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CONOCOPHILLIPS - Quarter Report: 2021 September (Form 10-Q)

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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
September 30, 2021
or
[ ]
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
 
to
 
Commission file number:
 
001-32395
 
ConocoPhillips
(Exact name of registrant as specified in its charter)
Delaware
01-0562944
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification
No.)
925 N. Eldridge Parkway
,
Houston
,
TX
77079
(Address of principal executive offices)
 
(Zip Code)
281
-
293-1000
 
(Registrant's telephone number,
 
including area code)
Securities registered pursuant to
 
Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
 
was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
[x]
 
No [
 
]
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to
 
be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
 
such shorter period that
the registrant was required to submit such files).
 
Yes
[x]
 
No [
 
]
Indicate by check mark whether the registrant is a large accelerated
 
filer, an accelerated
 
filer, a non-accelerated
 
filer, a smaller
reporting company, or
 
an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
 
“smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
 
Act.
 
Large accelerated filer
 
[x]
 
Accelerated filer [
 
]
 
Non-accelerated filer [
 
]
 
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company,
 
indicate by check mark if the registrant has elected not to use the
 
extended transition period for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act. [
 
]
Indicate by check mark whether the registrant is a shell company (as defined in
 
Rule 12b-2 of the Exchange Act).
 
Yes [
 
] No
[x]
The registrant had
1,318,946,867
 
shares of common stock, $.01 par value, outstanding at September 30,
 
2021.
Commonly Used Abbreviations
1
 
ConocoPhillips
 
2021 Q3 10-Q
Commonly Used Abbreviations
The following industry-specific, accounting
 
and other terms, and abbreviations may
 
be commonly used in this
report.
 
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
EUR
Euro
ASU
accounting standards update
GBP
British pound
DD&A
depreciation, depletion and
amortization
Units of Measurement
FASB
Financial Accounting Standards
BBL
barrel
Board
BCF
billion cubic feet
FIFO
first-in, first-out
BOE
barrels of oil equivalent
G&A
general and administrative
MBD
thousands of barrels per day
GAAP
generally accepted accounting
 
MCF
thousand cubic feet
principles
MBOD
thousand barrels of oil per day
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MMBOD
million barrels of oil per day
SAB
staff accounting bulletin
MBOED
thousands of barrels of oil
 
VIE
variable interest entity
MMBOED
equivalent per day
millions of barrels of oil equivalent
per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection
 
Agency
ESG
Environmental, Social and
Corporate Governance
Industry
EU
European Union
CBM
coalbed methane
FERC
Federal Energy Regulatory
 
E&P
exploration and production
Commission
FEED
front-end engineering and design
GHG
greenhouse gas
FPS
floating production system
HSE
health, safety and environment
FPSO
floating production, storage
 
and
ICC
International Chamber of
 
offloading
Commerce
G&G
geological and geophysical
ICSID
World Bank’s
 
International
 
JOA
joint operating agreement
Centre for Settlement of
LNG
liquefied natural gas
Investment Disputes
NGLs
natural gas liquids
IRS
Internal Revenue Service
OPEC
Organization of Petroleum
 
OTC
over-the-counter
Exporting Countries
NYSE
New York Stock Exchange
PSC
production sharing contract
SEC
U.S. Securities and Exchange
 
PUDs
proved undeveloped reserves
Commission
SAGD
steam-assisted gravity
 
drainage
TSR
total shareholder return
WCS
Western Canada Select
U.K.
United Kingdom
WTI
West Texas
 
Intermediate
U.S.
United States of America
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
2
PART
 
I.
 
Financial Information
Item 1.
 
Financial Statements
Consolidated Income Statement
ConocoPhillips
 
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenues and Other Income
Sales and other operating revenues
$
11,326
4,386
30,708
13,293
Equity in earnings of affiliates
239
35
500
346
Gain (loss) on dispositions
2
(3)
294
551
Other income (loss)
49
(38)
884
(983)
Total
 
Revenues and Other Income
11,616
4,380
32,386
13,207
Costs and Expenses
Purchased commodities
4,179
1,839
11,660
5,630
Production and operating expenses
1,389
963
4,151
3,183
Selling, general and administrative
 
expenses
128
96
556
249
Exploration expenses
65
125
206
410
Depreciation, depletion and amortization
1,672
1,411
5,425
3,980
Impairments
(89)
2
(90)
521
Taxes
 
other than income taxes
403
179
1,154
570
Accretion on discounted liabilities
61
62
186
195
Interest and debt expense
219
200
665
604
Foreign currency transaction
 
(gain) loss
(10)
(5)
19
(88)
Other expenses
17
20
78
7
Total
 
Costs and Expenses
8,034
4,892
24,010
15,261
Income (loss) before income taxes
3,582
(512)
8,376
(2,054)
Income tax provision (benefit)
1,203
(62)
2,924
(171)
Net income (loss)
2,379
(450)
5,452
(1,883)
Less: net loss attributable to noncontrolling
 
interests
-
-
-
(46)
Net Income (Loss) Attributable
 
to ConocoPhillips
$
2,379
(450)
5,452
(1,929)
Net Income (Loss) Attributable
 
to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
1.78
(0.42)
4.10
(1.79)
Diluted
1.78
(0.42)
4.09
(1.79)
Average Common Shares
 
Outstanding
(in thousands)
Basic
1,332,286
1,077,377
1,327,216
1,079,525
Diluted
1,336,379
1,077,377
1,330,652
1,079,525
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
3
 
ConocoPhillips
 
2021 Q3 10-Q
 
Consolidated Statement
 
of Comprehensive Income
ConocoPhillips
 
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss)
$
2,379
(450)
5,452
(1,883)
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for
 
amortization of prior
service credit included in net income (loss)
(9)
(8)
(28)
(24)
Net actuarial gain (loss) arising during the period
8
(78)
113
(73)
Reclassification adjustment for
 
amortization of net actuarial
losses included in net income (loss)
45
45
133
81
Income taxes on defined benefit
 
plans
(9)
10
(49)
3
Defined benefit plans, net of tax
35
(31)
169
(13)
Unrealized holding gain (loss) on securities
-
-
(1)
3
Income taxes on unrealized
 
holding gain on securities
-
-
-
(1)
Unrealized holding gain (loss) on securities,
 
net of tax
-
-
(1)
2
Foreign currency translation
 
adjustments
(237)
188
(72)
(302)
Income taxes on foreign
 
currency translation adjustments
(1)
2
(1)
4
Foreign currency translation
 
adjustments, net of tax
(238)
190
(73)
(298)
Other Comprehensive Income (Loss), Net of Tax
(203)
159
95
(309)
Comprehensive Income (Loss)
2,176
(291)
5,547
(2,192)
Less: comprehensive income attributable
 
to noncontrolling interests
-
-
-
(46)
Comprehensive Income (Loss) Attributable
 
to ConocoPhillips
$
2,176
(291)
5,547
(2,238)
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
September 30
December 31
2021
2020
Assets
Cash and cash equivalents
$
9,833
2,991
Short-term investments
678
3,609
Accounts and notes receivable (net of allowance
 
of $
2
 
and $
4
, respectively)
5,336
2,634
Accounts and notes receivable—related
 
parties
129
120
Investment in Cenovus Energy
1,416
1,256
Inventories
1,043
1,002
Prepaid expenses and other current
 
assets
1,746
454
Total
 
Current Assets
20,181
12,066
Investments and long-term receivables
8,058
8,017
Loans and advances—related parties
-
114
Net properties, plants and equipment
(net of accumulated DD&A of $
65,223
 
and $
62,213
, respectively)
56,689
39,893
Other assets
2,376
2,528
Total
 
Assets
$
87,304
62,618
Liabilities
Accounts payable
$
4,101
2,669
Accounts payable—related
 
parties
30
29
Short-term debt
920
619
Accrued income and other taxes
2,082
320
Employee benefit obligations
691
608
Other accruals
2,625
1,121
Total
 
Current Liabilities
10,449
5,366
Long-term debt
18,748
14,750
Asset retirement obligations
 
and accrued environmental costs
5,721
5,430
Deferred income taxes
5,630
3,747
Employee benefit obligations
1,162
1,697
Other liabilities and deferred credits
1,479
1,779
Total
 
Liabilities
43,189
32,769
Equity
Common stock (
2,500,000,000
 
shares authorized at $
0.01
 
par value)
Issued (2021—
2,089,046,718
 
shares; 2020—
1,798,844,267
 
shares)
Par value
21
18
Capital in excess of par
60,431
47,133
Treasury stock
 
(at cost: 2021—
770,099,851
 
shares; 2020—
730,802,089
 
shares)
(49,521)
(47,297)
Accumulated other comprehensive
 
loss
(5,123)
(5,218)
Retained earnings
38,307
35,213
Total
 
Equity
44,115
29,849
Total
 
Liabilities and Equity
$
87,304
62,618
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
5
 
ConocoPhillips
 
2021 Q3 10-Q
Consolidated Statement
 
of Cash Flows
ConocoPhillips
Millions of Dollars
Nine Months Ended
September 30
2021
2020
Cash Flows From Operating Activities
Net income (loss)
$
5,452
(1,883)
Adjustments to reconcile net income
 
(loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
5,425
3,980
Impairments
(90)
521
Dry hole costs and leasehold impairments
7
114
Accretion on discounted liabilities
186
195
Deferred taxes
895
(428)
Undistributed equity earnings
258
450
Gain on dispositions
(294)
(551)
(Gain) loss on investment in Cenovus
 
Energy
(743)
1,302
Other
(866)
(188)
Working capital adjustments
Decrease (increase) in accounts and notes
 
receivable
(1,619)
1,132
Increase in inventories
(13)
(74)
Increase in prepaid expenses and other current
 
assets
(800)
(49)
Increase (decrease) in accounts payable
682
(583)
Increase (decrease) in taxes
 
and other accruals
2,648
(808)
Net Cash Provided by Operating
 
Activities
11,128
3,130
Cash Flows From Investing Activities
Cash acquired from Concho
382
-
Capital expenditures and investments
(3,767)
(3,657)
Working capital changes
 
associated with investing activities
79
(229)
Proceeds from asset dispositions
792
1,312
Net sales (purchases) of investments
2,846
(1,089)
Collection of advances/loans—related parties
105
116
Other
(386)
(31)
Net Cash Provided by (Used in) Investing
 
Activities
51
(3,578)
Cash Flows From Financing Activities
Issuance of debt
-
300
Repayment of debt
(363)
(234)
Issuance of company common stock
27
(2)
Repurchase of company common
 
stock
(2,224)
(726)
Dividends paid
 
(1,750)
(1,367)
Other
6
(27)
Net Cash Used in Financing Activities
(4,304)
(2,056)
Effect of Exchange
 
Rate Changes on Cash, Cash Equivalents
 
and Restricted Cash
(3)
(62)
Net Change in Cash, Cash Equivalents and
 
Restricted Cash
6,872
(2,566)
Cash, cash equivalents and restricted
 
cash at beginning of period
3,315
5,362
Cash, Cash Equivalents and Restricted
 
Cash at End of Period
$
10,187
2,796
Restricted cash of $
95
 
million and $
259
 
million are included in the "Prepaid expenses and other current assets" and "Other
 
assets" lines,
respectively, of our Consolidated Balance Sheet as of September 30, 2021.
Restricted cash of $
94
 
million and $
230
 
million are included in the "Prepaid expenses and other current assets" and "Other assets"
 
lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2020.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
6
Notes to Consolidated
 
Financial Statements
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
 
,
 
its results of operations and cash flows
 
for such periods.
 
All such adjustments are of a normal and recurring
 
nature unless otherwise disclosed.
 
Certain notes and other
information have been condensed
 
or omitted from the interim financial statements
 
included in this report.
 
Therefore, these financial statements
 
should be read in conjunction with the consolidated
 
financial statements and
notes included in our 2020 Annual Report on Form
 
10-K.
 
Note 2—Inventories
Millions of Dollars
September 30
 
December 31
2021
2020
Crude oil and natural gas
$
485
461
Materials and supplies
558
541
Total
 
Inventories
$
1,043
1,002
Inventories valued on
 
the LIFO basis
 
$
305
282
Note 3—Acquisitions and Dispositions
Announced Acquisition of Shell Permian Assets
In September 2021, we signed a definitive agreement
 
to acquire Shell Enterprises LLC’s
 
assets in the Delaware
Basin in an all-cash transaction for $
9.5
 
billion before customary
 
adjustments (Shell Permian Acquisition).
 
Assets
to be acquired include approximately
225,000
 
net acres and producing properties
 
located entirely in Texas,
 
as well
as over
600
 
miles of operated crude, gas and
 
water pipelines and infrastructure.
 
The acquisition is anticipated to
close in the fourth quarter of 2021, subject to regulatory
 
approval and other customary
 
closing conditions.
 
Under
the terms of the agreement, we paid a deposit of $
475
 
million which is presented within “Cash
 
Flows from
Investing Activities - Other” on our consolidated statement
 
of cash flows.
 
Acquisition of
Concho Resources Inc.
 
(Concho)
We completed our acquisition
 
of Concho on
January 15, 2021
 
and as defined under the terms of the transaction
agreement, each share of Concho common stock
 
was exchanged for
1.46
 
shares of ConocoPhillips common stock,
for total consideration
 
of $
13.1
 
billion.
Total Consideration
 
Number of shares of Concho common stock issued
 
and outstanding (in thousands)*
194,243
 
Number of shares of Concho stock awards
 
outstanding (in thousands)*
1,599
Number of shares exchanged
195,842
 
Exchange ratio
1.46
 
Additional shares of ConocoPhillips common stock
 
issued as consideration (in thousands)
285,929
 
Average price per share of ConocoPhillips
 
common stock**
$
45.9025
 
Total Consideration
 
(Millions)
$
13,125
 
*Outstanding as of January 15, 2021.
**Based on the ConocoPhillips average stock
 
price on January 15, 2021.
 
 
 
 
 
 
Notes to Consolidated Financial Statements
7
 
ConocoPhillips
 
2021 Q3 10-Q
The transaction was accounted
 
for as a business combination under FASB
 
ASC 805 using the acquisition method,
which requires assets acquired and
 
liabilities assumed to be measured at their acquisition date
 
fair values.
 
Fair
value measurements were made
 
for acquired assets and liabilities, and
 
adjustments to those measurements
 
may
be made in subsequent periods, up to one year
 
from the acquisition date as we identify new information
 
about
facts and circumstances that
 
existed as of the acquisition date to
 
consider.
 
Oil and gas properties were valued
using a discounted cash flow approach
 
incorporating market participant
 
and internally generated price
assumptions; production profiles; and, operating
 
and development cost assumptions.
 
Debt assumed in the
acquisition was valued based on observable
 
market prices.
 
The fair values determined for
 
accounts receivables,
accounts payable, and most
 
other current assets and current liabilities were
 
equivalent to the carrying value
 
due to
their short-term nature.
 
The total consideration
 
of $
13.1
 
billion was allocated to the identifiable
 
assets and
liabilities based on their fair values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
382
Accounts receivable, net
745
Inventories
45
Prepaid expenses and other current
 
assets
37
Investments and long-term receivables
333
Net properties, plants and equipment
18,968
Other assets
62
Total assets
 
acquired
$
20,572
Liabilities Assumed
Accounts payable
$
638
Accrued income and other taxes
49
Employee benefit obligations
4
Other accruals
510
Long-term debt
4,696
Asset retirement obligations
 
and accrued environmental costs
310
Deferred income taxes
1,123
Other liabilities and deferred credits
117
Total liabilities
 
assumed
$
7,447
Net assets acquired
$
13,125
With the completion of the Concho transaction,
 
we acquired proved and unproved
 
properties of approximately
$
11.8
 
billion and $
6.9
 
billion, respectively.
 
We recognized approximately
 
$
157
 
million of transaction-related costs,
 
all of which were expensed in the first
quarter of 2021.
 
These non-recurring costs related
 
primarily to fees paid to advisors
 
and the settlement of share-
based awards for certain Concho
 
employees based on the terms of the Merger Agreement.
In the first quarter of 2021, we commenced
 
a company-wide restructuring program,
 
the scope of which included
combining the operations of the two companies
 
as well as other global restructuring activities.
 
For the three-
 
and
nine-month periods ending September 30, 2021, we recognized
 
non-recurring restructuring costs
 
of approximately
$
52
 
million and $
209
 
million, respectively,
 
mainly for employee severance
 
and related incremental
 
pension benefit
costs.
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
8
The impact from these transaction and restructuring
 
costs to the lines of our consolidated income statement
 
for
the nine-month period ending September 30, 2021, are
 
below:
Millions of Dollars
Transaction
 
Cost
Restructuring Cost
Total
 
Cost
Production and operating expenses
$
110
110
Selling, general and administration
 
expenses
135
64
199
Exploration expenses
18
4
22
Taxes
 
other than income taxes
4
2
6
Other expenses
-
29
29
$
157
209
366
On February 8, 2021, we completed a debt
 
exchange offer
 
related to the debt assumed from Concho.
 
As a result
of the debt exchange, we recognized
 
an additional income tax related
 
restructuring charge of $
75
 
million.
 
From the acquisition date through
 
September 30, 2021, “Total Revenues
 
and Other Income” and “Net Income
(Loss) Attributable to ConocoPhillips”
 
associated with the acquired Concho business
 
were approximately $
4,499
million and $
1,600
 
million, respectively.
 
The results associated with the Concho business
 
for the same period
include a before- and after-tax
 
loss of $
305
 
million and $
233
 
million, respectively,
 
on the acquired derivative
contracts.
 
The before-tax loss is recorded
 
within “Total Revenues
 
and Other Income” on our consolidated
 
income
statement.
 
The following summarizes the unaudited
 
supplemental pro forma financial information
 
as if we had completed the
acquisition of Concho on January 1, 2020:
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Total
 
revenues and other income
$
5,019
16,384
Net loss
(565)
(1,184)
Net loss attributable to ConocoPhillips
(565)
(1,230)
$ per share
Earnings per share:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Basic net loss
$
(0.41)
(0.90)
Diluted net loss
(0.41)
(0.90)
The unaudited supplemental pro forma
 
financial information is presented
 
for illustration purposes
 
only and is not
necessarily indicative of the operating
 
results that would have occurred
 
had the transaction been completed on
January 1, 2020, nor is it necessarily indicative of future
 
operating results of the combined entity.
 
The unaudited
pro forma financial information
 
for the three-
 
and nine-month periods ending September 30, 2020 is
 
a result of
combining the consolidated income statement
 
of ConocoPhillips with the results of Concho.
 
The pro forma results
do not include transaction-related
 
costs, nor any cost savings
 
anticipated as a result of the transaction.
 
The pro
forma results include adjustments
 
to reverse impairment expense
 
of $
10.5
 
billion and $
1.9
 
billion related to oil and
gas properties and goodwill, respectively,
 
recorded by Concho in the nine-month
 
period ending September 30,
2020.
 
Other adjustments made relate
 
primarily to DD&A, which is based on the unit-of-production
 
method,
resulting from the purchase price allocated
 
to properties, plants and equipment.
 
We believe the estimates
 
and
assumptions are reasonable, and the relative
 
effects of the transaction
 
are properly reflected.
Notes to Consolidated Financial Statements
9
 
ConocoPhillips
 
2021 Q3 10-Q
Assets Sold
In 2020, we completed the sale of our Australia
 
-West asset and operations.
 
The sales agreement entitled us to a
$
200
 
million payment upon a final investment
 
decision (FID) of the Barossa development project.
 
On March 30,
2021, FID was announced and as such, we recognized
 
a $
200
 
million gain on disposition in the first
 
quarter of 2021.
 
The purchaser failed to pay the
 
FID bonus when due.
 
We have commenced an arbitration
 
proceeding against the
purchaser to enforce our contractual
 
right to the $
200
 
million, plus interest accruing from the
 
due date.
 
Results of
operations related to
 
this transaction are reflected
 
in our Asia Pacific segment.
 
In the third quarter of 2021, we sold our interests
 
in certain noncore assets in our Lower 48 segment
 
for
approximately $
150
 
million after customary adjustments,
 
recognizing a before-tax gain
 
on sale of approximately
$
26
 
million.
 
