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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
 
March 31, 2020
 
 
d
 
or
[
 
]
TRANSITION
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
Commission file number:
 
001-32395
 
 
 
ConocoPhillips
 
(Exact name of registrant as specified in its charter)
 
Delaware
01-0562944
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
925 N. Eldridge Parkway
Houston
,
TX
77079
(Address of principal executive offices) (Zip Code)
 
281
-
293-1000
 
 
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
[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 and post such files).
 
Yes
[x] No [
 
]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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]
 
The registrant had
1,072,425,162
 
shares of common stock, $.01 par value, outstanding at March 31, 2020.
 
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
 
.................................
 
29
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
.................................................................................................................
 
33
Item 3.
 
Quantitative and Qualitative Disclosures
 
About Market Risk
 
...................................................
 
55
Item 4.
 
Controls and Procedures
 
............................................................................................................
 
56
Part II—Other Information
Item 1.
 
Legal Proceedings
 
......................................................................................................................
 
56
Item 1A.
 
Risk Factors
 
.............................................................................................................................
 
56
Item 2.
 
Unregistered Sales of Equity Securities and Use
 
of Proceeds ...................................................
 
58
Item 6.
 
Exhibits ......................................................................................................................................
 
59
Signature
 
.....................................................................................................................................................
 
60
 
1
 
Commonly Used Abbreviations
 
The following industry-specific, accounting and
 
other terms, and abbreviations may be commonly
 
used in this
report.
 
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
GBP
British pound
ASU
accounting standards update
DD&A
depreciation, depletion and
 
Units of Measurement
amortization
BBL
barrel
FASB
Financial Accounting Standards
BCF
billion cubic feet
Board
BOE
barrels of oil equivalent
FIFO
first-in, first-out
MBD
thousands of barrels per day
G&A
general and administrative
MCF
thousand cubic feet
GAAP
generally accepted accounting
MBOD
thousand barrels of oil per day
principles
MMBOE
million barrels of oil equivalent
LIFO
last-in, first-out
MMBOD
million barrels of oil per day
NPNS
normal purchase normal sale
MBOED
thousands of barrels of oil
 
PP&E
properties, plants and equipment
equivalent per day
SAB
staff accounting bulletin
MMBTU
million British thermal units
VIE
variable interest entity
 
MMCFD
million cubic feet per day
Miscellaneous
Industry
EPA
Environmental Protection Agency
CBM
coalbed methane
EU
European Union
E&P
exploration and production
FERC
Federal Energy Regulatory
 
FEED
front-end engineering and design
Commission
FPS
floating production system
GHG
greenhouse gas
FPSO
floating production, storage and
 
HSE
health, safety and environment
offloading
ICC
International Chamber of
 
JOA
joint operating agreement
Commerce
LNG
liquefied natural gas
ICSID
World Bank’s
 
International
NGLs
natural gas liquids
Centre for Settlement of
 
OPEC
Organization of Petroleum
 
Investment Disputes
Exporting Countries
IRS
Internal Revenue Service
PSC
production sharing contract
OTC
over-the-counter
PUDs
proved undeveloped reserves
NYSE
New York Stock Exchange
SAGD
steam-assisted gravity drainage
SEC
U.S. Securities and Exchange
WCS
Western Canada Select
Commission
WTI
West Texas
 
Intermediate
TSR
total shareholder return
U.K.
United Kingdom
U.S.
United States of America
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
 
FINANCIAL STATEMENTS
Consolidated Income Statement
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Revenues and Other Income
Sales and other operating revenues
$
6,158
9,150
Equity in earnings of affiliates
234
188
Gain (loss) on dispositions
(42)
17
Other income (loss)
 
(1,539)
702
Total Revenues and
 
Other Income
4,811
10,057
Costs and Expenses
Purchased commodities
2,661
3,675
Production and operating expenses
1,173
1,271
Selling, general and administrative expenses
(3)
153
Exploration expenses
188
110
Depreciation, depletion and amortization
1,411
1,546
Impairments
521
1
Taxes other than income
 
taxes
250
275
Accretion on discounted liabilities
67
86
Interest and debt expense
202
233
Foreign currency transactions (gain) loss
(90)
12
Other expenses
(6)
8
Total Costs and Expenses
6,374
7,370
Income (loss) before income taxes
(1,563)
2,687
Income tax provision
148
841
Net income (loss)
(1,711)
1,846
Less: net income attributable to noncontrolling interests
(28)
(13)
Net Income (Loss) Attributable to ConocoPhillips
$
(1,739)
1,833
Net Income (Loss) Attributable to ConocoPhillips Per Share
 
of Common Stock
(dollars)
Basic
$
(1.60)
1.61
Diluted
(1.60)
1.60
Average Common
 
Shares Outstanding
(in thousands)
Basic
1,084,561
1,139,463
Diluted
1,084,561
1,146,515
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Net Income (Loss)
$
(1,711)
1,846
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit
 
included in net income (loss)
(8)
(8)
Net actuarial gain arising during the period
5
-
Reclassification adjustment for amortization of net actuarial losses included
 
in net income (loss)
18
26
Income taxes on defined benefit plans
(4)
(5)
Defined benefit plans, net of tax
11
13
Net unrealized holding loss on securities
(3)
-
Income taxes on net unrealized holding loss on securities
1
-
Net unrealized holding loss on securities, net of tax
(2)
-
Foreign currency translation adjustments
(799)
175
Income taxes on foreign currency translation adjustments
2
1
Foreign currency translation adjustments, net of tax
(797)
176
Other Comprehensive Income (Loss), Net of
 
