10-Q 1 d734823d10q.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 March 31, 2019

or

 

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

For the transition period from              to             

Commission file number: 001-32395

 

 

ConocoPhillips

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   01-0562944

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

925 N. Eldridge Parkway Houston, TX 77079

(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

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

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

 

Title of each class

  

Trading

Symbol(s)

  

Name of each exchange on which registered

Common Stock, $.01 Par Value

   COP    New York Stock Exchange

7% Debentures due 2029

   CUSIP-718507BK1    New York Stock Exchange

The registrant had 1,130,175,935 shares of common stock, $.01 par value, outstanding at March 31, 2019.

 

 

 


Table of Contents

CONOCOPHILLIPS

TABLE OF CONTENTS

 

     Page  

Commonly Used Abbreviations

     1  

Part I—Financial Information

  

Item 1. Financial Statements

  

Consolidated Income Statement

     2  

Consolidated Statement of Comprehensive Income

     3  

Consolidated Balance Sheet

     4  

Consolidated Statement of Cash Flows

     5  

Notes to Consolidated Financial Statements

     6  

Supplementary Information—Condensed Consolidating Financial Information

     34  

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

     38  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     59  

Item 4. Controls and Procedures

     59  

Part II—Other Information

  

Item 1. Legal Proceedings

     59  

Item 1A. Risk Factors

     59  

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

     60  

Item 6. Exhibits

     61  

Signature

     62  


Table of Contents

COMMONLY USED ABBREVIATIONS

The following industry-specific, accounting and other terms, and abbreviations may be commonly used in this report.

 

Currencies

  

$

   U.S. dollar

CAD

   Canadian dollar

GBP

   British pound

Units of Measurement

BOE

   barrels of oil equivalent

MBD

   thousands of barrels per day

MCF

   thousand cubic feet

MMBOE

   million barrels of oil equivalent

MBOED

   thousands of barrels of oil equivalent per day

MMBTU

   million British thermal units

MMCFD

   million cubic feet per day

Industry

  

CBM

   coalbed methane

E&P

   exploration and production

FEED

   front-end engineering and design

FPS

   floating production system

FPSO

   floating production, storage and offloading

JOA

   joint operating agreement

LNG

   liquefied natural gas

NGL or NGLs

   natural gas liquids

OPEC

   Organization of Petroleum Exporting Countries

PSC

   production sharing contract

PUD or PUDs

   proved undeveloped reserves

SAGD

   steam-assisted gravity drainage

WCS

   Western Canada Select

WTI

   West Texas Intermediate

Accounting

  

ARO

   asset retirement obligation

ASC

   accounting standards codification

ASU

   accounting standards update

DD&A

   depreciation, depletion and amortization

FASB

   Financial Accounting Standards Board

FIFO

   first-in, first-out

G&A

   general and administrative

GAAP

   generally accepted accounting principles

LIFO

   last-in, first-out

NPNS

   normal purchase normal sale

PP&E

   properties, plants and equipment

SAB

   staff accounting bulletin

VIE or VIEs

   variable interest entity

Miscellaneous

  

EPA

   Environmental Protection Agency

EU

   European Union

FERC

   Federal Energy Regulatory Commission

GHG

   greenhouse gas

HSE

   health, safety and environment

ICC

   International Chamber of Commerce

ICSID

   World Bank’s International Centre for Settlement of Investment Disputes

IRS

   Internal Revenue Service

OTC

   over-the-counter

SEC

   U.S. Securities and Exchange Commission

TSR

   total shareholder return

U.K.

   United Kingdom

U.S.

   United States of America
 

 

1


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1.

FINANCIAL STATEMENTS

 

Consolidated Income Statement      ConocoPhillips  

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019     2018  
  

 

 

 

Revenues and Other Income

    

Sales and other operating revenues

   $ 9,150       8,798  

Equity in earnings of affiliates

     188       208  

Gain on dispositions

     17       7  

Other income (loss)

     702       (52

 

 

Total Revenues and Other Income

     10,057       8,961  

 

 

Costs and Expenses

    

Purchased commodities

     3,675       3,714  

Production and operating expenses

     1,271       1,171  

Selling, general and administrative expenses

     153       99  

Exploration expenses

     110       95  

Depreciation, depletion and amortization

     1,546       1,412  

Impairments

     1       12  

Taxes other than income taxes

     275       183  

Accretion on discounted liabilities

     86       88  

Interest and debt expense

     233       184  

Foreign currency transaction losses

     12       30  

Other expenses

     8       197  

 

 

Total Costs and Expenses

     7,370       7,185  

 

 

Income before income taxes

     2,687       1,776  

Income tax provision

     841       876  

 

 

Net income

     1,846       900  

Less: net income attributable to noncontrolling interests

     (13     (12

 

 

Net Income Attributable to ConocoPhillips

   $ 1,833       888  

 

 

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

    

Basic

   $ 1.61       0.75  

Diluted

     1.60       0.75  

 

 

Average Common Shares Outstanding (in thousands)

    

Basic

     1,139,463       1,179,792  

Diluted

     1,146,515       1,186,454  

 

 

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
March 31
 
     2019     2018  
  

 

 

 

Net Income

   $ 1,846       900  

Other comprehensive income

    

Defined benefit plans

    

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

     (8     (10

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

     26       24  

Income taxes on defined benefit plans

     (5     (3

 

 

Defined benefit plans, net of tax

     13       11  

 

 

Foreign currency translation adjustments

     175       78  

Income taxes on foreign currency translation adjustments

     1        

 

 

Foreign currency translation adjustments, net of tax

     176       78  

 

 

Other Comprehensive Income, Net of Tax

     189       89  

 

 

Comprehensive Income

     2,035       989  

Less: comprehensive income attributable to noncontrolling interests

     (13     (12

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 2,022       977  

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Consolidated Balance Sheet      ConocoPhillips  

 

                             
     Millions of Dollars  
     March 31     December 31  
     2019     2018  
  

 

 

 

Assets

    

Cash and cash equivalents

   $ 6,218       5,915  

Short-term investments

     249       248  

Accounts and notes receivable (net of allowance of $11 million in 2019 and $25 million in 2018)

     3,701       3,920  

Accounts and notes receivable—related parties

     168       147  

Investment in Cenovus Energy

     1,805       1,462  

Inventories

     1,014       1,007  

Prepaid expenses and other current assets

     528       575  

 

 

Total Current Assets

     13,683       13,274  

Investments and long-term receivables

     9,302       9,329  

Loans and advances—related parties

     268       335  

Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $66,969 million in 2019 and $64,899 million in 2018)

     45,942       45,698  

Other assets

     2,303       1,344  

 

 

Total Assets

   $ 71,498       69,980  

 

 

Liabilities

    

Accounts payable

   $ 3,815       3,863  

Accounts payable—related parties

     31       32  

Short-term debt

     113       112  

Accrued income and other taxes

     1,539       1,320  

Employee benefit obligations

     470       809  

Other accruals

     1,402       1,259  

 

 

Total Current Liabilities

     7,370       7,395  

Long-term debt

     14,832       14,856  

Asset retirement obligations and accrued environmental costs

     7,730       7,688  

Deferred income taxes

     5,043       5,021  

Employee benefit obligations

     1,704       1,764  

Other liabilities and deferred credits

     1,838       1,192  

 

 

Total Liabilities

     38,517       37,916  

 

 

Equity

    

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

    

Issued (2019—1,794,681,042 shares; 2018—1,791,637,434 shares)

    

Par value

     18       18  

Capital in excess of par

     46,877       46,879  

Treasury stock (at cost: 2019—664,505,107 shares; 2018—653,288,213 shares)

     (43,656     (42,905

Accumulated other comprehensive loss

     (5,914     (6,063

Retained earnings

     35,534       34,010  

 

 

Total Common Stockholders’ Equity

     32,859       31,939  

Noncontrolling interests

     122       125  

 

 

Total Equity

     32,981       32,064  

 

 

Total Liabilities and Equity

   $ 71,498       69,980  

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Consolidated Statement of Cash Flows      ConocoPhillips  

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019     2018  
  

 

 

 

Cash Flows From Operating Activities

    

Net Income

   $ 1,846       900  

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

    

Depreciation, depletion and amortization

     1,546       1,412  

Impairments

     1       12  

Dry hole costs and leasehold impairments

     27       20  

Accretion on discounted liabilities

     86       88  

Deferred taxes

     (1     65  

Undistributed equity earnings

     24       (34

Gain on dispositions

     (17     (7

Other

     (564     29  

Working capital adjustments

    

