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CONOCOPHILLIPS - Quarter Report: 2020 June (Form 10-Q)

COP20202q10q
 
 
 
 
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, 2020
 
 
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
1,072,566,210
 
shares of common stock, $.01 par value, outstanding
 
at June 30, 2020.
 
CONOCOPHILLIPS
 
TABLE OF CONTENTS
 
 
 
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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
equivalent per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection Agency
EU
European Union
Industry
FERC
Federal Energy Regulatory
 
CBM
coalbed methane
Commission
E&P
exploration and production
GHG
greenhouse gas
FEED
front-end engineering and design
HSE
health, safety and environment
FPS
floating production system
ICC
International Chamber of
 
FPSO
floating production, storage and
Commerce
offloading
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
2020
2019
2020
2019
Revenues and Other Income
Sales and other operating revenues
$
2,749
7,953
8,907
17,103
Equity in earnings of affiliates
77
173
311
361
Gain on dispositions
596
82
554
99
Other income (loss)
594
172
(945)
874
Total Revenues and
 
Other Income
4,016
8,380
8,827
18,437
Costs and Expenses
Purchased commodities
1,130
2,674
3,791
6,349
Production and operating expenses
1,047
1,418
2,220
2,689
Selling, general and administrative expenses
156
129
153
282
Exploration expenses
97
122
285
232
Depreciation, depletion and amortization
1,158
1,490
2,569
3,036
Impairments
(2)
1
519
2
Taxes other than
 
income taxes
141
194
391
469
Accretion on discounted liabilities
66
87
133
173
Interest and debt expense
202
165
404
398
Foreign currency transaction (gain) loss
7
28
(83)
40
Other expenses
(7)
14
(13)
22
Total Costs and Expenses
3,995
6,322
10,369
13,692
Income (loss) before income taxes
21
2,058
(1,542)
4,745
Income tax provision (benefit)
(257)
461
(109)
1,302
Net income (loss)
278
1,597
(1,433)
3,443
Less: net income attributable to noncontrolling interests
(18)
(17)
(46)
(30)
Net Income (Loss) Attributable to ConocoPhillips
$
260
1,580
(1,479)
3,413
Net Income (Loss) Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
0.24
1.40
(1.37)
3.01
Diluted
0.24
1.40
(1.37)
3.00
Average Common
 
Shares Outstanding
(in thousands)
Basic
1,076,659
1,125,995
1,080,610
1,132,691
Diluted
1,077,606
1,131,242
1,080,610
1,139,511
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
2020
2019
2020
2019
Net Income (Loss)
$
278
1,597
(1,433)
3,443
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior
service credit included in net income (loss)
(8)
(10)
(16)
(18)
Net actuarial gain arising during the period
-
-
5
-
Reclassification adjustment for amortization of net actuarial
losses included in net income (loss)
18
32
36
58
Income taxes on defined benefit plans
(3)
(5)
(7)
(10)
Defined benefit plans, net of tax
7
17
18
30
Unrealized holding gain on securities
6
-
3
-
Income taxes on unrealized holding gain on securities
(2)
-
(1)
-
Unrealized holding gain on securities, net of tax
4
-
2
-
Foreign currency translation adjustments
309
71
(490)
246
Income taxes on foreign currency translation adjustments
-
(1)
2
-
Foreign currency translation adjustments, net of tax
309
70
(488)
246
Other Comprehensive Income (Loss), Net
 
of Tax
320
87
(468)
276
Comprehensive Income (Loss)
598
1,684
(1,901)
3,719
Less: comprehensive income attributable to noncontrolling
 
interests
(18)
(17)
(46)
(30)
Comprehensive Income (Loss) Attributable to
 
ConocoPhillips
$
580
1,667
(1,947)
3,689
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
Consolidated Balance Sheet
ConocoPhillips
 
Millions of Dollars
June 30
December 31
2020
2019
Assets
Cash and cash equivalents
$
2,907
5,088
Short-term investments
3,985
3,028
Accounts and notes receivable (net of allowance of $
3
 
and $
13
, respectively)
1,399
3,267
Accounts and notes receivable—related parties
133
134
Investment in Cenovus Energy
971
2,111
Inventories
982
1,026
Prepaid expenses and other current assets
676
2,259
Total Current
 
Assets
11,053
16,913
Investments and long-term receivables
8,334
8,687
Loans and advances—related parties
167
219
Net properties, plants and equipment
(net of accumulated DD&A of $
57,176
 
and $
55,477
, respectively)
41,120
42,269
Other assets
2,372
2,426
Total Assets
$
63,046
70,514
Liabilities
Accounts payable
$
2,060
3,176
Accounts payable—related parties
20
24
Short-term debt
146
105
Accrued income and other taxes
312
1,030
Employee benefit obligations
422
663
Other accruals
1,145
2,045
Total Current
 
Liabilities
4,105
7,043
Long-term debt
14,852
14,790
Asset retirement obligations and accrued environmental
 
costs
5,465
5,352
Deferred income taxes
3,901
4,634
Employee benefit obligations
1,586
1,781
Other liabilities and deferred credits
1,644
1,864
Total Liabilities
31,553
35,464
Equity
Common stock (
2,500,000,000
 
shares authorized at $
0.01
 
par value)
Issued (2020—
1,798,563,079
 
shares; 2019—
1,795,652,203
 
shares)
Par value
18
18
Capital in excess of par
47,079
46,983
Treasury stock (at cost: 2020—
725,996,869
 
shares; 2019—
710,783,814
 
shares)
(47,130)
(46,405)
Accumulated other comprehensive loss
(5,825)
(5,357)
Retained earnings
37,351
39,742
Total Common
 
Stockholders’ Equity
31,493
34,981
Noncontrolling interests
-
69
Total Equity
31,493
35,050
Total Liabilities and
 
Equity
$
63,046
70,514
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
Consolidated Statement of Cash Flows
ConocoPhillips
 
Millions of Dollars
Six Months Ended
June 30
2020
2019
Cash Flows From Operating Activities
Net income (loss)
$
(1,433)
3,443
Adjustments to reconcile net income (loss) to net cash provided
 
by operating
activities
Depreciation, depletion and amortization
2,569
3,036
Impairments
519
2
Dry hole costs and leasehold impairments
70
68
Accretion on discounted liabilities
133
173
Deferred taxes
(320)
(221)
Undistributed equity earnings
404
362
Gain on dispositions
(554)
(99)
Unrealized (gain) loss on investment in Cenovus Energy
1,140
(373)
Other
(244)
(21)
Working
 
capital adjustments
Decrease in accounts and notes receivable
1,746
461
Increase in inventories
(27)
(77)
Increase in prepaid expenses and other current assets
(149)
(149)
Decrease in accounts payable
(754)
(326)
Decrease in taxes and other accruals
(838)
(494)
Net Cash Provided by Operating Activities
2,262
5,785
Cash Flows From Investing Activities
Capital expenditures and investments
(2,525)
(3,366)
Working
 
capital changes associated with investing activities
(251)
24
Proceeds from asset dispositions
1,313
701
Net purchases of investments
(1,030)
(485)
Collection of advances/loans—related parties
66
62
Other
(35)
126
Net Cash Used in Investing Activities
(2,462)
(2,938)
Cash Flows From Financing Activities
Repayment of debt
(214)
(38)
Issuance of company common stock
2
(36)
Repurchase of company common stock
(726)
(2,002)
Dividends paid
 
(913)
(696)
Other
(28)
(55)
Net Cash Used in Financing Activities
(1,879)
(2,827)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
Cash
(93)
26
Net Change in Cash, Cash Equivalents and Restricted Cash
(2,172)
46
Cash, cash equivalents and restricted cash at beginning
 
of period
5,362
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
3,190
6,197
Restricted cash of $
88
 
million and $
195
 
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, 2020.
Restricted cash of $
90
 
million and $
184
 
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, 2019.
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 2019 Annual Report
 
on Form 10-K.
 
The unrealized (gain) loss on investment in Cenovus
 
Energy included on our consolidated statement of cash
flows, previously reflected on the line item
 
“Other” within net cash provided by operating
 
activities, has been
reclassified in the comparative period to conform
 
with the current period’s presentation.
 
 
 
Note 2—Changes in Accounting Principles
 
We
adopted
 
the provisions of FASB ASU No. 2016-13, “Measurement of Credit Losses
 
on Financial
Instruments,” (ASC Topic 326) and its amendments,
beginning
January 1, 2020
.
 
This ASU, as amended, sets
forth the current expected credit loss model,
 
a new forward-looking impairment model
 
for certain financial
instruments measured at amortized cost basis
 
based on expected losses rather than incurred losses.
 
This ASU,
as amended, which primarily applies to our accounts
 
receivable, also requires credit losses related
 
to available-
for-sale debt securities to be recorded through an allowance
 
for credit losses.
 
The adoption of this ASU did
not have a material impact to our financial statements.
 
The majority of our receivables are due within
 
30 days
or less.
 
We monitor the credit quality of our counterparties through review of collections,
 
credit ratings, and
other analyses.
 
We develop our estimated allowance for credit losses primarily using an aging method
 
and
analyses of historical loss rates as well as consideration
 
of current and future conditions that could
 
impact our
counterparties’ credit quality and liquidity.
 
 
Note 3—Inventories
Inventories consisted of the following:
Millions of Dollars
June 30
 
December 31
2020
2019
Crude oil and natural gas
$
452
472
Materials and supplies
530
554
$
982
1,026
 
 
Inventories valued on the LIFO basis totaled
 
$
352
 
million and $
286
 
million at June 30, 2020 and December
31, 2019,
 
respectively.
 
Due to a precipitous decline in commodity
 
prices beginning in March this year, we
recorded a lower of cost or market adjustment
 
in the first quarter of 2020 of $
228
 
million to our crude oil and
natural gas inventories. The adjustment was included
 
in the “Purchased commodities” line on our
 
consolidated
income statement.
 
Commodity prices have since improved in the
 
second quarter.
 
 
7
Note 4—Asset Acquisitions and Dispositions
 
 
Assets Sold
In May 2020, we completed the divestiture
 
of our subsidiaries that held our Australia-West assets and
operations, and based on an effective date of January
 
1, 2019, we received proceeds of $
765
 
million with an
additional $
200
 
million due upon final investment decision
 
of the proposed Barossa development project.
 
In
the second quarter of 2020, we recognized a before-tax
 
gain of $
587
 
million related to this transaction.
 
At the
time of disposition, the net carrying value of the
 
subsidiaries sold was approximately $
0.2
 
billion, excluding
$
0.5
 
billion of cash.
 
The net carrying value consisted primarily
 
of $
1.3
 
billion of PP&E and $
0.1
 
billion of
other current assets offset by $
0.7
 
billion of ARO, $
0.3
 
billion of deferred tax liabilities, and $
0.2
 
billion of
other liabilities.
 
The before-tax earnings associated with the subsidiaries
 
sold, excluding the gain on
disposition noted above, were $
265
 
million and $
156
 
million for the six-month periods ended June 30,
 
2020
and 2019, respectively.
 
Production associated with the disposed assets
 
averaged
35
 
MBOED in the six-month
period of 2020.
 
Results of operations for the subsidiaries sold are
 
reported in our
Asia Pacific and Middle East
segment.
 
In March 2020, we completed the sale of our Niobrara
 
interests for approximately $
359
 
million after
customary adjustments and recognized a before-tax
 
loss on disposition of $
38
 
million.
 
At the time of
disposition, our interest in Niobrara had a net carrying
 
value of $
397
 
million, consisting primarily of $
433
million of PP&E and $
34
 
million of ARO.
 
The before-tax earnings associated with our
 
interests in Niobrara,
including the loss on disposition, were a loss of $
24
 
million and $
5
 
million for the six-month periods ended
June 30, 2020 and 2019, respectively.
 
 
In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $
184
 
million after customary
adjustments.
 
No
 
gain or loss was recognized on the sale.
 
 
Production from the disposed Niobrara and Waddell Ranch interests in our
Lower 48
 
segment averaged
15
MBOED in 2019.
 
Planned Acquisition
In July 2020, we signed a definitive agreement
 
to acquire additional Montney acreage for cash consideration
 
of
approximately $
375
 
million before customary adjustments, plus the
 
assumption of approximately $
30
 
million
in financing obligations for associated partially
 
owned infrastructure.
 
This acquisition consists primarily of
undeveloped properties and includes
140,000
 
net acres in the liquids-rich Inga Fireweed
 
asset Montney zone,
which is directly adjacent to our existing Montney
 
position.
 
Upon completion of this transaction, we will
 
have
a Montney acreage position of
295,000
 
net acres with a
100
 
percent working interest.
 
The transaction is
subject to regulatory approval, is expected to close
 
in the third quarter of 2020 and will be reported
 
in our
Canada segment.
 
 
Note 5—Investments, Loans and Long-Term Receivables
 
 
APLNG
APLNG executed project financing agreements
 
for an $
8.5
 
billion project finance facility in 2012. The $
8.5
billion project finance facility was initially composed
 
of financing agreements executed by APLNG
 
with the
Export-Import Bank of the United States for approximately
 
$
2.9
 
billion, the Export-Import Bank of China for
approximately $
2.7
 
billion, and a syndicate of Australian and international
 
commercial banks for
approximately $
2.9
 
billion.
 
All amounts were drawn from the facility.
 
APLNG made its first principal and
interest repayment in March 2017 and is scheduled
 
to make
bi-annual
 
payments until
March 2029
.
 
 
APLNG made a voluntary repayment of $
1.4
 
billion to the Export-Import Bank of China
 
in September 2018.
 
At the same time, APLNG obtained a United
 
States Private Placement (USPP) bond facility
 
of $
1.4
 
billion.
 
APLNG made its first interest payment related to
 
this facility in March 2019, and principal
 
payments are
scheduled to commence in September 2023, with
bi-annual
 
payments due on the facility until
September 2030
.
 
 
8
During the first quarter of 2019, APLNG refinanced
 
$
3.2
 
billion of existing project finance debt through two
transactions.
 
As a result of the first transaction, APLNG obtained
 
a commercial bank facility of $
2.6
 
billion.
 
APLNG made its first principal and interest
 
repayment in September 2019 with
bi-annual
 
payments due on the
facility until
March 2028
.
 
Through the second transaction, APLNG obtained
 
a USPP bond facility of $
0.6
billion.
 
APLNG made its first interest payment in September
 
2019, and principal payments are scheduled to
commence in September 2023, with
bi-annual
 
payments due on the facility until
 
September 2030.
 
In conjunction with the $
3.2
 
billion debt obtained during the first quarter
 
of 2019 to refinance existing project
finance debt, APLNG made voluntary repayments
 
of $
2.2
 
billion and $
1.0
 
billion to a syndicate of Australian
and international commercial banks and the Export-Import
 
Bank of China, respectively.
 
At June 30, 2020, a balance of $
6.5
 
billion was outstanding on the facilities.
 
See Note 11—Guarantees, for
additional information.
 
At June 30, 2020, the carrying value of our equity
 
method investment in APLNG was $
6,889
 
million.
 
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, 2020, significant loans to affiliated
companies included $
272
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3).
 
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 6—Investment in Cenovus Energy
 
On May 17, 2017, we completed the sale of our
50
 
percent nonoperated interest in the FCCL Partnership,
 
as
well as the majority of our western Canada gas assets,
 
to Cenovus Energy.
 
Consideration for the transaction
included
208
 
million Cenovus Energy common shares, which,
 
at closing, approximated
16.9
 
percent of issued
and outstanding Cenovus Energy common stock.
 
