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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

[X]

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

 

 

 

For the quarterly period ended                      June 30, 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 [x] 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 [x] 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 [x] 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 [x]

 

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

 

Title of each class

Trading symbols

Name of each exchange on which registered

Common Stock, $.01 Par Value

COP

New York Stock Exchange

7% Debentures due 2029

CUSIP – 718507BK1

New York Stock Exchange

 

The registrant had 1,110,141,595 shares of common stock, $.01 par value, outstanding at June 30, 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

35

 

 

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

Results of Operations

40

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

63

 

 

Item 4. Controls and Procedures

63

 

 

 

Part II—Other Information

 

 

 

 

Item 1. Legal Proceedings

64

 

 

Item 1A. Risk Factors

64

 

 

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

65

 

 

 

Item 6. Exhibits

66

 

 

 

Signature

67

 

 

 


Table of Contents

 

Commonly Used Abbreviations

 

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

 

Currencies

 

Accounting

 

$

U.S. dollar

ARO

asset retirement obligation

CAD

Canadian dollar

ASC

accounting standards codification

GBP

British pound

ASU

accounting standards update

 

 

DD&A

depreciation, depletion and

Units of Measurement

 

 

amortization

BOE

barrels of oil equivalent

FASB

Financial Accounting Standards

MBD

thousands of barrels per day

 

Board

MCF

thousand cubic feet

FIFO

first-in, first-out

MMBOE

million barrels of oil equivalent

G&A

general and administrative

MBOED

thousands of barrels of oil

GAAP

generally accepted accounting

 

equivalent per day

 

principles

MMBTU

million British thermal units

LIFO

last-in, first-out

MMCFD

million cubic feet per day

NPNS

normal purchase normal sale

 

 

PP&E

properties, plants and equipment

Industry

 

SAB

staff accounting bulletin

CBM

coalbed methane

VIE or VIEs

variable interest entity

E&P

exploration and production

 

 

FEED

front-end engineering and design

Miscellaneous

 

FPS

floating production system

EPA

Environmental Protection Agency

FPSO

floating production, storage and

EU

European Union

 

offloading

FERC

Federal Energy Regulatory

JOA

joint operating agreement

 

Commission

LNG

liquefied natural gas

GHG

greenhouse gas

NGL or NGLs

natural gas liquids

HSE

health, safety and environment

OPEC

Organization of Petroleum

ICC

International Chamber of

 

Exporting Countries

 

Commerce

PSC

production sharing contract

ICSID

World Bank’s International

PUD or PUDs

proved undeveloped reserves

 

Centre for Settlement of

SAGD

steam-assisted gravity drainage

 

Investment Disputes

WCS

Western Canada Select

IRS

Internal Revenue Service

WTI

West Texas Intermediate

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

 

Six Months Ended

 

 

 

June 30

June 30

 

 

 

 

2019

 

2018

 

2019

 

2018

Revenues and Other Income

 

 

 

 

 

 

 

 

Sales and other operating revenues

$

7,953

 

8,504

 

17,103

 

17,302

Equity in earnings of affiliates

 

173

 

265

 

361

 

473

Gain on dispositions

 

82

 

55

 

99

 

62

Other income

 

172

 

416

 

874

 

364

 

 

 

Total Revenues and Other Income

 

8,380

 

9,240

 

18,437

 

18,201

 

Costs and Expenses

 

 

 

 

 

 

 

 

Purchased commodities

 

2,674

 

3,064

 

6,349

 

6,778

Production and operating expenses

 

1,418

 

1,313

 

2,689

 

2,484

Selling, general and administrative expenses

 

129

 

118

 

282

 

217

Exploration expenses

 

122

 

69

 

232

 

164

Depreciation, depletion and amortization

 

1,490

 

1,438

 

3,036

 

2,850

Impairments

 

1

 

(35)

 

2

 

(23)

Taxes other than income taxes

 

194

 

273

 

469

 

456

Accretion on discounted liabilities

 

87

 

89

 

173

 

177

Interest and debt expense

 

165

 

177

 

398

 

361

Foreign currency transaction (gains) losses

 

28

 

(28)

 

40

 

2

Other expenses

 

14

 

143

 

22

 

340

 

 

 

Total Costs and Expenses

 

6,322

 

6,621

 

13,692

 

13,806

Income before income taxes

 

2,058

 

2,619

 

4,745

 

4,395

Income tax provision

 

461

 

965

 

1,302

 

1,841

Net income

 

1,597

 

1,654

 

