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

COP20211q10q
 
 
 
 
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
 
March 31, 2021
 
d
 
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 and post 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
1,349,418,454
 
shares of common stock, $.01 par value, outstanding at March 31, 2021.
 
CONOCOPHILLIPS
 
 
TABLE OF CONTENTS
 
 
 
Page
Commonly Used Abbreviations
 
..................................................................................................................
 
1
Part I—Financial Information
Item 1.
 
Financial Statements
Consolidated Income Statement
 
...........................................................................................................
 
2
Consolidated Statement of Comprehensive Income
 
............................................................................
 
3
Consolidated Balance Sheet
 
.................................................................................................................
 
4
Consolidated Statement of Cash Flows................................................................................................
 
5
Notes to Consolidated Financial Statements
 
........................................................................................
 
6
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
.................................................................................................................
 
31
Item 3.
 
Quantitative and Qualitative Disclosures
 
About Market Risk
 
...................................................
 
57
Item 4.
 
Controls and Procedures
 
............................................................................................................
 
57
Part II—Other Information
Item 1.
 
Legal Proceedings
 
......................................................................................................................
 
57
Item 1A.
 
Risk Factors
 
.............................................................................................................................
 
57
Item 2.
 
Unregistered Sales of Equity Securities and Use
 
of Proceeds ...................................................
 
58
Item 6.
 
Exhibits ......................................................................................................................................
 
59
Signature
 
.....................................................................................................................................................
 
60
 
1
Commonly Used Abbreviations
 
The following industry-specific, accounting and
 
other terms, and abbreviations may be commonly
 
used in this
report.
 
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
EUR
Euro
ASU
accounting standards update
GBP
British pound
DD&A
depreciation, depletion and
amortization
Units of Measurement
FASB
Financial Accounting Standards
BBL
barrel
Board
BCF
billion cubic feet
FIFO
first-in, first-out
BOE
barrels of oil equivalent
G&A
general and administrative
MBD
thousands of barrels per day
GAAP
generally accepted accounting
 
MCF
thousand cubic feet
principles
MBOD
thousand barrels of oil per day
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MMBOD
million barrels of oil per day
SAB
staff accounting bulletin
MBOED
thousands of barrels of oil
 
VIE
variable interest entity
equivalent per day
MMBOED
millions of barrels of oil
equivalent per day
Miscellaneous
MMBTU
million British thermal units
EPA
Environmental Protection Agency
MMCFD
million cubic feet per day
ESG
Environmental, Social and
Corporate Governance
EU
European Union
Industry
FERC
Federal Energy Regulatory
 
CBM
coalbed methane
Commission
E&P
exploration and production
GHG
greenhouse gas
FEED
front-end engineering and design
HSE
health, safety and environment
FPS
floating production system
ICC
International Chamber of
 
FPSO
floating production, storage and
Commerce
offloading
ICSID
World Bank’s
 
International
 
G&G
geological and geophysical
Centre for Settlement of
JOA
joint operating agreement
Investment Disputes
LNG
liquefied natural gas
IRS
Internal Revenue Service
NGLs
natural gas liquids
OTC
over-the-counter
OPEC
Organization of Petroleum
 
NYSE
New York Stock Exchange
Exporting Countries
SEC
U.S. Securities and Exchange
 
PSC
production sharing contract
Commission
PUDs
proved undeveloped reserves
TSR
total shareholder return
SAGD
steam-assisted gravity drainage
U.K.
United Kingdom
WCS
Western Canada Select
U.S.
United States of America
WTI
West Texas
 
Intermediate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
 
FINANCIAL STATEMENTS
Consolidated Income Statement
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2021
2020
Revenues and Other Income
Sales and other operating revenues
$
9,826
6,158
Equity in earnings of affiliates
122
234
Gain (loss) on dispositions
233
(42)
Other income (loss)
 
378
(1,539)
Total Revenues and
 
Other Income
10,559
4,811
Costs and Expenses
Purchased commodities
4,483
2,661
Production and operating expenses
1,383
1,173
Selling, general and administrative expenses
311
(3)
Exploration expenses
84
188
Depreciation, depletion and amortization
1,886
1,411
Impairments
(3)
521
Taxes other than income
 
taxes
370
250
Accretion on discounted liabilities
62
67
Interest and debt expense
226
202
Foreign currency transactions (gain) loss
19
(90)
Other expenses
24
(6)
Total Costs and Expenses
8,845
6,374
Income (loss) before income taxes
1,714
(1,563)
Income tax provision
732
148
Net income (loss)
982
(1,711)
Less: net income attributable to noncontrolling interests
-
(28)
Net Income (Loss) Attributable to ConocoPhillips
$
982
(1,739)
Net Income (Loss) Attributable to ConocoPhillips Per Share
 
of Common Stock
(dollars)
Basic
$
0.75
(1.60)
Diluted
0.75
(1.60)
Average Common
 
Shares Outstanding
(in thousands)
Basic
1,300,375
1,084,561
Diluted
1,302,691
1,084,561
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2021
2020
Net Income (Loss)
$
982
(1,711)
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit
 
included in net income (loss)
(9)
(8)
Net actuarial gain arising during the period
75
5
Reclassification adjustment for amortization of net actuarial losses included
 
in net income (loss)
25
18
Income taxes on defined benefit plans
(21)
(4)
Defined benefit plans, net of tax
70
11
Net unrealized holding loss on securities
(1)
(3)
Income taxes on net unrealized holding loss on securities
-
1
Net unrealized holding loss on securities, net of tax
(1)
(2)
Foreign currency translation adjustments
69
(799)
Income taxes on foreign currency translation adjustments
-
2
Foreign currency translation adjustments, net of tax
69
(797)
Other Comprehensive Income (Loss), Net of
 
Tax
138
(788)
Comprehensive Income (Loss)
1,120
(2,499)
Less: comprehensive income attributable to noncontrolling
 
interests
-
(28)
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
1,120
(2,527)
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Consolidated Balance Sheet
 
ConocoPhillips
Millions of Dollars
March 31
December 31
2021
2020
Assets
Cash and cash equivalents
$
2,831
2,991
Short-term investments
4,104
3,609
Accounts and notes receivable (net of allowance of $
3
 
and $
4
, respectively)
4,339
2,634
Accounts and notes receivable—related parties
142
120
Investment in Cenovus Energy
1,564
1,256
Inventories
1,098
1,002
Prepaid expenses and other current assets
536
454
Total Current Assets
14,614
12,066
Investments and long-term receivables
8,286
8,017
Loans and advances—related parties
59
114
Net properties, plants and equipment
(net of accumulated DD&A of $
64,082
 
and $
62,213
, respectively)
58,270
39,893
Other assets
2,464
2,528
Total Assets
$
83,693
62,618
Liabilities
Accounts payable
$
3,779
2,669
Accounts payable—related parties
22
29
Short-term debt
689
619
Accrued income and other taxes
959
320
Employee benefit obligations
567
608
Other accruals
1,168
1,121
Total Current Liabilities
7,184
5,366
Long-term debt
19,338
14,750
Asset retirement obligations and accrued environmental costs
5,782
5,430
Deferred income taxes
4,982
3,747
Employee benefit obligations
1,530
1,697
Other liabilities and deferred credits
1,722
1,779
Total Liabilities
40,538
32,769
Equity
Common stock (
2,500,000,000
 
shares authorized at $
.01
 
par value)
Issued (2021—
2,087,207,067
 
shares; 2020—
1,798,844,267
 
shares)
Par value
21
18
Capital in excess of par
60,278
47,133
Treasury stock (at cost: 2021—
737,788,613
 
shares; 2020—
730,802,089
 
shares)
(47,672)
(47,297)
Accumulated other comprehensive loss
(5,080)
(5,218)
Retained earnings
35,608
35,213
Total Equity
43,155
29,849
Total Liabilities and Equity
$
83,693
62,618
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2021
2020
Cash Flows From Operating Activities
Net Income (Loss)
$
982
(1,711)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
1,886
1,411
Impairments
(3)
521
Dry hole costs and leasehold impairments
6
67
Accretion on discounted liabilities
62
67
Deferred taxes
203
(227)
Undistributed equity earnings
81
31
(Gain) loss on dispositions
(233)
42
Unrealized (gain) loss on investment in Cenovus Energy
(308)
1,691
Other
(581)
(284)
Working
 
capital adjustments
Decrease (increase) in accounts and notes receivable
(785)
1,041
Decrease (increase) in inventories
(51)
277
Increase in prepaid expenses and other current assets
(43)
(79)
Increase (decrease) in accounts payable
424
(297)
Increase (decrease) in taxes and other accruals
440
(445)
Net Cash Provided by Operating Activities
2,080
2,105
Cash Flows From Investing Activities
Cash acquired from Concho
382
-
Capital expenditures and investments
(1,200)
(1,649)
Working
 
capital changes associated with investing activities
61
81
Proceeds from asset dispositions
(17)
549
Net purchases of investments
(499)
(935)
Collection of advances/loans—related parties
52
66
Other
6
(44)
Net Cash Used in Investing Activities
(1,215)
(1,932)
Cash Flows From Financing Activities
Repayment of debt
(26)
(24)
Issuance of company common stock
(28)
2
Repurchase of company common stock
(375)
(726)
Dividends paid
 
(588)
(458)
Other
2
(24)
Net Cash Used in Financing Activities
(1,015)
(1,230)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
Cash
(2)
(122)
Net Change in Cash, Cash Equivalents and Restricted Cash
(152)
(1,179)
Cash, cash equivalents and restricted cash at beginning of period
3,315
5,362
Cash, Cash Equivalents and Restricted Cash at End of Period
$
3,163
4,183
Restricted cash of $
94
 
million and $
238
 
million are included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of March 31, 2021.
Restricted cash of $
94
 
million and $
230
 
million are included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2020.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
Notes to Consolidated Financial Statements
 
ConocoPhillips
 
 
 
Note 1—Basis of Presentation
 
The interim-period financial information
 
presented in the financial statements included
 
in this report is
unaudited and, in the opinion of management,
 
includes all known accruals and adjustments
 
necessary for a fair
presentation of the consolidated financial
 
position of ConocoPhillips and its results
 
of operations and cash
flows for such periods.
 
All such adjustments are of a normal and recurring
 
nature unless otherwise disclosed.
Certain notes and other information have been
 
condensed or omitted from the interim
 
financial statements
included in this report.
 
Therefore, these financial statements should
 
be read in conjunction with the
consolidated financial statements and notes included
 
in our 2020 Annual Report on Form
 
10-K
.
 
 
Note 2—Inventories
Inventories consisted of the following:
Millions of Dollars
March 31
 
December 31
2021
2020
Crude oil and natural gas
$
541
461
Materials and supplies
557
541
$
1,098
1,002
 
 
Inventories valued on the LIFO basis totaled
 
$
352
 
million and $
282
 
million at March 31, 2021 and December
31, 2020, respectively.
 
 
 
 
Note 3—Acquisitions and Dispositions
 
Acquisition of
Concho Resources Inc.
 
(Concho)
We completed our acquisition of Concho on
January 15, 2021
 
and as defined under the terms of the
 
transaction
agreement, each share of Concho common stock
 
was exchanged at a fixed ratio of
1.46
 
for shares of
ConocoPhillips common stock, for total consideration
 
of $
13.1
 
billion.
 
Total Consideration
 
Number of shares of Concho common stock
 
issued and outstanding (in thousands)*
194,243
 
Number of shares of Concho stock awards outstanding
 
(in thousands)*
1,599
Number of shares exchanged
195,842
 
Exchange ratio
1.46
 
Additional shares of ConocoPhillips common stock
 
issued as consideration (in thousands)
285,929
 
Average price per share of ConocoPhillips common stock**
$
45.9025
 
Total Consideration (Millions)
$
13,125
 
*Outstanding as of January 15, 2021.
**Based on the ConocoPhillips average stock price on January
 
15, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
The transaction was accounted for as a business
 
combination under FASB ASC 805 using the acquisition
method, which requires assets acquired and liabilities
 
assumed to be measured at their acquisition date fair
values.
 
Fair value measurements were made for acquired
 
assets and liabilities, and adjustments to those
measurements may be made in subsequent periods,
 
up to one year from the acquisition date as
 
we identify new
information about facts and circumstances that existed
 
as of the acquisition date to consider.
 
Oil and gas
properties were valued using a discounted cash
 
flow approach incorporating market participant
 
and internally
generated price assumptions;
 
production profiles;
 
and operating and development cost assumptions.
 
Debt
assumed in the acquisition was valued based on
 
observable market prices.
 
The fair values determined for
accounts receivables, accounts payable, and most
 
other current assets and current liabilities
 
were equivalent to
the carrying value due to their short-term
 
nature.
 
The total consideration of $
13.1
 
billion was allocated to the
identifiable assets and liabilities based on their
 
fair values as of January 15, 2021.
 
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
382
Accounts receivable, net
742
Inventories
45
Prepaid expenses and other current assets
37
Investments and long-term receivables
333
Net properties, plants and equipment
18,998
Other assets
62
Total assets acquired
$
20,599
Liabilities Assumed
Accounts payable
$
638
Accrued income and other taxes
76
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
$
7,474
Net assets acquired
$
13,125
 
 
With the completion of the Concho transaction, we acquired proved
 
and unproved properties of approximately
$
11.9
 
billion and $
6.9
 
billion, respectively.
 
 
We recognized approximately $
157
 
million of transaction-related costs that
 
were expensed in the current
period.
 
These non-recurring costs related primarily
 
to fees paid to advisors and the settlement of
 
share-based
awards for certain Concho employees based
 
on the terms of the Merger Agreement.
 
In the first quarter of 2021, we commenced a restructuring program, the scope of which included combining
the operations of the two companies. For the three-month period ending March 31, 2021, we recognized non-
recurring restructuring costs mainly for employee severance and related incremental pension benefit costs of
approximately $134 million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
The impact from these transaction and restructuring
 
costs to the lines of our consolidated income statement
 
for
the three-month period ending March 31, 2021,
 
are below:
 
Millions of Dollars
Transaction Cost
Restructuring Cost
Total Cost
Production and operating expenses
$
56
56
Selling, general and administration expenses
135
45
180
Exploration expenses
18
4
22
Taxes other than income taxes
4
4
Other expenses
29
29
$
157
134
291
 
 
On February 8, 2021, we completed a debt exchange
 
offer related to the debt assumed from Concho.
 
As a
result of the debt exchange, we recognized an additional
 
income tax related restructuring charge of $
75
million.
 
See Note 18—Income Taxes, for additional information.
 
 
“Total Revenues and Other Income” and “Net Income (Loss) Attributable to
 
ConocoPhillips” associated with
the acquired Concho business were approximately
 
$
1,040
 
million and $
190
 
million, respectively, for the three-
month period ending March 31, 2021.
 
The results associated with the Concho business
 
include a before- and
after-tax loss of $
173
 
million and $
132
 
million, respectively, on the acquired derivative contracts with
settlement dates on or before March 31, 2021, and
 
an additional before- and after-tax loss of $
132
 
million and
$
101
 
million, respectively, for contracts with settlement dates subsequent
 
to March 31, 2021.
 
The before-tax
loss is recorded within “Total Revenues and Other Income” on our consolidated income
 
statement.
 
For
additional information about the financial derivative
 
instruments acquired, see Note 10—Derivative
 
and
Financial Instruments.
 
 
The following summarizes the unaudited supplemental
 
pro forma financial information for the three-month
period ending March 31, 2020, as if we had completed
 
the acquisition of Concho on January 1, 2020:
 
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
March 31, 2020
Total revenues and other income
$
7,300
Net loss
(390)
Net loss attributable to ConocoPhillips
(418)
$ per share
Earnings per share:
Three Months Ended
March 31, 2020
Basic net loss
$
(0.31)
Diluted net loss
(0.31)
 
 
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-month period ending March 31, 2020 is
 
a result of
combining the consolidated income statement
 
of ConocoPhillips with the results of Concho.
 
The pro forma
results do not include transaction-related costs,
 
nor any cost savings anticipated as a result
 
of the transaction.
 
