UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 22, 2024 (
(Exact name of registrant as specified in its charter)
| (State or other
jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code): (
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨
| Item 2.01. | Completion of Acquisition or Disposition of Assets. |
On November 22, 2024, ConocoPhillips, a Delaware corporation (the “Company”), completed its previously announced acquisition of Marathon Oil Corporation, a Delaware corporation (“Marathon”). The acquisition was completed by way of the merger of Puma Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), with and into Marathon (the “Merger”), with Marathon continuing as the surviving corporation in the Merger, pursuant to that certain Agreement and Plan of Merger, dated as of May 28, 2024 (the “Merger Agreement”), among the Company, Merger Sub and Marathon. As a result of the Merger, each share of common stock of Marathon outstanding immediately prior to the effective time of the Merger (other than certain excluded shares) was converted into the right to receive 0.255 shares of common stock of the Company and cash in lieu of fractional shares, as applicable (the “Merger Consideration”). Additionally, as a result of the Merger, each outstanding equity award of Marathon was treated in accordance with the terms of the Merger Agreement.
The issuance of shares of common stock of the Company in connection with the Merger was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s registration statement on Form S-4, as amended (File No. 333-280448), declared effective by the Securities and Exchange Commission (the “SEC”) on July 26, 2024. The proxy statement/prospectus included in the registration statement contains additional information about the Merger.
The foregoing description of the Merger and the Merger Agreement and the transactions contemplated thereby is not complete and is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which is included as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated by reference herein.
| Item 7.01 | Regulation FD Disclosure. |
On November 22, 2024, the Company issued a press release announcing the completion of the Merger. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information contained in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information contained in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be incorporated by reference into any filing of the Company, whether made before, on, or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing.
| Item 8.01 | Other Events. |
HSR Act Waiting Period
The consummation of the Merger was subject to the satisfaction or waiver of certain closing conditions including, among other things, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). As previously disclosed, on July 11, 2024, the Company and Marathon each received a request for additional information and documentary material (the “Second Request”) from the U.S. Federal Trade Commission (“FTC”) in connection with the FTC’s review of the transactions contemplated by the Merger Agreement. The effect of the Second Request was to extend the waiting period under the HSR Act until 30 days after both the Company and Marathon certified substantial compliance with the Second Request. Following the Company’s and Marathon’s certifications of substantial compliance, the waiting period under the HSR Act expired on November 20, 2024.
Guarantee of Marathon Oil Municipal Bonds
In connection with the completion of the Merger, ConocoPhillips has agreed to unconditionally guarantee $1 billion in aggregate principal amount of the Parish of St. John the Baptist, State of Louisiana Revenue Refunding Bonds (Marathon Oil Corporation Project) Series 2017 (the “Municipal Bonds”), which were issued pursuant to that certain indenture dated as of December 1, 2017, between the Parish of St. John the Baptist, State of Louisiana, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, for the benefit of Marathon. Further, effective on or about July 1, 2026, ConocoPhillips Company, a Delaware corporation, will assume all of Marathon’s obligations in connection with the Municipal Bonds.
| Item 9.01. | Financial Statements and Exhibits. |
| (a) | Financial statements of businesses or funds acquired |
The following audited consolidated financial statements of Marathon as of December 31, 2023 and 2022 and for each of the three years ended December 31, 2023, 2022 and 2021 are filed as Exhibit 99.2 hereto, and are incorporated herein by reference:
| · | Management’s Report on Internal Control over Financial Reporting; |
| · | Report of Independent Registered Public Accounting Firm; |
| · | Consolidated Statements of Income for the three years ended December 31, 2023; |
| · | Consolidated Statements of Comprehensive Income for the three years ended December 31, 2023; |
| · | Consolidated Balance Sheet as of December 31, 2023 and 2022; |
| · | Consolidated Statement of Cash Flows for the three years ended December 31, 2023; |
| · | Consolidated Statement of Stockholders’ Equity for the three years ended December 31, 2023; and |
| · | Notes to Consolidated Financial Statements. |
The reserve audit reports prepared by Netherland, Sewell & Associates, Inc. and Ryder Scott related to Marathon’s estimated quantities of certain proved reserves of oil and gas as of December 31, 2023 are included in Item 8 of Marathon’s Annual Report on Form 10-K for the year ended December 31, 2023, filed as Exhibit 99.2 hereto, and are incorporated herein by reference.
The following unaudited consolidated financial statements of Marathon as of and for the quarterly period ended September 30, 2024 are filed as Exhibit 99.3 hereto, and are incorporated herein by reference:
| · | Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023; |
| · | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023; |
| · | Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023; |
| · | Consolidated Statement of Cash Flows for the nine months ended September 30, 2024 and 2023; |
| · | Consolidated Statement of Stockholders’ Equity for the quarterly periods ended March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024 and September 30, 2024; and |
| · | Notes to Consolidated Financial Statements. |
| (b) | Pro forma condensed financial information |
The following unaudited pro forma combined financial statements of ConocoPhillips, giving effect to the Merger (as specified therein), are filed as Exhibit 99.4 hereto, and are incorporated herein by reference:
| · | Unaudited Pro Forma Combined Balance Sheet as of September 30, 2024; |
| · | Unaudited Pro Forma Combined Income Statement for the nine months ended September 30, 2024 and the year ended December 31, 2023; and |
| · | Notes to the Unaudited Pro Forma Combined Financial Statements. |
| (d) | Exhibits. |
* Certain schedules and other similar attachments to this exhibit have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The registrant will provide a copy of such omitted documents to the Securities and Exchange Commission upon request.
⸸ Furnished, not filed.
SIGNATURES
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 hereunto duly authorized.
| CONOCOPHILLIPS | |
|
/s/ Kelly B. Rose |
|
| Kelly B. Rose | |
| Senior Vice President, Legal, General Counsel and Corporate Secretary |
November 22, 2024
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-273658) and Form S-8 (File Nos. 333-272065, 333-98681, 333-116216, 333-133101, 333-159318, 333-171047, 333-174479, 333-196349, 333-130967, 333-250183 and 333-280448) of ConocoPhillips of our report dated February 22, 2024 relating to the financial statements of Marathon Oil Corporation, which is incorporated by reference in this Current Report on Form 8-K.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 22, 2024
EXHIBIT 23.2
| TBPELS REGISTERED ENGINEERING FIRM F-1580 |
| 1100 LOUISIANA SUITE 4600 | HOUSTON, TEXAS 77002-5294 | TELEPHONE (713) 651-9191 |
CONSENT OF RYDER SCOTT COMPANY, L.P.
We hereby consent to the references to us in this Form 8-K filing by ConocoPhillips.
We also consent to the incorporation by reference of our summary reports on audits of the estimated quantities of certain proved reserves of oil and gas, net to Marathon Oil Corporation’s interest for the years ended December 31, 2023, 2022 and 2021, and this consent being filed as exhibits to this Form 8-K and in the Registration Statements filed by ConocoPhillips on Form S-3 (File No. 333-273658) and Form S-8 (File Nos. 333-272065, 333-98681, 333-116216, 333-133101, 333-159318, 333-171047, 333-174479, 333-196349, 333-130967, 333-250183 and 333-280448).
| /s/ RYDER SCOTT COMPANY, L.P. | |
| RYDER SCOTT COMPANY, L.P. | |
| TBPELS Firm Registration No. F-1580 |
Houston, Texas
November 22, 2024
| SUITE 2800, 350 7TH AVENUE, S.W. | CALGARY, ALBERTA T2P 3N9 | TEL (403) 262-2799 |
| 633 17TH STREET, SUITE 1700 | DENVER, COLORADO 80202 | TEL (303) 339-8110 |
Exhibit 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the incorporation by reference in this Current Report on Form 8-K of ConocoPhillips to be filed with U.S. Securities and Exchange Commission on or about November 22, 2024, of all references to our firm and information from our summary reports on the estimated quantities of certain proved reserves of oil and gas as of December 31, 2023, included in or made a part of Marathon Oil Corporation's Annual Report on Form 10-K for the year ended December 31, 2023. We also consent to the incorporation by reference of our reports in the Registration Statements filed by ConocoPhillips on Form S-3 (File No. 333-273658) and Form S-8 (File Nos. 333-272065, 333-98681, 333-116216, 333-133101, 333-159318, 333-171047, 333-174479, 333-196349, 333-130967, 333-250183 and 333-280448).
| NETHERLAND, SEWELL & ASSOCIATES, INC. | ||
| By: | /s/ Richard B. Talley, Jr. | |
| Richard B. Talley, Jr., P.E. | ||
| Chairman and Chief Executive Officer | ||
Houston, Texas
November 22, 2024
Exhibit 99.1
 |
925 North Eldridge Parkway Houston, TX 77079 Media Relations: 281-293-1149 www.conocophillips.com/media |
NEWS RELEASE
Nov. 22, 2024
ConocoPhillips completes acquisition of Marathon Oil Corporation
HOUSTON – ConocoPhillips (NYSE: COP) today announced that it has completed its acquisition of Marathon Oil Corporation (NYSE: MRO).
“This acquisition of Marathon Oil is a perfect fit for ConocoPhillips, adding to our deep, durable and diverse portfolio while meeting our strict financial framework,” said Ryan Lance, chairman and chief executive officer. “Marathon Oil adds high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position. We have a strong history of seamlessly integrating assets and we expect to deliver synergies of over $1 billion on a run rate basis in the next 12 months.”
In accordance with the terms of the merger agreement, each share of Marathon Oil common stock was converted into the right to receive 0.255 shares of ConocoPhillips common stock at the effective time of the merger, with cash in lieu of fractional shares.
--- # # # ---
About ConocoPhillips
ConocoPhillips is one of the world’s leading exploration and production companies based on both production and reserves, with a globally diversified asset portfolio. Headquartered in Houston, Texas, ConocoPhillips had operations and activities in 13 countries, $97 billion of total assets, and approximately 10,300 employees at Sept. 30, 2024. Production averaged 1,921 MBOED for the nine months ended Sept. 30, 2024, and proved reserves were 6.8 BBOE as of Dec. 31, 2023.
For more information, go to www.conocophillips.com.
Contacts
Dennis Nuss (media)
281-293-1149
dennis.nuss@conocophillips.com
Investor Relations
281-293-5000
investor.relations@conocophillips.com
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This news release contains forward-looking statements as defined under the federal securities laws. Forward-looking statements relate to future events, plans and anticipated results of operations, business strategies, and other aspects of our operations or operating results. Words and phrases such as “ambition,” “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 other similar words can be used to identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. Where, in any forward-looking statement, the company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future performance and involve certain risks, uncertainties and other factors beyond our control. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in the forward-looking statements. Factors that could cause actual results or events to differ materially from what is presented include changes in commodity prices, including a prolonged decline in these prices relative to historical or future expected levels; global and regional changes in the demand, supply, prices, differentials or other market conditions affecting oil and gas, including changes resulting from any ongoing military conflict, including the conflicts in Ukraine and the Middle East, and the global response to such conflict, security threats on facilities and infrastructure, or 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; insufficient liquidity or other factors, such as those listed herein, that could impact our ability to repurchase shares and declare and pay dividends such that we suspend our share repurchase program and reduce, suspend, or totally eliminate dividend payments in the future, whether variable or fixed; changes in expected levels of oil and gas reserves or production; 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 or unsuccessful exploratory activities; unexpected cost increases, inflationary pressures or technical difficulties in constructing, maintaining or modifying company facilities; legislative and regulatory initiatives addressing global climate change or other environmental concerns; public health crises, including pandemics (such as COVID-19) and epidemics and any impacts or related company or government policies or actions; investment in and development of competing or alternative energy sources; potential failures or delays in delivering on our current or future low-carbon strategy, including our inability to develop new technologies; disruptions or interruptions impacting the transportation for our oil and gas production; international monetary conditions and exchange rate fluctuations; changes in international trade relationships or governmental policies, including the imposition of price caps, or the imposition of trade restrictions or tariffs on any materials or products (such as aluminum and steel) used in the operation of our business, including any sanctions imposed as a result of any ongoing military conflict, including the conflicts in Ukraine and the Middle East; our ability to collect payments when due, including our ability to collect payments from the government of Venezuela or PDVSA; our ability to complete any announced or any future dispositions or acquisitions on time, if at all; the possibility that regulatory approvals for any announced or any future dispositions or acquisitions will not be received on a timely basis, if at all, or that such approvals may require modification to the terms of the transactions or our remaining business; business disruptions relating to the acquisition of Marathon Oil Corporation (“Marathon Oil”) or following any other announced or other future dispositions or acquisitions, including the diversion of management time and attention; the ability to deploy net proceeds from our announced or any future dispositions in the manner and timeframe we anticipate, if at all; our ability to successfully integrate Marathon Oil’s business and technologies, which may result in the combined company not operating as effectively and efficiently as expected; our ability to achieve the expected benefits and synergies from the Marathon Oil acquisition in a timely manner, or at all; potential liability for remedial actions under existing or future environmental regulations; potential liability resulting from pending or future litigation, including litigation related directly or indirectly to pending or completed transactions; the impact of competition and consolidation in the oil and gas industry; limited access to capital or insurance or significantly higher cost of capital or insurance related to illiquidity or uncertainty in the domestic or international financial markets or investor sentiment; general domestic and international economic and political conditions or developments, including as a result of any ongoing military conflict, including the conflicts in Ukraine and the Middle East; changes in fiscal regime or tax, environmental and other laws applicable to our business; and disruptions resulting from accidents, extraordinary weather events, civil unrest, political events, war, terrorism, cybersecurity threats or information technology failures, constraints or disruptions; and other economic, business, competitive and/or regulatory factors affecting our business generally as set forth in our filings with the Securities and Exchange Commission. Unless legally required, ConocoPhillips expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
2
Exhibit 99.4
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On November 22, 2024, ConocoPhillips, a Delaware corporation (“ConocoPhillips”), completed its previously announced acquisition of Marathon Oil Corporation, a Delaware corporation (“Marathon Oil”). The acquisition was completed by way of the merger of Puma Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), with and into Marathon Oil (the “merger”), with Marathon Oil as the surviving corporation in the merger, pursuant to that certain Agreement and Plan of Merger, dated as of May 28, 2024 (the “Merger Agreement”), among ConocoPhillips, Merger Sub and Marathon Oil. As a result of the merger, each share of common stock of Marathon Oil outstanding immediately prior to the effective time of the merger (other than certain excluded shares) was converted into the right to receive 0.255 shares of common stock of ConocoPhillips and cash in lieu of fractional shares, as applicable (the “merger consideration”). Additionally, as a result of the merger, each outstanding equity award of Marathon Oil was treated in accordance with the terms of the Merger Agreement.
The following unaudited pro forma condensed combined financial information (the “pro forma financial statements”) combines the historical consolidated financial position and results of operations of ConocoPhillips and the historical consolidated financial position and results of operations of Marathon Oil after giving effect to the merger as further described in Note 1 — Description of the Transactions and Basis of Presentation and the pro forma effects of certain assumptions and adjustments described in “Notes to the Unaudited Pro Forma Combined Financial Statements” below. The pro forma financial statements have been prepared to give effect to the following (collectively, the “Transactions”):
| · | Application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”) where the assets acquired and liabilities assumed of Marathon Oil will be recorded by ConocoPhillips at their respective fair values as of the closing date; |
| · | Preliminary adjustments to conform the financial statement presentation of Marathon Oil to those of ConocoPhillips; and |
| · | Adjustments to reflect estimated post-combination impacts, including transaction costs of the merger. |
The following pro forma financial statements and related notes are based on and should be read in conjunction with:
| · | The historical audited consolidated financial statements of ConocoPhillips and the related notes included in ConocoPhillips’ Annual Report on Form 10-K as of and for the year ended December 31, 2023; |
| · | The historical audited consolidated financial statements of Marathon Oil and the related notes included in Marathon Oil’s Annual Report on Form 10-K as of and for the year ended December 31, 2023; |
| · | The historical unaudited interim consolidated financial statements of ConocoPhillips and the related notes included in ConocoPhillips’ Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2024; and |
| · | The historical unaudited interim consolidated financial statements of Marathon Oil and the related notes included in Marathon Oil’s Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2024. |
The unaudited pro forma combined balance sheet as of September 30, 2024, gives pro forma effect to the Transactions as if they had occurred on September 30, 2024. The unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, give pro forma effect to the Transactions as if they had occurred on January 1, 2023.
The pro forma financial statements are provided for informational purposes only. The pro forma financial statements are not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the Transactions been completed as of the dates indicated or that may be achieved in the future. The pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using the assumptions set forth in the notes to the pro forma financial statements. While the pro forma financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities which might result from the merger, management’s estimates of certain cost savings to be realized following closing of the merger are illustrated in Note 6 to the pro forma financial statements. Further, there may be certain additional charges related to integration activities resulting from the merger, the timing, nature and amount of which management cannot identify as of the date of this Form 8-K, or the dates of the pro forma financial statements, as applicable, and thus, such charges are not reflected in the pro forma financial statements. See also the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the U.S. Securities and Exchange Commission (the “SEC”) on July 29, 2024.
The pro forma financial statements have been prepared using the acquisition method of accounting pursuant to the provisions of ASC 805, whereby ConocoPhillips is considered the accounting acquirer. The merger consideration will be allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the close date, and any excess value of the merger consideration over the acquired net assets will be recognized as goodwill, if applicable. The assets acquired and liabilities assumed of Marathon Oil have been measured based on various preliminary estimates using assumptions that ConocoPhillips believes are reasonable, based on information that is currently available. Due to the pro forma financial statements being prepared based on preliminary estimates of the net assets acquired and balances as of September 30, 2024, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. Accordingly, actual adjustments may differ from the amounts reflected in the pro forma financial statements and the differences may be material.
As of the date of this filing, the valuation of the identifiable assets acquired and liabilities assumed remains ongoing and adjustments may be made. ConocoPhillips expects to complete the final purchase price allocation during the 12-month period subsequent to the close date.
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2024
(in millions)
| ConocoPhillips Historical |
Marathon
Oil Historical |
Reclassification Adjustments |
Notes | Acquisition Transaction Accounting Adjustments |
Notes | Pro
Forma Combined |
||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 5,221 | $ | 134 | $ | - | $ | (450 | ) | 4(a) | $ | 4,905 | ||||||||
| Short-term investments | 1,571 | - | - | - | 1,571 | |||||||||||||||
| Accounts and notes receivable, net | 4,791 | - | 1,102 | 2(a) | - | 5,893 | ||||||||||||||
| Accounts and notes receivable—related parties | 24 | - | 34 | 2(a) | - | 58 | ||||||||||||||
| Receivables, net | - | 1,136 | (1,136 | ) | 2(a) | - | - | |||||||||||||
| Inventories | 1,496 | 166 | - | - | 1,662 | |||||||||||||||
| Prepaid expenses and other current assets | 881 | - | 48 | 2(b) | - | 929 | ||||||||||||||
| Other current assets | - | 48 | (48 | ) | 2(b) | - | - | |||||||||||||
| Total Current Assets | 13,984 | 1,484 | - | (450 | ) | 15,018 | ||||||||||||||
| Equity method investments | - | 432 | (432 | ) | 2(c) | - | - | |||||||||||||
| Investments and long-term receivables | 9,192 | - | 432 | 2(c) | - | 9,624 | ||||||||||||||
| Net properties, plants and equipment | 70,725 | 17,220 | 19 | 2(d) | 7,208 | 4(b) | 95,172 | |||||||||||||
| Other assets | 2,798 | 286 | (19 | ) | 2(d) | - | 3,065 | |||||||||||||
| Total Assets | $ | 96,699 | $ | 19,422 | $ | - | $ | 6,758 | $ | 122,879 | ||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable | $ | 5,161 | $ | 1,390 | $ | (15 | ) | 2(e) | $ | - | $ | 6,536 | ||||||||
| Accounts payable—related parties | 29 | - | 15 | 2(e) | - | 44 | ||||||||||||||
| Commercial paper | - | 180 | (180 | ) | 2(f) | - | - | |||||||||||||
| Short-term debt | 1,314 | - | 187 | 2(d)(f) | (187 | ) | 4(c) | 1,314 | ||||||||||||
| Accrued income and other taxes | 2,473 | - | 179 | 2(g) | (424 | ) | 4(d) | 2,228 | ||||||||||||
| Employee benefit obligations | 627 | - | - | - | 627 | |||||||||||||||
| Payroll and benefits payable | - | 96 | (96 | ) | 2(h) | - | - | |||||||||||||
| Accrued taxes | - | 179 | (179 | ) | 2(g) | - | - | |||||||||||||
| Other current liabilities | - | 321 | (321 | ) | 2(d)(i) | - | - | |||||||||||||
| Other accruals | 1,161 | - | 410 | 2(h)(i) | 463 | 4(e) | 2,034 | |||||||||||||
| Total Current Liabilities | 10,765 | 2,166 | - | (148 | ) | 12,783 | ||||||||||||||
| Long-term debt | 16,990 | 4,573 | 12 | 2(d) | 240 | 4(c) | 21,815 | |||||||||||||
| Asset retirement obligations and accrued environmental costs | 7,337 | - | 341 | 2(j) | - | 7,678 | ||||||||||||||
| Asset retirement obligations | - | 341 | (341 | ) | 2(j) | - | - | |||||||||||||
| Deferred income taxes | 8,986 | 603 | - | 1,949 | 4(f) | 11,538 | ||||||||||||||
| Defined benefit postretirement plan obligations | - | 86 | (86 | ) | 2(k) | - | - | |||||||||||||
| Employee benefit obligations | 945 | - | 86 | 2(k) | - | 1,031 | ||||||||||||||
| Other liabilities and deferred credits | 1,795 | 218 | (12 | ) | 2(d) | 83 | 4(g) | 2,084 | ||||||||||||
| Total Liabilities | 46,818 | 7,987 | - | 2,124 | 56,929 | |||||||||||||||
| Equity | ||||||||||||||||||||
| Preferred stock | - | - | - | - | ||||||||||||||||
| Common stock | ||||||||||||||||||||
| Issued | 937 | - | (937 | ) | 4(h) | - | ||||||||||||||
| Par value | 21 | - | - | 1 | 4(h) | 22 | ||||||||||||||
| Capital in excess of par | 61,430 | - | 7,151 | 2(l) | 8,938 | 4(h) | 77,519 | |||||||||||||
| Treasury stock | (69,184 | ) | - | (9,432 | ) | 2(m) | 9,432 | 4(h) | (69,184 | ) | ||||||||||
| Held in treasury, at cost | - | (9,432 | ) | 9,432 | 2(m) | - | - | |||||||||||||
| Additional paid-in capital | - | 7,151 | (7,151 | ) | 2(l) | - | - | |||||||||||||
| Accumulated other comprehensive income (loss) | (5,845 | ) | 68 | - | (68 | ) | 4(h) | (5,845 | ) | |||||||||||
| Retained earnings | 63,459 | 12,711 | - | (12,732 | ) | 4(h) | 63,438 | |||||||||||||
| Total Equity | 49,881 | 11,435 | - | 4,634 | 65,950 | |||||||||||||||
| Total Liabilities and Equity | $ | 96,699 | $ | 19,422 | $ | - | $ | 6,758 | $ | 122,879 | ||||||||||
See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.
Unaudited Pro Forma Combined Income Statement
For the Nine Months Ended September 30, 2024
(in millions, except for per share amounts)
| ConocoPhillips Historical |
Marathon
Oil Historical |
Reclassification Adjustments |
Notes | Acquisition Transaction Accounting Adjustments |
Notes | Pro
Forma Combined |
||||||||||||||||||
| Revenues and Other Income | ||||||||||||||||||||||||
| Sales and other operating revenues | $ | 40,509 | $ | - | $ | 4,931 | 2(n)(o) | $ | - | $ | 45,440 | |||||||||||||
| Revenues from contracts with customers | - | 4,945 | (4,945 | ) | 2(n) | - | - | |||||||||||||||||
| Gain (loss) on dispositions | 86 | 10 | - | - | 96 | |||||||||||||||||||
| Equity in earnings of affiliates | 1,265 | 104 | - | - | 1,369 | |||||||||||||||||||
| Net gain (loss) on commodity derivatives | - | (14 | ) | 14 | 2(o) | - | - | |||||||||||||||||
| Other income | 356 | 4 | - | - | 360 | |||||||||||||||||||
| Total Revenues and Other Income | 42,216 | 5,049 | - | - | 47,265 | |||||||||||||||||||
| Costs and Expenses | ||||||||||||||||||||||||
| Purchased commodities | 14,939 | - | - | - | 14,939 | |||||||||||||||||||
| Production and operating expenses | 6,440 | - | 1,208 | 2(p)(q) | - | 7,648 | ||||||||||||||||||
| Production | - | 660 | (660 | ) | 2(p) | - | - | |||||||||||||||||
| Selling, general and administrative expenses | 528 | - | 273 | 2(r) | - | 801 | ||||||||||||||||||
| Shipping, handling and other operating, including related party | - | 548 | (548 | ) | 2(q) | - | - | |||||||||||||||||
| Exploration expenses | 284 | 30 | - | - | 314 | |||||||||||||||||||
| Depreciation, depletion and amortization | 6,935 | 1,728 | - | (257 | ) | 5(a) | 8,406 | |||||||||||||||||
| Impairments | 34 | 1 | - | - | 35 | |||||||||||||||||||
| Taxes other than income taxes | 1,567 | 298 | - | - | 1,865 | |||||||||||||||||||
| General and administrative | - | 273 | (273 | ) | 2(r) | - | - | |||||||||||||||||
| Accretion on discounted liabilities | 240 | - | - | - | 240 | |||||||||||||||||||
| Interest and debt expense | 592 | - | 226 | 2(s) | (16 | ) | 5(c) | 802 | ||||||||||||||||
| Foreign currency transaction (gain) loss | (37 | ) | - | - | - | (37 | ) | |||||||||||||||||
| Other expenses | (8 | ) | - | (8 | ) | 2(t) | - | (16 | ) | |||||||||||||||
| Total Costs and Expenses | 31,514 | 3,538 | 218 | (273 | ) | 34,997 | ||||||||||||||||||
| Income (loss) from operations | 10,702 | 1,511 | (218 | ) | 273 | 12,268 | ||||||||||||||||||
| Net interest and other | - | 226 | (226 | ) | 2(s) | - | - | |||||||||||||||||
| Other net periodic benefit credits | - | (8 | ) | 8 | 2(t) | - | - | |||||||||||||||||
| Income (loss) before income taxes | 10,702 | 1,293 | - | 273 | 12,268 | |||||||||||||||||||
| Income tax provision (benefit) | 3,763 | 360 | - | 68 | 5(d) | 4,191 | ||||||||||||||||||
| Net Income (Loss) | $ | 6,939 | $ | 933 | $ | - | $ | 205 | $ | 8,077 | ||||||||||||||
| Net Income (Loss) Per Share of Common Stock | ||||||||||||||||||||||||
| Basic | $ | 5.92 | 5(f) | $ | 6.14 | |||||||||||||||||||
| Diluted | $ | 5.91 | 5(f) | $ | 6.13 | |||||||||||||||||||
| Weighted-Average Common Shares Outstanding (in thousands) | ||||||||||||||||||||||||
| Basic | 1,169,350 | 143,041 | 5(f) | 1,312,391 | ||||||||||||||||||||
| Diluted | 1,171,424 | 143,041 | 5(f) | 1,314,465 | ||||||||||||||||||||
See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.
Unaudited Pro Forma Combined Income Statement
For the Year Ended December 31, 2023
(in millions, except for per share amounts)
| ConocoPhillips Historical |
Marathon
Oil Historical |
Reclassification Adjustments |
Notes | Acquisition Transaction Accounting Adjustments |
Notes | Pro
Forma Combined |
||||||||||||||||||
| Revenues and Other Income | ||||||||||||||||||||||||
| Sales and other operating revenues | $ | 56,141 | $ | - | $ | 6,449 | 2(n)(o) | $ | - | $ | 62,590 | |||||||||||||
| Revenues from contracts with customers | - | 6,407 | (6,407 | ) | 2(n) | - | - | |||||||||||||||||
| Gain (loss) on dispositions | 228 | 17 | - | - | 245 | |||||||||||||||||||
| Equity in earnings of affiliates | 1,720 | 185 | - | - | - | 1,905 | ||||||||||||||||||
| Net gain (loss) on commodity derivatives | - | 42 | (42 | ) | 2(o) | - | - | |||||||||||||||||
| Other income | 485 | 46 | 8 | 2(s)(t) | - | 539 | ||||||||||||||||||
| Total Revenues and Other Income | 58,574 | 6,697 | 8 | - | 65,279 | |||||||||||||||||||
| Costs and Expenses | ||||||||||||||||||||||||
| Purchased commodities | 21,975 | - | - | - | 21,975 | |||||||||||||||||||
| Production and operating expenses | 7,693 | - | 1,517 | 2(p)(q) | - | 9,210 | ||||||||||||||||||
| Production | - | 828 | (828 | ) | 2(p) | - | - | |||||||||||||||||
| Selling, general and administrative expenses | 705 | - | 297 | 2(r) | 445 | 5(b) | 1,447 | |||||||||||||||||
| Shipping, handling and other operating, including related party | - | 689 | (689 | ) | 2(q) | - | - | |||||||||||||||||
| Exploration expenses | 398 | 59 | - | - | 457 | |||||||||||||||||||
| Depreciation, depletion and amortization | 8,270 | 2,211 | - | (231 | ) | 5(a) | 10,250 | |||||||||||||||||
| Impairments | 14 | 2 | - | - | 16 | |||||||||||||||||||
| Taxes other than income taxes | 2,074 | 363 | - | - | 2,437 | |||||||||||||||||||
| General and administrative | - | 297 | (297 | ) | 2(r) | - | - | |||||||||||||||||
| Accretion on discounted liabilities | 283 | - | - | - | 283 | |||||||||||||||||||
| Interest and debt expense | 780 | - | 343 | 2(s) | (21 | ) | 5(c) | 1,102 | ||||||||||||||||
| Foreign currency transaction (gain) loss | 92 | - | - | - | 92 | |||||||||||||||||||
| Other expenses | 2 | - | 2 | 2(t)(s) | - | 4 | ||||||||||||||||||
| Total Costs and Expenses | 42,286 | 4,449 | 345 | 193 | 47,273 | |||||||||||||||||||
| Income (loss) from operations | 16,288 | 2,248 | (337 | ) | (193 | ) | 18,006 | |||||||||||||||||
| Net interest and other | - | 352 | (352 | ) | 2(s) | - | - | |||||||||||||||||
| Other net periodic benefit credits | - | (15 | ) | 15 | 2(t) | - | - | |||||||||||||||||
| Income (loss) before income taxes | 16,288 | 1,911 | - | (193 | ) | 18,006 | ||||||||||||||||||
| Income tax provision (benefit) | 5,331 | 357 | - | (458 | ) | 5(e) | 5,230 | |||||||||||||||||
| Net Income (Loss) | $ | 10,957 | $ | 1,554 | $ | - | $ | 265 | $ | 12,776 | ||||||||||||||
| Net Income (Loss) Per Share of Common Stock | ||||||||||||||||||||||||
| Basic | $ | 9.08 | 5(f) | $ | 9.47 | |||||||||||||||||||
| Diluted | $ | 9.06 | 5(f) | $ | 9.45 | |||||||||||||||||||
| Weighted-Average Common Shares Outstanding (in thousands) | ||||||||||||||||||||||||
| Basic | 1,202,757 | 143,041 | 5(f) | 1,345,798 | ||||||||||||||||||||
| Diluted | 1,205,675 | 143,041 | 5(f) | 1,348,716 | ||||||||||||||||||||
See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1. Description of the Transactions and Basis of Presentation
Acquisition of Marathon Oil
On November 22, 2024, ConocoPhillips completed its previously announced acquisition of Marathon Oil. The acquisition was completed by way of the merger of Merger Sub, with and into Marathon Oil, with Marathon Oil as the surviving corporation in the merger, pursuant to the Merger Agreement. As a result of the merger, each share of common stock of Marathon Oil outstanding immediately prior to the effective time of the merger (other than certain excluded shares) was converted into the right to receive 0.255 shares of common stock of ConocoPhillips and cash in lieu of fractional shares, as applicable. Additionally, as a result of the merger, each outstanding equity award of Marathon Oil was treated in accordance with the terms of the Merger Agreement.
Basis of Presentation
The accompanying pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using the assumptions set forth in these notes to the pro forma financial statements.
The unaudited pro forma combined balance sheet as of September 30, 2024, combines the historical consolidated balance sheets of ConocoPhillips and Marathon Oil, giving effect to the Transactions as if they had occurred on September 30, 2024. The unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, combines the historical consolidated income statements of ConocoPhillips and Marathon Oil, giving effect to the Transactions as if they had occurred on January 1, 2023.
The pro forma financial statements and explanatory notes have been prepared to illustrate the effects of the merger of ConocoPhillips and Marathon Oil under the acquisition method of accounting whereby ConocoPhillips is considered the accounting acquirer. The pro forma financial statements are presented for informational purposes only and do not necessarily indicate the financial results of the combined company had the companies been combined at the beginning of the periods presented, nor do they necessarily indicate the results of operations in future periods or the future financial position of the combined company. The results of operations of the combined company will be reported prospectively after closing following completion of the merger. Under the acquisition method of accounting, the assets and liabilities of Marathon Oil, as of closing, will be recorded by ConocoPhillips at their estimated fair values and any excess of the merger consideration over the fair value of Marathon Oil’s net assets will be allocated to goodwill, if applicable. The pro forma allocation of the merger consideration reflected in the pro forma financial statements is subject to adjustment and may vary materially from the actual allocation that will be recorded as of the close date.
The pro forma financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities which might result from the merger. Management’s estimates of certain cost savings to be realized following closing of the merger are illustrated in Note 6 to the pro forma financial statements.
Note 2. Significant Accounting Policies and Reclassification Adjustments
During the preparation of the pro forma financial statements, ConocoPhillips performed a preliminary analysis of Marathon Oil’s historical financial information to identify differences in accounting policies and financial statement presentation as compared to those of ConocoPhillips. Accordingly, certain reclassification adjustments have been made to conform Marathon Oil’s historical financial statements to presentation used by ConocoPhillips in the preparation of the pro forma financial statements.
The following reclassification adjustments were made to conform the presentation of Marathon Oil’s historical consolidated balance sheet as of September 30, 2024, to ConocoPhillips’ presentation:
| (a) | Represents a reclassification of “Receivables, net” to “Accounts and notes receivable, net” and “Accounts and notes receivable — related parties”. |
| (b) | Represents a reclassification of “Other current assets” to “Prepaid expenses and other current assets”. |
| (c) | Represents a reclassification of “Equity method investments” to “Investments and long-term receivables” |
| (d) | Represents a reclassification of finance lease balances and related right-of-use assets from “Other assets” to “Net properties, plants and equipment”, from “Other current liabilities” to “Short-term debt” and from “Other liabilities and deferred credits” to “Long-term debt”. |
| (e) | Represents a reclassification of “Accounts payable” to “Accounts payable — related parties”. |
| (f) | Represents a reclassification of “Commercial paper” to “Short-term debt”. |
| (g) | Represents a reclassification of “Accrued taxes” to “Accrued income and other taxes”. |
| (h) | Represents a reclassification of “Payroll and benefits payable” to “Other accruals”. |
| (i) | Represents a reclassification of “Other current liabilities” to “Other accruals”. |
| (j) | Represents a reclassification of “Asset retirement obligations” to “Asset retirement obligations and accrued environmental costs”. |
| (k) | Represents a reclassification of “Defined benefit postretirement plan obligations” to “Employee benefit obligations”. |
| (l) | Represents a reclassification of “Additional paid-in capital” to “Capital in excess of par”. |
| (m) | Represents a reclassification of “Held in treasury, at cost” to “Treasury stock”. |
The following reclassification adjustments were made to conform the presentation of Marathon Oil’s historical consolidated income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, to ConocoPhillips’ presentation:
| (n) | Represents a reclassification of revenue amounts from “Revenues from contracts with customers” to “Sales and other operating revenues”. |
| (o) | Represents a reclassification of results from commodity derivatives from “Net gain (loss) on commodity derivatives” to “Sales and other operating revenues”. |
| (p) | Represents a reclassification of production expenses from “Production” to “Production and operating expenses”. |
| (q) | Represents a reclassification of shipping, handling and other operating expenses from “Shipping, handling and other operating, including related party” to “Production and operating expenses”. |
| (r) | Represents a reclassification of general and administrative expenses from “General and administrative” to “Selling, general and administrative expenses”. |
| (s) | Represents a reclassification of interest, other expenses and other income from “Net interest and other” to “Interest and debt expense”, “Other expenses” and “Other income”. |
| (t) | Represents a reclassification of pension activity from “Other net periodic benefit credits” to “Other expenses”. |
Note 3. Preliminary Purchase Price Allocation
Preliminary Merger Consideration
The total preliminary merger consideration is calculated as follows:
| (Amounts in millions) | As of September 30, 2024 | |||
| Preliminary estimated fair value of ConocoPhillips common stock issued (1) | $ | 16,028 | ||
| Other cash consideration (2) | 450 | |||
| Other merger consideration attributable to Marathon Oil stock-based awards | 52 | |||
| Obligation to cash settle shares underlying certain Marathon Oil stock-based awards | 28 | |||
| Total preliminary merger consideration | $ | 16,558 | ||
| (1) | Represents the estimated fair value of approximately 143 million shares of ConocoPhillips common stock issued to Marathon Oil stockholders pursuant to the Merger Agreement. This estimate is based on the number of eligible shares of Marathon Oil common stock at a 0.255 Exchange Ratio and ConocoPhillips’ closing stock price on November 21, 2024, which was the last full day of trading prior to the close date. ConocoPhillips’ stock price on the day of the merger completion, November 22, 2024, did not significantly change from the price reflected in the preliminary merger consideration. |
| (2) | Other cash consideration represents funds contributed to Marathon Oil for repayment of Marathon Oil’s estimated Commercial Paper liabilities as of the closing date. |
Preliminary Purchase Price Allocation
The preliminary merger consideration as shown in the table above is allocated to the identifiable assets acquired and liabilities assumed of Marathon Oil based on their preliminary estimated fair values. The fair value assessments are preliminary and are based on available information and certain assumptions, which ConocoPhillips believes are reasonable. The following table sets forth a preliminary allocation of the preliminary merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Marathon Oil using Marathon Oil’s balance sheet as of September 30, 2024, adjusted for reclassifications and presentational alignment to that of ConocoPhillips’ historical financial information:
| (Amounts in millions) | As of September 30, 2024 | |||
| Assets | ||||
| Cash and cash equivalents | $ | 134 | ||
| Accounts and notes receivable, net | 1,102 | |||
| Accounts and notes receivable—related parties | 34 | |||
| Inventories | 166 | |||
| Prepaid expenses and other current assets | 48 | |||
| Investments and long-term receivables | 432 | |||
| Net properties, plants and equipment | 24,447 | |||
| Other assets | 267 | |||
| Total assets acquired | $ | 26,630 | ||
| Liabilities | ||||
| Accounts payable | $ | 1,375 | ||
| Accounts payable—related parties | 15 | |||
| Accrued income and other taxes | 179 | |||
| Other accruals | 410 | |||
| Long-term debt | 4,825 | |||
| Asset retirement obligations and accrued environmental costs | 341 | |||
| Deferred income taxes | 2,552 | |||
| Employee benefit obligations | 86 | |||
| Other liabilities and deferred credits | 289 | |||
| Total liabilities assumed | $ | 10,072 | ||
| Net assets acquired | $ | 16,558 | ||
Note 4. Adjustments to the Unaudited Pro Forma Combined Balance Sheet
Transaction accounting adjustments include the following adjustments related to the unaudited pro forma combined balance sheet as of September 30, 2024, as follows:
| (a) | Represents an adjustment of $450 million to reflect cash portion of the consideration transferred. |
| (b) | Represents an adjustment of $7,208 million to the carrying value of Marathon Oil’s acquired properties, plants and equipment (PP&E) from their recorded net book values to their preliminary estimated fair values. |
| (c) | Represents an adjustment of $187 million to “Short-term debt” to reflect expected balance of cancelled commercial paper and short-term portion of cancelled finance lease as of the close date and $240 million related to “Long-term debt” to reflect the preliminary estimated fair value of long-term debt and long-term portion of cancelled finance lease. |
| (d) | Reflects a transaction adjustment of $424 million decrease associated with the utilization of foreign tax credit carryforwards. |
| (e) | Represents an adjustment to “Other accruals” to record estimated post-combination expenses (including transaction costs) of $435 million and merger consideration related accrual to cash settle shares underlying certain Marathon Oil stock-based awards of $28 million. |
| (f) | Reflects a purchase price adjustment of $1,949 million increase to “Deferred income taxes” based on the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea, multiplied by the fair value adjustments related to the assets acquired and liabilities assumed plus a valuation allowance recorded on Marathon Oil’s foreign tax credits. |
| (g) | Reflects a purchase price adjustment of $83 million increase associated with an increased reserve on research and development credits. |
| (h) | The following table summarized the transaction accounting adjustments impacting the historical equity balances of Marathon Oil: |
| (Amounts in millions) | Elimination of Marathon Oil's Historical Equity | Merger Consideration | Transaction Adjustments | Total Transaction Accounting Adjustments | ||||||||||||
| Preferred stock | ||||||||||||||||
| Common stock | ||||||||||||||||
| Issued | $ | (937 | ) | $ | - | $ | - | $ | (937 | ) | ||||||
| Par value | - | 1 | - | 1 | ||||||||||||
| Capital in excess of par | (7,151 | ) | 16,079 | 10 | 8,938 | |||||||||||
| Treasury stock | 9,432 | - | - | 9,432 | ||||||||||||
| Accumulated other comprehensive income (loss) | (68 | ) | - | - | (68 | ) | ||||||||||
| Retained earnings | (12,711 | ) | - | (21 | ) | (12,732 | ) | |||||||||
| Pro forma net adjustment to equity | $ | (11,435 | ) | $ | 16,080 | $ | (11 | ) | $ | 4,634 | ||||||
Elimination of Marathon Oil’s Historical Equity: Represents the elimination of Marathon Oil’s historical equity balances as of September 30, 2024.
Merger Consideration: Represents the fair value of ConocoPhillips common stock issued and other merger consideration attributable to Marathon Oil stock-based awards. Does not include amount related to awards described in Note 4(e), which will be settled in cash after closing, nor cash consideration described in Note 4(a).
Transaction Adjustments: Adjustments to retained earnings reflect $445 million of post-combination expenses (including transaction costs) (see below Note 5(b)) and $424 million of post-combination tax benefit (see above Note 4(d)). Adjustment to capital in excess of par reflects post-combination accounting adjustment related to accelerated vesting of certain equity awards.
Note 5. Adjustments to the Unaudited Pro Forma Combined Income Statements
Transaction accounting adjustments include the following adjustments related to the unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, as follows:
| (a) | Represents an adjustment to reflect a decrease in “Depreciation, depletion and amortization” expense of $257 million and $231 million for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively. This adjustment was calculated in accordance with the successful efforts method of accounting for oil and gas properties, which were based on the preliminary purchase price allocation of the estimated fair value of the net properties, plants and equipment. |
| (b) | Represents $445 million of estimated post-combination expense expected to be incurred by ConocoPhillips in connection with the Transactions (exclusive of amounts incurred in the Historical Nine Months Ended September 30, 2024 Statement of Income for ConocoPhillips) and primarily consists of estimated transaction costs of $30 million fees to be paid to financial, legal and accounting advisors, and filing fees and $415 million of severance, retention and related compensation expenses, including post-combination accounting adjustment related to accelerated vesting of certain equity awards. These costs are non-recurring, are not expected to have a continuing impact on the combined company’s operating results in future periods, and are expected to be incurred within 12 months from the closing date. |
| (c) | Represents an adjustment to decrease “Interest and debt expense”, to amortize Marathon Oil’s debt fair value adjustment by $16 million and $21 million for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively. |
| (d) | Reflects tax effect of the adjustments above at the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea, and a $6 million expense adjustment for the impact of the merger on foreign tax credit for the nine months ended September 30, 2024. |
| (e) | Reflects tax effect of the adjustments above at the blended federal and state statutory rates of approximately 23.5% for the United States and blended rate of approximately 25.9% for Equatorial Guinea, and a $15 million expense adjustment for the impact of the merger on foreign tax credit. Additionally, as the result of the acquisition, ConocoPhillips has determined that it will be able to utilize approximately $424 million of foreign tax credits previously offset with a full valuation allowance. Accordingly, an estimated $424 million non-recurring deferred tax benefit adjustment has been made related to the reduction in the valuation allowance for the year ended December 31, 2023. |
| (f) | The unaudited pro forma combined basic and diluted earnings per share calculations are based on the weighted average basic and diluted shares of ConocoPhillips. The following table summarizes the computation of the unaudited pro forma basic and diluted net income per share: |
| (Amounts in millions and share counts in thousands) | Nine Months Ended September 30, 2024 | Year Ended December 31, 2023 | ||||||
| Numerator | ||||||||
| Pro forma net income (loss) | $ | 8,077 | $ | 12,776 | ||||
| Less: Dividends and undistributed earnings allocated to participating securities | (21 | ) | (35 | ) | ||||
| Basic and diluted pro forma net income (loss) available to ConocoPhillips common stockholders | $ | 8,056 | $ | 12,741 | ||||
| Denominator | ||||||||
| Basic: | ||||||||
| Historical basic weighted average ConocoPhillips shares outstanding | 1,169,350 | 1,202,757 | ||||||
| Shares of ConocoPhillips common stock issued | 143,041 | 143,041 | ||||||
| Pro forma basic weighted average ConocoPhillips shares outstanding | 1,312,391 | 1,345,798 | ||||||
| Pro forma basic net income (loss) per share | $ | 6.14 | $ | 9.47 | ||||
| Diluted: | ||||||||
| Historical diluted weighted average ConocoPhillips shares outstanding | 1,171,424 | 1,205,675 | ||||||
| Shares of ConocoPhillips common stock issued | 143,041 | 143,041 | ||||||
| Pro forma diluted weighted average ConocoPhillips shares outstanding | 1,314,465 | 1,348,716 | ||||||
| Pro forma diluted net income (loss) per share | $ | 6.13 | $ | 9.45 | ||||
Note 6. Management Adjustments to the Unaudited Pro Forma Combined Income Statements
Management expects that, the post-acquisition company will realize certain cost and capital synergies of over $1 billion on a run rate basis in the twelve months following the close as compared to the historical combined costs of ConocoPhillips and Marathon Oil operating independently. Such synergies, which result from the elimination of duplicate costs and the manner in which the post-acquisition company will be integrated and managed prospectively, are expected to be realized within the first year and continuing into future periods. Management’s adjustments are based on estimated synergies as a result of the integration of personnel and related reduction in payroll and other costs of the combined company and are not reflected in the pro forma income statements.
Material limitations of these adjustments include not fully realizing the anticipated benefits, taking longer to realize these synergies, or other adverse effects that ConocoPhillips does not currently foresee. Further, there may be additional charges incurred in achieving these synergies, such as additional severance and benefit costs, for which management cannot determine the nature and amount as of the date of this Form 8-K, and thus, such charges are not reflected in the pro forma income statements. These adjustments reflect all Management’s Adjustments that are, in the opinion of management, necessary to fairly state the pro forma financial information presented. Future results may vary significantly from the pro forma financial information presented because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.
Had the merger been completed as of January 1, 2023, management estimates that the following production and operating expenses and selling, general and administrative expenses would not have been incurred, on a pre-tax basis:
| · | For the nine months ended September 30, 2024, $113 million related to lower production and operating expenses and $188 million related to reduced selling, general and administrative expenses. |
| · | For the year ended December 31, 2023, $150 million related to lower production and operating expenses and $250 million related to reduced selling, general and administrative expenses. |
The tax effect on the above adjustments has been calculated based on the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea.
These annual synergies primarily relate to optimizing overlapping costs and consolidating field operations, and do not reflect the expected impact of annual capital savings related to capital optimization and improved efficiencies.
The following tables present the estimated effects on the pro forma combined income statements from elimination of the identified expenses:
Management’s Adjustments
| For the Nine Months Ended September 30, 2024 | ||||||||||||
| (Millions of Dollars, Except Per Share Amounts) | Combined Pro Forma Total | Management Adjustments | As Adjusted | |||||||||
| Production and operating expenses | $ | 7,648 | $ | (113 | ) | $ | 7,535 | |||||
| Selling, general and administrative expenses | 801 | (188 | ) | 613 | ||||||||
| Income (loss) before income taxes | 12,268 | 301 | 12,569 | |||||||||
| Net income (loss) | 8,077 | 230 | 8,307 | |||||||||
| Per common share | ||||||||||||
| Basic | $ | 6.14 | $ | 0.17 | $ | 6.31 | ||||||
| Diluted | $ | 6.13 | $ | 0.17 | $ | 6.30 | ||||||
| For the Year Ended December 31, 2023 | ||||||||||||
| (Millions of Dollars, Except Per Share Amounts) | Combined Pro Forma Total | Management Adjustments | As Adjusted | |||||||||
| Production and operating expenses | $ | 9,210 | $ | (150 | ) | $ | 9,060 | |||||
| Selling, general and administrative expenses | 1,447 | (250 | ) | 1,197 | ||||||||
| Income (loss) before income taxes | 18,006 | 400 | 18,406 | |||||||||
| Net income (loss) | 12,776 | 306 | 13,082 | |||||||||
| Per common share | ||||||||||||
| Basic | $ | 9.47 | $ | 0.22 | $ | 9.69 | ||||||
| Diluted | $ | 9.45 | $ | 0.22 | $ | 9.67 | ||||||
Note 7. Supplemental Pro Forma Oil and Gas Reserves Information
The following tables present the estimated pro forma combined net proved developed and undeveloped oil and gas reserves information as of December 31, 2023, along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2023.
The following estimated pro forma oil and gas reserves information is not necessarily indicative of the results that might have occurred had the merger been completed on January 1, 2023, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.
| Crude Oil | ||||||||||||||||||||
| Millions of Barrels | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| Years Ended December 31 | Consolidated
Operations | Equity
Affiliates | Total Company | Marathon
Oil Historical | Pro
Forma Combined ConocoPhillips | |||||||||||||||
| Developed and Undeveloped | ||||||||||||||||||||
| End of 2022 | 2,975 | 93 | 3,068 | 645 | 3,713 | |||||||||||||||
| Revisions | 87 | 1 | 88 | (30 | ) | 58 | ||||||||||||||
| Improved recovery | - | - | - | - | - | |||||||||||||||
| Purchases | 2 | - | 2 | 1 | 3 | |||||||||||||||
| Extensions and discoveries | 310 | - | 310 | 97 | 407 | |||||||||||||||
| Production | (331 | ) | (5 | ) | (336 | ) | (69 | ) | (405 | ) | ||||||||||
| Sales | (11 | ) | - | (11 | ) | - | (11 | ) | ||||||||||||
| End of 2023 | 3,032 | 89 | 3,121 | 644 | 3,765 | |||||||||||||||
| Developed | ||||||||||||||||||||
| End of 2022 | 2,117 | 58 | 2,175 | 384 | 2,559 | |||||||||||||||
| End of 2023 | 1,971 | 54 | 2,025 | 366 | 2,391 | |||||||||||||||
| Undeveloped | ||||||||||||||||||||
| End of 2022 | 858 | 35 | 893 | 261 | 1,154 | |||||||||||||||
| End of 2023 | 1,061 | 35 | 1,096 | 278 | 1,374 | |||||||||||||||
ConocoPhillips anticipates 340 million barrels of proved developed reserves and 278 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 2,095 million barrels of oil for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 26 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 229 million barrels of oil for the Africa geographic area as of December 31, 2023.
| Natural Gas Liquids | ||||||||||||||||||||
| Millions of Barrels | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| Years Ended December 31 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro Forma Combined ConocoPhillips | |||||||||||||||
| Developed and Undeveloped | ||||||||||||||||||||
| End of 2022 | 845 | 50 | 895 | 310 | 1,205 | |||||||||||||||
| Revisions | 120 | 1 | 121 | (11 | ) | 110 | ||||||||||||||
| Improved recovery | - | - | - | - | - | |||||||||||||||
| Purchases | 1 | - | 1 | 3 | 4 | |||||||||||||||
| Extensions and discoveries | 26 | - | 26 | 53 | 79 | |||||||||||||||
| Production | (98 | ) | (3 | ) | (101 | ) | (34 | ) | (135 | ) | ||||||||||
| Sales | (2 | ) | - | (2 | ) | - | (2 | ) | ||||||||||||
| End of 2023 | 892 | 48 | 940 | 321 | 1,261 | |||||||||||||||
| Developed | ||||||||||||||||||||
| End of 2022 | 500 | 31 | 531 | 201 | 732 | |||||||||||||||
| End of 2023 | 511 | 28 | 539 | 209 | 748 | |||||||||||||||
| Undeveloped | ||||||||||||||||||||
| End of 2022 | 345 | 19 | 364 | 109 | 473 | |||||||||||||||
| End of 2023 | 381 | 20 | 401 | 112 | 513 | |||||||||||||||
ConocoPhillips anticipates 193 million barrels of proved developed reserves and 112 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 1,102 million barrels of natural gas liquids for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 16 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 16 million barrels of natural gas liquids for the Africa geographic area as of December 31, 2023.
| Natural Gas | ||||||||||||||||||||
| Billions of Cubic Feet | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| Years Ended December 31 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro Forma Combined ConocoPhillips | |||||||||||||||
| Developed and Undeveloped | ||||||||||||||||||||
| End of 2022 | 8,767 | 5,753 | 14,520 | 2,295 | 16,815 | |||||||||||||||
| Revisions | 327 | (90 | ) | 237 | (266 | ) | (29 | ) | ||||||||||||
| Improved recovery | - | - | - | - | - | |||||||||||||||
| Purchases | 4 | - | 4 | 38 | 42 | |||||||||||||||
| Extensions and discoveries | 270 | 58 | 328 | 330 | 658 | |||||||||||||||
| Production | (828 | ) | (446 | ) | (1,274 | ) | (268 | ) | (1,542 | ) | ||||||||||
| Sales | (97 | ) | - | (97 | ) | (1 | ) | (98 | ) | |||||||||||
| End of 2023 | 8,443 | 5,275 | 13,718 | 2,128 | 15,846 | |||||||||||||||
| Developed | ||||||||||||||||||||
| End of 2022 | 6,370 | 3,974 | 10,344 | 1,659 | 12,003 | |||||||||||||||
| End of 2023 | 5,841 | 3,558 | 9,399 | 1,484 | 10,883 | |||||||||||||||
| Undeveloped | ||||||||||||||||||||
| End of 2022 | 2,397 | 1,779 | 4,176 | 636 | 4,812 | |||||||||||||||
| End of 2023 | 2,602 | 1,717 | 4,319 | 644 | 4,963 | |||||||||||||||
ConocoPhillips anticipates 1150 bcfs of proved developed reserves and 644 bcfs of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 6,515 bcfs of gas for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 334 bcfs of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 506 bcfs of gas for the Africa geographic area as of December 31, 2023.
