CONOCOPHILLIPS
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
[X]
EXCHANGE ACT OF 1934
For the quarterly period ended
d
Or
[
]
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
(Address of principal executive offices) (Zip Code)
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Title of each class
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Name of each exchange on which registered
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
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reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Yes [
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The registrant had
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
$
Equity in earnings of affiliates
Gain (loss) on dispositions
(
42
)
Other income (loss)
(
1,539
)
Total Revenues and
Other Income
Costs and Expenses
Purchased commodities
Production and operating expenses
Selling, general and administrative expenses
(
3
)
Exploration expenses
Depreciation, depletion and amortization
Impairments
(
3
)
Taxes other than income
taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transactions (gain) loss
(
90
)
Other expenses
(
6
)
Total Costs and Expenses
Income (loss) before income taxes
(
1,563
)
Income tax provision
Net income (loss)
(
1,711
)
Less: net income attributable to noncontrolling interests
(
28
)
Net Income (Loss) Attributable to ConocoPhillips
$
(
1,739
)
Net Income (Loss) Attributable to ConocoPhillips Per Share
(dollars)
Basic
$
(
1.60
)
Diluted
(
1.60
)
Average Common
Shares Outstanding
(in thousands)
Basic
Diluted
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)
$
(
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
Reclassification adjustment for amortization of net actuarial losses included
in net income (loss)
Income taxes on defined benefit plans
(
21
)
(
4
)
Defined benefit plans, net of tax
Net unrealized holding loss on securities
(
1
)
(
3
)
Income taxes on net unrealized holding loss on securities
Net unrealized holding loss on securities, net of tax
(
1
)
(
2
)
Foreign currency translation adjustments
(
799
)
Income taxes on foreign currency translation adjustments
Foreign currency translation adjustments, net of tax
(
797
)
Other Comprehensive Income (Loss), Net of
Tax
(
788
)
Comprehensive Income (Loss)
(
2,499
)
Less: comprehensive income attributable to noncontrolling
interests
(
28
)
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(
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
$
Short-term investments
Accounts and notes receivable (net of allowance of $
, respectively)
Accounts and notes receivable—related parties
Investment in Cenovus Energy
Inventories
Prepaid expenses and other current assets
Total Current Assets
Investments and long-term receivables
Loans and advances—related parties
Net properties, plants and equipment
(net of accumulated DD&A of $
, respectively)
Other assets
Total Assets
$
Liabilities
Accounts payable
$
Accounts payable—related parties
Short-term debt
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
Employee benefit obligations
Other liabilities and deferred credits
Total Liabilities
Equity
Common stock (
Issued (2021—
Par value
Capital in excess of par
Treasury stock (at cost: 2021—
(
47,672
)
(
47,297
)
Accumulated other comprehensive loss
(
5,080
)
(
5,218
)
Retained earnings
Total Equity
Total Liabilities and Equity
$
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)
$
(
1,711
)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
Impairments
(
3
)
Dry hole costs and leasehold impairments
Accretion on discounted liabilities
Deferred taxes
(
227
)
Undistributed equity earnings
(Gain) loss on dispositions
(
233
)
Unrealized (gain) loss on investment in Cenovus Energy
(
308
)
Other
(
581
)
(
284
)
Working
capital adjustments
Decrease (increase) in accounts and notes receivable
(
785
)
Decrease (increase) in inventories
(
51
)
Increase in prepaid expenses and other current assets
(
43
)
(
79
)
Increase (decrease) in accounts payable
(
297
)
Increase (decrease) in taxes and other accruals
(
445
)
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities
Cash acquired from Concho
Capital expenditures and investments
(
1,200
)
(
1,649
)
Working
capital changes associated with investing activities
Proceeds from asset dispositions
(
17
)
Net purchases of investments
(
499
)
(
935
)
Collection of advances/loans—related parties
Other
(
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
)
Repurchase of company common stock
(
375
)
(
726
)
Dividends paid
(
588
)
(
458
)
Other
(
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
Cash, Cash Equivalents and Restricted Cash at End of Period
$
Restricted cash of $
respectively, of our Consolidated Balance Sheet as of March 31, 2021.