Tax
(788)
189
Comprehensive Income (Loss)
(2,499)
2,035
Less: comprehensive income attributable to noncontrolling
 
interests
(28)
(13)
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(2,527)
2,022
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
Consolidated Balance Sheet
 
ConocoPhillips
Millions of Dollars
March 31
December 31
2020
2019
Assets
Cash and cash equivalents
$
3,908
5,088
Short-term investments
3,866
3,028
Accounts and notes receivable (net of allowance of $
3
 
and $
13
, respectively)
2,116
3,267
Accounts and notes receivable—related parties
148
134
Investment in Cenovus Energy
420
2,111
Inventories
726
1,026
Prepaid expenses and other current assets
1,960
2,259
Total Current Assets
13,144
16,913
Investments and long-term receivables
8,707
8,687
Loans and advances—related parties
167
219
Net properties, plants and equipment (net of accumulated depreciation,
depletion and amortization of $
55,425
 
and $
55,477
, respectively)
40,645
42,269
Other assets
2,370
2,426
Total Assets
$
65,033
70,514
Liabilities
Accounts payable
$
2,900
3,176
Accounts payable—related parties
21
24
Short-term debt
126
105
Accrued income and other taxes
853
1,030
Employee benefit obligations
323
663
Other accruals
1,852
2,045
Total Current Liabilities
6,075
7,043
Long-term debt
14,847
14,790
Asset retirement obligations and accrued environmental costs
5,316
5,352
Deferred income taxes
4,141
4,634
Employee benefit obligations
1,563
1,781
Other liabilities and deferred credits
1,704
1,864
Total Liabilities
33,646
35,464
Equity
Common stock (
2,500,000,000
 
shares authorized at $
.01
 
par value)
Issued (2020—
1,798,422,031
 
shares; 2019—
1,795,652,203
 
shares)
Par value
18
18
Capital in excess of par
47,027
46,983
Treasury stock (at cost: 2020—
725,996,869
 
shares; 2019—
710,783,814
 
shares)
(47,130)
(46,405)
Accumulated other comprehensive loss
(6,145)
(5,357)
Retained earnings
37,545
39,742
Total Common
 
Stockholders’ Equity
31,315
34,981
Noncontrolling interests
72
69
Total Equity
31,387
35,050
Total Liabilities and Equity
$
65,033
70,514
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Flows From Operating Activities
Net Income (Loss)
$
(1,711)
1,846
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
1,411
1,546
Impairments
521
1
Dry hole costs and leasehold impairments
67
27
Accretion on discounted liabilities
67
86
Deferred taxes
(227)
(1)
Undistributed equity earnings
31
24
(Gain) loss on dispositions
42
(17)
Unrealized (gain) loss on investment in Cenovus Energy
1,691
(343)
Other
(284)
(221)
Working
 
capital adjustments
Decrease in accounts and notes receivable
1,041
179
Decrease (increase) in inventories
277
(4)
Decrease (increase) in prepaid expenses and other current assets
(79)
62
Decrease in accounts payable
(297)
(142)
Decrease in taxes and other accruals
(445)
(149)
Net Cash Provided by Operating Activities
2,105
2,894
Cash Flows From Investing Activities
Capital expenditures and investments
(1,649)
(1,637)
Working
 
capital changes associated with investing activities
81
107
Proceeds from asset dispositions
549
142
Net purchases of investments
(935)
(1)
Collection of advances/loans—related parties
66
62
Other
(44)
(150)
Net Cash Used in Investing Activities
(1,932)
(1,477)
Cash Flows From Financing Activities
Repayment of debt
(24)
(19)
Issuance of company common stock
2
(38)
Repurchase of company common stock
(726)
(752)
Dividends paid
 
(458)
(350)
Other
(24)
(14)
Net Cash Used in Financing Activities
(1,230)
(1,173)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
Cash
(122)
75
Net Change in Cash, Cash Equivalents and Restricted Cash
(1,179)
319
Cash, cash equivalents and restricted cash at beginning of period
5,362
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
4,183
6,470
Restricted cash of $
88
 
million and $
187
 
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, 2020.
Restricted cash of $
90
 
million and $
184
 
million are included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2019.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
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 2019 Annual Report on Form
 
10-K.
 
 
The unrealized (gain) loss on investment in Cenovus
 
Energy included on our consolidated statement of cash
flows, previously reflected on the line item
 
“Other” within net cash provided by operating
 
activities, has been
reclassified in the comparative period to conform
 
with the current period’s presentation.
 
 
Note 2—Changes in Accounting Principles
 
We
adopted
 
the provisions of FASB ASU No. 2016-13, “Measurement of Credit Losses
 
on Financial
Instruments,” (ASC Topic 326) and its amendments,
beginning
January 1, 2020
.
 
This ASU, as amended, sets
forth the current expected credit loss model,
 
a new forward-looking impairment model
 
for certain financial
instruments measured at amortized cost basis
 
based on expected losses rather than incurred losses.
 
This ASU,
as amended, which primarily applies to our accounts
 
receivable, also requires credit losses related
 
to available-
for-sale debt securities to be recorded through an allowance
 
for credit losses.
 
The adoption of this ASU did
not have a material impact to our financial statements.
 
The majority of our receivables are due within
 
30 days
or less.
 
We monitor the credit quality of our counterparties through review of collections,
 
credit ratings, and
other analyses.
 
We develop our estimated allowance for credit losses primarily using an aging method
 
and
analyses of historical loss rates as well as consideration
 
of current and future conditions that could impact
 
our
counterparties’ credit quality and liquidity.
 
