UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission file number: 001-32395

ConocoPhillips

(Exact name of registrant as specified in its charter)

Delaware	01-0562944
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

925 N. Eldridge Parkway, Houston, TX 77079

(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbols	Name of each exchange on which registered
Common Stock, $.01 Par Value	COP	New York Stock Exchange
7% Debentures due 2029	CUSIP—718507BK1	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒        Accelerated filer ☐        Non-accelerated filer ☐        Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 1,197,490,673 shares of common stock, $.01 par value, outstanding at June 30, 2023.

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	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
Item 4. Controls and Procedures	49
Part II—Other Information
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 5. Other Information	50
Item 6. Exhibits	51
Signature	52

Commonly Used Abbreviations Table of Contents

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 Board
BBL	barrel
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 principles
MCF	thousand cubic feet
MM	million	LIFO	last-in, first-out
MMBOE	million barrels of oil equivalent	NPNS	normal purchase normal sale
MBOED	thousands of barrels of oil equivalent per day	PP&E	properties, plants and equipment
MMBOED	millions of barrels of oil equivalent per day	VIE	variable interest entity
MMBTU	million British thermal units
MMCFD	million cubic feet per day	Miscellaneous
MTPA	million tonnes per annum	CERCLA	Federal Comprehensive Environmental Response Compensation and Liability Act
Industry		DEI	diversity, equity and inclusion
BLM	Bureau of Land Management	EPA	Environmental Protection Agency
CBM	coalbed methane	ESG	Environmental, Social and Corporate Governance
CCS	carbon capture and storage
E&P	exploration and production	EU	European Union
FEED	front-end engineering and design	FERC	Federal Energy Regulatory Commission
FID	final investment decision
FPS	floating production system	GHG	greenhouse gas
FPSO	floating production, storage and	HSE	health, safety and environment
	offloading	ICC	International Chamber of Commerce
G&G	geological and geophysical	ICSID	World Bank’s International
JOA	joint operating agreement		Centre for Settlement of
LNG	liquefied natural gas		Investment Disputes
NGLs	natural gas liquids	IRS	Internal Revenue Service
OPEC	Organization of Petroleum	OTC	over-the-counter
	Exporting Countries	NYSE	New York Stock Exchange
PSC	production sharing contract	SEC	U.S. Securities and Exchange
PUDs	proved undeveloped reserves		Commission
SAGD	steam-assisted gravity drainage	TSR	total shareholder return
WCS	Western Canadian Select	U.K.	United Kingdom
WTI	West Texas Intermediate	U.S.	United States of America
		VROC	variable return of cash

1 ConocoPhillips      2023 Q2 10-Q

Financial Statements Table of Contents

PART I. Financial Information

Item 1.    Financial Statements

Consolidated Income Statement ConocoPhillips

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Revenues and Other Income
Sales and other operating revenues	$	12,351	21,161	27,162	38,923
Equity in earnings of affiliates	412		524	911	950
Gain (loss) on dispositions	(1)		262	92	1,079
Other income	122		42	236	328
Total Revenues and Other Income	12,884		21,989	28,401	41,280
Costs and Expenses
Purchased commodities	4,616		9,234	10,754	15,985
Production and operating expenses	1,886		1,741	3,665	3,322
Selling, general and administrative expenses	205		96	364	283
Exploration expenses	83		143	221	212
Depreciation, depletion and amortization	2,010		1,810	3,952	3,633
Impairments	—		2	1	4
Taxes other than income taxes	512		1,020	1,088	1,834
Accretion on discounted liabilities	68		61	136	122
Interest and debt expense	179		211	367	428
Foreign currency transaction gain	(14)		(70)	(58)	(46)
Other expenses	(23)		86	(13)	(50)
Total Costs and Expenses	9,522		14,334	20,477	25,727
Income before income taxes	3,362		7,655	7,924	15,553
Income tax provision	1,130		2,510	2,772	4,649
Net Income	$	2,232	5,145	5,152	10,904
Net Income Per Share of Common Stock (dollars)
Basic	$	1.84	3.98	4.23	8.39
Diluted	1.84		3.96	4.22	8.36
Average Common Shares Outstanding (in thousands)
Basic	1,207,443		1,289,791	1,213,800	1,295,827
Diluted	1,210,342		1,295,844	1,216,743	1,301,126

See Notes to Consolidated Financial Statements.

ConocoPhillips      2023 Q2 10-Q 2

Financial Statements Table of Contents

Consolidated Statement of Comprehensive Income ConocoPhillips

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Net Income	$	2,232	5,145	5,152	10,904
Other comprehensive income
Defined benefit plans
Reclassification adjustment for amortization of prior service credit included in net income	(10)		(10)	(19)	(20)
Net change	(10)		(10)	(19)	(20)
Net actuarial loss arising during the period	—		(82)	—	(82)
Reclassification adjustment for amortization of net actuarial losses included in net income	19		25	42	41
Net change	19		(57)	42	(41)
Income taxes on defined benefit plans	(3)		14	(6)	12
Defined benefit plans, net of tax	6		(53)	17	(49)
Unrealized holding gain (loss) on securities	(3)		(5)	3	(9)
Reclassification adjustment for gain included in net income	(1)		—	(2)	—
Income taxes on unrealized holding gain (loss) on securities	1		1	—	2
Unrealized holding gain (loss) on securities, net of tax	(3)		(4)	1	(7)
Foreign currency translation adjustments, net of tax	99		(448)	57	(307)
Other Comprehensive Income (Loss), Net of Tax	102		(505)	75	(363)
Comprehensive Income	$	2,334	4,640	5,227	10,541

See Notes to Consolidated Financial Statements.