The pro forma results include adjustments to
 
reverse impairment expense of $
10.5
 
billion and $
1.9
 
billion
recorded by Concho in the three-month period ending
 
March 31, 2020, related to oil and gas properties
 
and
goodwill, respectively.
 
Other adjustments made relate primarily to
 
DD&A, which is based on the unit-of-
production method, resulting from the purchase
 
price allocated to properties, plants and equipment.
 
We
 
9
believe the estimates and assumptions are reasonable,
 
and the relative effects of the transaction are properly
reflected.
 
Assets Sold
In 2020, we completed the sale of our Australian-West asset and operations.
 
The sales agreement entitles 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 intend to take all action required 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 2017, we completed the sale of our
50
 
percent nonoperated interest in the Foster Creek
 
Christina Lake
(FCCL) Partnership, as well as the majority of
 
our western Canada gas assets to Cenovus Energy.
Consideration for the transaction included a five-year, uncapped
 
contingent payment.
The contingent payment,
calculated on a quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average
crude price exceeds $52 CAD per barrel. Contingent payments during the five-year period are recorded as gain
on dispositions on our consolidated income statement and reflected in our Canada segment.
 
We recorded a
gain on disposition for these contingent payments
 
of $
26
 
million for the three-month period of March 31,
2021.
 
No
 
contingent payments were recorded in 2020.
 
 
Note 4—Investments, Loans and Long-Term Receivables
 
 
APLNG
APLNG executed project financing agreements
 
for an $
8.5
 
billion project finance facility in 2012.
 
The $8.5
billion project finance facility was initially composed
 
of financing agreements executed by APLNG
 
with the
Export-Import Bank of the United States for approximately
 
$
2.9
 
billion, the Export-Import Bank of China for
approximately $
2.7
 
billion, and a syndicate of Australian and international
 
commercial banks for
approximately $
2.9
 
billion.
 
All amounts were drawn from the facility.
 
APLNG made its first principal and
interest repayment in March 2017 and is scheduled
 
to make
bi-annual
 
payments until March 2029.
 
 
APLNG made a voluntary repayment of $
1.4
 
billion to the Export-Import Bank of China
 
in September 2018.
 
At the same time, APLNG obtained a United
 
States Private Placement (USPP) bond facility
 
of $
1.4
 
billion.
 
APLNG made its first interest payment related to
 
this facility in March 2019, and principal
 
payments are
scheduled to commence in September 2023,
 
with
bi-annual
 
payments due on the facility until September
 
2030.
 
 
During the first quarter of 2019, APLNG refinanced
 
$
3.2
 
billion of existing project finance debt through two
transactions.
 
As a result of the first transaction, APLNG
 
obtained a commercial bank facility of $
2.6
 
billion.
 
APLNG made its first principal and interest
 
repayment in September 2019 with
bi-annual
 
payments due on the
facility until March 2028.
 
Through the second transaction, APLNG obtained
 
a USPP bond facility of $
0.6
billion.
 
APLNG made its first interest payment in September
 
2019, and principal payments are scheduled
 
to
commence in September 2023, with
bi-annual
 
payments due on the facility until
 
September 2030.
 
In conjunction with the $3.2 billion debt obtained
 
during the first quarter of 2019 to refinance existing
 
project
finance debt, APLNG made voluntary repayments
 
of $
2.2
 
billion and $
1.0
 
billion to a syndicate of Australian
and international commercial banks and the Export-Import
 
Bank of China, respectively.
 
At March 31, 2021, a balance of $
6.0
 
billion was outstanding on the facilities.
 
See Note 8—Guarantees, for
additional information.
 
 
 
10
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 an improved outlook for
 
crude oil prices, the estimated fair value of our
investment increased and is above carrying value
 
at March 31, 2021.
 
We will continue to monitor the
relationship between the carrying value and fair
 
value of APLNG.
 
Should we determine in the future there has
been a loss in the value of our investment
 
that is other than temporary, we would record an impairment of our
equity investment, calculated as the total difference between
 
carrying value and fair value as of the end
 
of the
reporting period.
 
At March 31, 2021, the carrying value of our
 
equity method investment in APLNG was
 
$
6.6
 
billion.
 
The
balance is included in the “Investments and long-term
 
receivables” line on our consolidated balance
 
sheet.
 
Loans and Long-Term Receivables
As part of our normal ongoing business operations,
 
and consistent with industry practice,
 
we enter into
numerous agreements with other parties to pursue
 
business opportunities.
 
Included in such activity are loans
made to certain affiliated and non-affiliated companies.
 
At March 31, 2021, significant loans to affiliated
companies included $
168
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3).
 
On our consolidated balance sheet, the long-term
 
portion of these loans is included in the “Loans
 
and
advances—related parties” line, while the short-term
 
portion is in the “Accounts and notes receivable—related
parties” line.
 
 
Note 5-–Investment in Cenovus Energy
 
In 2017, we completed the sale of certain assets
 
to Cenovus Energy (CVE) in which we received
208
 
million
CVE common shares as consideration.
 
At March 31, 2021, the investment was included
 
on our consolidated
balance sheet at fair value of $
1.56
 
billion, which approximates
10.3
 
percent of the issued and outstanding
CVE common stock.
 
The fair value of the
208
 
million CVE common shares reflects the
 
closing price of $
7.52
per share on the NYSE on the last trading day
 
of the quarter.
 
In the first quarter of 2021, we recognized an
unrealized gain of $
308
 
million before-tax on our CVE common shares,
 
compared with an unrealized loss of
$
1,691
 
million before-tax in the first quarter
 
of 2020.
 
The unrealized gain (loss) associated with changes
 
in
fair value are reflected within the “Other income
 
(loss)” line on our consolidated income statement
 
in the first
quarter of 2021 relating to the shares held at the
 
reporting date.
 
See Note 11—Fair Value Measurement for
additional information.
 
Subject to market conditions, we intend to
 
decrease our investment over time through
market transactions, private agreements or otherwise.
 
 
 
Note 6—Debt
 
Our debt balance at March 31, 2021, was $
20.0
 
billion compared with $
15.4
 
billion at December 31, 2020.
 
 
On January 15, 2021, we completed the acquisition
 
of Concho in an all-stock transaction.
 
In the acquisition,
we assumed Concho’s publicly traded debt, with an outstanding principal
 
balance of $
3.9
 
billion, which was
recorded at fair value of $
4.7
 
billion on the acquisition date.
 
Debt assumed consisted of the following:
 
 
3.75
% Notes due
2027
 
with principal of $
1,000
 
million
 
4.3
% Notes due
2028
 
with principal of $
1,000
 
million
 
2.4
% Notes due
2031
 
with principal of $
500
 
million
 
4.875
% Notes due
2047
 
with principal of $
800
 
million
 
4.85
% Notes due
2048
 
with principal of $
600
 
million
 
 
11
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.
 
 
On February 8, 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
has the same interest rates and maturity dates
 
as the Concho senior notes.
 
The portion not exchanged,
approximately $
67
 
million, remains outstanding across five series
 
of senior notes issued by Concho.
 
The debt
exchange was treated as a debt modification
 
for accounting purposes resulting in a portion
 
of the unamortized
fair value adjustment of the Concho senior notes
 
allocated to the new debt issued by ConocoPhillips
 
on the
settlement date of the exchange.
 
The new debt issued in the exchange is fully
 
and unconditionally guaranteed
by ConocoPhillips Company.
 
See Note 3—Acquisitions and Dispositions,
 
for more information on the
acquisition.
 
 
We have a revolving credit facility totaling $
6.0
 
billion with an expiration date of May 2023.
 
Our revolving
credit facility may be used for direct bank borrowings,
 
the issuance of letters of credit totaling
 
up to $
500
million, or as support for our commercial paper
 
program.
 
The revolving credit facility is broadly syndicated
among financial institutions and does not contain
 
any material adverse change provisions or any covenants
requiring maintenance of specified financial
 
ratios or credit ratings.
 
The facility agreement contains a cross-
default provision relating to the failure to pay principal
 
or interest on other debt obligations of $
200
 
million or
more by ConocoPhillips, or any of its consolidated
 
subsidiaries.
 
The amount of the facility is not subject to
redetermination prior to its expiration date.
 
Credit facility borrowings may bear interest at
 
a margin above rates offered by certain designated banks in the
London interbank market or at a margin above the overnight
 
federal funds rate or prime rates offered by
certain designated banks in the U.S.
 
The agreement calls for commitment fees
 
on available, but unused,
amounts.
 
The agreement also contains early termination
 
rights if our current directors or their approved
successors cease to be a majority of the Board
 
of Directors.
 
The revolving credit facility supports our ability
 
to issue up to $
6.0
 
billion of commercial paper, which is
primarily a funding source for short-term working capital
 
needs.
 
Commercial paper maturities are generally
limited to
90 days
, and is included in the short-term debt on our consolidated
 
balance sheet.
 
With $
300
 
million
of commercial paper outstanding and
no
 
direct borrowings or letters of credit, we had
 
access to $
5.7
 
billion in
available borrowing capacity under our revolving credit
 
facility at March 31, 2021.
 
At December 31, 2020, we
had $
300
 
million of commercial paper outstanding
 
and
no
 
direct borrowings or letters of credit issued.
 
 
In October 2020, Moody’s affirmed its rating of our senior long-term debt of “A3” with a “stable” outlook, and
affirmed its rating of our short-term debt as “Prime-2.” In January 2021, Fitch affirmed its rating of our long-
term debt as “A” with a “stable” outlook and affirmed its rating of our short-term debt as “F1+.” On January
25, 2021, S&P revised its industry risk assessment of the E&P industry to “Moderately High” from
“Intermediate” based on a view of increasing risks from the energy transition, price volatility, and weaker
profitability. On February 11, 2021, S&P downgraded its rating of our long-term debt from “A” to “A-” with a
“stable” outlook and downgraded its rating of our short-term debt from “A-1” to “A-2.” 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 March 31, 2021, we had $
283
 
million of certain variable rate demand
 
bonds (VRDBs) outstanding with
maturities ranging through 2035.
 
The VRDBs are redeemable at the option of the
 
bondholders on any business
day.
 
If they are ever redeemed, we have the ability
 
and intent
 
to refinance on a long-term basis, therefore, the
VRDBs are included in the “Long-term debt” line
 
on our consolidated balance sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
Note 7—Changes in Equity
The following tables reflect the changes in stockholders'
 
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 March 31, 2021
Balances at December 31, 2020
$
18
47,133
(47,297)
(5,218)
35,213
29,849
Net income
982
982
Other comprehensive income
138
138
Dividends paid ($
0.43
 
per common share)
(588)
(588)
Acquisition of Concho
3
13,122
13,125
Repurchase of company common stock
(375)
(375)
Distributed under benefit plans
23
23
Other
1
1
Balances at March 31, 2021
$
21
60,278
(47,672)
(5,080)
35,608
43,155
For the three months ended March 31, 2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income (loss)
(1,739)
28
(1,711)
Other comprehensive loss
(788)
(788)
Dividends paid ($
0.42
 
per common share)
(458)
(458)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(26)
(26)
Distributed under benefit plans
44
44
Other
1
1
2
Balances at March 31, 2020
$
18
47,027
(47,130)
(6,145)
37,545
72
31,387
 
 
Note 8—Guarantees
 
At March 31, 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.
 
 
 
13
APLNG Guarantees
At March 31, 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 March
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 to be
10 years
.
 
Our maximum exposure under this guarantee is
 
approximately $
170
 
million
and may become payable if an enforcement action
 
is commenced by the project finance lenders against
APLNG.
 
At March 31, 2021, the carrying value of this
 
guarantee was approximately $
14
 
million.
 
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy in
October 2008, we agreed to reimburse Origin
 
Energy for our share of the existing contingent liability
arising under guarantees of an existing obligation
 
of APLNG to deliver natural gas under
 
several sales
agreements with remaining terms of
1 to 21 years
.
 
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
 
to be $
740
 
million ($
1.3
billion in the event of intentional or reckless breach)
 
and would become payable if APLNG fails
 
to
meet its obligations under these agreements and
 
the obligations cannot otherwise be mitigated.
 
Future
payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered
if APLNG does not have enough natural gas
 
to meet these sales commitments and if the
 
co-venturers do
not make necessary equity contributions into APLNG.
 
 
We have guaranteed the performance of APLNG with regard to certain other contracts
 
executed in
connection with the project’s continued development.
 
The guarantees have remaining terms
 
of
16 to 25
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
March 31, 2021, the carrying value of these guarantees
 
was approximately $
11
 
million.
 
 
Other Guarantees
 
We have other guarantees with maximum future potential payment amounts totaling
 
approximately
$
730
 
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 March 31, 2021, the carrying value of these guarantees
 
was approximately $
11
 
million.
 
 
Indemnifications
Over the years, we have entered into agreements to
 
sell ownership interests in certain legal
 
entities, joint
ventures and assets that gave rise to qualifying
 
indemnifications.
 
These agreements include indemnifications
for taxes and environmental liabilities.
 
Most of these indemnifications are related to
 
tax issues and the
majority of these expire in 2021.
 
Those related to environmental issues have terms
 
that are generally indefinite
and the maximum amounts of future payments are
 
generally unlimited.
 
The carrying amount recorded for
these indemnifications at March 31, 2021,
 
was approximately $
50
 
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 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,
 
see Note 9—Contingencies and Commitments.
 
14
Note 9—Contingencies and Commitments
 
 
A number of lawsuits involving a variety of claims
 
arising in the ordinary course of business
 
have been filed
against ConocoPhillips.
 
We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain
 
chemical, mineral and petroleum substances
 
at various active
and inactive sites.
 
We regularly assess the need for accounting recognition or disclosure of these
contingencies.
 
In the case of all known contingencies (other
 
than those related to income taxes), we accrue
 
a
liability when the loss is probable and the amount
 
is reasonably estimable.
 
If a range of amounts can be
reasonably estimated and no amount within the range
 
is a better estimate than any other amount,
 
then the low
end of the range is accrued.
 
We do not reduce these liabilities for potential insurance or third-party recoveries.
 
We accrue receivables for insurance or other third-party recoveries when applicable.
 
With respect to income
tax-related contingencies, we use a cumulative probability-weighted
 
loss accrual in cases where sustaining a
tax position is less than certain.
 
Based on currently available information, we believe
 
it is remote that future costs related to known
 
contingent
liability exposures will exceed current accruals by
 
an amount that would have a material
 
adverse impact on our
consolidated financial statements.
 
As we learn new facts concerning contingencies,
 
we reassess our position
both with respect to accrued liabilities
 
and other potential exposures.
 
Estimates particularly sensitive to future
changes include contingent liabilities
 
recorded for environmental remediation, tax and legal
 
matters.
 
Estimated future environmental remediation
 
costs are subject to change due to such factors
 
as the uncertain
magnitude of cleanup costs, the unknown time
 
and extent of such remedial actions that
 
may be required, and
the determination of our liability in proportion
 
to that of other responsible parties.
 
Estimated future costs
related to tax and legal matters are subject to
 
change as events evolve and as additional
 
information becomes
available during the administrative and litigation
 
processes.
 
Environmental
We are subject to international, federal, state and local environmental laws and regulations.
 
When we prepare
our consolidated financial statements, we record
 
accruals for environmental liabilities based on management’s
best estimates, using all information that is
 
available at the time.
 
We measure estimates and base liabilities on
currently available facts, existing technology, and presently enacted laws
 
and regulations, taking into account
stakeholder and business considerations.
 
When measuring environmental liabilities,
 
we also consider our prior
experience in remediation of contaminated sites,
 
other companies’ cleanup experience, and data released
 
by
the U.S. EPA or other organizations.
 
We consider unasserted claims in our determination of environmental
liabilities, and we accrue them in the period they
 
are both probable and reasonably estimable.
 
Although liability of those potentially responsible
 
for environmental remediation costs is generally
 
joint and
several for federal sites and frequently so for other
 
sites, we are usually only one of many companies
 
cited at a
particular site.
 
Due to the joint and several liabilities, we could
 
be responsible for all cleanup costs related
 
to
any site at which we have been designated as a
 
potentially responsible party.
 
We have been successful to date
in sharing cleanup costs with other financially
 
sound companies.
 
