10-Q 1 d553343d10q.htm FORM 10-Q Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)
[X]                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended           June 30, 2013

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.)        

600 North Dairy Ashford, Houston, TX 77079

(Address of principal executive offices)                 (Zip Code)

281-293-1000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [x] No [    ]

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

Large accelerated filer [x]    Accelerated filer [    ]    Non-accelerated filer [    ]    Smaller reporting company [    ]

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

The registrant had 1,223,007,256 shares of common stock, $.01 par value, outstanding at June 30, 2013.


Table of Contents

CONOCOPHILLIPS

TABLE OF CONTENTS

 

     Page

Part I – Financial Information

  

Item 1.  Financial Statements

  

Consolidated Income Statement

    1

Consolidated Statement of Comprehensive Income

    2

Consolidated Balance Sheet

    3

Consolidated Statement of Cash Flows

    4

Notes to Consolidated Financial Statements

    5

Supplementary Information—Condensed Consolidating Financial Information

   26

Item 2.   Management’s Discussion and Analysis of Financial Condition and

Results of Operations

   31

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

   52

Item 4.  Controls and Procedures

   52

Part II – Other Information

  

Item 1.  Legal Proceedings

   53

Item 1A.  Risk Factors

   53

Item 6.  Exhibits

   54

Signature

   55


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

 
  

 

 

    

 

 

 
     2013      2012       2013      2012   
  

 

 

    

 

 

 

Revenues and Other Income

           

Sales and other operating revenues

   $ 13,350         13,664         27,516         28,257   

Equity in earnings of affiliates

     494         529         856         1,019   

Gain on dispositions

     95         583         153         1,523   

Other income

     203         66         268         126   

 

 

Total Revenues and Other Income

     14,142         14,842         28,793         30,925   

 

 

Costs and Expenses

           

Purchased commodities

     5,521         5,721         11,355         11,799   

Production and operating expenses

     1,672         1,802         3,359         3,361   

Selling, general and administrative expenses

     193         235         358         561   

Exploration expenses

     321         265         598         940   

Depreciation, depletion and amortization

     1,832         1,580         3,639         3,151   

Impairments

     28         82         30         296   

Taxes other than income taxes

     642         900         1,534         1,995   

Accretion on discounted liabilities

     105         103         211         208   

Interest and debt expense

     139         197         269         387   

Foreign currency transaction (gains) losses

     (7)         12         (43)         17   

 

 

Total Costs and Expenses

     10,446         10,897         21,310         22,715   

 

 

Income from continuing operations before income taxes

     3,696         3,945         7,483         8,210   

Provision for income taxes

     1,630         2,225         3,393         4,311   

 

 

Income From Continuing Operations

     2,066         1,720         4,090         3,899   

Income (loss) from discontinued operations*

     (3)         569         126         1,345   

 

 

Net income

     2,063         2,289         4,216         5,244   

Less: net income attributable to noncontrolling interests

     (13)         (22)         (27)         (40)   

 

 

Net Income Attributable to ConocoPhillips

   $ 2,050         2,267         4,189         5,204   

 

 

Amounts Attributable to ConocoPhillips Common Shareholders:

           

Income from continuing operations

   $ 2,053         1,698         4,063         3,861   

Income (loss) from discontinued operations

     (3)         569         126         1,343   

 

 

Net income

   $ 2,050         2,267         4,189         5,204   

 

 

Net Income Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)

           

Basic

           

Continuing operations

   $ 1.66         1.36         3.30         3.05   

Discontinued operations

            0.46         0.10         1.06   

 

 

Net Income Attributable to ConocoPhillips Per Share of Common Stock

   $ 1.66         1.82         3.40         4.11   

 

 

Diluted

           

Continuing operations

   $ 1.65         1.35         3.28         3.03   

Discontinued operations

            0.45         0.10         1.05   

 

 

Net Income Attributable to ConocoPhillips Per Share of Common Stock

   $ 1.65         1.80         3.38         4.08   

 

 

Dividends Paid Per Share of Common Stock (dollars)

   $ 0.66         0.66         1.32         1.32   

 

 

Average Common Shares Outstanding (in thousands)

           

Basic

     1,229,773         1,248,300         1,229,504         1,265,896   

Diluted

     1,237,157         1,258,189         1,237,432         1,275,667   

 

 
*Net of provision for income taxes on discontinued operations of:    $ 88         357         79         791   
See Notes to Consolidated Financial Statements.            

 

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Consolidated Statement of Comprehensive Income

   ConocoPhillips

 

                                                                                   
     Millions of Dollars  
  

 

 

 
    

Three Months Ended 

June 30

    

Six Months Ended 

June 30

 
  

 

 

    

 

 

 
     2013       2012       2013       2012   
  

 

 

    

 

 

 

Net Income

   $ 2,063         2,289         4,216         5,244   

Other comprehensive income (loss)

           

Defined benefit plans

           

Prior service cost arising during the period

                           

Reclassification adjustment for amortization of prior service credit included in net income

     (2)         (1)         (3)         (2)   

 

 

Net change

     (2)         (1)         (3)         (2)   

 

 

Net actuarial gain (loss) arising during the period

            (38)                (38)   

Reclassification adjustment for amortization of net actuarial losses included in net income

     57         60         114         138   

 

 

Net change

     58         22         115         100   

Nonsponsored plans*

                           

Income taxes on defined benefit plans

     (20)                (42)         (27)   

 

 

Defined benefit plans, net of tax

     36         25         71         76   

 

 

Unrealized holding gain on securities

                           

Income taxes on unrealized holding gain on securities

                           

 

 

Unrealized gain on securities, net of tax

                           

 

 

Foreign currency translation adjustments

     (1,684)         (513)         (2,328)         339   

Reclassification adjustment for gain (loss) included in net income

                   (4)          

Income taxes on foreign currency translation adjustments

     10         13         14         (6)   

 

 

Foreign currency translation adjustments, net of tax

     (1,674)         (500)         (2,318)         334   

 

 

Hedging activities

                           

Income taxes on hedging activities

                           

 

 

Hedging activities, net of tax

                           

 

 

Other Comprehensive Income (Loss), Net of Tax

     (1,638)         (469)         (2,247)         417   

 

 

Comprehensive Income

     425         1,820         1,969         5,661   

Less: comprehensive income attributable to noncontrolling interests

     (13)         (22)         (27)         (40)   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 412         1,798         1,942         5,621   

 

 

*Plans for which ConocoPhillips is not the primary obligor—primarily those administered by equity affiliates.

See Notes to Consolidated Financial Statements.

 

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Consolidated Balance Sheet

   ConocoPhillips

 

                                                 
     Millions of Dollars  
  

 

 

 
    

June 30 

2013 

    

December 31 

2012 

 
  

 

 

 

Assets

     

Cash and cash equivalents

   $ 3,909         3,618   

Short-term investments

     75          

Restricted cash

            748   

Accounts and notes receivable (net of allowance of $10 million in 2013 and $10 million in 2012)

     8,214         8,929   

Accounts and notes receivable—related parties

     206         253   

Inventories

     1,134         965   

Prepaid expenses and other current assets

     9,064         9,476   

 

 

Total Current Assets

     22,602         23,989   

Investments and long-term receivables

     22,576         23,489   

Loans and advances—related parties

     1,440         1,517   

Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $60,824 million in 2013 and $58,916 million in 2012)

     69,438         67,263   

Other assets

     891         886   

 

 

Total Assets

   $ 116,947         117,144   

 

 

Liabilities

     

Accounts payable

   $ 9,410         9,154   

Accounts payable—related parties

     1,027         859   

Short-term debt

     554         955   

Accrued income and other taxes

     2,813         3,366   

Employee benefit obligations

     536         742   

Other accruals

     2,375         2,367   

 

 

Total Current Liabilities

     16,715         17,443   

Long-term debt

     21,167         20,770   

Asset retirement obligations and accrued environmental costs

     8,761         8,947   

Joint venture acquisition obligation—related party

     2,408         2,810   

Deferred income taxes

     13,986         13,185   

Employee benefit obligations

     3,203         3,346   

Other liabilities and deferred credits

     1,775         2,216   

 