3 ConocoPhillips      2023 Q2 10-Q

Financial Statements Table of Contents

Consolidated Balance Sheet ConocoPhillips

	Millions of Dollars
	June 30 2023		December 31 2022
Assets
Cash and cash equivalents	$	5,735	6,458
Short-term investments	1,080		2,785
Accounts and notes receivable (net of allowance of $3 and $2, respectively)	4,517		7,075
Accounts and notes receivable—related parties	14		13
Inventories	1,236		1,219
Prepaid expenses and other current assets	919		1,199
Total Current Assets	13,501		18,749
Investments and long-term receivables	8,618		8,225
Net properties, plants and equipment (net of accumulated DD&A of $69,529 and $66,630, respectively)	65,452		64,866
Other assets	2,034		1,989
Total Assets	$	89,605	93,829
Liabilities
Accounts payable	$	4,597	6,113
Accounts payable—related parties	29		50
Short-term debt	879		417
Accrued income and other taxes	1,692		3,193
Employee benefit obligations	552		728
Other accruals	1,799		2,346
Total Current Liabilities	9,548		12,847
Long-term debt	15,565		16,226
Asset retirement obligations and accrued environmental costs	6,357		6,401
Deferred income taxes	8,038		7,726
Employee benefit obligations	981		1,074
Other liabilities and deferred credits	1,585		1,552
Total Liabilities	42,074		45,826
Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)
Issued (2023—2,102,624,236 shares; 2022—2,100,885,134 shares)
Par value	21		21
Capital in excess of par	61,169		61,142
Treasury stock (at cost: 2023—905,133,563 shares; 2022—877,029,062 shares)	(63,217)		(60,189)
Accumulated other comprehensive loss	(5,925)		(6,000)
Retained earnings	55,483		53,029
Total Equity	47,531		48,003
Total Liabilities and Equity	$	89,605	93,829

See Notes to Consolidated Financial Statements.

ConocoPhillips      2023 Q2 10-Q 4

Financial Statements Table of Contents

Consolidated Statement of Cash Flows ConocoPhillips

	Millions of Dollars
	Six Months Ended June 30
	2023		2022
Cash Flows From Operating Activities
Net income	$	5,152	10,904
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization	3,952		3,633
Impairments	1		4
Dry hole costs and leasehold impairments	102		104
Accretion on discounted liabilities	136		122
Deferred taxes	489		868
Undistributed equity earnings	652		591
Gain on dispositions	(92)		(1,079)
Gain on investment in Cenovus Energy	—		(251)
Other	(7)		(37)
Working capital adjustments
Decrease (increase) in accounts and notes receivable	2,246		(1,861)
Increase in inventories	(23)		(53)
Decrease (increase) in prepaid expenses and other current assets	295		(283)
Increase (decrease) in accounts payable	(1,614)		635
Decrease in taxes and other accruals	(2,032)		(315)
Net Cash Provided by Operating Activities	9,257		12,982
Cash Flows From Investing Activities
Capital expenditures and investments	(5,820)		(5,129)
Working capital changes associated with investing activities	86		496
Acquisition of businesses, net of cash acquired	—		37
Proceeds from asset dispositions	426		2,951
Net (purchase) sale of investments	1,549		(1,104)
Collection of advances/loans—related parties	—		55
Other	(5)		(8)
Net Cash Used in Investing Activities	(3,764)		(2,702)
Cash Flows From Financing Activities
Issuance of debt	1,093		2,897
Repayment of debt	(1,200)		(5,829)
Issuance of company common stock	(95)		350
Repurchase of company common stock	(3,000)		(3,725)
Dividends paid	(2,838)		(1,852)
Other	(11)		(56)
Net Cash Used in Financing Activities	(6,051)		(8,215)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(162)		(237)
Net Change in Cash, Cash Equivalents and Restricted Cash	(720)		1,828
Cash, cash equivalents and restricted cash at beginning of period	6,694		5,398
Cash, Cash Equivalents and Restricted Cash at End of Period	$	5,974	7,226

Restricted cash of $239 million is included in the "Other assets" line of our Consolidated Balance Sheet as of June 30, 2023.

Restricted cash of $236 million is included in the "Other assets" line of our Consolidated Balance Sheet as of December 31, 2022.

See Notes to Consolidated Financial Statements.

5 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation

The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips, its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2022 Annual Report on Form 10-K.

Note 2—Inventories

	Millions of Dollars
	June 30 2023		December 31 2022
Crude oil and natural gas	$	625	641
Materials and supplies	611		578
Total Inventories	$	1,236	1,219
Inventories valued on the LIFO basis	$	443	396

Note 3—Acquisitions and Dispositions

Acquisitions

Qatar Liquefied Gas Company Limited (12) (QG12)

During 2022, we were awarded a 25 percent interest in QG12, a new joint venture with QatarEnergy, to participate in the North Field South (NFS) LNG project. Formation of the NFS joint venture, QG12, closed in June 2023. QG12 has a 25 percent interest in the NFS project and is reported as an equity method investment in our Europe, Middle East and North Africa segment. See Note 4.

