10-Q 1 d630380d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2018

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  ☒    No  ☐

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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐      Smaller reporting company  
Emerging growth company       

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

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

The registrant had 1,151,241,888 shares of common stock, $.01 par value, outstanding at September 30, 2018.

 

 

 


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

     35  

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

     40  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     65  

Item 4. Controls and Procedures

     65  

Part II—Other Information

  

Item 1. Legal Proceedings

     66  

Item 1A. Risk Factors

     67  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     67  

Item 6. Exhibits

     68  

Signature

     69  


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1.

FINANCIAL STATEMENTS

 

Consolidated Income Statement      ConocoPhillips  

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2018     2017*     2018     2017*  
  

 

 

   

 

 

 

Revenues and Other Income

        

Sales and other operating revenues

   $ 9,449       6,688       26,751       20,987  

Equity in earnings of affiliates

     294       196       767       574  

Gain on dispositions

     113       246       175       2,144  

Other income

     309       65       673       143  

 

 

Total Revenues and Other Income

     10,165       7,195       28,366       23,848  

 

 

Costs and Expenses

        

Purchased commodities

     3,530       2,926       10,308       9,040  

Production and operating expenses

     1,367       1,222       3,851       3,838  

Selling, general and administrative expenses

     119       110       336       302  

Exploration expenses

     103       73       267       720  

Depreciation, depletion and amortization

     1,494       1,608       4,344       5,212  

Impairments

     44       6       21       6,475  

Taxes other than income taxes

     312       175       768       604  

Accretion on discounted liabilities

     89       89       266       276  

Interest and debt expense

     186       251       547       872  

Foreign currency transaction losses

     5       5       7       28  

Other expenses

     10       77       350       421  

 

 

Total Costs and Expenses

     7,259       6,542       21,065       27,788  

 

 

Income (loss) before income taxes

     2,906       653       7,301       (3,940

Income tax provision (benefit)

     1,033       217       2,874       (1,549

 

 

Net income (loss)

     1,873       436       4,427       (2,391

Less: net income attributable to noncontrolling interests

     (12     (16     (38     (43

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ 1,861       420       4,389       (2,434

 

 

Net Income (Loss) Attributable to ConocoPhillips Per Share of

Common Stock (dollars)

        

Basic

   $ 1.60       0.35       3.74       (1.98

Diluted

     1.59       0.34       3.72       (1.98

 

 

Dividends Paid Per Share of Common Stock (dollars)

   $ 0.29       0.27       0.86       0.80  

 

 

Average Common Shares Outstanding (in thousands)

        

Basic

     1,163,033       1,212,454       1,171,673       1,230,742  

Diluted

     1,172,694       1,215,341       1,180,774       1,230,742  

 

 

*Certain amounts have been reclassified to conform to the current-period presentation resulting from the adoption of ASU No. 2017-07. See Note 2—Changes in Accounting Principles, for additional information.

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Consolidated Statement of Comprehensive Income      ConocoPhillips  

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2018       2017       2018       2017  
  

 

 

   

 

 

 

Net Income (Loss)

   $ 1,873       436       4,427       (2,391

Other comprehensive income

        

Defined benefit plans

        

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

     (10     (9     (30     (28

Net actuarial gain (loss) arising during the period

     187       13       145       (26

Reclassification adjustment for amortization of net actuarial losses included in net income (loss)

     33       49       228       205  

Nonsponsored plans*

                 (1      

Income taxes on defined benefit plans

     (74     (18     (102     (52

 

 

Defined benefit plans, net of tax

     136       35       240       99  

 

 

Unrealized holding gain on securities

           551             127  

Income taxes on unrealized holding gain on securities

           (45           (45

 

 

Unrealized holding gain on securities, net of tax**

           506             82  

 

 

Foreign currency translation adjustments

     59       509       (222     720  

 

 

Foreign currency translation adjustments, net of tax

     59       509       (222     720  

 

 

Other Comprehensive Income, Net of Tax

     195       1,050       18       901  

 

 

Comprehensive Income (Loss)

     2,068       1,486       4,445       (1,490

Less: comprehensive income attributable to noncontrolling interests

     (12     (16     (38     (43

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

   $ 2,056       1,470       4,407       (1,533

 

 

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

**See Note 2—Changes in Accounting Principles and Note 16—Accumulated Other Comprehensive Loss for additional information relating to the adoption of ASU No. 2016-01.

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Consolidated Balance Sheet      ConocoPhillips  

 

                             
     Millions of Dollars  
     September 30     December 31  
     2018     2017  
  

 

 

   

 

 

 

Assets

    

Cash and cash equivalents

   $ 3,716       6,325  

Short-term investments

     875       1,873  

Accounts and notes receivable (net of allowance of $11 million in 2018 and $4 million in 2017)

     4,319       4,179  

Accounts and notes receivable—related parties

     180       141  

Investment in Cenovus Energy

     2,086       1,899  

Inventories

     1,239       1,060  

Prepaid expenses and other current assets

     2,308       1,035  

 

 

Total Current Assets

     14,723       16,512  

Investments and long-term receivables

     9,553       9,599  

Loans and advances—related parties

     335       461  

Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $66,664 million in 2018 and $64,748 million in 2017)

     44,736       45,683  

Other assets

     1,209       1,107  

 

 

Total Assets

   $ 70,556       73,362  

 

 

Liabilities

    

Accounts payable

   $ 3,887       4,009  

Accounts payable—related parties

     31       21  

Short-term debt

     95       2,575  

Accrued income and other taxes

     1,582       1,038  

Employee benefit obligations

     626       725  

Other accruals

     1,180       1,029  

 

 

Total Current Liabilities

     7,401       9,397  

Long-term debt

     14,902       17,128  

Asset retirement obligations and accrued environmental costs

     7,554       7,631  

Deferred income taxes

     5,535       5,282  

Employee benefit obligations

     1,755       1,854  

Other liabilities and deferred credits

     1,330       1,269  

 

 

Total Liabilities

     38,477       42,561  

 

 

Equity

    

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

    

Issued (2018—1,790,924,215 shares; 2017—1,785,419,175 shares)

    

Par value

     18       18  

Capital in excess of par

     46,858       46,622  

Treasury stock (at cost: 2018—639,682,327 shares; 2017—608,312,034 shares)

     (41,979     (39,906

Accumulated other comprehensive loss

     (5,442     (5,518

Retained earnings

     32,495       29,391  

 

 

Total Common Stockholders’ Equity

     31,950       30,607  

Noncontrolling interests

     129       194  

 

 

Total Equity

     32,079       30,801  

 

 

Total Liabilities and Equity

   $ 70,556       73,362  

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Consolidated Statement of Cash Flows      ConocoPhillips  

 

                             
     Millions of Dollars  
     Nine Months Ended
September 30
 
     2018     2017  
  

 

 

   

 

 

 

Cash Flows From Operating Activities

    

Net income (loss)

   $ 4,427       (2,391

Adjustments to reconcile net income (loss) to net cash provided by operating activities

    

Depreciation, depletion and amortization

     4,344       5,212  

Impairments

     21       6,475  

Dry hole costs and leasehold impairments

     64       435  

Accretion on discounted liabilities

     266       276  

Deferred taxes

     398       (2,770

Undistributed equity earnings

     (11     (193

Gain on dispositions

     (175     (2,144

Other

     (223     (367

Working capital adjustments

    

Decrease (increase) in accounts and notes receivable

     (147     65  

Increase in inventories

     (165     (15

Increase in prepaid expenses and other current assets

     (51     (12

Decrease in accounts payable

     (43     (212

Increase in taxes and other accruals

     446       237  

 

 

Net Cash Provided by Operating Activities

     9,151       4,596  

 

 

Cash Flows From Investing Activities

    

Capital expenditures and investments

     (5,133     (3,074

Working capital changes associated with investing activities

     (57     (18

Proceeds from asset dispositions

     394       13,740  

Net sales (purchases) of short-term investments

     996       (2,583

Collection of advances/loans—related parties

     119       115  

Other

     16       51  

 

 

Net Cash Provided by (Used in) Investing Activities

     (3,665     8,231  

 

 

Cash Flows From Financing Activities

    

Repayment of debt

     (4,970     (6,594

Issuance of company common stock

     121       (65

Repurchase of company common stock

     (2,073     (2,045

Dividends paid

     (1,009     (986

Other

     (111     (80

 

 

Net Cash Used in Financing Activities

     (8,042     (9,770

 

 

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

     (40     244  

 

 

Net Change in Cash, Cash Equivalents and Restricted Cash

     (2,596     3,301  

Cash, cash equivalents and restricted cash at beginning of period

     6,536     3,610  

 

 

Cash, Cash Equivalents and Restricted Cash at End of Period

   $ 3,940       6,911  

 

 

*Restated to include $211 million of restricted cash at January 1, 2018. See Note 2—Changes in Accounting Principles for additional information relating to the adoption of ASU No. 2016-18. Restricted cash totaling $224 million is included in the “Other assets” line of our Consolidated Balance Sheet as of September 30, 2018.

See Notes to Consolidated Financial Statements.

 

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Table of Contents
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 2017 Annual Report on Form 10-K.

Note 2—Changes in Accounting Principles

We adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” and its amendments issued by the provisions of ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers,” collectively Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers,” (ASC Topic 606) beginning January 1, 2018. ASC Topic 606 outlines a single comprehensive model for an entity to use in accounting for revenue arising from all contracts with customers except where revenues are in scope of another accounting standard. The ASU superseded the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASC Topic 606 sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity is required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods and services. ASC Topic 606 also requires certain additional revenue-related disclosures. The adoption of ASC Topic 606 did not have a material impact on our consolidated financial statements. See Note 20—Sales and Other Operating Revenues for additional information related to this ASC.