The fair value and cost basis of our investment
 
in
208
million Cenovus Energy common shares was $
1.96
 
billion based on a price of $
9.41
 
per share on the NYSE on
the closing date.
 
At June 30, 2020, the investment included on
 
our consolidated balance sheet was $
971
 
million and is carried at
fair value.
 
The fair value of the
208
 
million Cenovus Energy common shares reflects
 
the closing price of
$
4.67
 
per share on the NYSE on the last trading
 
day of the quarter, a decrease of $
1.14
 
billion from its fair
value of $
2.11
 
billion at year-end 2019.
 
For the three- and six-month periods ended June
 
30, 2020, we
recorded an unrealized gain of $
551
 
million and an unrealized loss of $
1.14
 
billion, respectively.
 
For the
three- and six-month periods ended June 30, 2019,
 
we recorded an unrealized gain of $
30
 
million and $
373
million, respectively.
 
The unrealized gains and losses are recorded within
 
the “Other income (loss)” line of
our consolidated income statement and are related to
 
the shares held at the reporting date.
 
See Note 14—Fair
Value
 
Measurement, for additional information.
 
Subject to market conditions, we intend to decrease
 
our
investment over time through market transactions,
 
private agreements or otherwise.
 
 
Note 7—Suspended Wells
 
The capitalized cost of suspended wells at June 30,
 
2020, was $
701
 
million, a decrease of $
319
 
million from
year-end 2019 primarily related to our Australia-West divestiture.
 
See Note 4—Asset Acquisitions and
Dispositions,
 
for additional information.
 
Of the well costs capitalized for more than one
 
year as of December
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
31, 2019, $
19
 
million was charged to dry hole expense during
 
the first six months of 2020 for
one
 
suspended
well in the Kamunsu East Field offshore Malaysia.
 
 
Note 8—Impairments
During the three-
 
and six-month periods ended June 30, 2020
 
and 2019, we recognized before-tax impairment
charges within the following segments:
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Lower 48
2
-
513
-
Europe and North Africa
(4)
1
6
2
$
(2)
1
519
2
 
 
We perform impairment reviews when triggering events arise that may impact the
 
fair value of our assets or
investments.
 
 
We observed volatility in commodity prices during the first six-months of 2020.
 
A decline in commodity
prices beginning in March prompted us to evaluate
 
the recoverability of the carrying value of our assets
 
and
whether an other than temporary impairment
 
occurred for investments in our portfolio.
 
For certain non-core
natural gas assets in the Lower 48, a significant decrease
 
in the outlook for current and long-term natural
 
gas
prices resulted in a decline in the estimated fair
 
values to amounts below carrying value.
 
Accordingly, in the
first quarter of 2020, we recorded impairments of
 
$
511
 
million related to these non-core natural gas assets,
primarily for the Wind River Basin operations area consisting of
 
developed properties in the Madden Field and
the Lost Cabin Gas Plant, which were written down
 
to fair value.
 
See Note 14—Fair Value Measurement, for
additional information.
 
A sustained decline in the current and long-term
 
outlook on commodity prices could trigger
 
additional
impairment reviews and possibly result in
 
future impairment charges.
 
We recorded a before-tax impairment in the first quarter of 2020 of $
31
 
million in our Asia Pacific and Middle
East segment related to the associated carrying value
 
of capitalized undeveloped leasehold costs for
 
the
Kamunsu East Field in Malaysia that is no longer
 
in our development plans.
 
This charge is included in the
“Exploration expenses” line on our consolidated income
 
statement and is not reflected in the table above.
 
 
Note 9—Debt
 
 
 
Our debt balance as of June 30, 2020 was $
14,998
 
million compared with $
14,895
 
million at December 31,
2019.
 
 
Our revolving credit facility provides a total commitment
 
of $
6.0
 
billion and expires 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.
 
Our commercial paper program consists of
 
the
ConocoPhillips Company $
6.0
 
billion program, primarily a funding source for
 
short-term working capital
needs.
 
Commercial paper maturities are generally limited
 
to
90 days
.
 
 
We had no commercial paper outstanding at June 30, 2020 or December 31, 2019.
 
We had no direct
outstanding borrowings or letters of credit
 
under the revolving credit facility at June 30, 2020 or
 
December 31,
 
10
2019.
 
Since we had
no
 
commercial paper outstanding and had issued
no
 
letters of credit, we had access to $
6.0
billion in borrowing capacity under our revolving
 
credit facility at June 30, 2020.
 
In March 2020, S&P affirmed its “A” rating on our senior long-term debt and revised its outlook to “negative”
from “stable”.
 
In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook.
 
Our current
rating from Fitch is “A” with a “stable” outlook.
 
 
At June 30, 2020, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Note 10—Changes in Equity
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
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)
Disposition
(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 (loss)
(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)
Disposition
(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
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Loss
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended June 30, 2019
Balances at March 31, 2019
$
18
46,877
(43,656)
(5,914)
35,534
122
32,981
Net income
1,580
17
1,597
Other comprehensive income
87
87
Dividends paid ($
0.31
 
per common share)
(346)
(346)
Repurchase of company common stock
(1,250)
(1,250)
Distributions to noncontrolling interests and other
(43)
(43)
Distributed under benefit plans
45
45
Other
1
2
3
Balances at June 30, 2019
$
18
46,922
(44,906)
(5,827)
36,769
98
33,074
For the six months ended June 30, 2019
Balances at December 31, 2018
$
18
46,879
(42,905)
(6,063)
34,010
125
32,064
Net income
3,413
30
3,443
Other comprehensive income
276
276
Dividends paid ($
0.61
 
per common share)
(696)
(696)
Repurchase of company common stock
(2,002)
(2,002)
Distributions to noncontrolling interests and other
(60)
(60)
Distributed under benefit plans
43
43
Changes in Accounting Principles*
(40)
40
-
Other
1
2
3
6
Balances at June 30, 2019
$
18
46,922
(44,906)
(5,827)
36,769
98
33,074
*Cumulative effect of the adoption of ASU No. 2018-02,
 
"Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
 
12
Note 11—Guarantees
 
At June 30, 2020, 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, 2020, 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 2020
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
11 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, 2020, the carrying value of this
 
guarantee was approximately $
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 22 years
.
 
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
 
to be $
700
 
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
17 to
25 years or the life of the venture
.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately $
120
 
million and would become payable if APLNG
 
does not perform.
 
At
June 30, 2020, the carrying value of these guarantees
 
was approximately $
7
 
million.
 
 
Other Guarantees
 
We have other guarantees with maximum future potential payment amounts totaling
 
approximately
 
$
780
 
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
1 to 5 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, 2020, the carrying value of these
 
guarantees was approximately $
11
 
million.
 
 
Indemnifications
Over the years, we have entered into agreements to
 
sell ownership interests in certain corporations,
 
joint
ventures and assets that gave rise to qualifying
 
indemnifications.
 
These agreements include indemnifications
for taxes and environmental liabilities.
 
The majority 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.
 
The carrying amount recorded for
these indemnification obligations at June 30, 2020,
 
was approximately $
70
 
million.
 
We amortize the
 
13
indemnification liability over the relevant time
 
period the 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.
 
Included in the recorded carrying amount
 
at June 30, 2020, were approximately $
30
 
million
of environmental accruals for known contamination
 
that are included in the “Asset retirement
 
obligations and
accrued environmental costs” line on our consolidated
 
balance sheet.
 
For additional information about
environmental liabilities, see Note 12—Contingencies
 
and Commitments.
 
 
 
Note 12—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.
 
When we prepare
our consolidated financial statements, we record
 
accruals for environmental liabilities
 
based on management’s
best estimates, using all information that is
 
available at the time.
 
We measure estimates and base liabilities 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.
 
 
14
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.
 
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, 2020 and December 31, 2019, our balance
 
sheet included a total environmental accrual
 
of
 
$
171
 
million 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.
 
Legal Proceedings
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 and
claims of alleged environmental contamination
 
from historic operations.
 
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.
 
Other Contingencies
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, 2020, we had performance
 
obligations secured by letters of credit of
 
$
196
 
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.
 
ConocoPhillips has
filed a request for recognition of the award in several
 
jurisdictions.
 
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing
 
it by approximately $
227
 
million.
 
The award now stands
 
15
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.
 
 
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 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 $
55
 
million 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 has appealed these orders and strongly
 
objects to the ONRR claims.
 
The appeals are pending
with the Interior Board of Land Appeals, except
 
for one order that is the subject of a lawsuit
 
ConocoPhillips
filed in 2016 in New Mexico federal court after
 
its appeal was denied by the Interior Board
 
of Land Appeals.
 
Beginning in 2017, cities, counties, and state governments
 
in California, New York, Washington,
 
Rhode
Island, Maryland and Hawaii, as well as the Pacific
 
Coast Federation of Fishermen’s Association, Inc., have
filed lawsuits against oil and gas companies,
 
including ConocoPhillips, seeking compensatory
 
damages and
equitable relief to abate alleged climate change impacts.
 
ConocoPhillips is vigorously defending against
 
these
lawsuits.
 
The lawsuits brought by the Cities of San Francisco,
 
Oakland and New York were dismissed by
federal district courts.
 
The New York dismissal remains on appeal.
 
The Ninth Circuit ruled that the San
Francisco and Oakland cases (and other California
 
cases) should proceed in state court, with that
 
decision
subject to appeal.
 
Lawsuits filed by the cities and counties in California,
 
Washington, and Hawaii are
currently stayed pending resolution of the Ninth Circuit
 
appeals.
 
Lawsuits filed in Maryland and Rhode Island
are proceeding in state court while rulings in those
 
matters, on the issue of whether the
 
matters should proceed
in state or federal court, are on appeal.
 
Several Louisiana parishes have filed lawsuits against
 
oil and gas companies, including ConocoPhillips,
seeking compensatory damages in connection
 
with historical oil and gas operations in Louisiana.
 
The lawsuits
are stayed pending an appeal with the Fifth Circuit
 
on the issue of whether they will proceed in federal
 
or state
court.
 
ConocoPhillips will vigorously defend against
 
these lawsuits.
 
In 2016, ConocoPhillips, through its subsidiary, The Louisiana Land and Exploration
 
Company LLC,
submitted claims as the largest private wetlands owner in Louisiana
 
within the settlement claims
administration process related to the oil spill
 
in the Gulf of Mexico in April 2010.
 
In July 2020, the claims
administrator issued an award to the company which,
 
after fees and expenses, totaled approximately
 
$
90
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
Note 13—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,
realized and unrealized 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.
 
We do not elect 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
2020
2019
Assets
Prepaid expenses and other current assets
$
316
288
Other assets
35
34
Liabilities
Other accruals
310
283
Other liabilities and deferred credits
25
28
 
 
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
2020
2019
2020
2019
Sales and other operating revenues
$
(50)
45
(3)
64
Other income (loss)
3
2
5
1
Purchased commodities
24
(31)
(2)
(51)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
The table below summarizes our material net exposures
 
resulting from outstanding commodity
 
derivative
contracts:
Open Position
Long/(Short)
June 30
December 31
2020
2019
Commodity
Natural gas and power (billions of cubic feet equivalent)
 
Fixed price
(20)
(5)
 
Basis
(27)
(23)
 
 
Foreign Currency Exchange Derivatives
We have foreign currency exchange rate risk resulting from international operations.
 
Our foreign currency
exchange derivative activity primarily
 
relates to managing our cash-related foreign currency
 
exchange rate
exposures, such as firm commitments for
 
capital programs or local currency tax payments,
 
dividends and cash
returns from net investments in foreign affiliates, and investments
 
in equity securities.
 
Our foreign currency exchange derivative instruments
 
are held at fair value on our consolidated
 
balance sheet.
Related cash flows are recorded as operating
 
activities on our consolidated statement of cash flows.
 
We do not
elect hedge accounting on our foreign currency exchange
 
derivatives.
 
The following table presents the gross fair values
 
of our foreign currency exchange derivatives,
 
excluding
collateral, and the line items where they appear
 
on our consolidated balance sheet:
Millions of Dollars
June 30
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
23
1
Liabilities
Other accruals
1
20
Other liabilities and deferred credits
-
8
 
 
The (gains) losses from foreign currency exchange
 
derivatives incurred, and the line item where
 
they appear
on our consolidated income statement were:
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Foreign currency transaction (gain) loss
$
12
23
(62)
21
 
 
 
 
 
 
 
18
We had the following net notional position of outstanding foreign currency exchange
 
derivatives:
In Millions
Notional Currency
June 30
December 31
2020
2019
Foreign Currency Exchange Derivatives
Buy GBP,
 
sell EUR
GBP
7
4
Sell CAD, buy USD
CAD
427
1,337
 
 
In the second quarter of 2019, we entered into foreign currency exchange contracts to sell CAD 1.35 billion at
CAD 0.748 against the USD. In the first quarter of 2020, we entered into forward currency exchange contracts
to buy CAD 0.9 billion at CAD 0.718 against the USD
.
 
 
 
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.
 
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:
 
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
2020
2019
2020
2019
2020
2019
Cash
$
575
759
Demand Deposits
917
1,483
-
-
-
-
Time Deposits
Remaining maturities from 1 to 90 days
1,396
2,030
2,339
1,395
-
-
Remaining maturities from
 
 
91 to 180 days
-
-
1,302
465
-
-
Remaining maturities within one year
-
-
14
-
-
-
Remaining maturities greater than one
year through five years
-
-
-
-
3
-
Commercial Paper
Remaining maturities from 1 to 90 days
-
413
-
1,069
-
-
Remaining maturities from
 
 
91 to 180 days
-
-
50
-
-
-
U.S. Government Obligations
Remaining maturities from 1 to 90 days
15
394
-
-
-
-
$
2,903
5,079
3,705
2,929
3
-
 
The following investments in debt securities
 
classified as available for sale are carried on our
 
consolidated balance
sheet at fair value:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
 
Investments
Investments and Long-
Term Receivables
June 30
2020
December 31
2019
June 30
2020
December 31
2019
June 30
2020
December 31
2019
Corporate Bonds
Maturities within one year
$
-
1
144
59
-
-
Maturities greater than one year
 
 
through five years
-
-
-
-
134
99
Commercial Paper
Maturities within one year
4
8
126
30
-
-
U.S. Government Obligations
Maturities within one year
-
-
10
10
-
-
Maturities greater than one year
 
 
through five years
-
-
-
-
16
15
U.S. Government Agency Obligations
Maturities greater than one year
 
 
through five years
-
-
-
-
4
-
Asset-backed Securities
Maturities greater than one year
 
 
through five years
-
-
-
-
37
19
$
4
9
280
99
191
133
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
June 30, 2020
December 31, 2019
Amortized
Cost Basis
Fair Value
Amortized
Cost Basis
Fair Value
Major Security Type
Corporate bonds
$
276
278
159
159
Commercial paper
130
130
38
38
U.S. government obligations
25
26
25
25
U.S. government agency obligations
4
4
-
-
Asset-backed securities
37
37
19
19
$
472
475
241
241
 
As of June 30, 2020 and December 31, 2019, total
 
unrealized losses for debt securities classified
 
as available
for sale with net losses were negligible.
 
Additionally, as of June 30, 2020 and December 31, 2019,
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, 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, and high-quality corporate bonds.
 
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 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 petroleum 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 do not generally require collateral to limit the exposure to loss;
however, we will sometimes use letters of credit, prepayments
 
and 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.
 