 

Total Liabilities

     68,015         68,717   

 

 

Equity

     

Common stock (2,500,000,000 shares authorized at $.01 par value)

     

Issued (2013—1,765,237,929 shares; 2012—1,762,247,949 shares)

     

Par value

     18         18   

Capital in excess of par

     45,531         45,324   

Treasury stock (at cost: 2013—542,230,673 shares; 2012—542,230,673 shares)

     (36,780)         (36,780)   

Accumulated other comprehensive income

     1,840         4,087   

Retained earnings

     37,899         35,338   

 

 

Total Common Stockholders’ Equity

     48,508         47,987   

Noncontrolling interests

     424         440   

 

 

Total Equity

     48,932         48,427   

 

 

Total Liabilities and Equity

   $ 116,947         117,144   

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

Consolidated Statement of Cash Flows

   ConocoPhillips

 

                                                 
     Millions of Dollars  
  

 

 

 
    

Six Months Ended

June 30

 
  

 

 

 
     2013       2012   
  

 

 

 

Cash Flows From Operating Activities

     

Net income

   $ 4,216         5,244   

Adjustments to reconcile net income to net cash provided by operating activities

     

Depreciation, depletion and amortization

     3,639         3,151   

Impairments

     30         296   

Dry hole costs and leasehold impairments

     212         634   

Accretion on discounted liabilities

     211         208   

Deferred taxes

     684         415   

Undistributed equity earnings

     (228)         (256)   

Gain on dispositions

     (153)         (1,523)   

Income from discontinued operations

     (126)         (1,345)   

Other

     (486)         (106)   

Working capital adjustments

     

Decrease (increase) in accounts and notes receivable

     659         (386)   

Decrease (increase) in inventories

     (179)         24   

Decrease (increase) in prepaid expenses and other current assets

     (236)         168   

Increase in accounts payable

     394         195   

Decrease in taxes and other accruals

     (340)         (571)   

 

 

Net cash provided by continuing operating activities

     8,297         6,148   

Net cash provided by discontinued operations

     174         384   

 

 

Net Cash Provided by Operating Activities

     8,471         6,532   

 

 

Cash Flows From Investing Activities

     

Capital expenditures and investments

     (7,096)         (7,441)   

Proceeds from asset dispositions

     1,676         1,566   

Net sales (purchases) of short-term investments

     (74)         597   

Collection of advances/loans—related parties

     71         48   

Other

     (46)         20   

 

 

Net cash used in continuing investing activities

     (5,469)         (5,210)   

Net cash used in discontinued operations

     (379)         (715)   

 

 

Net Cash Used in Investing Activities

     (5,848)         (5,925)   

 

 

Cash Flows From Financing Activities

     

Issuance of debt

            831   

Repayment of debt

     (898)         (47)   

Special cash distribution from Phillips 66

            7,818   

Change in restricted cash

     748         (5,000)   

Issuance of company common stock

     (5)         45   

Repurchase of company common stock

            (4,949)   

Dividends paid

     (1,629)         (1,661)   

Other

     (391)         (369)   

 

 

Net cash used in continuing financing activities

     (2,175)         (3,332)   

Net cash used in discontinued operations

            (2,019)   

 

 

Net Cash Used in Financing Activities

     (2,175)         (5,351)   

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     (157)          

 

 

Net Change in Cash and Cash Equivalents

     291         (4,736)   

Cash and cash equivalents at beginning of period

     3,618         5,780   

 

 

Cash and Cash Equivalents at End of Period

   $ 3,909         1,044   

 

 

See Notes to Consolidated Financial Statements.

 

 

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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 2012 Annual Report on Form 10-K.

As a result of our separation of Phillips 66 on April 30, 2012, the results of operations for our former refining, marketing and transportation businesses; most of our former Midstream segment; our former Chemicals segment; and our power generation and certain technology operations included in our former Emerging Businesses segment (collectively, our “Downstream business”), have been classified as discontinued operations for all periods presented. In addition, the results of operations for our interest in the North Caspian Sea Production Sharing Agreement (Kashagan) and our Algerian and Nigerian businesses have been classified as discontinued operations for all periods presented. See Note 3—Discontinued Operations, for additional information. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our continuing operations.

Note 2—Change in Accounting Principles

Effective January 1, 2013, we early adopted, on a prospective basis, Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment (CTA) upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU resolves the diversity in practice about whether FASB Accounting Standards Codification (ASC) Subtopic 810-10, “Consolidation—Overall,” or Subtopic 830-30, “Foreign Currency Matters—Translation of Financial Statements,” applies to the release of the CTA into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. This ASU clarifies that ASC Subtopic 830-30 applies to sales within a foreign entity and thus the CTA should not be released into net income unless those sales represent the complete or substantially complete liquidation of the reporting parent’s investment in the broader foreign entity. This ASU also requires the release of all the related CTA into net income upon gaining control in a step acquisition of an equity method investment that is considered to be a standalone foreign entity, and a pro rata release of the related CTA into net income upon a partial sale of an interest in an equity method investment that is considered to be a standalone foreign entity.

Note 3—Discontinued Operations

Separation of Downstream Business

On April 30, 2012, the separation of our Downstream business was completed, creating two independent energy companies: ConocoPhillips and Phillips 66. In connection with the separation, Phillips 66 distributed approximately $7.8 billion to us in a special cash distribution. The principal funds from the special cash distribution were designated solely to pay dividends, repurchase common stock, repay debt, or a combination of the foregoing, within twelve months following the distribution. The cash was included in the “Restricted cash” line on our consolidated balance sheet. No balance remained from the cash distribution as of June 30,

 

5


Table of Contents

2013. We also entered into several agreements with Phillips 66 in order to effect the separation and govern our relationship with Phillips 66.

Sales and other operating revenues and income from discontinued operations related to Phillips 66 for the three- and six-month periods ended June 30, 2012, were as follows:

 

                                         
    Millions of Dollars  
 

 

 

 
    2012  
 

 

 

 
   

Three Months Ended

June 30

   

Six Months Ended 

June 30 

 
 

 

 

 

Sales and other operating revenues from discontinued operations

  $ 16,609       62,107   

 

 

Income from discontinued operations before-tax

  $ 782       1,790   

Income tax expense

    248       542   

 

 

Income from discontinued operations

  $ 534       1,248   

 

 

Income from discontinued operations after-tax includes transaction, information systems and other costs incurred to effect the separation of $26 million and $70 million for the three- and six-month periods ended June 30, 2012, respectively. No separation costs were incurred during the first six months of 2013.

Prior to the separation, commodity sales to Phillips 66 were $919 million and $4,973 million for the three- and six-month periods ended June 30, 2012, respectively. Commodity purchases from Phillips 66 prior to the separation were $7 million and $166 million for the three- and six-month periods ended June 30, 2012, respectively. Prior to May 1, 2012, commodity sales and related costs were eliminated in consolidation between ConocoPhillips and Phillips 66. Beginning May 1, 2012, these revenues and costs represent third-party transactions with Phillips 66.

Other Discontinued Operations

As part of our ongoing asset disposition program, we agreed to sell our interest in Kashagan and our Algerian and Nigerian businesses (collectively, the “Disposition Group”). The Disposition Group was previously part of the Other International operating segment.

On November 26, 2012, we notified government authorities in Kazakhstan and co-venturers of our intent to sell the Company’s 8.4 percent interest in Kashagan to ONGC Videsh Limited (OVL). On July 2, 2013, we received notification from the government of Kazakhstan indicating it is exercising its right to pre-empt the proposed sale to OVL and designating KazMunayGas as the entity to acquire the interest. Expected proceeds are approximately $5.4 billion, including expected working capital and customary adjustments at closing. The transaction is expected to close in 2013. We recorded pre-tax impairments of $606 million and $43 million in the fourth quarter of 2012 and first quarter of 2013, respectively. At June 30, 2013, the carrying value of the net assets related to our interest in Kashagan was $5.2 billion, net of impairments.