Restricted cash of $
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
2021
2020
Crude oil and natural gas
$
Materials and supplies
$
Inventories valued on the LIFO basis totaled
$
31, 2020, respectively.
Note 3—Acquisitions and Dispositions
Acquisition of
We completed our acquisition of Concho on
agreement, each share of Concho common stock
was exchanged at a fixed ratio of
ConocoPhillips common stock, for total consideration
of $
Total Consideration
Number of shares exchanged
$
$
**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 $
identifiable assets and liabilities based on their
fair values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Investments and long-term receivables
Net properties, plants and equipment
Other assets
Total assets acquired
$
Liabilities Assumed
Accounts payable
$
Accrued income and other taxes
Employee benefit obligations
Other accruals
Long-term debt
Asset retirement obligations and accrued environmental
costs
Deferred income taxes
Other liabilities and deferred credits
Total liabilities assumed
$
Net assets acquired
$
With the completion of the Concho transaction, we acquired proved
and unproved properties of approximately
$
We recognized approximately $
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.
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
$
Selling, general and administration expenses
Exploration expenses
Taxes other than income taxes
Other expenses
$
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 $
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
$
month period ending March 31, 2021.
The results associated with the Concho business
include a before- and
after-tax loss of $
settlement dates on or before March 31, 2021, and
an additional before- and after-tax loss of $
$
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
$
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 $
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 $
30, 2021, FID was announced and as such,
we recognized a $
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 $
to this transaction are reflected in our Asia Pacific
segment.
In 2017, we completed the sale of our
(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.
gain on disposition for these contingent payments
of $
2021.
Note 4—Investments, Loans and Long-Term Receivables
APLNG
APLNG executed project financing agreements
for an $
billion project finance facility was initially composed
of financing agreements executed by APLNG
with the
Export-Import Bank of the United States for approximately
$
approximately $
approximately $
interest repayment in March 2017 and is scheduled
to make
APLNG made a voluntary repayment of $
At the same time, APLNG obtained a United
States Private Placement (USPP) bond facility
of $
APLNG made its first interest payment related to
this facility in March 2019, and principal
payments are
scheduled to commence in September 2023,
with
During the first quarter of 2019, APLNG refinanced
$
transactions.
As a result of the first transaction, APLNG
obtained a commercial bank facility of $
APLNG made its first principal and interest
repayment in September 2019 with
facility until March 2028.
Through the second transaction, APLNG obtained
a USPP bond facility of $
billion.
APLNG made its first interest payment in September
2019, and principal payments are scheduled
to
commence in September 2023, with
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 $
and international commercial banks and the Export-Import
Bank of China, respectively.
At March 31, 2021, a balance of $
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
$
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 $
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
CVE common shares as consideration.
At March 31, 2021, the investment was included
on our consolidated
balance sheet at fair value of $
CVE common stock.
The fair value of the
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 $
$
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 $
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 $
recorded at fair value of $
●
% Notes due
●
% Notes due
●
% Notes due
●
% Notes due
●
% Notes due
11
The adjustment to fair value of the senior notes
of approximately $
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 $
percent, or approximately $
has the same interest rates and maturity dates
as the Concho senior notes.
The portion not exchanged,
approximately $
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 $
credit facility may be used for direct bank borrowings,
the issuance of letters of credit totaling
up to $
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 $
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 $
primarily a funding source for short-term working capital
needs.
Commercial paper maturities are generally
limited to
, and is included in the short-term debt on our consolidated
balance sheet.
With $
of commercial paper outstanding and
available borrowing capacity under our revolving credit
facility at March 31, 2021.