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
 
21
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 on June 30, 2020 and December
 
31, 2019, was $
40
 
million and $
79
 
million, respectively.
 
For these instruments,
no
 
collateral was posted as of June 30, 2020 or December
 
31, 2019.
 
If our credit rating
had been downgraded below investment grade on
 
June 30, 2020, we would have been required
 
to post $
38
million of additional collateral, either with cash or letters
 
of credit.
 
 
Note 14—Fair Value Measurement
 
We carry a portion of our assets and liabilities at fair value 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 hierarchy 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
2020 or 2019.
 
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair
 
value on a recurring basis primarily include
 
our investment in
Cenovus Energy 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 Cenovus Energy, 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, and U.S. government
 
agency obligations that are valued using pricing
 
provided by
brokers or pricing service companies that are corroborated
 
with market data.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
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, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
971
-
-
971
2,111
-
-
2,111
Investments in debt securities
26
449
-
475
25
216
-
241
Commodity derivatives
207
120
24
351
172
114
36
322
Total assets
$
1,204
569
24
1,797
2,308
330
36
2,674
Liabilities
Commodity derivatives
$
216
103
16
335
174
115
22
311
Total liabilities
$
216
103
16
335
174
115
22
311
 
 
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, 2020
Assets
$
351
1
350
233
117
8
109
Liabilities
335
2
333
233
100
22
78
December 31, 2019
Assets
$
322
3
319
193
126
4
122
Liabilities
311
4
307
193
114
12
102
At June 30, 2020 and December 31, 2019, we did
 
not present any amounts gross on our consolidated
 
balance
sheet where we had the right of setoff.
 
Non-Recurring Fair Value Measurement
The following table summarizes the fair value
 
hierarchy by major category and date of
 
remeasurement for
assets accounted for at fair value on a non-recurring
 
basis:
Millions of Dollars
Fair Value
Measurement
Using
Fair Value
Level 3 Inputs
Before-Tax
Loss
Net PP&E (held for use)
March 31, 2020
$
77
77
510
 
 
 
 
 
 
 
 
23
During the first quarter of 2020
, the estimated fair value of our assets in the Wind River Basin operations
 
area
declined to an amount below the carrying value.
 
The Wind River Basin operations area consists of certain
developed natural gas properties in the Madden
 
Field and the Lost Cabin Gas Plant and is included
 
in our
Lower 48 segment.
 
The carrying value was written down to fair value. The fair value was estimated based on
an internal discounted cash flow model using estimates of future production, an outlook of future prices using
a combination of exchanges (short-term) and external pricing services companies (long-term), future operating
costs and capital expenditures, and a discount rate believed to be consistent with those used by principal
market participants.
 
The range and arithmetic average of significant
 
unobservable inputs used in the Level 3
fair value measurement were as follows:
 
 
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
 
(Arithmetic Average)
March 31, 2020
Wind River Basin
$
77
Discounted cash
flow
Natural gas production
(MMCFD)
8.4
 
-
55.2
 
(
22.9
)
Natural gas price outlook*
($/MMBTU)
$
2.67
 
- $
9.17
 
($
5.68
)
Discount rate**
7.9
%
 
-
9.1
% (
8.3
%)
 
*Henry Hub natural gas price outlook based on external pricing service
 
companies' outlooks for years 2022-2034; future prices
 
escalated at
2.2
% annually after
year 2034.
**Determined as the weighted average cost of capital of a group
 
of peer companies, adjusted for risks where
 
appropriate.
 
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 Cenovus Energy: See Note 6—Investment in
 
Cenovus Energy for a discussion of the
carrying value and fair value of our investment in
 
Cenovus Energy 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 13—Derivatives and Financial Instruments,
 
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 5—Investments, Loans and Long-Term
Receivables, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
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
2020
2019
2020
2019
Financial assets
Investment in Cenovus Energy
$
971
2,111
971
2,111
Commodity derivatives
110
125
110
125
Investments in debt securities
475
241
475
241
Total loans and advances—related parties
272
339
272
339
Financial liabilities
Total debt, excluding finance leases
14,156
14,175
18,307
18,108
Commodity derivatives
80
106
80
106
 
 
Note 15—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 on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Income (Loss)
December 31, 2019
$
(350)
-
(5,007)
(5,357)
Other comprehensive income (loss)
18
2
(488)
(468)
June 30, 2020
$
(332)
2
(5,495)
(5,825)
 
 
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
2020
2019
2020
2019
Defined benefit plans
$
8
17
16
30
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $
2
 
million and $
5
 
million
for the three-month periods ended June 30, 2020 and June 30, 2019, respectively, and $
4
 
million and $
10
 
million for the six-month periods ended
June 30, 2020 and June 30, 2019, respectively.
 
See Note 17—Employee Benefit Plans, for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Note 16—Cash Flow Information
Millions of Dollars
Six Months Ended
June 30
2020
2019
Cash Payments
Interest
$
397
414
Income taxes
761
1,572
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(7,021)
(982)
Short-term investments sold
6,147
497
Long-term investments purchased
(208)
-
Long-term investments sold
52
-
$
(1,030)
(485)
 
 
Note 17—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
Pension Benefits
Other Benefits
2020
2019
2020
2019
U.S.
Int'l.
U.S.
Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31,
 
June 30,
September 30,
 
December 31
Service cost
$
21
13
19
18
-
-
Interest cost
17
20
21
26
1
3
Expected return on plan assets
(21)
(34)
(18)
(35)
-
-
Amortization of prior service credit
-
-
-
(1)
(8)
(9)
Recognized net actuarial loss
13
5
13
8
-
-
Settlements
-
-
11
-
-
-
Net periodic benefit cost
$
30
4
46
16
(7)
(6)
Six Months Ended March 31,
 
June 30, September
30,
 
December 31
Service cost
$
42
27
39
37
1
-
Interest cost
34
42
42
52
3
5
Expected return on plan assets
(42)
(71)
(36)
(70)
-
-
Amortization of prior service credit
-
-
-
(1)
(16)
(17)
Recognized net actuarial loss (gain)
25
11
26
16
-
(1)
Settlements
1
(1)
17
-
-
-
Net periodic benefit cost
$
60
8
88
34
(12)
(13)
 
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 first six months of 2020, we contributed
 
$
49
 
million to our domestic benefit plans and $
44
 
million
to our international benefit plans.
 
In 2020, we expect to contribute a total of approximately
 
$
130
 
million to
our domestic qualified and nonqualified pension
 
and postretirement benefit plans and $
60
 
million to our
international qualified and nonqualified pension
 
and postretirement benefit plans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
 
 
Note 18—Related Party Transactions
Our related parties primarily include equity method
 
investments and certain trusts for the benefit
 
of employees.
For disclosures on trusts for the benefit of employees,
 
see Note 17—Employee Benefit Plans.
Significant transactions with our equity affiliates
 
were:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Operating revenues and other income
$
21
26
38
47
Purchases
-
17
-
38
Operating expenses and selling, general and administrative
expenses
12
14
27
28
Net interest income*
(2)
(3)
(4)
(7)
*We paid interest to, or received interest
 
from, various affiliates.
 
See Note 5—Investments, Loans and Long-Term Receivables, for additional
information on loans to affiliated companies.
 
 
Note 19—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
2020
2019
2020
2019
Revenue from contracts with customers
$
1,919
6,633
6,830
13,692
Revenue from contracts outside the scope of ASC Topic 606
Physical contracts meeting the definition of a derivative
856
1,371
2,152
3,452
Financial derivative contracts
(26)
(51)
(75)
(41)
Consolidated sales and other operating revenues
$
2,749
7,953
8,907
17,103
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
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 20—Segment Disclosures and Related
Information:
 
 
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenue from Outside the Scope of ASC Topic 606
by Segment
Lower 48
$
698
1,111
1,674
2,724
Canada
121
100
300
341
Europe and North Africa
37
160
178
387
Physical contracts meeting the definition of a derivative
$
856
1,371
2,152
3,452
 
 
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenue from Outside the Scope of ASC Topic 606
by Product
Crude oil
$
26
165
118
353
Natural gas
763
1,095
1,853
2,863
Other
67
111
181
236
Physical contracts meeting the definition of a derivative
$
856
1,371
2,152
3,452
 
 
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, 2020, the “Accounts and notes receivable”
 
line on our consolidated balance sheet,
 
includes trade
receivables of $
745
 
million compared with $
2,372
 
million at December 31, 2019, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
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
As of June 30, 2020 and December 31, 2019
$
80
Amounts Recognized in the Consolidated Balance
 
Sheet at June 30, 2020
Current liabilities
$
47
Noncurrent liabilities
33
$
80
 
We expect to recognize the contract liabilities as of June 30, 2020, as revenue during 2021 and 2022.
 
There
were
no
 
revenues recognized for the three- and six-month
 
periods ended June 30, 2020.
 
 
Note 20—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 and North
 
Africa, Asia Pacific and Middle East, and Other
International.
 
 
Corporate and Other represents income and costs
 
not directly associated with an operating
 
segment, such as
most interest expense, corporate overhead and
 
certain technology activities, including licensing
 
revenues.
 
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 will restructure
 
our segments to align with changes to our internal
organization.
 
The Middle East business will move from the
 
Asia Pacific and Middle East segment to the
Europe and North Africa segment.
 
The segments will be renamed the Asia Pacific
 
segment and the Europe,
North Africa and Middle East segment.
 
Accordingly, beginning in the third quarter of 2020 we will revise
segment information disclosures and segment performance
 
metrics presented within our results of operations
for the current and historical comparative periods.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Sales and Other Operating Revenues
Alaska
$
419
1,426
1,532
2,833
Intersegment eliminations
19
-
19
-
Alaska
438
1,426
1,551
2,833
Lower 48
1,433
3,809
4,536
7,962
Intersegment eliminations
(28)
(11)
(38)
(23)
Lower 48
1,405
3,798
4,498
7,939
Canada
165
717
678
1,540
Intersegment eliminations
-
(335)
(180)
(585)
Canada
165
382
498
955
Europe and North Africa
288
1,313
888
2,859
Asia Pacific and Middle East
450
1,030
1,453
2,373
Other International
1
-
4
-
Corporate and Other
2
4
15
144
Consolidated sales and other operating revenues
$
2,749
7,953
8,907
17,103
Sales and Other Operating Revenues by Geographic
 
Location
(1)
United States
$
1,844
5,225
6,061
10,911
Australia
168
311
605
870
Canada
165
382
498
955
China
67
159
213
402
Indonesia
132
226
336
431
Libya
-
267
44
521
Malaysia
83
334
299
670
Norway
242
561
688
1,149
United Kingdom
46
485
156
1,189
Other foreign countries
2
3
7
5
Worldwide consolidated
$
2,749
7,953
8,907
17,103
Sales and Other Operating Revenues by Product
Crude oil
$
1,216
4,813
4,660
9,394
Natural gas
1,190
1,915
2,845
4,918
Natural gas liquids
84
213
235
451
Other
(2)
259
1,012
1,167
2,340
Consolidated sales and other operating revenues
 
by product
$
2,749
7,953
8,907
17,103
(1) Sales and other operating revenues are attributable to countries based on the location of the selling operation.
(2) Includes LNG and bitumen.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
(141)
462
(60)
846
Lower 48
(365)
206
(802)
399
Canada
(86)
100
(195)
222
Europe and North Africa
11
407
86
614
Asia Pacific and Middle East
662
517
1,060
1,042
Other International
(6)
81
22
212
Corporate and Other
185
(193)
(1,590)
78
Consolidated net income (loss) attributable
 
to ConocoPhillips
$
260
1,580
(1,479)
3,413
 
 
Millions of Dollars
June 30
December 31
2020
2019
Total Assets
Alaska
$
16,121
15,453
Lower 48
12,158
14,425
Canada
5,909
6,350
Europe and North Africa
7,204
8,121
Asia Pacific and Middle East
12,404
14,716
Other International
299
285
Corporate and Other
8,951
11,164
Consolidated total assets
$
63,046
70,514
 
 
Note 21—Income Taxes
 
Our effective tax rate for the three-month period ended June
 
30, 2020, was negative and is significantly
 
lower
than the comparative period in 2019 due to a number
 
of significant transactions, and their
 
related tax effects,
impacting our $
21
 
million before-tax income.
 
The change in the rate was impacted by the gain on disposition
recognized for our Australia-West assets of $
587
 
million with an associated tax benefit of
 
$
10
 
million, the
derecognition of $
92
 
million of deferred tax assets recorded as
 
income tax expense as a result of this
divestiture, a $
48
 
million refund from the Alberta Tax & Revenue Administration, and a change
 
in our U.S.
valuation allowance. For the comparative three-month
 
period ended June 30, 2019, the effective tax rate was
primarily impacted by a benefit of $
234
 
million primarily related to the recognition
 
of U.S. tax basis in our
disposed U.K. subsidiaries.
 
The effective tax rate for the six-month period ended June
 
30, 2020 was
7
 
percent, compared with
27
 
percent
for the same period of 2019.
 
The effective tax rate was impacted by the items noted
 
above for the three-month
period ended,
 
June 30, 2020, as well as a shift in our before-tax
 
income between higher and lower tax
jurisdictions in 2020.
 
As a result of the COVID-19 pandemic and the
 
resulting economic uncertainty, many countries in which we
operate, including Australia, Canada, Norway and
 
the U.S., have enacted responsive tax legislation.
 
During
the second quarter,
 
Norway enacted legislation to accelerate the recovery
 
of capital expenditures and allow
immediate monetization of tax losses.
 
As a result,
 
we have recorded an increase to our net deferred tax
liability of $
120
 
million and a decrease to our accrued income and
 
other taxes liability of $
124
 
million.
 
Legislation in other jurisdictions did not have a
 
material impact to ConocoPhillips.
 
 
 
31
During the three-
 
and six-month periods ended June 30, 2020,
 
our valuation allowance decreased by
$
117
 
million and increased by $
229
 
million, respectively, compared to a decrease of $
85
 
million and $
191
million for the same periods of 2019.
 
The change to our U.S. valuation allowance
 
for both periods relates
primarily to the fair value measurement of our Cenovus
 
Energy common shares and our expectation of the tax
impact related to incremental capital gains and losses.
 
 
 
Supplementary Information—Condensed Consolidating
 
Financial Information
 
We have various cross guarantees among 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 condensed consolidating financial
 
information
presents the results of operations, financial
 
position and cash flows for:
 
 
ConocoPhillips, ConocoPhillips Company and
 
Burlington Resources LLC (in each case, reflecting
investments in subsidiaries utilizing the equity
 
method of accounting).
 
All other nonguarantor subsidiaries of ConocoPhillips.
 
The consolidating adjustments necessary to present
 
ConocoPhillips’ results on a consolidated
 
basis.
 
This condensed consolidating financial information
 
should be read in conjunction with the accompanying
consolidated financial statements and notes.
 
 
In May 2020, ConocoPhillips received a $
2.2
 
billion return of earnings and a $
0.8
 
billion return of capital from
ConocoPhillips Company to settle certain
 
accumulated intercompany balances.
 
This transaction had no impact
on our consolidated financial statements.
 
In May 2020, ConocoPhillips Company received
 
a $
2.4
 
billion return of earnings and a $
0.8
 
billion return of
capital from a nonguarantor subsidiary to settle
 
certain accumulated intercompany balances.
 
