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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
(Mark One)
[
X
]
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
 
June 30, 2020
 
 
or
[
 
]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
 
to
 
Commission file number:
 
 
001-32395
 
 
ConocoPhillips
 
(Exact name of registrant as specified in its charter)
 
Delaware
01-0562944
(State or other jurisdiction of incorporation
or organization)
(I.R.S. Employer
Identification No.)
 
925 N. Eldridge Parkway
Houston
,
TX
77079
 
(Address of principal executive offices)
 
(Zip Code)
 
281
-
293-1000
 
 
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the
 
Act:
 
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
 
Indicate by check mark whether the registrant
 
(1) has filed all reports required to be filed
 
by Section 13 or
15(d) of the Securities Exchange Act of 1934 during
 
the preceding 12 months (or for such shorter period
 
that
the registrant was required to file such reports),
 
and (2) has been subject to such filing requirements
 
for the
past 90 days.
 
Yes
 
[x] No [
 
]
 
Indicate by check mark whether the registrant
 
has submitted electronically every Interactive
 
Data File required
to be submitted pursuant to Rule 405 of Regulation
 
S-T
 
(§232.405 of this chapter) during the preceding
 
12
months (or for such shorter period that the registrant
 
was required to submit such files).
 
Yes
 
[x] No [
 
]
 
Indicate by check mark whether the registrant
 
is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company.
 
See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
 
Rule 12b-2 of the
Exchange Act.
 
 
Large accelerated filer
 
[x]
 
Accelerated filer [
 
]
 
Non-accelerated filer [
 
]
 
Smaller reporting company
 
[
 
]
Emerging growth company
 
[
 
]
 
If an emerging growth company, indicate by check mark if the registrant has elected
 
not to use the extended
transition period for complying with any new or
 
revised financial accounting standards
 
provided pursuant to
Section 13(a) of the Exchange Act. [
 
]
 
Indicate by check mark whether the registrant
 
is a shell company (as defined in Rule 12b-2 of the
 
Exchange
Act).
 
Yes
 
[
 
]
No
 
[x]
 
The registrant had
1,072,566,210
 
shares of common stock, $.01 par value, outstanding
 
at June 30, 2020.
 
CONOCOPHILLIPS
 
TABLE OF CONTENTS
 
 
 
Page
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.
6
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.
31
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.
36
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61
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61
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61
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.
61
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.
63
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.
64
………………………………………………………………………………………………….
 
.
65
 
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
$
2,749
7,953
8,907
17,103
Equity in earnings of affiliates
77
173
311
361
Gain on dispositions
596
82
554
99
Other income (loss)
594
172
(945)
874
Total Revenues and
 
Other Income
4,016
8,380
8,827
18,437
Costs and Expenses
Purchased commodities
1,130
2,674
3,791
6,349
Production and operating expenses
1,047
1,418
2,220
2,689
Selling, general and administrative expenses
156
129
153
282
Exploration expenses
97
122
285
232
Depreciation, depletion and amortization
1,158
1,490
2,569
3,036
Impairments
(2)
1
519
2
Taxes other than
 
income taxes
141
194
391
469
Accretion on discounted liabilities
66
87
133
173
Interest and debt expense
202
165
404
398
Foreign currency transaction (gain) loss
7
28
(83)
40
Other expenses
(7)
14
(13)
22
Total Costs and Expenses
3,995
6,322
10,369
13,692
Income (loss) before income taxes
21
2,058
(1,542)
4,745
Income tax provision (benefit)
(257)
461
(109)
1,302
Net income (loss)
278
1,597
(1,433)
3,443
Less: net income attributable to noncontrolling interests
(18)
(17)
(46)
(30)
Net Income (Loss) Attributable to ConocoPhillips
$
260
1,580
(1,479)
3,413
Net Income (Loss) Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
0.24
1.40
(1.37)
3.01
Diluted
0.24
1.40
(1.37)
3.00
Average Common
 