3,443

 

2,554

Less: net income attributable to noncontrolling interests

 

(17)

 

(14)

 

(30)

 

(26)

Net Income Attributable to ConocoPhillips

$

1,580

 

1,640

 

3,413

 

2,528

 

 

Net Income Attributable to ConocoPhillips Per Share

 

 

 

 

 

 

 

 

 

of Common Stock (dollars)

 

 

 

 

 

 

 

 

Basic

$

1.40

 

1.40

 

3.01

 

2.15

Diluted

 

1.40

 

1.39

 

3.00

 

2.13

 

Average Common Shares Outstanding (in thousands)

 

 

 

 

 

 

 

 

Basic

 

1,125,995

 

1,172,378

 

1,132,691

 

1,176,064

Diluted

 

1,131,242

 

1,181,167

 

1,139,511

 

1,184,499

See Notes to Consolidated Financial Statements.

2


Table of Contents

 

 

Consolidated Statement of Comprehensive Income

ConocoPhillips

 

 

 

 

 

 

 

Millions of Dollars

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

June 30

June 30

 

 

 

 

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

1,597

 

1,654

 

3,443

 

2,554

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

Defined benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior

 

 

 

 

 

 

 

 

 

 

 

 

 

service credit included in net income

 

(10)

 

(10)

 

(18)

 

(20)

 

 

 

 

Net actuarial loss arising during the period

 

-

 

(42)

 

-

 

(42)

 

 

 

 

Reclassification adjustment for amortization of net actuarial

 

 

 

 

 

 

 

 

 

 

 

 

 

losses included in net income

 

32

 

171

 

58

 

195

 

 

 

 

Nonsponsored plans

 

-

 

(1)

 

-

 

(1)

 

 

 

 

Income taxes on defined benefit plans

 

(5)

 

(25)

 

(10)

 

(28)

 

 

 

 

Defined benefit plans, net of tax

 

17

 

93

 

30

 

104

 

 

Foreign currency translation adjustments

 

71

 

(359)

 

246

 

(281)

 

 

Income taxes on foreign currency translation adjustments

 

(1)

 

-

 

-

 

-

 

 

 

 

Foreign currency translation adjustments, net of tax

 

70

 

(359)

 

246

 

(281)

Other Comprehensive Income (Loss), Net of Tax

 

87

 

(266)

 

276

 

(177)

Comprehensive Income

 

1,684

 

1,388

 

3,719

 

2,377

Less: comprehensive income attributable to noncontrolling interests

 

(17)

 

(14)

 

(30)

 

(26)

Comprehensive Income Attributable to ConocoPhillips

$

1,667

 

1,374

 

3,689

 

2,351

See Notes to Consolidated Financial Statements.

3


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Consolidated Balance Sheet

ConocoPhillips

 

 

 

 

Millions of Dollars

 

 

 

 

June 30

 

December 31

 

 

2019

 

2018

Assets

 

 

 

 

Cash and cash equivalents

$

5,941

 

5,915

Short-term investments

 

732

 

248

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

 

 

 

 

 

and $25 million in 2018)

 

3,490

 

3,920

Accounts and notes receivable—related parties

 

161

 

147

Investment in Cenovus Energy

 

1,835

 

1,462

Inventories

 

1,089

 

1,007

Prepaid expenses and other current assets

 

2,552

 

575

 

 

 

Total Current Assets

 

15,800

 

13,274

Investments and long-term receivables

 

8,748

 

9,329

Loans and advances—related parties

 

268

 

335

Net properties, plants and equipment (net of accumulated depreciation, depletion

 

 

 

 

 

and amortization of $60,043 million in 2019 and $64,899 million in 2018)

 

44,334

 

45,698

Other assets

 

2,111

 

1,344

Total Assets

$

71,261

 

69,980

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

Accounts payable

$

3,618

 

3,863

Accounts payable—related parties

 

17

 

32

Short-term debt

 

114

 

112

Accrued income and other taxes

 

1,213

 

1,320

Employee benefit obligations

 

529

 

809

Other accruals

 

3,505

 

1,259

 

 

 

Total Current Liabilities

 

8,996

 

7,395

Long-term debt

 

14,809

 

14,856

Asset retirement obligations and accrued environmental costs

 

5,996

 

7,688

Deferred income taxes

 

4,825

 

5,021

Employee benefit obligations

 

1,689

 

1,764

Other liabilities and deferred credits

 

1,872

 

1,192

Total Liabilities

 

38,187

 

