UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
[X]
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
d
or
[ ]
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
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(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
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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
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reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
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The registrant had
CONOCOPHILLIPS
TABLE OF CONTENTS
Page
Commonly Used Abbreviations ..................................................................................................................
1
Part I—Financial Information
Item 1. Financial Statements
Consolidated Income Statement ...........................................................................................................
Consolidated Statement of Comprehensive Income ............................................................................
Consolidated Balance Sheet .................................................................................................................
Consolidated Statement of Cash Flows................................................................................................
Notes to Consolidated Financial Statements ........................................................................................
Supplementary Information—Condensed Consolidating Financial Information .................................
29
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations .................................................................................................................
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................................................
55
Item 4. Controls and Procedures ............................................................................................................
56
Part II—Other Information
Item 1. Legal Proceedings ......................................................................................................................
56
Item 1A. Risk Factors .............................................................................................................................
56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...................................................
58
Item 6. Exhibits ......................................................................................................................................
59
Signature .....................................................................................................................................................
60
1
Commonly Used Abbreviations
The following industry-specific, accounting and other terms, and abbreviations may be commonly used in this
report.
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
GBP
British pound
ASU
accounting standards update
DD&A
depreciation, depletion and
Units of Measurement
amortization
BBL
barrel
FASB
Financial Accounting Standards
BCF
billion cubic feet
Board
BOE
barrels of oil equivalent
FIFO
first-in, first-out
MBD
thousands of barrels per day
G&A
general and administrative
MCF
thousand cubic feet
GAAP
generally accepted accounting
MBOD
thousand barrels of oil per day
principles
MMBOE
million barrels of oil equivalent
LIFO
last-in, first-out
MMBOD
million barrels of oil per day
NPNS
normal purchase normal sale
MBOED
thousands of barrels of oil
PP&E
properties, plants and equipment
equivalent per day
SAB
staff accounting bulletin
MMBTU
million British thermal units
VIE
variable interest entity
MMCFD
million cubic feet per day
Miscellaneous
Industry
EPA
Environmental Protection Agency
CBM
coalbed methane
EU
European Union
E&P
exploration and production
FERC
Federal Energy Regulatory
FEED
front-end engineering and design
Commission
FPS
floating production system
GHG
greenhouse gas
FPSO
floating production, storage and
HSE
health, safety and environment
offloading
ICC
International Chamber of
JOA
joint operating agreement
Commerce
LNG
liquefied natural gas
ICSID
World Bank’s International
NGLs
natural gas liquids
Centre for Settlement of
OPEC
Organization of Petroleum
Investment Disputes
Exporting Countries
IRS
Internal Revenue Service
PSC
production sharing contract
OTC
over-the-counter
PUDs
proved undeveloped reserves
NYSE
New York Stock Exchange
SAGD
steam-assisted gravity drainage
SEC
U.S. Securities and Exchange
WCS
Western Canada Select
Commission
WTI
West Texas Intermediate
TSR
total shareholder return
U.K.
United Kingdom
U.S.
United States of America
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Income Statement
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
Gain (loss) on dispositions
(42 )
Other income (loss)
(1,539 )
Total Revenues and Other Income
Costs and Expenses
Purchased commodities
Production and operating expenses
Selling, general and administrative expenses
(3 )
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transactions (gain) loss
(90 )
Other expenses
(6 )
Total Costs and Expenses
Income (loss) before income taxes
(1,563 )
Income tax provision
Net income (loss)
(1,711 )
Less: net income attributable to noncontrolling interests
(28 )
(13 )
Net Income (Loss) Attributable to ConocoPhillips
$
(1,739 )
Net Income (Loss) Attributable to ConocoPhillips Per Share
(dollars)
Basic
$
(1.60 )
Diluted
(1.60 )
Average Common Shares Outstanding
(in thousands)
Basic
Diluted
See Notes to Consolidated Financial Statements.
3
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Net Income (Loss)
$
(1,711 )
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit
included in net income (loss)
(8 )
(8 )
Net actuarial gain arising during the period
Reclassification adjustment for amortization of net actuarial losses included
in net income (loss)
Income taxes on defined benefit plans
(4 )
(5 )
Defined benefit plans, net of tax
Net unrealized holding loss on securities
(3 )
Income taxes on net unrealized holding loss on securities
Net unrealized holding loss on securities, net of tax
(2 )
Foreign currency translation adjustments
(799 )
Income taxes on foreign currency translation adjustments
Foreign currency translation adjustments, net of tax
(797 )
Other Comprehensive Income (Loss), Net of Tax
(788 )
Comprehensive Income (Loss)
(2,499 )
Less: comprehensive income attributable to noncontrolling interests
(28 )
(13 )
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(2,527 )
See Notes to Consolidated Financial Statements.
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
March 31
December 31
2020
2019
Assets
Cash and cash equivalents
$
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 depreciation,
depletion and amortization 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 (
.01
Issued (2020—
Par value
Capital in excess of par
Treasury stock (at cost: 2020—
(47,130 )
(46,405 )
Accumulated other comprehensive loss
(6,145 )
(5,357 )
Retained earnings
Total Common Stockholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
$
See Notes to Consolidated Financial Statements.
5
Consolidated Statement of Cash Flows
ConocoPhillips
Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Flows From Operating Activities
Net Income (Loss)
$
(1,711 )
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
Impairments
Dry hole costs and leasehold impairments
Accretion on discounted liabilities
Deferred taxes
(227 )
(1 )
Undistributed equity earnings
(Gain) loss on dispositions
(17 )
Unrealized (gain) loss on investment in Cenovus Energy
(343 )
Other
(284 )
(221 )
Working capital adjustments
Decrease in accounts and notes receivable
Decrease (increase) in inventories
(4 )
Decrease (increase) in prepaid expenses and other current assets
(79 )
Decrease in accounts payable
(297 )
(142 )
Decrease in taxes and other accruals
(445 )
(149 )
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities
Capital expenditures and investments
(1,649 )
(1,637 )
Working capital changes associated with investing activities
Proceeds from asset dispositions
Net purchases of investments
(935 )
(1 )
Collection of advances/loans—related parties
Other
(44 )
(150 )
Net Cash Used in Investing Activities
(1,932 )
(1,477 )
Cash Flows From Financing Activities
Repayment of debt
(24 )
(19 )
Issuance of company common stock
(38 )
Repurchase of company common stock
(726 )
(752 )
Dividends paid
(458 )
(350 )
Other
(24 )
(14 )
Net Cash Used in Financing Activities
(1,230 )
(1,173 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
Cash
(122 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(1,179 )
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 March 31, 2020.
Restricted cash of $
respectively, of our Consolidated Balance Sheet as of December 31, 2019.
See Notes to Consolidated Financial Statements.
6
Notes to Consolidated Financial Statements ConocoPhillips
Note 1—Basis of Presentation
The interim-period financial information presented in the financial statements included in this report is
unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair
presentation of the consolidated financial position of ConocoPhillips and its results of operations and cash
flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed.
Certain notes and other information have been condensed or omitted from the interim financial statements
included in this report. Therefore, these financial statements should be read in conjunction with the
consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K.
The unrealized (gain) loss on investment in Cenovus Energy included on our consolidated statement of cash
flows, previously reflected on the line item “Other” within net cash provided by operating activities, has been
reclassified in the comparative period to conform with the current period’s presentation.
Note 2—Changes in Accounting Principles
We
Instruments,” (ASC Topic 326) and its amendments,
. This ASU, as amended, sets
forth the current expected credit loss model, a new forward-looking impairment model for certain financial
instruments measured at amortized cost basis based on expected losses rather than incurred losses. This ASU,
as amended, which primarily applies to our accounts receivable, also requires credit losses related to available-
for-sale debt securities to be recorded through an allowance for credit losses.
or less. We monitor the credit quality of our counterparties through review of collections, credit ratings, and
other analyses. We develop our estimated allowance for credit losses primarily using an aging method and
analyses of historical loss rates as well as consideration of current and future conditions that could impact our
counterparties’ credit quality and liquidity.
Note 3—Inventories
Inventories consisted of the following:
Millions of Dollars
March 31
2020
2019
Crude oil and natural gas
$
Materials and supplies
$
As a result of declining commodity prices in the first quarter of 2020, we recorded a lower of cost or market
adjustment of $
“Purchased commodities” line on our consolidated income statement. Inventories valued on the LIFO basis
totaled $
7
Note 4—Asset Acquisitions and Dispositions
Assets Held for Sale
In October 2019, we entered into an agreement to sell the subsidiaries that hold our Australia-West assets and
operations to Santos for $
plus a payment of $
subsidiaries hold our
the Darwin LNG Facility and Bayu-Undan Field, our
our
At March 31, 2020, the net carrying value of the subsidiaries to be sold was approximately $
consisting primarily of $
of ARO and $
2019, and as of March 31, 2020, $
assets” and $
The before-tax earnings associated with our Australia-West subsidiaries to be sold were $
million for the three-month period ended March 31, 2020 and 2019, respectively. This transaction is expected
to be completed in the second quarter of 2020, subject to regulatory approvals and other conditions precedent.
Results of operations for the subsidiaries to be sold are reported in our Asia Pacific and Middle East segment.
Assets Sold
In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $
adjustments. No gain or loss was recognized on the sale.
In March 2020, we completed the sale of our Niobrara interests for approximately $
customary adjustments and recognized a before-tax loss on disposition of $
disposition, our interest in Niobrara had a net carrying value of $
million of PP&E and $
including the loss on disposition, were a loss of $
month periods ended March 31, 2020 and 2019, respectively.
Production from these non-core Lower 48 properties averaged
.
Note 5—Investments, Loans and Long-Term Receivables
APLNG
APLNG executed project financing agreements for an $
billion project finance facility was initially composed of financing agreements executed by APLNG with the
Export-Import Bank of the United States for approximately $
approximately $
approximately $
interest repayment in March 2017 and is scheduled to make
APLNG made a voluntary repayment of $
At the same time, APLNG obtained a United States Private Placement (USPP) bond facility of $
APLNG made its first interest payment related to this facility in March 2019, and principal payments are
scheduled to commence in September 2023, with
During the first quarter of 2019, APLNG refinanced $
transactions. As a result of the first transaction, APLNG obtained a commercial bank facility of $
APLNG made its first principal and interest repayment in September 2019 with
facility until March 2028. Through the second transaction, APLNG obtained a USPP bond facility of $
billion. APLNG made its first interest payment in September 2019, and principal payments are scheduled to
commence in September 2023, with
8
In conjunction with the $3.2 billion debt obtained during the first quarter of 2019 to refinance existing project
finance debt, APLNG made voluntary repayments of $
and international commercial banks and the Export-Import Bank of China, respectively.
At March 31, 2020, a balance of $
additional information.
At March 31, 2020, the carrying value of our equity method investment in APLNG was $
balance is included in the “Investments and long-term receivables” line on our consolidated balance sheet.
Loans and Long-Term Receivables
As part of our normal ongoing business operations, and consistent with industry practice, we enter into
numerous agreements with other parties to pursue business opportunities. Included in such activity are loans
made to certain affiliated and non-affiliated companies. At March 31, 2020, significant loans to affiliated
companies included $
On our consolidated balance sheet, the long-term portion of these loans is included in the “Loans and
advances—related parties” line, while the short-term portion is in the “Accounts and notes receivable—related
parties” line.
Note 6-–Investment in Cenovus Energy
On May 17, 2017, we completed the sale of our
well as the majority of our western Canada gas assets, to Cenovus Energy. Consideration for the transaction
included
and outstanding Cenovus Energy common stock. The fair value and cost basis of our investment in 208
million Cenovus Energy common shares was $
the closing date.
At March 31, 2020, the investment included on our consolidated balance sheet was $
at fair value. The fair value of the
$
billion at year-end 2019. The decrease in fair value represents the net unrealized loss recorded within the
“Other income (loss)” line of our consolidated income statement in the first quarter of 2020 relating to the
shares held at the reporting date. See Note 14—Fair Value Measurement, for additional information. Subject
to market conditions, we intend to decrease our investment over time through market transactions, private
agreements or otherwise.
Note 7—Suspended Wells
The capitalized cost of suspended wells at March 31, 2020, was $
$
$
costs capitalized for a period greater than one year at December 31, 2019. Of the total suspended well balance
at December 31, 2019 and March 31, 2020, $
Acquisitions and Dispositions, for additional information.
9
Note 8—Impairments
During the three-month periods ended March 31, 2020 and 2019, we recognized before-tax impairment
charges within the following segments:
Millions of Dollars
March 31
2020
2019
Lower 48
Europe and North Africa
$
We perform impairment reviews when triggering events arise that may impact the fair value of our assets or
investments. The recent commodity price downturn prompted us to evaluate the recoverability of the carrying
value of our assets and whether an other than temporary impairment occurred for investments in our portfolio.
A sustained decline in the current and long-term outlook on commodity prices could trigger additional
impairment reviews and possibly result in future impairment charges.
With respect to impairments recorded in the first quarter of 2020, due to a significant decrease in the outlook
for current and long-term natural gas prices, the estimated fair values of certain non-core natural gas assets in
the Lower 48 segment declined to amounts below carrying value. We recorded impairments of $
for these non-core natural gas assets, primarily related to the Wind River Basin operations area consisting of
developed properties in the Madden Field and the Lost Cabin Gas Plant, which were written down to fair
value. See Note 14—Fair Value Measurement, for additional information.
In our Asia Pacific and Middle East segment, we recorded a before-tax impairment of $
the associated carrying value of capitalized undeveloped leasehold costs for the Kamunsu East Field in
Malaysia that is no longer in our development plans. This charge is included in the “Exploration expenses”
line on our consolidated income statement and is not reflected in the table above.
Note 9—Debt
Our debt balance as of March 31, 2020 was $
2019.
Our revolving credit facility provides a total commitment of $
May 2023
. Our
revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to
$
ConocoPhillips Company $
needs. Commercial paper maturities are generally limited to
.