Many of the sites at which we are potentially
responsible are still under investigation by the
 
EPA or the agency concerned.
 
Prior to actual cleanup, those
potentially responsible normally assess the
 
site conditions, apportion responsibility and determine
 
the
appropriate remediation.
 
In some instances, we may have no liability
 
or may attain a settlement of liability.
 
Where it appears that other potentially responsible
 
parties may be financially unable to bear their
 
proportional
share, we consider this inability in estimating
 
our potential liability, and we adjust our accruals accordingly.
 
As a result of various acquisitions in the past,
 
we assumed certain environmental obligations.
 
Some of these
environmental obligations are mitigated by indemnifications
 
made by others for our benefit, and some of the
indemnifications are subject to dollar limits
 
and time limits.
 
We are currently participating in environmental assessments and cleanups at numerous
 
federal Superfund and
comparable state and international sites.
 
After an assessment of environmental exposures
 
for cleanup and
other costs, we make accruals on an undiscounted
 
basis (except those acquired in a purchase
 
business
combination, which we record on a discounted
 
basis) for planned investigation and remediation
 
activities for
sites where it is probable future costs will be incurred
 
and these costs can be reasonably estimated.
 
We have
not reduced these accruals for possible insurance recoveries.
 
15
At March 31, 2021, our consolidated balance sheet
 
included a total environmental accrual of $
188
 
million,
compared with $
180
 
million at December 31, 2020, for remediation
 
activities in the U.S. and Canada.
 
We
expect to incur a substantial amount of these expenditures within the next 30 years.
 
In the future, we may be
involved in additional environmental assessments,
 
cleanups and proceedings.
 
Litigation and Other Contingencies
We are subject to various lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
and severance tax payments, gas measurement and
 
valuation methods, contract disputes,
 
environmental
damages, climate change, personal injury, and property damage.
 
Our primary exposures for such matters
relate to alleged royalty and tax underpayments on
 
certain federal, state and privately owned properties
 
and
claims of alleged environmental contamination
 
from historic operations.
 
We will continue to defend ourselves
vigorously in these matters.
 
Our legal organization applies its knowledge, experience
 
and professional judgment to the specific
characteristics of our cases, employing a litigation
 
management process to manage and monitor the
 
legal
proceedings against us.
 
Our process facilitates the early evaluation and
 
quantification of potential exposures in
individual cases.
 
This process also enables us to track those cases that
 
have been scheduled for trial and/or
mediation.
 
Based on professional judgment and experience
 
in using these litigation management tools and
available information about current developments
 
in all our cases, our legal organization regularly assesses
 
the
adequacy of current accruals and determines if
 
adjustment of existing accruals, or establishment
 
of new
accruals, is required.
 
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 March 31, 2021, we had performance
 
obligations secured by letters of credit
 
of $
309
million (issued as direct bank letters of credit)
 
related to various purchase commitments for materials,
 
supplies,
commercial activities and services incident to
 
the ordinary conduct of business.
 
 
In 2007, ConocoPhillips was unable to reach agreement
 
with respect to the empresa mixta structure
 
mandated
by the Venezuelan government’s Nationalization Decree.
 
As a result, Venezuela’s
 
national oil company,
Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’
interests in the Petrozuata and Hamaca heavy oil
 
ventures and the offshore Corocoro development project.
 
In
response to this expropriation, ConocoPhillips
 
initiated international arbitration on November 2,
 
2007, with the
ICSID.
 
On September 3, 2013, an ICSID arbitration tribunal
 
held that Venezuela unlawfully expropriated
ConocoPhillips’ significant oil investments
 
in June 2007.
 
On January 17, 2017, the Tribunal reconfirmed the
decision that the expropriation was unlawful.
 
In March 2019, the Tribunal unanimously ordered the
government of Venezuela to pay ConocoPhillips approximately $
8.7
 
billion in compensation for the
government’s unlawful expropriation of the company’s investments in Venezuela in 2007.
 
ConocoPhillips has
filed a request for recognition of the award in several
 
jurisdictions.
 
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing
 
it by approximately $
227
 
million.
 
The award now stands
at $
8.5
 
billion plus interest.
 
The government of Venezuela sought annulment of the award, which
automatically stayed enforcement of the award.
 
Annulment proceedings are underway.
 
 
 
 
16
In 2014, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Petrozuata and Hamaca projects.
 
The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed
 
ConocoPhillips approximately $
2
 
billion under their
agreements in connection with the expropriation of the
 
projects and other pre-expropriation fiscal
 
measures.
 
In
August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC
award, plus interest through the payment period, including initial payments totaling approximately $500
million within a period of 90 days from the time of signing of the settlement agreement. The balance of the
settlement is to be paid quarterly over a period of four and a half years. To date, ConocoPhillips has received
approximately $754 million. Per the settlement, PDVSA recognized the ICC award as a judgment in various
jurisdictions, and ConocoPhillips agreed to suspend its legal enforcement actions. ConocoPhillips sent notices
of default to PDVSA on October 14 and November 12, 2019, and to date PDVSA failed to cure its breach.
 
As
a result, ConocoPhillips has resumed legal enforcement
 
actions.
 
ConocoPhillips has ensured that the
settlement and any actions taken in enforcement
 
thereof meet all appropriate U.S. regulatory
 
requirements,
including those related to any applicable sanctions
 
imposed by the U.S. against Venezuela.
 
In 2016, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Corocoro project.
 
On August 2, 2019, the ICC Tribunal
awarded ConocoPhillips approximately $
33
 
million plus interest under the Corocoro contracts.
 
ConocoPhillips is seeking recognition and enforcement
 
of the award in various jurisdictions.
 
ConocoPhillips
has ensured that all the actions related to the award
 
meet all appropriate U.S. regulatory requirements,
including those related to any applicable sanctions
 
imposed by the U.S. against Venezuela.
 
The Office of Natural Resources Revenue (ONRR) has
 
conducted audits of ConocoPhillips’
 
payment of
royalties on federal lands and has issued multiple
 
orders to pay additional royalties to the federal
 
government.
 
ConocoPhillips and the ONRR entered into
 
a settlement agreement on March 23, 2021,
 
to resolve the dispute.
 
All orders and associated appeals have been withdrawn
 
with prejudice.
 
Beginning in 2017, governmental and other entities
 
in several states in the U.S. have filed lawsuits against
 
oil
and gas companies, including ConocoPhillips,
 
seeking compensatory damages and equitable
 
relief to abate
alleged climate change impacts.
 
Additional lawsuits with similar allegations
 
are expected to be filed.
 
The
amounts claimed by plaintiffs are unspecified and the legal
 
and factual issues involved in these cases are
unprecedented.
 
ConocoPhillips believes these lawsuits are
 
factually and legally meritless and are an
inappropriate vehicle to address the challenges associated
 
with climate change and will vigorously defend
against such lawsuits.
 
Several Louisiana parishes and the State of Louisiana
 
have filed
43
 
lawsuits under Louisiana’s State and Local
Coastal Resources Management Act (SLCRMA)
 
against oil and gas companies, including ConocoPhillips,
seeking compensatory damages for contamination
 
and erosion of the Louisiana coastline
 
allegedly caused by
historical oil and gas operations.
 
ConocoPhillips entities are defendants in
22
 
of the lawsuits and will
vigorously defend against them.
 
Because Plaintiffs’ SLCRMA theories are unprecedented,
 
there is uncertainty
about these claims (both as to scope and damages)
 
and any potential financial impact on the company.
 
In October 2020, the Bureau of Safety and Environmental
 
Enforcement (BSEE) ordered the prior owners of
Outer Continental Shelf (OCS) Lease P-0166, including
 
ConocoPhillips, to decommission the lease facilities,
including two offshore platforms located near Carpinteria,
 
California.
 
This order was sent after the current
owner of OCS Lease P-0166 relinquished the
 
lease and abandoned the lease platforms
 
and facilities.
 
BSEE’s
order to ConocoPhillips is premised on its connection
 
to Phillips Petroleum Company, a legacy company of
ConocoPhillips, which held a historical
25
 
percent interest in this lease and operated these
 
lease facilities, but
sold its interest approximately
30 years
 
ago.
 
ConocoPhillips has not had any connection
 
to the operation or
production on this lease since that time.
 
ConocoPhillips is challenging this order.
 
 
 
 
 
 
 
 
 
 
 
 
17
Note 10—Derivative and Financial Instruments
 
We use futures, forwards, swaps and options in various markets to meet our customer
 
needs, capture market
opportunities, and manage foreign exchange currency
 
risk.
 
 
Commodity Derivative Instruments
Our commodity business primarily consists
 
of natural gas, crude oil, bitumen, LNG and NGLs.
 
Commodity derivative instruments are held at fair
 
value on our consolidated balance sheet.
 
Where these
balances have the right of setoff, they are presented on
 
a net basis.
 
Related cash flows are recorded as
operating activities on our consolidated statement
 
of cash flows.
 
On our consolidated income statement, gains
and losses are recognized either on a gross basis
 
if directly related to our physical business
 
or a net basis if held
for trading.
 
Gains and losses related to contracts that meet
 
and are designated with the NPNS exception are
recognized upon settlement.
 
We generally apply this exception to eligible crude contracts and certain gas
contracts.
 
We do not apply hedge accounting for our commodity derivatives.
 
The following table presents the gross fair values
 
of our commodity derivatives, excluding
 
collateral, and the
line items where they appear on our consolidated
 
balance sheet:
Millions of Dollars
March 31
December 31
2021
2020
Assets
Prepaid expenses and other current assets
$
232
229
Other assets
46
26
Liabilities
Other accruals
221
202
Other liabilities and deferred credits
33
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
March 31
2021
2020
Sales and other operating revenues
$
(279)
47
Other income (loss)
 
17
2
Purchased commodities
13
(27)
 
 
On January 15, 2021, we assumed financial derivative
 
instruments consisting of oil and natural gas
 
swaps
following 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, we recognized a before-tax 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 acquired Concho derivative contracts
 
with settlement dates subsequent to March 31,
 
2021, for a
total before-tax 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
At March 31, 2021, all oil and natural gas derivative
 
financial instruments acquired from Concho
 
were
contractually settled.
 
In connection with the settlement, we paid $
692
 
million in the first quarter of 2021 and
will pay the remaining $
69
 
million in the second quarter of 2021.
 
Cash settlements related to the Concho
derivative contracts
 
are presented within “Cash Flows From
 
Operating Activities” on our consolidated cash
flow statement.
 
The table below summarizes our net exposures resulting
 
from outstanding commodity derivative
 
contracts:
Open Position
Long/(Short)
March 31
December 31
2021
2020
Commodity
Natural gas and power (billion cubic feet equivalent)
 
Fixed price
17
(20)
 
Basis
(12)
(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.
 
 
The following investments are carried on our
 
consolidated balance sheet at cost, plus accrued
 
interest and the
table reflects remaining maturities at March
 
31, 2021 and December 31, 2020:
 
 
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-
Term Receivables
March 31
December 31
March 31
December 31
March 31
December 31
2021
2020
2021
2020
2021
2020
Cash
$
636
597
Demand Deposits
1,281
1,133
Time Deposits
1 to 90 days
861
1,225
3,625
2,859
91 to 180 days
171
448
Within one year
16
13
One year through five years
2
1
U.S. Government Obligations
1 to 90 days
10
23
-
-
$
2,788
2,978
3,812
3,320
2
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
The following investments in debt securities
 
classified as available for sale are carried at
 
fair value on our
consolidated balance sheet at March 31, 2021
 
and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31
December 31
March 31
December 31
March 31
December 31
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
-
-
114
130
151
143
Commercial Paper
43
13
162
155
U.S. Government Obligations
-
-
3
4
7
13
U.S. Government Agency
Obligations
10
17
Foreign Government Obligations
13
-
-
2
Asset-backed Securities
-
-
49
41
$
43
13
292
289
217
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.
 
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
March 31
December 31
March 31
December 31
2021
2020
2021
2020
Major Security Type
Corporate bonds
$
264
271
265
273
Commercial paper
205
168
205
168
U.S. government obligations
10
17
10
17
U.S. government agency obligations
10
17
10
17
Foreign government obligations
13
2
13
2
Asset-backed securities
49
41
49
41
$
551
516
552
518
 
As of March 31, 2021 and December 31, 2020,
 
total unrealized losses for debt securities
 
classified as available
for sale with net losses were negligible.
 
Additionally, at March 31, 2021 and December 31, 2020, investments
in these debt securities in an unrealized loss position
 
for which an allowance for credit losses
 
has not been
recorded were negligible.
 
 
For the three-month periods ended March 31,
 
2021 and March 31, 2020, proceeds from
 
sales and redemptions
of investments in debt securities classified
 
as available for sale were $
147
 
million and $
63
 
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.
 
20
Credit Risk
Financial instruments potentially exposed to concentrations
 
of credit risk consist primarily of cash equivalents,
short-term investments, long-term investments
 
in debt securities, OTC derivative contracts and trade
receivables.
 
Our cash equivalents and short-term investments
 
are placed in high-quality commercial paper,
government money market funds, government debt
 
securities, time deposits with major international
 
banks and
financial institutions, high-quality corporate
 
bonds,
 
and foreign government obligations.
 
Our long-term
investments in debt securities are placed in high-quality
 
corporate bonds, U.S. government and government
agency obligations, asset-backed securities,
 
and time deposits with major international
 
banks and financial
institutions.
 
 
The credit risk from our OTC derivative contracts,
 
such as forwards, swaps and options, derives
 
from the
counterparty to the transaction.
 
Individual counterparty exposure is managed
 
within predetermined credit
limits and includes the use of cash-call margins when appropriate,
 
thereby reducing the risk of significant
nonperformance.
 
We also use futures, swaps and option contracts that have a negligible credit
 
risk because
these trades are cleared primarily with an exchange
 
clearinghouse and subject to mandatory margin
requirements until settled; however, we are exposed to the credit
 
risk of those exchange brokers for receivables
arising from daily margin cash calls, as well as for cash
 
deposited to meet initial margin requirements.
 
 
Our trade receivables result primarily
 
from our oil and gas operations and reflect a broad
 
national and
international customer base, which limits our
 
exposure to concentrations of credit risk.
 
The majority of these
receivables have payment terms of 30 days or less,
 
and we continually monitor this exposure and
 
the
creditworthiness of the counterparties.
 
At our option, 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.
 
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 March 31, 2021 and
 
December 31, 2020, was $
22
 
million and $
25
 
million,
respectively.
 
For these instruments,
no
 
collateral was posted as of March 31, 2021 or
 
December 31, 2020.
 
If
our credit rating had been downgraded below investment
 
grade at March 31, 2021,
 
we would have been
required to post $
21
 
million of additional collateral, either with
 
cash or letters of credit.
 
 
Note 11—Fair Value
 
Measurement
 
We carry a portion of our assets and liabilities at fair value that are measured at the reporting
 
date using an exit
price (i.e., the price that would be received to sell
 
an asset or paid to transfer a liability) and disclosed
according to the quality of valuation inputs under
 
the following hierarchy:
 
 
Level 1: Quoted prices (unadjusted) in an active
 
market for identical assets or liabilities.
 
Level 2: Inputs other than quoted prices that
 
are directly or indirectly observable.
 
Level 3: Unobservable inputs that are significant
 
to the fair value of assets or liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
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
2021 or 2020.
 
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair
 
value on a recurring basis primarily include
 
our investment in
Cenovus Energy common shares, our investments in debt
 
securities classified as available for sale, and
commodity derivatives.
 
 
 
Level 1 derivative assets and liabilities primarily
 
represent exchange-traded futures and options that are
valued using unadjusted prices available from the
 
underlying exchange.
 
Level 1 also includes our
investment in common shares of Cenovus Energy, which is valued using quotes for shares
 
on the NYSE,
and our investments in U.S. government obligations
 
classified as available for sale debt securities,
 
which
are valued using exchange prices.
 
 
Level 2 derivative assets and liabilities primarily
 
represent OTC swaps, options and forward purchase
 
and
sale contracts that are valued using adjusted exchange
 
prices, prices provided by brokers or pricing
 
service
companies that are all corroborated by market
 
data.
 