This transaction
had no impact on our consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
Millions of Dollars
Three Months Ended June 30, 2020
Income Statement
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenues and Other Income
Sales and other operating revenues
$
-
1,329
-
1,420
-
2,749
Equity in earnings (losses) of affiliates
315
231
(304)
76
(241)
77
Gain on dispositions
-
7
-
589
-
596
Other income
1
563
-
30
-
594
Intercompany revenues
-
39
1
231
(271)
-
Total Revenues and Other Income
316
2,169
(303)
2,346
(512)
4,016
Costs and Expenses
Purchased commodities
-
1,188
-
194
(252)
1,130
Production and operating expenses
1
218
-
829
(1)
1,047
Selling, general and administrative expenses
3
138
-
15
-
156
Exploration expenses
-
19
-
78
-
97
Depreciation, depletion and amortization
-
160
-
998
-
1,158
Impairments
-
1
-
(3)
-
(2)
Taxes other than income taxes
-
23
-
118
-
141
Accretion on discounted liabilities
-
3
-
63
-
66
Interest and debt expense
67
98
33
22
(18)
202
Foreign currency transaction (gains) losses
-
(18)
-
25
-
7
Other expenses
-
(1)
-
(6)
-
(7)
Total Costs and Expenses
71
1,829
33
2,333
(271)
3,995
Income (loss) before income taxes
245
340
(336)
13
(241)
21
Income tax provision (benefit)
(15)
25
(7)
(260)
-
(257)
Net income (loss)
260
315
(329)
273
(241)
278
Less: net income attributable to noncontrolling interests
-
-
-
(18)
-
(18)
Net Income (Loss) Attributable to ConocoPhillips
$
260
315
(329)
255
(241)
260
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
580
635
(83)
566
(1,118)
580
Income Statement
Three Months Ended June 30, 2019
Revenues and Other Income
Sales and other operating revenues
$
-
3,487
-
4,466
-
7,953
Equity in earnings of affiliates
1,637
2,088
533
173
(4,258)
173
Gain on dispositions
-
10
-
72
-
82
Other income
-
44
1
127
-
172
Intercompany revenues
-
23
10
1,782
(1,815)
-
Total Revenues and Other Income
1,637
5,652
544
6,620
(6,073)
8,380
Costs and Expenses
Purchased commodities
-
3,124
-
946
(1,396)
2,674
Production and operating expenses
1
657
-
1,113
(353)
1,418
Selling, general and administrative expenses
2
83
-
44
-
129
Exploration expenses
-
47
-
75
-
122
Depreciation, depletion and amortization
-
148
-
1,342
-
1,490
Impairments
-
-
-
1
-
1
Taxes other than income taxes
-
33
-
161
-
194
Accretion on discounted liabilities
-
4
-
83
-
87
Interest and debt expense
70
143
33
(15)
(66)
165
Foreign currency transaction losses
-
23
-
5
-
28
Other expenses
-
13
-
1
-
14
Total Costs and Expenses
73
4,275
33
3,756
(1,815)
6,322
Income before income taxes
1,564
1,377
511
2,864
(4,258)
2,058
Income tax provision (benefit)
(16)
(260)
(4)
741
-
461
Net income
1,580
1,637
515
2,123
(4,258)
1,597
Less: net income attributable to noncontrolling interests
-
-
-
(17)
-
(17)
Net Income Attributable to ConocoPhillips
$
1,580
1,637
515
2,106
(4,258)
1,580
Comprehensive Income Attributable to ConocoPhillips
$
1,667
1,724
623
2,182
(4,529)
1,667
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
Millions of Dollars
Six Months Ended June 30, 2020
Income Statement
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenues and Other Income
Sales and other operating revenues
$
-
4,232
-
4,675
-
8,907
Equity in earnings (losses) of affiliates
(1,366)
351
(730)
309
1,747
311
Gain on dispositions
-
16
-
538
-
554
Other income (loss)
-
(1,083)
1
137
-
(945)
Intercompany revenues
-
69
4
1,138
(1,211)
-
Total Revenues and Other Income
(1,366)
3,585
(725)
6,797
536
8,827
Costs and Expenses
Purchased commodities
-
3,800
-
1,140
(1,149)
3,791
Production and operating expenses
1
378
1
1,842
(2)
2,220
Selling, general and administrative expenses
5
115
-
38
(5)
153
Exploration expenses
-
44
-
241
-
285
Depreciation, depletion and amortization
-
307
-
2,262
-
2,569
Impairments
-
3
-
516
-
519
Taxes other than income taxes
-
71
-
320
-
391
Accretion on discounted liabilities
-
7
-
126
-
133
Interest and debt expense
137
205
66
51
(55)
404
Foreign currency transaction gains
-
(19)
-
(64)
-
(83)
Other expenses
-
(7)
-
(6)
-
(13)
Total Costs and Expenses
143
4,904
67
6,466
(1,211)
10,369
Income (loss) before income taxes
(1,509)
(1,319)
(792)
331
1,747
(1,542)
Income tax provision (benefit)
(30)
47
(13)
(113)
-
(109)
Net income (loss)
(1,479)
(1,366)
(779)
444
1,747
(1,433)
Less: net income attributable to noncontrolling interests
-
-
-
(46)
-
(46)
Net Income (Loss) Attributable to ConocoPhillips
$
(1,479)
(1,366)
(779)
398
1,747
(1,479)
Comprehensive Loss Attributable to ConocoPhillips
$
(1,947)
(1,834)
(1,130)
(83)
3,047
(1,947)
Income Statement
Six Months Ended June 30, 2019
Revenues and Other Income
Sales and other operating revenues
$
-
7,468
-
9,635
-
17,103
Equity in earnings of affiliates
3,527
3,710
1,006
359
(8,241)
361
Gain on dispositions
-
5
-
94
-
99
Other income
1
552
1
320
-
874
Intercompany revenues
-
49
23
2,943
(3,015)
-
Total Revenues and Other Income
3,528
11,784
1,030
13,351
(11,256)
18,437
Costs and Expenses
Purchased commodities
-
6,621
-
2,250
(2,522)
6,349
Production and operating expenses
1
837
1
2,204
(354)
2,689
Selling, general and administrative expenses
6
212
-
69
(5)
282
Exploration expenses
-
94
-
138
-
232
Depreciation, depletion and amortization
-
284
-
2,752
-
3,036
Impairments
-
-
-
2
-
2
Taxes other than income taxes
-
79
-
390
-
469
Accretion on discounted liabilities
-
8
-
165
-
173
Interest and debt expense
139
292
66
35
(134)
398
Foreign currency transaction losses
-
29
-
11
-
40
Other expenses
-
25
-
(3)
-
22
Total Costs and Expenses
146
8,481
67
8,013
(3,015)
13,692
Income before income taxes
3,382
3,303
963
5,338
(8,241)
4,745
Income tax provision (benefit)
(31)
(224)
(9)
1,566
-
1,302
Net income
3,413
3,527
972
3,772
(8,241)
3,443
Less: net income attributable to noncontrolling interests
-
-
-
(30)
-
(30)
Net Income Attributable to ConocoPhillips
$
3,413
3,527
972
3,742
(8,241)
3,413
Comprehensive Income Attributable to ConocoPhillips
$
3,689
3,803
1,204
3,998
(9,005)
3,689
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
Millions of Dollars
June 30, 2020
Balance Sheet
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Assets
Cash and cash equivalents
$
-
1,801
-
1,106
-
2,907
Short-term investments
-
3,934
-
51
-
3,985
Accounts and notes receivable
5
850
2
1,944
(1,269)
1,532
Investment in Cenovus Energy
-
971
-
-
-
971
Inventories
-
125
-
857
-
982
Prepaid expenses and other current assets
1
209
-
466
-
676
Total Current Assets
6
7,890
2
4,424
(1,269)
11,053
Investments, loans and long-term receivables*
29,249
39,784
10,711
13,457
(84,700)
8,501
Net properties, plants and equipment
-
3,561
-
37,559
-
41,120
Other assets
4
730
248
2,087
(697)
2,372
Total Assets
$
29,259
51,965
10,961
57,527
(86,666)
63,046
Liabilities and Stockholders’ Equity
Accounts payable
$
-
1,394
109
1,846
(1,269)
2,080
Short-term debt
(3)
4
14
131
-
146
Accrued income and other taxes
-
91
-
221
-
312
Employee benefit obligations
-
327
-
95
-
422
Other accruals
85
356
35
669
-
1,145
Total Current Liabilities
82
2,172
158
2,962
(1,269)
4,105
Long-term debt
3,795
6,667
2,123
2,267
-
14,852
Asset retirement obligations and accrued environmental costs
-
339
-
5,126
-
5,465
Deferred income taxes
-
-
-
4,598
(697)
3,901
Employee benefit obligations
-
1,186
-
400
-
1,586
Other liabilities and deferred credits*
447
5,814
919
8,925
(14,461)
1,644
Total Liabilities
4,324
16,178
3,200
24,278
(16,427)
31,553
Retained earnings
30,793
17,543
1,384
7,680
(20,049)
37,351
Other common stockholders’ equity
(5,858)
18,244
6,377
25,569
(50,190)
(5,858)
Total Liabilities and Stockholders’ Equity
$
29,259
51,965
10,961
57,527
(86,666)
63,046
*Includes intercompany loans.
Balance Sheet
December 31, 2019
Assets
Cash and cash equivalents
$
-
3,439
-
1,649
-
5,088
Short-term investments
-
2,670
-
358
-
3,028
Accounts and notes receivable
5
2,088
2
3,881
(2,575)
3,401
Investment in Cenovus Energy
-
2,111
-
-
-
2,111
Inventories
-
168
-
858
-
1,026
Prepaid expenses and other current assets
1
352
-
1,906
-
2,259
Total Current Assets
6
10,828
2
8,652
(2,575)
16,913
Investments, loans and long-term receivables*
34,076
44,969
11,662
15,612
(97,413)
8,906
Net properties, plants and equipment
-
3,552
-
38,717
-
42,269
Other assets
3
765
253
2,210
(805)
2,426
Total Assets
$
34,085
60,114
11,917
65,191
(100,793)
70,514
Liabilities and Stockholders’ Equity
Accounts payable
$
-
2,670
21
3,084
(2,575)
3,200
Short-term debt
(3)
4
13
91
-
105
Accrued income and other taxes
-
79
-
951
-
1,030
Employee benefit obligations
-
508
-
155
-
663
Other accruals
84
408
35
1,518
-
2,045
Total Current Liabilities
81
3,669
69
5,799
(2,575)
7,043
Long-term debt
3,794
6,670
2,129
2,197
-
14,790
Asset retirement obligations and accrued environmental costs
-
322
-
5,030
-
5,352
Deferred income taxes
-
-
-
5,438
(804)
4,634
Employee benefit obligations
-
1,329
-
452
-
1,781
Other liabilities and deferred credits*
1,787
7,514
826
9,271
(17,534)
1,864
Total Liabilities
5,662
19,504
3,024
28,187
(20,913)
35,464
Retained earnings
33,184
21,898
2,164
10,481
(27,985)
39,742
Other common stockholders’ equity
(4,761)
18,712
6,729
26,454
(51,895)
(4,761)
Noncontrolling interests
-
-
-
69
-
69
Total Liabilities and Stockholders’ Equity
$
34,085
60,114
11,917
65,191
(100,793)
70,514
*Includes intercompany loans.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Millions of Dollars
Six Months Ended June 30, 2020
Statement of Cash Flows
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Cash Flows From
 
Operating Activities
Net Cash Provided by Operating Activities
$
2,115
1,926
36
2,751
(4,566)
2,262
Cash Flows From Investing Activities
Capital expenditures and investments
-
(322)
(14)
(2,203)
14
(2,525)
Working capital changes associated
 
with investing activities
-
(49)
-
(202)
-
(251)
Proceeds from asset dispositions
765
1,327
-
1,174
(1,953)
1,313
Sales (purchases) of short-term investments
-
(1,324)
-
294
-
(1,030)
Long-term advances/loans—related parties
-
(10)
-
-
10
-
Collection of advances/loans—related parties
-
71
-
66
(71)
66
Intercompany cash management
(1,339)
(269)
(22)
1,630
-
-
Other
-
-
-
(35)
-
(35)
Net Cash Provided by (Used in) Investing Activities
(574)
(576)
(36)
724
(2,000)
(2,462)
Cash Flows From Financing Activities
Issuance of debt
-
-
-
10
(10)
-
Repayment of debt
-
-
-
(285)
71
(214)
Issuance of company common stock
95
-
-
-
(93)
2
Repurchase of company common stock
(726)
-
-
-
-
(726)
Dividends paid
(913)
(2,990)
-
(3,200)
6,190
(913)
Other
3
-
-
(439)
408
(28)
Net Cash Used in Financing Activities
(1,541)
(2,990)
-
(3,914)
6,566
(1,879)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
 
Cash
-
-
-
(93)
-
(93)
Net Change in Cash, Cash Equivalents and Restricted Cash
-
(1,640)
-
(532)
-
(2,172)
Cash, cash equivalents and restricted cash at beginning of period
-
3,443
-
1,919
-
5,362
Cash, Cash Equivalents and Restricted Cash at End of Period
$
-
1,803
-
1,387
-
3,190
Statement of Cash Flows
Six Months Ended June 30, 2019*
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities
$
1,571
5,050
(40)
4,768
(5,564)
5,785
Cash Flows From Investing Activities
Capital expenditures and investments
-
(653)
-
(2,882)
169
(3,366)
Working capital changes associated
 
with investing activities
-
41
-
(17)
-
24
Proceeds from asset dispositions
-
217
-
559
(75)
701
Purchases of short-term investments
-
(50)
-
(435)
-
(485)
Long-term advances/loans—related parties
 
-
(19)
-
-
19
-
Collection of advances/loans—related parties
-
69
-
82
(89)
62
Intercompany cash management
1,082
(3,256)
40
2,134
-
-
Other
-
118
-
8
-
126
Net Cash Provided by (Used in) Investing Activities
1,082
(3,533)
40
(551)
24
(2,938)
Cash Flows From Financing Activities
Issuance of debt
-
-
-
19
(19)
-
Repayment of debt
-
(21)
-
(106)
89
(38)
Issuance of company common stock
43
-
-
-
(79)
(36)
Repurchase of company common stock
(2,002)
-
-
-
-
(2,002)
Dividends paid
(696)
(1,660)
-
(3,983)
5,643
(696)
Other
2
-
-
37
(94)
(55)
Net Cash Used in Financing Activities
(2,653)
(1,681)
-
(4,033)
5,540
(2,827)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
 
Cash
-
(1)
-
27
-
26
Net Change in Cash, Cash Equivalents and Restricted Cash
-
(165)
-
211
-
46
Cash, cash equivalents and restricted cash at beginning of period
-
1,428
-
4,723
-
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
-
1,263
-
4,934
-
6,197
*Revised to reclassify certain intercompany
 
distributions from Operating Activities to ‘Proceeds
 
from asset dispositions’ within Investing Activities
 
based on the nature of the distributions.
 
There was no impact to Total
 
Consolidated results.
 
See Notes to Consolidated Financial Statements.
 
36
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,”
“estimate,” “believe,” “budget,” “continue,”
 
“could,” “intend,” “may,” “plan,” “potential,” “predict,”
“seek,” “should,” “will,” “would,” “expect,”
 
“objective,” “projection,” “forecast,” “goal,” “guidance,”
“outlook,” “effort,” “target” 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 59.
 
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 an independent E&P company
 
with operations and activities in 16 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 assets in Canada;
 
and an inventory of
global conventional and unconventional exploration
 
prospects.
 
At June 30, 2020, we employed approximately
9,700 people worldwide and had total assets
 
of $63 billion.
 