We had
outstanding borrowings or letters of credit under the revolving credit facility at March 31, 2020 or December
31, 2019. Since we had
no
no
$
At March 31, 2020, we had $
10
maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business
day. If they are ever redeemed, we have the ability and intent to refinance on a long-term basis, therefore, the
VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.
Note 10—Changes in Equity
The following tables reflect the changes in stockholders' equity:
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Loss
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended March 31, 2020
Balances at December 31, 2019
$
(46,405 )
(5,357 )
Net income (loss)
(1,739 )
(1,711 )
Other comprehensive income (loss)
(788 )
(788)
Dividends paid ($
(458 )
(458 )
Repurchase of company common stock
(726 )
(726 )
Distributions to noncontrolling interests and other
(26 )
(26 )
Distributed under benefit plans
Other
Balances at March 31, 2020
$
(47,130 )
(6,145 )
For the three months ended March 31, 2019
Balances at December 31, 2018
$
(42,905 )
(6,063 )
Net income
Other comprehensive income
Dividends paid ($
(350 )
(350 )
Repurchase of company common stock
(752 )
(752 )
Distributions to noncontrolling interests and other
(17 )
(17 )
Distributed under benefit plans
(2 )
(2 )
Changes in Accounting Principles*
(40 )
Other
Balances at March 31, 2019
$
(43,656 )
(5,914 )
*Cumulative effect of the adoption of ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
Note 11—Guarantees
At March 31, 2020, we were liable for certain contingent obligations under various contractual arrangements
as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for
newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not
recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise
stated, we are not currently performing with any significance under the guarantee and expect future
performance to be either immaterial or have only a remote chance of occurrence.
11
APLNG Guarantees
At March 31, 2020, we had outstanding multiple guarantees in connection with our
interest in APLNG. The following is a description of the guarantees with values calculated utilizing March
2020 exchange rates:
●
During the third quarter of 2016, we issued a guarantee to facilitate the withdrawal of our pro-rata
portion of the funds in a project finance reserve account. We estimate the remaining term of this
guarantee is
. Our maximum exposure under this guarantee is approximately $
may become payable if an enforcement action is commenced by the project finance lenders against
APLNG. At March 31, 2020, the carrying value of this guarantee was approximately $
●
In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in
October 2008, we agreed to reimburse Origin Energy for our share of the existing contingent liability
arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales
agreements with remaining terms of up to
. Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated to be $
billion in the event of intentional or reckless breach) and would become payable if APLNG fails to
meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future
payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered
if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do
not make necessary equity contributions into APLNG.
●
We have guaranteed the performance of APLNG with regard to certain other contracts executed in
connection with the project’s continued development. The guarantees have remaining terms of up to
. Our maximum potential amount of future payments related to these
guarantees is approximately $
March 31, 2020, the carrying value of these guarantees was approximately $
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling approximately
$
of the residual value of corporate aircrafts, and a guarantee for our portion of a joint venture’s project finance
reserve accounts. These guarantees have remaining terms of up to
upon sale, certain asset values are lower than guaranteed amounts, business conditions decline at guaranteed
entities, or as a result of nonperformance of contractual terms by guaranteed parties. At March 31, 2020, the
carrying value of these guarantees was approximately $
Indemnifications
Over the years, we have entered into agreements to sell ownership interests in certain corporations, joint
ventures and assets that gave rise to qualifying indemnifications. These agreements include indemnifications
for taxes and environmental liabilities. The majority of these indemnifications are related to tax issues and the
majority of these expire in 2021. Those related to environmental issues have terms that are generally indefinite
and the maximum amounts of future payments are generally unlimited. The carrying amount recorded for
these indemnification obligations at March 31, 2020, was approximately $
indemnification liability over the relevant time period the indemnity is in effect, if one exists, based on the
facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is
indefinite, we will reverse the liability when we have information the liability is essentially relieved or
amortize the liability over an appropriate time period as the fair value of our indemnification exposure
declines. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature
of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of
future payments. Included in the recorded carrying amount at March 31, 2020, was approximately $
of environmental accruals for known contamination that are included in the “Asset retirement obligations and
accrued environmental costs” line on our consolidated balance sheet. For additional information about
environmental liabilities, see Note 12—Contingencies and Commitments.
12
Note 12—Contingencies and Commitments
A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed
against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active
and inactive sites. We regularly assess the need for accounting recognition or disclosure of these
contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a
liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be
reasonably estimated and no amount within the range is a better estimate than any other amount, then the
minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party
recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. With respect
to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where
sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent
liability exposures will exceed current accruals by an amount that would have a material adverse impact on our
consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position
both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future
changes include contingent liabilities recorded for environmental remediation, tax and legal matters.
Estimated future environmental remediation costs are subject to change due to such factors as the uncertain
magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and
the determination of our liability in proportion to that of other responsible parties. Estimated future costs
related to tax and legal matters are subject to change as events evolve and as additional information becomes
available during the administrative and litigation processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare
our consolidated financial statements, we record accruals for environmental liabilities based on management’s
best estimates, using all information that is available at the time. We measure estimates and base liabilities on
currently available facts, existing technology, and presently enacted laws and regulations, taking into account
stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior
experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by
the U.S. EPA or other organizations. We consider unasserted claims in our determination of environmental
liabilities, and we accrue them in the period they are both probable and reasonably estimable.
Although liability of those potentially responsible for environmental remediation costs is generally joint and
several for federal sites and frequently so for other sites, we are usually only one of many companies cited at a
particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to
any site at which we have been designated as a potentially responsible party. We have been successful to date
in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially
responsible are still under investigation by the EPA or the agency concerned. Prior to actual cleanup, those
potentially responsible normally assess the site conditions, apportion responsibility and determine the
appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability.
Where it appears that other potentially responsible parties may be financially unable to bear their proportional
share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly.
As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these
environmental obligations are mitigated by indemnifications made by others for our benefit, and some of the
indemnifications are subject to dollar limits and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and
comparable state and international sites. After an assessment of environmental exposures for cleanup and
other costs, we make accruals on an undiscounted basis (except those acquired in a purchase business
combination, which we record on a discounted basis) for planned investigation and remediation activities for
sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have
not reduced these accruals for possible insurance recoveries.
13
At March 31, 2020, our consolidated balance sheet included a total environmental accrual of $
compared with $
expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be
involved in additional environmental assessments, cleanups and proceedings.
Legal Proceedings
We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty
and severance tax payments, gas measurement and valuation methods, contract disputes, environmental
damages, climate change, personal injury, and property damage. Our primary exposures for such matters
relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties and
claims of alleged environmental contamination from historic operations. We will continue to defend ourselves
vigorously in these matters.
Our legal organization applies its knowledge, experience and professional judgment to the specific
characteristics of our cases, employing a litigation management process to manage and monitor the legal
proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in
individual cases. This process also enables us to track those cases that have been scheduled for trial and/or
mediation. Based on professional judgment and experience in using these litigation management tools and
available information about current developments in all our cases, our legal organization regularly assesses the
adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new
accruals, is required.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies
not associated with financing arrangements. Under these agreements, we may be required to provide any such
company with additional funds through advances and penalties for fees related to throughput capacity not
utilized. In addition, at March 31, 2020, we had performance obligations secured by letters of credit of $
million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies,
commercial activities and services incident to the ordinary conduct of business.
In 2007, ConocoPhillips was unable to reach agreement with respect to the empresa mixta structure mandated
by the Venezuelan government’s Nationalization Decree. As a result, Venezuela’s national oil company,
Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’
interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In
response to this expropriation, ConocoPhillips initiated international arbitration on November 2, 2007, with the
ICSID. On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated
ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the
decision that the expropriation was unlawful. In March 2019, the Tribunal unanimously ordered the
government of Venezuela to pay ConocoPhillips approximately $
government’s unlawful expropriation of the company’s investments in Venezuela in 2007. ConocoPhillips has
filed a request for recognition of the award in several jurisdictions. On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing it by approximately $
at $
automatically stayed enforcement of the award. Annulment proceedings are underway.
In 2014, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against
PDVSA under the contracts that had established the Petrozuata and Hamaca projects. The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed ConocoPhillips approximately $
agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures.
To date, ConocoPhillips has received
approximately $
14
jurisdictions, and ConocoPhillips agreed to suspend its legal enforcement actions. ConocoPhillips sent notices
of default to PDVSA on October 14 and November 12, 2019, and to date PDVSA failed to cure its breach. As
a result, ConocoPhillips has resumed legal enforcement actions. ConocoPhillips has ensured that the
settlement and any actions taken in enforcement thereof meet all appropriate U.S. regulatory requirements,
including those related to any applicable sanctions imposed by the U.S. against Venezuela.
In 2016, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against
PDVSA under the contracts that had established the Corocoro project. On August 2, 2019, the ICC Tribunal
awarded ConocoPhillips approximately $
recognition and enforcement of the award in various jurisdictions. ConocoPhillips has ensured that all the
actions related to the award meet all appropriate U.S. regulatory requirements, including those related to any
applicable sanctions imposed by the U.S. against Venezuela.
In June 2017, FAR Ltd. initiated arbitration before the ICC against ConocoPhillips Senegal B.V. in connection
with the sale of ConocoPhillips Senegal B.V. to Woodside Energy Holdings (Senegal) Limited in 2016. In
February 2020, the ICC Tribunal issued an award dismissing FAR Ltd.’s claims, and this arbitration has been
terminated.
The Office of Natural Resources Revenue (ONRR) has conducted audits of ConocoPhillips’ payment of
royalties on federal lands and has issued multiple orders to pay additional royalties to the federal government.
ConocoPhillips has appealed these orders and strongly objects to the ONRR claims. The appeals are pending
with the Interior Board of Land Appeals, except for one order that is the subject of a lawsuit ConocoPhillips
filed in 2016 in New Mexico federal court after its appeal was denied by the Interior Board of Land Appeals.
Beginning in 2017, cities, counties, and state governments in California, New York, Washington, Rhode
Island, Maryland and Hawaii, as well as the Pacific Coast Federation of Fishermen’s Association, Inc., have
filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages and
equitable relief to abate alleged climate change impacts. ConocoPhillips is vigorously defending against these
lawsuits. The lawsuits brought by the Cities of San Francisco, Oakland and New York have been dismissed by
federal district courts and appeals are pending. Lawsuits filed by other cities and counties in California and
Washington are currently stayed pending resolution of the appeals brought by the Cities of San Francisco and
Oakland. Lawsuits filed in Maryland and Rhode Island are proceeding in state court while rulings in those
matters, on the issue of whether the matters should proceed in state or federal court, are on appeal. The lawsuit
filed in Hawaii has been removed to federal court.
Several Louisiana parishes and individual landowners have filed lawsuits against oil and gas companies,
including ConocoPhillips, seeking compensatory damages in connection with historical oil and gas operations
in Louisiana. All parish lawsuits are stayed pending an appeal on the issue of whether they will proceed in
federal or state court. ConocoPhillips will vigorously defend against these lawsuits.
Note 13—Derivative and Financial Instruments
Derivative Instruments
We use futures, forwards, swaps and options in various markets to meet our customer needs and capture
market opportunities. Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and
NGLs.
Our derivative instruments are held at fair value on our consolidated balance sheet. Where these balances have
the right of setoff, they are presented on a net basis. Related cash flows are recorded as operating activities on
our consolidated statement of cash flows. On our consolidated income statement, realized and unrealized gains
and losses are recognized either on a gross basis if directly related to our physical business or a net basis if held
for trading. Gains and losses related to contracts that meet and are designated with the NPNS exception are
recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use
hedge accounting for our commodity derivatives.
15
The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the
line items where they appear on our consolidated balance sheet:
Millions of Dollars
March 31
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
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
March 31
2020
2019
Sales and other operating revenues
$
Other income (loss)
(1 )
Purchased commodities
(27 )
(20 )
The table below summarizes our material net exposures resulting from outstanding commodity derivative
contracts:
Open Position
Long/(Short)
March 31
December 31
2020
2019
Commodity
Natural gas and power (billion cubic feet equivalent)
(5 )
(19 )
(23 )
Foreign Currency Exchange Derivatives
We have foreign currency exchange rate risk resulting from international operations. Our foreign currency
exchange derivative activity primarily relates to managing our cash-related foreign currency exchange rate
exposures, such as firm commitments for capital programs or local currency tax payments, dividends and cash
returns from net investments in foreign affiliates, and investments in equity securities. We do not elect hedge
accounting on our foreign currency exchange derivatives.
16
The following table presents the gross fair values of our foreign currency exchange derivatives, excluding
collateral, and the line items where they appear on our consolidated balance sheet:
Millions of Dollars
March 31
December 31
2020
2019
Assets
Prepaid expenses and other current assets
$
Other Assets
Liabilities
Other accruals
Other liabilities and deferred credits
The gains from foreign currency exchange derivatives incurred and the line item where they appear on our
consolidated income statement were:
Millions of Dollars
March 31
2020
2019
Foreign currency transactions (gain) loss
$
(74 )
(2 )
We had the following net notional position of outstanding foreign currency exchange derivatives:
In Millions
Notional Currency
March 31
December 31
2020
2019
Foreign Currency Exchange Derivatives
Buy GBP, sell euro
GBP
Sell CAD, buy USD
CAD
In the second quarter of 2019, we entered into foreign currency exchange contracts to sell
CAD
. In the first quarter of 2020, we entered into forward currency exchange contracts
to buy
.
Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for the various accounts and
currency pools we manage. The types of financial instruments in which we currently invest include:
●
Time deposits: Interest bearing deposits placed with financial institutions for a predetermined amount
of time.
●
Demand deposits: Interest bearing deposits placed with financial institutions. Deposited funds can be
withdrawn without notice.
●
Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or
government agency purchased at a discount to mature at par.
●
U.S. government or government agency obligations: Securities issued by the U.S. government or U.S.
government agencies.
●
Corporate bonds: Unsecured debt securities issued by corporations.
●
Asset-backed securities: Collateralized debt securities.