37,916

 

 

 

 

 

 

 

 

Equity

 

 

 

 

Common stock (2,500,000,000 shares authorized at $ 0.010 par value)

 

 

 

 

 

 

Issued (2019—1,794,922,850 shares; 2018—1,791,637,434 shares)

 

 

 

 

 

 

 

Par value

 

18

 

18

 

 

 

Capital in excess of par

 

46,922

 

46,879

 

 

Treasury stock (at cost: 2019—684,781,255 shares; 2018—653,288,213 shares)

 

(44,906)

 

(42,905)

Accumulated other comprehensive loss

 

(5,827)

 

(6,063)

Retained earnings

 

36,769

 

34,010

 

 

 

Total Common Stockholders’ Equity

 

32,976

 

31,939

Noncontrolling interests

 

98

 

125

Total Equity

 

33,074

 

32,064

Total Liabilities and Equity

$

71,261

 

69,980

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows

ConocoPhillips

 

 

 

 

Millions of Dollars

 

 

 

Six Months Ended

 

 

 

June 30

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

Net income

$

3,443

 

2,554

Adjustments to reconcile net income net cash provided by operating

 

 

 

 

 

activities

 

 

 

 

 

Depreciation, depletion and amortization

 

3,036

 

2,850

 

Impairments

 

2

 

(23)

 

Dry hole costs and leasehold impairments

 

68

 

36

 

Accretion on discounted liabilities

 

173

 

177

 

Deferred taxes

 

(221)

 

262

 

Undistributed equity earnings

 

362

 

94

 

Gain on dispositions

 

(99)

 

(62)

 

Other

 

(394)

 

(238)

 

Working capital adjustments

 

 

 

 

 

 

Decrease in accounts and notes receivable

 

461

 

455

 

 

Increase in inventories

 

(77)

 

(21)

 

 

Increase in prepaid expenses and other current assets

 

(149)

 

(148)

 

 

Decrease in accounts payable

 

(326)

 

(282)

 

 

Increase (decrease) in taxes and other accruals

 

(494)

 

87

Net Cash Provided by Operating Activities

 

5,785

 

5,741

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

Capital expenditures and investments

 

(3,366)

 

(3,534)

Working capital changes associated with investing activities

 

24

 

(92)

Proceeds from asset dispositions

 

701

 

308

Net sales (purchases) of short-term investments

 

(485)

 

1,257

Collection of advances/loans—related parties

 

62

 

59

Other

 

126

 

(25)

Net Cash Used in Investing Activities

 

(2,938)

 

(2,027)

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

Repayment of debt

 

(38)

 

(4,952)

Issuance of company common stock

 

(36)

 

42

Repurchase of company common stock

 

(2,002)

 

(1,146)

Dividends paid

 

(696)

 

(675)

Other

 

(55)

 

(48)

Net Cash Used in Financing Activities

 

(2,827)

 

(6,779)

 

 

 

 

 

 

 

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

 

 

 

 

 

Cash

 

26

 

(14)

 

 

 

 

 

 

 

Net Change in Cash, Cash Equivalents and Restricted Cash

 

46

 

(3,079)

Cash, cash equivalents and restricted cash at beginning of period

 

6,151

 

6,536

Cash, Cash Equivalents and Restricted Cash at End of Period

$

6,197

 

3,457

Restricted cash of $87 million and $169 million are included in the "Prepaid expenses and other current assets" and "Other assets" lines,respectively, of our Consolidated Balance Sheet as of June 30, 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.

 

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:

 

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Millions of Dollars

 

 

December 31

 

ASU No. 2018-02

 

January 1

 

 

2018

 

Adjustments

 

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 June 30, 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. 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.

 

Based on inputs related to the fair value of MWCC observed in the second quarter of 2019, we reduced the carrying value of our equity method investment in MWCC to $30 million and recorded a before-tax impairment of $95 million which is included in the “Equity in earnings of affiliates” line on our consolidated income statement. For additional information see Note 14—Fair Value Measurement.

 

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At June 30, 2019, the carrying value of our equity method investment in MWCC was $29 million. We have not provided any financial support to MWCC other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of MWCC.

 

 

 

 

Note 4—Inventories

 

 

 

 

 

 

 

 

 

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

Millions of Dollars

 

June 30

 

December 31

 

 

2019

 

2018

 

 

 

 

 

Crude oil and natural gas

$

481

 

432

Materials and supplies

 

608

 

575

 

$

1,089

 

1,007



Inventories valued on the LIFO basis totaled $255 million and $292 million at June 30, 2019 and December 31, 2018, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was $156 million and $75 million at June 30, 2019 and December 31, 2018, respectively.