Port Arthur Liquefaction Holdings, LLC (PALNG)

In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility for the first phase of the Port Arthur LNG project ("Phase 1"). Sempra PALNG Holdings, LLC owns the remaining 70 percent interest in the joint venture. PALNG is reported as an equity method investment in our Corporate and Other segment. See Note 4.

Planned Acquisitions

Surmont

In July 2023, we executed an agreement to purchase the remaining 50 percent interest in Surmont, an asset in our Canada segment, from TotalEnergies EP Canada Ltd. for approximately $4 billion CAD ($3 billion), subject to customary adjustments, as well as contingent payments over a five-year term of up to $440 million CAD ($325 million). These contingent payments represent $2.7 million CAD ($2.0 million) for every dollar that WCS pricing exceeds $52 per barrel during the month, subject to certain production targets being achieved. The transaction is expected to close in the second half of 2023, with an effective date of April 1, 2023. Upon closing, we will hold 100 percent interest in the Surmont asset. This transaction is subject to regulatory approvals and other customary closing conditions.

Australia Pacific LNG Pty Ltd (APLNG)

In March 2023, we announced that, subject to the closing of EIG's transaction with Origin Energy, we intend to purchase up to an additional 2.49 percent shareholding interest in APLNG for $0.5 billion, subject to customary adjustments. Upon closing we will own up to 49.99 percent interest in APLNG. The transaction is expected to close in early 2024, with an effective date of July 1, 2022. Both EIG's transaction with Origin Energy and our shareholder acquisition are subject to regulatory approvals and other customary closing conditions.

ConocoPhillips      2023 Q2 10-Q 6

Notes to Consolidated Financial Statements Table of Contents

Note 4—Investments and Long-Term Receivables

APLNG

In 2012, APLNG executed an $8.5 billion project finance facility that became non-recourse following financial completion in 2017. The facility is currently composed of a financing agreement with the Export-Import Bank of the United States, a commercial bank facility and two United States Private Placement note facilities. APLNG principal and interest payments commenced in March 2017 and are scheduled to occur bi-annually until September 2030. At June 30, 2023, a balance of $4.9 billion was outstanding on these facilities. See Note 8.

At June 30, 2023, the carrying value of our equity method investment in APLNG was approximately $5.6 billion.

PALNG

In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility. At June 30, 2023, the carrying value of our equity method investment in PALNG was approximately $0.7 billion. See Note 3.

Qatar Liquefied Gas Company Limited

Our equity method investments in Qatar include the following:

•Qatar Liquefied Gas Company Limited (3) (QG3)—30 percent owned joint venture with affiliates of QatarEnergy (68.5 percent) and Mitsui (1.5 percent)—produces and liquefies natural gas from Qatar’s North Field, as well as exports LNG.

•Qatar Liquefied Gas Company Limited (8) (QG8)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the North Field East LNG project.

•Qatar Liquefied Gas Company Limited (12) (QG12)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the NFS LNG project. See Note 3.

At June 30, 2023, the carrying value of our Qatar equity method investments was approximately $1.1 billion.

Note 5—Investment in Cenovus Energy

During the first quarter of 2022, we sold our remaining 91 million common shares of Cenovus Energy (CVE), recognizing proceeds of $1.4 billion and a net gain of $251 million. The gain was recognized within "Other income” on our consolidated income statement. Proceeds related to the sale of our CVE shares were included within "Cash Flows From Investing Activities" on our consolidated statement of cash flows.

7 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Note 6—Debt

In the second quarter of 2023, as described further below, we initiated and completed two concurrent transactions as part of our debt refinancing strategy. We issued $1.1 billion in new Notes through our universal shelf registration statement and prospectus supplement and used the funds to repurchase $1.1 billion of existing debt.

New Debt Issuance

On May 23, 2023, we issued $1.1 billion in 5.3% Notes due 2053.

Tender Offer

On May 25, 2023, we repurchased a total of $1,133 million aggregate principal amount of debt as listed below. We paid $33 million below face value to repurchase these debt instruments and recognized a gain on debt extinguishment of $27 million which is included in the "Other expenses" line on our consolidated income statement.

•2.125% Notes due 2024 with principal of $900 million (partial repurchase of $439 million)

•3.350% Notes due 2024 with principal of $426 million (partial repurchase of $160 million)

•2.400% Notes due 2025 with principal of $900 million (partial repurchase of $534 million)

Our debt balance at June 30, 2023 was $16.4 billion, compared with $16.6 billion at December 31, 2022.

Our revolving credit facility provides a total borrowing capacity of $5.5 billion with an expiration date of February 2027. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. The revolving credit facility is broadly syndicated among financial institutions and does not contain any material adverse change provisions or any covenants requiring maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more by ConocoPhillips, or any of its consolidated subsidiaries. The amount of the facility is not subject to redetermination prior to its expiration date.

Credit facility borrowings may bear interest at a margin above the Secured Overnight Financing Rate (SOFR). The facility agreement calls for commitment fees on available, but unused, amounts. The facility agreement also contains early termination rights if our current directors or their approved successors cease to be a majority of the Board of Directors.