Decrease in accounts and notes receivable

     179       139  

Decrease (increase) in inventories

     (4     12  

Decrease (increase) in prepaid expenses and other current assets

     62       (22

Decrease in accounts payable

     (142     (181

Decrease in taxes and other accruals

     (149     (34

 

 

Net Cash Provided by Operating Activities

     2,894       2,399  

 

 

Cash Flows From Investing Activities

    

Capital expenditures and investments

     (1,637     (1,535

Working capital changes associated with investing activities

     107       28  

Proceeds from asset dispositions

     142       169  

Net sales (purchases) of short-term investments

     (1     1,593  

Collection of advances/loans—related parties

     62       59  

Other

     (150     (392

 

 

Net Cash Used in Investing Activities

     (1,477     (78

 

 

Cash Flows From Financing Activities

    

Repayment of debt

     (19     (2,888

Issuance of company common stock

     (38     (18

Repurchase of company common stock

     (752     (500

Dividends paid

     (350     (338

Other

     (14     (32

 

 

Net Cash Used in Financing Activities

     (1,173     (3,776

 

 

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

     75       125  

 

 

Net Change in Cash, Cash Equivalents and Restricted Cash

     319       (1,330

Cash, cash equivalents and restricted cash at beginning of period

     6,151       6,536  

 

 

Cash, Cash Equivalents and Restricted Cash at End of Period

   $ 6,470       5,206  

 

 

Restricted cash of $89 million and $163 million are included in the “Prepaid expenses and other current assets” and “Other assets” lines, respectively, of our Consolidated Balance Sheet as of March 31, 2019.

Restricted cash totaling $236 million is included in the “Other assets” line of our Consolidated Balance Sheet as of December 31, 2018.

See Notes to Consolidated Financial Statements.

 

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Notes to Consolidated Financial Statements      ConocoPhillips  

Note 1—Basis of Presentation

The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips and its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2018 Annual Report on Form 10-K.

Note 2—Changes in Accounting Principles

We adopted the provisions of FASB ASU No. 2016-02, “Leases,” and its amendments set forth by the provisions of ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842,” ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Targeted Improvements,” ASU No. 2018-20, “Narrow-Scope Improvements for Lessors,” and ASU No. 2019-01, “Codification Improvements,” collectively FASB ASC Topic 842, “Leases” (ASC Topic 842), beginning January 1, 2019.

ASC Topic 842 establishes comprehensive accounting and financial reporting requirements for leasing arrangements, supersedes the existing requirements in FASB ASC Topic 840, “Leases” (ASC Topic 840), and requires lessees to recognize substantially all lease assets and lease liabilities on the balance sheet. The provisions of ASC Topic 842 also modify the definition of a lease and outline requirements for recognition, measurement, presentation and disclosure of leasing arrangements by both lessees and lessors.    

We adopted ASC Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method, which permits us to apply the provisions of ASC Topic 842 to leasing arrangements existing at or entered into after January 1, 2019, and present in our financial statements comparative periods prior to January 1, 2019 under the historical requirements of ASC Topic 840. In addition, we elected to adopt the package of optional transition-related practical expedients, which among other things, allows us to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. Furthermore, we elected not to record assets and liabilities on our consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less.

The primary impact of applying ASC Topic 842 is the initial recognition of $998 million of lease liabilities and corresponding right-of-use assets on our consolidated balance sheet as of January 1, 2019, for leases classified as operating leases under ASC Topic 840, as well as enhanced disclosure of our leasing arrangements. Our accounting treatment for finance leases remains unchanged. In addition, there is no cumulative effect to retained earnings or other components of equity recognized as of January 1, 2019, and the adoption of ASC Topic 842 did not impact the presentation of our consolidated income statement or statement of cash flows.    See Note 15—Non-Mineral Leases for additional information related to the adoption of ASC Topic 842.

 

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We adopted the provisions of FASB ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” beginning January 1, 2019. The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, eliminating the stranded tax effects. The cumulative effect to our consolidated balance sheet at January 1, 2019 for the adoption of ASU No. 2018-02 was as follows:

 

                                            
     Millions of Dollars  
     December 31
2018
   

ASU No. 2018-02

Adjustments

    January 1
2019
 
  

 

 

 

Equity

      

Accumulated other comprehensive loss

   $ (6,063     (40     (6,103

Retained earnings

     34,010       40       34,050  

 

 

For additional information regarding the impact of the adoption of ASU No. 2018-02, see Note 16—Accumulated Other Comprehensive Loss.

Note 3—Variable Interest Entities

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 CBM, as well as LNG processing and export marketing. As a result, we do not consolidate APLNG, and it is accounted for as an equity method investment.

As of March 31, 2019, 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 11—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.

At March 31, 2019, the carrying value of our equity method investment in MWCC was $126 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.

 

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Note 4—Inventories

Inventories consisted of the following:

 

                             
     Millions of Dollars  
     March 31
2019
     December 31
2018
 
  

 

 

 

Crude oil and natural gas

   $ 419        432  

Materials and supplies

     595        575  

 

 
   $ 1,014        1,007  

 

 

Inventories valued on the LIFO basis totaled $248 million and $292 million at March 31, 2019 and December 31, 2018, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was approximately $166 million and $75 million at March 31, 2019 and December 31, 2018, respectively.

Note 5—Assets Sold and Planned Dispositions

Assets Sold

On April 15, 2019, we completed the sale of our 30 percent interest in Greater Sunrise Fields to the government of Timor-Leste for $350 million before customary adjustments and will recognize an after-tax gain of approximately $50 million in the second quarter. The Greater Sunrise Fields are included in our Asia Pacific and Middle East segment.

Planned Dispositions

In January 2019, we entered into agreements to sell our 12.4 percent ownership interests in the Golden Pass LNG Terminal and Golden Pass Pipeline. We have also entered into agreements to amend our contractual obligations for retaining use of the facilities. As a result of entering into these agreements, we recorded a before-tax impairment of $60 million in the first quarter of 2019 which is included in the “Equity in earnings of affiliates” line on our consolidated income statement. The transaction is subject to regulatory approval. Both ownership interests are accounted for as equity affiliates in our Lower 48 segment. See Note 14—Fair Value Measurement for additional information.

In April 2019, we entered into an agreement to sell two ConocoPhillips U.K. subsidiaries to Chrysaor E&P Limited for $2.675 billion plus interest and customary adjustments. Together the subsidiaries indirectly hold the company’s exploration and production assets in the U.K. As of March 31, 2019, the net carrying value was approximately $0.8 billion, with $1.6 billion of PP&E, $0.5 billion of working capital, $0.4 billion of cumulative foreign currency translation adjustments, and deferred tax assets of $0.3 billion, offset by $2.0 billion of ARO. As part of the transaction, we expect to recognize a U.S. tax benefit of $0.2 billion in the second quarter of 2019 related to a previously unrecognizable U.S. tax basis in the subsidiaries to be sold. Depending on the timing of regulatory approval and other specific conditions precedent, we anticipate recognizing a gain of approximately $2 billion before- and after-tax on completion of the sale in the second half of 2019, subject to customary adjustments and foreign exchange impacts. The subsidiaries met held for sale criteria in April 2019. Results of operations for the U.K. are reported within our Europe and North Africa segment.

 

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Note 6—Investments, Loans and Long-Term Receivables

APLNG

APLNG executed project financing agreements for an $8.5 billion project finance facility in 2012. The $8.5 billion project finance facility was initially composed of financing agreements executed by APLNG with the Export-Import Bank of the United States for approximately $2.9 billion, the Export-Import Bank of China for approximately $2.7 billion, and a syndicate of Australian and international commercial banks for approximately $2.9 billion. All amounts have been drawn from the facility. APLNG made its first principal and interest repayment in March 2017 and is scheduled to make bi-annual payments until March 2029.

APLNG made a voluntary repayment of $1.4 billion to the Export-Import Bank of China in September 2018. At the same time, APLNG obtained a United States Private Placement (USPP) bond facility of $1.4 billion. APLNG made its first interest payment in March 2019, and principal payments are scheduled to commence in September 2023, with bi-annual payments due on the facility until September 2030.