Production from these noncore Lower
 
48 properties averaged
 
approximately
15
 
MBOED in the nine-
months ended September 30, 2021.
 
We also completed the sale of our
 
noncore exploration interests
 
in Argentina,
recognizing a before-tax
 
loss on disposition of $
179
 
million. Results of operations
 
for Argentina were reported
 
in
our Other International segment.
 
For the three- and nine-months ended September
 
30, 2021, we recorded contingent
 
payments of $
121
 
million and
$
222
 
million, respectively,
 
relating to previous dispositions.
 
The contingent payments are
 
recorded as gain on
disposition on our consolidated income statement
 
and are reflected within our Canada
 
and Lower 48 segments.
 
No
 
contingent payments were
 
recorded in 2020.
 
Note 4—Investments,
 
Loans and Long-Term
 
Receivables
 
Australia Pacific LNG Pty Ltd
 
(APLNG)
APLNG executed project financing
 
agreements for an $
8.5
 
billion project finance facility in 2012.
 
All amounts were
drawn from the facility.
 
The project financing facility has been restructured
 
over time and at September 30, 2021,
this facility was composed of a financing agreement
 
with the Export-Import Bank of the United States,
 
a
commercial bank facility and
two
 
United States Private
 
Placement note facilities.
 
APLNG made its first principal
and interest repayme
 
nt in March 2017 and is scheduled to make
 
bi-annual payments until September
 
2030.
 
At
September 30, 2021, a balance of $
5.7
 
billion was outstanding on these
 
facilities.
 
 
During the fourth quarter of 2020, the estimated
 
fair value of our investment
 
in APLNG declined to an amount
below carrying value, primarily due to the weakening
 
of the U.S. dollar relative to the Australian
 
dollar.
 
Based on a
review of the facts and circumstances
 
surrounding this decline in fair value, we concluded
 
the impairment was not
other than temporary under the guidance of FASB
 
ASC Topic
 
323, “Investments – Equity
 
Method and Joint
Ventures.”
 
Due primarily to improved outlooks for
 
commodity prices and the strengthening
 
of the U.S. dollar
relative to the Australian
 
dollar during the first nine months of 2021, the estimated
 
fair value of our investment
increased and is above carrying value at
 
September 30, 2021.
 
On October 25, 2021, Origin Energy Limited agreed
 
to the sale of
10
 
percent of their interest
 
in APLNG for
approximately $
1.6
 
billion which is expected to close in the fourth
 
quarter of 2021.
 
The transaction is subject to
preemption rights in favor
 
of ConocoPhillips and Sinopec among other considerations.
 
We will continue to
monitor and evaluate the relationship
 
between the carrying value and fair value
 
of APLNG, including any impact
from this announced transaction.
At September 30, 2021, the carrying value
 
of our equity method investment
 
in APLNG was $
6.4
 
billion.
 
The
balance is included in the “Investments and
 
long-term receivables” line on our consolidated
 
balance sheet.
Loans
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 September 30, 2021, significant loans
 
to affiliated companies
included $
114
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3), which is recorded
 
within
the “Accounts
 
and notes receivable—related
 
parties” line on our consolidated balance sheet
.
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
10
Note 5—Investment in Cenovus
 
Energy
Our investment in Cenovus Energy
 
(CVE) shares is carried on our consolidated
 
balance sheet at fair value of $
1.4
billion based on the closing price of $
10.06
 
per share on the NYSE on the last trading
 
day of the quarter.
 
At
September 30, 2021 and December 31, 2020, we held
141
 
million and
208
 
million shares of CVE common stock,
respectively.
 
At September 30, 2021, our investment
 
approximated
7
 
percent of the issued and outstanding
 
CVE
common stock.
During the third quarter,
 
we sold
47
 
million shares of our CVE common stock, recognizing
 
proceeds of $
404
 
million.
 
Since we began disposing of our CVE shares
 
in May 2021, we have sold
67
 
million shares for total proceeds
 
of $
584
million, of which $
569
 
million was received by the end of the third
 
quarter.
 
Subject to market conditions, we
intend to continue to decrease
 
our investment over time.
 
All gains and losses are recognized
 
within “Other income (loss)” on our consolidated
 
income statement.
 
Proceeds
related to the sale of our CVE shares are
 
presented within “Cash Flows from Investing
 
Activities” on our
consolidated statement
 
of cash flows.
 
for information related
 
to fair value measurement
.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Total
 
Net gain (loss) on equity securities
$
17
(162)
743
(1,302)
Less: Net gain (loss) on equity securities sold during
 
the period
(50)
-
177
-
Unrealized gain (loss) on equity securities
 
still held at
 
the reporting date
$
67
(162)
566
(1,302)
Note 6—Impairments
 
During the three-
 
and nine-month periods ended September 30, 2021 and
 
2020, we recognized before
 
-tax
impairment charges within the following
 
segments:
Millions of Dollars
 
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Alaska
$
-
-
3
-
Lower 48
 
(89)
1
(93)
514
Europe, Middle East and North Africa
-
1
-
7
$
(89)
2
(90)
521
In the three-month period ended September 30, 2021,
 
we recorded a credit to impairment
 
of $
89
 
million in our
Lower 48 segment due to a decreased ARO
 
estimate for a previously
 
sold asset, in which we retained the ARO
liability.
 
In the first quarter of 2020, we recorded
 
impairments of $
511
 
million related to certain noncore
 
natural gas assets
in the Lower 48 segment which were written
 
down to fair value.
 
Notes to Consolidated Financial Statements
11
 
ConocoPhillips
 
2021 Q3 10-Q
Note 7—Debt
 
Our debt balance at September 30, 2021, was
 
$
19.7
 
billion compared with $
15.4
 
billion at December 31, 2020.
 
On January 15, 2021, we completed the acquisition of Concho
 
in an all-stock transaction.
 
In the acquisition, we
assumed Concho’s publicly
 
traded debt, with an outstanding principal balance
 
of $
3.9
 
billion, which was recorded
at fair value of $
4.7
 
billion on the acquisition date.
 
Debt assumed consisted of the following:
3.75
% Notes due
2027
 
with principal of $
1,000
 
million
4.3
% Notes due
2028
 
with principal of $
1,000
 
million
2.4
% Notes due
2031
 
with principal of $
500
 
million
4.875
% Notes due
2047
 
with principal of $
800
 
million
4.85
% Notes due
2048
 
with principal of $
600
 
million
The adjustment to fair value of the senior
 
notes of approximately $
0.8
 
billion on the acquisition date will be
amortized as an adjustment to interest
 
expense over the remaining contractual
 
terms of the senior notes.
In the first quarter of 2021, we completed
 
a debt exchange offer
 
related to the debt assumed from
 
Concho.
 
Of the
approximately $
3.9
 
billion in aggregate principal amount
 
of Concho’s senior notes
 
offered in the exchange,
98
percent, or approximately
 
$
3.8
 
billion, were tendered and accepted.
 
The new debt issued by ConocoPhillips had
the same interest rates
 
and maturity dates as the Concho senior notes.
 
The portion not exchanged, approximately
$
67
 
million, remained outstanding across
 
five series of senior notes issued by Concho.
 
The debt exchange was
treated as a debt modification for
 
accounting purposes resulting in a portion
 
of the unamortized fair value
adjustment of the Concho senior notes allocated
 
to the new debt issued by ConocoPhillips on the settlement
 
date
of the exchange.
 
The new debt issued in the exchange is
 
fully and unconditionally guaranteed by
 
ConocoPhillips
Company.
 
We have a revolving
 
credit facility totaling $
6.0
 
billion with an expiration date
 
of
May 2023
.
 
Our revolving credit
facility may be used for direct
 
bank borrowings, the issuance of letters
 
of credit totaling up to $
500
 
million, or as
support for our commercial paper program.
 
The revolving credit facility is broadly
 
syndicated among financial
institutions and does not contain any
 
material adverse change provisions
 
or any covenants requiring maintenance
of specified financial ratios or credit ratings.
 
The facility agreement contains
 
a cross-default provision
 
relating to
the failure to pay principal or
 
interest on other debt obligations
 
of $
200
 
million or more by ConocoPhillips, or any
of its consolidated subsidiaries.
 
The amount of the facility is not subject to redetermination
 
prior to its expiration
date.
Credit facility borrowings may
 
bear interest at a margin above
 
rates offered
 
by certain designated banks in the
London interbank market or
 
at a margin above the overnight federal
 
funds rate or prime rates
 
offered by certain
designated banks in the U.S.
 
The facility agreement calls for
 
commitment fees on available,
 
but unused, amounts.
 
The facility agreement also contains
 
early termination rights if our current directors
 
or their approved successors
cease to be a majority of the Board of Directors.
The revolving credit facility supports
 
our ability to issue up to $
6.0
 
billion of commercial paper.
 
Commercial paper
is generally limited to
maturities of 90 days
 
and is included in the short-term debt on our consolidated
 
balance
sheet. With no commercial paper outstanding
 
and
no
 
direct borrowings or letters
 
of credit, we had access to $
6.0
billion in available borrowing capacity
 
under our revolving credit facility at
 
September 30, 2021.
 
At December 31,
2020, we had $
300
 
million of commercial paper outstanding
 
and
no
 
direct borrowings or letters of credit
 
issued.
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
12
Following our September 20, 2021, announcement
 
regarding the Shell Permian
 
Acquisition,
 
the three rating
agencies reviewed their pre-announcement
 
ratings on our debt resulting in the
 
following:
Fitch affirmed its rating of our long-term debt as “A” with a “stable” outlook.
 
S&P affirmed its rating of our long-term debt of “A-” with a “stable” outlook.
 
Moody’s affirmed its rating of our senior long-term debt of “A3” and upgraded the outlook to “positive”
from “stable.”
 
We do not have any
 
ratings triggers on any of our
 
corporate debt that would
 
cause an automatic default, and
thereby impact our access to liquidity,
 
upon downgrade of our credit ratings.
 
If our credit ratings are downgraded
from their current levels, it could
 
increase the cost of corporate
 
debt available to us and restrict
 
our access to the
commercial paper markets.
 
If our credit rating were to deteriorate
 
to a level prohibiting us from accessing
 
the
commercial paper market, we
 
would still be able to access funds under our revolving
 
credit facility.
 
At September 30, 2021, we had $
283
 
million of certain variable rate
 
demand bonds (VRDBs) outstanding with
maturities ranging through 2035.
 
The VRDBs are redeemable at the option of the bondholders
 
on any business
day.
 
If they are ever redeemed, we have
 
the ability and intent to refinance on
 
a long-term basis, therefore, the
VRDBs are included in the “Long-term debt” line on our consolidated
 
balance sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
13
 
ConocoPhillips
 
2021 Q3 10-Q
Note 8—Changes in Equity
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2021
Balances at June 30, 2021
$
21
60,337
(48,278)
(4,920)
37,116
44,276
Net income
2,379
2,379
Other comprehensive income
(203)
(203)
Dividends paid ($
0.43
 
per common share)
(579)
(579)
Dividends payable ($
0.46
 
per common share)
(609)
(609)
Repurchase of company common stock
(1,243)
(1,243)
Distributed under benefit plans
94
94
Balances at September 30, 2021
$
21
60,431
(49,521)
(5,123)
38,307
-
44,115
For the nine months ended September 30, 2021
Balances at December 31, 2020
$
18
47,133
(47,297)
(5,218)
35,213
29,849
Net income
5,452
5,452
Other comprehensive income
95
95
Dividends paid ($
1.29
 
per common share)
(1,750)
(1,750)
Dividends payable ($
0.46
 
per common share)
(609)
(609)
Acquisition of Concho
3
13,122
13,125
Repurchase of company common stock
(2,224)
(2,224)
Distributed under benefit plans
176
176
Other
 
1
1
Balances at September 30, 2021
$
21
60,431
(49,521)
(5,123)
38,307
-
44,115
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2020
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
31,493
Net income
(450)
(450)
Other comprehensive income
159
159
Dividends paid ($
0.42
 
per common share)
(454)
(454)
Distributed under benefit plans
34
34
Other
 
1
1
Balances at September 30, 2020
$
18
47,113
(47,130)
(5,666)
36,448
-
30,783
For the nine months ended September 30, 2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income
(1,929)
46
(1,883)
Other comprehensive loss
(309)
(309)
Dividends paid ($
1.26
 
per common share)
(1,367)
(1,367)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(32)
(32)
Dispositions
(84)
(84)
Distributed under benefit plans
130
130
Other
 
1
2
1
4
Balances at September 30, 2020
$
18
47,113
(47,130)
(5,666)
36,448
-
30,783
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
14
Note 9—Guarantees
At September 30, 2021, we were
 
liable for certain contingent
 
obligations under various contractual
 
arrangements
as described below.
 
We recognize a liability,
 
at inception, for the fair value
 
of our obligation as a guarantor
 
for
newly issued or modified guarantees.
 
Unless the carrying amount of the liability is noted below,
 
we have not
recognized a liability because the
 
fair value of the obligation
 
is immaterial.
 
In addition, unless otherwise stated, we
are not currently performing with any
 
significance under the guarantee and expect
 
future performance to be
either immaterial or have only a remote
 
chance of occurrence.
APLNG Guarantees
At September 30, 2021, we had outstanding
 
multiple guarantees in connection with our
37.5
 
percent ownership
interest in APLNG.
 
The following is a description of the guarantees
 
with values calculated utilizing September
 
2021
exchange rates:
 
 
During the third quarter of 2016, we issued a guarantee
 
to facilitate the withdrawal
 
of our pro-rata portion
of the funds in a project finance reserve account.
 
We estimate the remaining
 
term of this guarantee
 
is
9
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 September 30,
2021, the carrying value of this guarantee
 
was $
14
 
million.
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy
 
Limited in
October 2008, we agreed to reimburse
 
Origin Energy Limited for our share
 
of the existing contingent liability
arising under guarantees of an existing
 
obligation of APLNG to deliver natural
 
gas under several sales
agreements with remaining terms of
1 to 21 years
.
 
Our maximum potential liability for future
 
payments, or
cost of volume delivery,
 
under these guarantees is estimated
 
to be $
670
 
million ($
1.2
 
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
15 to 24
years
 
or the life of the venture.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately
 
$
180
 
million and would become payable
 
if APLNG does not perform.
 
At
September 30, 2021, the carrying value of these guarantees
 
was $
11
 
million.
 
Other Guarantees
We have other guarantees
 
with maximum future potential payment
 
amounts totaling approximately
 
$
720
 
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
one to five years
 
and would become payable if certain asset
 
values are
lower than guaranteed amounts
 
at the end of the lease or contract term, business
 
conditions decline at
guaranteed entities, or as a result
 
of nonperformance of contractual
 
terms by guaranteed parties.
 
At September
30, 2021, the carrying value of these guarantees
 
was $
11
 
million.
 
Indemnifications
Over the years, we have entered
 
into agreements to sell ownership
 
interests in certain legal entities,
 
joint ventures
and assets that gave rise to
 
qualifying indemnifications.
 
These agreements include indemnifications for
 
taxes,
lease commitments and environmental
 
liabilities.
 
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 September 30, 2021, was $
30
 
million.
 
We amortize the
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
Notes to Consolidated Financial Statements
15
 
ConocoPhillips
 
2021 Q3 10-Q
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.
 
for
additional information about environmental
 
liabilities
.
 
Note 10—Contingencies and Commitments
A number of lawsuits involving a variety
 
of claims arising in the ordinary course of business
 
have been filed against
ConocoPhillips.
 
We also may be required
 
to remove or mitigate
 
the effects on the environment
 
of the placement,
storage, disposal or release of
 
certain chemical, mineral and petroleum
 
substances at various
 
active and inactive
sites.
 
We regularly assess the need for accounting
 
recognition or disclosure of these contingencies.
 
In the case of
all known contingencies (other than those related
 
to income taxes), we accrue
 
a liability when the loss is probable
and the amount is reasonably estimable.
 
If a range of amounts can be reasonably
 
estimated and no amount within
the range is a better estimate
 
than any other amount, then the low end of the range
 
is accrued.
 
We do not reduce
these liabilities for potential insurance
 
or third-party recoveries.
 
We accrue receivables for
 
insurance or other
third-party recoveries when applicable.
 
With respect to income tax-related
 
contingencies, we use a cumulative
probability-weighted loss accrual
 
in cases where sustaining a tax
 
position is less than certain.
Based on currently available information,
 
we believe it is remote that future
 
costs related to known
 
contingent
liability exposures will exceed
 
current accruals by an amount that
 
would have a material adverse
 
impact on our
consolidated financial statements.
 
As we learn new facts concerning contingencies,
 
we reassess our position both
with respect to accrued liabilities and other potential
 
exposures.
 
Estimates particularly sensitive to future
 
changes
include contingent liabilities recorded
 
for environmental
 
remediation, tax and legal matters.
 
Estimated future
environmental remediation
 
costs are subject to change due to
 
such factors as the uncertain
 
magnitude of cleanup
costs, the unknown time and extent of such
 
remedial actions that may be required,
 
and the determination of our
liability in proportion to that of other responsible
 
parties.
 
Estimated future costs
 
related to tax and legal
 
matters
are subject to change as events
 
evolve and as additional information
 
becomes available during the administrative
and litigation processes.
Environmental
We are subject to international,
 
federal, state and
 
local environmental laws
 
and regulations and record
 
accruals for
environmental liabilities based on
 
management’s best estimates.
 
These estimates are based on currently
 
available
facts, existing technology,
 
and presently enacted laws and regulations,
 
taking into account stakeholder
 
and
business considerations.
 
When measuring environmental liabilities,
 
we also consider our prior experience in
remediation of contaminated
 
sites, other companies’ cleanup experience, and data
 
released by the U.S. EPA
 
or
other organizations.
 
We consider unasserted claims in our determination
 
of environmental liabilities,
 
and we
accrue them in the period they are both probable and
 
reasonably estimable.
Although liability of those potentially responsible
 
for environmental remediation
 
costs is generally joint and
several for federal
 
sites and frequently so for other
 
sites, we are usually only one of many companies
 
cited at a
particular site.
 
Due to the joint and several liabilities, we could
 
be responsible for all cleanup costs related
 
to any
site at which we have been designated
 
as a potentially responsible party.
 
We have been successful to
 
date in
sharing cleanup costs with other financially sound
 
companies.
 
Many of the sites at which we are potentially
responsible are still under investigation
 
by the EPA or
 
the agency concerned.
 
Prior to actual cleanup, those
potentially responsible normally assess the
 
site conditions, apportion responsibility and determine
 
the appropriate
remediation.
 
In some instances, we may have
 
no liability or may attain a settlement
 
of liability.
 
Where it appears
that other potentially responsible parties may
 
be financially unable to bear their proportional share,
 
we consider
this inability in estimating our potential liability,
 
and we adjust our accruals accordingly.
 
As a result of various
acquisitions in the past, we assumed certain environmental
 
obligations.
 
Some of these environmental obligations
are mitigated by indemnifications
 
made by others for our benefit, and some of the indemnifications
 
are subject to
dollar limits and time limits.
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
16
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 September 30, 2021, our balance sheet included
 
a total environmental
 
accrual of $
191
 
million, compared with
$
180
 
million at December 31, 2020, for remediation
 
activities in the U.S. and Canada.
 
We expect to incur a
substantial amount of these expenditures
 
within the next
30 years
.
 
In the future, we may be involved
 
in additional
environmental assessments,
 
cleanups and proceedings.
Litigation and Other Contingencies
We are subject to various
 
lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
 
and
severance tax payments,
 
gas measurement and valuation
 
methods, contract disputes,
 
environmental damages,
climate change, personal injury,
 
and property damage.
 
Our primary exposures for such matters
 
relate to alleged
royalty and tax underpayments
 
on certain federal, state
 
and privately owned properties, claims
 
of alleged
environmental contamination
 
from historic operations,
 
and other contract disputes.
 
We will continue to defend
ourselves vigorously in these matters.
Our legal organization
 
applies its knowledge, experience and professional
 
judgment to the specific characteristics
of our cases, employing a litigation management
 
process to manage and monitor the legal
 
proceedings against us.
 