 
 
Note 3—Inventories
Inventories consisted of the following:
Millions of Dollars
March 31
 
December 31
2020
2019
Crude oil and natural gas
$
192
472
Materials and supplies
534
554
$
726
1,026
 
As a result of declining commodity prices in
 
the first quarter of 2020, we recorded a lower of
 
cost or market
adjustment of $
228
 
million to our crude oil and natural gas
 
inventories.
 
This adjustment is included in the
“Purchased commodities” line on our consolidated
 
income statement.
 
Inventories valued on the LIFO basis
totaled $
133
 
million and $
286
 
million at March 31, 2020 and December 31, 2019,
 
respectively.
 
 
7
 
Note 4—Asset Acquisitions and Dispositions
 
Assets Held for Sale
In October 2019, we entered into an agreement to sell
 
the subsidiaries that hold our Australia-West assets and
operations to Santos for $
1.39
 
billion, plus customary adjustments, with an effective
 
date of January 1, 2019,
plus a payment of $
75
 
million upon final investment decision
 
of the Barossa development project.
 
These
subsidiaries hold our
37.5
 
percent interest in the Barossa Project and
 
Caldita Field, our
56.9
 
percent interest in
the Darwin LNG Facility and Bayu-Undan Field,
 
our
40
 
percent interest in the Greater Poseidon Fields, and
our
50
 
percent interest in the Athena Field.
 
The transaction is expected to close in the second
 
quarter of 2020.
 
At March 31, 2020, the net carrying value of the
 
subsidiaries to be sold was approximately
 
$
0.7
 
billion,
consisting primarily of $
1.3
 
billion of PP&E and $
0.4
 
billion of cash and working capital, offset by $
0.7
 
billion
of ARO and $
0.3
 
billion of deferred tax liabilities.
 
The assets met held for sale criteria in the fourth
 
quarter of
2019, and as of March 31, 2020, $
1.3
 
billion of PP&E is classified as “Prepaid expenses
 
and other current
assets” and $
0.7
 
billion of noncurrent ARO is classified as
 
“Other accruals” on our consolidated balance sheet.
 
The before-tax earnings associated with our
 
Australia-West subsidiaries to be sold were $
192
 
million and $
115
million for the three-month period ended March 31,
 
2020 and 2019, respectively.
 
This transaction is expected
to be completed in the second quarter of 2020, subject
 
to regulatory approvals and other conditions precedent.
 
Results of operations for the subsidiaries
 
to be sold are reported in our Asia Pacific and Middle
 
East segment.
 
Assets Sold
In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $
184
 
million after customary
adjustments.
 
No gain or loss was recognized on the sale.
 
 
In March 2020, we completed the sale of our
 
Niobrara interests for approximately $
359
 
million after
customary adjustments and recognized a before-tax
 
loss on disposition of $
38
 
million.
 
At the time of
disposition, our interest in Niobrara had a net carrying
 
value of $
397
 
million, consisting primarily of $
433
million of PP&E and $
34
 
million of ARO.
 
The before-tax earnings associated with our
 
interests in Niobrara,
including the loss on disposition, were a loss of $
27
 
million and income of less than $
1
 
million for the three-
month periods ended March 31, 2020 and 2019,
 
respectively.
 
 
Production from these non-core Lower 48 properties
 
averaged
15
 
MBOED in 2019
.
 
 
 
Note 5—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 were 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.
 
APLNG made its first principal and interest
 
repayment 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.
 
APLNG made its first interest payment in September
 
2019, and principal payments are scheduled
 
to
commence in September 2023, with
bi-annual
 
payments due on the facility until
 
September 2030.
 
8
 
 
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, 2020, a balance of $
6.5
 
billion was outstanding on the facilities.
 
See Note 11—Guarantees, for
additional information.
 
At March 31, 2020, the carrying value of our
 
equity method investment in APLNG was
 
$
7,229
 
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, 2020, significant loans to affiliated
companies included $
270
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3).
 
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.
 
 
Note 6-–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 Energy 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 NYSE on
the closing date.
 
At March 31, 2020, the investment included
 
on our consolidated balance sheet was $
420
 
million and is carried
at fair value.
 
The fair value of the
208
 
million Cenovus Energy common shares reflects
 
the closing price of
$
2.02
 
per share on the NYSE on the last trading
 
day of the quarter, a decrease of $
1.69
 
billion from $
2.11
billion at year-end 2019.
 
The decrease in fair value represents the net unrealized
 
loss recorded within the
“Other income (loss)” line of our consolidated income
 
statement in the first quarter of 2020 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 7—Suspended Wells
 
The capitalized cost of suspended wells at March
 
31, 2020, was $
990
 
million, a decrease of $
30
 
million from
$
1,020
 
million at year-end 2019.
 
One
 
suspended well in the Kamunsu East
 
Field offshore Malaysia totaling
$
19
 
million was charged to dry hole expense during
 
the first three months of 2020 relating to exploratory
 
well
costs capitalized for a period greater than one
 
year at December 31, 2019.
 
Of the total suspended well balance
at December 31, 2019 and March 31, 2020, $
313
 
million relates to wells held for sale.
 
See Note 4—Asset
Acquisitions and Dispositions, for additional
 
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
9
 
Note 8—Impairments
During the three-month periods ended March
 
31, 2020 and 2019, we recognized before-tax
 
impairment
charges within the following segments:
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Lower 48
511
-
Europe and North Africa
10
1
$
521
1
 
 
We perform impairment reviews when triggering events arise that may impact the
 
fair value of our assets or
investments.
 
The recent commodity price downturn prompted
 
us to evaluate the recoverability of the carrying
value of our assets and whether an other than temporary
 
impairment occurred for investments
 
in our portfolio.
 
A sustained decline in the current and long-term
 
outlook on commodity prices could trigger
 
additional
impairment reviews and possibly result in
 
future impairment charges.
 