During the first quarter of 2019, APLNG refinanced $3.2 billion of existing project finance debt through two transactions. As a result of the first transaction, APLNG obtained a commercial bank facility of $2.6 billion. Interest and principal payments are scheduled to commence in September 2019, with bi-annual payments due on the facility until March 2028. Through the second transaction, APLNG obtained a USPP bond facility of $0.6 billion. Interest payments are scheduled to commence in September 2019, and principal payments are scheduled to commence in September 2023, with bi-annual payments due on the facility until September 2030.

In conjunction with the $3.2 billion debt obtained during the first quarter of 2019 to refinance existing project finance debt, APLNG made voluntary repayments of $2.2 billion and $1.0 billion to a syndicate of Australian and international commercial banks and the Export-Import Bank of China, respectively.

At March 31, 2019, a balance of $7.0 billion was outstanding on the facilities. See Note 11—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, for additional information.

At March 31, 2019, the carrying value of our equity method investment in APLNG was $7,589 million. The balance is included in the “Investments and long-term receivables” line on our consolidated balance sheet.

Loans and Long-Term Receivables

As part of our normal ongoing business operations, and consistent with industry practice, we enter into numerous agreements with other parties to pursue business opportunities. Included in such activity are loans made to certain affiliated and non-affiliated companies. At March 31, 2019, significant loans to affiliated companies included $399 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 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 208 million Cenovus Energy common shares, which, at closing, approximated 16.9 percent of issued and outstanding Cenovus common stock. The fair value and cost basis of our investment in 208 million Cenovus Energy common shares at closing was $1.96 billion based on a price of $9.41 per share on the New York Stock Exchange.

Our investment on our consolidated balance sheet as of March 31, 2019, is carried at fair value of $1.81 billion, reflecting the closing price of Cenovus Energy shares on the New York Stock Exchange of $8.68 per share on the last trading day of the quarter, an increase of $343 million from $1.46 billion at year-end 2018. The increase in fair value represents the net unrealized gain recorded within the “Other income” line of our consolidated income statement in the first quarter of 2019 relating to the shares held at the reporting date. See Note 14—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 March 31, 2019, was $869 million, an increase of $13 million from $856 million at year-end 2018. No suspended wells were charged to dry hole expense during the first three months of 2019 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2018.

Note 9—Debt

Our revolving credit facility provides a total commitment of $6.0 billion and expires in May 2023. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. Our commercial paper program consists of the ConocoPhillips Company $6.0 billion program, 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 at March 31, 2019 or December 31, 2018. We had no direct outstanding borrowings or letters of credit under the revolving credit facility at March 31, 2019 or December 31, 2018. 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 March 31, 2019.

At March 31, 2019, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. If they are ever redeemed, we intend to refinance on a long-term basis, therefore, the VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.

 

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Note 10—Changes in Equity

The following tables reflect the changes in stockholders’ equity:

 

                                                                                                        
     Millions of Dollars  
     Attributable to ConocoPhillips        
     Common Stock                          
     Par
Value
     Capital in
Excess of
Par
    Treasury
Stock
    Accum. Other
Comprehensive
Income (Loss)
    Retained
Earnings
   

Non-

Controlling
Interests

    Total  
  

 

 

 

For the three months ended March 31, 2019

               

Balances at December 31, 2018

   $ 18        46,879       (42,905     (6,063     34,010       125       32,064  

Net income

              1,833       13       1,846  

Other comprehensive income

            189           189  

Dividends paid ($0.31 per common share)

              (350       (350

Repurchase of company common stock

          (752           (752

Distributions to noncontrolling interests and other

                (17     (17

Distributed under benefit plans

        (2             (2

Changes in Accounting Principles*

            (40     40          

Other

          1         1       1       3  

 

 

Balances at March 31, 2019

   $ 18        46,877       (43,656     (5,914     35,534       122       32,981  

 

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

 

For the three months ended March 31, 2018

               

Balances at December 31, 2017

   $ 18        46,622       (39,906     (5,518     29,391       194       30,801  

Net income

              888       12       900  

Other comprehensive income

            89           89  

Dividends paid ($0.29 per common share)

              (338       (338

Repurchase of company common stock

          (500           (500

Distributions to noncontrolling interests and other

                (34     (34

Distributed under benefit plans

        20               20  

Changes in Accounting Principles**

            58       (278       (220

 

 

Balances at March 31, 2018

   $ 18        46,642       (40,406     (5,371     29,663       172       30,718  

 

 

**Cumulative effect of the adoption of ASC Topic 606, “Revenue from Contracts with Customers”, and ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Liabilities”, at January 1, 2018.

Note 11—Guarantees

At March 31, 2019, 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 March 31, 2019, we had outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing March 2019 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 March 31, 2019, the carrying value of this guarantee is approximately $14 million.

 

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In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to 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 23 years. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $800 million ($1.4 billion in the event of intentional or reckless breach) and would become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

 

   

We have guaranteed the performance of APLNG with regard to certain other contracts executed in connection with the project’s continued development. The guarantees have remaining terms of up to 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 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 March 31, 2019, was approximately $90 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 March 31, 2019, were approximately $30 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 12—Contingencies and Commitments.

Note 12—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the 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

 

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respect to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

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

Environmental

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

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

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state and international sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those acquired in a purchase business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries.

At March 31, 2019, our consolidated balance sheet included a total environmental accrual of $176 million, compared with $178 million at December 31, 2018, 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.

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

 

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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 March 31, 2019, we had performance obligations secured by letters of credit of $274 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, commercial activities and services incident to the ordinary conduct of business.

In 2007, ConocoPhillips was unable to reach agreement with respect to the empresa mixta structure mandated by the Venezuelan government’s Nationalization Decree. As a result, Venezuela’s national oil company, Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’ interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In response to this expropriation, ConocoPhillips initiated international arbitration on November 2, 2007, with the ICSID. On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the decision that the expropriation was unlawful. In March 2019, the Tribunal unanimously ordered the government of Venezuela to pay ConocoPhillips $8.7 billion in compensation for the government’s unlawful expropriation of the company’s investments in Venezuela in 2007. ConocoPhillips has filed a request for recognition of the Award in several jurisdictions. An Application for Rectification of the Award requesting correction of certain calculations was filed on behalf of the government of Venezuela, which the ICSID Tribunal is now reviewing. Once resolved, the government of Venezuela may then seek annulment of the Award.

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

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

In February 2017, the 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

 

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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 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 a contribution under the JOA for damages found by this tribunal.

In June 2017, FAR Ltd. initiated arbitration before the ICC against ConocoPhillips Senegal B.V., now Woodside 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 late 2017, ConocoPhillips (U.K.) Limited (CPUKL) initiated United Nations Commission on International Trade and Law (UNCITRAL) arbitration against Vietnam in accordance with the U.K.-Vietnam Bilateral Investment Treaty relating to a tax dispute arising from the 2012 sale of ConocoPhillips (U.K.) Cuu Long Limited and ConocoPhillips (U.K.) Gama Limited. The tribunal was constituted in February 2018. The arbitration is ongoing.

In 2017 and 2018, cities, counties, and a state government in California, New York, Washington, Rhode Island and Maryland, as well as the Pacific Coast Federation of Fishermen’s Association, Inc., 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.

Several Louisiana parishes and individual landowners have filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages in connection with historical oil and gas operations in Louisiana. ConocoPhillips will vigorously defend against these lawsuits.

Note 13—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 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  
     March 31
2019
     December 31
2018
 
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $ 250        410  

Other assets

     30        40  

Liabilities

     

Other accruals

     258        370  

Other liabilities and deferred credits

     23        30  

 

 

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

 

                             
     Millions of Dollars  
     Three Months Ended
March  31
 
     2019     2018  
  

 

 

 

Sales and other operating revenues

   $ 19       43  

Other income (loss)

     (1     4  

Purchased commodities

     (20     (27

 

 

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

 

                             
     Open Position
Long/(Short)
 
     March 31
2019
    December 31
2018
 
  

 

 

 

Commodity

    

Natural gas and power (billions of cubic feet equivalent)

    

Fixed price

     (10     (17

Basis

     (11     (1

 

 

 

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Foreign Currency Exchange Derivatives

We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily relates to managing our cash-related 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.