On December 18, 2012, we entered into an agreement with Pertamina to sell our wholly owned subsidiary, ConocoPhillips Algeria Ltd., for a total of $1.75 billion plus customary adjustments. The transaction is anticipated to close in 2013. We received a deposit of $175 million in December 2012. The deposit is refundable in the event our co-venturer exercises its preemptive rights, which have been waived, or government approval is not received. At June 30, 2013, the net carrying value of our Algerian assets was $674 million.

On December 20, 2012, we entered into agreements with affiliates of Oando PLC to sell our Nigerian business unit for a total of $1.79 billion plus customary adjustments. The transaction is anticipated to close in 2013. We received a deposit of $435 million in December 2012. The deposit is only refundable in the event of default by us. At June 30, 2013, the net carrying value of our Nigerian assets was $378 million.

 

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At June 30, 2013, each component of the Disposition Group met the criteria to be classified as held for sale. Accordingly, we classified $16 million of loans and advances to related parties in the “Accounts and notes receivable—related parties” line and $7,254 million of noncurrent assets in the “Prepaid expenses and other current assets” line of our consolidated balance sheet. In addition, we classified $853 million of noncurrent liabilities in the “Accrued income and other taxes” line and $135 million of asset retirement obligations in the “Other accruals” line of our consolidated balance sheet. The carrying amounts of the major classes of assets and liabilities associated with the Disposition Group were as follows:

 

                                         
     Millions of Dollars  
  

 

 

 
     June 30
2013
    

December 31 

2012 

 
  

 

 

 

Assets

     

Accounts and notes receivable

   $ 247        268   

Accounts and notes receivable—related parties

     2         

Inventories

     51        44   

Prepaid expenses and other current assets

     127        220   

 

 

Total current assets of discontinued operations

     427        533   

Investments and long-term receivables

     293        272   

Loans and advances—related parties

     16        29   

Net properties, plants and equipment

     6,959        6,629   

Other assets

     2         

 

 

Total assets of discontinued operations

   $ 7,697        7,467   

 

 

Liabilities

     

Accounts payable

   $ 417        471   

Accrued income and other taxes

     37        125   

 

 

Total current liabilities of discontinued operations

     454        596   

Asset retirement obligations and accrued environmental costs

     135        131   

Deferred income taxes

     853        759   

 

 

Total liabilities of discontinued operations

   $ 1,442        1,486   

 

 

Sales and other operating revenues and income (loss) from discontinued operations related to the Disposition Group were as follows:

 

                                                                                   
    Millions of Dollars  
 

 

 

 
    Three Months Ended
June 30
    Six Months Ended
June 30
 
 

 

 

   

 

 

 
    2013     2012     2013     2012   
 

 

 

   

 

 

 

Sales and other operating revenues from discontinued operations

  $           210       324       539       715   

 

 

Income from discontinued operations before-tax

  $ 85       144       205       346   

Income tax expense

    88       109       79       249   

 

 

Income (loss) from discontinued operations

  $ (3     35       126       97   

 

 

 

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Note 4—Variable Interest Entities (VIEs)

We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on our significant VIEs follows:

Freeport LNG Development, L.P. (Freeport LNG)

We have an agreement with Freeport LNG to participate in a liquefied natural gas (LNG) receiving terminal in Quintana, Texas. We have no ownership in Freeport LNG; however, we own a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which serves as the general partner managing the venture. We entered into a credit agreement with Freeport LNG, whereby we agreed to provide loan financing for the construction of the terminal. We also entered into a long-term agreement with Freeport LNG to use 0.9 billion cubic feet per day of regasification capacity, which expires in 2033. The terminal became operational in June 2008, and we began making payments under the terminal use agreement. At June 30, 2013, the prepaid balance of the terminal use agreement was $256 million, which is primarily reflected in the “Other assets” line on our consolidated balance sheet. Freeport LNG began making loan repayments in September 2008, and the loan balance outstanding was $536 million at June 30, 2013, and $565 million at December 31, 2012.

In July 2013, we reached an agreement with Freeport LNG to terminate our long-term agreement at the Freeport LNG Terminal, subject to Freeport LNG obtaining regulatory approval and project financing for an LNG liquefaction and export facility in Texas, in which we are not a participant. Upon satisfaction of these conditions, currently expected to occur by the end of the first quarter of 2014, we will pay Freeport LNG a termination fee of approximately $600 million. Freeport LNG will repay the outstanding ConocoPhillips loan used by Freeport to partially fund the original construction of the terminal. When the agreement becomes effective, we expect to recognize an after-tax charge to earnings of approximately $540 million. Our terminal regasification capacity will be reduced from 0.9 billion cubic feet per day to 0.4 billion cubic feet per day, until July 1, 2016, at which time it will be reduced to zero.

Freeport LNG is a VIE because Freeport GP holds no equity in Freeport LNG, and the limited partners of Freeport LNG do not have any substantive decision making ability. Since we do not have the unilateral power to direct the key activities which most significantly impact its economic performance, we are not the primary beneficiary of Freeport LNG. These key activities primarily involve or relate to operating and maintaining the terminal. We also performed an analysis of the expected losses and determined we are not the primary beneficiary. This expected loss analysis took into account that the credit support arrangement requires Freeport LNG to maintain sufficient commercial insurance to mitigate any loan losses. The loan to Freeport LNG is accounted for as a financial asset, and our investment in Freeport GP is accounted for as an equity investment.

Australia Pacific LNG (APLNG)

APLNG is considered a VIE, as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. We are not the primary beneficiary of APLNG because we share with Origin Energy and China Petrochemical Corporation (Sinopec) the power to direct the key activities of APLNG that most significantly impact its economic performance, which involve activities related to the production and commercialization of coalbed methane, as well as LNG processing and export marketing. As a result, we do not consolidate APLNG, and it is accounted for as an equity method investment.

As of June 30, 2013, we have not provided, nor do we expect to provide in the future, any financial support to APLNG other than amounts previously contractually required. In addition, unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of APLNG. See Note 7—Investments, Loans and Long-Term Receivables, and Note 13—Guarantees, for additional information.

 

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Note 5—Inventories

Inventories consisted of the following:

 

                                         
     Millions of Dollars  
  

 

 

 
     June 30
2013
     December 31 
2012 
 
  

 

 

 

Crude oil and petroleum products

   $ 392        244   

Materials, supplies and other

     742        721   

 

 
   $         1,134        965   

 

 

Inventories valued on the last-in, first-out (LIFO) basis totaled $252 million and $147 million at June 30, 2013, and December 31, 2012, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was approximately $168 million at June 30, 2013, and $200 million at December 31, 2012.

Note 6—Assets Held for Sale or Sold

Our interest in Kashagan and the Algerian and Nigerian business units were considered held for sale at June 30, 2013. These assets are classified as discontinued operations. See Note 3—Discontinued Operations, for additional information.

In June 2013, we sold a portion of our working interests in the Browse and Canning basins for approximately $402 million. We received $369 million in the second quarter of 2013 and recorded a receivable of $33 million as of June 30, 2013. Because we retain a working interest in the unproved properties, proceeds were treated as a reduction of the carrying value of properties, plants and equipment (PP&E) with no gain or loss on disposition recognized. Prior to the partial disposition, the carrying value of the PP&E associated with our interests, included in our Asia Pacific and Middle East segment, was $486 million.

Note 7—Investments, Loans and Long-Term Receivables

APLNG

In the fourth quarter of 2012, APLNG satisfied all conditions precedent to drawdown from the $8.5 billion project finance facility. The facility consists of financing agreements executed by APLNG with the Export-Import Bank of the United States for approximately $2.9 billion, the Export-Import Bank of China for approximately $2.7 billion, and a syndicate of Australian and international commercial banks for approximately $2.9 billion. In connection with the execution of the project financing, we provided a completion guarantee for our pro-rata share of the project finance facility until the project achieves financial completion. See Note 13—Guarantees, for additional information.

APLNG is considered a VIE, as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. See Note 4—Variable Interest Entities (VIEs), for additional information.

At June 30, 2013, the book value of our equity method investment in APLNG was $9,700 million, which included $1,472 million of cumulative translation effects due to strengthening of the Australian dollar relative to the U.S. dollar over time, and 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

 

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made to certain affiliated and non-affiliated companies. Significant loans to affiliated companies at June 30, 2013, included the following:

 

   

$536 million in loan financing to Freeport LNG. See Note 4—Variable Interest Entities (VIEs), for additional information.