The revolving credit facility supports our ability to issue up to $5.5 billion of commercial paper. Commercial paper is generally limited to maturities of 90 days and is included in short-term debt on our consolidated balance sheet. With no commercial paper outstanding and no direct borrowings or letters of credit, we had access to $5.5 billion in available borrowing capacity under our revolving credit facility at June 30, 2023. At December 31, 2022, we had no commercial paper outstanding and no direct borrowings or letters of credit issued.

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 ratings were to deteriorate to a level prohibiting us from accessing the commercial paper market, we would still be able to access funds under our revolving credit facility.

At June 30, 2023, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. If they are ever redeemed, we have the ability and intent to refinance on a long-term basis; therefore, the VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.

ConocoPhillips      2023 Q2 10-Q 8

Notes to Consolidated Financial Statements Table of Contents

Note 7—Changes in Equity

	Millions of Dollars
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Accum. Other Comprehensive Income (Loss)	Retained Earnings	Total
For the three months ended June 30, 2023
Balances at March 31, 2023	$	21	61,100	(61,904)	(6,027)	54,593	47,783
Net income						2,232	2,232
Other comprehensive income					102		102
Dividends declared
Ordinary ($0.51 per common share)						(620)	(620)
Variable return of cash ($0.60 per common share)						(723)	(723)
Repurchase of company common stock				(1,300)			(1,300)
Excise tax on share repurchases				(13)			(13)
Distributed under benefit plans			69				69
Other						1	1
Balances at June 30, 2023	$	21	61,169	(63,217)	(5,925)	55,483	47,531
For the six months ended June 30, 2023
Balances at December 31, 2022	$	21	61,142	(60,189)	(6,000)	53,029	48,003
Net income						5,152	5,152
Other comprehensive income					75		75
Dividends declared
Ordinary ($1.02 per common share)						(1,245)	(1,245)
Variable return of cash ($1.20 per common share)						(1,454)	(1,454)
Repurchase of company common stock				(3,000)			(3,000)
Excise tax on share repurchases				(28)			(28)
Distributed under benefit plans			27				27
Other						1	1
Balances at June 30, 2023	$	21	61,169	(63,217)	(5,925)	55,483	47,531

	Millions of Dollars
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Accum. Other Comprehensive Income (Loss)	Retained Earnings	Total
For the three months ended June 30, 2022
Balances at March 31, 2022	$	21	60,907	(52,344)	(4,808)	45,442	49,218
Net income						5,145	5,145
Other comprehensive loss					(505)		(505)
Dividends declared
Ordinary ($0.46 per common share)						(598)	(598)
Variable return of cash ($0.70 per common share)						(896)	(896)
Repurchase of company common stock				(2,300)			(2,300)
Distributed under benefit plans			138				138
Other				—		—	—
Balances at June 30, 2022	$	21	61,045	(54,644)	(5,313)	49,093	50,202
For the six months ended June 30, 2022
Balances at December 31, 2021	$	21	60,581	(50,920)	(4,950)	40,674	45,406
Net income						10,904	10,904
Other comprehensive loss					(363)		(363)
Dividends declared
Ordinary ($0.92 per common share)						(1,201)	(1,201)
Variable return of cash ($1.00 per common share)						(1,286)	(1,286)
Repurchase of company common stock				(3,725)			(3,725)
Distributed under benefit plans			464				464
Other				1		2	3
Balances at June 30, 2022	$	21	61,045	(54,644)	(5,313)	49,093	50,202

9 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Note 8—Guarantees

At June 30, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

APLNG Guarantees

At June 30, 2023, we had outstanding multiple guarantees in connection with our 47.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing June 2023 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 eight years. Our maximum exposure under this guarantee is approximately $210 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At June 30, 2023, the carrying value of this guarantee was approximately $14 million.

•In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy Limited in October 2008, we agreed to reimburse Origin Energy Limited for our share of the existing contingent liability arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales agreements. The final guarantee expires in the fourth quarter of 2041. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $740 million ($1.3 billion in the event of intentional or reckless breach) and would become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

•We have guaranteed the performance of APLNG with regard to certain other contracts executed in connection with the project’s continued development. The guarantees have remaining terms of 14 to 22 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $390 million and would become payable if APLNG does not perform. At June 30, 2023, the carrying value of these guarantees was approximately $29 million.

Qatar Liquefied Gas Company Limited Guarantees

We have guaranteed our portion of certain fiscal and other joint venture obligations as a shareholder in QG8 and QG12. These guarantees have an approximate 30-year term with no maximum limit. At June 30, 2023, the carrying value of these guarantees was approximately $14 million.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $600 million, which consist primarily of guarantees of the residual value of leased office buildings and guarantees of the residual value of corporate aircraft. These guarantees have remaining terms of two to four years and would become payable if certain asset values are lower than guaranteed amounts at the end of the lease or contract term, business conditions decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties. At June 30, 2023, there was no carrying value associated with these guarantees.

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. The carrying amount recorded for these indemnification obligations at June 30, 2023, was approximately $20 million. Those related to environmental issues have terms that are generally indefinite, and the maximum amounts of future payments are generally unlimited. 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. See Note 9 for additional information about environmental liabilities.

