that might mature into
such a lien.
The terms of this Section 10 shall survive the termination of this Agreement.
11.
Lessor Indemnity
. Lessor hereby indemnifies Lessee and agrees to hold harmless
Lessee from and against
any liabilities, obligations, losses
(excluding loss of anticipated
profits),
damages,
claims,
actions,
suits,
costs,
expenses
and
disbursements
(“Losses”)
imposed
on,
incurred
by
or
asserted
against
Lessee
arising
out
of
or
resulting
from
the
ownership,
lease,
maintenance, repair,
possession, use,
operation,
condition, or
other disposition
or application
of
the
Aircraft.
Lessor’s
obligation
to
indemnify
Lessee
under
this
Section
11
shall
not,
however,
extend to any Loss (i)
resulting from the willful misconduct or
gross negligence of Lessee, (ii) to
the
extent
such
Loss
is
a
direct
result
of
any
failure
of
Lessee
to
comply
with
any
covenants
required to be performed
or observed by him
under this Agreement, or
(iii) to the extent such
Loss
is a
direct result
of any
breach by
Lessee of
any of
Lessee’s warranties or
representations contained
in this Agreement.
Exhibit 10.2
12.
Lessee Indemnity
. Lessee hereby indemnifies Lessor and agrees to hold harmless
Lessor from and against any Losses imposed on, incurred by or asserted against Lessor (i) arising
out of or
resulting from
the willful misconduct
or gross
negligence of
Lessee, (ii) to
the extent
such
Loss
is
a
direct
result
of
any
failure
of
Lessee
to
comply
with
any
covenants
required
to
be
performed or observed
by him,
or (iii) to
the extent
such Loss is
a direct result
of any breach
by
Lessee of any of Lessee’s warranties or representations contained in this Agreement.
13.
Permanent Base
of Operations
. For
purposes of
this Agreement,
the permanent
base of operation of the Aircraft shall be in __________.
14.
No
Assignment;
Successors
and
Assigns;
Entire
Agreement
.
Neither
this
Agreement nor any party’s
interest herein shall be
assignable.
This Agreement shall inure
to the
benefit
of
and
be
binding
upon
the
parties
hereto,
their
representatives
and
successors.
This
Agreement
constitutes
the
entire
understanding
between
Lessor
and
Lessee,
and
any
change
or
modification must be in writing and signed by both of Lessor and Lessee.
15.
No Joint Venture
.
Nothing herein shall be construed to create a partnership, joint
venture, franchise, or any relationship of principal and agent between Lessor and Lessee.
16.
Amendments; Waivers
. This Agreement
shall not be modified
or amended except
by an
instrument in
writing signed
by authorized
representatives of
Lessor and
Lessee. Waivers
shall not
be effective
except in
writing signed
by an
authorized representative
of the
party to
be
bound.
17.
Notices
.
All
communications
and
notices
provided
for
herein
shall
be
in
writing
and shall become effective when delivered by
electronic mail transmission or by Federal Express
or other overnight
courier or four
(4) days following
deposit in the
United States mail,
with correct
postage for first-class mail prepaid, addressed to Lessor or
Lessee at their respective addresses set
forth under
their signatures
below,
or else
as otherwise
directed by
the other
party from
time to
time in writing.
18.
Applicable Law;
Counterparts
. This
Agreement is
entered into
under,
and is
to
be construed in accordance with, the laws of Texas and the applicable FAR.
This Agreement may
be
executed
by
the
parties
by
digital
signature
or
electronic
or
facsimile
transmission
in
counterparts,
each
of
which,
when
duly
executed,
whether
by
digital
signature
or
electronic
or
facsimile transmission, shall constitute an original hereof.
19.
TRUTH-IN-LEASING STATEMENT
UNDER 14 C.F.R. § 91.23
.
THE
AIRCRAFT
LISTED
ON
EXHIBIT
B
ATTACHED
HERETO
HA
S
BEEN
MAINTAINED
AND
INSPECTED
UNDER
FAR
PART
91
DURING
THE
12
MONTH
PERIOD PRECEDING THE DATE OF THIS AGREEMENT OR, IF THE AIRCRAFT IS LESS
THAN
12
MONTHS
OLD,
SINCE
NEW.
__________,
CERTIFIES
THAT
THE
AIRCRAFT
LISTED
ON
EXHIBIT
B
ATTACHED
HERET
O
IS
COMPLIANT
WITH
APPLICABLE
MAINTENANCE
AND
INSPECTION
REQUIREMENTS
OF
FAR
PART
91
FOR
THE
Exhibit 10.2
OPERATIONS
TO BE CONDUCTED UNDER THIS AGREEMENT.
THE
AIRCRAFT
LISTED
ON
EXHIBIT
B
ATTACHED
HERETO
WILL
BE
MAINTAINED
AND
INSPECTED
UNDER
FAR
PART
91
FOR
OPERATIONS
TO
BE
CONDUCTED UNDER THIS AGREEMENT.
DURING THE
DURATION
OF THIS
AGREEMENT,
__________, IS
CONSIDERED
RESPONSIBLE
FOR
OPERATIONAL
CONTROL
OF
THE
AIRCRAFT
LISTED
ON
EXHIBIT B ATTACHED
HERETO UNDER THIS AGREEMENT.
