UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
[
]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CONOCOPHILLIPS
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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
EUR
Euro
ASU
accounting standards update
GBP
British pound
DD&A
depreciation, depletion and
amortization
Units of Measurement
FASB
Financial Accounting Standards
BBL
barrel
Board
BCF
billion cubic feet
FIFO
first-in, first-out
BOE
barrels of oil equivalent
G&A
general and administrative
MBD
thousands of barrels per day
GAAP
generally accepted accounting
MCF
thousand cubic feet
principles
MBOD
thousand barrels of oil per day
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MMBOD
million barrels of oil per day
SAB
staff accounting bulletin
MBOED
thousands of barrels of oil
VIE
variable interest entity
equivalent per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection Agency
EU
European Union
Industry
FERC
Federal Energy Regulatory
CBM
coalbed methane
Commission
E&P
exploration and production
GHG
greenhouse gas
FEED
front-end engineering and design
HSE
health, safety and environment
FPS
floating production system
ICC
International Chamber of
FPSO
floating production, storage and
Commerce
offloading
ICSID
World Bank’s International
JOA
joint operating agreement
Centre for Settlement of
LNG
liquefied natural gas
Investment Disputes
NGLs
natural gas liquids
IRS
Internal Revenue Service
OPEC
Organization of Petroleum
OTC
over-the-counter
Exporting Countries
NYSE
New York Stock Exchange
PSC
production sharing contract
SEC
U.S. Securities and Exchange
PUDs
proved undeveloped reserves
Commission
SAGD
steam-assisted gravity drainage
TSR
total shareholder return
WCS
Western Canada Select
U.K.
United Kingdom
WTI
West Texas Intermediate
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
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
Gain on dispositions
Other income (loss)
(945 )
Total Revenues and Other Income
Costs and Expenses
Purchased commodities
Production and operating expenses
Selling, general and administrative expenses
Exploration expenses
Depreciation, depletion and amortization
Impairments
(2 )
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction (gain) loss
(83 )
Other expenses
(7 )
(13 )
Total Costs and Expenses
Income (loss) before income taxes
(1,542 )
Income tax provision (benefit)
(257 )
(109 )
Net income (loss)
(1,433 )
Less: net income attributable to noncontrolling interests
(18 )
(17 )
(46 )
(30 )
Net Income (Loss) Attributable to ConocoPhillips
$
(1,479 )
Net Income (Loss) Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
(1.37 )
Diluted
(1.37 )
Average Common Shares Outstanding
(in thousands)
Basic
Diluted
See Notes to Consolidated Financial Statements.
3
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss)
$
(1,433 )
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior
service credit included in net income (loss)
(8 )
(10 )
(16 )
(18 )
Net actuarial gain arising during the period
Reclassification adjustment for amortization of net actuarial
losses included in net income (loss)
Income taxes on defined benefit plans
(3 )
(5 )
(7 )
(10 )
Defined benefit plans, net of tax
Unrealized holding gain on securities
Income taxes on unrealized holding gain on securities
(2 )
(1 )
Unrealized holding gain on securities, net of tax
Foreign currency translation adjustments
(490 )
Income taxes on foreign currency translation adjustments
(1 )
Foreign currency translation adjustments, net of tax
(488 )
Other Comprehensive Income (Loss), Net of Tax
(468 )
Comprehensive Income (Loss)
(1,901 )
Less: comprehensive income attributable to noncontrolling interests
(18 )
(17 )
(46 )
(30 )
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(1,947 )
See Notes to Consolidated Financial Statements.
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
June 30
December 31
2020
2019
Assets
Cash and cash equivalents
$
Short-term investments
Accounts and notes receivable (net of allowance of $
, respectively)
Accounts and notes receivable—related parties
Investment in Cenovus Energy
Inventories
Prepaid expenses and other current assets
Total Current Assets
Investments and long-term receivables
Loans and advances—related parties
Net properties, plants and equipment
(net of accumulated DD&A of $
, respectively)
Other assets
Total Assets
$
Liabilities
Accounts payable
$
Accounts payable—related parties
Short-term debt
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
Employee benefit obligations
Other liabilities and deferred credits
Total Liabilities
Equity
Common stock (
Issued (2020—
Par value
Capital in excess of par
Treasury stock (at cost: 2020—
(47,130 )
(46,405 )
Accumulated other comprehensive loss
(5,825 )
(5,357 )
Retained earnings
Total Common Stockholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
$
See Notes to Consolidated Financial Statements.
5
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Six Months Ended
June 30
2020
2019
Cash Flows From Operating Activities
Net income (loss)
$
(1,433 )
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
Impairments
Dry hole costs and leasehold impairments
Accretion on discounted liabilities
Deferred taxes
(320 )
(221 )
Undistributed equity earnings
Gain on dispositions
(554 )
(99 )
Unrealized (gain) loss on investment in Cenovus Energy
(373 )
Other
(244 )
(21 )
Working capital adjustments
Decrease in accounts and notes receivable
Increase in inventories
(27 )
(77 )
Increase in prepaid expenses and other current assets
(149 )
(149 )
Decrease in accounts payable
(754 )
(326 )
Decrease in taxes and other accruals
(838 )
(494 )
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities
Capital expenditures and investments
(2,525 )
(3,366 )
Working capital changes associated with investing activities
(251 )
Proceeds from asset dispositions
Net purchases of investments
(1,030 )
(485 )
Collection of advances/loans—related parties
Other
(35 )
Net Cash Used in Investing Activities
(2,462 )
(2,938 )
Cash Flows From Financing Activities
Repayment of debt
(214 )
(38 )
Issuance of company common stock
(36 )
Repurchase of company common stock
(726 )
(2,002 )
Dividends paid
(913 )
(696 )
Other
(28 )
(55 )
Net Cash Used in Financing Activities
(1,879 )
(2,827 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
Cash
(93 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(2,172 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, Cash Equivalents and Restricted Cash at End of Period
$
Restricted cash of $
respectively, of our Consolidated Balance Sheet as of June 30, 2020.
Restricted cash of $
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
Instruments,” (ASC Topic 326) and its amendments,
. 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.
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
June 30
2020
2019
Crude oil and natural gas
$
Materials and supplies
$
Inventories valued on the LIFO basis totaled $
31, 2019, respectively. Due to a precipitous decline in commodity prices beginning in March this year, we
recorded a lower of cost or market adjustment in the first quarter of 2020 of $
natural gas inventories. The adjustment was included in the “Purchased commodities” line on our consolidated
income statement. Commodity prices have since improved in the second quarter.
7
Note 4—Asset Acquisitions and Dispositions
Assets Sold
In May 2020, we completed the divestiture of our subsidiaries that held our Australia-West assets and
operations, and based on an effective date of January 1, 2019, we received proceeds of $
additional $
the second quarter of 2020, we recognized a before-tax gain of $
time of disposition, the net carrying value of the subsidiaries sold was approximately $
$
other current assets offset by $
other liabilities. The before-tax earnings associated with the subsidiaries sold, excluding the gain on
disposition noted above, were $
and 2019, respectively. Production associated with the disposed assets averaged
period of 2020. Results of operations for the subsidiaries sold are reported in our
segment.
In March 2020, we completed the sale of our Niobrara interests for approximately $
customary adjustments and recognized a before-tax loss on disposition of $
disposition, our interest in Niobrara had a net carrying value of $
million of PP&E and $
including the loss on disposition, were a loss of $
June 30, 2020 and 2019, respectively.
In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $
adjustments.
Production from the disposed Niobrara and Waddell Ranch interests in our
MBOED in 2019.
Planned Acquisition
In July 2020, we signed a definitive agreement to acquire additional Montney acreage for cash consideration of
approximately $
in financing obligations for associated partially owned infrastructure. This acquisition consists primarily of
undeveloped properties and includes
which is directly adjacent to our existing Montney position. Upon completion of this transaction, we will have
a Montney acreage position of
subject to regulatory approval, is expected to close in the third quarter of 2020 and will be reported in our
Canada segment.
Note 5—Investments, Loans and Long-Term Receivables
APLNG
APLNG executed project financing agreements for an $
billion project finance facility was initially composed of financing agreements executed by APLNG with the
Export-Import Bank of the United States for approximately $
approximately $
approximately $
interest repayment in March 2017 and is scheduled to make
March 2029
.
APLNG made a voluntary repayment of $
At the same time, APLNG obtained a United States Private Placement (USPP) bond facility of $
APLNG made its first interest payment related to this facility in March 2019, and principal payments are
scheduled to commence in September 2023, with
September 2030
.
8
During the first quarter of 2019, APLNG refinanced $
transactions. As a result of the first transaction, APLNG obtained a commercial bank facility of $
APLNG made its first principal and interest repayment in September 2019 with
facility until
March 2028
. Through the second transaction, APLNG obtained a USPP bond facility of $
billion. APLNG made its first interest payment in September 2019, and principal payments are scheduled to
commence in September 2023, with
In conjunction with the $
finance debt, APLNG made voluntary repayments of $
and international commercial banks and the Export-Import Bank of China, respectively.
At June 30, 2020, a balance of $
additional information.
At June 30, 2020, the carrying value of our equity method investment in APLNG was $
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, 2020, significant loans to affiliated
companies included $
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
well as the majority of our western Canada gas assets, to Cenovus Energy. Consideration for the transaction
included
and outstanding Cenovus Energy common stock. The fair value and cost basis of our investment in
million Cenovus Energy common shares was $
the closing date.
At June 30, 2020, the investment included on our consolidated balance sheet was $
fair value. The fair value of the
$
value of $
recorded an unrealized gain of $
three- and six-month periods ended June 30, 2019, we recorded an unrealized gain of $
million, respectively. The unrealized gains and losses are recorded within the “Other income (loss)” line of
our consolidated income statement and are related 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 June 30, 2020, was $
year-end 2019 primarily related to our Australia-West divestiture. See Note 4—Asset Acquisitions and
Dispositions, for additional information. Of the well costs capitalized for more than one year as of December
9
31, 2019, $
well in the Kamunsu East Field offshore Malaysia.
Note 8—Impairments
During the three- and six-month periods ended June 30, 2020 and 2019, we recognized before-tax impairment
charges within the following segments:
Millions of Dollars
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Lower 48
Europe and North Africa
(4 )
$
(2 )
We perform impairment reviews when triggering events arise that may impact the fair value of our assets or
investments.
We observed volatility in commodity prices during the first six-months of 2020. A decline in commodity
prices beginning in March 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. For certain non-core
natural gas assets in the Lower 48, a significant decrease in the outlook for current and long-term natural gas
prices resulted in a decline in the estimated fair values to amounts below carrying value. Accordingly, in the
first quarter of 2020, we recorded impairments of $
primarily for 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.
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.
We recorded a before-tax impairment in the first quarter of 2020 of $
East segment 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 June 30, 2020 was $
2019.
Our revolving credit facility provides a total commitment of $
May 2023
. Our
revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to
$
ConocoPhillips Company $
needs. Commercial paper maturities are generally limited to
.
We had no commercial paper outstanding at June 30, 2020 or December 31, 2019. We had no direct
outstanding borrowings or letters of credit under the revolving credit facility at June 30, 2020 or December 31,
10
2019. Since we had
no
no
billion in borrowing capacity under our revolving credit facility at June 30, 2020.
At June 30, 2020, we had $
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.
11
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
Loss
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended June 30, 2020
Balances at March 31, 2020
$
(47,130 )
(6,145 )
Net income
Other comprehensive income
Dividends paid ($
(455 )
(455 )
Distributions to noncontrolling interests and other
(6 )
(6 )
Disposition
(84 )
(84 )
Distributed under benefit plans
Other
Balances at June 30, 2020
$
(47,130 )
(5,825 )
For the six months ended June 30, 2020
Balances at December 31, 2019
$
(46,405 )
(5,357 )
Net income (loss)
(1,479 )
(1,433 )
Other comprehensive loss
(468 )
(468 )
Dividends paid ($
(913 )
(913 )
Repurchase of company common stock
(726 )
(726 )
Distributions to noncontrolling interests and other
(32 )
(32 )
Disposition
(84 )
(84 )
Distributed under benefit plans
Other
Balances at June 30, 2020
$
(47,130 )
(5,825 )
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 June 30, 2019
Balances at March 31, 2019
$
(43,656 )
(5,914 )
Net income
Other comprehensive income
Dividends paid ($
(346 )
(346 )
Repurchase of company common stock
(1,250 )
(1,250 )
Distributions to noncontrolling interests and other
(43 )
(43 )
Distributed under benefit plans
Other
Balances at June 30, 2019
$
(44,906 )
(5,827 )
For the six months ended June 30, 2019
Balances at December 31, 2018
$
(42,905 )
(6,063 )
Net income
Other comprehensive income
Dividends paid ($
(696 )
(696 )
Repurchase of company common stock
(2,002 )
(2,002 )
Distributions to noncontrolling interests and other
(60 )
(60 )
Distributed under benefit plans
Changes in Accounting Principles*
(40 )
Other
Balances at June 30, 2019
$
(44,906 )
(5,827 )
*Cumulative effect of the adoption of ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
12
Note 11—Guarantees
At June 30, 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.