Shares Outstanding
(in thousands)
Basic
1,076,659
1,125,995
1,080,610
1,132,691
Diluted
1,077,606
1,131,242
1,080,610
1,139,511
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)
$
278
1,597
(1,433)
3,443
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
-
-
5
-
Reclassification adjustment for amortization of net actuarial
losses included in net income (loss)
18
32
36
58
Income taxes on defined benefit plans
(3)
(5)
(7)
(10)
Defined benefit plans, net of tax
7
17
18
30
Unrealized holding gain on securities
6
-
3
-
Income taxes on unrealized holding gain on securities
(2)
-
(1)
-
Unrealized holding gain on securities, net of tax
4
-
2
-
Foreign currency translation adjustments
309
71
(490)
246
Income taxes on foreign currency translation adjustments
-
(1)
2
-
Foreign currency translation adjustments, net of tax
309
70
(488)
246
Other Comprehensive Income (Loss), Net
 
of Tax
320
87
(468)
276
Comprehensive Income (Loss)
598
1,684
(1,901)
3,719
Less: comprehensive income attributable to noncontrolling
 
interests
(18)
(17)
(46)
(30)
Comprehensive Income (Loss) Attributable to
 
ConocoPhillips
$
580
1,667
(1,947)
3,689
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
$
2,907
5,088
Short-term investments
3,985
3,028
Accounts and notes receivable (net of allowance of $
3
 
and $
13
, respectively)
1,399
3,267
Accounts and notes receivable—related parties
133
134
Investment in Cenovus Energy
971
2,111
Inventories
982
1,026
Prepaid expenses and other current assets
676
2,259
Total Current
 
Assets
11,053
16,913
Investments and long-term receivables
8,334
8,687
Loans and advances—related parties
167
219
Net properties, plants and equipment
(net of accumulated DD&A of $
57,176
 
and $
55,477
, respectively)
41,120
42,269
Other assets
2,372
2,426
Total Assets
$
63,046
70,514
Liabilities
Accounts payable
$
2,060
3,176
Accounts payable—related parties
20
24
Short-term debt
146
105
Accrued income and other taxes
312
1,030
Employee benefit obligations
422
663
Other accruals
1,145
2,045
Total Current
 
Liabilities
4,105
7,043
Long-term debt
14,852
14,790
Asset retirement obligations and accrued environmental
 
costs
5,465
5,352
Deferred income taxes
3,901
4,634
Employee benefit obligations
1,586
1,781
Other liabilities and deferred credits
1,644
1,864
Total Liabilities
31,553
35,464
Equity
Common stock (
2,500,000,000
 
shares authorized at $
0.01
 
par value)
Issued (2020—
1,798,563,079
 
shares; 2019—
1,795,652,203
 
shares)
Par value
18
18
Capital in excess of par
47,079
46,983
Treasury stock (at cost: 2020—
725,996,869
 
shares; 2019—
710,783,814
 
shares)
(47,130)
(46,405)
Accumulated other comprehensive loss
(5,825)
(5,357)
Retained earnings
37,351
39,742
Total Common
 
Stockholders’ Equity
31,493
34,981
Noncontrolling interests
-
69
Total Equity
31,493
35,050
Total Liabilities and
 
Equity
$
63,046
70,514
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)
3,443
Adjustments to reconcile net income (loss) to net cash provided
 
by operating
activities
Depreciation, depletion and amortization
2,569
3,036
Impairments
519
2
Dry hole costs and leasehold impairments
70
68
Accretion on discounted liabilities
133
173
Deferred taxes
(320)
(221)
Undistributed equity earnings
404
362
Gain on dispositions
(554)
(99)
Unrealized (gain) loss on investment in Cenovus Energy
1,140
(373)
Other
(244)
(21)
Working
 
capital adjustments
Decrease in accounts and notes receivable
1,746
461
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
2,262
5,785
Cash Flows From Investing Activities
Capital expenditures and investments
(2,525)
(3,366)
Working
 
capital changes associated with investing activities
(251)
24
Proceeds from asset dispositions
1,313
701
Net purchases of investments
(1,030)
(485)
Collection of advances/loans—related parties
66
62
Other
(35)
126
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
2
(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)
26
Net Change in Cash, Cash Equivalents and Restricted Cash
(2,172)
46
Cash, cash equivalents and restricted cash at beginning
 
of period
5,362
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
3,190
6,197
Restricted cash of $
88
 
million and $
195
 
million are included in the "Prepaid expenses and other current assets" and "Other assets" lines,
respectively, of our Consolidated Balance Sheet as of June 30, 2020.
Restricted cash of $
90
 
million and $
184
 
million are included in the "Prepaid expenses and other current assets" and "Other assets" lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2019.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
 