We adopted the provisions of FASB ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Liabilities,” (ASU No. 2016-01) beginning January 1, 2018. The ASU, among other things, requires an entity to record the changes in fair value of equity investments, other than investments accounted for using the equity method, within net income. Under this ASU, an entity is no longer able to recognize unrealized holding gains and losses on available-for-sale securities in other comprehensive income and instead must recognize them in the income statement. See Note 7—Investment in Cenovus Energy and Note 16—Accumulated Other Comprehensive Loss for additional information relating to this ASU.

 

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Table of Contents

The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2018, for the adoption of ASC Topic 606 and ASU No. 2016-01 were as follows:

 

                                                           
     Millions of Dollars  
     December 31
2017
    ASC Topic 606
Adjustments
    ASU No. 2016-01
Adjustments
    January 1
2018
 
  

 

 

 

Liabilities

        

Other accruals

   $ 1,029       104             1,133  

Total current liabilities

     9,397       104             9,501  

Deferred income taxes

     5,282       (31           5,251  

Other liabilities and deferred credits

     1,269       147             1,416  

Total liabilities

     42,561       220             42,781  

 

 

Equity

        

Accumulated other comprehensive loss

   $ (5,518           58       (5,460

Retained earnings

     29,391       (220     (58     29,113  

Total common stockholders’ equity

     30,607       (220           30,387  

Total equity

     30,801       (220           30,581  

 

 

For discussion of adjustments for ASU No. 2016-01 and ASC Topic 606, see Note 7—Investment in Cenovus Energy and Note 20—Sales and Other Operating Revenues, respectively.

We adopted the provisions of FASB ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” beginning January 1, 2018. We retrospectively applied the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on plan assets, amortization of prior service cost/credit, recognized net actuarial loss/gain, settlement expense, curtailment loss/gain, and special termination benefits have been reclassified from the “Production and operating expenses,” “Selling, general and administrative expenses,” and “Exploration expenses” lines to the “Other expenses” line on our consolidated income statement. We elected to apply the practical expedient which allows us to reclassify amounts disclosed previously in the employee benefit plans footnote as the basis for applying retrospective presentation for prior comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the other components of net periodic benefit costs will not be included in amounts capitalized in inventory or properties, plants, and equipment (PP&E).

The effect of the retrospective presentation change related to the net periodic benefit cost of our defined benefit pension and other postretirement employee benefits plans on our consolidated income statement was as follows:

 

                                            
     Millions of Dollars  
     Previously
Reported
     Effect of Change
Higher/(Lower)
    As
Revised
 
  

 

 

 

Three Months Ended September 30, 2017

       

Production and operating expenses

   $ 1,224        (2     1,222  

Selling, general and administrative expenses

     132        (22     110  

Exploration expenses

     75        (2     73  

Other expenses

     51        26       77  

 

 

Nine Months Ended September 30, 2017

       

Production and operating expenses

   $ 3,849        (11     3,838  

Selling, general and administrative expenses

     423        (121     302  

Exploration expenses

     724        (4     720  

Other expenses

     285        136       421  

 

 

 

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We adopted the provisions of FASB ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” beginning January 1, 2018. This ASU clarifies how certain cash receipts and cash payments should be classified and presented in the statement of cash flows. We have made an accounting policy election to classify distributions received from equity method investees using the nature of the distribution approach which classifies distributions received from investees as either cash inflows from operating activities or cash inflows from investing activities in the statement of cash flows based on the nature of the activities of the investee that generated the distribution. The impact of adopting this ASU was not material to prior presented periods.

We adopted the provisions of FASB ASU No. 2016-18, “Restricted Cash,” beginning January 1, 2018. This ASU requires amounts deemed restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows, and presentation should permit a reconciliation when cash, cash equivalents and restricted cash are presented in more than one line item on the balance sheet. We have amounts deposited in statutory bank accounts in certain countries to satisfy asset retirement obligations (ARO). These amounts are deemed restricted cash and are included in the “Other assets” line of our consolidated balance sheet. This standard is required to be applied retrospectively to all periods presented, but the impact in those periods was not material.

Note 3—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:

Australia Pacific LNG Pty Ltd (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 liquefied natural gas (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 September 30, 2018, we have not provided any financial support to APLNG other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of APLNG. See Note 6—Investments, Loans and Long-Term Receivables, and Note 12—Guarantees, for additional information.

Marine Well Containment Company, LLC (MWCC)

MWCC provides well containment equipment and technology and related services in the deepwater U.S. Gulf of Mexico. Its principal activities involve the development and maintenance of rapid-response hydrocarbon well containment systems that are deployable in the Gulf of Mexico on a call-out basis. We have a 10 percent ownership interest in MWCC, and it is accounted for as an equity method investment because MWCC is a limited liability company in which we are a Founding Member and exercise significant influence through our permanent seat on the ten-member Executive Committee responsible for overseeing the affairs of MWCC. In 2016, MWCC executed a $154 million term loan financing arrangement with an external financial institution whose terms required the financing be secured by letters of credit provided by certain owners of MWCC, including ConocoPhillips. In connection with the financing transaction, we issued a letter of credit of $22 million which can be drawn upon in the event of a default by MWCC on its obligation to repay the proceeds of the term loan. The fair value of this letter of credit is immaterial and not recognized on our consolidated balance sheet. MWCC is considered a VIE, as it has entered into arrangements that provide it with additional forms of subordinated financial support. We are not the primary beneficiary and do not consolidate MWCC because we share the power to govern the business and operation of the company and to undertake certain obligations that most significantly impact its economic performance with nine other unaffiliated owners of MWCC.

 

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At September 30, 2018, the carrying value of our equity method investment in MWCC was $132 million. We have not provided any financial support to MWCC other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of MWCC.

Note 4—Inventories

Inventories consisted of the following:

 

                             
     Millions of Dollars  
     September 30
2018
     December 31
2017
 
  

 

 

 

Crude oil and natural gas

   $ 673        512  

Materials and supplies

     566        548  

 

 
   $ 1,239        1,060  

 

 

Inventories valued on the last-in, first-out (LIFO) basis totaled $283 million and $341 million at September 30, 2018 and December 31, 2017, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was $100 million and $124 million at September 30, 2018 and December 31, 2017, respectively.

As of September 30, 2018, crude oil and natural gas inventory includes $139 million of inventory received as part of a settlement agreement reached with Petróleos de Venezuela, S.A. (PDVSA) under an International Chamber of Commerce arbitration award. As of the end of October 2018, substantially all of the inventory recognized during the third quarter related to this settlement has been sold. For information about the settlement, see Note 13—Contingencies and Commitments.

Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions

Assets Held for Sale and Other Planned Acquisitions

In the second quarter of 2017, we signed a definitive agreement to sell our interests in the Barnett, and the assets met the asset held for sale criteria. As of September 30, 2017, we had recorded before-tax impairments of $568 million to reduce our carrying value of these assets to fair value. The agreement was terminated in the fourth quarter of 2017, and we continued to market the asset in 2018. In the first quarter of 2018, we recorded a before-tax impairment of $44 million to reduce the net carrying value to fair value of $250 million based on information gathered during marketing efforts. Marketing efforts ceased in April 2018, and the assets were reclassified as held for use in the second quarter of 2018. In the third quarter of 2018, we signed a definitive agreement to sell our interest in the Barnett to Lime Rock Resources for approximately $230 million, subject to customary adjustments. The transaction is expected to close by year-end 2018. In the third quarter of 2018, we recorded a before-tax impairment of $43 million to reduce the carrying value to fair value less costs to sell. As of September 30, 2018, our Barnett asset had a net carrying value of $201 million and was considered held for sale resulting in the reclassification of $250 million of PP&E to “Prepaid expenses and other current assets” and $49 million of noncurrent liabilities, primarily ARO, to “Other accruals” on our consolidated balance sheet. The before-tax loss associated with our interests in the Barnett, including the impairments noted above, was $59 million and $575 million for the nine-month periods of 2018 and 2017, respectively. The Barnett results of operations are reported in our Lower 48 segment.

In July 2018, we entered into an agreement to sell a ConocoPhillips subsidiary to BP. The subsidiary will hold a 16.5 percent interest in the BP-operated Clair Field in the United Kingdom and we will retain a 7.5 percent interest in the field. At the same time, we entered into an agreement with BP to acquire their 39.2 percent nonoperated interest in the Greater Kuparuk Area in Alaska, including their 38 percent interest in the Kuparuk Transportation Company (Kuparuk Assets). Both transactions are subject to regulatory approvals and are expected to close simultaneously in late 2018. Excluding customary adjustments, the transactions are expected

 

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to be cash neutral. Depending on the timing of regulatory approvals, we anticipate recognizing a noncash gain between $0.5 billion to $1.0 billion on completion of the sale of the ConocoPhillips subsidiary holding 16.5 percent of the Clair Field, after customary adjustments and foreign exchange impacts. As of September 30, 2018, our 16.5 percent interest in the Clair Field had a net carrying value of approximately $945 million consisting primarily of $1.552 billion of PP&E, $544 million of deferred tax liabilities, and $63 million of ARO. As of September 30, 2018, our 16.5 percent interest in the Clair Field was considered held for sale resulting in the reclassification of the $1.552 billion of PP&E to “Prepaid expenses and other current assets” and $63 million of ARO to “Other accruals” on our consolidated balance sheet. The before-tax earnings associated with our 16.5 percent interest in the Clair Field was $13 million and $1 million for the nine months ended September 30, 2018 and 2017, respectively. Results of operations for our interest in the Clair Field are reported within our Europe and North Africa segment and the Kuparuk Assets are included in our Alaska segment.