At December 31, 2020, we
had $
At March 31, 2021, we had $
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
$
(
47,297
)
(
5,218
)
Net income
Other comprehensive income
Dividends paid ($
(
588
)
(
588
)
Acquisition of Concho
Repurchase of company common stock
(
375
)
(
375
)
Distributed under benefit plans
Other
Balances at March 31, 2021
$
(
47,672
)
(
5,080
)
For the three months ended March 31, 2020
Balances at December 31, 2019
$
(
46,405
)
(
5,357
)
Net income (loss)
(
1,739
)
(
1,711
)
Other comprehensive loss
(
788
)
(
788
)
Dividends paid ($
(
458
)
(
458
)
Repurchase of company common stock
(
726
)
(
726
)
Distributions to noncontrolling interests and other
(
26
)
(
26
)
Distributed under benefit plans
Other
Balances at March 31, 2020
$
(
47,130
)
(
6,145
)
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
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
.
Our maximum exposure under this guarantee is
approximately $
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 $
●
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
.
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
to be $
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
.
Our maximum potential amount of future payments
related to these
guarantees is approximately $
March 31, 2021, the carrying value of these guarantees
was approximately $
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling
approximately
$
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
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 $
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 $
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 $
compared with $
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 $
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 $
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 $
at $
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 $
agreements in connection with the expropriation of the
projects and other pre-expropriation fiscal
measures.
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 $
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
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
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
sold its interest approximately
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
$
Other assets
Liabilities
Other accruals
Other liabilities and deferred credits
The gains (losses) from commodity derivatives
incurred, and the line items where they appear
on our
consolidated income statement were:
Millions of Dollars
March 31
2021
2020
Sales and other operating revenues
$
(
279
)
Other income (loss)
Purchased commodities
(
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 $
through December 31, 2022.
During the first quarter, we recognized a before-tax loss of $
Concho derivative contracts with settlement dates
on or before March 31, 2021, and an additional
$
loss related to acquired Concho derivative contracts
with settlement dates subsequent to March 31,
2021, for a
total before-tax loss of $
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 $
will pay the remaining $
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)
(
20
)
(
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
$
Demand Deposits
Time Deposits
1 to 90 days
91 to 180 days
Within one year
One year through five years
U.S. Government Obligations
1 to 90 days
$
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
$
Commercial Paper
U.S. Government Obligations
U.S. Government Agency
Obligations
Foreign Government Obligations
Asset-backed Securities
$
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
$
Commercial paper
U.S. government obligations
U.S. government agency obligations
Foreign government obligations
Asset-backed securities
$
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 $
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.
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 $
respectively.
For these instruments,
our credit rating had been downgraded below investment
grade at March 31, 2021,
we would have been
required to post $
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
$
Investments in debt securities
-
Commodity derivatives
Total assets
$
Liabilities
Commodity derivatives
$
Total liabilities
$
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
$
Liabilities
December 31, 2020
Assets
$
Liabilities
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
$
Commodity derivatives
Investments in debt securities
Loans and advances—related parties
Financial liabilities
Total debt, excluding finance leases
Commodity derivatives
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
)
(
4,795
)
(
5,218
)
Other comprehensive income (loss)
(
1
)
March 31, 2021
$
(
355
)
(
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
$
The above amounts are included in the computation of net periodic benefit
cost and are presented net of tax expense of $
$
information.
24
Note 13—Cash Flow Information
Millions of Dollars
Three Months Ended
March 31
2021
2020
Cash Payments
Interest
$
Income taxes
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(
3,432
)
(
3,423
)
Short-term investments sold
Investments and Long-term receivables purchased
(
60
)
(
143
)
Investments and Long-term receivables sold
$
(
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 $
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 $
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
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
$
Interest cost
Expected return on plan assets
(
24
)
(
30
)
(
21
)
(
37
)
Amortization of prior service credit
(
9
)
(
8
)
Recognized net actuarial loss
Settlements
(
1
)
Curtailments
Special termination benefits
Net periodic benefit cost
$
(
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
$
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 $
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
%
U.S. nonqualified pension plan
U.S. postretirement benefit plans
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
$
Accruals
Benefit payments
(
33
)
Balance at March 31, 2021
$
Accruals in the first quarter of 2021 represent
severance costs associated with our restructuring
program.