Note 1—Basis of Presentation
 
The interim-period financial information
 
presented in the financial statements included
 
in this report is
unaudited and, in the opinion of management,
 
includes all known accruals and adjustments
 
necessary for a fair
presentation of the consolidated financial
 
position of ConocoPhillips and its results
 
of operations and cash
flows for such periods.
 
All such adjustments are of a normal and recurring
 
nature unless otherwise disclosed.
Certain notes and other information have been
 
condensed or omitted from the interim
 
financial statements
included in this report.
 
Therefore, these financial statements should
 
be read in conjunction with the
consolidated financial statements
 
and notes included in our 2019 Annual Report
 
on Form 10-K.
 
The unrealized (gain) loss on investment in Cenovus
 
Energy included on our consolidated statement of cash
flows, previously reflected on the line item
 
“Other” within net cash provided by operating
 
activities, has been
reclassified in the comparative period to conform
 
with the current period’s presentation.
 
 
 
Note 2—Changes in Accounting Principles
 
We
adopted
 
the provisions of FASB ASU No. 2016-13, “Measurement of Credit Losses
 
on Financial
Instruments,” (ASC Topic 326) and its amendments,
beginning
January 1, 2020
.
 
This ASU, as amended, sets
forth the current expected credit loss model,
 
a new forward-looking impairment model
 
for certain financial
instruments measured at amortized cost basis
 
based on expected losses rather than incurred losses.
 
This ASU,
as amended, which primarily applies to our accounts
 
receivable, also requires credit losses related
 
to available-
for-sale debt securities to be recorded through an allowance
 
for credit losses.
 
The adoption of this ASU did
not have a material impact to our financial statements.
 
The majority of our receivables are due within
 
30 days
or less.
 
We monitor the credit quality of our counterparties through review of collections,
 
credit ratings, and
other analyses.
 
We develop our estimated allowance for credit losses primarily using an aging method
 
and
analyses of historical loss rates as well as consideration
 
of current and future conditions that could
 
impact our
counterparties’ credit quality and liquidity.
 
 
Note 3—Inventories
Inventories consisted of the following:
Millions of Dollars
June 30
 
December 31
2020
2019
Crude oil and natural gas
$
452
472
Materials and supplies
530
554
$
982
1,026
 
 
Inventories valued on the LIFO basis totaled
 
$
352
 
million and $
286
 
million at June 30, 2020 and December
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 $
228
 
million to our crude oil and
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 $
765
 
million with an
additional $
200
 
million due upon final investment decision
 
of the proposed Barossa development project.
 
In
the second quarter of 2020, we recognized a before-tax
 
gain of $
587
 
million related to this transaction.
 
At the
time of disposition, the net carrying value of the
 
subsidiaries sold was approximately $
0.2
 
billion, excluding
$
0.5
 
billion of cash.
 
The net carrying value consisted primarily
 
of $
1.3
 
billion of PP&E and $
0.1
 
billion of
other current assets offset by $
0.7
 
billion of ARO, $
0.3
 
billion of deferred tax liabilities, and $
0.2
 
billion of
other liabilities.
 
The before-tax earnings associated with the subsidiaries
 
sold, excluding the gain on
disposition noted above, were $
265
 
million and $
156
 
million for the six-month periods ended June 30,
 
2020
and 2019, respectively.
 
Production associated with the disposed assets
 
averaged
35
 
MBOED in the six-month
period of 2020.
 