Asset Dispositions

In the first quarter of 2018, we completed the sale of certain properties in the Lower 48 segment for net proceeds of $112 million. No gain or loss was recognized on the sale. In the second quarter of 2018, we completed the sale of a package of largely undeveloped acreage in the Lower 48 segment for net proceeds of $105 million. No gain or loss was recognized on the sale. In September 2018, we completed a noncash exchange of undeveloped acreage in the Lower 48 segment. The transaction was recorded at fair value resulting in the recognition of a $56 million before-tax gain which is reflected as “Gain on dispositions” in our consolidated income statement. In the first nine months of 2018, we completed several other dispositions.

In the second quarter of 2017, we completed the sale of our 50 percent nonoperated interest in the Foster Creek Christina Lake (FCCL) Partnership, as well as the majority of our western Canada gas assets to Cenovus Energy. Consideration for the transaction included a five-year uncapped contingent payment. The contingent payment, calculated on a quarterly basis, is $6 million Canadian dollars (CAD) for every $1 CAD by which the Western Canada Select quarterly average crude price exceeds $52 CAD per barrel. Contingent payments received during the five-year period will be reflected as “Gain on dispositions” in our consolidated income statement. In 2018, we recorded gains on dispositions for these contingent payments of $50 million in the second quarter and $45 million in the third quarter.

In the third quarter of 2017, we completed the sale of our interests in the San Juan Basin to an affiliate of Hilcorp Energy Company for $2.5 billion in cash after customary adjustments and recognized a loss on disposition of $22 million. The transaction includes a contingent payment of up to $300 million. The six-year contingent payment is effective beginning January 1, 2018, and is due annually for the periods in which the monthly U.S. Henry Hub price is at or above $3.20 per million British thermal units. The San Juan Basin results of operations were reported within our Lower 48 segment.

Acquisition

In the second quarter of 2018, we obtained regulatory approvals for the agreement with Anadarko Petroleum Corporation to acquire its 22 percent nonoperated interest in the Western North Slope of Alaska, as well as its interest in the Alpine Pipeline.    The transaction was completed in May 2018 for $386 million, after customary adjustments. These assets are included in our Alaska segment.

Other Planned Disposition

On October 1, 2018, we entered into an agreement to sell our 30 percent interest in Greater Sunrise Fields to the government of Timor-Leste for $350 million, subject to customary adjustments. The transaction is conditional on the funding approval from the Timor-Leste Council of Ministers and National Parliament, as well as regulatory approvals and partner pre-emption rights. We expect it to close in early 2019. These assets are included in our Asia Pacific and Middle East segment.

 

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Note 6—Investments, Loans and Long-Term Receivables

APLNG

APLNG’s $8.5 billion project finance 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. All amounts have been drawn from the facility. APLNG made its first principal and interest payment in March 2017 and will continue to make bi-annual payments until March 2029. APLNG made a voluntary repayment of $1.4 billion to the Export-Import Bank of China in September 2018. At the same time, APLNG was successful in obtaining a United States Private Placement (USPP) bond facility of $1.4 billion. Interest payments will commence in March 2019 and principal payments in September 2023, with bi-annual payments due on the facility until September 2030. At September 30, 2018, a balance of $7.2 billion was outstanding on the facilities. See Note 12—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 3—Variable Interest Entities (VIEs), for additional information.

During the first half of 2017, the outlook for crude oil prices deteriorated, and as a result of significantly reduced price outlooks, the estimated fair value of our investment in APLNG declined to an amount below carrying value. Based on a review of the facts and circumstances surrounding this decline in fair value, we concluded in the second quarter of 2017 the impairment was other than temporary under the guidance of FASB ASC Topic 323, “Investments—Equity Method and Joint Ventures,” and the recognition of an impairment of our investment to fair value was necessary. Accordingly, we recorded a noncash $2,384 million before- and after-tax impairment in our second-quarter 2017 results. Fair value was estimated based on an internal discounted cash flow model using estimated future production, an outlook of future prices from a combination of exchanges (short-term) and pricing service companies (long-term), costs, a market outlook of foreign exchange rates provided by a third party, and a discount rate believed to be consistent with those used by principal market participants. The impairment was included in the “Impairments” line on our consolidated income statement.

At September 30, 2018, the carrying value of our equity method investment in APLNG was $7,676 million. The balance is included in the “Investments and long-term receivables” line on our consolidated balance sheet.

Distributions from APLNG commenced in April 2018.

FCCL

On May 17, 2017, we completed the sale of our 50 percent nonoperated interest in the FCCL Partnership, as well as the majority of our western Canada gas assets, to Cenovus Energy. For additional information on the Canada disposition and our investment in Cenovus Energy, see Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions and Note 7—Investment in Cenovus Energy.

Loans and Long-Term Receivables

As part of our normal ongoing business operations, and consistent with industry practice, we enter into numerous agreements with other parties to pursue business opportunities. Included in such activity are loans made to certain affiliated and non-affiliated companies. At September 30, 2018, significant loans to affiliated companies included $461 million in project financing to Qatar Liquefied Gas Company Limited (3) (QG3).

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

 

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Note 7-–Investment in Cenovus Energy

On May 17, 2017, we completed the sale of our 50 percent nonoperated interest in the FCCL Partnership, as well as the majority of our western Canada gas assets, to Cenovus Energy. Consideration for the transaction included 208 million Cenovus Energy common shares, which approximated 16.9 percent of issued and outstanding Cenovus Energy common stock at closing. See Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions for additional information on the Canada disposition. At closing of the sale, the fair value and cost basis of our investment in 208 million Cenovus Energy common shares was $1.96 billion based on a price of $9.41 per share on the New York Stock Exchange.

We adopted the provisions of ASU No. 2016-01, beginning January 1, 2018, using the cumulative-effect approach. Results for reporting periods beginning January 1, 2018, are presented under ASU No. 2016-01 with all changes in the fair value of our equity securities reflected within the “Other income” line of our consolidated income statement and within the “Other” line in the “Cash Flows From Operating Activities” section of our consolidated statement of cash flows. Prior period amounts are not adjusted under the cumulative-effect method of adopting ASU No. 2016-01. See Note 2—Changes in Accounting Principles and Note 16—Accumulated Other Comprehensive Loss for the effect on our consolidated balance sheet and the line items that have been impacted by the adoption of this standard.

The cumulative effect of applying the standard was the reclassification of accumulated unrealized holding losses of $58 million, recognized in 2017, related to our investment in Cenovus Energy from accumulated other comprehensive loss to retained earnings.

Our investment is carried at fair value of $2.09 billion as of September 30, 2018, reflecting the closing price of Cenovus Energy shares on the New York Stock Exchange of $10.03 per share, an increase from its fair value of $1.90 billion at year-end 2017. For the three- and nine-month periods ended September 30, 2018, we recorded a before-tax unrealized loss of $73 million and a before-tax unrealized gain of $187 million, respectively, related to the shares held at the reporting date. See Note 15—Fair Value Measurement, for additional information. Subject to market conditions, we intend to decrease our investment over time through market transactions, private agreements or otherwise.

Note 8—Suspended Wells

The capitalized cost of suspended wells at September 30, 2018, was $986 million, an increase of $133 million from $853 million at year-end 2017. Three suspended wells totaling $7 million were charged to dry hole expense during the first nine months of 2018 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2017.

 

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Note 9—Impairments

During the three- and nine-month periods ended September 30, 2018 and 2017, we recognized before-tax impairment charges within the following segments:

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2018      2017      2018     2017  
  

 

 

 

Alaska

   $        1              178  

Lower 48

     44        3        55       3,888  

Canada

                         18  

Europe and North Africa

            2        (48     7  

Asia Pacific and Middle East

                   14       2,384  

 

 
   $ 44        6        21       6,475  

 

 

In the three-month period ended September 30, 2018, impairments in our Lower 48 segment were primarily related to developed properties in our Barnett asset which were written down to fair value less costs to sell.

In the nine-month period ended September 30, 2018, our Lower 48 segment included before-tax impairments of $55 million, primarily related to developed properties in our Barnett asset which were written down to fair value less costs to sell, partly offset by a revision to reflect finalized proceeds on a separate transaction. In our Europe and North Africa segment, we recorded a credit to impairment of $49 million, primarily due to decreased ARO estimates on a certain field in the United Kingdom that has ceased production and was impaired in a prior year.

For additional information related to the status of our Barnett asset, see Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions.

In the nine-month period ended September 30, 2017, our Lower 48 segment included before-tax impairments of $3.3 billion for our interests in the San Juan Basin and $0.6 billion for our interests in the Barnett asset, which were written down to fair value less costs to sell. See the “APLNG” section of Note 6—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment included within the Asia Pacific and Middle East segment. Additionally, our Alaska segment included an impairment of $174 million for the associated carrying value of our small interest in the Point Thomson Unit.

The charge discussed below is included in the “Exploration expenses” line on our consolidated income statement and is not reflected in the table above.

In the nine-month period ended September 30, 2017, we recorded a before-tax impairment of $51 million in our Lower 48 segment for the associated carrying value of capitalized undeveloped leasehold costs of Shenandoah in deepwater Gulf of Mexico following the suspension of appraisal activity by the operator.