   

$1,050 million in project financing to Qatar Liquefied Gas Company Limited (3) (QG3).

The long-term portion of these loans is included in the “Loans and advances—related parties” line on our consolidated balance sheet, while the short-term portion is in “Accounts and notes receivable—related parties.”

Note 8—Suspended Wells

The capitalized cost of suspended wells at June 30, 2013, was $915 million, a decrease of $123 million from $1,038 million at year-end 2012. No suspended wells were charged to dry hole expense during the first six months of 2013 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2012.

Note 9—Impairments

During the three- and six-month periods of 2013 and 2012, we recognized before-tax impairment charges within the following segments:

 

                                                                                   
     Millions of Dollars  
  

 

 

 
     Three Months Ended
June 30
     Six Months Ended 
June 30
 
  

 

 

    

 

 

 
     2013      2012      2013      2012   
  

 

 

    

 

 

 

Canada

   $ -        -        -        213   

Europe

     28        78        28        79   

Asia Pacific and Middle East

     -        4        2         

 

 
   $           28        82        30        296   

 

 

In the second quarters of 2013 and 2012, we recorded impairments in our Europe segment of $28 million and $78 million, respectively, primarily due to increases in the asset retirement obligation for the Don Field in the United Kingdom, which has ceased production. Additionally, the six-month period of 2012 included a $213 million property impairment in our Canada segment for the carrying value of capitalized project development costs associated with our Mackenzie Gas Project. Advancement of the project was suspended indefinitely in the first quarter of 2012 due to a continued decline in market conditions and the lack of acceptable commercial terms. We also recorded a $481 million impairment for the undeveloped leasehold costs associated with the project, which was included in the “Exploration expenses” line on our consolidated income statement.

 

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Note 10—Debt

We have two commercial paper programs supported by our $7.5 billion revolving credit facility: the ConocoPhillips $6.35 billion program, primarily a funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $1.15 billion commercial paper program, which is used to fund commitments relating to QG3. Commercial paper maturities are generally limited to 90 days.

At June 30, 2013, and December 31, 2012, we had no direct outstanding borrowings or letters of credit issued under our revolving credit facilities. In addition, under the ConocoPhillips Qatar Funding Ltd. commercial paper program, there was $1,009 million of commercial paper outstanding at June 30, 2013, compared with $1,055 million at December 31, 2012. Since we had $1,009 million of commercial paper outstanding and had issued no letters of credit, we had access to $6.5 billion in borrowing capacity under our revolving credit facilities at June 30, 2013.

At June 30, 2013, we classified $915 million of short-term debt as long-term debt, based on our ability and intent to refinance the obligation on a long-term basis under our revolving credit facilities.

During the second quarter of 2013, a lease of a semi-submersible floating production system (FPS) commenced for the Gumusut development, located in Malaysia, in which we are a co-venturer. The FPS lease provides for an initial noncancelable term of 15 years, a subsequent 5-year cancelable term with no required lease payments, and an additional 5-year term with terms and conditions to be agreed at a later date. The lease has no ongoing purchase options or escalation clauses. Certain contingent rental payments may be incurred if actual commissioning costs exceed provisioned amounts. The lease does not impose any significant restrictions concerning dividends, debt or further leasing activities.

A capital lease asset and capital lease obligation were recognized for our proportionate interest in the FPS of $906 million, based on the present value of the future minimum lease payments using our pre-tax incremental borrowing rate of 3.58 percent for debt with similar terms. The capital lease asset will be depreciated over a period consistent with the estimated proved reserves of Gumusut using the unit-of-production method with the associated depreciation included in the “Depreciation, depletion and amortization” line on our consolidated income statement. Future minimum lease payments under the capital lease are $46 million for the remainder of 2013, $78 million per year for 2014 through 2017 and $814 million for all years thereafter.

In April 2013, we repaid the following debt instruments at maturity:

 

   

The $100 million 7.625% Debentures due 2013.

   

The $750 million 5.50% Notes due 2013.

Note 11—Joint Venture Acquisition Obligation

We are obligated to contribute $7.5 billion, plus interest, over a 10-year period that began in 2007, to FCCL Partnership. Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and will continue until the balance is paid. Of the principal obligation amount, approximately $793 million was short-term and was included in the “Accounts payable—related parties” line on our June 30, 2013 consolidated balance sheet. The principal portion of these payments, which totaled $381 million in the first six months of 2013, is included in the “Other” line in the financing activities section on our consolidated statement of cash flows. Interest accrues at a fixed annual rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest payment is reflected as a capital contribution and is included in the “Capital expenditures and investments” line on our consolidated statement of cash flows.

 

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Note 12—Noncontrolling Interests

Activity attributable to common stockholders’ equity and noncontrolling interests for the first six months of 2013 and 2012 was as follows:

 

     Millions of Dollars  
  

 

 

 
     2013      2012  
  

 

 

    

 

 

 
     Common 
Stockholders’ 
Equity 
    

Non- 

Controlling 
Interest 

     Total 
Equity 
     Common 
Stockholders’ 
Equity 
    

Non- 

Controlling 
Interest 

     Total 
Equity 
 
  

 

 

    

 

 

 

Balance at January 1

   $ 47,987         440         48,427         65,239         510         65,749   

Net income

     4,189         27         4,216         5,204         40         5,244   

Dividends

     (1,629)         -          (1,629)         (1,661)         -          (1,661)   

Repurchase of company common stock

     -          -          -          (4,949)         -          (4,949)   

Distributions to noncontrolling interests

     -          (43)         (43)         -          (47)         (47)   

Separation of Downstream business

     -          -          -          (18,641)         (31)         (18,672)   

Other changes, net*

     (2,039)         -          (2,039)         779         -          779   

 

 

Balance at June 30

   $ 48,508         424         48,932         45,971         472         46,443   

 

 

*Includes components of other comprehensive income, which are disclosed separately in our consolidated statement of comprehensive income.

Note 13—Guarantees

At June 30, 2013, 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 either because the guarantees were issued prior to December 31, 2002, or 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, 2013, we have outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing June 2013 exchange rates:

 

   

We have guaranteed APLNG’s performance with regard to a construction contract executed in connection with APLNG’s issuance of the Train 1 and Train 2 Notices to Proceed. We estimate the remaining term of this guarantee is four years. Our maximum potential amount of future payments related to this guarantee is approximately $200 million and would become payable if APLNG cancels the applicable construction contract and does not perform with respect to the amounts owed to the contractor.

 

   

We have issued a construction completion guarantee related to the third-party project financing secured by APLNG. Our maximum potential amount of future payments under the guarantee is estimated to be $3.2 billion, which could be payable if the full debt financing capacity is utilized and completion of the project is not achieved. Our guarantee of the project financing will be released upon meeting certain completion milestones, which we estimate would occur beginning in 2016. Our maximum exposure at June 30, 2013, is $2.1 billion based upon our pro-rata share of the facility used at that date. At June 30, 2013, the carrying value of this guarantee is approximately $114 million.

 

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In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to guarantee an existing obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of 3 to 18 years. Our maximum potential amount of future payments, or cost of volume delivery, under these guarantees is estimated to be $1.0 billion ($2.1 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 up to 32 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $190 million and would become payable if APLNG does not perform.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $280 million, which consist primarily of guarantees of the residual value of leased corporate aircraft, guarantees to fund the short-term cash liquidity deficit of two joint ventures, a guarantee for our portion of a joint venture’s debt obligations and a guarantee of minimum charter revenue for an LNG vessel. These guarantees have remaining terms of up to 11 years or the life of the venture and would become payable if, upon sale, certain asset values are lower than guaranteed amounts, business conditions decline at guaranteed entities, or as a result of non-performance of contractual terms by guaranteed parties.