APLNG Guarantees
At June 30, 2020, we had outstanding multiple guarantees in connection with our
interest in APLNG. The following is a description of the guarantees with values calculated utilizing June 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
. Our maximum exposure under this guarantee is approximately $
and may become payable if an enforcement action is commenced by the project finance lenders
against APLNG. At June 30, 2020, the carrying value of this guarantee was approximately $
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
. Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated to be $
($
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
. Our maximum potential amount of future payments related to these
guarantees is approximately $
June 30, 2020, the carrying value of these guarantees was approximately $
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling approximately
$
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
asset values are lower than guaranteed amounts at the end of the lease or contract term, business conditions
decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties.
At June 30, 2020, the carrying value of these guarantees was approximately $
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 June 30, 2020, was approximately $
13
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 June 30, 2020, were approximately $
of environmental accruals for known contamination that are included in the “Asset retirement obligations and
accrued environmental costs” line on our consolidated balance sheet. For additional information about
environmental liabilities, see Note 12—Contingencies and Commitments.
Note 12—Contingencies and Commitments
A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed
against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active
and inactive sites. We regularly assess the need for accounting recognition or disclosure of these
contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a
liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be
reasonably estimated and no amount within the range is a better estimate than any other amount, then the low
end 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.
14
Where it appears that other potentially responsible parties may be financially unable to bear their proportional
share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly.
As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these
environmental obligations are mitigated by indemnifications made by others for our benefit, and some of the
indemnifications are subject to dollar limits and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and
comparable state and international sites. After an assessment of environmental exposures for cleanup and
other costs, we make accruals on an undiscounted basis (except those acquired in a purchase business
combination, which we record on a discounted basis) for planned investigation and remediation activities for
sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have
not reduced these accruals for possible insurance recoveries.
At June 30, 2020 and December 31, 2019, our balance sheet included a total environmental accrual of
$
these expenditures within the next
. 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 June 30, 2020, we had performance obligations secured by letters of credit of
$
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 $
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 $
15
at $
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 $
agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures.
received approximately $
various 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 $
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.
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 were dismissed by
federal district courts. The New York dismissal remains on appeal. The Ninth Circuit ruled that the San
Francisco and Oakland cases (and other California cases) should proceed in state court, with that decision
subject to appeal. Lawsuits filed by the cities and counties in California, Washington, and Hawaii are
currently stayed pending resolution of the Ninth Circuit appeals. 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.
Several Louisiana parishes have filed lawsuits against oil and gas companies, including ConocoPhillips,
seeking compensatory damages in connection with historical oil and gas operations in Louisiana. The lawsuits
are stayed pending an appeal with the Fifth Circuit on the issue of whether they will proceed in federal or state
court. ConocoPhillips will vigorously defend against these lawsuits.
In 2016, ConocoPhillips, through its subsidiary, The Louisiana Land and Exploration Company LLC,
submitted claims as the largest private wetlands owner in Louisiana within the settlement claims
administration process related to the oil spill in the Gulf of Mexico in April 2010. In July 2020, the claims
administrator issued an award to the company which, after fees and expenses, totaled approximately $
million.
16
Note 13—Derivative and Financial Instruments
We use futures, forwards, swaps and options in various markets to meet our customer needs, capture market
opportunities and manage foreign exchange currency risk.
Commodity Derivative Instruments
Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and NGLs.
Commodity 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 elect hedge accounting for our commodity derivatives.
The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the
line items where they appear on our consolidated balance sheet:
Millions of Dollars
June 30
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
Other assets
Liabilities
Other accruals
Other liabilities and deferred credits
The gains (losses) from commodity derivatives incurred, and the line items where they appear on our
consolidated income statement were:
Millions of Dollars
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Sales and other operating revenues
$
(50 )
(3 )
Other income (loss)
Purchased commodities
(31 )
(2 )
(51 )
17
The table below summarizes our material net exposures resulting from outstanding commodity derivative
contracts:
Open Position
Long/(Short)
June 30
December 31
2020
2019
Commodity
Natural gas and power (billions of cubic feet equivalent)
(20 )
(5 )
(27 )
(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.
Our foreign currency exchange derivative instruments are held at fair value on our consolidated balance sheet.
Related cash flows are recorded as operating activities on our consolidated statement of cash flows. We do not
elect hedge accounting on our foreign currency exchange derivatives.
The following table presents the gross fair values of our foreign currency exchange derivatives, excluding
collateral, and the line items where they appear on our consolidated balance sheet:
Millions of Dollars
June 30
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
Liabilities
Other accruals
Other liabilities and deferred credits
The (gains) losses from foreign currency exchange derivatives incurred, and the line item where they appear
on our consolidated income statement were:
Millions of Dollars
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Foreign currency transaction (gain) loss
$
(62 )
18
We had the following net notional position of outstanding foreign currency exchange derivatives:
In Millions
Notional Currency
June 30
December 31
2020
2019
Foreign Currency Exchange Derivatives
Buy GBP, sell EUR
GBP
Sell CAD, buy USD
CAD
.
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.
19
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
June 30
December 31
June 30
December 31
June 30
December 31
2020
2019
2020
2019
2020
2019
Cash
$
Demand Deposits
Time Deposits
Remaining maturities from 1 to 90 days
Remaining maturities from
Remaining maturities within one year
Remaining maturities greater than one
year through five years
Commercial Paper
Remaining maturities from 1 to 90 days
Remaining maturities from
U.S. Government Obligations
Remaining maturities from 1 to 90 days
$
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
June 30
2020
December 31
2019
June 30
2020
December 31
2019
June 30
2020
December 31
2019
Corporate Bonds
Maturities within one year
$
Maturities greater than one year
Commercial Paper
Maturities within one year
U.S. Government Obligations
Maturities within one year
Maturities greater than one year
U.S. Government Agency Obligations
Maturities greater than one year
Asset-backed Securities
Maturities greater than one year
$
20
The following table summarizes the amortized cost basis and fair value of investments in debt securities
classified as available for sale:
Millions of Dollars
June 30, 2020
December 31, 2019
Amortized
Cost Basis
Fair Value
Amortized
Cost Basis
Fair Value
Major Security Type
Corporate bonds
$
Commercial paper
U.S. government obligations
U.S. government agency obligations
Asset-backed securities
$
As of June 30, 2020 and December 31, 2019, total unrealized losses for debt securities classified as available
for sale with net losses were negligible. Additionally, as of June 30, 2020 and December 31, 2019,
investments in these debt securities in an unrealized loss position for which an allowance for credit losses has
not been recorded were negligible.
For the three- and six-month periods ended June 30, 2020, proceeds from sales and redemptions of investments
in debt securities classified as available for sale were $
realized gains and losses included in earnings from those sales and redemptions 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
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.
21
The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were
in a liability position on June 30, 2020 and December 31, 2019, was $
For these instruments,
had been downgraded below investment grade on June 30, 2020, we would have been required to post $
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.
22
The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e.,
unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring
basis):
Millions of Dollars
June 30, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
Investments in debt securities
Commodity derivatives
Total assets
$
Liabilities
Commodity derivatives
$
Total liabilities
$
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
June 30, 2020
Assets
$
Liabilities
December 31, 2019
Assets
$
Liabilities
At June 30, 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
$
23
, 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.
fair value measurement were as follows:
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
(Arithmetic Average)
March 31, 2020
Wind River Basin
$
Discounted cash
flow
Natural gas production
(MMCFD)
)
Natural gas price outlook*
($/MMBTU)
$
)
Discount rate**
% -
% (
%)
% 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.
24
The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of
setoff exists for commodity derivatives):
Millions of Dollars
Carrying Amount
Fair Value
June 30
December 31
June 30
December 31
2020
2019
2020
2019
Financial assets
Investment in Cenovus Energy
$
Commodity derivatives
Investments in debt securities
Total loans and advances—related parties
Financial liabilities
Total debt, excluding finance leases
Commodity derivatives
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
Gain on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Income (Loss)
December 31, 2019
$
(350 )
(5,007 )
(5,357 )
Other comprehensive income (loss)
(488 )
(468 )
June 30, 2020
$
(332 )
(5,495 )
(5,825 )
The following table summarizes reclassifications out of accumulated other comprehensive loss and into net
income (loss):
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Defined benefit plans
$
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $
for the three-month periods ended June 30, 2020 and June 30, 2019, respectively, and $
June 30, 2020 and June 30, 2019, respectively. See Note 17—Employee Benefit Plans, for additional information.
25
Note 16—Cash Flow Information
Millions of Dollars
Six Months Ended
June 30
2020
2019
Cash Payments
Interest
$
Income taxes
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(7,021 )
(982 )
Short-term investments sold
Long-term investments purchased
(208 )
Long-term investments sold
$
(1,030 )
(485 )
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, June 30,
September 30, December 31
Service cost
$
Interest cost
Expected return on plan assets
(21 )
(34 )
(18 )
(35 )
Amortization of prior service credit
(1 )
(8 )
(9 )
Recognized net actuarial loss
Settlements
Net periodic benefit cost
$
(7 )
(6 )
Six Months Ended March 31, June 30, September
30, December 31
Service cost
$
Interest cost
Expected return on plan assets
(42 )
(71 )
(36 )
(70 )
Amortization of prior service credit
(1 )
(16 )
(17 )
Recognized net actuarial loss (gain)
(1 )
Settlements
(1 )
Net periodic benefit cost
$
(12 )
(13 )
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 six months of 2020, we contributed $
to our international benefit plans. In 2020, we expect to contribute a total of approximately $
our domestic qualified and nonqualified pension and postretirement benefit plans and $
international qualified and nonqualified pension and postretirement benefit plans.
26
Note 18—Related Party Transactions
Our related parties primarily include equity method investments and certain trusts for the benefit of employees.
For disclosures on trusts for the benefit of employees, see Note 17—Employee Benefit Plans.
Significant transactions with our equity affiliates were:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Operating revenues and other income
$
Purchases
Operating expenses and selling, general and administrative
expenses
Net interest income*
(2 )
(3 )
(4 )
(7 )
*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.
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
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenue from contracts with customers
$
Revenue from contracts outside the scope of ASC Topic 606
Physical contracts meeting the definition of a derivative
Financial derivative contracts
(26 )
(51 )
(75 )
(41 )
Consolidated sales and other operating revenues
$
27
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
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenue from Outside the Scope of ASC Topic 606
by Segment
Lower 48
$
Canada
Europe and North Africa
Physical contracts meeting the definition of a derivative
$
Millions of Dollars
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Revenue from Outside the Scope of ASC Topic 606
by Product
Crude oil
$
Natural gas
Other
Physical contracts meeting the definition of a derivative
$
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.
Receivables and Contract Liabilities
Receivables from Contracts with Customers
At June 30, 2020, the “Accounts and notes receivable” line on our consolidated balance sheet, includes trade
receivables of $
with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC Topic 606.
market prices for which we do not elect NPNS and are therefore accounted for as a derivative under ASC
Topic 815. There is little distinction in the nature of the customer or credit quality of trade receivables
associated with gas sold under contracts for which NPNS has not been elected compared to trade receivables
where NPNS has been elected.
28
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology to customers related
to the optimization process for operating LNG plants. The agreements typically provide for negotiated
payments to be made at stated milestones.
Millions of Dollars
Contract Liabilities
As of June 30, 2020 and December 31, 2019
$
Amounts Recognized in the Consolidated Balance Sheet at June 30, 2020
Current liabilities
$
Noncurrent liabilities
$
were
Note 20—Segment Disclosures and Related Information
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide
basis. We manage our operations through
region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other
International.
Corporate and Other represents income and costs not directly associated with an operating segment, such as
most interest expense, corporate overhead and certain technology activities, including licensing revenues.
Corporate assets include all cash and cash equivalents and short-term investments.
We evaluate performance and allocate resources based on net income (loss) attributable to ConocoPhillips.
Intersegment sales are at prices that approximate market.
Effective in the third quarter of 2020, we will restructure our segments to align with changes to our internal
organization. The Middle East business will move from the Asia Pacific and Middle East segment to the
Europe and North Africa segment. The segments will be renamed the Asia Pacific segment and the Europe,
North Africa and Middle East segment. Accordingly, beginning in the third quarter of 2020 we will revise
segment information disclosures and segment performance metrics presented within our results of operations
for the current and historical comparative periods.