With respect to impairments recorded in the first quarter of 2020, due
 
to a significant decrease in the outlook
for current and long-term natural gas prices,
 
the estimated fair values of certain non-core
 
natural gas assets in
the Lower 48 segment declined to amounts below
 
carrying value.
 
We recorded impairments of $
511
 
million
for these non-core natural gas assets, primarily
 
related to the Wind River Basin operations area consisting of
developed properties in the Madden Field and the
 
Lost Cabin Gas Plant,
 
which were written down to fair
value.
 
See Note 14—Fair Value Measurement,
 
for additional information.
 
In our Asia Pacific and Middle East segment,
 
we recorded a before-tax impairment of $
31
 
million related to
the associated carrying value of capitalized undeveloped
 
leasehold costs for the Kamunsu East Field in
Malaysia that is no longer in our development plans.
 
This charge is included in the “Exploration expenses”
line on our consolidated income statement and
 
is not reflected in the table above.
 
 
Note 9—Debt
 
 
 
Our debt balance as of March 31, 2020 was $
14,973
 
million compared with $
14,895
 
million at December 31,
2019.
 
 
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, 2020 or December 31, 2019.
 
We had
no
 
direct
outstanding borrowings or letters of credit
 
under the revolving credit facility at March 31, 2020
 
or December
31, 2019.
 
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, 2020.
 
In March 2020, S&P affirmed its “A” rating on our senior long-term debt and revised its outlook to “negative”
from “stable”.
In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook.
 
Our current
rating from Fitch is “A” with a “stable” outlook.
 
At March 31, 2020, we had $
283
 
million of certain variable rate demand
 
bonds (VRDBs) outstanding with
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
 
maturities ranging through 2035.
 
The VRDBs are redeemable at the option of the
 
bondholders on any business
day.
 
If they are ever redeemed, we have the ability
 
and intent
 
to refinance on a long-term basis, therefore, the
VRDBs are included in the “Long-term debt” line
 
on our consolidated balance sheet.
 
 
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
Loss
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended March 31, 2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income (loss)
(1,739)
28
(1,711)
Other comprehensive income (loss)
(788)
(788)
Dividends paid ($
0.42
 
per common share)
(458)
(458)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(26)
(26)
Distributed
 
under benefit plans
44
44
Other
1
1
2
Balances at March 31, 2020
$
18
47,027
(47,130)
(6,145)
37,545
72
31,387
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
*Cumulative effect of the adoption of ASU No. 2018-02, "Reclassification
 
of Certain Tax
 
Effects from Accumulated Other Comprehensive
 
Income."
 
 
 
Note 11—Guarantees
 
At March 31, 2020, 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.
 
 
 
11
 
APLNG Guarantees
At March 31, 2020, 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
2020 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
11 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, 2020, the carrying value of this
 
guarantee was approximately $
14
 
million.
 
 
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy 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
22 years
.
 
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
 
to be $
640
 
million ($
1.2
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
26
years or the life of the venture
.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately $
120
 
million and would become payable if APLNG
 
does not perform.
 
At
March 31, 2020, the carrying value of these guarantees
 
was approximately $
6
 
million.
 
 
Other Guarantees
 
We have other guarantees with maximum future potential payment amounts totaling
 
approximately
$
810
 
million, which consist primarily of
 
guarantees of the residual value of leased office buildings,
 
guarantees
of the residual value of corporate aircrafts,
 
and a guarantee for our portion of a joint venture’s project finance
reserve accounts.
 
These guarantees have remaining terms
 
of up to
five 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.
 
At March 31, 2020, the
carrying value of these guarantees was approximately
 
$
11
 
million.
 
 
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 and environmental liabilities.
 
The majority of these indemnifications are related
 
to tax issues and the
majority of these expire in 2021.
 
Those related to environmental issues have terms
 
that are generally indefinite
and the maximum amounts
 
of future payments are generally unlimited.
 
The carrying amount recorded for
these indemnification obligations at March 31, 2020,
 
was approximately $
70
 
million.
 
We amortize the
indemnification liability over the relevant time
 
period the indemnity is in effect, 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, 2020, was 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.
 
12
 
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.
 
We accrue receivables for insurance or other third-party recoveries when applicable.
 
With respect
to income tax-related contingencies, we use
 
a cumulative probability-weighted loss accrual
 
in cases where
sustaining a tax position is less than certain.
 
Based on currently available information, we believe
 
it is remote that future costs related to known
 
contingent
liability exposures will exceed current accruals by
 
an amount that would have a material adverse
 
impact on our
consolidated financial statements.
 
As we learn new facts concerning contingencies,
 
we reassess our position
both with respect to accrued liabilities
 
and other potential exposures.
 
Estimates particularly sensitive to future
changes include contingent liabilities
 
recorded for environmental remediation, tax and legal
 
matters.
 
Estimated future environmental remediation
 
costs are subject to change due to such factors
 
as the uncertain
magnitude of cleanup costs, the unknown time
 
and extent of such remedial actions that
 
may be required, and
the determination of our liability in proportion
 
to that of other responsible parties.
 
Estimated future costs
related to tax and legal matters are subject to
 
change as events evolve and as additional
 
information becomes
available during the administrative and litigation
 
processes.
 
Environmental
We are subject to international, federal, state and local environmental laws and regulations.
 
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.
 
13
 
 
At March 31, 2020, our consolidated balance sheet
 
included a total environmental accrual of $
170
 
million,
compared with $
171
 
million at December 31, 2019, for remediation
 
activities in the U.S. 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, climate change, personal injury, and property damage.
 