Level 2 also includes our investments in
 
debt
securities classified as available for sale including
 
investments in corporate bonds, commercial
 
paper,
asset-backed securities, 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.
 
 
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
March 31, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
1,564
-
-
1,564
1,256
-
-
1,256
Investments in debt securities
10
542
-
552
17
501
-
518
Commodity derivatives
162
104
12
278
142
101
12
255
Total assets
$
1,736
646
12
2,394
1,415
602
12
2,029
Liabilities
Commodity derivatives
$
155
89
10
254
120
91
9
220
Total liabilities
$
155
89
10
254
120
91
9
220
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
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
March 31, 2021
Assets
$
278
5
273
197
76
1
75
Liabilities
254
2
252
197
55
1
54
December 31, 2020
Assets
$
255
2
253
157
96
10
86
Liabilities
220
1
219
157
62
4
58
At March 31, 2021 and December 31, 2020, we
 
did not present any amounts gross on our
 
consolidated
balance sheet where we had the right of setoff.
 
Reported Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial
 
instruments:
 
 
Cash and cash equivalents and short-term investments:
 
The carrying amount reported on the balance
sheet approximates fair value.
 
For those investments classified as available
 
for sale debt securities,
the carrying amount reported on the balance sheet
 
is fair value.
 
Accounts and notes receivable (including long-term
 
and related parties): The carrying amount
reported on the balance sheet approximates fair
 
value.
 
The valuation technique and methods used to
estimate the fair value of the current portion
 
of fixed-rate related party loans is consistent
 
with Loans
and advances—related parties.
 
Investment in Cenovus Energy: See Note 5—Investment
 
in Cenovus Energy for a discussion of the
carrying value and fair value of our investment in
 
Cenovus Energy common shares.
 
 
Investments in debt securities classified as available
 
for sale: The fair value of investments in debt
securities categorized as Level 1 in the fair
 
value hierarchy is measured using exchange prices.
 
The
fair value of investments in debt securities
 
categorized as Level 2 in the fair value hierarchy
 
is
measured using pricing provided by brokers or
 
pricing service companies that are corroborated
 
with
market data.
 
See Note 10—Derivatives and Financial Instruments,
 
for additional information.
 
 
Loans and advances—related parties: The carrying
 
amount of floating-rate loans approximates
 
fair
value.
 
The fair value of fixed-rate loan activity is
 
measured using market observable data and is
categorized as Level 2 in the fair value hierarchy.
 
See Note 4—Investments, Loans and Long-Term
Receivables, for additional information.
 
Accounts payable (including related parties)
 
and floating-rate debt: The carrying amount of accounts
payable and floating-rate debt reported on the balance
 
sheet approximates fair value.
 
 
Fixed-rate debt: The estimated fair value of fixed-rate
 
debt is measured using prices available
 
from a
pricing service that is corroborated by market
 
data; therefore, these liabilities are categorized
 
as Level
2 in the fair value hierarchy.
 
Commercial paper: The carrying amount of our
 
commercial paper instruments approximates
 
fair value
and is reported on the balance sheet as short-term
 
debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
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
March 31
December 31
March 31
December 31
2021
2020
2021
2020
Financial assets
Investment in Cenovus Energy
$
1,564
1,256
1,564
1,256
Commodity derivatives
80
88
80
88
Investments in debt securities
552
518
552
518
Loans and advances—related parties
168
220
168
220
Financial liabilities
Total debt, excluding finance leases
19,154
14,478
22,578
19,106
Commodity derivatives
56
59
56
59
 
 
Note 12—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the
 
equity section of our consolidated balance
 
sheet included:
Millions of Dollars
Defined Benefit
Plans
Net Unrealized
Gain (Loss) on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2020
$
(425)
2
(4,795)
(5,218)
Other comprehensive income (loss)
70
(1)
69
138
March 31, 2021
$
(355)
1
(4,726)
(5,080)
 
The following table summarizes reclassifications
 
out of accumulated other comprehensive loss and into
 
net
income (loss):
Millions of Dollars
Three Months Ended
March 31
2021
2020
Defined benefit plans
$
12
8
The above amounts are included in the computation of net periodic benefit
 
cost and are presented net of tax expense of $
3
 
million and
$
2
 
million for the three-month periods ended March 31, 2021 and 2020, respectively.
 
See Note 14—Employee Benefit Plans, for additional
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
Note 13—Cash Flow Information
Millions of Dollars
Three Months Ended
March 31
2021
2020
Cash Payments
Interest
$
233
200
Income taxes
53
465
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(3,432)
(3,423)
Short-term investments sold
2,966
2,606
Investments and Long-term receivables purchased
(60)
(143)
Investments and Long-term receivables sold
27
25
$
(499)
(935)
 
We assumed various financial derivative instruments in the Concho acquisition.
 
In the first quarter of 2021,
we settled all financial derivative contracts
 
assumed in the Concho acquisition, including
 
accelerating
settlement of contracts with settlement
 
dates after March 31, 2021.
 
Cash settlements related to financial
derivatives of $
692
 
million are presented within “Cash Flows From
 
Operating Activities” on our consolidated
cash flow statement.
 
See Note 10—Derivative and Financial Instruments,
 
for additional information.
 
 
For the first quarter of 2021, included within
 
“Cash Flows From Investing Activities”
 
is $
382
 
million of cash
received through the addition of cash balances acquired
 
from Concho.
 
We had additional non-cash increases
in assets and liabilities associated with the acquisition
 
of Concho as consideration for the transaction
 
was
entirely in ConocoPhillips common stock.
 
See Note 3—Acquisitions and Dispositions
 
for additional
information on the acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Note 14—Employee Benefit Plans
Pension and Postretirement Plans
The components of net periodic benefit cost of
 
all defined benefit plans for the first quarter
 
are presented in
the following table:
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 March 31
Service cost
$
21
15
21
14
-
1
Interest cost
13
20
17
22
1
2
Expected return on plan assets
(24)
(30)
(21)
(37)
-
-
Amortization of prior service credit
-
-
-
-
(9)
(8)
Recognized net actuarial loss
15
8
12
6
-
-
Settlements
2
-
1
(1)
-
-
Curtailments
12
-
-
-
-
-
Special termination benefits
9
-
-
-
-
-
Net periodic benefit cost
$
48
13
30
4
(8)
(5)
 
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.
As part of our restructuring program, we concluded
 
that actions taken during the three-month
 
period ended
March 31, 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 during
 
the three-month period ended March 31, 2021.
 
In
conjunction with the recognition of curtailment
 
losses, the fair market values of pension plan assets
 
were
updated, and the pension benefit obligations
 
of the U.S. qualified pension, a U.S. nonqualified
 
supplemental
retirement plan and the U.S. other postretirement
 
benefit plans were remeasured.
 
At March 31, 2021, the net
pension liability decreased by $
76
 
million, primarily as a result of discount
 
rate increases for each plan offset
by lower than premised return on assets on the
 
U.S. qualified pension plan,
 
resulting in a corresponding
increase to other comprehensive income.
 
 
The relevant discount rates are summarized in
 
the following table:
March 31
December 31
Discount rate
2021
2020
U.S. qualified pension plan
%
3.00
2.40
U.S. nonqualified pension plan
2.40
1.85
U.S. postretirement benefit plans
2.80
2.20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Severance Accrual
 
The following table summarizes our severance accrual
 
activity for the three-month period ended March
 
31,
2021:
 
Millions of Dollars
Balance at December 31, 2020
$
24
Accruals
101
Benefit payments
(33)
Balance at March 31, 2021
$
92
 
Accruals in the first quarter of 2021 represent
 
severance costs associated with our restructuring
 
program.
 
Of
the total remaining balance at March 31, 2021,
 
$
77
 
million is classified as short-term.
 
See Note 3—
Acquisitions and Dispositions, for additional
 
information on the restructuring program.
 
 
Note 15—Related Party Transactions
Our related parties primarily include equity method
 
investments and certain trusts for the benefit
 
of
employees.
Significant transactions with our equity affiliates
 
were:
Millions of Dollars
Three Months Ended
March 31
2021
2020
Operating revenues and other income
 
$
17
17
Operating expenses and selling, general and administrative
 
expenses
26
15
Net interest (income) expense*
(1)
(2)
*We paid interest to, or received interest from,
 
various affiliates.
 
See Note 4—Investments, Loans and Long-Term Receivables, for additional
information on loans to affiliated companies.
 
 
Note 16—Sales and Other Operating Revenues
 
Revenue from Contracts with Customers
 
The following table provides further disaggregation
 
of our consolidated sales and other operating
 
revenues:
 
 
Millions of Dollars
 
Three Months Ended
March 31
2021
2020
Revenue from contracts with customers
$
7,161
4,911
Revenue from contracts outside the scope of ASC
 
Topic 606
Physical contracts meeting the definition of a derivative
2,974
1,296
Financial derivative contracts
(309)
(49)
Consolidated sales and other operating revenues
$
9,826
6,158
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
Revenues from contracts outside the scope of ASC
 
Topic 606 relate primarily to physical gas contracts at
market prices which qualify as derivatives accounted
 
for under ASC Topic 815, “Derivatives and Hedging,”
and for which we have not elected NPNS.
 
There is no significant difference in contractual
 
terms or the policy
for recognition of revenue from these contracts
 
and those within the scope of ASC Topic 606.
 
The following
disaggregation of revenues is provided in conjunction
 
with Note 17—Segment Disclosures and Related
Information:
 
 
Millions of Dollars
 
Three Months Ended
March 31
2021
2020
Revenue from Outside the Scope of ASC Topic 606 by Segment
Lower 48
$
2,466
976
Canada
303
179
Europe, Middle East and North Africa
205
141
Physical contracts meeting the definition of a derivative
$
2,974
1,296
 
 
Millions of Dollars
 
Three Months Ended
March 31
2021
2020
Revenue from Outside the Scope of ASC Topic 606 by Product
Crude oil
$
124
92
Natural gas
2,727
1,090
Other
123
114
Physical contracts meeting the definition of a derivative
$
2,974
1,296
 
 
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 March 31, 2021, the “Accounts and notes
 
receivable” line on our consolidated balance sheet
 
included
 
trade
receivables of $
3,380
 
million compared with $
1,827
 
million at December 31, 2020, and included
 
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 with trade
receivables where NPNS has been elected.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology to customers related
to the optimization process for operating LNG plants. The agreements typically provide for negotiated
payments to be made at stated milestones. The payments are not directly related to our performance under the
contract and are recorded as deferred revenue to be recognized as revenue when the customer can utilize and
benefit from their right to use the license. Payments are received in installments over the construction period.
 
 
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
97
Contractual payments received
7
Revenue recognized
(62)
At March 31, 2021
$
42
Amounts Recognized in the Consolidated
 
Balance Sheet at March 31, 2021
Current liabilities
$
42
 
We expect to recognize the contract liabilities at March 31, 2021, as revenue in the first quarter of 2022.
 
 
 
Note 17—Segment Disclosures and Related Information
 
 
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on
 
a worldwide
basis.
 
We manage our operations through
six
 
operating segments, which are primarily defined
 
by geographic
region: Alaska; Lower 48; Canada; Europe,
 
Middle East and North Africa; Asia Pacific;
 
and Other
International.
 
 
Corporate and Other represents income and costs
 
not directly associated with an operating
 
segment, such as
most interest income and expense; premiums on early
 
retirement of debt; corporate overhead and certain
technology activities, including licensing revenues;
 
and unrealized holding gains or losses
 
on equity securities.
 
Corporate assets include all cash and cash equivalents
 
and short-term investments.
 
 
We evaluate performance and allocate resources based on net income (loss) attributable
 
to ConocoPhillips.
 
Intersegment sales are at prices that approximate
 
market.
 
Effective with the third quarter of 2020, we restructured our
 
segments to align with changes to our internal
organization.
 
The Middle East business was realigned from
 
the Asia Pacific and Middle East segment to the
Europe and North Africa segment.
 
The segments have been renamed the Asia Pacific
 
segment and the Europe,
Middle East and North Africa segment.
 
We have revised segment information disclosures and segment
performance metrics presented within our results
 
of operations for the prior comparative periods.
 
On January 15, 2021, we completed our acquisition
 
of Concho, an independent oil and gas exploration
 
and
production company with operations across New
 
Mexico and West Texas.
 
Results of operations for Concho
are included in our Lower 48 segment for the current
 
period.
 
Certain transaction and restructuring costs
associated with the Concho acquisition are included
 
in our Corporate and Other segment.
 
See Note 3—
Acquisitions and Dispositions for additional
 
information related to our Concho acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
March 31
2021
2020
Sales and Other Operating Revenues
Alaska
$
1,133
1,113
Lower 48
6,513
3,103
Intersegment eliminations
(2)
(10)
Lower 48
6,511
3,093
Canada
867
513
Intersegment eliminations
(305)
(180)
Canada
562
333
Europe, Middle East and North Africa
978
600
Asia Pacific
577
1,003
Other International
1
3
Corporate and Other
64
13
Consolidated sales and other operating revenues
$
9,826
6,158
Sales and Other Operating Revenues by
 
Geographic Location
(1)
United States
$
7,707
4,217
Australia
-
437
Canada
562
333
China
155
146
Indonesia
196
204
Libya
230
44
Malaysia
226
216
Norway
412
446
United Kingdom
336
110
Other foreign countries
2
5
Worldwide consolidated
$
9,826
6,158
Sales and Other Operating Revenues by
 
Product
Crude oil
$
4,495
3,444
Natural gas
4,511
1,655
Natural gas liquids
237
151
Other
(2)
583
908
Consolidated sales and other operating revenues
 
by product
$
9,826
6,158
(1) Sales and other operating revenues are attributable to countries based on the location of
 
the selling operation.
(2) Includes LNG and bitumen.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
Millions of Dollars
Three Months Ended
March 31
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
159
81
Lower 48
468
(437)
Canada
10
(109)
Europe, Middle East and North Africa
153
201
Asia Pacific
317
272
Other International
(4)
28
Corporate and Other
(121)
(1,775)
Consolidated net income (loss) attributable
 
to ConocoPhillips
$
982
(1,739)
 
 
Millions of Dollars
March 31
December 31
2021
2020
Total Assets
Alaska
$
14,571
14,623
Lower 48
32,474
11,932
Canada
6,925
6,863
Europe, Middle East and North Africa
8,689
8,756
Asia Pacific
11,041
11,231
Other International
229
226
Corporate and Other
9,764
8,987
Consolidated total assets
$
83,693
62,618
 
 
Note 18—Income Taxes
 
Our effective tax rate for the first quarter of 2021
 
was
42.7
 
percent compared with negative
9.5
 
percent for the
first quarter of 2020.
 
The increase in the effective tax rate for the first
 
quarter of 2021 is primarily due to a
shift in the mix of our before-tax income between
 
higher and lower tax jurisdictions and the
 
impact of the
interest deduction related to our Concho debt
 
exchange, described below.
 
This increase is partially offset by a
decrease in our valuation allowance.
 
Our effective tax rate for the first quarter of 2021 is
 
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.
 
See Note 6—Debt,
 
for additional information on
the debt exchange.
 
During the first quarter of 2021, our valuation
 
allowance decreased by $
65
 
million compared to an increase of
$
346
 
million for the first quarter of 2020.
 
The change to our U.S. valuation allowance
 
for both periods relates
primarily to the fair value measurement of our
 
Cenovus Energy common shares and our expectation
 
of the tax
impact related to incremental capital gains and losses.
 
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.
 
See Note 3—Acquisitions
and Dispositions for more information.
 
31
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
 
55.
 
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
 
BUSINESS ENVIRONMENT AND EXECUTIVE
 
OVERVIEW
 
ConocoPhillips is the world’s largest independent E&P company with operations
 
and activities in 15 countries.
 
Our diverse, low cost of supply portfolio includes
 
resource-rich unconventional plays in North
 
America;
conventional assets in North America, Europe
 
and Asia; LNG developments; oil sands
 
in Canada; and an
inventory of global conventional and unconventional
 
exploration prospects.
 
Headquartered in Houston, Texas,
at March 31, 2021, we employed approximately
 
10,300 people worldwide and had total
 
assets of $84 billion.
 