ConocoPhillips      2023 Q2 10-Q 10

Notes to Consolidated Financial Statements Table of Contents

Note 9—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the low end of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. With respect to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

Environmental

We are subject to international, federal, state and local environmental laws and regulations and record accruals for environmental liabilities based on management’s best estimates. These estimates are based on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. EPA or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for other sites, we are usually only one of many companies cited at a particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the agency concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, and some of the indemnifications are subject to dollar limits and time limits.

We are currently participating in environmental assessments and cleanups at numerous CERCLA and other 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.

For remediation activities in the U.S. and Canada, our balance sheet included a total environmental accrual of $185 million at June 30, 2023, compared with $182 million at December 31, 2022. We expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

11 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Litigation and Other Contingencies

We are subject to various lawsuits and claims including, but not limited to, matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, climate change, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties, claims of alleged environmental contamination and damages from historic operations, and climate change. We will continue to defend ourselves vigorously in these matters.

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized. In addition, at June 30, 2023, we had performance obligations secured by letters of credit of $261 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 ("Tribunal") held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the decision that the expropriation was unlawful. In March 2019, the Tribunal unanimously ordered the government of Venezuela to pay ConocoPhillips approximately $8.7 billion in compensation for the government’s unlawful expropriation of the company’s investments in Venezuela in 2007. On August 29, 2019, the Tribunal issued a decision rectifying the award and reducing it by approximately $227 million. The award now stands at $8.5 billion plus interest. The government of Venezuela sought annulment of the award, which automatically stayed enforcement of the award. On September 29, 2021, the ICSID annulment committee lifted the stay of enforcement of the award. The annulment proceedings are underway.

In 2014, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Petrozuata and Hamaca projects. The ICC Tribunal issued an award in April 2018, finding that PDVSA owed ConocoPhillips approximately $2 billion under their agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures. In August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC award, plus interest through the payment period, including initial payments totaling approximately $500 million within a period of 90 days from the time of signing the settlement agreement. The balance of the settlement is to be paid quarterly over a period of four and a half years. Per the settlement, PDVSA recognized the ICC award as a judgment in various jurisdictions, and ConocoPhillips agreed to suspend its legal enforcement actions. ConocoPhillips sent notices of default to PDVSA on October 14 and November 12, 2019, and to date PDVSA has failed to cure its breach. As a result, ConocoPhillips has resumed legal enforcement actions. To date, ConocoPhillips has received approximately $776 million in connection with the ICC award. ConocoPhillips has ensured that the settlement and any actions taken in enforcement thereof meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.

In 2016, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Corocoro Project. On August 2, 2019, the ICC Tribunal awarded ConocoPhillips approximately $33 million plus interest under the Corocoro contracts. ConocoPhillips is seeking recognition and enforcement of the award in various jurisdictions. ConocoPhillips has ensured that all the actions related to the award meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.

ConocoPhillips      2023 Q2 10-Q 12

Notes to Consolidated Financial Statements Table of Contents

Beginning in 2017, governmental and other entities in several states/territories 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 legal and factual issues are unprecedented, therefore, there is significant uncertainty about the scope of the claims and alleged damages and any potential impact on the Company’s financial condition. 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. On October 17, 2022, the Fifth Circuit affirmed remand of lead cases to state court and the subsequent request for rehearing was denied. On February 27, 2023, the Supreme Court denied a certiorari petition from the defendants regarding the Fifth Circuit ruling. Accordingly, the federal district courts have issued remands to state court. Because Plaintiffs’ SLCRMA theories are unprecedented, there is uncertainty about these claims (both as to scope and damages) and we continue to evaluate our exposure in these lawsuits.

In October 2020, the Bureau of Safety and Environmental Enforcement (BSEE) ordered the prior owners of Outer Continental Shelf (OCS) Lease P-0166, including ConocoPhillips, to decommission the lease facilities, including two offshore platforms located near Carpinteria, California. This order was sent after the current owner of OCS Lease P-0166 relinquished the lease and abandoned the lease platforms and facilities. BSEE’s order to ConocoPhillips is premised on its connection to Phillips Petroleum Company, a legacy company of ConocoPhillips, which held a historical 25 percent interest in this lease and operated these facilities but sold its interest approximately 30 years ago. ConocoPhillips continues to evaluate its exposure in this matter.

On May 10, 2021, ConocoPhillips filed arbitration under the rules of the Singapore International Arbitration Centre (SIAC) against Santos KOTN Pty Ltd. and Santos Limited for their failure to timely pay the $200 million bonus due upon final investment decision of the Barossa development project under the sale and purchase agreement for the sale of our Australia-West asset and operations. The matter was resolved in April 2023 to our satisfaction.

In July 2021, a federal securities class action was filed against Concho, certain of Concho’s officers, and ConocoPhillips as Concho’s successor in the United States District Court for the Southern District of Texas. On October 21, 2021, the court issued an order appointing Utah Retirement Systems and the Construction Laborers Pension Trust for Southern California as lead plaintiffs (Lead Plaintiffs). On January 7, 2022, the Lead Plaintiffs filed their consolidated complaint alleging that Concho made materially false and misleading statements regarding its business and operations in violation of the federal securities laws and seeking unspecified damages, attorneys’ fees, costs, equitable/injunctive relief, and such other relief that may be deemed appropriate. The defendants filed a motion to dismiss the consolidated complaint on March 8, 2022. On June 23, 2023, the court denied defendants’ motion as to most defendants including Concho/ConocoPhillips. We believe the allegations in the action are without merit and are vigorously defending this litigation.