Note 5—Assets Held for Sale and Dispositions

 

Assets Held for Sale

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 June 30, 2019, the net carrying value was approximately $0.8 billion and the assets were considered held for sale resulting in the reclassification of $1.6 billion of PP&E and $0.2 billion of “Other assets”, primarily right-of-use assets, to “Prepaid expenses and other current assets”, and $1.9 billion of noncurrent liabilities, primarily asset retirement obligations, to “Other accruals” on our consolidated balance sheet. As a result of entering into the transaction agreement, we recognized a U.S. tax benefit of $234 million in the second quarter of 2019, primarily related to the recognition of U.S. tax basis in our U.K. subsidiaries to be sold. Depending on the timing of regulatory approval and satisfaction of conditions precedent, we anticipate recognizing an additional 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 before tax earnings associated with the subsidiaries being sold were $293 million and $432 million for the six-month periods ended June 30, 2019 and June 30, 2018, respectively. Results of operations for the U.K. are reported within our Europe and North Africa segment.

 

Asset Dispositions

In the second quarter of 2019, we recognized an after-tax gain of $52 million upon the closing of the sale of our 30 percent interest in the Greater Sunrise Fields to the government of Timor-Leste for $350 million, before customary adjustments. The Greater Sunrise Fields were included in our Asia Pacific and Middle East segment.

 

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 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. We completed the sale in the second quarter of 2019. Results of operations for these assets are reported in our Lower 48 segment. See Note 14—Fair Value Measurement for additional information.

 

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In the second quarter of 2017, we completed the sale of our 50 percent nonoperated interest in the Foster Creek Christina Lake (FCCL) Partnership, as well as the majority of our western Canada gas assets to Cenovus Energy. Consideration for the transaction included a five-year uncapped contingent payment. The contingent payment, calculated on a quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average crude price exceeds $52 CAD per barrel. Contingent payments received during the five-year period are recorded as “Gain on dispositions” on our consolidated income statement and reflected in our Canada segment. We recorded gains on dispositions for these contingent payments of $19 million and $56 million in the first and second quarters of 2019, respectively, and $50 million in the second quarter of 2018.

 

 

 

 



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 related to this facility 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 June 30, 2019, a balance of $6.9 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 June 30, 2019, the carrying value of our equity method investment in APLNG was $7,357 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 June 30, 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 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 was $1.96 billion based on a price of $9.41 per share on the New York Stock Exchange on the closing date.

 

Our investment on our consolidated balance sheet as of June 30, 2019, is carried at fair value of $1.84 billion, reflecting the closing price of Cenovus Energy shares on the New York Stock Exchange of $8.82 per share on the last trading day of the quarter, an increase of $30 million from $1.81 billion at the end of the first quarter of 2019 and an increase of $373 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 six months 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 June 30, 2019, was $1,001 million, an increase of $145 million from $856 million at year-end 2018. No suspended wells were charged to dry hole expense during the first six 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 June 30, 2019 or December 31, 2018. We had no direct outstanding borrowings or letters of credit under the revolving credit facility at June 30, 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 June 30, 2019.

 

At June 30, 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

 

 

 

 

 

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 June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2019

$

18

 

46,877

 

(43,656)

 

(5,914)

 

35,534

 

122

 

32,981

Net income

 

 

 

 

 

 

 

 

 

1,580

 

17

 

1,597

Other comprehensive income

 

 

 

 

 

 

 

87

 

 

 

 

 

87

Dividends paid ($ 0.31 ) per common share

 

 

 

 

 

 

 

 

 

(346)

 

 

 

(346)

Repurchase of company common stock

 

 

 

 

 

(1,250)

 

 

 

 

 

 

 

(1,250)

Distributions to noncontrolling interests and other

 

 

 

 

 

 

 

 

 

 

 

(43)

 

(43)

Distributed under benefit plans

 

 

 

45

 

 

 

 

 

 

 

 

 

45

Other

 

 

 

 

 

 

 

 

 

1

 

2

 

3

Balances at June 30, 2019

$

18

 

46,922

 

(44,906)

 

(5,827)

 

36,769

 

98

 

33,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

$

18

 

46,879

 

(42,905)

 

(6,063)

 

34,010

 

125

 

32,064

Net income

 

 

 

 

 

 

 

 

 

3,413

 

30