Completed Acquisition of Concho Resources Inc.
 
On January 15, 2021, we completed our acquisition
 
of Concho Resources Inc. (Concho), an independent
 
oil
and gas exploration and production company
 
with operations across New Mexico and West Texas.
 
The
addition of complementary acreage in the
 
Delaware and Midland Basins creates a sizeable
 
Permian presence to
augment our leading unconventional positions
 
in the Eagle Ford, Bakken and Montney.
 
Consideration for the all-stock transaction was
 
valued at $13.1 billion, in which 1.46 shares
 
of ConocoPhillips
common stock were exchanged for each outstanding
 
share of Concho common stock, resulting
 
in the issuance
of approximately 286 million shares of ConocoPhillips
 
common stock.
 
We also assumed $3.9 billion in
aggregate principal amount of outstanding debt for
 
Concho, which was recorded at fair value of $4.7
 
billion as
of the closing date.
 
We have made significant progress since the closing of the transaction on achieving
 
our
previously announced
 
$750 million of annual cost and capital
 
savings by 2022.
 
Transaction and restructuring activities associated with combining
 
the operations of ConocoPhillips and
Concho resulted in non-recurring expenses for
 
employee severance payments; incremental
 
pension benefit
costs related to the workforce reductions; employee
 
retention costs; employee relocations; fees paid
 
to
financial, legal, and accounting advisors; and
 
filing fees.
 
We recognized $291 million before-tax related to
these costs in the first quarter
 
of 2021 and expect to incur less of these expenses
 
throughout the remainder of
the year.
 
Additionally, we recognized $305 million of before-tax losses on commodity
 
derivatives related to
hedging positions assumed in the Concho acquisition.
 
At March 31, 2021, all oil and natural gas derivative
financial instruments acquired from Concho were
 
contractually settled.
 
In connection with the settlement, we
paid $692 million in the first quarter of 2021 and
 
will pay the remaining $69 million in the
 
second quarter of
2021.
 
For additional information related to the settlement
 
of financial derivatives acquired from Concho, see
Note 10—Derivative and Financial Instruments,
 
in the Notes to Consolidated Financial
 
Statements.
 
 
 
32
For additional information related to our Concho
 
acquisition,
 
see Note 3—Acquisitions and Dispositions
 
in the
Notes to Consolidated Financial Statements.
 
Overview
 
After an unprecedented 2020, the energy landscape improved
 
in the first quarter of 2021 with oil prices
rallying to peak over $60 per barrel for both Brent
 
and WTI, a level not seen since the outbreak of the
 
COVID-
19 pandemic.
 
Oil prices have benefited from the continuation
 
of coordinated production cuts by the OPEC
plus countries and capital discipline by independent
 
oil and gas producers.
 
Despite the recent upswing in oil prices, we
 
believe that commodity prices will remain
 
cyclical and volatile,
and a successful business strategy in the exploration
 
and production industry must be resilient
 
in lower price
environments, while retaining upside during periods
 
of higher prices.
 
Accordingly, we remain disciplined and
are monitoring market fundamentals, including adherence
 
of the OPEC plus countries to production cut
agreements
 
and capital restraint across the broader E&P industry.
 
Demand is recovering but has yet to reach
pre-pandemic levels.
 
The speed and extent of this recovery will
 
be influenced by the easing of COVID-19
restrictions that have reduced economic activity
 
and depressed the demand for our products.
 
 
We believe a successful strategy in the E&P industry is to create value through the price
 
cycles by delivering
on the foundational principles that underpin our
 
value proposition; free cash flow generation,
 
a strong balance
sheet, commitment to differential returns of and on capital,
 
and ESG leadership.
 
Our first quarter as a
combined company demonstrated the power of
 
Concho’s acquired assets to help deliver on our value
proposition.
 
Total company production was 1,527 MBOED, including 405
 
MBOED from the Permian Basin,
resulting in net cash provided by operating activities
 
of $2.1 billion.
 
We returned 46 percent of this cash to
shareholders with dividends of $0.6 billion and share
 
repurchases of $0.4 billion, and ended the
 
quarter with
cash, cash equivalents and short-term investments
 
totaling $6.9 billion.
 
Net cash provided by operating
activities in the first quarter was negatively impacted
 
by approximately $1 billion due to
 
impacts from settling
outstanding hedging contracts, in addition to transaction
 
and restructuring costs.
 
In February 2021, we resumed our share repurchase
 
program, with $1.5 billion of share repurchases
anticipated in 2021.
 
As of March 31, 2021, approximately $14.1
 
billion of repurchase authority remained of
the $25 billion share repurchase program our Board
 
of Directors had previously authorized.
 
In May 2021, we announced further progress on
 
our value proposition principles.
 
We plan to undertake a
paced monetization program related to the 10 percent
 
of Cenovus Energy common shares we own.
 
We
obtained these shares as partial consideration in the
 
2017 disposition of our Foster Creek Christina
 
Lake oil
sands and western Canada Deep Basin natural
 
gas assets.
 
The proceeds from these sales will be directed
towards our existing share repurchase authorization
 
and will be incremental to our previously announced
 
$1.5
billion of share repurchases in 2021.
 
We plan to fully dispose of our Cenovus shares by year-end 2022,
however,
 
the sales pace will be guided by market conditions
 
and we retain discretion to adjust accordingly.
 
Additionally, in May 2021,
 
we reaffirmed our commitment to preserving our top-tier
 
balance sheet with an
intent to reduce the company’s gross debt by $5 billion over five years, driving
 
a more resilient and efficient
capital structure.
 
We remain focused on our commitment to ESG leadership and excellence.
 
This commitment is demonstrated
by our continued progress on specific targets that we set in
 
October 2020 when we announced our adoption
 
of
a Paris-aligned climate risk framework, including:
 
Our ambition to become a net-zero company for
 
operational (scope 1 and scope 2) emissions
 
by 2050;
 
Targeting a reduction in operational greenhouse gas emissions intensity by 35 to 45 percent
 
from 2016
levels by 2030;
 
Our ambition to exceed the World Bank Zero Routine Flaring 2030 initiative by five
 
years;
 
Adding continuous methane monitoring devices to
 
our operations, with an initial focus on our
 
Lower
48 facilities;
COP20211q10qp35i0.gif
 
33
 
Advocating for a U.S. carbon price to address end-use
 
(scope 3) emissions through our membership
 
in
the Climate Leadership Council;
 
Including ESG performance in executive and
 
employee compensation programs; and
 
Increasing internal and external transparency of diversity
 
and inclusion metrics.
 
Operationally, we remain focused on safely executing the business.
 
In the first quarter of 2021, production of
1,527 MBOED was impacted by 50 MBOED of unplanned
 
downtime in the Lower 48 due to Winter Storm
Uri.
 
Production increased approximately 238 MBOED
 
or 18 percent in the first quarter of 2021, compared
with the first quarter of 2020, primarily due to the
 
acquisition of over 300 MBOED in the
 
Permian Basin from
Concho, partly offset by the absence of 46 MBOED from
 
the disposition of our Australia-West assets in the
second quarter of 2020.
 
Adjusted for all acquisitions and dispositions
 
in the comparative periods and
excluding Libya, production
 
decreased 59 MBOED or 4 percent.
 
 
We re-invested $1.2 billion back into the business in the form of capital expenditures
 
during the first quarter,
with over half of our investments focused on flexible,
 
short-cycle unconventional plays in the Permian,
 
Eagle
Ford and Bakken where our production is unhedged
 
and located in tax and royalty regimes.
 
For the full-year,
we remain disciplined capital allocators with a planned
 
$5.5 billion of capital expenditures in 2021.
 
 
Business Environment
 
Commodity prices are the most significant
 
factor impacting our profitability and related reinvestment
 
of
operating cash flows into our business.
 
Among other dynamics that could influence
 
world energy markets and
commodity prices are global economic health, supply
 
or demand disruptions or fears thereof caused
 
by civil
unrest, global pandemic or military conflicts,
 
actions taken by OPEC plus and other major
 
oil producing
countries, environmental laws, tax regulations,
 
governmental policies and weather-related
 
disruptions.
 
Our
strategy is to create value through price cycles
 
by delivering on the financial and operational
 
priorities that
underpin our value proposition.
 
 
Our earnings and operating cash flows generally
 
correlate with industry price levels for crude
 
oil and natural
gas, the prices of which are subject to factors
 
external to the company and over which we have
 
no control.
 
The
following graph depicts the trend in average benchmark
 
prices for WTI crude oil, Brent crude oil
 
and Henry
Hub natural gas:
 
 
Brent crude oil prices averaged $60.90 per barrel
 
in the first quarter of 2021, an increase of 21 percent
compared with $50.31 per barrel in the first
 
quarter of 2020.
 
WTI at Cushing crude prices averaged $57.84 per
barrel in the first quarter of 2021, an increase of 26
 
percent compared with $46.06 per barrel in the
 
first quarter
 
 
34
of 2020.
 
Oil prices increased due to the recovery from
 
simultaneous demand and supply shocks experienced
 
in
the first quarter of 2020.
 
 
 
Henry Hub natural gas prices averaged $2.71
 
per MMBTU in the first quarter of 2021,
 
an increase of 39
percent compared with $1.95 per MMBTU in the first
 
quarter of 2020.
 
Henry Hub prices are higher due to
Winter Storm Uri and normalization of inventories following
 
COVID-19 demand losses.
 
 
 
Our realized bitumen price averaged $30.78 per barrel
 
in the first quarter of 2021, a significant
 
increase
compared with $5.90 per barrel in the first
 
quarter of 2020.
 
The increase in the first quarter of 2021 was
 
driven
by higher WTI prices and a strengthening
 
WCS differential to WTI at Hardisty.
 
We continue to optimize
bitumen price realizations through the utilization
 
of downstream transportation solutions and implementation
of alternate blend capability which results in lower
 
diluent costs.
 
Our total average realized price was $45.36 per
 
BOE in the first quarter of 2021, compared
 
with $38.81 per
BOE in the first quarter of 2020, due to the recovery
 
from simultaneous demand and supply shocks
 
impacting
all of our produced commodities in 2020.
 
Key Operating and Financial Summary
 
Significant items during the first quarter
 
of 2021 included the following:
 
 
 
Completed the Concho acquisition,
 
enhancing both our asset portfolio and financial framework.
 
Net cash provided by operating activities was $2.1
 
billion, exceeding capital expenditures
 
and
investments of $1.2 billion.
 
 
Net cash provided by operating activities included
 
approximately $1.0 billion of non-recurring
 
items
associated with our Concho acquisition.
 
 
Produced 1,488 MBOED,
 
excluding Libya, during the first quarter
 
despite incurring approximately 50
MBOED of unplanned production downtime
 
throughout Lower 48 caused by Winter Storm Uri.
 
Ended the quarter with cash and cash equivalents totaling
 
$2.8 billion and short-term investments of
$4.1 billion,
 
equaling $6.9 billion in ending cash, cash equivalents
 
and short-term investments.
 
Resumed the share repurchase program at an
 
annualized level of $1.5 billion.
 
 
Distributed $0.6 billion in dividends and repurchased
 
$0.4 billion of shares.
 
 
Recognized by the Dow Jones Sustainability
 
Index as the top U.S. ESG performer in the Oil
 
and Gas
Upstream and Integrated sector.
 
Reaffirmed commitment to preserving a top-tier balance sheet
 
with intent to reduce the company’s
gross debt by $5 billion over the next five years,
 
driving a more resilient and efficient capital structure.
 
 
Announced plans to sell our Cenovus shares in the
 
open market in a disciplined manner by year-end
2022 beginning in the second quarter of 2021, utilizing
 
the proceeds to fund incremental
ConocoPhillips share repurchases.
 
 
Outlook
 
Capital and Production
 
Second-quarter 2021 production is expected to
 
be 1.50
 
to 1.54 MMBOED, reflecting the impact from
 
seasonal
turnarounds planned in our Europe,
 
Middle East and North Africa and Asia Pacific
 
segments.
 
This production
guidance excludes Libya.
 
In February 2021, we announced 2021 operating
 
plan capital of $5.5 billion.
 
The plan includes $5.1 billion to
sustain current production and $0.4 billion
 
for investment in major projects, primarily
 
in Alaska, in addition to
ongoing exploration appraisal activity.
 
 
 
 
 
 
 
 
 
 
 
 
35
RESULTS OF OPERATIONS
 
 
Effective with the third quarter of 2020, we have restructured our segments to align with
 
changes to our
internal organization.
 
The Middle East business was realigned from the Asia Pacific and Middle East
 
segment
to the Europe and North Africa segment.
 
The segments have been renamed the Asia Pacific
 
segment and the
Europe, Middle East and North Africa segment.
 
We have revised segment information disclosures and
segment performance metrics presented within our results of operations for the
 
prior period.
 
 
Unless otherwise indicated, discussion of results for the three-month period ended
 
March 31, 2021, is based
on a comparison with the corresponding period 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
March 31
2021
2020
Alaska
$
159
81
Lower 48
468
(437)
Canada
10
(109)
Europe, Middle East and North Africa
153
201
Asia Pacific
317
272
Other International
(4)
28
Corporate and Other
(121)
(1,775)
Net income (loss) attributable to ConocoPhillips
$
982
(1,739)
 
Net income (loss) attributable to ConocoPhillips
 
increased $2,721 million in the first quarter of
 
2021.
 
Earnings were positively impacted by:
 
 
An unrealized gain of $308 million after-tax
 
on our Cenovus Energy (CVE) common shares,
compared with an unrealized loss of $1,691 million
 
after-tax in the first quarter of 2020.
 
Higher sales volumes, primarily in the Lower
 
48 due to our Concho acquisition.
 
For additional
information related to our Concho acquisition,
 
see Note 3—Acquisitions and Dispositions
 
in the Notes
to Consolidated Financial Statements.
 
Higher realized commodity prices.
 
Lower impairments, mainly in the Lower 48 due
 
to the absence of impairments to noncore gas assets.
 
A $194 million after-tax gain recognized for a contingent
 
payment associated with our Australia-West
divestiture completed in the second quarter
 
of 2020.
 
For additional information related to
 
this gain,
see Note 3—Acquisitions and Dispositions in the
 
Notes to Consolidated Financial Statements.
 
The absence of a commodity inventory lower of
 
cost or market adjustment of $170 million
 
after-tax.
 
Earnings were negatively impacted by:
 
 
Higher selling, general and administrative
 
expenses due to restructuring and transaction expenses
 
of
approximately $243 million after-tax related
 
to our Concho acquisition and mark-to-market
 
impacts
on certain key employee compensation programs.
 
 
Realized losses on hedges of $233 million after-tax
 
related to derivative positions acquired in our
Concho acquisition.
 
See Note 10—Derivative and Financial
 
Instruments in the Notes to Consolidated
Financial Statements, for additional information.
 
 
Higher DD&A expenses,
 
production and operating expenses and taxes
 
other than income taxes,
primarily due to production from our Concho
 
acquisition.
 
 
See the “Segment Results” section for additional
 
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
Income Statement Analysis
 
 
 
Sales and other operating revenues increased 60 percent,
 
mainly due to higher sales volumes and higher
commodity price realizations in the Lower 48, primarily
 
related to our Concho acquisition.
 
Equity in earnings of affiliates decreased $112 million due to lower earnings
 
from QG3 and APLNG because
of lower LNG prices and a higher effective tax rate related
 
to the equity method investments in our Europe,
Middle East and North Africa segment.
 
Gain (loss) on dispositions increased $275 million
 
due to recognizing a $200 million before-tax
 
contingent
payment associated with our Australia-West divestiture completed in the second quarter
 
of 2020 and the
absence of a $38 million before-tax loss on disposition
 
related to the completion of our Niobrara disposition
 
in
the first quarter of 2020.
 
For additional information related to the Australia-West related gain on disposition,
see Note 3—Acquisitions and Dispositions in the
 
Notes to Consolidated Financial Statements.
 
Other income (loss) increased $1,917 million
 
primarily due to an unrealized gain of $308 million
 
before-tax on
our CVE common shares, compared with an unrealized
 
loss of $1,691 million before-tax in the first
 
quarter of
2020.
 