Our process facilitates the
 
early evaluation and quantification
 
of potential exposures in individual cases.
 
This
process also enables us to track those cases
 
that have been scheduled for trial and/or
 
mediation.
 
Based on
professional judgment and experience
 
in using these litigation management
 
tools and available information
 
about
current developments in all our cases,
 
our legal organization regularly
 
assesses the adequacy of current accruals
and determines if adjustment of existing
 
accruals, or establishment of new accruals, is
 
required.
We have contingent
 
liabilities resulting from throughput agreements
 
with pipeline and processing companies not
associated with financing arrangements.
 
Under these agreements, we may be required
 
to provide any such
company with additional funds through
 
advances and penalties for fees related
 
to throughput capacity not utilized.
 
In addition, at September 30, 2021, we had performance
 
obligations secured by letters
 
of credit of
 
$
281
 
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 unan
 
imously ordered the government of Venezuela
 
to pay ConocoPhillips approximately
$
8.7
 
billion in compensation for the government’s
 
unlawful expropriation of the company’s
 
investments in
Venezuela in 2007.
 
On August 29, 2019, the ICSID Tribunal
 
issued a decision rectifying the award and
 
reducing it
by approximately $
227
 
million.
 
The award now stands at
 
$
8.5
 
billion plus interest.
 
The government of Venezuela
sought annulment of the award,
 
which automatically stayed
 
enforcement of the award.
 
On September 29, 2021,
the ICSID annulment committee lifted the
 
stay of enforcement
 
of the award.
 
The annulment proceedings have
been suspended as a result of Venezuela’s
 
non-payment of advances
 
to cover the costs of these proceedings.
Notes to Consolidated Financial Statements
17
 
ConocoPhillips
 
2021 Q3 10-Q
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.
 
Per the settlement, PDVSA recognized
 
the ICC award as a judgment in various
 
jurisdictions,
and ConocoPhillips agreed to suspend
 
its legal enforcement actions.
 
ConocoPhillips sent notices of default to
PDVSA
 
on October 14 and November 12, 2019, and to
 
date PDVSA has failed to cure
 
its breach.
 
As a result,
ConocoPhillips has resumed legal enforcement
 
actions.
 
To date,
 
ConocoPhillips has received approximately
 
$
766
million in connection with the ICC award.
 
ConocoPhillips has ensured that
 
the settlement and any actions taken
 
in
enforcement thereof meet all
 
appropriate U.S. regulatory
 
requirements, including those related
 
to any applicable
sanctions imposed by the U.S. against
 
Venezuela.
In 2016, ConocoPhillips filed a separate
 
and independent arbitration under the rules
 
of the ICC against PDVSA
under the contracts that had established
 
the Corocoro Project.
 
On August 2, 2019, the ICC Tribunal
 
awarded
ConocoPhillips approximately
 
$
33
 
million plus interest under the Corocoro
 
contracts.
 
ConocoPhillips is seeking
recognition and enforcement
 
of the award in various jurisdictions.
 
ConocoPhillips has ensured that all the actions
related to the award meet
 
all appropriate U.S. regulatory
 
requirements, including those related
 
to any applicable
sanctions imposed by the U.S. against
 
Venezuela.
The Office of Natural Resources
 
Revenue (ONRR) has conducted audits
 
of ConocoPhillips’ payment of royalties
 
on
federal lands and has issued multiple orders
 
to pay additional royalties
 
to the federal government.
 
ConocoPhillips
and the ONRR entered into a settlement
 
agreement on March 23, 2021, to resolve
 
the dispute.
 
All orders and
associated appeals have been withdrawn
 
with prejudice.
Beginning in 2017, cities, counties, governments
 
and other entities in several states
 
in the U.S. have filed lawsuits
against oil and gas companies,
 
including ConocoPhillips, seeking compensatory
 
damages and equitable relief to
abate alleged climate change impacts.
 
Additional lawsuits with similar allegations are
 
expected to be filed.
 
The
amounts claimed by plaintiffs are
 
unspecified and the legal and factual issues
 
involved in these cases are
unprecedented.
 
ConocoPhillips believes these lawsuits
 
are factually and legally meritless and
 
are an inappropriate
vehicle to address the challenges associated
 
with climate change and will vigorously
 
defend against such lawsuits.
Several Louisiana parishes and the State
 
of Louisiana have filed
43
 
lawsuits under Louisiana’s
 
State and Local
Coastal Resources Management
 
Act (SLCRMA) against oil and gas
 
companies, including ConocoPhillips, seeking
compensatory damages for contamination
 
and erosion of the Louisiana coastline allegedly
 
caused by historical oil
and gas operations.
 
ConocoPhillips entities are defendants
 
in
22
 
of the lawsuits and will vigorously defend
 
against
them.
 
Because Plaintiffs’ SLCRMA theories are
 
unprecedented, there is uncertainty
 
about these claims (both as to
scope and damages) and we continue to
 
evaluate our exposure in these
 
lawsuits.
In October 2020, the Bureau of Safety
 
and Environmental Enforcement
 
(BSEE) ordered the prior owners of Outer
Continental Shelf (OCS) Lease P-0166,
 
including ConocoPhillips, to decommission
 
the lease facilities, including two
offshore platforms located
 
near Carpinteria, California.
 
ConocoPhillips is challenging this order.
 
This order was
sent after the current owner of OCS Lease P-0166
 
relinquished the lease and abandoned the lease platforms
 
and
facilities.
 
BSEE’s order to
 
ConocoPhillips is premised on its connection to
 
Phillips Petroleum Company,
 
a legacy
company of ConocoPhillips, which held a historical
25
 
percent interest in this
 
lease and operated these facilities,
but sold its interest approximately
30 years
 
ago.
 
ConocoPhillips continues to evaluate
 
its exposure in this matter.
On May 10, 2021, ConocoPhillips filed arbitration
 
under the rules of the Singapore International
 
Arbitration Centre
(SIAC) against Santos KOTN
 
Pty Ltd. and Santos Limited for
 
their failure to timely pay the $
200
 
million bonus due
upon FID of the Barossa development project
 
under the sale and purchase agreement.
 
Santos KOTN
 
Pty Ltd. and
Santos Limited have filed a counterclaim,
 
and the arbitration is underway.
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
18
Note 11—Derivative and Financial Instruments
We use futures, forwards,
 
swaps and options in various markets
 
to meet our customer needs, capture
 
market
opportunities and manage foreign exchange
 
currency risk.
 
Commodity Derivative Instruments
Our commodity business primarily consists of natural
 
gas, crude oil, bitumen, LNG and NGLs.
 
Commodity derivative instruments
 
are held at fair value on our consolidated
 
balance sheet.
 
Where these balances
have the right of setoff,
 
they are presented on a net basis.
 
Related cash flows are recorded
 
as operating
 
activities
on our consolidated statement
 
of cash flows.
 
On our consolidated income statement,
 
gains and losses are
recognized either on a gross
 
basis if directly related to our physical
 
business or a net basis if held for trading.
 
Gains
and losses related to contracts
 
that meet and are designated with the NPNS
 
exception are recognized
 
upon
settlement.
 
We generally apply this
 
exception to eligible crude contracts
 
and certain gas contracts.
 
We do not
apply hedge accounting for our commodity
 
derivatives.
The following table presents the gross
 
fair values of our commodity derivatives,
 
excluding collateral,
 
and the line
items where they appear on our consolidated
 
balance sheet:
Millions of Dollars
September 30
December 31
2021
2020
Assets
Prepaid expenses and other current
 
assets
$
1,601
229
Other assets
109
26
Liabilities
Other accruals
1,681
202
Other liabilities and deferred credits
94
18
The gains (losses) from commodity derivatives
 
incurred, and the line items where they appear on
 
our consolidated
income statement were:
Millions of Dollars
 
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Sales and other operating revenues
$
(483)
33
(862)
30
Other income (loss)
7
(2)
23
3
Purchased commodities
405
(27)
550
(29)
On January 15, 2021, we assumed financial derivative instruments
 
consisting of oil and natural gas
 
swaps in
connection with the acquisition of Concho.
 
At the acquisition date, the financial derivative
 
instruments acquired
were recognized at fair
 
value as a net liability of $
456
 
million with settlement dates under the contracts
 
through
December 31, 2022.
 
During the first quarter of 2021, we recognized
 
a loss of $
173
 
million on Concho derivative
contracts with settlement dates
 
on or before March 31, 2021, and an
 
additional $
132
 
million loss related to all
remaining Concho derivative contracts
 
with settlement dates subsequent
 
to March 31, 2021, for a total loss of
$
305
 
million.
 
This loss associated with the acquired financial
 
instruments is recorded within the
 
“Sales and other
operating revenues” line on our
 
consolidated income statement.
 
 
 
Notes to Consolidated Financial Statements
19
 
ConocoPhillips
 
2021 Q3 10-Q
By the end of March 2021, all oil and natural
 
gas derivative financial instruments
 
acquired from Concho were
contractually settled.
 
In connection with the settlement, we issued
 
a cash payment of $
692
 
million in the first
quarter of 2021 and $
69
 
million in the second quarter of 2021.
 
Cash settlements related
 
to the Concho derivative
contracts are presented
 
within “Cash Flows From Operating Activities”
 
on our consolidated statement
 
of cash
flows.
The table below summarizes our material
 
net exposures resulting from
 
outstanding commodity derivative
contracts:
Open Position
Long/(Short)
September 30
December 31
2021
2020
Commodity
Natural gas and power (billions
 
of cubic feet equivalent)
 
Fixed price
10
(20)
 
Basis
(19)
(10)
Financial Instruments
We invest in financial
 
instruments with maturities based on our cash
 
forecasts for the various
 
accounts and
currency pools we manage.
 
The types of financial instruments in which we currently
 
invest include:
Time deposits: Interest bearing deposits
 
placed with financial institutions for a predetermined
 
amount of
time.
 
Demand deposits: Interest bearing deposits
 
placed with financial institutions.
 
Deposited funds can be
withdrawn without notice.
Commercial paper: Unsecured promissory
 
notes issued by a corporation, commercial
 
bank or government
agency purchased at a discount to
 
mature at par.
U.S. government or government
 
agency obligations: Securities issued by the U.S.
 
government or U.S.
government agencies.
Foreign government obligations:
 
Securities issued by foreign governments.
Corporate bonds: Unsecured debt
 
securities issued by corporations.
Asset-backed securities: Collateralized
 
debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
20
The following investments are
 
carried on our consolidated balance sheet at cost, plus accrued
 
interest and the table
reflects remaining maturities at September 30, 2021 and
 
December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term
 
Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Cash
$
634
597
Demand Deposits
1,847
1,133
Time Deposits
1 to 90 days
7,226
1,225
469
2,859
91 to 180 days
8
448
Within one year
5
13
One year through five years
2
1
U.S. Government
 
Obligations
1 to 90 days
16
23
-
-
$
9,723
2,978
482
3,320
2
1
The following investments in debt securities
 
classified as available for sale are carried at
 
fair value on our consolidated
balance sheet at September 30, 2021 and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term
 
Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
-
-
113
130
184
143
Commercial Paper
110
13
69
155
U.S. Government
 
Obligations
-
-
-
4
6
13
U.S. Government
 
Agency Obligations
2
-
8
17
Foreign Government
 
Obligations
10
-
3
2
Asset-backed
 
Securities
2
-
59
41
$
110
13
196
289
260
216
Cash and Cash Equivalents and Short-Term
 
Investments have remaining maturities
 
within one year.
Investments and Long-Term
 
Receivables have remaining maturities greater
 
than one year through eight years.
 
 
 
 
 
Notes to Consolidated Financial Statements
21
 
ConocoPhillips
 
2021 Q3 10-Q
The following table summarizes the
 
amortized cost basis and fair value
 
of investments in debt securities classified
as available for sale:
Millions of Dollars
Amortized Cost Basis
Fair Value
September 30
December 31
September 30
December 31
2021
2020
2021
2020
Major Security Type
Corporate bonds
$
296
271
297
273
Commercial paper
179
168
179
168
U.S. government obligations
6
17
6
17
U.S. government agency obligations
10
17
10
17
Foreign government obligations
13
2
13
2
Asset-backed securities
61
41
61
41
$
565
516
566
518
At September 30, 2021 and December 31, 2020, total
 
unrealized losses for debt
 
securities classified as available for
sale with net losses were negligible.
 
Additionally, at
 
September 30, 2021 and December 31, 2020, investment
 
s
 
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 nine-month periods ended September 30, 2021, proceeds
 
from sales and redemptions of
investments in debt securities classified
 
as available for sale were $
165
 
million and $
485
 
million, respectively.
 
For
the three-
 
and nine-month periods ended September 30, 2020,
 
proceeds from sales and redemptions of
investments in debt securities classified
 
as available for sale were $
109
 
million and $
298
 
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, U.S. government
 
and government agency obligations,
 
time deposits with major international banks
and financial institutions, high-quality corporate
 
bonds, foreign government obligations
 
and asset-backed
securities.
 
Our long-term investments in debt
 
securities are placed in high-quality corporate
 
bonds, asset-backed
securities, U.S. government and government
 
agency obligations, foreign
 
government obligations, and
 
time
deposits with major international banks
 
and financial institutions.
The credit risk from our OTC derivative
 
contracts, such as forwards,
 
swaps and options, derives from the
counterparty to the transaction.
 
Individual counterparty exposure
 
is managed within predetermined credit limits
and includes the use of cash-call margins when appropriate,
 
thereby reducing the risk of significant
nonperformance.
 
We also use futures, swaps
 
and option contracts that have
 
a negligible credit risk because these
trades are cleared primarily with an
 
exchange clearinghouse and subject to
 
mandatory margin requirements until
settled; however,
 
we are exposed to the credit risk
 
of those exchange brokers
 
for receivables arising from
 
daily
margin cash calls, as well as for cash
 
deposited to meet initial margin requirements.
 
Our trade receivables result primarily
 
from our oil and gas operations
 
and reflect a broad national and
international customer base, which limits
 
our exposure to concentrations
 
of credit risk.
 
The majority of these
receivables have payment
 
terms of
30 days
 
or less, and we continually monitor this exposure
 
and the
creditworthiness of the counterparties.
 
We may require collateral
 
to limit the exposure to loss including,
 
letters of
credit, prepayments and surety
 
bonds, as well as master netting arrangements
 
to mitigate credit risk with
counterparties that both buy from and
 
sell to us, as these agreements permit the amounts
 
owed by us or owed to
others to be offset against
 
amounts due to us.
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
22
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure
exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable
threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for
lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below
investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of
credit as collateral, such as transactions administered through the New York Mercantile Exchange.
The aggregate fair value
 
of all derivative instruments with such credit
 
risk-related contingent
 
features that were in
a liability position at September 30, 2021 and December 31,
 
2020, was $
455
 
million and $
25
 
million, respectively.
 
For these instruments,
no
 
collateral was posted at
 
September 30, 2021 or December 31, 2020.
 
If our credit rating
had been downgraded below investment
 
grade at September 30, 2021, we
 
would have been required to post
 
$
396
million of additional collateral, either with cash
 
or letters of credit.
Note 12—Fair Value
 
Measurement
We carry a portion of our assets and liabilities
 
at fair value that are measured
 
at the reporting date using an exit
price (i.e., the price that would be received to sell an
 
asset or paid to transfer
 
a liability) and disclosed according to
the quality of valuation inputs under the following hierarchy:
 
Level 1: Quoted prices (unadjusted) in an
 
active market for identical
 
assets or liabilities.
 
Level 2: Inputs other than quoted prices that are
 
directly or indirectly observable.
 
Level 3: Unobservable inputs that are
 
significant to the fair value of assets
 
or liabilities.
 
The classification of an asset or liability is based on the lowest
 
level of input significant to its fair value.
 
Those that
are initially classified as Level 3 are subsequently
 
reported as Level 2 when the fair value derived
 
from unobservable
inputs is inconsequential to the overall
 
fair value, or if corroborated
 
market data becomes available.
 
Assets and
liabilities initially reported as Level 2 are subsequently
 
reported as Level 3 if corroborated
 
market data is no longer
available.
 
There were no material transfers
 
into or out of Level 3 during the three-
 
and nine-month periods ended
September 30, 2021, nor during the year ended December
 
31, 2020.
 
Recurring Fair Value
 
Measurement
Financial assets and liabilities reported at fair
 
value on a recurring basis primarily include our investment
 
in CVE
common shares, our investments
 
in debt securities classified as available for
 
sale, and commodity derivatives.
 
Level 1 derivative assets and
 
liabilities primarily represent exchange-traded
 
futures and options that are
valued using unadjusted prices available
 
from the underlying exchange.
 
Level 1 also includes our
investment in common shares
 
of CVE, which is valued using quotes for shares
 
on the NYSE, and our
investments in U.S. government
 
obligations classified as available for
 
sale debt securities, which are
valued using exchange prices.
 
Level 2 derivative assets and
 
liabilities primarily represent OTC
 
swaps, options and forward
 
purchase and
sale contracts that are
 
valued using adjusted exchange
 
prices, prices provided by brokers
 
or pricing
service companies that are all corroborated
 
by market data.
 
Level 2 also includes our investments
 
in debt
securities classified as available for sale including
 
investments in corporate
 
bonds, commercial paper,
asset-backed securities, U.S. government
 
agency obligations and foreign
 
government obligations
 
that are
valued using pricing provided by brokers
 
or pricing service companies that are corroborated
 
with market
data.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
23
 
ConocoPhillips
 
2021 Q3 10-Q
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
September 30, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in CVE shares
$
1,416
-
-
1,416
1,256
-
-
1,256
Investments in debt securities
6
560
-
566
17
501
-
518
Commodity derivatives
882
788
40
1,710
142
101
12
255
Total
 
assets
$
2,304
1,348
40
3,692
1,415
602
12
2,029
Liabilities
Commodity derivatives
$
893
723
159
1,775
120
91
9
220
Total
 
liabilities
$
893
723
159
1,775
120
91
9
220
The following table summarizes those
 
commodity derivative balances subject to
 
the right of setoff as
 
presented on our consolidated
 
balance sheet.
 
We have elected to
 
offset the recognized fair
 
value amounts for
 
multiple derivative instruments
 
executed with the same counterparty
 
in our financial statements when a legal
right of setoff exists.
Millions of Dollars
Amounts Subject to Right of Setoff
Gross
Amounts Not
Gross
Net
Amounts
Subject to
Gross
Amounts
Amounts
Cash
Net
Recognized
Right of Setoff
Amounts
Offset
Presented
Collateral
Amounts
September 30, 2021
Assets
$
1,710
113
1,597
883
714
-
714
Liabilities
1,775
129
1,646
883
763
34
729
December 31, 2020
Assets
$
255
2
253
157
96
10
86
Liabilities
220
1
219
157
62
4
58
At September 30, 2021 and December 31, 2020, we
 
did not present any amounts
 
gross on our consolidated
 
balance sheet where we had the right of setoff.
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
24
Reported Fair Values
 
of Financial Instruments
We used the following methods
 
and assumptions to estimate the fair value
 
of financial instruments:
 
Cash and cash equivalents and short-term investments:
 
The carrying amount reported on the balance
sheet approximates fair
 
value.
 
For those investments classified as
 
available for sale debt securities, the
carrying amount reported on the balance sheet
 
is fair value.
 
Accounts and notes receivable (including
 
long-term and related parties): The carrying
 
amount reported on
the balance sheet approximates
 
fair value.
 
The valuation technique and methods used to
 
estimate the
fair value of the current portion of fixed
 
-rate related party
 
loans is consistent with Loans and advances—
related parties.
 
Investment in CVE:
for a discussion of the carrying value and fair
 
value of our investment in
CVE common shares.
 
Investments in debt securities classified
 
as available for sale: The fair value
 
of investments in debt
securities categorized as Level
 
1 in the fair value hierarchy
 
is measured using exchange prices.
 
The fair
value of investments in debt
 
securities categorized as Level 2 in
 
the fair value hierarchy
 
is measured using
pricing provided by brokers
 
or pricing service companies that are corroborated
 
with market data.
 
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.
 
Accounts payable (including
 
related parties) and floating-rate
 
debt: The carrying amount of accounts
payable and floating-rate
 
debt reported on the balance sheet approximates
 
fair value.
 