29
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Sales and Other Operating Revenues
Alaska
$
Intersegment eliminations
Alaska
Lower 48
Intersegment eliminations
(28 )
(11 )
(38 )
(23 )
Lower 48
Canada
Intersegment eliminations
(335 )
(180 )
(585 )
Canada
Europe and North Africa
Asia Pacific and Middle East
Other International
Corporate and Other
Consolidated sales and other operating revenues
$
Sales and Other Operating Revenues by Geographic Location
(1)
United States
$
Australia
Canada
China
Indonesia
Libya
Malaysia
Norway
United Kingdom
Other foreign countries
Worldwide consolidated
$
Sales and Other Operating Revenues by Product
Crude oil
$
Natural gas
Natural gas liquids
Other
(2)
Consolidated sales and other operating revenues by product
$
(1) Sales and other operating revenues are attributable to countries based on the location of the selling operation.
(2) Includes LNG and bitumen.
30
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
(141 )
(60 )
Lower 48
(365 )
(802 )
Canada
(86 )
(195 )
Europe and North Africa
Asia Pacific and Middle East
Other International
(6 )
Corporate and Other
(193 )
(1,590 )
Consolidated net income (loss) attributable to ConocoPhillips
$
(1,479 )
Millions of Dollars
June 30
December 31
2020
2019
Total Assets
Alaska
$
Lower 48
Canada
Europe and North Africa
Asia Pacific and Middle East
Other International
Corporate and Other
Consolidated total assets
$
Note 21—Income Taxes
Our effective tax rate for the three-month period ended June 30, 2020, was negative and is significantly lower
than the comparative period in 2019 due to a number of significant transactions, and their related tax effects,
impacting our $
recognized for our Australia-West assets of $
derecognition of $
divestiture, a $
valuation allowance. For the comparative three-month period ended June 30, 2019, the effective tax rate was
primarily impacted by a benefit of $
disposed U.K. subsidiaries.
The effective tax rate for the six-month period ended June 30, 2020 was
for the same period of 2019. The effective tax rate was impacted by the items noted above for the three-month
period ended, June 30, 2020, as well as a shift in our before-tax income between higher and lower tax
jurisdictions in 2020.
As a result of the COVID-19 pandemic and the resulting economic uncertainty, many countries in which we
operate, including Australia, Canada, Norway and the U.S., have enacted responsive tax legislation. During
the second quarter, Norway enacted legislation to accelerate the recovery of capital expenditures and allow
immediate monetization of tax losses. As a result, we have recorded an increase to our net deferred tax
liability of $
Legislation in other jurisdictions did not have a material impact to ConocoPhillips.
31
During the three- and six-month periods ended June 30, 2020, our valuation allowance decreased by
$
million for the same periods of 2019. The change to our U.S. valuation allowance for both periods relates
primarily to the fair value measurement of our Cenovus Energy common shares and our expectation of the tax
impact related to incremental capital gains and losses.
Supplementary Information—Condensed Consolidating Financial Information
We have various cross guarantees among ConocoPhillips, ConocoPhillips Company and Burlington Resources
LLC, with respect to publicly held debt securities. ConocoPhillips Company is
ConocoPhillips. Burlington Resources LLC is
ConocoPhillips and/or ConocoPhillips Company have fully and unconditionally guaranteed the payment
obligations of Burlington Resources LLC, with respect to its publicly held debt securities. Similarly,
ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company
with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and
unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt
securities. All guarantees are joint and several. The following condensed consolidating financial information
presents the results of operations, financial position and cash flows for:
●
ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC (in each case, reflecting
investments in subsidiaries utilizing the equity method of accounting).
●
All other nonguarantor subsidiaries of ConocoPhillips.
●
The consolidating adjustments necessary to present ConocoPhillips’ results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying
consolidated financial statements and notes.
In May 2020, ConocoPhillips received a $
ConocoPhillips Company to settle certain accumulated intercompany balances. This transaction had no impact
on our consolidated financial statements.
In May 2020, ConocoPhillips Company received a $
capital from a nonguarantor subsidiary to settle certain accumulated intercompany balances. This transaction
had no impact on our consolidated financial statements.
32
Millions of Dollars
Three Months Ended June 30, 2020
Income Statement
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings (losses) of affiliates
(304 )
(241 )
Gain on dispositions
Other income
Intercompany revenues
(271 )
Total Revenues and Other Income
(303 )
(512 )
Costs and Expenses
Purchased commodities
(252 )
Production and operating expenses
(1 )
Selling, general and administrative expenses
Exploration expenses
Depreciation, depletion and amortization
Impairments
(3 )
(2 )
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(18 )
Foreign currency transaction (gains) losses
(18 )
Other expenses
(1 )
(6 )
(7 )
Total Costs and Expenses
(271 )
Income (loss) before income taxes
(336 )
(241 )
Income tax provision (benefit)
(15 )
(7 )
(260 )
(257 )
Net income (loss)
(329 )
(241 )
Less: net income attributable to noncontrolling interests
(18 )
(18 )
Net Income (Loss) Attributable to ConocoPhillips
$
(329 )
(241 )
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(83 )
(1,118 )
Income Statement
Three Months Ended June 30, 2019
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
(4,258 )
Gain on dispositions
Other income
Intercompany revenues
(1,815 )
Total Revenues and Other Income
(6,073 )
Costs and Expenses
Purchased commodities
(1,396 )
Production and operating expenses
(353 )
Selling, general and administrative expenses
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(15 )
(66 )
Foreign currency transaction losses
Other expenses
Total Costs and Expenses
(1,815 )
Income before income taxes
(4,258 )
Income tax provision (benefit)
(16 )
(260 )
(4 )
Net income
(4,258 )
Less: net income attributable to noncontrolling interests
(17 )
(17 )
Net Income Attributable to ConocoPhillips
$
(4,258 )
Comprehensive Income Attributable to ConocoPhillips
$
(4,529 )
See Notes to Consolidated Financial Statements.
33
Millions of Dollars
Six Months Ended June 30, 2020
Income Statement
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings (losses) of affiliates
(1,366 )
(730 )
Gain on dispositions
Other income (loss)
(1,083 )
(945 )
Intercompany revenues
(1,211 )
Total Revenues and Other Income
(1,366 )
(725 )
Costs and Expenses
Purchased commodities
(1,149 )
Production and operating expenses
(2 )
Selling, general and administrative expenses
(5 )
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(55 )
Foreign currency transaction gains
(19 )
(64 )
(83 )
Other expenses
(7 )
(6 )
(13 )
Total Costs and Expenses
(1,211 )
Income (loss) before income taxes
(1,509 )
(1,319 )
(792 )
(1,542 )
Income tax provision (benefit)
(30 )
(13 )
(113 )
(109 )
Net income (loss)
(1,479 )
(1,366 )
(779 )
(1,433 )
Less: net income attributable to noncontrolling interests
(46 )
(46 )
Net Income (Loss) Attributable to ConocoPhillips
$
(1,479 )
(1,366 )
(779 )
(1,479 )
Comprehensive Loss Attributable to ConocoPhillips
$
(1,947 )
(1,834 )
(1,130 )
(83 )
(1,947 )
Income Statement
Six Months Ended June 30, 2019
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
(8,241 )
Gain on dispositions
Other income
Intercompany revenues
(3,015 )
Total Revenues and Other Income
(11,256 )
Costs and Expenses
Purchased commodities
(2,522 )
Production and operating expenses
(354 )
Selling, general and administrative expenses
(5 )
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(134 )
Foreign currency transaction losses
Other expenses
(3 )
Total Costs and Expenses
(3,015 )
Income before income taxes
(8,241 )
Income tax provision (benefit)
(31 )
(224 )
(9 )
Net income
(8,241 )
Less: net income attributable to noncontrolling interests
(30 )
(30 )
Net Income Attributable to ConocoPhillips
$
(8,241 )
Comprehensive Income Attributable to ConocoPhillips
$
(9,005 )
See Notes to Consolidated Financial Statements.
34
Millions of Dollars
June 30, 2020
Balance Sheet
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Assets
Cash and cash equivalents
$
Short-term investments
Accounts and notes receivable
(1,269 )
Investment in Cenovus Energy
Inventories
Prepaid expenses and other current assets
Total Current Assets
(1,269 )
Investments, loans and long-term receivables*
(84,700 )
Net properties, plants and equipment
Other assets
(697 )
Total Assets
$
(86,666 )
Liabilities and Stockholders’ Equity
Accounts payable
$
(1,269 )
Short-term debt
(3 )
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
(1,269 )
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
(697 )
Employee benefit obligations
Other liabilities and deferred credits*
(14,461 )
Total Liabilities
(16,427 )
Retained earnings
(20,049 )
Other common stockholders’ equity
(5,858 )
(50,190 )
(5,858 )
Total Liabilities and Stockholders’ Equity
$
(86,666 )
*Includes intercompany loans.
Balance Sheet
December 31, 2019
Assets
Cash and cash equivalents
$
Short-term investments
Accounts and notes receivable
(2,575 )
Investment in Cenovus Energy
Inventories
Prepaid expenses and other current assets
Total Current Assets
(2,575 )
Investments, loans and long-term receivables*
(97,413 )
Net properties, plants and equipment
Other assets
(805 )
Total Assets
$
(100,793 )
Liabilities and Stockholders’ Equity
Accounts payable
$
(2,575 )
Short-term debt
(3 )
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
(2,575 )
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
(804 )
Employee benefit obligations
Other liabilities and deferred credits*
(17,534 )
Total Liabilities
(20,913 )
Retained earnings
(27,985 )
Other common stockholders’ equity
(4,761 )
(51,895 )
(4,761 )
Noncontrolling interests
Total Liabilities and Stockholders’ Equity
$
(100,793 )
*Includes intercompany loans.
See Notes to Consolidated Financial Statements.
35
Millions of Dollars
Six Months Ended June 30, 2020
Statement of Cash Flows
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Cash Flows From Operating Activities
Net Cash Provided by Operating Activities
$
(4,566 )
Cash Flows From Investing Activities
Capital expenditures and investments
(322 )
(14 )
(2,203 )
(2,525 )
Working capital changes associated with investing activities
(49 )
(202 )
(251 )
Proceeds from asset dispositions
(1,953 )
Sales (purchases) of short-term investments
(1,324 )
(1,030 )
Long-term advances/loans—related parties
(10 )
Collection of advances/loans—related parties
(71 )
Intercompany cash management
(1,339 )
(269 )
(22 )
Other
(35 )
(35 )
Net Cash Provided by (Used in) Investing Activities
(574 )
(576 )
(36 )
(2,000 )
(2,462 )
Cash Flows From Financing Activities
Issuance of debt
(10 )
Repayment of debt
(285 )
(214 )
Issuance of company common stock
(93 )
Repurchase of company common stock
(726 )
(726 )
Dividends paid
(913 )
(2,990 )
(3,200 )
(913 )
Other
(439 )
(28 )
Net Cash Used in Financing Activities
(1,541 )
(2,990 )
(3,914 )
(1,879 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(93 )
(93 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(1,640 )
(532 )
(2,172 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, Cash Equivalents and Restricted Cash at End of Period
$
Statement of Cash Flows
Six Months Ended June 30, 2019*
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities
$
(40 )
(5,564 )
Cash Flows From Investing Activities
Capital expenditures and investments
(653 )
(2,882 )
(3,366 )
Working capital changes associated with investing activities
(17 )
Proceeds from asset dispositions
(75 )
Purchases of short-term investments
(50 )
(435 )
(485 )
Long-term advances/loans—related parties
(19 )
Collection of advances/loans—related parties
(89 )
Intercompany cash management
(3,256 )
Other
Net Cash Provided by (Used in) Investing Activities
(3,533 )
(551 )
(2,938 )
Cash Flows From Financing Activities
Issuance of debt
(19 )
Repayment of debt
(21 )
(106 )
(38 )
Issuance of company common stock
(79 )
(36 )
Repurchase of company common stock
(2,002 )
(2,002 )
Dividends paid
(696 )
(1,660 )
(3,983 )
(696 )
Other
(94 )
(55 )
Net Cash Used in Financing Activities
(2,653 )
(1,681 )
(4,033 )
(2,827 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(1 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(165 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, Cash Equivalents and Restricted Cash at End of Period
$
*Revised to reclassify certain intercompany distributions from Operating Activities to ‘Proceeds from asset dispositions’ within Investing Activities based on the nature of the distributions.
There was no impact to Total Consolidated results.
See Notes to Consolidated Financial Statements.
36
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis is the company’s analysis of its financial performance and of
significant trends that may affect future performance. It should be read in conjunction with the financial
statements and notes. It contains forward-looking statements including, without limitation, statements relating
to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,”
“estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,”
“seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,”
“outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company does
not undertake to update, revise or correct any of the forward-looking information unless required to do so
under the federal securities laws. Readers are cautioned that such forward-looking statements should be read
in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995,” beginning on page 59.
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
ConocoPhillips is an independent E&P company with operations and activities in 16 countries. Our diverse,
low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional
assets in North America, Europe and Asia; LNG developments; oil sands assets in Canada; and an inventory of
global conventional and unconventional exploration prospects. At June 30, 2020, we employed approximately
9,700 people worldwide and had total assets of $63 billion.