Indemnifications

Over the years, we have entered into various lease agreements or agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. Agreements associated with these leases and sales include indemnifications for taxes, environmental liabilities, permits and licenses, employee claims, real estate indemnity against tenant defaults, and litigation. The terms of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, the term is generally indefinite and the maximum amount of future payments is generally unlimited. The carrying amount recorded for these indemnifications at June 30, 2013, was approximately $60 million. We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were approximately $50 million of environmental accruals for known contamination that are included in the “Asset retirement obligations and accrued environmental costs” line on our consolidated balance sheet. For additional information about environmental liabilities, see Note 14—Contingencies and Commitments.

In connection with the separation of the Downstream business, the Company entered into an Indemnification and Release Agreement with Phillips 66. This agreement provided for cross-indemnities between Phillips 66 and ConocoPhillips and established procedures for handling claims subject to indemnification and related matters. We evaluated the impact of the indemnifications given and the Phillips 66 indemnifications received as of the separation date and concluded those fair values were immaterial.

Note 14—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been made 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

 

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and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. 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. Environmental Protection Agency (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 state 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 state agencies 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 and time limits.

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except in respect of sites 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. At June 30, 2013, our balance sheet included a total environmental accrual of $359 million, compared with $364 million at December 31, 2012. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

 

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Legal Proceedings

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, are required.

Other Contingencies

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized. In addition, at June 30, 2013, we had performance obligations secured by letters of credit of $786 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, we announced we had been unable to reach agreement with respect to our migration to an 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, we filed a request for international arbitration on November 2, 2007, with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). An arbitration hearing was held before an ICSID tribunal during the summer of 2010, and we anticipate an interim decision on key legal and factual issues in 2013.

In 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated arbitration before ICSID against The Republic of Ecuador, as a result of the newly enacted Windfall Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite a restraining order issued by the ICSID tribunal, Ecuador confiscated the crude oil production of Burlington and its co-venturer and sold the seized crude oil. In 2009, Ecuador took over operations in Blocks 7 and 21, fully expropriating our assets. In June 2010, the ICSID tribunal concluded it has jurisdiction to hear the expropriation claim. On April 24, 2012, Ecuador filed a supplemental counterclaim asserting environmental damages, which we believe are not material. The ICSID tribunal issued a decision on liability on December 14, 2012, in favor of Burlington, finding that Ecuador's seizure of Blocks 7 and 21 was an unlawful expropriation in violation of the Ecuador-U.S. Bilateral Investment Treaty. An additional arbitration phase is now proceeding to determine the damages owed to ConocoPhillips for Ecuador’s actions.

ConocoPhillips served a Notice of Arbitration on the Timor-Leste Minister of Finance in October 2012 for outstanding disputes related to a series of tax assessments. Between December 2010 and June 2013, ConocoPhillips paid, under protest, tax assessments totaling approximately $231 million, which are primarily recorded in the “Investments and long-term receivables” line on our consolidated balance sheet. The arbitration will be conducted in Singapore under the United Nations Commission on International Trade Laws (UNCITRAL) arbitration rules, pursuant to the terms of the Tax Stability Agreement with the Timor-Leste government. The arbitration process is currently underway. Future impacts on our business are not known at this time.

Note 15—Derivative and Financial Instruments

Derivative Instruments

We use futures, forwards, swaps and options in various markets to meet our customer needs and capture market opportunities. Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and

 

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natural gas liquids. Under our current business model, we are not required to register as a Swap Dealer or Major Swap Participant.

Our derivative instruments are held at fair value on our consolidated balance sheet. Where these balances have the right of setoff, they are presented net. Related cash flows are recorded as operating activities on the consolidated statement of cash flows. On our consolidated income statement, realized and unrealized gains and losses are recognized either on a gross basis if directly related to our physical business or a net basis if held for trading. Gains and losses related to contracts that meet and are designated with the normal purchase normal sale exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use hedge accounting for our commodity derivatives.

The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:

 

                                         
    Millions of Dollars   
 

 

 

 
    June 30
2013
   

December 31 

2012 

 
 

 

 

 

Assets

   

Prepaid expenses and other current assets

  $           1,130       1,538   

Other assets

    106       105   

Liabilities

   

Other accruals

    1,166       1,509   

Other liabilities and deferred credits

    100       99   

 

 

 

The gains (losses) from commodity derivatives incurred, and the line items where they appear on our consolidated income statement were:

 

                                                                   
    Millions of Dollars  
 

 

 

 
   
 
Three Months Ended 
June 30 
  
  
   
 
Six Months Ended 
June 30 
  
  
    2013      2012      2013      2012   
 

 

 

   

 

 

 

Sales and other operating revenues*

  $           25        263        (183)        (140)   

Other income

                      (5)   

Purchased commodities*

    (14)        (294)        171        104   

 

 

*2012 has been restated to eliminate certain non-derivative transactions and realign certain derivative transactions between sales and purchases.

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

 

   

Open Position

Long/(Short)

 
 

 

 

 
            June 30 
2013 
    December 31 
2012 
 
 

 

 

 

Natural gas and power (billions of cubic feet equivalent)

   

Fixed price

    (31)         (48)   

Basis

    (29)         125   

 

 

 

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Foreign Currency Exchange Derivatives

We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily consists of transactions designed to mitigate our cash-related and foreign currency exchange rate exposures, such as firm commitments for capital projects or local currency tax payments, dividends, and cash returns from net investments in foreign affiliates. We do not elect hedge accounting on our foreign currency exchange derivatives.

The following table presents the gross fair values of our foreign currency exchange derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:

 

                                         
    Millions of Dollars  
 

 

 

 
    June 30
2013
    December 31 
2012 
 
 

 

 

 

Assets

   

Prepaid expenses and other current assets

  $                   5       32   

Liabilities

   

Other accruals

    22        

Other liabilities and deferred credits

    -        

 

 

The (gains) losses from foreign currency exchange derivatives incurred, and the line item where they appear on our consolidated income statement were:

 

                                                                   
    Millions of Dollars  
 

 

 

 
    Three Months Ended 
June 30 
    Six Months Ended 
June 30 
 
 

 

 

   

 

 

 
    2013     2012      2013     2012   
 

 

 

   

 

 

 

Foreign currency transaction (gains) losses

  $               35        (75)        57        (90)   

 

 

We had the following net notional position of outstanding foreign currency exchange derivatives:

 

    

In Millions

Notional Currency

 
  

 

 

 
            June 30
2013
     December 31 
2012 
 
  

 

 

 

Sell U.S. dollar, buy other currencies*

     USD             1,833        2,573   

Buy U.S. dollar, sell other currencies**

     USD             25        140   

Buy British pound, sell euro

     GBP             47         

Buy euro, sell British pound

     EUR             -        96   

 

 

*Primarily Norwegian krone and British pound.

**Primarily euro, Canadian dollar and Norwegian krone.

Financial Instruments

We have certain financial instruments on our consolidated balance sheet related to interest bearing time deposits and commercial paper. These held-to-maturity financial instruments are included in “Cash and cash equivalents” on our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less; otherwise, these investments are included in “Short-term investments” on our consolidated balance sheet.

 

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These balances consisted of the following:

 

                                                                           
     Millions of Dollars  
  

 

 

 
     Carrying Amount  
  

 

 

 
     Cash and Cash Equivalents      Short-Term Investments  
  

 

 

    

 

 

 
               June 30
2013
     December 31
2012
               June 30
2013
     December 31 
2012 
 
  

 

 

    

 

 

 

Cash

   $ 757        829        -         

Time Deposits

     3,152        2,789        75         

 

 
   $ 3,909        3,618        75         

 

 

In conjunction with the separation of our Downstream business, we received a special cash distribution from Phillips 66. See Note 3—Discontinued Operations, for additional information. The balance of the special cash distribution was zero at June 30, 2013, and $748 million at December 31, 2012, and was included in “Restricted cash” on our consolidated balance sheet. At December 31, 2012, the funds in the restricted cash account were invested in money market funds with maturities within 90 days from December 31, 2012.

Credit Risk

Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, over-the-counter (OTC) derivative contracts and trade receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper, money market funds, government debt securities and time deposits with major international banks and financial institutions.

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

Our trade receivables result primarily from our petroleum operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less, and we continually monitor this exposure and the creditworthiness of the counterparties. We do not generally require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments and master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due 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 certain transactions administered through the New York Mercantile Exchange or the IntercontinentalExchange.