Results of operations for the subsidiaries sold are
 
reported in our
Asia Pacific and Middle East
segment.
 
In March 2020, we completed the sale of our Niobrara
 
interests for approximately $
359
 
million after
customary adjustments and recognized a before-tax
 
loss on disposition of $
38
 
million.
 
At the time of
disposition, our interest in Niobrara had a net carrying
 
value of $
397
 
million, consisting primarily of $
433
million of PP&E and $
34
 
million of ARO.
 
The before-tax earnings associated with our
 
interests in Niobrara,
including the loss on disposition, were a loss of $
24
 
million and $
5
 
million for the six-month periods ended
June 30, 2020 and 2019, respectively.
 
 
In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $
184
 
million after customary
adjustments.
 
No
 
gain or loss was recognized on the sale.
 
 
Production from the disposed Niobrara and Waddell Ranch interests in our
Lower 48
 
segment averaged
15
MBOED in 2019.
 
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 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.
 
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, 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 $
8.5
 
billion project finance facility in 2012. The $
8.5
billion project finance facility was initially composed
 
of financing agreements executed by APLNG
 
with the
Export-Import Bank of the United States for approximately
 
$
2.9
 
billion, the Export-Import Bank of China for
approximately $
2.7
 
billion, and a syndicate of Australian and international
 
commercial banks for
approximately $
2.9
 
billion.
 
All amounts were drawn from the facility.
 
APLNG made its first principal and
interest repayment in March 2017 and is scheduled
 
to make
bi-annual
 
payments until
March 2029
.
 
 
APLNG made a voluntary repayment of $
1.4
 
billion to the Export-Import Bank of China
 
in September 2018.
 
At the same time, APLNG obtained a United
 
States Private Placement (USPP) bond facility
 
of $
1.4
 
billion.
 
APLNG made its first interest payment related to
 
this facility in March 2019, and principal
 
payments are
scheduled to commence in September 2023, with
bi-annual
 
payments due on the facility until
September 2030
.
 
 
8
During the first quarter of 2019, APLNG refinanced
 
$
3.2
 
billion of existing project finance debt through two
transactions.
 
As a result of the first transaction, APLNG obtained
 
a commercial bank facility of $
2.6
 
billion.
 
APLNG made its first principal and interest
 
repayment in September 2019 with
bi-annual
 
payments due on the
facility until
March 2028
.
 
Through the second transaction, APLNG obtained
 
a USPP bond facility of $
0.6
billion.
 
APLNG made its first interest payment in September
 
2019, and principal payments are scheduled to
commence in September 2023, with
bi-annual
 
payments due on the facility until
 
September 2030.
 
In conjunction with the $
3.2
 
billion debt obtained during the first quarter
 
of 2019 to refinance existing project
finance debt, APLNG made voluntary repayments
 
of $
2.2
 
billion and $
1.0
 
billion to a syndicate of Australian
and international commercial banks and the Export-Import
 
Bank of China, respectively.
 
At June 30, 2020, a balance of $
6.5
 
billion was outstanding on the facilities.
 
See Note 11—Guarantees, for
additional information.
 
At June 30, 2020, the carrying value of our equity
 
method investment in APLNG was $
6,889
 
million.
 
The
balance is included in the “Investments and long-term
 
receivables” line on our consolidated balance
 
sheet.
 
Loans and Long-Term Receivables
As part of our normal ongoing business operations,
 
and consistent with industry practice,
 
we enter into
numerous agreements with other parties to pursue
 
business opportunities.
 
Included in such activity are loans
made to certain affiliated and non-affiliated companies.
 
At June 30, 2020, significant loans to affiliated
companies included $
272
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3).
 
On our consolidated balance sheet, the long-term
 
portion of these loans is included in the “Loans
 
and
advances—related parties” line, while the short-term
 
portion is in the “Accounts and notes receivable—related
parties” line.
 
 
Note 6—Investment in Cenovus Energy
 
On May 17, 2017, we completed the sale of our
50
 
percent nonoperated interest in the FCCL Partnership,
 
as
well as the majority of our western Canada gas assets,
 
to Cenovus Energy.
 