Our primary exposures for such matters
relate to alleged royalty and tax underpayments
 
on certain federal, state and privately owned
 
properties and
claims of alleged environmental contamination
 
from historic operations.
 
We will continue to defend ourselves
vigorously in these matters.
 
Our legal organization applies its knowledge, experience
 
and professional judgment to the specific
characteristics of our cases, employing a litigation
 
management process to manage and monitor the
 
legal
proceedings against us.
 
Our process facilitates the early evaluation and
 
quantification of potential exposures in
individual cases.
 
This process also enables us to track those cases that
 
have been scheduled for trial and/or
mediation.
 
Based on professional judgment and experience
 
in using these litigation management tools and
available information about current developments
 
in all our cases, our legal organization regularly assesses
 
the
adequacy of current accruals and determines if
 
adjustment of existing accruals, or establishment
 
of new
accruals, is required.
 
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and
 
processing companies
not associated with financing arrangements.
 
Under these agreements, we may be required
 
to provide any such
company with additional funds through advances
 
and penalties for fees related to throughput capacity
 
not
utilized.
 
In addition, at March 31, 2020, we had performance
 
obligations secured by letters of credit
 
of $
273
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 approximately $
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.
 
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing
 
it by approximately $
227
 
million.
 
The award now stands
at $
8.5
 
billion plus interest.
 
The government of Venezuela sought annulment of the award, which
automatically stayed enforcement of the award.
 
Annulment proceedings are underway.
 
 
In 2014, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Petrozuata and Hamaca projects.
 
The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed
 
ConocoPhillips approximately $
2
 
billion under their
agreements in connection with the expropriation of the
 
projects and other pre-expropriation fiscal
 
measures.
 
In
August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC
award, plus interest through the payment period, including initial payments totaling approximately $500
million within a period of 90 days from the time of signing 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, ConocoPhillips has received
approximately $
754
 
million.
 
Per the settlement, PDVSA recognized the ICC
 
award as a judgment in various
 
14
 
jurisdictions, and ConocoPhillips agreed to suspend
 
its legal enforcement actions.
 
ConocoPhillips sent notices
of default to PDVSA on October 14 and November
 
12, 2019, and to date PDVSA failed to cure
 
its breach.
 
As
a result, ConocoPhillips has resumed legal enforcement
 
actions.
 
ConocoPhillips has ensured that the
settlement and any actions taken in enforcement
 
thereof meet all appropriate U.S. regulatory
 
requirements,
including those related to any applicable sanctions
 
imposed by the U.S. against Venezuela.
 
In 2016, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Corocoro project.
 
On August 2, 2019, the ICC Tribunal
awarded ConocoPhillips approximately $
55
 
million under the Corocoro contracts.
 
ConocoPhillips is seeking
recognition and enforcement of the award in various
 
jurisdictions.
 
ConocoPhillips has ensured that all the
actions related to the award meet all appropriate
 
U.S. regulatory requirements, including those
 
related to any
applicable sanctions imposed by the U.S. against
 
Venezuela.
 
In June 2017, FAR Ltd. initiated arbitration before the ICC against ConocoPhillips
 
Senegal B.V.
 
in connection
with the sale of ConocoPhillips Senegal B.V. to Woodside Energy Holdings (Senegal) Limited in 2016.
 
In
February 2020, the ICC Tribunal issued an award dismissing FAR Ltd.’s claims,
 
and this arbitration has been
terminated.
 
The Office of Natural Resources Revenue (ONRR) has
 
conducted audits of ConocoPhillips’
 
payment of
royalties on federal lands and has issued multiple
 
orders to pay additional royalties to the federal
 
government.
 
ConocoPhillips has appealed these orders and strongly
 
objects to the ONRR claims.
 
The appeals are pending
with the Interior Board of Land Appeals, except
 
for one order that is the subject of a lawsuit
 
ConocoPhillips
filed in 2016 in New Mexico federal court after
 
its appeal was denied by the Interior Board
 
of Land Appeals.
 
Beginning in 2017, cities, counties, and state governments
 
in California, New York, Washington,
 
Rhode
Island, Maryland and Hawaii, 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
federal district courts and appeals are pending.
 
Lawsuits filed by other cities and counties
 
in California and
Washington are currently stayed pending resolution of the appeals brought by the Cities
 
of San Francisco and
Oakland.
 
Lawsuits filed in Maryland and Rhode Island
 
are proceeding in state court while rulings in those
matters, on the issue of whether the matters
 
should proceed in state or federal court, are
 
on appeal.
 
The lawsuit
filed in Hawaii has been removed to federal
 
court.
 
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.
 
All parish lawsuits are stayed pending an appeal
 
on the issue of whether they will proceed in
federal or state court.
 
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
NGLs.
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
 
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
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
364
288
Other assets
35
34
Liabilities
Other accruals
336
283
Other liabilities and deferred credits
23
28
 
 
The gains (losses) from commodity derivatives
 
incurred, and the line items where they appear
 
on our
consolidated income statement were:
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Sales and other operating revenues
$
47
19
Other income (loss)
2
(1)
Purchased commodities
(27)
(20)
 
 
The table below summarizes our material net exposures
 
resulting from outstanding commodity
 
derivative
contracts:
Open Position
Long/(Short)
March 31
December 31
2020
2019
Commodity
Natural gas and power (billion cubic feet equivalent)
 
Fixed price
-
(5)
 
Basis
(19)
(23)
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
 
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
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
40
1
Other Assets
21
-
Liabilities
Other accruals
14
20
Other liabilities and deferred credits
-
8
 
 
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
2020
2019
Foreign currency transactions (gain) loss
$
(74)
(2)
 
 
We had the following net notional position of outstanding foreign currency exchange
 
derivatives:
In Millions
Notional Currency
March 31
December 31
2020
2019
Foreign Currency Exchange Derivatives
Buy GBP,
 
sell euro
GBP
5
4
Sell CAD, buy USD
CAD
441
1,337
 
 
In the second quarter of 2019, we entered into foreign
 
currency exchange contracts to sell
CAD
1.35
 
billion at
CAD
0.748
 
against the
USD
.
 