AN EXPLANATION
OF FACTORS BEARING ON OPERATIONAL
CONTROL AND
PERTINENT
FEDERAL
AVIATION
REGULATIONS
CAN
BE
OBTAINED
FROM
THE
RESPONSIBLE FAA FLIGHT STANDARDS
DISTRICT OFFICE.
THE
“INSTRUCTIONS
FOR
COMPLIANCE
WITH
TRUTH
IN
LEASING
REQUIREMENTS” ATTACHED
HERETO IN
EXHIBIT A ARE
INCORPORATED
HEREIN
BY REFERENCE.
THE
UNDERSIGNED,
AS
A
DULY
AUTHORIZED
OFFICER
OF
__________,
CERTIFIES
THAT
IT
IS
RESPONSIBLE
FOR
OPERATIONAL
CONTROL
OF
THE
AIRCRAFT LISTED
ON EXHIBIT
B ATTACHED
HERETO AND THAT IT UNDERSTANDS
ITS RESPONSIBILITIES
FOR COMPLIANCE
WITH APPLICABLE
FEDERAL AVIATION
REGULATIONS.
[SIGNATURE
BLOCK IS ON THE FOLLOWING PAGE]
Exhibit 10.2
IN
WITNESS
WHEREOF
,
the
parties
have
executed
this
Agreement,
intending
to
be
legally bound.
(LESSOR)
By
:
____________________________
Name:
__________________________
Title:
____________________________
Date: _________________
Address:
Phone: _________________
Facsimile: ______________
Email: _________________
(LESSEE)
______________________________
Date: _________________
Address:
Exhibit 10.2
EXHIBIT A
INSTRUCTIONS FOR COMPLIANCE
WITH “TRUTH IN LEASING” REQUIREMENTS
1.
Mail a copy of the lease to the following address via certified mail, return
receipt requested, immediately upon execution of the lease (14 C.F.R. §
91.23 requires that the copy be sent within twenty-four hours after it is
signed):
Federal Aviation Administration
Aircraft Registration Branch
ATTN:
Technical Section
P.O.
Box 25724
Oklahoma City, Oklahoma 73125
2.
Telephone or fax the nearest Flight Standards District Office
at least forty
-
eight hours prior to the first flight under this lease.
3.
Carry a copy of the lease in the aircraft at all times.
d063021dex311
Exhibit 31.1
CERTIFICATION
I, Ryan M. Lance, certify that:
1.
I have reviewed this quarterly report on Form
10-Q
of ConocoPhillips;
2.
Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit
to
state a material fact necessary to make the statements
made, in light of the circumstances under
which
such statements were made, not misleading with
respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements,
and other financial information included in this
report,
fairly present in all material respects the financial
condition, results of operations and cash
flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing
and maintaining disclosure
controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and
have:
(a)
Designed such disclosure controls and procedures,
or caused such disclosure controls
and
procedures to be designed under our supervision,
to ensure that material information relating
to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b)
Designed such internal control over financial reporting,
or caused such internal control over
financial reporting to be designed under our supervision,
to provide reasonable assurance regarding
the reliability of financial reporting and the preparation
of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in
this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of
the end of the period covered by this report based
on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control
over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in
the case of an annual report) that has materially
affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of
internal control over financial reporting, to the
registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses
in the design or operation of internal
control
over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that
involves management or other employees who
have a
significant role in the registrant’s internal control over financial reporting.
August 5, 2021
/s/ Ryan M. Lance
Ryan M. Lance
Chairman and
Chief Executive Officer
d063021dex312
Exhibit 31.2
CERTIFICATION
I, William L. Bullock, Jr., certify that:
1.
I have reviewed this quarterly report on Form
10-Q
of ConocoPhillips;
2.
Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit
to
state a material fact necessary to make the statements
made, in light of the circumstances under
which
such statements were made, not misleading with
respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements,
and other financial information included in this
report,
fairly present in all material respects the financial
condition, results of operations and cash
flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing
and maintaining disclosure
controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and
have:
(a)
Designed such disclosure controls and procedures,
or caused such disclosure controls
and
procedures to be designed under our supervision,
to ensure that material information relating
to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b)
Designed such internal control over financial reporting,
or caused such internal control over
financial reporting to be designed under our supervision,
to provide reasonable assurance regarding
the reliability of financial reporting and the preparation
of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in
this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of
the end of the period covered by this report based
on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control
over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in
the case of an annual report) that has materially
affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of
internal control over financial reporting, to the
registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses
in the design or operation of internal control
over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
August 5, 2021
/s/ William L. Bullock, Jr.
William L. Bullock, Jr.
Executive Vice President and
Chief Financial Officer
d063021dex32
Exhibit 32
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of ConocoPhillips
(the Company) on Form 10-Q for the period ended
June 30, 2021, as filed with the U.S. Securities
and Exchange Commission on the date hereof
(the Report),
each of the undersigned hereby certifies, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002, that to their
knowledge:
(1)
The Report fully complies with the requirements
of Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2)
The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
August 5, 2021
/s/ Ryan M. Lance
Ryan M. Lance
Chairman and
Chief Executive Officer
/s/ William L. Bullock, Jr.
William L. Bullock, Jr.
Executive Vice President and
Chief Financial Officer