Consideration for the transaction
included
208
 
million Cenovus Energy common shares, which,
 
at closing, approximated
16.9
 
percent of issued
and outstanding Cenovus Energy common stock.
 
The fair value and cost basis of our investment
 
in
208
million Cenovus Energy common shares was $
1.96
 
billion based on a price of $
9.41
 
per share on the NYSE on
the closing date.
 
At June 30, 2020, the investment included on
 
our consolidated balance sheet was $
971
 
million and is carried at
fair value.
 
The fair value of the
208
 
million Cenovus Energy common shares reflects
 
the closing price of
$
4.67
 
per share on the NYSE on the last trading
 
day of the quarter, a decrease of $
1.14
 
billion from its fair
value of $
2.11
 
billion at year-end 2019.
 
For the three- and six-month periods ended June
 
30, 2020, we
recorded an unrealized gain of $
551
 
million and an unrealized loss of $
1.14
 
billion, respectively.
 
For the
three- and six-month periods ended June 30, 2019,
 
we recorded an unrealized gain of $
30
 
million and $
373
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 $
701
 
million, a decrease of $
319
 
million from
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, $
19
 
million was charged to dry hole expense during
 
the first six months of 2020 for
one
 
suspended
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
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Lower 48
2
-
513
-
Europe and North Africa
(4)
1
6
2
$
(2)
1
519
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
 
$
511
 
million related to these non-core natural gas assets,
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 $
31
 
million in our Asia Pacific and Middle
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 $
14,998
 
million compared with $
14,895
 
million at December 31,
2019.
 
 
Our revolving credit facility provides a total commitment
 
of $
6.0
 
billion and expires in
May 2023
.
 
Our
revolving credit facility may be used for direct
 
bank borrowings, the issuance of letters of credit
 
totaling up to
$
500
 
million, or as support for our commercial paper
 
program.
 
Our commercial paper program consists of
 
the
ConocoPhillips Company $
6.0
 
billion program, primarily a funding source for
 
short-term working capital
needs.
 
Commercial paper maturities are generally limited
 
to
90 days
.
 
 
We had no commercial paper outstanding at 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
 
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.
 
In March 2020, S&P affirmed its “A” rating on our senior long-term debt and revised its outlook to “negative”
from “stable”.
 
In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook.
 
Our current
rating from Fitch is “A” with a “stable” outlook.
 
 
At June 30, 2020, we had $
283
 
million of certain variable rate demand bonds (VRDBs)
 
outstanding with
maturities ranging through 2035.
 
The VRDBs are redeemable at the option of the bondholders
 
on any business
day.
 
If they are ever redeemed, we 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
$
18
47,027
(47,130)
(6,145)
37,545
72
31,387
Net income
260
18
278
Other comprehensive income
320
320
Dividends paid ($
0.42
 
per common share)
(455)
(455)
Distributions to noncontrolling interests and other
(6)
(6)
Disposition
(84)
(84)
Distributed under benefit plans
52
52
Other
1
1
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
-
31,493
For the six months ended June 30, 2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income (loss)
(1,479)
46
(1,433)
Other comprehensive loss
(468)
(468)
Dividends paid ($
0.84
 
per common share)
(913)
(913)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(32)
(32)
Disposition
(84)
(84)
Distributed under benefit plans
96
96
Other
1
1
1
3
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
-
31,493
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
$
18
46,877
(43,656)
(5,914)
35,534
122
32,981
Net income
1,580
17
1,597
Other comprehensive income
87
87
Dividends paid ($
0.31
 
per common share)
(346)
(346)
Repurchase of company common stock
(1,250)
(1,250)
Distributions to noncontrolling interests and other
(43)
(43)
Distributed under benefit plans
45
45
Other
1
2
3
Balances at June 30, 2019
$
18
46,922
(44,906)
(5,827)
36,769
98
33,074
For the six months ended June 30, 2019
Balances at December 31, 2018
$
18
46,879
(42,905)
(6,063)
34,010
125
32,064
Net income
3,413
30
3,443
Other comprehensive income
276
276
Dividends paid ($
0.61
 
per common share)
(696)
(696)
Repurchase of company common stock
(2,002)
(2,002)
Distributions to noncontrolling interests and other
(60)
(60)
Distributed under benefit plans
43
43
Changes in Accounting Principles*
(40)
40
-
Other
1
2
3
6
Balances at June 30, 2019
$
18
46,922
(44,906)
(5,827)
36,769
98
33,074
*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
37.5
 
percent ownership
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
11 years
.
 