In the first quarter of 2020, we entered into
 
forward currency exchange contracts
to buy
CAD
0.9
 
billion at CAD
0.718
 
against the
USD
.
 
 
 
Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for
 
the various accounts and
currency pools we manage.
 
The types of financial instruments in which we
 
currently invest include:
 
 
Time deposits: Interest bearing deposits placed with financial
 
institutions for a predetermined amount
of time.
 
 
Demand deposits:
 
Interest bearing deposits placed with financial
 
institutions.
 
Deposited funds can be
withdrawn without notice.
 
Commercial paper: Unsecured promissory notes issued
 
by a corporation, commercial bank or
government agency purchased at a discount to
 
mature at par.
 
U.S. government or government agency obligations:
 
Securities issued by the U.S. government
 
or U.S.
government agencies.
 
Corporate bonds:
 
Unsecured debt securities issued by corporations.
 
Asset-backed securities:
 
Collateralized debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
 
 
The following investments are carried on our
 
consolidated balance sheet at cost, plus accrued
 
interest:
 
 
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31
December 31
March 31
December 31
March 31
December 31
2020
2019
2020
2019
2020
2019
Cash
$
550
759
Demand Deposits
1,387
1,483
-
-
-
-
Time Deposits
Remaining maturities from 1 to 90 days
1,935
2,030
3,345
1,395
-
-
Remaining maturities from 91 to 180 days
-
-
274
465
-
-
Remaining maturities within one year
-
-
11
-
-
-
Remaining maturities greater than one year through
five years
-
-
-
-
3
-
Commercial Paper
Remaining maturities from 1 to 90 days
-
413
-
1,069
-
-
U.S. Government Obligations
Remaining maturities from 1 to 90 days
17
394
-
-
-
-
$
3,889
5,079
3,630
2,929
3
-
 
The following investments in debt securities
 
classified as available for sale are carried on our
 
consolidated balance
sheet at fair value:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
Corporate Bonds
Maturities within one year
$
-
1
126
59
-
-
Maturities greater than one year through five years
-
-
-
-
140
99
Commercial Paper
Maturities within one year
19
8
110
30
-
-
U.S. Government Obligations
Maturities within one year
-
-
-
10
-
-
Maturities greater than one year through five years
-
-
-
-
21
15
U.S. Government Agency Obligations
Maturities greater than one year through five years
-
-
-
-
5
-
Asset-backed Securities
Maturities greater than one year through five years
-
-
-
-
38
19
$
19
9
236
99
204
133
 
 
 
 
 
 
 
 
 
 
 
18
 
The following table summarizes the amortized
 
cost basis and fair value of investments in
 
debt securities
classified as available for sale at March 31, 2020:
Millions of Dollars
Amortized Cost
Basis
Fair Value
Major Security Type
Corporate bonds
$
269
266
Commercial paper
129
129
U.S. government obligations
21
21
U.S. government agency obligations
5
5
Asset-backed securities
38
38
$
462
459
 
 
As of March 31, 2020, total unrealized losses for debt
 
securities classified as available for sale with net losses
were negligible.
 
Additionally, investments
 
in these debt securities in an unrealized loss
 
position as of March
31, 2020 for which an allowance for credit losses
 
has not been recorded were negligible.
 
 
For the three-month period ended March 31,
 
2020, gross realized gains and gross realized losses
 
included in
earnings from sales and redemptions of investments
 
in debt securities classified as available
 
for sale were
negligible.
 
The cost of securities sold and redeemed is determined
 
using the specific identification method.
 
 
Credit Risk
Financial instruments potentially exposed to concentrations
 
of credit risk consist primarily of cash equivalents,
short-term investments, long-term investments
 
in debt securities, OTC derivative contracts and trade
receivables.
 
Our cash equivalents and short-term investments
 
are placed in high-quality commercial paper,
government money market funds, government debt
 
securities, time deposits with major international
 
banks and
financial institutions, and high-quality corporate
 
bonds.
 
Our long-term investments in debt securities are
placed in high-quality corporate bonds, U.S. government
 
and government agency obligations, asset-backed
securities, and time deposits with major international
 
banks and financial institutions.
 
 
The credit risk from our OTC derivative contracts,
 
such as forwards, swaps and options, derives
 
from the
counterparty to the transaction.
 
Individual counterparty exposure is managed
 
within predetermined credit
limits and includes the use of cash-call margins when appropriate,
 
thereby reducing the risk of significant
nonperformance.
 
We also use futures, swaps and option contracts that have a negligible credit
 
risk because
these trades are cleared with an exchange clearinghouse
 
and subject to mandatory margin requirements until
settled; however, we are exposed to the credit risk of those exchange
 
brokers for receivables arising from daily
margin cash calls, as well as for cash deposited to meet
 
initial margin requirements.
 
 
Our trade receivables result primarily
 
from our petroleum operations and reflect a broad
 
national and
international customer base, which limits our
 
exposure to concentrations of credit risk.
 
The majority of these
receivables have payment terms of
30 days
 
or less, and we continually monitor this exposure
 
and the
creditworthiness of the counterparties.
 