 
Overview
 
The energy landscape changed dramatically in 2020 with
 
simultaneous demand and supply shocks that drove
the industry into a severe downturn.
 
The demand shock was triggered by COVID-19,
 
which was declared a
global pandemic and caused unprecedented social
 
and economic consequences.
 
Mitigation efforts to stop the
spread of this contagious disease included stay-at-home
 
orders and business closures that caused sharp
contractions in economic activity worldwide.
 
The supply shock was triggered by disagreements
 
between
OPEC and Russia, beginning in early
 
March, which resulted in significant supply coming
 
onto the market and
an oil price war.
 
These dual demand and supply shocks caused
 
oil prices to collapse as we exited the first
quarter.
 
As we entered the second quarter, predictions of COVID-19 driven global
 
oil demand losses intensified, with
forecasts of unprecedented demand declines.
 
Based on these forecasts, OPEC plus nations held
 
an emergency
meeting, and in April they announced a coordinated
 
production cut that was unprecedented in both its
magnitude and duration.
 
The OPEC plus countries agreed to cut production
 
by 9.7 MMBOD in May and June,
9.6 MMBOD in July, and 7.7 MMBOD from August to December.
 
From January 2021 to April 2022, they
agreed to cut production by 5.8 MMBOD.
 
Additionally, non-OPEC plus countries, including the U.S.,
Canada, Brazil and other G-20 countries,
 
announced organic reductions to production through the
 
release of
drilling rigs, frac crews, normal field decline
 
and curtailments.
 
Despite these planned production decreases,
the supply cuts were not timely enough to overcome
 
significant demand decline.
 
Futures prices for April WTI
closed under $20 a barrel for the first time
 
since 2001, followed by May WTI settling below zero on the
 
day
before futures contracts expiry, as holders of May futures contracts struggled to
 
exit positions and avoid taking
physical delivery.
 
As storage constraints approached, spot prices in
 
April for certain North American
landlocked grades of crude oil were in the single digits
 
or even negative for particularly remote or low-grade
crudes, while waterborne priced crudes such as Brent
 
sold at a relative advantage.
 
 
37
Since the start of the severe downturn, we have closely
 
monitored the market and taken prudent actions in
response to this situation.
 
We entered the year in a position of relative strength, with cash and cash equivalents
of more than $5 billion, short-term investments
 
of $3 billion, and an undrawn credit facility
 
of $6 billion,
totaling approximately $14 billion in available
 
liquidity.
 
Additionally, we had several entity and asset sales
agreements in place, which generated $1.3 billion
 
in proceeds from dispositions during the first
 
six-months of
2020.
 
For more information about the sales of our Australia-West and non-core Lower 48 assets,
 
see Note 4—
Asset Acquisitions and Dispositions in the
 
Notes to Consolidated Financial Statements.
 
This relative
advantage allowed us to be measured in our response
 
to the sudden change in business environment.
 
 
In March, we announced an initial set of actions
 
to address the downturn and followed up with additional
actions in April.
 
The combined announcements reflected a reduction
 
in our 2020 operating plan capital of $2.3
billion, a reduction to our operating costs of
 
$600 million and suspension of our share repurchase
 
program.
 
These actions will decrease uses of cash by over
 
$5 billion in 2020.
 
We also established a framework for
evaluating and implementing economic curtailments
 
considering the weakness in oil prices during the
 
second
quarter of 2020,
 
which resulted in taking an additional significant
 
step of curtailing production, predominantly
from operated North American assets.
 
Due to our strong balance sheet, we were in an advantaged
 
position to
forgo some production and cash flow in anticipation
 
of receiving higher cash flows for those volumes
 
in the
future.
 
In the second quarter, we curtailed production by an estimated 225 MBOED,
 
with 145 MBOED of the
curtailments from the Lower 48, 40 MBOED from
 
Alaska and 30 MBOED from our Surmont operation
 
in
Canada.
 
The remainder of the second-quarter curtailments
 
were primarily in Malaysia.
 
Other industry
operators also cut production and development plans
 
and as we progressed through the second quarter, stay-at-
home restrictions eased, which partially restored
 
lost demand, and WTI and Brent prices exited the
 
second
quarter around $40 per barrel.
 
While we remain cautious regarding the recent
 
oil market recovery and continue to monitor
 
global market
conditions and COVID-19 hotspots around the world,
 
based on our economic criteria, we restored
 
curtailed
production in Alaska during July.
 
We also brought some curtailed volumes in the Lower 48 back online and
expect to be fully restored in September.
 
At Surmont, we began restoring production in
 
July, though the ramp
will be slower due to planned turnarounds in the
 
third quarter and limited staffing in the fields as a COVID-19
mitigation measure.
 
We continue to monitor pricing and evaluate curtailments across our assets on a month-
by-month basis.
 
At June 30, 2020,
 
we had $12.9 billion of liquidity, comprised of $2.9 billion in cash and
 
cash equivalents,
$4.0 billion in short-term investments, and an undrawn
 
credit facility of $6 billion.
 
On July 8, 2020, we
announced a quarterly dividend of 42 cents per share
 
to be distributed on September 1, 2020 to shareholders
 
of
record as of July 20, 2020.
 
 
In July 2020, we signed a definitive agreement
 
to acquire additional Montney acreage for cash
 
consideration of
approximately $375 million before customary adjustments,
 
plus the assumption of approximately $30 million
in financing obligations for associated partially
 
owned infrastructure.
 
This acquisition consists primarily of
undeveloped properties and includes 140,000
 
net acres in the liquids-rich Inga Fireweed asset
 
Montney zone,
which is directly adjacent to our existing Montney
 
position, as well as 15 MBOED of production.
 
Upon
completion of this transaction, we will have a Montney
 
acreage position of 295,000 net acres with a 100
percent working interest.
 
The transaction is subject to regulatory
 
approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
 
Our expectation is that commodity prices will
 
remain cyclical and volatile, and a successful
 
business strategy
in the E&P industry must be resilient in
 
lower price environments, at the same time retaining
 
upside during
periods of higher prices.
 
While we are not impervious to current market
 
conditions, our decisive actions over
the last several years of focusing on free cash flow generation,
 
high-grading our asset base, lowering the cost
of supply of our investment resource base, and strengthening
 
our balance sheet have put us in a strong relative
position compared to our independent E&P peers.
 
Although recent prices have been extremely volatile,
 
we
 
38
remain committed to our core value proposition
 
principles, namely, to focus on financial returns, maintain a
strong balance sheet, deliver compelling returns
 
of capital, and maintain disciplined capital
 
investments.
 
 
Our workforce and operations have adjusted to
 
mitigate the impacts of the COVID-19 global
 
pandemic.
 
We
have operations in remote areas with confined spaces,
 
such as offshore platforms, the North Slope of Alaska,
Curtis Island in Australia, western Canada and
 
Indonesia, where viruses could rapidly spread.
 
Personnel are
asked to perform a self-assessment for symptoms
 
of illness each day and, when appropriate,
 
are subject to
more restrictive measures traveling to and working
 
on location.
 
Staffing levels in certain operating locations
have been reduced to minimize health risk exposure
 
and increase social distancing.
 
A large portion of our
office staff have been successfully working remotely, with offices around the world carefully designing
 
and
executing a flexible, phased reentry, following national, state and local guidelines.
 
Workforce health and
safety remains the overriding driver for our actions
 
and we have demonstrated our ability
 
to adapt to local
conditions as warranted.
 
These mitigation measures have thus far been effective
 
at protecting employees’
health and reducing business operation disruptions.
 
The marketing and supply chain side of our business
 
has also adapted in response to COVID-19.
 
Our
commercial organization is managing transportation commitments
 
considering curtailment measures.
 
Our
supply chain function is proactively working with
 
vendors to ensure the continuity of our
 
business operations,
monitor distressed service and materials providers,
 
capture deflation opportunities, and pursue cost
 
reduction
efforts.
 
 
Operationally, we remain focused on safely executing the business.
 
In the second quarter of 2020, production
of 981 MBOED generated cash from operating activities
 
of $0.2 billion.
 
We invested $0.9 billion into the
business in the form of capital expenditures and
 
paid dividends to shareholders of $0.5 billion.
 
Production
decreased 351 MBOED or 26 percent in the second
 
quarter of 2020, compared to the second quarter
 
of 2019,
primarily due to curtailments and the divestiture
 
of our U.K. assets in the third quarter of 2019, the
 
divestiture
of our Australia-West business and several non-core assets in the Lower 48 during the
 
first six-months of
2020, and the declaration of force majeure in Libya
 
in February 2020.
 
Excluding Libya, and adjusting for
closed dispositions and estimated curtailments,
 
production in the second quarter of 2020 was slightly
 
higher
than the same period a year ago.
 
In the first half of the year we recognized a $1.1
 
billion before and after-tax unrealized loss
 
on our 208 million
Cenovus Energy common shares and $0.4 billion after-tax
 
in impairments due to low domestic natural
 
gas
prices.
 
Persistent low commodity prices may result in
 
further proved and unproved property impairments,
including to certain equity method investments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COP20202q10qp41i0.gif
 
COP20202q10qp41i1.gif
 
 
39
 
-
 
1
 
2
 
3
 
4
 
20
 
40
 
60
 
80
Q2'18
Q3'18
Q4'18
Q1'19
Q2'19
Q3'19
Q4'19
Q1'20
Q2'20
WTI/Brent
$/Bbl
WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices
Quarterly Averages
WTI - $/Bbl
Brent - $/Bbl
HH - $/MMBTU
HH
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 and operational
 
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 $29.20 per barrel
 
in the second quarter of 2020,
 
a decrease of 58 percent
compared with $68.82 per barrel in the second quarter
 
of 2019.
 
WTI at Cushing crude oil prices averaged
$27.85 per barrel in the second quarter of 2020,
 
a decrease of 53 percent compared with $59.80 per
 
barrel in
the second quarter of 2019.
 
Oil prices fell significantly as producers failed to
 
reduce output sufficiently or
timely enough to offset the demand reduction due to COVID-19.
 
 
Henry Hub natural gas prices averaged $1.71
 
per MMBTU in the second quarter of 2020,
 
a decrease of 35
percent compared with $2.64 per MMBTU in the second
 
quarter of 2019.
 
Henry Hub prices decreased due to
high storage levels and weak domestic and LNG feedstock
 
demand.
 
 
Our realized bitumen price averaged negative $23.11 per barrel
 
in the second quarter of 2020, a decrease of
$60 per barrel compared with $37.20 per barrel
 
in the second quarter of 2019.
 
The decrease in the second
quarter of 2020 was driven by lower blend price
 
for Surmont sales, largely attributed to a weakening
 
WTI
price and a narrowing spread between the local market
 
and U.S. sales points, which challenged
 
both pipeline
and rail economics.
 
As a result, we curtailed production, and an increasing
 
portion of remaining blend sales
were directed to the lower priced local market.
 
In addition, we incurred unutilized transportation
 
costs which
negatively impacted our realized bitumen price.
 
Our total average realized price was $23.09 per BOE
 
in the second quarter of 2020, compared
 
with $50.50 per
BOE in the second quarter of 2019.
 
 
 
40
Key Operating and Financial Summary
 
Significant items during the second quarter
 
of 2020 included the following:
 
 
 
Ended the quarter with cash, cash equivalents and
 
restricted cash totaling $3.2 billion and
 
short-term
investments of $4.0 billion.
 
Produced 981 MBOED excluding Libya; curtailed
 
approximately 225 MBOED.
 
Completed the Australia-West divestiture, generating $0.8 billion in proceeds.
 
Distributed $0.5 billion in dividends.
 
In July, announced a planned bolt-on acquisition of adjacent acreage in the liquids-rich
 
Montney.
 
 
Outlook
 
Capital and Production
 
In February 2020, we announced 2020 operating
 
plan capital of $6.5 billion to $6.7 billion.
 
In response to the
recent oil market downturn, we announced capital
 
expenditure reductions totaling $2.3 billion.
 
This does not
include capital for acquisitions.
 
In July 2020, we announced a planned bolt-on
 
acquisition in the liquids-rich
area of the Montney for approximately $0.4 billion.
 
In the second quarter, we curtailed production by an estimated 225 MBOED,
 
with 145 MBOED of the
curtailments from the Lower 48, 40 MBOED from
 
Alaska and 30 MBOED from our Surmont operation
 
in
Canada.
 
The remainder of the second-quarter curtailments
 
were primarily in Malaysia.
 
Prices rebounded off
their second quarter lows, with Brent crude at
 
the end of June near $40 per barrel, and based
 
on our economic
criteria, we restored curtailed production in Alaska
 
during July.
 
We also brought some curtailed volumes in
the Lower 48 back online and expect to be fully
 
restored in September.
 
At Surmont, we began restoring
production in July, though the ramp will be slower due to planned turnarounds in
 
the third quarter and limited
staffing in the fields as a COVID-19 mitigation measure.
 
We continue to monitor pricing and evaluate
curtailments across our assets on a month-by-month
 
basis.
 
Estimated curtailments for the third quarter of 2020
are 115 MBOED.
 
Depreciation, Depletion and Amortization
DD&A expense was $1.2 billion in the second quarter
 
of 2020.
 
Proved reserves estimates were updated in the
current quarter utilizing trailing twelve-month
 
oil and gas prices, which increased second
 
quarter DD&A
expense by approximately $70 million before-tax.
 
If oil and gas prices persist at depressed levels,
 
our reserve
estimates may decrease further, which could incrementally increase
 
the rate used to determine DD&A expense
on our unit-of-production method properties.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
RESULTS OF OPERATIONS
 
 
Unless otherwise indicated, discussion of results for the three-
 
and six-month periods ended June 30, 2020, is
based on a comparison with the corresponding periods of 2019.
 
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
2020
2019
2020
2019
Alaska
$
(141)
462
(60)
846
Lower 48
(365)
206
(802)
399
Canada
(86)
100
(195)
222
Europe and North Africa
11
407
86
614
Asia Pacific and Middle East
662
517
1,060
1,042
Other International
(6)
81
22
212
Corporate and Other
185
(193)
(1,590)
78
Net income (loss) attributable to ConocoPhillips
$
260
1,580
(1,479)
3,413
 
 
Net income attributable to ConocoPhillips
 
in the second quarter of 2020 decreased $1,320 million.
 
Earnings
were negatively impacted by:
 
 
Lower realized commodity prices.
 
Lower sales volumes, primarily due to production
 
curtailments across our North American
 
operated
assets and the divestiture of our U.K. assets in
 
the third quarter of 2019 and Australia-West assets in
the second quarter of 2020.
 
The absence of a $234 million U.S. tax benefit
 
related to the recognition of U.S. tax basis in
 
our
disposed U.K. subsidiaries.
 
The absence of $115 million benefit related to the settlement
 
of certain tax disputes and enhanced oil
recovery credits.
 
The release of $92 million of deferred tax assets
 
in our Corporate segment as a result of the
 
Australia-
West divestiture.
 
 
The absence of other income of $84 million after-tax
 
related to our settlement agreement with
Petróleos de Venezuela, S.A. (PDVSA).
 
 
Second quarter 2020 net income decreases were partly
 
offset by:
 
 
Higher gain on dispositions primarily due to
 
a $597 million after-tax gain related to our Australia-
West divestiture.
 
A $521
 
million higher after-tax unrealized gain on our
 
Cenovus Energy common shares reflected in
other income.
 