 

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Note 10—Debt

In May 2018, we refinanced our revolving credit facility from a total aggregate principal amount of $6.75 billion to $6.0 billion with a new expiration date of May 2023. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. The revolving credit facility is broadly syndicated among financial institutions and does not contain any material adverse change provisions or any covenants requiring maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more by ConocoPhillips, or any of its consolidated subsidiaries.

Credit facility borrowings may bear interest at a margin above rates offered by certain designated banks in the London interbank market or at a margin above the overnight federal funds rate or prime rates offered by certain designated banks in the United States. The agreement calls for commitment fees on available, but unused, amounts. The agreement also contains early termination rights if our current directors or their approved successors cease to be a majority of our Board of Directors.

The revolving credit facility supports the ConocoPhillips Company $6.0 billion commercial paper program which is primarily a funding source for short-term working capital needs. Commercial paper maturities are generally limited to 90 days. We had no commercial paper outstanding in programs in place at September 30, 2018 or December 31, 2017. We had no direct outstanding borrowings or letters of credit under the revolving credit facility at September 30, 2018 and December 31, 2017. Since we had no commercial paper outstanding and had issued no letters of credit, we had access to $6.0 billion in borrowing capacity under our revolving credit facility at September 30, 2018.

In the first quarter of 2018, we redeemed or repurchased a total of $2,650 million of debt as described below:

 

   

4.20% Notes due 2021 with remaining principal of $1.0 billion.

   

2.875% Notes due 2021 with principal of $750 million.

   

2.2% Notes due 2020 with principal of $500 million.

   

8.125% Notes due 2030 with principal of $600 million (partial repurchase of $210 million).

   

7.8% Notes due 2027 with principal of $300 million (partial repurchase of $97 million).

   

7.9% Notes due 2047 with principal of $100 million (partial repurchase of $40 million).

   

9.125% Notes due 2021 with principal of $150 million (partial repurchase of $27 million).

   

8.20% Notes due 2025 with principal of $150 million (partial repurchase of $16 million).

   

7.65% Notes due 2023 with principal of $88 million (partial repurchase of $10 million).

In the second quarter of 2018, we repurchased a total of $1,800 million of debt as described below:

 

   

2.4% Notes due 2022 with principal of $1.0 billion (partial repurchase of $671 million).

   

3.35% Notes due 2024 with principal of $1.0 billion (partial repurchase of $574 million).

   

3.35% Notes due 2025 with principal of $500 million (partial repurchase of $301 million).

   

4.15% Notes due 2034 with principal of $500 million (partial repurchase of $254 million).

During the first six months of 2018, we incurred net premiums above book value to redeem or repurchase these debt instruments of $208 million.

In the second quarter of 2018, we also repaid the $250 million floating rate note due in 2018 at its natural maturity.

At September 30, 2018, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. The VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.

 

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Note 11—Noncontrolling Interests

Activity attributable to common stockholders’ equity and noncontrolling interests for the first nine months of 2018 and 2017 was as follows:

 

                                                                                         
     Millions of Dollars  
     2018     2017  
     Common
Stockholders’
Equity
   

Non-

Controlling
Interest

    Total
Equity
    Common
Stockholders’
Equity
   

Non-

Controlling
Interest

    Total
Equity
 
  

 

 

   

 

 

 

Balance at January 1

   $ 30,607       194       30,801       34,974       252       35,226  

Net income (loss)

     4,389       38       4,427       (2,434     43       (2,391

Dividends

     (1,009           (1,009     (986           (986

Repurchase of company common stock

     (2,073           (2,073     (2,045           (2,045

Distributions to noncontrolling interests

           (105     (105           (84     (84

Changes in Accounting Principles*

     (220           (220      

Other changes, net**

     256       2       258       991       1       992  

 

 

Balance at September 30

   $ 31,950       129       32,079       30,500       212       30,712  

 

 

*See Note 2—Changes in Accounting Principles for additional information related to ASC Topic 606.

**Includes components of other comprehensive income, which are disclosed separately in our Consolidated Statement of Comprehensive Income.

Note 12—Guarantees

At September 30, 2018, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

APLNG Guarantees

At September 30, 2018, we had outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2018 exchange rates:

 

   

During the third quarter of 2016, we issued a guarantee to facilitate the withdrawal of our pro-rata portion of the funds in a project finance reserve account. We estimate the remaining term of this guarantee is 12 years. Our maximum exposure under this guarantee is approximately $170 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At September 30, 2018, the carrying value of this guarantee was approximately $14 million. For additional information, see Note 6—Investments, Loans and Long-Term Receivables.

 

   

In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to reimburse Origin Energy for our share of the existing contingent liability arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of up to 24 years. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $940 million ($1.58 billion in the event of intentional or reckless breach), and would become payable if APLNG

 

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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 27 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $140 million and would become payable if APLNG does not perform.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $780 million, which consist primarily of guarantees of the residual value of leased office buildings, guarantees of the residual value of leased corporate aircraft, and a guarantee for our portion of a joint venture’s project finance reserve accounts. These guarantees have remaining terms of up to four years 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 nonperformance of contractual terms by guaranteed parties.

Indemnifications

Over the years, we have entered into agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. These agreements include indemnifications for taxes, environmental liabilities, employee claims 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 September 30, 2018, was approximately $100 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 at September 30, 2018, were approximately $40 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 13—Contingencies and Commitments.

In 2012, we completed the separation of our downstream business, creating two independent energy companies: ConocoPhillips and Phillips 66. On March 1, 2015, a supplier to one of the refineries included in Phillips 66 as part of the separation of our downstream businesses formally registered Phillips 66 as a party to the supply agreement, thereby triggering a guarantee we provided at the time of separation. As of December 31, 2017, the carrying value of this guarantee was $98 million. Because Phillips 66 has indemnified us for losses incurred under this guarantee, we also recorded an indemnification asset from Phillips 66 of $98 million. During the third quarter of 2018, a termination agreement between the supplier and Phillips 66 was executed, releasing all parties from their respective obligations under the supply agreement. Since all obligations under the supply agreement were satisfied and discharged, the guarantee was terminated. As of September 30, 2018, the carrying value of this guarantee and the associated indemnification asset were removed.

Note 13—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these

 

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

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state and international sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those acquired in a purchase business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated.

At September 30, 2018, our balance sheet included a total environmental accrual of $170 million, compared with $180 million at December 31, 2017, for remediation activities in the United States and Canada. We expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

 

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Legal Proceedings

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

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

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 September 30, 2018, we had performance obligations secured by letters of credit of $275 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, commercial activities and services incident to the ordinary conduct of business.

In 2007, ConocoPhillips was unable to reach agreement with respect to the empresa mixta structure mandated by the Venezuelan government’s Nationalization Decree. As a result, Venezuela’s national oil company, PDVSA, or its affiliates, directly assumed control over ConocoPhillips’ interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In response to this expropriation, ConocoPhillips initiated international arbitration on November 2, 2007, with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the decision that the expropriation was unlawful. A separate arbitration phase is currently proceeding to determine the damages owed to ConocoPhillips for Venezuela’s actions.

In 2014, ConocoPhillips filed a separate and independent arbitration under the rules of the International Chamber of Commerce (ICC) against PDVSA under the contracts that had established the Petrozuata and Hamaca projects. The ICC Tribunal issued an award in April 2018, finding that PDVSA owed ConocoPhillips approximately $2 billion under their agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures. In August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC award, plus interest through the payment period, including initial payments totaling approximately $500 million within a period of 90 days from the time of signing of the settlement agreement. The balance of the settlement is to be paid quarterly over a period of four and a half years. PDVSA also recognized the ICC award as a judgment in various jurisdictions. During the third quarter of 2018, we collected from PDVSA under the settlement and recognized in other income $345 million consisting of $242 million in commodity inventory and $103 million in cash. The remainder of the initial payments is due in the fourth quarter of 2018. As of the end of October 2018, substantially all of the inventory recognized during the quarter has been sold. Per the settlement, ConocoPhillips agreed to suspend its legal enforcement actions of the ICC award, including in the Dutch Caribbean. ConocoPhillips has ensured that the settlement meets all appropriate U.S. regulatory requirements, including any applicable sanctions imposed by the U.S. against Venezuela.

 

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In 2016, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Corocoro project. This ICC arbitration is currently in progress.

In February 2017, an ICSID tribunal unanimously awarded Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, $380 million for Ecuador’s unlawful expropriation of Burlington’s investment in Blocks 7 and 21, in breach of the U.S.-Ecuador Bilateral Investment Treaty. The tribunal also issued a separate decision finding Ecuador to be entitled to $42 million for environmental and infrastructure counterclaims. In December 2017, Burlington and Ecuador entered into a settlement agreement by which Ecuador paid Burlington $337 million in two installments. The first installment of $75 million was paid in December 2017, and the second installment of $262 million was paid in April 2018. The settlement included an offset for the counterclaims decision, of which Burlington is entitled to a $24 million contribution from Perenco Ecuador Limited, its co-venturer and consortium operator, pursuant to a joint and several liability provision in the joint operating agreement (JOA). Ecuador’s environmental and infrastructure counterclaims against Perenco remain pending in a separate ICSID arbitration between Perenco and Ecuador, and Burlington may owe Perenco contribution under the JOA for damages found by this tribunal.

In December 2016, ConocoPhillips Angola filed a notice of arbitration against Sonangol E.P. under the Block 36 Production Sharing Contract relating to disputes arising thereunder. Earlier this year, the parties reached a confidential settlement.