The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position on June 30, 2013, and December 31, 2012, was $122 million and $130 million, respectively. For these instruments, no collateral was posted as of June 30, 2013 or December 31, 2012. If our credit rating had been lowered one level from its “A” rating (per Standard and Poor’s) on June 30, 2013, we would be required to post no additional collateral to our counterparties. If we had been downgraded below

 

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investment grade, we would be required to post $122 million of additional collateral, either with cash or letters of credit.

Note 16—Fair Value Measurement

We carry a portion of our assets and liabilities at fair value that are measured at a 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 which are directly or indirectly observable.

   

Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include commodity derivatives and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. 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 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 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts that are long term in nature and 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.

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, 2013      December 31, 2012  
  

 

 

    

 

 

 
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total   
  

 

 

    

 

 

 

Assets

                       

Deferred compensation investments

   $ 299        -        -        299        305        -        -        305   

Commodity derivatives

     903        316        15        1,234        1,052        567        18        1,637   

 

 

Total assets

   $ 1,202        316        15        1,533        1,357        567        18        1,942   

 

 

Liabilities

                       

Commodity derivatives

   $ 928        334        2        1,264        1,031        567        4        1,602   

 

 

Total liabilities

   $ 928        334        2        1,264        1,031        567        4        1,602   

 

 

 

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The following table summarizes those commodity derivative balances subject to the right of setoff as presented on our consolidated balance sheet:

 

                                                                                                        
     Millions of Dollars  
  

 

 

 
    

Gross

Amounts

          Recognized

     Gross
Amounts
Offset
     Net Amounts
Excluding
Collateral
     Cash
Collateral
    

Net Amounts 
Subject 

to Setoff 

 
  

 

 

 

June 30, 2013

              

Assets

   $ 1,200        1,064        136        20        116   

Liabilities

     1,241        1,064        177        48        129   

 

 

December 31, 2012

              

Assets

   $ 1,621        1,403        218        29        189   

Liabilities

     1,588        1,403        185        16        169   

 

 

At June 30, 2013, and December 31, 2012, 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, restricted cash and short-term investments: The carrying amount reported on the balance sheet approximates 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.

   

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 7—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. The valuation technique and methods used to estimate the fair value of the current portion of the joint venture acquisition obligation is consistent with the methodology below.

   

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.

   

Joint venture acquisition obligation—related party: Fair value is estimated based on the net present value of the future cash flows as a Level 2 fair value. At June 30, 2013, and December 31, 2012, effective yield rates were 0.81 percent and 0.7 percent, respectively, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 11—Joint Venture Acquisition Obligation, for additional information.

 

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Table of Contents

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
2013
     December 31
2012
             June 30
2013
     December 31 
2012 
 
  

 

 

    

 

 

 

Financial assets

           

Deferred compensation investments

   $ 299        305        299        305   

Commodity derivatives

     159        221        159        221   

Total loans and advances—related parties

     1,613        1,697         1,760         1,916   

Financial liabilities

           

Total debt, excluding capital leases

     20,799        21,709        23,778        26,349   

Total joint venture acquisition obligation

     3,201        3,582        3,501        3,968   

Commodity derivatives

     161        199        161        199   

 

 

Note 17—Accumulated Other Comprehensive Income

Accumulated other comprehensive income in the equity section of our consolidated balance sheet included:

 

                                      
    Millions of Dollars  
 

 

 

 
    Defined
          Benefit Plans
    Foreign
Currency
Translation
    Accumulated 
Other 
Comprehensive 
Income (Loss) 
 
 

 

 

 

December 31, 2012

  $ (1,425)        5,512        4,087   

Other comprehensive income (loss)

    71        (2,318)        (2,247)   

 

 

June 30, 2013

  $ (1,354)        3,194        1,840   

 

 

The following table summarizes reclassifications out of accumulated other comprehensive income during the three- and six-month periods ended June 30, 2013:

 

    Millions of Dollars  
 

 

 

 
    2013  
 

 

 

 
    Three Months Ended
June 30
    Six Months Ended 
June 30 
 
 

 

 

 

Defined Benefit Plans

  $  36       71   

 

 

Above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $20 million and $42 million for the three- and six-month periods ended June 30, 2013, respectively. See Note 19—Employee Benefit Plans, for additional information.

There were no items within accumulated other comprehensive income related to noncontrolling interests.

 

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Note 18—Cash Flow Information

 

                                         
     Millions of Dollars  
  

 

 

 
     Six Months Ended 
June 30 
 
  

 

 

 
     2013        2012   
  

 

 

 

Cash Payments

     

Interest

   $ 259         383   

Income taxes

     2,861         4,445   

 

 

Net Sales (Purchases) of Short-Term Investments

     

Short-term investments purchased

   $ (97)         (497)   

Short-term investments sold

     23         1,094   

 

 
   $ (74)         597   

 

 

During the second quarter of 2013, we incurred a capital lease obligation, a non-cash financing activity, for $906 million. For more information about this capital lease obligation, see Note 10—Debt.

Note 19—Employee Benefit Plans

Pension and Postretirement Plans

 

    Millions of Dollars  
 

 

 

 
    Pension Benefits      Other Benefits  
 

 

 

   

 

 

 
    2013      2012      2013     2012  
 

 

 

   

 

 

   

 

 

   

 

 

 
            U.S.                Int’l.                U.S.                 Int’l.       
 

 

 

   

 

 

   

 

 

   

 

 

     

Components of Net Periodic Benefit Cost

           

Three Months Ended June 30

           

Service cost

  $ 34        25        42        22               

Interest cost

    36        36        48        38               

Expected return on plan assets

    (46)        (39)        (56)        (40)               

Amortization of prior service cost (credit)

          (2)              (2)        (1)        (1)   

Recognized net actuarial loss

    38        18        45        15               

 

 

Net periodic benefit cost

  $ 63        38        81        33               

 

 

Six Months Ended June 30

           

Service cost

  $ 69        51        100        50               

Interest cost

    72        73        111        81        12        18   

Expected return on plan assets

    (93)        (80)        (130)        (83)               

Amortization of prior service cost (credit)

          (4)              (4)        (2)        (2)   

Recognized net actuarial (gain) loss

    75        37        104        33              (1)   

 

 

Net periodic benefit cost

  $ 126        77        189        77        14        19   

 

 

In connection with the separation of the Downstream business on April 30, 2012, ConocoPhillips entered into an Employee Matters Agreement with Phillips 66 which provides that employees of Phillips 66 will no longer participate in benefit plans sponsored or maintained by ConocoPhillips upon separation. As such, changes in net periodic benefit cost included in the table above primarily relate to the employees of Phillips 66 no longer participating in the ConocoPhillips benefit plans for the three- and six-month periods ended June 30, 2013.

 

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Table of Contents

During the first six months of 2013, we contributed $132 million to our domestic benefit plans and $96 million to our international benefit plans.

Note 20—Related Party Transactions

We consider our equity method investments to be related parties. Significant transactions with related parties were:

 

                                                                                   
     Millions of Dollars  
  

 

 

 
     Three Months Ended
June 30
     Six Months Ended
June 30
 
  

 

 

    

 

 

 
     2013        2012        2013        2012  
  

 

 

    

 

 

 

Operating revenues and other income

   $ 31        11        39        34  

Purchases*

     49        93        90        136  

Operating expenses and selling, general and administrative expenses

     43        41        89        81  

Net interest expense**

     7        10        16        21  

 

 

    *2012 has been restated to eliminate certain non-related party transactions.

**We paid interest to, or received interest from, various affiliates, including FCCL Partnership. See Note 7—Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.

Note 21—Segment Disclosures and Related Information

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and natural gas liquids on a worldwide basis. We manage our operations through six operating segments, which are defined by geographic region: Alaska, Lower 48 and Latin America, Canada, Europe, Asia Pacific and Middle East, and Other International.

On April 30, 2012, our Downstream business was separated into a stand-alone, publicly traded corporation, Phillips 66. In 2012, we also agreed to sell our Nigerian and Algerian businesses and our interest in Kashagan. As such, results for these operations have been reported as discontinued operations in all periods presented. Commodity sales to Phillips 66, which were previously eliminated in consolidation prior to the separation, are now reported as third-party sales. For additional information, see Note 3—Discontinued Operations.