See Note 5—Investment in Cenovus Energy in the
 
Notes to Consolidated Financial Statements,
 
for
additional information related to our unrealized
 
gain (loss) on CVE common shares.
 
Purchased commodities increased $1,822 million,
 
primarily due to higher natural gas prices,
 
partly offset by
lower crude oil volumes purchased.
 
Production and operating expenses increased $210
 
million,
 
primarily due to costs associated with additional
volumes in the Lower 48, mainly related to our
 
Concho acquisition.
 
 
Selling, general and administrative expenses increased
 
$314 million, primarily due to higher costs associated
with compensation and benefits, including mark-to-market
 
impacts of certain key employee compensation
programs, and restructuring expenses associated
 
with our Concho acquisition, including severance
 
expenses.
 
Exploration expenses decreased $104 million,
 
primarily due to the absence of an unproved property
impairment and dry hole expenses related to the
 
Kamunsu East Field in Malaysia that is no longer in our
development plans and the absence of charges associated
 
with the early termination of our 2020 winter
exploration program in Alaska.
 
Depreciation, depletion and amortization
 
increased $475 million, primarily due to higher
 
volumes in the Lower
48 associated with our Concho acquisition;
 
higher volumes in Canada due to Montney
 
ramp up and our Kelt
acquisition in the third quarter of 2020; and higher
 
expenses in Alaska due to higher DD&A rates
 
from price-
related reserve revisions.
 
Impairments decreased $524 million,
 
primarily due to the absence of a $511 million before-tax impairment
 
of
certain noncore gas assets in the Lower 48 due to
 
a significant decrease in the outlook for natural
 
gas prices in
the first quarter of 2020.
 
Taxes other than income taxes increased $120 million, primarily due to
 
higher volumes in the Lower 48
associated with our Concho acquisition.
 
 
Foreign currency transactions
 
(gain) loss increased $109 million due to the
 
absence of gains incurred from
foreign currency derivatives.
 
See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements,
 
for information regarding our
income tax provision and effective tax rate.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Summary Operating Statistics
Three Months Ended
March 31
2021
2020
Average Net
 
Production
Crude oil (MBD)
Consolidated operations
804
642
Equity affiliates
14
12
Total crude oil
818
654
Natural gas liquids (MBD)
Consolidated operations
105
116
Equity affiliates
8
7
Total natural gas
 
liquids
113
123
Bitumen (MBD)
70
66
Natural gas (MMCFD)
Consolidated operations
2,074
1,638
Equity affiliates
1,081
1,036
Total natural gas
3,155
2,674
Total
 
Production
(MBOED)
1,527
1,289
Dollars Per Unit
Average Sales
 
Prices
Crude oil (per bbl)
Consolidated operations
*
$
57.18
48.77
Equity affiliates
59.73
53.14
Total crude oil
57.22
48.86
Natural gas liquids (per bbl)
Consolidated operations
24.36
12.81
Equity affiliates
48.89
42.41
Total natural gas
 
liquids
26.44
14.82
Bitumen (per bbl)
30.78
5.90
Natural gas (per mcf)
Consolidated operations
*
4.89
3.60
Equity affiliates
3.54
5.41
Total natural gas
4.42
4.30
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical, and
lease rental, and other
$
78
121
Leasehold impairment
-
31
Dry holes
6
36
$
84
188
*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 $55.03 per barrel for crude oil and $4.76 per mcf for natural gas.
 
As of March 31, 2021, we had settled all oil and gas hedging
positions acquired from Concho.
 
See Note 10—Derivative and Financial Instruments, in the
 
Notes to Consolidated Financial Statements.
 
 
38
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on
 
a worldwide
basis.
 
At March 31, 2021, our operations were producing
 
in the U.S., Norway, Canada, Australia, Indonesia,
China, Malaysia, Qatar and Libya.
 
Total production, including Libya, of 1,527 MBOED increased 238 MBOED
 
or 18 percent in the first quarter
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, China and Malaysia.
 
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.
 
The increase in first quarter 2021 production
 
was partly offset by:
 
 
Normal field decline.
 
Disposition activity, including our Australia-West divestiture completed in the second quarter of 2020
and noncore Lower 48 assets disposed in the first
 
quarter of 2020.
 
For additional information related
to our Australia-West divestiture, see Note 3—Acquisitions and Dispositions in
 
the Notes to
Consolidated Financial Statements.
 
 
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.
 
Total production,
 
excluding Libya, of 1,488 MBOED increased
 
210 MBOED or 16 percent in the first
 
quarter
of 2021.
 
Adjusted for acquisitions and dispositions and excluding
 
Libya, production decreased by 59 MBOED
or 4 percent.
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Segment Results
Alaska
Three Months Ended
March 31
2021
2020
Net Income Attributable to ConocoPhillips
(millions of dollars)
$
159
81
Average Net Production
Crude oil (MBD)
190
198
Natural gas liquids (MBD)
17
19
Natural gas (MMCFD)
8
8
Total Production
(MBOED)
208
218
Average Sales Prices
Crude oil ($ per bbl)
$
59.56
54.78
Natural gas ($ per mcf)
2.23
3.07
 
 
The Alaska segment primarily explores for, produces, transports
 
and markets crude oil, NGLs and natural gas.
 
As of March 31, 2021, Alaska contributed 21
 
percent of our consolidated liquids production
 
and less than 1
percent of our consolidated natural gas production.
 
Net Income Attributable to ConocoPhillips
Earnings for Alaska increased by $78 million
 
in the first quarter of 2021,
 
compared with the same period of
2020.
 
Earnings were positively impacted by:
 
The absence of a $96 million after-tax lower of cost
 
or market commodity inventory adjustment.
 
Higher realized crude oil prices.
 
Lower exploration expenses due to the absence
 
of charges associated with the early cancellation of our
2020 winter exploration program.
 
 
Earnings were negatively impacted by:
 
 
Higher DD&A expenses, primarily due to higher
 
DD&A rates from price-related reserve revisions.
 
Lower crude oil sales volumes.
 
Production
Average production decreased 10 MBOED or 5 percent in the first quarter
 
of 2021 compared with the same
period of 2020.
 
The production decrease was primarily due to:
 
Normal field decline.
 
These production decreases were partly offset by:
 
Improved well performance at the Greater Prudhoe
 
Area.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Lower 48
Three Months Ended
March 31
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
(millions of dollars)
$
468
(437)
Average Net Production
Crude oil (MBD)
416
270
Natural gas liquids (MBD)
79
89
Natural gas (MMCFD)
1,319
679
Total Production
(MBOED)
715
472
Average Sales Prices
Crude oil ($ per bbl)*
$
55.68
40.97
Natural gas liquids ($ per bbl)
23.99
11.85
Natural gas ($ per mcf)*
4.56
1.48
*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 $51.58 per barrel for crude oil and $4.35 per mcf for natural gas.
 
As of March 31, 2021, we had settled all oil and gas hedging
positions acquired from Concho.
 
See Note 10
Derivative and Financial Instruments in the Notes to
 
Consolidated Financial Statements.
 
The Lower 48 segment consists of operations located
 
in the contiguous U.S. and the Gulf of Mexico.
 
As of
March 31, 2021, the Lower 48 contributed 51
 
percent of our consolidated liquids production
 
and 64 percent of
our consolidated natural gas production.
 
Concho Acquisition
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.
 
The addition of complementary
acreage in the Delaware and Midland Basins creates
 
a sizeable Permian presence to augment
 
our leading
unconventional positions in the Eagle Ford and
 
Bakken in the Lower 48.
 
For additional information related to
this transaction, see Note 3—Acquisitions and
 
Dispositions in the Notes to Consolidated Financial
 
Statements.
 
Net Income (Loss) Attributable to ConocoPhillips
Earnings for the Lower 48 increased by $905
 
million in the first quarter of 2021, compared
 
with the same
period of 2020.
 
Earnings were positively impacted by:
 
Higher sales volumes of crude oil and natural gas
 
due to our Concho acquisition.
 
 
Higher realized crude oil, natural gas and NGL
 
prices.
 
 
The absence of $399 million in after-tax impairments
 
related to certain noncore gas assets in the Wind
River Basin operations area.
 
Earnings were negatively impacted by:
 
Higher DD&A expenses, production and operating
 
expenses and taxes other than income taxes,
primarily due to higher production from our Concho
 
acquisition.
 
Realized losses on hedges of $233 million after-tax
 
related to derivative positions acquired in our
Concho acquisition.
 
See Note 10—Derivative and Financial
 
Instruments in the Notes to Consolidated
Financial Statements, for additional information.
 
 
Higher selling, general and administrative
 
expenses, primarily due to transaction and restructuring
charges related to our Concho acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
Production
Average production increased 243 MBOED in the first quarter of 2021, compared
 
with the same period of
2020.
 
The production increase was primarily
 
due to:
 
Higher volumes in the Permian due to our Concho
 
acquisition.
 
New wells online from our development programs
 
in the Eagle Ford, Permian and Bakken.
 
These production increases were partly offset by:
 
Normal field decline.
 
Higher unplanned downtime, primarily
 
due to Winter Storm Uri which impacted production by
approximately 50 MBOED in the first quarter
 
of 2021.
 
 
Canada
Three Months Ended
March 31
2021
*
2020
Net Income (Loss) Attributable to ConocoPhillips
(millions of dollars)
$
10
(109)
Average Net Production
Crude oil (MBD)
11
2
Natural gas liquids (MBD)
4
1
Bitumen (MBD)
70
66
Natural gas (MMCFD)
91
20
Total Production
(MBOED)
100
72
Average Sales Prices
Crude oil (per bbl)
$
47.41
-
Natural gas liquids (per bbl)
25.32
-
Bitumen (per bbl)
30.78
5.90
Natural gas (per mcf)
2.37
-
* 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 March 31, 2021, Canada contributed
 
9 percent of
our consolidated liquids production and 4 percent
 
of our consolidated natural gas production.
 
 
Net Income (Loss) Attributable to ConocoPhillips
Earnings for Canada increased by $119 million in the first quarter
 
of 2021, compared with the same period of
2020.
 
Earnings were positively impacted by:
 
Higher realized commodity prices.
 
The absence of a $31 million after-tax lower of cost
 
or market adjustment to commodity inventory.
 
Increased liquids and natural gas volumes in the
 
Montney.
 
A $20 million after-tax gain on disposition related
 
to a contingent payment associated with the
 
sale of
certain assets to Cenovus Energy in 2017.
 
For additional information, see Note 3—Acquisitions
 
and
Dispositions in the Notes to Consolidated Financial
 
Statements.
 
 
Earnings were negatively impacted by:
 
Higher DD&A expenses, primarily due to increased
 
Montney production.
 
Higher production and operating expenses,
 
primarily due to increased Montney production.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
Production
Total average production increased 28 MBOED in the first quarter of 2021,
 
compared with the same period of
2020, due to new wells online from Pad 2 and
 
3 in the Montney, as well as production from our Kelt
acquisition in the third quarter of 2020.
 
 
Europe, Middle East and North Africa
Three Months Ended
March 31
2021
2020*
Net Income Attributable to ConocoPhillips
 
(millions of dollars)
$
153
201
Consolidated Operations
Average Net Production
Crude oil (MBD)
116
93
Natural gas liquids (MBD)
5
5
Natural gas (MMCFD)
309
310
Total Production
(MBOED)
173
150
Average Sales Prices
Crude oil (per bbl)
$
57.75
55.53
Natural gas liquids (per bbl)
34.70
21.54
Natural gas (per mcf)
5.99
3.68
*The prior period has been updated to reflect the Middle East Business Unit
 
moving from Asia Pacific to the Europe, Middle East and North
Africa segment.
 
See Note 17—Segment Disclosures and Related Information in the Notes to Consolidated
 
Financial Statements for additional
information.
 
The Europe,
 
Middle East and North Africa segment consists
 
of operations principally located in the Norwegian
sector of the North Sea; the Norwegian Sea;
 
Qatar; Libya; and commercial and terminalling
 
operations in the
U.K.
 
As of March 31, 2021, our Europe,
 
Middle East and North Africa operations
 
contributed 12 percent of
our consolidated liquids production and 15 percent
 
of our consolidated natural gas production.
 
Net Income Attributable to ConocoPhillips
Earnings for Europe,
 
Middle East and North Africa decreased by $48
 
million in the first quarter of 2021,
compared with the same period of 2020.
 
Earnings were negatively impacted by:
 
Lower LNG sales prices, reflected in equity in earnings
 
of affiliates.
 
Higher taxes from our equity method investments.
 
The absence of foreign currency gains.
 
Earnings were positively impacted by:
 
Higher LNG sales volumes, reflected in equity
 
in earnings of affiliates.
 
Higher natural gas, crude oil and NGL price realizations.
 
Consolidated Production
Average consolidated production increased 23 MBOED in the first quarter of 2021
 
compared with the same
period of 2020.
 
The production increase was primarily due
 
to:
 
Higher oil production from Libya due to the absence
 
of a cessation of production following a period of
civil unrest.
 
New production from Norway drilling activities
 
including first production from Tor II redevelopment
achieved in December 2020.
 
These production increases were partly offset by normal
 
field decline.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
Asia Pacific
Three Months Ended
March 31
2021
2020*
Net Income Attributable to ConocoPhillips
 
(millions of dollars)
$
317
272
Consolidated Operations
Average Net Production
Crude oil (MBD)
71
79
Natural gas liquids (MBD)
-
2
Natural gas (MMCFD)
347
621
Total Production
 
(MBOED)
129
185
Average Sales Prices
Crude oil (per bbl)
$
60.36
54.71
Natural gas liquids (per bbl)
-
39.34
Natural gas (per mcf)
5.88
5.94
*The prior period has been updated to reflect the Middle East Business Unit
 
moving from Asia Pacific to the Europe, Middle East and North
Africa segment.
 
See Note 17
Segment Disclosures and Related Information in the Notes to Consolidated Financial
 
Statements for additional
information.
 
The Asia Pacific segment has operations in China,
 
Indonesia, Malaysia and Australia.
 
As of March 31, 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 for Asia Pacific increased $45 million
 
in the first quarter of 2021, compared with the same
 
period of
2020.
 
The earnings increase was primarily due to:
 
A $200 million gain on disposition related
 
to a contingent payment from our Australia-West divestiture
completed in the second quarter of 2020.
 
For additional information related to this
 
gain, please see Note
3—Acquisitions and Dispositions in the Notes to
 
Consolidated Financial Statements.
 
 
Lower exploration expenses, due to the absence
 
of an unproved property impairment and dry hole
expenses related to the Kamunsu East Field in Malaysia.
 
Earnings were negatively impacted by:
 
Lower earnings due to our Australia-West divestiture completed in the second quarter
 
of 2020.
 
 
Lower equity in earnings of affiliates, primarily due to lower
 
realized LNG prices.
 
 
Consolidated Production
Average consolidated production decreased 56 MBOED
 
or 30 percent in the first quarter of 2021, compared
 
with
the same period of 2020.
 
The decrease was primarily due to:
 
The divestiture of our Australia-West assets that contributed 46 MBOED in first quarter
 
of 2020.
 
 
Normal field decline.
 
These production decreases were partly offset by:
 
Bohai Bay development activity in China, including
 
first production from Phase 4A Project at the
Penglai 25-6 Field and first production from Malikai
 
Phase 2 in Malaysia.
 
 
 
 
 
 
 
 
44
Bohai Bay Well Control Incident
On April 5, 2021, a shallow gas kick occurred during
 
drilling operations, resulting in a fire on the
 
V platform in
Bohai Bay, China.
 
On April 6, 2021, the fire was extinguished.
 
We are working with the operator to fully
understand the impacts.
 
 
Other International
Three Months Ended
March 31
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
(millions of dollars)
$
(4)
28
 
The Other International segment consists of exploration
 
activities in Colombia and Argentina and
contingencies associated with prior operations
 
in other countries.
 
 
Earnings for Other International decreased $32 million
 
in the first quarter of 2021, compared
 
with the same
period of 2020.
 