ConocoPhillips is involved in pending disputes with commercial counterparties relating to the propriety of its force majeure notices following Winter Storm Uri in 2021. We believe these claims are without merit and are vigorously defending them.

Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput and Take-or-Pay Agreements

We have certain throughput agreements and take-or-pay agreements in support of financing arrangements. The agreements typically provide for natural gas or crude oil transport and LNG purchase commitments. The fixed and determinable portion of the remaining estimated payments under these various agreements as of June 30, 2023 are: 2023—$4 million; 2024—$7 million; 2025—$7 million; 2026—$7 million; 2027—$7 million; and 2028 and after—$11 billion. Generally, variable components of these obligations include commodity futures prices and inflation rates. Purchases of LNG under these commitments are expected to be offset in the same or approximately same periods by cash received from the related sales transactions.

13 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

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. Certain of our equity method investments use swaps to manage interest rate risk.

Commodity Derivative Instruments

Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG, NGLs and power.

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, on our consolidated balance sheet:

	Millions of Dollars
	June 30 2023		December 31 2022
Assets
Prepaid expenses and other current assets	$	793	1,795
Other assets	182		242
Liabilities
Other accruals	749		1,800
Other liabilities and deferred credits	148		210

The gains (losses) from commodity derivatives included in our consolidated income statement are presented in the following table:

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Sales and other operating revenues	$	(16)	(13)	12	(420)
Other income	(2)		1	(1)	2
Purchased commodities	16		(55)	(56)	346

The table below summarizes our net exposures resulting from outstanding commodity derivative contracts:

	Open Position Long (Short)
	June 30 2023	December 31 2022
Commodity
Natural gas and power (billions of cubic feet equivalent)
Fixed price	(22)	(14)
Basis	(9)	(8)

ConocoPhillips      2023 Q2 10-Q 14

Notes to Consolidated Financial Statements Table of Contents

Foreign Currency Exchange Derivatives

At June 30, 2023, we had outstanding foreign currency forward contracts to buy $5.2 billion CAD at $0.751 against the U.S. dollar in anticipation of our planned acquisition of the additional interest in Surmont. See Note 3. The forward contracts are carried at a fair value of $19 million and are reported within the "Prepaid expenses and other current assets" line on our consolidated balance sheet. For the three- and six-month periods ended June 30, 2023, we recorded an unrealized gain of $19 million in the "Foreign currency transaction gain" line on our consolidated income statement.

Interest Rate Derivative Instruments

During 2023, PALNG executed interest rate swaps that had the effect of converting 60 percent of the projected term loans outstanding to finance the cost of development and construction of Phase 1 from floating to fixed rate. These swaps were designated and qualify for hedge accounting under ASC Topic 815, "Derivatives and Hedging", as a cash flow hedge with changes in the fair value of the designated hedging instrument reported as a component of other comprehensive income and reclassified into earnings in the same periods that the hedged transactions will affect earnings. We recognize our proportionate share of PALNG’s adjustments for other comprehensive income as a change to our equity method investment with corresponding adjustments in equity. For the three- and six-month periods ended June 30, 2023, the impact of these adjustments on our financial statements was negligible.

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, reaching par value at maturity.

•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 June 30, 2023, and December 31, 2022:

	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents			Short-Term Investments
	June 30 2023		December 31 2022	June 30 2023	December 31 2022
Cash	$	551	593
Demand Deposits	831		1,638
Time Deposits
1 to 90 days	4,244		4,116	471	1,288
91 to 180 days				85	883
Within one year				16	11
U.S. Government Obligations
1 to 90 days	49		14	—	—
	$	5,675	6,361	572	2,182

15 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

The following investments in debt securities classified as available for sale are carried at fair value on our consolidated balance sheet at June 30, 2023, and December 31, 2022:

	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents			Short-Term Investments		Investments and Long-Term Receivables
	June 30 2023		December 31 2022	June 30 2023	December 31 2022	June 30 2023	December 31 2022
Major Security Type
Corporate Bonds	$	—	—	231	323	387	309
Commercial Paper	60		97	139	156
U.S. Government Obligations	—		—	120	115	161	63
U.S. Government Agency Obligations				17	8	7	5
Foreign Government Obligations				—	—	11	7
Asset-backed Securities				1	1	116	138
	$	60	97	508	603	682	522

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 five 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
	June 30 2023		December 31 2022	June 30 2023	December 31 2022
Major Security Type
Corporate Bonds	$	627	641	618	632
Commercial Paper	199		253	199	253
U.S. Government Obligations	284		181	281	178
U.S. Government Agency Obligations	24		13	24	13
Foreign Government Obligations	11		7	11	7
Asset-backed Securities	118		139	117	139
	$	1,263	1,234	1,250	1,222

As of June 30, 2023, and December 31, 2022, total unrealized losses for debt securities classified as available for sale with net losses were $14 million and $12 million, respectively. No allowance for credit losses has been recorded on investments in debt securities which are in an unrealized loss position.