Corporate and Other represents costs not directly associated with an operating segment, such as most interest expense, corporate overhead, costs associated with the separation and certain technology activities, net of licensing revenues. Corporate assets include all cash and cash equivalents, short-term investments and restricted cash.

We evaluate performance and allocate resources based on net income attributable to ConocoPhillips. Intersegment sales are at prices that approximate market.

 

23


Table of Contents

Analysis of Results by Operating Segment

 

     Millions of Dollars  
  

 

 

 
     Three Months Ended
June 30
     Six Months Ended 
June 30 
 
  

 

 

    

 

 

 
     2013       2012       2013       2012  
  

 

 

    

 

 

 

Sales and Other Operating Revenues

           

Alaska

   $ 2,169          2,393          4,273          5,130    

 

 

Lower 48 and Latin America

     4,901          4,172          9,723          9,303    

Intersegment eliminations

     (26)         (41)         (55)         (156)   

 

 

Lower 48 and Latin America

     4,875          4,131          9,668          9,147    

 

 

Canada

     1,405          1,074          2,660          2,292    

Intersegment eliminations

     (155)         (77)         (313)         (213)   

 

 

Canada

     1,250          997          2,347          2,079    

 

 

Europe

     2,408          3,926          5,861          7,528    

Intersegment eliminations

                             (72)   

 

 

Europe

     2,408          3,926          5,861          7,456    

 

 

Asia Pacific and Middle East

     2,086          1,634          4,304          3,530    

Other International

     457          573          940          883    

Corporate and Other

     105          10          123          32    

 

 

Consolidated sales and other operating revenues

   $ 13,350          13,664          27,516          28,257    

 

 

Net Income Attributable to ConocoPhillips

           

Alaska

   $ 682         551         1,225         1,171   

Lower 48 and Latin America

     247         119         380         374   

Canada

            (94)         138         (643)   

Europe

     261         669         692         1,058   

Asia Pacific and Middle East

     1,017         772         1,935         2,510   

Other International

     14         (57)         28         (36)   

Corporate and Other

     (173)         (262)         (335)         (573)   

Discontinued operations

     (3)         569         126         1,343   

 

 

Consolidated net income attributable to ConocoPhillips

   $ 2,050         2,267         4,189         5,204   

 

 

 

                                         
     Millions of Dollars  
  

 

 

 
     June 30
2013
     December 31 
2012 
 
  

 

 

 

Total Assets

     

Alaska

   $ 11,380        10,950   

Lower 48 and Latin America

     29,012        28,895   

Canada

     21,938        22,308   

Europe

     14,966        15,562   

Asia Pacific and Middle East

     23,997        23,721   

Other International

     1,720        1,418   

Corporate and Other

     6,237        6,823   

Discontinued operations

     7,697        7,467   

 

 

Consolidated total assets

   $ 116,947        117,144   

 

 

 

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Table of Contents

Note 22—Income Taxes

Our effective tax rates from continuing operations for the second quarter and first six months of 2013 were 44 percent and 45 percent, respectively, compared with 56 percent and 53 percent for the same two periods of 2012. The lower rates were due primarily to a smaller proportion of income in higher tax jurisdictions in 2013. Additionally, the tax rate for the first six months of 2013 reflected a favorable tax resolution associated with the sale of certain western Canada properties, which occurred in a prior year.

During the first six months of 2013, unrecognized tax benefits decreased $255 million to $617 million at June 30, 2013, mainly due to the favorable tax resolution noted above. Included in this balance is $387 million which, if recognized, would impact our effective tax rate.

For both the second quarter and the first six months of 2013, the effective tax rate in excess of the domestic federal statutory rate of 35 percent was primarily due to foreign taxes.

 

25


Table of Contents

Supplementary Information—Condensed Consolidating Financial Information

We have various cross guarantees among ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I and ConocoPhillips Canada Funding Company II are indirect, 100 percent owned subsidiaries of ConocoPhillips Company. ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to their publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:

 

   

ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).

   

All other nonguarantor subsidiaries of ConocoPhillips.

   

The consolidating adjustments necessary to present ConocoPhillips’ results on a consolidated basis.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.

 

26


Table of Contents
     Millions of Dollars  
 

 

 

 
    Three Months Ended June 30, 2013  
 

 

 

 
Income Statement   ConocoPhillips    

ConocoPhillips

Company

   

ConocoPhillips

Australia Funding
Company

   

ConocoPhillips

Canada Funding

Company I

   

ConocoPhillips

Canada Funding

Company II

   

All Other

Subsidiaries

   

Consolidating

Adjustments

   

Total

Consolidated

 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues and Other Income

               

Sales and other operating revenues

  $       4,621        -                   8,729              13,350   

Equity in earnings of affiliates

    2,449        2,811        -                   558        (5,324)        494   

Gain on dispositions

                -                   92              95   

Other income

          163        -                   40              203   

Intercompany revenues

    21        30        2       22              1,741        (1,825)         

 

 

Total Revenues and Other Income

    2,470        7,628        2       22              11,160        (7,149)        14,142   

 

 

Costs and Expenses

               

Purchased commodities

          3,978        -                   2,758        (1,215)        5,521   

Production and operating expenses

          377        -                   1,313        (18)        1,672   

Selling, general and administrative expenses

          128        -                   64        (1)        193   

Exploration expenses

          191        -                   130              321   

Depreciation, depletion and amortization

          221        -                   1,611              1,832   

Impairments

                -                   28              28   

Taxes other than income taxes

          48        -                   594              642   

Accretion on discounted liabilities

          14        -                   91              105   

Interest and debt expense

    605        77        2       20              18        (591)        139   

Foreign currency transaction (gains) losses

    24              -       (48)        (16)        32              (7)   

 

 

Total Costs and Expenses

    631        5,035        2       (28)        (8)        6,639        (1,825)        10,446   

 

 

Income from continuing operations before income taxes

    1,839        2,593        -       50        17        4,521        (5,324)        3,696   

Provision for income taxes

    (214)        144        -                   1,697              1,630   

 

 

Income From Continuing Operations

    2,053        2,449        -       47        17        2,824        (5,324)        2,066   

Income (loss) from discontinued operations

    (3)        (3)        -                   (3)              (3)   

 

 

Net income

    2,050        2,446        -       47        17        2,821        (5,318)        2,063   

Less: net income attributable to noncontrolling interests

                -                   (13)              (13)   

 

 

Net Income Attributable to ConocoPhillips

  $ 2,050        2,446        -       47        17        2,808        (5,318)        2,050   

 

 

Comprehensive Income Attributable to ConocoPhillips

  $ 412        808        -                   1,142        (1,955)        412   

 

 
Income Statement   Three Months Ended June 30, 2012  
 

 

 

 

Revenues and Other Income

               

Sales and other operating revenues

  $       4,278        -                   9,386              13,664   

Equity in earnings of affiliates

    2,068        2,431        -                   571        (4,541)        529   

Gain on dispositions

                -                   583              583   

Other income

          24        -                   42              66   

Intercompany revenues

    18        245        12       23              1,616        (1,923)         

 

 

Total Revenues and Other Income

    2,086        6,978        12       23              12,198        (6,464)        14,842   

 

 

Costs and Expenses

               

Purchased commodities

          3,767        -                   3,251        (1,297)        5,721   

Production and operating expenses

          337        -                   1,469        (4)        1,802   

Selling, general and administrative expenses

          167        -                   66        (1)        235   

Exploration expenses

          96        -                   169              265   

Depreciation, depletion and amortization

          204        -                   1,376              1,580   

Impairments

                -                   82              82   

Taxes other than income taxes

          68        -                   832              900   

Accretion on discounted liabilities

          13        -                   90              103   

Interest and debt expense

    586        90        11       20              103        (621)        197   

Foreign currency transaction (gains) losses

    (2)        54        -       (23)        (15)        (2)              12   

 

 

Total Costs and Expenses

    587        4,796        11       (3)        (7)        7,436        (1,923)        10,897   