Earnings were lower primarily due to the absence
 
of a $29 million after-tax benefit to earnings
from the dismissal of arbitration related to prior
 
operations in Senegal.
 
 
 
 
 
 
 
 
 
 
45
Corporate and Other
Millions of Dollars
Three Months Ended
March 31
2021
2020
Net Loss Attributable to ConocoPhillips
Net interest expense
$
(270)
(155)
Corporate general and administrative expenses
(129)
50
Technology
41
1
Other income (expense)
237
(1,671)
$
(121)
(1,775)
 
Net interest expense consists of interest and financing
 
expense, net of interest income and capitalized
 
interest.
 
Net interest expense increased by $115 million in the first
 
quarter of 2021, primarily due to higher debt
balances.
 
See Note 6—Debt in the Notes to Consolidated
 
Financial Statements for more information
 
related to
debt acquired in our Concho transaction.
 
Net interest expense also increased due to lower
 
interest income
from lower cash and cash equivalent balances and
 
yield.
 
Corporate G&A expenses include compensation
 
programs and staff costs.
 
These expenses increased by $179
million mainly due to mark-to-market adjustments
 
associated with certain key employee compensation
programs and restructuring expenses associated
 
with our Concho acquisition.
 
For additional information about
restructuring expenses, see Note 14—Employee
 
Benefit Plans in the Notes to Consolidated Financial
Statements.
 
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 and LNG.
 
Earnings from Technology increased $40 million in the first quarter of 2021
 
primarily
due to higher licensing revenues.
 
 
Other income (expense) or “Other” includes certain
 
foreign currency transaction gains and losses,
environmental costs associated with sites no longer
 
in operation, other costs not directly associated
 
with an
operating segment, premiums incurred on the early
 
retirement of debt, unrealized holding gains or
 
losses on
equity securities, and pension settlement expense.
 
Earnings in “Other” increased by $1,908 million
 
in the first
quarter of 2021,
 
compared with the same period of 2020,
 
primarily due to an unrealized gain of $308 million
after-tax in the first quarter of 2021 on our
 
CVE common shares, compared with an unrealized
 
loss of $1,691
million after-tax on those shares in the first
 
quarter of 2020.
 
 
 
 
 
 
 
 
46
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
March 31
December 31
2021
2020
Cash and cash equivalents
$
2,831
2,991
Short-term investments
4,104
3,609
Total debt
20,027
15,369
Total equity
43,155
29,849
Percent of total debt to capital*
%
32
34
Percent of floating-rate debt to total debt
5
7
*Capital includes total debt and total equity.
 
To meet our short- and long-term liquidity requirements, we look to a variety of funding
 
sources, including
cash generated from operating activities,
 
our commercial paper and credit facility programs,
 
and our ability to
sell securities using our shelf registration
 
statement.
 
During the first quarter of 2021, the primary uses of
 
our
available cash were $1,200 million to
 
support our ongoing capital expenditures and investments
 
program;
approximately $1.0 billion of hedging, transaction
 
and restructuring costs; $588 million
 
to pay dividends;
 
$499
million of net purchases of investments;
 
and $375 million to repurchase common stock.
 
During the first
quarter of 2021, our cash and cash equivalents
 
decreased by $160 million to $2,831 million.
 
 
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.
 
See Note 6—Debt and Note 3—Acquisitions
 
and Dispositions, in the Notes to Consolidated
 
Financial
Statements for additional information.
 
 
At March 31, 2021, we had cash and cash equivalents
 
of $2.8 billion, short-term investments of $4.1
 
billion,
and available borrowing capacity under our credit
 
facility of $5.7 billion,
 
totaling over $12 billion of liquidity.
 
We believe current cash balances and cash generated by operations, together with
 
access to external sources of
funds as described below in the “Significant Changes
 
in Capital” section, will be sufficient to meet our funding
requirements in the near- and long-term, including our capital
 
spending program, dividend payments and
required debt payments.
 
 
Significant Changes in Capital
 
Operating Activities
 
Cash provided by operating activities was $2,080
 
million for the first quarter of 2021, compared
 
with $2,105
million for the first quarter of 2020.
 
The decrease in cash provided by operating
 
activities is primarily due to
the settlement of all oil and gas hedging positions
 
acquired from Concho, normal field decline, transaction
 
and
restructuring costs, and the divestiture of our Australia-West assets.
 
The decrease in cash provided by
operating activities was partly offset by higher sales
 
volumes and higher realized commodity
 
prices in the
Lower 48, primarily due to our acquisition of
 
Concho.
 
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.
 
 
 
 
47
The level of absolute production volumes, as
 
well as product and location mix, impacts our cash flows.
 
Future production is subject to numerous uncertainties,
 
including, among others, the volatile crude
 
oil and
natural gas price environment, which may impact
 
investment decisions; the effects of price changes
 
on
production sharing and variable-royalty contracts;
 
acquisition and disposition of fields; field
 
production
decline rates; new technologies; operating efficiencies;
 
timing of startups and major turnarounds; political
instability; 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
following the acquisition of Concho.
 
At March 31, 2021, all oil and natural gas derivative
 
financial
instruments acquired from Concho were contractually
 
settled.
 
In connection with the settlement, we paid $692
million in the first quarter of 2021 and will
 
pay the remaining $69 million in the second
 
quarter of 2021.
 
For
additional information, see Note 10—Derivative
 
and Financial Instruments in the Notes to
 
Consolidated
Financial Statements.
 
Investing Activities
In the first quarter of 2021, we invested $1.2 billion
 
in capital expenditures.
 
Our 2021 operating plan capital
expenditures is $5.5 billion compared with
 
$4.7 billion in 2020.
 
See the “Capital Expenditures and
Investments” section, for information about our
 
capital expenditures and investments.
 
We completed our acquisition of Concho on January 15, 2021.
 
The assets acquired in the transaction included
$382 million of cash which is reflected in the
 
“Net Cash Used in Investing Activities” section
 
of our
consolidated statement of cash flows. See Note 3—Acquisitions
 
and Dispositions, in the Notes to Consolidated
Financial Statements for additional information.
 
We invest in short-term investments as part of our cash investment strategy, the primary objective of which is
to protect principal, maintain liquidity and provide
 
yield and total returns;
 
these investments include time
deposits, commercial paper as well as debt securities
 
classified as available for sale.
 
Funds for short-term
needs to support our operating plan and provide resiliency
 
to react to short-term price volatility are invested
 
in
highly liquid instruments with maturities within
 
the year.
 
Funds we consider available to maintain resiliency
in longer term price downturns and to capture
 
opportunities outside a given operating
 
plan may be invested in
instruments with maturities greater than one year.
 
 
Investing activities in the first quarter of 2021 included
 
net purchases of $499 million of investments,
 
of which
$466 million was invested in short-term instruments
 
and $33 million was invested in long-term instruments.
See Note 10—Derivative and Financial Instruments,
 
in the Notes to Consolidated Financial
 
Statements for
additional information.
 
 
 
 
48
Financing Activities
We have a revolving credit facility totaling $6.0 billion, expiring in May 2023.
 
Our revolving credit facility
may be used for direct bank borrowings, the issuance
 
of letters of credit totaling up to $500 million,
 
or as
support for our commercial paper program.
 
The revolving credit facility is broadly syndicated
 
among financial
institutions and does not contain any material
 
adverse change provisions or any covenants
 
requiring
maintenance
 
of specified financial ratios or credit ratings.
 
The facility agreement contains a cross-default
provision relating to the failure to pay principal or
 
interest on other debt obligations of
 
$200 million or more
by ConocoPhillips, or any of its consolidated subsidiaries.
 
The amount of the facility is not subject to
 
the
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 agreement calls for commitment fees
 
on available, but unused,
amounts.
 
The agreement also contains early termination
 
rights if our current directors or their approved
successors cease to be a majority of the Board
 
of Directors.
 
The revolving credit facility supports the ConocoPhillips
 
Company’s ability to issue up to $6.0 billion of
commercial paper, which is primarily a funding source for short-term
 
working capital needs.
 
Commercial
paper maturities are generally limited to 90 days.
 
With $300 million of commercial paper outstanding and no
direct borrowings or letters of credit, we had $5.7
 
billion in available borrowing capacity
 
under the revolving
credit facility at March 31, 2021.
 
We may consider issuing additional commercial paper in the future to
supplement our cash position.
 
On January 15, 2021, we completed the acquisition
 
of Concho in an all-stock transaction. In the acquisition,
we assumed Concho’s publicly traded debt, which was recorded at fair value
 
of $4.7 billion on the acquisition
date.
 
See Note 3—Acquisitions and Dispositions and
 
Note 6—Debt, in the Notes to Consolidated
 
Financial
Statements for additional information.
 
In May 2021, we reaffirmed our commitment to
 
preserving a top-tier
balance sheet with an intent to reduce the company’s gross debt by $5
 
billion over the next five years, driving a
more resilient and efficient capital structure.
 
 
In October 2020, Moody’s affirmed its rating of our senior long-term debt of “A3”
 
with a “stable” outlook, and
affirmed its rating of our short-term debt as “Prime-2.”
 
In January 2021, Fitch affirmed its rating of our long-
term debt as “A” with a “stable” outlook and affirmed its
 
rating of our short-term debt as “F1+.”
 
On January
25, 2021, S&P revised the industry risk assessment
 
for the E&P industry to “Moderately High” from
“Intermediate” based on a view of increasing risks
 
from the energy transition, price volatility, and weaker
profitability.
 
On February 11, 2021, S&P downgraded its rating of our long-term debt
 
from “A” to “A-” with a
“stable” outlook and downgraded its rating of our short-term
 
debt from “A-1” to “A-2.”
 
We do not have any
ratings triggers on any of our corporate debt
 
that would cause an automatic default, and
 
thereby impact our
access to liquidity, upon downgrade of our credit ratings.
 
If our credit ratings
 
are downgraded from their
current levels, it could increase the cost of corporate
 
debt available to us and restrict our access to
 
the
commercial paper markets.
 
If our credit rating were to deteriorate
 
to a level prohibiting us from accessing the
commercial paper market, we would still
 
be able to access funds under our revolving credit
 
facility.
 
 
Certain of our project-related contracts, commercial
 
contracts and derivative instruments contain
 
provisions
requiring us to post collateral.
 
Many of these contracts and instruments permit
 
us to post either cash or letters
of credit as collateral.
 
At March 31, 2021 and December 31, 2020,
 
we had direct bank letters of credit of $309
million and $249 million, respectively, which secured performance obligations
 
related to various purchase
commitments incident to the ordinary conduct of business.
 
In the event of credit ratings downgrades, we may
be required to post additional letters of
 
credit.
 
 
Shelf Registration
We have a universal shelf registration statement on file with the SEC under which
 
we have the ability to issue
and sell an indeterminate amount of various types
 
of debt and equity securities.
 
 
 
 
 
 
 
 
 
49
Guarantor Summarized Financial Information
 
We have various cross guarantees among ConocoPhillips, ConocoPhillips Company
 
and Burlington Resources
LLC, with respect to publicly held debt securities.
 
ConocoPhillips Company is 100 percent
 
owned by
ConocoPhillips.
 
Burlington Resources LLC is 100 percent
 
owned by ConocoPhillips Company.
 
ConocoPhillips and/or ConocoPhillips Company
 
have fully and unconditionally guaranteed
 
the payment
obligations of Burlington Resources LLC, with respect
 
to its publicly held debt securities.
 
Similarly,
ConocoPhillips has fully and unconditionally
 
guaranteed the payment obligations of ConocoPhillips
 
Company
with respect to its publicly held debt securities.
 
In addition, ConocoPhillips Company
 
has fully and
unconditionally guaranteed the payment obligations
 
of ConocoPhillips with respect to its publicly
 
held debt
securities.
 
All guarantees are joint and several.
 
The following tables present summarized financial
 
information for the Obligor Group, as defined
 
below:
 
 
The Obligor Group will reflect guarantors and
 
issuers of guaranteed securities consisting of
ConocoPhillips, ConocoPhillips Company and
 
Burlington Resources LLC.
 
Consolidating adjustments for elimination
 
of investments in and transactions between the collective
guarantors and issuers of guaranteed securities
 
are reflected in the balances of the summarized
financial information.
 
Non-Obligated Subsidiaries are excluded
 
from the presentation.
 
Upon completion of the Concho Acquisition
 
on January 15, 2021, we assumed Concho’s publicly traded debt
of approximately $3.9 billion in aggregate principal
 
amount, which was recorded at fair value
 
of $4.7 billion
on the acquisition date.
 
We completed a debt exchange offer that settled on February 8, 2021, of which 98
percent, or approximately $3.8 billion in aggregate
 
principal amount of Concho’s notes, were tendered and
accepted for new debt issued by ConocoPhillips.
 
The new debt issued in the exchange is fully
 
and
unconditionally guaranteed by ConocoPhillips
 
Company.
 
Both the guarantor and issuer of the exchange debt
is reflected within the Obligor Group presented
 
here.
 
See Note 3—Acquisitions and Dispositions
 
and Note
6—Debt, in the Notes to Consolidated Financial
 
Statements for additional information.
 
 
Transactions and balances reflecting activity between the Obligors
 
and Non-Obligated Subsidiaries are
presented below:
 
 
Summarized Income Statement Data
Millions of Dollars
Three Months Ended
March 31, 2021
Revenues and Other Income
$
6,607
Income (loss) before income taxes
1,092
Net income (loss)
982
Net Income (Loss) Attributable to ConocoPhillips
982
 
 
 
 
 
 
 
 
 
 
50
Summarized Balance Sheet Data
Millions of Dollars
March 31
 
2021
December 31
2020
Current assets
$
9,067
8,535
Amounts due from Non-Obligated Subsidiaries, current
673
440
Noncurrent assets
56,845
37,180
Amounts due from Non-Obligated Subsidiaries, noncurrent
8,528
7,730
Current liabilities
4,564
3,797
Amounts due to Non-Obligated Subsidiaries, current
1,889
1,365
Noncurrent liabilities
24,750
18,627
Amounts due to Non-Obligated Subsidiaries, noncurrent
5,756
3,972
 
 
Capital Requirements
 
For information about our capital expenditures
 
and investments, see the “Capital Expenditures
 
and
Investments” section.
 
Our debt balance as of March 31, 2021, was $20.0
 
billion compared with $15.4 billion at
 
December 31, 2020.
 
The increase of $4.6 billion is due to debt assumed
 
in the Concho acquisition.
 
The current portion of debt,
including payments for finance leases, is $0.7
 
billion.
 
Payments will be made using current cash balances
 
and
cash generated by operations.
 
See Note 6—Debt, in the Notes to Consolidated
 
Financial Statements for
additional information on debt.
 
We believe in delivering value to our shareholders through a growing and sustainable
 
dividend supplemented
by additional returns of capital, including share repurchases.
 
In 2020, we paid $1.8 billion,
 
equating to $1.69
per share of common stock, in dividends.
 
On February 2, 2021, we announced a quarterly
 
dividend of $0.43
per share.
 
The dividend was paid on March 1, 2021, to stockholders
 
of record at the close of business on
February 12, 2021.
 
On May 4, 2021, we announced a quarterly
 
dividend of $0.43
 
per share, payable June 1,
2021, to stockholders of record at the close of business
 
on May 14, 2021.
 
 
In late 2016, we initiated our current share repurchase
 
program, which has a total program authorization
 
to
repurchase $25 billion of our common stock.
 
In February 2021, we resumed the program
 
at an annualized
level of $1.5 billion.
 
In May 2021, we announced our plan to dispose
 
of our 208 million shares of Cenovus
Energy by year-end 2022.
 
The sales pace will be guided by market conditions,
 
with ConocoPhillips retaining
discretion to adjust accordingly.
 
The proceeds from this disposition will be deployed
 
towards incremental
share repurchases.
 
In the first quarter of 2021, we repurchased
 
7 million shares at a cost of $375 million.
 