| Bitumen | ||||||||||||||||||
| Millions of Barrels | ||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||
| Years Ended December 31 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro Forma Combined ConocoPhillips | |||||||||||||
| Developed and Undeveloped | ||||||||||||||||||
| End of 2022 | 216 | - | 216 | - | 216 | |||||||||||||
| Revisions | 15 | - | 15 | - | 15 | |||||||||||||
| Improved recovery | - | - | - | - | - | |||||||||||||
| Purchases | 209 | - | 209 | - | 209 | |||||||||||||
| Extensions and discoveries | - | - | - | - | - | |||||||||||||
| Production | (30 | ) | - | (30 | ) | - | (30 | ) | ||||||||||
| Sales | - | - | - | - | - | |||||||||||||
| End of 2023 | 410 | - | 410 | - | 410 | |||||||||||||
| Developed | ||||||||||||||||||
| End of 2022 | 127 | - | 127 | - | 127 | |||||||||||||
| End of 2023 | 293 | - | 293 | - | 293 | |||||||||||||
| Undeveloped | ||||||||||||||||||
| End of 2022 | 89 | - | 89 | - | 89 | |||||||||||||
| End of 2023 | 117 | - | 117 | - | 117 | |||||||||||||
| Total Proved Reserves | ||||||||||||||||||||
| Millions of Barrels of Oil Equivalent | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| Years Ended December 31 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro
Forma Combined ConocoPhillips | |||||||||||||||
| Developed and Undeveloped | ||||||||||||||||||||
| End of 2022 | 5,497 | 1,102 | 6,599 | 1,338 | 7,937 | |||||||||||||||
| Revisions | 276 | (14 | ) | 262 | (86 | ) | 176 | |||||||||||||
| Improved recovery | - | - | - | - | - | |||||||||||||||
| Purchases | 213 | - | 213 | 11 | 224 | |||||||||||||||
| Extensions and discoveries | 381 | 10 | 391 | 205 | 596 | |||||||||||||||
| Production | (596 | ) | (82 | ) | (678 | ) | (148 | ) | (826 | ) | ||||||||||
| Sales | (29 | ) | - | (29 | ) | - | (29 | ) | ||||||||||||
| End of 2023 | 5,742 | 1,016 | 6,758 | 1,320 | 8,078 | |||||||||||||||
| Developed | ||||||||||||||||||||
| End of 2022 | 3,806 | 751 | 4,557 | 862 | 5,419 | |||||||||||||||
| End of 2023 | 3,749 | 675 | 4,424 | 823 | 5,247 | |||||||||||||||
| Undeveloped | ||||||||||||||||||||
| End of 2022 | 1,691 | 351 | 2,042 | 476 | 2,518 | |||||||||||||||
| End of 2023 | 1,993 | 341 | 2,334 | 497 | 2,831 | |||||||||||||||
ConocoPhillips anticipates 726 million barrels of proved developed reserves and 497 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 4,285 million barrels of reserves for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 97 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 329 million barrels of reserves for the Africa geographic area as of December 31, 2023.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities
The following tables present the estimated pro forma discounted future net cash flows at December 31, 2023. The pro forma standardized measure information set forth below gives effect to the merger as if the merger had been completed on January 1, 2023. The disclosures below were determined by referencing the “Standardized Measure of Discounted Future Net Cash Flows” reported in ConocoPhillips’ and Marathon Oil’s respective Annual Reports on Form 10-K for the year ended December 31, 2023; an explanation of the underlying methodology applied, as required by SEC regulations, can be found within the respective Annual Report on Form 10-K. The calculations assume the continuation of existing economic, operating and contractual conditions at December 31, 2023.
Therefore, the following estimated pro forma standardized measure is not necessarily indicative of the results that might have occurred had the merger been completed on January 1, 2023, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.
Discounted Future Net Cash Flows
| Millions of Dollars | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| 2023 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro Forma Combined ConocoPhillips | |||||||||||||||
| Future cash inflows | $ | 301,144 | $ | 51,887 | $ | 353,031 | $ | 61,296 | $ | 414,327 | ||||||||||
| Less: | ||||||||||||||||||||
| Future production costs | 110,695 | 28,579 | 139,274 | 24,341 | 163,615 | |||||||||||||||
| Future development costs | 42,794 | 2,299 | 45,093 | 8,463 | 53,556 | |||||||||||||||
| Future income tax provisions | 51,572 | 5,647 | 57,219 | 3,476 | 60,695 | |||||||||||||||
| Future net cash flows | 96,083 | 15,362 | 111,445 | 25,016 | 136,461 | |||||||||||||||
| 10 percent annual discount | 35,833 | 5,543 | 41,376 | 11,930 | 53,306 | |||||||||||||||
| Discounted future net cash flows | $ | 60,250 | $ | 9,819 | $ | 70,069 | $ | 13,086 | $ | 83,155 | ||||||||||
Sources of Change in Discounted Future Net Cash Flows
The changes in the pro forma standardized measure of discounted future net cash flows relating to proved reserves for the year ended December 31, 2023 are as follows:
| Millions of Dollars | ||||||||||||||||||||
| ConocoPhillips Historical | ||||||||||||||||||||
| 2023 | Consolidated Operations | Equity Affiliates | Total Company | Marathon Oil Historical | Pro Forma Combined ConocoPhillips | |||||||||||||||
| Discounted future net cash flows at the beginning of the year | $ | 85,720 | $ | 13,272 | $ | 98,992 | $ | 22,223 | $ | 121,215 | ||||||||||
| Changes during the year | - | |||||||||||||||||||
| Revenues less production costs for the year | (23,706 | ) | (2,550 | ) | (26,256 | ) | (4,512 | ) | (30,768 | ) | ||||||||||
| Net changes in prices and production costs | (48,717 | ) | (4,519 | ) | (53,236 | ) | (9,605 | ) | (62,841 | ) | ||||||||||
| Extensions, discoveries and improved recovery, less estimated future costs | 1,864 | 118 | 1,982 | 1,607 | 3,589 | |||||||||||||||
| Development costs for the year | 9,129 | 326 | 9,455 | 1,868 | 11,323 | |||||||||||||||
| Changes in estimated future development costs | (6,754 | ) | (150 | ) | (6,904 | ) | (762 | ) | (7,666 | ) | ||||||||||
| Purchases of reserves in place, less estimated future costs | 3,029 | - | 3,029 | 149 | 3,178 | |||||||||||||||
| Sales of reserves in place, less estimated future costs | (472 | ) | - | (472 | ) | (472 | ) | |||||||||||||
| Revisions of previous quantity estimates | 9,503 | 492 | 9,995 | (2,262 | ) | 7,733 | ||||||||||||||
| Accretion of discount | 12,414 | 1,635 | 14,049 | 2,579 | 16,628 | |||||||||||||||
| Net changes in income taxes | 18,240 | 1,195 | 19,435 | 1,801 | 21,236 | |||||||||||||||
| Total changes | (25,470 | ) | (3,453 | ) | (28,923 | ) | (9,137 | ) | (38,060 | ) | ||||||||||
| Discounted future net cash flows at year end | $ | 60,250 | $ | 9,819 | $ | 70,069 | $ | 13,086 | $ | 83,155 | ||||||||||
For purposes of pro forma presentation to conform with ConocoPhillips presentation, Marathon Oil’s historical Changes in timing and other of $993 million has been reclassed to Revisions of previous quantity estimates.