In June 2017, FAR Ltd. initiated arbitration before the ICC against ConocoPhillips Senegal B.V. in connection with the sale of ConocoPhillips Senegal B.V. to Woodside Energy Holdings (Senegal) Limited in 2016. This arbitration is ongoing.

In 2017 and 2018, cities, counties, and/or state governments in California, New York, Washington, Rhode Island and Maryland have filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to abate alleged climate change impacts. ConocoPhillips is vigorously defending against these lawsuits. The lawsuits brought by the Cities of San Francisco, Oakland and New York have been dismissed by the district courts and appeals are pending.

Note 14—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 natural gas liquids.

Our derivative instruments are held at fair value on our consolidated balance sheet. Where these balances have the right of setoff, they are presented on a net basis. Related cash flows are recorded as operating activities on our consolidated statement of cash flows. On our consolidated income statement, 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 (NPNS) exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use hedge accounting for our commodity derivatives.

 

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

 

                             
     Millions of Dollars  
     September 30
2018
     December 31
2017
 
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $ 259        275  

Other assets

     42        36  

Liabilities

     

Other accruals

     278        282  

Other liabilities and deferred credits

     37        28  

 

 

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
September 30
    Nine Months Ended
September 30
 
     2018     2017     2018     2017  
  

 

 

   

 

 

 

Sales and other operating revenues

   $ (29     17       (6     120  

Other income

     3       (1     12       (1

Purchased commodities

     18       (19     15       (88

 

 

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

 

                             
     Open Position
Long/(Short)
 
     September 30
2018
    December 31
2017
 
  

 

 

 

Commodity

    

Natural gas and power (billions of cubic feet equivalent)

    

Fixed price

     (19     (29

Basis

     5       12  

 

 

Foreign Currency Exchange Derivatives

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

 

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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  
     September 30
2018
     December 31
2017
 
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $ 18        1  

Other assets

            6  

Liabilities

     

Other accruals

     7         

Other liabilities and deferred credits

            15  

 

 

In December 2017, we entered into foreign exchange zero cost collars buying the right to sell $1.25 billion CAD at $0.707 CAD and selling the right to buy $1.25 billion CAD at $0.842 CAD against the U.S. dollar.

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
September 30
    Nine Months Ended
September 30
 
     2018     2017     2018     2017  
  

 

 

   

 

 

 

Foreign currency transaction (gains) losses

   $ (2     (1     (5     2  

 

 

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

 

                                            
     In Millions
Notional Currency
 
    

September 30

2018

     December 31
2017
 
  

 

 

Foreign Currency Exchange Derivatives

        

Sell U.S. dollar, buy other currencies*

   USD      1,258         

Sell British pound, buy euro

   GBP      23        1  

Sell Canadian dollar, buy U.S. dollar

   CAD      1,230        1,225  

 

 

    *Primarily British pound.

Financial Instruments

We invest excess cash in financial instruments with maturities based on our cash forecasts for the various currency pools we manage. The maturities of these investments may from time to time extend beyond 90 days. The types of financial instruments we currently invest in include:

 

   

Time deposits: Interest bearing deposits placed with approved financial institutions.

   

Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or government agency purchased at a discount to mature at par.

These financial instruments appear in the “Cash and cash equivalents” line of our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less; otherwise, these financial instruments are included in the “Short-term investments” line on our consolidated balance sheet.

 

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Table of Contents
                                                           
     Millions of Dollars  
     Carrying Amount  
     Cash and Cash Equivalents      Short-Term Investments  
     September 30      December 31      September 30      December 31  
     2018      2017      2018      2017  
  

 

 

    

 

 

 

Cash

   $ 511        948        

Time deposits

           

Remaining maturities from 1 to 90 days

     2,966        5,004        104        821  

Commercial paper

           

Remaining maturities from 1 to 90 days

     239        373        771        978  

Remaining maturities from 91 to 180 days

                          74  

 

 
   $ 3,716        6,325        875        1,873  

 

 

 

 

Credit Risk

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

The credit risk from our OTC derivative contracts, such as forwards, swaps and options, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared 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 to us.

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

The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position on September 30, 2018 and December 31, 2017, was $44 million and $55 million, respectively. For these instruments, no collateral was posted as of September 30, 2018 or December 31, 2017. If our credit rating had been downgraded below investment grade on September 30, 2018, we would be required to post $44 million of additional collateral, either with cash or letters of credit.

 

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Note 15—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 that are directly or indirectly observable.

   

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

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. At the end of the fourth quarter of 2017, our investment in Cenovus Energy transferred from Level 2 to Level 1 due to the lapsing of trading restrictions. There were no other material transfers between levels during 2018 or 2017.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include our investment in Cenovus Energy shares and commodity derivatives. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 1 also includes our investment in common shares of Cenovus Energy, which is valued using quotes for shares on the New York Stock 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 where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value. Level 3 activity was not material for all periods presented.

The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):

 

                                                                                                                       
     Millions of Dollars  
     September 30, 2018      December 31, 2017  
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  
  

 

 

    

 

 

 

Assets

                       

Investment in Cenovus Energy

   $ 2,086                      2,086        1,899                      1,899  

Commodity derivatives

     186        97        18        301        175        106        30        311  

 

 

Total assets

   $ 2,272        97        18        2,387        2,074        106        30        2,210  

 

 

Liabilities

                       

Commodity derivatives

   $ 176        103        36        315        158        111        41        310  

 

 

Total liabilities

   $ 176        103        36        315        158        111        41        310  

 

 

 

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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. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of setoff exists.

 

                                                                                         
     Millions of Dollars  
     Gross
Amounts
Recognized
     Gross
Amounts
Offset
     Net
Amounts
Presented
     Cash
Collateral
    

Gross Amounts

without

Right of Setoff

     Net
Amounts
 
  

 

 

 

September 30, 2018

                 

Assets

   $ 301        206        95               7        88  

Liabilities

     315        206        109        2        3        104  

 

 

December 31, 2017

                 

Assets

   $ 311        186        125               4        121  

Liabilities

     310        186        124        7        5        112  

 

 

At September 30, 2018 and December 31, 2017, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.

Non-Recurring Fair Value Measurement

The following table summarizes the fair value hierarchy by major category and date of remeasurement for assets accounted for at fair value on a non-recurring basis:

 

                                                           
     Millions of Dollars  
            Fair Value
Measurements Using
        
     Fair Value      Level 1
Inputs
     Level 3
Inputs
    

Before-

Tax Loss

 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net PP&E (held for sale)

           

March 31, 2018

   $ 250               250        44  

September 30, 2018

   $ 201        201               43  

 

 

During the first and third quarters of 2018, certain net PP&E held for sale was written down to fair value, less costs to sell. In the third quarter, fair value was determined by its negotiated selling price. In the first quarter, fair value was estimated using information gathered during marketing efforts. For additional information, see Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions.

Reported Fair Values of Financial Instruments

We used the following methods and assumptions to estimate the fair value of financial instruments:

 

   

Cash and cash equivalents and short-term investments: The carrying amount reported on the balance sheet approximates fair value.

   

Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans and advances—related parties.

   

Investment in Cenovus Energy shares: See Note 7—Investment in Cenovus Energy, for a discussion of the carrying value and fair value of our investment in Cenovus Energy shares.

 

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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 6—Investments, Loans and Long-Term Receivables, for additional information.

   

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

   

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

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

 

                                                           
     Millions of Dollars  
     Carrying Amount      Fair Value  
     September 30      December 31      September 30      December 31  
     2018      2017      2018      2017  
  

 

 

    

 

 

 

Financial assets

           

Investment in Cenovus Energy

   $ 2,086        1,899        2,086        1,899  

Commodity derivatives

     95        125        95        125  

Total loans and advances—related parties

     464        586        464        586  

Financial liabilities

           

Total debt, excluding capital leases

     14,201        18,929        16,554        22,435  

Commodity derivatives

     107        117        107        117  

 

 

Note 16—Accumulated Other Comprehensive Loss

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

 

                                                           
     Millions of Dollars  
     Defined
Benefit Plans
    Net
Unrealized
Loss on
Securities
    Foreign
Currency
Translation
    Accumulated
Other
Comprehensive
Income (Loss)
 
  

 

 

 

December 31, 2017

   $ (400     (58     (5,060     (5,518

Cumulative effect of adopting ASU No. 2016-01*

           58             58  

Other comprehensive income (loss)

     240             (222     18  

 

 

September 30, 2018

   $ (160           (5,282     (5,442

 

 

*See Note 2—Changes in Accounting Principles for additional information.

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

 

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The following table summarizes reclassifications out of accumulated other comprehensive loss:

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2018      2017      2018      2017  
  

 

 

    

 

 

 

Defined benefit plans

   $ 17        26        155        116  

 

 

The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $6 million and $14 million for the three months ended September 30, 2018 and September 30, 2017, respectively, and $43 million and $61 million for the nine-month periods ended September 30, 2018 and September 30, 2017, respectively. See Note 18—Employee Benefit Plans, for additional information.

Note 17—Cash Flow Information

 

                             
     Millions of Dollars  
     Nine Months Ended
September 30
 
     2018     2017  
  

 

 

 

Cash Payments

    

Interest

   $ 584       918  

Income taxes

     1,927       574  

 

 

Net Sales (Purchases) of Short-Term Investments

    

Short-term investments purchased

   $ (1,705     (4,999

Short-term investments sold

     2,701       2,416  

 

 
   $ 996       (2,583

 

 

The following items are included in the “Cash Flows From Operating Activities” section of our consolidated statement of cash flows:

In the second quarter of 2018, we received a settlement payment of $262 million from the Republic of Ecuador. In the third quarter of 2018, we received a settlement payment of $103 million from PDVSA. For more information see Note 13—Contingencies and Commitments.