Lower production and operating expenses,
 
primarily due to decreased wellwork and transportation
costs associated with production curtailments
 
across our North American operated assets as well
 
as
the absence of costs related to our U.K. divestiture.
 
Lower DD&A primarily due to lower volumes related
 
to production curtailments and the cessation of
DD&A related to our Australia-West divestiture, partly offset by higher DD&A rates due to
 
price-
related downward reserve revisions.
 
 
 
42
 
 
Net loss attributable to ConocoPhillips in
 
the six-month period ended June 30, 2020, decreased
 
$4,892 million.
 
Earnings were negatively impacted by:
 
 
Lower realized commodity prices.
 
Lower sales volumes, primarily due to normal field
 
decline, production curtailments across our
 
North
American operated assets and the divestiture of our
 
U.K. assets in the third quarter of 2019 and our
Australia-West assets in the second quarter of 2020.
 
A $1,140 million after-tax unrealized loss on our
 
Cenovus Energy common shares in the six-month
period of 2020, reflected in other income, as compared
 
to a $373 million after-tax unrealized gain in
the six-month period of 2019.
 
Higher impairments of $400 million after-tax,
 
primarily related to non-core gas assets in our Lower
 
48
segment.
 
The absence of a $234 million U.S. tax benefit
 
related to the recognition of U.S. tax basis in
 
our
disposed U.K. subsidiaries.
 
The absence of other income of $231 million after-tax
 
related to our settlement agreement with
PDVSA.
 
The absence of a $115 million benefit related to the settlement
 
of certain tax disputes and enhanced oil
recovery credits.
 
The release of $92 million of deferred tax assets
 
in our Corporate segment as a result of our Australia-
West divestiture.
 
 
The decreases in earnings in the six-month period
 
ended June 30, 2020,
 
were partly offset by:
 
 
Higher gain on dispositions primarily due to
 
a $597 million after-tax gain related to our Australia-
West
 
divestiture.
 
Lower production and operating expenses,
 
primarily due to decreased wellwork and transportation
costs associated with production curtailments
 
across our North American operated assets
 
as well as
the absence of costs related to our U.K. divestiture.
 
Lower DD&A primarily due to lower volumes related
 
to production curtailments and the cessation
 
of
DD&A related to our Australia-West divestiture, partly offset by higher DD&A rates due to
 
price-
related downward reserve revisions.
 
The absence of impairments related to equity method
 
investments of $120 million after-tax in the
Lower 48, recorded within equity in earnings of affiliates.
 
See the “Segment Results” section for additional
 
information.
 
Income Statement Analysis
 
 
 
Sales and other operating revenues for the three-
 
and six-month periods of 2020 decreased $5,204
 
million and
$8,196 million,
 
mainly due to lower realized commodity prices
 
and lower sales volumes due to production
curtailments from our North American operated
 
assets and the divestiture of our U.K. assets
 
in the third quarter
of 2019 and our Australia-West assets in the second quarter of 2020.
 
 
Equity in earnings of affiliates for the three-
 
and six-month periods of 2020 decreased
 
$96 million and $50
million primarily due to lower earnings from QG3
 
and APLNG as a result of lower LNG prices and
 
sales
volumes for both affiliates and lower oil prices at QG3.
 
Partly offsetting the decrease in equity in earnings of
affiliates were the absence of impairments related
 
to equity method investments in our Lower 48 segment
 
of
$95 million in the second quarter of 2019 and $155
 
million in the six-month period of 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
43
Gain on dispositions for the three-
 
and six-month periods of 2020 increased $514
 
million and $455 million
primarily due to a $587 million before-tax gain associated
 
with our Australia-West divestiture.
 
For more
information, see Note 4—Asset Acquisitions
 
and Dispositions in the Notes to Consolidated
 
Financial
Statements.
 
Other income (loss) for the second quarter of 2020
 
increased $422 million, primarily due to
 
$521 million
higher before-tax unrealized gain on our Cenovus
 
Energy common shares, partly offset by the absence of $89
million before-tax related to our settlement
 
agreement with PDVSA.
 
Other income in the six-month period of
2020 decreased $1,819 million, primarily due to a $1.14
 
billion before-tax unrealized loss on our Cenovus
Energy common shares compared to a $373 million before-tax
 
unrealized gain on those shares in the six-
month period of 2019 and the absence of $236 million
 
before-tax related to our settlement agreement
 
with
PDVSA.
 
 
For discussion of our Cenovus Energy shares, see Note
 
6—Investment in Cenovus Energy, in the Notes to
Consolidated Financial Statements.
 
For discussion of our PDVSA settlement, see Note
 
12—Contingencies
and Commitments, in the Notes to Consolidated Financial
 
Statements.
 
 
Purchased commodities for the three- and six-month
 
periods
 
of 2020 decreased $1,544 million and $2,558
million,
 
respectively, primarily due to lower crude oil and natural gas volumes purchased
 
and lower natural gas
and crude oil prices.
 
 
Production and operating expenses for the three-
 
and six-month periods of 2020 decreased $371
 
million and
$469 million, respectively, mainly due to lower costs associated with the divestiture
 
of our U.K. and Australia-
West assets, and decreased production volumes, primarily due to production curtailments,
 
and lower legal
accruals in our Lower 48 and Other International
 
segments.
 
 
Selling, general and administrative expenses decreased
 
$129 million in the six-month period of 2020,
 
primarily
due to lower costs associated with compensation
 
and benefits, including mark to market
 
impacts of certain key
employee compensation programs.
 
DD&A for the three-
 
and six-month periods of 2020 decreased
 
$332 million and $467 million, respectively,
mainly due to lower production volumes related to
 
production curtailments and the divestiture
 
of our
Australia-West and U.K. assets, partly offset by higher DD&A rates due to price-related downward
 
reserve
revisions.
 
For more information regarding the Australia-West divestiture, see Note 4—Asset Acquisitions
 
and
Dispositions in the Notes to Consolidated Financial
 
Statements.
 
Impairments increased $517 million in
 
the six-month period of 2020, primarily due to a $511 million before-
tax impairment of certain non-core gas assets in
 
our Lower 48 segment due to a significant
 
decrease in the
outlook for natural gas prices.
 
See Note 8—Impairments in the Notes to Consolidated
 
Financial Statements,
for additional information.
 
Foreign currency transaction (gain) loss decreased $123
 
million in the six-month period of 2020, primarily
 
due
to gains recognized from foreign currency derivatives.
 
See Note 13—Derivative and Financial Instruments
 
in
the Notes to Consolidated Financial Statements,
 
for additional information.
 
 
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements,
 
for information regarding our
income tax provision (benefit) and effective tax rate.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
Summary Operating Statistics
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Average Net Production
Crude oil (MBD)
474
702
564
708
Natural gas liquids (MBD)
93
118
108
114
Bitumen (MBD)
34
51
50
57
Natural gas (MMCFD)*
2,277
2,768
2,475
2,804
Total Production
(MBOED)
981
1,332
1,135
1,346
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
25.10
64.88
38.80
62.14
Natural gas liquids (per bbl)
9.88
21.65
12.63
22.71
Bitumen (per bbl)
(23.11)
37.20
(3.09)
35.00
Natural gas (per MCF)
3.22
4.76
3.81
5.39
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical,
lease rental, and other
$
94
81
215
164
Leasehold impairment
-
25
31
42
Dry holes
3
16
39
26
$
97
122
285
232
*Represents quantities available for sale and excludes gas equivalent of natural gas
 
liquids included above.
 
 
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a
 
worldwide
basis.
 
At June 30, 2020, our operations were producing
 
in the U.S., Norway, Canada, Australia, Indonesia,
China, Malaysia,
 
Qatar and Libya.
 
Total production decreased 351 MBOED or 26 percent in the second quarter of 2020,
 
primarily due to:
 
 
Production curtailments, primarily from
 
our North American operated assets and Malaysia.
 
Normal field decline.
 
The divestiture of our U.K. assets in the third
 
quarter of 2019, our Australia-West assets in the second
quarter of 2020, and non-core Lower 48 assets in
 
the first quarter of 2020.
 
No production in Libya due to the forced shutdown
 
of the Es Sider export terminal and other
 
eastern
export terminals after a period of civil unrest.
 
The decrease in second quarter 2020 production was
 
partly offset by:
 
 
New wells online in the Lower 48, Canada, Norway
 
and China.
 
 
 
 
45
Total production decreased 211 MBOED or 16 percent in the six-month period of 2020,
 
primarily due to:
 
 
Normal field decline.
 
Production curtailments, primarily from
 
our North American operated assets and Malaysia.
 
The divestiture of our U.K. assets in the third
 
quarter of 2019, our Australia-West assets in the second
quarter of 2020, and non-core Lower 48 assets in
 
the first quarter of 2020.
 
Lower production in Libya due to the forced shutdown
 
of the Es Sider export terminal and other
eastern export terminals after a period of civil unrest
 
in the first quarter of 2020.
 
The decrease in production during the six-month period
 
of 2020 was partly offset by:
 
 
New wells online in the Lower 48, Norway, Canada and China.
 
 
Production excluding Libya was 981 MBOED in
 
the second quarter of 2020, a decrease of
 
309 MBOED
compared with the same period of 2019.
 
Adjusting for closed dispositions and Libya, production
 
decreased
212 MBOED primarily due to production curtailments
 
and normal field decline, partly offset by new wells
online in the Lower 48, Norway, Canada and China.
 
Excluding closed dispositions, estimated curtailment
impacts of 225 MBOED and Libya, production was
 
slightly higher compared with the same
 
period a year ago.
 
Production excluding Libya was 1,130 MBOED in
 
the six-month period of 2020, a decrease
 
of 173 MBOED
compared with the same period of 2019.
 
Adjusting for closed dispositions and Libya, production
 
decreased 79
MBOED primarily due to normal field decline
 
and production curtailments, partly offset by new wells
 
online
in the Lower 48, Norway, Canada and China.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
Segment Results
Alaska
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(141)
462
(60)
846
Average Net Production
Crude oil (MBD)
153
199
175
205
Natural gas liquids (MBD)
13
17
16
17
Natural gas (MMCFD)
8
7
8
7
Total Production
(MBOED)
167
217
192
223
Average Sales Prices
Crude oil ($ per bbl)
$
26.81
67.57
42.52
65.11
Natural gas ($ per MCF)
2.56
3.19
2.82
3.31
 
 
The Alaska segment primarily explores for, produces, transports
 
and markets crude oil, NGLs and natural gas.
 
As of June 30, 2020, Alaska contributed 26 percent
 
of our worldwide liquids production and less than
 
1
percent of our worldwide natural gas production.
 
Earnings from Alaska decreased $603 million
 
and $906 million in the three-
 
and six-month periods of 2020,
respectively, primarily driven by lower realized crude oil prices,
 
lower crude oil sales volumes due to
production curtailments at our operated assets on
 
the North Slope—the Greater Kuparuk Area
 
(GKA) and
Western North Slope (WNS)—and the absence of $81 million of tax benefits related
 
to the settlement of
certain tax disputes and enhanced
 
oil recovery credits.
 
 
Average production decreased 50 MBOED and 31 MBOED in the three- and six-month
 
periods of 2020,
primarily due to curtailments at our operated assets
 
on the North Slope—GKA and WNS—and normal
 
field
decline, partly offset by new wells online at WNS.
 
 
Curtailment Update
The second quarter 2020 production impact from
 
curtailments in Alaska was estimated to be
 
40 MBOED.
 
Based on our economic criteria, we restored curtailed
 
production in Alaska during July.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
Lower 48
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
 
($MM)
$
(365)
206
(802)
399
Average Net Production
Crude oil (MBD)
166
269
218
257
Natural gas liquids (MBD)
64
82
77
78
Natural gas (MMCFD)
486
593
582
581
Total Production
(MBOED)
311
450
392
432
Average Sales Prices
Crude oil ($ per bbl)
$
19.87
59.17
32.92
56.31
Natural gas liquids ($ per bbl)
6.95
17.91
9.81
19.20
Natural gas ($ per MCF)
1.18
2.10
1.36
2.41
 
 
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, 2020, the Lower 48 contributed
 
41 percent of our worldwide
liquids production and 24 percent of our worldwide
 
natural gas production.
 
 
Earnings from the Lower 48 decreased $571 million
 
and $1,201 million in the three-
 
and six-month periods of
2020, respectively, primarily due to lower realized crude oil, NGL and natural
 
gas prices and lower sales
volumes due to production curtailments.
 
The earnings decrease in the three- and six-month
 
periods of 2020
were partly offset by lower DD&A expense, lower production
 
and operating expenses, and increased equity in
earnings of affiliates.
 
DD&A expense in the second quarter of 2020 decreased
 
due to lower production
volumes, primarily associated with curtailments,
 
partly offset by higher DD&A rates driven by price-related
downward reserve revisions.
 
In addition to the items detailed above, in the six-month
 
period of 2020, earnings
decreased due to a $399 million after-tax impairment
 
related to certain non-core gas assets in the
 
Wind River
Basin operations area, partly offset by the absence of $120
 
million of impairments in equity method
investments.
 
See Note 8—Impairments and Note 14—Fair
 
Value
 
Measurement in the Notes to Consolidated
Financial Statements, for additional information
 
related to the Wind River Basin operations area impairment.
 
Total average production decreased 139 MBOED and 40 MBOED in the three-
 
and six-month periods of 2020,
respectively, primarily due to normal field decline, production curtailments
 
and higher unplanned downtime.
 
Partly offsetting the production decrease, was new production
 
from unconventional assets in the Eagle Ford,
Permian and Bakken.
 
 
Curtailment Update
The second quarter 2020 production impact from
 
curtailments in the Lower 48 was estimated
 
to be 145
MBOED.
 
Based on our economic criteria, we brought some
 
curtailed volumes in the Lower 48 back online
 
in
July and expect to be fully restored by September.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
Canada
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019**
2020
2019**
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(86)
100
(195)
222
Average Net Production
Crude oil (MBD)
5
1
4
1
Natural gas liquids (MBD)
2
1
1
-
Bitumen (MBD)
34
51
50
57
Natural gas (MMCFD)
40
8
30
8
Total Production
(MBOED)
48
54
60
59
Average Sales Prices*
Crude oil ($ per bbl)
8.69
-
15.39
-
Natural gas liquids ($ per bbl)
1.64
-
1.89
-
Natural gas ($ per MCF)
0.79
-
1.05
-
Bitumen ($ per bbl)
(23.11)
37.20
(3.09)
35.00
*Average sales prices in the second quarter of 2020 include unutilized transportation costs.
**Average prices for sales of bitumen excludes additional value realized from the purchase and sale of third-party volumes for optimization of
our pipeline capacity between Canada and the U.S. Gulf Coast.
 
 
Our Canadian operations mainly consist of an oil
 
sands development in the Athabasca Region of
 
northeastern
Alberta and a liquids-rich unconventional play
 
in western Canada.
 
As of June 30, 2020, Canada contributed 8
percent of our worldwide liquids production and
 
less than 1 percent of our worldwide natural
 
gas production.
 
Earnings from Canada decreased $186 million
 
and $417 million in the three-
 
and six-month periods of 2020,
primarily because of lower bitumen price realizations,
 
production curtailments at Surmont,
 
the absence of a
$41 million gain on dispositions related to a contingent
 
payment, and the absence of a $25 million tax
 
benefit
due to a four year phased four percent reduction in Alberta’s corporate income
 
tax rate.
 
Partly offsetting this
decrease in earnings was a $48 million refund from
 
the Alberta Tax & Revenue Administration in the second
quarter of 2020.
 