Our maximum exposure under this guarantee is
 
approximately $
170
 
million
and may become payable if an enforcement action
 
is commenced by the project finance lenders
against APLNG.
 
At June 30, 2020, the carrying value of this
 
guarantee was approximately $
14
million.
 
 
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy in
October 2008, we agreed to reimburse Origin Energy for
 
our share of the existing contingent liability
arising under guarantees of an existing obligation
 
of APLNG to deliver natural gas under several
 
sales
agreements with remaining terms of
1 to 22 years
.
 
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
 
to be $
700
 
million
($
1.3
 
billion in the event of intentional or reckless
 
breach), and would become payable if
 
APLNG fails
to meet its obligations under these agreements
 
and the obligations cannot otherwise be mitigated.
 
Future payments are considered unlikely, as the payments, or cost of volume
 
delivery, would only be
triggered if APLNG does not have enough natural
 
gas to meet these sales commitments and if
 
the
co-venturers do not make necessary equity contributions
 
into APLNG.
 
 
 
We have guaranteed the performance of APLNG with regard to certain other contracts
 
executed in
connection with the project’s continued development.
 
The guarantees have remaining terms
 
of
17 to
25 years or the life of the venture
.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately $
120
 
million and would become payable if APLNG
 
does not perform.
 
At
June 30, 2020, the carrying value of these guarantees
 
was approximately $
7
 
million.
 
 
Other Guarantees
 
We have other guarantees with maximum future potential payment amounts totaling
 
approximately
 
$
780
 
million, which consist primarily of
 
guarantees of the residual value of leased office buildings,
 
guarantees
of the residual value of corporate aircrafts,
 
and a guarantee for our portion of a joint venture’s project finance
reserve accounts.
 
These guarantees have remaining terms
 
of
1 to 5 years
 
and would become payable if certain
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 $
11
 
million.
 
 
Indemnifications
Over the years, we have entered into agreements to
 
sell ownership interests in certain corporations,
 
joint
ventures and assets that gave rise to qualifying
 
indemnifications.
 
These agreements include indemnifications
for taxes and environmental liabilities.
 
The majority of these indemnifications are related
 
to tax issues and the
majority of these expire in 2021.
 
Those related to environmental issues have terms
 
that are generally indefinite
and the maximum amounts of future payments are
 
generally unlimited.
 
The carrying amount recorded for
these indemnification obligations at June 30, 2020,
 
was approximately $
70
 
million.
 
We amortize the
 
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 $
30
 
million
of environmental accruals for known contamination
 
that are included in the “Asset retirement
 
obligations and
accrued environmental costs” line on our consolidated
 
balance sheet.
 
For additional information about
environmental liabilities, see Note 12—Contingencies
 
and Commitments.
 
 
 
Note 12—Contingencies and Commitments
 
 
A number of lawsuits involving a variety of claims
 
arising in the ordinary course of business
 
have been filed
against ConocoPhillips.
 
We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain
 
chemical, mineral and petroleum substances
 
at various active
and inactive sites.
 
We regularly assess the need for accounting recognition or disclosure of these
contingencies.
 
In the case of all known contingencies (other
 
than those related to income taxes), we accrue
 
a
liability when the loss is probable and the amount
 
is reasonably estimable.
 
If a range of amounts can be
reasonably estimated and no amount within the range
 
is a better estimate than any other amount,
 
then the 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
 
$
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
.
 
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
 
$
196
 
million (issued as direct bank letters of
 
credit) related to various purchase commitments
 
for materials,
supplies, commercial activities and services incident
 
to the ordinary conduct of business.
 