In the first quarter of 2017, we recognized a $180 million adverse cash impact from the settlement of cross-currency swap transactions.

 

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Note 18—Employee Benefit Plans

Pension and Postretirement Plans

 

                                                                                         
     Millions of Dollars  
     Pension Benefits     Other Benefits  
     2018     2017     2018     2017  
  

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

     

Components of Net Periodic Benefit Cost

            

Three Months Ended September 30

            

Service cost

   $ 20       20       21       20              

Interest cost

     22       26       29       27       2       3  

Expected return on plan assets

     (22     (38     (32     (41            

Amortization of prior service cost (credit)

           (1     1       (1     (9     (9

Recognized net actuarial loss (gain)

     10       9       17       12             (1

Settlements

     14             21                    

Curtailments

           (1                        

 

 

Net periodic benefit cost

   $ 44       15       57       17       (7     (7

 

 

Nine Months Ended September 30

            

Service cost

   $ 63       63       67       59       1       1  

Interest cost

     76       80       90       78       6       7  

Expected return on plan assets

     (91     (118     (97     (119            

Amortization of prior service cost (credit)

           (4     3       (4     (26     (27

Recognized net actuarial loss (gain)

     41       27       53       36       (1     (2

Settlements

     161             118                    

Curtailments

           (1                        

 

 

Net periodic benefit cost

   $ 250       47       234       50       (20     (21

 

 

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

During the first nine months of 2018, we contributed $150 million to our domestic benefit plans and $130 million to our international benefit plans. In 2018, we expect to contribute approximately $160 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $160 million to our international qualified and nonqualified pension and postretirement benefit plans.

In June 2018, we purchased a group annuity contract from Prudential and transferred approximately $700 million of future benefit obligations from the U.S. qualified pension plan to Prudential. The purchase of the group annuity contract was funded directly by plan assets of the U.S. qualified pension plan.

We recognized a proportionate share of prior actuarial losses from other comprehensive income as pension settlement expense of $14 million and $161 million during the three- and nine-month periods ended September 30, 2018, respectively. In conjunction with the recognition of pension settlement expense, the fair market values of the U.S. qualified pension plan assets were updated, and the pension benefit obligation of the U.S. qualified pension plan was remeasured as of June 30, 2018. At the measurement date, the net pension liability increased by $42 million as a result of a loss on U.S. qualified pension plan assets, offset by a gain on the projected benefit obligation due primarily to an increase in the discount rate from 3.6 percent to 4.2 percent, resulting in a corresponding decrease to other comprehensive income.

During the three-month period ended September 30, 2018, the fair market value of certain international pension plan assets were updated, and the pension benefit obligations associated with these plans were remeasured. At the measurement

 

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date, the net pension liability decreased by $157 million with a corresponding increase to other comprehensive income primarily as a result of an increase in discount rate from 2.55 percent at December 31, 2017, to 2.95 percent at September 30, 2018. The reduction in net pension liability resulted in a balance of $146 million associated with an international qualified plan being reclassified to the “Other assets” line on our consolidated balance sheet.

Severance Accrual

As a result of staff reductions occurring throughout the year, severance accruals of $35 million and $65 million were recorded during the three- and nine-month periods ended September 30, 2018, respectively. The following table summarizes our severance accrual activity for the nine-month period ended September 30, 2018:

 

              
     Millions of Dollars  

Balance at December 31, 2017

   $ 53  

Accruals

     65  

Benefit payments

     (38

 

 

Balance at September 30, 2018

   $ 80  

 

 

Of the remaining balance at September 30, 2018, $55 million is classified as short term.

Note 19—Related Party Transactions

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

Significant transactions with our equity affiliates were:

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2018     2017     2018     2017  
  

 

 

   

 

 

 

Operating revenues and other income

   $ 27       24       74       83  

Purchases

     25       26       74       74  

Operating expenses and selling, general and administrative expenses

     13       16       44       42  

Net interest (income) expense*

     (4     (4     (11     (10

 

 

*We paid interest to, or received interest from, various affiliates. See Note 6—Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.

Note 20—Sales and Other Operating Revenues

Transitional Arrangements

We adopted the provisions of ASC Topic 606 beginning January 1, 2018, using the modified retrospective approach, which we have applied to contracts within the scope of the standard that had not been completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605. See Note 2—Changes in Accounting Principles for the effect on our consolidated balance sheet and the line items which have been impacted by the adoption of this standard.

 

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The cumulative effect of applying the standard relates solely to certain licensing arrangements where revenue was previously recognized ($61 million in 2011, $146 million in 2015, and $44 million in 2017) based on contractual milestones. Under ASC Topic 606, such revenues are recognized when the customer has the ability to utilize and benefit from its right to use the license. As a result, such historically recognized revenues must be reversed through a cumulative effect adjustment and deferred until such time when the customer has the ability to utilize and benefit from the license. The cumulative effect adjustment relates to contracts that were not substantially completed at the date of implementation.

Accounting Policy

Revenues associated with the sales of crude oil, bitumen, natural gas, LNG, natural gas liquids and other items are recognized at the point in time when the customer obtains control of the asset. In evaluating when a customer has control of the asset, we primarily consider whether the transfer of legal title and physical delivery has occurred, whether the customer has significant risks and rewards of ownership, and whether the customer has accepted delivery and a right to payment exists. These products are typically sold at prevailing market prices. We allocate variable market-based consideration to deliveries (performance obligations) in the current period as that consideration relates specifically to our efforts to transfer control of current period deliveries to the customer and represents the amount we expect to be entitled to in exchange for the related products. Payment is typically due within 30 days or less.

Practical Expedients

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

Revenue from Contracts with Customers

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

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2018      2017*      2018      2017*  
  

 

 

    

 

 

 

Revenue from contracts with customers

   $ 7,546        4,636        20,834        14,428  

Revenue from contracts outside the scope of ASC Topic 606

           

Physical contracts meeting the definition of a derivative

     1,897        2,050        5,877        6,631  

Financial derivative contracts

     6        2        40        (72

 

 

Consolidated sales and other operating revenues

   $ 9,449        6,688        26,751        20,987  

 

 

*Under the modified retrospective approach, prior period amounts have not been adjusted upon adoption of ASC Topic 606.

 

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Revenues from contracts outside the scope of ASC Topic 606 relate primarily to physical gas contracts at market prices which qualify as derivatives accounted for under ASC Topic 815, “Derivatives and Hedging” and for which we have not elected NPNS. There is no significant difference in contractual terms or the policy for recognition of revenue from these contracts and those within the scope of ASC Topic 606. The following disaggregation of revenues is provided in conjunction with Note 21—Segment Disclosures and Related Information:

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2018      2017*      2018      2017*  
  

 

 

    

 

 

 

Revenue from Outside the Scope of ASC Topic 606 by Segment

           

Lower 48

   $ 1,534        1,563        4,547        4,834  

Canada

     87        161        374        680  

Europe and North Africa

     276        326        956        1,117  

 

 

Physical contracts meeting the definition of a derivative

   $ 1,897        2,050        5,877        6,631  

 

 

*Under the modified retrospective approach, prior period amounts have not been adjusted upon adoption of ASC Topic 606.

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2018      2017*      2018      2017*  
  

 

 

    

 

 

 

Revenue from Outside the Scope of ASC Topic 606 by Product

           

Crude oil

   $ 267        171        843        530  

Natural gas

     1,522        1,811        4,775        5,870  

Other

     108        68        259        231  

 

 

Physical contracts meeting the definition of a derivative

   $ 1,897        2,050        5,877        6,631  

 

 

*Under the modified retrospective approach, prior period amounts have not been adjusted upon adoption of ASC Topic 606.

Receivables and Contract Liabilities

Receivables from Contracts with Customers

At September 30, 2018, the “Accounts and notes receivable” line on our consolidated balance sheet included trade receivables of $3,129 million compared with $2,675 million at December 31, 2017, and included both contracts with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC Topic 606. We typically receive payment within 30 days or less (depending on the terms of the invoice) once delivery is made. Revenues that are outside the scope of ASC Topic 606 relate primarily to physical gas sales contracts at market prices for which we do not elect NPNS and are therefore accounted for as a derivative under ASC Topic 815. There is little distinction in the nature of the customer or credit quality of trade receivables associated with gas sold under contracts for which NPNS has not been elected compared with trade receivables where NPNS has been elected.

 

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Contract Liabilities from Contracts with Customers

We have entered into contractual arrangements where we license proprietary technology to customers related to the optimization process for operating LNG plants. The agreements typically provide for negotiated payments to be made at stated milestones. The payments are not directly related to our performance under the contract and are recorded as deferred revenue to be recognized as revenue when the customer can utilize and benefit from their right to use the license. Payments are received in installments over the construction period.

 

              
     Millions of Dollars  

Contract Liabilities

  

At January 1, 2018

   $ 251  

Contractual payments received*

     81  

Revenue recognized

     (148

 

 

At September 30, 2018

   $ 184  

 

 

Amounts Recognized in the Consolidated Balance Sheet at September 30, 2018

  

Current liabilities

   $ 147  

Noncurrent liabilities

     37  

 

 
   $ 184  

 

 

*Includes $14 million and $81 million for the three- and nine-month periods of 2018, respectively.

For the three- and nine-month periods of 2018, we recognized revenue of $73 million and $148 million, respectively, in the “Sales and other operating revenues” line on our consolidated income statement. We expect to recognize the contract liabilities as of September 30, 2018, as revenue between the remainder of 2018 and 2022 as construction is completed.