In addition to the items detailed above, in the
 
six-month period of 2020, earnings decreased
due to the absence of a $68 million tax
 
benefit related to a tax settlement.
 
Total average production decreased 6 MBOED in the second quarter of 2020, primarily
 
due to production
curtailments at Surmont, partly offset by the absence of a planned
 
turnaround at Surmont and new production
from Pad 1 at Montney.
 
Total average production increased 1 MBOED in the six-month period of 2020,
primarily due to first production from Pad 1 at
 
Montney commencing February 2020 and the
 
absence of a
planned turnaround at Surmont, partly offset by curtailments
 
at Surmont.
 
 
Curtailment Update
The second quarter 2020 production impact from
 
curtailments in Canada was estimated to be 30
 
MBOED net.
 
Based on our economic criteria, we began to restore
 
some curtailed production at Surmont
 
in July.
 
 
Planned Acquisition
In July 2020, we signed a definitive agreement
 
to acquire additional Montney acreage for cash consideration
 
of
approximately $375 million before customary adjustments,
 
plus the assumption of approximately $30 million
in financing obligations for associated partially
 
owned infrastructure.
 
This acquisition primarily consists of
undeveloped properties and includes 140,000
 
net acres in the liquids-rich Inga Fireweed asset
 
Montney zone,
which is directly adjacent to our existing Montney
 
position,
 
as well as 15 MBOED of production.
 
Upon
completion of this transaction, we will have a Montney
 
acreage position of 295,000 net acres with a 100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
percent working interest.
 
The transaction is subject to regulatory
 
approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
 
 
Europe and North Africa
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income Attributable to ConocoPhillips
($MM)
$
11
407
86
614
Average Net Production
Crude oil (MBD)
75
130
84
141
Natural gas liquids (MBD)
5
6
5
8
Natural gas (MMCFD)
264
518
287
560
Total Production
(MBOED)
124
223
137
242
Average Sales Prices
Crude oil ($ per bbl)
$
32.32
69.65
44.70
66.16
Natural gas liquids ($ per bbl)
16.76
32.00
18.75
31.49
Natural gas ($ per MCF)
2.21
4.42
3.03
5.58
 
 
The Europe and North Africa segment consists
 
of operations principally located in the Norwegian
 
sector of the
North Sea and the Norwegian Sea, Libya and commercial
 
operations in the U.K.
 
As of June 30, 2020, our
Europe and North Africa operations contributed
 
12 percent of our worldwide liquids production
 
and 12 percent
of our worldwide natural gas production.
 
Earnings for Europe and North Africa decreased by
 
$396 million and $528 million in the three- and six-month
periods of 2020, respectively, primarily due to our U.K. divestiture in the third
 
quarter of 2019, the absence of
a U.S. tax benefit of $234 million associated
 
with the recognition of U.S. tax basis in our
 
disposed U.K.
subsidiaries, and lower crude oil and natural gas realizations.
 
 
Average production decreased 99 MBOED and 105 MBOED in the three-
 
and six-month periods of 2020,
respectively, primarily due to our U.K. disposition in the third quarter of 2019,
 
lower production in Libya due
to a cessation of production following a period
 
of civil unrest, and normal field decline.
 
Partly offsetting these
decreases in production were the absence of planned
 
turnarounds at the Greater Ekofisk
 
Area and new wells
online in Norway.
 
 
Force Majeure in Libya
Production ceased February 12, 2020 due to a forced
 
shutdown of the Es Sider export terminal
 
and other
eastern export terminals after a period of civil unrest.
 
It is unknown when exports will resume.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
Asia Pacific and Middle East
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income Attributable to ConocoPhillips
 
($MM)
$
662
517
1,060
1,042
Average Net Production
Crude oil (MBD)
Consolidated operations
61
89
70
91
Equity affiliates
14
14
13
13
Total crude oil
75
103
83
104
Natural gas liquids (MBD)
Consolidated operations
1
4
2
4
Equity affiliates
8
8
7
7
Total natural gas liquids
9
12
9
11
Natural gas (MMCFD)
Consolidated operations
423
578
522
622
Equity affiliates
1,056
1,064
1,046
1,026
Total natural gas
1,479
1,642
1,568
1,648
Total Production
(MBOED)
331
388
354
390
Average Sales Prices
Crude oil ($ per bbl)
Consolidated operations
$
27.98
69.78
43.02
65.93
Equity affiliates
25.32
63.98
38.52
61.94
Total crude oil
27.45
68.91
42.26
65.43
Natural gas liquids ($ per bbl)
Consolidated operations
27.90
39.97
33.21
40.05
Equity affiliates
23.93
41.72
32.38
40.09
Total natural gas liquids
24.90
41.05
32.59
40.07
Natural gas ($ per MCF)
Consolidated operations
4.74
5.89
5.45
6.14
Equity affiliates
3.90
5.81
4.65
6.53
Total natural gas
4.14
5.84
4.92
6.38
 
 
The Asia Pacific and Middle East segment has
 
operations in China, Indonesia, Malaysia,
 
Australia and Qatar.
 
As of June 30, 2020, Asia Pacific and Middle East
 
contributed 13 percent of our worldwide liquids production
and 63 percent of our worldwide natural gas
 
production.
 
Earnings increased $145 million and $18 million
 
in the three-
 
and six-month periods of 2020, primarily due to
 
a
$597 million after-tax gain on disposition related
 
to our Australia-West divestiture and the cessation of DD&A
expense associated with our previously held-for-sale Australia-West assets.
 
Partly offsetting the increase in
earnings, were lower oil, LNG and natural gas prices,
 
lower LNG sales volumes associated with our disposed
Australia-West assets, and lower oil sales volumes,
 
primarily related to curtailments in Malaysia.
 
 
 
 
 
 
 
 
 
 
51
Average production decreased 57 MBOED and 36 MBOED in the three-
 
and six-month periods of 2020,
primarily due to the divestiture of our Australia-West assets, normal field decline, the expiration
 
of the Panyu
production license in China, higher unplanned downtime
 
due to the rupture of a third-party pipeline impacting
gas production from the Kebabangan field in
 
Malaysia, and curtailments in Malaysia.
 
Partly offsetting these
production decreases, were new production from development
 
activity at Bohai Bay in China and production
increases from Malaysia, including first oil
 
from Gumusut Phase 2 in the third quarter of
 
2019.
 
 
Asset Disposition Update
In the second quarter of 2020, we completed the divestiture
 
of our Australia-West assets and operations, and
based on an effective date of January 1, 2019, we received
 
proceeds of $765 million in May with an additional
$200 million due upon final investment decision
 
of the proposed Barossa development project.
 
Production from
the disposed assets averaged 35 MBOED for the six-month
 
period of 2020, and proved reserves were
approximately 17 MMBOE at year-end 2019.
 
For additional information related to this
 
transaction, see Note 4—
Asset Acquisitions and Dispositions.
 
 
 
Other International
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(6)
81
22
212
 
 
The Other International segment consists of exploration
 
activities in Colombia, Chile and Argentina.
 
Earnings from our Other International operations
 
decreased $87 million and $190 million in
 
the three- and six-
month periods of 2020, respectively.
 
The decrease in earnings was primarily
 
due to the absence of recognizing
$84 million and $231 million in other income related
 
to a settlement award with PDVSA associated
 
with prior
operations in Venezuela,
 
in the three- and six-month periods of 2019, respectively.
 
See Note 12—
Contingencies and Commitments in the Notes to Consolidated
 
Financial Statements, for additional
information.
 
 
 
 
 
 
 
 
 
 
 
 
52
Corporate and Other
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Net interest expense
$
(174)
(131)
(329)
(327)
Corporate general and administrative expenses
(90)
(49)
(40)
(114)
Technology
(9)
(10)
(8)
86
Other income (expense)
458
(3)
(1,213)
433
$
185
(193)
(1,590)
78
 
 
Net interest expense consists of interest and financing
 
expense, net of interest income and capitalized
 
interest.
 
Net interest expense increased by $43 million
 
in the second quarter of 2020, primarily due to
 
higher interest
from an absence of the settlement of certain
 
tax disputes and lower interest income from lower
 
cash and cash
equivalent balances.
 
Corporate G&A expenses include compensation
 
programs and staff costs.
 
These expenses increased by $41
million and decreased by $74 million in the three-
 
and six-month periods of 2020, respectively, primarily due
to mark to market adjustments associated with certain
 
compensation programs.
 
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 decreased $94 million in the six-month period of
2020 primarily due to lower 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, unrealized
 
holding
gains or losses on equity securities, and pension settlement
 
expense.
 
“Other” increased by $461 million in the
second quarter of 2020,
 
primarily due to $521 million higher after-tax
 
unrealized gain on our Cenovus Energy
common shares,
 
partly offset by the release of a $92 million deferred tax
 
asset related to our Australia-West
divestiture.
 
In the six-month period of 2020, “Other” decreased
 
by $1,646 million primarily due to a $1,140
million after-tax unrealized loss on our Cenovus
 
Energy common shares reflected in other income as compared
to a $373 million after-tax unrealized gain in the
 
six-month period of 2019.
 
 
 
 
 
 
 
 
 
 
53
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
June 30
December 31
2020
2019
Short-term debt
$
146
105
Total debt
14,998
14,895
Total equity
31,493
35,050
Percent of total debt to capital*
32
%
30
Percent of floating-rate debt to total debt
5
%
5
*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 2020, the primary uses of
our available cash were $2,525 million to support
 
our ongoing capital expenditures and investments
 
program,
$1,030 million net purchases of investments,
 
$726 million to repurchase common stock,
 
and $913 million to
pay dividends.
 
During the first six months of 2020, our cash and cash
 
equivalents decreased by $2,181 million
to $2,907 million.
 
 
We entered the year with a strong balance sheet including cash and cash equivalents
 
of over $5 billion, short-
term investments of $3 billion, and an undrawn
 
credit facility of $6 billion, totaling
 
approximately $14 billion
of liquidity.
 
This strong foundation allowed us to be measured
 
in our response to the sudden change in
business environment we experienced in the first
 
quarter of 2020.
 
In response to the recent oil market
downturn, we announced the following capital,
 
operating cost and share repurchase reductions.
 
We reduced
our 2020 operating plan capital expenditures by a
 
total of $2.3 billion, or approximately thirty-five
 
percent of
the original guidance.
 
We suspended our share repurchase program for the remainder of 2020, further
reducing cash outlays by approximately $2.3 billion
 
in 2020.
 
We are also reducing our operating costs by
approximately $0.6 billion, or roughly ten percent
 
of the original 2020 guidance.
 
Collectively, these actions
represent a reduction in 2020 cash uses of over $5
 
billion versus the original operating plan.
 
 
We also established a framework for evaluating and implementing economic curtailments
 
considering the
weakness in oil prices during the second quarter of
 
2020, which resulted in taking an additional
 
significant step
of curtailing production, predominantly from operated
 
North American assets.
 
Due to our strong balance
sheet, we were in an advantaged position to forgo some production
 
and cash flow in anticipation of receiving
higher cash flows for those volumes in the future.
 
We ended the second quarter with cash and cash equivalents of $2.9 billion, short-term
 
investments of $4.0
billion, and an undrawn credit facility of $6 billion,
 
totaling $12.9 billion of liquidity.
 
We believe current cash
balances and cash generated by operations, the recent
 
adjustments to our operating plan, together with
 
access
to external sources of funds as described below in
 
the “Significant Sources of 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 Sources of Capital
 
Operating Activities
 
Cash provided by operating activities was $2,262
 
million for the first six months of 2020, compared
 
with
$5,785 million for the corresponding period of 2019.
 
The decrease in cash provided by operating activities
 
is
primarily due to lower realized commodity prices,
 
production curtailments and the divestiture
 
of our U.K. and
Australia-West assets.
 
 
 
 
 
 
54
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.
 
The level of absolute production volumes, as well
 
as product and location mix, impacts our cash flows.
 
Production levels are impacted by such factors as
 
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; global pandemics and
associated demand decreases; 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.
 
Due to
recent capital reductions, our reserve replacement
 
efforts could be delayed thus limiting our ability
 
to replace
depleted reserves.
 
 
Investing Activities
Proceeds from asset sales in the first six months
 
of 2020 were $1.3 billion
 
compared with $0.7 billion in the
corresponding period of 2019.
 
In the second quarter of 2020, we completed
 
the divestiture of our Australia-
West assets and operations.
 
Based on an effective date of January 1, 2019 and customary
 
closing adjustments,
we received cash proceeds of $765 million in
 
the second quarter with another $200 million
 
payment due upon
final investment decision of the proposed Barossa
 
development project.
 
In the first quarter of 2020, proceeds
from asset sales were $549 million, which included
 
the sale of our Niobrara interests and Waddell Ranch
interests in the Lower 48 for proceeds of $359 million
 
and $184 million, respectively.
 
See Note 4—Asset
Acquisitions and Dispositions in the Notes to Consolidated
 
Financial Statements, for additional information
 
on
these transactions.
 
Proceeds from asset sales in the first six months
 
of 2019 were $701 million,
 
which consisted primarily of $350
million from the sale of our 30 percent interest in
 
the Greater Sunrise Fields and deposits
 
of $268 million
related to an April 2019 agreement to sell
 
two ConocoPhillips U.K. subsidiaries.
 
 
Commercial Paper and Credit Facilities
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 United States.
 
The agreement calls for commitment fees
 
on available, but
unused, amounts.
 
The 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 the ConocoPhillips
 
Company $6.0 billion commercial paper program,
which is primarily a funding source for short-term
 
working capital needs.
 
Commercial paper maturities are
generally limited to 90 days.
 
 
 
 
55
We had no commercial paper outstanding at June 30, 2020 or December 31, 2019.
 
We had no direct
outstanding borrowings or letters of credit
 
under the revolving credit facility at June 30, 2020 or
 
December 31,
2019.
 
Since we had no commercial paper outstanding
 
and had issued no letters of credit, we had
 
access to
$6.0 billion in borrowing capacity under our revolving
 
credit facility at June 30, 2020.
 
We may consider
issuing commercial paper in the future to supplement
 
our cash position as appropriate.
 
Despite recent volatility and price weakness for energy issuers
 
in the debt capital markets, we believe the
company continues to have access to the markets
 
based on the composition of our balance sheet
 
and asset
portfolio.
 
In March 2020, S&P affirmed its “A” rating on our senior
 
long-term debt and revised its outlook to “negative”
from “stable.”
 
In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook.
 
Our current
rating from Fitch is “A” with a “stable” outlook.
 
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, in the event of a
downgrade of our credit rating.
 
If our credit rating were downgraded, it could
 
increase the cost of corporate
debt available to us and potentially restrict
 
our access to the commercial paper and debt capital
 
markets.
 
If our
credit rating were to deteriorate to a level prohibiting
 
us from accessing the commercial paper and
 
debt capital
markets, 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, 2020 and December 31, 2019, we had
 
direct bank letters of credit of $196
million and $277 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 U.S. SEC under which
 
we have the ability to
issue and sell an indeterminate amount of various
 
types of debt and equity securities.
 
 
Off-Balance Sheet Arrangements
 
As part of our normal ongoing business operations
 
and consistent with normal industry practice,
 
we enter into
numerous agreements with other parties to pursue
 
business opportunities, which share costs
 
and apportion
risks among the parties as governed by the agreements.
 
For information about guarantees, see Note 11—Guarantees, in
 
the Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
 
Capital Requirements
 
For information about our capital expenditures
 
and investments, see the “Capital Expenditures”
 
section.
 