 
In 2007, ConocoPhillips was unable to reach agreement
 
with respect to the empresa mixta structure
 
mandated
by the Venezuelan government’s Nationalization Decree.
 
As a result, Venezuela’s
 
national oil company,
Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’
interests in the Petrozuata and Hamaca heavy oil
 
ventures and the offshore Corocoro development project.
 
In
response to this expropriation, ConocoPhillips
 
initiated international arbitration on November 2, 2007,
 
with the
ICSID.
 
On September 3, 2013, an ICSID arbitration tribunal
 
held that Venezuela unlawfully expropriated
ConocoPhillips’ significant oil investments
 
in June 2007.
 
On January 17, 2017, the Tribunal reconfirmed the
decision that the expropriation was unlawful.
 
In March 2019, the Tribunal unanimously ordered the
government of Venezuela to pay ConocoPhillips approximately $
8.7
 
billion in compensation for the
government’s unlawful expropriation of the company’s investments in Venezuela in 2007.
 
ConocoPhillips has
filed a request for recognition of the award in several
 
jurisdictions.
 
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing
 
it by approximately $
227
 
million.
 
The award now stands
 
15
at $
8.5
 
billion plus interest.
 
The government of Venezuela sought annulment of the award, which
automatically stayed enforcement of the award.
 
Annulment proceedings are underway.
 
 
In 2014, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Petrozuata and Hamaca projects.
 
The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed ConocoPhillips
 
approximately $
2
 
billion under their
agreements in connection with the expropriation of the
 
projects and other pre-expropriation fiscal
 
measures.
 
In
August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC
award, plus interest through the payment period, including initial payments totaling approximately
$500 million within a period of 90 days from the time of signing of the settlement agreement. The balance of
the settlement is to be paid quarterly over a period of four and a half years.
 
To date, ConocoPhillips has
received approximately $
754
 
million.
 
Per the settlement, PDVSA recognized the ICC award
 
as a judgment in
various jurisdictions, and ConocoPhillips agreed
 
to suspend its legal enforcement actions.
 
ConocoPhillips sent
notices of default to PDVSA on October 14 and November
 
12, 2019, and to date PDVSA failed to cure its
breach.
 
As a result, ConocoPhillips has resumed legal enforcement
 
actions.
 
ConocoPhillips has ensured that
the settlement and any actions taken in enforcement
 
thereof meet all appropriate U.S. regulatory
 
requirements,
including those related to any applicable sanctions
 
imposed by the U.S. against Venezuela.
 
In 2016, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Corocoro project.
 
On August 2, 2019, the ICC Tribunal
awarded ConocoPhillips approximately $
55
 
million under the Corocoro contracts.
 
ConocoPhillips is seeking
recognition and enforcement of the award in various
 
jurisdictions.
 
ConocoPhillips has ensured that all the
actions related to the award meet all appropriate
 
U.S. regulatory requirements, including those related
 
to any
applicable sanctions imposed by the U.S. against
 
Venezuela.
 
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
 
$
90
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
$
316
288
Other assets
35
34
Liabilities
Other accruals
310
283
Other liabilities and deferred credits
25
28
 
 
The gains (losses) from commodity derivatives
 
incurred, and the line items where they appear on
 
our
consolidated income statement were:
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Sales and other operating revenues
$
(50)
45
(3)
64
Other income (loss)
3
2
5
1
Purchased commodities
24
(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)
 
Fixed price
(20)
(5)
 
Basis
(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
$
23
1
Liabilities
Other accruals
1
20
Other liabilities and deferred credits
-
8
 
 
The (gains) losses from foreign currency exchange
 
derivatives incurred, and the line item where
 
they appear
on our consolidated income statement were:
Millions of Dollars
 
Three Months Ended
Six Months Ended
June 30
June 30
2020
2019
2020
2019
Foreign currency transaction (gain) loss
$
12
23
(62)
21
 
 
 
 
 
 
 
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
7
4
Sell CAD, buy USD
CAD
427
1,337
 
 
In the second quarter of 2019, we entered into foreign currency exchange contracts to sell CAD 1.35 billion at
CAD 0.748 against the USD. In the first quarter of 2020, we entered into forward currency exchange contracts
to buy CAD 0.9 billion at CAD 0.718 against the USD
.
 