Overview
The energy landscape changed dramatically in 2020 with simultaneous demand and supply shocks that drove
the industry into a severe downturn. The demand shock was triggered by COVID-19, which was declared a
global pandemic and caused unprecedented social and economic consequences. Mitigation efforts to stop the
spread of this contagious disease included stay-at-home orders and business closures that caused sharp
contractions in economic activity worldwide. The supply shock was triggered by disagreements between
OPEC and Russia, beginning in early March, which resulted in significant supply coming onto the market and
an oil price war. These dual demand and supply shocks caused oil prices to collapse as we exited the first
quarter.
As we entered the second quarter, predictions of COVID-19 driven global oil demand losses intensified, with
forecasts of unprecedented demand declines. Based on these forecasts, OPEC plus nations held an emergency
meeting, and in April they announced a coordinated production cut that was unprecedented in both its
magnitude and duration. The OPEC plus countries agreed to cut production by 9.7 MMBOD in May and June,
9.6 MMBOD in July, and 7.7 MMBOD from August to December. From January 2021 to April 2022, they
agreed to cut production by 5.8 MMBOD. Additionally, non-OPEC plus countries, including the U.S.,
Canada, Brazil and other G-20 countries, announced organic reductions to production through the release of
drilling rigs, frac crews, normal field decline and curtailments. Despite these planned production decreases,
the supply cuts were not timely enough to overcome significant demand decline. Futures prices for April WTI
closed under $20 a barrel for the first time since 2001, followed by May WTI settling below zero on the day
before futures contracts expiry, as holders of May futures contracts struggled to exit positions and avoid taking
physical delivery. As storage constraints approached, spot prices in April for certain North American
landlocked grades of crude oil were in the single digits or even negative for particularly remote or low-grade
crudes, while waterborne priced crudes such as Brent sold at a relative advantage.
37
Since the start of the severe downturn, we have closely monitored the market and taken prudent actions in
response to this situation. We entered the year in a position of relative strength, with cash and cash equivalents
of more than $5 billion, short-term investments of $3 billion, and an undrawn credit facility of $6 billion,
totaling approximately $14 billion in available liquidity. Additionally, we had several entity and asset sales
agreements in place, which generated $1.3 billion in proceeds from dispositions during the first six-months of
2020. For more information about the sales of our Australia-West and non-core Lower 48 assets, see Note 4—
Asset Acquisitions and Dispositions in the Notes to Consolidated Financial Statements. This relative
advantage allowed us to be measured in our response to the sudden change in business environment.
In March, we announced an initial set of actions to address the downturn and followed up with additional
actions in April. The combined announcements reflected a reduction in our 2020 operating plan capital of $2.3
billion, a reduction to our operating costs of $600 million and suspension of our share repurchase program.
These actions will decrease uses of cash by over $5 billion in 2020. We also established a framework for
evaluating and implementing economic curtailments considering the weakness in oil prices during the second
quarter of 2020, which resulted in taking an additional significant step of curtailing production, predominantly
from operated North American assets. Due to our strong balance sheet, we were in an advantaged position to
forgo some production and cash flow in anticipation of receiving higher cash flows for those volumes in the
future.
In the second quarter, we curtailed production by an estimated 225 MBOED, with 145 MBOED of the
curtailments from the Lower 48, 40 MBOED from Alaska and 30 MBOED from our Surmont operation in
Canada. The remainder of the second-quarter curtailments were primarily in Malaysia. Other industry
operators also cut production and development plans and as we progressed through the second quarter, stay-at-
home restrictions eased, which partially restored lost demand, and WTI and Brent prices exited the second
quarter around $40 per barrel.
While we remain cautious regarding the recent oil market recovery and continue to monitor global market
conditions and COVID-19 hotspots around the world, based on our economic criteria, we restored curtailed
production in Alaska during July. We also brought some curtailed volumes in the Lower 48 back online and
expect to be fully restored in September. At Surmont, we began restoring production in July, though the ramp
will be slower due to planned turnarounds in the third quarter and limited staffing in the fields as a COVID-19
mitigation measure. We continue to monitor pricing and evaluate curtailments across our assets on a month-
by-month basis.
At June 30, 2020, we had $12.9 billion of liquidity, comprised of $2.9 billion in cash and cash equivalents,
$4.0 billion in short-term investments, and an undrawn credit facility of $6 billion. On July 8, 2020, we
announced a quarterly dividend of 42 cents per share to be distributed on September 1, 2020 to shareholders of
record as of July 20, 2020.
In July 2020, we signed a definitive agreement to acquire additional Montney acreage for cash consideration of
approximately $375 million before customary adjustments, plus the assumption of approximately $30 million
in financing obligations for associated partially owned infrastructure. This acquisition consists primarily of
undeveloped properties and includes 140,000 net acres in the liquids-rich Inga Fireweed asset Montney zone,
which is directly adjacent to our existing Montney position, as well as 15 MBOED of production. Upon
completion of this transaction, we will have a Montney acreage position of 295,000 net acres with a 100
percent working interest. The transaction is subject to regulatory approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
Our expectation is that commodity prices will remain cyclical and volatile, and a successful business strategy
in the E&P industry must be resilient in lower price environments, at the same time retaining upside during
periods of higher prices. While we are not impervious to current market conditions, our decisive actions over
the last several years of focusing on free cash flow generation, high-grading our asset base, lowering the cost
of supply of our investment resource base, and strengthening our balance sheet have put us in a strong relative
position compared to our independent E&P peers. Although recent prices have been extremely volatile, we
38
remain committed to our core value proposition principles, namely, to focus on financial returns, maintain a
strong balance sheet, deliver compelling returns of capital, and maintain disciplined capital investments.
Our workforce and operations have adjusted to mitigate the impacts of the COVID-19 global pandemic. We
have operations in remote areas with confined spaces, such as offshore platforms, the North Slope of Alaska,
Curtis Island in Australia, western Canada and Indonesia, where viruses could rapidly spread. Personnel are
asked to perform a self-assessment for symptoms of illness each day and, when appropriate, are subject to
more restrictive measures traveling to and working on location. Staffing levels in certain operating locations
have been reduced to minimize health risk exposure and increase social distancing. A large portion of our
office staff have been successfully working remotely, with offices around the world carefully designing and
executing a flexible, phased reentry, following national, state and local guidelines. Workforce health and
safety remains the overriding driver for our actions and we have demonstrated our ability to adapt to local
conditions as warranted. These mitigation measures have thus far been effective at protecting employees’
health and reducing business operation disruptions.
The marketing and supply chain side of our business has also adapted in response to COVID-19. Our
commercial organization is managing transportation commitments considering curtailment measures. Our
supply chain function is proactively working with vendors to ensure the continuity of our business operations,
monitor distressed service and materials providers, capture deflation opportunities, and pursue cost reduction
efforts.
Operationally, we remain focused on safely executing the business. In the second quarter of 2020, production
of 981 MBOED generated cash from operating activities of $0.2 billion. We invested $0.9 billion into the
business in the form of capital expenditures and paid dividends to shareholders of $0.5 billion. Production
decreased 351 MBOED or 26 percent in the second quarter of 2020, compared to the second quarter of 2019,
primarily due to curtailments and the divestiture of our U.K. assets in the third quarter of 2019, the divestiture
of our Australia-West business and several non-core assets in the Lower 48 during the first six-months of
2020, and the declaration of force majeure in Libya in February 2020. Excluding Libya, and adjusting for
closed dispositions and estimated curtailments, production in the second quarter of 2020 was slightly higher
than the same period a year ago.
In the first half of the year we recognized a $1.1 billion before and after-tax unrealized loss on our 208 million
Cenovus Energy common shares and $0.4 billion after-tax in impairments due to low domestic natural gas
prices. Persistent low commodity prices may result in further proved and unproved property impairments,
including to certain equity method investments.
39
Q2'18
Q3'18
Q4'18
Q1'19
Q2'19
Q3'19
Q4'19
Q1'20
Q2'20
WTI/Brent
$/Bbl
WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices
Quarterly Averages
WTI - $/Bbl
Brent - $/Bbl
HH - $/MMBTU
HH
Business Environment
Commodity prices are the most significant factor impacting our profitability and related reinvestment of
operating cash flows into our business. Among other dynamics that could influence world energy markets and
commodity prices are global economic health, supply or demand disruptions or fears thereof caused by civil
unrest, global pandemics, military conflicts, actions taken by OPEC plus and other major oil producing
countries, environmental laws, tax regulations, governmental policies and weather-related disruptions. Our
strategy is to create value through price cycles by delivering on the financial and operational priorities that
underpin our value proposition.
Our earnings and operating cash flows generally correlate with price levels for crude oil and natural gas, which
are subject to factors external to the company and over which we have no control. The following graph depicts
the trend in average benchmark prices for WTI crude oil, Brent crude oil and Henry Hub natural gas:
Brent crude oil prices averaged $29.20 per barrel in the second quarter of 2020, a decrease of 58 percent
compared with $68.82 per barrel in the second quarter of 2019. WTI at Cushing crude oil prices averaged
$27.85 per barrel in the second quarter of 2020, a decrease of 53 percent compared with $59.80 per barrel in
the second quarter of 2019. Oil prices fell significantly as producers failed to reduce output sufficiently or
timely enough to offset the demand reduction due to COVID-19.
Henry Hub natural gas prices averaged $1.71 per MMBTU in the second quarter of 2020, a decrease of 35
percent compared with $2.64 per MMBTU in the second quarter of 2019. Henry Hub prices decreased due to
high storage levels and weak domestic and LNG feedstock demand.
Our realized bitumen price averaged negative $23.11 per barrel in the second quarter of 2020, a decrease of
$60 per barrel compared with $37.20 per barrel in the second quarter of 2019. The decrease in the second
quarter of 2020 was driven by lower blend price for Surmont sales, largely attributed to a weakening WTI
price and a narrowing spread between the local market and U.S. sales points, which challenged both pipeline
and rail economics. As a result, we curtailed production, and an increasing portion of remaining blend sales
were directed to the lower priced local market. In addition, we incurred unutilized transportation costs which
negatively impacted our realized bitumen price.
Our total average realized price was $23.09 per BOE in the second quarter of 2020, compared with $50.50 per
BOE in the second quarter of 2019.
40
Key Operating and Financial Summary
Significant items during the second quarter of 2020 included the following:
●
Ended the quarter with cash, cash equivalents and restricted cash totaling $3.2 billion and short-term
investments of $4.0 billion.
●
Produced 981 MBOED excluding Libya; curtailed approximately 225 MBOED.
●
Completed the Australia-West divestiture, generating $0.8 billion in proceeds.
●
Distributed $0.5 billion in dividends.
●
In July, announced a planned bolt-on acquisition of adjacent acreage in the liquids-rich Montney.
Outlook
Capital and Production
In February 2020, we announced 2020 operating plan capital of $6.5 billion to $6.7 billion. In response to the
recent oil market downturn, we announced capital expenditure reductions totaling $2.3 billion. This does not
include capital for acquisitions. In July 2020, we announced a planned bolt-on acquisition in the liquids-rich
area of the Montney for approximately $0.4 billion.
In the second quarter, we curtailed production by an estimated 225 MBOED, with 145 MBOED of the
curtailments from the Lower 48, 40 MBOED from Alaska and 30 MBOED from our Surmont operation in
Canada. The remainder of the second-quarter curtailments were primarily in Malaysia. Prices rebounded off
their second quarter lows, with Brent crude at the end of June near $40 per barrel, and based on our economic
criteria, we restored curtailed production in Alaska during July. We also brought some curtailed volumes in
the Lower 48 back online and expect to be fully restored in September. At Surmont, we began restoring
production in July, though the ramp will be slower due to planned turnarounds in the third quarter and limited
staffing in the fields as a COVID-19 mitigation measure. We continue to monitor pricing and evaluate
curtailments across our assets on a month-by-month basis. Estimated curtailments for the third quarter of 2020
are 115 MBOED.
Depreciation, Depletion and Amortization
DD&A expense was $1.2 billion in the second quarter of 2020. Proved reserves estimates were updated in the
current quarter utilizing trailing twelve-month oil and gas prices, which increased second quarter DD&A
expense by approximately $70 million before-tax. If oil and gas prices persist at depressed levels, our reserve
estimates may decrease further, which could incrementally increase the rate used to determine DD&A expense
on our unit-of-production method properties.
41
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three- and six-month periods ended June 30, 2020, is
based on a comparison with the corresponding periods of 2019.