17
The following investments are carried on our consolidated balance sheet at cost, plus accrued interest:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31
December 31
March 31
December 31
March 31
December 31
2020
2019
2020
2019
2020
2019
Cash
$
Demand Deposits
Time Deposits
Remaining maturities from 1 to 90 days
Remaining maturities from 91 to 180 days
Remaining maturities within one year
Remaining maturities greater than one year through
five years
Commercial Paper
Remaining maturities from 1 to 90 days
U.S. Government Obligations
Remaining maturities from 1 to 90 days
$
The following investments in debt securities classified as available for sale are carried on our consolidated balance
sheet at fair value:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
Corporate Bonds
Maturities within one year
$
Maturities greater than one year through five years
Commercial Paper
Maturities within one year
U.S. Government Obligations
Maturities within one year
Maturities greater than one year through five years
U.S. Government Agency Obligations
Maturities greater than one year through five years
Asset-backed Securities
Maturities greater than one year through five years
$
18
The following table summarizes the amortized cost basis and fair value of investments in debt securities
classified as available for sale at March 31, 2020:
Millions of Dollars
Amortized Cost
Basis
Fair Value
Major Security Type
Corporate bonds
$
Commercial paper
U.S. government obligations
U.S. government agency obligations
Asset-backed securities
$
As of March 31, 2020, total unrealized losses for debt securities classified as available for sale with net losses
were negligible. Additionally, investments in these debt securities in an unrealized loss position as of March
31, 2020 for which an allowance for credit losses has not been recorded were negligible.
For the three-month period ended March 31, 2020, gross realized gains and gross realized losses included in
earnings from sales and redemptions of investments in debt securities classified as available for sale were
negligible. The cost of securities sold and redeemed is determined using the specific identification method.
Credit Risk
Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents,
short-term investments, long-term investments in debt securities, OTC derivative contracts and trade
receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper,
government money market funds, government debt securities, time deposits with major international banks and
financial institutions, and high-quality corporate bonds. Our long-term investments in debt securities are
placed in high-quality corporate bonds, U.S. government and government agency obligations, asset-backed
securities, and time deposits with major international banks and financial institutions.
The credit risk from our OTC derivative contracts, such as forwards, swaps and options, derives from the
counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit
limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant
nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because
these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements until
settled; however, we are exposed to the credit risk of those exchange brokers for receivables arising from daily
margin cash calls, as well as for cash deposited to meet initial margin requirements.
Our trade receivables result primarily from our petroleum operations and reflect a broad national and
international customer base, which limits our exposure to concentrations of credit risk. The majority of these
receivables have payment terms of
creditworthiness of the counterparties. We do not generally require collateral to limit the exposure to loss;
however, we will sometimes use letters of credit, prepayments and master netting arrangements to mitigate
credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed
by us or owed to others to be offset against amounts due to us.
19
The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were
in a liability position at March 31, 2020 and December 31, 2019, was $
respectively. For these instruments,
our credit rating had been downgraded below investment grade at March 31, 2020, we would have been
required to post $
Note 14—Fair Value Measurement
We carry a portion of our assets and liabilities at fair value measured at the reporting date using an exit price
(i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to
the quality of valuation inputs under the following hierarchy:
●
Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
●
Level 2: Inputs other than quoted prices that are directly or indirectly observable.
●
Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.
The classification hierarchy of an asset or liability is based on the lowest level of input significant to its fair
value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value
derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data
becomes available. Assets and liabilities initially reported as Level 2 are subsequently reported as Level 3 if
corroborated market data is no longer available. There were no material transfers into or out of Level 3 during
2020 or 2019.
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair value on a recurring basis primarily include our investment in
Cenovus Energy common shares, our investments in debt securities classified as available for sale, and
commodity derivatives.
●
Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are
valued using unadjusted prices available from the underlying exchange. Level 1 also includes our
investment in common shares of Cenovus Energy, which is valued using quotes for shares on the NYSE,
and our investments in U.S. government obligations classified as available for sale debt securities, which
are valued using exchange prices.
●
Level 2 derivative assets and liabilities primarily represent OTC swaps, options and forward purchase and
sale contracts that are valued using adjusted exchange prices, prices provided by brokers or pricing service
companies that are all corroborated by market data. Level 2 also includes our investments in debt
securities classified as available for sale including investments in corporate bonds, commercial paper,
asset-backed securities, and U.S. government agency obligations that are valued using pricing provided by
brokers or pricing service companies that are corroborated with market data.
●
Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale
contracts where a significant portion of fair value is calculated from underlying market data that is not
readily available. The derived value uses industry standard methodologies that may consider the historical
relationships among various commodities, modeled market prices, time value, volatility factors and other
relevant economic measures. The use of these inputs results in management’s best estimate of fair value.
Level 3 activity was not material for all periods presented.
20
The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e.,
unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring
basis):
Millions of Dollars
March 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
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
March 31, 2020
Assets
$
Liabilities
December 31, 2019
Assets
$
Liabilities
At March 31, 2020 and December 31, 2019, we did not present any amounts gross on our consolidated balance
sheet where we had the right of setoff.
Non-Recurring Fair Value Measurement
The following table summarizes the fair value hierarchy by major category and date of remeasurement for
assets accounted for at fair value on a non-recurring basis:
Millions of Dollars
Fair Value
Measurement
Using
Fair Value
Level 3 Inputs
Before-Tax
Loss
Net PP&E (held for use)
March 31, 2020
$
21
, the estimated fair value of our assets in the Wind River Basin operations area
declined to an amount below the carrying value. The Wind River Basin operations area consists of certain
developed natural gas properties in the Madden Field and the Lost Cabin Gas Plant and is included in our
Lower 48 segment
The range and arithmetic average of significant unobservable inputs used in the Level 3
fair value measurement were as follows:
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
(Arithmetic Average)
March 31, 2020
Wind River Basin
$
Discounted cash
flow
Natural gas production
(MMCFD)
)
Natural gas price outlook*
($/MMBTU)
$
)
Discount rate**
% -
% (
%)
* Henry Hub natural gas price outlook based on external pricing service companies' outlooks for years 2022-2034; future prices escalated at
% annually after
year 2034.
** Determined as the weighted average cost of capital of a group of peer companies, adjusted for risks where appropriate.
Reported Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial instruments:
●
Cash and cash equivalents and short-term investments: The carrying amount reported on the balance
sheet approximates fair value. For those investments classified as available for sale debt securities,
the carrying amount reported on the balance sheet is fair value.
●
Accounts and notes receivable (including long-term and related parties): The carrying amount
reported on the balance sheet approximates fair value. The valuation technique and methods used to
estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans
and advances—related parties.
●
Investment in Cenovus Energy: See Note 6—Investment in Cenovus Energy for a discussion of the
carrying value and fair value of our investment in Cenovus Energy common shares.
●
Investments in debt securities classified as available for sale: The fair value of investments in debt
securities categorized as Level 1 in the fair value hierarchy is measured using exchange prices. The
fair value of investments in debt securities categorized as Level 2 in the fair value hierarchy is
measured using pricing provided by brokers or pricing service companies that are corroborated with
market data. See Note 13—Derivatives and Financial Instruments, for additional information.
●
Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair
value. The fair value of fixed-rate loan activity is measured using market observable data and is
categorized as Level 2 in the fair value hierarchy. See Note 5—Investments, Loans and Long-Term
Receivables, for additional information.
●
Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts
payable and floating-rate debt reported on the balance sheet approximates fair value.
●
Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a
pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level
2 in the fair value hierarchy.
22
The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of
setoff exists for commodity derivatives):
Millions of Dollars
Carrying Amount
Fair Value
March 31
December 31
March 31
December 31
2020
2019
2020
2019
Financial assets
Investment in Cenovus Energy
$
Commodity derivatives
Investments in debt securities
Total loans and advances—related parties
Financial liabilities
Total debt, excluding finance leases
Commodity derivatives
Note 15—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of our consolidated balance sheet included:
Millions of Dollars
Defined Benefit
Plans
Net Unrealized
Loss on
Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2019
$
(350 )
(5,007 )
(5,357 )
Other comprehensive income (loss)
(2 )
(797 )
(788 )
March 31, 2020
$
(339 )
(2 )
(5,804 )
(6,145 )
The following table summarizes reclassifications out of accumulated other comprehensive loss and into net
income (loss):
Millions of Dollars
Three Months Ended
March 31
2020
2019
Defined benefit plans
$
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $
$
information.
23
Note 16—Cash Flow Information
Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Payments
Interest
$
Income taxes
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(3,423 )
(250 )
Short-term investments sold
Investments and Long-term receivables purchased
(143 )
Investments and Long-term receivables sold
$
(935 )
(1 )
Note 17—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
Other Benefits
2020
2019
2020
2019
U.S.
Int’l.
U.S.
Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost
$
Interest cost
Expected return on plan assets
(21 )
(37 )
(18 )
(35 )
Amortization of prior service credit
(8 )
(8 )
Recognized net actuarial loss (gain)
(1 )
Settlements
(1 )
Net periodic benefit cost
$
(5 )
(7 )
The components of net periodic benefit cost, other than the service cost component, are included in the “Other
expenses” line item on our consolidated income statement.
During the first three months of 2020, we contributed $
$
million to our domestic qualified and nonqualified pension and postretirement benefit plans and $
our international qualified and nonqualified pension and postretirement benefit plans.
Severance Accrual
The following table summarizes our severance accrual activity for the three-month period ended March 31,
2020:
24
Millions of Dollars
Balance at December 31, 2019
$
Accruals
Benefit payments
(4 )
Foreign currency translation adjustments
(4 )
Balance at March 31, 2020
$
Of the remaining balance at March 31, 2020, $
Note 18—Related Party Transactions
Our related parties primarily include equity method investments and certain trusts for the benefit of employees.
Significant transactions with our equity affiliates were:
Millions of Dollars
Three Months Ended
March 31
2020
2019
Operating revenues and other income
$
Purchases
Operating expenses and selling, general and administrative expenses
Net interest (income) expense*
(2 )
(4 )
*We paid interest to, or received interest from, various affiliates. See Note 5—Investments, Loans and Long-Term Receivables, for additional
information on loans to affiliated companies.
25
Note 19—Sales and Other Operating Revenues
Revenue from Contracts with Customers
The following table provides further disaggregation of our consolidated sales and other operating revenues:
Millions of Dollars
March 31
2020
2019
Revenue from contracts with customers
$
Revenue from contracts outside the scope of ASC Topic 606
Physical contracts meeting the definition of a derivative
Financial derivative contracts
(49 )
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 Note 20—Segment Disclosures and Related
Information:
Millions of Dollars
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment
Lower 48
$
Canada
Europe and North Africa
Physical contracts meeting the definition of a derivative
$
Millions of Dollars
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Product
Crude oil
$
Natural gas
Other
Physical contracts meeting the definition of a derivative
$
26
Practical Expedients
Typically, our commodity sales contracts are less than 12 months in duration; however, in certain specific
cases may extend longer, which may be out to the end of field life.
Receivables and Contract Liabilities
Receivables from Contracts with Customers
At March 31, 2020, the “Accounts and notes receivable” line on our consolidated balance sheet, includes trade
receivables of $
contracts with customers within the scope of ASC Topic 606 and those that are outside the scope of ASC
Topic 606.
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
As of March 31, 2020 and December 31, 2019, we had $
. There were
contract liabilities as of December 31, 2019
.
Note 20—Segment Disclosures and Related Information
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide
basis. We manage our operations through
region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other
International.
Corporate and Other represents costs not directly associated with an operating segment, such as most interest
expense, corporate overhead and certain technology activities, including licensing revenues. Corporate assets
include all cash and cash equivalents and short-term investments.
We evaluate performance and allocate resources based on net income (loss) attributable to ConocoPhillips.
Intersegment sales are at prices that approximate market.
27
Analysis of Results by Operating Segment
Millions of Dollars
Three Months Ended
March 31
2020
2019
Sales and Other Operating Revenues
Alaska
$
Lower 48
Intersegment eliminations
(10 )
(12 )
Lower 48
Canada
Intersegment eliminations
(180 )
(250 )
Canada
Europe and North Africa
Asia Pacific and Middle East
Other International
3
-
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.
28
Millions of Dollars
Three Months Ended
March 31
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Alaska
$
Lower 48
(437 )
Canada
(109 )
Europe and North Africa
Asia Pacific and Middle East
Other International
Corporate and Other
(1,775 )
Consolidated net income (loss) attributable to ConocoPhillips
$
(1,739 )
Millions of Dollars
March 31
December 31
2020
2019
Total Assets
Alaska
$
Lower 48
Canada
Europe and North Africa
Asia Pacific and Middle East
Other International
Corporate and Other
Consolidated total assets
$
Note 21—Income Taxes
Our effective tax rate for the first quarter of 2020 was negative
first quarter of 2019. The decrease in the effective tax rate for the first quarter of 2020 is primarily due to an
increase of our U.S. valuation allowance as well as a shift in the mix of our before-tax income between higher
and lower tax jurisdictions during the first quarter of 2020.
As a result of the COVID-19 pandemic and the resulting economic uncertainty, many countries in which we
operate, including Australia, Canada, Norway and the U.S., enacted tax legislation in the first quarter of 2020.
This legislation did not have a material impact to ConocoPhillips.
During the first quarter of 2020, our U.S. valuation allowance increased by $
decrease of $
periods relates primarily to the fair value measurement of our Cenovus Energy common shares and our
expectation of the tax impact related to incremental capital gains (losses).
29
Supplementary Information—Condensed Consolidating Financial Information
We have various cross guarantees among ConocoPhillips, ConocoPhillips Company and Burlington Resources
LLC, with respect to publicly held debt securities. ConocoPhillips Company is
ConocoPhillips. Burlington Resources LLC is
ConocoPhillips and/or ConocoPhillips Company have fully and unconditionally guaranteed the payment
obligations of Burlington Resources LLC, with respect to its publicly held debt securities. Similarly,
ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company
with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and
unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt
securities. All guarantees are joint and several. The following condensed consolidating financial information
presents the results of operations, financial position and cash flows for:
●
ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC (in each case, reflecting
investments in subsidiaries utilizing the equity method of accounting).