 
 
Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for
 
the various accounts and
currency pools we manage.
 
The types of financial instruments in which we
 
currently invest include:
 
 
Time deposits: Interest bearing deposits placed with financial
 
institutions for a predetermined amount
of time.
 
 
Demand deposits: Interest bearing deposits placed
 
with financial institutions.
 
Deposited funds can be
withdrawn without notice.
 
Commercial paper: Unsecured promissory notes issued
 
by a corporation, commercial bank or
government agency purchased at a discount to mature
 
at par.
 
U.S. government or government agency obligations:
 
Securities issued by the U.S. government
 
or U.S.
government agencies.
 
Corporate bonds: Unsecured debt securities
 
issued by corporations.
 
Asset-backed securities: Collateralized debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
575
759
Demand Deposits
917
1,483
-
-
-
-
Time Deposits
Remaining maturities from 1 to 90 days
1,396
2,030
2,339
1,395
-
-
Remaining maturities from
 
 
91 to 180 days
-
-
1,302
465
-
-
Remaining maturities within one year
-
-
14
-
-
-
Remaining maturities greater than one
year through five years
-
-
-
-
3
-
Commercial Paper
Remaining maturities from 1 to 90 days
-
413
-
1,069
-
-
Remaining maturities from
 
 
91 to 180 days
-
-
50
-
-
-
U.S. Government Obligations
Remaining maturities from 1 to 90 days
15
394
-
-
-
-
$
2,903
5,079
3,705
2,929
3
-
 
The following investments in debt securities
 
classified as available for sale are carried on our
 
consolidated balance
sheet at fair value:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
 
Investments
Investments and Long-
Term Receivables
June 30
2020
December 31
2019
June 30
2020
December 31
2019
June 30
2020
December 31
2019
Corporate Bonds
Maturities within one year
$
-
1
144
59
-
-
Maturities greater than one year
 
 
through five years
-
-
-
-
134
99
Commercial Paper
Maturities within one year
4
8
126
30
-
-
U.S. Government Obligations
Maturities within one year
-
-
10
10
-
-
Maturities greater than one year
 
 
through five years
-
-
-
-
16
15
U.S. Government Agency Obligations
Maturities greater than one year
 
 
through five years
-
-
-
-
4
-
Asset-backed Securities
Maturities greater than one year
 
 
through five years
-
-
-
-
37
19
$
4
9
280
99
191
133
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
276
278
159
159
Commercial paper
130
130
38
38
U.S. government obligations
25
26
25
25
U.S. government agency obligations
4
4
-
-
Asset-backed securities
37
37
19
19
$
472
475
241
241
 
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 $
126
 
million and $
189
 
million, respectively.
 
Gross
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
30 days
 
or less, and we continually monitor this exposure
 
and the
creditworthiness of the counterparties.
 
We do not generally require collateral to limit the exposure to loss;
however, we will sometimes use letters of credit, prepayments
 
and master netting arrangements to mitigate
credit risk with counterparties that both buy from
 
and sell to us, as these agreements permit
 
the amounts owed
by us or owed to others to be offset against amounts
 
due to us.
 
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative
exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts
 
21
with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts
typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert
to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also
permit us to post letters of credit as collateral, such as transactions administered through the New York
Mercantile Exchange.
 
The aggregate fair value of all derivative
 
instruments with such credit risk-related contingent
 
features that were
in a liability position on June 30, 2020 and December
 
31, 2019, was $
40
 
million and $
79
 
million, respectively.
 
For these instruments,
no
 
collateral was posted as of June 30, 2020 or December
 
31, 2019.
 
If our credit rating
had been downgraded below investment grade on
 
June 30, 2020, we would have been required
 
to post $
38
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 a