Fixed-rate debt: The estimated
 
fair value of fixed-rate
 
debt is measured using prices available from
 
a
pricing service that is corroborated
 
by market data; therefore,
 
these liabilities are categorized
 
as Level 2 in
the fair value hierarchy.
 
Commercial paper: The carrying amount of our commercial
 
paper instruments approximates
 
fair value
and is reported on the balance sheet as short-term
 
debt.
 
The following table summarizes the
 
net fair value of financial instruments
 
(i.e., adjusted where the right of setoff
exists for commodity derivatives):
Millions of Dollars
Carrying Amount
Fair Value
September 30
December 31
September 30
December 31
2021
2020
2021
2020
Financial assets
Investment in CVE shares
$
1,416
1,256
1,416
1,256
Commodity derivatives
827
88
827
88
Investments in debt securities
566
518
566
518
Loans and advances—related parties
114
220
114
220
Financial liabilities
Total
 
debt, excluding finance leases
18,815
14,478
22,797
19,106
Commodity derivatives
858
59
858
59
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
25
 
ConocoPhillips
 
2021 Q3 10-Q
Note 13—Accumulated Other Comprehensive
 
Loss
Accumulated other comprehensive
 
loss in the equity section of our consolidated balance sheet included:
Millions of Dollars
Defined Benefit
Plans
Net Unrealized
Gain (Loss) on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2020
$
(425)
2
(4,795)
(5,218)
Other comprehensive income (loss)
169
(1)
(73)
95
September 30, 2021
$
(256)
1
(4,868)
(5,123)
The following table summarizes reclassifications
 
out of accumulated other comprehensive
 
loss and into net
 
income (loss):
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Defined benefit plans
$
29
30
83
46
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $
7
 
million and $
7
million for the three-month periods ended September 30, 2021 and September 30, 2020, respectively, and $
22
 
million and $
11
 
million for the
nine-month periods ended September 30, 2021 and September 30, 2020, respectively
.
 
Note 14—Cash Flow Information
Millions of Dollars
Nine Months Ended
September 30
Cash Payments
2021
2020
Interest
$
695
591
Income taxes
358
803
Net Sales (Purchases) of Investments
Short-term investments
 
purchased
$
(5,487)
(9,662)
Short-term investments
 
sold
8,478
8,776
Long-term investments purchased
(228)
(271)
Long-term investments sold
83
68
$
2,846
(1,089)
We paid a deposit of $
475
 
million under the terms of the agreement of the Shell Permian
 
Acquisition.
 
This deposit
is included within the “Cash Flows from Investing
 
Activities - Other” on our consolidated statement of cash
 
flows.
 
for additional information on cash
 
and non-cash changes to our consolidated
 
balance sheet associated
with our Concho acquisition and information on
 
the announced Shell transaction.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
26
Note 15—Employee Benefit Plans
Pension and Postretirement
 
Plans
Millions of Dollars
Pension Benefits
Other Benefits
2021
2020
2021
2020
U.S.
Int'l.
U.S.
Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost
$
17
15
21
14
-
1
Interest cost
12
19
17
21
1
2
Expected return on plan assets
(22)
(30)
(21)
(37)
-
-
Amortization of prior service credit
-
-
-
(1)
(9)
(7)
Recognized net actuarial loss
 
9
8
12
5
-
1
Settlements
28
-
27
-
-
-
Net periodic benefit cost
$
44
12
56
2
(8)
(3)
Nine Months Ended September 30
Service cost
$
56
46
63
41
1
2
Interest cost
40
59
51
63
3
5
Expected return on plan assets
(66)
(90)
(63)
(108)
-
-
Amortization of prior service credit
-
-
-
(1)
(28)
(23)
Recognized net actuarial loss
36
24
37
16
1
1
Settlements
72
-
28
(1)
-
-
Curtailments
12
-
-
-
-
-
Special Termination
 
Benefits
9
-
-
-
-
-
Net periodic benefit cost
$
159
39
116
10
(23)
(15)
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.
We recognized a proportionate
 
share of prior actuarial losses from other comprehensive
 
income as pension
settlement expense of $
28
 
million and $
72
 
million during the three- and nine-month periods
 
ended September 30,
2021, respectively.
 
As part of our company-wide restructuring
 
program, we concluded that
 
actions taken during
the first quarter of 2021, would result
 
in a significant reduction of future service of active employees
 
in the U.S.
qualified pension plan, a U.S. nonqualified supplemental
 
retirement plan and the U.S.
 
other postretirement benefit
plans.
 
As a result, we recognized an increase
 
in the benefit obligation as a curtailment
 
loss of $
12
 
million on the
U.S. pension benefit plans.
 
In conjunction with the recognition of pension settlement
 
expense, the fair market
values of the pension plan assets were updated
 
and the pension benefit obligations of the U.S.
 
qualified pension
plan and the U.S. nonqualified supplemental
 
retirement plan were remeasured
 
at September 30, 2021.
 
At the
measurement date, the net pension
 
liability decreased by $
106
 
million compared to December 31, 2020, primarily
a result of an increase in the discount rate,
 
resulting in a corresponding increase to
 
other comprehensive income.
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
27
 
ConocoPhillips
 
2021 Q3 10-Q
The relevant assumptions are
 
summarized in the following table:
September 30
December 31
2021
2020
Expected return on plan assets
3.40
%
5.80
Relevant discount rates
U.S. qualified pension plan
2.80
%
2.40
U.S. nonqualified pension plan
2.30
1.85
During the first nine months of 2021, we contributed
 
$
409
 
million to our domestic benefit plans and $
104
 
million
to our international benefit plans.
 
In 2021, we expect to contribute a
 
total of approximately $
475
 
million to our
domestic qualified and nonqualified pension and postretirement
 
benefit plans and $
115
 
million to our
international qualified and nonqualified pension and
 
postretirement benefit plans.
 
Severance Accrual Activity
Millions of Dollars
Balance at December 31, 2020
$
24
Accruals
165
Benefit payments
(102)
Balance at September 30, 2021
$
87
Accruals include severance costs
 
associated with our company-wide restructuring
 
program.
 
Of the remaining
balance at September 30, 2021, $
51
 
million is classified as short-term.
for information relating to
 
our
Concho acquisition.
 
Note 16—Related Party
 
Transactions
Our related parties primarily include equity method
 
investments and certain trusts
 
for the benefit of employees.
 
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
Significant Transactions
 
with Equity Affiliates
2021
2020
2021
2020
Operating revenues and other income
 
$
22
21
63
59
Purchases
1
-
5
-
Operating expenses and selling, general
 
and administrative
expenses
45
16
135
43
Net interest (income) expense*
$
-
(1)
(2)
(5)
*We paid interest to,
 
or received interest from, various affiliates
.
 
for information related
 
to loans to
equity affiliates.
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
28
Note 17—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
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenue from contracts
 
with customers
$
8,880
3,078
23,794
9,908
Revenue from contracts
 
outside the scope of ASC Topic
 
606
Physical contracts
 
meeting the definition of a derivative
2,620
1,280
7,348
3,432
Financial derivative contracts
(174)
28
(434)
(47)
Consolidated sales and other operating
 
revenues
$
11,326
4,386
30,708
13,293
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
 
Millions of Dollars
 
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic
 
606
by Segment
Lower 48
$
2,123
1,018
5,934
2,692
Canada
266
152
776
452
Europe, Middle East and North Africa
231
110
638
288
Physical contracts
 
meeting the definition of a derivative
$
2,620
1,280
7,348
3,432
Millions of Dollars
 
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic
 
606
by Product
Crude oil
$
215
100
517
218
Natural gas
2,192
1,042
6,423
2,895
Other
213
138
408
319
Physical contracts
 
meeting the definition of a derivative
$
2,620
1,280
7,348
3,432
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
29
 
ConocoPhillips
 
2021 Q3 10-Q
Practical Expedients
Typically,
 
our commodity sales contracts are
 
less than 12 months in duration; however,
 
in certain specific cases
they 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 September 30, 2021, the “Accounts
 
and notes receivable” line on our consolidated
 
balance sheet, includes
trade receivables of $
4,262
 
million compared with $
1,827
 
million at December 31, 2020, and includes both
contracts with customers
 
within the scope of ASC Topic
 
606 and those that are outside the scope of ASC Topic
 
606.
 
We typically receive payment within 30 days or less (depending on the terms of the invoice) once delivery is made.
 
Revenues that are outside the scope
 
of ASC Topic 606 relate
 
primarily to physical gas sales contracts
 
at market
prices for which we do not elect NPNS and are
 
therefore accounted
 
for as a derivative under ASC Topic
 
815.
 
There
is little distinction in the nature of the customer
 
or credit quality of trade receivables
 
associated with gas sold
under contracts for which NPNS
 
has not been elected compared to trade
 
receivables where NPNS has been
elected.
Contract Liabilities from Contracts
 
with Customers
We have entered
 
into contractual arrangements
 
where we license proprietary technology
 
to customers related
 
to
the optimization process for
 
operating LNG plants.
 
The agreements typically provide for
 
negotiated payments to
be made at stated milestones.
 
The payments are not directly related
 
to our performance under the contract
 
and
are recorded as deferred
 
revenue to be recognized
 
as revenue when the customer can utilize
 
and benefit from
their right to use the license.
 
Payments are received in installments over the construction period.
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
97
Contractual payments received
7
Revenue recognized
(62)
At September 30, 2021
$
42
Amounts Recognized in the Consolidated
 
Balance Sheet at September 30, 2021
Current liabilities
$
42
For the nine-month period of 2021, we recognized revenue of $62 million in the “Sales and other operating
revenues” line on our consolidated income statement. No revenue was recognized during the three-month period
ended September 30, 2021. We expect to recognize the contract liabilities as of September 30, 2021, as revenue
during 2022.
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
30
Note 18—Segment Disclosures and Related
 
Information
 
We explore for,
 
produce, transport and market
 
crude oil, bitumen, natural gas,
 
LNG and NGLs on a worldwide
basis.
 
We manage our operations
 
through
six
 
operating segments, which are primarily defined
 
by geographic
region: Alaska; Lower 48; Canada; Europe,
 
Middle East and North Africa; Asia Pacific; and
 
Other International.
 
Corporate and Other represents
 
income and costs not directly associated
 
with an operating segment, such as most
interest income and expense;
 
premiums on early retirement of debt;
 
corporate overhead and
 
certain technology
activities, including licensing revenues;
 
and unrealized holding gains
 
or losses on equity securities.
 
Corporate
assets include all cash and cash equivalents
 
and short-term investments.
 
We evaluate performance
 
and allocate resources based
 
on net income (loss) attributable to ConocoPhillips.
 
Intersegment sales are at
 
prices that approximate market.
 
On January 15, 2021, we completed our acquisition
 
of Concho, an independent oil and gas exploration
 
and
production company with operations
 
across New Mexico and West
 
Texas.
 
Results of operations for
 
Concho are
included in our Lower 48 segment for the current
 
period.
 
Certain transaction and restructuring
 
costs associated
with the Concho acquisition are included in our Corporate
 
and Other segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
31
 
ConocoPhillips
 
2021 Q3 10-Q
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Sales and Other Operating Revenues
Alaska
$
1,395
864
3,946
2,396
Intersegment eliminations
-
(30)
-
(11)
Alaska
1,395
834
3,946
2,385
Lower 48
7,566
2,323
19,968
6,859
Intersegment eliminations
(1)
(9)
(5)
(47)
Lower 48
7,565
2,314
19,963
6,812
Canada
967
348
2,636
1,026
Intersegment eliminations
(406)
(20)
(1,063)
(200)
Canada
561
328
1,573
826
Europe, Middle East and North Africa
1,127
432
3,270
1,320
Asia Pacific
673
477
1,880
1,930
Other International
1
1
4
5
Corporate and Other
4
-
72
15
Consolidated sales and other operating
 
revenues
$
11,326
4,386
30,708
13,293
Sales and Other Operating Revenues
 
by Geographic Location
(1)
United States
$
8,963
3,148
23,978
9,209
Australia
-
-
-
605
Canada
561
328
1,573
826
China
193
161
519
374
Indonesia
231
167
634
503
Libya
313
6
833
50
Malaysia
249
148
727
447
Norway
678
358
1,708
1,046
United Kingdom
136
68
729
224
Other foreign countries
2
2
7
9
Worldwide consolidated
$
11,326
4,386
30,708
13,293
Sales and Other Operating Revenues
 
by Product
Crude oil
$
6,433
2,321
16,725
6,981
Natural gas
4,099
1,509
11,422
4,354
Natural gas liquids
414
129
976
364
Other
(2)
380
427
1,585
1,594
Consolidated sales and other operating
 
revenues by product
$
11,326
4,386
30,708
13,293
(1) Sales and other operating revenues are attributable to countries based on the location of the selling operation.
(2) Includes LNG and bitumen.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable
 
to ConocoPhillips
Alaska
$
405
(16)
935
(76)
Lower 48
1,631
(78)
3,274
(880)
Canada
155
(75)
267
(270)
Europe, Middle East and North Africa
241
92
601
318
Asia Pacific
257
25
749
945
Other International
(97)
(8)
(106)
14
Corporate and Other
(213)
(390)
(268)
(1,980)
Consolidated net income (loss) attributable
 
to ConocoPhillips
$
2,379
(450)
5,452
(1,929)
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
32
Millions of Dollars
September 30
December 31
2021
2020
Total Assets
Alaska
$
14,617
14,623
Lower 48
33,200
11,932
Canada
6,797
6,863
Europe, Middle East and North Africa
8,956
8,756
Asia Pacific
10,657
11,231
Other International
1
226
Corporate and Other
13,076
8,987
Consolidated total assets
$
87,304
62,618
Note 19—Income Taxes
Our effective tax rate
 
for the three-month periods ended
 
September 30, 2021 and 2020 was
34
 
percent and
12
percent, respectively.
 
Both periods were primarily impacted by
 
shifts in our before-tax income between
 
higher
and lower tax jurisdictions as well as the change in
 
our U.S. valuation allowance
 
driven by the fair value
measurement of our CVE common shares.
 
Our effective tax rate
 
for the nine-month periods ended September
 
30, 2021 and 2020 was
35
 
percent and
8
percent,
 
respectively,
 
and both periods were impacted by the
 
same items noted above.
 
Our 2021 effective tax
rate was adversely
 
impacted by $
75
 
million due to incremental interest
 
deductions from the exchange of debt
acquired from Concho offsetting
 
U.S. foreign source revenue
 
that would otherwise have been offset
 
by foreign tax
credits.
 
The nine-month period ending September 30, 2020,
 
also reflects the tax impact of the gain
 
on disposition
recognized for the Australia-West
 
divestiture.
During the three and nine-month periods of 2021, our valuation
 
allowance decreased by $
4
 
million and $
156
million, respectively,
 
compared to increases of $
33
 
million and $
264
 
million for the same periods of 2020.
 
The
change to our U.S. valuation
 
allowance for all periods relates
 
primarily to the fair value measurement of our
 
CVE
common shares and our expectation
 
of the tax impact related to incremental
 
capital gains and losses.
 
The Company has ongoing income tax audits
 
in numerous jurisdictions which are occasionally
 
extended or
completed earlier than anticipated.
 
Within the next twelve months we may
 
have audit periods close that could
significantly impact our total unrecognized
 
tax benefits.
 
The amount of such change and the associated
 
impact on
our financial statements is not estimable
 
at this time.
Our deferred tax liability
 
increased by approximately
 
$
1.1
 
billion as part of the liabilities assumed through our
Concho acquisition.
 
Additionally, our reserve
 
for unrecognized tax
 
benefits increased by $
150
 
million related to
tax credit carryovers
 
acquired from Concho that we do not expect
 
to recognize.
Management’s Discussion and Analysis
33
 
ConocoPhillips
 
2021 Q3 10-Q
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Management’s Discussion and Analysis is the company’s
 
analysis of its financial performance and of significant
trends that may affect future performance.
 
It should be read in conjunction with the financial statements
 
and
notes.
 
It contains forward-looking statements
 
including, without limitation, statements
 
relating to the company’s
plans, strategies, objectives, expectations
 
and intentions that are made pursuant to
 
the “safe harbor” provisions of
the Private Securities Litigation Reform Act of 1995.
 
The words “anticipate,”
 
“believe,” “budget,”
 
“continue,”
“could,”
 
“effort,”
 
“estimate,”
 
“expect,”
 
“forecast,”
 
“goal,”
 
“guidance,”
 
“intend,”
 
“may,”
 
“objective,”
 
“outlook,”
“plan,” “potential,”
 
“predict,” “projection,”
 
“seek,” “should,”
 
“target,”
 
“will,” “would,”
 
and similar expressions
identify forward-looking statements.
 
The company does not undertake
 
to update, revise or correct any of the
forward-looking information unless required to do so under
 
the federal securities laws.
 
Readers are cautioned that
such forward-looking statements
 
should be read in conjunction with the company’s
 
disclosures under the heading:
“CAUTIONARY STATEMENT
 
FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS
 
OF THE PRIVATE
 
SECURITIES
LITIGATION REFORM
 
ACT OF 1995,”
 
beginning on page 57.
The terms “earnings” and “loss” as used in Management’s
 
Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
Business Environment and Executive Overview
ConocoPhillips is the world’s
 
largest independent E&P company
 
with operations and activities in 14 countries.
 
Our
diverse, low cost of supply portfolio
 
includes resource-rich unconventional
 
plays in North America; conventional
assets in North America, Europe, and Asia; LNG
 
developments; oil sands in Canada; and an inventory
 
of global
conventional and unconventional
 
exploration prospects.
 
Headquartered in Houston, Texas,
 
at September 30,
2021, we employed approximately
 
9,900 people worldwide and had total assets
 
of $87 billion.
 
Completed and Announced Acquisitions
On January 15, 2021, we completed our acquisition
 
of Concho Resources Inc. (Concho), an independent
 
oil and gas
exploration and production
 
company with operations across
 
New Mexico and West Texas.
 
The addition of
complementary acreage in the Delaware
 
and Midland Basins resulted in a significant
 
Permian presence to augment
our leading unconventional positions
 
in the Eagle Ford, Bakken and
 
Montney.
 
In September 2021, we signed a definitive agreement
 
to acquire Shell Enterprises LLC
 
’s assets in
 
the Delaware
Basin (Shell Permian Acquisition) in an all-cash transaction
 
for $9.5 billion before customary
 
adjustments.
 
Assets
to be acquired include approximately
 
225,000 net acres and producing properties
 
located entirely in Texas,
 
as well
as over 600 miles of operated crude, gas
 
and water pipelines and infrastructure.
 
This acquisition further enhances
our already sizeable Permian
 
position, and we believe that our development,
 
operational and commercial
expertise will deliver significant incremental
 
value.
 
This acquisition is expected to close in the
 
fourth quarter of
2021, subject to regulatory approval
 
and other customary closing conditions.
 
 
Overview
While commodity prices in the third quarter of 2021 improve
 
d
 
to pre-pandemic levels,
 
we expect that they will
continue to be cyclical and volatile.
 
Our view is that a successful business strategy
 
in the E&P industry must be
resilient in lower price environments,
 
while also retaining upside during periods
 
of higher prices.
 
As such, we are
unhedged, remain highly disciplined in our investment
 
decisions and continually monitor market
 
fundamentals
including OPEC plus updates regarding
 
supply guidance and inventory
 
levels.
 
Demand continues to recover but
has yet to regain pre
 
-pandemic levels.
 
The speed and extent of this recovery
 
will be influenced by continual easing
of COVID-19 restrictions that have
 
reduced economic activity and depressed
 
the demand for our products globally.
 
Management’s Discussion and Analysis
ConocoPhillips
 
2021 Q3 10-Q
 
34
The energy macro-environment
 
,
 
including energy transition, continues
 
to evolve.
 
We believe ConocoPhillips can
play a valued role in the energy
 
transition.
 
We have adopted a triple mandate
 
that simultaneously calls for
meeting energy pathway demand,
 
delivering competitive returns of and on
 
capital, and achieving our net-zero
ambition on operational (scope 1 and 2) emissions.
 