●
All other nonguarantor subsidiaries of ConocoPhillips.
●
The consolidating adjustments necessary to present ConocoPhillips’ results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying
consolidated financial statements and notes.
30
Millions of Dollars
Three Months Ended March 31, 2020
Income Statement
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings (losses) of affiliates
(1,681 )
(426 )
Gain (loss) on dispositions
(51 )
(42 )
Other income (loss)
(1 )
(1,646 )
(1,539 )
Intercompany revenues
(940 )
Total Revenues and Other Income (Loss)
(1,682 )
(422 )
Costs and Expenses
Purchased commodities
(897 )
Production and operating expenses
(1 )
Selling, general and administrative expenses
(23 )
(5 )
(3 )
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(37 )
Foreign currency transaction gains
(1 )
(89 )
(90 )
Other expenses
(6 )
(6 )
Total Costs and Expenses
(940 )
Income (loss) before income taxes
(1,754 )
(1,659 )
(456 )
(1,563 )
Income tax provision (benefit)
(15 )
(6 )
Net income (loss)
(1,739 )
(1,681 )
(450 )
(1,711 )
Less: net income attributable to noncontrolling interests
(28 )
(28 )
Net Income (Loss) Attributable to ConocoPhillips
$
(1,739 )
(1,681 )
(450 )
(1,739 )
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(2,527 )
(2,469 )
(1,047 )
(649 )
(2,527 )
Income Statement
Three Months Ended March 31, 2019
Revenues and Other Income
Sales and other operating revenues
$
Equity in earnings of affiliates
(3,983 )
Gain (loss) on dispositions
(5 )
Other income
Intercompany revenues
(1,200 )
Total Revenues and Other Income
(5,183 )
Costs and Expenses
Purchased commodities
(1,126 )
Production and operating expenses
(1 )
Selling, general and administrative expenses
(5 )
Exploration expenses
Depreciation, depletion and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
(68 )
Foreign currency transaction losses
Other expenses
(4 )
Total Costs and Expenses
(1,200 )
Income before income taxes
(3,983 )
Income tax provision (benefit)
(15 )
(5 )
Net income
(3,983 )
Less: net income attributable to noncontrolling interests
(13 )
(13 )
Net Income Attributable to ConocoPhillips
$
(3,983 )
Comprehensive Income Attributable to ConocoPhillips
$
(4,476 )
See Notes to Consolidated Financial Statements.
31
Millions of Dollars
March 31, 2020
Balance Sheet
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Assets
Cash and cash equivalents
$
Short-term investments
Accounts and notes receivable
(2,307 )
Investment in Cenovus Energy
420
Inventories
Prepaid expenses and other current assets
Total Current Assets
(2,307 )
Investments, loans and long-term receivables*
(95,546 )
Net properties, plants and equipment
Other assets
(609 )
Total Assets
$
(98,462 )
Liabilities and Stockholders’ Equity
Accounts payable
$
(2,307 )
Short-term debt
(3 )
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
(2,307 )
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
(610 )
Employee benefit obligations
Other liabilities and deferred credits*
(19,814 )
Total Liabilities
(22,731 )
Retained earnings
(25,997 )
Other common stockholders’ equity
(6,230 )
(49,734 )
(6,230 )
Noncontrolling interests
Total Liabilities and Stockholders’ Equity
$
(98,462 )
*Includes intercompany loans.
Balance Sheet
December 31, 2019
Assets
Cash and cash equivalents
$
Short-term investments
Accounts and notes receivable
(2,575 )
Investment in Cenovus Energy
2,111
Inventories
Prepaid expenses and other current assets
Total Current Assets
(2,575 )
Investments, loans and long-term receivables*
(97,413 )
Net properties, plants and equipment
Other assets
(805 )
Total Assets
$
(100,793 )
Liabilities and Stockholders’ Equity
Accounts payable
$
(2,575 )
Short-term debt
(3 )
Accrued income and other taxes
Employee benefit obligations
Other accruals
Total Current Liabilities
(2,575 )
Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
(804 )
Employee benefit obligations
Other liabilities and deferred credits*
(17,534 )
Total Liabilities
(20,913 )
Retained earnings
(27,985 )
Other common stockholders’ equity
(4,761 )
(51,895 )
(4,761 )
Noncontrolling interests
Total Liabilities and Stockholders’ Equity
$
(100,793 )
*Includes intercompany loans.
See Notes to Consolidated Financial Statements.
32
Millions of Dollars
Three Months Ended March 31, 2020
Statement of Cash Flows
ConocoPhillips
ConocoPhillips
Company
Burlington
Resources LLC
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities
$
(85 )
(277 )
Cash Flows From Investing Activities
Capital expenditures and investments
(197 )
(14 )
(1,452 )
(1,649 )
Working capital changes associated with investing activities
(9 )
Proceeds from asset dispositions
Purchases of investments
(1,207 )
(935 )
Long-term advances/loans—related parties
(10 )
Collection of advances/loans—related parties
(71 )
Intercompany cash management
(48 )
(11 )
(1,166 )
Other
(44 )
(44 )
Net Cash Provided by (Used in) Investing Activities
(1,260 )
(25 )
(1,825 )
(47 )
(1,932 )
Cash Flows From Financing Activities
Issuance of debt
(10 )
Repayment of debt
(95 )
(24 )
Issuance of company common stock
(41 )
Repurchase of company common stock
(726 )
(726 )
Dividends paid
(458 )
(458 )
Other
(11 )
(14 )
(24 )
Net Cash Used in Financing Activities
(1,140 )
(96 )
(1,230 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(122 )
(122 )
Net Change in Cash, Cash Equivalents and Restricted Cash
(1,537 )
(1,179 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, Cash Equivalents and Restricted Cash at End of Period
$
Statement of Cash Flows
Three Months Ended March 31, 2019
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities
$
(62 )
(117 )
(16 )
(359 )
Cash Flows From Investing Activities
Capital expenditures and investments
(208 )
(1,429 )
(1,637 )
Working capital changes associated with investing activities
Proceeds from asset dispositions
Purchases of short-term investments
(1 )
(1 )
Long-term advances/loans—related parties
(19 )
Collection of advances/loans—related parties
(89 )
Intercompany cash management
(1,384 )
Other
(150 )
(150 )
Net Cash Provided by (Used in) Investing Activities
(2,643 )
(70 )
(1,477 )
Cash Flows From Financing Activities
Issuance of debt
(19 )
Repayment of debt
(20 )
(88 )
(19 )
Issuance of company common stock
(1 )
(37 )
(38 )
Repurchase of company common stock
(752 )
(752 )
Dividends paid
(350 )
(396 )
(350 )
Other
(16 )
(14 )
Net Cash Used in Financing Activities
(1,101 )
(20 )
(481 )
(1,173 )
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
Net Change in Cash, Cash Equivalents and Restricted Cash
(80 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, Cash Equivalents and Restricted Cash at End of Period
$
See Notes to Consolidated Financial Statements.
33
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis is the company’s analysis of its financial performance and of
significant trends that may affect future performance. It should be read in conjunction with the financial
statements and notes. It contains forward-looking statements including, without limitation, statements relating
to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,”
“estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,”
“seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,”
“outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company does
not undertake to update, revise or correct any of the forward-looking information unless required to do so
under the federal securities laws. Readers are cautioned that such forward-looking statements should be read
in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995,” beginning on page 54.
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
ConocoPhillips is an independent E&P company with operations and activities in 17 countries. Our diverse,
low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional
assets in North America, Europe, Asia and Australia; LNG developments; oil sands in Canada; and an
inventory of global conventional and unconventional exploration prospects. At March 31, 2020, we employed
approximately 10,400 people worldwide and had total assets of $65 billion.
Overview
The energy landscape changed dramatically in the first quarter of 2020 with simultaneous demand and supply
shocks that drove the industry into a severe downturn. The demand shock was triggered by SARS-CoV-2, or
COVID-19, which was declared a global pandemic and caused unprecedented social and economic
consequences. Mitigation efforts to stop the spread of this contagious disease included stay-at-home orders
and business closures that caused sharp contractions in economic activity worldwide. The supply shock was
triggered by disagreements between OPEC and Russia, beginning in early March, which resulted in significant
supply coming onto the market and an oil price war. These dual demand and supply shocks caused oil prices
to collapse, with May futures contracts for Brent and WTI exiting March near $20 per barrel, a level not seen
since 2002.
Since the start of the severe downturn, we have closely monitored the market and taken prudent actions in
response to this situation. We entered the year in a position of relative strength, with cash and cash equivalents
of more than $5 billion, short-term investments of $3 billion, and an undrawn credit facility of $6 billion,
totaling approximately $14 billion in available liquidity. This relative advantage allowed us to be measured in
our response to the sudden change in business environment. On March 18, 2020, we announced a reduction in
our 2020 operating plan capital of $700 million, or about ten percent. We also announced that our planned
share repurchases would be reduced to $250 million per quarter from a plan of $750 million per quarter,
starting in the second quarter of 2020. These two actions represented a reduction to cash outlays of $2.2
billion in 2020. At that time, we stated we would continue to monitor the market and exercise additional
flexibility, if warranted.
As we entered the second quarter, predictions of COVID-19 driven global oil demand losses intensified.
Forecasts estimated that demand for the months of April and May could be 10 to 35 MMBOD below normal.
Based on these forecasts, OPEC plus nations held an emergency meeting, and on April 12
th
34
coordinated production cut that was unprecedented in both its magnitude and duration. The OPEC plus
countries agreed to cut production by 9.7 MMBOD in May and June, 7.7 MMBOD from July to December,
then 5.8 MMBOD from January 2021 to April 2022. Additionally, non-OPEC plus countries, including the
U.S., Canada, Brazil and other G-20 countries, contributed organic reductions to production of approximately
3.7 MMBOD through the release of drilling rigs, frac crews and normal field decline. Despite these planned
production decreases, the supply cuts were not timely enough to overcome significant demand decline.
Futures prices for April WTI closed under $20 a barrel for the first time since 2001, followed by May WTI
settling below zero on the day before futures contracts expiry, as holders of May futures contracts struggled to
exit positions and avoid taking physical delivery. As storage constraints approached, spot prices for certain
North American landlocked grades of crude oil have been in the single digits or even negative for particularly
remote or low-grade crudes, while waterborne priced crudes such as Brent have sold at a relative advantage.
In response to our view that near term prices would be particularly weak, on April 16, 2020, we announced
additional actions, relative to our 2020 operating plan, to exercise flexibility and conserve cash. We further
reduced capital expenditures by $1.6 billion, reduced operating costs by $600 million and suspended our share
repurchase program. Including the actions we announced in March, we have reduced cash uses by over $5
billion, with remaining flexibility to adjust our plans up or down depending on the market environment. We
announced that we will also voluntarily curtail production by 265 MBOD gross or approximately 230 MBOED
net in May in response to low prices. The curtailment will be sourced 165 MBOD gross from our Lower 48
segment and 100 MBOD gross from our Surmont asset in Canada. Production in June will be voluntarily
curtailed by 460 MBOD gross or approximately 420 MBOED net, sourced 260 MBOD gross from our Lower
48 segment, 100 MBOD gross from our Surmont asset in Canada and 100 MBOD gross in Alaska. By
curtailing production, we are retaining oil in the reservoir and reducing transportation and storage fees, while
anticipating higher prices in the future. Future voluntary curtailments across our areas of operation will be
evaluated on a month-by-month basis, and are subject to operating agreements and contractual obligations.
These curtailments are not anticipated to materially impact expected ultimate recovery when production
resumes. We also expect some level of additional curtailments from infrastructure constraints, actions from
partner-operated assets or government mandates, including the Norwegian government’s recently announced
curtailment measures commencing in June and lasting through the end of the year.
The recent simultaneous demand and supply shocks have reinforced our view that commodity prices will
remain cyclical and volatile, and a successful business strategy in the exploration and production industry must
be resilient in lower price environments, while retaining upside during periods of higher prices. While we are
not impervious to current market conditions, our decisive actions over the last several years of focusing on free
cash flow generation, high-grading our asset base, lowering the cost of supply of our investment resource base,
and strengthening our balance sheet have put us in a strong relative position compared to our independent
exploration and production peers.
Current market conditions and our actions to respond have altered our 2020 operating plan. While recent
prices have fallen significantly, we remain committed to our core value proposition principles, namely, to
focus on financial returns, maintain a strong balance sheet, deliver compelling returns of capital, and maintain
disciplined capital investments.
Our workforce and operations have adjusted to mitigate the impacts of the COVID-19 global pandemic. We
have operations in remote areas with confined spaces, such as offshore platforms and the North Slope of
Alaska, where viruses could rapidly spread. Personnel entering these locations are completing questionnaires
regarding recent travel and health history and are being screened for symptoms of illness. Staffing levels in
certain operating locations have been reduced to minimize health risk exposure and free up bed space for
potential quarantine areas. Office staff are working remotely with only business essential employees accessing
offices around the world. These actions have thus far been effective at protecting employees’ health and
preventing business operation disruptions.
The marketing and supply chain side of our business have also adapted in response to COVID-19. Our
commercial organization is managing transportation commitments considering curtailment measures. Our
supply chain function is proactively working with vendors to ensure the continuity of our business operations.
35
Operationally, we remain focused on safely executing the business. In the first quarter of 2020, production of
1,289 MBOED generated cash from operating activities of $2.1 billion. We re-invested $1.6 billion back into
the business in the form of capital expenditures, repurchased $0.7 billion of shares, and paid dividends to
shareholders of $0.5 billion. Production decreased 72 MBOED or five percent in the first quarter of 2020,
compared to the first quarter of 2019, primarily due to the disposition of our U.K. assets in the third quarter of
2019, and the declaration of force majeure in Libya. Adjusted for closed and pending dispositions and Libya,
production increased 52 MBOED or four percent.