Our debt balance at June 30, 2020, was $14,998
 
million, compared with $14,895 million
 
at December 31,
2019.
 
Maturities of debt for the remainder of 2020,
 
and for each of the years 2021 through 2024,
 
are: $81
million, $255 million, $971 million, $229 million
 
and $573 million, respectively.
 
 
On February 4, 2020, we announced a quarterly
 
dividend of $0.42 per share.
 
The dividend was paid on March
2, 2020,
 
to stockholders of record at the close of business
 
on February 14, 2020.
 
On April 30, 2020, we
announced a quarterly dividend of $0.42 per share.
 
The dividend was paid on June 1, 2020, to stockholders
 
of
record at the close of business on May 11, 2020.
 
On July 8, 2020,
 
we announced a quarterly dividend of $0.42
per share, payable September 1, 2020,
 
to stockholders of record at the close of business
 
on July 20,
 
2020.
 
 
In late 2016, we initiated our current share repurchase
 
program.
 
As of June 30, 2020, we had announced a
total authorization to repurchase $25 billion of our
 
common stock.
 
As of December 31, 2019, we had
 
 
 
 
 
 
 
 
 
 
 
56
repurchased $9.6 billion of shares.
 
In the first quarter of 2020, we repurchased
 
an additional $726 million of
shares.
 
On April 16, 2020, as a response to the oil market
 
price downturn, we announced we were suspending
our share repurchase program.
 
Since our share repurchase program began in November
 
2016, we have
repurchased 184 million shares at a cost of $10.4
 
billion through June 30, 2020.
 
 
Capital Expenditures
Millions of Dollars
Six Months Ended
June 30
2020
2019
Alaska
$
732
780
Lower 48
1,130
1,770
Canada
142
232
Europe and North Africa
251
339
Asia Pacific and Middle East
188
219
Other International
63
1
Corporate and Other
19
25
Capital expenditures and investments
$
2,525
3,366
 
 
During the first six months of 2020, capital expenditures
 
and investments supported key exploration and
development programs, primarily:
 
 
Development,
 
appraisal and exploration activities in
 
the Lower 48, including Eagle Ford, Permian
Unconventional and Bakken.
 
Appraisal,
 
exploration and development activities
 
in Alaska related to the Western North Slope;
development activities in the Greater Kuparuk
 
Area and the Greater Prudhoe Area.
 
 
Development and exploration activities across
 
assets in Norway.
 
Appraisal activities in the liquids-rich portion
 
of the Montney in Canada and optimization
 
of oil sands
development.
 
Continued development in China, Malaysia,
 
Australia and Indonesia.
 
 
Lease acquisition and exploration activities
 
in Argentina.
 
In February 2020, we announced 2020 operating
 
plan capital expenditures of $6.5 billion to $6.7 billion.
 
In
 
response to the recent oil market downturn, we announced
 
reductions to this plan totaling $2.3 billion,
 
or
approximately 35 percent.
 
The capital reductions are sourced to the segments
 
in the amount of $1.4 billion to
Lower 48, $0.4 billion to Alaska, $0.2 billion
 
to Canada and $0.3 billion to all other segments
 
and exploration.
 
This does not include capital for acquisitions.
 
 
In July 2020, we signed a definitive agreement
 
to acquire additional Montney acreage for cash
 
consideration of
approximately $375 million before customary adjustments,
 
plus the assumption of approximately $30 million
in financing obligations for associated partially
 
owned infrastructure.
 
This acquisition primarily consists of
undeveloped properties and includes 140,000
 
net acres in the liquids-rich Inga Fireweed asset
 
Montney zone,
which is directly adjacent to our existing Montney
 
position, as well as 15 MBOED of production.
 
Upon
completion of this transaction, we will have a Montney
 
acreage position of 295,000 net acres with a 100
percent working interest.
 
The transaction is subject to regulatory
 
approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
 
 
 
 
57
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
minimum 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, legal and
 
tax 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 legal and tax matters are subject to
 
change as events evolve and as additional
 
information becomes
available during the administrative and litigation
 
processes.
 
For information on other contingencies, see
Note 12—Contingencies
 
and Commitments, in the Notes to Consolidated
 
Financial Statements.
 
 
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 and
claims of alleged environmental contamination
 
from historic operations.
 
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 60–62 of
our 2019 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
 
 
58
are not owned by us, but allegedly contain waste attributable
 
to our past operations.
 
As of June 30, 2020, 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, 2020 and December 31, 2019, our balance
 
sheet included a total environmental accrual of
 
$171
million 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.
 
Examples of legislation and precursors
for possible regulation that do or could affect our operations
 
include:
 
 
The EPA’s
 
and U.S. Department of Transportation’s joint promulgation of a Final Rule on April
 
1,
2010, that triggered regulation of GHGs under the
 
Clean Air Act, may trigger more climate-based
claims for damages, and may result in longer
 
agency review time for development projects.
 
Colorado’s HB-19 1261, approved May 30, 2019, introducing statewide goals
 
to reduce 2025 GHG
emissions by at least 26 percent, 2030 GHG emissions
 
by at least 50 percent, and 2050 GHG
emissions by at least 90 percent of the levels of GHG
 
emissions that existed in 2005.
 
For other 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 63–65 of our 2019 Annual Report on
Form 10-K.
 
In December 2018, we became 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.
 
 
Beginning in 2017, cities, counties, and state governments
 
in California, New York, Washington,
 
Rhode
Island, Maryland and Hawaii, as well as the Pacific
 
Coast Federation of Fishermen’s Association, Inc., have
filed lawsuits against oil and gas companies,
 
including ConocoPhillips, seeking compensatory
 
damages and
equitable relief to abate alleged climate change impacts.
 
ConocoPhillips is vigorously defending against
 
these
lawsuits.
 
The lawsuits brought by the Cities of San Francisco,
 
Oakland and New York were dismissed by
federal district courts.
 
The New York dismissal remains on appeal.
 
The Ninth Circuit ruled that the San
Francisco and Oakland cases (and other California
 
cases) should proceed in state court, with that
 
decision
subject to appeal.
 
Lawsuits filed by the cities and counties in California,
 
Washington, and Hawaii are
currently stayed pending resolution of the Ninth Circuit
 
appeals.
 
Lawsuits filed in Maryland and Rhode Island
are proceeding in state court while rulings in those
 
matters, on the issue of whether the
 
matters should proceed
in state or federal court, are on appeal.
 
Several Louisiana parishes have filed lawsuits against
 
oil and gas companies, including ConocoPhillips,
seeking compensatory damages in connection
 
with historical oil and gas operations in Louisiana.
 
The lawsuits
 
59
are stayed pending an appeal with the Fifth Circuit
 
on the issue of whether they will proceed in federal
 
or state
court.
 
ConocoPhillips will vigorously defend against
 
these lawsuits.
 
 
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, and objectives of management for future operations,
 
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,”
“estimate,” “believe,” “budget,” “continue,” “could,”
 
“intend,” “may,” “plan,” “potential,” “predict,” “seek,”
“should,” “will,” “would,” “expect,” “objective,”
 
“projection,” “forecast,” “goal,” “guidance,” “outlook,”
“effort,” “target” 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,
 
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.
 
60
 
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.
 
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 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.
 
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.
 
The risk factors generally described in Part II—Item
 
1A in this report, in Part I—Item 1A in our 2019
Annual Report on Form 10-K, and any additional
 
risks described in our other filings with
 
the SEC.
 
 
 
61
Item 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
 
Information about market risks for the six months
 
ended June 30, 2020, does not differ materially
 
from that
discussed under Item 7A in our 2019 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.
 
As of June 30, 2020,
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 as of June 30, 2020.
 
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 2019 Annual Report on
 
Form 10-K.
 
 
Item 1A.
 
RISK FACTORS
 
Other than the risk factors set forth below, there have been no material
 
changes to the risk factors disclosed in
our Annual Report on Form 10-K for the fiscal
 
year ended December 31, 2019.
 
Our business has been, and will continue to
 
be, affected by the coronavirus (COVID-19) pandemic.
 
The COVID-19 outbreak and the measures put
 
in place to address it have negatively impacted
 
the global
economy, disrupted global supply chains, reduced global demand for oil
 
and gas, and created significant
volatility and disruption of financial and commodity
 
markets.
 
Public health officials have recommended or
mandated certain precautions to mitigate
 
the spread of COVID-19, including limiting non-essential
 
gatherings
of people, ceasing all non-essential travel
 
and issuing “social or physical distancing” guidelines,
 
“shelter-in-
place” orders and mandatory closures or reductions
 
in capacity for non-essential businesses.
 
The full impact of
the COVID-19 pandemic remains uncertain
 
and will depend on the severity, location and duration of the
effects and spread of the disease, the effectiveness and duration
 
of actions taken by authorities to contain the
virus or treat its effect, and how quickly and to what extent
 
economic conditions improve.
 
According to the
National Bureau of Economic Research, as a result
 
of the pandemic and its broad reach across the
 
entire
economy, the U.S. entered a recession in early 2020.
 
We have already been impacted by the COVID-19 pandemic.
 
See Management’s Discussion and Analysis of
Financial Condition and Results of Operations, for
 
additional information on how we have
 
been impacted and
the steps we have taken in response.
 
 
62
 
Our business is likely to be further negatively
 
impacted by the COVID-19 pandemic. These impacts
 
could
include but are not limited to:
 
 
Continued reduced demand for our products
 
as a result of reductions in travel and commerce;
 
Disruptions in our supply chain due in part to scrutiny
 
or embargoing of shipments from infected areas
or invocation of force majeure clauses in commercial
 
contracts due to restrictions imposed as a result
of the global response to the pandemic;
 
Failure of third parties on which we rely, including our suppliers, contract
 
manufacturers, contractors,
joint venture partners and external business partners,
 
to meet their obligations to the company, or
significant disruptions in their ability to
 
do so, which may be caused by their own financial
 
or
operational difficulties or restrictions imposed in
 
response to the disease outbreak;
 
Reduced workforce productivity caused by, but not limited to, illness, travel
 
restrictions, quarantine,
or government mandates;
 
Business interruptions resulting from a significant
 
amount of our employees telecommuting
 
in
compliance with social distancing guidelines and
 
shelter-in-place orders, as well as the
implementation of protections for employees continuing
 
to commute for work, such as personnel
screenings and self-quarantines before or after
 
travel; and
 
Voluntary
 
or involuntary curtailments to support oil prices
 
or alleviate storage shortages for our
products.
 
Any of these factors, or other cascading effects of the
 
COVID-19 pandemic that are not currently foreseeable,
could materially increase our costs, negatively impact
 
our revenues and damage our financial condition,
 
results
of operations, cash flows and liquidity position.
 
The pandemic continues to progress and evolve,
 
and the full
extent and duration of any such impacts cannot
 
be predicted at this time because of the sweeping
 
impact of the
COVID-19 pandemic on daily life around the world.
 
We have been negatively affected and are likely to continue to be negatively affected by the recent
 
swift and
sharp drop in commodity prices.
 
The oil and gas business is fundamentally a commodity
 
business and prices for crude oil, bitumen,
 
natural gas,
NGLs and LNG can fluctuate widely depending
 
upon global events or conditions that affect supply and
demand.
 
Recently, there has been a precipitous decrease in demand for oil globally, largely caused by the
dramatic decrease in travel and commerce resulting
 
from the COVID-19 pandemic.
 
See Management’s
Discussion and Analysis of Financial Condition
 
and Results of Operations, for additional information
 
on
commodity prices and how we have been impacted.
 
There is no assurance of when or if commodity
 
prices will
return to pre-COVID-19 levels.
 
The speed and extent of any recovery remains uncertain
 
and is subject to
various risks, including the duration, impact and actions
 
taken to stem the proliferation of the COVID-19
pandemic, the extent to which those nations party
 
to the OPEC plus production agreement decide
 
to increase
production of crude oil, bitumen, natural gas, NGLs
 
and LNG, and other risks described in this
 
Quarterly
Report on Form 10-Q or in our Annual Report
 
on Form 10-K for the fiscal year ended
 
December 31, 2019.
 
Even after a recovery, our industry will continue to be exposed to the effects of changing
 
commodity prices
given the volatility in commodity price drivers
 
and the worldwide political and economic
 
environment
generally, as well as continued uncertainty caused by armed hostilities
 
in various oil-producing regions around
the globe.
 
Our revenues, operating results and future rate
 
of growth are highly dependent on the prices
 
we
receive for our crude oil, bitumen, natural gas, NGLs
 
and LNG.
 
Many of the factors influencing these prices
are beyond our control.
 
 
Lower crude oil, bitumen, natural gas, NGL and LNG
 
prices may have a material adverse effect on our
revenues, operating income, cash flows and liquidity, and may also affect the amount
 
of dividends we elect to
declare and pay on our common stock.
 
As a result of the recent market downturn, we
 
have suspended our
share repurchase program.
 
Lower prices may also limit the amount of reserves
 
we can produce economically,
thus adversely affecting our proved reserves, reserve replacement
 
ratio and accelerating the reduction in our
 
 
 
 
 
 
 
 
 
 
63
existing reserve levels as we continue production
 
from upstream fields.
 
Prolonged lower crude oil prices may
affect certain decisions related to our operations, including
 
decisions to reduce capital investments
 
or decisions
to shut-in production.
 
Due to ongoing uncertainty and volatility, we are suspending all further
 
guidance for
2020, including guidance related to capital
 
expenditures and production and our previous
 
2020 guidance
should not be relied upon.
 
Significant reductions in crude oil, bitumen, natural
 
gas, NGLs and LNG prices could also
 
require us to reduce
our capital expenditures, impair the carrying value
 
of our assets or discontinue the classification
 
of certain
assets as proved reserves.
 
In the first six-month period of 2020, we recognized
 
several impairments, which are
described in Note 8—Impairments.
 
If the outlook for commodity prices remain
 
low relative to their historic
levels, and as we continue to optimize our investments
 
and exercise capital flexibility, it is reasonably likely
we will incur future impairments to long-lived assets
 
used in operations, investments in nonconsolidated
entities accounted for under the equity method and unproved
 
properties.
 
If oil and gas prices persist at
depressed levels, our reserve estimates may
 
decrease further, which could incrementally increase the rate used
to determine DD&A expense on our unit-of-production
 
method properties.
 
See Management’s Discussion and
Analysis for further examination of DD&A
 
rate impacts versus comparative periods.
 
Although it is not
reasonably practicable to quantify the impact
 
of any future impairments or estimated change to our
 
unit-of-
production at this time, our results of operations
 
could be adversely affected as a result.
 
 
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, 2020
-
$
-
-
$
14,649
May 1-31, 2020
-
-
-
14,649
June 1-30, 2020
-
-
-
14,649
-
$
-
-
*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.
 
As of June 30, 2020, we had announced a
total authorization to repurchase $25 billion of our
 
common stock.
 
As of December 31, 2019, we had
repurchased $9.6 billion of shares.
 
In the first quarter of 2020, we repurchased
 
an additional $726 million of
shares.
 
On April 16, 2020, as a response to the oil market
 
downturn, we announced we were suspending our
share repurchase program.
 
Acquisitions for the share repurchase program
 
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 pages 21–22 of
our 2019 Annual Report on Form 10-K.
 
64
Item 6.
 
EXHIBITS
 
10.1*
 
31.1*
 
31.2*
 
32*
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.
 
 
65
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/ Catherine A. Brooks
Catherine A. Brooks
Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
 
August 4, 2020