Our triple mandate is supported by financial principles
 
and capital allocation priorities that
 
should allow us to
deliver superior returns through the price cycles
 
.
 
Our financial principles consist of maintaining
 
balance sheet
strength, providing peer-leading
 
distributions, making disciplined investment
 
s, and delivering ESG excellence,
 
all of
which are in service to delivering competitive financial
 
returns.
 
Our completed and announced acquisitions
 
this
year further reinforce our value
 
proposition.
 
In the third quarter,
 
total company production
 
was 1,544 MBOED
resulting in cash provided by operating
 
activities of $4.8 billion.
 
In the nine-month period ended September 30,
2021, we generated $11.1 billion in
 
cash provided by operating activities,
 
returning $1.8 billion to shareholders
through dividends and $2.2 billion through share
 
repurchases.
 
We ended the quarter with cash,
 
cash equivalents
and short-term investments totaling
 
$10.5 billion.
In February
 
2021, we resumed our share repurchase
 
program at an annualized
 
level of $1.5 billion, which we
increased in the second quarter to an annualized
 
level of $2.5 billion for 2021.
Additionally, in
 
May 2021 we announced a paced monetization
 
program related to the
 
208 million shares of
Cenovus Energy (CVE) common shares
 
owned at that time.
 
We plan to fully dispose of our CVE shares
 
by year-end
2022, however,
 
the sales pace for the remaining shares will
 
be guided by market conditions,
 
and we retain
discretion to adjust accordingly.
 
During the third quarter of 2021, we sold 47 million shares
 
for $404 million and
inception to date have sold
 
67 million shares for $584 million.
 
Proceeds from the disposition of CVE shares
 
will be
deployed toward incremental
 
share repurchases.
 
In September 2021, we declared an increase
 
in the company’s quarterly
 
ordinary dividend from 43 cents per share
to 46 cents per share, representing
 
a 7 percent increase.
 
The dividend is payable on December 1, 2021,
 
to
stockholders of record
 
at the close of business on October 28, 2021.
 
Planned distributions for 2021 amount to
 
a total of approximately $6 billion
 
between dividends
 
and share
repurchases combined.
 
Additionally in September 2021, we demonstrated
 
our commitment to preserving our ‘A’
 
-rated balance sheet by
restating our intent
 
to reduce the company’s
 
gross debt by $5 billion over five years
 
through natural and
accelerated maturities.
 
In conjunction with our Shell Permian Acquisition announcement
 
,
 
we also communicated an increase
 
to our
planned disposition target that was
 
initially set in June at $2 to $3 billion by 2022.
 
We are now targeting
 
$4 to $5
billion in disposition proceeds by 2023, with the additional
 
$2 billion sourced primarily from the Permian
 
Basin as
part of our ongoing portfolio high-grading and
 
optimization efforts.
 
To date,
 
we have generated
 
$0.2 billion in
disposition proceeds.
 
The proceeds from these transactions will be used
 
in accordance with the company’s
priorities, including returns of capital
 
to shareholders and reduction of gross
 
debt.
 
Management’s Discussion and Analysis
35
 
ConocoPhillips
 
2021 Q3 10-Q
In September 2021, in conjunction with the announcement
 
of the Shell Permian Acquisition,
 
we reaffirmed our
commitment to ESG leadership and
 
excellence by announcing an improvement
 
to our operational GHG emissions
intensity reduction targets
 
by 2030.
 
Our Paris-aligned climate-risk commitment
 
now includes:
Net-zero ambition for
 
operational (scope 1 and 2) emissions
 
by 2050 with active advocacy for a price
 
on
carbon to address end-use (scope 3) emissions;
Targeting
 
a reduction in gross operated
 
and net equity operational GHG emissions intensity
 
by 40 to 50
percent from 2016 levels by 2030, an
 
improvement from the previously
 
announced target of 35 to 45
percent on only a gross operated
 
basis;
Zero routine flaring by 2030, with an
 
ambition to get there by 2025;
10 percent reduction target
 
for methane emissions intensity
 
by 2025 from a 2019 baseline, in addition to
the 65 percent reductions we have
 
made since 2015;
Adding continuous methane detection devices
 
to our operations,
 
with an initial focus on the larger Lower
48 facilities;
Dedicated low carbon technology
 
organization responsible
 
for identifying and prioritizing global emissions
reduction initiatives and opportunities associated
 
with the energy transition including carbon capture,
utilization and storage
 
(CCUS) and hydrogen; and
ESG performance factoring into
 
executive and employee compensation
 
programs.
Operationally,
 
we remain focused on safely
 
executing the business.
 
Production was 1,544 MBOED in the third
quarter of 2021, an increase of 477 MBOED or 45 percent,
 
compared with the third quarter of 2020, primarily
 
due
to the addition of approximately
 
343 MBOED in the Permian Basin from our Concho
 
acquisition and the absence of
last year’s economic curtailments
 
predominantly in North American operated
 
assets as a result of lower oil prices.
 
We re-invested
 
$1.3 billion into the business in the form of capital
 
expenditures during the third quarter,
 
with over
half of our investments focused
 
on flexible, short-cycle unconventional
 
plays in the Lower 48 segment where our
production is liquids-weighted and
 
has access to both domestic and export markets
 
.
 
For the full year,
 
we remain
disciplined with our allocation of capital with a
 
planned $5.3 billion program excluding
 
the impacts of the recently
announced Shell Permian Acquisition which is anticipated
 
to close in the fourth quarter.
 
Business Environment
Commodity prices are the most significant
 
factor impacting our profitability and
 
related reinvestment of operating
cash flows into our business.
 
Dynamics that could influence world energy markets
 
and commodity prices are
global economic health, supply or demand disruptions
 
or fears thereof caused by civil
 
unrest, global pandemics,
military conflicts, actions taken
 
by OPEC plus and other major oil producing countries,
 
environmental laws, tax
regulations, governmental policies,
 
and weather-related disruptions.
 
Our strategy is to create
 
value through price
cycles by delivering on the financial, operational
 
and ESG priorities that underpin our value proposition
 
.
 
Our earnings and operating cash flows
 
generally correlate with
 
price levels for crude oil and natural
 
gas, which are
subject to factors external
 
to the company and over which we have
 
no control.
 
The following graph depicts the
trend in average benchmark prices
 
for WTI crude oil, Brent crude oil and
 
Henry Hub natural gas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
cop20213q10qp38i0.gif
 
 
 
Management’s Discussion and Analysis
ConocoPhillips
 
2021 Q3 10-Q
 
36
 
-
 
1
 
2
 
3
 
4
 
5
 
20
 
40
 
60
 
80
Q3'19
Q4'19
Q1'20
Q2'20
Q3'20
Q4'20
Q1'21
Q2'21
Q3'21
WTI/Brent
$/Bbl
WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices
Quarterly Averages
WTI - $/Bbl
Brent - $/Bbl
HH - $/MMBTU
HH
$/MMBTU
Brent crude oil prices averaged
 
$73.47 per barrel in the third quarter of 2021, an increase
 
of 71 percent compared
with $43.00 per barrel in the third quarter of 2020.
 
WTI at Cushing crude oil prices averaged
 
$70.56 per barrel in
the third quarter of 2021, an increase of 72 percent
 
compared with $40.93 per barrel in the third
 
quarter of 2020.
 
Oil prices increased alongside the ongoing global economic
 
recovery following 2020’s
 
COVID impacts as well as
OPEC plus supply restraint,
 
continued capital discipline by U.S. E&P’s
 
and various unplanned supply disruptions in
producing countries.
Henry Hub natural gas prices averaged
 
$4.02 per MMBTU in the third quarter
 
of 2021, an increase of 103 percent
compared with $1.98 per MMBTU in the third
 
quarter of 2020.
 
Henry Hub prices have increased due to
 
healthy
domestic demand accompanied by record
 
levels of feedgas demand for
 
LNG exports to Europe and Asia.
 
Our realized bitumen price averaged
 
$41.19 per barrel in the third quarter of 2021, an
 
increase of 160 percent
compared with $15.87 per barrel in the third
 
quarter of 2020.
 
The increase in the third quarter of 2021 was driven
by higher blend price for Surmont sales, largely
 
attributed to a strengthening
 
of WTI price.
 
We continue to
optimize bitumen price realizations
 
through the utilization of downstream
 
transportation solutions
 
and
implementation of alternate
 
blend capability which results in lower diluent
 
costs.
For the third quarter of 2021 our total
 
average realized
 
price increased to $56.92 per BOE compared
 
with $30.94
per BOE in the third quarter of 2020.
 
 
Management’s Discussion and Analysis
37
 
ConocoPhillips
 
2021 Q3 10-Q
Key Operating and Financial
 
Summary
Significant items during the third quarter
 
of 2021 and recent announcements included the following:
 
Delivered strong operational
 
performance across the company’s
 
asset base, including successful planned
maintenance turnarounds, resulting
 
in third quarter production of 1,507 MBOED,
 
excluding Libya.
 
Net cash provided by operating
 
activities was $4.8 billion, exceeding capital
 
expenditures and investments
of $1.3 billion.
 
Distributed a total of $4.0 billion to
 
shareholders year to date,
 
comprised of $2.2 billion in share
repurchases and $1.8 billion in dividends as
 
part of the company’s plan to return
 
approximately $6.0
billion to shareholders during 2021.
Announced an increase to the quarterly dividend
 
by 7 percent to 46 cents per share.
Ended the quarter with cash and cash equivalents
 
totaling $9.8 billion and short-term investments
 
of $0.7
billion, equaling $10.5 billion in ending cash, cash equivalents
 
and short-term investments.
 
As part of a commitment to ESG excellence,
 
announced an improvement to
 
the company’s scope
 
1 and 2
GHG emissions intensity reduction targets
 
from a 2016 baseline to 40 to 50 percent
 
on a net equity and
gross operated basis, from
 
the previous target of 35 to 45 percent
 
on only a gross operated basis
 
.
Announced highly accretive pending acquisition
 
of Shell Enterprises LLC’s complementary
 
Delaware Basin
position in the Permian for $9.5 billion in cash,
 
before customary closing adjustments.
Generated approximately
 
$0.2 billion in disposition proceeds from Lower 48 noncore
 
asset sales as part of
the company’s target
 
to generate $4 to $5 billion in proceeds
 
by 2023.
 
Production from the disposed
assets average approximately
 
15 MBOED in the first nine months of 2021.
 
Outlook
Capital,
 
Cost and Production
Fourth-quarter 2021 production is
 
expected to be 1.53 to 1.57 MMBOED.
 
This guidance excludes Libya
 
and
impacts from pending acquisitions.
 
Guidance regarding capital and
 
cost are unchanged.
This production guidance includes the impact of planned conversion
 
of the significant majority of previously
acquired Concho two-stream contracted
 
volumes to a three-stream (crude oil,
 
natural gas and natural
 
gas liquids)
reporting basis as Concho volumes are integrated
 
into the company’s
 
commercial activities.
 
The conversion to
three-stream reporting is neutral
 
to earnings.
 
Effective in the fourth
 
quarter,
 
this conversion is expected
 
to add
production of approximately
 
40 MBOED and increase revenue and operating
 
costs by roughly $70 million.
Depreciation, Depletion and Amortization
Our proved reserve estimates
 
are greatly impacted by commodity
 
price fluctuations, and generally decrease
 
as
prices decline and increase as prices rise.
 
Proved reserves estimates
 
were updated and increased in the current
quarter utilizing historical twelve-month
 
first-of-month average
 
prices, which decreased third quarter DD&A
expense by approximately
 
$240 million before-tax.
 
As such, the company reduced its 2021 DD&A expense
guidance by $0.3 billion to $7.1 billion.
 
 
 
 
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
38
Results of Operations
Unless otherwise indicated, discussion of results for the three
 
-
 
and nine-month periods ended September 30, 2021,
is based on a comparison with the corresponding periods of 2020.
Consolidated Results
A summary of the company's net income (loss) attributable
 
to ConocoPhillips by business segment follows:
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Alaska
$
405
(16)
935
(76)
Lower 48
1,631
(78)
3,274
(880)
Canada
155
(75)
267
(270)
Europe, Middle East and North Africa
241
92
601
318
Asia Pacific
257
25
749
945
Other International
(97)
(8)
(106)
14
Corporate and Other
(213)
(390)
(268)
(1,980)
Net income (loss) attributable to
 
ConocoPhillips
$
2,379
(450)
5,452
(1,929)
Net income (loss) attributable to
 
ConocoPhillips in the third quarter of 2021 increased
 
$2,829 million.
 
Third
quarter earnings were positively impacted
 
by:
Higher realized commodity prices.
Higher sales volumes, primarily due to our Concho
 
acquisition and absence of production curtailments in
our North American operated
 
assets.
 
Higher equity in earnings of affiliates, primarily due to
 
higher LNG sales prices.
A gain of $17 million after-tax on our CVE common shares
 
in the third quarter of 2021, as compared to a
$162 million after-tax loss on those shares
 
in the third quarter of 2020.
 
 
Third quarter 2021 net income increases
 
were partly offset by:
Higher production and operating expenses
 
and taxes other than income taxes,
 
primarily due to higher
sales volumes.
Higher DD&A expenses caused by higher production
 
volumes, partially offset by lower rates
 
driven from
price-related reserve revisions
 
due to higher commodity prices in 2021.
Net income (loss) attributable to
 
ConocoPhillips in the nine-month period ended September
 
30, 2021, increased
$7,381 million.
 
Inclusive of the third quarter gain associated
 
with our CVE common shares, in the nine-month period we
recognized a gain of $743 million
 
after-tax on our CVE common shares,
 
compared with an after-tax loss of
$1,302 million in the nine-month period of 2020.
 
In addition to the items detailed above,
 
earnings in the nine-month period were positively
 
impacted by:
Lower impairments of $611 million, primarily due to a
 
credit recognized for a decrease
 
in the ARO
estimate of a previously sold asset,
 
in which we retained the ARO liability,
 
as well as the absence of
impairments recognized in the prior period
 
for non-core gas assets
 
in our Lower 48 segment.
 
An after-tax gain of $194 million recognized
 
for a FID bonus associated with our
 
Australia-West divestiture
completed in the second quarter of 2020.
 
Lower exploration expenses
 
due to the absence of charges associated
 
with the early cancellation of our
2020 winter exploration program
 
as well as the absence of 2020 dry hole expenses in Alaska
 
,
 
and
unproved property impairment
 
and dry hole expenses for the Kamunsu
 
East Field in Malaysia,
 
which is no
longer in our development plans.
 
 
 
 
 
 
 
 
Results of Operations
39
 
ConocoPhillips
 
2021 Q3 10-Q
In addition to the items detailed above,
 
the increases in earnings in the nine-month period ended September
 
30,
2021, were partly offset by:
Absence of a $597 million after-tax gain
 
on our Australia-West
 
divestiture completed in May
 
2020.
Restructuring and transaction expenses
 
of $288 million after-tax associated
 
with the Concho acquisition
and mark-to-market impacts on certain
 
key employee compensation
 
programs.
 
Realized losses on hedges of $233 million after
 
-tax related to derivative
 
positions assumed through our
Concho acquisition.
 
These derivative positions were settled
 
entirely within the first quarter of 2021.
Absence of gains recorded in
 
2020 from foreign currency derivatives.
See the “Segment Results” section for additional
 
information.
Income Statement Analysis
 
Unless otherwise indicated, all results in Income Statement
 
Analysis are before-tax.
Sales and other operating revenues
 
for the three-
 
and nine-month periods of 2021 increased $6,940 million
 
and
$17,415 million, respectively,
 
mainly due to higher realized commodity
 
prices and higher sales volumes.
 
Equity in earnings of affiliates for
 
the three-
 
and nine-month periods of 2021 increased $204 million and
 
$154
million, respectively,
 
primarily due to higher earnings driven by higher LNG and
 
crude prices, partially offset by a
higher effective tax rate
 
related to equity method
 
investments in our Europe,
 
Middle East, and North Africa
segment.
 
Gain (loss) on dispositions in the third quarter of 2021 recognized
 
a loss of $179 million for the sale of noncore
assets in our Other International segment. Offsetting
 
the loss were gains recognized
 
for contingent payments
associated with previous dispositions
 
in our Canada and Lower 48 segments and gains
 
on sales of certain noncore
assets in our Lower 48 segment.
 
For the nine-month period of 2021, net gains on dispositions
 
decreased $257
million primarily due to the absence of a $587 million gain
 
associated with our Australia
 
-West divestiture,
 
partially
offset by a $200 million FID bonus recognized
 
in the first quarter of 2021 associated with
 
our Australia-West
divestiture.
Other income (loss) for the three-
 
and nine-month periods of 2021 increased $87 million
 
and $1,867 million,
respectively.
 
During these periods in 2021, we recognized
 
gains of $17 million and $743 million, respectively,
 
on
our CVE common shares,
 
compared with losses of $162 million and $1,302 million for
 
the same periods in 2020.
 
Purchased commodities for the three
 
-
 
and nine-month periods of 2021 increased $2,340 million and
 
$6,030
million, respectively,
 
primarily due to higher gas and crude prices and
 
volumes.
 
Production and operating expenses
 
for the three-
 
and nine-month periods of 2021 increased $426 million
 
and
$968 million, respectively,
 
primarily in line with higher production volumes.
 
Selling, general and administrative
 
expenses increased $307 million in the nine-month
 
period of 2021, primarily
due to transaction and restructuring
 
expenses associated with our Concho acquisition
 
,
 
and higher costs associated
with compensation and benefits, including mark-to
 
-market impacts of certain key
 
employee compensation
programs.
Exploration expenses for
 
the nine-month period of 2021 decreased $204 million, primarily
 
due to the absence of
charges associated with the early cancellation
 
of our 2020 winter exploration
 
program as well as the absence of
2020 dry hole expenses in Alaska and an unproved
 
property impairment and dry hole expenses related
 
to the
Kamunsu
 
East Field in Malaysia.
 
 
 
 
 
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
40
DD&A for the three-
 
and nine-month periods of 2021 increased $261 million and
 
$1,445 million, respectively,
mainly due to higher production volumes
 
partly offset by lower rates
 
from price-related reserve revisions
 
.
 
Impairments decreased $91 million in the third
 
quarter of 2021, primarily due to a decrease in an ARO
 
estimate for
a previously sold asset, in which we retained
 
the ARO liability.
 
The decrease of $611 million in the nine-month
period of 2021 was also impacted by the absence
 
of impairments
 
recorded for certain non-core
 
gas assets in our
Lower 48 segment.
Taxes
 
other than income taxes for
 
the three-
 
and nine-month periods of 2021 increased $224 million and
 
$584
million, respectively,
 
caused by higher sales volumes primarily in Lower
 
48 and higher commodity prices.
Foreign currency transaction
 
(gain) loss for the nine-month period of 2021 was
 
impaired by $107 million due to the
absence of derivative gains and
 
other remeasurements.
 
See
 
for information regarding
 
our income tax provision
 
(benefit) and effective tax
 
rate.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Results of Operations
41
 
ConocoPhillips
 
2021 Q3 10-Q
Summary Operating Statistics
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Average Net Production
Crude oil (MBD)
Consolidated operations
802
535
814
546
Equity affiliates
13
13
13
13
Total
 
crude oil
815
548
827
559
Natural gas liquids (MBD)
Consolidated operations
123
89
116
97
Equity affiliates
7
8
8
7
Total
 
natural gas liquids
130
97
124
104
Bitumen (MBD)
69
49
69
50
Natural gas (MMCFD)
Consolidated operations
2,144
1,201
2,143
1,353
Equity affiliates
1,033
1,034
1,055
1,042
Total
 
natural gas
3,177
2,235
3,198
2,395
Total Production
(MBOED)
1,544
1,067
1,553
1,112
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
Consolidated operations*
$
70.39
39.49
64.62
39.04
Equity affiliates
73.44
37.56
65.71
38.22
Total
 
crude oil
70.43
39.45
64.63
39.02
Natural gas liquids (per bbl)
Consolidated operations
33.28
13.73
28.02
11.72
Equity affiliates
56.70
30.21
49.81
31.65
Total
 
natural gas liquids
34.79
15.29
29.58
13.45
Bitumen (per bbl)
41.19
15.87
36.61
2.90
Natural gas (per MCF)
Consolidated operations*
5.93
2.77
5.02
3.07
Equity affiliates
5.95
2.61
4.48
3.98
Total
 
natural gas
5.94
2.70
4.84
3.47
Millions of Dollars
Exploration Expenses
General administrative,
 
geological and geophysical,
 
lease rental, and other
 
$
65
81
199
296
Leasehold impairment
-
-
1
31
Dry holes
-
44
6
83
$
65
125
206
410
*Average sales prices, including the impact of hedges settling per initial contract terms in the first quarter of 2021 assumed in our
 
Concho
acquisition, were $63.95 per barrel for crude oil and $4.98 per mcf for natural gas for the nine-month
 
period ended September 30, 2021.
 