Financially, low prices resulted in over $2 billion of after-tax non-cash charges in the first quarter of 2020. We
recognized a $1.7 billion before and after-tax unrealized loss on our 208 million Cenovus Energy common
shares, $0.4 billion after-tax in impairments due to low domestic natural gas prices, and $0.2 billion after-tax
in a lower of cost or market adjustment to our commodity inventory. Persistent low prices may result in
further proved and unproved property impairments, including to certain equity method investments.
Our portfolio optimization efforts generated $0.5 billion of proceeds in the first quarter, primarily through the
disposition of non-core assets in our Lower 48 segment. Production from the disposed assets averaged 15
MBOED in 2019. We entered into an agreement with Santos in October 2019 to sell the subsidiaries that hold
our Australia-West assets and operations for $1.39 billion, plus customary adjustments, with an effective date
of January 1, 2019, plus a payment of $75 million upon final investment decision of the Barossa development
project. The transaction is expected to close in the second quarter of 2020. See Note 4—Asset Acquisitions
and Dispositions in the Notes to Consolidated Financial Statements, for additional information on these
transactions.
Business Environment
Brent crude oil prices averaged $50 per barrel in the first quarter of 2020 after averaging over $60 per barrel in
2019. Global oil prices deteriorated dramatically at the end of the first quarter of 2020 due to simultaneous
demand and supply shocks and the timing and extent of a recovery to previous conditions is unknown.
Commodity prices are the most significant factor impacting our profitability and related reinvestment of
operating cash flows into our business. Among other dynamics that could influence world energy markets and
commodity prices are global economic health, supply or demand disruptions or fears thereof caused by civil
unrest, global pandemic or military conflicts, actions taken by OPEC plus and other major oil producing
countries, environmental laws, tax regulations, governmental policies and weather-related disruptions. Our
strategy is to create value through price cycles by delivering on the financial and operational priorities that
underpin our value proposition.
Our earnings and operating cash flows generally correlate with industry price levels for crude oil and natural
gas, the prices of 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:
36
Brent crude oil prices averaged $50.31 per barrel in the first quarter of 2020, a decrease of 20 percent
compared with $63.20 per barrel in the first quarter of 2019. WTI at Cushing crude prices averaged $46.06 per
barrel in the first quarter of 2020, a decrease of 16 percent compared with $54.87 per barrel in the first quarter
of 2019. Oil prices decreased due to simultaneous demand and supply shocks in the first quarter of 2020.
Henry Hub natural gas prices averaged $1.95 per MMBTU in the first quarter of 2020, a decrease of 38 percent
compared with $3.15 per MMBTU in the first quarter of 2019.
Our realized bitumen price averaged $5.90 per barrel in the first quarter of 2020, a decrease of 82 percent
compared with $33.15 per barrel in the first quarter of 2019. The decrease in the first quarter of 2020 was
driven by lower WTI prices and a weakening WCS differential to WTI at Hardisty. 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.
Our total average realized price was $38.81 per BOE in the first quarter of 2020, compared with $50.59 per
BOE in the first quarter of 2019, due to simultaneous demand and supply shocks impacting all of our produced
commodities. The dual shock impact to realized prices continued as we entered the second quarter of 2020.
Key Operating and Financial Summary
Significant items during the first quarter of 2020 included the following:
●
Cash provided by operating activities was $2.1 billion.
●
Ended the quarter with cash, cash equivalents and restricted cash totaling $4.2 billion and short-term
investments of $3.9 billion.
●
Repurchased $0.7 billion of shares and paid $0.5 billion in dividends.
●
Achieved first-quarter production, excluding Libya, of 1,278 MBOED.
●
Produced 399 MBOED from the Lower 48 Big 3 unconventionals—Eagle Ford, Bakken and
Delaware.
●
Started up first Montney pad and infrastructure.
●
Generated $0.5 billion in disposition proceeds from Lower 48 non-core asset sales.
●
Recognized an unrealized loss of approximately $1.7 billion before and after-tax on shares of our
Cenovus Energy common stock.
●
Recognized after-tax impairments of approximately $0.4 billion, primarily in our Lower 48 segment.
●
Recognized a commodity inventory lower of cost or market adjustment of approximately $0.2 billion
after-tax.
37
Outlook
Capital and Production
In February 2020, we announced 2020 operating plan capital of $6.5 billion to $6.7 billion. In March and
April 2020, due to dual demand and supply shocks, we announced capital expenditure reductions totaling $2.3
billion.
Production in May 2020 will be impacted by voluntary curtailments of 265 MBOD gross or approximately 230
MBOED net. These curtailments are sourced in the amount of 165 MBOD gross from Lower 48 and 100
MBOD gross from our Surmont asset in Canada. Production in June 2020 will be impacted by voluntary
curtailments of 460 MBOD gross or approximately 420 MBOED net. These curtailments are sourced in the
amount of 260 MBOD gross from Lower 48, 100 MBOD gross from our Surmont asset in Canada and 100
MBOD gross from Alaska. Voluntary curtailments across our areas of operations will be evaluated on a
month-by-month basis, and are subject to operating agreements and contractual obligations. These
curtailments are not anticipated to materially impact expected ultimate recovery when production resumes.
We also expect some level of additional curtailments from infrastructure constraints, actions from partner-
operated assets or government mandates.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense was $1.4 billion in the first quarter of 2020. DD&A of
properties, plants and equipment on producing hydrocarbon properties and certain pipeline and LNG assets, as
described in Note 1—Accounting Policies in the Notes to Consolidated Financial Statements of our 2019
Annual Report on Form 10-K, is determined by the unit-of-production method based on proved oil and gas
reserves. Estimating reserves requires the selection of inputs, including trailing twelve-month oil and gas price
assumptions, among others. If oil and gas prices persist at levels experienced in the first quarter, our reserve
estimates could decrease, which could increase the rate used to determine DD&A expense on our unit-of-
production method properties.
38
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three-month period ended March 31, 2020, is based
on a comparison with the corresponding period of 2019.
Consolidated Results
A summary of the company's net income (loss) attributable to ConocoPhillips by business segment follows:
Millions of Dollars
Three Months Ended
March 31
2020
2019
Alaska
$
81
384
Lower 48
(437)
193
Canada
(109)
122
Europe and North Africa
75
207
Asia Pacific and Middle East
398
525
Other International
28
131
Corporate and Other
(1,775)
271
Net income (loss) attributable to ConocoPhillips
$
(1,739)
1,833
Net income (loss) attributable to ConocoPhillips decreased $3,572 million in the first quarter of 2020, mainly
due to:
●
An unrealized loss of $1,691 million after-tax on our Cenovus Energy (CVE) common shares,
compared with an unrealized gain of $343 million after-tax in the first quarter of 2019.
●
Lower realized commodity prices.
●
Higher impairments of $401 million after-tax, primarily related to non-core gas assets in our Lower 48
segment.
●
Lower sales volumes, primarily due to the disposition of our U.K. assets in the third quarter of 2019.
●
A commodity inventory lower of cost or market adjustment of $170 million after-tax.
●
The absence of a payment from Petróleos de Venezuela, S.A. (PDVSA) related to a settlement award
recognized as other income of $147 million before- and after-tax.
The decreases in net income (loss) were partly offset by:
●
Lower selling, general and administrative expenses, primarily due to mark to market impacts of
certain employee compensation programs.
●
Lower depreciation, depletion and amortization expenses due to the cessation of DD&A on our held-
for-sale Australia-West assets and our U.K. disposition.
●
Lower production and operating expenses due to our U.K. disposition.
See the “Segment Results” section for additional information.
39
Income Statement Analysis
Sales and other operating revenues decreased 33 percent, mainly due to lower commodity price realizations,
the disposition of our U.K. assets and the timing of sales volumes in Alaska.
Other income (loss) decreased $2,241 million primarily due to an unrealized loss of $1,691 million before and
after-tax on our CVE common shares, compared with a $343 million before and after-tax unrealized gain on
those shares in the first quarter of 2019. Additionally, other income decreased due to the absence of a $147
million before-tax payment related to a settlement award from PDVSA. See Note 6—Investment in Cenovus
Energy in the Notes to Consolidated Financial Statements, for additional information related to our unrealized
gain (loss) on CVE common shares. See Note 12—Contingencies and Commitments in the Notes to
Consolidated Financial Statements, for additional information regarding the settlement agreement with
PDVSA.
Purchased commodities decreased $1,014 million, primarily due to lower commodity prices and lower gas
volumes purchased due to the U.K. disposition, partly offset by a $228 million before-tax lower of cost or
market adjustment to our crude oil and natural gas inventories.
Production and operating expenses decreased $98 million, primarily due to the disposition of our U.K. assets
in the third quarter of 2019.
Selling, general and administrative expenses decreased $156 million, primarily due to lower costs associated
with compensation and benefits, including mark to market impacts of certain key employee compensation
programs.
Exploration expenses increased $78 million, primarily due to an unproved property impairment and higher dry
hole expenses related to the Kamunsu East Field in Malaysia that is no longer in our development plans;
charges related to the early termination of the Alaska winter exploration program; and higher dry hole
expenses in Norway.
Depreciation, depletion and amortization decreased $135 million, mainly due to the cessation of DD&A on our
held-for-sale assets in Australia-West and the absence of DD&A from our disposed U.K. assets, partly offset
by increased DD&A in our Lower 48 segment, primarily due to higher volumes and unit of production DD&A
rates.
Impairments increased $520 million, primarily due to a $511 million before-tax impairment of certain non-core
gas assets in our Lower 48 segment due to a significant decrease in the outlook for natural gas prices. See
Note 8—Impairments in the Notes to Consolidated Financial Statements, for additional information.
Foreign currency transactions (gain) loss decreased $102 million due to gains incurred from foreign currency
derivatives. See Note 13—Derivative and Financial Instruments in the Notes to Consolidated Financial
Statements, for additional information.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our
income tax provision and effective tax rate.
40
Summary Operating Statistics
Three Months Ended
March 31
2020
2019
Average Net Production
Crude oil (MBD)
654
715
Natural gas liquids (MBD)
123
110
Bitumen (MBD)
66
63
Natural gas (MMCFD)*
2,674
2,840
Total Production
(MBOED)
1,289
1,361
Dollars Per Unit
Average Sales Prices
Crude oil (per barrel)
$
48.86
59.45
Natural gas liquids (per barrel)
14.82
23.85
Bitumen (per barrel)
5.90
33.15
Natural gas (per thousand cubic feet)
4.30
6.00
Millions of Dollars
Exploration Expenses
General administrative, geological and geophysical, and
lease rental, and other
$
121
83
Leasehold impairment
31
17
Dry holes
36
10
$
188
110
*Represents quantities available for sale and excludes gas equivalent of NGLs included above.
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide
basis. At March 31, 2020, our operations were producing in the U.S., Norway, Canada, Australia, Timor-
Leste, Indonesia, China, Malaysia, Qatar and Libya.
Total production, including Libya, of 1,289 MBOED decreased 72 MBOED or 5 percent in the first quarter of
2020, primarily due to:
●
Normal field decline.
●
The disposition of our U.K. assets in the third quarter of 2019, which produced 80 MBOED in the first
quarter of 2019.
●
Lower production in Libya due to the forced shutdown of the Es Sider export terminal and other
eastern export terminals after a period of civil unrest.
●
The expiration of the Panyu license in China during the third quarter of 2019 and the expiration of the
Athena production license offshore Australia in the fourth quarter of 2019.
●
The rupture of a third-party pipeline impacting gas production from the Kebabangan field in Malaysia.
The decrease in first quarter 2020 production was partly offset by:
●
New wells online in the Lower 48, Norway, Malaysia and China.
●
Higher production from Canada due to lower curtailments mandated by the Alberta government and
first production from Pad 1 at Montney.
Production excluding Libya was 1,278 MBOED in the first quarter of 2020, a decrease of 40 MBOED
compared with the same period of 2019. Adjusting for closed and pending dispositions and excluding Libya,
production increased 52 MBOED.
41
Segment Results
Alaska
Three Months Ended
March 31
2020
2019
Net Income Attributable to ConocoPhillips
(millions of dollars)
$
81
384
Average Net Production
Crude oil (MBD)
198
210
Natural gas liquids (MBD)
19
17
Natural gas (MMCFD)
8
8
Total Production
(MBOED)
218
228
Average Sales Prices
Crude oil (dollars per barrel)
$
54.78
62.81
Natural gas (dollars per thousand cubic feet)
3.07
3.42
The Alaska segment primarily explores for, produces, transports and markets crude oil, NGLs and natural gas.
As of March 31, 2020, Alaska contributed 26 percent of our worldwide liquids production and less than 1
percent of our worldwide natural gas production.
Earnings from Alaska decreased $303 million in the first quarter of 2020, compared with the same period of
2019. The decrease in earnings was primarily due to lower sales volumes, mainly due to lift timing, lower
realized crude oil prices, a $96 million after-tax lower of cost or market commodity inventory adjustment, and
higher exploration expenses related to the early cancellation of our winter exploration program. COVID-19
risk associated with working in confined spaces in a remote location influenced our decision to terminate our
2020 winter exploration program early, after drilling only three of the seven planned wells in the Willow and
Harpoon areas on the Western North Slope of Alaska. Additionally, in April we suspended other operated
development activities on the North Slope in consideration of COVID-19 risk and capital and cost reductions.
Average production decreased 10 MBOED or 4 percent in the first quarter of 2020 compared with the same
period of 2019. The decrease was primarily due to normal field decline, partly offset by new wells online at
operated assets in the Greater Kuparuk Area and the Western North Slope.
Curtailment
In April 2020, we announced voluntary curtailments of 100 MBOD gross for the month of June. By curtailing
production, we are retaining oil in the reservoir and reducing transportation and storage fees, while anticipating
higher prices in the future. Voluntary curtailments across our areas of operation will be evaluated on a month-
by-month basis, and are subject to operating agreements and contractual obligations. We also may incur some
level of additional curtailments based on infrastructure constraints, actions from partner-operated assets or
government mandates.