Since the inception of the program we have repurchased
 
196 million shares at a cost of $10.9 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
Capital Expenditures and Investments
Millions of Dollars
Three Months Ended
March 31
2021
2020
Alaska
$
235
509
Lower 48
718
776
Canada
33
74
Europe, Middle East and North Africa
121
121
Asia Pacific
76
103
Other International
6
53
Corporate and Other
11
13
Capital expenditures and investments
$
1,200
1,649
 
During the first quarter of 2021, capital expenditures
 
and investments supported key exploration
 
and
development programs, primarily:
 
 
Development and appraisal activities
 
in the Lower 48, primarily Permian, Eagle Ford,
 
and Bakken.
 
Appraisal and development activities
 
in Alaska related to the Western North Slope and development
activities in the Greater Kuparuk Area.
 
Appraisal activities in liquids-rich plays and optimization
 
of oils sands development in Canada.
 
Continued development activities across assets
 
in Norway.
 
Continued development activities in China, Malaysia
 
and Indonesia.
 
In February 2021, we announced 2021 operating
 
plan capital expenditures of $5.5 billion.
 
The plan includes
$5.1 billion to sustain current production and $0.4
 
billion for investment in major projects, primarily
 
in Alaska,
in addition to ongoing exploration appraisal activity.
 
Contingencies
A number of lawsuits involving a variety of claims
 
arising in the ordinary course of business
 
have been filed
against ConocoPhillips.
 
We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain
 
chemical, mineral and petroleum substances
 
at various active
and inactive sites.
 
We regularly assess the need for accounting recognition or disclosure of these
contingencies.
 
In the case of all known contingencies (other
 
than those related to income taxes), we accrue
 
a
liability when the loss is probable and the amount
 
is reasonably estimable.
 
If a range of amounts can be
reasonably estimated and no amount within the range
 
is a better estimate than any other amount,
 
then the low
end of the range is accrued.
 
We do not reduce these liabilities for potential insurance or third-party recoveries.
 
We accrue receivables for insurance or other third-party recoveries when applicable.
 
With respect to income
tax-related contingencies, we use a cumulative probability-weighted
 
loss accrual in cases where sustaining a
tax position is less than certain.
 
Based on currently available information, we believe
 
it is remote that future costs related to known
 
contingent
liability exposures will exceed current accruals by
 
an amount that would have a material
 
adverse impact on our
consolidated financial statements.
 
For information on other contingencies, see
 
Note 9—Contingencies and
Commitments, in the Notes to Consolidated Financial
 
Statements.
 
 
 
 
 
 
52
Legal and Tax
 
Matters
We are subject to various lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
and severance tax payments, gas measurement and
 
valuation methods, contract disputes,
 
environmental
damages, climate change, personal injury, and property damage.
 
Our primary exposures for such matters
relate to alleged royalty and tax underpayments
 
on certain federal, state and privately owned
 
properties,
 
and
claims of alleged environmental contamination
 
from historic operations.
 
We will continue to defend ourselves
vigorously in these matters.
 
Our legal organization applies its knowledge, experience
 
and professional judgment to the specific
characteristics of our cases, employing a litigation
 
management process to manage and monitor the
 
legal
proceedings against us.
 
Our process facilitates the early evaluation and
 
quantification of potential exposures in
individual cases.
 
This process also enables us to track those cases that
 
have been scheduled for trial and/or
mediation.
 
Based on professional judgment and experience
 
in using these litigation management tools and
available information about current developments
 
in all our cases, our legal organization regularly assesses
 
the
adequacy of current accruals and determines if
 
adjustment of existing accruals, or establishment
 
of new
accruals, is required.
 
Environmental
We are subject to the same numerous international, federal, state and local environmental
 
laws and regulations
as other companies in our industry.
 
For a discussion of the most significant
 
of these environmental laws and
regulations, including those with associated remediation
 
obligations, see the “Environmental” section in
Management’s Discussion and Analysis of Financial Condition and Results
 
of Operations on pages 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 March 31, 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 March 31, 2021,
 
our balance sheet included a total environmental
 
accrual of $188 million, compared with
$180 million at December 31, 2020,
 
for remediation activities in the U.S. and
 
Canada.
 
We expect to incur a
substantial amount of these expenditures within
 
the next 30 years.
 
Notwithstanding any of the foregoing, and as
 
with other companies engaged in similar businesses,
environmental costs and liabilities are inherent
 
concerns in our operations and products, and there
 
can be no
assurance that material costs and liabilities
 
will not be incurred.
 
However, we currently do not expect any
material adverse effect upon our results of operations or financial
 
position as a result of compliance with
current environmental laws and regulations.
 
 
 
 
 
 
53
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.
 
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 any potential financial impact on the company.
 
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.
 
 
 
 
 
 
 
54
We announced in October 2020 the adoption of a Paris-aligned climate risk framework
 
with the objective of
implementing a coherent set of choices designed
 
to facilitate the success of our existing exploration
 
and
production business through the energy transition.
 
Given the uncertainties remaining about how the
 
energy
transition will evolve, the strategy aims to be robust
 
across a range of potential future outcomes.
 
 
The strategy is comprised of four pillars:
 
 
Targets:
 
Our target framework consists of a hierarchy of targets, from a long-term
 
ambition that sets
the direction and aim of the strategy, to a medium-term performance target for GHG emissions
intensity, to shorter-term targets for flaring and methane intensity reductions. These
 
performance
targets are supported by lower-level internal business
 
unit goals to enable the company to achieve the
company-wide targets.
 
We have set a target to reduce our gross operated (scope 1 and 2) emissions
intensity by 35 to 45 percent from 2016 levels by
 
2030, with an ambition to achieve net-zero
 
operated
emissions by 2050.
 
We have joined the World
 
Bank Flaring Initiative to work towards
 
zero routine
flaring of gas by 2030.
 
Technology choices:
 
We expanded our Marginal Abatement Cost Curve process to provide a broader
range of opportunities for emission reduction
 
technology.
 
Portfolio
 
choices: Our corporate authorization process requires
 
all qualifying projects to include a
GHG price in their project approval economics.
 
Different GHG prices are used depending on the
region or jurisdiction.
 
Projects in jurisdictions with existing GHG
 
pricing regimes incorporate the
existing GHG price and forecast into their
 
economics.
 
Projects where no existing GHG pricing
regime exists utilize a scenario forecast from
 
our internally consistent World Energy Model.
 
In this
way, both existing and emerging regulatory requirements are considered in our
 
decision-making.
 
The
company does not use an estimated market cost
 
of GHG emissions when assessing reserves
 
in
jurisdictions without existing GHG regulations.
 
External engagement:
 
Our external engagement aims to differentiate ConocoPhillips
 
within the oil and
gas sector with our approach to managing climate-related
 
risk.
 
We are a Founding Member of the
Climate Leadership Council (CLC), an international
 
policy institute founded in collaboration
 
with
business and environmental interests to develop
 
a carbon dividend plan.
 
Participation in the CLC
provides another opportunity for ongoing dialogue
 
about carbon pricing and framing the issues
 
in
alignment with our public policy principles.
 
We also belong to and fund Americans For Carbon
Dividends, the education and advocacy branch of
 
the CLC.
 
55
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, the anticipated impact of the transaction
 
on the combined company’s business and future
financial and operating results, the expected amount
 
and the timing of synergies from the transaction
 
are
forward-looking statements.
 
Examples of forward-looking statements contained
 
in this report include our
expected production growth and outlook on the
 
business environment generally, our expected capital budget
and capital expenditures, and discussions concerning
 
future dividends.
 
You can often identify our forward-
looking statements by the words “anticipate,” “believe,”
 
“budget,” “continue,” “could,” “effort,” “estimate,”
“expect,” “forecast,” “intend,” “goal,” “guidance,”
 
“may,” “objective,” “outlook,” “plan,” “potential,”
“predict,” “projection,” “seek,” “should,” “target,” “will,”
 
“would” and similar expressions.
 
 
We based the forward-looking statements on our current expectations, estimates
 
and projections about
ourselves and the industries in which we operate in
 
general.
 
We caution you these statements are not
guarantees of future performance as they involve
 
assumptions that, while made in good faith,
 
may prove to be
incorrect, and involve risks and uncertainties
 
we cannot predict.
 
In addition, we based many of these forward-
looking statements on assumptions about future events
 
that may prove to be inaccurate.
 
Accordingly, our
actual outcomes and results may differ materially from
 
what we have expressed or forecast in the forward-
looking statements.
 
Any differences could result from a variety of factors
 
and uncertainties, including, but not
limited to, the following:
 
 
 
The impact of public health crises, including pandemics
 
(such as COVID-19) and epidemics and any
related company or government policies or
 
actions.
 
Global and regional changes in the demand, supply, prices, differentials or other market
 
conditions
affecting oil and gas, including changes resulting from a
 
public health crisis or from the imposition or
lifting of crude oil production quotas or other
 
actions that might be imposed by OPEC
 
and other
producing countries and the resulting company
 
or third-party actions in response to such changes.
 
Fluctuations in crude oil, bitumen, natural gas,
 
LNG and NGLs prices, including a prolonged
 
decline
in these prices relative to historical or future
 
expected levels.
 
The impact of significant declines in prices for crude
 
oil, bitumen, natural gas, LNG and NGLs,
 
which
may result in recognition of impairment charges on
 
our long-lived assets, leaseholds and
nonconsolidated equity investments.
 
Potential failures or delays in achieving expected
 
reserve or production levels from existing
 
and future
oil and gas developments, including due to operating
 
hazards, drilling risks and the inherent
uncertainties in predicting reserves and reservoir
 
performance.
 
Reductions in reserves replacement rates, whether
 
as a result of the significant declines in commodity
prices or otherwise.
 
Unsuccessful exploratory drilling activities
 
or the inability to obtain access to exploratory acreage.
 
Unexpected changes in costs or technical requirements
 
for constructing, modifying or operating E&P
facilities.
 
Legislative and regulatory initiatives
 
addressing environmental concerns, including initiatives
addressing the impact of global climate change or further
 
regulating hydraulic fracturing, methane
emissions, flaring or water disposal.
 
Lack of, or disruptions in, adequate and reliable
 
transportation for our crude oil, bitumen, natural
 
gas,
LNG and NGLs.
 
Inability to timely obtain or maintain permits,
 
including those necessary for construction, drilling
and/or development, or inability to make capital
 
expenditures required to maintain compliance
 
with
any necessary permits or applicable laws or regulations.
 
 
 
56
 
Failure to complete definitive agreements and feasibility
 
studies for, and to complete construction of,
announced and future E&P and LNG development
 
in a timely manner (if at all) or on
 
budget.
 
Potential disruption or interruption of our operations
 
due to accidents, extraordinary weather
 
events,
civil unrest, political events, war, terrorism, cyber attacks,
 
and information technology failures,
constraints or disruptions.
 
Changes in international monetary conditions and
 
foreign currency exchange rate fluctuations.
 
Changes in international trade relationships,
 
including the imposition of trade restrictions
 
or tariffs
relating to crude oil, bitumen, natural gas,
 
LNG, NGLs and any materials or products (such
 
as
aluminum and steel) used in the operation of our
 
business.
 
Substantial investment in and development use
 
of, competing or alternative energy sources, including
as a result of existing or future environmental rules
 
and regulations.
 
Liability for remedial actions, including removal
 
and reclamation obligations, under existing
 
and
future environmental regulations and litigation.
 
Significant operational or investment changes imposed
 
by existing or future environmental statutes
and regulations, including international agreements
 
and national or regional legislation and regulatory
measures to limit or reduce GHG emissions.
 
Liability resulting from litigation, including the
 
potential for litigation related to the transaction
 
with
Concho, or our failure to comply with applicable
 
laws and regulations.
 
 
General domestic and international economic and
 
political developments, including armed
 
hostilities;
expropriation of assets; changes in governmental
 
policies relating to crude oil, bitumen, natural
 
gas,
LNG and NGLs pricing;
 
regulation or taxation; and other political, economic
 
or diplomatic
developments.
 
Volatility
 
in the commodity futures markets.
 
Changes in tax and other laws, regulations (including
 
alternative energy mandates), or royalty rules
applicable to our business.
 
Competition and consolidation in the oil and gas
 
E&P industry.
 
Any limitations on our access to capital or increase
 
in our cost of capital, including as a result
 
of
illiquidity or uncertainty in domestic or international
 
financial markets or investment sentiment.
 
Our inability to execute, or delays in the completion,
 
of any asset dispositions or acquisitions
 
we elect
to pursue.
 
 
Potential failure to obtain, or delays in obtaining,
 
any necessary regulatory approvals for
 
pending or
future asset dispositions or acquisitions,
 
or that such approvals may require modification
 
to the terms
of the transactions or the operation of our remaining
 
business.
 
Potential disruption of our operations as a result
 
of pending or future asset dispositions or acquisitions,
including the diversion of management time and
 
attention.
 
Our inability to deploy the net proceeds from any
 
asset dispositions that are pending or
 
that we elect to
undertake in the future in the manner and timeframe
 
we currently anticipate, if at all.
 
Our inability to liquidate the common stock issued
 
to us by Cenovus Energy as part of our sale of
certain assets in western Canada at prices we deem
 
acceptable, or at all.
 
The operation and financing of our joint ventures.
 
The ability of our customers and other contractual
 
counterparties to satisfy their obligations to
 
us,
including our ability to collect payments
 
when due from the government of Venezuela or PDVSA.
 
 
Our inability to realize anticipated cost savings
 
and capital expenditure reductions.
 
The inadequacy of storage capacity for our products,
 
and ensuing curtailments, whether voluntary
 
or
involuntary, required to mitigate this physical constraint.
 
Our ability to successfully integrate Concho’s business and fully achieve
 
the expected benefits and
cost reductions associated with the transaction
 
with Concho in a timely manner or at all.
 
The risk that we will be unable to retain and hire
 
key personnel.
 
Unanticipated difficulties or expenditures relating to integration
 
with Concho.
 
Uncertainty as to the long-term value of our common
 
stock.
 
The diversion of management time on integration-related
 
matters.
 
The factors generally described in Part I—Item
 
1A in our 2020 Annual Report on Form
 
10-K and any
additional risks described in our other filings
 
with the SEC.
 
57
Item 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
 
Other information about market risks for
 
the three months ended March 31, 2021, does
 
not differ materially
from that discussed under Item 7A in our 2020
 
Annual Report on Form 10-K.
 
 
Item 4.
 
CONTROLS AND PROCEDURES
 
 
We maintain disclosure controls and procedures designed to ensure information required
 
to be disclosed in
reports we file or submit under the Securities
 
Exchange Act of 1934, as amended (the Act),
 
is recorded,
processed, summarized and reported within the
 
time periods specified in SEC rules and forms,
 
and that such
information is accumulated and communicated
 
to management, including our principal executive
 
and principal
financial officers, as appropriate, to allow timely decisions
 
regarding required disclosure.
 
As of March 31,
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 as of
 
March 31, 2021.
 
There have been no changes in our internal
 
control over financial reporting, as defined
 
in Rule 13a-15(f) of the
Act, in the period covered by this report that
 
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 
 
PART
 
II.
 
OTHER INFORMATION
 
Item 1.
 
LEGAL PROCEEDINGS
 
 
There are no new material legal proceedings
 
or material developments with respect to
 
matters previously
disclosed in Item 3 of our 2020 Annual Report
 
on Form 10-K.
 
 
 
Item 1A. Risk Factors
There have been no material changes from the
 
risk factors disclosed in Item 1A of our 2020
 
Annual Report on
Form 10-K.
 
 
 
 
 
 
 
 
58
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
January 1-31, 2021
-
$
-
-
$
14,483
February 1-28, 2021
1,767,507
48.49
1,767,507
14,397
March 1-31, 2021
5,219,017
55.43
5,219,017
14,108
6,986,524
6,986,524
*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 current total program
authorization of $25 billion of our common stock.
 
In February 2021,
 
we resumed
 
our share repurchase
program at an annualized level of $1.5 billion.
 
In May 2021, we announced a plan to dispose
 
of our 208
million shares of Cenovus Energy by year-end 2022.
 
The sales pace will be guided by market
 
conditions, with
ConocoPhillips retaining discretion to adjust accordingly.
 
The proceeds from this disposition will be deployed
towards incremental share repurchases.
 
As of March 31, 2021,
 
we had repurchased $10.9 billion of shares, with $14.1
 
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.
 
 
60
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
May 6, 2021