For the three- and six-month periods ended June 30, 2023, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $251 million and $551 million, respectively. For the three- and six-month periods ended June 30, 2022, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $86 million and $201 million, respectively. Gross realized gains and losses included in earnings from those sales and redemptions were negligible. The cost of securities sold and redeemed is determined using the specific identification method.

ConocoPhillips      2023 Q2 10-Q 16

Notes to Consolidated Financial Statements Table of Contents

Credit Risk

Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, long-term investments in debt securities, OTC derivative contracts and trade receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper, government money market funds, U.S. government and government agency obligations, time deposits with major international banks and financial institutions, high-quality corporate bonds, foreign government obligations and asset-backed securities. Our long-term investments in debt securities are placed in high-quality corporate bonds, asset-backed securities, U.S. government and government agency obligations, and foreign government obligations.

The credit risk from our OTC derivative contracts, such as forwards, swaps and options, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared primarily with an exchange clearinghouse and subject to mandatory margin requirements until settled; however, we are exposed to the credit risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements.

Our trade receivables result primarily from our oil and gas operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less, and we continually monitor this exposure and the creditworthiness of the counterparties. We may require collateral to limit the exposure to loss including letters of credit, prepayments and surety bonds, as well as master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due to us.

Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of credit as collateral, such as transactions administered through the New York Mercantile Exchange.

The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position at June 30, 2023, and December 31, 2022, was $166 million and $333 million, respectively. For these instruments, no collateral was posted at June 30, 2023 and $42 million of collateral was posted at December 31, 2022. If our credit rating had been downgraded below investment grade at June 30, 2023, we would have been required to post $131 million of additional collateral, either with cash or letters of credit.

17 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

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 fair value hierarchy.

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. There were no material transfers into or out of Level 3 during the six-month period ended June 30, 2023, nor during the year ended December 31, 2022.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis include 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 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
	June 30, 2023					December 31, 2022
	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Investments in debt securities	$	275	975	—	1,250	178	1,044	—	1,222
Commodity derivatives	479		366	130	975	958	951	128	2,037
Total assets	$	754	1,341	130	2,225	1,136	1,995	128	3,259
Liabilities
Commodity derivatives	$	509	370	18	897	906	843	261	2,010
Total liabilities	$	509	370	18	897	906	843	261	2,010

ConocoPhillips      2023 Q2 10-Q 18

Notes to Consolidated Financial Statements Table of Contents

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 Recognized		Amounts Not Subject to Right of Setoff	Gross Amounts	Gross Amounts Offset	Net Amounts Presented	Cash Collateral	Net Amounts
June 30, 2023
Assets	$	975	33	942	548	394	5	389
Liabilities	897		27	870	548	322	44	278
December 31, 2022
Assets	$	2,037	39	1,998	1,176	822	37	785
Liabilities	2,010		20	1,990	1,176	814	52	762

At June 30, 2023 and December 31, 2022, 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.

•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.

•Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value.

•Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level 2 in the fair value hierarchy.

•Commercial paper: The carrying amount of our commercial paper instruments approximates fair value and is reported on the balance sheet as short-term debt.

The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of setoff exists for commodity derivatives):

	Millions of Dollars
	Carrying Amount		Fair Value
	June 30 2023	December 31 2022	June 30 2023	December 31 2022
Financial assets
Commodity derivatives	422	824	422	824
Investments in debt securities	1,250	1,222	1,250	1,222
Financial liabilities
Total debt, excluding finance leases	15,247	15,323	15,623	15,545
Commodity derivatives	305	782	305	782

19 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Note 12—Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss in the equity section of our consolidated balance sheet includes:

	Millions of Dollars
	Defined Benefit Plans		Net Unrealized Loss on Securities	Foreign Currency Translation	Accumulated Other Comprehensive Loss
December 31, 2022	$	(448)	(11)	(5,541)	(6,000)
Other comprehensive income	17		1	57	75
June 30, 2023	$	(431)	(10)	(5,484)	(5,925)

The following table summarizes reclassifications out of accumulated other comprehensive loss and into net income:

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Defined benefit plans	$	6	12	17	16

The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $3 million and $3 million for the three-month periods ended June 30, 2023 and June 30, 2022, respectively, and $6 million and $5 million for the six-month periods ended

June 30, 2023 and June 30, 2022, respectively. See Note 14.

Note 13—Cash Flow Information

	Millions of Dollars
	Six Months Ended June 30
	2023		2022
Cash Payments
Interest	$	358	486
Income taxes	3,202		3,942
Net Sales (Purchases) of Investments
Short-term investments purchased	$	(783)	(1,253)
Short-term investments sold	2,676		613
Long-term investments purchased	(414)		(510)
Long-term investments sold	70		46
	$	1,549	(1,104)