As of
March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
42
We explore for,
 
produce, transport and market
 
crude oil, bitumen, natural gas,
 
LNG and NGLs on a worldwide
basis.
 
At September 30, 2021, our operations
 
were producing in the U.S., Norway,
 
Canada, Australia, Indonesia,
China, Malaysia, Qatar and Libya.
Total
 
production of 1,544 MBOED increased 477 MBOED or
 
45 percent in the third quarter of 2021 and 441
MBOED or 40 percent in the nine-month period of 2021, primarily
 
due to:
Higher volumes in the Lower 48 due to our Concho acquisition.
New wells online in the Lower 48, Canada, Norway
 
and Malaysia.
 
Higher volumes in our North American operated
 
assets due to the absence of production curtailments.
 
Higher production in Libya due the absence of a forced
 
shutdown of the Es Sider export terminal and
other eastern export terminals after
 
a period of civil unrest.
Improved well performance in
 
Norway,
 
Canada, Alaska and China.
Production increases
 
in the third quarter and in the nine-month period of 2021 were
 
partly offset by normal field
decline.
In addition to the normal field decline, in the nine-month period
 
of 2021, production also decreased due to:
Absence of production from Australia
 
-West due to our second quarter
 
2020 disposition.
 
Higher unplanned downtime in the Lower 48 due to Winter
 
Storm Uri, which impacted production by
approximately 50 MBOED in the first
 
quarter of 2021.
Production excluding Libya
 
for the third quarter of 2021 was
 
1,507 MBOED, an increase of 441 MBOED from the
same period a year ago.
 
After adjusting for closed acquisitions
 
and dispositions as well as estimated impacts from
the 2020 curtailment program,
 
third-quarter 2021 production increased
 
26 MBOED or 2 percent.
 
This increase
was primarily due to new production from
 
the Lower 48 and other development programs
 
across the portfolio,
partially offset by normal field decline.
 
Production from Libya averaged
 
37 MBOED.
 
Production excluding Libya
 
for the nine-month period of 2021 was 1,514 MBOED,
 
an increase of 406 MBOED from
the same period a year ago.
 
After adjusting for closed acquisitions
 
and dispositions as well as impacts from the
2020 curtailment program and
 
Winter Storm Uri impacts from 2021, production
 
increased 17 MBOED or 1 percent.
 
This increase was primarily due to new production
 
from the Lower 48 and other development
 
programs across the
portfolio, partially offset by
 
normal field decline.
 
Production from Libya averaged
 
39 MBOED.
 
 
 
 
 
 
 
Results of Operations
43
 
ConocoPhillips
 
2021 Q3 10-Q
Segment
Results
Alaska
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable
 
to ConocoPhillips
($MM)
$
405
(16)
935
(76)
Average Net Production
Crude oil (MBD)
163
184
179
179
Natural gas liquids (MBD)
13
14
15
15
Natural gas (MMCFD)
11
14
10
10
Total Production
(MBOED)
178
201
196
195
Average Sales Prices
Crude oil ($ per bbl)
$
72.55
40.88
66.78
41.92
Natural gas ($ per MCF)
2.63
2.48
3.06
2.71
The Alaska segment primarily explores for,
 
produces, transports and markets
 
crude oil, NGLs and natural gas.
 
As of
September 30, 2021, Alaska contributed
 
19 percent of our consolidated liquids production
 
and less than 1 percent
of our consolidated natural
 
gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Alaska increased
 
$421 million in the third quarter of 2021 and $1,011 million
 
in the nine-month
period of 2021, respectively.
 
In the third quarter,
 
increases to earnings include:
Higher realized crude oil prices.
Lower DD&A expenses primarily driven by
 
lower production volumes and lower rates
 
in the quarter from
price-related reserve revisions
 
.
 
Offsets to the earnings increase include
 
:
Lower volumes due to a July turnaround
 
at our Western North Slope assets.
 
In addition to the items detailed above,
 
in the nine-month period of 2021, earnings also increased due to:
Lower exploration expenses
 
due to the absence of charges associated
 
with the early cancellation of our
2020 winter exploration program
 
as well as the absence of 2020 dry hole expenses.
 
Higher volumes due to the absence of production
 
curtailments.
In addition to the items detailed above,
 
in the nine-month period of 2021, earnings also decreased due to:
Higher DD&A expenses primarily caused by higher
 
rates in the first half of 2021.
Production
Average production
 
decreased 23 MBOED in the third quarter of 2021 and increased
 
1 MBOED in the nine-month
period of 2021, respectively.
 
In the third quarter of 2021, decreases to production
 
include:
Normal field decline.
A July turnaround at our Western
 
North Slope assets.
More than offsetting the items
 
detailed above, in the nine-month period of 2021, production
 
increased due to:
Absence of curtailments.
Improved performance in the Greater
 
Prudhoe Area and Western
 
North Slope assets.
 
 
 
 
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
44
Willow Update
In August 2021, an Alaska federal
 
judge vacated the U.S. government’s
 
approval granted
 
to our planned Willow
project previously approved
 
by the Bureau of Land Management (BLM) in October 2020.
 
The Department of
Justice did not appeal the decision and neither did we.
 
We believe the best path forward
 
is to work closely with
the BLM and engage directly with the relevant
 
agencies to address the matters
 
described in the decision.
 
In the
interim, we are continuing with FEED
 
work in service of a final investment decision.
Lower 48
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable
 
to ConocoPhillips
 
($MM)
$
1,631
(78)
3,274
(880)
Average Net Production*
Crude oil (MBD)
457
197
442
211
Natural gas liquids (MBD)
101
68
93
74
Natural gas (MMCFD)
1,389
566
1,389
577
Total Production
(MBOED)
790
359
767
381
Average Sales Prices
Crude oil ($ per bbl)**
$
68.59
36.43
63.14
34.02
Natural gas liquids ($ per bbl)
32.87
13.51
27.48
10.96
Natural gas ($ per MCF)**
4.63
1.63
4.13
1.45
*Subsequent to the current period, we anticipate a change in both product mix and average net production
 
attributed to the planned conversion
of previously acquired two-stream contracted volumes to three-stream.
 
**Average sales prices, including the impact of hedges settling per initial contract terms in the first quarter of 2021 assumed in our Concho
acquisition, were $61.90 per barrel for crude oil and $4.07 per mcf for natural gas for the nine-month
 
period ended September 30, 2021.
 
As of
March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
 
 
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 September 30, 2021, the Lower 48 contributed
 
54 percent of our consolidated liquids
production and 65 percent of our consolidated
 
natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from the Lower 48 increased $1,709
 
million in the third quarter of 2021 and increased
 
$4,154 million in
the nine-month period of 2021, respectively.
 
In the third quarter,
 
increases to earnings include:
Higher realized crude oil, natural
 
gas and NGL prices.
 
Higher sales volumes of crude oil and natural
 
gas due to our Concho acquisition and the absence of
production curtailments.
Offsets to the earnings increase include:
Higher DD&A expenses, production and operating
 
expenses and taxes other than
 
income taxes primarily
due to higher production volumes.
 
Partially offsetting the increase
 
in DD&A expenses were lower rates
from price-related reserve revisions.
In addition to the items detailed above,
 
in the nine-month period of 2021, earnings also increased due to
 
:
The absence of $399 million in after-tax impairments
 
related to certain noncore
 
gas assets.
 
In addition to the items detailed above,
 
in the nine-month period of 2021, earnings also decreased due to:
 
Impacts resulting from our Concho Acquisition,
 
including higher selling, general and administrative
expenses for transaction and restructuring
 
charges, as well as realized losses
 
on derivative settlements.
 
and
Results of Operations
45
 
ConocoPhillips
 
2021 Q3 10-Q
Production
Average production increased
 
431 MBOED and 386 MBOED in the three-
 
and nine-month periods of 2021,
respectively.
 
In the third quarter,
 
increases to production include:
Higher volumes due to our Concho acquisition.
New wells online from our development programs
 
in Permian, Eagle Ford
 
and Bakken.
Absence of curtailments.
Offsets to the production increases
 
include:
Normal field decline.
In addition to normal field decline,
 
in the nine-month period of 2021, production also
 
decreased due to:
Higher unplanned downtime, primarily due to Winter
 
Storm Uri.
Asset Acquisitions and Dispositions
In September 2021, we announced the Shell Permian
 
Acquisition for $9.5 billion in cash before
 
customary
adjustments.
 
The transaction is anticipated to
 
close in the fourth quarter of 2021, subject to regulatory
 
approval
and other customary closing conditions.
 
Additionally in September 2021, we completed
 
divestitures
 
of certain noncore assets in our Lower 48 segment
 
,
recording proceeds of approximately
 
$150 million.
 
Production from these assets averaged
 
approximately 15
MBOED in the nine-months ended September 30, 2021.
 
 
 
 
 
 
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
46
Canada
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable
 
to ConocoPhillips
($MM)
$
155
(75)
267
(270)
Average Net Production
Crude oil (MBD)
8
6
10
4
Natural gas liquids (MBD)
4
2
4
2
Bitumen (MBD)
69
49
69
50
Natural gas (MMCFD)
73
43
83
35
Total Production
(MBOED)
93
64
96
62
Average Sales Prices
Crude oil ($ per bbl)
$
58.99
25.16
53.81
15.39
Natural gas liquids ($ per bbl)
33.47
5.99
28.49
1.89
Bitumen ($ per bbl)
41.19
15.87
36.61
2.90
Natural gas ($ per MCF)
2.45
0.71
2.36
1.05
Average sales prices include unutilized transportation costs.
Our Canadian operations mainly consist
 
of the Surmont oil sands development in Alberta
 
and the liquids-rich
Montney unconventional
 
play in British Columbia.
 
As of September 30, 2021, Canada contributed 8 percent
 
of our
consolidated liquids production and
 
4 percent of our consolidated natural
 
gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Canada increased $230 million
 
and $537 million,
 
respectively,
 
in the three-
 
and nine-month periods
of 2021.
 
Increases to earnings include:
Higher realized bitumen and crude oil prices.
 
Higher sales volumes in our Surmont and Montney
 
assets.
 
After-tax gains
 
on disposition related to contingent
 
payments of $77 million and $149 million in
 
the three-
and nine-month periods of 2021, respectively,
 
associated with the sale of certain assets
 
to CVE in 2017.
 
Offsets to the earnings increase include
 
:
Higher production and operating expenses
 
primarily due to increased Surmont and Montney
 
production.
Production
Average production
 
increased 29 MBOED in the third quarter of 2021 and
 
increased 34 MBOED in the nine-month
period of 2021, respectively.
 
In the third quarter,
 
increases to production include:
Absence of curtailments.
 
Absence of third quarter 2020 turnaround
 
activity in the Surmont.
New wells online in the Montney.
Production from our Kelt acquisition
 
completed in the third quarter of 2020.
 
Offsets to the production increases
 
include:
Higher well failures, plant power trips
 
and facility upsets in the Surmont.
In addition to the items detailed above,
 
in the nine-month period of 2021, production also increased
 
due to:
Improved well performance in
 
the Surmont.
 
 
 
 
 
 
Results of Operations
47
 
ConocoPhillips
 
2021 Q3 10-Q
Europe, Middle East and North Africa
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income Attributable
 
to ConocoPhillips
($MM)
$
241
92
601
318
Consolidated Operations
Average Net Production
Crude oil (MBD)
117
77
118
82
Natural gas liquids (MBD)
5
5
4
5
Natural gas (MMCFD)
303
256
303
276
Total Production
(MBOED)
172
125
172
133
Average Sales Prices
Crude oil ($ per bbl)
$
72.43
41.79
65.94
43.72
Natural gas liquids ($ per bbl)
50.32
23.50
40.75
20.01
Natural gas ($ per MCF)
11.96
2.40
8.40
2.85
The Europe, Middle East and North Africa
 
segment consists of operations
 
principally located in the Norwegian
sector of the North Sea and the Norwegian Sea, Qatar,
 
Libya and commercial operations
 
in the U.K.
 
As of
September 30, 2021, our Europe, Middle East
 
and North Africa operations contributed
 
12 percent of our
consolidated liquids production and
 
14 percent of our consolidated natural
 
gas production.
Net Income Attributable to ConocoPhillips
Earnings from Europe, Middle East
 
and North Africa increased by $149 million and $283 million in the three
 
-
 
and
nine-month periods of 2021, respectively.
 
Increases to earnings include:
Higher realized natural
 
gas, crude oil and NGL prices.
Higher LNG sales prices, reflected in equity in earnings
 
of affiliates.
Higher sales volumes of crude oil and LNG.
Offsets to the earnings increases
 
include:
Higher taxes.
Higher production and operating expenses
 
and DD&A expenses.
 
Consolidated Production
Average consolidated
 
production increased 47 MBOED and 39 MBOED in the three
 
-
 
and nine-month periods of
2021, respectively.
 
Increases to production
 
include:
Higher production in Libya due to the absence of a
 
forced shutdown of the Es Sider export
 
terminal and
other eastern export terminals after
 
a period of civil unrest.
Improved well performance in
 
Norway.
New production from Norway
 
drilling activities including our Tor
 
II redevelopment project with first
production in December 2020.
 
Offsets to the production increases
 
include:
Normal field decline.
 
 
 
 
 
 
Results of Operations
ConocoPhillips
 
2021 Q3 10-Q
 
48
Asia Pacific
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income Attributable
 
to ConocoPhillips
 
($MM)
$
257
25
749
945
Consolidated Operations
Average Net Production
Crude oil (MBD)
57
71
65
70
Natural gas liquids (MBD)
-
-
-
1
Natural gas (MMCFD)
368
322
358
455
Total Production
(MBOED)
119
125
125
147
Average Sales Prices
Crude oil ($ per bbl)
$
74.66
42.79
67.41
42.94
Natural gas liquids ($ per bbl)
-
-
-
33.21
Natural gas ($ per MCF)
6.66
5.33
6.30
5.42
The Asia Pacific segment has operations
 
in China, Indonesia, Malaysia and Australia.
 
As of September 30, 2021, Asia
Pacific contributed 7 percent
 
of our consolidated liquids production
 
and 17 percent of our consolidated natural
 
gas
production.
Net Income Attributable to ConocoPhillips
Earnings from Asia Pacific increased
 
$232 million in the third quarter of 2021 and decreased $196 million
 
in the nine-
month period of 2021, respectively.
 
In the third quarter,
 
increases to earnings include:
Higher crude oil and natural gas
 
prices.
 
Higher LNG sales prices, reflected in equity in earnings
 
of affiliates.
Lower DD&A expenses in the third quarter
 
of 2021 primarily driven by lower production volumes
 
and
lower rates from price-related
 
reserve revisions.
In addition to the items detailed above,
 
in the nine-month period of 2021, earnings also increased due to:
 
A $200 million gain on disposition related
 
to a FID bonus from our Australia-West
 
divestiture.
 
For additional
information related to
 
this FID bonus, see
 
and
Lower production and operating
 
expenses related to the absence of Australia
 
-West.
Offsetting the items detailed
 
above, in the nine-month period of 2021, earnings decreased
 
due to:
 
Absence of a $597 million after-tax gain
 
related to our Australia
 
-West divestiture.
 
Absence of sales volumes associated with Australia
 
-West.
Consolidated Production
Average consolidated
 
production decreased 6 MBOED and 22 MBOED in the three
 
-
 
and nine-month periods of 2021,
respectively.
 
In the third quarter,
 
the primary decrease to production was
 
normal field decline.
 
Partly offsetting the decrease
 
in production was:
Increased production in Malaysia
 
associated with Malikai Phase 2 first
 
production and ramp-up.
Bohai Bay development activity in
 
China.
In addition to normal field decline, in the nine-month period
 
of 2021, production also decreased due to:
The divestiture of our Australia
 
-West assets that contributed
 
23 MBOED in the nine-month period of 2020.
 
In addition to the items detailed above,
 
in the nine-month period of 2021, production also increased
 
due to:
The absence of curtailments across the segment
 
and increased demand in Indonesia from coal supply
restrictions.
 
 
 
 
 
 
 
 
Results of Operations
49
 
ConocoPhillips
 
2021 Q3 10-Q
Other International
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable
 
to ConocoPhillips
($MM)
$
(97)
(8)
(106)
14
The Other International segment consists
 
of exploration and appraisal
 
activities in Colombia as well as
contingencies associated with prior operations
 
in other countries.
Earnings from our Other International
 
operations decreased $89 million and $120
 
million in the three-
 
and nine-
month periods of 2021, respectively,
 
due to a loss on divestiture related to
 
our Argentina exploration
 
interests in
the third quarter as well as an absence of a $29 million after
 
-tax benefit to earnings from the dismissal
 
of
arbitration related to
 
prior operations in Senegal recognized
 
in the first quarter of 2020.
 
 
for additional
information
 
regarding the divestiture.
Corporate and Other
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Loss Attributable to
 
ConocoPhillips
Net interest expense
$
(176)
(179)
(627)
(508)
Corporate general and administrative
 
expenses
(57)
(50)
(251)
(90)
Technology
(6)
(8)
31
(16)
Other income (expense)
26
(153)
579
(1,366)
$
(213)
(390)
(268)
(1,980)
Net interest expense consists
 
of interest and financing expense,
 
net of interest income and capitalized
 
interest.
 
Net interest expense increased
 
by $119 million in the nine-month period of 2021 primarily due
 
to higher debt
balances assumed due to our Concho acquisition.
 
Corporate G&A expenses include compensation
 
programs and staff
 
costs.
 
These expenses increased by $7 million
in the three-month period of 2021 primarily due to mark
 
to market adjustments
 
associated with certain
compensation programs.
 
For the nine-month period of 2021, Corporate
 
G&A expenses increased by $161 million
primarily due to restructuring expenses associated
 
with our Concho acquisition.
 
Technology includes
 
our investment in new technologies
 
or businesses, as well as licensing revenues.
 
Activities are
focused on both conventional
 
and tight oil reservoirs, shale gas,
 
heavy oil, oil sands, enhanced oil recovery,
 
as well
as LNG.
 
Earnings from Technology
 
increased $47 million in the nine-month period of 2021
 
primarily due to higher
licensing revenues.
 
Other income (expense) or “Other” includes certain corporate
 
tax-related items, foreign
 
currency transaction gains
and losses, environmental costs
 
associated with sites no longer in operation,
 
other costs not directly associated
with an operating segment, premiums
 
incurred on the early retirement of debt,
 
holding gains or losses on equity
securities, and pension settlement expense.
 
For the three-
 
and nine-month periods of 2021, “Other” increased
$179 million and $1,945 million, respectively.
 
During these periods in 2021, we recognized
 
gains of $17 million and
$743 million, respectively,
 
on our CVE common shares, compared
 
with losses of $162 million and $1,302 million for
the same periods in 2020.
 
Partially offsetting the impact on
 
the nine-month period was the release of a $92
million deferred tax asset
 
associated with our Australia West
 
divestiture.
 
 
 
 
Capital Resources and Liquidity
ConocoPhillips
 
2021 Q3 10-Q
 
50
Capital Resources and Liquidity
Financial Indicators
Millions of Dollars
September 30
December 31
2021
2020
Cash and cash equivalents
$
9,833
2,991
Short-term investments
678
3,609
Total
 
debt
19,668
15,369
Total
 
equity
44,115
29,849
Percent of total debt to
 
capital*
31
%
34
Percent of floating-rate
 
debt to total debt
4
%
7
*Capital includes total debt and total equity.
To meet our
 
short-
 
and long-term liquidity requirements,
 
we look to a variety of funding sources,
 
including cash
generated from operating
 
activities, our commercial paper and credit
 
facility programs, and our ability
 
to sell
securities using our shelf registration
 
statement.
 