Consolidated Results
A summary of the company's net income (loss) attributable to ConocoPhillips by business segment follows:
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Alaska
$
(141)
462
(60)
846
Lower 48
(365)
206
(802)
399
Canada
(86)
100
(195)
222
Europe and North Africa
11
407
86
614
Asia Pacific and Middle East
662
517
1,060
1,042
Other International
(6)
81
22
212
Corporate and Other
185
(193)
(1,590)
78
Net income (loss) attributable to ConocoPhillips
$
260
1,580
(1,479)
3,413
Net income attributable to ConocoPhillips in the second quarter of 2020 decreased $1,320 million. Earnings
were negatively impacted by:
●
Lower realized commodity prices.
●
Lower sales volumes, primarily due to production curtailments across our North American operated
assets and the divestiture of our U.K. assets in the third quarter of 2019 and Australia-West assets in
the second quarter of 2020.
●
The absence of a $234 million U.S. tax benefit related to the recognition of U.S. tax basis in our
disposed U.K. subsidiaries.
●
The absence of $115 million benefit related to the settlement of certain tax disputes and enhanced oil
recovery credits.
●
The release of $92 million of deferred tax assets in our Corporate segment as a result of the Australia-
West divestiture.
●
The absence of other income of $84 million after-tax related to our settlement agreement with
Petróleos de Venezuela, S.A. (PDVSA).
Second quarter 2020 net income decreases were partly offset by:
●
Higher gain on dispositions primarily due to a $597 million after-tax gain related to our Australia-
West divestiture.
●
A $521 million higher after-tax unrealized gain on our Cenovus Energy common shares reflected in
other income.
●
Lower production and operating expenses, primarily due to decreased wellwork and transportation
costs associated with production curtailments across our North American operated assets as well as
the absence of costs related to our U.K. divestiture.
●
Lower DD&A primarily due to lower volumes related to production curtailments and the cessation of
DD&A related to our Australia-West divestiture, partly offset by higher DD&A rates due to price-
related downward reserve revisions.
42
Net loss attributable to ConocoPhillips in the six-month period ended June 30, 2020, decreased $4,892 million.
Earnings were negatively impacted by:
●
Lower realized commodity prices.
●
Lower sales volumes, primarily due to normal field decline, production curtailments across our North
American operated assets and the divestiture of our U.K. assets in the third quarter of 2019 and our
Australia-West assets in the second quarter of 2020.
●
A $1,140 million after-tax unrealized loss on our Cenovus Energy common shares in the six-month
period of 2020, reflected in other income, as compared to a $373 million after-tax unrealized gain in
the six-month period of 2019.
●
Higher impairments of $400 million after-tax, primarily related to non-core gas assets in our Lower 48
segment.
●
The absence of a $234 million U.S. tax benefit related to the recognition of U.S. tax basis in our
disposed U.K. subsidiaries.
●
The absence of other income of $231 million after-tax related to our settlement agreement with
PDVSA.
●
The absence of a $115 million benefit related to the settlement of certain tax disputes and enhanced oil
recovery credits.
●
The release of $92 million of deferred tax assets in our Corporate segment as a result of our Australia-
West divestiture.
The decreases in earnings in the six-month period ended June 30, 2020, were partly offset by:
●
Higher gain on dispositions primarily due to a $597 million after-tax gain related to our Australia-
West divestiture.
●
Lower production and operating expenses, primarily due to decreased wellwork and transportation
costs associated with production curtailments across our North American operated assets as well as
the absence of costs related to our U.K. divestiture.
●
Lower DD&A primarily due to lower volumes related to production curtailments and the cessation of
DD&A related to our Australia-West divestiture, partly offset by higher DD&A rates due to price-
related downward reserve revisions.
●
The absence of impairments related to equity method investments of $120 million after-tax in the
Lower 48, recorded within equity in earnings of affiliates.
See the “Segment Results” section for additional information.
Income Statement Analysis
Sales and other operating revenues for the three- and six-month periods of 2020 decreased $5,204 million and
$8,196 million, mainly due to lower realized commodity prices and lower sales volumes due to production
curtailments from our North American operated assets and the divestiture of our U.K. assets in the third quarter
of 2019 and our Australia-West assets in the second quarter of 2020.
Equity in earnings of affiliates for the three- and six-month periods of 2020 decreased $96 million and $50
million primarily due to lower earnings from QG3 and APLNG as a result of lower LNG prices and sales
volumes for both affiliates and lower oil prices at QG3. Partly offsetting the decrease in equity in earnings of
affiliates were the absence of impairments related to equity method investments in our Lower 48 segment of
$95 million in the second quarter of 2019 and $155 million in the six-month period of 2019.
43
Gain on dispositions for the three- and six-month periods of 2020 increased $514 million and $455 million
primarily due to a $587 million before-tax gain associated with our Australia-West divestiture. For more
information, see Note 4—Asset Acquisitions and Dispositions in the Notes to Consolidated Financial
Statements.
Other income (loss) for the second quarter of 2020 increased $422 million, primarily due to $521 million
higher before-tax unrealized gain on our Cenovus Energy common shares, partly offset by the absence of $89
million before-tax related to our settlement agreement with PDVSA. Other income in the six-month period of
2020 decreased $1,819 million, primarily due to a $1.14 billion before-tax unrealized loss on our Cenovus
Energy common shares compared to a $373 million before-tax unrealized gain on those shares in the six-
month period of 2019 and the absence of $236 million before-tax related to our settlement agreement with
PDVSA.
For discussion of our Cenovus Energy shares, see Note 6—Investment in Cenovus Energy, in the Notes to
Consolidated Financial Statements. For discussion of our PDVSA settlement, see Note 12—Contingencies
and Commitments, in the Notes to Consolidated Financial Statements.
Purchased commodities for the three- and six-month periods of 2020 decreased $1,544 million and $2,558
million, respectively, primarily due to lower crude oil and natural gas volumes purchased and lower natural gas
and crude oil prices.
Production and operating expenses for the three- and six-month periods of 2020 decreased $371 million and
$469 million, respectively, mainly due to lower costs associated with the divestiture of our U.K. and Australia-
West assets, and decreased production volumes, primarily due to production curtailments, and lower legal
accruals in our Lower 48 and Other International segments.
Selling, general and administrative expenses decreased $129 million in the six-month period of 2020, primarily
due to lower costs associated with compensation and benefits, including mark to market impacts of certain key
employee compensation programs.
DD&A for the three- and six-month periods of 2020 decreased $332 million and $467 million, respectively,
mainly due to lower production volumes related to production curtailments and the divestiture of our
Australia-West and U.K. assets, partly offset by higher DD&A rates due to price-related downward reserve
revisions. For more information regarding the Australia-West divestiture, see Note 4—Asset Acquisitions and
Dispositions in the Notes to Consolidated Financial Statements.
Impairments increased $517 million in the six-month period of 2020, primarily due to a $511 million before-
tax impairment of certain non-core gas assets in our Lower 48 segment due to a significant decrease in the
outlook for natural gas prices. See Note 8—Impairments in the Notes to Consolidated Financial Statements,
for additional information.
Foreign currency transaction (gain) loss decreased $123 million in the six-month period of 2020, primarily due
to gains recognized from foreign currency derivatives. See Note 13—Derivative and Financial Instruments in
the Notes to Consolidated Financial Statements, for additional information.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our
income tax provision (benefit) and effective tax rate.
44
Summary Operating Statistics
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Average Net Production
Crude oil (MBD)
474
702
564
708
Natural gas liquids (MBD)
93
118
108
114
Bitumen (MBD)
34
51
50
57
Natural gas (MMCFD)*
2,277
2,768
2,475
2,804
Total Production
(MBOED)
981
1,332
1,135
1,346
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
25.10
64.88
38.80
62.14
Natural gas liquids (per bbl)
9.88
21.65
12.63
22.71
Bitumen (per bbl)
(23.11)
37.20
(3.09)
35.00
Natural gas (per MCF)
3.22
4.76
3.81
5.39
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical,
lease rental, and other
$
94
81
215
164
Leasehold impairment
-
25
31
42
Dry holes
3
16
39
26
$
97
122
285
232
*Represents quantities available for sale and excludes gas equivalent of natural gas liquids included above.
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide
basis. At June 30, 2020, our operations were producing in the U.S., Norway, Canada, Australia, Indonesia,
China, Malaysia, Qatar and Libya.
Total production decreased 351 MBOED or 26 percent in the second quarter of 2020, primarily due to:
●
Production curtailments, primarily from our North American operated assets and Malaysia.
●
Normal field decline.
●
The divestiture of our U.K. assets in the third quarter of 2019, our Australia-West assets in the second
quarter of 2020, and non-core Lower 48 assets in the first quarter of 2020.
●
No production in Libya due to the forced shutdown of the Es Sider export terminal and other eastern
export terminals after a period of civil unrest.
The decrease in second quarter 2020 production was partly offset by:
●
New wells online in the Lower 48, Canada, Norway and China.
45
Total production decreased 211 MBOED or 16 percent in the six-month period of 2020, primarily due to:
●
Normal field decline.
●
Production curtailments, primarily from our North American operated assets and Malaysia.
●
The divestiture of our U.K. assets in the third quarter of 2019, our Australia-West assets in the second
quarter of 2020, and non-core Lower 48 assets in the first quarter of 2020.
●
Lower production in Libya due to the forced shutdown of the Es Sider export terminal and other
eastern export terminals after a period of civil unrest in the first quarter of 2020.
The decrease in production during the six-month period of 2020 was partly offset by:
●
New wells online in the Lower 48, Norway, Canada and China.
Production excluding Libya was 981 MBOED in the second quarter of 2020, a decrease of 309 MBOED
compared with the same period of 2019. Adjusting for closed dispositions and Libya, production decreased
212 MBOED primarily due to production curtailments and normal field decline, partly offset by new wells
online in the Lower 48, Norway, Canada and China. Excluding closed dispositions, estimated curtailment
impacts of 225 MBOED and Libya, production was slightly higher compared with the same period a year ago.
Production excluding Libya was 1,130 MBOED in the six-month period of 2020, a decrease of 173 MBOED
compared with the same period of 2019. Adjusting for closed dispositions and Libya, production decreased 79
MBOED primarily due to normal field decline and production curtailments, partly offset by new wells online
in the Lower 48, Norway, Canada and China.
46
Segment Results
Alaska
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(141)
462
(60)
846
Average Net Production
Crude oil (MBD)
153
199
175
205
Natural gas liquids (MBD)
13
17
16
17
Natural gas (MMCFD)
8
7
8
7
Total Production
(MBOED)
167
217
192
223
Average Sales Prices
Crude oil ($ per bbl)
$
26.81
67.57
42.52
65.11
Natural gas ($ per MCF)
2.56
3.19
2.82
3.31
The Alaska segment primarily explores for, produces, transports and markets crude oil, NGLs and natural gas.
As of June 30, 2020, Alaska contributed 26 percent of our worldwide liquids production and less than 1
percent of our worldwide natural gas production.
Earnings from Alaska decreased $603 million and $906 million in the three- and six-month periods of 2020,
respectively, primarily driven by lower realized crude oil prices, lower crude oil sales volumes due to
production curtailments at our operated assets on the North Slope—the Greater Kuparuk Area (GKA) and
Western North Slope (WNS)—and the absence of $81 million of tax benefits related to the settlement of
certain tax disputes and enhanced oil recovery credits.
Average production decreased 50 MBOED and 31 MBOED in the three- and six-month periods of 2020,
primarily due to curtailments at our operated assets on the North Slope—GKA and WNS—and normal field
decline, partly offset by new wells online at WNS.
Curtailment Update
The second quarter 2020 production impact from curtailments in Alaska was estimated to be 40 MBOED.
Based on our economic criteria, we restored curtailed production in Alaska during July.
47
Lower 48
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
$
(365)
206
(802)
399
Average Net Production
Crude oil (MBD)
166
269
218
257
Natural gas liquids (MBD)
64
82
77
78
Natural gas (MMCFD)
486
593
582
581
Total Production
(MBOED)
311
450
392
432
Average Sales Prices
Crude oil ($ per bbl)
$
19.87
59.17
32.92
56.31
Natural gas liquids ($ per bbl)
6.95
17.91
9.81
19.20
Natural gas ($ per MCF)
1.18
2.10
1.36
2.41
The Lower 48 segment consists of operations located in the U.S. Lower 48 states, as well as producing
properties in the Gulf of Mexico. As of June 30, 2020, the Lower 48 contributed 41 percent of our worldwide
liquids production and 24 percent of our worldwide natural gas production.
Earnings from the Lower 48 decreased $571 million and $1,201 million in the three- and six-month periods of
2020, respectively, primarily due to lower realized crude oil, NGL and natural gas prices and lower sales
volumes due to production curtailments. The earnings decrease in the three- and six-month periods of 2020
were partly offset by lower DD&A expense, lower production and operating expenses, and increased equity in
earnings of affiliates. DD&A expense in the second quarter of 2020 decreased due to lower production
volumes, primarily associated with curtailments, partly offset by higher DD&A rates driven by price-related
downward reserve revisions. In addition to the items detailed above, in the six-month period of 2020, earnings
decreased due to a $399 million after-tax impairment related to certain non-core gas assets in the Wind River
Basin operations area, partly offset by the absence of $120 million of impairments in equity method
investments. See Note 8—Impairments and Note 14—Fair Value Measurement in the Notes to Consolidated
Financial Statements, for additional information related to the Wind River Basin operations area impairment.
Total average production decreased 139 MBOED and 40 MBOED in the three- and six-month periods of 2020,
respectively, primarily due to normal field decline, production curtailments and higher unplanned downtime.
Partly offsetting the production decrease, was new production from unconventional assets in the Eagle Ford,
Permian and Bakken.
Curtailment Update
The second quarter 2020 production impact from curtailments in the Lower 48 was estimated to be 145
MBOED. Based on our economic criteria, we brought some curtailed volumes in the Lower 48 back online in
July and expect to be fully restored by September.
48
Canada
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019**
2020
2019**
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(86)
100
(195)
222
Average Net Production
Crude oil (MBD)
5
1
4
1
Natural gas liquids (MBD)
2
1
1
-
Bitumen (MBD)
34
51
50
57
Natural gas (MMCFD)
40
8
30
8
Total Production
(MBOED)
48
54
60
59
Average Sales Prices*
Crude oil ($ per bbl)
8.69
-
15.39
-
Natural gas liquids ($ per bbl)
1.64
-
1.89
-
Natural gas ($ per MCF)
0.79
-
1.05
-
Bitumen ($ per bbl)
(23.11)
37.20
(3.09)
35.00
*Average sales prices in the second quarter of 2020 include unutilized transportation costs.
**Average prices for sales of bitumen excludes additional value realized from the purchase and sale of third-party volumes for optimization of
our pipeline capacity between Canada and the U.S. Gulf Coast.
Our Canadian operations mainly consist of an oil sands development in the Athabasca Region of northeastern
Alberta and a liquids-rich unconventional play in western Canada. As of June 30, 2020, Canada contributed 8
percent of our worldwide liquids production and less than 1 percent of our worldwide natural gas production.
Earnings from Canada decreased $186 million and $417 million in the three- and six-month periods of 2020,
primarily because of lower bitumen price realizations, production curtailments at Surmont, the absence of a
$41 million gain on dispositions related to a contingent payment, and the absence of a $25 million tax benefit
due to a four year phased four percent reduction in Alberta’s corporate income tax rate. Partly offsetting this
decrease in earnings was a $48 million refund from the Alberta Tax & Revenue Administration in the second
quarter of 2020. In addition to the items detailed above, in the six-month period of 2020, earnings decreased
due to the absence of a $68 million tax benefit related to a tax settlement.
Total average production decreased 6 MBOED in the second quarter of 2020, primarily due to production
curtailments at Surmont, partly offset by the absence of a planned turnaround at Surmont and new production
from Pad 1 at Montney. Total average production increased 1 MBOED in the six-month period of 2020,
primarily due to first production from Pad 1 at Montney commencing February 2020 and the absence of a
planned turnaround at Surmont, partly offset by curtailments at Surmont.
Curtailment Update
The second quarter 2020 production impact from curtailments in Canada was estimated to be 30 MBOED net.
Based on our economic criteria, we began to restore some curtailed production at Surmont in July.
Planned Acquisition
In July 2020, we signed a definitive agreement to acquire additional Montney acreage for cash consideration of
approximately $375 million before customary adjustments, plus the assumption of approximately $30 million
in financing obligations for associated partially owned infrastructure. This acquisition primarily consists of
undeveloped properties and includes 140,000 net acres in the liquids-rich Inga Fireweed asset Montney zone,
which is directly adjacent to our existing Montney position, as well as 15 MBOED of production. Upon
completion of this transaction, we will have a Montney acreage position of 295,000 net acres with a 100
49
percent working interest. The transaction is subject to regulatory approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
Europe and North Africa
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income Attributable to ConocoPhillips
($MM)
$
11
407
86
614
Average Net Production
Crude oil (MBD)
75
130
84
141
Natural gas liquids (MBD)
5
6
5
8
Natural gas (MMCFD)
264
518
287
560
Total Production
(MBOED)
124
223
137
242
Average Sales Prices
Crude oil ($ per bbl)
$
32.32
69.65
44.70
66.16
Natural gas liquids ($ per bbl)
16.76
32.00
18.75
31.49
Natural gas ($ per MCF)
2.21
4.42
3.03
5.58
The Europe and North Africa segment consists of operations principally located in the Norwegian sector of the
North Sea and the Norwegian Sea, Libya and commercial operations in the U.K. As of June 30, 2020, our
Europe and North Africa operations contributed 12 percent of our worldwide liquids production and 12 percent
of our worldwide natural gas production.
Earnings for Europe and North Africa decreased by $396 million and $528 million in the three- and six-month
periods of 2020, respectively, primarily due to our U.K. divestiture in the third quarter of 2019, the absence of
a U.S. tax benefit of $234 million associated with the recognition of U.S. tax basis in our disposed U.K.
subsidiaries, and lower crude oil and natural gas realizations.
Average production decreased 99 MBOED and 105 MBOED in the three- and six-month periods of 2020,
respectively, primarily due to our U.K. disposition in the third quarter of 2019, lower production in Libya due
to a cessation of production following a period of civil unrest, and normal field decline. Partly offsetting these
decreases in production were the absence of planned turnarounds at the Greater Ekofisk Area and new wells
online in Norway.
Force Majeure in Libya
Production ceased February 12, 2020 due to a forced shutdown of the Es Sider export terminal and other
eastern export terminals after a period of civil unrest. It is unknown when exports will resume.
50
Asia Pacific and Middle East
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income Attributable to ConocoPhillips
$
662
517
1,060
1,042
Average Net Production
Crude oil (MBD)
Consolidated operations
61
89
70
91
Equity affiliates
14
14
13
13
Total crude oil
75
103
83
104
Natural gas liquids (MBD)
Consolidated operations
1
4
2
4
Equity affiliates
8
8
7
7
Total natural gas liquids
9
12
9
11
Natural gas (MMCFD)
Consolidated operations
423
578
522
622
Equity affiliates
1,056
1,064
1,046
1,026
Total natural gas
1,479
1,642
1,568
1,648
Total Production
(MBOED)
331
388
354
390
Average Sales Prices
Crude oil ($ per bbl)
Consolidated operations
$
27.98
69.78
43.02
65.93
Equity affiliates
25.32
63.98
38.52
61.94
Total crude oil
27.45
68.91
42.26
65.43
Natural gas liquids ($ per bbl)
Consolidated operations
27.90
39.97
33.21
40.05
Equity affiliates
23.93
41.72
32.38
40.09
Total natural gas liquids
24.90
41.05
32.59
40.07
Natural gas ($ per MCF)
Consolidated operations
4.74
5.89
5.45
6.14
Equity affiliates
3.90
5.81
4.65
6.53
Total natural gas
4.14
5.84
4.92
6.38
The Asia Pacific and Middle East segment has operations in China, Indonesia, Malaysia, Australia and Qatar.
As of June 30, 2020, Asia Pacific and Middle East contributed 13 percent of our worldwide liquids production
and 63 percent of our worldwide natural gas production.
Earnings increased $145 million and $18 million in the three- and six-month periods of 2020, primarily due to a
$597 million after-tax gain on disposition related to our Australia-West divestiture and the cessation of DD&A
expense associated with our previously held-for-sale Australia-West assets. Partly offsetting the increase in
earnings, were lower oil, LNG and natural gas prices, lower LNG sales volumes associated with our disposed
Australia-West assets, and lower oil sales volumes, primarily related to curtailments in Malaysia.
51
Average production decreased 57 MBOED and 36 MBOED in the three- and six-month periods of 2020,
primarily due to the divestiture of our Australia-West assets, normal field decline, the expiration of the Panyu
production license in China, higher unplanned downtime due to the rupture of a third-party pipeline impacting
gas production from the Kebabangan field in Malaysia, and curtailments in Malaysia. Partly offsetting these
production decreases, were new production from development activity at Bohai Bay in China and production
increases from Malaysia, including first oil from Gumusut Phase 2 in the third quarter of 2019.
Asset Disposition Update
In the second quarter of 2020, we completed the divestiture of our Australia-West assets and operations, and
based on an effective date of January 1, 2019, we received proceeds of $765 million in May with an additional
$200 million due upon final investment decision of the proposed Barossa development project. Production from
the disposed assets averaged 35 MBOED for the six-month period of 2020, and proved reserves were
approximately 17 MMBOE at year-end 2019. For additional information related to this transaction, see Note 4—
Asset Acquisitions and Dispositions.
Other International
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(6)
81
22
212
The Other International segment consists of exploration activities in Colombia, Chile and Argentina.
Earnings from our Other International operations decreased $87 million and $190 million in the three- and six-
month periods of 2020, respectively. The decrease in earnings was primarily due to the absence of recognizing
$84 million and $231 million in other income related to a settlement award with PDVSA associated with prior
operations in Venezuela, in the three- and six-month periods of 2019, respectively. See Note 12—
Contingencies and Commitments in the Notes to Consolidated Financial Statements, for additional
information.
52
Corporate and Other
Millions of Dollars
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Net interest expense
$
(174)
(131)
(329)
(327)
Corporate general and administrative expenses
(90)
(49)
(40)
(114)
Technology
(9)
(10)
(8)
86
Other income (expense)
458
(3)
(1,213)
433
$
185
(193)
(1,590)
78
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest.
Net interest expense increased by $43 million in the second quarter of 2020, primarily due to higher interest
from an absence of the settlement of certain tax disputes and lower interest income from lower cash and cash
equivalent balances.
Corporate G&A expenses include compensation programs and staff costs. These expenses increased by $41
million and decreased by $74 million in the three- and six-month periods of 2020, respectively, primarily due
to mark to market adjustments associated with certain compensation programs.
Technology includes our investment in new technologies or businesses, as well as licensing revenues.
Activities are focused on both conventional and tight oil reservoirs, shale gas, heavy oil, oil sands, enhanced
oil recovery, as well as LNG. Earnings from Technology decreased $94 million in the six-month period of
2020 primarily due to lower licensing revenues.
Other income (expense) or “Other” includes certain corporate tax-related items, foreign currency transaction
gains and losses, environmental costs associated with sites no longer in operation, other costs not directly
associated with an operating segment, premiums incurred on the early retirement of debt, unrealized holding
gains or losses on equity securities, and pension settlement expense. “Other” increased by $461 million in the
second quarter of 2020, primarily due to $521 million higher after-tax unrealized gain on our Cenovus Energy
common shares, partly offset by the release of a $92 million deferred tax asset related to our Australia-West
divestiture. In the six-month period of 2020, “Other” decreased by $1,646 million primarily due to a $1,140
million after-tax unrealized loss on our Cenovus Energy common shares reflected in other income as compared
to a $373 million after-tax unrealized gain in the six-month period of 2019.
53
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
June 30
December 31
2020
2019
Short-term debt
$
146
105
Total debt
14,998
14,895
Total equity
31,493
35,050
Percent of total debt to capital*
32
%
30
Percent of floating-rate debt to total debt
5
%
5
*Capital includes total debt and total equity.
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, including
cash generated from operating activities, our commercial paper and credit facility programs, and our ability to
sell securities using our shelf registration statement. During the first six months of 2020, the primary uses of
our available cash were $2,525 million to support our ongoing capital expenditures and investments program,
$1,030 million net purchases of investments, $726 million to repurchase common stock, and $913 million to
pay dividends. During the first six months of 2020, our cash and cash equivalents decreased by $2,181 million
to $2,907 million.
We entered the year with a strong balance sheet including cash and cash equivalents of over $5 billion, short-
term investments of $3 billion, and an undrawn credit facility of $6 billion, totaling approximately $14 billion
of liquidity. This strong foundation allowed us to be measured in our response to the sudden change in
business environment we experienced in the first quarter of 2020. In response to the recent oil market
downturn, we announced the following capital, operating cost and share repurchase reductions. We reduced
our 2020 operating plan capital expenditures by a total of $2.3 billion, or approximately thirty-five percent of
the original guidance. We suspended our share repurchase program for the remainder of 2020, further
reducing cash outlays by approximately $2.3 billion in 2020. We are also reducing our operating costs by
approximately $0.6 billion, or roughly ten percent of the original 2020 guidance. Collectively, these actions
represent a reduction in 2020 cash uses of over $5 billion versus the original operating plan.
We also established a framework for evaluating and implementing economic curtailments considering the
weakness in oil prices during the second quarter of 2020, which resulted in taking an additional significant step
of curtailing production, predominantly from operated North American assets. Due to our strong balance
sheet, we were in an advantaged position to forgo some production and cash flow in anticipation of receiving
higher cash flows for those volumes in the future.