Of
the total remaining balance at March 31, 2021,
$
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
$
Operating expenses and selling, general and administrative
expenses
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
March 31
2021
2020
Revenue from contracts with customers
$
Revenue from contracts outside the scope of ASC
Topic 606
Physical contracts meeting the definition of a derivative
Financial derivative contracts
(
309
)
(
49
)
Consolidated sales and other operating revenues
$
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
March 31
2021
2020
Revenue from Outside the Scope of ASC Topic 606 by Segment
Lower 48
$
Canada
Europe, Middle East and North Africa
Physical contracts meeting the definition of a derivative
$
Millions of Dollars
March 31
2021
2020
Revenue from Outside the Scope of ASC Topic 606 by Product
Crude oil
$
Natural gas
Other
Physical contracts meeting the definition of a derivative
$
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.
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 $
contracts with customers within the scope of ASC
Topic 606 and those that are outside the scope of ASC
Topic 606.
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
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
Contractual payments received
Revenue recognized
(
62
)
At March 31, 2021
$
Amounts Recognized in the Consolidated
Balance Sheet at March 31, 2021
Current liabilities
$
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
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
$
Lower 48
Intersegment eliminations
(
2
)
(
10
)
Lower 48
Canada
Intersegment eliminations
(
305
)
(
180
)
Canada
Europe, Middle East and North Africa
Asia Pacific
Other International
Corporate and Other
Consolidated sales and other operating revenues
$
Sales and Other Operating Revenues by
Geographic Location
(1)
United States
$
Australia
Canada
China
Indonesia
Libya
Malaysia
Norway
United Kingdom
Other foreign countries
Worldwide consolidated
$
Sales and Other Operating Revenues by
Product
Crude oil
$
Natural gas
Natural gas liquids
Other
(2)
Consolidated sales and other operating revenues
by product
$
(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
$
Lower 48
(
437
)
Canada
(
109
)
Europe, Middle East and North Africa
Asia Pacific
Other International
(
4
)
Corporate and Other
(
121
)
(
1,775
)
Consolidated net income (loss) attributable
to ConocoPhillips
$
(
1,739
)
Millions of Dollars
March 31
December 31
2021
2020
Total Assets
Alaska
$
Lower 48
Canada
Europe, Middle East and North Africa
Asia Pacific
Other International
Corporate and Other
Consolidated total assets
$
Note 18—Income Taxes
Our effective tax rate for the first quarter of 2021
was
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 $
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 $
$
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
$
Concho acquisition.
Additionally, our reserve for unrecognized tax benefits increased by $
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;
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
$
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
$
317
272
Consolidated Operations
Average Net Production
Crude oil (MBD)
71
79
Natural gas liquids (MBD)
-
2
Natural gas (MMCFD)
347
621
Total Production
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.
59
Item 6.
EXHIBITS
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Schema Document.
101.CAL*
Inline XBRL Calculation Linkbase Document.
101.LAB*
Inline XBRL Labels Linkbase Document.
101.PRE*
Inline XBRL Presentation Linkbase Document.
101.DEF*
Inline XBRL Definition Linkbase Document.
104*
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
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
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintNote 1 Basis Of PresentationprintNote 2 InventoriesprintNote 3 Acquisitions and DispositionsprintNote 4 Investments, Loans and Long-term ReceivablesprintNote 5- Investment in Cenovus EnergyprintNote 6 DebtprintNote 7 Changes in EquityprintNote 8 GuaranteesprintNote 9 Contingencies and CommitmentsprintNote 10 Derivative and Financial InstrumentsprintNote 11 Fair Value MeasurementprintNote 12 Accumulated Other Comprehensive LossprintNote 13 Cash Flow InformationprintNote 14 Employee Benefit PlansprintNote 15 Related Party TransactionsprintNote 16 Sales and Other Operating RevenuesprintNote 17 Segment Disclosures and Related InformationprintNote 18 Income TaxesprintNote 10 Derivative and Financial Instruments, in The Notes To Consolidated Financial StatementsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint