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
For the transition period from
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification
No.)
,
,
(Address of principal executive offices) (Zip Code)
-
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
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]
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]
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.
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
The registrant had
Table of Contents
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Commonly Used Abbreviations
1
ConocoPhillips 2021 Q3 10-Q
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
MMBOED
equivalent per day
millions of barrels of oil equivalent
per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection Agency
ESG
Environmental, Social and
Corporate Governance
Industry
EU
European Union
CBM
coalbed methane
FERC
Federal Energy Regulatory
E&P
exploration and production
Commission
FEED
front-end engineering and design
GHG
greenhouse gas
FPS
floating production system
HSE
health, safety and environment
FPSO
floating production, storage and
ICC
International Chamber of
offloading
Commerce
G&G
geological and geophysical
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
Financial Statements
ConocoPhillips 2021 Q3 10-Q
2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Income Statement
ConocoPhillips
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
Gain (loss) on dispositions
(3 )
Other income (loss)
(38 )
(983 )
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
(89 )
(90 )
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction (gain) loss
(10 )
(5 )
(88 )
Other expenses
Total Costs and Expenses
Income (loss) before income taxes
(512 )
(2,054 )
Income tax provision (benefit)
(62 )
(171 )
Net income (loss)
(450 )
(1,883 )
Less: net loss attributable to noncontrolling interests
(46 )
Net Income (Loss) Attributable to ConocoPhillips
$
(450 )
(1,929 )
Net Income (Loss) Attributable to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
(0.42 )
(1.79 )
Diluted
(0.42 )
(1.79 )
Average Common Shares Outstanding
(in thousands)
Basic
Diluted
See Notes to Consolidated Financial Statements.
Financial Statements
3
ConocoPhillips 2021 Q3 10-Q
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss)
$
(450 )
(1,883 )
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior
service credit included in net income (loss)
(9 )
(8 )
(28 )
(24 )
Net actuarial gain (loss) arising during the period
(78 )
(73 )
Reclassification adjustment for amortization of net actuarial
losses included in net income (loss)
Income taxes on defined benefit plans
(9 )
(49 )
Defined benefit plans, net of tax
(31 )
(13 )
Unrealized holding gain (loss) on securities
(1 )
Income taxes on unrealized holding gain on securities
(1 )
Unrealized holding gain (loss) on securities, net of tax
(1 )
Foreign currency translation adjustments
(237 )
(72 )
(302 )
Income taxes on foreign currency translation adjustments
(1 )
(1 )
Foreign currency translation adjustments, net of tax
(238 )
(73 )
(298 )
Other Comprehensive Income (Loss), Net of Tax
(203 )
(309 )
Comprehensive Income (Loss)
(291 )
(2,192 )
Less: comprehensive income attributable to noncontrolling interests
(46 )
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(291 )
(2,238 )
See Notes to Consolidated Financial Statements.
Financial Statements
ConocoPhillips 2021 Q3 10-Q
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
September 30
December 31
2021
2020
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 (2021—
Par value
Capital in excess of par
Treasury stock (at cost: 2021—
(49,521 )
(47,297 )
Accumulated other comprehensive loss
(5,123 )
(5,218 )
Retained earnings
Total Equity
Total Liabilities and Equity
$
See Notes to Consolidated Financial Statements.
Financial Statements
5
ConocoPhillips 2021 Q3 10-Q
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Nine Months Ended
September 30
2021
2020
Cash Flows From Operating Activities
Net income (loss)
$
(1,883 )
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
Impairments
(90 )
Dry hole costs and leasehold impairments
Accretion on discounted liabilities
Deferred taxes
(428 )
Undistributed equity earnings
Gain on dispositions
(294 )
(551 )
(Gain) loss on investment in Cenovus Energy
(743 )
Other
(866 )
(188 )
Working capital adjustments
Decrease (increase) in accounts and notes receivable
(1,619 )
Increase in inventories
(13 )
(74 )
Increase in prepaid expenses and other current assets
(800 )
(49 )
Increase (decrease) in accounts payable
(583 )
Increase (decrease) in taxes and other accruals
(808 )
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities
Cash acquired from Concho
Capital expenditures and investments
(3,767 )
(3,657 )
Working capital changes associated with investing activities
(229 )
Proceeds from asset dispositions
Net sales (purchases) of investments
(1,089 )
Collection of advances/loans—related parties
Other
(386 )
(31 )
Net Cash Provided by (Used in) Investing Activities
(3,578 )
Cash Flows From Financing Activities
Issuance of debt
Repayment of debt
(363 )
(234 )
Issuance of company common stock
(2 )
Repurchase of company common stock
(2,224 )
(726 )
Dividends paid
(1,750 )
(1,367 )
Other
(27 )
Net Cash Used in Financing Activities
(4,304 )
(2,056 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(3 )
(62 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(2,566 )
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 September 30, 2021.
Restricted cash of $
respectively, of our Consolidated Balance Sheet as of December 31, 2020.
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
6
Notes to Consolidated Financial Statements
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 , 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 2020 Annual Report on Form 10-K.
Note 2—Inventories
Millions of Dollars
September 30
2021
2020
Crude oil and natural gas
$
Materials and supplies
Total Inventories
$
Inventories valued on the LIFO basis
$
Note 3—Acquisitions and Dispositions
Announced Acquisition of Shell Permian Assets
In September 2021, we signed a definitive agreement to acquire Shell Enterprises LLC’s assets in the Delaware
Basin in an all-cash transaction for $
to be acquired include approximately
as over
close in the fourth quarter of 2021, subject to regulatory approval and other customary closing conditions. Under
the terms of the agreement, we paid a deposit of $
Investing Activities - Other” on our consolidated statement of cash flows.
Acquisition of
We completed our acquisition of Concho on
agreement, each share of Concho common stock was exchanged for
for total consideration of $
Total Consideration
Number of shares exchanged
$
$
**Based on the ConocoPhillips average stock price on January 15, 2021.
Notes to Consolidated Financial Statements
7
ConocoPhillips 2021 Q3 10-Q
The transaction was accounted for as a business combination under FASB ASC 805 using the acquisition method,
which requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. Fair
value measurements were made for acquired assets and liabilities, and adjustments to those measurements may
be made in subsequent periods, up to one year from the acquisition date as we identify new information about
facts and circumstances that existed as of the acquisition date to consider. Oil and gas properties were valued
using a discounted cash flow approach incorporating market participant and internally generated price
assumptions; production profiles; and, operating and development cost assumptions. Debt assumed in the
acquisition was valued based on observable market prices. The fair values determined for accounts receivables,
accounts payable, and most other current assets and current liabilities were equivalent to the carrying value due to
their short-term nature. The total consideration of $
liabilities based on their fair values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Investments and long-term receivables
Net properties, plants and equipment
Other assets
Total assets acquired
$
Liabilities Assumed
Accounts payable
$
Accrued income and other taxes
Employee benefit obligations
Other accruals
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
Other liabilities and deferred credits
Total liabilities assumed
$
Net assets acquired
$
With the completion of the Concho transaction, we acquired proved and unproved properties of approximately
$
We recognized approximately $
quarter of 2021. These non-recurring costs related primarily to fees paid to advisors and the settlement of share-
based awards for certain Concho employees based on the terms of the Merger Agreement.
In the first quarter of 2021, we commenced a company-wide restructuring program, the scope of which included
combining the operations of the two companies as well as other global restructuring activities. For the three- and
nine-month periods ending September 30, 2021, we recognized non-recurring restructuring costs of approximately
$
costs.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
8
The impact from these transaction and restructuring costs to the lines of our consolidated income statement for
the nine-month period ending September 30, 2021, are below:
Millions of Dollars
Transaction Cost
Restructuring Cost
Total Cost
Production and operating expenses
$
Selling, general and administration expenses
Exploration expenses
Taxes other than income taxes
Other expenses
$
On February 8, 2021, we completed a debt exchange offer related to the debt assumed from Concho. As a result
of the debt exchange, we recognized an additional income tax related restructuring charge of $
From the acquisition date through September 30, 2021, “Total Revenues and Other Income” and “Net Income
(Loss) Attributable to ConocoPhillips” associated with the acquired Concho business were approximately $
million and $
include a before- and after-tax loss of $
contracts. The before-tax loss is recorded within “Total Revenues and Other Income” on our consolidated income
statement.
The following summarizes the unaudited supplemental pro forma financial information as if we had completed the
acquisition of Concho on January 1, 2020:
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Total revenues and other income
$
Net loss
(565 )
(1,184 )
Net loss attributable to ConocoPhillips
(565 )
(1,230 )
$ per share
Earnings per share:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Basic net loss
$
(0.41 )
(0.90 )
Diluted net loss
(0.41 )
(0.90 )
The unaudited supplemental pro forma financial information is presented for illustration purposes only and is not
necessarily indicative of the operating results that would have occurred had the transaction been completed on
January 1, 2020, nor is it necessarily indicative of future operating results of the combined entity. The unaudited
pro forma financial information for the three- and nine-month periods ending September 30, 2020 is a result of
combining the consolidated income statement of ConocoPhillips with the results of Concho. The pro forma results
do not include transaction-related costs, nor any cost savings anticipated as a result of the transaction. The pro
forma results include adjustments to reverse impairment expense of $
gas properties and goodwill, respectively, recorded by Concho in the nine-month period ending September 30,
2020. Other adjustments made relate primarily to DD&A, which is based on the unit-of-production method,
resulting from the purchase price allocated to properties, plants and equipment. We believe the estimates and
assumptions are reasonable, and the relative effects of the transaction are properly reflected.
Notes to Consolidated Financial Statements
9
ConocoPhillips 2021 Q3 10-Q
Assets Sold
In 2020, we completed the sale of our Australia -West asset and operations. The sales agreement entitled us to a
$
2021, FID was announced and as such, we recognized a $
The purchaser failed to pay the FID bonus when due. We have commenced an arbitration proceeding against the
purchaser to enforce our contractual right to the $
operations related to this transaction are reflected in our Asia Pacific segment.
In the third quarter of 2021, we sold our interests in certain noncore assets in our Lower 48 segment for
approximately $
$
months ended September 30, 2021. We also completed the sale of our noncore exploration interests in Argentina,
recognizing a before-tax loss on disposition of $
our Other International segment.
For the three- and nine-months ended September 30, 2021, we recorded contingent payments of $
$
disposition on our consolidated income statement and are reflected within our Canada and Lower 48 segments.
Note 4—Investments, Loans and Long-Term Receivables
Australia Pacific LNG Pty Ltd (APLNG)
APLNG executed project financing agreements for an $
drawn from the facility. The project financing facility has been restructured over time and at September 30, 2021,
this facility was composed of a financing agreement with the Export-Import Bank of the United States, a
commercial bank facility and
and interest repayme nt in March 2017 and is scheduled to make bi-annual payments until September 2030. At
September 30, 2021, a balance of $
During the fourth quarter of 2020, the estimated fair value of our investment in APLNG declined to an amount
below carrying value, primarily due to the weakening of the U.S. dollar relative to the Australian dollar. Based on a
review of the facts and circumstances surrounding this decline in fair value, we concluded the impairment was not
other than temporary under the guidance of FASB ASC Topic 323, “Investments – Equity Method and Joint
Ventures.” Due primarily to improved outlooks for commodity prices and the strengthening of the U.S. dollar
relative to the Australian dollar during the first nine months of 2021, the estimated fair value of our investment
increased and is above carrying value at September 30, 2021.
On October 25, 2021, Origin Energy Limited agreed to the sale of
approximately $
preemption rights in favor of ConocoPhillips and Sinopec among other considerations. We will continue to
monitor and evaluate the relationship between the carrying value and fair value of APLNG, including any impact
from this announced transaction.
At September 30, 2021, 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
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 September 30, 2021, significant loans to affiliated companies
included $
the “Accounts and notes receivable—related parties” line on our consolidated balance sheet
.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
10
Note 5—Investment in Cenovus Energy
Our investment in Cenovus Energy (CVE) shares is carried on our consolidated balance sheet at fair value of $
billion based on the closing price of $
September 30, 2021 and December 31, 2020, we held
respectively. At September 30, 2021, our investment approximated
common stock.
During the third quarter, we sold
Since we began disposing of our CVE shares in May 2021, we have sold
million, of which $
intend to continue to decrease our investment over time.
All gains and losses are recognized within “Other income (loss)” on our consolidated income statement. Proceeds
related to the sale of our CVE shares are presented within “Cash Flows from Investing Activities” on our
consolidated statement of cash flows.
for information related to fair value measurement
.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Total Net gain (loss) on equity securities
$
(162 )
(1,302 )
Less: Net gain (loss) on equity securities sold during
(50 )
Unrealized gain (loss) on equity securities still held at
$
(162 )
(1,302 )
Note 6—Impairments
During the three- and nine-month periods ended September 30, 2021 and 2020, we recognized before -tax
impairment charges within the following segments:
Millions of Dollars
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Alaska
$
Lower 48
(89 )
(93 )
Europe, Middle East and North Africa
$
(89 )
(90 )
In the three-month period ended September 30, 2021, we recorded a credit to impairment of $
Lower 48 segment due to a decreased ARO estimate for a previously sold asset, in which we retained the ARO
liability.
In the first quarter of 2020, we recorded impairments of $
in the Lower 48 segment which were written down to fair value.
Notes to Consolidated Financial Statements
11
ConocoPhillips 2021 Q3 10-Q
Note 7—Debt
Our debt balance at September 30, 2021, was $
On January 15, 2021, we completed the acquisition of Concho in an all-stock transaction. In the acquisition, we
assumed Concho’s publicly traded debt, with an outstanding principal balance of $
at fair value of $
●
% Notes due
●
% Notes due
●
% Notes due
●
% Notes due
●
% Notes due
The adjustment to fair value of the senior notes of approximately $
amortized as an adjustment to interest expense over the remaining contractual terms of the senior notes.
In the first quarter of 2021, we completed a debt exchange offer related to the debt assumed from Concho. Of the
approximately $
percent, or approximately $
the same interest rates and maturity dates as the Concho senior notes. The portion not exchanged, approximately
$
treated as a debt modification for accounting purposes resulting in a portion of the unamortized fair value
adjustment of the Concho senior notes allocated to the new debt issued by ConocoPhillips on the settlement date
of the exchange. The new debt issued in the exchange is fully and unconditionally guaranteed by ConocoPhillips
Company.
We have a revolving credit facility totaling $
May 2023
. Our revolving credit
facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $
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 $
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 U.S. The facility agreement calls for commitment fees on available, but unused, amounts.
The facility 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 our ability to issue up to $
is generally limited to
sheet. With no commercial paper outstanding and
no
billion in available borrowing capacity under our revolving credit facility at September 30, 2021. At December 31,
2020, we had $
no
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
12
Following our September 20, 2021, announcement regarding the Shell Permian Acquisition, the three rating
agencies reviewed their pre-announcement ratings on our debt resulting in the following:
●
●
●
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, upon downgrade of our credit ratings. If our credit ratings are downgraded
from their current levels, it could increase the cost of corporate debt available to us and restrict our access to the
commercial paper markets. If our credit rating were to deteriorate to a level prohibiting us from accessing the
commercial paper market, we would still be able to access funds under our revolving credit facility.
At September 30, 2021, 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.
Notes to Consolidated Financial Statements
13
ConocoPhillips 2021 Q3 10-Q
Note 8—Changes in Equity
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2021
Balances at June 30, 2021
$
(48,278 )
(4,920 )
Net income
Other comprehensive income
(203 )
(203 )
Dividends paid ($
(579 )
(579 )
Dividends payable ($
(609 )
(609 )
Repurchase of company common stock
(1,243 )
(1,243 )
Distributed under benefit plans
Balances at September 30, 2021
$
(49,521 )
(5,123 )
-
For the nine months ended September 30, 2021
Balances at December 31, 2020
$
(47,297 )
(5,218 )
Net income
Other comprehensive income
Dividends paid ($
(1,750 )
(1,750 )
Dividends payable ($
(609 )
(609 )
Acquisition of Concho
Repurchase of company common stock
(2,224 )
(2,224 )
Distributed under benefit plans
Other
Balances at September 30, 2021
$
(49,521 )
(5,123 )
-
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2020
Balances at June 30, 2020
$
(47,130 )
(5,825 )
Net income
(450 )
(450 )
Other comprehensive income
Dividends paid ($
(454 )
(454 )
Distributed under benefit plans
Other
Balances at September 30, 2020
$
(47,130 )
(5,666 )
For the nine months ended September 30, 2020
Balances at December 31, 2019
$
(46,405 )
(5,357 )
Net income
(1,929 )
(1,883 )
Other comprehensive loss
(309 )
(309 )
Dividends paid ($
(1,367 )
(1,367 )
Repurchase of company common stock
(726 )
(726 )
Distributions to noncontrolling interests and other
(32 )
(32 )
Dispositions
(84 )
(84 )
Distributed under benefit plans
Other
Balances at September 30, 2020
$
(47,130 )
(5,666 )
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
14
Note 9—Guarantees
At September 30, 2021, 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 September 30, 2021, we had outstanding multiple guarantees in connection with our
interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2021
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 $
if an enforcement action is commenced by the project finance lenders against APLNG. At September 30,
2021, the carrying value of this guarantee was $
●
In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy Limited in
October 2008, we agreed to reimburse Origin Energy Limited 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 $
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
guarantees is approximately $
September 30, 2021, the carrying value of these guarantees was $
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling approximately $
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
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 September
30, 2021, the carrying value of these guarantees was $
Indemnifications
Over the years, we have entered into agreements to sell ownership interests in certain legal entities, joint ventures
and assets that gave rise to qualifying indemnifications. These agreements include indemnifications for taxes,
lease commitments and environmental liabilities. 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 September 30, 2021, was $
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
Notes to Consolidated Financial Statements
15
ConocoPhillips 2021 Q3 10-Q
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.
for
additional information about environmental liabilities
.
Note 10—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 and record accruals for
environmental liabilities based on management’s best estimates. These estimates are based on currently available
facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and
business considerations. When measuring environmental liabilities, we also consider our prior experience in
remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. EPA or
other organizations. We consider unasserted claims in our determination of environmental liabilities, and we
accrue them in the period they are both probable and reasonably estimable.
Although liability of those potentially responsible for environmental remediation costs is generally joint and
several for federal sites and frequently so for other sites, we are usually only one of many companies cited at a
particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to any
site at which we have been designated as a potentially responsible party. We have been successful to date in
sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially
responsible are still under investigation by the EPA or the agency concerned. Prior to actual cleanup, those
potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate
remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears
that other potentially responsible parties may be financially unable to bear their proportional share, we consider
this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various
acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations
are mitigated by indemnifications made by others for our benefit, and some of the indemnifications are subject to
dollar limits and time limits.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
16
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 September 30, 2021, our balance sheet included a total environmental accrual of $
$
substantial amount of these expenditures within the next
. In the future, we may be involved in additional
environmental assessments, cleanups and proceedings.
Litigation and Other Contingencies
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, claims of alleged
environmental contamination from historic operations, and other contract disputes. 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.
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 September 30, 2021, 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 unan imously ordered the government of Venezuela to pay ConocoPhillips approximately
$
Venezuela in 2007. On August 29, 2019, the ICSID Tribunal issued a decision rectifying the award and reducing it
by approximately $
sought annulment of the award, which automatically stayed enforcement of the award. On September 29, 2021,
the ICSID annulment committee lifted the stay of enforcement of the award. The annulment proceedings have
been suspended as a result of Venezuela’s non-payment of advances to cover the costs of these proceedings.
Notes to Consolidated Financial Statements
17
ConocoPhillips 2021 Q3 10-Q
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 $
with the expropriation of the projects and other pre-expropriation fiscal measures.
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 has failed to cure its breach. As a result,
ConocoPhillips has resumed legal enforcement actions. To date, ConocoPhillips has received approximately $
million in connection with the ICC award. 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
and the ONRR entered into a settlement agreement on March 23, 2021, to resolve the dispute. All orders and
associated appeals have been withdrawn with prejudice.
Beginning in 2017, cities, counties, governments and other entities in several states in the U.S. have filed lawsuits
against oil and gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to
abate alleged climate change impacts. Additional lawsuits with similar allegations are expected to be filed. The
amounts claimed by plaintiffs are unspecified and the legal and factual issues involved in these cases are
unprecedented. ConocoPhillips believes these lawsuits are factually and legally meritless and are an inappropriate
vehicle to address the challenges associated with climate change and will vigorously defend against such lawsuits.
Several Louisiana parishes and the State of Louisiana have filed
Coastal Resources Management Act (SLCRMA) against oil and gas companies, including ConocoPhillips, seeking
compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil
and gas operations. ConocoPhillips entities are defendants in
them. Because Plaintiffs’ SLCRMA theories are unprecedented, there is uncertainty about these claims (both as to
scope and damages) and we continue to evaluate our exposure in these lawsuits.
In October 2020, the Bureau of Safety and Environmental Enforcement (BSEE) ordered the prior owners of Outer
Continental Shelf (OCS) Lease P-0166, including ConocoPhillips, to decommission the lease facilities, including two
offshore platforms located near Carpinteria, California. ConocoPhillips is challenging this order. This order was
sent after the current owner of OCS Lease P-0166 relinquished the lease and abandoned the lease platforms and
facilities. BSEE’s order to ConocoPhillips is premised on its connection to Phillips Petroleum Company, a legacy
company of ConocoPhillips, which held a historical
but sold its interest approximately
On May 10, 2021, ConocoPhillips filed arbitration under the rules of the Singapore International Arbitration Centre
(SIAC) against Santos KOTN Pty Ltd. and Santos Limited for their failure to timely pay the $
upon FID of the Barossa development project under the sale and purchase agreement. Santos KOTN Pty Ltd. and
Santos Limited have filed a counterclaim, and the arbitration is underway.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
18
Note 11—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, 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 and certain gas contracts. We do not
apply 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
September 30
December 31
2021
2020
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
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Sales and other operating revenues
$
(483 )
(862 )
Other income (loss)
(2 )
Purchased commodities
(27 )
(29 )
On January 15, 2021, we assumed financial derivative instruments consisting of oil and natural gas swaps in
connection with the acquisition of Concho. At the acquisition date, the financial derivative instruments acquired
were recognized at fair value as a net liability of $
December 31, 2022. During the first quarter of 2021, we recognized a loss of $
contracts with settlement dates on or before March 31, 2021, and an additional $
remaining Concho derivative contracts with settlement dates subsequent to March 31, 2021, for a total loss of
$
operating revenues” line on our consolidated income statement.
Notes to Consolidated Financial Statements
19
ConocoPhillips 2021 Q3 10-Q
By the end of March 2021, all oil and natural gas derivative financial instruments acquired from Concho were
contractually settled. In connection with the settlement, we issued a cash payment of $
quarter of 2021 and $
contracts are presented within “Cash Flows From Operating Activities” on our consolidated statement of cash
flows.
The table below summarizes our material net exposures resulting from outstanding commodity derivative
contracts:
Open Position
Long/(Short)
September 30
December 31
2021
2020
Commodity
Natural gas and power (billions of cubic feet equivalent)
(20 )
(19 )
(10 )
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.
●
Foreign government obligations: Securities issued by foreign governments.
●
Corporate bonds: Unsecured debt securities issued by corporations.
●
Asset-backed securities: Collateralized debt securities.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
20
The following investments are carried on our consolidated balance sheet at cost, plus accrued interest and the table
reflects remaining maturities at September 30, 2021 and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Cash
$
Demand Deposits
Time Deposits
1 to 90 days
91 to 180 days
Within one year
One year through five years
U.S. Government
1 to 90 days
$
The following investments in debt securities classified as available for sale are carried at fair value on our consolidated
balance sheet at September 30, 2021 and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
Commercial Paper
U.S. Government
U.S. Government
Foreign Government
-
Asset-backed
$
Cash and Cash Equivalents and Short-Term Investments have remaining maturities within one year.
Investments and Long-Term Receivables have remaining maturities greater than one year through eight years.
Notes to Consolidated Financial Statements
21
ConocoPhillips 2021 Q3 10-Q
The following table summarizes the amortized cost basis and fair value of investments in debt securities classified
as available for sale:
Millions of Dollars
Amortized Cost Basis
Fair Value
September 30
December 31
September 30
December 31
2021
2020
2021
2020
Major Security Type
Corporate bonds
$
Commercial paper
U.S. government obligations
U.S. government agency obligations
Foreign government obligations
Asset-backed securities
$
At September 30, 2021 and December 31, 2020, total unrealized losses for debt securities classified as available for
sale with net losses were negligible. Additionally, at September 30, 2021 and December 31, 2020, investment s 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 nine-month periods ended September 30, 2021, proceeds from sales and redemptions of
investments in debt securities classified as available for sale were $
the three- and nine-month periods ended September 30, 2020, proceeds from sales and redemptions of
investments in debt securities classified as available for sale were $
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, U.S. government and government agency obligations, time deposits with major international banks
and financial institutions, high-quality corporate bonds, foreign government obligations and asset-backed
securities. Our long-term investments in debt securities are placed in high-quality corporate bonds, asset-backed
securities, U.S. government and government agency obligations, foreign government obligations, 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 primarily 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 oil and gas 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 may require collateral to limit the exposure to loss including, letters of
credit, prepayments and surety bonds, as well as 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.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
22
The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in
a liability position at September 30, 2021 and December 31, 2020, was $
For these instruments,
had been downgraded below investment grade at September 30, 2021, we would have been required to post $
million of additional collateral, either with cash or letters of credit.
Note 12—Fair Value Measurement
We carry a portion of our assets and liabilities at fair value that are 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 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 the three- and nine-month periods ended
September 30, 2021, nor during the year ended December 31, 2020.
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair value on a recurring basis primarily include our investment in CVE
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 CVE, 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, U.S. government agency obligations and foreign government 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.
Notes to Consolidated Financial Statements
23
ConocoPhillips 2021 Q3 10-Q
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
September 30, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in CVE shares
$
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
September 30, 2021
Assets
$
Liabilities
December 31, 2020
Assets
$
Liabilities
At September 30, 2021 and December 31, 2020, we did not present any amounts gross on our consolidated
balance sheet where we had the right of setoff.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
24
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 CVE:
for a discussion of the carrying value and fair value of our investment in
CVE 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.
●
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.
●
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.
●
Commercial paper: The carrying amount of our commercial paper instruments approximates fair value
and is reported on the balance sheet as short-term debt.
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
September 30
December 31
September 30
December 31
2021
2020
2021
2020
Financial assets
Investment in CVE shares
$
Commodity derivatives
Investments in debt securities
Loans and advances—related parties
Financial liabilities
Total debt, excluding finance leases
Commodity derivatives
Notes to Consolidated Financial Statements
25
ConocoPhillips 2021 Q3 10-Q
Note 13—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 (Loss) on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2020
$
(425 )
(4,795 )
(5,218 )
Other comprehensive income (loss)
(1 )
(73 )
September 30, 2021
$
(256 )
(4,868 )
(5,123 )
The following table summarizes reclassifications out of accumulated other comprehensive loss and into net
income (loss):
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Defined benefit plans
$
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $
million for the three-month periods ended September 30, 2021 and September 30, 2020, respectively, and $
nine-month periods ended September 30, 2021 and September 30, 2020, respectively
.
Note 14—Cash Flow Information
Millions of Dollars
Nine Months Ended
September 30
Cash Payments
2021
2020
Interest
$
Income taxes
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(5,487 )
(9,662 )
Short-term investments sold
Long-term investments purchased
(228 )
(271 )
Long-term investments sold
$
(1,089 )
We paid a deposit of $
is included within the “Cash Flows from Investing Activities - Other” on our consolidated statement of cash flows.
for additional information on cash and non-cash changes to our consolidated balance sheet associated
with our Concho acquisition and information on the announced Shell transaction.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
26
Note 15—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
Pension Benefits
Other Benefits
2021
2020
2021
2020
U.S.
Int'l.
U.S.
Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost
$
Interest cost
Expected return on plan assets
(22 )
(30 )
(21 )
(37 )
Amortization of prior service credit
(1 )
(9 )
(7 )
Recognized net actuarial loss
Settlements
Net periodic benefit cost
$
(8 )
(3 )
Nine Months Ended September 30
Service cost
$
Interest cost
Expected return on plan assets
(66 )
(90 )
(63 )
(108 )
Amortization of prior service credit
(1 )
(28 )
(23 )
Recognized net actuarial loss
Settlements
(1 )
Curtailments
Special Termination Benefits
Net periodic benefit cost
$
(23 )
(15 )
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.
We recognized a proportionate share of prior actuarial losses from other comprehensive income as pension
settlement expense of $
2021, respectively. As part of our company-wide restructuring program, we concluded that actions taken during
the first quarter of 2021, would result in a significant reduction of future service of active employees in the U.S.
qualified pension plan, a U.S. nonqualified supplemental retirement plan and the U.S. other postretirement benefit
plans. As a result, we recognized an increase in the benefit obligation as a curtailment loss of $
U.S. pension benefit plans. In conjunction with the recognition of pension settlement expense, the fair market
values of the pension plan assets were updated and the pension benefit obligations of the U.S. qualified pension
plan and the U.S. nonqualified supplemental retirement plan were remeasured at September 30, 2021. At the
measurement date, the net pension liability decreased by $
a result of an increase in the discount rate, resulting in a corresponding increase to other comprehensive income.
Notes to Consolidated Financial Statements
27
ConocoPhillips 2021 Q3 10-Q
The relevant assumptions are summarized in the following table:
September 30
December 31
2021
2020
Expected return on plan assets
%
Relevant discount rates
U.S. qualified pension plan
%
U.S. nonqualified pension plan
During the first nine months of 2021, we contributed $
to our international benefit plans. In 2021, we expect to contribute a total of approximately $
domestic qualified and nonqualified pension and postretirement benefit plans and $
international qualified and nonqualified pension and postretirement benefit plans.
Severance Accrual Activity
Millions of Dollars
Balance at December 31, 2020
$
Accruals
Benefit payments
(102 )
Balance at September 30, 2021
$
Accruals include severance costs associated with our company-wide restructuring program. Of the remaining
balance at September 30, 2021, $
for information relating to our
Concho acquisition.
Note 16—Related Party Transactions
Our related parties primarily include equity method investments and certain trusts for the benefit of employees.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
Significant Transactions with Equity Affiliates
2021
2020
2021
2020
Operating revenues and other income
$
Purchases
Operating expenses and selling, general and administrative
expenses
Net interest (income) expense*
$
(1 )
(2 )
(5 )
*We paid interest to, or received interest from, various affiliates
.
for information related to loans to
equity affiliates.
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
28
Note 17—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
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
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
(174 )
(434 )
(47 )
Consolidated sales and other operating revenues
$
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
Millions of Dollars
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic 606
by Segment
Lower 48
$
Canada
Europe, Middle East and North Africa
Physical contracts meeting the definition of a derivative
$
Millions of Dollars
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenue from Outside the Scope of ASC Topic 606
by Product
Crude oil
$
Natural gas
Other
Physical contracts meeting the definition of a derivative
$
Notes to Consolidated Financial Statements
29
ConocoPhillips 2021 Q3 10-Q
Practical Expedients
Typically, our commodity sales contracts are less than 12 months in duration; however, in certain specific cases
they may extend longer, which may be out to the end of field life.
Receivables and Contract Liabilities
Receivables from Contracts with Customers
At September 30, 2021, the “Accounts and notes receivable” line on our consolidated balance sheet, includes
trade receivables of $
contracts with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC Topic 606.
Revenues that are outside the scope of ASC Topic 606 relate primarily to physical gas sales contracts at market
prices for which we do not elect NPNS and are therefore accounted for as a derivative under ASC Topic 815. There
is little distinction in the nature of the customer or credit quality of trade receivables associated with gas sold
under contracts for which NPNS has not been elected compared to trade receivables where NPNS has been
elected.
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology to customers related to
the optimization process for operating LNG plants. The agreements typically provide for negotiated payments to
be made at stated milestones. The payments are not directly related to our performance under the contract and
are recorded as deferred revenue to be recognized as revenue when the customer can utilize and benefit from
their right to use the license.
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
Contractual payments received
Revenue recognized
(62 )
At September 30, 2021
$
Amounts Recognized in the Consolidated Balance Sheet at September 30, 2021
Current liabilities
$
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
30
Note 18—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, Middle East and North Africa; Asia Pacific; and Other International.
Corporate and Other represents income and costs not directly associated with an operating segment, such as most
interest income and expense; premiums on early retirement of debt; corporate overhead and certain technology
activities, including licensing revenues; and unrealized holding gains or losses on equity securities. 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.
On January 15, 2021, we completed our acquisition of Concho, an independent oil and gas exploration and
production company with operations across New Mexico and West Texas. Results of operations for Concho are
included in our Lower 48 segment for the current period. Certain transaction and restructuring costs associated
with the Concho acquisition are included in our Corporate and Other segment.
Notes to Consolidated Financial Statements
31
ConocoPhillips 2021 Q3 10-Q
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Sales and Other Operating Revenues
Alaska
$
Intersegment eliminations
(30 )
(11 )
Alaska
Lower 48
Intersegment eliminations
(1 )
(9 )
(5 )
(47 )
Lower 48
Canada
Intersegment eliminations
(406 )
(20 )
(1,063 )
(200 )
Canada
Europe, Middle East and North Africa
Asia Pacific
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.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
(16 )
(76 )
Lower 48
(78 )
(880 )
Canada
(75 )
(270 )
Europe, Middle East and North Africa
Asia Pacific
Other International
(97 )
(8 )
(106 )
Corporate and Other
(213 )
(390 )
(268 )
(1,980 )
Consolidated net income (loss) attributable to ConocoPhillips
$
(450 )
(1,929 )
Notes to Consolidated Financial Statements
ConocoPhillips 2021 Q3 10-Q
32
Millions of Dollars
September 30
December 31
2021
2020
Total Assets
Alaska
$
Lower 48
Canada
Europe, Middle East and North Africa
Asia Pacific
Other International
Corporate and Other
Consolidated total assets
$
Note 19—Income Taxes
Our effective tax rate for the three-month periods ended September 30, 2021 and 2020 was
percent, respectively. Both periods were primarily impacted by shifts in our before-tax income between higher
and lower tax jurisdictions as well as the change in our U.S. valuation allowance driven by the fair value
measurement of our CVE common shares.
Our effective tax rate for the nine-month periods ended September 30, 2021 and 2020 was
percent, respectively, and both periods were impacted by the same items noted above. Our 2021 effective tax
rate was adversely impacted by $
acquired from Concho offsetting U.S. foreign source revenue that would otherwise have been offset by foreign tax
credits. The nine-month period ending September 30, 2020, also reflects the tax impact of the gain on disposition
recognized for the Australia-West divestiture.
During the three and nine-month periods of 2021, our valuation allowance decreased by $
million, respectively, compared to increases of $
change to our U.S. valuation allowance for all periods relates primarily to the fair value measurement of our CVE
common shares and our expectation of the tax impact related to incremental capital gains and losses.
The Company has ongoing income tax audits in numerous jurisdictions which are occasionally extended or
completed earlier than anticipated. Within the next twelve months we may have audit periods close that could
significantly impact our total unrecognized tax benefits. The amount of such change and the associated impact on
our financial statements is not estimable at this time.
Our deferred tax liability increased by approximately $
Concho acquisition. Additionally, our reserve for unrecognized tax benefits increased by $
tax credit carryovers acquired from Concho that we do not expect to recognize.
Management’s Discussion and Analysis
33
ConocoPhillips 2021 Q3 10-Q
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,” “believe,” “budget,” “continue,”
“could,” “effort,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,”
“plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “will,” “would,” and similar expressions
identify forward-looking statements. The company does not undertake to update, revise or correct any of the
forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that
such forward-looking statements should be read in conjunction with the company’s disclosures under the heading:
“CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995,” beginning on page 57.
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
Business Environment and Executive Overview
ConocoPhillips is the world’s largest independent E&P company with operations and activities in 14 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 in Canada; and an inventory of global
conventional and unconventional exploration prospects. Headquartered in Houston, Texas, at September 30,
2021, we employed approximately 9,900 people worldwide and had total assets of $87 billion.
Completed and Announced Acquisitions
On January 15, 2021, we completed our acquisition of Concho Resources Inc. (Concho), an independent oil and gas
exploration and production company with operations across New Mexico and West Texas. The addition of
complementary acreage in the Delaware and Midland Basins resulted in a significant Permian presence to augment
our leading unconventional positions in the Eagle Ford, Bakken and Montney.
In September 2021, we signed a definitive agreement to acquire Shell Enterprises LLC ’s assets in the Delaware
Basin (Shell Permian Acquisition) in an all-cash transaction for $9.5 billion before customary adjustments. Assets
to be acquired include approximately 225,000 net acres and producing properties located entirely in Texas, as well
as over 600 miles of operated crude, gas and water pipelines and infrastructure. This acquisition further enhances
our already sizeable Permian position, and we believe that our development, operational and commercial
expertise will deliver significant incremental value. This acquisition is expected to close in the fourth quarter of
2021, subject to regulatory approval and other customary closing conditions.
Overview
While commodity prices in the third quarter of 2021 improve d to pre-pandemic levels, we expect that they will
continue to be cyclical and volatile. Our view is that a successful business strategy in the E&P industry must be
resilient in lower price environments, while also retaining upside during periods of higher prices. As such, we are
unhedged, remain highly disciplined in our investment decisions and continually monitor market fundamentals
including OPEC plus updates regarding supply guidance and inventory levels. Demand continues to recover but
has yet to regain pre -pandemic levels. The speed and extent of this recovery will be influenced by continual easing
of COVID-19 restrictions that have reduced economic activity and depressed the demand for our products globally.
Management’s Discussion and Analysis
ConocoPhillips 2021 Q3 10-Q
34
The energy macro-environment , including energy transition, continues to evolve. We believe ConocoPhillips can
play a valued role in the energy transition. We have adopted a triple mandate that simultaneously calls for
meeting energy pathway demand, delivering competitive returns of and on capital, and achieving our net-zero
ambition on operational (scope 1 and 2) emissions.
Our triple mandate is supported by financial principles and capital allocation priorities that should allow us to
deliver superior returns through the price cycles . Our financial principles consist of maintaining balance sheet
strength, providing peer-leading distributions, making disciplined investment s, and delivering ESG excellence, all of
which are in service to delivering competitive financial returns. Our completed and announced acquisitions this
year further reinforce our value proposition. In the third quarter, total company production was 1,544 MBOED
resulting in cash provided by operating activities of $4.8 billion. In the nine-month period ended September 30,
2021, we generated $11.1 billion in cash provided by operating activities, returning $1.8 billion to shareholders
through dividends and $2.2 billion through share repurchases. We ended the quarter with cash, cash equivalents
and short-term investments totaling $10.5 billion.
In February 2021, we resumed our share repurchase program at an annualized level of $1.5 billion, which we
increased in the second quarter to an annualized level of $2.5 billion for 2021.
Additionally, in May 2021 we announced a paced monetization program related to the 208 million shares of
Cenovus Energy (CVE) common shares owned at that time. We plan to fully dispose of our CVE shares by year-end
2022, however, the sales pace for the remaining shares will be guided by market conditions, and we retain
discretion to adjust accordingly. During the third quarter of 2021, we sold 47 million shares for $404 million and
inception to date have sold 67 million shares for $584 million. Proceeds from the disposition of CVE shares will be
deployed toward incremental share repurchases.
In September 2021, we declared an increase in the company’s quarterly ordinary dividend from 43 cents per share
to 46 cents per share, representing a 7 percent increase. The dividend is payable on December 1, 2021, to
stockholders of record at the close of business on October 28, 2021.
Planned distributions for 2021 amount to a total of approximately $6 billion between dividends and share
repurchases combined.
Additionally in September 2021, we demonstrated our commitment to preserving our ‘A’ -rated balance sheet by
restating our intent to reduce the company’s gross debt by $5 billion over five years through natural and
accelerated maturities.
In conjunction with our Shell Permian Acquisition announcement , we also communicated an increase to our
planned disposition target that was initially set in June at $2 to $3 billion by 2022. We are now targeting $4 to $5
billion in disposition proceeds by 2023, with the additional $2 billion sourced primarily from the Permian Basin as
part of our ongoing portfolio high-grading and optimization efforts. To date, we have generated $0.2 billion in
disposition proceeds. The proceeds from these transactions will be used in accordance with the company’s
priorities, including returns of capital to shareholders and reduction of gross debt.
Management’s Discussion and Analysis
35
ConocoPhillips 2021 Q3 10-Q
In September 2021, in conjunction with the announcement of the Shell Permian Acquisition, we reaffirmed our
commitment to ESG leadership and excellence by announcing an improvement to our operational GHG emissions
intensity reduction targets by 2030. Our Paris-aligned climate-risk commitment now includes:
●
Net-zero ambition for operational (scope 1 and 2) emissions by 2050 with active advocacy for a price on
carbon to address end-use (scope 3) emissions;
●
Targeting a reduction in gross operated and net equity operational GHG emissions intensity by 40 to 50
percent from 2016 levels by 2030, an improvement from the previously announced target of 35 to 45
percent on only a gross operated basis;
●
Zero routine flaring by 2030, with an ambition to get there by 2025;
●
10 percent reduction target for methane emissions intensity by 2025 from a 2019 baseline, in addition to
the 65 percent reductions we have made since 2015;
●
Adding continuous methane detection devices to our operations, with an initial focus on the larger Lower
48 facilities;
●
Dedicated low carbon technology organization responsible for identifying and prioritizing global emissions
reduction initiatives and opportunities associated with the energy transition including carbon capture,
utilization and storage (CCUS) and hydrogen; and
●
ESG performance factoring into executive and employee compensation programs.
Operationally, we remain focused on safely executing the business. Production was 1,544 MBOED in the third
quarter of 2021, an increase of 477 MBOED or 45 percent, compared with the third quarter of 2020, primarily due
to the addition of approximately 343 MBOED in the Permian Basin from our Concho acquisition and the absence of
last year’s economic curtailments predominantly in North American operated assets as a result of lower oil prices.
We re-invested $1.3 billion into the business in the form of capital expenditures during the third quarter, with over
half of our investments focused on flexible, short-cycle unconventional plays in the Lower 48 segment where our
production is liquids-weighted and has access to both domestic and export markets . For the full year, we remain
disciplined with our allocation of capital with a planned $5.3 billion program excluding the impacts of the recently
announced Shell Permian Acquisition which is anticipated to close in the fourth quarter.
Business Environment
Commodity prices are the most significant factor impacting our profitability and related reinvestment of operating
cash flows into our business. 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, operational and ESG 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:
Management’s Discussion and Analysis
ConocoPhillips 2021 Q3 10-Q
36
Q3'19
Q4'19
Q1'20
Q2'20
Q3'20
Q4'20
Q1'21
Q2'21
Q3'21
WTI/Brent
$/Bbl
WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices
Quarterly Averages
WTI - $/Bbl
Brent - $/Bbl
HH - $/MMBTU
HH
$/MMBTU
Brent crude oil prices averaged $73.47 per barrel in the third quarter of 2021, an increase of 71 percent compared
with $43.00 per barrel in the third quarter of 2020. WTI at Cushing crude oil prices averaged $70.56 per barrel in
the third quarter of 2021, an increase of 72 percent compared with $40.93 per barrel in the third quarter of 2020.
Oil prices increased alongside the ongoing global economic recovery following 2020’s COVID impacts as well as
OPEC plus supply restraint, continued capital discipline by U.S. E&P’s and various unplanned supply disruptions in
producing countries.
Henry Hub natural gas prices averaged $4.02 per MMBTU in the third quarter of 2021, an increase of 103 percent
compared with $1.98 per MMBTU in the third quarter of 2020. Henry Hub prices have increased due to healthy
domestic demand accompanied by record levels of feedgas demand for LNG exports to Europe and Asia.
Our realized bitumen price averaged $41.19 per barrel in the third quarter of 2021, an increase of 160 percent
compared with $15.87 per barrel in the third quarter of 2020. The increase in the third quarter of 2021 was driven
by higher blend price for Surmont sales, largely attributed to a strengthening of WTI price. We continue to
optimize bitumen price realizations through the utilization of downstream transportation solutions and
implementation of alternate blend capability which results in lower diluent costs.
For the third quarter of 2021 our total average realized price increased to $56.92 per BOE compared with $30.94
per BOE in the third quarter of 2020.
Management’s Discussion and Analysis
37
ConocoPhillips 2021 Q3 10-Q
Key Operating and Financial Summary
Significant items during the third quarter of 2021 and recent announcements included the following:
●
Delivered strong operational performance across the company’s asset base, including successful planned
maintenance turnarounds, resulting in third quarter production of 1,507 MBOED, excluding Libya.
●
Net cash provided by operating activities was $4.8 billion, exceeding capital expenditures and investments
of $1.3 billion.
●
Distributed a total of $4.0 billion to shareholders year to date, comprised of $2.2 billion in share
repurchases and $1.8 billion in dividends as part of the company’s plan to return approximately $6.0
billion to shareholders during 2021.
●
Announced an increase to the quarterly dividend by 7 percent to 46 cents per share.
●
Ended the quarter with cash and cash equivalents totaling $9.8 billion and short-term investments of $0.7
billion, equaling $10.5 billion in ending cash, cash equivalents and short-term investments.
●
As part of a commitment to ESG excellence, announced an improvement to the company’s scope 1 and 2
GHG emissions intensity reduction targets from a 2016 baseline to 40 to 50 percent on a net equity and
gross operated basis, from the previous target of 35 to 45 percent on only a gross operated basis .
●
Announced highly accretive pending acquisition of Shell Enterprises LLC’s complementary Delaware Basin
position in the Permian for $9.5 billion in cash, before customary closing adjustments.
●
Generated approximately $0.2 billion in disposition proceeds from Lower 48 noncore asset sales as part of
the company’s target to generate $4 to $5 billion in proceeds by 2023. Production from the disposed
assets average approximately 15 MBOED in the first nine months of 2021.
Outlook
Capital, Cost and Production
Fourth-quarter 2021 production is expected to be 1.53 to 1.57 MMBOED. This guidance excludes Libya and
impacts from pending acquisitions. Guidance regarding capital and cost are unchanged.
This production guidance includes the impact of planned conversion of the significant majority of previously
acquired Concho two-stream contracted volumes to a three-stream (crude oil, natural gas and natural gas liquids)
reporting basis as Concho volumes are integrated into the company’s commercial activities. The conversion to
three-stream reporting is neutral to earnings. Effective in the fourth quarter, this conversion is expected to add
production of approximately 40 MBOED and increase revenue and operating costs by roughly $70 million.
Depreciation, Depletion and Amortization
Our proved reserve estimates are greatly impacted by commodity price fluctuations, and generally decrease as
prices decline and increase as prices rise. Proved reserves estimates were updated and increased in the current
quarter utilizing historical twelve-month first-of-month average prices, which decreased third quarter DD&A
expense by approximately $240 million before-tax. As such, the company reduced its 2021 DD&A expense
guidance by $0.3 billion to $7.1 billion.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
38
Results of Operations
Unless otherwise indicated, discussion of results for the three - and nine-month periods ended September 30, 2021,
is based on a comparison with the corresponding periods of 2020.
Consolidated Results
A summary of the company's net income (loss) attributable to ConocoPhillips by business segment follows:
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Alaska
$
405
(16)
935
(76)
Lower 48
1,631
(78)
3,274
(880)
Canada
155
(75)
267
(270)
Europe, Middle East and North Africa
241
92
601
318
Asia Pacific
257
25
749
945
Other International
(97)
(8)
(106)
14
Corporate and Other
(213)
(390)
(268)
(1,980)
Net income (loss) attributable to ConocoPhillips
$
2,379
(450)
5,452
(1,929)
Net income (loss) attributable to ConocoPhillips in the third quarter of 2021 increased $2,829 million. Third
quarter earnings were positively impacted by:
●
Higher realized commodity prices.
●
Higher sales volumes, primarily due to our Concho acquisition and absence of production curtailments in
our North American operated assets.
●
Higher equity in earnings of affiliates, primarily due to higher LNG sales prices.
●
A gain of $17 million after-tax on our CVE common shares in the third quarter of 2021, as compared to a
$162 million after-tax loss on those shares in the third quarter of 2020.
Third quarter 2021 net income increases were partly offset by:
●
Higher production and operating expenses and taxes other than income taxes, primarily due to higher
sales volumes.
●
Higher DD&A expenses caused by higher production volumes, partially offset by lower rates driven from
price-related reserve revisions due to higher commodity prices in 2021.
Net income (loss) attributable to ConocoPhillips in the nine-month period ended September 30, 2021, increased
$7,381 million.
●
Inclusive of the third quarter gain associated with our CVE common shares, in the nine-month period we
recognized a gain of $743 million after-tax on our CVE common shares, compared with an after-tax loss of
$1,302 million in the nine-month period of 2020.
In addition to the items detailed above, earnings in the nine-month period were positively impacted by:
●
Lower impairments of $611 million, primarily due to a credit recognized for a decrease in the ARO
estimate of a previously sold asset, in which we retained the ARO liability, as well as the absence of
impairments recognized in the prior period for non-core gas assets in our Lower 48 segment.
●
An after-tax gain of $194 million recognized for a FID bonus associated with our Australia-West divestiture
completed in the second quarter of 2020.
●
Lower exploration expenses due to the absence of charges associated with the early cancellation of our
2020 winter exploration program as well as the absence of 2020 dry hole expenses in Alaska , and
unproved property impairment and dry hole expenses for the Kamunsu East Field in Malaysia, which is no
longer in our development plans.
Results of Operations
39
ConocoPhillips 2021 Q3 10-Q
In addition to the items detailed above, the increases in earnings in the nine-month period ended September 30,
2021, were partly offset by:
●
Absence of a $597 million after-tax gain on our Australia-West divestiture completed in May 2020.
●
Restructuring and transaction expenses of $288 million after-tax associated with the Concho acquisition
and mark-to-market impacts on certain key employee compensation programs.
●
Realized losses on hedges of $233 million after -tax related to derivative positions assumed through our
Concho acquisition. These derivative positions were settled entirely within the first quarter of 2021.
●
Absence of gains recorded in 2020 from foreign currency derivatives.
See the “Segment Results” section for additional information.
Income Statement Analysis
Unless otherwise indicated, all results in Income Statement Analysis are before-tax.
Sales and other operating revenues for the three- and nine-month periods of 2021 increased $6,940 million and
$17,415 million, respectively, mainly due to higher realized commodity prices and higher sales volumes.
Equity in earnings of affiliates for the three- and nine-month periods of 2021 increased $204 million and $154
million, respectively, primarily due to higher earnings driven by higher LNG and crude prices, partially offset by a
higher effective tax rate related to equity method investments in our Europe, Middle East, and North Africa
segment.
Gain (loss) on dispositions in the third quarter of 2021 recognized a loss of $179 million for the sale of noncore
assets in our Other International segment. Offsetting the loss were gains recognized for contingent payments
associated with previous dispositions in our Canada and Lower 48 segments and gains on sales of certain noncore
assets in our Lower 48 segment.
For the nine-month period of 2021, net gains on dispositions decreased $257
million primarily due to the absence of a $587 million gain associated with our Australia -West divestiture, partially
offset by a $200 million FID bonus recognized in the first quarter of 2021 associated with our Australia-West
divestiture.
Other income (loss) for the three- and nine-month periods of 2021 increased $87 million and $1,867 million,
respectively. During these periods in 2021, we recognized gains of $17 million and $743 million, respectively, on
our CVE common shares, compared with losses of $162 million and $1,302 million for the same periods in 2020.
Purchased commodities for the three - and nine-month periods of 2021 increased $2,340 million and $6,030
million, respectively, primarily due to higher gas and crude prices and volumes.
Production and operating expenses for the three- and nine-month periods of 2021 increased $426 million and
$968 million, respectively, primarily in line with higher production volumes.
Selling, general and administrative expenses increased $307 million in the nine-month period of 2021, primarily
due to transaction and restructuring expenses associated with our Concho acquisition , and higher costs associated
with compensation and benefits, including mark-to -market impacts of certain key employee compensation
programs.
Exploration expenses for the nine-month period of 2021 decreased $204 million, primarily due to the absence of
charges associated with the early cancellation of our 2020 winter exploration program as well as the absence of
2020 dry hole expenses in Alaska and an unproved property impairment and dry hole expenses related to the
Kamunsu East Field in Malaysia.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
40
DD&A for the three- and nine-month periods of 2021 increased $261 million and $1,445 million, respectively,
mainly due to higher production volumes partly offset by lower rates from price-related reserve revisions .
Impairments decreased $91 million in the third quarter of 2021, primarily due to a decrease in an ARO estimate for
a previously sold asset, in which we retained the ARO liability. The decrease of $611 million in the nine-month
period of 2021 was also impacted by the absence of impairments recorded for certain non-core gas assets in our
Lower 48 segment.
Taxes other than income taxes for the three- and nine-month periods of 2021 increased $224 million and $584
million, respectively, caused by higher sales volumes primarily in Lower 48 and higher commodity prices.
Foreign currency transaction (gain) loss for the nine-month period of 2021 was impaired by $107 million due to the
absence of derivative gains and other remeasurements.
See
Results of Operations
41
ConocoPhillips 2021 Q3 10-Q
Summary Operating Statistics
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Average Net Production
Crude oil (MBD)
Consolidated operations
802
535
814
546
Equity affiliates
13
13
13
13
Total crude oil
815
548
827
559
Natural gas liquids (MBD)
Consolidated operations
123
89
116
97
Equity affiliates
7
8
8
7
Total natural gas liquids
130
97
124
104
Bitumen (MBD)
69
49
69
50
Natural gas (MMCFD)
Consolidated operations
2,144
1,201
2,143
1,353
Equity affiliates
1,033
1,034
1,055
1,042
Total natural gas
3,177
2,235
3,198
2,395
Total Production
(MBOED)
1,544
1,067
1,553
1,112
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
Consolidated operations*
$
70.39
39.49
64.62
39.04
Equity affiliates
73.44
37.56
65.71
38.22
Total crude oil
70.43
39.45
64.63
39.02
Natural gas liquids (per bbl)
Consolidated operations
33.28
13.73
28.02
11.72
Equity affiliates
56.70
30.21
49.81
31.65
Total natural gas liquids
34.79
15.29
29.58
13.45
Bitumen (per bbl)
41.19
15.87
36.61
2.90
Natural gas (per MCF)
Consolidated operations*
5.93
2.77
5.02
3.07
Equity affiliates
5.95
2.61
4.48
3.98
Total natural gas
5.94
2.70
4.84
3.47
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical,
lease rental, and other
$
65
81
199
296
Leasehold impairment
-
-
1
31
Dry holes
-
44
6
83
$
65
125
206
410
*Average sales prices, including the impact of hedges settling per initial contract terms in the first quarter of 2021 assumed in our Concho
acquisition, were $63.95 per barrel for crude oil and $4.98 per mcf for natural gas for the nine-month period ended September 30, 2021. As of
March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
42
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide
basis. At September 30, 2021, our operations were producing in the U.S., Norway, Canada, Australia, Indonesia,
China, Malaysia, Qatar and Libya.
Total production of 1,544 MBOED increased 477 MBOED or 45 percent in the third quarter of 2021 and 441
MBOED or 40 percent in the nine-month period of 2021, primarily due to:
●
Higher volumes in the Lower 48 due to our Concho acquisition.
●
New wells online in the Lower 48, Canada, Norway and Malaysia.
●
Higher volumes in our North American operated assets due to the absence of production curtailments.
●
Higher production in Libya due the absence of a forced shutdown of the Es Sider export terminal and
other eastern export terminals after a period of civil unrest.
●
Improved well performance in Norway, Canada, Alaska and China.
Production increases in the third quarter and in the nine-month period of 2021 were partly offset by normal field
decline.
In addition to the normal field decline, in the nine-month period of 2021, production also decreased due to:
●
Absence of production from Australia -West due to our second quarter 2020 disposition.
●
Higher unplanned downtime in the Lower 48 due to Winter Storm Uri, which impacted production by
approximately 50 MBOED in the first quarter of 2021.
Production excluding Libya for the third quarter of 2021 was 1,507 MBOED, an increase of 441 MBOED from the
same period a year ago. After adjusting for closed acquisitions and dispositions as well as estimated impacts from
the 2020 curtailment program, third-quarter 2021 production increased 26 MBOED or 2 percent. This increase
was primarily due to new production from the Lower 48 and other development programs across the portfolio,
partially offset by normal field decline. Production from Libya averaged 37 MBOED.
Production excluding Libya for the nine-month period of 2021 was 1,514 MBOED, an increase of 406 MBOED from
the same period a year ago. After adjusting for closed acquisitions and dispositions as well as impacts from the
2020 curtailment program and Winter Storm Uri impacts from 2021, production increased 17 MBOED or 1 percent.
This increase was primarily due to new production from the Lower 48 and other development programs across the
portfolio, partially offset by normal field decline. Production from Libya averaged 39 MBOED.
Results of Operations
43
ConocoPhillips 2021 Q3 10-Q
Segment
Results
Alaska
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
405
(16)
935
(76)
Average Net Production
Crude oil (MBD)
163
184
179
179
Natural gas liquids (MBD)
13
14
15
15
Natural gas (MMCFD)
11
14
10
10
Total Production
(MBOED)
178
201
196
195
Average Sales Prices
Crude oil ($ per bbl)
$
72.55
40.88
66.78
41.92
Natural gas ($ per MCF)
2.63
2.48
3.06
2.71
The Alaska segment primarily explores for, produces, transports and markets crude oil, NGLs and natural gas. As of
September 30, 2021, Alaska contributed 19 percent of our consolidated liquids production and less than 1 percent
of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Alaska increased $421 million in the third quarter of 2021 and $1,011 million in the nine-month
period of 2021, respectively. In the third quarter, increases to earnings include:
●
Higher realized crude oil prices.
●
Lower DD&A expenses primarily driven by lower production volumes and lower rates in the quarter from
price-related reserve revisions .
Offsets to the earnings increase include :
●
Lower volumes due to a July turnaround at our Western North Slope assets.
In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to:
●
Lower exploration expenses due to the absence of charges associated with the early cancellation of our
2020 winter exploration program as well as the absence of 2020 dry hole expenses.
●
Higher volumes due to the absence of production curtailments.
In addition to the items detailed above, in the nine-month period of 2021, earnings also decreased due to:
●
Higher DD&A expenses primarily caused by higher rates in the first half of 2021.
Production
Average production decreased 23 MBOED in the third quarter of 2021 and increased 1 MBOED in the nine-month
period of 2021, respectively. In the third quarter of 2021, decreases to production include:
●
Normal field decline.
●
A July turnaround at our Western North Slope assets.
More than offsetting the items detailed above, in the nine-month period of 2021, production increased due to:
●
Absence of curtailments.
●
Improved performance in the Greater Prudhoe Area and Western North Slope assets.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
44
Willow Update
In August 2021, an Alaska federal judge vacated the U.S. government’s approval granted to our planned Willow
project previously approved by the Bureau of Land Management (BLM) in October 2020. The Department of
Justice did not appeal the decision and neither did we. We believe the best path forward is to work closely with
the BLM and engage directly with the relevant agencies to address the matters described in the decision. In the
interim, we are continuing with FEED work in service of a final investment decision.
Lower 48
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
$
1,631
(78)
3,274
(880)
Average Net Production*
Crude oil (MBD)
457
197
442
211
Natural gas liquids (MBD)
101
68
93
74
Natural gas (MMCFD)
1,389
566
1,389
577
Total Production
(MBOED)
790
359
767
381
Average Sales Prices
Crude oil ($ per bbl)**
$
68.59
36.43
63.14
34.02
Natural gas liquids ($ per bbl)
32.87
13.51
27.48
10.96
Natural gas ($ per MCF)**
4.63
1.63
4.13
1.45
*Subsequent to the current period, we anticipate a change in both product mix and average net production attributed to the planned conversion
of previously acquired two-stream contracted volumes to three-stream.
**Average sales prices, including the impact of hedges settling per initial contract terms in the first quarter of 2021 assumed in our Concho
acquisition, were $61.90 per barrel for crude oil and $4.07 per mcf for natural gas for the nine-month period ended September 30, 2021. As of
March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho.
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 September 30, 2021, the Lower 48 contributed 54 percent of our consolidated liquids
production and 65 percent of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from the Lower 48 increased $1,709 million in the third quarter of 2021 and increased $4,154 million in
the nine-month period of 2021, respectively. In the third quarter, increases to earnings include:
●
Higher realized crude oil, natural gas and NGL prices.
●
Higher sales volumes of crude oil and natural gas due to our Concho acquisition and the absence of
production curtailments.
Offsets to the earnings increase include:
●
Higher DD&A expenses, production and operating expenses and taxes other than income taxes primarily
due to higher production volumes. Partially offsetting the increase in DD&A expenses were lower rates
from price-related reserve revisions.
In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to :
●
The absence of $399 million in after-tax impairments related to certain noncore gas assets.
In addition to the items detailed above, in the nine-month period of 2021, earnings also decreased due to:
●
Impacts resulting from our Concho Acquisition, including higher selling, general and administrative
expenses for transaction and restructuring charges, as well as realized losses on derivative settlements.
and
Results of Operations
45
ConocoPhillips 2021 Q3 10-Q
Production
Average production increased 431 MBOED and 386 MBOED in the three- and nine-month periods of 2021,
respectively. In the third quarter, increases to production include:
●
Higher volumes due to our Concho acquisition.
●
New wells online from our development programs in Permian, Eagle Ford and Bakken.
●
Absence of curtailments.
Offsets to the production increases include:
●
Normal field decline.
In addition to normal field decline, in the nine-month period of 2021, production also decreased due to:
●
Higher unplanned downtime, primarily due to Winter Storm Uri.
Asset Acquisitions and Dispositions
In September 2021, we announced the Shell Permian Acquisition for $9.5 billion in cash before customary
adjustments. The transaction is anticipated to close in the fourth quarter of 2021, subject to regulatory approval
and other customary closing conditions.
Additionally in September 2021, we completed divestitures of certain noncore assets in our Lower 48 segment ,
recording proceeds of approximately $150 million. Production from these assets averaged approximately 15
MBOED in the nine-months ended September 30, 2021.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
46
Canada
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
155
(75)
267
(270)
Average Net Production
Crude oil (MBD)
8
6
10
4
Natural gas liquids (MBD)
4
2
4
2
Bitumen (MBD)
69
49
69
50
Natural gas (MMCFD)
73
43
83
35
Total Production
(MBOED)
93
64
96
62
Average Sales Prices
Crude oil ($ per bbl)
$
58.99
25.16
53.81
15.39
Natural gas liquids ($ per bbl)
33.47
5.99
28.49
1.89
Bitumen ($ per bbl)
41.19
15.87
36.61
2.90
Natural gas ($ per MCF)
2.45
0.71
2.36
1.05
Average sales prices include unutilized transportation costs.
Our Canadian operations mainly consist of the Surmont oil sands development in Alberta and the liquids-rich
Montney unconventional play in British Columbia. As of September 30, 2021, Canada contributed 8 percent of our
consolidated liquids production and 4 percent of our consolidated natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Earnings from Canada increased $230 million and $537 million, respectively, in the three- and nine-month periods
of 2021. Increases to earnings include:
●
Higher realized bitumen and crude oil prices.
●
Higher sales volumes in our Surmont and Montney assets.
●
After-tax gains on disposition related to contingent payments of $77 million and $149 million in the three-
and nine-month periods of 2021, respectively, associated with the sale of certain assets to CVE in 2017.
Offsets to the earnings increase include :
●
Higher production and operating expenses primarily due to increased Surmont and Montney production.
Production
Average production increased 29 MBOED in the third quarter of 2021 and increased 34 MBOED in the nine-month
period of 2021, respectively. In the third quarter, increases to production include:
●
Absence of curtailments.
●
Absence of third quarter 2020 turnaround activity in the Surmont.
●
New wells online in the Montney.
●
Production from our Kelt acquisition completed in the third quarter of 2020.
Offsets to the production increases include:
●
Higher well failures, plant power trips and facility upsets in the Surmont.
In addition to the items detailed above, in the nine-month period of 2021, production also increased due to:
●
Improved well performance in the Surmont.
Results of Operations
47
ConocoPhillips 2021 Q3 10-Q
Europe, Middle East and North Africa
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income Attributable to ConocoPhillips
($MM)
$
241
92
601
318
Consolidated Operations
Average Net Production
Crude oil (MBD)
117
77
118
82
Natural gas liquids (MBD)
5
5
4
5
Natural gas (MMCFD)
303
256
303
276
Total Production
(MBOED)
172
125
172
133
Average Sales Prices
Crude oil ($ per bbl)
$
72.43
41.79
65.94
43.72
Natural gas liquids ($ per bbl)
50.32
23.50
40.75
20.01
Natural gas ($ per MCF)
11.96
2.40
8.40
2.85
The Europe, Middle East and North Africa segment consists of operations principally located in the Norwegian
sector of the North Sea and the Norwegian Sea, Qatar, Libya and commercial operations in the U.K. As of
September 30, 2021, our Europe, Middle East and North Africa operations contributed 12 percent of our
consolidated liquids production and 14 percent of our consolidated natural gas production.
Net Income Attributable to ConocoPhillips
Earnings from Europe, Middle East and North Africa increased by $149 million and $283 million in the three - and
nine-month periods of 2021, respectively. Increases to earnings include:
●
Higher realized natural gas, crude oil and NGL prices.
●
Higher LNG sales prices, reflected in equity in earnings of affiliates.
●
Higher sales volumes of crude oil and LNG.
Offsets to the earnings increases include:
●
Higher taxes.
●
Higher production and operating expenses and DD&A expenses.
Consolidated Production
Average consolidated production increased 47 MBOED and 39 MBOED in the three - and nine-month periods of
2021, respectively. Increases to production include:
●
Higher production in Libya due to the absence of a forced shutdown of the Es Sider export terminal and
other eastern export terminals after a period of civil unrest.
●
Improved well performance in Norway.
●
New production from Norway drilling activities including our Tor II redevelopment project with first
production in December 2020.
Offsets to the production increases include:
●
Normal field decline.
Results of Operations
ConocoPhillips 2021 Q3 10-Q
48
Asia Pacific
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income Attributable to ConocoPhillips
$
257
25
749
945
Consolidated Operations
Average Net Production
Crude oil (MBD)
57
71
65
70
Natural gas liquids (MBD)
-
-
-
1
Natural gas (MMCFD)
368
322
358
455
Total Production
(MBOED)
119
125
125
147
Average Sales Prices
Crude oil ($ per bbl)
$
74.66
42.79
67.41
42.94
Natural gas liquids ($ per bbl)
-
-
-
33.21
Natural gas ($ per MCF)
6.66
5.33
6.30
5.42
The Asia Pacific segment has operations in China, Indonesia, Malaysia and Australia. As of September 30, 2021, Asia
Pacific contributed 7 percent of our consolidated liquids production and 17 percent of our consolidated natural gas
production.
Net Income Attributable to ConocoPhillips
Earnings from Asia Pacific increased $232 million in the third quarter of 2021 and decreased $196 million in the nine-
month period of 2021, respectively. In the third quarter, increases to earnings include:
●
Higher crude oil and natural gas prices.
●
Higher LNG sales prices, reflected in equity in earnings of affiliates.
●
Lower DD&A expenses in the third quarter of 2021 primarily driven by lower production volumes and
lower rates from price-related reserve revisions.
In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to:
●
A $200 million gain on disposition related to a FID bonus from our Australia-West divestiture. For additional
information related to this FID bonus, see
●
Lower production and operating expenses related to the absence of Australia -West.
Offsetting the items detailed above, in the nine-month period of 2021, earnings decreased due to:
●
Absence of a $597 million after-tax gain related to our Australia -West divestiture.
●
Absence of sales volumes associated with Australia -West.
Consolidated Production
Average consolidated production decreased 6 MBOED and 22 MBOED in the three - and nine-month periods of 2021,
respectively. In the third quarter, the primary decrease to production was normal field decline.
Partly offsetting the decrease in production was:
●
Increased production in Malaysia associated with Malikai Phase 2 first production and ramp-up.
●
Bohai Bay development activity in China.
In addition to normal field decline, in the nine-month period of 2021, production also decreased due to:
●
The divestiture of our Australia -West assets that contributed 23 MBOED in the nine-month period of 2020.
In addition to the items detailed above, in the nine-month period of 2021, production also increased due to:
●
The absence of curtailments across the segment and increased demand in Indonesia from coal supply
restrictions.
Results of Operations
49
ConocoPhillips 2021 Q3 10-Q
Other International
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss) Attributable to ConocoPhillips
($MM)
$
(97)
(8)
(106)
14
The Other International segment consists of exploration and appraisal activities in Colombia as well as
contingencies associated with prior operations in other countries.
Earnings from our Other International operations decreased $89 million and $120 million in the three- and nine-
month periods of 2021, respectively, due to a loss on divestiture related to our Argentina exploration interests in
the third quarter as well as an absence of a $29 million after -tax benefit to earnings from the dismissal of
arbitration related to prior operations in Senegal recognized in the first quarter of 2020.
information regarding the divestiture.
Corporate and Other
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Loss Attributable to ConocoPhillips
Net interest expense
$
(176)
(179)
(627)
(508)
Corporate general and administrative expenses
(57)
(50)
(251)
(90)
Technology
(6)
(8)
31
(16)
Other income (expense)
26
(153)
579
(1,366)
$
(213)
(390)
(268)
(1,980)
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest.
Net interest expense increased by $119 million in the nine-month period of 2021 primarily due to higher debt
balances assumed due to our Concho acquisition.
Corporate G&A expenses include compensation programs and staff costs. These expenses increased by $7 million
in the three-month period of 2021 primarily due to mark to market adjustments associated with certain
compensation programs. For the nine-month period of 2021, Corporate G&A expenses increased by $161 million
primarily due to restructuring expenses associated with our Concho acquisition.
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 increased $47 million in the nine-month period of 2021 primarily due to higher
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, holding gains or losses on equity
securities, and pension settlement expense. For the three- and nine-month periods of 2021, “Other” increased
$179 million and $1,945 million, respectively. During these periods in 2021, we recognized gains of $17 million and
$743 million, respectively, on our CVE common shares, compared with losses of $162 million and $1,302 million for
the same periods in 2020. Partially offsetting the impact on the nine-month period was the release of a $92
million deferred tax asset associated with our Australia West divestiture.
Capital Resources and Liquidity
ConocoPhillips 2021 Q3 10-Q
50
Capital Resources and Liquidity
Financial Indicators
Millions of Dollars
September 30
December 31
2021
2020
Cash and cash equivalents
$
9,833
2,991
Short-term investments
678
3,609
Total debt
19,668
15,369
Total equity
44,115
29,849
Percent of total debt to capital*
31
%
34
Percent of floating-rate debt to total debt
4
%
7
*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 nine months of 2021, the primary uses of our
available cash were $3.8 billion to support our ongoing capital expenditures and investments program ; $2.2 billion
to repurchase common stock , $1.8 billion to pay dividends, and $1.1 billion of hedging, transaction and
restructuring costs. During the first nine months of 2021, our cash and cash equivalents increased by $6.8 billion
to $9.8 billion.
At September 30, 2021, we had cash and cash equivalents of $9.8 billion, short-term investments of $0.7 billion,
and available borrowing capacity under our credit facility of $6.0 billion, totaling approximately $16.5 billion of
liquidity. We believe current cash balances and cash generated by operating activities, together with access to
external sources of funds as described below in the “Significant Changes in Capital” section, will be sufficient to
meet our funding requirements in the near- and long-term, including our capital spending prog ram, acquisitions,
dividend payments and debt obligations .
On September 20, 2021, we signed a definitive agreement for the Shell Permian Acquisition for $9.5 billion in cash
before customary adjustments . The effective date of the transaction is July 1, 2021, and we expect to close in the
fourth quarter of 2021 subject to regulatory clearance and the satisfaction of other customary closing conditions.
The transaction will be funded from available cash, and we expect our remaining cash to meet our obligations and
business needs.
Significant Changes in Capital
Operating Activities
Cash provided by operating activities was $11.1 billion for the first nine months of 2021, compared with $3.1
billion for the corresponding period of 2020. The increase in cash provided by operating activities is primarily due
to higher realized commodity prices and higher sales volumes mostly due to our acquisition of Concho. The
increase in cash provided by operating activities was partly offset by the settlement of all oil and gas hedging
positions acquired from Concho, and transaction and restructuring cost s.
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.
Capital Resources and Liquidity
51
ConocoPhillips 2021 Q3 10-Q
The level of production volumes, as well as product and location mix, impacts our cash flows. Future production is
subject to numerous uncertainties, including, among others, 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; impacts of a global pandemic;
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. See the
“Capital Expenditures and Investments” section, for information about our capital expenditures and investments.
On January 15, 2021, we assumed financial derivative instruments consisting of oil and natural gas swaps in
connection with our acquisition of Concho. At March 31, 2021, all oil and natural gas derivative financial
instruments acquired from Concho were contractually settled. In the first six months of 2021, we paid $761 million
relating to these settlements.
Investing Activities
For the first nine months of 2021, we invested $3.8 billion in capital expenditures. Our 2021 operating plan capital
expenditures is currently expected to be $5.3 billion compared with $4.7 billion in 2020. See the “Capital
Expenditures and Investments” section, for information about our capital expenditures and investments.
For additional information on Acquisitions & Dispositions discussed below,
We completed our acquisition of Concho on January 15, 2021. The assets acquired in the transaction included
$382 million of cash.
In May 2021, we announced and began a paced monetization of our investment in CVE common shares with the
plan to direct proceeds toward our existing share repurchase program. We expect to fully dispose of our CVE
shares by year-end 2022, however, the sales pace will be guided by market conditions, and we retain discretion to
adjust accordingly. Since we began our monetization program, we have sold 67 million CVE shares, representing
32% of our holdings at December 31, 2020, receiving $569 million of cash proceeds.
Other proceeds
from dispositions include our sale of certain noncore assets in our Lower 48 segment for approximately $150
million and contingent payments associated with previous divestitures.
In September 2021, we signed a definitive agreement to acquire the Shell Permian assets for $9.5 billion, before
customary adjustments. Under the terms of the agreement, we paid a deposit of $475 million which is presented
within “Cash Flows from Investing Activities - Other” on our consolidated statement of cash flows.
We invest in short -term investments as part of our cash investment strategy, the primary objective of which is to
protect principal, maintain liquidity and provide yield and total returns; these investments include time deposits,
commercial paper, as well as debt securities classified as available for sale. Funds for short-term needs to support
our operating plan and provide resiliency to react to short-term price volatility are invested in highly liquid
instruments with maturities within the year. Funds we consider available to maintain resiliency in longer term
price downturns and to capture opportunities outside a given operating plan may be invested in instruments with
maturities greater than one year.
Investing activities in the first nine months of 2021 included net sales of $2,846 million of investments. We sold
$2,991 million of short-term instruments and invested $145 million in long-term instruments
.
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52
Financing Activities
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. With no commercial paper outstanding and no direct borrowings or letters of credit,
we had access to $6.0 billion in available borrowing capacity under our revolving credit facility at September 30,
2021.
On January 15, 2021, we completed the acquisition of Concho in an all-stock transaction. In the acquisition, we
assumed Concho’s publicly traded debt, which was recorded at fair value of $4.7 billion on the acquisition date. In
June 2021, we reaffirmed our commitment to preserving our ‘A’ -rated balance sheet by restating our intent to
reduce gross debt by $5 billion over the next five years, driving a more resilient and efficient capital structure.
The current credit ratings on our long-term debt are:
●
Fitch: “A” with a “stable” outlook
●
S&P: “A-” with a “stable” outlook
●
Moody’s: “A3” with a “positive” outlook
revolving credit facility and credit ratings.
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 September 30, 2021 and December 31, 2020, we had direct bank letters of credit of $281
million and $249 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 SEC under which we have the ability to issue and
sell an indeterminate number of various types of debt and equity securities.
Capital Requirements
For information about our capital expenditures and investments, see the “Capital Expenditures and Investments”
section. In addition to our capital expenditure and investments program, we anticipate completing the Shell
Permian Acquisition in the fourth quarter for $9.5 billion before customary adjustments.
Our debt balance at September 30, 2021, was $19.7 billion, compared with $15.4 billion at December 31, 2020.
The net increase is primarily due to $4.7 billion of debt assumed in the Concho acquisition. The current portion of
debt, including payments for finance leases, is $920 million. Payments will be made using current cash balances
and cash generated by operations.
We believe in delivering va lue to our shareholders through a growing and sustainable dividend supplemented by
additional returns of capital, including share repurchases. In 2020, we paid $1.8 billion, equating to $1.69 per
share of common stock, in dividends. In the first nine months of 2021, we paid dividends totaling $1.8 billion, the
equivalent of $1.29 per share. On September 20, 2021, we announced an increase in our quarterly dividend from
$0.43 per share to $0.46 per share, representing a 7 percent increase. The dividend is payable December 1, 2021,
to stockholders of record at the close of business on October 28, 2021. We anticipate returning approximately
$2.4 billion to shareholders in dividends in 2021, or $1.75 per share.
Capital Resources and Liquidity
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ConocoPhillips 2021 Q3 10-Q
In late 2016, we initiated our current share repurchase program, which has a total program authorization of $25
billion. In May 2021, we began a paced monetization of our CVE shares, the proceeds of which, have been applied
to share repurchases. The pace of CVE share sales will be guided by market conditions, and we retain the
discretion to adjust accordingly. In the nine months ended September 30, 2021, we repurchased 39.3 million
shares at a cost of $2,224 million, $561 million of which was funded using CVE share proceeds. Since the inception
of the share repurchase program, we have repurchased 228 million shares at a cost of $12.7 billion. Our total
planned distributions for 2021, including dividends and share repurchases, is approximately $6.0 billion.
Our dividend and share repurchase programs are subject to numerous considerations, including market conditions,
management discretion and other factors. See “Item 1A—Risk Factors – Our ability to declare and pay dividends
and repurchase shares is subject to certain considerations” in Part I—Item 1A in our 2020 Annual Report on Form
10-K.
Capital Expenditures and Investments
Millions of Dollars
Nine Months Ended
September 30
2021
2020
Alaska
$
698
882
Lower 48
2,250
1,398
Canada
129
593
Europe, Middle East and North Africa
385
410
Asia Pacific
235
280
Other International
33
66
Corporate and Other
37
28
Capital expenditures and investments
$
3,767
3,657
During the first nine months of 2021, capital expenditures and investments supported key development programs,
primarily:
●
Development activities in the Lower 48, primarily Permian, Eagle Ford and Bakken.
●
Appraisal and development activities in Alaska related to the Western North Slope and development
activities in the Greater Kuparuk Area.
●
Appraisal activities in liquids-rich plays and optimization of oils sands development in Canada.
●
Continued development activities across assets in Norway.
●
Continued development activities in China, Malaysia and Indonesia.
In February 2021, we announced 2021 operating plan capital expenditures of $5.5 billion. In June 2021, we
reduced capital guidance to $5.3 billion, recognizing synergistic savings from our Concho acquisition.
Capital Resources and Liquidity
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Guarantor Summarized Financial Information
We have various cross guarantees among our Obligor group; ConocoPhillips, ConocoPhillips Company and
Burlington Resources LLC, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent
owned by ConocoPhillips. Burlington Resources LLC is 100 percent owned by ConocoPhillips Company.
ConocoPhillips and/or ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations
of Burlington Resources LLC, with respect to its publicly held debt securities. Similarly, ConocoPhillips has fully and
unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held
debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment
obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several.
The following tables present summarized financial information for the Obligor Group, as defined below:
●
The Obligor Group will reflect guarantors and issuers of guaranteed securities consisting of
ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC.
●
Consolidating adjustments for elimination of investments in and transactions between the collective
guarantors and issuers of guaranteed securities are reflected in the balances of the summarized financial
information.
●
Non-Obligated Subsidiaries are excluded from the presentation.
Upon completion of the Concho acquisition on January 15, 2021, we assumed Concho’s publicly traded debt of
approximately $3.9 billion in aggregate principal amount, which was recorded at fair value of $4.7 billion on the
acquisition date. We completed a debt exchange offer that settled on February 8, 2021, of which 98 percent, or
approximately $3.8 billion in aggregate principal amount of Concho’s notes, were tendered and accepted for new
debt issued by ConocoPhillips. The new debt issued in the exchange is fully and unconditionally guaranteed by
ConocoPhillips Company. Both the guarantor and issuer of the exchange debt is reflected within the Obligor Group
presented here.
See
and
for additional information relating to the Concho transaction.
Transactions and balances reflecting activity between the Obligors and Non-Obligated Subsidiaries are presented
below:
Summarized Income Statement Data
Millions of Dollars
Nine Months Ended
September 30, 2021
Revenues and Other Income
$
20,893
Income (loss) before income taxes*
5,445
Net income (loss)
5,452
Net Income (Loss) Attributable to ConocoPhillips
5,452
*Includes approximately $3.6 billion of purchased commodities expense for transactions with Non-Obligated Subsidiaries.
Summarized Balance Sheet Data
Millions of Dollars
September 30
December 31
2021
2020
Current assets
$
12,955
8,535
Amounts due from Non-Obligated Subsidiaries, current
1,194
440
Noncurrent assets
59,997
37,180
Amounts due from Non-Obligated Subsidiaries, noncurrent
8,223
7,730
Current liabilities
7,059
3,797
Amounts due to Non-Obligated Subsidiaries, current
2,778
1,365
Noncurrent liabilities
28,336
18,627
Amounts due to Non-Obligated Subsidiaries, noncurrent
10,304
3,972
Capital Resources and Liquidity
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ConocoPhillips 2021 Q3 10-Q
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 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.
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, claims of alleged
environmental contamination from historic operations, and other contract disputes. 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 64–66 of our
2020 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 are not owned by
us, but allegedly contain waste attributable to our past operations. As of September 30, 2021, 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 September 30, 2021, our balance sheet included a total environmental accrual of $191 million, compared with
$180 million at December 31, 2020, for remediation activities in the U.S. and Canada. We expect to incur a
substantial amount of these expe nditures within the next 30 years.
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56
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.
Environmental Litigation
Several Louisiana parishes and the State of Louisiana have filed 43 lawsuits under Louisiana’s State and Local
Coastal Resources Management Act (SLCRMA) against oil and gas companies, including ConocoPhillips, seeking
compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil
and gas operations. ConocoPhillips entities are defendants in 22 of the lawsuits and will vigorously defend against
them. Because Plaintiffs’ SLCRMA theories are unprecedented, there is uncertainty about these claims (both as to
scope and damages) and we continue to evaluate our exposure in these lawsuits.
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. For 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 67–69 of our 2020 Annual Report on Form 10-K.
Climate Change Litigation
Beginning in 2017, governmental and other entities in several states in the U.S. have filed lawsuits against oil and
gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to abate alleged
climate change impacts. Additional lawsuits with similar allegations are expected to be filed. The amounts
claimed by plaintiffs are unspecified and the legal and factual issues involved in these cases are unprecedented.
ConocoPhillips believes these lawsuits are factually and legally meritless and are an inappropriate vehicle to
address the challenges associated with climate change and will vigorously defend against such lawsuits.
Company Response to Climate -Related Risks
The company has responded by putting in place a Sustainable Development Risk Management Standard covering
the assessment and registering of significant and high sustainable development risks based on their consequence
and likelihood of occurrence. We have developed a company-wide Climate Change Action Plan with the goal of
tracking mitigation activities for each climate-related risk included in the corporate Sustainable Development Risk
Register.
The risks addressed in our Climate Change Action Plan fall into four broad categories:
●
GHG-related legislation and regulation.
●
GHG emissions management.
●
Physical climate-related impacts.
●
Climate-related disclosure and reporting.
Emissions are categorized into three different scopes. Gross operated scope 1 and scope 2 GHG emissions help us
understand our climate transition risk.
●
Scope 1 emissions are direct GHG emissions from sources that we own or control.
●
Scope 2 emissions are GHG emissions from the generation of purchased electricity or steam that we
consume.
Scope 3 emissions are indirect emissions from sources that we neither own nor control.
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ConocoPhillips 2021 Q3 10-Q
We announced in October 2020 the adoption of a Paris-aligned climate risk framework with the objective of
implementing a coherent set of choices designed to facilitate the success of our existing exploration and
production business through the energy transition. Given the uncertainties remaining about how the energy
transition will evolve, the strategy aims to be robust across a range of potential future outcomes.
The strategy is comprised of four pillars:
●
Targets : Our target framework consists of a hierarchy of targets, from a long-term ambition that sets the
direction and aim of the strategy, to a medium-term performance target for GHG emissions intensity, to
shorter-term targets for flaring and methane intensity reductions. These performance targets are
supported by lower-level internal business unit goals to enable the company to achieve the company-
wide targets. In September 2021, we increased our interim operational target and have set it to reduce
our gross operated and net equity (scope 1 and 2) emissions intensity by 40 to 50 percent from 2016
levels by 2030, an improvement from the previously announced target of 35 to 45 percent on only a gross
operated basis, with an ambition to achieve net-zero operated emissions by 2050. We have joined the
World Bank Flaring Initiative to work towards zero routine flaring of associated gas by 2030, with an
ambition to meet that goal by 2025.
●
Technology choices: We expanded our Marginal Abatement Cost Curve process to provide a broader
range of opportunities for emission reduction technology.
●
Portfolio choices: Our corporate authorization process requires all qualifying projects to include a GHG
price in their project approval economics. Different GHG prices are used depending on the region or
jurisdiction. Projects in jurisdictions with existing GHG pricing regimes incorporate the existing GHG price
and forecast into their economics. Projects where no existing GHG pricing regime exists utilize a scenario
forecast from our internally consistent World Energy Model. In this way, both existing and emerging
regulatory requirements are considered in our decision-making. The company does not use an estimated
market cost of GHG emissions when assessing reserves in jurisdictions without existing GHG regulations.
●
External engagement: Our external engagement aims to differentiate ConocoPhillips within the oil and
gas sector with our approach to managing climate-related risk. We are 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.
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, objectives of
management for future operations, the anticipated benefits of the transaction between us and Concho Resources
Inc. (Concho), including the expected amount and the timing of synergies from such transaction, the anticipated
closing of the acquisition of assets from Shell Enterprises LLC (Shell), and the anticipated impact of the Concho and
Shell transactions on the combined company’s business and future financial and operating results 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,” “believe,” “budget,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,”
“intend,” “goal,” “guidance,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,”
“should,” “target,” “will,” “would” and similar expressions.
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58
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 and uncertainties, 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.
●
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.
59
ConocoPhillips 2021 Q3 10-Q
●
Liability resulting from litigation, including litigation related to the transaction with Concho, 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 or investment sentiment.
●
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 ve ntures.
●
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.
●
Our ability to successfully integrate Concho’s business and fully achieve the expected benefits and cost
reductions associated with the transaction with Concho in a timely manner or at all.
●
The risk that we will be unable to retain and hire key personnel.
●
Unanticipated difficulties or expenditures relating to integration with Concho.
●
The risk that the conditions to close the acquisition of assets from Shell are not satisfied on a timely basis
or at all, or the failure of the transaction to close for any reason.
●
The risk that any regulatory approval, consent or authorization that may be required for the proposed
acquisition of assets from Shell is not obtained or is obtained subject to conditions that are not
anticipated.
●
Unanticipated integration issues relating to the proposed acquisition of assets from Shell, such as
potential disruptions of our ongoing business and higher than anticipated integration costs.
●
Uncertainty as to the long-term value of our common stock.
●
The diversion of management time on integration -related matters.
●
The factors generally described in Part I—Item 1A in our 2020 Annual Report on Form 10-K and any
additional risks described in our other filings with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information about market risks for the nine months ended September 30, 2021, does not differ materially from
that discussed under Item 7A in our 2020 Annual Report on Form 10-K.
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60
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. At September 30, 2021, 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 at
September 30, 2021.
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
The interim-period financial information presented in the financial statements included in this report is unaudited.
There are no new material legal proceedings or material developments with respect to matters previously
disclosed in Item 3 of our 2020 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, 2020.
Risks Related to the Proposed Shell Permian Acquisition
Our ability to complete the Shell Permian Acquisition is subject to various closing conditions, including regulatory
clearance, which may impose conditions that could adversely affect us or cause the acquisition not to be
completed.
The Shell Permian Acquisition is subject to a number of conditions to closing as specified in the definitive
agreement signed on September 20, 2021 (Purchase Agreement), including but not limited to the expiration or
termination of the waiting period under the Hart-Scott -Rodino Antitrust Improvements Act of 1976, as
amended. No assurance can be given that the required regulatory clearance will be obtained or that the other
required conditions to closing will be satisfied, and, if the regulatory clearance is obtained and the required
conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such clearance,
including whether any required conditions will materially adversely affect ConocoPhillips following the Shell
Permian Acquisition. Any delay in closing the Shell Permian Acquisition could cause ConocoPhillips not to realize,
or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Shell Permian Acquisition
is successfully closed within its expected time frame.
61
ConocoPhillips 2021 Q3 10-Q
The termination of the Purchase Agreement could negatively impact our business and in some circumstances, we
could forfeit a portion of the purchase price.
If the Shell Permian Acquisition is not completed for any reason, including if the above closing conditions are not
satisfied, our ongoing business may be adversely affected and, without realizing any of the expected benefits of
having completed the Shell Permian Acquisition, we would be subject to a number of risks, including the following:
●
We may experience negative reactions from the financial markets, including negative impacts on the
trading price of our common stock; and
●
We will be required to pay our costs relating to the Shell Permian Acquisition, such as legal and
accounting costs and associated fees and expenses, whether or not the Shell Permian Acquisition is
completed.
Additionally, upon entry into the Purchase Agreement, 5% (the Deposit) of the $9.5 billion (Base Purchase Price)
was paid to Shell. If the Purchase Agreement is terminated solely as a result of the material breach or failure of
any of our representations, warranties or covenants included in the Purchase Agreement, the Deposit will not be
refunded.
Integrating the assets acquired in the Shell Permian Acquisition may be more difficult, costly or time-consuming
than expected and we may fail to realize the full anticipated benefits of the transaction, which may adversely
affect our business results and negatively affect the value of our common stock.
We may encounter difficulties integrating the assets acquired from Shell into our business and realizing the
anticipated benefits of the transaction or such benefits may take longer to realize than expected. The Shell
Permian Acquisition is expected to add approximately 225,000 net acres, thereby increasing our unconventional
position in Permian by nearly 30 percent. There are a large number of processes, policies, procedures, operations
and technologies and systems that must be integrated in connection with the Shell Permian Acquisition and the
integration of Shell’s assets. It is possible that the integration process could result in the disruption of our ongoing
business; inconsistencies in standards, controls, procedures and policies; unexpected integration issues; higher
than expected integration costs and an overall post -completion integration process that takes longer than
originally anticipated. We will be required to devote management attention and resources to integrating the
business practices and operations, and prior to closing the transaction, management attention and resources will
be required to plan for such integration. An inability to realize the full extent of the anticipated benefits of the
Shell Permian Acquisition, as well as any delays encountered in the integration process, could have an adverse
effect on our revenues or on our level of expenses and operating results, which may adversely affect the value of
our common stock. In addition, the actual integration may result in additional and unforeseen expenses. Although
we expect that the strategic benefits, and additional income, as well as the realization of other efficiencies related
to the integration of the Shell assets, may offset incremental transaction-related costs over time, if we are not able
to adequately address integration challenges, we may be unable to successfully integrate operations or realize the
anticipated benefits of the integration of the Shell assets.
ConocoPhillips 2021 Q3 10-Q
62
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
July 1-31, 2021
7,118,526
$
58.18
7,118,526
$
13,088
August 1-31, 2021
7,530,282
55.61
7,530,282
12,669
September 1-30, 2021
6,990,322
58.70
6,990,322
12,259
21,639,130
21,639,130
*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, which has a total program authorization of $25
billion of our common stock. At September 30, 2021, we had repurchased $12.7 billion of shares, with $12.3
billion remaining under our current authorization. Repurchases 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 page 31 of our 2020 Annual
Report on Form 10-K.
63
ConocoPhillips 2021 Q3 10-Q
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.
ConocoPhillips 2021 Q3 10-Q
64
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/ Kontessa S. Haynes-Welsh
Kontessa S. Haynes-Welsh
Chief Accounting Officer
Exhibit 10.1
Execution Version
PURCHASE AND SALE AGREEMENT
dated as of
September 20, 2021
by and between
SHELL ENTERPRISES LLC
(as Seller)
and
CONOCOPHILLIPS COMPANY
(as Buyer)
Exhibit 10.1
i
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND INTERPRETATION ........................................................ 1
Section 1.1 Defined Terms ....................................................................................................... 1
Section 1.2 References and Rules of Construction ................................................................... 1
ARTICLE 2 PURCHASE AND SALE ...................................................................................... 2
Section 2.1 Purchase and Sale .................................................................................................. 2
Section 2.2 Effective Time; Proration of Revenues .................................................................. 2
Section 2.3 Procedures .............................................................................................................. 3
Section 2.4 Purchase Price ........................................................................................................ 4
Section 2.5 Adjustments to the Base Purchase Price ................................................................ 4
Section 2.6 Indebtedness Free................................................................................................... 5
Section 2.7 Deposit ................................................................................................................... 5
Section 2.8 Withholding ........................................................................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER ............................ 6
Section 3.1 Generally ................................................................................................................ 6
Section 3.2 Existence and Qualification ................................................................................... 6
Section 3.3 Organizational Power............................................................................................. 6
Section 3.4 Authorization and Enforceability ........................................................................... 7
Section 3.5 No Conflicts ........................................................................................................... 7
Section 3.6 Liability for Brokers’ Fees ..................................................................................... 8
Section 3.7 Litigation ................................................................................................................ 8
Section 3.8 Taxes ...................................................................................................................... 8
Section 3.9 Capital Commitments and Expenditures ............................................................. 11
Section 3.10 Compliance with Laws ........................................................................................ 11
Section 3.11 Material Contracts ................................................................................................ 11
Section 3.12 Payments for Production and Imbalances ............................................................ 13
Section 3.13 Consents and Preferential Rights ......................................................................... 13
Section 3.14 Non-Consent Operations; Payout Status .............................................................. 14
Section 3.15 Environmental Matters......................................................................................... 14
Section 3.16 Suspense Funds .................................................................................................... 15
Section 3.17 Bankruptcy ........................................................................................................... 15
Section 3.18 Ownership Structure and Interests ....................................................................... 15
Section 3.19 Wells .................................................................................................................... 15
Section 3.20 Special Warranty of Title ..................................................................................... 16
Section 3.21 Permits ................................................................................................................. 16
Section 3.22 Royalties .............................................................................................................. 17
Section 3.23 Bonds, Letters of Credit and Guarantees ............................................................. 17
Section 3.24 Indebtedness ......................................................................................................... 17
Section 3.25 Condemnation ...................................................................................................... 17
Section 3.26 Powers of Attorney; Bank Accounts.................................................................... 17
Section 3.27 Anti-Corruption; Trade Controls ......................................................................... 17
Section 3.28 Leases ................................................................................................................... 18
Section 3.29 Employment Matters ............................................................................................ 18
Exhibit 10.1
ii
Section 3.30 Operatorship ......................................................................................................... 18
Section 3.31 Intellectual Property ............................................................................................. 18
Section 3.32 Certain Disclaimers .............................................................................................. 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER ............................ 21
Section 4.1 Generally .............................................................................................................. 21
Section 4.2 Existence and Qualification ................................................................................. 21
Section 4.3 Organizational Power........................................................................................... 21
Section 4.4 Authorization and Enforceability ......................................................................... 21
Section 4.5 No Conflicts ......................................................................................................... 22
Section 4.6 Liability for Brokers’ Fees ................................................................................... 22
Section 4.7 Litigation .............................................................................................................. 22
Section 4.8 Financing.............................................................................................................. 22
Section 4.9 Investment Intent ................................................................................................. 22
Section 4.10 Independent Evaluation ....................................................................................... 22
Section 4.11 Consents, Approvals or Waivers.......................................................................... 23
Section 4.12 Bankruptcy ........................................................................................................... 23
Section 4.13 Anti-Corruption; Trade Controls. ........................................................................ 23
ARTICLE 5 COVENANTS OF THE PARTIES .................................................................... 23
Section 5.1 Access. ................................................................................................................. 23
Section 5.2 Government Reviews ........................................................................................... 25
Section 5.3 Public Announcements; Confidentiality .............................................................. 26
Section 5.4 Operation of Business .......................................................................................... 27
Section 5.5 Amendment to Schedules .................................................................................... 30
Section 5.6 Further Assurances............................................................................................... 31
Section 5.7 Related Party Contracts........................................................................................ 31
Section 5.8 Conduct of Buyer ................................................................................................. 31
Section 5.9 Employee Matters ................................................................................................ 31
Section 5.10 Bonds, Letters of Credit and Guarantees ............................................................. 31
Section 5.11 Transition Services Agreement ............................................................................ 31
Section 5.12 Use of Name ........................................................................................................ 31
Section 5.13 Records. ............................................................................................................... 32
Section 5.14 Insurance .............................................................................................................. 32
Section 5.15 Anti-Bribery and Corruption................................................................................ 33
Section 5.16 Required Consents ............................................................................................... 35
Section 5.17 Defense of Retained Litigation ............................................................................ 36
Section 5.18 Seller Parent Guaranty ......................................................................................... 36
Section 5.19 Reorganization ..................................................................................................... 36
Section 5.20 Name Change and Reorganization....................................................................... 37
Section 5.21 Notice to Third Persons ....................................................................................... 37
Section 5.22 Seismic Data ........................................................................................................ 37
Section 5.23 Supplemental Information ................................................................................... 38
Section 5.24 Operational Technology....................................................................................... 38
ARTICLE 6 CONDITIONS TO CLOSING ........................................................................... 38
Exhibit 10.1
iii
Section 6.1 Seller’s Conditions to Closing ............................................................................. 38
Section 6.2 Buyer’s Conditions to Closing ............................................................................. 39
ARTICLE 7 CLOSING ............................................................................................................. 40
Section 7.1 Time and Place of Closing ................................................................................... 40
Section 7.2 Obligations of Seller at Closing ........................................................................... 40
Section 7.3 Obligations of Buyer at Closing .......................................................................... 41
Section 7.4 Closing Payment and Post-Closing Purchase Price Adjustments ........................ 42
ARTICLE 8 TERMINATION .................................................................................................. 43
Section 8.1 Termination .......................................................................................................... 43
Section 8.2 Effect of Termination ........................................................................................... 43
ARTICLE 9 INDEMNIFICATION ......................................................................................... 45
Section 9.1 Indemnification .................................................................................................... 45
Section 9.2 Indemnity Actions ................................................................................................ 48
Section 9.3 Limitation on Actions .......................................................................................... 50
ARTICLE 10 TAX MATTERS ................................................................................................ 52
Section 10.1 Tax Allocations; Tax Returns .............................................................................. 52
Section 10.2 Tax Refunds ......................................................................................................... 54
Section 10.3 Tax Cooperation................................................................................................... 54
Section 10.4 Characterization of Certain Payments ................................................................. 54
Section 10.5 Transfer Taxes ..................................................................................................... 55
Section 10.6 Termination of Tax Agreements .......................................................................... 55
Section 10.7 Purchase Price Allocation .................................................................................... 55
Section 10.8 Amended Returns................................................................................................. 55
ARTICLE 11 MISCELLANEOUS .......................................................................................... 56
Section 11.1 Counterparts ......................................................................................................... 56
Section 11.2 Notice ................................................................................................................... 56
Section 11.3 Newco Transaction Expenses .............................................................................. 57
Section 11.4 Governing Law .................................................................................................... 57
Section 11.5 Waivers ................................................................................................................ 58
Section 11.6 Assignment .......................................................................................................... 58
Section 11.7 Entire Agreement ................................................................................................. 58
Section 11.8 Amendment .......................................................................................................... 58
Section 11.9 No Third Party Beneficiaries ............................................................................... 58
Section 11.10 Construction ......................................................................................................... 58
Section 11.11 Limitation on Damages ........................................................................................ 59
Section 11.12 Conspicuous ......................................................................................................... 59
Section 11.13 Affiliate Liability ................................................................................................. 59
Section 11.14 Time of Essence ................................................................................................... 60
Section 11.15 Severability .......................................................................................................... 60
Section 11.16 Specific Performance ........................................................................................... 60
Exhibit 10.1
iv
APPENDICES:
Appendix A - Definitions
EXHIBITS:
Exhibit A - Form of Assignment Agreement
Exhibit B - Allocated Values
Exhibit C - Transition Services Agreement
Exhibit D - Seller Parent Guaranty
SCHEDULES:
Schedule 1.1(a) - Real Property Interests
Schedule 1.1(b) - Wells
Schedule 1.1(c) - Surface Contracts
Schedule 3.1 - Seller Knowledge Individuals
Schedule 3.7(a) - Pending Litigation
Schedule 3.7(b) - Pending Actions
Schedule 3.8 - Taxes
Schedule 3.9 - Capital Commitments
Schedule 3.11(a) - Material Contracts
Schedule 3.12 - Imbalances
Schedule 3.13 - Required Consents
Schedule 3.14 - Non-Consent Operations; Payout Status
Schedule 3.15 - Environmental Matters
Schedule 3.16 - Suspense Funds
Schedule 3.19 - Wells
Schedule 3.21 - Permits
Schedule 3.22 - Royalties
Schedule 3.23 - Bonds, Letters of Credit, and Guaranties
Schedule 3.24 - Permitted Indebtedness
Schedule 3.28 - Leases
Schedule 4.1 - Buyer Knowledge Individuals
Schedule 5.4 - Operation of Business
Schedule 5.7 - Allocated Related Party Contracts
Schedule 5.9(a) - Employee Matters
Schedule 5.9(b) - Personal Data
Schedule 5.17 - Retained Litigation
Schedule 5.23 - Supplemental Information
Schedule A-1 - Previously-Divested Properties
Exhibit 10.1
- 1 -
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (as may be amended, restated, supplemented or
otherwise modified from time to time, this “Agreement”) is dated as of September 20, 2021 (the
“Execution Date”), by and between Shell Enterprises LLC, a Delaware limited liability company
(“Seller”), on the one part, and ConocoPhillips Company,
a Delaware corporation (“Buyer”), on
the other part. Seller and Buyer are sometimes referred to herein individually as a “Party” and,
collectively, as the “Parties.”
RECITALS:
WHEREAS, SWEPI LP, a Delaware limited partnership (“SWEPI”), owns the Assets,
which are located in the Permian Basin in western Texas;
WHEREAS, Seller will complete the Reorganization whereby, after effecting a statutory
merger, (a) Seller will own 100 percent of the membership interests in Non-Permian Newco, (b)
Non-Permian Newco will own 100 percent of the membership interests in Newco (the “Subject
Interests”) and (c) the Assets will be owned by Newco; and
WHEREAS, the Parties desire that, at the Closing, Seller shall cause Non-Permian Newco
to sell and transfer to Buyer, and Buyer shall purchase from Non-Permian Newco, the Subject
Interests, upon the terms, and subject to the conditions, set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises,
representations, warranties, covenants, conditions and agreements contained herein, and for other
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound by the terms hereof, agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Section 1.1
Defined Terms. In addition to the terms defined in the Preamble and the
Recitals of this Agreement, for purposes hereof, the capitalized terms used herein and not
otherwise defined shall have the meanings set forth in Appendix A. A defined term has its defined
meaning throughout this Agreement regardless of whether it appears before or after the place
where it is defined, and its other grammatical forms have corresponding meanings.
Section 1.2
References and Rules of Construction. All references in this Agreement to
Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses, and other subdivisions
refer to the corresponding Exhibits, Schedules, Appendices, Articles, Sections, subsections,
clauses, and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Exhibits, Schedules, Appendices, Articles, Sections, subsections,
clauses, and other subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language hereof. All references
to “$” shall be deemed references to Dollars. Each accounting term not defined herein will have
the meaning given to it under GAAP as interpreted as of the Execution Date, and, as applicable,
as consistently applied in the oil and gas industry. Unless the context requires otherwise, the word
“or” is not exclusive. As used herein, the word (a) “day” means calendar day; (b) “extent” in the
Exhibit 10.1
- 2 -
phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such
phrase shall not mean simply “if”; (c) “this Agreement,” “herein,” “hereby,” “hereunder,” and
“hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular
Article, Section, subsection, clause, or other subdivision unless expressly so limited; (d) “this
Article,” “this Section,” “this subsection,” “this clause,” and words of similar import, refer only to
the Article, Section, subsection, and clause hereof in which such words occur; and (e) “including”
(in its various forms) means including without limitation. Pronouns in masculine, feminine, or
neuter genders shall be construed to state and include any other gender, and words, terms, and
titles (including terms defined herein) in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Appendices, Exhibits, and Schedules referred
to herein are attached to this Agreement and by this reference incorporated herein for all purposes.
Reference herein to any federal, state, local, or foreign Law shall be deemed to also refer to all
rules and regulations promulgated thereunder, unless the context requires otherwise, and shall also
be deemed to refer to such Laws as in effect as of the Execution Date or as hereafter amended.
Examples are not to be construed to limit, expressly or by implication, the matter they illustrate.
References to a specific time shall refer to prevailing Central Time, unless otherwise indicated. If
any period of days referred to in this Agreement shall end on a day that is not a Business Day, then
the expiration of such period shall be automatically extended until the end of the first succeeding
Business Day. Except as otherwise specifically provided in this Agreement, any agreement,
instrument, or writing defined or referred to herein means such agreement, instrument, or writing,
as from time to time amended, supplemented, or modified prior to the Execution Date.
ARTICLE 2
PURCHASE AND SALE
Section 2.1
Purchase and Sale. At the Closing, upon the terms and subject to the
conditions of this Agreement, Seller agrees to cause Non-Permian Newco to sell, transfer, and
convey the Subject Interests to Buyer, free and clear of any Encumbrances (other than restrictions
on transfer that may be imposed by state or federal securities Laws), and Buyer agrees to purchase,
accept, and pay for the Subject Interests.
Section 2.2
Effective Time; Proration of Revenues.
(a)
Newco shall be entitled to (i) all production of Hydrocarbons from or
attributable to the Properties after 7:00 a.m., Central Time, on July 1, 2021 (the “Effective Time”)
and all products and proceeds attributable thereto and (ii) all other income, proceeds, receipts and
credits earned with respect to the Assets after the Effective Time, and Newco shall be responsible
for, and entitled to any refunds with respect to, all Property Costs incurred and attributable to the
period after the Effective Time and all Asset Taxes apportioned to Buyer pursuant to Section
10.1(a).
(b)
Seller shall be entitled to (i) all production of Hydrocarbons from or
attributable to the Properties prior to and at the Effective Time and all products and proceeds
attributable thereto and (ii) all other income, proceeds, receipts and credits earned with respect to
the Assets prior to and at the Effective Time, and Seller shall be responsible for, and entitled to
any refunds with respect to, all Property Costs incurred and attributable to the period prior to and
at the Effective Time and all Asset Taxes apportioned to Seller pursuant to Section 10.1(a).
Exhibit 10.1
- 3 -
(c)
Should Buyer or any of its Affiliates receive after the Closing any amounts
to which Seller is entitled under Section 2.2(b), Buyer shall, and shall cause its relevant Affiliate
to, fully disclose, account for and promptly remit the same to Seller. If, after the Closing, Seller
or any of its Affiliates receives any amount to which Newco is entitled under Section 2.2(a), Seller
shall, and shall cause its relevant Affiliate to, fully disclose, account for, and promptly remit the
same to Buyer.
(d)
Should Buyer or any of its Affiliates pay after the Closing any Property
Costs or Asset Taxes for which Seller is responsible under Section 2.2(b), Seller shall reimburse
Buyer or its relevant Affiliate promptly after receipt from such party of an invoice, accompanied
by copies of the relevant vendor or other invoice and proof of payment, with respect to such
Property Costs or Asset Taxes. Should Seller or any of its Affiliates pay after the Closing any
Property Costs or Asset Taxes for which Newco is responsible under Section 2.2(a), Buyer shall,
or shall cause Newco to, reimburse Seller or its relevant Affiliate promptly after receipt from such
party of an invoice, accompanied by copies of the relevant vendor or other invoice and proof of
payment, with respect to such Property Costs or Asset Taxes.
(e)
Notwithstanding the foregoing, Seller shall have no further entitlement to
amounts earned from the sale of Hydrocarbons produced from or attributable to the Assets and
other income earned with respect to the Assets and no further responsibility for Property Costs
incurred with respect to the Assets following the final determination and payment of the Purchase
Price in accordance with Section 7.4.
(f)
Right-of-way fees, insurance premiums and other Property Costs that are
paid periodically shall be prorated based on the number of days in the applicable period falling
before, and the number of days in the applicable period falling on or after, the day of the Effective
Time. Asset Taxes shall be apportioned as set forth in Section 10.1(a).
(g)
Settlement between Buyer and Seller of receipts and disbursements under
Section 2.2(c) and Section 2.2(d) shall be made no less frequently than monthly on or before the
20
th
Section 2.3
Procedures.
(a)
For purposes of allocating production and accounts receivable with respect
thereto under Section 2.2, (i) liquid Hydrocarbons shall be deemed to be “from or attributable to”
the Properties when they pass through the inlet flange of the pipeline connecting into the storage
facilities into which they are run or, if there are no such storage facilities, when they pass through
the lease automatic custody transfer meters or similar meters at the point of entry into the pipelines
through which they are transported from the field and (ii) gaseous Hydrocarbons shall be deemed
to be “from or attributable to” the Properties when they pass through the custody transfer meters
on the pipelines through which they are transported (or whichever meter is closest to the well).
Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when
exact meter readings or gauging and strapping data is not available. The terms “earned” and
“incurred” shall be interpreted in accordance with GAAP and Council of Petroleum Accountants
Society (“COPAS”) standards, and expenditures that are incurred pursuant to an operating
agreement, unit agreement or similar agreement shall be deemed incurred when expended by the
Exhibit 10.1
- 4 -
operator of the applicable Property in accordance with or allowed under the applicable joint
operating agreement.
(b)
Seller shall be entitled to handle all joint interest audits and other audits of
Property Costs covering the period for which Seller is in whole or in part responsible under Section
2.2;
provided
,
however
,
that Seller shall not agree to any adjustments to previously assessed costs
for which Buyer or Newco is liable, or any compromise of any audit claims to which Buyer or
Newco would be entitled or that may otherwise materially and adversely affect Newco, without
the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned
or delayed. Each Party shall provide the other Party with a copy of all applicable audit reports and
written audit agreements received by such Party or its Affiliates and relating to periods for which
such other Party is partially responsible.
Section 2.4
Purchase Price. The total consideration to be paid for the Subject Interests
shall be comprised of cash in the amount of $9,500,000,000 (the “Base Purchase Price” and, as
adjusted pursuant to this Agreement, the “Purchase Price”).
Section 2.5
Adjustments to the Base Purchase Price. All adjustments to the Base
Purchase Price shall be made (x) in accordance with the terms of this Agreement and, to the extent
not inconsistent with this Agreement, in accordance with GAAP and COPAS standards, as
applicable, as consistently applied in the oil and gas industry and (y) in the case of all matters set
forth in Section 2.5(a) and Section 2.5(b), only with respect to adjustments identified on or before
the 180
th
described in Section 2.5(a) and Section 2.5(b) shall be allocated to the Assets affected by such
adjustment. Without limiting the foregoing, the Base Purchase Price shall be adjusted as follows,
with the adjustments to such Base Purchase Price resulting in the “Purchase Price”:
(a)
The Base Purchase Price shall be adjusted upward by the following
amounts, without duplication:
(i)
an amount equal to all Property Costs attributable to the ownership
and operation of the Assets or the production of Hydrocarbons therefrom that are
incurred after the Effective Time or Asset Taxes for which Buyer is responsible
pursuant to Section 10.1(a) but that have been paid by Seller or any of its Affiliates
(other than Newco), as is consistent with Section 2.2(a) and Section 2.2(b), but
excluding any amounts previously reimbursed to Seller or any such Affiliate by a
Third Party or pursuant to Section 2.2(d);
(ii)
an amount equal to all proceeds to which Seller is entitled pursuant
to Section 2.2(b), to the extent that such proceeds have been received by Buyer or
any of its Affiliates, and not remitted or paid to Seller or any of its Affiliates (net
of any Royalties paid by Buyer or its Affiliates to Third Parties, gathering,
processing and transportation costs and any Hydrocarbon production, severance,
sales or excise Taxes not reimbursed to Buyer or its Affiliates by the purchaser of
Hydrocarbon production); and
Exhibit 10.1
- 5 -
(iii)
any other amount provided for elsewhere in this Agreement or
otherwise agreed upon in writing by the Parties as an upward adjustment to the
Base Purchase Price.
(b)
The Base Purchase Price shall be adjusted downward by the following
amounts, without duplication:
(i)
an amount equal to all Property Costs attributable to the ownership
and operation of the Assets or the production of Hydrocarbons therefrom that are
incurred prior to and at the Effective Time or Asset Taxes for which Seller is
responsible pursuant to Section 10.1(a) but that have been paid by Buyer or any of
its Affiliates, as is consistent with Section 2.2(a) and Section 2.2(b), but excluding
any amounts previously reimbursed to Buyer or its relevant Affiliate by a Third
Party or pursuant to Section 2.2(d);
(ii)
an amount equal to all proceeds to which Newco is entitled pursuant
to Section 2.2(a), to the extent that such amounts have been received by Seller or
any of its Affiliates and not remitted or paid to Newco (net of any Royalties paid
by Seller or its Affiliates to Third Parties, gathering, processing and transportation
costs and any Hydrocarbon production, severance, sales or excise Taxes not
reimbursed to Seller or its Affiliates by the purchaser of Hydrocarbon production);
(iii)
the amount of funds in suspense listed on Schedule 3.16 that are still
in suspense on the Closing Date; and
(iv)
any other amount provided for elsewhere in this Agreement or
otherwise agreed upon in writing by the Parties as a downward adjustment to the
Base Purchase Price.
Section 2.6
Indebtedness Free. At the Closing, Newco will not be responsible for any
obligations to repay Indebtedness.
Section 2.7
Deposit. No later than 5:00 p.m. Central Time on September 21, 2021,
Buyer shall pay to Shell US E&P Investments LLC, in immediately available funds by wire
transfer to an account designated by Seller, an amount equal to five percent (5%) of the Base
Purchase Price (the “Deposit”). In the event that the Deposit is not paid to Shell US E&P
Investments LLC within the required time period, in addition to any other remedy available at Law
or in equity, Seller shall have the right to terminate this Agreement pursuant to Section 8.1(b), and
any rights or remedies Seller may have under this Agreement in relation to such breach shall
survive such termination. The Deposit shall be distributed in accordance with the terms of Section
8.2(b) or Section 8.2(c), as applicable.
Section 2.8
Withholding. Buyer and its Affiliates (and any Person acting on their
behalf) shall be entitled to deduct and withhold from any consideration otherwise payable or
deliverable to Non-Permian Newco such amounts as may be required to be deducted or withheld
therefrom pursuant to applicable Law. If the applicable withholding agent intends to withhold
from any amounts payable to Non-Permian Newco (other than with respect to any withholding
relating to a failure by Seller to deliver to Buyer, at or prior to the Closing, the deliverable
Exhibit 10.1
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contemplated in Section 7.2(b)), the applicable withholding agent shall use commercially
reasonable efforts to provide prior notice of such withholding to Seller as soon as reasonably
practicable after it determines withholding is required and to reasonably cooperate to reduce or
eliminate such withholding to the extent permissible under applicable Law. To the extent such
amounts are so deducted or withheld and remitted to the appropriate Governmental Authority, such
amounts shall be treated for all purposes of this Agreement as having been paid to the Person to
whom such amounts would otherwise have been paid absent such deduction or withholding.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1
Generally.
(a)
Any representation or warranty qualified by the “Knowledge of Seller” or
“to Seller’s Knowledge” or with any similar knowledge qualification is limited to matters within
the Knowledge of the individuals listed in Schedule 3.1.
(b)
Subject to the disclaimers and waivers contained in and the other terms and
conditions of this Agreement, and the exceptions and matters set forth on the Schedules attached
to this Agreement, Seller represents and warrants to Buyer the matters set forth in this Article 3 as
of the Execution Date (except for the representations and warranties that refer to a specified date,
which will be deemed made as of such date).
(c)
The disclosure of any matter in any Schedule to a representation and
warranty of Seller set forth in this Article 3 shall be deemed to be a disclosure for all
representations and warranties in respect of which it is evident such matter relates, but shall
expressly not be deemed to constitute an admission by Seller to otherwise imply that such matter
is material for the purposes of this Agreement.
Section 3.2
Existence and Qualification.
(a)
Seller is a limited liability company duly organized, validly existing, and in
good standing under the Laws of the State of Delaware and is duly qualified to do business in all
jurisdictions in which its ownership of property or conduct of business requires Seller to be
qualified except where the failure to be so qualified or licensed or in good standing, individually
or in the aggregate, has not been and would not reasonably be expected to be material to Seller.
(b)
As of the Closing, following the Merger, each of Non-Permian Newco and
Newco will be a limited liability company duly organized, validly existing, and in good standing
under the Laws of the State of Texas and will be duly qualified to do business in all jurisdictions
in which its ownership of property or conduct of business requires it to be qualified, except where
the failure to be so qualified or licensed or in good standing, individually or in the aggregate, would
not reasonably be expected to be material to it.
Section 3.3
Organizational Power. Seller has all requisite limited liability company
power to enter into and perform this Agreement and each Transaction Document to which Seller
is or will be a party and to consummate the transactions contemplated by this Agreement and such
other Transaction Documents. As of the Closing, following the Merger, Non-Permian Newco will
Exhibit 10.1
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have all requisite limited liability company power to own the Subject Interests and to carry on its
business as being conducted except where the failure to have such power, individually or in the
aggregate, has not been and would not reasonably be expected to be material to Non-Permian
Newco. As of the Closing, following the Merger, Newco will have all requisite limited liability
company power to own, lease, and operate its properties and to carry on its business as now being
conducted by SWEPI with respect to the Assets, except where the failure to have such power,
individually or in the aggregate, would not reasonably be expected to be material to Newco.
Section 3.4
Authorization and Enforceability.
(a)
The execution, delivery, and performance of this Agreement, all documents
required to be executed and delivered by Seller at Closing and all other Transaction Documents to
which Seller is or will be a party, and the performance of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary limited liability company
action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and
all documents required hereunder to be executed and delivered by Seller at Closing and all other
Transaction Documents will be duly executed and delivered by Seller) and this Agreement
constitutes, and at the Closing such documents will constitute, the valid and binding obligations
of Seller, enforceable in accordance with their terms except as such enforceability may be limited
by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors
generally as well as by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at Law).
(b)
All documents required to be executed and delivered by Non-Permian
Newco at Closing and all other Transaction Documents to which Non-Permian Newco will be a
party, and the performance of the transactions contemplated thereby, will have been duly and
validly authorized by all necessary limited liability company action on the part of Non-Permian
Newco and such documents will constitute, the valid and binding obligations of Non-Permian
Newco, enforceable in accordance with their terms except as such enforceability may be limited
by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors
generally as well as by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at Law).
Section 3.5
No Conflicts. Subject to compliance with the HSR Act, the execution,
delivery, and performance of this Agreement and the other Transaction Documents by Seller, and
the transactions contemplated hereby and thereby, will not (a) violate any provision of the
Organizational Documents of Seller, SWEPI, Non-Permian Newco or Newco, (b) result in a
material default (with or without due notice or lapse of time or both) or the creation of any lien or
encumbrance or give rise to any right of termination, cancellation or acceleration under any note,
bond, mortgage, indenture, or other financing instrument to which Seller, SWEPI, Non-Permian
Newco or Newco is a party or that affects the Assets or the Subject Interests, (c) violate any
judgment, order, writ, injunction, ruling, or decree in any material respect applicable to Seller,
SWEPI, Non-Permian Newco, Newco, or any of the Assets or the Subject Interests, or (d) violate
any Laws in any material respect applicable to Seller, SWEPI, Non-Permian Newco, Newco, or
any of the Assets or the Subject Interests.
Exhibit 10.1
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Section 3.6
Liability for Brokers’ Fees. None of Buyer, its Affiliates, or Newco shall
directly or indirectly have any responsibility, liability or expense, as a result of undertakings or
agreements of Seller or its respective Affiliates, for brokerage fees, finder’s fees, agent’s
commissions or other similar forms of compensation in connection with this Agreement or any
agreement or transaction contemplated hereby.
Section 3.7
Litigation.
(a)
Except as set forth on Schedule 3.7(a), there are no actions, suits or
proceedings against SWEPI, Seller, Non-Permian Newco or Newco pending with or before any
Governmental Authority or arbitrator, or, to Seller’s Knowledge, threatened in writing (i) with
respect to or affecting the Assets, the Subject Interests, or Newco that would reasonably be
expected to be material to Newco or the ownership, operation, exploration or development of any
of the Assets or (ii) that would materially impair, hinder, or delay Seller’s ability to perform its
obligations under this Agreement or any Transaction Document or Non-Permian Newco’s ability
to perform those actions that Seller is required to cause Non-Permian Newco to perform under this
Agreement.
(b)
There is no outstanding judgment, order, writ, injunction, ruling, or decree,
or pending or, to the Knowledge of Seller, threatened material investigation, by any Governmental
Authority relating to Newco, the Subject Interests, any of the Assets, or the transactions
contemplated by this Agreement. Except as set forth on Schedule 3.7(b), there is no action, suit,
or proceeding (i) by SWEPI pending, or for which SWEPI has commenced preparations to initiate,
against any other Person with respect to the Subject Interests or the Assets, (ii) by Newco pending,
or for which Newco has commenced preparations to initiate, against any other Person, or (iii) by
any Third Party (including any Representative of Seller or any of its Affiliates (excluding Newco))
pending in connection with the ownership or operation of the Assets that is financed by Seller or
Newco or for which Seller or any of its Affiliates (including Newco) is (or will be) responsible for
any portion of the costs, expenses or liabilities thereof. Except as set forth on Schedule 3.7(b),
during the past two years prior to the Execution Date, there have been no claims for personal injury
or death of any Person in connection with the ownership or operation of the Assets for which
Newco would have any liability in any respect after the Closing Date. Notwithstanding the
foregoing, with respect to matters pertaining to Assets that are operated by a Person other than
Seller or its Affiliates (including Newco), the representations and warranties set forth in this
Section 3.7(b) are limited to the Knowledge of Seller.
Section 3.8
Taxes.
(a)
All income and franchise Taxes and all other material Taxes that have
become due or payable by or with respect to Newco or the Assets or the ownership or operation
thereof (whether or not shown or required to be shown on any Tax Return) have been paid in full.
(b)
All material Tax Returns that were required to be filed by or with respect to
Newco or the Assets or the ownership or operation thereof have been duly filed (taking into
account any extension of time within which to file), and all such Tax Returns are true, complete
and correct in all material respects.
Exhibit 10.1
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(c)
The Taxes reflected on the Tax Returns that will be filed under Section
10.1(d) and are set forth on Schedule 3.8(c) will be the only Income Taxes payable by Newco or
SWEPI for the taxable periods covered by such Tax Returns.
(d)
Except as set forth on Schedule 3.8(d), no audits, examinations,
investigations or proceedings are pending, in progress or, to Seller’s Knowledge, have been
threatened with respect to any Taxes or Tax Returns relating to SWEPI or Newco or the Assets.
Neither SWEPI nor Newco has consented to, or entered into any agreement with respect to, and
there is not currently in effect with respect to any of the Assets, any waiver or extension of any
statute of limitations related to the assessment, determination or collection of any Taxes. No power
of attorney granted by or with respect to SWEPI or Newco in respect of any Taxes is in effect that
will not be revoked or cancelled at or prior to the Closing.
(e)
None of the Assets is subject to any tax partnership agreement or is
otherwise treated, or required to be treated, as held in an arrangement requiring a partnership
income Tax Return to be filed or otherwise treated, or required to be treated, as a partnership under
Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state or local Law.
(f)
No deficiency for any material amount of Tax has been asserted or assessed
by any Governmental Authority against SWEPI or Newco or with respect to any of the Assets,
which deficiency has not been fully satisfied by payment, settled or withdrawn.
(g)
No claim has been made by any Governmental Authority in any jurisdiction
in which SWEPI or Newco does not file Tax Returns that any material Tax Return is required to
be filed or any material Taxes are required to be paid in such jurisdiction by or with respect to
SWEPI or Newco.
(h)
There are no Encumbrances for Taxes (other than liens described in clause
(d) of the definition of Permitted Encumbrances) on any of the Assets.
(i)
SWEPI has not since 2007, and Newco has never, been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code filing a
consolidated U.S. federal income Tax Return, or a member of an aggregate, combined,
consolidated, unitary or other similar group for state, local or foreign Tax purposes. SWEPI has
not since 2007, and Newco has never, had any liability for the Taxes of any Person under Section
1.1502-6 of the Treasury Regulations or any similar provision of state, local or foreign Law, as a
transferee or successor, by contract or other agreement or arrangement (other than pursuant to a
Customary Arrangement), by operation of Law or otherwise. Each of SWEPI and Newco has
timely paid all material amounts of Taxes required to be paid by or on behalf of it pursuant to any
Customary Agreement.
(j)
For U.S. federal income Tax purposes and all applicable state and local Tax
purposes, SWEPI and Newco are currently properly classified as disregarded entities, as described
in Treasury Regulation Section 301.7701-3(b)(1)(ii), and no election has been filed or made to
change such classification for U.S. federal income tax purposes (or applicable state or local Tax
purposes).
Exhibit 10.1
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(k)
Neither SWEPI nor Newco has distributed stock of another Person, or had
its stock distributed by another Person, in a transaction that was purported or intended to be
governed in whole or in part by Section 355 or Section 361 of the Code (or any similar provision
of state, local or non-U.S. Law).
(l)
Neither SWEPI nor Newco is, or has ever been, a party to, or bound by, any
agreement or arrangement relating to the sharing, indemnification or allocation of Tax liabilities
(or any similar agreement or arrangement) between or among Persons, in each case, other than a
Customary Agreement.
(m)
Except as set forth on Schedule 3.8(m), SWEPI and Newco have not
requested or received any rulings from, or entered into any arrangements with, any Governmental
Authority, or received or benefited from any Tax exemption, Tax holiday or other Tax reduction
agreement or order or other special Tax regime (each a “Tax Incentive”). Neither Buyer nor any
of its Affiliates will be liable to any Governmental Authority after the Closing for any amounts
benefiting SWEPI or Newco before the Closing under or with respect to any such Tax Incentives
(including as a result of a termination thereof or disqualification therefrom).
(n)
Neither SWEPI nor Newco has participated in, or been a party to, a “listed
transaction” as this term is defined in Treasury Regulations Section 1.6011-4(b) (or any
predecessor provision).
(o)
Neither SWEPI nor Newco (i) has ever been subject to Tax in a country
outside of the country in which it is organized, or (ii) has ever had a permanent establishment (as
defined in any applicable Tax treaty or convention) or other fixed place of business in a country
other than the country in which it is organized. SWEPI and Newco do not currently own and have
not ever owned an interest in any entity that is not a “United States person” within the meaning of
Section 7701(a)(30) of the Code.
(p)
SWEPI (with respect to the Assets or the ownership or operation thereof)
and Newco have properly collected and remitted all material amounts of sales, use, value added,
and similar Taxes with respect to sales or leases made to, purchases made from, or services
provided to their customers or have properly received and retained any appropriate Tax exemption
certificates and other documentation for all services provided, or sales, leases, purchases made,
without charging or remitting sales, use, value added, or similar Taxes that qualify such sales,
leases, purchases, or services as exempt from sales, use, value added, and similar Taxes.
(q)
The consummation of the transactions contemplated by this Agreement
(whether alone or in combination with a subsequent event) will not result in the loss of deduction
to Buyer or Newco under Section 280G of the Code.
(r)
Notwithstanding anything to the contrary in this Agreement, (i) the
representations and warranties in this Section 3.8 and in Section 3.29 (to the extent relating to
Taxes) are the only representations and warranties in this Agreement with respect to the Tax
matters of SWEPI and Newco, and (ii) Seller makes no representation or warranty with respect to
the existence, availability, amount, usability or limitations (or lack thereof) of any net operating
loss, net operating loss carryforward, capital loss, capital loss carryforward, basis amount or other
Exhibit 10.1
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Tax attribute of Newco after the Closing Date, except for the representations and warranties set
forth in Section 3.8(j) and Section 3.8(q), and (iii) Buyer acknowledges and agrees that Buyer
cannot rely on Seller’s methodologies for the determination and reporting of Taxes that were
utilized for any Tax period (or portion thereof) beginning prior to the Closing Date for purposes
of calculating and reporting Taxes attributable to any Tax period (or portion thereof) beginning
after the Closing Date.
Section 3.9
Capital Commitments and Expenditures. Except as set forth on
Schedule 3.9, as of the Effective Time, with respect to the Assets, there are no outstanding AFEs
or other commitments to conduct any operations or expend any amount of money on or with
respect to the Assets which are binding on SWEPI that could reasonably be expected to require
expenditures in excess of $2,500,000, individually or in the aggregate, net to SWEPI’s interest.
Section 3.10
Compliance with Laws. With respect to its ownership and operation of the
Assets, SWEPI is (and, as of the Closing Date, Newco will be) in material compliance with all
applicable Laws and, to Seller’s Knowledge, no Third Party operator is in material violation of
any applicable Laws with respect to the Assets. As of the Execution Date, SWEPI has not received,
and to Seller’s Knowledge, no Third Party operator of any of the Assets has received, written
notice of any material violation in any respect of any applicable Law relating to its ownership or
operation of the Assets. As of the Execution Date, SWEPI has not received, and, to Seller’s
Knowledge, no Third Party operator of any of the Assets has received, written notice that it is
under investigation by any Governmental Authority for potential non-compliance with any Law
relating to its ownership or operation of the Assets in a material respect. This Section 3.10 does
not include any matters with respect to Environmental Laws, which are exclusively addressed in
Section 3.15, or Taxes, which are exclusively addressed in Section 3.8 and in Section 3.29 (to the
extent relating to Taxes).
Section 3.11
Material Contracts.
(a)
Schedule 3.11(a) sets forth all Contracts as of the Execution Date of the type
described below to which SWEPI is a party or by which SWEPI or any of the Assets are bound,
in each case, that will be binding on Newco after Closing in accordance with Section 5.19(b), but
excluding, in each case, (x) those Contracts that are cancelable without penalty on 30 days’ or less
prior written notice and (y) any Contract to which a Third Party operator of the Assets is (but
SWEPI is not) a party and by which SWEPI and any of the Assets are bound (for the avoidance of
doubt, for purposes of this Section 3.11, Newco will be deemed to be bound after Closing to any
Contract subject to a Required Consent that SWEPI retains as a Retained Asset pursuant to Section
5.16(c)) (the “Material Contracts”):
(i)
any Contract (excluding customary joint operating agreements
substantially in the form of the AAPL promulgated joint operating agreement
forms) that can reasonably be expected to result in aggregate payments by SWEPI
before Closing or Newco after Closing of more than $2,500,000 (net to SWEPI’s
(or, as of the consummation of the Merger, Newco’s) interest) during the current or
any subsequent calendar year (based solely on the terms thereof and current
volumes, without regard to any expected increase in volumes or revenues);
Exhibit 10.1
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(ii)
any Contract that can reasonably be expected to result in aggregate
revenues to SWEPI before Closing or Newco after Closing of more than $2,500,000
during the current or any subsequent calendar year (based solely on the terms
thereof and current volumes, without regard to any expected increase in volumes
or revenues);
(iii)
any Hydrocarbon or water (produced or fresh) purchase and sale,
acreage dedication, volume commitment, storage, marketing, transportation,
processing, gathering, treatment, separation, compression, balancing, fractionation,
disposal, handling, or similar Contract with respect to Hydrocarbons or water
(produced or fresh) produced from or attributable to SWEPI’s interest in the Assets
that is not terminable without penalty or other payment upon 60 days’ or less notice;
(iv)
any indenture, mortgage, deed of trust, loan, credit or note purchase
agreements, or sale-leaseback agreements, guaranties, bonds (other than operator’s
bonds required by the Railroad Commission of Texas or any other applicable
regulatory governmental authority), letters of credit, or similar financial agreements
or other agreements or instruments governing Indebtedness affecting the Assets or
that will affect Newco at Closing;
(v)
any Contract that constitutes a lease under which SWEPI is the
lessor or the lessee of real or personal property which lease (A) cannot be
terminated by SWEPI without penalty or other payment upon 60 days’ or less notice
and (B) involves an annual base rental of more than $2,500,000;
(vi)
any farmout or farmin agreement, participation agreement,
exploration agreement, development agreement, joint operating agreement, unit
agreement, or purchase and sale agreement, or other Contract that provides for the
purchase, exchange, farmin, or earning by SWEPI of any oil and gas lease or
mineral rights, other than customary joint operating agreements substantially in the
form of the AAPL promulgated joint operating agreement forms;
(vii)
any agreement regarding any partnership, Tax partnership, or joint
venture, or regarding any option, put or call, or right of first refusal triggered by the
transactions contemplated by this Agreement, with respect to the Assets or the
Subject Interests;
(viii)
any Contract that (A) contains or constitutes an existing area of
mutual interest agreement, (B) includes non-competition or non-solicitation
restrictions or other similar restrictions on SWEPI’s doing business, or (C) involves
the settlement, waiver, or release of any material rights of SWEPI or the
counterparty;
(ix)
any Contract to sell, lease, exchange, transfer, or otherwise dispose
of all or any part of the Assets (other than with respect to production of
Hydrocarbons in the ordinary course) from and after the Effective Time, but
Exhibit 10.1
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excluding rights of reassignment upon intent to abandon or release a Well or a
Lease;
(x)
any Contract under which SWEPI has the right to be “carried” by
another Person (i.e., have another Person pay its share of costs and expenses) or the
obligation to “carry” another Person (i.e., pay the costs and expenses of another
Person) with respect to, or in connection with, the ownership, operation, or
development of the Properties or any other assets or properties (or future assets or
properties);
(xi)
any Related Party Contract set forth on Schedule 5.7; and
(xii)
any agreement the primary purpose of which is the indemnification
of another Person.
(b)
The Material Contracts are in full force and effect as to SWEPI (as of the
Execution Date) and Newco (as of the Closing Date) and, to Seller’s Knowledge, are binding upon
the counterparties thereto in accordance with their terms. SWEPI is not (and, as of the Closing
Date, Newco will not be) in material breach or default under any Material Contract, and to Seller’s
Knowledge, no other Person that is a party thereto is in material breach or default under any
Material Contract. To Seller’s Knowledge, no event has occurred, which after notice or lapse of
time, or both, would constitute a material default under any Material Contract. No written notice
of default or breach has been received or delivered by SWEPI under any Material Contract, the
resolution of which is outstanding as of the Execution Date, and there are no current notices
received by SWEPI or Newco of the exercise of any premature termination, price redetermination,
market-out, or curtailment of any such Material Contract. Prior to the Execution Date, and except
to the extent not permitted due to confidentiality obligations, true, complete, and correct copies of
all Material Contracts have been made available to Buyer, including all amendments or
modifications thereto.
Section 3.12
Payments for Production and Imbalances. As of the Execution Date, SWEPI
is not (and, as of the Closing Date, Newco will not be) obligated by virtue of any take-or-pay
payment, advance payment, or other similar payment (other than Royalties reflected in the Leases)
to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to SWEPI’s (or, as of the
consummation of the Merger, Newco’s) interest in the Properties at some future time without
receiving payment therefor at or after the time of delivery. Except as set forth on Schedule 3.12,
there are no material Imbalances attributable to the Properties.
Section 3.13
Consents and Preferential Rights. Except as set forth on Schedule 3.13 (the
“Required Consents”), and subject to compliance with the HSR Act, (a) none of the Subject
Interests, the Assets or any portion of any of the foregoing, is subject to any Consents, except for
Customary Post-Closing Consents, and (b) there are no Consents required to be obtained, provided
or submitted by SWEPI in connection with the sale of the Subject Interests by Seller to Buyer, the
Reorganization, the execution, delivery and performance of this Agreement or the other
Transaction Documents, or the consummation of the transactions contemplated hereby or thereby.
None of the Subject Interests, the Assets or any portion of any of the foregoing is subject to any
Exhibit 10.1
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Preferential Rights or tag-along rights, drag-along rights or similar rights that may be applicable
to the transactions contemplated by this Agreement.
Section 3.14
Non-Consent Operations; Payout Status. Except as set forth on
Schedule 3.14, prior to the Closing Date, SWEPI has not (and, as of the Closing Date, neither
Newco nor SWEPI will have, except as approved by Buyer pursuant to Section 5.4) elected not to
participate in any operation or activity proposed with respect to the Properties that could result in
any of SWEPI’s (or, as of the consummation of the Merger, Newco’s) interest in such Properties
becoming subject to a penalty or forfeiture as a result of such election not to participate in such
operation or activity. To Seller’s Knowledge, Schedule 3.14 contains a complete and accurate list
of the status of any payout balances, as of the date set forth on such Schedule, for each Property
that is subject to a reversion or other adjustment at any level of cost recovery or payout or
Hydrocarbon production from or attributable to such Property (or passage of time or other event
other than termination of an Property by its terms), as of the dates shown on such schedule with
respect to each Property.
Section 3.15
Environmental Matters. Except as set forth on Schedule 3.15:
(a)
Neither SWEPI nor Newco has entered into, or is subject to, any agreement
with, or consent, order, injunction, decree or judgment of, any Governmental Authority issued
pursuant to Environmental Laws that requires any Remediation of or with respect to, or relating to
the ownership or operation of, any of the Assets, that imposes material obligations or liability on
SWEPI or Newco, or that would reasonably be expected to be material to SWEPI, Newco or the
ownership, operation, exploration or development of any of the Assets.
(b)
There is no material action, suit, or proceeding by any Third Party pending,
or to the Knowledge of Seller, threatened in writing, in connection with the ownership, operation
or use of the Assets arising under Environmental Laws.
(c)
To Seller’s Knowledge, there is no outstanding investigation or information
request made in writing by or claims or other pending actions initiated by a Governmental
Authority related to Environmental Laws with respect to the Assets and any act or omission by
SWEPI or Newco. To Seller’s Knowledge, there is no outstanding investigation or information
request made in writing by, or claims or other actions initiated by, a Governmental Authority
related to Environmental Laws with respect to the Assets and the act or omission of any Third
Party.
(d)
As of the Execution Date, neither SWEPI (nor, to Seller’s Knowledge, any
Third Party operator of the Assets) has received written notice that remains unresolved of any
condition on or with respect to any Asset, including notice of liability with respect to off-site
transportation, storage, treatment, recycling or disposal of Hazardous Substances, that, if true,
would constitute a material violation of, require material Remediation after the Closing Date, or
give rise to material obligations or liability under, any Environmental Laws or the environmental
provisions of any of the Leases or Contracts, in each case, by either SWEPI or Newco.
(e)
To Seller’s Knowledge, as of the Execution Date, SWEPI has (and, as of
the Closing Date, Newco will have) all material Permits required under Environmental Laws for
Exhibit 10.1
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the ownership or operation of the Assets, and all such Permits are in full force and effect, including
the timely filing of any renewal applications.
(f)
To Seller’s Knowledge, during SWEPI’s and Newco’s period of ownership,
the Assets have been owned and operated by SWEPI and Newco in compliance in all material
respects with all applicable Environmental Laws and the terms of any Permits issued pursuant
thereto and with the environmental provisions of the Leases and Contracts, except for prior
instances of non-compliance that have been fully and finally resolved.
(g)
To Seller’s Knowledge, except as would not constitute a Seller Material
Adverse Effect, no Environmental Condition exists with respect to the Assets or to the operations
of SWEPI or Newco with respect to the Assets.
(h)
Prior to the Execution Date, Seller has provided Buyer with all material
written environmental assessments, reports and audits and written notices from Governmental
Authorities relating to Environmental Laws in its possession or under its control as of the
Execution Date relating to the Assets.
Notwithstanding anything to the contrary herein, with respect to Assets that are operated by a
Person other than SWEPI or Newco, the representations and warranties set forth in this Section
3.15 are limited to the Knowledge of Seller.
The representations and warranties set forth in this Section 3.15 and in Section 3.19 represent the
sole and exclusive representations and warranties of Seller with respect to environmental matters,
including SWEPI’s and Newco’s compliance with Environmental Laws.
Section 3.16
Suspense Funds. As of September 10, 2021 and as of the date that is three
(3) days prior to the Closing Date, to Seller’s Knowledge, except as set forth on Schedule 3.16
(which Schedule 3.16 shall be updated by Seller, on or prior to Closing, to reflect any changes to
such Schedule 3.16 as of the date that is three (3) days prior to Closing), neither SWEPI nor Newco
holds any Third Party funds in suspense with respect to production of Hydrocarbons from any of
the Assets other than amounts less than the statutory minimum amount that SWEPI or Newco is
permitted to accumulate prior to payment.
Section 3.17
Bankruptcy. There are no bankruptcy, insolvency, reorganization,
receivership or similar proceedings pending against, being contemplated by or, to Seller’s
Knowledge, threatened against Seller or any Affiliate of Seller (including Newco).
Section 3.18
Ownership Structure and Interests. Following the Merger, there will be no
Interests in Newco other than the Subject Interests, and Non-Permian Newco will own, of record
and beneficially, 100 percent of the Subject Interests free and clear of any Encumbrance, and at
the Closing, Buyer will obtain good and valid title to the Subject Interests free and clear of any
Encumbrance. Seller is not, and at the Closing Seller and Non-Permian Newco will not be, party
to any voting trust or other agreement or understanding with respect to the voting, transfer or other
disposition of the Subject Interests. The rights and privileges of the Subject Interests will be as set
forth in Newco’s Organizational Documents.
Section 3.19
Wells. Except as set forth on Schedule 3.19:
Exhibit 10.1
- 16 -
(a)
all Wells have been drilled and completed at legal locations and within the
limits permitted by all applicable Leases, Contracts, and/or pooling or unit agreements;
(b)
no Well is subject to penalties on allowables because of any overproduction
or any other violation of Laws;
(c)
(i) neither SWEPI nor Newco has received any written notices or demands
from Governmental Authorities or other Third Parties to plug or abandon any Wells and (ii) there
are no Wells (a) that SWEPI or Newco as operator is currently obligated (directly or indirectly as
a working interest owner) by Law or Contract to plug or abandon that have not been plugged and/or
abandoned, as applicable, in accordance in all material respects with all applicable Laws and
Contracts, as applicable, (b) to the Knowledge of Seller, that a Third Party operator is currently
obligated (directly or indirectly as a working interest owner) by Law, Lease or Contract to plug or
abandon that have not been plugged and/or abandoned, as applicable, in accordance in all material
respects with all applicable Laws, Leases and Contracts, as applicable, (c) that have been plugged
or abandoned by Seller or its Affiliates (including Newco) (or to Seller’s Knowledge by any other
Person) in a manner that does not comply in all material respects with all applicable Laws, Leases
and Contracts, and (d) that are currently subject to exceptions to a requirement to plug or abandon
issued by a Governmental Authority;
provided
,
however
and abandon any Well resulting from the filing of Form W-3C with the Railroad Commission of
Texas shall not constitute such an exception;
(d)
As of the Execution Date, SWEPI has (and, as of the Closing Date, Newco
will have) (i) title to the Equipment free and clear of Encumbrances, other than Permitted
Encumbrances, or (ii) with respect to rented Equipment, a good and valid leasehold interest in such
Equipment;
provided
,
however
, that, with respect to Assets that are operated by a Person other than Seller or
its Affiliates (including Newco), the representations and warranties set forth in this Section 3.19
are limited to the Knowledge of Seller.
Section 3.20
Special Warranty of Title. Subject to the Permitted Encumbrances, Seller
warrants that (a) the Leases and Wells are free and clear of any Encumbrance made by, through or
under SWEPI, Newco, or any of their respective Affiliates prior to the Closing Date, but not
otherwise (provided, if any such Encumbrance would also result in a breach of any other
representation and warranty of Seller set forth in this Article 3 (without giving effect to the
indemnity limitations set forth in Article 9), Buyer shall be precluded from asserting such
Encumbrance as a breach of this Section 3.20(a)), and (b) none of SWEPI, Newco, or any of their
respective Affiliates have conveyed any Leases or Wells prior to the Execution Date or the Closing
Date to anyone outside of Newco;
provided, however
, that any Buyer claim for indemnification or
defense pursuant to Section 9.1(b)(ii) for Damages or Proceedings, as applicable, caused by,
related to, arising out of, or resulting from any breach of this Section 3.20 shall be limited to such
Damages or Proceedings, as applicable, caused by, relating to, arising out of, or resulting from
Third Person Claims.
Section 3.21
Permits. Except as set forth on Schedule 3.21, as of the Execution Date,
SWEPI has (and, as of the Closing Date, Newco will have) all, and, to the Knowledge of Seller,
Exhibit 10.1
- 17 -
each Third Party operator has all, material Permits required to permit the ownership and operation
of the Assets as presently owned and operated by SWEPI or such Third Party operator, as
applicable, and each is in full force and effect and has been duly and validly issued. The execution
and delivery of this Agreement and the consummation of the transactions contemplated hereby
will not result in any revocation, cancellation, suspension or modification of any such Permit.
There is no outstanding violation in any material respect of any of the Permits by either SWEPI or
Newco and, to the Knowledge of Seller, there is no outstanding violation in any material respect
of any of the Permits by any Third Party operator of the Assets. Section 3.21 does not include any
matters with respect to Environmental Laws, which are exclusively addressed in Section 3.15, or
Taxes, which are exclusively addressed in Section 3.8 and in Section 3.29 (to the extent relating
to Taxes).
Section 3.22
Royalties. Except as set forth on Schedule 3.22 and for such items that are
being held in suspense as permitted pursuant to applicable Law, each of SWEPI and Newco has
timely paid in all material respects all Royalties due by SWEPI or Newco, as applicable, with
respect to the Assets.
Section 3.23
Bonds, Letters of Credit and Guarantees. As of the Execution Date, SWEPI
has all bonds, letters of credit, guarantees, and other similar security arrangements necessary to
own the Assets and, with respect to all Assets operated by any Third Party, to the Knowledge of
Seller, such Third Party has all bonds, letters of credit, guarantees, and other similar security
arrangements necessary to operate such operated Assets. Such arrangements are set forth on
Schedule 3.23.
Section 3.24
Indebtedness. Except as set forth on Schedule 3.24, as of the Closing Date,
(a) Newco will not have any Indebtedness, and (b) no Asset will be burdened by any Encumbrances
for Indebtedness created by Seller or its Affiliates (including Newco).
Section 3.25
Condemnation. There is no pending or, to the Knowledge of Seller,
threatened in writing, taking (whether permanent, temporary, whole, or partial) of any material
part of the Assets by reason of condemnation or the threat of condemnation.
Section 3.26
Powers of Attorney; Bank Accounts. Newco will not have any (a) powers
of attorney or comparable delegations of authority outstanding or (b) accounts or safe-deposit
boxes with any banks, trust companies, savings and loan associations or other financial institutions.
Section 3.27
Anti-Corruption; Trade Controls.
(a)
With respect to Seller, Newco, the Subject Interests and the Assets, neither
Seller, Newco nor their respective officers and directors nor, to their Knowledge, any Person acting
on behalf of them (i) has violated Anti-Corruption Laws or Trade Control Laws, (ii) is a Restricted
Party, or (iii) whether directly or indirectly, has made, offered, authorized or accepted any
payment, gift, promise, or other advantage, to or for the use or benefit of any Government Official
or any other Person where that payment, gift, promise, or other advantage would comprise a
facilitation payment or otherwise violate the Anti-Corruption Laws or any other applicable Law,
or that would cause Buyer to be in breach of any Anti-Corruption Laws.
Exhibit 10.1
- 18 -
(b)
Seller maintains (i) adequate written policies and procedures to comply with
Anti-Corruption Laws and Trade Control Laws and (ii) adequate internal controls, including using
reasonable efforts to ensure that all transactions are accurately recorded and reported in its books
and records to reflect truly the activities to which they pertain, such as the purpose of each
transaction, with whom it was entered into, for whom it was undertaken, or what was exchanged.
Section 3.28
Leases. Except as set forth on Schedule 3.22, SWEPI is not (and, as of the
Closing Date, Newco will not be) in material breach of any terms and condition of the Leases.
Schedule 3.28 contains a true, correct, and complete list of all Leases that (a) are currently held by
payment of shut-in royalties, reworking operations, any substitute for production in paying
quantities, or any other means other than production in paying quantities, and (b) will expire,
terminate, or otherwise be materially impaired absent actions by or on behalf of SWEPI or Newco
(other than continued production in paying quantities) on or before a date that is 180 days after the
Closing Date.
Section 3.29
Employment Matters. Newco does not employ, and has never employed,
any individual as an employee. Newco does not sponsor or contribute to, or have any obligation
to contribute to, and has never sponsored or contributed to, or had any obligation to contribute to,
any Benefit Plan. There does not now exist, nor do any circumstances exist that could result in,
any Controlled Group Liability of Seller, Newco or any ERISA Affiliate that could reasonably be
expected to be a liability of the Buyer or its Affiliates (including Newco) following the Closing.
Section 3.30
Operatorship. As of the Execution Date, SWEPI has not received written
notice pursuant to and in accordance with the terms of any operating agreement with respect to the
Assets under which SWEPI is currently designated as the operator or, to the Knowledge of Seller,
any other notice with respect to any pending vote to remove SWEPI or any of its Affiliates as the
named “operator” of any of the Assets for which SWEPI or such Affiliate is currently designated
as “operator.” With respect to those swaps of Assets that SWEPI operates that are contemplated
and set forth on Schedule 3.11(a) or Schedule 5.4, Buyer acknowledges that operatorship for such
Assets may change pursuant to and upon the consummation of such swaps, and any such change
in operatorship shall not constitute a breach of this Section 3.30.
Section 3.31
Intellectual Property. Neither SWEPI nor Newco own any Intellectual
Property relating to the Assets. None of Seller or its Affiliates (including Newco) has interfered
with, infringed upon, misappropriated, or violated any material Intellectual Property Rights of
Third Parties in any material respect, and none of Seller or its Affiliates (including Newco) have
received any written notice asserting that the conduct of SWEPI’s or Newco’s operations with
respect to the Assets materially infringes upon or materially violates any Intellectual Property
Rights of any Person.
Section 3.32
Certain Disclaimers.
(a)
EXCEPT AS AND TO THE EXTENT EXPRESSLY REPRESENTED
AND WARRANTED OTHERWISE IN THIS ARTICLE 3, THE ASSIGNMENT
AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED AT THE
CLOSING PURSUANT TO SECTION 7.2(c) OR ANY ASSIGNMENT SELLER
DELIVERS TO NEWCO PURSUANT TO SECTION 5.16(c), SELLER EXPRESSLY
Exhibit 10.1
- 19 -
DISCLAIMS, AND BUYER WAIVES ANY REPRESENTATION OR WARRANTY,
EXPRESS, STATUTORY OR IMPLIED, IN THIS OR ANY OTHER INSTRUMENT,
AGREEMENT OR CONTRACT DELIVERED HEREUNDER OR IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER OR THEREUNDER,
INCLUDING ANY REPRESENTATION OR WARRANTY, ORAL OR WRITTEN, AS TO
(I) TITLE TO ANY OF THE SUBJECT INTERESTS OR THE ASSETS, (II) THE
CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM,
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT OR ANY
GEOLOGICAL, SEISMIC DATA, RESERVE DATA, RESERVE REPORTS, RESERVE
INFORMATION (ANY ANALYSIS OR INTERPRETATION THEREOF) RELATING TO
THE ASSETS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF
HYDROCARBONS IN OR FROM THE ASSETS, (IV) THE EXISTENCE OF ANY
PROSPECT, RECOMPLETION, INFILL OR STEP-OUT DRILLING OPPORTUNITIES,
(V) ANY ESTIMATES OF THE VALUE OF THE SUBJECT INTERESTS OR THE
ASSETS OR FUTURE REVENUES GENERATED BY SWEPI
OR THE ASSETS, (VI)
THE PRODUCTION OF PETROLEUM SUBSTANCES FROM THE ASSETS, OR
WHETHER PRODUCTION HAS BEEN CONTINUOUS OR IN PAYING QUANTITIES,
OR ANY PRODUCTION OR DECLINE RATES, (VII) THE MAINTENANCE, REPAIR,
CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE
ASSETS, (VIII) INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT, OR
(IX) ANY OTHER RECORD, FILES OR MATERIALS OR INFORMATION
(INCLUDING AS TO THE ACCURACY, COMPLETENESS OR CONTENTS OF THE
RECORDS) THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
BUYER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION
OR PRESENTATION RELATING THERETO (INCLUDING ANY ITEMS PROVIDED
IN CONNECTION WITH SECTION 5.1); AND EXCEPT AS AND TO THE EXTENT
EXPRESSLY REPRESENTED AND WARRANTED OTHERWISE IN THIS ARTICLE 3,
THE ASSIGNMENT AGREEMENT, THE CERTIFICATE OF SELLER TO BE
DELIVERED AT THE CLOSING PURSUANT TO SECTION 7.2(c) OR ANY
ASSIGNMENT SELLER DELIVERS TO NEWCO PURSUANT TO SECTION 5.16(c),
SELLER FURTHER DISCLAIMS, AND BUYER WAIVES, ANY REPRESENTATION
OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS OR ANY EQUIPMENT, IT BEING EXPRESSLY
UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT EXCEPT AS AND
TO THE EXTENT EXPRESSLY REPRESENTED AND WARRANTED OTHERWISE IN
THIS ARTICLE 3, THE ASSIGNMENT AGREEMENT, THE CERTIFICATE OF
SELLER TO BE DELIVERED AT THE CLOSING PURSUANT TO SECTION 7.2(c) OR
ANY ASSIGNMENT SELLER DELIVERS TO NEWCO PURSUANT TO SECTION
5.16(c), AND WITHOUT LIMITATIONS OF THE RIGHTS AND OBLIGATIONS IN
ARTICLE 9, THE ASSETS ARE BEING TRANSFERRED “
AS IS, WHERE IS
,” WITH
ALL FAULTS AND DEFECTS, AND THAT, AS OF CLOSING, BUYER HAS MADE OR
CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE.
Exhibit 10.1
- 20 -
(b)
EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN
THIS AGREEMENT, SELLER SHALL NOT HAVE ANY LIABILITY IN CONNECTION
WITH AND HAS NOT AND WILL NOT MAKE (AND HEREBY DISCLAIMS) ANY
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR
CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, ENVIRONMENTAL
CONDITIONS, ENVIRONMENTAL LIABILITIES, THE RELEASE OF HAZARDOUS
SUBSTANCES, HYDROCARBONS OR NORM INTO THE ENVIRONMENT OR THE
PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE
ASSETS, AND EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS
AGREEMENT NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS SUCH
A REPRESENTATION OR WARRANTY, AND BUYER SHALL BE DEEMED TO BE
TAKING THE SUBJECT INTERESTS AND ASSETS “
AS IS, WHERE IS
” FOR
PURPOSES OF THEIR ENVIRONMENTAL CONDITION. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE
WAIVED) ITS RIGHT TO INSPECT, THE ASSETS FOR ALL PURPOSES, AND
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION,
BOTH SURFACE AND SUBSURFACE, INCLUDING CONDITIONS SPECIFICALLY
RELATING TO THE PRESENCE, RELEASE, OR DISPOSAL OF HAZARDOUS
SUBSTANCES, SOLID WASTES, ASBESTOS, AND NORM. BUYER IS RELYING
SOLELY UPON THE TERMS OF THIS AGREEMENT, EACH TRANSACTION
DOCUMENT, AND ITS OWN INSPECTION OF THE ASSETS. AS OF CLOSING,
BUYER HAS MADE ALL SUCH REVIEWS AND INSPECTIONS OF THE ASSETS AND
THE RECORDS AS BUYER HAS DEEMED NECESSARY OR APPROPRIATE TO
CONSUMMATE THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.
(c)
WITHOUT LIMITING SELLER’S INDEMNITY AND DEFENSE
OBLIGATIONS SET FORTH IN SECTION 9.1(b), BUYER SHALL ASSUME ALL RISK
OF LOSS WITH RESPECT TO (i) CHANGES IN COMMODITY OR PRODUCT PRICES
AND ANY OTHER MARKET FACTORS OR CONDITIONS FROM AND AFTER
CLOSING; (ii) PRODUCTION DECLINES OR ANY ADVERSE CHANGE IN THE
PRODUCTION CHARACTERISTICS OR DOWNHOLE CONDITION OF ANY WELL,
INCLUDING ANY WELL WATERING OUT, OR EXPERIENCING A COLLAPSE IN
THE CASING OR SAND INFILTRATION, FROM AND AFTER CLOSING, AND (iii)
DEPRECIATION OF ANY ASSETS THAT CONSTITUTE PERSONAL PROPERTY
THROUGH ORDINARY WEAR AND TEAR.
(d)
SELLER AND BUYER AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE OR ENFORCEABLE, THE
DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS ARTICLE 3 AND THE REST OF THIS AGREEMENT ARE
“
CONSPICUOUS
” DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.
(e)
SELLER EXPRESSLY DISCLAIMS, AND BUYER WAIVES ANY
REPRESENTATION , WARRANTY, OR ASSURANCE, EXPRESS, STATUTORY OR
IMPLIED, IN THIS AGREEMENT OR ANY OTHER INSTRUMENT, AGREEMENT OR
CONTRACT DELIVERED HEREUNDER OR IN CONNECTION WITH THE
Exhibit 10.1
- 21 -
TRANSACTIONS CONTEMPLATED HEREUNDER OR THEREUNDER, ORAL OR
WRITTEN, REGARDING THE OPERATORSHIP OF ANY PORTION OF THE
PROPERTIES.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1
Generally.
(a)
Any representation or warranty qualified by the “Knowledge of Buyer” or
“to Buyer’s Knowledge” or with any similar knowledge qualification is limited to matters within
the Knowledge of the individuals listed in Schedule 4.1.
(b)
Buyer represents and warrants to Seller the matters set forth in this Article
4 as of the Execution Date (except for the representations and warranties that refer to a specified
date, which will be deemed made as of such date).
(c)
The disclosure of any matter in any section of a Schedule to a representation
and warranty of Buyer set forth in this Article 4 shall be deemed to be a disclosure for all other
sections in respect of which it is evident such matter relates, but shall expressly not be deemed to
constitute an admission by Buyer to otherwise imply that such matter is material for the purposes
of this Agreement.
Section 4.2
Existence and Qualification. Buyer is an entity duly organized, validly
existing, and in good standing under the Laws of the jurisdiction of its organization and is duly
qualified to do business in each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed or in good standing, individually or in the aggregate, has
not been and would not reasonably be expected to be material to Buyer.
Section 4.3
Organizational Power. Buyer has the requisite corporate power to enter into
and perform this Agreement and each Transaction Document to which it is or will be a party and
to consummate the transactions contemplated by this Agreement and such other Transaction
Documents except, where the failure to have such power, individually or in the aggregate, has not
been and would not reasonably be expected to be material to Buyer.
Section 4.4
Authorization and Enforceability. The execution, delivery, and performance
of this Agreement, all documents required to be executed and delivered by Buyer at Closing and
all other Transaction Documents to which Buyer is or will be a party, and the performance of the
transactions contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer (and all documents required hereunder to be executed and delivered by Buyer
at Closing and all other Transaction Documents will be duly executed and delivered by Buyer) and
this Agreement constitutes, and at the Closing such documents will constitute, the valid and
binding obligations of Buyer, enforceable in accordance with their terms except as such
enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights
and remedies of creditors generally as well as by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at Law).
Exhibit 10.1
- 22 -
Section 4.5
No Conflicts. Subject to compliance with the HSR Act, the execution,
delivery, and performance of this Agreement and the other Transaction Documents by Buyer, and
the transactions contemplated hereby and thereby, will not (a) violate any provision of the
Organizational Documents of Buyer, (b) result in a material default (with or without due notice or
lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of
termination, cancellation or acceleration under any material note, bond, mortgage, indenture, or
other financing instrument to which Buyer is a party, (c) violate any judgment, order, writ,
injunction, ruling, or decree in any material respect applicable to Buyer, or (d) violate any Laws
in any material respect applicable to Buyer or any of its assets.
Section 4.6
Liability for Brokers’ Fees. None of Seller or its Affiliates (including
SWEPI and Non-Permian Newco) shall directly or indirectly have any responsibility, liability or
expense, as a result of undertakings or agreements of Buyer or its Affiliates, for brokerage fees,
finder’s fees, agent’s commissions or other similar forms of compensation in connection with this
Agreement or any agreement or transaction contemplated hereby.
Section 4.7
Litigation. There are no actions, suits, or proceedings against Buyer pending
with or before any Governmental Authority or arbitrator, or, to Buyer’s Knowledge, threatened
(a) with respect to or affecting the assets of Buyer or any of its Subsidiaries other than any actions,
suits or proceedings that, individually or in the aggregate, have not had and would not reasonably
be expected to have, a Buyer Material Adverse Effect, or (b) that would materially impair, hinder,
or delay Buyer’s ability to perform its obligations under this Agreement or any Transaction
Document.
Section 4.8
Financing. Buyer will have at Closing sufficient cash, available lines of
credit or other sources of immediately available funds (in Dollars) to enable Buyer to pay the
Purchase Price to Seller at the Closing.
Section 4.9
Investment Intent. Buyer is an “accredited investor,” as such term is defined
in Regulation D of the Securities Act and will acquire the Subject Interests for its own account and
not with a view to a sale or distribution thereof in violation of the Securities Act, and any applicable
state blue sky Laws or any other applicable securities Laws.
Section 4.10
Independent Evaluation.
(a)
Buyer is knowledgeable of the oil and gas business and of the usual and
customary practices of oil and gas producers, has retained and taken advice concerning the Assets
and transactions herein from advisors and consultants which are knowledgeable about the oil and
gas business, and is aware of the risks inherent in the oil and gas business.
(b)
Buyer is a party capable of making such investigation, inspection, review
and evaluation of Newco and the Assets as a prudent purchaser would deem appropriate under the
circumstances including with respect to all matters relating to the Assets, their value, operation
and suitability.
(c)
In making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer has relied solely on the basis of its own independent due
diligence investigation of Newco and the Assets and the terms and conditions of this Agreement,
Exhibit 10.1
- 23 -
and Buyer has not relied on any representation or warranty, express, statutory or implied, oral or
written, or any other statement, oral or written, other than the representations and warranties
contained in Article 3, the Assignment Agreement or any assignment Seller delivers to Newco
pursuant to Section 5.16(c) or confirmed in the certificate of Seller to be delivered at the Closing
pursuant to Section 7.2(c).
Section 4.11
Consents, Approvals or Waivers. Subject to compliance with the HSR Act
and the matters set forth in Section 5.2, the Buyer’s execution, delivery, and performance of this
Agreement (and the other Transaction Documents to be executed and delivered by Buyer, and the
transactions contemplated hereby and thereby) is not and will not be subject to any consent,
approval, or waiver from any Third Party (other than any Governmental Authority), except for
Customary Post-Closing Consents.
Section 4.12
Bankruptcy. There are no bankruptcy, insolvency, reorganization or
receivership proceedings pending against, being contemplated by, or, to the Knowledge of Buyer,
threatened against Buyer or any of its Affiliates.
Section 4.13
Anti-Corruption; Trade Controls.
(a)
Buyer nor any of its officers and directors nor, to their Knowledge, any
Person acting on behalf of them (i) has violated Anti-Corruption Laws or Trade Control Laws, (ii)
is a Restricted Party, or (iii) whether directly or indirectly, has made, offered, authorized or
accepted any payment, gift, promise, or other advantage, to or for the use or benefit of any
Government Official or any other Person where that payment, gift, promise, or other advantage
would comprise a facilitation payment or otherwise violate the Anti-Corruption Laws or any other
Applicable Law, or that would cause Seller to be in breach of any Anti-Corruption Laws.
(b)
Buyer and its Affiliates maintain (i) adequate written policies and
procedures to comply with Anti-Corruption Laws and Trade Control Laws and (ii) adequate
internal controls, including using reasonable efforts to ensure that all transactions are accurately
recorded and reported in its books and records to reflect truly the activities to which they pertain,
such as the purpose of each transaction, with whom it was entered into, for whom it was
undertaken, or what was exchanged.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1
Access.
(a)
Between the Execution Date and the Closing Date (or earlier termination of
this Agreement), Seller will, and will cause its Affiliates (including Newco) to, give Buyer and its
Representatives reasonable access to the Assets in Seller’s or its Affiliates’ possession or control,
Seller’s and its Affiliates’ personnel knowledgeable about the Assets, the Subject Interests, and
Newco, and access to and the right to copy (or electronic copies of), at Buyer’s sole cost, risk, and
expense, the books and records of Seller, SWEPI and Newco in Seller’s or its Affiliates’ possession
or control (including any other information in Seller’s or its Affiliates’ possession or control that
is reasonably requested by Buyer), for the purpose of conducting a reasonable due diligence review
of the Assets, the Subject Interests, and Newco, except to the extent that Seller may not do so due
Exhibit 10.1
- 24 -
to any obligations to any Third Party after the use of commercially reasonable efforts to have such
obligations waived. Buyer shall be entitled to conduct a Phase I Environmental Site Assessment
of the Assets in SWEPI’s possession or control and may conduct visual inspections and record
reviews relating to the Assets in SWEPI’s possession or control, including their condition and
compliance with Environmental Laws,
provided
, that Buyer (and its Representatives) shall not
operate any equipment or conduct any invasive testing or sampling of soil, groundwater or other
materials (including any testing or sampling for Hazardous Substances, Hydrocarbons or NORM)
on or with respect to the Assets without the prior written consent of Seller, which consent Seller
may grant or deny in its sole discretion. Further, Buyer shall provide Seller with a copy of Buyer’s
Phase I Environmental Site Assessment.
(b)
Buyer’s investigation shall be conducted in a manner that minimizes
interference with the operation of the Assets. Buyer shall coordinate its access rights with Seller
to reasonably minimize any inconvenience to or interruption of the conduct of business by Seller,
and Seller shall have the right to accompany Buyer (and any Representative of Buyer) in
connection with any physical inspection of the Assets.
(c)
Buyer acknowledges that, pursuant to its right of access to the Assets, Buyer
will become privy to confidential and other information of Seller and its Affiliates and that such
confidential information (which includes Buyer’s conclusions with respect to its evaluations) shall
be held confidential by Buyer in accordance with the terms of the Confidentiality Agreement and
Section 5.3(b) and any applicable privacy Laws regarding personal information.
(d)
In connection with the rights of physical access, examination and inspection
granted to Buyer under this Section 5.1,
WITHOUT PREJUDICE TO ANY BUYER CLAIMS
FOR INDEMNIFICATION OR DEFENSE PURSUANT TO SECTION 9.1(b)
(INCLUDING SUCH CLAIMS RELATED TO SELLER’S BREACH OF SECTION 3.15)
OR OTHERWISE UNDER THIS AGREEMENT, BUYER HEREBY AGREES TO
INDEMNIFY AND HOLD HARMLESS, AND DEFEND, SELLER, ITS AFFILIATES,
AND EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ADVISORS AND OTHER REPRESENTATIVES FROM AND AGAINST (AND
BUYER AGREES TO WAIVE, AND RELEASE SUCH PERSONS FROM AND AGAINST,
ANY CLAIMS BUYER MAY HAVE AGAINST SUCH PERSONS FOR) ANY AND ALL
DAMAGES OR PROCEEDINGS, AS APPLICABLE, ATTRIBUTABLE TO PERSONAL
INJURY, DEATH OR PHYSICAL PROPERTY DAMAGE, ARISING OUT OF,
RESULTING FROM OR RELATING TO ANY FIELD VISIT OR OTHER DUE
DILIGENCE ACTIVITY CONDUCTED BY BUYER WITH RESPECT TO THE ASSETS
OR TO ANY VIOLATION OF ANY OF THE FOREGOING PERSON’S RULES,
REGULATIONS, OR OPERATING POLICIES (PROVIDED THAT SUCH RULES,
REGULATIONS OR OPERATING POLICIES ARE MADE AVAILABLE TO BUYER IN
ADVANCE OF OR DURING BUYER’S DUE DILIGENCE EVALUATION), EVEN IF
SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE
SOLE, ACTIVE, PASSIVE, CONCURRENT, OR COMPARATIVE NEGLIGENCE,
STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW BY SELLER, ITS
AFFILIATES, EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ADVISORS AND OTHER REPRESENTATIVES, BUT SHALL
EXCLUDE: (i) LIABILITIES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
Exhibit 10.1
- 25 -
MISCONDUCT OF THE APPLICABLE INDEMNIFIED PERSON, OR (ii) ANY
ENVIRONMENTAL LIABILITIES DISCOVERED OR UNCOVERED AS A RESULT OF
SUCH EXAMINATION OR INSPECTION TO THE EXTENT THE PHYSICAL
CONDITIONS GIVING RISE TO ANY SUCH ENVIRONMENTAL LIABILITIES WERE
NOT EXACERBATED BY SUCH EXAMINATION OR INSPECTION.
Section 5.2
Government Reviews. In a timely manner, the Parties shall (a) make all
required filings, prepare all required applications and conduct negotiations with each
Governmental Authority as to which such filings, applications or negotiations are necessary or
appropriate in the consummation of the transactions contemplated hereby and (b) provide such
information as each may reasonably request to make such filings, prepare such applications and
conduct such negotiations. Each Party shall reasonably cooperate with and use all reasonable
efforts to assist the other with respect to such filings, applications, and negotiations. Without
limiting the foregoing, in the event the Parties determine that filings by the Parties are required
under the HSR Act, then within ten Business Days following the execution by Buyer and Seller of
this Agreement, Buyer and Seller will each prepare and simultaneously file with the DOJ and the
FTC the notification and report form required by the HSR Act for the transactions contemplated
by this Agreement, and request early termination of the waiting period thereunder. Buyer and
Seller agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings
and to comply in all material respects with the filing requirements of the HSR Act. Buyer and
Seller shall cooperate with each other and shall promptly furnish all information to the other Party
that is necessary in connection with Buyer’s and Seller’s compliance with the HSR Act;
provided,
however
, that (i) any materials concerning valuation of the transaction may be redacted, and (ii)
each of the Parties, as each deem advisable and necessary, may reasonably designate any
competitively sensitive material provided to the other under this Section 5.2 as “counsel only” and,
in such event, such material and the information contained therein shall be given only to the outside
legal counsel of the recipient and shall not be disclosed by such counsel to non-legal directors,
officers, employees or other advisors or representatives of the recipient unless prior consent is
obtained in advance from the source of the materials or its legal counsel. Buyer and Seller shall
keep each other fully advised with respect to any requests from or communications with the DOJ
or FTC concerning such filings and shall consult with each other with respect to all responses
thereto. Buyer and Seller agree not to participate, or to permit their Affiliates or representatives to
participate, in any substantive meeting or discussion with any Governmental Authority in
connection with the transactions contemplated by this Agreement unless it so consults with the
other Party in advance and, to the extent not prohibited by such Governmental Authority, gives
the other Party the opportunity to attend and participate duly represented by its external counsel.
The Parties shall use their reasonable efforts in connection with any HSR Act filing and to secure
any required approval from the antitrust agencies to consummate the transactions contemplated
hereby;
provided, however,
that nothing in this Agreement shall require Buyer or any of its
Affiliates to take any action to, consent or proffer to divest, hold separate, or enter into any license
or similar agreement with respect to, or agree to restrict the ownership or operation of, any business
or assets of Buyer, Newco, Seller, or any of their respective Affiliates. Notwithstanding anything
to the contrary herein, in no event shall Buyer or any of its Affiliates be obligated to litigate or
participate in the litigation of any action, whether judicial or administrative, brought by any
Governmental Authority or appeal any order challenging or seeking to make illegal, delaying
materially or otherwise directly or indirectly restraining or prohibiting the consummation of the
Exhibit 10.1
- 26 -
transactions contemplated hereby. All filing fees incurred in connection with the HSR Act filings
made pursuant to this Section 5.2 shall be paid by Buyer.
Section 5.3
Public Announcements; Confidentiality.
(a)
From and after the Execution Date and through the Closing Date, no Party
shall make (or cause any Affiliate or Newco to make) any press release or other public
announcement, including any press release or other public announcement through social media,
regarding the existence of this Agreement, the contents hereof or the transactions contemplated
hereby without the prior written consent of the other Party (collectively, the “Public
Announcement Restrictions”), which consent shall be requested no fewer than five Business Days
prior to the date on which the relevant press release or other public announcement is desired to be
made. The Public Announcement Restrictions shall not restrict disclosures to the extent (i)
necessary for a Party to perform this Agreement (including disclosures to Governmental
Authorities or Third Parties holding rights of consent or other rights that may be applicable to the
transaction contemplated by this Agreement, as reasonably necessary to provide notices, seek
waivers, amendments or termination of such rights, or seek such consents), (ii) required (upon
advice of counsel) by applicable securities or other Laws or regulations or the applicable rules of
any stock exchange having jurisdiction over the Parties or their respective Affiliates, or (iii)
consistent with prior press releases or other public announcements agreed in writing by the other
Party or otherwise made in compliance with this Section 5.3(a) or any presentation,
communication plan or strategy previously agreed to in writing by the other Party (for the
avoidance of doubt, the Public Announcement Restrictions shall not (x) restrict disclosures made
in an earnings release, earnings call, or other communication with current or potential investors or
financial analysts that is consistent with any such press release, public announcement, presentation,
communication plan or strategy that is permitted pursuant to subsection (iii) of this Section 5.3(a)
or (y) restrict Buyer from communicating with any counterparty to a Lease, Surface Contract or
Contract about any matter that Buyer is permitted to disclose pursuant to this Section 5.3(a) or that
is not otherwise subject to a Confidentiality Restriction). In the case of the disclosures described
under subsections (i) and (ii) of this Section 5.3(a), each Party shall use its best efforts to consult
with the other Party regarding the contents of any such release or announcement prior to making
such release or announcement.
(b)
The Parties shall keep all information and data relating to (i) this
Agreement, the contents hereof, and the transactions contemplated hereby and (ii) the Assets, in
each case, strictly confidential (and shall cause its Affiliates to keep such information and data
confidential) except for (i) disclosures to Representatives of the Parties (
provided
,
however
, that
such Representatives are first directed by the disclosing Party to treat such information in
accordance with the terms of this Agreement and, in each case, the disclosing Party will be
responsible for making sure that the Representatives keep such information and data confidential)
to the extent required to perform this Agreement, (ii) disclosures by Seller of such information and
data to its Affiliate or to the employees, officers, directors, members, equity owners or counsel of
Seller or any of its Affiliates to the extent necessary for use in internal operations by Seller or its
Affiliates (
provided
,
however
, that Seller will be responsible for making sure that such Persons
keep such information and data confidential), and (iii) information that is or becomes known to
the public other than as a result of a breach of this Agreement (collectively, the “Confidentiality
Restrictions”).
Exhibit 10.1
- 27 -
(c)
The Confidentiality Restrictions shall not restrict disclosures that are (i)
required (upon advice of counsel) by applicable securities or other Laws or regulations or the
applicable rules of any stock exchange having jurisdiction over the Parties or their respective
Affiliates; (ii) necessary for a Party to perform this Agreement (including disclosures to
Governmental Authorities or Third Parties holding rights of consent or other rights that may be
applicable to the transaction contemplated by this Agreement, as reasonably necessary to provide
notices, seek waivers, amendments or termination of such rights, or seek such consents); (iii)
necessary for a Party to enforce its rights under this Agreement or to defend any claim brought or
threatened by any other Party to this Agreement, or such Party’s Affiliates; or (iv) permitted or not
restricted pursuant to Section 5.3(a). In the case of the disclosures described under subsections (i)
and (ii) of this Section 5.3(c), each Party shall use its commercially reasonable efforts to consult
with the other Party regarding the contents of any such disclosure prior to making such disclosure.
(d)
To the extent that the foregoing provisions of this Section 5.3 conflict with
the provisions of the Confidentiality Agreement, the provisions of this Section 5.3 shall prevail
and control to the extent of such conflict. If Closing should occur, the Confidentiality Agreement
shall terminate as of the Closing and the Confidentiality Restrictions set forth in this Section 5.3
shall terminate as to Buyer and its Affiliates (including Newco) at Closing.
Section 5.4
Operation of Business. Except (i) for the operations set forth on
Schedule 3.9 or Schedule 5.4, (ii) as required in the event of an emergency to protect life, property
or the environment, (iii) as may be required by Law, (iv) as permitted or otherwise contemplated
by this Agreement, or (v) as otherwise approved in writing by Buyer, which approval shall not be
unreasonably withheld, conditioned, or delayed and without limiting any disclaimer expressly
made by Seller in this Agreement, from the Execution Date until the Closing Date, Seller shall and
shall cause SWEPI and Newco (following the Merger) to:
(a)
conduct its business, in accordance with its ordinary course of business,
consistent with past practice, and subject to interruptions resulting from force majeure, mechanical
breakdown or planned maintenance, and conduct its business related to the Assets in compliance
with the Leases, Contracts and all applicable Laws;
(b)
not resign SWEPI’s or Newco’s, as the case may be, position as operator
with respect to any of the Assets, or abandon any of the Assets, other than as required pursuant to
the terms of any agreement or as required by applicable Law;
(c)
except for (i) those capital expenditures by SWEPI provided for in the
capital expenditure budget set forth on Schedule 5.4, and (ii) capital expenditures to repair damage
resulting from insured casualty events or required on an emergency basis for the safety of
individuals, assets or the environment, not authorize, propose, or commit to any operation
reasonably anticipated by Seller to cost the owner of the Assets more than $2,500,000 per activity,
net to SWEPI’s (or, as of the consummation of the Merger, Newco’s) interest;
(d)
(i) not take any affirmative action to terminate, materially amend, execute
or extend any Leases (except as specifically described on Schedule 5.4), (ii) except for those
amendments, waivers, modifications or extensions to Material Contracts resulting from operations
set forth on Schedule 5.4 (to the extent the terms of such amendments, waivers, modifications or
Exhibit 10.1
- 28 -
extensions are expressly set forth on Schedule 5.4), not terminate, materially amend, waive,
modify, or extend any Material Contracts, and (iii) not enter into any new contract which would
constitute a Material Contract if executed prior to the Execution Date or amend a Contract that by
virtue of the amendment makes such Contract a Material Contract; in each case, other than the
execution or extension of a Contract for the sale, exchange, or marketing of oil, gas and/or other
Hydrocarbons in the ordinary course of business and terminable without penalty on 60 days’ or
shorter notice;
(e)
not enter into or extend any Surface Contract other than (i) the extension of
the term of those Surface Contracts described in Schedule 5.4 and (ii) the execution of a Surface
Contract that (x) contains terms typically and customarily included in similar instruments in the
oil and gas industry and (y) would not reasonably be expected to result in aggregate payments by
Newco after Closing of more than $250,000 (net to SWEPI’s (or, as of the consummation of the
Merger, Newco’s) interest) during the current or any subsequent calendar year;
(f)
maintain all material insurance policies in the amounts and of the types
presently in force with respect to the Assets and the operations and activities of SWEPI and, as of
the consummation of the Merger, Newco;
(g)
maintain the books, accounts and records of SWEPI with respect to the
Assets and, upon consummation of the Merger, Newco in the ordinary course of business
consistent with past practice and in compliance with all applicable Laws and contractual
obligations;
(h)
promptly notify Buyer of any material emergency affecting Newco’s
business or the Assets;
(i)
promptly notify Buyer of, and not settle or compromise, any material
actions, suits or proceedings filed with any Governmental Authority, or threatened in writing
against SWEPI or Newco with respect to the Assets, Newco or the transactions contemplated by
this Agreement;
(j)
not amend or otherwise change the Organizational Documents of Newco;
(k)
maintain all Permits, approvals, bonds and guaranties affecting the Assets,
and make all filings that Seller and its Affiliates are required to make under applicable Law with
respect to the Assets;
(l)
not transfer, sell, hypothecate, encumber or otherwise dispose of any Assets
except for (i) sales and dispositions of Hydrocarbons or equipment and materials made in the
ordinary course of business consistent with past practices, which in the case of equipment and
materials, are replaced with equipment and materials of comparable or better value and utility in
connection with the maintenance, repair, and operation of the Assets and (ii) other sales and
dispositions of the Assets (other than Properties and Surface Contracts) not exceeding $1,000,000
in the aggregate;
(m)
promptly notify Buyer of any written notice received by Seller, SWEPI, or
Newco of any material violation of any Environmental Laws relating to Newco or the Assets where
Exhibit 10.1
- 29 -
such violation has not been previously cured or otherwise resolved to the written satisfaction of
the relevant Governmental Authority;
(n)
not issue, sell, pledge, transfer, or dispose of, or otherwise subject to any
Encumbrance, any of the Subject Interests or any other Interest of Newco, or any options, warrants,
convertible securities or other rights of any kind to acquire any such Subject Interests or any other
Interest of Newco;
(o)
not declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, the Subject Interests;
(p)
not reclassify, combine, split, subdivide or redeem, or purchase or otherwise
acquire, directly or indirectly, the Subject Interests, or make any other change with respect to
Newco’s capital structure;
(q)
not acquire any Interest in any corporation, partnership, limited liability
company, other business organization or division thereof or any material amount of assets, or enter
into any joint venture, strategic alliance, exclusive dealing, noncompetition or similar contract or
arrangement other than acquisitions as to which the aggregate amount of the consideration paid or
transferred by Newco in connection with all such acquisitions would not exceed $2,500,000 or
would be permitted under Section 5.4(d);
(r)
not adopt any plan or agreement of complete or partial liquidation,
dissolution, restructuring, recapitalization, merger, consolidation or other reorganization or
otherwise effect any transaction that would alter Newco’s limited liability company structure;
(s)
not incur any Indebtedness or issue any debt securities or assume, guarantee
or endorse, or otherwise become responsible for, the obligations of any Person, or make any loans
or advances;
(t)
not make, compromise or forgive any loans, advances, or capital
contributions to, or investments in, any other Person;
(u)
not make any change in any method of accounting or accounting practice or
policy, except as required by GAAP;
(v)
except in the ordinary course of business (and, in each case, as would not
materially affect Buyer or any of its Affiliates, Newco or the Assets), not (i) make, change or
revoke any Tax election (including making any election for Newco to be treated as an association
taxable as a corporation for U.S. federal income tax purposes or applicable state or local Tax
purposes), (ii) change any annual Tax accounting period, (iii) change any method of accounting
for Tax purposes, (iv) commence, settle, or compromise any claim or assessment in respect of any
Taxes or any other Tax Proceeding, (v) file any Tax Returns other than in a manner that is
consistent with past practice, except to the extent required by applicable Law, (vi) file any amended
Tax Return, (vii) agree to an extension or waiver of the statute of limitations with respect to the
assessment, collection or determination of any Taxes, (viii) enter into any closing agreement with
respect to any Taxes, (ix) grant any power of attorney with respect to Taxes, (x) surrender any
right to claim a Tax refund, or (xi) enter into any Tax allocation, Tax sharing, Tax receivable, Tax
Exhibit 10.1
- 30 -
indemnity agreement or other similar agreement or arrangement, or any closing or other agreement
relating to Taxes;
(w)
not take any action that would or would reasonably be expected to prevent
or materially delay the Closing and the consummation of the transactions contemplated by this
Agreement; and
(x)
not enter into an agreement or commitment that would cause Newco to
violate any of the foregoing clauses (a) through (w).
Requests for approval of any action restricted by this Section 5.4 shall be delivered to the following
individual, who shall have full authority to grant or deny such requests for approval on behalf of
Buyer;
provided
, that such approval shall not be unreasonably withheld, conditioned or delayed:
Danny Yick
Sr. Director
Acquisitions & Divestitures
925 N. Eldridge Parkway
Houston, Texas 77079
SP1-21-21-N096
Danny.H.Yick@conocophillips.com
Buyer’s approval of any action restricted by this Section 5.4 shall be considered granted within ten
days after Seller’s notice to Buyer requesting such consent unless Buyer notifies Seller to the
contrary during that period. In the event of an emergency, Seller (or SWEPI or Newco) may take
such action as a reasonably prudent owner or operator would take and shall notify Buyer of such
action promptly thereafter. In cases in which neither Seller nor any of its Affiliates (including
SWEPI and Newco) is the operator of any portion of the Assets, to the extent that the actions
described in this Section 5.4 may only be taken by (or are the primary responsibility of) the
operator of such Assets, the provisions of this Section 5.4 shall be construed to require only that
Seller use, or cause Newco to use, commercially reasonable efforts to cause the operator(s) of such
Assets to take such actions within the constraints of the applicable operating agreements and other
applicable agreements.
Section 5.5
Amendment to Schedules. At any point prior to the date that is five Business
Days prior to Closing, Seller shall have the right to supplement its Schedules relating to the
representations and warranties set forth in Article 3 with respect to any matters first occurring
subsequent to the Execution Date (including with respect to any matters taken by Seller in
accordance with, but not in violation of, Section 5.4). However, all such supplements (except with
respect to matters taken by Seller in accordance with Section 5.4) shall be disregarded for all
purposes, including determining whether the conditions to Buyer’s obligation to close the
transaction pursuant to Section 6.2(a) and Section 6.2(b) have been satisfied;
provided
,
however
,
if Seller has supplemented its Schedules pursuant to this Section 5.5, and based upon the matters
relating to such supplements (other than matters taken by Seller in accordance with Section 5.4),
Buyer’s obligation to close the transactions pursuant to Section 6.2(a) and Section 6.2(b) have not
been satisfied but Buyer nevertheless elects to close the transactions contemplated hereunder,
Buyer will be deemed to have waived only the matters disclosed pursuant to any such supplement
Exhibit 10.1
- 31 -
which gave rise to Buyer’s right to not close the transactions contemplated by this Agreement (for
the avoidance of doubt, no matter set forth in any such supplement will be taken into account for
purposes of, and will not affect Buyer’s remedies under, Section 9.1(b)(ii) with respect to any
breaches of Seller’s representations and warranties related to the Assets that do not individually or
in the aggregate give rise to a failure of a condition precedent to Buyer’s obligation to close the
transaction contemplated by this Agreement contained in Section 6.2(a)).
Section 5.6
Further Assurances. After Closing, the Parties agree to take such further
actions and to execute, acknowledge and deliver all such further documents as are reasonably
requested by the other Party for carrying out the purposes of this Agreement or any other
Transaction Document.
Section 5.7
Related Party Contracts. Except as set forth on Schedule 5.7, no Related
Party Contracts shall be allocated to Newco or included in the Assets.
Section 5.8
Conduct of Buyer. Except with the prior written consent of Seller, from the
Execution Date until the Closing, Buyer shall not take any action that would or would reasonably
be expected to prevent or materially delay the Closing and the consummation of the transactions
contemplated by this Agreement.
Section 5.9
Employee Matters. Seller and Buyer shall comply with the terms and
conditions with respect to employee matters and personal data protection set forth in Schedule
5.9(a) and Schedule 5.9(b), respectively.
Section 5.10
Bonds, Letters of Credit and Guarantees. The Parties acknowledge and
agree that none of the bonds, letters of credit and guarantees listed on Schedule 3.23, which have
been posted by Seller or its Affiliates (other than Newco) with Governmental Authorities and relate
to the Assets for the benefit of Newco, may be transferable to Buyer. Promptly following Closing,
Buyer shall obtain, or cause to be obtained in the name of Buyer or its Affiliate (including Newco),
as applicable, replacements for such bonds, letters of credit and guarantees, to the extent such
replacements are necessary to permit cancellations of such bonds, letters of credit and guarantees
posted by Seller or its Affiliates (other than Newco) with respect to the Assets or to consummate
the transactions contemplated by this Agreement.
Section 5.11
Transition Services Agreement. From the Execution Date until the Closing
Buyer and Seller shall take commercially reasonable efforts to negotiate a transition services
agreement that contains terms substantially similar to those set forth on Exhibit C and such other
terms that are mutually acceptable to the Parties (the “Transition Services Agreement”). For the
avoidance of doubt, the Parties’ covenants and obligations pursuant to this Section 5.11 shall not
be conditions precedent to Closing pursuant to Section 6.1 and Section 6.2 or be the basis upon
which either Party may terminate this Agreement pursuant to Section 8.1.
Section 5.12
Use of Name. On or before 90 days after Closing (or earlier to the extent
required by Laws), at Buyer’s cost, Buyer will remove, or cause to be removed, from the Assets,
the name, logo and service mark of Seller and its Affiliates, and all variations and derivations
thereof (including any reference to “Shell”) and will not thereafter make use thereof.
Exhibit 10.1
- 32 -
Section 5.13
Records. Subject to the limitations contained in this Agreement, Seller shall
deliver to Buyer copies of the Records, in the current written or electronic format of such Records,
to the extent possible at Closing, but in any event, within 90 days after Closing, to the extent not
already delivered by Seller. Any electronic information or data provided shall be in the same
format as that then currently used by Seller, and Seller shall not be required to perform or create
additional programming or system support in connection therewith. Seller may exercise or redact
Records to remove information that does not constitute a Record. Seller may retain photocopies or
electronic images of the Records;
provided
, that Seller shall keep confidential and not disclose any
such Records that are not public information pursuant to the terms of Section 5.3. Seller and Buyer
shall each appoint one focal point for coordination of the transfer of the Records.
Section 5.14
Insurance.
(a)
Buyer acknowledges and agrees that (i) no insurance policies arranged for
the benefit of, or provided to, Seller or any member of the Seller Group, including any current
insurance policies relating to the business or assets of the Seller shall continue after Closing, (ii)
Buyer shall not, and shall procure that no member of the Buyer Group shall, make any claims
under any such insurance policies or insurance coverage in respect of facts, events or
circumstances arising prior to the Closing and (iii) from the Execution Date and until Closing,
Seller shall ensure that all policies of insurance relating to the business or Assets in force as of the
Execution Date are kept in force in accordance with past practices (the “Current Insurance
Policies”). In the event Seller becomes aware of any fact, event or circumstance arising after the
Execution Date and prior to Closing in respect of which a claim may be made under the Current
Insurance Policies, Seller shall (i) file a claim in respect of such event or circumstance and (ii) use
reasonable endeavours to have such claim paid at or prior to Closing, in each case in accordance
with its customary past practices. In the event that such a claim is not paid prior to Closing,
notwithstanding anything else in this Section 5.14, Seller shall use reasonable endeavours to pursue
payment in respect of such a claim on behalf of Buyer and Buyer shall have the right to receive
any payment made in respect of any such claim made prior to the Closing as, when and to the
extent such claim shall be paid.
(b)
In the event any tangible assets of Newco are destroyed or damaged, in
whole or in part, by fire or other casualty prior to the Closing Date, then, in lieu of making a claim
in accordance with this Section 5.14, Seller shall have the option to repair or replace (with similar
grade and quality) such damaged assets on or before the Closing Date, in which case, neither
Newco nor Buyer shall have any right, claim or title to any insurance proceeds.
(c)
Buyer further hereby acknowledges and agrees that no historic insurance
coverage provided by or to Seller or Newco, including the Current Insurance Policies, shall be
available to the Buyer or Newco after Closing, with the exception of insurance coverages required
by statute or law and, in such limited instances, only to the extent that the policies provide such
historical coverage. Buyer further acknowledges and agrees that it has no right, title or interest in
any unearned premiums on any policies maintained by or for the benefit of Seller or any member
of the Seller Group.
Exhibit 10.1
- 33 -
Section 5.15
Anti-Bribery and Corruption.
(a)
Without limitation to Section 3.10 or Section 3.27, Seller:
(i)
is aware of, during the period between the Execution Date and the
Closing Date will comply with, and has not violated, Anti-Corruption Laws or
Trade Control Laws and is not a Restricted Party;
(ii)
whether directly or indirectly, has not made, offered, authorized or
accepted and will not make, offer, authorize, or accept any payment, gift, promise,
or other advantage, to or for the use or benefit of any Government Official or any
other Person where that payment, gift, promise, or other advantage would comprise
a facilitation payment or otherwise violate the Anti-Corruption Laws or any other
applicable Law, or that would cause Buyer to be in breach of any Anti-Corruption
Laws;
(iii)
has maintained and will maintain adequate written policies and
procedures to comply with Anti-Corruption Laws;
(iv)
has maintained and will maintain adequate internal controls,
including using reasonable efforts to ensure that all transactions are accurately
recorded and reported in its books and records to reflect truly the activities to which
they pertain, such as the purpose of each transaction, with whom it was entered
into, for whom it was undertaken, or what was exchanged;
(v)
will, to its Knowledge, retain such books and records for the period
required by applicable Law or Seller’s own retention policies, whichever is longer;
(vi)
is not a Government Official, and to the best of its Knowledge
exercising reasonable diligence, no officer, agent or employee engaged by Seller or
acting on Seller’s behalf is a Government Official;
(vii)
will, in the event Seller becomes aware it has breached an obligation
in this paragraph, promptly notify Buyer, subject to the preservation of legal
privilege; and
(viii)
shall make payments to Buyer, except with Buyer’s prior written
consent.
(b)
Without limitation to Section 4.13, Buyer:
(i)
is aware of, during the period between the Execution Date and the
Closing Date will comply with, and has not violated, Anti-Corruption Laws or Trade
Control Laws and is not a Restricted Party;
(ii)
whether directly or indirectly, has not made, offered, authorized, or
accepted and will not make, offer, authorize, or accept any payment, gift, promise, or other
advantage, to or for the use or benefit of any Government Official or any other Person
Exhibit 10.1
- 34 -
where that payment, gift, promise, or other advantage would comprise a facilitation
payment or otherwise violate the Anti-Corruption Laws or any other applicable Law, or
which would cause Seller to be in breach of any Anti-Corruption Laws;
(iii)
has maintained and will maintain adequate written policies and
procedures to comply with Anti-Corruption Laws;
(iv)
has maintained and will maintain adequate internal controls,
including using reasonable efforts to ensure that all transactions are accurately recorded
and reported in its books and records to reflect truly the activities to which they pertain,
such as the purpose of each transaction, with whom it was entered into, for whom it was
undertaken, or what was exchanged;
(v)
will, to its Knowledge, retain such books and records for the period
required by applicable Law or Buyer’s own retention policies, whichever is longer;
(vi)
is not a Government Official, and to the best of its Knowledge
exercising reasonable diligence, no officer, agent or employee engaged by Buyer or acting
on Buyer’s behalf is a Government Official;
(vii)
will, in the event it becomes aware it has breached an obligation in
this paragraph, promptly notify Seller, subject to the preservation of legal privilege;
(viii)
and any Person who has acted on its behalf in connection with this
Agreement has not been and is not now involved in internal or external investigations or
discussions with any Governmental Authority related to potential or actual breaches of
Trade Control Laws or Anti-Corruption Laws;
(ix)
warrants that all information provided by Buyer to Seller in
connection with Seller’s integrity due diligence is accurate; and
(x)
shall make payments to Seller, except with Seller’s prior written
consent.
(c)
Prior to Closing and notwithstanding any other provision of this Agreement,
if a Party becomes a Restricted Party, is listed on the Restricted Party list, or is held liable for
violation of Anti-Corruption Laws or Trade Control Laws, in each case, in connection with the
transaction contemplated by this Agreement, then this Agreement shall terminate upon a notice of
termination being provided by the other Party to such Party. For the avoidance of doubt, a Party
becoming a Restricted Party, being listed on the Restricted Party list, or being held liable for
violation of Anti-Corruption Laws or Trade Control Laws, in each case, in connection with the
transaction contemplated by this Agreement, shall constitute a material breach or failure of the
relevant Party’s representations, warranties, or covenants hereunder in accordance with Section
8.2(b)(i) or Section 8.2(c)(ii), as applicable.
Exhibit 10.1
- 35 -
Section 5.16
Required Consents.
(a)
Promptly after the Execution Date, Seller shall prepare and send notices (i)
to the holders of any Required Consents, in compliance with the terms of such Required Consents,
requesting consents to the transactions contemplated hereby or waivers of the applicable rights
related to such Consents. Seller shall use commercially reasonable efforts (at no material cost to
Seller) to cause such Required Consents to be waived or obtained, as applicable, and delivered
prior to the Closing. As applicable, Buyer shall reasonably cooperate with, or (after Closing, if
applicable) cause Newco to reasonably cooperate with, Seller in seeking to obtain consents to, or
to comply with, such Required Consents and will provide any additional collateral or security to
meet reasonable financial requirements requested by counterparties in order to satisfy the
applicable Required Consent.
(b)
In the event a Soft Required Consent that is triggered by the Merger or the
Closing is not satisfied prior to the Merger, then the applicable Required Consent Asset shall not
be excluded from the Assets to be allocated to Newco pursuant to the Merger on the basis of this
Section 5.16, and Seller shall continue to use commercially reasonable efforts (at no material cost
to Seller) for a period of one year after Closing to obtain the Consent for such Soft Required
Consent. Seller shall not otherwise be liable to Buyer or Newco after Closing for the inability to
obtain the Consent for such Soft Required Consent and BUYER SHALL INDEMNIFY, DEFEND,
AND HOLD EACH MEMBER OF SELLER GROUP HARMLESS FROM ANY CLAIM MADE
AGAINST SUCH MEMBER BY THE HOLDER OF SUCH SOFT REQUIRED CONSENT
WITH RESPECT TO THE FAILURE TO OBTAIN THE CONSENT FOR SUCH SOFT
REQUIRED CONSENT.
(c)
In the event a Hard Required Consent that is triggered by the Merger or the
Closing is not satisfied prior to the consummation of the Merger, then (i) the Required Consent
Asset subject to such Hard Required Consent shall not be allocated to Newco pursuant to the
Merger and, to the extent such Required Consent Asset is a Property, SWEPI shall retain such
Required Consent Asset as a “Retained Asset” for all purposes hereunder, (ii) to the extent such
Required Consent Asset is a Property, the Base Purchase Price will be adjusted downward by the
Allocated Value of such Property, (iii) to the extent such Required Consent Asset is not a Property,
until the Consent for such Hard Required Consent is obtained for any combination of the Merger
and the Closing that triggered such Hard Required Consent (A) such Required Consent Asset shall
be held by SWEPI for the benefit of Newco (which benefit shall include the right for Newco to
receive any and all proceeds related to such Required Consent Asset during the period after Closing
that are attributable to the period from and after the Effective Time), (B) SWEPI shall not amend
or take any action under or with respect to such Required Consent Asset without Buyer’s written
consent (which may be withheld in Buyer’s sole discretion), and (C) Newco shall (1) pay all
amounts related to SWEPI’s interest in such Required Consent Asset under any agreement to the
extent such amounts are attributable to the period from and after the Effective Time, and (2) be
responsible for the performance of SWEPI’s obligations under any agreement related to such
Required Consent Asset, and (iv) SWEPI shall continue for a period of one year after Closing to
use commercially reasonable efforts (at no material cost to Seller or SWEPI) to obtain the Consent
for such Hard Required Consent, and upon receiving the Consent for such Hard Required Consent
applicable to each of the Merger and the Closing, (A) SWEPI shall promptly convey to Newco
such Required Consent Asset subject to the warranty of title set forth in Section 3.20, (B) if the
Exhibit 10.1
- 36 -
Required Consent Asset is a Property, then at the time of such assignment, Buyer will pay Seller
an amount equal to the amount by which the Base Purchase Price was adjusted downward, if any,
for such Required Consent Asset and (C) upon the execution and delivery of such assignment of
such Required Consent Asset by SWEPI to Newco, such Required Consent Asset shall be deemed
to be an “Asset” for all purposes hereunder. If, following such one-year period, the consent for
such Hard Required Consent is not obtained, then such Required Consent Asset shall continue as
a Retained Asset, and Seller’s and SWEPI’s obligations pursuant to this Section 5.16 shall no
longer apply.
Section 5.17
Defense of Retained Litigation. For the avoidance of doubt, Seller or its
relevant Affiliate (but not Newco) will (at its sole cost and expense) continue to defend and shall
continue to manage in accordance with Section 9.2(d) any actions, suits or proceedings (including
any compromise or settlement thereof) set forth on Schedule 5.17 (such actions, suits or
proceedings, the “Retained Litigation”). Buyer will cooperate with Seller’s reasonable written
requests to facilitate such defense and management but, except as otherwise provided in Section
9.2(e), shall have no right to defend or otherwise control the defense with respect to such Retained
Litigation.
Section 5.18
Seller Parent Guaranty. At Closing, Seller shall deliver to Buyer a guaranty
in the form attached as Exhibit D (the “Seller Parent Guaranty”) executed by Shell Oil Company.
Section 5.19
Reorganization. Prior to the Closing Date, Seller shall cause each of the
following to occur (collectively, the “Reorganization ”):
(a)
SWEPI shall file a certificate of conversion with each of the Secretary of
State of Delaware and the Secretary of State of Texas and shall file a certificate of formation with
the Secretary of State of Texas, in each case, in such form as is required by the Texas Business
Organizations Code (the “TBOC”) and the Delaware Revised Uniform Limited Partnership Act,
as applicable, for the purpose of domesticating SWEPI in Texas as a Texas limited liability
company (the “Conversion”).
(b)
Following the Conversion, SWEPI shall merge, pursuant to Section 10.003
et. seq. of the TBOC, resulting in two entities (the “Merger”): (i) Shell Legacy Holdings LLC
(“Non-Permian Newco”), a newly formed single-member limited liability company and wholly-
owned subsidiary of Seller, which will have as its assets and properties the Subject Interests and,
subject to Section 5.16(c), the Retained Assets and which will have as its liabilities and obligations
the Retained Liabilities and Seller Taxes, and (ii) Permian Holdings LLC (“Newco”), a newly
formed single-member limited liability company and wholly-owned subsidiary of Non-Permian
Newco, which will have as its assets and properties the Assets and which will have as its liabilities
and obligations the Assumed Liabilities;
provided, however
, that if all Hard Required Consents
have not been obtained by the Merger, then SWEPI shall merge, pursuant to Section 10.003 et.
seq. of the TBOC, resulting into three entities: (i) Non-Permian Newco, a newly formed single-
member limited liability company and wholly-owned subsidiary of Seller, which will have as its
assets and properties the Subject Interests and the Retained Assets (other than the Required
Consent Assets retained by SWEPI pursuant to Section 5.16(c)) and which will have as its
liabilities and obligations the Retained Liabilities (other than those Retained Liabilities attributable
to such Required Consent Assets retained by SWEPI) and Seller Taxes, (ii) Newco, a newly
Exhibit 10.1
- 37 -
formed single-member limited liability company and wholly-owned subsidiary of Non-Permian
Newco, which will have as its assets and properties the Assets and which will have as its liabilities
and obligations the Assumed Liabilities, and (iii) SWEPI, as the surviving limited liability
company, which will remain as a wholly-owned subsidiary of Seller and will have as its assets and
properties the Required Consent Assets retained by it pursuant to Section 5.16(c) and which will
have as its liabilities and obligations the Retained Liabilities attributable to such Required Consent
Assets retained by SWEPI.
(c)
Seller shall provide Buyer with copies of all documents and instruments
related to or used to consummate the Reorganization, which shall be in forms reasonably
acceptable to Buyer prior to filing.
(d)
Notwithstanding anything to the contrary in this Agreement, Seller will not
be in breach of any provision of this Agreement, nor will any representation or warranty of Seller
be inaccurate in any respect solely by virtue of any secondary liability imposed on Seller under
TBOC Section 10.008;
provided
,
however
, that notwithstanding anything stated herein to contrary,
the Retained Liabilities shall be deemed to include any obligation or liability that is not expressly
included as part of the Assumed Liabilities, including any such successor or secondary liability or
liabilities and obligations relating to assets, properties and businesses not included as part of the
Assets.
Section 5.20
Name Change and Reorganization. Buyer shall promptly after Closing (and
in any event, no later than thirty (30) days after the Closing Date) execute, acknowledge, deliver
and file with the appropriate Governmental Authority all documents as are reasonably requested
by Seller to evidence of record Newco’s ownership and operation of the Assets, or as are required
by any Governmental Authority, as a result of the Reorganization and the transaction contemplated
by this Agreement (each such document, a “Governmental Transition Filing”) that were not
otherwise executed and delivered by the Parties pursuant to Sections 7.2(j) and 7.3(f).
Section 5.21
Notice to Third Persons. Promptly after Closing but in no event later than
thirty (30) days after the Closing Date, Newco shall notify all lessors, royalty owners, operators,
non-operators, purchasers of production, other contract parties and Governmental Authorities that
Newco has succeeded to the interests of Seller by virtue of the Reorganization, in each case to the
extent Newco is required by any applicable Contracts or Laws to notify such Persons of the
Reorganization.
Section 5.22
Seismic Data. Prior to Closing, Seller shall provide Buyer a list of all third-
party Seismic Data. For any such third-party Seismic Data for which Buyer wishes to obtain a
sublicense after Closing, promptly after receiving written notice thereof from Buyer, Seller shall
sublicense to Buyer such third-party Seismic Data to the extent permitted under the agreement by
which such Seismic Data is licensed to Seller or its relevant Affiliate or, to the extent not so
permitted, take commercially reasonable efforts to obtain the necessary consents and approvals to
sublicense to Buyer such third-party Seismic Data. All out-of-pocket costs and expenses associated
with such sublicense which are approved in writing by Buyer shall be for the account of Buyer,
and Seller shall have no further obligations pursuant to this Section 5.22 to the extent Buyer fails
to pay any such costs and expenses.
Exhibit 10.1
- 38 -
Section 5.23
Supplemental Information. Promptly following the Execution Date, Seller
shall provide to Buyer supplemental information as described on Schedule 5.23.
Section 5.24
Operational Technology. If, prior to Closing, it is determined that any
operational technology systems other than the SCADA Systems are held for use exclusively for
the use or operation of the Assets, and such operational technology systems are not used in
connection with Seller or its Affiliates’ business generally, then Seller shall reasonably cooperate
with Buyer to transfer such operational technology systems to Newco at Closing. Upon any such
transfer, such operational technology systems shall be deemed to be “Assets” for all purposes
hereunder.
ARTICLE 6
CONDITIONS TO CLOSING
Section 6.1
Seller’s Conditions to Closing. The obligations of Seller to consummate the
transactions contemplated by this Agreement are subject to the satisfaction (or written waiver by
Seller) on or prior to Closing of each of the following conditions precedent:
(a)
Representations. The (i) Buyer Fundamental Representations shall be true
and correct in all material respects (and in all respects, in case of Buyer Fundamental
Representations which are qualified by the requirement of a materiality qualifier), as of the
Execution Date and as of the Closing Date, in each case as though made on and as of such date
(except for representations and warranties that expressly refer to a specified date which need only
be true and correct on and as of such specified date), and (ii) the other representations and
warranties of Buyer set forth in Article 4 shall be true and correct as of the Execution Date and as
of the Closing Date, in each case as though made on and as of such date (except for representations
and warranties that expressly refer to a specified date which need only be true and correct on and
as of such specified date), except for breaches, if any, of such representations and warranties
referenced in this clause (ii) as would not, individually or in the aggregate, reasonably be expected
to have a Buyer Material Adverse Effect (without regard to whether such representation or
warranty is qualified in terms of materiality);
(b)
Performance. Buyer shall have performed and observed, in all material
respects, all covenants and agreements to be performed or observed by it under this Agreement
prior to or on the Closing Date;
(c)
No Action. No injunction, order or award restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall
have been issued by any Governmental Authority having jurisdiction over any Party and remain
in force;
(d)
Governmental Consents; HSR Act. (i) All material consents and approvals
of any Governmental Authority (including those required by the HSR Act) required for the
transactions contemplated under this Agreement, except consents and approvals by Governmental
Authorities that are customarily obtained after closing (including Customary Post-Closing
Consents), shall have been granted or received, or the necessary waiting period shall have expired,
or early termination of the waiting period shall have been granted and (ii) the consummation of
Exhibit 10.1
- 39 -
the transactions contemplated under the terms of this Agreement is not prevented from occurring
by (and the required waiting period, including the period under an extension or timing agreement,
if any, has expired under) the HSR Act and the rules and regulations of the FTC and the DOJ
thereunder; and
(e)
Deliveries. Buyer shall have delivered (or be ready, willing, and able to
deliver at Closing) to Seller duly executed counterparts of the documents and certificates to be
delivered by Buyer under Section 7.3.
Section 6.2
Buyer’s Conditions to Closing. The obligations of Buyer to consummate the
transactions contemplated by this Agreement are subject to the satisfaction (or written waiver by
Buyer) on or prior to Closing of each of the following conditions precedent:
(a)
Representations. The (i) Seller Fundamental Representations shall be true
and correct in all material respects (and in all respects, in case of such Seller Fundamental
Representations which are qualified by the requirement of a materiality qualifier), as of the
Execution Date and as of the Closing Date, in each case as though made on and as of such date
(except for representations and warranties that expressly refer to a specified date which need only
be true and correct on and as of such specified date), and (ii) the other representations and
warranties of Seller set forth in Article 3 shall be true and correct as of the Execution Date and as
of the Closing Date, in each case as though made on and as of such date (except for representations
and warranties that refer to a specified date which need only be true and correct on and as of such
specified date), except for breaches, if any, of such representations and warranties as would not,
individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect
(without regard to whether such representation or warranty is qualified in terms of materiality);
(b)
Performance. Seller shall have performed and observed, in all material
respects, all covenants and agreements to be performed or observed by it under this Agreement
prior to or on the Closing Date;
(c)
No Action. No injunction, order or award restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall
have been issued by any Governmental Authority having jurisdiction over any Party and remain
in force;
(d)
Governmental Consents; HSR Act. (i) All material consents and approvals
of any Governmental Authority (including those required by the HSR Act) required for the
transactions contemplated under this Agreement, except consents and approvals by Governmental
Authorities that are customarily obtained after closing (including Customary Post-Closing
Consents), shall have been granted or received, or the necessary waiting period shall have expired,
or early termination of the waiting period shall have been granted and (ii) the consummation of
the transactions contemplated under the terms of this Agreement is not prevented from occurring
by (and the required waiting period, including the period under an extension or timing agreement,
if any, has expired under) the HSR Act and the rules and regulations of the FTC and the DOJ
thereunder;
Exhibit 10.1
- 40 -
(e)
Deliveries. Seller shall have delivered (or be ready, willing, and able to
deliver at Closing) to Buyer duly executed counterparts of the documents and certificates to be
delivered by Seller and its Affiliates under Section 7.2; and
(f)
Reorganization. The Reorganization shall have been consummated.
ARTICLE 7
CLOSING
Section 7.1
Time and Place of Closing. Consummation of the purchase and sale
contemplated by this Agreement (the “Closing”), shall, unless otherwise agreed to in writing by
Buyer and Seller, take place at the offices of Norton Rose Fulbright US LLP at 1301 McKinney,
Suite 5100, Houston, Texas 77010, at 10:00 a.m., Central Time, on the later of (a) December 1,
2021, and (b) the fifth Business Day following the satisfaction or, to the extent permitted by
applicable Law, waiver (in writing) of all conditions to the obligations of the Parties set forth in
Article 6 (except for any such conditions that by their nature may only be satisfied at or in
connection with the occurrence of Closing, but subject to the satisfaction or waiver of those
conditions), subject to the rights of the Parties under Article 8. The date on which the Closing
occurs is herein referred to as the “Closing Date.”
Section 7.2
Obligations of Seller at Closing. At the Closing, upon the terms and subject
to the conditions of this Agreement, and subject to the simultaneous performance by Buyer of its
obligations pursuant to Section 7.3, Seller shall deliver or cause to be delivered to Buyer, the
following:
(a)
counterparts of the Assignment Agreement transferring the Subject Interests
to Buyer, duly executed by an authorized officer of Seller, acting as the sole member of Non-
Permian Newco;
(b)
a certificate of non-foreign status of Non-Permian Newco (or its regarded
owner for U.S. federal income Tax purposes, if Non-Permian Newco is an entity disregarded from
its owner for U.S. federal income Tax purposes), signed under penalties of perjury and dated no
more than 30 days prior to the Closing Date, meeting the requirements of Treasury Regulation
Section 1.1445-2(b)(2) and certifying that Non-Permian Newco (or its regarded owner for U.S.
federal income Tax purposes, if Non-Permian Newco is an entity disregarded from its owner for
U.S. federal income Tax purposes) is not a “foreign person” as defined in Section 1445 of the
Code;
(c)
a certificate duly executed by an authorized officer of Seller, dated as of
Closing, certifying on behalf of Seller that the conditions set forth in Section 6.2(a), Section 6.2(b)
and Section 6.2(f) have been fulfilled;
(d)
a certificate duly executed by the secretary or any assistant secretary of
Seller, dated as of the Closing, (i) attaching and certifying on behalf of Seller complete and correct
copies of the resolutions or unanimous consent of the board of directors, managers, members,
partners, or other equivalent governing body of Seller authorizing the execution, delivery, and
performance by Seller of this Agreement and the transactions contemplated hereby, and (ii)
Exhibit 10.1
- 41 -
certifying on behalf of Seller the incumbency of each officer of Seller executing this Agreement
or any document delivered in connection with the Closing;
(e)
where approvals are received by Seller pursuant to a filing or application
under Section 5.2, copies of those approvals;
(f)
resignations effective as of the Closing Date of each director, officer or
manager of Newco, duly executed by each such director, officer or manager;
(g)
terminations of any powers of attorney granted by Newco to any Person,
duly executed by an authorized officer of Newco;
(h)
original certificates of the applicable Governmental Authorities, dated as of
a date not earlier than five Business Days before the Closing Date, evidencing the existence and
good standing of Newco in the State of its formation and in the State of Texas;
(i)
the Seller Parent Guaranty, duly executed by an authorized officer of Shell
Oil Company;
(j)
duly executed counterparts of each Governmental Transition Filing; and
(k)
all other instruments, documents and other items reasonably necessary to
effectuate the terms of this Agreement, as may be reasonably requested by Buyer.
Section 7.3
Obligations of Buyer at Closing. At the Closing, upon the terms and subject
to the conditions of this Agreement, and subject to the simultaneous performance by Seller of its
obligations pursuant to Section 7.2, Buyer shall deliver or cause to be delivered to Seller, the
following:
(a)
a wire transfer of the Closing Payment in same-day funds to the account of
Non-Permian Newco, as designated by Seller prior to Closing;
(b)
a certificate duly executed by an authorized officer of Buyer, dated as of
Closing, certifying on behalf of Buyer that the conditions set forth in Section 6.1(a) and Section
6.1(b) have been fulfilled;
(c)
a certificate duly executed by the secretary or any assistant secretary of
Buyer, dated as of the Closing, (i) attaching and certifying on behalf of Buyer complete and correct
copies of the resolutions or unanimous consent of the board of directors, managers, members,
partners, or other equivalent governing body of Buyer authorizing the execution, delivery, and
performance by Buyer of this Agreement and the transactions contemplated hereby, and (ii)
certifying on behalf of Buyer the incumbency of each officer of Buyer executing this Agreement
or any document delivered in connection with the Closing;
(d)
duly executed counterparts of the Assignment Agreement;
(e)
where approvals are received by Buyer pursuant to a filing or application
under Section 5.2, copies of those approvals;
Exhibit 10.1
- 42 -
(f)
duly executed counterparts of each Governmental Transition Filing; and
(g)
all other instruments, documents and other items reasonably necessary to
effectuate the terms of this Agreement, as may be reasonably requested by Seller.
Section 7.4
Closing Payment and Post-Closing Purchase Price Adjustments.
(a)
Not later than ten days prior to the Closing Date, Seller shall prepare and
deliver to Buyer, (i) using the best information available to Seller, a preliminary settlement
statement estimating the initial Purchase Price after giving effect to all adjustments set forth in
Section 2.5 and (ii) reasonable documentation supporting the calculation of the amounts presented
on such statement. In the event Buyer believes that such statement does not accurately set forth
the initial Purchase Price, Buyer shall communicate to Seller in writing such inaccuracies not later
than three Business Days prior to the Closing Date. The Parties shall cooperate in good faith to
agree on the such inaccuracies as soon as possible after Seller’s receipt of Buyer’s written response.
The estimate delivered in accordance with this Section 7.4(a) (with such changes thereto as the
Parties may agree in connection with this Section 7.4(a))
less
amount to be paid by Buyer to Seller at the Closing (the “Closing Payment”).
(b)
As soon as reasonably practicable after the Closing but not later than the
Cut-off Date, Seller shall prepare and deliver to Buyer a statement setting forth the final calculation
of the Purchase Price and showing the calculation of each adjustment set forth in Section 2.5,
based, to the extent possible, on actual credits, charges, receipts and other items before and after
the Effective Time. Concurrently with the delivery of such statement, Seller shall deliver to Buyer
documentation in reasonable detail reasonably available to support any credit, charge, receipt or
other item. Seller shall also deliver to Buyer such other documentation in Seller’s reasonable
possession or control as Buyer may reasonably request to verify the adjustments set forth in such
statement, which documentation shall be delivered by Seller to Buyer promptly after Seller
receives such request. As soon as reasonably practicable but not later than the 30
th
receipt of Seller’s statement hereunder, Buyer shall deliver to Seller a written report containing
any changes that Buyer proposes be made to such statement. Seller may deliver a written report
to Buyer during this same period reflecting any changes that Seller proposes to be made to such
statement as a result of additional information received after the statement was prepared. Buyer
and Seller shall undertake to agree on the final statement of the Purchase Price no later than
240 days after the Closing Date. In the event that Buyer and Seller cannot reach agreement within
such period of time, either Buyer or Seller may refer the remaining matters in dispute to the
Houston, Texas office of
Deloitte Touche Tohmatsu Limited
(the “Accounting Firm”) for review
and final determination by arbitration. The Accounting Firm shall conduct the arbitration
proceedings in Houston, Texas, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, to the extent such rules do not conflict with the terms of this
Section 7.4. Seller and Buyer shall instruct the Accounting Firm to deliver to Buyer and Seller a
written determination within 30 days after submission of the matters in dispute, which shall be
final and binding on all Parties, without right of appeal. In determining the proper amount of any
adjustment to the Base Purchase Price, the Accounting Firm shall not increase the Base Purchase
Price more than the increase proposed by Seller nor decrease the Base Purchase Price more than
the decrease proposed by Buyer, as applicable. The Accounting Firm shall act as an independent
neutral expert for the limited purpose of determining the specific disputed matters submitted by
Exhibit 10.1
- 43 -
Buyer and Seller and may not award Damages, interest or penalties to the Parties with respect to
any matter. Buyer and Seller shall each bear its own legal fees and other costs of presenting its
case. Seller shall bear one-half and Buyer shall bear one-half of the costs and expenses of the
Accounting Firm. Within ten days after the earlier of (i) the expiration of Buyer’s 30-day review
period without delivery of any written report by Buyer and (ii) the date on which Buyer and Seller
finally determine the Purchase Price or the Accounting Firm finally determines the disputed
matters submitted to it, as applicable, (A) Buyer shall pay to Seller the amount by which the final
Purchase Price (
less
Buyer the amount by which the Closing Payment exceeds the final Purchase Price (
less
amount), as applicable. Any post-closing payment pursuant to this Section 7.4(b) shall bear
interest from the Closing Date to the date of payment at the rate of interest published from time to
time as the “Prime Rate” in the “Money Rates” section of
The Wall Street Journal
.
(c)
Buyer shall, and shall cause Newco to, assist Seller in the preparation of the
final statement of the Purchase Price under Section 7.4(b) by furnishing invoices and receipts
reasonably available to Buyer and Newco, reasonable access to personnel, and such other
assistance as may be reasonably requested by Seller to facilitate such process post-Closing.
(d)
All payments made or to be made under this Agreement to Seller shall be
made by electronic transfer of immediately available funds to the account designated by Seller.
All payments made or to be made hereunder to Buyer shall be made by electronic transfer of
immediately available funds to the account designated by Buyer.
ARTICLE 8
TERMINATION
Section 8.1
Termination. This Agreement may be terminated at any time prior to
Closing:
(a)
by the mutual prior written consent of the Parties;
(b)
by Seller if Shell US E&P Investments LLC has not received the Deposit
by the date and time provided in Section 2.7;
(c)
by either Party if Closing has not occurred on or before the Outside Date;
or
(d)
in accordance with Section 5.15(c);
provided, however
, that no Party shall be entitled to terminate this Agreement under Section 8.1(c)
if such Party is then in material breach of any of its representations, warranties or covenants
contained in this Agreement, which breach would, individually or in the aggregate, give rise to the
failure of a condition set forth in Section 6.1 or Section 6.2, as applicable.
Section 8.2
Effect of Termination.
(a)
If this Agreement is terminated pursuant to Section 8.1, this Agreement
shall become void and of no further force or effect (except for the provisions of Section 3.6, Section
Exhibit 10.1
- 44 -
4.6, Section 5.1(d), Section 5.3, Section 5.9, Article 8, Article 11, and Appendix A, which shall
continue in full force and effect).
(b)
In the event that (i) all conditions precedent to the obligations of Seller set
forth in Section 6.1 have been satisfied or waived (in writing) by Seller (or would have been
satisfied except for the breach or failure of any of Seller’s representations, warranties, or covenants
hereunder and except for any such conditions that by their nature may only be satisfied at or in
connection with the occurrence of Closing) and (ii) the Closing has not occurred solely as a result
of the material breach or failure of Seller’s representations, warranties, or covenants hereunder,
including, if and when required, Seller’s obligations to consummate the transactions contemplated
hereunder at Closing (including, for the avoidance of doubt, if Buyer terminates this Agreement
pursuant to Section 8.1(c) and at the time of termination, such a material breach or failure by Seller
has occurred and is continuing), then Buyer shall have the right (in its sole discretion) to promptly
elect in writing, as the sole and exclusive remedy of the Buyer Group against any member of the
Seller Group for the failure to consummate the transactions contemplated hereunder at Closing on
account of such events, to either (A) exercise its right to require Seller’s specific performance of
this Agreement as provided in Section 11.16, or (B) terminate this Agreement, receive from Shell
US E&P Investments LLC a refund of the Deposit without any interest accrued thereon, and seek
any other remedy available to Buyer at law on account of the breach by Seller of this Agreement.
If Buyer elects the remedy of specific performance contemplated by clause (A) but such remedy
is not awarded by courts of competent jurisdiction, the Buyer shall be entitled to the remedy
contemplated by clause (B), in each case, in accordance with the terms and conditions set forth
herein. The Parties agree that specific performance is a remedy expressly negotiated by the Parties
and that Buyer shall not be required to provide any bond or other security in connection with
seeking specific performance as a remedy as described in this Section 8.2(b). The remedy elected
and ultimately awarded under this Section 8.2(b) shall be the sole and exclusive remedy available
to Buyer prior to Closing for Seller’s breach or failure of Seller’s representations, warranties, or
covenants hereunder, including, if and when required, Seller’s obligations to consummate the
transactions contemplated at Closing.
(c)
In the event that (i) all conditions precedent to the obligations of Buyer set
forth in Section 6.2 have been satisfied or waived (in writing) by Buyer (or would have been
satisfied except for the breach or failure of any of Buyer’s representations, warranties, or covenants
hereunder and except for any such conditions that by their nature may only be satisfied at or in
connection with the occurrence of Closing) and (ii) the Closing has not occurred solely as a result
of the material breach or failure of any of Buyer’s representations, warranties, or covenants
hereunder, including, if and when required, Buyer’s obligations to consummate the transactions
contemplated hereunder at Closing (including, for the avoidance of doubt, if Seller terminates this
Agreement pursuant to Section 8.1(c) and at the time of termination, such a material breach or
failure by Buyer has occurred and is continuing), then Seller shall have the right (in its sole
discretion) to promptly elect in writing, as the sole and exclusive remedy of the Seller Group
against any member of the Buyer Group for the failure to consummate the transactions
contemplated hereunder at Closing on account of such events, to either (A) exercise its right to
require Buyer’s specific performance of this Agreement as provided in Section 11.16, or (B)
terminate this Agreement and Shell US E&P Investments LLC shall retain the Deposit, together
with any interest or income thereon, free of any claims by Buyer or any other Person, as liquidated
damages. If Seller elects the remedy of specific performance contemplated by clause (A) but such
Exhibit 10.1
- 45 -
remedy is not awarded by courts of competent jurisdiction, Seller shall be entitled to the remedy
contemplated by clause (B), in each case, in accordance with the terms and conditions set forth
herein. The Parties agree that specific performance is a remedy expressly negotiated by the Parties
and that Seller shall not be required to provide any bond or other security in connection with
seeking specific performance as a remedy as described in this Section 8.2(c). The remedy elected
and ultimately awarded under this Section 8.2(c) shall be the sole and exclusive remedy available
to Seller prior to Closing for Buyer’s breach or failure of Buyer’s representations, warranties, or
covenants hereunder, including, if and when required, Buyer’s obligations to consummate the
transactions contemplated at Closing.
(d)
SELLER AND BUYER ACKNOWLEDGE AND AGREE THAT IF
SELLER RECEIVES LIQUIDATED DAMAGES IN ACCORDANCE WITH SECTION 8.2(C),
THEN (1) ACTUAL DAMAGES UPON THE EVENT OF A TERMINATION ARE DIFFICULT
TO ASCERTAIN WITH ANY CERTAINTY, (2) SUCH LIQUIDATED DAMAGES AMOUNT
IS A FAIR AND REASONABLE ESTIMATE BY THE PARTIES OF SUCH AGGREGATE
ACTUAL DAMAGES, AND (3) SUCH LIQUIDATED DAMAGES DO NOT CONSTITUTE A
PENALTY.
(e)
Subject to Section 8.2(b) and Section 8.2(c), upon the termination of this
Agreement in accordance with the express terms of this Article 8, Seller and Newco shall be free
immediately to enjoy all rights of ownership of Newco and the Assets and to sell, transfer,
encumber or otherwise dispose of the Assets to any Person without any restriction under this
Agreement. Except to the extent Seller terminates this Agreement pursuant to Section 8.2(c), if
either Party terminates this Agreement in accordance with this Article 8, Seller shall promptly (but
in any event no more than ten Business Days after such termination of this Agreement) cause Shell
US E&P Investments LLC to return the Deposit (without any interest accrued thereon) to Buyer.
Following termination of this Agreement in accordance with this Article 8, Buyer shall promptly
(but in any event no more than ten Business Days after the termination of this Agreement) return
or destroy all agreements, Contracts, instruments, books, records, materials and other information
regarding Seller or its Affiliates (including Newco and the Assets) provided to Buyer or any of its
Affiliates or any of their respective Representatives in connection with the transactions
contemplated by this Agreement.
(f)
Notwithstanding anything to the contrary in this Agreement, each Party
acknowledges and agrees that if the Closing fails to occur for any reason, such Party’s sole and
exclusive remedy against the other Party shall be to exercise an applicable remedy set forth in this
Article 8.
ARTICLE 9
INDEMNIFICATION
Section 9.1
Indemnification.
(a)
From and after Closing, Buyer, shall indemnify and hold harmless the Seller
Group from and against all Damages incurred by or suffered by such Persons, and shall defend
such Persons (in accordance with Section 9.2) from and against (and indemnify and hold harmless
Exhibit 10.1
- 46 -
such Persons from and against all Damages incurred or suffered by such Persons with respect to
or related to) all Proceedings asserted against such Persons, that are:
(i)
caused by, related to, arising out of, or resulting from Buyer’s breach
of any of such Buyer’s covenants or agreements contained in this Agreement,
including in respect of Buyer’s obligations in Section 5.20;
(ii)
caused by, related to, arising out of, or resulting from any breach of
any of the representations and warranties of Buyer (including the Buyer
Fundamental Representations) contained in this Agreement, or confirmed in the
certificate delivered by Buyer at Closing pursuant to Section 7.3(b) (without regard
to the Buyer Material Adverse Effect or other materiality qualifiers contained in
such certificate) with respect to such representations and warranties; or
(iii)
subject to Seller’s indemnity and defense obligations in Section
9.1(b), caused by, related to, arising out of, or resulting from the Assumed
Liabilities.
(b)
From and after Closing, subject to the limitations set forth in Section 9.3,
Seller shall indemnify and hold harmless the Buyer Group from and against all Damages incurred
by or suffered by such Persons, and shall defend such Persons (in accordance with Section 9.2)
from and against (and indemnify and hold harmless such Persons from and against all Damages
incurred or suffered by such Persons with respect to or related to) all Proceedings asserted against
such Persons, that are:
(i)
caused by, related to, arising out of, or resulting from Seller’s breach
of Seller’s covenants or agreements contained in this Agreement;
(ii)
caused by, related to, arising out of, or resulting from any breach of
any of the representations and warranties of Seller contained in this Agreement, or
confirmed in the certificate delivered by Seller at Closing pursuant to Section 7.2(c)
(without regard to the Seller Material Adverse Effect or other materiality qualifiers
contained in such certificate) with respect to such representations and warranties;
(iii)
caused by, related to, arising out of, or resulting from the Retained
Liabilities;
(iv)
caused by, related to, arising out of, or resulting from any Seller
Taxes; or
(v)
caused by, related to, arising out of, or resulting from any of the
Previously-Divested Properties.
(c)
Notwithstanding anything to the contrary contained in this Agreement,
subject to Section 5.1(d), Section 5.9 (including Schedule 5.9(a) and Schedule 5.9(b)), Section
5.15, Article 8, Article 10, Section 11.16, and, from and after the Closing, absent Fraud, this Article
9 contains the Parties’ exclusive remedies against each other with respect to the transactions
contemplated hereby, including any breaches of the representations, warranties, covenants, and
Exhibit 10.1
- 47 -
agreements of the Parties in this Agreement. Except for the remedies contained in this Article 9,
Section 5.1(d), Section 5.9 (including Schedule 5.9(a) and Schedule 5.9(b)), Article 10, and
Section 11.16, if Closing occurs SELLER (ON BEHALF OF ITSELF AND ON BEHALF OF
THE SELLER GROUP) AND BUYER (ON BEHALF OF ITSELF AND ON BEHALF OF THE
BUYER GROUP) EACH RELEASE, REMISE, AND FOREVER DISCHARGE THE OTHER
AND ITS AFFILIATES AND ALL SUCH PARTIES’ OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ADVISORS, AND OTHER REPRESENTATIVES FROM ANY AND ALL SUITS,
LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES,
LOSSES, COSTS, LIABILITIES, INTEREST, OR CAUSES OF ACTION WHATSOEVER, IN
LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH PARTIES MIGHT NOW
OR SUBSEQUENTLY MAY HAVE, BASED ON, RELATING TO, OR ARISING OUT OF (i)
THIS AGREEMENT, (ii) NON-PERMIAN NEWCO’S OWNERSHIP OF THE SUBJECT
INTERESTS OR SELLER’S OWNERSHIP OF NON-PERMIAN NEWCO OR SWEPI, (iii)
SWEPI OR NEWCO’S USE, OWNERSHIP OR OPERATION OF THE ASSETS, OR (iv) THE
CONDITION, QUALITY, STATUS, OR NATURE OF THE ASSETS, INCLUDING, IN EACH
SUCH CASE, RIGHTS TO CONTRIBUTION UNDER CERCLA OR ANY OTHER
ENVIRONMENTAL LAW, BREACHES OF STATUTORY OR IMPLIED WARRANTIES,
NUISANCE OR OTHER TORT ACTIONS, RIGHTS TO PUNITIVE DAMAGES AND
COMMON LAW RIGHTS OF CONTRIBUTION, RIGHTS UNDER AGREEMENTS
BETWEEN SELLER, SWEPI, NEWCO, OR NON-PERMIAN NEWCO AND ANY PERSONS
WHO ARE AFFILIATES OF SUCH PERSONS, AND RIGHTS UNDER INSURANCE
MAINTAINED BY SELLER OR ANY PERSON WHO IS AN AFFILIATE OF SELLER
(INCLUDING SWEPI AND NON-PERMIAN NEWCO), EVEN IF CAUSED IN WHOLE OR
IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT, OR CONCURRENT), STRICT
LIABILITY, OR OTHER LEGAL FAULT OF ANY RELEASED PERSON.
(d)
The indemnity and defense of each Party provided in this Section 9.1 shall
be for the benefit of and extend to each Person included in the Seller Group and the Buyer Group,
as applicable. Any claim for indemnity or defense under Section 5.1(d), Schedule 5.9(a) or this
Section 9.1 to which any member of the Seller Group or Buyer Group is entitled must be brought
and administered by a Party to this Agreement. No Indemnified Person (including any Person
within the Seller Group or the Buyer Group) other than the Parties shall have any rights against
Seller or Buyer under the terms of Section 5.1(d), Schedule 5.9(a) or this Section 9.1 except as
may be exercised on its behalf by Buyer or Seller, as applicable, pursuant to this Section 9.1(d). A
Party may elect to exercise or not exercise its indemnification or defense rights under Section
5.1(d), Schedule 5.9(a) or this Section 9.1 on behalf of the other Indemnified Persons affiliated
with it in its sole discretion and shall have no liability to any such other Indemnified Person for
any action or inaction under this Section 9.1(d).
(e)
Notwithstanding anything herein to the contrary, for purposes of Section
9.1(b)(ii), when determining the amount of Damages resulting from a breach of a Seller
representation and warranty or in the certificate delivered by Seller pursuant to Section 7.2(c) (but
not whether a breach has occurred) all materiality qualifications (including Seller Material Adverse
Effect) contained in the representations and warranties of Seller made in this Agreement or such
certificate related thereto shall be disregarded.
For the avoidance of doubt, this Section 9.1(e) shall
not be deemed to disregard any dollar amounts or monetary thresholds set forth in any
Exhibit 10.1
- 48 -
representation or warranty in Article 3 (and, for the avoidance of doubt, in no event shall “Material
Contract” be read to mean “Contract”).
Section 9.2
Indemnity Actions. All claims for indemnification or defense under Section
5.1(d), Schedule 5.9(a) and Section 9.1 shall be asserted and resolved as follows:
(a)
For purposes hereof, (i) the term “Indemnifying Person” when used in
connection with particular Damages or Proceedings, as applicable, shall mean the Party having an
obligation to indemnify or defend another Person or Persons with respect to such Damages or
Proceedings, as applicable, pursuant to Section 5.1(d), Schedule 5.9(a) or this Article 9 and (ii) the
term “Indemnified Person” when used in connection with particular Damages or Proceedings, as
applicable, shall mean the Person or Persons having the right to be indemnified or defended with
respect to such Damages or Proceedings, as applicable, by a Party or Parties pursuant to Section
5.1(d), Schedule 5.9(a) or this Article 9.
(b)
To make a claim for indemnification or defense under Section 5.1(d),
Schedule 5.9(a) or Section 9.1, an Indemnified Person shall notify the Indemnifying Person of its
claim under this Section 9.2 including the specific details of and specific basis under this
Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification or
defense is based upon a claim by a Third Party against the Indemnified Person (a “Third Person
Claim”), the Indemnified Person shall provide its Claim Notice promptly after the Indemnified
Person has actual knowledge of the Third Person Claim and shall enclose a copy of all papers (if
any) served with respect to the Third Person Claim;
provided
, that the failure of any Indemnified
Person to give notice of a Third Person Claim as provided in this Section 9.2 shall not relieve the
Indemnifying Person of its obligations under Section 5.1(d), Schedule 5.9(a) or Section 9.1 except
(i) to the extent such failure results in insufficient time being available to permit the Indemnifying
Person to effectively defend against the Third Person Claim or otherwise materially prejudices the
Indemnifying Person’s ability to defend against the Third Person Claim, or (ii) if such Third Person
Claim is in respect of a Retained Liability or an Assumed Liability, as the case may be, then to the
extent any legal action taken by the Indemnified Person (prior to the giving of such notice) in
response to such Third Person Claim without the consent of the Indemnifying Person increases the
amount of such Third Person Claim. In the event that the claim for indemnification or defense is
based upon an inaccuracy or breach of a representation, warranty, covenant, or agreement, the
Claim Notice shall specify the representation, warranty, covenant, or agreement that was
inaccurate or breached.
(c)
In the case of a claim for indemnification or defense based upon a Third
Person Claim, the Indemnifying Person shall have 30 days from its receipt of the Claim Notice to
notify the Indemnified Person whether it admits or denies its obligation to defend the Indemnified
Person against such Third Person Claim under Section 5.1(d), Schedule 5.9(a) or this Article 9. If
the Indemnifying Person does not notify the Indemnified Person within such 30-day period
whether the Indemnifying Person admits or denies its obligation to defend the Indemnified Person,
it shall be conclusively deemed to have denied such indemnification or defense obligation
hereunder. The Indemnified Person is authorized, prior to and during such 30-day period, to file
any motion, answer, or other pleading that it shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Person and that is not prejudicial to the Indemnifying Person;
provided
, that if such Third Person Claim is in respect of a Retained Liability or an Assumed
Exhibit 10.1
- 49 -
Liability, as the case may be, then the Indemnified Person shall not take any other legal action in
response to such Third Person Claim without the consent of the Indemnifying Person.
(d)
If the Indemnifying Person admits its obligation, it shall have the right and
obligation to diligently defend, at its sole cost and expense, the Third Person Claim;
provided
, that
Buyer (and not Seller) shall be entitled to defend any Third Person Claim that is a Tax Proceeding
to the extent that such Third Person Claim could reasonably be expected to have an adverse impact
on Buyer or any of its Affiliates or the Assets following the Closing or is not fully indemnified
under this Agreement, but Seller may, at its own expense, reasonably participate in the defense of
such Third Person Claim to the extent the resolution of such Third Person Claim could reasonably
result in liability for Seller under this Agreement and in such case Buyer shall not, without the
written consent of Seller, settle such Third Person Claim (such consent not to be unreasonably
withheld, conditioned or delayed). Except as otherwise provided in this Section 9.2(d) or Section
9.2(e), (i) the Indemnifying Person shall have full control of such defense and proceedings,
including any compromise or settlement thereof, and (ii) if such Third Person Claim is in respect
of a Retained Liability or an Assumed Liability, as the case may be, then the Indemnified Person
shall not take any other legal action in response to such Third Person Claim without the consent
of the Indemnifying Person. If requested by the Indemnifying Person, the Indemnified Person
agrees to cooperate in contesting any Third Person Claim that the Indemnifying Person elects to
contest (
provided
,
however
, that the Indemnified Person shall not be required to bring any
counterclaim or cross-complaint against any Person). The Indemnified Person may at its own
expense participate in, but not control, any defense or settlement of any Third Person Claim to the
extent controlled by the Indemnifying Person pursuant to this Section 9.2(d). An Indemnifying
Person shall not, without the written consent of the Indemnified Person, settle any Third Person
Claim or consent to the entry of any judgment with respect thereto that (i) does not result in a final
resolution of the Indemnified Person’s liability with respect to the Third Person Claim (including,
in the case of a settlement, an unconditional written release of the Indemnified Person), (ii) may
materially and adversely affect the Indemnified Person (other than as a result of money damages
covered by the indemnity), (iii) requires a non-monetary commitment by the Indemnified Person,
including compliance with an injunction or other equitable relief, (iv) includes any admission of
guilt or culpability, or (v) relates to the payment or calculation of Royalties or Taxes.
(e)
If the Indemnifying Person does not admit its obligation or admits its
obligation but fails to diligently defend or settle the Third Person Claim, then the Indemnified
Person shall have the right to defend against the Third Person Claim (at the sole cost and expense
of the Indemnifying Person, if the Indemnified Person is entitled to defense or indemnification
hereunder) with counsel of the Indemnified Person’s choosing, subject to the right of the
Indemnifying Person to admit its obligation and assume the defense of the Third Person Claim to
the extent provided in Section 9.2(d) at any time prior to settlement or final determination thereof.
If the Indemnifying Person has not yet admitted its obligation to provide indemnification or
defense with respect to a Third Person Claim, the Indemnified Person shall send written notice to
the Indemnifying Person of any proposed settlement and the Indemnifying Person shall have the
option for ten days following receipt of such notice to (i) admit in writing its obligation to provide
indemnification or defense with respect to the Third Person Claim and (ii) if its obligation is so
admitted, assume the defense of the Third Person Claim, including the power to reject, in its
reasonable judgment, the proposed settlement;
provided
, that the Indemnifying Person shall not,
without the written consent of the Indemnified Person, settle any Third Person Claim or consent
Exhibit 10.1
- 50 -
to the entry of any judgment with respect thereto that relates to the payment or calculation of Taxes.
If the Indemnified Person settles any Third Person Claim over the objection of the Indemnifying
Person after the Indemnifying Person has timely admitted its obligation in writing and assumed
the defense of a Third Person Claim that the Indemnifying Person is entitled to control, the
Indemnified Person shall be deemed to have waived any right to indemnity therefor.
(f)
In the case of a claim for indemnification or defense not based upon a Third
Person Claim, the Indemnifying Person shall have 30 days from its receipt of the Claim Notice to
(i) cure the Damages complained of or Proceedings occurring, as applicable, (ii) admit its
obligation to provide indemnification or defense with respect to such Damages or Proceedings, as
applicable, or (iii) dispute the claim for such indemnification or defense. If the Indemnifying
Person does not notify the Indemnified Person within such 30-day period that it has cured the
Damages or Proceedings, as applicable, or that it disputes the claim for such indemnification or
defense, the Indemnifying Person shall be deemed to have disputed such claim for indemnification
or defense.
Section 9.3
Limitation on Actions.
(a)
The representations and warranties of the Parties in Article 3 and Article 4
and the covenants and agreements of the Parties in Article 5 and Article 10 (other than the proviso
appearing in the last sentence of Section 5.5, Section 5.7, Section 5.16, Section 5.17, Section
5.19(d), Section 5.20, and Section 5.22) and the corresponding representations, warranties,
covenants and agreements confirmed in the certificates delivered at Closing pursuant to Section
7.2(c) and Section 7.3(b), as applicable, shall terminate at Closing, except that (i) the Seller
Fundamental Representations, the Buyer Fundamental Representations and the corresponding
representations and warranties confirmed in the certificates delivered at Closing pursuant to
Section 7.2(c) and Section 7.3(b) shall survive the Closing for seven years following the Closing,
(ii) the representations and warranties of Seller in Section 3.8, the covenants and agreements of
Seller in Article 5 that relate to Taxes, the covenants and agreements of the Parties in Article 10,
and the corresponding representations, warranties, covenants and agreements confirmed in the
certificates delivered at Closing pursuant to Section 7.2(c) and Section 7.3(b) shall survive the
Closing until the earlier of seven years following the Closing or the expiration of the applicable
statute of limitations, (iii) the other representations and warranties of Seller in Article 3 (other than
the Seller Fundamental Representations and the representations and warranties of Seller in Section
3.8, Section 3.15, Section 3.20, Section 3.22, and Section 3.27), the other covenants and
agreements set forth in Section 5.3, Section 5.4, Section 5.9, and Section 5.13 and the
corresponding representations, warranties, covenants and agreements confirmed in the certificate
delivered at Closing pursuant to Section 7.2(c) shall survive the Closing for a period of one year,
(iv) the representations and warranties set forth in Section 3.20 and Section 3.22, the covenants
and agreements set forth in Section 5.6 and the corresponding representations, warranties,
covenants and agreements confirmed in the certificate delivered at Closing pursuant to Section
7.2(c) shall survive the Closing for a period of four years, (v) the representations and warranties
set forth in Section 3.15 and the corresponding representations and warranties confirmed in the
certificate delivered at Closing pursuant to Section 7.2(c) shall survive the Closing for a period of
two years, and (vi) the representations and warranties set forth in Section 3.27 and Section 4.13
and the corresponding representations and warranties confirmed in the certificates delivered at
Closing pursuant to Section 7.2(c) and Section 7.3(b) shall survive the Closing for a period of five
Exhibit 10.1
- 51 -
years. The remainder of this Agreement (including the disclaimers and acknowledgments in
Section 3.32 and Section 4.10) shall survive the Closing without time limit except (A) as may
otherwise be expressly provided herein, (B) for covenants and agreements set forth in this
Agreement that, by their terms, are to be completed prior to Closing, which shall only survive for
one year after the Closing Date, and (C) all other covenants and agreements set forth in this
Agreement, which shall survive until fully satisfied and/or performed in accordance with the terms
hereof (unless otherwise specifically provided in this Agreement). Representations, warranties,
covenants, and agreements shall be of no further force and effect after the date of their expiration;
provided
, that there shall be no termination of any bona fide claim asserted pursuant to this
Agreement with respect to such a representation, warranty, covenant, or agreement prior to its
expiration date.
(b)
The indemnity and defense obligations in Section 9.1(a)(i), Section
9.1(a)(ii), Section 9.1(b)(i), and Section 9.1(b)(ii) shall terminate as of the termination date of each
respective representation, warranty, covenant, or agreement that is subject to indemnification and
defense thereunder, except in each case as to matters for which a specific written claim for
indemnity or defense has been delivered to the Indemnifying Person on or before such termination
date. The indemnity and defense obligation in Section 9.1(a)(iii) shall not terminate. The indemnity
and defense obligation in Section 9.1(b)(iii) shall terminate 10 years after the Closing Date. The
indemnity and defense obligations in Section 9.1(b)(iv) and Section 9.1(b)(v) shall terminate on
the date that is the earlier of 7 years following the Closing or the expiration of the applicable statute
of limitations.
(c)
Seller shall not have any liability for any indemnification or defense under
Section 9.1(b)(ii) (other than with respect to Section 3.8, Section 3.20 and the Seller Fundamental
Representations) or Section 9.1(b)(v) for any individual Damage (whether the subject of a
Proceeding subject to an obligation to defend or otherwise) or Proceeding, unless the amount with
respect to such Damage or the Damages involved in such Proceeding exceeds $400,000 (the
“Individual Indemnity Threshold”);
provided, however
, that, with respect to a breach of Section
3.15, Seller shall not have any liability for any indemnification or defense under Section 9.1(b)(ii)
for any individual Damage (whether the subject of a Proceeding subject to an obligation to defend
or otherwise) or Proceeding unless the amount with respect to such Damage or the Damages
involved in such Proceeding exceeds $250,000 (the “Individual Environmental Indemnity
Threshold”);
provided, further
, that with respect to a breach of Section 3.20, Seller shall not have
any liability for any indemnification or defense under Section 9.1(b)(ii) for (x) any individual
Damage (whether the subject of Proceeding subject to an obligation to defend or otherwise) or
Proceeding in respect of such breach unless the amount with respect to such Damage or the
Damages involved in such Proceeding exceeds $250,000 or (y) Damages (whether the subject of
Proceeding subject to an obligation to defend or otherwise) or Proceedings in respect of such
breach to the extent such Damages or the Damages involved in such Proceeding exceed the
Allocated Value of the affected Asset.
(d)
Seller shall not have any liability for any indemnification or defense under
Section 9.1(b)(ii) (other than with respect to the Seller Fundamental Representations, Section 3.8
and Section 3.20) until and unless the aggregate amount of the liability for all Damages (whether
the subject of a Proceeding subject to an obligation to defend or otherwise) that exceed the
Individual Indemnity Threshold or the Individual Environmental Indemnity Threshold, as
Exhibit 10.1
- 52 -
applicable, and for which Claim Notices are delivered by Buyer exceeds $200,000,000, and then
only to the extent such Damages exceed $200,000,000.
(e)
Notwithstanding anything to the contrary contained elsewhere in this
Agreement, (i) Seller shall not be required to indemnify or defend the Buyer Group under Section
9.1(b)(ii) (other than with respect to the Seller Fundamental Representations, Section 3.8 and
Section 3.20) for aggregate Damages (whether the subject of a Proceeding subject to an obligation
to defend or otherwise) in excess of ten percent (10%) of the Purchase Price, (ii) Seller shall not
be required to indemnify or defend the Buyer Group under Section 9.1(b)(iii) for aggregate
Damages (whether the subject of Proceeding subject to an obligation to defend or otherwise) in
excess of $2,000,000,000, and (iii) Seller shall not be required to indemnify or defend the Buyer
Group under Section 9.1(b) for aggregate Damages (whether the subject of Proceeding subject to
an obligation to defend or otherwise) in excess of the Purchase Price.
(f)
The amount of any Damages (whether the subject of a Proceeding subject
to an obligation to defend or otherwise) for which an Indemnified Person is entitled to indemnity
under this Article 9 shall be reduced by the amount of insurance proceeds actually received by the
Indemnified Person or its Affiliates with respect to such Damages (net of any collection costs, and
excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person
or its Affiliates).
(g)
In no event shall any Indemnified Person be entitled to duplicate
compensation with respect to the same Damage (whether the subject of a Proceeding subject to an
obligation to defend or otherwise), liability, loss, cost, expense, claim, award, or judgment under
more than one provision of this Agreement and the Transaction Documents.
(h)
Notwithstanding anything to the contrary in this Agreement, (i) in no event
shall Seller’s indemnity or defense obligation under Section 9.1(b)(iii) nullify any prior or existing
indemnity, assumption of liability or right of contribution from Buyer or any of its Affiliates in
favor of Seller or any of its Affiliates, and (ii) Seller shall have no indemnification or defense
obligation pursuant to Section 9.1(b)(iii) to the extent of any such prior or existing indemnity,
assumption of liability or right of contribution from Buyer or any of its Affiliates in favor of Seller
or any of its Affiliates.
ARTICLE 10
TAX MATTERS
Section 10.1
Tax Allocations; Tax Returns.
(a)
Seller shall be allocated, bear and be responsible for all Asset Taxes that are
attributable to (i) any Tax period ending at or prior to the Effective Time and (ii) the portion of
any Straddle Period ending at the Effective Time. Subject to Seller’s indemnity and defense
obligations in Section 9.1(b), Buyer shall be allocated, bear and be responsible for all Asset Taxes
that are attributable to (x) any Tax period beginning after the Effective Time and (y) the portion
of any Straddle Period beginning after the Effective Time. For purposes of allocating Asset Taxes
pursuant to this Section 10.1(a), (A) Asset Taxes that are attributable to the severance or
production of Hydrocarbons (other than such Asset Taxes described in clause (C)) shall be
Exhibit 10.1
- 53 -
allocated to the period in which the severance or production giving rise to such Asset Taxes
occurred, (B) Asset Taxes that are based upon or related to sales or receipts or imposed on a
transactional basis (other than such Asset Taxes described in clause (A) or (C)) shall be allocated
to the period in which the transaction giving rise to such Asset Taxes occurred and (C) Asset Taxes
that are ad valorem, property or other Asset Taxes imposed on a periodic basis pertaining to a
Straddle Period shall be allocated between the portion of such Straddle Period ending immediately
prior to the Effective Time and the portion of such Straddle Period beginning at the Effective Time
by prorating each such Asset Tax based on the number of days in the applicable Straddle Period
that occur on or before the date on which the Effective Time occurs, on the one hand, and the
number of days in such Straddle Period that occur after the date on which the Effective Time
occurs, on the other hand.
(b)
Seller shall be allocated, bear and be responsible for (i) all Taxes (other than
Asset Taxes) of, imposed on or attributable to Newco or SWEPI that are attributable to (A) any
Tax period ending on or before the Closing Date and (B) the portion of any Current Tax Period
ending on and including the Closing Date and (ii) all Taxes imposed with respect to or that are
attributable to any Combined Return. For purposes of allocating Taxes pursuant to Section
10.1(b)(i) for any Current Tax Period, such Taxes shall be allocated based on a deemed closing of
the books of Newco or SWEPI, as applicable, as of the end of the day on the Closing Date.
Notwithstanding anything herein to the contrary, any franchise or similar Tax shall be allocated to
the period during which the income, operations, assets or capital comprising the base of such Tax
is measured, regardless of whether the right to do business for another period is obtained by the
payment of such Tax.
(c)
To the extent the actual amount of an Asset Tax is not known at the time an
adjustment is to be made with respect to such Asset Tax pursuant to Section 2.5 or Section 7.4, as
applicable, the Parties shall utilize the most recent information available in estimating the amount
of such Asset Tax for purposes of such adjustment. To the extent the actual amount of an Asset
Tax (or the amount thereof paid or economically borne by a Party) is ultimately determined to be
different than the amount (if any) that was taken into account in the Purchase Price as finally
determined pursuant to Section 7.4(b), timely payments will be made from one Party to the other
(without duplication of Section 2.2(d)) to the extent necessary to cause each Party to bear the
amount of such Asset Tax that is allocable to such Party under Section 10.1(a).
(d)
With respect to Tax Returns required to be filed by or with respect to Seller
or Newco, Seller shall and shall cause Newco to prepare and timely file all such Tax Returns that
are required to be filed prior to the Closing Date in a manner consistent with past practice and
Seller shall and shall cause Newco to pay to the applicable Governmental Authority all Taxes
shown to be due on such Tax Returns. Seller shall prepare and timely file or cause to be prepared
and timely filed, in a manner consistent with past practice, all Tax Returns that are required to be
filed by or with respect to SWEPI and pay or cause to be paid to the applicable Governmental
Authority all Taxes required to be paid with respect to such Tax Returns. Seller shall also prepare
and timely file or cause to be prepared and timely filed, in a manner consistent with past practice,
all Combined Returns that are required to be filed and pay or cause to be paid to the applicable
Governmental Authority all Taxes required to be paid with respect to such Combined Returns and,
for the avoidance of doubt, neither Buyer nor any of its Affiliates shall have any liability, obligation
or responsibility with respect to any Combined Return or any Taxes imposed with respect to or
Exhibit 10.1
- 54 -
that are attributable to any Combined Return. Newco shall prepare and timely file all Tax Returns
that are required to be filed by or with respect to Newco on or after the Closing Date for any Tax
period that ends before or includes the Closing Date (other than Combined Returns) and Buyer
shall pay or cause Newco to pay to the applicable Governmental Authority all Taxes shown to be
due on such Tax Returns;
provided
,
however
, that to the extent any such Taxes constitute Seller
Taxes, the payment of such Seller Taxes shall be on behalf of Seller and, within five days after
such payment, Seller shall pay to Buyer such Seller Taxes. The Parties agree that (i) this Section
10.1(d) is intended to solely address the timing and manner in which certain Tax Returns are filed
and the Taxes shown thereon are paid to the applicable Governmental Authority, and (ii) nothing
in this Section 10.1(d) shall be interpreted as altering the manner in which Taxes are allocated to
and economically borne by the Parties.
Section 10.2
Tax Refunds. To the extent that Newco actually receives a refund or credit
within two years following the Closing Date with respect to Taxes paid by Seller prior to the
Effective Time (excluding any such refund or credit to the extent it (a) was taken into account in
the Purchase Price as finally determined pursuant to Section 7.4(b) or (b) is attributable to any loss,
credit or other Tax attribute arising in a taxable year (or portion thereof) beginning after the
Effective Time that is carried back to a taxable year (or a portion thereof) ending on or prior to the
Effective Time) (each non-excluded refund, a “Pre-Effective Refund”), such Pre-Effective Refund
shall be for the account of Seller. Buyer shall forward, and shall cause its Affiliates to forward, to
Seller any such Pre-Effective Refund that is for Seller’s account pursuant to this Section 10.2 (net
of (x) any Taxes payable by Buyer or any of its Affiliates (including Newco) attributable to such
Pre-Effective Refund and (y) any expenses incurred by Buyer or any of its Affiliates in obtaining
such amounts) within 30 days after such Pre-Effective Refund is received or realized. To the extent
that Seller or any of its Affiliates receives a refund or credit with respect to Taxes for which Buyer
is responsible pursuant to this Agreement (including Asset Taxes allocable to Buyer pursuant to
Section 10.1(a)), excluding any such refund or credit to the extent it was taken into account in the
Purchase Price as finally determined pursuant to Section 7.4(b), such refund or credit shall be for
the account of Buyer, and Seller shall forward, and shall cause its Affiliates to forward, to Buyer
any such refund or credit (net of (1) any Taxes payable by Seller or any of its Affiliates (excluding
Newco) attributable to such refund or credit and (2) any reasonable out-of-pocket expenses
incurred by Seller or any of its Affiliates in obtaining such amounts) within 30 days after such
refund or credit is received or realized. If any amount actually paid to a Party pursuant to this
Section 10.2 is subsequently challenged successfully by any Governmental Authority, such Party
shall repay to the other Party such amount (together with any interest and penalties assessed by
such Governmental Authority in respect of such amount).
Section 10.3
Tax Cooperation. Buyer and Seller shall reasonably cooperate as and to the
extent reasonably requested by the other Party, in connection with obtaining any Pre-Effective
Refund, the filing of Tax Returns and any audit, litigation or other proceeding with respect to
Taxes (each a “Tax Proceeding”) that is related to Taxes imposed on or with respect to the assets,
operations or activities of SWEPI or Newco.
Section 10.4
Characterization of Certain Payments. The Parties agree that any payments
made pursuant to Section 7.4, Article 9 or this Article 10 shall be treated for all Tax purposes as
an adjustment to the Purchase Price unless otherwise required by Law.
Exhibit 10.1
- 55 -
Section 10.5
Transfer Taxes. Notwithstanding anything to the contrary in this
Agreement, any sales, use, transfer, real property transfer, registration, documentary, stamp, value
added or similar Taxes imposed on or payable in connection with the purchase and sale of the
Subject Interests contemplated by this Agreement (“Transfer Taxes”) shall be borne 50 percent by
Seller and 50 percent by Buyer. The Party responsible under applicable Law for filing the Tax
Returns with respect to any such Transfer Taxes shall prepare and timely file such Tax Returns,
promptly provide a copy of such Tax Return to the other Party, and pay such Transfer Taxes shown
to be due on such Tax Return. Seller and Buyer shall, and shall cause their respective Affiliates to,
cooperate in good faith to minimize, to the extent permissible under applicable Law, the amount
of any such Transfer Taxes and timely prepare and file any Tax Returns or other filings relating to
such Transfer Taxes, including any claim for exemption or exclusion from the application or
imposition of any Transfer Taxes. One half of the amount of any Transfer Taxes due with respect
to any Tax Return to be filed under this Section 10.5 shall be paid by the other Party to the paying
Party at least two Business Days prior to the due date for the filing of such Tax Returns.
Section 10.6
Termination of Tax Agreements. Any Tax sharing, Tax indemnity, Tax
receivable, Tax allocation or similar Contract (other than any Customary Agreement) involving
Newco or pursuant to which Newco could otherwise have any liability shall be terminated prior to
the Closing Date and, after the Closing, none of the Buyer, Newco, or any of their respective
Affiliates shall be bound thereby or have any liability thereunder.
Section 10.7
Purchase Price Allocation. It is the intent of the Parties that the acquisition
by Buyer of the Subject Interests is treated as an acquisition by Buyer of the assets of Newco for
U.S. federal (and applicable state and local) Income Tax purposes and Buyer and Seller shall, and
shall cause their respective Affiliates to, not take any position for Tax purposes (including on any
Tax Return, in any Tax Proceeding or otherwise) that is inconsistent with such intended Tax
treatment unless otherwise required by applicable Law. Buyer and Seller shall use commercially
reasonable efforts to agree, within 60 days after the Closing Date, to an allocation of the Purchase
Price (and any other item included in computing consideration for applicable U.S. federal (and
applicable state and local) income tax purposes to the extent known at such time) among the assets
of Newco in accordance with Section 1060 of the Code, as applicable, and the Treasury
Regulations promulgated thereunder (the “Tax Allocation”). If Seller and Buyer reach an
agreement with respect to the Tax Allocation, (i) Buyer and Seller shall use commercially
reasonable efforts to update the Tax Allocation in accordance with Section 1060 of the Code
following any adjustment to the Purchase Price pursuant to this Agreement, and (ii) Buyer and
Seller shall, and shall cause their Affiliates to, report consistently with the Tax Allocation, as
adjusted, on all Tax Returns, including Internal Revenue Service Form 8594 (Asset Acquisition
Statement under Section 1060), which Buyer and Seller shall timely file with the Internal Revenue
Service, and neither Seller nor Buyer shall take any position on any Tax Return that is inconsistent
with the Tax Allocation, as adjusted, unless otherwise required by applicable Law;
provided,
however
, that neither Party shall be unreasonably impeded in its ability and discretion to negotiate,
compromise and/or settle any Tax Proceeding in connection with such Tax Allocation.
Section 10.8
Amended Returns. Unless required by applicable Law or except as set forth
below, no amended Tax Return with respect to a Tax period (or portion thereof) ending on or prior
to the Effective Time shall be filed by or on behalf of Newco without the prior written consent of
Seller (such consent not to be unreasonably withheld, conditioned, or delayed) if such amended
Exhibit 10.1
- 56 -
Tax Return would increase the Taxes for which Seller is obligated to indemnify or defend Buyer
under Section 9.1(b)(iv).
ARTICLE 11
MISCELLANEOUS
Section 11.1
Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original instrument, but all such counterparts together shall constitute
but one agreement. Either Party’s delivery of an executed counterpart signature page by email is
as effective as executing and delivering this Agreement in the presence of the other Party. No Party
shall be bound until such time as all of the Parties have executed counterparts of this Agreement.
Section 11.2
Notice. All notices and other communications that are required or may be
given pursuant to this Agreement must be given in writing, in English, and shall be deemed to
have been given (a) when delivered personally, by courier, to the addressee, (b) when received by
the addressee if sent by registered or certified mail, postage prepaid, or (c) on the date sent by
email (upon affirmative or automated reply by email by the intended recipient that such email was
received) if sent during normal business hours of the recipient or on the next Business Day if sent
after normal business hours of the recipient. Such notices and other communications must be sent
to the following addresses or email addresses:
If to Buyer:
Danny Yick
Sr. Director, Acquisitions & Divestitures
925 N. Eldridge Parkway
Houston, Texas 77079
SP1-21-21-N096
Email: Danny.H.Yick@conocophillips.com
With a copy (which shall not constitute notice) to:
Joseph Adams
Lead Counsel, L48 Transactions
925 N. Eldridge Parkway
Houston, Texas 77079
SP1-16-16-N154
E-mail: joseph.adams@conocophillips.com
If to Seller:
Parag Mathur
Deal Lead, Deepwater and Shales
Shell Enterprises LLC
150 N. Dairy Ashford
Houston, Texas 77079
Exhibit 10.1
- 57 -
E-mail: parag.mathur@shell.com
Either Party may change its address or email address for notice purposes by written notice
to the other Party in the manner set forth above.
Section 11.3
Newco Transaction Expenses. All Newco Transaction Expenses shall be
borne by Seller (and not Newco), regardless of whether payable prior to or on the Closing Date or
thereafter.
Section 11.4
Governing Law.
(a)
THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE
PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.
(b)
THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS OF THE UNITED STATES OF
AMERICA LOCATED IN HARRIS COUNTY, TEXAS (OR, IF REQUIREMENTS FOR
FEDERAL JURISDICTION ARE NOT MET, STATE COURTS LOCATED IN HARRIS
COUNTY, TEXAS) AND APPROPRIATE APPELLATE COURTS THEREFROM FOR THE
RESOLUTION OF ANY DISPUTE, CONTROVERSY, OR CLAIM ARISING OUT OF OR IN
RELATION TO THIS AGREEMENT, AND EACH PARTY HEREBY IRREVOCABLY
AGREES THAT ALL ACTIONS, SUITS, AND PROCEEDINGS IN RESPECT OF SUCH
DISPUTE, CONTROVERSY, OR CLAIM MAY BE HEARD AND DETERMINED IN SUCH
COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAWS, (i) ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION, SUIT, OR
PROCEEDING IN ANY OF THE AFORESAID COURTS, (ii) ANY CLAIM IT MAY NOW OR
HEREAFTER HAVE THAT ANY SUCH ACTION, SUIT, OR PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, AND (iii) THE RIGHT TO OBJECT, IN
CONNECTION WITH SUCH ACTION, SUIT, OR PROCEEDING, THAT ANY SUCH
COURT DOES NOT HAVE ANY JURISDICTION OVER SUCH PARTY. EACH PARTY
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY PAPERS, NOTICES, OR
PROCESS AT THE OFFICE (BUT NOT ELECTRONIC MAIL) ADDRESS SET OUT IN
SECTION 11.2 OF THIS AGREEMENT FOR SUCH PARTY IN CONNECTION WITH ANY
ACTION, SUIT, OR PROCEEDING AND AGREES THAT NOTHING HEREIN WILL
AFFECT THE RIGHT OF THE OTHER PARTY TO SERVE ANY SUCH PAPERS, NOTICES,
OR PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. EACH
PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE, CONTROVERSY, OR
CLAIM MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY APPLICABLE LAW.
(c)
EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
Exhibit 10.1
- 58 -
IN RESPECT OF ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
Section 11.5
Waivers. Any failure by either Party to comply with any of its obligations,
agreements or conditions herein contained may be waived by the Party to whom such compliance
is owed by an instrument signed by such Party and expressly identified as a waiver, but not in any
other manner. No waiver of, consent to a change in, or any delay in timely exercising any rights
arising from, any of the provisions of this Agreement shall be deemed or shall constitute a waiver
of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
Section 11.6
Assignment. No Party shall assign or otherwise transfer all or any part of
this Agreement, nor shall any Party assign or delegate any of its rights or duties hereunder, without
the prior written consent of the other Party (which consent may be withheld for any reason);
provided,
that Buyer may assign this Agreement to an Affiliate without the prior written consent
of Seller, but no such assignment shall relieve or discharge Buyer of any liability or obligations
under or in connection with this Agreement. Any assignment, transfer or delegation made not in
accordance with this Section 11.6 shall be void. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective successors and permitted
assigns.
Section 11.7
Entire Agreement. This Agreement (including, for purposes of certainty, the
Appendices, Exhibits and Schedules attached hereto), the Transaction Documents, and any other
documents to be executed hereunder, constitute the entire agreement between the Parties pertaining
to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.
Section 11.8
Amendment. This Agreement may be amended or modified only by an
agreement in writing executed by all Parties and expressly identified as an amendment or
modification.
Section 11.9
No Third Party Beneficiaries. Except (solely with respect to Section 11.13)
the Nonparty Affiliates, nothing in this Agreement shall entitle any Person other than Buyer and
Seller and their respective successors and permitted assigns to any claim, cause of action, remedy,
or right of any kind, except the rights expressly provided in Section 5.1(d) and Section 9.1 to the
Persons described therein, in which case such Persons will be regarded as intended third-party
beneficiaries for the sole purpose of those provisions.
Section 11.10
Construction. The Parties acknowledge that (a) the Parties have had the
opportunity to exercise business discretion in relation to the negotiation of the details of the
transaction contemplated hereby, (b) this Agreement is the result of arms-length negotiations from
equal bargaining positions, and (c) the Parties and their respective counsel participated in the
preparation and negotiation of this Agreement. Any rule of construction that a contract be
construed against the drafter shall not apply to the interpretation or construction of this Agreement.
Exhibit 10.1
- 59 -
Section 11.11
Limitation on Damages.
NOTWITHSTANDING ANYTHING TO THE
CONTRARY, EXCEPT FOR ANY DAMAGES INCURRED BY THIRD PARTIES FOR
WHICH INDEMNIFICATION IS SOUGHT UNDER THE TERMS OF THIS
AGREEMENT, NONE OF BUYER, SELLER, NOR ANY MEMBER OF THE BUYER
GROUP OR SELLER GROUP, RESPECTIVELY, SHALL BE ENTITLED TO
CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES
IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND, EXCEPT AS OTHERWISE PROVIDED IN THIS
SENTENCE, EACH OF BUYER AND SELLER, FOR ITSELF AND ON BEHALF OF
EACH MEMBER OF THE BUYER GROUP OR SELLER GROUP, AS APPLICABLE,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO CONSEQUENTIAL, SPECIAL,
INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 11.12
Conspicuous.
THE PARTIES AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE OR ENFORCEABLE, THE
PROVISIONS IN THIS AGREEMENT IN BOLD-TYPE OR ALL-CAPS FONT ARE
“
CONSPICUOUS
” FOR THE PURPOSE OF ANY APPLICABLE LAW.
Section 11.13
Affiliate Liability. All obligations and/or other liabilities (whether in
contract or in tort, in law or in equity, granted by statute or otherwise) that may be based upon, in
respect of, arise under, out or by reason of, be connected with, or relate in any manner to this
Agreement, the Transaction Documents, or the negotiation, execution, or performance of this
Agreement or the Transaction Documents (including any representation or warranty made in, in
connection with, or as an inducement to, this Agreement or any Transaction Document), may be
made only against (and are expressly limited to) the entities that are expressly identified as Parties
in the preamble to this Agreement (or any successor or permitted assign of any the Parties) or, with
respect to any Transaction Document, the entities and individuals (if applicable) identified as
parties to such Transaction Document (collectively, the “Contracting Parties”). Notwithstanding
anything to the contrary in this Agreement, any Transaction Document or otherwise, no Person
who is not a Contracting Party, including any director, officer, employee, incorporator, member,
partner, manager, direct or indirect equity holder, Affiliate, agent, attorney, or other Representative
of, and any financial advisor or lender to, any Contracting Party, or any director, officer, employee,
incorporator, member, partner, manager, direct or indirect equity holder, Affiliate, agent, attorney,
or other Representative of, and any financial advisor or lender to, any of the foregoing
(collectively, the “Nonparty Affiliates”), shall have any liability (whether in contract or in tort, in
law or in equity, or granted by statute or otherwise) for any obligations or liabilities arising under,
out of, in connection with, or related in any manner to this Agreement or any of the Transaction
Documents or based on, in respect of, or by reason of this Agreement or any of the Transaction
Documents or the negotiation, execution, performance, or breach of this Agreement or any
Transaction Document; and, to the maximum extent permitted by Law, each Contracting Party, on
behalf of itself and all other Persons, hereby waives and releases all such liabilities against any
such Nonparty Affiliates. Without limiting the foregoing, to the maximum extent permitted by
Law, each Contracting Party, on behalf of itself and all other Persons, hereby waives and releases
any and all rights, claims, demands, or causes of action that may otherwise be available (including
at law or in equity, or granted by statute or otherwise) to avoid or disregard the entity form of a
Contracting Party or otherwise impose liability of a Contracting Party on any Nonparty Affiliate,
Exhibit 10.1
- 60 -
whether granted by statute or based on theories of equity, agency, control, instrumentality, alter
ego, domination, sham, single business enterprise, piercing the corporate or other veil,
distributions, unfairness, undercapitalization, or otherwise.
Section 11.14
Time of Essence. This Agreement contains a number of dates and times by
which performance or the exercise of rights is due, and the Parties intend that each and every such
date and time be the firm and final date and time, as agreed. For this reason, each Party hereby
waives and relinquishes any right it might otherwise have to challenge its failure to meet any
performance or rights election date applicable to it on the basis that its late action constitutes
substantial performance, to require the other Party to show prejudice, or on any equitable grounds.
Without limiting the foregoing, time is of the essence in this Agreement. If the date specified in
this Agreement for giving any notice or taking any action is not a Business Day (or if the period
during which any notice is required to be given or any action taken expires on a date which is not
a Business Day), then the date for giving such notice or taking such action (and the expiration date
of such period during which notice is required to be given or action taken) shall be the next day
that is a Business Day.
Section 11.15
Severability. The invalidity or unenforceability of any term or provision of
this Agreement in any situation or jurisdiction shall not affect the validity or enforceability of the
other terms or provisions hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction and the remaining terms and provisions shall
remain in full force and effect, unless doing so would result in an interpretation of this Agreement
that is manifestly unjust.
Section 11.16
Specific Performance. Each Party agrees that if any of the provisions of this
Agreement were not performed by the other Party in accordance with their specific terms,
irreparable damage would occur, no adequate remedy at Law would exist and damages would be
difficult to determine, and the non-breaching Party shall be entitled to specific performance of the
terms hereof and immediate injunctive relief, without the necessity of proving the inadequacy of
money damages as a remedy, in addition to any other remedy available at law or in equity that
such Party is entitled to seek pursuant to the terms of this Agreement. Neither Party shall be
required to provide any bond or other security in connection with seeking any specific performance
or other equitable remedy to enforce specifically the terms and provisions of this Agreement in
accordance with this Section 11.16.
[Signature Pages Follow]
Exhibit 10.1
- 1 -
IN WITNESS WHEREOF
, this Agreement has been signed by each of the Parties on the
Execution Date.
SELLER:
SHELL ENTERPRISES LLC
By:
Scott S. Porter
Attorney-in-Fact
BUYER:
CONOCOPHILLIPS COMPANY
By:
Andrew D. Hastings
Attorney-in-Fact
Exhibit 10.1
- 1 -
APPENDIX A
ATTACHED TO AND MADE A PART OF THAT
CERTAIN PURCHASE AND SALE AGREEMENT
DATED AS OF THE EXECUTION DATE
BY AND BETWEEN SELLER AND BUYER
DEFINITIONS
“Accounting Firm” has the meaning set forth in Section 7.4(b).
“AFEs” means authorization for expenditures issued pursuant to a Contract.
“Affiliate” means, with respect to (a) any Person other than Newco, any Person that directly
or indirectly Controls, is Controlled by or is under common Control with such Person and (b)
Seller or Newco, Shell Oil Company, a Delaware corporation, and its direct and indirect
Subsidiaries. Notwithstanding anything to the contrary herein, (a) prior to Closing, Newco shall
be deemed to be an Affiliate of Seller and not Buyer, and (b) from and after Closing, Newco shall
be deemed to be an Affiliate of Buyer.
“Agreement” has the meaning set forth in the Preamble of this Agreement.
“Allocated Value” means, with respect to any Lease or Well, the portion of the Base
Purchase Price that is allocated to such Lease or Well on Exhibit B.
“Anti-Corruption Laws” means (a) the United States Foreign Corrupt Practices Act of
1977; (b) the United Kingdom Bribery Act 2010; and (c) all applicable national, regional,
provincial, state, municipal or local Laws and regulations that prohibit tax evasion, money
laundering or otherwise dealing in the proceeds of crime or the bribery of, or the providing of
unlawful gratuities, facilitation payments, or other benefits to, any Government Official or any
other Person.
“Asset Taxes” means any ad valorem, property, excise, severance, production, sales, use
and other similar Taxes based upon or measured by the operation or ownership of the Assets or
the production of Hydrocarbons therefrom, but excluding, for the avoidance of doubt, Income
Taxes and Transfer Taxes.
“Assets” means all of SWEPI’s right, title and interest in and to the following assets and
properties as of the Effective Time (excluding any Retained Assets):
(a)
the Real Property Interests;
(b)
the Wells;
(c)
the Units;
Exhibit 10.1
- 2 -
(d)
all Surface Contracts;
(e)
all Equipment;
(f)
all Contracts (including, (x) without limiting any disclaimer by Seller
hereunder, with respect to each joint operating agreement where SWEPI is
named or acting as the operator, all of SWEPI’s rights and obligations
(including operatorship) in and to such joint operating agreement and (y)
the Related Party Contracts set forth on Schedule 5.7) to the extent related
to or used or held for use in connection with (i) the exploration,
development or operation of the Real Property Interests or the
transportation, marketing or disposition of Hydrocarbons, water or other
substances produced therefrom or (ii) the Previously-Divested Properties,
but excluding Contracts to the extent related to the IT Systems;
(g)
all Permits with respect to the exploration, development or operation of the
Properties, the Surface Contracts or the Equipment or the transportation,
marketing or disposition of Hydrocarbons, water or other substances
produced therefrom, to the extent the foregoing Permits are not included in
the Surface Contracts;
(h)
all Records;
(i)
all (i) trade credits, accounts receivable, notes receivable, take-or-pay
amounts receivable, and other receivables and general intangibles,
attributable to the other Assets with respect to periods of times from and
after the Effective Time; and (ii) liens and security interests in favor of
SWEPI or its Affiliates, whether choate or inchoate, under any Law or
Contract to the extent arising from, or relating to, the ownership, operating,
or sale or other disposition on or after the Effective Time of any of the other
Assets or to the extent arising in favor of SWEPI as to the operator or non-
operator of any Property;
(j)
all rights of SWEPI to audit the records of any Person and to receive refunds
or payments of any nature, and all amounts of money relating thereto,
whether before, on, or after the Effective Time;
(k)
all claims for refunds (whether by way of refund, credit, rebate, offset or
otherwise) of, Tax assets or credits attributable to and rights to receive funds
from any Governmental Authority or any loss carryforwards with respect or
related to any Taxes, whether attributable to the period before, at or after
the Effective Time; and
(l)
all (i) Hydrocarbons produced from and to the extent attributable to the
Properties with respect to all periods subsequent to the Effective Time, (ii)
Hydrocarbon inventories from or attributable to the Properties that are in
storage on the Effective Time, (iii) to the extent related or attributable to the
Properties, all production, plant, and transportation imbalances as of the
Exhibit 10.1
- 3 -
Effective Time, and all make-up rights with respect to take-or-pay
payments, (iv) proceeds from or of such Hydrocarbons; and (v) all
proprietary seismic data, geological data, engineering data, and other data
and interpretations, files and records (in whatever form), in each case to the
extent related to the Assets, if any, provided that Buyer obtains any
sublicense or other similar arrangement required to receive such data,
interpretations, files, and records;
(m)
the SCADA Systems; and
(n)
all claims against Third Parties (including those described on Schedule
3.7(b)) to the extent relating to the ownership, use, construction,
maintenance or operation of the Assets, whether or not previously asserted
by SWEPI, but excluding any such claims to the extent relating to Seller
Taxes.
“Assignment Agreement” means the assignment of membership interest substantially in
the form attached hereto as Exhibit A assigning the Subject Interests to Buyer.
“Assumed Liabilities” means all duties, obligations, claims and liabilities of SWEPI
relating to, arising out of, or resulting from the Assets or SWEPI’s or Newco’s ownership or
operation of the Assets or of any Previously-Divested Properties, prior to, on or after the Effective
Time, but excluding any Seller Taxes.
“Base Purchase Price” has the meaning set forth in Section 2.4.
“Benefit Plan” means any “employee benefit plan,” within the meaning of Section 3(3) of
ERISA, and any bonus, deferred compensation, incentive compensation, employment, consulting
or other compensation agreement, equity, equity purchase or any other equity-based compensation,
change in control, termination or severance, sick leave, pay, salary continuation for disability,
hospitalization, medical insurance, retiree welfare, life insurance, scholarship, cafeteria, employee
assistance, education or tuition assistance, or fringe benefit policy, plan, program or arrangement.
“Business Day” means any day that is not a Saturday, a Sunday or other day on which
banks are required or authorized by Law to be closed in the State of Texas.
“Buyer” has the meaning set forth in the Preamble of this Agreement.
“Buyer Fundamental Representations” means Section 4.2, Section 4.3, Section 4.4, Section
4.5, Section 4.6, Section 4.9, and Section 4.12.
“Buyer Group” means Buyer, its Affiliates, and each of their respective officers, directors,
employees, agents, advisors and other Representatives.
“Buyer Material Adverse Effect” means a Material Adverse Effect with respect to Buyer.
“Central Time” means the central time zone of the United States of America.
Exhibit 10.1
- 4 -
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. § 9601 et seq., as amended.
“Claim Notice” has the meaning set forth in Section 9.2(b).
“Closing” has the meaning set forth in Section 7.1.
“Closing Date” has the meaning set forth in Section 7.1.
“Closing Payment” has the meaning set forth in Section 7.4(a).
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Combined Return” means any affiliated, aggregate, consolidated, combined or unitary
Tax Return with respect to any “affiliated group” as defined in Section 1504(a) of the Code (or
any analogous affiliated, aggregate, combined, consolidated or unitary group under state, local or
foreign Income Tax Law) (a) of which Newco or any predecessor thereof (including SWEPI) is or
has been a member, (b) of which Seller or any of its direct or indirect owners, Affiliates or
Subsidiaries or any predecessor thereof (in each case, other than Newco) is or was the common
parent and (c) which includes Newco (or any predecessor thereof, including SWEPI).
“Confidentiality Agreement” means that certain Confidentiality Agreement dated May 24,
2021 between SWEPI and Buyer.
“Confidentiality Restrictions” has the meaning set forth in Section 5.3(b).
“Consent” means any approval, consent, change of control provision, permission,
ratification, waiver, notification or other authorization that may be applicable to the transactions
contemplated by this Agreement and, for the avoidance of doubt, does not include any change of
control provision if such provision is subject to a carve-out for the sale of all or substantially all of
the assets of a party, which carve-out alone, if satisfied, is sufficient to entirely negate the
application of such change of control provision to any particular transaction.
“Contracting Parties” has the meaning set forth in Section 11.13.
“Contracts” means all contracts, agreements (including any side letter agreements or
purchase orders or other similar agreements entered into under any master agreement (such as
master services agreements or fleet agreements)), or other legally binding arrangements presently
existing to which SWEPI is a party or by which SWEPI is bound or to which any of the Assets or
the Subject Interests is subject, but excluding the Leases, the Surface Contracts, and any other
instrument creating or memorializing the ownership of any Properties or Surface Contracts
included in the Assets.
“Control” means with respect to any Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, as trustee or executor, as general partner or managing
member, by contract or otherwise, including the ownership, directly or indirectly, of securities
having the power to elect a majority of the board of directors or similar body governing the affairs
Exhibit 10.1
- 5 -
of such Person. The terms “Controls” and “Controlled by” and other derivatives shall be construed
accordingly.
“Controlled Group Liability” means any and all liabilities (i) under Title IV of ERISA, (ii)
under Sections 206(g), 302 or 303 of ERISA, (iii) under Sections 412, 430, 431, 436 or 4971 of
the Code, and (iv) as a result of the failure to comply with the continuation of coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code.
“Conversion” has the meaning set forth in Section 5.19(a).
“COPAS ” has the meaning set forth in Section 2.3(a).
“COVID-19” means SARS-CoV-2 or COVID-19, and any evolutions thereof or related or
associated epidemics, pandemic or disease outbreaks.
“Current Insurance Policies” has the meaning set forth in Section 5.14(a).
“Current Tax Period” means any Tax period beginning on or before, and ending after, the
Closing Date.
“Customary Agreement” means an agreement, contract, arrangement or commitment
entered into with customers, vendors, lessors or the like in the ordinary course of business and the
primary purpose of which does not relate to Taxes.
“Customary Post-Closing Consents” means consents and approvals from Governmental
Authorities for the transfer of the Subject Interests to Buyer that are customarily obtained after the
transfer of similar Interests.
“Cut-off Date” has the meaning set forth in Section 2.5.
“Damages” means, subject to Section 11.11, any liability, loss, cost, expense, award,
obligation, assessment, penalty, fine or judgment of any kind or character, whether attributable to
personal injury or death, property damage, contract claims, torts, or otherwise, and including
penalties and interest on any amount payable as a result of any of the foregoing and reasonable
fees and expenses of attorneys, consultants, accountants or other agents and experts (which, in the
case of indemnification, are reasonably incident to matters indemnified against, and the reasonable
costs of enforcement of the indemnity).
“Deposit” has the meaning set forth in Section 2.7.
“DOJ” means the Department of Justice.
“Dollars” means U.S. Dollars.
“Effective Time” has the meaning set forth in Section 2.2(a).
“Encumbrance(s)” means any charge, claim, license, limitation, condition, equitable
interest, mortgage, lien, pledge, option, warrant, security interest, right of first refusal and/or right
Exhibit 10.1
- 6 -
of first offer, pre-emptive right, adverse claim or restriction of any kind, including any restriction
on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment,
voting, transfer, receipt of income or exercise of any other attribute of ownership.
“Environmental Condition” means (a) a condition with respect to the air, soil, subsurface,
surface waters, ground waters and/or sediments that causes an Asset (or Seller, SWEPI or Newco
with respect to an Asset) not to be in compliance with any Environmental Law, (b) the existence
with respect to the Assets or the operation thereof of any environmental pollution, contamination,
degradation, damage or injury caused by or related to an Asset for which Remediation is presently
required (or if known, would be presently required) under Environmental Laws, or (c) any
condition, act or omission with respect to an Asset or operation thereof that gives rise to liabilities
or obligations under Environmental Laws.
“Environmental Laws” means, as the same have been amended as of the Execution Date,
any Law (including common law) relating to pollution, the protection or restoration of the
environment or, as such relates to Hazardous Substances, Hydrocarbons or NORM, occupational
health and safety, natural resources including flora and fauna, or natural resource damages,
including any such law relating to the generation, manufacture, treatment, storage, disposal, use,
handling, transportation or Release of any Hazardous Substances, Release of Hydrocarbons, or to
exposure to Hazardous Substances, Hydrocarbons or NORM, including CERCLA, the Resource
Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control
Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. § 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§
2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42
U.S.C. §§ 300f through 300j; the Occupational Safety and Health Act, and their implementing
regulations, along with and all similar state or local acts and regulations.
“Equipment” means SWEPI’s right, title and interest in and to all equipment, machinery,
fixtures, and other tangible personal property and improvements used or held for use in connection
with the operation of the Properties or the handling, production, storage, transportation, treatment,
or processing, marketing, or disposition of Hydrocarbons from the Properties (whether located on
or off the Properties), including all rigs, platforms, constructions, extraction plants, facilities, gas
systems (for gathering, treating, injection and compression), water systems (for treating, disposal
and injection), well heads, compressors, casing, tubing, rods, flow lines, transmission lines,
gathering lines, pipelines, derricks, vessels, tanks, boilers, separators, treating equipment, pumps,
motors, gauges, valves, heaters, treaters, machinery, tools, automation systems including meters
and related telemetry on Wells, power lines, telephone and communication lines, and all other
movable property and fixtures located upon or used or held for use in connection with the
Properties, together with all additions, accessories, parts, attachments, special tools and accessions
affixed thereto or used in connection therewith, and including any such equipment, machinery,
fixtures, and other tangible personal property and improvements that is leased pursuant to a master
services agreement or fleet agreement, but excluding the IT Systems.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
Exhibit 10.1
- 7 -
“ERISA Affiliate” means any person or entity under common control with Seller within
the meaning of Section 414(b), (c), (m), or (o) of the Code and the rules and regulations issued
thereunder.
“Execution Date” has the meaning set forth in the Preamble of this Agreement.
“FFCRA” means the Families First Coronavirus Response Act, Pub. L. No. 116-127 (116th
Cong.) (Mar. 18, 2020).
“Fraud” means actual fraud by a Party, which involves a knowing and intentional or willful
misrepresentation or omission of a material fact with respect to the making of (a) any
representation or warranty set forth in Article 3 or confirmed in the certificate delivered by Seller
at Closing pursuant to Section 7.2(c) or (b) Article 4 or confirmed in the certificate delivered by
Buyer at Closing pursuant to Section 7.3(b), as applicable, and in each case, with the intent of
inducing any other Party hereto to enter into this Agreement and upon which such other Party has
relied under applicable tort Laws, and does not include any fraud claim based on negligent
misrepresentation, recklessness or any equitable fraud or promissory fraud.
“FTC” means the Federal Trade Commission.
“GAAP” means United States generally accepted accounting principles as in effect from
time to time.
“Government Official” means an official or employee of any Governmental Authority,
including any person acting in official capacity for a Governmental Authority, regardless of rank
or position; any official or employee of a company wholly or partially controlled by a government
(e.g., a state-owned oil company), but excluding employees seconded to such companies; a
political party or any official of one; any candidate for political office; any officer or employee of
a public international organization, such as the United Nations or World Bank; and immediate
family members (spouse, dependent child, parent or household member) of any of the Persons
listed above.
“Governmental Authority” means any instrumentality, subdivision, court, administrative
agency, commission, official or other authority of the United States or any other country or any
state, province, prefect, municipality, locality or other government or political subdivision thereof,
or any quasi-governmental or private body exercising any administrative, executive, judicial,
legislative, arbitral, police, regulatory, taxing, importing or other governmental or quasi-
governmental authority.
“Governmental Transition Filing” has the meaning set forth in Section 5.20.
“Hard Required Consent” means a Required Consent that is not a Soft Required Consent.
“Hazardous Substances” means any pollutants, contaminants, toxic or hazardous
substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may
form the basis of liability under, any Environmental Laws, including asbestos-containing
materials, produced water, poly-chlorinated bi-phenyls, or per- or poly-fluoroalkyl substances.
Exhibit 10.1
- 8 -
“Hedging Transaction” means a transaction that is (a) a swap, basis swap, option, forward
contract, future contract, collar, three-way collar, or similar transaction entered into “over-the-
counter”, (b) involving, or settled by reference to, one or more commodities, and (c) intended to
hedge the risks associated with the production of Hydrocarbons.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
“Hydrocarbons” means oil, gas, condensate and other gaseous and liquid hydrocarbons or
any combination thereof, and all minerals, products and substances extracted, separated, processed
and produced therefrom or therewith.
“Imbalances” means any imbalance at the wellhead between the amount of Hydrocarbons
produced from any of the Wells and allocated to, the interests of SWEPI (as of the Execution Date)
or Newco (as of the consummation of the Merger) therein and the shares of production from the
relevant Well to which such Person was entitled, or at the pipeline flange (or inlet flange at a
processing plant or similar location) between the amount of Hydrocarbons nominated by or
allocated to such Person and the Hydrocarbons actually delivered on behalf of such Person at that
point.
“Income Taxes” means any income, capital gain, gross receipts, franchise or other similar
Taxes.
“Indebtedness” of any Person means, without duplication: (a) indebtedness of such Person
for borrowed money, (b) obligations of such Person to pay the deferred purchase or acquisition
price for any property of such Person, (c) obligations of such Person with respect to unpaid
management fees, (d) all deposits and monies received in advance, (e) indebtedness evidenced by
notes, debentures, bonds, or other similar instruments, (f) obligations of such Person to pay the
deferred purchase price of goods and services, including any earn out liabilities associated with
past acquisitions, (g) reimbursement obligations of such Person in respect of drawn letters of credit
or similar instruments issued or accepted by banks and other financial institutions for the account
of such Person, (h) obligations of such Person under a lease to the extent such obligations are
required to be classified and accounted for as a capital lease on a balance sheet of such Person
under GAAP, and (i) indebtedness of others as described in clauses (a) through (h) above
guaranteed by such Person or for which such Person is liable as obligor, surety, by Contract, or
otherwise; but Indebtedness does not include (x) accounts payable to trade creditors or accrued
expenses, in each case arising in the ordinary course of business consistent with past practice and
that are not yet due and payable, or are being disputed in good faith, and the endorsement of
negotiable instruments for collection in the ordinary course of business, (y) the arrangements set
forth on Schedule 3.24, or (z) the Material Contracts.
“Indemnified Person” has the meaning set forth in Section 9.2(a).
“Indemnifying Person” has the meaning set forth in Section 9.2(a).
“Individual Environmental Indemnity Threshold” has the meaning set forth in Section
9.3(c).
Exhibit 10.1
- 9 -
“Individual Indemnity Threshold” has the meaning set forth in Section 9.3(c).
“Intellectual Property” means all intellectual property pertaining to the other Assets,
including (a) all registered and unregistered names, trademarks, service names and service marks
(and applications for registration of the same) of SWEPI and (b) all trade secrets, technical
information, know-how and other confidential information which are not disclosed in issued
patents, published patent applications or copyright registrations of SWEPI.
“Intellectual Property Rights” means rights in any of the following to the extent subject to
protection under applicable Law: (a) trademarks, service marks, logos and trade names; (b) patents;
(c) copyrights; (d) internet domain names; (e) trade secrets and other proprietary and confidential
information; and (f) any registrations or applications for registration for any of the foregoing.