 

 

Income from continuing operations before income taxes

    1,499        2,182        1       26        16        4,762        (4,541)        3,945   

Provision for income taxes

    (199)        114        1                   2,308              2,225   

 

 

Income From Continuing Operations

    1,698        2,068        -       26        15        2,454        (4,541)        1,720   

Income from discontinued operations

    569        569        -                   315        (884)        569   

 

 

Net income

    2,267        2,637        -       26        15        2,769        (5,425)        2,289   

Less: net income attributable to noncontrolling interests

                -                   (22)              (22)   

 

 

Net Income Attributable to ConocoPhillips

  $ 2,267        2,637        -       26        15        2,747        (5,425)        2,267   

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

  $ 1,798        2,159        -       (2)              1,738        (3,899)        1,798   

 

 

 

27


Table of Contents
    Millions of Dollars  
 

 

 

 
    Six Months Ended June 30, 2013  
 

 

 

 
Income Statement   ConocoPhillips    

ConocoPhillips

Company

   

ConocoPhillips

Australia Funding

Company

   

ConocoPhillips

Canada Funding

Company I

   

ConocoPhillips

Canada Funding

Company II

   

All Other

Subsidiaries

   

Consolidating

Adjustments

   

Total

Consolidated

 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues and Other Income

               

Sales and other operating revenues

  $       9,085       -                   18,431              27,516   

Equity in earnings of affiliates

    4,840        5,685       -                   963        (10,632)        856   

Gain on dispositions

          1       -                   152              153   

Other income

          208       -                   59              268   

Intercompany revenues

    41        81       13       44        17        3,394        (3,590)         

 

 

Total Revenues and Other Income

    4,882        15,060       13       44        17        22,999        (14,222)        28,793   

 

 

Costs and Expenses

               

Purchased commodities

          7,907       -                   5,822        (2,374)        11,355   

Production and operating expenses

          687       -                   2,692        (20)        3,359   

Selling, general and administrative expenses

          250       -                   120        (18)        358   

Exploration expenses

          334       -                   264              598   

Depreciation, depletion and amortization

          429       -                   3,210              3,639   

Impairments

          -       -                   30              30   

Taxes other than income taxes

          125       -                   1,409              1,534   

Accretion on discounted liabilities

          28       -                   183              211   

Interest and debt expense

    1,191        160       12       39        16        29        (1,178)        269   

Foreign currency transaction (gains) losses

    41        9       -       (70)        (30)                    (43)   

 

 

Total Costs and Expenses

    1,238        9,929       12       (31)        (14)        13,766        (3,590)        21,310   

 

 

Income from continuing operations before income taxes

    3,644        5,131       1       75        31        9,233        (10,632)        7,483   

Provision for income taxes

    (419)        291       -                   3,518              3,393   

 

 

Income From Continuing Operations

    4,063        4,840       1       73        30        5,715        (10,632)        4,090   

Income from discontinued operations

    126        126       -                   126        (252)        126   

 

 

Net income

    4,189        4,966       1       73        30        5,841        (10,884)        4,216   

Less: net income attributable to noncontrolling interests

          -       -                   (27)              (27)   

 

 

Net Income Attributable to ConocoPhillips

  $ 4,189        4,966       1       73        30        5,814        (10,884)        4,189   

 

 

Comprehensive Income Attributable to ConocoPhillips

  $ 1,942        2,719       1                   3,534        (6,256)        1,942   

 

 
Income Statement   Six Months Ended June 30, 2012  
 

 

 

 

Revenues and Other Income

               

Sales and other operating revenues

  $       8,570       -                   19,687              28,257   

Equity in earnings of affiliates

    4,582        5,132       -                   1,033        (9,728)        1,019   

Gain on dispositions

          -       -                   1,523              1,523   

Other income

          55       -                   70              126   

Intercompany revenues

    19        685       23       45        17        2,441        (3,230)         

 

 

Total Revenues and Other Income

    4,602        14,442       23       45        17        24,754        (12,958)        30,925   

 

 

Costs and Expenses

               

Purchased commodities

          7,574       -                   6,226        (2,001)        11,799   

Production and operating expenses

          604       -                   2,776        (19)        3,361   

Selling, general and administrative expenses

          430       -                   132        (9)        561   

Exploration expenses

          186       -                   754              940   

Depreciation, depletion and amortization

          408       -                   2,743              3,151   

Impairments

          -       -                   296              296   

Taxes other than income taxes

          150       -                   1,845              1,995   

Accretion on discounted liabilities

          26       -                   182              208   

Interest and debt expense

    1,126        171       21       39        16        215        (1,201)        387   

Foreign currency transaction (gains) losses

    (2)        26       -       (12)                          17   

 

 

Total Costs and Expenses

    1,132        9,575       21       27        17        15,173        (3,230)        22,715   

 

 

Income from continuing operations before income taxes

    3,470        4,867       2       18          -        9,581        (9,728)        8,210   

Provision for income taxes

    (389)        285       1                   4,408              4,311   

 

 

Income From Continuing Operations

    3,859        4,582       1       12              5,173        (9,728)        3,899   

Income from discontinued operations

    1,345        1,345       -                   1,092        (2,437)        1,345   

 

 

Net income

    5,204        5,927       1       12              6,265        (12,165)        5,244   

Less: net income attributable to noncontrolling interests

          -       -                   (40)              (40)   

 

 

Net Income Attributable to ConocoPhillips

  $ 5,204        5,927       1       12              6,225        (12,165)        5,204   

 

 

Comprehensive Income Attributable to ConocoPhillips

  $ 5,621        6,335       1       17              6,021        (12,376)        5,621   

 

 

 

28


Table of Contents
    Millions of Dollars  
 

 

 

 
    June 30, 2013  
 

 

 

 
Balance Sheet   ConocoPhillips    

ConocoPhillips

Company

   

ConocoPhillips

Australia Funding
Company

   

ConocoPhillips

Canada Funding

Company I

   

ConocoPhillips

Canada Funding

Company II

   

All Other

Subsidiaries

   

Consolidating

Adjustments

   

Total

Consolidated

 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Assets

               

Cash and cash equivalents

  $       192       2       54              3,659             3,909   

Short-term investments

          -       -                   75             75   

Accounts and notes receivable

    75        2,385       1                   10,034       (4,075)        8,420   

Inventories

          112       -                   1,022             1,134   

Prepaid expenses and other current assets

    18        567       -                   8,478             9,064   

 

 

Total Current Assets

    93        3,256       3       55              23,268       (4,075)        22,602   

Investments, loans and long-term receivables*

    83,568        118,899       -       1,379        547        43,994       (224,371)        24,016   

Net properties, plants and equipment

          9,086       -                   60,352             69,438   

Other assets

    47        240       -                   600             891   

 

 

Total Assets

  $ 83,708        131,481       3       1,435        552        128,214       (228,446)        116,947   

 

 

Liabilities and Stockholders’ Equity

               

Accounts payable

  $       4,780       -                   9,730       (4,075)        10,437   

Short-term debt

    395        4       -                   155             554   

Accrued income and other taxes

          117       -                   2,691             2,813   

Employee benefit obligations

          363       -                   173             536   

Other accruals

    211        654       -       15              1,489             2,375   

 

 

Total Current Liabilities

    606        5,918       -       21              14,238       (4,075)        16,715   

Long-term debt

    9,051        5,211       -       1,250        499        5,156             21,167   

Asset retirement obligations and accrued environmental costs

          1,273       -                   7,488             8,761   

Joint venture acquisition obligation

          -       -                   2,408             2,408   

Deferred income taxes

    54        282       -       15              13,628             13,986   

Employee benefit obligations

          2,397       -                   806             3,203   

Other liabilities and deferred credits*

    32,327        22,898       -       47        18        17,278       (70,793)        1,775   

 

 

Total Liabilities

    42,038        37,979       -       1,333        531        61,002       (74,868)        68,015   

Retained earnings

    31,336        29,064       1       (7)        (45)        35,630       (58,080)        37,899   

Other common stockholders’ equity

    10,334        64,438       2       109        66        31,158       (95,498)        10,609   

Noncontrolling interests

          -