ConocoPhillips      2023 Q2 10-Q 20

Notes to Consolidated Financial Statements Table of Contents

Note 14—Employee Benefit Plans

Pension and Postretirement Plans

	Millions of Dollars
	Pension Benefits					Other Benefits
	2023			2022		2023	2022
	U.S.		Int'l.	U.S.	Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended June 30
Service cost	$	13	9	16	13	—	1
Interest cost	20		29	12	21	2	1
Expected return on plan assets	(14)		(37)	(13)	(34)	—	—
Amortization of prior service credit	—		—	—	—	(10)	(10)
Recognized net actuarial loss (gain)	3		17	5	2	(1)	—
Settlements	—		—	18	—	—	—
Net periodic benefit cost	$	22	18	38	2	(9)	(8)
Six Months Ended June 30
Service cost	$	26	19	32	26	—	1
Interest cost	39		57	24	42	3	2
Expected return on plan assets	(29)		(74)	(26)	(68)	—	—
Amortization of prior service credit	—		—	—	—	(19)	(20)
Recognized net actuarial loss (gain)	6		34	11	4	(2)	—
Settlements	4		—	22	—	—	—
Net periodic benefit cost	$	46	36	63	4	(18)	(17)

The components of net periodic benefit cost, other than the service cost component, are included in the "Other expenses" line of our consolidated income statement.

During the first six months of 2023, we contributed $71 million to our domestic benefit plans and $13 million to our international benefit plans. We expect our total contributions in 2023 to be approximately $135 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $65 million to our international qualified and nonqualified pension and postretirement benefit plans.

Note 15—Related Party Transactions

Our related parties primarily include equity method investments and certain trusts for the benefit of employees.

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Significant Transactions with Equity Affiliates
Operating revenues and other income	$	23	21	44	43
Operating expenses and selling, general and administrative expenses	72		44	150	90
Net interest income	—		—	—	(1)

21 ConocoPhillips      2023 Q2 10-Q

Notes to Consolidated Financial Statements Table of Contents

Note 16—Sales and Other Operating Revenues

Revenue from Contracts with Customers

The following table provides further disaggregation of our consolidated sales and other operating revenues:

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Revenue from contracts with customers	$	11,015	16,728	22,979	31,234
Revenue from contracts outside the scope of ASC Topic 606
Physical contracts meeting the definition of a derivative	1,465		4,411	4,592	7,551
Financial derivative contracts	(129)		22	(409)	138
Consolidated sales and other operating revenues	$	12,351	21,161	27,162	38,923

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 18—Segment Disclosures and Related Information:

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment
Lower 48	$	1,081	3,483	3,589	5,927
Canada	204		807	771	1,367
Europe, Middle East and North Africa	180		121	232	257
Physical contracts meeting the definition of a derivative	$	1,465	4,411	4,592	7,551

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Revenue from Contracts Outside the Scope of ASC Topic 606 by Product
Crude oil	$	96	64	143	283
Natural gas	1,123		4,254	3,848	7,027
Other	246		93	601	241
Physical contracts meeting the definition of a derivative	$	1,465	4,411	4,592	7,551

Practical Expedients

Typically, our commodity sales contracts are less than 12 months in duration; however, in certain specific cases may extend longer, which may be out to the end of field life. We have long-term commodity sales contracts which use prevailing market prices at the time of delivery, and under these contracts, the market-based variable consideration for each performance obligation (i.e., delivery of commodity) is allocated to each wholly unsatisfied performance obligation within the contract. Accordingly, we have applied the practical expedient allowed in ASC Topic 606 and do not disclose the aggregate amount of the transaction price allocated to performance obligations or when we expect to recognize revenues that are unsatisfied (or partially unsatisfied) as of the end of the reporting period.

ConocoPhillips      2023 Q2 10-Q 22

Notes to Consolidated Financial Statements Table of Contents

Receivables and Contract Liabilities

Receivables from Contracts with Customers

At June 30, 2023, the “Accounts and notes receivable” line on our consolidated balance sheet included trade receivables of $3,511 million compared with $5,241 million at December 31, 2022, and included both contracts with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC Topic 606. We typically receive payment within 30 days or less (depending on the terms of the invoice) once delivery is made. Revenues that are outside the scope of ASC Topic 606 relate primarily to physical gas sales contracts at market prices for which we do not elect NPNS and are therefore accounted for as a derivative under ASC Topic 815. There is little distinction in the nature of the customer or credit quality of trade receivables associated with gas sold under contracts for which NPNS has not been elected compared to trade receivables where NPNS has been elected.

Contract Liabilities from Contracts with Customers

We have entered into certain agreements under which we license our proprietary technology, including the Optimized Cascade® process technology, to customers to maximize the efficiency of LNG plants. These agreements typically provide for milestone payments to be made during and after the construction phases of the LNG plant. The payments are not directly related to our performance obligations under the contract and are recorded as deferred revenue to be recognized when the customer is able to benefit from their right to use the applicable licensed technology. No revenue was recognized during the three- and six-month periods ended June 30, 2023. We expect to recognize the outstanding contract liabilities of $19 million as of June 30, 2023, as revenue during 2026.

Note 17—Earnings Per Share

The following table presents the calculation of net income available to common shareholders and basic and diluted EPS. For the periods presented in the table below, diluted EPS calculated under the two-class method was more dilutive.

	Millions of Dollars (except per share amounts)
	Three Months Ended June 30			Six Months Ended June 30
	2023		2022	2023	2022
Basic earnings per share
Net Income	$	2,232	5,145	5,152	10,904
Less: Dividends and undistributed earnings
allocated to participating securities	8		17	17	33
Net Income available to common shareholders	$	2,224	5,128	5,135	10,871
Average common shares outstanding (in Millions)	1,207		1,290	1,214