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  
     March 31
2019
     December 31
2018
 
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $ 6        7  

Liabilities

     

Other accruals

     1        6  

 

 

The gains 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
March 31
 
     2019     2018  
  

 

 

 

Foreign currency transaction losses (gains)

   $ (2     (5

 

 

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

 

                                            
     In Millions
Notional Currency
 
    

March 31

2019

     December 31
2018
 
  

 

 

Foreign Currency Exchange Derivatives

        

Sell U.S. dollar, buy other currencies*

   USD      199        805  

Sell British pound, buy other currencies**

   GBP             21  

Buy British pound, sell euro

   GBP      19         

Sell Canadian dollar, buy U.S. dollar

   CAD      1,250        1,242  

 

 

    *Primarily British pound and Norwegian krone.

  **Primarily euro and Norwegian krone.

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.

 

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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 that we currently invest 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.

   

Government or government agency obligations: Short-term securities issued by the U.S. government or U.S. government agencies.

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.

 

                                                           
     Millions of Dollars  
     Carrying Amount  
     Cash and Cash Equivalents      Short-Term Investments  
     March 31
2019
     December 31
2018
     March 31
2019
     December 31
2018
 
  

 

 

 

Cash

   $ 897        876        

Time deposits

           

Remaining maturities from 1 to 90 days

     4,180        3,509        200         

Commercial paper

           

Remaining maturities from 1 to 90 days

     376        229        49        248  

Government obligations

           

Remaining maturities from 1 to 90 days

     765        1,301                

 

 
   $ 6,218        5,915        249        248  

 

 

Credit Risk

Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, 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.

 

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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 March 31, 2019 and December 31, 2018, was $50 million and $62 million, respectively. For these instruments, no collateral was posted as of March 31, or December 31, 2018. If our credit rating had been downgraded below investment grade on March 31, 2019, we would be required to post $50 million of additional collateral, either with cash or letters of credit.

Note 14—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. There were no material transfers between levels during 2019 or 2018.

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.

 

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

 

                                                                                                                       
     Millions of Dollars  
     March 31, 2019      December 31, 2018  
  

 

 

    

 

 

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

 

 

    

 

 

 

Assets

                       

Investment in Cenovus Energy

   $ 1,805                      1,805        1,462                      1,462  

Commodity derivatives

     166        91        23        280        236        181        33        450  

 

 

Total assets

   $ 1,971        91        23        2,085        1,698        181        33        1,912  

 

 

Liabilities

                       

Commodity derivatives

   $ 167        101        13        281        225        145        30        400  

 

 

Total liabilities

   $ 167        101        13        281        225        145        30        400  

 

 

The following table summarizes those commodity derivative balances subject to the right of setoff as presented on our consolidated balance sheet. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of setoff exists.

 

                                                                                                        
     Millions of Dollars  
                   Amounts Subject to Right of Setoff  
    

Gross

Amounts

Recognized

    

Amounts Not

Subject to

Right of Setoff

    

Gross

Amounts

    

Gross

Amounts

Offset

    

Net

Amounts

Presented

    

Cash

Collateral

    

Net

Amounts

 
  

 

 

 

March 31, 2019

                    

Assets

   $ 280        9        271        197        74               74  

Liabilities

     281        6        275        197        78        8        70  

 

 

December 31, 2018

                    

Assets

   $ 450        9        441        280        161               161  

Liabilities

     400        4        396        280        116        10        106  

 

 

At March 31, 2019 and December 31, 2018, 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
    

Before-

Tax Loss

 
  

 

 

    

 

 

    

 

 

 

Equity method investments

        

March 31, 2019

   $ 171        171        60  

 

 

 

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During the first quarter of 2019, the carrying values of our equity method investments in the Golden Pass LNG Terminal and Golden Pass Pipeline were written down to fair value. The fair values were determined by negotiated selling prices. For additional information, see Note 5Assets Sold and Planned Dispositions.

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 our consolidated balance sheet approximates fair value.

   

Accounts and notes receivable (including long-term and related parties): The carrying amount reported on our consolidated 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.

   

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 our consolidated 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  
     March 31      December 31      March 31      December 31  
   2019      2018      2019      2018  
  

 

 

    

 

 

 

Financial assets

           

Investment in Cenovus Energy

   $ 1,805        1,462        1,805        1,462  

Commodity derivatives

     83        170        83        170  

Total loans and advances—related parties

     402        468        402        468  

Financial liabilities

           

Total debt, excluding capital leases

     14,187        14,191        17,167        16,147  

Commodity derivatives

     76        110        76        110  

 

 

 

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Note 15—Non-Mineral Leases

The company primarily leases office buildings and drilling equipment, as well as ocean transport vessels, tugboats, corporate aircraft, and other facilities and equipment. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices and other leases include payment provisions that vary based on the nature of usage of the leased asset. Additionally, the company has executed certain leases that provide it with the option to extend or renew the term of the lease, terminate the lease prior to the end of the lease term, or purchase the leased asset as of the end of the lease term. In other cases, the company has executed lease agreements that require it to guarantee the residual value of certain leased office buildings. For additional information about guarantees, see Note 11—Guarantees. There are no significant restrictions imposed on us by the lease agreements with regard to dividends, asset dispositions or borrowing ability.

Certain arrangements may contain both lease and non-lease components and we determine if an arrangement is or contains a lease at contract inception. Only the lease components of these contractual arrangements are subject to the provisions of ASC Topic 842, and any non-lease components are subject to other applicable accounting guidance; however, we have elected to adopt the optional practical expedient not to separate lease components apart from non-lease components for accounting purposes. This policy election has been adopted for each of the company’s leased asset classes existing as of the effective date and subject to the transition provisions of ASC Topic 842 and will be applied to all new or modified leases executed on or after January 1, 2019. For contractual arrangements executed in subsequent periods involving a new leased asset class, the company will determine at contract inception whether it will apply the optional practical expedient to the new leased asset class.

Leases are evaluated for classification as operating or finance leases at the commencement date of the lease and right-of-use assets and corresponding liabilities are recognized on our consolidated balance sheet based on the present value of future lease payments relating to the use of the underlying asset during the lease term. Future lease payments include variable lease payments that depend upon an index or rate using the index or rate at the commencement date and probable amounts owed under residual value guarantees. The amount of future lease payments may be increased to include additional payments related to lease extension, termination, and/or purchase options when the company has determined, at or subsequent to lease commencement, generally due to limited asset availability or operating commitments, it is reasonably certain of exercising such options. We use our incremental borrowing rate as the discount rate in determining the present value of future lease payments, unless the interest rate implicit in the lease arrangement is readily determinable. Lease payments that vary subsequent to the commencement date based on future usage levels, the nature of leased asset activities, or certain other contingencies are not included in the measurement of lease right-of-use assets and corresponding liabilities. We have elected not to record assets and liabilities on our consolidated balance sheet for lease arrangements with terms of 12 months or less.

We often enter into leasing arrangements acting in the capacity as operator for and/or on behalf of certain oil and gas joint ventures of undivided interests. If the lease arrangement can be legally enforced only against us as operator and there is no separate arrangement to sublease the underlying leased asset to our coventurers, we recognize at lease commencement a right-of-use asset and corresponding lease liability on our consolidated balance sheet on a gross basis. While we record lease costs on a gross basis in our consolidated income statement and statement of cash flows, such costs are offset by the reimbursement we receive from our coventurers for their share of the lease cost as the underlying leased asset is utilized in joint venture activities. As a result, lease cost is presented in our consolidated income statement and statement of cash flows on a proportional basis. If we are a nonoperating coventurer, we recognize a right-of-use asset and corresponding lease liability only if we were a specified contractual party to the lease arrangement and the arrangement could be legally enforced against us. In this circumstance, we would recognize both the right-of-use asset and corresponding lease liability on our consolidated balance sheet on a proportional basis consistent with our undivided interest ownership in the related joint venture.

 

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Table of Contents

The company has historically recorded certain finance leases executed by investee companies accounted for under the proportionate consolidation method of accounting on its consolidated balance sheet on a proportional basis consistent with its ownership interest in the investee company. In addition, the company has historically recorded finance lease assets and liabilities associated with certain oil and gas joint ventures on a proportional basis pursuant to accounting guidance applicable prior to January 1, 2019. As of December 31, 2018, $420 million of finance lease assets (net of accumulated depreciation, depletion and amortization) and $688 million of finance lease liabilities were recorded on our consolidated balance sheet associated with these leases. In accordance with the transition provisions of ASC Topic 842, and since we have elected to adopt the package of optional transition-related practical expedients, the historical accounting treatment for these leases has been carried forward and is subject to reconsideration upon the modification or other required reassessment of the arrangements prior to lease term expiration.