Prior to the adoption of ASC Topic 606, contractual cash payments received would have been recognized as “Sales and other operating revenues” when received.

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 primarily defined by geographic region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International.

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

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

 

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Analysis of Results by Operating Segment

 

                                                           
     Millions of Dollars  
     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2018     2017*     2018     2017*  
  

 

 

   

 

 

 

Sales and Other Operating Revenues

        

Alaska

   $ 1,493       932       4,281       3,010  

 

 

Lower 48

     4,543       3,102       12,347       9,422  

Intersegment eliminations

     (14     (2     (18     (7

 

 

Lower 48

     4,529       3,100       12,329       9,415  

 

 

Canada

     735       699       2,436       2,357  

Intersegment eliminations

     (308     (155     (853     (330

 

 

Canada

     427       544       1,583       2,027  

 

 

Europe and North Africa

     1,574       1,110       4,826       3,564  

Asia Pacific and Middle East

     1,348       959       3,570       2,877  

Corporate and Other

     78       43       162       94  

 

 

Consolidated sales and other operating revenues

   $ 9,449       6,688       26,751       20,987  

 

 

Sales and Other Operating Revenues by Geographic Location

        

United States

   $ 6,025       4,038       16,617       12,440  

Australia

     515       323       1,258       1,050  

Canada

     427       544       1,583       2,027  

China

     262       148       616       511  

Indonesia

     234       191       662       554  

Libya**

     264       91       802       315  

Malaysia

     339       297       1,039       768  

Norway

     734       583       2,112       1,751  

United Kingdom

     574       437       1,911       1,498  

Other foreign countries

     75       36       151       73  

 

 

Worldwide consolidated

   $ 9,449       6,688       26,751       20,987  

 

 

Sales and Other Operating Revenues by Product

        

Crude Oil

   $ 5,277       2,947       14,503       9,387  

Natural gas

     2,503       2,496       7,593       7,949  

Natural gas liquids

     351       238       847       745  

Other***

     1,318       1,007       3,808       2,906  

 

 

Consolidated sales and other operating revenues by product

   $ 9,449       6,688       26,751       20,987  

 

 

    *Under the modified retrospective approach, prior period amounts have not been adjusted upon adoption of ASC Topic 606.

  **Included in “Other foreign countries” in prior periods.

***Includes LNG and bitumen.

 

 

 

Net Income (Loss) Attributable to ConocoPhillips

        

Alaska

   $ 427       103       1,369       291  

Lower 48

     513       (97     1,231       (2,995

Canada

     34       280       2       2,607  

Europe and North Africa

     241       85       776       379  

Asia Pacific and Middle East

     577       396       1,504       (1,540

Other International

     316       (20     267       (77

Corporate and Other

     (247     (327     (760     (1,099

 

 

Consolidated net income (loss) attributable to ConocoPhillips

   $ 1,861       420       4,389       (2,434

 

 

 

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     Millions of Dollars  
     September 30
2018
     December 31
2017
 
  

 

 

 

Total Assets

     

Alaska

   $ 12,688        12,108  

Lower 48

     15,308        14,632  

Canada

     5,950        6,214  

Europe and North Africa

     11,895        11,870  

Asia Pacific and Middle East

     16,611        16,985  

Other International

     315        97  

Corporate and Other

     7,789        11,456  

 

 

Consolidated total assets

   $ 70,556        73,362  

 

 

Note 22—Income Taxes

Our effective tax rates for the three- and nine-month periods ended September 30, 2018, were 36 percent and 39 percent, respectively, compared with 33 percent and 39 percent for the same periods of 2017. The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes were:

 

                                                                                                                       
     Millions of Dollars     Percent of Pre-Tax Income (Loss)  
     Three Months Ended
September 30
    Nine Months Ended
September 30
    Three Months Ended
September 30
    Nine Months Ended
September 30
 
  

 

 

   

 

 

 
     2018     2017     2018     2017     2018     2017     2018     2017  
  

 

 

   

 

 

 

Income (loss) before income taxes

                

United States

   $ 893       (197     2,799       (5,259     30.7     (30.2     38.3       133.5  

Foreign

     2,013       850       4,502       1,319       69.3       130.2       61.7       (33.5

 

 
   $ 2,906       653       7,301       (3,940     100.0     100.0       100.0       100.0  

 

 

Federal statutory income tax

   $ 610       228       1,533       (1,379     21.0     35.0       21.0       35.0  

Non-U.S. effective tax rates

     479       137       1,339       503       16.5       21.0       18.3       (12.8

Canada disposition

           (8           (1,176           (1.2           29.8  

Recovery of outside basis

     (16     (118     (19     (957     (0.6     (18.1     (0.2     24.3  

Adjustment to tax reserves

     (3     (17     2       764       (0.1     (2.6           (19.4

Adjustment to valuation allowance

     (29           13       24       (1.0           0.2       (0.6

APLNG impairment

                       834                         (21.2

State income tax

     38       14       83       (98     1.3       2.1       1.1       2.5  

Enhanced oil recovery credit

     (36     (5     (73     (49     (1.3     (0.8     (1.0     1.2  

Other

     (10     (14     (4     (15     (0.3     (2.2           0.5  

 

 
   $ 1,033       217       2,874       (1,549     35.5     33.2       39.4       39.3  

 

 

The effective tax rate represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items and adjustments to our valuation allowance. The effective tax rate for the three- and nine- month periods ended September 30, 2018, also reflects the reduced federal corporate income tax rate as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Legislation) in December 2017 and the impact of a change in the mix of our domestic and foreign earnings.

In the third quarter of 2018, we recognized $53 million of U.S. Federal tax benefit related to previously unrecognized deferred tax assets associated with the income from the PDVSA settlement agreement. This benefit is included in the “Adjustment to Valuation Allowance” and “Recovery of Outside Basis” lines of the table above. Any future amounts received under the PDVSA settlement should result in nominal U.S. income tax implications due to the availability of unrecognized U.S. tax attributes to offset the receipts. For additional information, see Note 13—Contingencies and Commitments.

 

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Our effective tax rate for the three- and nine-month periods ended September 30, 2017, was favorably impacted by a tax benefit of $114 million related to our prior decision to exit Nova Scotia deepwater exploration. This benefit is included in the “Recovery of Outside Tax Basis” line of the table above.

Our effective tax rate for the nine-month period ended September 30, 2017, was also favorably impacted by a tax benefit of $1,176 million, associated with our 2017 disposition of various assets in Canada. This tax benefit was primarily associated with a deferred tax recovery related to the Canadian capital gains exclusion component of the 2017 Canada disposition and the recognition of previously unrealizable Canadian capital asset tax basis. The Canada disposition, along with the associated restructuring of our Canadian operations, may generate an additional tax benefit of $822 million. However, since we believe it is not likely we will receive a corresponding cash tax savings, this $822 million benefit has been offset by a full tax reserve.

The impairment of our APLNG investment in the second quarter of 2017 did not generate a tax benefit. See the “APLNG” section of Note 6—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment.

We have not significantly revised the tax accounting impacts of our 2017 provisional estimates under Staff Accounting Bulletin 118 and ASU No. 2018-05, “Income Taxes” (Topic 740), but we are continuing to gather information and are waiting for further guidance from the Internal Revenue Service, Securities Exchange Commission and FASB on the Tax Legislation.

The Tax Legislation subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, “Accounting for Global Intangible Low-Taxed Income,” states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. At September 30, 2018, the current-year U.S. income tax impact related to GILTI activities is immaterial.

Note 23—New Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (ASU No. 2016-02), which establishes comprehensive accounting and financial reporting requirements for leasing arrangements. This ASU supersedes the existing requirements in FASB ASC Topic 840, “Leases” (FASB ASC Topic 840), and requires lessees to recognize substantially all lease assets and lease liabilities on the balance sheet. The provisions of ASU No. 2016-02 also modify the definition of a lease and outline requirements for recognition, measurement, presentation and disclosure of leasing arrangements by both lessees and lessors. The ASU is effective for interim and annual periods beginning after December 15, 2018, and early adoption of the standard is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply the provisions of ASU No. 2016-02 to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements.

ASU No. 2016-02 was amended in January 2018 by the provisions of ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” (ASU No. 2018-01), and in July 2018 by the provisions of ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (ASU No. 2018-10). In addition, the FASB issued ASU No. 2018-11, “Targeted Improvements” (ASU No. 2018-11), in July 2018 to set forth certain additional practical expedients for lessors and to provide entities with an option to apply the provisions of ASU No. 2016-02, as amended, to leasing arrangements existing at or entered into after the ASU’s effective date of adoption (the “Optional Transition Method”). Entities that elect to utilize the Optional Transition Method would not apply the provisions of ASU No. 2016-02, as amended, to comparative periods presented in the financial statements.

 

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We plan to adopt ASU No. 2016-02, as amended, effective January 1, 2019, utilizing the Optional Transition Method. Accordingly, the comparative periods presented in the financial statements prior to January 1, 2019, will be presented pursuant to the existing requirements of FASB ASC Topic 840 and not be adjusted upon the adoption of the ASU. We continue to evaluate the ASU to determine the impact of adoption on our consolidated financial statements and disclosures, accounting policies and systems, business processes, and internal controls. We are currently implementing a third-party lease accounting software solution to facilitate the ongoing accounting and financial reporting requirements of the ASU. We also continue to monitor proposals issued by the FASB to clarify the ASU and certain industry implementation issues.