We do not generally require collateral to limit the exposure to loss;
however, we will sometimes use letters of credit, prepayments
 
and master netting arrangements to mitigate
credit risk with counterparties that both buy from
 
and sell to us, as these agreements permit
 
the amounts owed
by us or owed to others to be offset against amounts
 
due to us.
 
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative
exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts
with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts
typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert
 
19
 
to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also
permit us to post letters of credit as collateral, such as transactions administered through the New York
Mercantile Exchange.
 
The aggregate fair value of all derivative
 
instruments with such credit risk-related contingent
 
features that were
in a liability position at March 31, 2020 and
 
December 31, 2019, was $
65
 
million and $
79
 
million,
respectively.
 
For these instruments,
no
 
collateral was posted as of March 31, 2020 or
 
December 31, 2019.
 
If
our credit rating had been downgraded below investment
 
grade at March 31, 2020,
 
we would have been
required to post $
63
 
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 measured at the reporting date
 
using an exit price
(i.e., the price that would be received to sell an asset
 
or paid to transfer a liability) and disclosed
 
according to
the quality of valuation inputs under the 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 hierarchy of an asset or liability
 
is based on the lowest level of input significant
 
to its fair
value.
 
Those that are initially classified as Level 3
 
are subsequently reported as Level 2 when
 
the fair value
derived from unobservable inputs is inconsequential
 
to the overall fair value, or if corroborated market
 
data
becomes available.
 
Assets and liabilities initially reported as Level
 
2 are subsequently reported as Level 3 if
corroborated market data is no longer available.
 
There were no material transfers into or
 
out of Level 3 during
2020 or 2019.
 
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair
 
value on a recurring basis primarily include
 
our investment in
Cenovus Energy common shares, our investments in debt
 
securities classified as available for sale, and
commodity derivatives.
 
 
 
Level 1 derivative assets and liabilities primarily
 
represent exchange-traded futures and options that are
valued using unadjusted prices available from the
 
underlying exchange.
 
Level 1 also includes our
investment in common shares of Cenovus Energy, which is valued using quotes for shares
 
on the NYSE,
and our investments in U.S. government obligations
 
classified as available for sale debt securities,
 
which
are valued using exchange prices.
 
 
Level 2 derivative assets and liabilities primarily
 
represent OTC swaps, options and forward purchase
 
and
sale contracts that are valued using adjusted exchange
 
prices, prices provided by brokers or pricing
 
service
companies that are all corroborated by market
 
data.
 
Level 2 also includes our investments in
 
debt
securities classified as available for sale including
 
investments in corporate bonds, commercial
 
paper,
asset-backed securities, and U.S. government
 
agency obligations that are valued using
 
pricing provided by
brokers or pricing service companies that are
 
corroborated with market data.
 
 
Level 3 derivative assets and liabilities consist
 
of OTC swaps, options and forward purchase and
 
sale
contracts where a significant portion of fair
 
value is calculated from underlying market
 
data that is not
readily available.
 
The derived value uses industry standard
 
methodologies that may consider the historical
relationships among various commodities, modeled
 
market prices, time value, volatility factors and other
relevant economic measures.
 
The use of these inputs results in management’s best estimate of fair
 
value.
 
Level 3 activity was not material for all
 
periods presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
 
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, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
420
-
-
420
2,111
-
-
2,111
Investments in debt securities
21
438
459
25
216
-
241
Commodity derivatives
196
168
35
399
172
114
36
322
Total assets
$
637
606
35
1,278
2,308
330
36
2,674
Liabilities
Commodity derivatives
$
244
102
13
359
174
115
22
311
Total liabilities
$
244
102
13
359
174
115
22
311
 
 
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 Not
Gross
Net
Amounts
Subject to
Gross
Amounts
Amounts
Cash
Net
Recognized
Right of Setoff
Amounts
Offset
Presented
Collateral
Amounts
March 31, 2020
Assets
$
399
2
397
213
184
5
179
Liabilities
359
2
357
213
144
56
88
December 31, 2019
Assets
$
322
3
319
193
126
4
122
Liabilities
311
4
307
193
114
12
102
At March 31, 2020 and December 31, 2019, 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
Measurement
Using
Fair Value
Level 3 Inputs
Before-Tax
Loss
Net PP&E (held for use)
March 31, 2020
$
77
77
510
 
 
 
 
 
 
 
 
 
21
 
During the first quarter of 2020
, the estimated fair value of our assets in the Wind River Basin operations
 
area
declined to an amount below the carrying value.
 
The Wind River Basin operations area consists of certain
developed natural gas properties in the Madden
 
Field and the Lost Cabin Gas Plant and is included
 
in our
Lower 48 segment
. The carrying value was written down to fair value. The fair value was estimated based on
an internal discounted cash flow model using estimates of future production, an outlook of future prices using
a combination of exchanges (short-term) and external pricing services companies (long-term), future operating
costs and capital expenditures, and a discount rate believed to be consistent with those used by principal
market participants.
The range and arithmetic average of significant
 
unobservable inputs used in the Level 3
fair value measurement were as follows:
 
 
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
 
(Arithmetic Average)
March 31, 2020
Wind River Basin
$
77
Discounted cash
flow
Natural gas production
(MMCFD)
8.4
 
-
55.2
 
(
22.9
)
Natural gas price outlook*
($/MMBTU)
$
2.67
 
- $
9.17
 
($
5.68
)
Discount rate**
7.9
%
 
-
9.1
% (
8.3
%)
* Henry Hub natural gas price outlook based on external pricing
 
service companies' outlooks for years 2022-2034; future
 
prices escalated at
2.2
% annually after
year 2034.
** Determined as the weighted average cost of capital of a group
 
of peer companies, adjusted for risks where
 
appropriate.
 