In connection with our adoption of ASC Topic 842, we have recorded on our consolidated balance sheet $57 million of operating leases executed by investee companies accounted for under the proportionate consolidation method of accounting on a proportional basis consistent with our ownership interest in the investee company.

 

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Table of Contents

The following tables summarize the finance leases amounts that were reflected on our consolidated balance sheet as of December 31, 2018, the operating leases impact of adopting ASC Topic 842, and the right-of-use asset and lease liability balances reflected for both operating and finance leases on our consolidated balance sheet as of March 31, 2019:

 

                             
     Millions of Dollars  
     Carrying Amount  
    

Operating

Leases

    

Finance

Leases

 

Amounts recognized in line items in our Consolidated

     

Balance Sheet upon adoption of ASC Topic 842

     

Right-of-Use Assets

     

Properties, plants and equipment

     

Gross

      $ 1,044  

Accumulated depreciation, depletion and amortization

        (550

 

 

Net properties, plants and equipment as of December 31, 2018

      $ 494  

 

 

Adoption of ASC Topic 842 as of January 1, 2019

   $ 998     

 

 

Lease Liabilities

     

Short-term debt

      $ 79  

Long-term debt

        698  

 

 

Total finance leases debt as of December 31, 2018

      $ 777  

 

 

Adoption of ASC Topic 842 as of January 1, 2019

   $ 998     

 

 

Amounts recognized in line items in our Consolidated

     

Balance Sheet at March 31, 2019

     

Right-of-Use Assets

     

Properties, plants and equipment

     

Gross

      $ 1,044  

Accumulated depreciation, depletion and amortization

        (579

 

 

Net properties, plants and equipment*

      $ 465  

 

 

Other assets

   $ 981     

 

 
*Includes proportionately consolidated finance lease assets (net of accumulated depreciation, depletion and amortization) of $398 million.

 

Lease Liabilities

     

Short-term debt*

      $ 80  

Other accruals

   $ 282     

Long-term debt*

        679  

Other liabilities and deferred credits

     685     

 

 

Total lease liabilities

   $ 967        759  

 

 
*Short-term debt and long-term debt include proportionately consolidated finance lease liabilities of $54 million and $622 million, respectively.

 

 

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The following table summarizes the lease cost for the three-month period ended March 31, 2019:

 

              
     Millions of Dollars  

Lease Cost*

  

Operating lease cost

   $ 75  

Finance lease cost

  

Amortization of right-of-use assets

     29  

Interest on lease liabilities

     10  

Short-term lease cost**

     14  

 

 

Total lease cost***

   $ 128  

 

 

*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers.

**Short-term leases are not recorded on our consolidated balance sheet. Our future short-term lease commitments amount to $71 million, of which $54 million is related to leases whose terms have not yet commenced as of March 31, 2019.

***Variable lease cost and sublease income are immaterial for the three-month period ended March 31, 2019, and not presented in the table above.

The following table summarizes the lease term and discount rate at March 31, 2019:

 

              
     March 31, 2019  

Lease Term and Discount Rate

  

Weighted-average term (years)

  

Operating leases

     6.49  

Finance leases

     9.42  

 

 

Weighted-average discount rate (percent)

  

Operating leases

     3.50  

Finance leases

     5.84  

 

 

The following table summarizes other information for the three-month period ended March 31, 2019:    

 

              
     Millions of Dollars  

Other Information*

  

Cash paid for amounts included in the measurement of lease liabilities

  

Operating cash flows from operating leases

   $ 80  

Operating cash flows from finance leases

     10  

Financing cash flows from finance leases

     19  

Right-of-use assets obtained in exchange for operating lease liabilities

   $ 41  

Right-of-use assets obtained in exchange for finance lease liabilities

     -  

 

 

*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers. In addition, pursuant to other applicable accounting guidance, lease payments made in connection with preparing another asset for its intended use are reported in the “Cash Flows From Investing Activities” section of our consolidated statement of cash flows.

 

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The following table summarizes future lease payments for operating and finance leases at March 31, 2019:    

 

                             
     Millions of Dollars  
    

Operating

Leases

   

Finance

Leases

 
  

 

 

 

Maturity of Lease Liabilities

    

2019

   $ 244       86  

2020

     243       115  

2021

     178       100  

2022

     115       98  

2023

     67       84  

Remaining years

     235       461  

 

 

Total*

     1,082       944  

Less: portion representing imputed interest

     (115     (185

 

 

Total lease liabilities

   $ 967       759  

 

 

*Future lease payments for operating and finance leases commencing on or after January 1, 2019, also include payments related to non-lease components in accordance with our election to adopt the optional practical expedient not to separate lease components apart from non-lease components for accounting purposes. In addition, future payments related to operating and finance leases proportionately consolidated by the company have been included in the table on a proportionate basis consistent with our respective ownership interest in the underlying investee company or oil and gas venture.    

At December 31, 2018, future undiscounted minimum rental payments due under noncancelable operating leases pursuant to ASC Topic 840 were:    

 

              
     Millions of Dollars  
  

 

 

 

2019

   $ 248  

2020

     425  

2021

     136  

2022

     319  

2023

     54  

Remaining years

     212  

 

 

Total

     1,394  

Less: income from subleases

     (7

 

 

Net minimum operating lease payments

   $ 1,387  

 

 

 

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At December 31, 2018, future minimum payments due under finance (capital) leases pursuant to ASC Topic 840 were:

 

              
     Millions of Dollars  

2019

   $ 118  

2020

     116  

2021

     100  

2022

     98  

2023

     87  

Remaining years

     453  

 

 

Total

     972  

Less: portion representing imputed interest

     (195

 

 

Capital lease obligations

   $ 777  

 

 

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

   

Foreign

Currency

Translation

   

Accumulated

Other

Comprehensive

Income (Loss)

 
  

 

 

 

December 31, 2018

   $ (361     (5,702     (6,063

Cumulative effect of adopting ASU No. 2018-02*

     (40     -       (40

Other comprehensive income

     13       176       189  

 

 

March 31, 2019

   $ (388     (5,526     (5,914

 

 

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

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

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

 

                                             
     Millions of Dollars  
     Three Months Ended
March  31
 
     2019        2018  
  

 

 

 

Defined benefit plans

   $ 13          11  

 

 

The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $5 million and $3 million for the three-month periods ended March 31, 2019 and 2018, respectively. See Note 18—Employee Benefit Plans, for additional information.

 

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Table of Contents

Note 17—Cash Flow Information

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019     2018  
  

 

 

 

Cash Payments

    

Interest

   $ 199       220  

Income taxes

     700       521  

 

 

Net Sales (Purchases) of Short-Term Investments

    

Short-term investments purchased

   $ (250     (206

Short-term investments sold

     249       1,799  

 

 
   $ (1     1,593  

 

 

Note 18—Employee Benefit Plans    

Pension and Postretirement Plans    

 

                                                                                         
     Millions of Dollars  
     Pension Benefits     Other Benefits  
     2019     2018     2019     2018  
  

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

     

Components of Net Periodic Benefit Cost

            

Three Months Ended March 31

            

Service cost

   $ 20       19       21       21       -       -  

Interest cost

     21       26       27       27       2       2  

Expected return on plan assets

     (18     (35     (34     (40     -       -  

Amortization of prior service cost (credit)

     -       -       -       (1     (8     (9

Recognized net actuarial loss (gain)

     13       8       15       9       (1     -  

Settlements

     6       -       -       -       -       -  

 

 

Net periodic benefit cost

   $ 42       18       29       16       (7     (7

 

 

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 three months of 2019, we contributed $45 million to our domestic benefit plans and $56 million to our international benefit plans. In 2019, we expect to contribute a total of approximately $195 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $190 million to our international qualified and nonqualified pension and postretirement benefit plans. In the event we complete our transaction to sell two ConocoPhillips subsidiaries in the U.K., we expect to make an additional contribution to an international qualified pension plan of approximately $290 million. For additional information, see Note 5—Assets Sold and Planned Dispositions.