“Interests” means, with respect to any Person, (a) capital stock, membership interests, units,
partnership interests, other equity interests, rights to profits or revenue and any other similar
interest of such Person (including the right to participate in the management and business and
affairs or otherwise Control such Person), (b) any security or other interest convertible into or
exchangeable or exercisable for any of the foregoing, and (c) any right (contingent or otherwise)
to subscribe for, purchase or otherwise acquire any of the foregoing.
“IT Systems” means all information technology equipment and services, networks and
associated information systems, whether owned, used or held for use by Seller or any of its
Affiliates, including SWEPI, including: (i) all computer hardware (including network and
telecommunications devices, laptops, mobile devices, peripherals, printers, scanners, storage,
racks); (ii) all software (including firmware, associated user manuals, object code and source
code); and (iii) all databases, but excluding the SCADA Systems.
“Known/Knowledge” means, whenever a statement regarding the existence (or absence)
of any fact, circumstance or condition in this Agreement is qualified by a phrase such as “to such
Party's Knowledge”, “Known to such Party,” or “had actual Knowledge”, the Parties intend that
the only information to be attributed to such Party with respect to such fact, circumstance or
condition is information actually known to (a) the person in the case of an individual or (b) subject
to Section 3.1(a) and Section 4.1(a), in the case of a corporation (or other business entity), the
current officer and manager who devotes substantial attention to matters of such nature during the
ordinary course of such person’s employment. Unless otherwise specifically provided in this
Agreement, no Party is represented or obligated to have undertaken a separate investigation in
connection with the transaction contemplated in this Agreement to determine the existence (or
absence) of any statement or representation qualified by a phrase such as “to such Party's
Knowledge”, “Known to such Party” or “had actual Knowledge”.
“Laws” means all Permits, statutes, laws, ordinances, regulations, rules, codes, executive
orders, injunctions, judgments, decrees, rulings, or orders of any Governmental Authority.
“Leases” has the meaning set forth in the definition of “Real Property Interests” in this
Appendix A.
“Material Adverse Effect” means, with respect to any Person, any change, circumstance,
development, state of facts, effect, or condition that, individually or in the aggregate, (a) has been,
Exhibit 10.1
- 10 -
or would be reasonably likely to be, materially adverse to the business, liabilities, financial
condition, or results of operations of such Person, or (b) materially and adversely affects the ability
of such Person to consummate the transactions contemplated hereby or would reasonably be
expected to do so;
provided
,
however
, that in the case of subsection (a) above, none of the
following, either alone or in combination, shall be deemed to constitute or contribute to a Material
Adverse Effect, or otherwise be taken into account in determining whether a Material Adverse
Effect has occurred or is existing: (i) any change in applicable Laws or accounting standards or
the interpretation or enforcement thereof after the date of this Agreement; (ii) any change in
general economic or political conditions or business conditions or financial, credit, debt, or
securities market conditions generally, including changes in supply, demand, interest rates,
exchange rates, commodity prices (including Hydrocarbons), electricity prices, or fuel costs, sand
or proppants; (iii) any legal, regulatory, or other change generally affecting the industries, industry
sectors, or geographic sectors of such Person, any increase in operating costs or capital expenses
or any reduction in drilling activity or production or the demand for related gathering, processing,
transportation, and storage services; (iv) any change resulting or arising from the execution or
delivery of this Agreement or the other Transaction Documents, the consummation of the
transactions contemplated hereby, or the announcement or other publicity or pendency with respect
to any of the foregoing (including the impact thereof on relationships, contractual or otherwise,
with customers, suppliers, distributors, partners, employees or labor unions); (v) any change
resulting or arising from hostilities, sabotage, terrorism, or the escalation of any of the foregoing;
(vi) any epidemic, pandemic, disease outbreak (including the COVID-19 virus) or other public
health crisis or public health event, or the worsening of any of the foregoing; (vii) any disruption
in the purchase or transportation of crude oil or natural gas produced or otherwise sold by such
Person or its Subsidiaries as a result of any shutdown, interruption or declaration of force majeure
by any pipeline operator or other purchaser of such products; (viii) natural declines in well
performance or reclassification or recalculation of reserves in the ordinary course of business; (ix)
seasonal reductions in revenues and/or earnings of such Person or any of its Subsidiaries in the
ordinary course of their respective businesses; (x) any actions taken or omitted to be taken by a
Party at the written direction of the other Party (for the avoidance of doubt any action by, or
omission of, a Party for which such Party sought or requested, and the other Party
provided
, that
consent shall not be deemed to be “at the written direction of” such Party); (xi) any change, in and
of itself, in the market price or trading volume of such Person’s securities; (xii) any failure, in and
of itself, by such Person to meet any internal or published projections, forecasts, estimates or
predictions in respect of revenues, earnings, production or other financial or operating metrics for
any period (it being understood that the events, changes, circumstances, occurrences or effects
giving rise to or contributing to such failure may be deemed to constitute or be taken into account
in determining whether there has occurred or would occur a Material Adverse Effect) or (xiii) any
change resulting or arising from compliance with this Agreement, including the taking of any
action required hereby or the failure to take any action that is not permitted hereby;
provided,
that
the exceptions in clauses (ii) and (iii) above shall apply only to the extent that such changes do not
have a disproportionate impact on such Person as compared to other Persons in the oil and gas
industry related to similarly situated operations in the geographic region in which the such Person’s
assets are located.
“Material Contracts” has the meaning set forth in Section 3.11(a).
“Merger” has the meaning set forth in Section 5.19(b).
Exhibit 10.1
- 11 -
“Net Mineral Acres” means, as computed separately with respect to each Lease, (a) the
number of gross acres in the land covered by such Lease, multiplied by (b) the lessor’s or owner’s
undivided mineral interest in the Hydrocarbons covered by such Lease in such lands, multiplied
by (c) SWEPI’s Working Interest in such Lease.
“Net Revenue Interest” means, (a) with respect to any Well, SWEPI’s interest (expressed
as a percentage or a decimal) in and to the Hydrocarbons produced, saved and sold from or
allocated to such Well, (b) with respect to any Lease, SWEPI’s interest (expressed as a percentage
or a decimal on an “8/8ths” basis with respect to SWEPI’s Working Interest in such Lease) in and
to the Hydrocarbons produced, saved and sold from or allocated to such Lease, or (c) with respect
to any Unit, SWEPI’s interest (expressed as a percentage or decimal) in and to the Hydrocarbons
produced, saved and sold from or allocated to such Unit, in the case of each of items (a), (b) and
(c), after giving effect to all Royalties.
“Newco” has the meaning set forth in Section 5.19(b).
“Newco Transaction Expenses” means the aggregate amount of any and all fees and
expenses incurred by or on behalf of, or paid or to be paid directly by, Newco or any Person that
Newco pays or reimburses or is otherwise legally obligated to pay or reimburse (including any
such fees and expenses incurred by or on behalf of Seller or SWEPI) in connection with the process
of selling the Subject Interests or the negotiation, preparation or execution of this Agreement or
the Transaction Documents or the performance or consummation of the transactions contemplated
hereby or thereby, including (a) all fees and expenses of counsel, advisors, consultants, investment
bankers, accountants, auditors and any other experts in connection with the transactions
contemplated hereby (including any process run by or on behalf of Newco in connection with such
transactions); (b) all brokers’, finders’ or similar fees in connection with the transactions
contemplated hereby (including any process run by or on behalf of Newco in connection with such
transactions); (c) subject to Section 5.2, any fees and expenses associated with obtaining necessary
or appropriate waivers, consents, or approvals of any Governmental Authority or Third Parties on
behalf of Newco in connection with the transactions contemplated hereby (including any process
run by or on behalf of Newco in connection with such transactions); (d) any fees or expenses
associated with obtaining the release and termination of any Encumbrances in connection with the
transactions contemplated hereby (including any process run by or on behalf of Newco in
connection with such transactions); and (e) any fees and expenses associated with any of the
matters set forth on Schedule 3.13.
“Non-Permian Newco” has the meaning set forth in Section 5.19(b).
“Nonparty Affiliates” has the meaning set forth in Section 11.13.
“NORM” means naturally occurring radioactive material.
“Organizational Documents” means (a) with respect to a corporation, the charter, articles
or certificate of incorporation, as applicable, and bylaws thereof, (b) with respect to a limited
liability company, the certificate of formation or organization, as applicable, and the operating or
limited liability company agreement thereof, (c) with respect to a partnership, the certificate of
Exhibit 10.1
- 12 -
formation and the partnership agreement thereof, and (d) with respect to any other Person, the
organizational, constituent or governing documents or instruments of such Person.
“Outside Date” means the date that is 120 days after the Execution Date;
provided
,
however
that if the applicable waiting periods (and any extensions thereof) under the HSR Act have not
expired or otherwise been terminated on or prior to such date, but all other conditions precedent to
Closing set forth in Section 6.1 and Section 6.2 have been satisfied or waived (except for any such
conditions that by their nature may only be satisfied at or in connection with the occurrence of
Closing), then the Outside Date will automatically be extended to the date that is 150 days after
the Execution Date.
“Party” and “Parties” have the meanings set forth in the Preamble of this Agreement.
“Permits” means federal, state and local government licenses, permits, registrations,
franchises, orders, consents, approvals, variances, waivers, exemptions and other authorizations
by, or filings with, any Governmental Authority.
“Permitted Encumbrance(s)” means any or all of the following:
(a)
Royalties to the extent that the net cumulative effect of such burdens on a
property does not, individually or in the aggregate, (i) reduce SWEPI’s Net
Revenue Interest in such Property below that shown in Schedule 1.1(a) or
Schedule 1.1(b), as applicable, (ii) increase SWEPI’s Working Interest in
such Property above that shown in Schedule 1.1(a) or Schedule 1.1(b), as
applicable, without a proportionate increase in the Net Revenue Interest of
SWEPI in such Property, or (iii) reduce SWEPI’s Net Mineral Acres in such
Property below that shown in Schedule 1.1(a);
(b)
all unit agreements, pooling agreements, operating agreements, farmout
agreements, Hydrocarbon production sales contracts, division orders and
other contracts, agreements and instruments applicable to the Properties, in
each case to the extent that the net cumulative effect of such instruments
does not, individually or in the aggregate, (i) reduce SWEPI’s Net Revenue
Interest in a Property below that shown therefor in Schedule 1.1(a) or
Schedule 1.1(b), as applicable, (ii) increase SWEPI’s Working Interest in a
Property above that shown in Schedule 1.1(a) or Schedule 1.1(b), as
applicable, without a proportionate increase in the Net Revenue Interest of
SWEPI in such Property, or (iii) reduce SWEPI’s Net Mineral Acres in such
Property below that shown therefor in Schedule 1.1(a);
(c)
the Required Consents, or the failure to obtain the Required Consents, that
are triggered by the consummation of the transactions contemplated by this
Agreement;
(d)
liens for Taxes or assessments not yet due and payable or being contested
in good faith by appropriate proceedings, for which adequate cash reserves
are maintained by SWEPI (as of the Execution Date) and Newco (as of the
Exhibit 10.1
- 13 -
Closing) for the payment thereof in accordance with GAAP and that are set
forth on Schedule 3.8(h);
(e)
materialman’s, mechanic’s, repairman’s, employee’s, contractor’s,
operator’s and other similar liens or charges arising in the ordinary course
of business for amounts not yet delinquent or if delinquent, being contested
reasonably and by appropriate actions, and for which adequate cash reserves
are maintained for the payment thereof in accordance with GAAP
(including any amounts being withheld as provided by Law);
(f)
all rights to consent, by required notices to, filings with, or other actions by
Governmental Authorities that do not apply to the transactions
contemplated by this Agreement or, if they do apply, are customarily
obtained subsequent to the closing of transactions that are similar to the
transactions contemplated by this Agreement if such Governmental
Authority is, pursuant to applicable Law, without discretion to refuse to
grant such consent if specifically enumerated conditions set forth in such
applicable Law are satisfied, including Customary Post-Closing Consents;
(g)
excepting circumstances where such rights have already been triggered,
rights of reassignment arising upon final intention to abandon or release the
Assets, or any of them, and requiring notice to the holders of such rights;
(h)
easements, rights-of-way, covenants, servitudes, Permits, surface leases and
other rights in respect of surface operations that do not, individually or in
the aggregate, materially interfere with the use, development, or ownership
of the Assets subject thereto or affected thereby;
(i)
gas balancing and other production balancing obligations, and obligations
to balance or furnish make-up Hydrocarbons under Hydrocarbon sales,
gathering, processing or transportation contracts;
(j)
all rights reserved to or vested in any Governmental Authorities to control
or regulate any of the Assets in any manner or to assess Tax with respect to
the Assets, the ownership, use or operation thereof, or revenue, income or
capital gains with respect thereto, and all obligations and duties under all
applicable Laws of any such Governmental Authority or under any
franchise, grant, license or Permit issued by any Governmental Authority;
(k)
the terms and conditions of the Leases, to the extent that the net cumulative
effect of such terms and conditions does not, individually or in the
aggregate, (i) reduce SWEPI’s Net Revenue Interest in a Property below
that shown therefor in Schedule 1.1(a) or Schedule 1.1(b), as applicable,
(ii) increase SWEPI’s Working Interest in a Property above that shown
therefor in Schedule 1.1(a) or Schedule 1.1(b), as applicable, without a
proportionate increase in the Net Revenue Interest of SWEPI in such
Exhibit 10.1
- 14 -
Property, or (iii) reduce SWEPI’s Net Mineral Acres in a Property below
that shown therefor in Schedule 1.1(a);
(l)
zoning and planning ordinances and municipal regulations promulgated by
any Governmental Authority;
(m)
any Encumbrance burdening a third party lessor’s or grantor’s interest in
the Assets (including any Encumbrances created under deeds of trust,
mortgages and similar instruments by any such lessor or grantor), which, if
not subordinated to the rights of SWEPI (or Newco after the consummation
of the Merger), is not currently in default or subject to foreclosure or other
enforcement proceedings by the holder;
(n)
depth severances expressly identified on Schedule 1.1(a) or Schedule 1.1(b)
to the extent that they do not, individually or in the aggregate, reduce
SWEPI’s Net Revenue Interest or Net Mineral Acre ownership in any
Property below that shown on Schedule 1.1(a) or Schedule 1.1(b), as
applicable, for such Property or increase SWEPI’s Working Interest in any
Property beyond that shown on Schedule 1.1(b) without a corresponding
and proportionate increase in SWEPI’s Net Revenue Interest for such
Property;
(o)
the terms and conditions of, and any rights of third parties to back into any
interest in the Properties to the extent such terms, conditions and rights are
expressly shown as binding on the applicable Property on Schedule 1.1(a)
and/or Schedule 1.1(b);
(p)
normal and customary liens of co-owners under operating agreements
relating to the Properties, which obligations are not yet due and pursuant to
which SWEPI (or Newco after the consummation of the Merger) is not in
default;
(q)
defective acknowledgements, name variations, lack of power of attorney,
lack of trustee authorization, lack of representative capacity, lack of
evidence of corporate or entity authorization, failure to recite marital status
or omissions of successions of heirship or estate proceedings, except in each
case where evidence is available that reasonably supports a Third Party’s
claim to superior title;
(r)
lack of a survey of the surface of the Properties, unless a survey is required
by Law;
(s)
any matter that has been cured, released or waived by any Law of limitation
or prescription, and which can be substantiated by the affirmative ruling of
a court of competent jurisdiction;
(t)
failure to record Leases issued by any Governmental Authority (which, for
the avoidance of doubt, includes any state or county agency or any successor
Exhibit 10.1
- 15 -
agency thereto) in the real property, conveyance, or other records of the
county in which such Leases are located,
provided
, that the instruments
evidencing the conveyance of such title to SWEPI from its immediate
predecessor in title are recorded with and, if applicable, approved by the
Governmental Authority that issued any such Lease;
(u)
rights of any (i) common owner of any interest in any fee mineral interest
as tenants in common or through common ownership, (ii) owner or lessee
of any oil and gas interests in formations, strata, horizons, or depths other
than the depths described for the applicable Lease described on
Schedule 1.1(a) or (iii) common owner of any interest in surface rights
currently held by SWEPI and such common owner as tenants in common or
through common ownership, to the extent that the net cumulative effect of
the matter referenced in clause (i), (ii) or (iii) does not, individually or in
the aggregate, (i) reduce SWEPI’s Net Revenue Interest in a Property below
that shown therefor in Schedule 1.1(a) or Schedule 1.1(b), as applicable,
(ii) increase SWEPI’s Working Interest in a Property above that shown
therefor in Schedule 1.1(a) or Schedule 1.1(b), as applicable, without a
proportionate increase in the Net Revenue Interest of SWEPI in such
Property, or (iii) reduce SWEPI’s Net Mineral Acres in a Property below
that shown therefor in Schedule 1.1(a);
(v)
(i) lack of a division order or an operating agreement covering any Property
(including portions of a Property that were formerly within a unit but that
have been excluded from the unit as a result of a contraction of the unit) to
the extent that they do not, individually or in the aggregate, reduce SWEPI’s
Net Revenue Interest or Net Mineral Acre ownership in any Property below
that shown in on Schedule 1.1(a) or Schedule 1.1(b), as applicable, for such
Property or increase SWEPI’s Working Interest in any Property beyond that
shown on Schedule 1.1(b) without a corresponding and proportionate
increase in SWEPI’s Net Revenue Interest for such Property, or (ii) failure
to obtain waivers of maintenance of uniform interest, restriction on zone
transfer, or similar provisions in operating agreements with respect to
assignments in SWEPI’s chain of title to the Property unless (A) the
underlying provisions of such operating agreement provide that such failure
voids or nullifies (automatically or at the election of the holder thereof) the
assignment with respect to such asset or (B) there is an outstanding and
pending, unresolved claim from a third party with respect to the failure to
obtain such waiver;
(w)
defects arising from prior expired Hydrocarbon leases that are not
surrendered or released of record absent affirmative evidence of an adverse
claim by another Person that such lease is in full force and effect;
provided,
that SWEPI has held the affected Properties for at least five consecutive
years on the Execution Date;
Exhibit 10.1
- 16 -
(x)
defects based solely on SWEPI’s failure to have a title opinion or title
insurance policy on any Property;
(y)
the Retained Litigation;
(z)
decreases in SWEPI’s Net Revenue Interest (i) in connection with those
operations in which SWEPI may be a non-consenting co-owner after the
Execution Date in accordance with the terms of Section 5.4, (ii) resulting
from the reversion of interests to co-owners with operations in which such
co-owners elect after the Execution Date not to consent, (iii) resulting from
the establishment or amendment, after the Execution Date, of pools or units
permitted under the terms of Section 5.4, or (iv) required to allow other
working interest owners to make up past underproduction or pipelines to
make up past under-deliveries to the extent accounted for and described in
Schedule 3.12;
(aa)
increases in SWEPI’s Working Interest in a Property above that shown
therefor in Schedule 1.1(a) or Schedule 1.1(b), as applicable (i) that are
accompanied by at least a proportionate increase in SWEPI’s Net Revenue
Interest in such Property above that shown therefor in Schedule 1.1(a) or
Schedule 1.1(b), as applicable, or (ii) resulting from contribution
requirements with respect to defaulting or non-consenting co-owners under
the applicable operating agreement;
(bb)
decreases in SWEPI’s Net Mineral Acres or Net Revenue Interest listed on
Schedule 1.1(a) or Schedule 1.1(b), as applicable, where there is a
proportionate Net Revenue Interest or Net Mineral Acres increase related
to a different Property (the value of which Net Revenue Interest or Net
Mineral Acres increase, as applicable, is in each case on a basis comparable
to or more favorable than the corresponding Net Revenue Interest or Net
Mineral Acres that are the subject of such decrease), and such decrease and
correlating increase are due to an acreage swap that has not been accounted
for in SWEPI’s leasing systems;
(cc)
decreases in SWEPI’s Net Mineral Acres (i) in connection with those
operations in which SWEPI may be a non-consenting co-owner after the
Execution Date in accordance with the terms of Section 5.4, or (ii) resulting
from the establishment or amendment, after the Execution Date, of pools or
units permitted under the terms of Section 5.4;
(dd)
defects which are based solely on (i) a lack of information in SWEPI’s or
Newco’s files or of record, (ii) references to any document if a copy of such
document is not in SWEPI’s or Newco’s files or of record, or (iii) the
inability to locate an unrecorded instrument of which Buyer has
constructive or inquiry notice by virtue of a reference to such unrecorded
instrument in a recorded instrument (or a reference to a further unrecorded
instrument in such unrecorded instrument), unless, in each of (i), (ii) or (iii),
Exhibit 10.1
- 17 -
such lack of information, referenced document or unlocated unrecorded
instrument is required to establish the existence or validity of a Property;
(ee)
any defect as a consequence of cessation of production, insufficient
production, or failure to conduct operations on any of the Assets held by
production, or lands pooled, communitized, or unitized therewith, except to
the extent (i) the cessation of production, insufficient production or failure
to conduct operations is affirmatively shown to exist such that it has given
rise to a right of the lessor or other third party to terminate all or any portion
of the underlying Lease or (ii) of a third party’s claim of termination of all
or any portion of the underlying Lease;
provided, however
, that defects
based upon a determination that (A) there has been no Hydrocarbon
production from wells located on the Property or lands pooled,
communitized or unitized therewith, and (B) there has been no activity
conducted on the Property or lands pooled, communitized or unitized
therewith that would otherwise maintain the Property in force and effect,
may be considered as a breach of Seller’s special warranty of title in Section
3.20; and
(ff)
the Material Contracts and the matters set forth on any Schedule, in each
case to the extent that the net cumulative effect of such Material Contracts
and matters do not, individually or in the aggregate, (i) reduce SWEPI’s Net
Revenue Interest in a Property below that shown therefor in Schedule 1.1(a)
or Schedule 1.1(b), as applicable, (ii) increase SWEPI’s Working Interest
in a Property above that shown in Schedule 1.1(a) or Schedule 1.1(b), as
applicable, without a proportionate increase in the Net Revenue Interest of
SWEPI in such Property, or (iii) reduce SWEPI’s Net Mineral Acres in such
Property below that shown therefor in Schedule 1.1(a).
“Person” means an individual, corporation, partnership, limited liability company, limited
liability partnership, joint venture, syndicate, person, trust, association, organization or other
entity, including any Governmental Authority, and including any successor, by merger or
otherwise, of any of the foregoing.
“Phase I Environmental Site Assessment” means an environmental site assessment
performed pursuant to ASTM E1527-13 Standard Practice for Environmental Site Assessments:
Phase I Environmental Site Assessment Process or any similar environmental assessment,
including a limited assessment of a facility’s or operation’s compliance with Environmental Laws;
provided,
or invasive activities.
“Pre-Effective Refund” has the meaning set forth in Section 10.2.
“Preferential Rights” means any right or agreement that may enable any Person to purchase
or acquire any Asset or any interest therein or portion thereof as a result of or in connection with
the execution or delivery of this Agreement or the consummation of the transactions contemplated
hereby, including any preferential purchase rights, rights of first refusal, or other similar rights.
Exhibit 10.1
- 18 -
“Previously-Divested Properties” means the leases and wells that have been divested by
SWEPI in the Subject Area and that are set forth on Schedule A-1.
“Proceeding” means any proceeding, claim, charge, complaint, lawsuit, direct or indirect
demand, inquiry, hearing, notice of violation, investigation, action, cause of action, suit, litigation,
arbitration, citation, summons, subpoena, audit, controversy, discovery request, or other dispute or
legal proceeding, whether civil, criminal, administrative or otherwise, made pursuant to federal,
state or other Laws.
“Properties” means, collectively, the Real Property Interests, the Units and the Wells.
“Property Costs” means each of the following to the extent incurred in and attributable to
the ownership and operation of the Assets in the ordinary course of business and, where applicable,
the applicable operating agreement and not otherwise prohibited under Section 5.4: (a) all
operating expenses (including costs of Seller personnel dedicated to the Assets, insurance, rentals,
shut-in payments, title examination and curative actions taken in connection with the drilling of
Wells, and gathering, marketing, processing and transportation costs in respect of Hydrocarbons
produced from the Properties), (b) capital expenditures (including bonuses, broker fees, and other
Lease acquisition costs, costs of drilling and completing wells, cost of building site pads, costs of
acquiring Equipment, and other Lease acquisition, extension or renewal costs); and (c) overhead
costs charged to the Assets under any applicable Third Party operating agreement;
provided
,
however
, that “Property Costs” shall exclude Seller’s and its Affiliates’ general and administrative
expenses and any liabilities, losses and expenses attributable to (i) any matters with respect to
which Buyer Group or Seller Group is entitled to indemnity from the other Party under this
Agreement or (ii) Taxes.
“Public Announcement Restrictions” has the meaning set forth in Section 5.3(a).
“Purchase Price” has the meaning set forth in Section 2.4.
“Real Property Interests” means SWEPI’s right, title and interest in and to (a) all oil and
gas leases, oil, gas, and mineral leases and subleases, royalties, overriding royalties, net profits
interests, payments out of production, reversionary rights, mineral fee interests, carried interests
and any contractual rights to production relating thereto, including as described on Schedule 1.1(a)
to the extent and only to the extent the same are located within the Subject Area (the “Leases”),
and (b) all other rights in the lands covered by the Units and the foregoing Leases, including all
Royalties, Working Interests, Net Revenue Interests, and other interests and rights to
Hydrocarbons, to the extent and only to the extent the same are located within the Subject Area.
“Records” means, to the extent reasonably in Seller or SWEPI’s possession or control, (a)
any files, records, maps, information, and data, whether written or electronically stored, to the
extent relating to the Assets, including: (i) land and title records (including abstracts of title, title
opinions, and title curative documents); (ii) contract files; (iii) correspondence; (iv) operations,
environmental, production, and accounting records (including equipment lists, repair notes and
archives, and technical drawings); (v) production, facility and well records and data; (vi) supplier
lists and records; (vii) training materials and training records (including certifications) and (b) the
corporate, financial, Tax and legal records of SWEPI and Newco (including Tax Returns);
Exhibit 10.1
- 19 -
provided
,
however
, that the term “Records” shall not include (i) any of Seller’s or its Affiliates’
business plans, strategies, cost and pricing information, accounting records, supplier lists and
records, proprietary training materials and equipment, equipment lists, technical drawings, and
contracts and financial records that address or reflect activities outside of the business of SWEPI
related to the Assets; (ii) any of Seller’s or its Affiliates’ company minute books and records, Tax
Returns, Tax records that relate to Seller’s or its Affiliates’ business generally or other materials
that do not pertain to the business of Newco or ongoing day-to-day operation of the Assets; (iii)
training, personnel, and medical records (including certifications) of employees, including
Transferred Employees (as defined in Schedule 5.9(a)), except as specified in Section 1.02(f) of
Schedule 5.9(a); (iv) hiring exams for Transferred Employees (as defined in Schedule 5.9(a)); (v)
any transfer pricing information; (vi) materials that are subject to any applicable legal privileges,
including attorney work product and attorney-client communications that extend beyond Newco;
and (vii) any files, records, information, and data to the extent related to the IT Systems (for the
avoidance of doubt, such files, records, information and data shall not include information that
may be stored on the IT Systems that would otherwise constitute a Record).
“Related Party Contract” means any Contract between (a) SWEPI, on the one hand, and
(b) Seller, any Affiliate of Seller (other than SWEPI) or any Person that directly or indirectly
controls or is under common control with Shell Oil Company, or any of their respective officers,
directors, stockholders, members, partners, managers, investors, private equity sponsors, or
employees, on the other hand.
“Release” means any releasing, disposing, discharging, injecting, spilling, leaking,
pumping, pouring, leaching, migrating, dumping, emitting, escaping or emptying into or upon any
soil, air, sediment, subsurface strata, surface water, groundwater, or drinking water supply.
“Release of Hydrocarbons” means any Release of Hydrocarbons into or upon any soil, air,
sediment, subsurface strata, surface water, groundwater, or drinking water supply that triggers any
reporting obligations to any Governmental Authority, including the Railroad Commission of
Texas, under any applicable Law.
“Remediation” including the correlative term “Remediate” means the implementation and
completion of any investigative, remedial, removal, response, monitoring, construction, repair,
closure, disposal, restoration or other corrective actions (including any necessary filings or
interactions with Governmental Authorities) required under Environmental Laws to respond, to
the extent required by applicable Environmental Laws, to any Release or threatened Release of
any Hazardous Substances at, on, under or from any Asset, in the most cost-effective manner
allowed under applicable Environmental Laws, considering ongoing operation and maintenance
and any operational or use limitations or controls.
“Reorganization” has the meaning set forth in Section 5.19.
“Representatives” means (a) partners, employees, officers, directors, members, equity
owners and counsel of a Party or any of its Affiliates or any prospective purchaser of a Party or an
interest in a Party; (b) any investment bank, consultant or agent retained by a Party or the parties
listed in subsection (a) above; and (c) any bank, other financial institution or entity funding, or
Exhibit 10.1
- 20 -
proposing to fund, such Party’s operations in connection with the Assets, including any consultant
retained by such bank, other financial institution or entity.
“Required Consent” has the meaning set forth in Section 3.13.
“Required Consent Asset” means an Asset subject to a Required Consent.
“Restricted Party” means any Person (a) targeted by national, regional or multilateral trade
or economic sanctions under Trade Control Laws; or (b) directly or indirectly owned or controlled
or acting on behalf of such Persons, including their Affiliates and Representatives.
“Retained Assets”
means
(a)
any and all real property owned by SWEPI or any of its wholly-owned
subsidiaries on or prior to the Execution Date and located outside of the
Subject Area (the “Retained Properties”);
(b)
all contracts, agreements, and instruments to the extent relating to the
Retained Properties, including operating agreements, letter agreements,
unitization agreements, declarations and orders, farmin and farmout
agreements, exploration and participation agreements, joint development
agreements, area of mutual interest agreements, agreements pursuant to
which the Retained Properties (or any portion thereof) were purchased or
sold by SWEPI, and the transfers, assignments or conveyances relating to
the Retained Properties, and any rights under any such contracts,
agreements, or instruments, including any audit rights or rights to receive
refunds or reimbursements in connection with any such contracts,
agreements, or instruments and any master services agreements, fleet
agreements, or other similar master agreements, including those that relate
to the Assets or that otherwise would constitute an Asset, except in each
case any purchase orders or other similar agreements entered into under any
master agreement (such as master services agreements or fleet agreements)
(collectively, the “Retained Contracts”);
(c)
all claims and causes of action arising under and to the extent relating to
any Retained Contract (including claims for adjustments or refunds) or any
other Retained Asset;
(d)
the Retained Litigation;
(e)
all rights and interests of SWEPI (i) under any policy or agreement of
insurance or indemnity, (ii) under any bond or (iii) to any insurance or
condemnation proceeds or awards, in each case, to the extent relating to any
other Retained Asset;
(f)
all surety agreements, bonds, letters of credit, guarantees and any other
financial assurances or credit support to the extent relating to any other
Retained Asset;
Exhibit 10.1
- 21 -
(g)
all personal property used, or held for use, in connection with the Retained
Properties;
(h)
all easements, permits, well licenses, servitudes, rights-of-way, subsurface
leases, and other subsurface rights appurtenant to, and to the extent used or
held for use in connection with, the Retained Properties;
(i)
all records relating exclusively to any other Retained Asset;
(j)
all Related Party Contracts (other than those set forth on Schedule 5.7);
(k)
all matters set forth on Schedule 3.22 (the “Retained Royalties”);
(l)
any Contract for a Hedging Transaction;
(m)
any Required Consent Assets retained by SWEPI pursuant and subject to
the terms of Section 5.16(c);
(n)
all end user computing devices used in connection with the Assets,
including laptops, iPhones and iPads;
(o)
subject to Section 5.22, all non-proprietary seismic, geological,
engineering, and other data and interpretations, files and records (in
whatever form) in each case to the extent related to the Assets (“Seismic
Data”);
(p)
the IT Systems; and
(q)
any and all other real property, personal property, Permits, contracts,
agreements, leases, instruments, claims, rights and other interests owned or
held by SWEPI or any of their wholly-owned subsidiaries, in each case to
the extent not comprising a part of, or unrelated to, the Assets.
“Retained Contracts” has the meaning set forth in item (b) of the definition of “Retained
Assets”.
“Retained Liabilities” means any and all duties, obligations, claims and liabilities of
SWEPI other than the Assumed Liabilities, and all duties, obligations, claims and liabilities
attributable to the Retained Assets, the Retained Litigation and the Retained Royalties.
“Retained Litigation” has the meaning set forth in Section 5.17.
“Retained Properties” has the meaning set forth in item (a) of the definition of “Retained
Assets”.
“Retained Royalties” has the meaning set forth in item (k) of the definition of “Retained
Assets”.
Exhibit 10.1
- 22 -
“Royalties” means royalties, overriding royalties, production payments, carried interests,
net profits interests, reversionary interests, options, back-in interests, contractual rights to
production, and other burdens upon, measured by or payable out of production.
“SCADA Systems” means the field based operating system software and hardware
components of the Supervisory Control and Data Acquisition systems exclusively used by SWEPI
to monitor and control the operation of the Wells (including field based sensors which interface
with field based Well Equipment) and to provide data in relation to the operation of those Wells,
excluding telecommunications links between the Supervisory Control and Data Acquisition
systems and the IT Systems and any software and hardware components which are shared with,
used or held for use by Seller or any of its Affiliates other than SWEPI.
“SEC” shall mean the Securities and Exchange Commission.
“Securities Act” shall mean the United States Securities Act of 1933, as amended, together
with the rules and regulations of the SEC promulgated thereunder.
“Seismic Data” has the meaning set forth in item (o) of the definition of “Retained Assets”.
“Seller” has the meaning set forth in the Preamble of this Agreement.
“Seller Fundamental Representations” means the representations and warranties in Section
3.2, Section 3.3, Section 3.4, Section 3.5, Section 3.6, Section 3.17, Section 3.18, Section 3.24,
Section 3.26 and Section 3.29.
“Seller Group” means Seller, its Affiliates (other than SWEPI and Newco), and each of
their respective officers, directors, employees, agents, advisors and other Representatives.
“Seller Material Adverse Effect” means a Material Adverse Effect with respect to Newco,
taken as a whole.
“Seller Parent Guaranty” has the meaning set forth in Section 5.18.
“Seller Taxes” means (a) all Taxes of, attributable to or imposed on Seller or any of its
direct or indirect owners or Affiliates (other than Newco), (b) any Taxes allocable to Seller
pursuant to Section 10.1(a) (taking into account, and without duplication of, any Asset Taxes
effectively borne by Seller as a result of the adjustments to the Purchase Price made pursuant to
Section 2.5 or Section 7.4, as applicable, and any payments made from one Party to the other in
respect of Asset Taxes pursuant to Section 2.2(d) or Section 10.1(c)) or Section 10.1(b), (c) any
Taxes attributable to or imposed on or with respect to the ownership or operation of the Retained
Assets or the production of Hydrocarbons or the receipt of proceeds therefrom, (d) all Taxes
attributable to or resulting from the Reorganization, (e) any Taxes imposed on Newco or for which
Newco becomes liable (i) by reason of having been a member of an affiliated, aggregate,
combined, consolidated or unitary group on or prior to the Closing Date (including pursuant to
Treasury Regulations Section 1.1502-6 or any analogous or similar provision of state, local or
foreign Law) or (ii) as a transferee or successor or by contract or other agreement or arrangement
(other than a Customary Agreement), assumption, operation of Law or otherwise, which Taxes
relate to an event or transaction occurring, or a contract or other agreement or arrangement entered
Exhibit 10.1
- 23 -
into, on or prior to the Closing Date, (f) 50 percent of any Transfer Taxes, (g) any other Taxes
relating to the ownership or operation of the Assets or the production of Hydrocarbons or the
receipt of proceeds therefrom that are attributable to any Tax period (or portion of any Straddle
Period) ending at or prior to the Effective Time and (h) any Taxes caused by, related to, arising
out of or resulting from Seller’s breach of any of Seller’s covenants or agreements contained in
this Agreement.
“Soft Required Consent” means a Required Consent that by its express terms provides that
Consent may not be unreasonably withheld and for which the failure to obtain would not (a) cause
the transfer or assignment (whether by operation of law or otherwise) of any portion of the
Required Consent Asset subject to such Consent to be void, (b) cause the termination of the
Required Consent Asset subject to such Consent under the express terms of such Required Consent
Asset, or (c) result in a penalty of any sort, including a requirement to make a payment.
“Straddle Period” means any Tax period beginning at or before, and ending after, the
Effective Time.
“Subject Area” means Culberson, Loving, Ward, Winkler, and Reeves Counties, Texas.
“Subject Interests” has the meaning set forth in the Recitals of this Agreement.
“Subsidiary” means, with respect to any Person, any other Person Controlled by such first
Person, directly or indirectly, through one or more intermediaries.
“Surface Contracts” means SWEPI’s right, title and interest in and to all easements,
Permits, licenses, servitudes, rights-of-way, surface fee interests, surface use agreements, surface
leases, right of use and easement, and other rights to use the surface and subsurface appurtenant
thereto, to the extent used or held for use in connection with the Properties, including those
described on Schedule 1.1(c).
“SWEPI” has the meaning set forth in the Recitals of this Agreement.
“Tax Allocation” has the meaning set forth in Section 10.7.
“Tax Incentive” has the meaning set forth in Section 3.8(m).
“Tax Proceeding” has the meaning set forth in Section 10.3.
“Tax Return” means any return (including any information return and any estimated
return), report, statement, schedule, notice, form, election, estimated Tax filing, claim for refund
or other document (including any attachments thereto and amendments thereof) filed with or
submitted to, or required to be filed with or submitted to, any Governmental Authority with respect
to any Tax.
“Taxes” means (a) all federal, state, local, foreign and other net income, gross income,
gross receipts, alternative, estimated, sales, use, ad valorem, value added, transfer, franchise,
profits, registration, license, lease, service, service use, withholding, payroll, employment, excise,
severance, social security, welfare, workers’ compensation, unemployment, disability,
Exhibit 10.1
- 24 -
environmental, stock, stamp, occupation, premium, real, personal, or intangible property, windfall
profits, customs, duties, levies, tariffs, imposts, amounts due under any escheat or unclaimed
property Law or other taxes, fees, assessments or charges of any kind whatsoever (whether
imposed directly or through withholding, whether or not disputed, and including any amounts
resulting from the failure to file any Tax Return and any amounts that have been deferred
(including amounts deferred under the rules of Code Section 965)), together with any interest and
any penalties, additions to tax or additional amounts imposed with respect thereto; (b) any liability
for payment of amounts described in clause (a) whether as a result of assumption, transferee or
successor liability, of being a member of an affiliated, aggregate, consolidated, combined or
unitary group for any period, operation of Law or otherwise; and (c) any liability for the payment
of amounts described in clauses (a) or (b) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied contract, agreement or arrangement to
indemnify any other Person.
“TBOC” has the meaning set forth in Section 5.19(a).
“Third Party” means any Person other than a Party to this Agreement or an Affiliate of a
Party to this Agreement.
“Third Person Claim” has the meaning set forth in Section 9.2(b).
“Trade Control Laws” means any applicable trade or economic sanctions or embargoes,
Restricted Party lists issued by the respective authorities, controls on the imports, export, re-export,
use, sale, transfer, trade, or otherwise disposal of goods, services or technology, anti-boycott
legislation or similar laws or regulations, rules, restrictions, licenses, orders or requirements in
force from time to time, including those of the European Union, the United Kingdom, the United
States of America or under applicable Laws.
“Transaction Documents” means this Agreement and any other documents executed in
connection with this Agreement.
“Transfer Taxes ” has the meaning set forth in Section 10.5.
“Transition Services Agreement” has the meaning set forth in Section 5.11.
“Treasury Regulations” means the final, temporary, and proposed United States
Department of the Treasury regulations promulgated under the Code.
“Units” means SWEPI’s right, title and interest in and to all pooled, communitized, or
unitized acreage, which includes all or any part of the lands located within the Subject Area and
covered by the Leases, and all tenements, hereditaments, and appurtenance belonging thereto,
including the pools and units described on Schedule 1.1(a).
“U.S.” means the United States of America.
“Wells” means SWEPI’s right, title and interest in and to all Hydrocarbons, water,
monitoring, disposal or injection wells in the Subject Area, including the wells described on
Exhibit 10.1
- 25 -
Schedule 1.1(b), whether producing, non-producing, temporarily plugged and abandoned, and
whether or not fully described on any exhibit or schedule hereto.
“Working Interest” means, with respect to any (a) Well, the interest (expressed as a
percentage or a decimal) in such Well that is burdened with the obligation to bear and pay costs
and expenses of maintenance, development and operations on or in connection with such Well
(with respect to those formations in which such Well is currently producing, or with respect to a
Well that is not currently producing, the last depth or formation at which it produced), or (b) Lease
or Unit, the interest (expressed as a percentage or a decimal) in such Lease or Unit that is burdened
with the obligation to bear and pay costs and expenses of maintenance, development and
operations on or in connection with such Lease or Unit, in the case of each of items (a) and (b)
without regard to the effect of any Royalties.
Exhibit 31.1
CERTIFICATION
I, Ryan M. Lance, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of ConocoPhillips;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
November 4, 2021
/s/ Ryan M. Lance
Ryan M. Lance
Chairman and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, William L. Bullock, Jr., certify that:
1.
I have reviewed this quarterly report on Form 10-Q of ConocoPhillips;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
November 4, 2021
/s/ William L. Bullock, Jr.
William L. Bullock, Jr.
Executive Vice President and
Chief Financial Officer
Exhibit 32
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of ConocoPhillips (the Company) on Form 10-Q for the period ended
September 30, 2021, as filed with the U.S. Securities and Exchange Commission on the date hereof (the
Report), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:
(1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
November 4, 2021
/s/ Ryan M. Lance
Ryan M. Lance
Chairman and
Chief Executive Officer
/s/ William L. Bullock, Jr.
William L. Bullock, Jr.
Executive Vice President and
Chief Financial Officer