We ended the second quarter with cash and cash equivalents of $2.9 billion, short-term investments of $4.0
billion, and an undrawn credit facility of $6 billion, totaling $12.9 billion of liquidity. We believe current cash
balances and cash generated by operations, the recent adjustments to our operating plan, together with access
to external sources of funds as described below in the “Significant Sources of Capital” section, will be
sufficient to meet our funding requirements in the near- and long-term, including our capital spending
program, dividend payments and required debt payments.
Significant Sources of Capital
Operating Activities
Cash provided by operating activities was $2,262 million for the first six months of 2020, compared with
$5,785 million for the corresponding period of 2019. The decrease in cash provided by operating activities is
primarily due to lower realized commodity prices, production curtailments and the divestiture of our U.K. and
Australia-West assets.
54
Our short- and long-term operating cash flows are highly dependent upon prices for crude oil, bitumen, natural
gas, LNG and NGLs. Prices and margins in our industry have historically been volatile and are driven by
market conditions over which we have no control. Absent other mitigating factors, as these prices and margins
fluctuate, we would expect a corresponding change in our operating cash flows.
The level of absolute production volumes, as well as product and location mix, impacts our cash flows.
Production levels are impacted by such factors as the volatile crude oil and natural gas price environment,
which may impact investment decisions; the effects of price changes on production sharing and variable-
royalty contracts; acquisition and disposition of fields; field production decline rates; new technologies;
operating efficiencies; timing of startups and major turnarounds; political instability; global pandemics and
associated demand decreases; weather-related disruptions; and the addition of proved reserves through
exploratory success and their timely and cost-effective development. While we actively manage these factors,
production levels can cause variability in cash flows, although generally this variability has not been as
significant as that caused by commodity prices.
To maintain or grow our production volumes, we must continue to add to our proved reserve base. Due to
recent capital reductions, our reserve replacement efforts could be delayed thus limiting our ability to replace
depleted reserves.
Investing Activities
Proceeds from asset sales in the first six months of 2020 were $1.3 billion compared with $0.7 billion in the
corresponding period of 2019. In the second quarter of 2020, we completed the divestiture of our Australia-
West assets and operations. Based on an effective date of January 1, 2019 and customary closing adjustments,
we received cash proceeds of $765 million in the second quarter with another $200 million payment due upon
final investment decision of the proposed Barossa development project. In the first quarter of 2020, proceeds
from asset sales were $549 million, which included the sale of our Niobrara interests and Waddell Ranch
interests in the Lower 48 for proceeds of $359 million and $184 million, respectively. See Note 4—Asset
Acquisitions and Dispositions in the Notes to Consolidated Financial Statements, for additional information on
these transactions.
Proceeds from asset sales in the first six months of 2019 were $701 million, which consisted primarily of $350
million from the sale of our 30 percent interest in the Greater Sunrise Fields and deposits of $268 million
related to an April 2019 agreement to sell two ConocoPhillips U.K. subsidiaries.
Commercial Paper and Credit Facilities
We have a revolving credit facility totaling $6.0 billion, expiring 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. The revolving credit facility is broadly syndicated among financial
institutions and does not contain any material adverse change provisions or any covenants requiring
maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default
provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more
by ConocoPhillips, or any of its consolidated subsidiaries. The amount of the facility is not subject to
redetermination prior to its expiration date.
Credit facility borrowings may bear interest at a margin above rates offered by certain designated banks in the
London interbank market or at a margin above the overnight federal funds rate or prime rates offered by
certain designated banks in the United States. The agreement calls for commitment fees on available, but
unused, amounts. The agreement also contains early termination rights if our current directors or their
approved successors cease to be a majority of the Board of Directors.
The revolving credit facility supports the ConocoPhillips Company $6.0 billion commercial paper program,
which is primarily a funding source for short-term working capital needs. Commercial paper maturities are
generally limited to 90 days.
55
We had no commercial paper outstanding at June 30, 2020 or December 31, 2019. We had no direct
outstanding borrowings or letters of credit under the revolving credit facility at June 30, 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 June 30, 2020. We may consider
issuing commercial paper in the future to supplement our cash position as appropriate.
Despite recent volatility and price weakness for energy issuers in the debt capital markets, we believe the
company continues to have access to the markets based on the composition of our balance sheet and asset
portfolio.
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. We do not have any ratings triggers on any of our corporate
debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a
downgrade of our credit rating. If our credit rating were downgraded, it could increase the cost of corporate
debt available to us and potentially restrict our access to the commercial paper and debt capital markets. If our
credit rating were to deteriorate to a level prohibiting us from accessing the commercial paper and debt capital
markets, we would still be able to access funds under our revolving credit facility.
Certain of our project-related contracts, commercial contracts and derivative instruments contain provisions
requiring us to post collateral. Many of these contracts and instruments permit us to post either cash or letters
of credit as collateral. At June 30, 2020 and December 31, 2019, we had direct bank letters of credit of $196
million and $277 million, respectively, which secured performance obligations related to various purchase
commitments incident to the ordinary conduct of business. In the event of credit ratings downgrades, we may
be required to post additional letters of credit.
Shelf Registration
We have a universal shelf registration statement on file with the U.S. SEC under which we have the ability to
issue and sell an indeterminate amount of various types of debt and equity securities.
Off-Balance Sheet Arrangements
As part of our normal ongoing business operations and consistent with normal industry practice, we enter into
numerous agreements with other parties to pursue business opportunities, which share costs and apportion
risks among the parties as governed by the agreements.
For information about guarantees, see Note 11—Guarantees, in the Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Capital Requirements
For information about our capital expenditures and investments, see the “Capital Expenditures” section.
Our debt balance at June 30, 2020, was $14,998 million, compared with $14,895 million at December 31,
2019. Maturities of debt for the remainder of 2020, and for each of the years 2021 through 2024, are: $81
million, $255 million, $971 million, $229 million and $573 million, respectively.
On February 4, 2020, we announced a quarterly dividend of $0.42 per share. The dividend was paid on March
2, 2020, to stockholders of record at the close of business on February 14, 2020. On April 30, 2020, we
announced a quarterly dividend of $0.42 per share. The dividend was paid on June 1, 2020, to stockholders of
record at the close of business on May 11, 2020. On July 8, 2020, we announced a quarterly dividend of $0.42
per share, payable September 1, 2020, to stockholders of record at the close of business on July 20, 2020.
In late 2016, we initiated our current share repurchase program. As of June 30, 2020, we had announced a
total authorization to repurchase $25 billion of our common stock. As of December 31, 2019, we had
56
repurchased $9.6 billion of shares. In the first quarter of 2020, we repurchased an additional $726 million of
shares. On April 16, 2020, as a response to the oil market price downturn, we announced we were suspending
our share repurchase program. Since our share repurchase program began in November 2016, we have
repurchased 184 million shares at a cost of $10.4 billion through June 30, 2020.
Capital Expenditures
Millions of Dollars
Six Months Ended
June 30
2020
2019
Alaska
$
732
780
Lower 48
1,130
1,770
Canada
142
232
Europe and North Africa
251
339
Asia Pacific and Middle East
188
219
Other International
63
1
Corporate and Other
19
25
Capital expenditures and investments
$
2,525
3,366
During the first six months of 2020, capital expenditures and investments supported key exploration and
development programs, primarily:
●
Development, appraisal and exploration activities in the Lower 48, including Eagle Ford, Permian
Unconventional and Bakken.
●
Appraisal, exploration and development activities in Alaska related to the Western North Slope;
development activities in the Greater Kuparuk Area and the Greater Prudhoe Area.
●
Development and exploration activities across assets in Norway.
●
Appraisal activities in the liquids-rich portion of the Montney in Canada and optimization of oil sands
development.
●
Continued development in China, Malaysia, Australia and Indonesia.
●
Lease acquisition and exploration activities in Argentina.
In February 2020, we announced 2020 operating plan capital expenditures of $6.5 billion to $6.7 billion. In
response to the recent oil market downturn, we announced reductions to this plan totaling $2.3 billion, or
approximately 35 percent. The capital reductions are sourced to the segments in the amount of $1.4 billion to
Lower 48, $0.4 billion to Alaska, $0.2 billion to Canada and $0.3 billion to all other segments and exploration.
This does not include capital for acquisitions.
In July 2020, we signed a definitive agreement to acquire additional Montney acreage for cash consideration of
approximately $375 million before customary adjustments, plus the assumption of approximately $30 million
in financing obligations for associated partially owned infrastructure. This acquisition primarily consists of
undeveloped properties and includes 140,000 net acres in the liquids-rich Inga Fireweed asset Montney zone,
which is directly adjacent to our existing Montney position, as well as 15 MBOED of production. Upon
completion of this transaction, we will have a Montney acreage position of 295,000 net acres with a 100
percent working interest. The transaction is subject to regulatory approval and is expected to close in the third
quarter of 2020 with an effective date of July 1, 2020.
57
Contingencies
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, legal and tax 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 legal and tax matters are subject to change as events evolve and as additional information becomes
available during the administrative and litigation processes. For information on other contingencies, see
Note 12—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.
Legal and Tax Matters
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.
Environmental
We are subject to the same numerous international, federal, state and local environmental laws and regulations
as other companies in our industry. For a discussion of the most significant of these environmental laws and
regulations, including those with associated remediation obligations, see the “Environmental” section in
Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 60–62 of
our 2019 Annual Report on Form 10-K.
We occasionally receive requests for information or notices of potential liability from the EPA and state
environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On
occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties.
These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically
58
are not owned by us, but allegedly contain waste attributable to our past operations. As of June 30, 2020, there
were 15 sites around the U.S. in which we were identified as a potentially responsible party under CERCLA
and comparable state laws.
At June 30, 2020 and December 31, 2019, our balance sheet included a total environmental accrual of $171
million for remediation activities in the U.S. and Canada. We expect to incur a substantial amount of these
expenditures within the next 30 years.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses,
environmental costs and liabilities are inherent concerns in our operations and products, and there can be no
assurance that material costs and liabilities will not be incurred. However, we currently do not expect any
material adverse effect upon our results of operations or financial position as a result of compliance with
current environmental laws and regulations.
Climate Change
Continuing political and social attention to the issue of global climate change has resulted in a broad range of
proposed or promulgated state, national and international laws focusing on GHG reduction. These proposed or
promulgated laws apply or could apply in countries where we have interests or may have interests in the future.
Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for
implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a
material impact on our results of operations and financial condition. Examples of legislation and precursors
for possible regulation that do or could affect our operations include:
●
The EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1,
2010, that triggered regulation of GHGs under the Clean Air Act, may trigger more climate-based
claims for damages, and may result in longer agency review time for development projects.
●
Colorado’s HB-19 1261, approved May 30, 2019, introducing statewide goals to reduce 2025 GHG
emissions by at least 26 percent, 2030 GHG emissions by at least 50 percent, and 2050 GHG
emissions by at least 90 percent of the levels of GHG emissions that existed in 2005.
For other examples of legislation or precursors for possible regulation and factors on which the ultimate impact
on our financial performance will depend, see the “Climate Change” section in Management’s Discussion and
Analysis of Financial Condition and Results of Operations on pages 63–65 of our 2019 Annual Report on
Form 10-K.
In December 2018, we became a Founding Member of the Climate Leadership Council (CLC), an international
policy institute founded in collaboration with business and environmental interests to develop a carbon
dividend plan. Participation in the CLC provides another opportunity for ongoing dialogue about carbon
pricing and framing the issues in alignment with our public policy principles. We also belong to and fund
Americans For Carbon Dividends, the education and advocacy branch of the CLC.
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 were dismissed by
federal district courts. The New York dismissal remains on appeal. The Ninth Circuit ruled that the San
Francisco and Oakland cases (and other California cases) should proceed in state court, with that decision
subject to appeal. Lawsuits filed by the cities and counties in California, Washington, and Hawaii are
currently stayed pending resolution of the Ninth Circuit appeals. 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.
Several Louisiana parishes have filed lawsuits against oil and gas companies, including ConocoPhillips,
seeking compensatory damages in connection with historical oil and gas operations in Louisiana. The lawsuits
59
are stayed pending an appeal with the Fifth Circuit on the issue of whether they will proceed in federal or state
court. ConocoPhillips will vigorously defend against these lawsuits.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of
historical fact included or incorporated by reference in this report, including, without limitation, statements
regarding our future financial position, business strategy, budgets, projected revenues, projected costs and
plans, and objectives of management for future operations, are forward-looking statements. Examples of
forward-looking statements contained in this report include our expected production growth and outlook on the
business environment generally, our expected capital budget and capital expenditures, and discussions
concerning future dividends. You can often identify our forward-looking statements by the words “anticipate,”
“estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,”
“should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,”
“effort,” “target” and similar expressions.