 

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Table of Contents

Severance Accrual

The following table summarizes our severance accrual activity for the three-month period ended March 31, 2019:

 

              
     Millions of Dollars  

Balance at December 31, 2018

   $ 48  

Accruals

     1  

Benefit payments

     (15

Foreign currency translation adjustments

     1  

 

 

Balance at March 31, 2019

   $ 35  

 

 

Of the remaining balance at March 31, 2019, $12 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
March 31
 
     2019     2018  
  

 

 

 

Operating revenues and other income

   $ 21       23  

Purchases

     21       24  

Operating expenses and selling, general and administrative expenses

     14       15  

Net interest (income) expense*

     (4     (3

 

 

*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

Revenue from Contracts with Customers

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

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019      2018  
  

 

 

 

Revenue from contracts with customers

   $ 7,059        6,545  

Revenue from contracts outside the scope of ASC Topic 606

     

Physical contracts meeting the definition of a derivative

     2,081        2,261  

Financial derivative contracts

     10        (8

 

 

Consolidated sales and other operating revenues

   $ 9,150        8,798  

 

 

 

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Table of Contents

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
March 31
 
     2019      2018  
  

 

 

 

Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment

     

Lower 48

   $ 1,613        1,713  

Canada

     241        191  

Europe and North Africa

     227        357  

 

 

Physical contracts meeting the definition of a derivative

   $ 2,081        2,261  

 

 

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019      2018  
  

 

 

 

Revenue from Contracts Outside the Scope of ASC Topic 606 by Product

     

Crude oil

   $ 188        286  

Natural gas

     1,768        1,890  

Other

     125        85  

 

 

Physical contracts meeting the definition of a derivative

   $ 2,081        2,261  

 

 

Practical Expedients

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

Receivables and Contract Liabilities

Receivables from Contracts with Customers

At March 31, 2019, the “Accounts and notes receivable” line on our consolidated balance sheet, includes trade receivables of $2,638 million compared with $2,889 million at December 31, 2018, and includes both contracts with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC Topic 606. We typically receive payment within 30 days or less (depending on the terms of the invoice) once delivery is made. Revenues that are outside the scope of ASC Topic 606 relate primarily to physical gas sales contracts at market prices for which we do not elect NPNS and are therefore accounted for as a derivative under ASC Topic 815. There is little distinction in the nature of the customer or credit quality of trade receivables associated with gas sold under contracts for which NPNS has not been elected compared to trade receivables where NPNS has been elected.

 

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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 December 31, 2018

   $ 206  

Contractual payments received

     14  

Revenue recognized

     (133

 

 

At March 31, 2019

   $ 87  

 

 

Amounts Recognized in the Consolidated Balance Sheet at March 31, 2019

  

Current liabilities

   $ 49  

Noncurrent liabilities

     38  

 

 
   $ 87  

 

 

We expect to recognize the contract liabilities as of March 31, 2019, as revenue between the remainder of 2019 and 2022.

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 attributable to ConocoPhillips. Intersegment sales are at prices that approximate market.

 

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Table of Contents

Analysis of Results by Operating Segment

 

                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019     2018  
  

 

 

 

Sales and Other Operating Revenues

    

Alaska

   $ 1,407       1,385  

 

 

Lower 48

     4,153       3,952  

Intersegment eliminations

     (12     (3

 

 

Lower 48

     4,141       3,949  

 

 

Canada

     823       891  

Intersegment eliminations

     (250     (255

 

 

Canada

     573       636  

 

 

Europe and North Africa

     1,546       1,608  

Asia Pacific and Middle East

     1,343       1,216  

Corporate and Other

     140       4  

 

 

Consolidated sales and other operating revenues

   $ 9,150       8,798  

 

 

Sales and Other Operating Revenues by Geographic Location

    

United States

   $ 5,686       5,336  

Australia

     559       440  

Canada

     573       636  

China

     243       218  

Indonesia

     205       215  

Libya

     254       276  

Malaysia

     336       344  

Norway

     588       663  

United Kingdom

     704       669  

Other foreign countries

     2       1  

 

 

Worldwide consolidated

   $ 9,150       8,798  

 

 

Sales and Other Operating Revenues by Product

    

Crude oil

   $ 4,581       4,450  

Natural gas

     3,003       2,796  

Natural gas liquids

     238       231  

Other*

     1,328       1,321  

 

 

Consolidated sales and other operating revenues by product

   $ 9,150       8,798  

 

 

*Includes LNG and bitumen.

 

32


Table of Contents
                             
     Millions of Dollars  
     Three Months Ended
March 31
 
     2019      2018  
  

 

 

 

Net Income Attributable to ConocoPhillips

     

Alaska

   $ 384        524  

Lower 48

     193        308  

Canada

     122        (65

Europe and North Africa

     207        245  

Asia Pacific and Middle East

     525        461  

Other International

     131        (44

Corporate and Other

     271        (541

 

 

Consolidated net income attributable to ConocoPhillips

   $   1,833             888  

 

 
     
     Millions of Dollars  
     March 31
2019
     December 31
2018
 
  

 

 

 

Total Assets

     

Alaska

   $ 15,066        14,648  

Lower 48

     14,720        14,888  

Canada

     6,191        5,748  

Europe and North Africa

     10,186        9,883  

Asia Pacific and Middle East

     16,025        16,151  

Other International

     87        89  

Corporate and Other

     9,223        8,573  

 

 

Consolidated total assets

   $ 71,498        69,980  

 

 

Note 22—Income Taxes

Our effective tax rate for the first quarter of 2019 was 31 percent compared with 49 percent for the first quarter of 2018. The effective tax rate for first quarter 2019 is lower than the effective tax rate for 2018 primarily due to higher before-tax income in lower tax jurisdictions for 2019 as well as a reduction of our U.S. valuation allowance for the first quarter of 2019.

During the first quarter of 2019, our U.S. valuation allowance decreased by $103 million compared to an increase of $57 million for the first quarter of 2018. The change to our U.S. valuation allowance for both periods relates primarily to the fair value measurement of our Cenovus Energy common shares.

Note 23—New Accounting Standards

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. 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.

 

33


Table of Contents

Supplementary Information—Condensed Consolidating Financial Information

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

 

   

ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC (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 December 2018, ConocoPhillips Canada Funding Company I’s guaranteed, publicly held debt securities were assumed by Burlington Resources LLC. The assumption did not significantly change the nature of the outstanding debt or the terms of the parental guarantees, which remain full and unconditional, as well as joint and several. The assumption did not impact our consolidated financial position, results of operations or cash flows. Financial information for ConocoPhillips Canada Funding Company I is presented in the “All Other Subsidiaries” column of our condensed consolidating financial information. The prior year comparative periods have been restated to reflect the current period condensed consolidating financial information presentation.

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

 

34


Table of Contents
                                                                                         
     Millions of Dollars  
     Three Months Ended March 31, 2019  
Income Statement    ConocoPhillips     ConocoPhillips
Company
    Burlington
Resources
LLC
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Revenues and Other Income

            

Sales and other operating revenues

   $       3,981             5,169             9,150  

Equity in earnings of affiliates

     1,890       1,622       473       186       (3,983     188  

Gain on dispositions

           (5           22             17  

Other income

     1       508             193             702  

Intercompany revenues

           26       13       1,161       (1,200      

 

 

Total Revenues and Other Income

     1,891       6,132       486       6,731       (5,183     10,057  

 

 

Costs and Expenses

            

Purchased commodities

           3,497             1,304       (1,126     3,675  

Production and operating expenses

           180       1       1,091       (1     1,271  

Selling, general and administrative expenses

     4       129             25       (5     153  

Exploration expenses

           47             63             110  

Depreciation, depletion and amortization

           136             1,410             1,546  

Impairments

                       1             1  

Taxes other than income taxes

           46             229             275  

Accretion on discounted liabilities

           4             82             86  

Interest and debt expense

     69       149       33       50       (68     233  

Foreign currency transaction losses

           6             6             12  

Other expenses

           12             (4           8  

 

 

Total Costs and Expenses

     73       4,206       34       4,257       (1,200     7,370  

 

 

Income before income taxes

     1,818       1,926       452       2,474       (3,983     2,687  

Income tax provision (benefit)

     (15     36       (5     825             841  

 

 

Net income

     1,833       1,890       457       1,649       (3,983     1,846  

Less: net income attributable to noncontrolling interests

                       (13           (13

 

 

Net Income Attributable to ConocoPhillips

   $ 1,833       1,890       457       1,636       (3,983     1,833  

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 2,022       2,079       581       1,816       (4,476     2,022  

 

 
Income Statement    Three Months Ended March 31, 2018  

Revenues and Other Income

            

Sales and other operating revenues

   $       3,764             5,034             8,798  

Equity in earnings of affiliates

     954       1,499       334       208       (2,787     208  

Gain on dispositions

           3             4             7  

Other income (loss)