42
Lower 48
Three Months Ended
March 31
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
(millions of dollars)
$
(437)
193
Average Net Production
Crude oil (MBD)
270
245
Natural gas liquids (MBD)
89
74
Natural gas (MMCFD)
679
568
Total Production
(MBOED)
472
414
Average Sales Prices
Crude oil (dollars per barrel)
$
40.97
53.15
Natural gas liquids (dollars per barrel)
11.85
20.66
Natural gas (dollars per thousand cubic feet)
1.48
2.74
The Lower 48 segment consists of operations located in the contiguous U.S. and the Gulf of Mexico. As of
March 31, 2020, the Lower 48 contributed 43 percent of our worldwide liquids production and 25 percent of
our worldwide natural gas production.
Earnings from the Lower 48 decreased $630 million in the first quarter of 2020, compared with the same
period of 2019. The earnings decrease was primarily due to recognizing $399 million after-tax in impairments
related to certain non-core gas assets in the Wind River Basin operations area, and lower realized crude oil,
natural gas and NGL prices. Partly offsetting the decrease in earnings were higher sales volumes of crude oil,
NGLs and natural gas due to growth in our unconventional assets in the Eagle Ford, Permian and Bakken. See
Note 8—Impairments in the Notes to Consolidated Financial Statements, for additional information related to
the Wind River Basin operations area impairment.
Total average production increased 58 MBOED or 14 percent in the first quarter of 2020, compared with the
same period of 2019, primarily due to new production from unconventional assets in the Eagle Ford, Permian
and Bakken, partly offset by normal field decline.
Asset Disposition Update
In the first quarter of 2020, we completed the sale of our Niobrara asset in the Denver-Julesberg Basin and
recorded a loss on sale of $29 million after-tax. We also disposed of our Waddell Ranch interests in the
Permian Basin, which did not trigger gain or loss recognition. Production from these non-core properties was
not significant to the Lower 48 segment. See Note 4—Asset Acquisitions and Dispositions in the Notes to
Consolidated Financial Statements, for additional information related to these transactions.
Curtailment
In April 2020, we announced voluntary curtailments in the Lower 48 of 165 MBOD and 260 MBOD gross for
the months of May and June, respectively. By curtailing production, we are retaining oil in the reservoir and
reducing transportation and storage fees, while anticipating higher prices in the future. Voluntary curtailments
across our areas of operation will be evaluated on a month-by-month basis, and are subject to operating
agreements and contractual obligations. We also may incur some level of additional curtailments from
infrastructure constraints, actions from partner-operated assets or government mandates.
43
Canada
Three Months Ended
March 31
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
(millions of dollars)
$
(109)
122
Average Net Production
Crude oil (MBD)
2
1
Natural gas liquids (MBD)
1
-
Bitumen (MBD)
66
63
Natural gas (MMCFD)
20
7
Total Production
(MBOED)
72
65
Average Sales Prices
Bitumen (dollars per barrel)*
$
5.90
33.15
*Average prices for sales of bitumen excludes additional value realized from the purchase and sale of third-party volumes for optimization of our
pipeline capacity between Canada and the U.S. Gulf Coast.
Our Canadian operations mainly consist of an oil sands development in the Athabasca Region of northeastern
Alberta and a liquids-rich unconventional play in western Canada. As of March 31, 2020, Canada contributed
7 percent of our worldwide liquids production and less than 1 percent of our worldwide natural gas production.
Earnings from Canada decreased $231 million in the first quarter of 2020, compared with the same period of
2019, primarily due to lower realized bitumen prices, the absence of a $68 million benefit related to a tax
settlement, and a $31 million after-tax lower of cost or market adjustment to commodity inventory. Partly
offsetting the decrease in earnings were higher sales volumes.
Total average production increased 7 MBOED in the first quarter of 2020, compared with the same period of
2019. The production increase was primarily due to increased bitumen volumes due to lower mandated
curtailments imposed by the Alberta Government and first production from Pad 1 at Montney commencing
February 2020.
Curtailment
In April 2020, we announced voluntary curtailments from Surmont of 100 MBOD gross or 50 MBOD net for
the months of May and June. By curtailing production, we are retaining bitumen in the reservoir and reducing
transportation and storage fees, while anticipating higher prices in the future. Voluntary curtailments across
our areas of operation will be evaluated on a month-by-month basis. We also may incur some level of
additional curtailments from infrastructure constraints, actions from partner-operated assets or government
mandates. Surmont production is anticipated to be 35 MBOD gross in May and June, which is a level that
maintains necessary steam chamber temperatures and pressures to protect against damage to the reservoir.
44
Europe and North Africa
Three Months Ended
March 31
2020
2019
Net Income Attributable to ConocoPhillips
$
75
207
Average Net Production
Crude oil (MBD)
93
152
Natural gas liquids (MBD)
5
8
Natural gas (MMCFD)
310
604
Total Production
(MBOED)
150
260
Average Sales Prices
Crude oil (dollars per barrel)
$
55.53
62.83
Natural gas liquids (dollars per barrel)
21.54
31.15
Natural gas (dollars per thousand cubic feet)
3.68
6.55
The Europe and North Africa segment consists of operations principally located in the Norwegian sector of the
North Sea and the Norwegian Sea, Libya and commercial operations in the U.K. As of March 31, 2020, our
Europe and North Africa operations contributed 12 percent of our worldwide liquids production and 12 percent
of our worldwide natural gas production.
Earnings for Europe and North Africa operations decreased by $132 million in the first quarter of 2020,
compared with the same period of 2019, primarily due to our U.K. disposition in the third quarter of 2019 and
lower natural gas and oil price realizations.
Average production decreased 42 percent in the first quarter of 2020 compared with the same period of 2019.
Production decreased due to the U.K. disposition in the third quarter of 2019, the declaration of force majeure
in Libya following a period of civil unrest, and normal field decline. Partly offsetting these decreases was new
production from Norway drilling activities.
Force Majeure in Libya
Production ceased February 12, 2020 due to a forced shutdown of the Es Sider export terminal and other
eastern export terminals after a period of civil unrest. It is unknown when exports will resume.
Curtailments
In April 2020, the Norwegian government’s Ministry of Petroleum and Energy announced cuts in Norwegian
oil production of 250 MBOD in June 2020 and 134 MBOD for the remainder of the year. The impact to our
company from this announcement is still being evaluated, however, curtailments sourced to our operated assets
are not expected to have a material production impact to our Europe and North Africa segment.
45
Asia Pacific and Middle East
Three Months Ended
March 31
2020
2019
Net Income Attributable to ConocoPhillips
$
398
525
Average Net Production
Crude oil (MBD)
Consolidated operations
79
95
Equity affiliates
12
12
Total crude oil
91
107
Natural gas liquids (MBD)
Consolidated operations
2
4
Equity affiliates
7
7
Total natural gas liquids
9
11
Natural gas (MMCFD)
Consolidated operations
621
665
Equity affiliates
1,036
988
Total natural gas
1,657
1,653
Total Production
(MBOED)
377
394
Average Sales Prices
Crude oil (dollars per barrel)
Consolidated operations
$
54.71
62.94
Equity affiliates
53.14
59.53
Total crude oil
54.47
62.58
Natural gas liquids (dollars per barrel)
Consolidated operations
39.34
40.13
Equity affiliates
42.41
38.19
Total natural gas liquids
41.64
38.96
Natural gas (dollars per thousand cubic feet)
Consolidated operations
5.94
6.36
Equity affiliates
5.41
7.31
Total natural gas
5.61
6.93
The Asia Pacific and Middle East segment has operations in China, Indonesia, Malaysia, Australia, Timor-Leste
and Qatar. As of March 31, 2020, Asia Pacific and Middle East contributed 12 percent of our worldwide liquids
production and 62 percent of our worldwide natural gas production.
Earnings decreased $127 million in the first quarter of 2020, compared with the same period of 2019, primarily
due to lower oil sales volumes and prices; higher exploration expenses, due to an unproved property impairment
and higher dry hole expenses related to the Kamunsu East Field in Malaysia that is no longer in our development
plans; and decreased equity in earnings of affiliates, primarily due to lower realized LNG prices. Partly
offsetting the decrease in earnings was the cessation of DD&A expense related to our Australia-West asset that is
held-for-sale.
Average production decreased 17 MBOED or 4 percent in the first quarter of 2020, compared with the same
period of 2019, primarily due to normal field decline, the expiration of the Panyu license in China and the
46
Athena license offshore Australia in 2019, and higher unplanned downtime due to the rupture of a third-party
pipeline impacting gas production from the Kebabangan field in Malaysia. Partly offsetting these decreases were
new production from development activity at Bohai Bay in China and production increases from Malaysia,
including first gas supply from KBB to PFLNG1 in the second quarter of 2019 and first oil from Gumusut Phase
2 in the third quarter of 2019.
Asset Disposition Update
In October 2019, we entered into an agreement to sell the subsidiaries that hold our Australia-West assets and
operations to Santos for $1.39 billion, plus customary adjustments, with an effective date of January 1, 2019,
plus a payment of $75 million upon final investment decision of the Barossa development project. The
transaction is expected to close in the second quarter of 2020. See Note 4—Asset Acquisitions and
Dispositions in the Notes to Consolidated Financial Statements, for additional information.
Other International
Three Months Ended
March 31
2020
2019
Net Income Attributable to ConocoPhillips
(millions of dollars)
$
28
131
The Other International segment consists of exploration activities in Colombia, Chile and Argentina.
Earnings from our Other International operations decreased $103 million in the first quarter of 2020, compared
with the same period of 2019. The decrease in earnings was due to the absence of $147 million after-tax in
other income related to a settlement award with PDVSA associated with prior operations in Venezuela. Partly
offsetting this decrease was the dismissal of arbitration related to prior operations in Senegal which resulted in
a $29 million after-tax benefit to earnings. See Note 12—Contingencies and Commitments in the Notes to
Consolidated Financial Statements, for additional information.
47
Corporate and Other
Millions of Dollars
Three Months Ended
March 31
2020
2019
Net Income (Loss) Attributable to ConocoPhillips
Net interest expense
$
(155)
(196)
Corporate general and administrative expenses
50
(65)
Technology
1
96
Other income (expense)
(1,671)
436
$
(1,775)
271
Net interest consists of interest and financing expense, net of interest income and capitalized interest. Net
interest expense decreased by $41 million in the first quarter of 2020, primarily due to the absence of interest
expense from a tax settlement and higher interest income from higher cash and cash equivalents balances.
Corporate general and administrative expenses include compensation programs and staff costs. These
expenses decreased by $115 million mainly due to mark to market adjustments associated with certain key
employee compensation programs.
Technology includes our investment in new technologies or businesses, as well as licensing revenues.
Activities are focused on both conventional and tight oil reservoirs, shale gas, heavy oil, oil sands, enhanced
oil recovery, as well as LNG. Earnings from Technology decreased $95 million in the first quarter of 2020
primarily due to lower licensing revenues.
The category “Other” includes certain foreign currency transaction gains and losses, environmental costs
associated with sites no longer in operation, other costs not directly associated with an operating segment,
premiums incurred on the early retirement of debt, unrealized holding gains or losses on equity securities, and
pension settlement expense. “Other” decreased by $2,107 million in the first quarter of 2020, compared with
the same period of 2019, primarily due to an unrealized loss of $1,691 million in the first quarter of 2020 on
our CVE common shares, compared with an unrealized gain of $343 million on those shares in the first quarter
of 2019.
48
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
March 31
December 31
2020
2019
Short-term debt
$
126
105
Total debt
14,973
14,895
Total equity
31,387
35,050
Percent of total debt to capital*
32
%
30
Percent of floating-rate debt to total debt
5
%
5
*Capital includes total debt and total equity.
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, including
cash generated from operating activities, our commercial paper and credit facility programs, and our ability to
sell securities using our shelf registration statement. During the first quarter of 2020, the primary uses of our
available cash were $1,649 million to support our ongoing capital expenditures and investments program, $935
million of net purchases of investments, $726 million to repurchase common stock, and $458 million to pay
dividends. During the first quarter of 2020, our cash, cash equivalents and restricted cash decreased by $1,179
million to $4,183 million.
We entered the year with a strong balance sheet including cash and cash equivalents of over $5 billion, short-
term investments of $3 billion, and an undrawn credit facility of $6 billion, totaling approximately $14 billion
of liquidity. This strong foundation allowed us to be measured in our response to the sudden change in
business environment we experienced in the first quarter of 2020. During March and April 2020, we
announced the following capital, operating cost and share repurchase reductions. We reduced our 2020
operating plan capital expenditures by a total of $2.3 billion, or approximately thirty-five percent of the
original guidance. We suspended our share repurchase program for the remainder of 2020, further reducing
cash outlays by approximately $2.3 billion in 2020. We are also reducing our operating costs by
approximately $0.6 billion, or roughly ten percent of the original 2020 guidance. Collectively, these actions
represent a reduction in 2020 cash uses of over $5 billion versus the original operating plan.
We ended the first quarter with cash and cash equivalents of $3.9 billion, short-term investments of $3.9
billion, and an undrawn credit facility of $6 billion, totaling approximately $14 billion of liquidity. We believe
current cash balances, cash generated by operations, the recent adjustments to our current operating plan,
together with access to external sources of funds as described below in the “Significant Sources of Capital”
section, will be sufficient to meet our funding requirements in the near- and long-term, including our capital
spending program, dividend payments and required debt payments.
Significant Sources of Capital
Operating Activities
Cash provided by operating activities was $2,105 million for the first quarter of 2020, compared with $2,894
million for the corresponding period of 2019. The decrease is primarily due to lower sales prices and volumes.
While the stability of our cash flows from operating activities benefits from geographic diversity, our short-
and long-term operating cash flows are highly dependent upon prices for crude oil, bitumen, natural gas, LNG
and NGLs. Oil prices collapsed in the first quarter of 2020 largely due to simultaneous demand and supply
shocks. Since March 2020, prices continued to be depressed in line with COVID-19 driven demand decreases
and continued oversupply. We expect prices over the next several months will be weak and volatile. Prices
and margins in our industry have historically been volatile and are driven by market conditions beyond our
control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a
corresponding change in our operating cash flows.
49
In April 2020, we announced a reduction of $600 million in planned operating cost, roughly ten percent of our
original operating plan. This represents a portion of our recent actions to reduce cash uses in 2020 by more
than $5 billion in response to the current downturn.
The level of absolute production volumes, as well as product and location mix, impacts our cash flows.
Production levels are impacted by such factors as the volatile crude oil and natural gas price environment,
which may impact investment decisions; the effects of price changes on production sharing and variable-
royalty contracts; acquisition and disposition of fields; field production decline rates; new technologies;
operating efficiencies; timing of startups and major turnarounds; political instability; global pandemics and
associated demand decreases; weather-related disruptions; and the addition of proved reserves through
exploratory success and their timely and cost-effective development. While we actively manage these factors,
production levels can cause variability in cash flows, although generally this variability has not been as
significant as that caused by commodity prices.
In March and April 2020, we announced a total reduction in capital expenditures of $2.3 billion compared to
the 2020 operating plan. We also announced voluntary production curtailments of 265 MBOD gross or
approximately 230 MBOED net for May 2020. We currently estimate production in June 2020 will be
impacted by voluntary curtailments of 460 MBOD gross or approximately 420 MBOED net. Future voluntary
curtailments across our areas of operation will be evaluated on a month-by-month basis, and are subject to
operating agreements and contractual obligations. We also expect some level of additional curtailments from
infrastructure constraints, actions from partner-operated assets or government mandates, including the
Norwegian government’s recently announced curtailment measures commencing in June and lasting through
the end of the year.
To maintain or grow our production volumes, we must continue to add to our proved reserve base. As we
undertake cash prioritization efforts, our reserve replacement efforts could be delayed thus limiting our ability
to replace depleted reserves.
Investing Activities
Proceeds from asset sales in the first quarter of 2020 were $549 million. We completed the sales of both our
Niobrara interests and Waddell Ranch interests in the Lower 48 with proceeds of $359 million and $184
million, respectively. In October 2019, we entered into an agreement to sell the subsidiaries that hold our
Australia-West assets and operations to Santos for $1.39 billion, plus customary adjustments, with an effective
date of January 1, 2019, plus a payment of $75 million upon final investment decision of the Barossa
development project. The transaction is expected to close in the second quarter of 2020. See Note 4—Asset
Acquisitions and Dispositions in the Notes to Consolidated Financial Statements, for additional information on
these transactions.
Investing activities also included net purchases of $935 million of investments in short-term and long-term
financial instruments. For additional information, see Note 13—Derivative and Financial Instruments and
Note 16—Cash Flow Information in the Notes to Consolidated Financial Statements.
Commercial Paper and Credit Facilities
We have a revolving credit facility totaling $6.0 billion, expiring in May 2023. Our revolving credit facility
may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as
support for our commercial paper program. The revolving credit facility is broadly syndicated among financial
institutions and does not contain any material adverse change provisions or any covenants requiring
maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default
provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more
by ConocoPhillips, or any of its consolidated subsidiaries. The amount of the facility is not subject to
redetermination prior to its expiration date.
Credit facility borrowings may bear interest at a margin above rates offered by certain designated banks in the
London interbank market or at a margin above the overnight federal funds rate or prime rates offered by
certain designated banks in the U.S. The agreement calls for commitment fees on available, but unused,
50
amounts. The agreement also contains early termination rights if our current directors or their approved
successors cease to be a majority of the Board of Directors.
The revolving credit facility supports the ConocoPhillips Company $6.0 billion commercial paper program,
which is primarily a funding source for short-term working capital needs. Commercial paper maturities are
generally limited to 90 days.
We had no commercial paper outstanding at March 31, 2020 or December 31, 2019. We had no direct
outstanding borrowings or letters of credit under the revolving credit facility at March 31, 2020 or December
31, 2019. Since we had no commercial paper outstanding and had issued no letters of credit, we had access to
$6.0 billion in borrowing capacity under our revolving credit facility at March 31, 2020. We may consider
issuing commercial paper in the future to supplement our cash position as appropriate.
Despite recent volatility and price weakness for energy issuers in the debt capital markets, we believe the
company continues to have access to the markets based on the composition of our balance sheet and asset
portfolio.
In March 2020, S&P affirmed its “A” rating on our senior long-term debt and revised its outlook to “negative”
from “stable”. In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook. Our current
rating from Fitch is “A” with a “stable” outlook. We do not have any ratings triggers on any of our corporate
debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a
downgrade of our credit rating. If our credit rating were downgraded, it could increase the cost of corporate
debt available to us and potentially restrict our access to the commercial paper and debt capital markets. If our
credit rating were to deteriorate to a level prohibiting us from accessing the commercial paper and debt capital
markets, we would still be able to access funds under our revolving credit facility.
Certain of our project-related contracts, commercial contracts and derivative instruments contain provisions
requiring us to post collateral. Many of these contracts and instruments permit us to post either cash or letters
of credit as collateral. At March 31, 2020 and December 31, 2019, we had direct bank letters of credit of $273
million and $277 million, respectively, which secured performance obligations related to various purchase
commitments incident to the ordinary conduct of business. In the event of credit ratings downgrades, we may
be required to post additional letters of credit.
Shelf Registration
We have a universal shelf registration statement on file with the U.S. SEC under which we, as a well-known
seasoned issuer, have the ability to issue and sell an indeterminate amount of various types of debt and equity
securities.
Off-Balance Sheet Arrangements
As part of our normal ongoing business operations and consistent with normal industry practice, we enter into
numerous agreements with other parties to pursue business opportunities, which share costs and apportion
risks among the parties as governed by the agreements.
For information about guarantees, see Note 11—Guarantees, in the Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Capital Requirements
For information about our capital expenditures and investments, see the “Capital Expenditures” section.
Our debt balance as of March 31, 2020 was $14,973 million compared with $14,895 million at December 31,
2019. Maturities of debt in each of the years 2020 through 2024, are: $81 million, $227 million, $945 million,
$200 million and $543 million, respectively.
51
On February 4, 2020, we announced a quarterly dividend of $0.420 per share. The dividend was paid on
March 2, 2020, to stockholders of record at the close of business on February 14, 2020. On April 30, 2020, we
announced a quarterly dividend of $0.420 per share, payable June 1, 2020, to stockholders of record at the
close of business on May 11, 2020.
In late 2016, we initiated our current share repurchase program. As of March 31, 2020, we had announced a
total authorization to repurchase $25 billion. As of December 31, 2019, we had repurchased $9.6 billion of
shares. In the first quarter of 2020, we repurchased an additional $726 million of shares. On April 16, 2020,
as a response to the oil market price downturn, we announced we were suspending our share repurchase
program. Since our share repurchase program began in November 2016, we have repurchased 184 million
shares at a cost of $10.4 billion through March 31, 2020.
Capital Expenditures
Millions of Dollars
Three Months Ended
March 31
2020
2019
Alaska
$
509
410
Lower 48
776
834
Canada
74
123
Europe and North Africa
121
157
Asia Pacific and Middle East
103
96
Other International
53
1
Corporate and Other
13
16
Capital expenditures and investments
$
1,649
1,637
During the first quarter of 2020, capital expenditures and investments supported key exploration and
development programs, primarily:
●
Development, appraisal and exploration activities in the Lower 48, including Eagle Ford, Permian
Unconventional and Bakken.
●
Appraisal and development activities in Alaska related to the Western North Slope; development
activities in the Greater Kuparuk Area and the Greater Prudhoe Area.
●
Development activities across assets in Norway.
●
Appraisal activities in liquids-rich plays in Canada and optimization of oil sands development.
●
Continued development in China, Australia, Malaysia and Indonesia.
In February 2020, we announced 2020 operating plan capital expenditures of $6.5 billion to $6.7 billion. In
March 2020, as a response to the recent oil market downturn, we announced a reduction to this plan of $0.7
billion. In April 2020, we announced an additional reduction of $1.6 billion for a total reduction of $2.3
billion, or approximately 35 percent. The capital reductions are sourced to the segments in the amount of $1.4
billion to Lower 48, $0.4 billion to Alaska, $0.2 billion to Canada and $0.3 billion to all other segments and
exploration. This does not include capital for acquisitions.
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
52
contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a
liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be
reasonably estimated and no amount within the range is a better estimate than any other amount, then the
minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party
recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. With respect
to income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where
sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent
liability exposures will exceed current accruals by an amount that would have a material adverse impact on our
consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position
both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future
changes include contingent liabilities recorded for environmental remediation, tax and legal matters.
Estimated future environmental remediation costs are subject to change due to such factors as the uncertain
magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and
the determination of our liability in proportion to that of other responsible parties. Estimated future costs
related to tax and legal matters are subject to change as events evolve and as additional information becomes
available during the administrative and litigation processes. For information on other contingencies, see
Note 12—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.
Legal and Tax Matters
We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty
and severance tax payments, gas measurement and valuation methods, contract disputes, environmental
damages, climate change, personal injury, and property damage. Our primary exposures for such matters
relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties and
claims of alleged environmental contamination from historic operations. We will continue to defend ourselves
vigorously in these matters.
Our legal organization applies its knowledge, experience and professional judgment to the specific
characteristics of our cases, employing a litigation management process to manage and monitor the legal
proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in
individual cases. This process also enables us to track those cases that have been scheduled for trial and/or
mediation. Based on professional judgment and experience in using these litigation management tools and
available information about current developments in all our cases, our legal organization regularly assesses the
adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new
accruals, is required.
Environmental
We are subject to the same numerous international, federal, state and local environmental laws and regulations
as other companies in our industry. For a discussion of the most significant of these environmental laws and
regulations, including those with associated remediation obligations, see the “Environmental” section in
Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 60–62 of
our 2019 Annual Report on Form 10-K.
We occasionally receive requests for information or notices of potential liability from the EPA and state
environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On
occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties.
These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically
are not owned by us, but allegedly contain waste attributable to our past operations. As of March 31, 2020,
there were 15 sites around the U.S. in which we were identified as a potentially responsible party under
CERCLA and comparable state laws.
At March 31, 2020, our balance sheet included a total environmental accrual of $170 million, compared with
$171 million at December 31, 2019, for remediation activities in the U.S. and Canada. We expect to incur a
53
substantial amount of these expenditures within the next 30 years.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses,
environmental costs and liabilities are inherent concerns in our operations and products, and there can be no
assurance that material costs and liabilities will not be incurred. However, we currently do not expect any
material adverse effect upon our results of operations or financial position as a result of compliance with
current environmental laws and regulations.
Climate Change
Continuing political and social attention to the issue of global climate change has resulted in a broad range of
proposed or promulgated state, national and international laws focusing on GHG reduction. These proposed or
promulgated laws apply or could apply in countries where we have interests or may have interests in the future.
Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for
implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a
material impact on our results of operations and financial condition. Examples of legislation and precursors
for possible regulation that do or could affect our operations include:
●
The EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1,
2010, that triggered regulation of GHGs under the Clean Air Act, may trigger more climate-based
claims for damages, and may result in longer agency review time for development projects.
●
Colorado’s HB-19 1261, approved May 30, 2019, introducing statewide goals to reduce 2025 GHG
emissions by at least 26 percent, 2030 GHG emissions by at least 50 percent, and 2050 GHG
emissions by at least 90 percent of the levels of GHG emissions that existed in 2005.
For other examples of legislation or precursors for possible regulation and factors on which the ultimate impact
on our financial performance will depend, see the “Climate Change” section in Management’s Discussion and
Analysis of Financial Condition and Results of Operations on pages 63–65 of our 2019 Annual Report on
Form 10-K.
In December 2018, we became a Founding Member of the Climate Leadership Council (CLC), an international
policy institute founded in collaboration with business and environmental interests to develop a carbon
dividend plan. Participation in the CLC provides another opportunity for ongoing dialogue about carbon
pricing and framing the issues in alignment with our public policy principles. We also belong to and fund
Americans For Carbon Dividends, the education and advocacy branch of the CLC.
Beginning in 2017, cities, counties, and state governments in California, New York, Washington, Rhode
Island, Maryland and Hawaii, as well as the Pacific Coast Federation of Fishermen’s Association, Inc., have
filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages and
equitable relief to abate alleged climate change impacts. ConocoPhillips is vigorously defending against these
lawsuits. The lawsuits brought by the Cities of San Francisco, Oakland and New York have been dismissed by
federal district courts and appeals are pending. Lawsuits filed by other cities and counties in California and
Washington are currently stayed pending resolution of the appeals brought by the Cities of San Francisco and
Oakland. Lawsuits filed in Maryland and Rhode Island are proceeding in state court while rulings in those
matters, on the issue of whether the matters should proceed in state or federal court, are on appeal. The lawsuit
filed in Hawaii has been removed to federal court.
Several Louisiana parishes and individual landowners have filed lawsuits against oil and gas companies,
including ConocoPhillips, seeking compensatory damages in connection with historical oil and gas operations
in Louisiana. All parish lawsuits are stayed pending an appeal on the issue of whether they will proceed in
federal or state court. ConocoPhillips will vigorously defend against these lawsuits.
54
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of
historical fact included or incorporated by reference in this report, including, without limitation, statements
regarding our future financial position, business strategy, budgets, projected revenues, projected costs and
plans, and objectives of management for future operations, are forward-looking statements. Examples of
forward-looking statements contained in this report include our expected production growth and outlook on the
business environment generally, our expected capital budget and capital expenditures, and discussions
concerning future dividends. You can often identify our forward-looking statements by the words “anticipate,”
“estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,”
“should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,”
“effort,” “target” and similar expressions.
We based the forward-looking statements on our current expectations, estimates and projections about
ourselves and the industries in which we operate in general. We caution you these statements are not
guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be
incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-
looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our
actual outcomes and results may differ materially from what we have expressed or forecast in the forward-
looking statements. Any differences could result from a variety of factors, including, but not limited to, the
following:
●
The impact of public health crises, including pandemics (such as COVID-19) and epidemics and any
related company or government policies or actions.