We based the forward-looking statements on our current expectations, estimates and projections about
ourselves and the industries in which we operate in general. We caution you these statements are not
guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be
incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-
looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our
actual outcomes and results may differ materially from what we have expressed or forecast in the forward-
looking statements. Any differences could result from a variety of factors, including, but not limited to, the
following:
●
The impact of public health crises, including pandemics (such as COVID-19) and epidemics and any
related company or government policies or actions.
●
Global and regional changes in the demand, supply, prices, differentials or other market conditions
affecting oil and gas, including changes resulting from a public health crisis or from the imposition or
lifting of crude oil production quotas or other actions that might be imposed by OPEC and other
producing countries and the resulting company or third-party actions in response to such changes.
●
Fluctuations in crude oil, bitumen, natural gas, LNG and NGLs prices, including a prolonged decline
in these prices relative to historical or future expected levels.
●
The impact of significant declines in prices for crude oil, bitumen, natural gas, LNG and NGLs, which
may result in recognition of impairment charges on our long-lived assets, leaseholds and
nonconsolidated equity investments.
●
Potential failures or delays in achieving expected reserve or production levels from existing and future
oil and gas developments, including due to operating hazards, drilling risks and the inherent
uncertainties in predicting reserves and reservoir performance.
●
Reductions in reserves replacement rates, whether as a result of the significant declines in commodity
prices or otherwise.
●
Unsuccessful exploratory drilling activities or the inability to obtain access to exploratory acreage.
●
Unexpected changes in costs or technical requirements for constructing, modifying or operating E&P
facilities.
●
Legislative and regulatory initiatives addressing environmental concerns, including initiatives
addressing the impact of global climate change or further regulating hydraulic fracturing, methane
emissions, flaring or water disposal.
●
Lack of, or disruptions in, adequate and reliable transportation for our crude oil, bitumen, natural gas,
LNG and NGLs.
60
●
Inability to timely obtain or maintain permits, including those necessary for construction, drilling
and/or development, or inability to make capital expenditures required to maintain compliance with
any necessary permits or applicable laws or regulations.
●
Failure to complete definitive agreements and feasibility studies for, and to complete construction of,
announced and future E&P and LNG development in a timely manner (if at all) or on budget.
●
Potential disruption or interruption of our operations due to accidents, extraordinary weather events,
civil unrest, political events, war, terrorism, cyber attacks, and information technology failures,
constraints or disruptions.
●
Changes in international monetary conditions and foreign currency exchange rate fluctuations.
●
Changes in international trade relationships, including the imposition of trade restrictions or tariffs
relating to crude oil, bitumen, natural gas, LNG, NGLs and any materials or products (such as
aluminum and steel) used in the operation of our business.
●
Substantial investment in and development use of, competing or alternative energy sources, including
as a result of existing or future environmental rules and regulations.
●
Liability for remedial actions, including removal and reclamation obligations, under existing and
future environmental regulations and litigation.
●
Significant operational or investment changes imposed by existing or future environmental statutes
and regulations, including international agreements and national or regional legislation and regulatory
measures to limit or reduce GHG emissions.
●
Liability resulting from litigation or our failure to comply with applicable laws and regulations.
●
General domestic and international economic and political developments, including armed hostilities;
expropriation of assets; changes in governmental policies relating to crude oil, bitumen, natural gas,
LNG and NGLs pricing, regulation or taxation; and other political, economic or diplomatic
developments.
●
Volatility in the commodity futures markets.
●
Changes in tax and other laws, regulations (including alternative energy mandates), or royalty rules
applicable to our business.
●
Competition and consolidation in the oil and gas E&P industry.
●
Any limitations on our access to capital or increase in our cost of capital, including as a result of
illiquidity or uncertainty in domestic or international financial markets.
●
Our inability to execute, or delays in the completion, of any asset dispositions or acquisitions we elect
to pursue.
●
Potential failure to obtain, or delays in obtaining, any necessary regulatory approvals for pending or
future asset dispositions or acquisitions, or that such approvals may require modification to the terms
of the transactions or the operation of our remaining business.
●
Potential disruption of our operations as a result of pending or future asset dispositions or acquisitions,
including the diversion of management time and attention.
●
Our inability to deploy the net proceeds from any asset dispositions that are pending or that we elect to
undertake in the future in the manner and timeframe we currently anticipate, if at all.
●
Our inability to liquidate the common stock issued to us by Cenovus Energy as part of our sale of
certain assets in western Canada at prices we deem acceptable, or at all.
●
The operation and financing of our joint ventures.
●
The ability of our customers and other contractual counterparties to satisfy their obligations to us,
including our ability to collect payments when due from the government of Venezuela or PDVSA.
●
Our inability to realize anticipated cost savings and capital expenditure reductions.
●
The inadequacy of storage capacity for our products, and ensuing curtailments, whether voluntary or
involuntary, required to mitigate this physical constraint.
●
The risk factors generally described in Part II—Item 1A in this report, in Part I—Item 1A in our 2019
Annual Report on Form 10-K, and any additional risks described in our other filings with the SEC.
61
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the six months ended June 30, 2020, does not differ materially from that
discussed under Item 7A in our 2019 Annual Report on Form 10-K.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure information required to be disclosed in
reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and that such
information is accumulated and communicated to management, including our principal executive and principal
financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of June 30, 2020,
with the participation of our management, our Chairman and Chief Executive Officer (principal executive
officer) and our Executive Vice President and Chief Financial Officer (principal financial officer) carried out
an evaluation, pursuant to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer
and our Executive Vice President and Chief Financial Officer concluded our disclosure controls and
procedures were operating effectively as of June 30, 2020.
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the
Act, in the period covered by this report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no new material legal proceedings or material developments with respect to matters previously
disclosed in Item 3 of our 2019 Annual Report on Form 10-K.
Item 1A. RISK FACTORS
Other than the risk factors set forth below, there have been no material changes to the risk factors disclosed in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Our business has been, and will continue to be, affected by the coronavirus (COVID-19) pandemic.
The COVID-19 outbreak and the measures put in place to address it have negatively impacted the global
economy, disrupted global supply chains, reduced global demand for oil and gas, and created significant
volatility and disruption of financial and commodity markets. Public health officials have recommended or
mandated certain precautions to mitigate the spread of COVID-19, including limiting non-essential gatherings
of people, ceasing all non-essential travel and issuing “social or physical distancing” guidelines, “shelter-in-
place” orders and mandatory closures or reductions in capacity for non-essential businesses. The full impact of
the COVID-19 pandemic remains uncertain and will depend on the severity, location and duration of the
effects and spread of the disease, the effectiveness and duration of actions taken by authorities to contain the
virus or treat its effect, and how quickly and to what extent economic conditions improve. According to the
National Bureau of Economic Research, as a result of the pandemic and its broad reach across the entire
economy, the U.S. entered a recession in early 2020.
We have already been impacted by the COVID-19 pandemic. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations, for additional information on how we have been impacted and
the steps we have taken in response.
62
Our business is likely to be further negatively impacted by the COVID-19 pandemic. These impacts could
include but are not limited to:
●
Continued reduced demand for our products as a result of reductions in travel and commerce;
●
Disruptions in our supply chain due in part to scrutiny or embargoing of shipments from infected areas
or invocation of force majeure clauses in commercial contracts due to restrictions imposed as a result
of the global response to the pandemic;
●
Failure of third parties on which we rely, including our suppliers, contract manufacturers, contractors,
joint venture partners and external business partners, to meet their obligations to the company, or
significant disruptions in their ability to do so, which may be caused by their own financial or
operational difficulties or restrictions imposed in response to the disease outbreak;
●
Reduced workforce productivity caused by, but not limited to, illness, travel restrictions, quarantine,
or government mandates;
●
Business interruptions resulting from a significant amount of our employees telecommuting in
compliance with social distancing guidelines and shelter-in-place orders, as well as the
implementation of protections for employees continuing to commute for work, such as personnel
screenings and self-quarantines before or after travel; and
●
Voluntary or involuntary curtailments to support oil prices or alleviate storage shortages for our
products.
Any of these factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable,
could materially increase our costs, negatively impact our revenues and damage our financial condition, results
of operations, cash flows and liquidity position. The pandemic continues to progress and evolve, and the full
extent and duration of any such impacts cannot be predicted at this time because of the sweeping impact of the
COVID-19 pandemic on daily life around the world.
We have been negatively affected and are likely to continue to be negatively affected by the recent swift and
sharp drop in commodity prices.
The oil and gas business is fundamentally a commodity business and prices for crude oil, bitumen, natural gas,
NGLs and LNG can fluctuate widely depending upon global events or conditions that affect supply and
demand. Recently, there has been a precipitous decrease in demand for oil globally, largely caused by the
dramatic decrease in travel and commerce resulting from the COVID-19 pandemic. See Management’s
Discussion and Analysis of Financial Condition and Results of Operations, for additional information on
commodity prices and how we have been impacted. There is no assurance of when or if commodity prices will
return to pre-COVID-19 levels. The speed and extent of any recovery remains uncertain and is subject to
various risks, including the duration, impact and actions taken to stem the proliferation of the COVID-19
pandemic, the extent to which those nations party to the OPEC plus production agreement decide to increase
production of crude oil, bitumen, natural gas, NGLs and LNG, and other risks described in this Quarterly
Report on Form 10-Q or in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Even after a recovery, our industry will continue to be exposed to the effects of changing commodity prices
given the volatility in commodity price drivers and the worldwide political and economic environment
generally, as well as continued uncertainty caused by armed hostilities in various oil-producing regions around
the globe. Our revenues, operating results and future rate of growth are highly dependent on the prices we
receive for our crude oil, bitumen, natural gas, NGLs and LNG. Many of the factors influencing these prices
are beyond our control.
Lower crude oil, bitumen, natural gas, NGL and LNG prices may have a material adverse effect on our
revenues, operating income, cash flows and liquidity, and may also affect the amount of dividends we elect to
declare and pay on our common stock. As a result of the recent market downturn, we have suspended our
share repurchase program. Lower prices may also limit the amount of reserves we can produce economically,
thus adversely affecting our proved reserves, reserve replacement ratio and accelerating the reduction in our
63
existing reserve levels as we continue production from upstream fields. Prolonged lower crude oil prices may
affect certain decisions related to our operations, including decisions to reduce capital investments or decisions
to shut-in production. Due to ongoing uncertainty and volatility, we are suspending all further guidance for
2020, including guidance related to capital expenditures and production and our previous 2020 guidance
should not be relied upon.
Significant reductions in crude oil, bitumen, natural gas, NGLs and LNG prices could also require us to reduce
our capital expenditures, impair the carrying value of our assets or discontinue the classification of certain
assets as proved reserves. In the first six-month period of 2020, we recognized several impairments, which are
described in Note 8—Impairments. If the outlook for commodity prices remain low relative to their historic
levels, and as we continue to optimize our investments and exercise capital flexibility, it is reasonably likely
we will incur future impairments to long-lived assets used in operations, investments in nonconsolidated
entities accounted for under the equity method and unproved properties. If oil and gas prices persist at
depressed levels, our reserve estimates may decrease further, which could incrementally increase the rate used
to determine DD&A expense on our unit-of-production method properties. See Management’s Discussion and
Analysis for further examination of DD&A rate impacts versus comparative periods. Although it is not
reasonably practicable to quantify the impact of any future impairments or estimated change to our unit-of-
production at this time, our results of operations could be adversely affected as a result.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Millions of Dollars
Period
Total Number of
Shares
Purchased
*
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs
April 1-30, 2020
-
$
-
-
$
14,649
May 1-31, 2020
-
-
-
14,649
June 1-30, 2020
-
-
-
14,649
-
$
-
-
*There were no repurchases of common stock from company employees in connection with the company's broad-based employee incentive plans.
In late 2016, we initiated our current share repurchase program. As of June 30, 2020, we had announced a
total authorization to repurchase $25 billion of our common stock. As of December 31, 2019, we had
repurchased $9.6 billion of shares. In the first quarter of 2020, we repurchased an additional $726 million of
shares. On April 16, 2020, as a response to the oil market downturn, we announced we were suspending our
share repurchase program. Acquisitions for the share repurchase program are made at management’s
discretion, at prevailing prices, subject to market conditions and other factors. Except as limited by applicable
legal requirements, repurchases may be increased, decreased or discontinued at any time without prior notice.
Shares of stock repurchased under the plan are held as treasury shares. See the “Our ability to declare and pay
dividends and repurchase shares is subject to certain considerations” section in Risk Factors on pages 21–22 of
our 2019 Annual Report on Form 10-K.
64
Item 6. EXHIBITS
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Schema Document.
101.CAL*
Inline XBRL Calculation Linkbase Document.
101.LAB*
Inline XBRL Labels Linkbase Document.
101.PRE*
Inline XBRL Presentation Linkbase Document.
101.DEF*
Inline XBRL Definition Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
65
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
CONOCOPHILLIPS
/s/ Catherine A. Brooks
Catherine A. Brooks
Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