 
Reported Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial
 
instruments:
 
 
Cash and cash equivalents and short-term investments:
 
The carrying amount reported on the balance
sheet approximates fair value.
 
For those investments classified as available
 
for sale debt securities,
the carrying amount reported on the balance sheet
 
is fair value.
 
Accounts and notes receivable (including long-term
 
and related parties): The carrying amount
reported on the balance sheet approximates fair
 
value.
 
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: See Note 6—Investment
 
in Cenovus Energy for a discussion of the
carrying value and fair value of our investment in
 
Cenovus Energy common shares.
 
 
Investments in debt securities classified as available
 
for sale: The fair value of investments in debt
securities categorized as Level 1 in the fair
 
value hierarchy is measured using exchange
 
prices.
 
The
fair value of investments in debt securities
 
categorized as Level 2 in the fair value hierarchy
 
is
measured using pricing provided by brokers or
 
pricing service companies that are corroborated
 
with
market data.
 
See Note 13—Derivatives and Financial Instruments,
 
for additional information.
 
 
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 5—Investments, Loans and Long-Term
Receivables, for additional information.
 
Accounts payable (including related parties)
 
and floating-rate debt: The carrying amount of accounts
payable and floating-rate debt reported on the balance
 
sheet approximates fair value.
 
 
Fixed-rate debt: The estimated fair value of fixed-rate
 
debt is measured using prices available
 
from a
pricing service that is corroborated by market
 
data; therefore, these liabilities are categorized
 
as Level
2 in the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
 
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
2020
2019
2020
2019
Financial assets
Investment in Cenovus Energy
$
420
2,111
420
2,111
Commodity derivatives
181
125
181
125
Investments in debt securities
459
241
459
241
Total loans and advances—related parties
270
339
270
339
Financial liabilities
Total debt, excluding finance leases
14,160
14,175
15,841
18,108
Commodity derivatives
90
106
90
106
 
 
Note 15—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the
 
equity section of our consolidated balance
 
sheet included:
Millions of Dollars
Defined Benefit
Plans
Net Unrealized
Loss on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2019
$
(350)
-
(5,007)
(5,357)
Other comprehensive income (loss)
11
(2)
(797)
(788)
March 31, 2020
$
(339)
(2)
(5,804)
(6,145)
 
The following table summarizes reclassifications
 
out of accumulated other comprehensive loss and into
 
net
income (loss):
Millions of Dollars
Three Months Ended
March 31
2020
2019
Defined benefit plans
$
8
13
The above amounts are included in the computation of net periodic benefit
 
cost and are presented net of tax expense of $
2
 
million and
$
5
 
million for the three-month periods ended March 31, 2020 and 2019, respectively.
 
See Note 17—Employee Benefit Plans, for additional
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
Note 16—Cash Flow Information
Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Payments
Interest
$
200
199
Income taxes
465
700
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(3,423)
(250)
Short-term investments sold
2,606
249
Investments and Long-term receivables purchased
(143)
-
Investments and Long-term receivables sold
25
-
$
(935)
(1)
 
 
Note 17—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
 
Pension Benefits
Other Benefits
2020
2019
2020
2019
U.S.
Int’l.
U.S.
Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost
$
21
14
20
19
1
-
Interest cost
17
22
21
26
2
2
Expected return on plan assets
(21)
(37)
(18)
(35)
-
-
Amortization of prior service credit
-
-
-
-
(8)
(8)
Recognized net actuarial loss (gain)
12
6
13
8
-
(1)
Settlements
1
(1)
6
-
-
-
Net periodic benefit cost
$
30
4
42
18
(5)
(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 2020, we contributed
 
$
12
 
million to our domestic benefit plans and
$
37
 
million to our international benefit plans.
 
In 2020, we expect to contribute a total of
 
approximately $
130
million to our domestic qualified and nonqualified
 
pension and postretirement benefit plans and $
70
 
million to
our international qualified and nonqualified
 
pension and postretirement benefit plans.
 
Severance Accrual
The following table summarizes our severance accrual
 
activity for the three-month period ended March
 
31,
2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
 
Millions of Dollars
Balance at December 31, 2019
$
23
Accruals
5
Benefit payments
(4)
Foreign currency translation adjustments
(4)
Balance at March 31, 2020
$
20
 
 
Of the remaining balance at March 31, 2020, $
6
 
million is classified as short-term.
 
 
Note 18—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
2020
2019
Operating revenues and other income
$
17
21
Purchases
-
21
Operating expenses and selling, general and administrative
 
expenses
15
14
Net interest (income) expense*
(2)
(4)
*We paid interest to, or received interest from,
 
various affiliates.
 
See Note 5—Investments, Loans and Long-Term Receivables, for additional
information on loans to affiliated companies.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
 
Note 19—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
2020
2019
Revenue from contracts with customers
$
4,911
7,059
Revenue from contracts outside the scope of ASC
 
Topic 606
Physical contracts meeting the definition of a derivative
1,296
2,081
Financial derivative contracts
(49)
10
Consolidated sales and other operating revenues
$
6,158
9,150
 
 
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 20—Segment Disclosures and Related
Information:
 
 
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment
Lower 48
$
976
1,613
Canada
179
241
Europe and North Africa
141
227
Physical contracts meeting the definition of a derivative
$
1,296
2,081
 
 
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Product
Crude oil
$
92
188
Natural gas
1,090
1,768
Other
114
125
Physical contracts meeting the definition of a derivative
$
1,296
2,081
 
 
 
26
 
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, 2020, the “Accounts and notes
 
receivable” line on our consolidated balance sheet,
 
includes trade
receivables of $
1,287
 
million compared with $