           (103           51             (52

Intercompany revenues

     9       56       2       1,199       (1,266      

 

 

Total Revenues and Other Income

     963       5,219       336       6,496       (4,053     8,961  

 

 

Costs and Expenses

            

Purchased commodities

           3,410             1,433       (1,129     3,714  

Production and operating expenses

           172       4       1,033       (38     1,171  

Selling, general and administrative expenses

     4       74             26       (5     99  

Exploration expenses

           53             42             95  

Depreciation, depletion and amortization

           132             1,280             1,412  

Impairments

           (9           21             12  

Taxes other than income taxes

           50             133             183  

Accretion on discounted liabilities

           4             84             88  

Interest and debt expense

     71       159       11       37       (94     184  

Foreign currency transaction (gains) losses

     18       (9     22       (1           30  

Other expenses

           194       6       (3           197  

 

 

Total Costs and Expenses

     93       4,230       43       4,085       (1,266     7,185  

 

 

Income before income taxes

     870       989       293       2,411       (2,787     1,776  

Income tax provision (benefit)

     (18     35       (10     869             876  

 

 

Net income

     888       954       303       1,542       (2,787     900  

Less: net income attributable to noncontrolling interests

                       (12           (12

 

 

Net Income Attributable to ConocoPhillips

   $ 888       954       303       1,530       (2,787     888  

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 977       1,043       235       1,613       (2,891     977  

 

 

See Notes to Consolidated Financial Statements.

 

35


Table of Contents
                                                                                         
     Millions of Dollars  
     March 31, 2019  
Balance Sheet    ConocoPhillips     ConocoPhillips
Company
     Burlington
Resources
LLC
     All Other
Subsidiaries
     Consolidating
Adjustments
    Total
Consolidated
 

Assets

               

Cash and cash equivalents

   $       1,348               4,870              6,218  

Short-term investments

                         249              249  

Accounts and notes receivable

     4       3,280        2        4,472        (3,889     3,869  

Investment in Cenovus Energy

           1,805                            1,805  

Inventories

           143               871              1,014  

Prepaid expenses and other current assets

     1       143               384              528  

 

 

Total Current Assets

     5       6,719        2        10,846        (3,889     13,683  

Investments, loans and long-term receivables*

     32,021       49,556        15,778        18,190        (105,975     9,570  

Net properties, plants and equipment

           3,915               42,027              45,942  

Other assets

     6       667        227        2,128        (725     2,303  

 

 

Total Assets

   $ 32,032       60,857        16,007        73,191        (110,589     71,498  

 

 

Liabilities and Stockholders’ Equity

               

Accounts payable

   $       2,506               5,229        (3,889     3,846  

Short-term debt

     (3     3        13        100              113  

Accrued income and other taxes

           67               1,472              1,539  

Employee benefit obligations

           376               94              470  

Other accruals

     57       328        39        978              1,402  

 

 

Total Current Liabilities

     54       3,280        52        7,873        (3,889     7,370  

Long-term debt

     3,792       6,673        2,139        2,228              14,832  

Asset retirement obligations and accrued environmental costs

           415               7,315              7,730  

Deferred income taxes

                         5,768        (725     5,043  

Employee benefit obligations

           1,279               425              1,704  

Other liabilities and deferred credits*

     1,889       10,654        837        8,663        (20,205     1,838  

 

 

Total Liabilities

     5,735       22,301        3,028        32,272        (24,819     38,517  

Retained earnings

     29,036       20,463        1,570        11,004        (26,539     35,534  

Other common stockholders’ equity

     (2,739     18,093        11,409        29,793        (59,231     (2,675

Noncontrolling interests

                         122              122  

 

 

Total Liabilities and Stockholders’ Equity

   $ 32,032       60,857        16,007        73,191        (110,589     71,498  

 

 

*Includes intercompany loans.

               
Balance Sheet    December 31, 2018  

Assets

               

Cash and cash equivalents

   $       1,428               4,487              5,915  

Short-term investments

                         248              248  

Accounts and notes receivable

     28       5,646        78        6,707        (8,392     4,067  

Investment in Cenovus Energy

           1,462                            1,462  

Inventories

           184               823              1,007  

Prepaid expenses and other current assets

     1       267               307              575  

 

 

Total Current Assets

     29       8,987        78        12,572        (8,392     13,274  

Investments, loans and long-term receivables*

     29,942       47,062        15,199        16,926        (99,465     9,664  

Net properties, plants and equipment

           4,367               41,796        (465     45,698  

Other assets

     4       642        227        1,269        (798     1,344  

 

 

Total Assets

   $ 29,975       61,058        15,504        72,563        (109,120     69,980  

 

 

Liabilities and Stockholders’ Equity

               

Accounts payable

   $       5,098        76        7,113        (8,392     3,895  

Short-term debt

     (3     12        13        99        (9     112  

Accrued income and other taxes

           85               1,235              1,320  

Employee benefit obligations

           638               171              809  

Other accruals

     85       587        35        552              1,259  

 

 

Total Current Liabilities

     82       6,420        124        9,170        (8,401     7,395  

Long-term debt

     3,791       7,151        2,143        2,249        (478     14,856  

Asset retirement obligations and accrued environmental costs

           415               7,273              7,688  

Deferred income taxes

                         5,819        (798     5,021  

Employee benefit obligations

           1,340               424              1,764  

Other liabilities and deferred credits*

     725       9,277        839        8,126        (17,775     1,192  

 

 

Total Liabilities

     4,598       24,603        3,106        33,061        (27,452     37,916  

Retained earnings

     27,512       18,511        1,113        9,764        (22,890     34,010  

Other common stockholders’ equity

     (2,135     17,944        11,285        29,613        (58,778     (2,071

Noncontrolling interests

                         125              125  

 

 

Total Liabilities and Stockholders’ Equity

   $ 29,975       61,058        15,504        72,563        (109,120     69,980  

 

 

*Includes intercompany loans.

See Notes to Consolidated Financial Statements.

 

36


Table of Contents
                                                                                         
     Millions of Dollars  
     Three Months Ended March 31, 2019  
Statement of Cash Flows    ConocoPhillips     ConocoPhillips
Company
    Burlington
Resources
LLC
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Cash Flows From Operating Activities

            

Net Cash Provided by (Used in) Operating Activities

   $ (62     (117     (16     3,448       (359     2,894  

 

 

Cash Flows From Investing Activities

            

Capital expenditures and investments

           (208           (1,429           (1,637

Working capital changes associated with investing activities

           18             89             107  

Proceeds from asset dispositions

           142                         142  

Purchases of short-term investments

                       (1           (1

Long-term advances/loans—related parties

           (19                 19        

Collection of advances/loans—related parties

           69             82       (89     62  

Intercompany cash management

     1,163       205       16       (1,384            

Other

           (150                       (150

 

 

Net Cash Provided by (Used in) Investing Activities

     1,163       57       16       (2,643     (70     (1,477

 

 

Cash Flows From Financing Activities

            

Issuance of debt

                       19       (19      

Repayment of debt

           (20           (88     89       (19

Issuance of company common stock

     (1                       (37     (38

Repurchase of company common stock

     (752                             (752

Dividends paid

     (350                 (396     396       (350

Other

     2                   (16           (14

 

 

Net Cash Used in Financing Activities

     (1,101     (20           (481     429       (1,173

 

 

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

                       75             75  

 

 

Net Change in Cash, Cash Equivalents and Restricted Cash

           (80           399             319  

Cash, cash equivalents and restricted cash at beginning of period

           1,428             4,723             6,151  

 

 

Cash, Cash Equivalents and Restricted Cash at End of Period

   $       1,348             5,122             6,470  

 

 
Statement of Cash Flows    Three Months Ended March 31, 2018  

Cash Flows From Operating Activities

            

Net Cash Provided by (Used in) Operating Activities

   $ (69     (123     1,204       2,550       (1,163     2,399  

 

 

Cash Flows From Investing Activities

            

Capital expenditures and investments

           (233           (1,308     6       (1,535

Working capital changes associated with investing activities

           (93           121             28  

Proceeds from asset dispositions

           141             39       (11     169  

Purchases of short-term investments

                       1,593             1,593  

Long-term advances/loans—related parties

           (4     (29           33        

Collection of advances/loans—related parties

           1,306             59       (1,306     59  

Intercompany cash management

     887       1,638       (1,125     (1,400            

Other

                       (392           (392

 

 

Net Cash Provided by (Used in) Investing Activities

     887       2,755       (1,154     (1,288     (1,278     (78

 

 

Cash Flows From Financing Activities

            

Issuance of debt

                       33       (33      

Repayment of debt

           (2,807     (53     (1,334     1,306       (2,888

Issuance of company common stock

     19                         (37     (18

Repurchase of company common stock

     (500                             (500

Dividends paid

     (338                             (338

Other

     1                   (1,238     1,205       (32

 

 

Net Cash Used in Financing Activities

     (818     (2,807     (53     (2,539     2,441       (3,776

 

 

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

           9             116             125  

 

 

Net Change in Cash, Cash Equivalents and Restricted Cash

           (166     (3     (1,161           (1,330

Cash, cash equivalents and restricted cash at beginning of period

           234       3       6,299             6,536  

 

 

Cash, Cash Equivalents and Restricted Cash at End of Period

   $       68             5,138             5,206  

 

 

See Notes to Consolidated Financial Statements.