During the first nine months of 2021, the primary uses of our
available cash were $3.8 billion to
 
support our ongoing capital expenditures
 
and investments program
 
;
 
$2.2 billion
to repurchase common stock
 
,
 
$1.8 billion to pay dividends, and $1.1 billion of hedging, transaction
 
and
restructuring costs.
 
During the first nine months of 2021, our cash and cash
 
equivalents increased by $6.8 billion
to $9.8 billion.
 
At September 30, 2021, we had cash
 
and cash equivalents of $9.8 billion, short-term investments
 
of $0.7 billion,
and available borrowing capacity
 
under our credit facility of $6.0 billion, totaling
 
approximately $16.5 billion of
liquidity.
 
We believe current cash
 
balances and cash generated by
 
operating activities, together with access
 
to
external sources of funds as described below in the “Significant
 
Changes in Capital” section, will be sufficient to
meet our funding requirements in the near-
 
and long-term, including our capital spending prog
 
ram,
 
acquisitions,
dividend payments and debt obligations
 
.
 
On September 20, 2021, we signed a definitive agreement
 
for the Shell Permian Acquisition for
 
$9.5 billion in cash
before customary adjustments
 
.
 
The effective date of the transaction
 
is July 1, 2021, and we expect to close in the
fourth quarter of 2021 subject to regulatory
 
clearance and the satisfaction
 
of other customary closing conditions.
 
The transaction will be funded from available
 
cash, and we expect our remaining cash
 
to meet our obligations and
business needs.
 
Significant Changes in Capital
Operating Activities
 
Cash provided by operating activities was
 
$11.1 billion for the first nine months
 
of 2021, compared with $3.1
billion for the corresponding period of 2020.
 
The increase in cash provided by operating
 
activities is primarily due
to higher realized commodity prices and
 
higher sales volumes mostly due to our acquisition of Concho.
 
The
increase in cash provided by operating
 
activities was partly offset by the settlement
 
of all oil and gas hedging
positions acquired from Concho,
 
and transaction and restructuring cost
 
s.
 
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.
 
Capital Resources and Liquidity
51
 
ConocoPhillips
 
2021 Q3 10-Q
The level of production volumes, as well as
 
product and location mix, impacts our cash
 
flows.
 
Future production is
subject to numerous uncertainties, including,
 
among others, the volatile crude oil and natural
 
gas price
environment, which may impact
 
investment decisions; the effects
 
of price changes on production sharing and
variable-royalty contracts;
 
acquisition and disposition of fields; field production decline rates;
 
new technologies;
operating efficiencies; timing of startups
 
and major turnarounds; political instability;
 
impacts of a global pandemic;
weather-related disruptions; and
 
the addition of proved reserves through
 
exploratory success and their timely and
cost-effective development.
 
While we actively manage these factors,
 
production levels can cause variability
 
in
cash flows, although generally this
 
variability has not been as significant as that caused
 
by commodity prices.
To maintain
 
or grow our production volumes, we must
 
continue to add to our proved
 
reserve base.
 
See the
“Capital Expenditures and Investments”
 
section, for information about
 
our capital expenditures and investments.
 
On January 15, 2021, we assumed financial derivative instruments
 
consisting of oil and natural gas
 
swaps in
connection with our acquisition of Concho.
 
At March 31, 2021, all oil and natural
 
gas derivative financial
instruments acquired from Concho
 
were contractually settled.
 
In the first six months of 2021, we paid $761 million
relating to these settlements.
 
Investing Activities
For the first nine months of 2021, we invested
 
$3.8 billion in capital expenditures.
 
Our 2021 operating plan capital
expenditures is currently expected
 
to be $5.3 billion compared with $4.7 billion in 2020.
 
See the “Capital
Expenditures and Investments”
 
section, for information about our capital
 
expenditures and investments.
 
For additional information on Acquisitions
 
& Dispositions discussed below,
We completed our acquisition
 
of Concho on January 15, 2021.
 
The assets acquired in the transaction
 
included
$382 million of cash.
 
In May 2021, we announced and began
 
a paced monetization of our investment
 
in CVE common shares with the
plan to direct proceeds toward
 
our existing share repurchase program.
 
We expect to fully dispose
 
of our CVE
shares by year-end 2022, however,
 
the sales pace will be guided by market conditions,
 
and we retain discretion to
adjust accordingly.
 
Since we began our monetization program,
 
we have sold 67 million CVE shares,
 
representing
 
32% of our holdings at December 31, 2020, receiving $569
 
million of cash proceeds.
 
Other proceeds
from dispositions include our sale of certain noncore
 
assets in our Lower 48 segment for approximately
 
$150
million and contingent payments
 
associated with previous divestitures.
 
In September 2021, we signed a definitive agreement
 
to acquire the Shell Permian assets
 
for $9.5 billion, before
customary adjustments.
 
Under the terms of the agreement, we paid a deposit
 
of $475 million which is presented
within “Cash Flows from Investing
 
Activities - Other” on our consolidated statement
 
of cash flows.
 
We invest in short
 
-term investments as part of our
 
cash investment strategy,
 
the primary objective of which is to
protect principal, maintain liquidity
 
and provide yield and total returns;
 
these investments include time deposits,
commercial paper,
 
as well as debt securities classified as available
 
for sale.
 
Funds for short-term needs
 
to support
our operating plan and provide resiliency
 
to react to short-term price volatility
 
are invested in highly liquid
instruments with maturities within the year.
 
Funds we consider available to maintain
 
resiliency in longer term
price downturns and to capture opportunities
 
outside a given operating plan may
 
be invested in instruments
 
with
maturities greater than one year.
 
Investing activities in the first
 
nine months of 2021 included net sales of $2,846 million of investments.
 
We sold
$2,991 million of short-term instruments
 
and invested $145 million in long-term instruments
.
 
 
 
Capital Resources and Liquidity
ConocoPhillips
 
2021 Q3 10-Q
 
52
Financing Activities
We have a revolving
 
credit facility totaling $6.0 billion,
 
expiring in May 2023.
 
Our revolving credit facility
 
may be
used for direct bank borrowings,
 
the issuance of letters of credit totaling
 
up to $500 million, or as support for our
commercial paper program.
 
With no commercial paper outstanding
 
and no direct borrowings or letters
 
of credit,
we had access to $6.0 billion in available borrowing
 
capacity under our revolving credit
 
facility at September 30,
2021.
 
On January 15, 2021, we completed the acquisition
 
of Concho in an all-stock transaction.
 
In the acquisition, we
assumed Concho’s publicly
 
traded debt, which was recorded
 
at fair value of $4.7 billion on the acquisition
 
date.
 
In
June 2021, we reaffirmed our commitment
 
to preserving our ‘A’
 
-rated balance sheet by restating
 
our intent to
reduce gross debt by $5 billion over
 
the next five years, driving a more
 
resilient and efficient capital
 
structure.
 
The current credit ratings on our
 
long-term debt are:
 
Fitch: “A”
 
with a “stable” outlook
S&P:
 
“A-” with a “stable”
 
outlook
 
Moody’s: “A3”
 
with a “positive” outlook
 
 
for additional information on our Concho
 
acquisition and
 
for additional information on debt
 
,
revolving credit facility and credit
 
ratings.
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 September 30, 2021 and December 31, 2020, we
 
had direct bank letters of credit
 
of $281
million and $249 million, respectively,
 
which secured performance obligations
 
related to various purchase
commitments incident to the ordinary
 
conduct of business.
 
In the event of credit ratings
 
downgrades, we may be
required to post additional letters
 
of credit.
Shelf Registration
We have a universal
 
shelf registration statement
 
on file with the SEC under which we have the
 
ability to issue and
sell an indeterminate number of various
 
types of debt and equity securities.
 
Capital Requirements
For information about our capital
 
expenditures and investments,
 
see the “Capital Expenditures and Investments”
section.
 
In addition to our capital expenditure and
 
investments
 
program, we anticipate completing
 
the Shell
Permian Acquisition in the fourth quarter
 
for $9.5 billion before customary
 
adjustments.
 
 
Our debt balance at September 30, 2021, was
 
$19.7 billion, compared with $15.4 billion at December 31, 2020.
 
The net increase is primarily due to $4.7 billion of debt assumed
 
in the Concho acquisition.
 
The current portion of
debt, including payments for finance
 
leases, is $920 million.
 
Payments will be made using current
 
cash balances
and cash generated by
 
operations.
 
 
We believe in delivering va
 
lue to our shareholders through
 
a growing and sustainable dividend supplemented
 
by
additional returns of capital, including share
 
repurchases.
 
In 2020, we paid $1.8 billion, equating to $1.69 per
share of common stock, in dividends.
 
In the first nine months of 2021, we paid dividends totaling
 
$1.8 billion, the
equivalent of $1.29 per share.
 
On September 20, 2021, we announced an increase
 
in our quarterly dividend from
$0.43 per share to $0.46 per share,
 
representing a 7 percent increase.
 
The dividend is payable December 1, 2021,
to stockholders of record
 
at the close of business on October 28, 2021.
 
We anticipate returning
 
approximately
$2.4 billion to shareholders in dividends
 
in 2021, or $1.75 per share.
 
 
 
 
 
 
Capital Resources and Liquidity
53
 
ConocoPhillips
 
2021 Q3 10-Q
In late 2016, we initiated our current
 
share repurchase program,
 
which has a total program authorization
 
of $25
billion.
 
In May 2021, we began a paced monetization
 
of our CVE shares, the proceeds of which, have
 
been applied
to share repurchases.
 
The pace of CVE share sales will be guided by market conditions,
 
and we retain the
discretion to adjust accordingly.
 
In the nine months ended September 30, 2021, we repurchased
 
39.3 million
shares at a cost of $2,224 million, $561 million of which
 
was funded using CVE share proceeds.
 
Since the inception
of the share repurchase program,
 
we have repurchased 228 million shares
 
at a cost of $12.7 billion.
 
Our total
planned distributions for 2021, including dividends
 
and share repurchases, is approximately
 
$6.0 billion.
 
Our dividend and share repurchase programs
 
are subject to numerous considerations,
 
including market conditions,
management discretion and other factors.
 
See “Item 1A—Risk Factors
 
– Our ability to declare and pay dividends
and repurchase shares is subject to certain
 
considerations” in Part
 
I—Item 1A in our 2020 Annual Report on Form
10-K.
Capital Expenditures and Investments
Millions of Dollars
Nine Months Ended
September 30
2021
2020
Alaska
$
698
882
Lower 48
2,250
1,398
Canada
129
593
Europe, Middle East and North Africa
385
410
Asia Pacific
235
280
Other International
33
66
Corporate and Other
37
28
Capital expenditures and investments
$
3,767
3,657
During the first nine months of 2021, capital expenditures
 
and investments supported
 
key development programs,
primarily:
Development activities in the Lower 48, primarily Permian,
 
Eagle Ford and Bakken.
Appraisal and development activities in Alaska
 
related to the Western
 
North Slope and development
activities in the Greater Kuparuk Area.
Appraisal activities in liquids-rich plays
 
and optimization of oils sands development in Canada.
Continued development activities across
 
assets in Norway.
Continued development activities in China,
 
Malaysia and Indonesia.
 
In February 2021, we announced 2021 operating plan
 
capital expenditures of $5.5 billion.
 
In June 2021, we
reduced capital guidance to $5.3 billion, recognizing
 
synergistic savings
 
from our Concho acquisition.
 
 
 
 
 
 
 
Capital Resources and Liquidity
ConocoPhillips
 
2021 Q3 10-Q
 
54
Guarantor Summarized Financial
 
Information
We have various
 
cross guarantees among our Obligor group;
 
ConocoPhillips, ConocoPhillips Company
 
and
Burlington Resources LLC,
 
with respect to publicly held debt securities.
 
ConocoPhillips Company is 100 percent
owned by ConocoPhillips.
 
Burlington Resources LLC is
 
100 percent owned by ConocoPhillips
 
Company.
 
ConocoPhillips and/or ConocoPhillips
 
Company have fully and unconditionally
 
guaranteed the payment obligations
of Burlington Resources LLC,
 
with respect to its publicly held debt securities.
 
Similarly, ConocoPhillips
 
has fully and
unconditionally guaranteed the payment
 
obligations of ConocoPhillips Company
 
with respect to its publicly held
debt securities.
 
In addition, ConocoPhillips Company has
 
fully and unconditionally guaranteed the payment
obligations of ConocoPhillips with respect
 
to its publicly held debt securities.
 
All guarantees are joint and several.
The following tables present summarized
 
financial information for
 
the Obligor Group, as defined below:
The Obligor Group will reflect guarantors
 
and issuers of guaranteed securities consisting
 
of
ConocoPhillips, ConocoPhillips Company
 
and Burlington Resources LLC.
Consolidating adjustments for elimination
 
of investments in and transactions
 
between the collective
guarantors and issuers
 
of guaranteed securities are reflected
 
in the balances of the summarized financial
information.
Non-Obligated Subsidiaries are excluded
 
from the presentation.
Upon completion of the Concho acquisition on January 15, 2021, we assumed
 
Concho’s publicly traded
 
debt of
approximately $3.9 billion in aggregate
 
principal amount, which was recorded
 
at fair value of $4.7 billion on the
acquisition date.
 
We completed a debt exchange
 
offer that settled on February
 
8, 2021, of which 98 percent, or
approximately $3.8 billion in aggregate
 
principal amount of Concho’s
 
notes, were tendered and accepted
 
for new
debt issued by ConocoPhillips.
 
The new debt issued in the exchange is fully and
 
unconditionally guaranteed by
ConocoPhillips Company.
 
Both the guarantor and issuer of the exchange
 
debt is reflected within the Obligor Group
presented here.
 
See
and
for additional information relating
 
to the Concho transaction.
Transactions
 
and balances reflecting activity between the Obligors
 
and Non-Obligated Subsidiaries
 
are presented
below:
Summarized Income Statement
 
Data
Millions of Dollars
Nine Months Ended
September 30, 2021
Revenues and Other Income
$
20,893
Income (loss) before income taxes*
5,445
Net income (loss)
5,452
Net Income (Loss) Attributable
 
to ConocoPhillips
5,452
*Includes approximately $3.6 billion of purchased commodities expense for transactions with Non-Obligated Subsidiaries.
Summarized Balance Sheet Data
Millions of Dollars
September 30
December 31
2021
2020
Current assets
$
12,955
8,535
Amounts due from Non-Obligated Subsidiaries, current
1,194
440
Noncurrent assets
59,997
37,180
Amounts due from Non-Obligated Subsidiaries, noncurrent
8,223
7,730
Current liabilities
7,059
3,797
Amounts due to Non-Obligated Subsidiaries,
 
current
2,778
1,365
Noncurrent liabilities
28,336
18,627
Amounts due to Non-Obligated Subsidiaries,
 
noncurrent
10,304
3,972
 
 
Capital Resources and Liquidity
55
 
ConocoPhillips
 
2021 Q3 10-Q
Contingencies
A number of lawsuits involving a variety
 
of claims arising in the ordinary course of business
 
have been filed against
ConocoPhillips.
 
We also may be required
 
to remove or mitigate
 
the effects on the environment
 
of the placement,
storage, disposal or release of
 
certain chemical, mineral and petroleum
 
substances at various
 
active and inactive
sites.
 
We regularly assess the need for accounting
 
recognition or disclosure of these contingencies.
 
In the case of
all known contingencies (other than those related
 
to income taxes), we accrue
 
a liability when the loss is probable,
and the amount is reasonably estimable.
 
If a range of amounts can be reasonably
 
estimated and no amount within
the range is a better estimate
 
than any other amount, then the low end of the range
 
is accrued.
 
We do not reduce
these liabilities for potential insurance
 
or third-party recoveries.
 
We accrue receivables for
 
insurance or other
third-party recoveries when applicable.
 
With respect to income tax-related
 
contingencies, we use a cumulative
probability-weighted loss accrual
 
in cases where sustaining a tax
 
position is less than certain.
Based on currently available information,
 
we believe it is remote that future
 
costs related to known
 
contingent
liability exposures will exceed
 
current accruals by an amount that
 
would have a material adverse
 
impact on our
consolidated financial statements.
 
Legal and Tax
 
Matters
We are subject to various
 
lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
 
and
severance tax payments,
 
gas measurement and valuation
 
methods, contract disputes,
 
environmental damages,
climate change, personal injury,
 
and property damage.
 
Our primary exposures for such matters
 
relate to alleged
royalty and tax underpayments
 
on certain federal, state
 
and privately owned properties, claims
 
of alleged
environmental contamination
 
from historic operations,
 
and other contract disputes.
 
We will continue to defend
ourselves vigorously in these matters.
Our legal organization
 
applies its knowledge, experience and professional
 
judgment to the specific characteristics
of our cases, employing a litigation management
 
process to manage and monitor the legal
 
proceedings against us.
 
Our process facilitates the
 
early evaluation and quantification
 
of potential exposures in individual cases.
 
This
process also enables us to track those cases
 
that have been scheduled for trial and/or
 
mediation.
 
Based on
professional judgment and experience
 
in using these litigation management
 
tools and available information
 
about
current developments in all our cases,
 
our legal organization regularly
 
assesses the adequacy of current accruals
and determines if adjustment of existing
 
accruals, or establishment of new accruals, is
 
required.
Environmental
We are subject to the same numerous
 
international, federal,
 
state and local environmental
 
laws and regulations as
other companies in our industry.
 
For a discussion of the most significant of these environmental
 
laws and
regulations, including those with associated
 
remediation obligations, see the “Environmental”
 
section in
Management’s Discussion and Analysis
 
of Financial Condition and Results of Operations on pages
 
64–66 of our
2020 Annual Report on Form 10-K.
We occasionally receive requests
 
for information or notices of potential
 
liability from the EPA
 
and state
environmental agencies alleging
 
that we are a potentially responsible
 
party under the Federal Comprehensive
Environmental Response,
 
Compensation and Liability Act (CERCLA) or an equivalent
 
state statute.
 
On occasion, we
also have been made a party to cost
 
recovery litigation by those agencies
 
or by private parties.
 
These requests,
notices and lawsuits assert potential liability for
 
remediation costs at various
 
sites that typically are not owned by
us, but allegedly contain waste
 
attributable to our past operations.
 
As of September 30, 2021, there were 15 sites
around the U.S. in which we were
 
identified as a potentially responsible
 
party under CERCLA and comparable state
laws.
At September 30, 2021, our balance sheet included
 
a total environmental
 
accrual of $191 million, compared with
$180 million at December 31, 2020, for remediation
 
activities in the U.S. and Canada.
 
We expect to incur a
substantial amount of these expe
 
nditures within the next 30 years.
 
 
 
 
Capital Resources and Liquidity
ConocoPhillips
 
2021 Q3 10-Q
 
56
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.
Environmental Litigation
Several Louisiana parishes and the State
 
of Louisiana have filed 43 lawsuits under Louisiana’s
 
State and Local
Coastal Resources Management
 
Act (SLCRMA) against oil and gas
 
companies, including ConocoPhillips, seeking
compensatory damages for contamination
 
and erosion of the Louisiana coastline allegedly
 
caused by historical oil
and gas operations.
 
ConocoPhillips entities are defendants
 
in 22 of the lawsuits and will vigorously defend
 
against
them.
 
Because Plaintiffs’ SLCRMA theories are
 
unprecedented, there is uncertainty
 
about these claims (both as to
scope and damages) and we continue to
 
evaluate our exposure in these
 
lawsuits.
Climate Change
Continuing political and social attention
 
to the issue of global climate change has resulted
 
in a broad range of
proposed or promulgated
 
state, national and international
 
laws focusing on GHG reduction.
 
These proposed or
promulgated laws apply
 
or could apply in countries where we have
 
interests or may have
 
interests in the future.
 
Laws in this field continue to evolve,
 
and while it is not possible to accurately estimate
 
either a timetable for
implementation or our future compliance costs
 
relating to implementation, such
 
laws, if enacted, could have a
material impact on our results of operations
 
and financial condition.
 