While our evaluation of ASU No. 2016-02 and related implementation activities are ongoing, we expect the adoption of the ASU to have a material impact to our consolidated financial statements. Such impact is expected to relate primarily to our balance sheet, resulting from the initial recognition of lease liabilities and corresponding right-of-use assets for our population of operating leases, as well as enhanced disclosure of our leasing arrangements. We also expect the adoption of ASU No. 2016-02 to result in certain changes being made to our existing accounting policies and systems, business processes, and internal controls.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASU No. 2016-13), which sets forth the current expected credit loss model, a new forward-looking impairment model for certain financial instruments based on expected losses rather than incurred losses. The ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption of the standard is permitted. Entities are required to adopt ASU No. 2016-13 using a modified retrospective approach, subject to certain limited exceptions. We are currently evaluating the impact of the adoption of this ASU.

 

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Supplementary Information—Condensed Consolidating Financial Information

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

 

   

ConocoPhillips, ConocoPhillips Company and ConocoPhillips Canada Funding Company I (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.

In March 2018, ConocoPhillips Company received a $1.2 billion loan repayment from a nonguarantor subsidiary to settle certain accumulated intercompany balances. This transaction had no impact on our consolidated financial statements.

In June 2018, ConocoPhillips received a $2.5 billion return of capital from ConocoPhillips Company to settle certain accumulated intercompany balances. The transaction had no impact on our consolidated financial statements.

In the second quarter of 2018, ConocoPhillips Company received $1.2 billion of loan repayments from a nonguarantor subsidiary to settle certain accumulated intercompany balances. This transaction had no impact on our consolidated financial statements.

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

 

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     Millions of Dollars  
     Three Months Ended September 30, 2018  
Income Statement    ConocoPhillips     ConocoPhillips
Company
    ConocoPhillips
Canada
Funding
Company I
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Revenues and Other Income

            

Sales and other operating revenues

   $       4,330             5,119             9,449  

Equity in earnings of affiliates

     1,903       2,166             256       (4,031     294  

Gain on dispositions

           75             38             113  

Other income

           (61           370             309  

Intercompany revenues

     9       34       42       1,619       (1,704      

 

 

Total Revenues and Other Income

     1,912       6,544       42       7,402       (5,735     10,165  

 

 

Costs and Expenses

            

Purchased commodities

           3,880             1,196       (1,546     3,530  

Production and operating expenses

           298             1,085       (16     1,367  

Selling, general and administrative expenses

     2       99             18             119  

Exploration expenses

           41             62             103  

Depreciation, depletion and amortization

           152             1,342             1,494  

Impairments

           1             43             44  

Taxes other than income taxes

           33             279             312  

Accretion on discounted liabilities

           4             85             89  

Interest and debt expense

     72       156       37       63       (142     186  

Foreign currency transaction (gains) losses

     (12     3       42       (28           5  

Other expenses

           6             4             10  

 

 

Total Costs and Expenses

     62       4,673       79       4,149       (1,704     7,259  

 

 

Income (Loss) before income taxes

     1,850       1,871       (37     3,253       (4,031     2,906  

Income tax provision (benefit)

     (11     (32     1       1,075             1,033  

 

 

Net income (loss)

     1,861       1,903       (38     2,178       (4,031     1,873  

Less: net income attributable to noncontrolling interests

                       (12           (12

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ 1,861       1,903       (38     2,166       (4,031     1,861  

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 2,056       2,098       5       2,330       (4,433     2,056  

 

 
Income Statement    Three Months Ended September 30, 2017*  

Revenues and Other Income

            

Sales and other operating revenues

   $       2,997             3,691             6,688  

Equity in earnings of affiliates

     486       348             119       (757     196  

Gain (Loss) on dispositions

           879             (633           246  

Other income

           12             53             65  

Intercompany revenues

     10       77       43       774       (904      

 

 

Total Revenues and Other Income

     496       4,313       43       4,004       (1,661     7,195  

 

 

Costs and Expenses

            

Purchased commodities

           2,666             1,001       (741     2,926  

Production and operating expenses

           216             1,007       (1     1,222  

Selling, general and administrative expenses

     2       97             11             110  

Exploration expenses

           29             44             73  

Depreciation, depletion and amortization

           203             1,405             1,608  

Impairments

           1             5             6  

Taxes other than income taxes

           29             146             175  

Accretion on discounted liabilities

           8             81             89  

Interest and debt expense

     86       169       37       121       (162     251  

Foreign currency transaction (gains) losses

     (27     1       77       (46           5  

Other expenses

     50       29             (2           77  

 

 

Total Costs and Expenses

     111       3,448       114       3,773       (904     6,542  

 

 

Income (Loss) before income taxes

     385       865       (71     231       (757     653  

Income tax provision (benefit)

     (35     379       6       (133           217  

 

 

Net income (loss)

     420       486       (77     364       (757     436  

Less: net income attributable to noncontrolling interests

                       (16           (16

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ 420       486       (77     348       (757     420  

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 1,470       1,536       22       864       (2,422     1,470  

 

 

*Certain amounts have been reclassified to conform to the current-period presentation resulting from the adoption of ASU No. 2017-07.

  See Note 2Changes in Accounting Principles, for additional information.

See Notes to Consolidated Financial Statements.

 

36


Table of Contents
                                                                                         
     Millions of Dollars  
     Nine Months Ended September 30, 2018  
Income Statement    ConocoPhillips     ConocoPhillips
Company
    ConocoPhillips
Canada
Funding
Company I
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Revenues and Other Income

            

Sales and other operating revenues

   $       11,774             14,977             26,751  

Equity in earnings of affiliates

     4,562       5,398             833       (10,026     767  

Gain on dispositions

           78             97             175  

Other income

           230             443             673  

Intercompany revenues

     28       124       129       4,227       (4,508      

 

 

Total Revenues and Other Income

     4,590       17,604       129       20,577       (14,534     28,366  

 

 

Costs and Expenses

            

Purchased commodities

           10,571             3,757       (4,020     10,308  

Production and operating expenses

           723             3,181       (53     3,851  

Selling, general and administrative expenses

     7       254             80       (5     336  

Exploration expenses

           132             135             267  

Depreciation, depletion and amortization

           427             3,917             4,344  

Impairments

           (9           30             21  

Taxes other than income taxes

           111             657             768  

Accretion on discounted liabilities

           13             253             266  

Interest and debt expense

     219       456       110       192       (430     547  

Foreign currency transaction (gains) losses

     22       (6     (43     34             7  

Other expenses

           348             2             350  

 

 

Total Costs and Expenses

     248       13,020       67       12,238       (4,508     21,065  

 

 

Income before income taxes

     4,342       4,584       62       8,236       (10,026     7,301  

Income tax provision (benefit)

     (47     22       (5     2,904             2,874  

 

 

Net income

     4,389       4,562       67       5,332       (10,026     4,427  

Less: net income attributable to noncontrolling interests

                       (38           (38

 

 

Net Income Attributable to ConocoPhillips

   $ 4,389       4,562       67       5,294       (10,026     4,389  

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

   $ 4,407       4,580       (13     5,186       (9,856     4,407  

 

 
Income Statement    Nine Months Ended September 30, 2017*  

Revenues and Other Income

            

Sales and other operating revenues

   $       9,066             11,921             20,987  

Equity in earnings (losses) of affiliates

     (2,092     (776           432       3,010       574  

Gain on dispositions

           908             1,236             2,144  

Other income

     1       27             115             143  

Intercompany revenues

     39       222       126       2,360       (2,747      

 

 

Total Revenues and Other Income

     (2,052     9,447       126       16,064       263       23,848  

 

 

Costs and Expenses

            

Purchased commodities

           8,068             3,229       (2,257     9,040  

Production and operating expenses

           483             3,358       (3     3,838  

Selling, general and administrative expenses

     8       244             55       (5     302  

Exploration expenses

           433             287             720  

Depreciation, depletion and amortization

           658             4,554             5,212  

Impairments

           1,075             5,400             6,475  

Taxes other than income taxes

           114             490             604  

Accretion on discounted liabilities

           28             248             276  

Interest and debt expense

     340       505       110       399       (482     872  

Foreign currency transaction (gains) losses

     (49     3       145       (71           28  

Other expenses

     267       159             (5           421  

 

 

Total Costs and Expenses

     566       11,770       255       17,944       (2,747     27,788  

 

 

Loss before income taxes

     (2,618     (2,323     (129     (1,880     3,010       (3,940

Income tax provision (benefit)

     (184     (231     12       (1,146           (1,549

 

 

Net loss

     (2,434     (2,092     (141     (734     3,010       (2,391

Less: net income attributable to noncontrolling interests

                       (43           (43

 

 

Net Loss Attributable to ConocoPhillips

   $ (2,434     (2,092     (141     (777     3,010       (2,434

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

   $ (1,533     (1,191     39       (37     1,189       (1,533

 

 

*Certain amounts have been reclassified to conform to the current-period presentation resulting from the adoption of ASU No. 2017-07.

See Note 2—Changes in Accounting Principles, for additional information.

See Notes to Consolidated Financial Statements.

 

37


Table of Contents
                                                                                         
     Millions of Dollars  
     September 30, 2018  
Balance Sheet    ConocoPhillips     ConocoPhillips
Company
     ConocoPhillips
Canada
Funding
Company I
    All Other
Subsidiaries
     Consolidating
Adjustments
    Total
Consolidated
 

Assets

              

Cash and cash equivalents

   $       16              3,700              3,716  

Short-term investments

                        875              875  

Accounts and notes receivable

     6       2,614        1       5,301        (3,423     4,499  

Investment in Cenovus Energy

           2,086