 

37


Table of Contents
Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis is the company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 57.

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to ConocoPhillips.

BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

ConocoPhillips is the world’s largest independent E&P company, based on proved reserves and production of liquids and natural gas. Headquartered in Houston, Texas, we have operations and activities in 17 countries. Our diverse, low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional assets in North America, Europe, Asia and Australia; LNG developments; oil sands assets in Canada; and an inventory of global conventional and unconventional exploration prospects. At March 31, 2019, we employed approximately 10,800 people worldwide and had total assets of $71 billion.

Overview

Global oil prices rebounded by the end of the first quarter 2019 after a precipitous drop in the last few months of 2018. Concerns about a worldwide economic slowdown and an oversupply of crude oil in the fourth quarter of 2018 eased as we entered the new year. Our business strategy anticipates prices will remain cyclical and is designed to be resilient in lower price environments, with significant upside during periods of higher prices. Portfolio diversification and optimization, debt reduction and disciplined capital investment have positioned our company to navigate through periods of volatile energy prices.

Our value proposition principles, namely, to focus on returns, maintain financial strength, grow our dividend and pursue disciplined growth, are being executed in accordance with our priorities for allocating cash flows from the business. These priorities are: invest capital at a level that maintains flat production volumes and pays our existing dividend; grow our existing dividend; maintain debt at a level we believe is sufficient to maintain a strong investment grade credit rating through price cycles; repurchase shares to provide value to our shareholders; and invest capital to grow our cash from operations. We believe our commitment to our value proposition, as evidenced by the results discussed below, position us for success in an environment of price uncertainty and ongoing volatility.

In the first quarter of 2019, we continued to deliver on our priorities. We achieved production growth of 7 percent on a total BOE basis compared with the first quarter of 2018, with higher value oil volumes growing 13 percent. Cash provided by operating activities was $2.9 billion, which exceeded capital expenditures and investments of $1.6 billion, dividends of $0.3 billion, and share repurchases of $0.8 billion.

 

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Operationally, we remain focused on safely executing our operating plan and remaining attentive to our costs. Production excluding Libya was 1,318 MBOED in the first quarter of 2019, an increase of 94 MBOED compared with the same period of 2018. Our underlying production, which excludes Libya and the additional volumes from closed 2018 acquisitions and dispositions of approximately 30 MBOED, increased 5 percent compared with the first quarter of 2018. Production on a per debt-adjusted share basis grew by 13 percent compared with the first quarter of 2018. Production per debt-adjusted share is calculated on an underlying production basis using ending period debt divided by ending share price plus ending shares outstanding. We believe production per debt-adjusted share is useful to investors as it provides a consistent view of production on a total equity basis by converting debt to equity and allows for comparison across peer companies.

In the second quarter of 2019, we completed the sale of our 30 percent interest in the Greater Sunrise Fields to the government of Timor-Leste for $350 million, before customary adjustments. We will recognize an after-tax gain of approximately $50 million in the second quarter. No production or reserve impacts are associated with the sale. Proceeds from this transaction will be used for general corporate purposes. The Greater Sunrise Fields are included in our Asia Pacific and Middle East segment.

In April 2019, we entered into an agreement to sell two ConocoPhillips U.K. subsidiaries to Chrysaor E&P Limited for $2.675 billion plus interest and customary adjustments. Together the subsidiaries indirectly hold the company’s exploration and production assets in the U.K. As part of the transaction, we expect to recognize a U.S. tax benefit of $0.2 billion in the second quarter of 2019 related to a previously unrecognizable U.S. tax basis in the subsidiaries to be sold. Depending on the timing of regulatory approval and other specific conditions precedent, we anticipate recognizing a gain of approximately $2 billion before- and after-tax on completion of the sale in the second half of 2019, subject to customary adjustments and foreign exchange impacts. Full-year 2018 production and year-end 2018 proved reserves associated with the U.K. assets being sold were approximately 72 MBOED and approximately 99 MMBOE, respectively. Results of operations for the U.K. are reported within our Europe and North Africa segment. See Note 5—Assets Sold and Planned Dispositions in the Notes to Consolidated Financial Statements, for additional information.

Business Environment

Dated Brent crude oil prices exited the first quarter of 2019 approaching $70 per barrel after reaching a low of $50 per barrel at the end of December 2018. Global oil prices improved due to ongoing growth in global demand concurrent with a moderating pace of growth in supplies.

The energy industry has periodically experienced volatility due to fluctuating supply-and-demand conditions. Commodity prices are the most significant factor impacting our profitability and related reinvestment of operating cash flows into our business. Among other dynamics that could influence world energy markets and commodity prices are global economic health, supply disruptions or fears thereof caused by civil unrest or military conflicts, actions taken by OPEC, environmental laws, tax regulations, governmental policies and weather-related disruptions. Our strategy is to create value through price cycles by delivering on the financial and operational priorities that underpin our value proposition.

 

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Our earnings and operating cash flows generally correlate with industry price levels for crude oil and natural gas, the prices of which are subject to factors external to the company and over which we have no control. The following graph depicts the trend in average benchmark prices for WTI crude oil, Dated Brent crude oil and Henry Hub natural gas:

 

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Brent crude oil prices averaged $63.20 per barrel in the first quarter of 2019, a decrease of 5 percent compared with $66.76 per barrel in the first quarter of 2018, and a decrease of 7 percent compared with $67.76 per barrel in the fourth quarter of 2018. Industry crude prices for WTI averaged $54.87 per barrel in the first quarter of 2019, a decrease of 13 percent compared with $62.88 per barrel in the first quarter of 2018, and a decrease of 7 percent compared with $59.09 per barrel in the fourth quarter of 2018.

Henry Hub natural gas prices averaged $3.15 per MMBTU in the first quarter of 2019, an increase of 5 percent compared with $3.01 per MMBTU in the first quarter of 2018, and a decrease of 14 percent compared with $3.65 per MMBTU in the fourth quarter of 2018. Weather driven demand was the primary factor influencing relative prices in early 2019 compared to the first and fourth quarter of 2018.

Our realized bitumen price increased from $14.06 per barrel in the first quarter of 2018 and $11.65 per barrel in the fourth quarter of 2018, to $33.15 per barrel in the first quarter of 2019. Curtailment orders imposed by the Alberta Government, which limited production from the province starting January 2019, provided strength to the WCS differential to WTI at Hardisty during the first quarter. We continue to optimize bitumen price realizations through the utilization of downstream transportation solutions and implementation of alternate blend capability which results in lower diluent costs.

Our total average realized price was $50.59 per BOE in the first quarter of 2019, compared with $50.49 per BOE in the first quarter of 2018, as higher LNG and bitumen prices were largely offset by lower crude, natural gas liquids and natural gas prices.

 

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Key Operating and Financial Summary

Significant items during the first quarter of 2019 included the following:

 

   

Cash provided by operating activities was $2.9 billion and exceeded capital expenditures and investments of $1.6 billion, share repurchases of $0.8 billion and dividends of $0.3 billion.

   

The $1.1 billion of share repurchases and dividends represents 37 percent of cash provided by operating activities.

   

First-quarter production excluding Libya of 1,318 MBOED; year-over-year underlying production grew 5 percent overall and 13 percent on a production per debt-adjusted share basis.

   

Grew production from the Lower 48 Big 3 unconventionals—Eagle Ford, Bakken and Delaware—by 30 percent year-over-year.

   

Ended the quarter wit