For examples of legislation or precursors
 
for
possible regulation and factors
 
on which the ultimate impact on our financial performance
 
will depend, see the
“Climate Change” section in Management’s
 
Discussion and Analysis of Financial Condition and Results
 
of
Operations on pages 67–69 of our 2020 Annual
 
Report on Form 10-K.
Climate Change Litigation
Beginning in 2017, governmental and
 
other entities in several states
 
in the U.S. have filed lawsuits against
 
oil and
gas companies, including ConocoPhillips,
 
seeking compensatory damages and equitable relief
 
to abate alleged
climate change impacts.
 
Additional lawsuits with similar allegations
 
are expected to be filed.
 
The amounts
claimed by plaintiffs are unspecified and
 
the legal and factual issues involved
 
in these cases are unprecedented.
 
ConocoPhillips believes these lawsuits are
 
factually and legally meritless and are
 
an inappropriate vehicle to
address the challenges associated with climate
 
change and will vigorously defend
 
against such lawsuits.
Company Response to Climate
 
-Related Risks
The company has responded by putting
 
in place a Sustainable Development Risk Management
 
Standard covering
the assessment and registering of significant
 
and high sustainable development risks
 
based on their consequence
and likelihood of occurrence.
 
We have developed a
 
company-wide Climate Change Action Plan
 
with the goal of
tracking mitigation activities for
 
each climate-related risk included in the corporate
 
Sustainable Development Risk
Register.
The risks addressed in our Climate Change Action
 
Plan fall into four broad
 
categories:
GHG-related legislation and regulation.
GHG emissions management.
Physical climate-related
 
impacts.
Climate-related disclosure
 
and reporting.
Emissions are categorized
 
into three different
 
scopes.
 
Gross operated scope
 
1 and scope 2 GHG emissions help us
understand our climate transition
 
risk.
Scope 1 emissions are direct GHG emissions from
 
sources that we own or control.
Scope 2 emissions are GHG emissions from the generation
 
of purchased electricity or steam that
 
we
consume.
 
Scope 3 emissions are indirect emissions from
 
sources that we neither own nor control.
 
 
 
 
Capital Resources and Liquidity
57
 
ConocoPhillips
 
2021 Q3 10-Q
We announced in October 2020 the adoption
 
of a Paris-aligned climate risk framework
 
with the objective of
implementing a coherent set of choices designed
 
to facilitate the success
 
of our existing exploration
 
and
production business through the energy transition.
 
Given the uncertainties remaining about
 
how the energy
transition
 
will evolve, the strategy aims to
 
be robust across a range of potential
 
future outcomes.
 
The strategy is comprised of four
 
pillars:
Targets
 
:
 
Our target framework
 
consists of a hierarchy
 
of targets, from a long-term ambition
 
that sets the
direction and aim of the strategy,
 
to a medium-term performance target
 
for GHG emissions intensity,
 
to
shorter-term targets for
 
flaring and methane intensity reductions.
 
These performance targets are
supported by lower-level internal
 
business unit goals to enable the company to
 
achieve the company-
wide targets.
 
In September 2021, we increased our interim
 
operational target and
 
have set it to reduce
our gross operated and net
 
equity (scope 1 and 2) emissions intensity by
 
40 to 50 percent from 2016
levels by 2030, an improvement from
 
the previously announced target
 
of 35 to 45 percent on only a gross
operated basis,
 
with an ambition to achieve net-zero
 
operated emissions by 2050.
 
We have joined the
World Bank Flaring Initiative to
 
work towards zero
 
routine flaring of associated gas
 
by 2030, with an
ambition to meet that goal by 2025.
Technology choices:
 
We expanded our Marginal
 
Abatement Cost Curve process
 
to provide a broader
range of opportunities for emission
 
reduction technology.
Portfolio choices: Our corporate
 
authorization process requires
 
all qualifying projects to include a GHG
price in their project approval economics.
 
Different GHG prices are used
 
depending on the region or
jurisdiction.
 
Projects in jurisdictions with existing GHG pricing regimes
 
incorporate the existing
 
GHG price
and forecast into
 
their economics.
 
Projects where no existing GHG pricing regime
 
exists utilize a scenario
forecast from our internally
 
consistent World
 
Energy Model.
 
In this way,
 
both existing and emerging
regulatory requirements are
 
considered in our decision-making.
 
The company does not use an estimated
market cost of GHG emissions when assessing
 
reserves in jurisdictions without existing GHG regulations.
External engagement:
 
Our external engagement aims to
 
differentiate ConocoPhillips
 
within the oil and
gas sector with our approach to managing
 
climate-related risk.
 
We are a Founding Member of the
Climate Leadership Council (CLC), an international
 
policy institute founded in collaboration
 
with business
and environmental interests
 
to develop a carbon dividend plan.
 
Participation in the CLC provides
 
another
opportunity for ongoing dialogue about carbon
 
pricing and framing the issues in alignment with our public
policy principles.
 
We also belong to and fund Americans For
 
Carbon Dividends, the education and
advocacy branch of the CLC.
Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the
Private Securities Litigation Reform Act
 
of 1995
This report includes forward-looking statements
 
within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
 
All statements other than
 
statements of historical
 
fact
included or incorporated by
 
reference in this report, including, without
 
limitation, statements
 
regarding our future
financial position, business strategy,
 
budgets, projected revenues,
 
projected costs and plans, objectives
 
of
management for future operations,
 
the anticipated benefits of the transaction
 
between us and Concho Resources
Inc. (Concho), including the expected amount and
 
the timing of synergies from such transaction,
 
the anticipated
closing of the acquisition of assets from Shell Enterprises
 
LLC (Shell), and the anticipated impact of the Concho
 
and
Shell transactions on the combined company’s
 
business and future financial and operating results
 
are forward-
looking statements.
 
Examples of forward-looking statements
 
contained in this report include our expected
production growth and outlook on the business
 
environment generally,
 
our expected capital budget
 
and capital
expenditures, and discussions concerning future
 
dividends.
 
You can often
 
identify our forward-looking statements
by the words “anticipate,”
 
“believe,” “budget,”
 
“continue,”
 
“could,”
 
“effort,”
 
“estimate,”
 
“expect,”
 
“forecast,”
“intend,”
 
“goal,”
 
“guidance,”
 
“may,”
 
“objective,”
 
“outlook,”
 
“plan,” “potential,”
 
“predict,” “projection,”
 
“seek,”
“should,”
 
“target,”
 
“will,” “would” and similar
 
expressions.
 
ConocoPhillips
 
2021 Q3 10-Q
 
58
We based the forward-looking
 
statements on our current
 
expectations, estimates and
 
projections about ourselves
and the industries in which we operate in
 
general.
 
We caution you these
 
statements are not guarantees
 
of future
performance as they involve
 
assumptions that, while made in good faith, may
 
prove to be incorrect, and involve
risks and uncertainties we cannot predict.
 
In addition, we based many of these forward
 
-looking statements on
assumptions about future events
 
that may prove to be inaccurate.
 
Accordingly,
 
our actual outcomes and results
may differ materially from
 
what we have expressed
 
or forecast in the forward
 
-looking statements.
 
Any differences
could result from a variety of factors
 
and uncertainties, including, but not limited to,
 
the following:
 
The impact of public health crises, including pandemics (such as COVID
 
-19) and epidemics and any related
company or government policies
 
or actions.
Global and regional changes in the demand, supply,
 
prices, differentials or other market
 
conditions
affecting oil and gas, including changes
 
resulting from a public health crisis or from the imposition
 
or
lifting of crude oil production quotas or other actions
 
that might be imposed by OPEC and other producing
countries and the resulting company
 
or third-party actions in response to such changes.
Fluctuations in crude oil, bitumen, natural gas,
 
LNG and NGLs prices, including a prolonged decline in
these prices relative to historical
 
or future expected levels.
The impact of significant declines in prices for crude oil,
 
bitumen, natural gas, LNG and NGLs, which may
result in recognition of impairment charges
 
on our long-lived assets, leaseholds and nonconsolidated
equity investments.
Potential failures or delays
 
in achieving expected reserve or production
 
levels from existing and future
 
oil
and gas developments, including due to
 
operating hazards, drilling risks
 
and the inherent uncertainties in
predicting reserves and reservoir performance.
Reductions in reserves replacement rates,
 
whether as a result of the significant declines in
 
commodity
prices or otherwise.
Unsuccessful exploratory drilling
 
activities or the inability to obtain access to exploratory
 
acreage.
Unexpected changes in costs or technical
 
requirements for constructing,
 
modifying or operating E&P
facilities.
Legislative and regulatory initiatives
 
addressing environmental concerns,
 
including initiatives addressing
the impact of global climate change or further regulating
 
hydraulic fracturing, methane
 
emissions, flaring
or water disposal.
Lack of, or disruptions
 
in, adequate and reliable transportation
 
for our crude oil, bitumen, natural gas,
LNG and NGLs.
Inability to timely obtain or maintain
 
permits, including those necessary for construction, drilling
 
and/or
development, or inability to make
 
capital expenditures required
 
to maintain compliance with any
necessary permits or applicable laws or regulations.
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.
59
 
ConocoPhillips
 
2021 Q3 10-Q
Liability resulting from litigation,
 
including litigation related to
 
the transaction with Concho, or our failure
to comply with applicable laws and regulations.
 
General domestic and international
 
economic and political developments, including armed
 
hostilities;
expropriation of assets; changes in governmental
 
policies relating to crude oil, bitumen, natural
 
gas, LNG
and NGLs pricing; regulation or taxation;
 
and other political, economic or diplomatic developments.
Volatility in the commodity futures
 
markets.
Changes in tax and other laws, regulations
 
(including alternative energy mandates),
 
or royalty rules
applicable to our business.
Competition and consolidation in the oil and gas
 
E&P industry.
Any limitations on our access to capital
 
or increase in our cost of capital, including
 
as a result of illiquidity
or uncertainty in domestic or international
 
financial markets or investment
 
sentiment.
Our inability to execute, or delays
 
in the completion, of any asset dispositions or acquisitions
 
we elect to
pursue.
 
Potential failure to obtain,
 
or delays in obtaining, any necessary
 
regulatory approvals
 
for pending or
future asset dispositions or acquisitions, or that such
 
approvals may require modification
 
to the terms of
the transactions or the operation
 
of our remaining business.
Potential disruption of our operations
 
as a result of pending or future asset dispositions or acquisitions,
including the diversion of management time and
 
attention.
Our inability to deploy the net proceeds from any
 
asset dispositions that are pending or that we elect
 
to
undertake in the future in the manner and
 
timeframe we currently anticipate,
 
if at all.
Our inability to liquidate the common stock
 
issued to us by Cenovus Energy as part of our sale of certain
assets in western Canada at prices we deem acceptable,
 
or at all.
The operation and financing of our joint ve
 
ntures.
The ability of our customers and other contractual
 
counterparties to satisfy their obligations
 
to us,
including our ability to collect payments
 
when due from the government of Venezuela
 
or PDVSA.
 
Our inability to realize anticipated
 
cost savings and capital expenditure
 
reductions.
The inadequacy of storage capacity
 
for our products, and ensuing curtailments,
 
whether voluntary or
involuntary,
 
required to mitigate this physical
 
constraint.
Our ability to successfully integrate
 
Concho’s business and
 
fully achieve the expected benefits and cost
reductions associated with the transaction
 
with Concho in a timely manner or at all.
The risk that we will be unable to retain
 
and hire key personnel.
Unanticipated difficulties or expenditures
 
relating to integration with Concho.
The risk that the conditions to close the acquisition
 
of assets from Shell are not satisfied on
 
a timely basis
or at all, or the failure of the transaction
 
to close for any reason.
The risk that any regulatory
 
approval, consent or authorization
 
that may be required for
 
the proposed
acquisition of assets from Shell is not obtained
 
or is obtained subject to conditions that are not
anticipated.
Unanticipated integration
 
issues relating to the proposed acquisition
 
of assets from Shell, such as
potential disruptions of our ongoing business and
 
higher than anticipated integration
 
costs.
 
Uncertainty as to the long-term value of our
 
common stock.
The diversion of management time on integration
 
-related matters.
The factors generally described
 
in Part I—Item 1A in our 2020 Annual Report
 
on Form 10-K and any
additional risks described in our other filings with the SEC.
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
Information about market
 
risks for the nine months ended September
 
30, 2021, does not differ materially from
that discussed under Item 7A in our 2020 Annual Report
 
on Form 10-K.
 
ConocoPhillips
 
2021 Q3 10-Q
 
60
Item 4.
 
Controls and Procedures
 
We maintain disclosure
 
controls and procedures
 
designed to ensure information required
 
to be disclosed in
reports we file or submit under the Securities Exchange
 
Act of 1934, as amended (the Act), is recorded, processed,
summarized and reported within the
 
time periods specified in SEC rules and forms, and
 
that such information is
accumulated and communicated
 
to management, including our principal executive
 
and principal financial officers,
as appropriate, to allow timely decisions
 
regarding required disclosure.
 
At September 30, 2021, with the
participation of our management, our Chairman and
 
Chief Executive Officer (principal executive
 
officer) and our
Executive Vice President and Chief
 
Financial Officer (principal financial officer) carried
 
out an evaluation, pursuant
to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure
 
controls and procedures
 
(as defined in Rule 13a-15(e) of
the Act).
 
Based upon that evaluation, our Chairman
 
and Chief Executive Officer and our Executive
 
Vice President
and Chief Financial Officer concluded our disclosure
 
controls and procedures were
 
operating effectively
 
at
September 30, 2021.
There have been no changes in our internal
 
control over financial reporting, as defined in
 
Rule 13a-15(f) of the Act,
in the period covered by this report that
 
have materially affected,
 
or are reasonably likely to
 
materially affect, our
internal control over financial
 
reporting.
PART
 
II.
 
Other Information
Item 1.
 
Legal Proceedings
The interim-period financial information
 
presented in the financial statements
 
included in this report is unaudited.
There are no new material legal
 
proceedings or material developments
 
with respect to matters
 
previously
disclosed in Item 3 of our 2020 Annual Report on Form
 
10-K.
Item 1A.
 
Risk Factors
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, 2020.
 
Risks Related to the Proposed Shell Permian
 
Acquisition
 
Our ability to complete the Shell Permian
 
Acquisition is subject to various closing conditions,
 
including regulatory
clearance, which may impose conditions that could adversely
 
affect us or cause the acquisition not to be
completed.
The Shell Permian Acquisition is subject to a number of conditions
 
to closing as specified in the definitive
agreement signed on September 20, 2021 (Purchase
 
Agreement), including but not limited to
 
the expiration or
termination of the waiting period under the Hart-Scott
 
-Rodino Antitrust Improvements
 
Act of 1976, as
amended. No assurance can be given that
 
the required regulatory clearance
 
will be obtained or that the other
required conditions to closing will be satisfied,
 
and, if the regulatory clearance is obtained
 
and the required
conditions are satisfied, no assurance
 
can be given as to the terms, conditions and
 
timing of such clearance,
including whether any required conditions
 
will materially adversely affect
 
ConocoPhillips following the Shell
Permian Acquisition.
 
Any delay in closing the Shell Permian
 
Acquisition could cause ConocoPhillips not to
 
realize,
or to be delayed in realizing, some or all of the benefits that
 
we expect to achieve if the Shell Permian
 
Acquisition
is successfully closed within its expected time frame.
61
 
ConocoPhillips
 
2021 Q3 10-Q
The termination of the Purchase Agreement could negatively
 
impact our business and in some circumstances, we
could forfeit a portion of the purchase price.
If the Shell Permian Acquisition is not completed
 
for any reason, including if the above
 
closing conditions are not
satisfied, our ongoing business may be adversely
 
affected and, without realizing
 
any of the expected benefits of
having completed the Shell Permian
 
Acquisition, we would be subject to a number
 
of risks, including the following:
 
We may experience negative
 
reactions from the financial markets,
 
including negative impacts on the
trading price of our common stock; and
We will be required to pay
 
our costs relating to the Shell Permian Acquisition,
 
such as legal and
accounting costs and associated
 
fees and expenses, whether or not the Shell Permian
 
Acquisition is
completed.
 
Additionally, upon
 
entry into the Purchase Agreement, 5%
 
(the Deposit) of the $9.5 billion (Base Purchase Price)
was paid to Shell.
 
If the Purchase Agreement is terminated
 
solely as a result of the material breach or failure
 
of
any of our representations,
 
warranties or covenants
 
included in the Purchase Agreement, the Deposit will not
 
be
refunded.
 
Integrating the assets acquired in the Shell Permian Acquisition
 
may be more difficult, costly or time-consuming
than expected and we may fail to realize
 
the full anticipated benefits of the transaction, which may adversely
affect our business results and negatively affect the value of our common stock.
We may encounter difficulties
 
integrating the assets acquired
 
from Shell into our business and realizing the
anticipated benefits of the transaction
 
or such benefits may take longer
 
to realize than expected.
 
The Shell
Permian Acquisition is expected to
 
add approximately 225,000 net acres,
 
thereby increasing our unconventional
position in Permian by nearly 30 percent.
 
There are a large number of processes,
 
policies, procedures, operations
and technologies and systems
 
that must be integrated
 
in connection with the Shell Permian Acquisition and the
integration of Shell’s
 
assets.
 
It is possible that the integration process
 
could result in the disruption of our ongoing
business; inconsistencies in standards,
 
controls, procedures and
 
policies; unexpected integration
 
issues; higher
than expected integration
 
costs and an overall post
 
-completion integration process
 
that takes longer than
originally anticipated.
 
We will be required to devote
 
management attention
 
and resources to integrating
 
the
business practices and operations,
 
and prior to closing the transaction, management attention
 
and resources will
be required to plan for such integration.
 
An inability to realize the full extent
 
of the anticipated benefits of the
Shell Permian Acquisition, as well as any delays
 
encountered in the integration
 
process, could have an adverse
effect on our revenues or
 
on our level of expenses and operating
 
results, which may adversely affect
 
the value of
our common stock.
 
In addition, the actual integration may
 
result in additional and unforeseen expenses.
 
Although
we expect that the strategic
 
benefits, and additional income, as well as the realization
 
of other efficiencies related
to the integration of the Shell assets,
 
may offset incremental
 
transaction-related costs
 
over time, if we are not able
to adequately address integration
 
challenges, we may be unable to successfully
 
integrate operations
 
or realize the
anticipated benefits of the integration
 
of the Shell assets.
 
 
 
 
ConocoPhillips
 
2021 Q3 10-Q
 
62
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
July 1-31, 2021
7,118,526
$
58.18
7,118,526
$
13,088
August 1-31, 2021
7,530,282
55.61
7,530,282
12,669
September 1-30, 2021
6,990,322
58.70
6,990,322
12,259
21,639,130
21,639,130
*There were no repurchases of common stock from company employees in connection with the company's broad-based
 
employee incentive plans.
In late 2016, we initiated our current
 
share repurchase program,
 
which has a total program authorization
 
of $25
billion of our common stock.
 
At September 30, 2021, we had repurchased
 
$12.7 billion of shares, with $12.3
billion remaining under our current authorization.
 
Repurchases are made at management’s
 
discretion, at
prevailing prices, subject to market
 
conditions and other factors.
 
Except as limited by applicable legal
requirements, repurchases
 
may be increased, decreased or discontinued
 
at any time without prior notice.
 
Shares
of stock repurchased under the plan are
 
held as treasury shares.
 
See the “Our ability to declare and pay
 
dividends
and repurchase shares is subject to certain
 
considerations” section in Risk Factors
 
on page 31 of our 2020 Annual
Report on Form 10-K.
63
 
ConocoPhillips
 
2021 Q3 10-Q
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.
 
ConocoPhillips
 
2021 Q3 10-Q
 
64
Signature
Pursuant to the requirements
 
of the Securities Exchange Act of 1934, the registrant
 
has duly caused this report to
be signed on its behalf by the undersigned thereunto
 
duly authorized.
CONOCOPHILLIPS
/s/ Kontessa S. Haynes-Welsh
Kontessa S. Haynes-Welsh
Chief Accounting Officer
 
November 4, 2021