●
Global and regional changes in the demand, supply, prices, differentials or other market conditions
affecting oil and gas, including changes resulting from a public health crisis or from the imposition or
lifting of crude oil production quotas or other actions that might be imposed by OPEC and other
producing countries and the resulting company or third party actions in response to such changes.
●
Fluctuations in crude oil, bitumen, natural gas, LNG and NGLs prices, including a prolonged decline
in these prices relative to historical or future expected levels.
●
The impact of significant declines in prices for crude oil, bitumen, natural gas, LNG and NGLs, which
may result in recognition of impairment charges on our long-lived assets, leaseholds and
nonconsolidated equity investments.
●
Potential failures or delays in achieving expected reserve or production levels from existing and future
oil and gas developments, including due to operating hazards, drilling risks and the inherent
uncertainties in predicting reserves and reservoir performance.
●
Reductions in reserves replacement rates, whether as a result of the significant declines in commodity
prices or otherwise.
●
Unsuccessful exploratory drilling activities or the inability to obtain access to exploratory acreage.
●
Unexpected changes in costs or technical requirements for constructing, modifying or operating E&P
facilities.
●
Legislative and regulatory initiatives addressing environmental concerns, including initiatives
addressing the impact of global climate change or further regulating hydraulic fracturing, methane
emissions, flaring or water disposal.
●
Lack of, or disruptions in, adequate and reliable transportation for our crude oil, bitumen, natural gas,
LNG and NGLs.
●
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.
55
●
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 or future
environmental regulations and litigation.
●
Significant operational or investment changes imposed by existing or future environmental statutes
and regulations, including international agreements and national or regional legislation and regulatory
measures to limit or reduce GHG emissions.
●
Liability resulting from litigation or our failure to comply with applicable laws and regulations.
●
General domestic and international economic and political developments, including armed hostilities;
expropriation of assets; changes in governmental policies relating to crude oil, bitumen, natural gas,
LNG and NGLs pricing, regulation or taxation; and other political, economic or diplomatic
developments.
●
Volatility in the commodity futures markets.
●
Changes in tax and other laws, regulations (including alternative energy mandates), or royalty rules
applicable to our business, including changes resulting from the implementation and interpretation of
the Tax Cuts and Jobs Act.
●
Competition and consolidation in the oil and gas E&P industry.
●
Any limitations on our access to capital or increase in our cost of capital, including as a result of
illiquidity or uncertainty in domestic or international financial markets.
●
Our inability to execute, or delays in the completion, of any asset dispositions or acquisitions we elect
to pursue, including our previously announced disposition of the subsidiaries that hold our Australia-
West assets, as well as any future dispositions we may undertake.
●
Potential failure to obtain, or delays in obtaining, any necessary regulatory approvals for pending or
future asset dispositions or acquisitions, or that such approvals may require modification to the terms
of the transactions or the operation of our remaining business.
●
Potential disruption of our operations as a result of pending or future asset dispositions or acquisitions,
including the diversion of management time and attention.
●
Our inability to deploy the net proceeds from any asset dispositions that are pending or that we elect to
undertake in the future in the manner and timeframe we currently anticipate, if at all.
●
Our inability to liquidate the common stock issued to us by Cenovus Energy as part of our sale of
certain assets in western Canada at prices we deem acceptable, or at all.
●
The operation and financing of our joint ventures.
●
The ability of our customers and other contractual counterparties to satisfy their obligations to us,
including our ability to collect payments when due from the government of Venezuela or PDVSA.
●
Our inability to realize anticipated cost savings and capital expenditure reductions.
●
The inadequacy of storage capacity for our products, and ensuing curtailments, whether voluntary or
involuntary, required to mitigate this physical constraint.
●
The risk factors generally described in Part II - Item 1A in this report, in Part I - Item 1A in our 2019
Annual Report on Form 10-K, and any additional risks described in our other filings with the SEC.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended March 31, 2020, does not differ materially from that
discussed under Item 7A in our 2019 Annual Report on Form 10-K.
56
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure information required to be disclosed in
reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and that such
information is accumulated and communicated to management, including our principal executive and principal
financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of March 31,
2020, with the participation of our management, our Chairman and Chief Executive Officer (principal
executive officer) and our Executive Vice President and Chief Financial Officer (principal financial officer)
carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief
Executive Officer and our Executive Vice President and Chief Financial Officer concluded our disclosure
controls and procedures were operating effectively as of March 31, 2020.
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the
Act, in the period covered by this report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no new material legal proceedings or material developments with respect to matters previously
disclosed in Item 3 of our 2019 Annual Report on Form 10-K.
Item 1A. Risk Factors
Other than the risk factors set forth below, there have been no material changes to the risk factors disclosed in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Our business has been, and will continue to be, affected by the coronavirus (COVID-19) pandemic.
On March 11, 2020, the World Health Organization announced that the outbreak of the novel coronavirus
(COVID-19) had become a pandemic, and on March 13, President Trump declared a National Emergency in
response to the outbreak. National, state and local authorities and health officials have announced aggressive
actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all
non-essential travel, and issuing “social or physical distancing” guidelines, “shelter-in-place” orders and
mandatory closures for non-essential businesses. The COVID-19 outbreak and the measures put in place to
address it have negatively impacted the global economy, disrupted global supply chains, reduced global
demand for oil and gas, and created significant volatility and disruption of financial and commodity markets.
The full impact of the COVID-19 pandemic remains uncertain and will depend on the severity, location and
duration of the effects and spread of the disease, the effectiveness and duration of actions taken by authorities
to contain the virus or treat its effect, and how quickly and to what extent economic conditions improve. Some
economists are predicting the U.S. may enter a recession as a result of the pandemic.
We have already been impacted by the COVID-19 pandemic. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations, for additional information on how we have been impacted and
the steps we have taken in response.
57
Our business is likely to be further negatively impacted by the COVID-19 pandemic. These impacts could
include but are not limited to:
●
Continued reduced demand for our products as a result of reductions in travel and commerce;
●
Disruptions in our supply chain due in part to scrutiny or embargoing of shipments from infected areas
or invocation of force majeure clauses in commercial contracts due to restrictions imposed as a result
of the global response to the pandemic;
●
Failure of third parties on which we rely, including our suppliers, contract manufacturers, contractors,
joint venture partners and external business partners, to meet their obligations to the company, or
significant disruptions in their ability to do so, which may be caused by their own financial or
operational difficulties or restrictions imposed in response to the disease outbreak;
●
Reduced workforce productivity caused by, but not limited to, illness, travel restrictions quarantine, or
government mandates;
●
Business interruptions resulting from a significant amount of our employees telecommuting in
compliance with social distancing guidelines and shelter-in-place orders, as well as the
implementation of protections for employees continuing to commute for work, such as personnel
screenings and self-quarantines before or after travel; and
●
Voluntary or involuntary curtailments to support oil prices or alleviate storage shortages for our
products.
Any of these factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable,
could materially increase our costs, negatively impact our revenues and damage our financial condition, results
of operations, cash flows and liquidity position. The pandemic continues to progress and evolve, and the full
extent and duration of any such impacts cannot be predicted at this time because of the sweeping impact of the
COVID-19 pandemic on daily life around the world.
We have been negatively affected and are likely to continue to be negatively affected by the recent swift and
sharp drop in commodity prices.
The oil and gas business is fundamentally a commodity business and prices for crude oil, bitumen, natural gas,
NGLs and LNG can fluctuate widely depending upon global events or conditions that affect supply and
demand. Recently, there has been a precipitous decrease in demand for oil globally, largely caused by the
dramatic decrease in travel and commerce resulting from the COVID-19 pandemic. Such decrease in demand
has been compounded by the collapse of the OPEC plus production agreement. See Management’s Discussion
and Analysis of Financial Condition and Results of Operations, for additional information on commodity
prices and how we have been impacted. There is no assurance of when or if commodity prices will return to
pre-COVID-19 levels. The speed and extent of any recovery remains uncertain and is subject to various risks,
including the duration, impact and actions taken to stem the proliferation of the COVID-19 pandemic, the
ability of those nations party to the OPEC plus production agreement to reach agreement in the future
regarding the production of crude oil, bitumen, natural gas, NGLs and LNG, and other risks described in this
Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K for the fiscal year ended December 31,
2019.
Even after a recovery, our industry will continue to be exposed to the effects of changing commodity prices
given the volatility in commodity price drivers and the worldwide political and economic environment
generally, as well as continued uncertainty caused by armed hostilities in various oil-producing regions around
the globe. Our revenues, operating results and future rate of growth are highly dependent on the prices we
receive for our crude oil, bitumen, natural gas, NGLs and LNG. Many of the factors influencing these prices
are beyond our control.
Lower crude oil, bitumen, natural gas, NGL and LNG prices may have a material adverse effect on our
revenues, operating income, cash flows and liquidity, and may also affect the amount of dividends we elect to
declare and pay on our common stock. As a result of the recent market downturn, we have suspended our
share repurchase program. Lower prices may also limit the amount of reserves we can produce economically,
58
thus adversely affecting our proved reserves, reserve replacement ratio and accelerating the reduction in our
existing reserve levels as we continue production from upstream fields. Prolonged lower crude oil prices may
affect certain decisions related to our operations, including decisions to reduce capital investments or decisions
to shut-in production. Due to ongoing uncertainty and volatility, we are suspending all further guidance for
2020, including guidance related to capital expenditures and production and our previous 2020 guidance
should not be relied upon.
Significant reductions in crude oil, bitumen, natural gas, NGLs and LNG prices could also require us to reduce
our capital expenditures, impair the carrying value of our assets or discontinue the classification of certain
assets as proved reserves. In the first quarter of 2020, we recognized several impairments, which are described
in Note 8—Impairments. If the outlook for commodity prices remain low relative to their historic levels, and
as we continue to optimize our investments and exercise capital flexibility, it is reasonably likely we will incur
future impairments to long-lived assets used in operations, investments in nonconsolidated entities accounted
for under the equity method and unproved properties. Low oil and gas prices could decrease our proved
reserves estimates, which would increase the unit-of-production rate used to determine DD&A expense on
producing properties. Although it is not reasonably practicable to quantify the impact of any future
impairments or estimated change to our unit-of-production at this time, our results of operations could be
adversely affected as a result.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Millions of Dollars
Period
Total Number
of Shares
Purchased
*
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs
January 1-31, 2020
3,949,942
$
64.29
3,949,942
$
5,121
February 1-29, 2020
3,956,015
58.08
3,956,015
14,891
March 1-31, 2020
7,307,098
33.11
7,307,098
14,649
15,213,055
$
15,213,055
*There were no repurchases of common stock from company employees in connection with the company's broad-based employee incentive plans.
In late 2016, we initiated our current share repurchase program. As of March 31, 2020, we had announced a
total authorization to repurchase $25 billion of our common stock. As of December 31, 2019, we had
repurchased $9.6 billion of shares. In the first quarter of 2020, we repurchased an additional $726 million of
shares. On April 16, 2020, as a response to the oil market downturn, we announced we were suspending our
share repurchase program. Acquisitions for the share repurchase program are made at management’s
discretion, at prevailing prices, subject to market conditions and other factors. Except as limited by applicable
legal requirements, repurchases may be increased, decreased or discontinued at any time without prior notice.
Shares of stock repurchased under the plan are held as treasury shares. See the “Our ability to declare and pay
dividends and repurchase shares is subject to certain considerations” section in Risk Factors on pages 21–22 of
our 2019 Annual Report on Form 10-K.
59
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.
60
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
CONOCOPHILLIPS
/s/ Catherine A. Brooks
Catherine A. Brooks
Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
May 5, 2020
CONOCOPHILLIPS
EXECUTIVE RESTRICTED STOCK UNIT PROGRAM
FEBRUARY 11, 2020
EXECUTIVE RESTRICTED STOCK UNIT
AWARD TERMS AND CONDITIONS
These Executive Restricted Stock Unit Award Terms and Conditions describe terms and conditions of Executive Restricted Stock Unit Awards, as part of the ConocoPhillips Executive Restricted Stock Unit Program (the “Program”), granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (referred to as the Plan) by ConocoPhillips (the “Company”) to you as an eligible employee (the “Employee”). These Terms and Conditions, together with the Award Summary given to each Employee receiving an Award, form the Award Agreement (the “Agreement”) relating to the Awards described. Subject to the Plan and this Agreement, the Company grants to the Employee Executive Restricted Stock Units. Individual awards will be as set forth in the Award Summary given to each Employee to whom an Award is granted. The Award Summary for each Employee is made a part of this Agreement with regard to such Employee. The Award Summary may be modified at any time to reflect increased or decreased amounts of the Award due to decisions made prior to final settlement of the Award, including adjustments related to the performance of the Company and adjustments related to the performance of the Employee; provided, however, that after a Change of Control occurs, there shall be no decrease in the number of Executive Restricted Stock Units granted, except pursuant to the section titled “Detrimental Activities” below. Multiple book entry accounts may be used to reflect the total shares awarded under these Terms and Conditions. This and any other administrative activities shall not be construed to alter these Terms and Conditions.
AWARD: Executive Restricted Stock Unit (ERSU) Award granted by the Authorized Party under the provisions of the Plan. The ERSUs will be noted in a book entry account created for the Employee.
ERSU: A unit evidencing the right to receive either one share of ConocoPhillips Stock, $.01 par value, or the Fair Market Value thereof under the circumstances described in these Terms and Conditions.
GRANT DATE AND PRICE: The Grant Date is February 11, 2020. The Grant Price is set forth on the Award Summary given to each Employee to whom an award is granted.
VOTING RIGHTS: The named owner of the ERSUs has no voting rights for the units but is considered the beneficial owner for all purposes including ownership and control reports such as the annual proxy statement.
DIVIDEND EQUIVALENTS: ERSUs shall accrue a dividend equivalent at such times as a dividend is paid on the Stock, which dividend equivalent shall be credited as reinvested in additional ERSUs as of the date such dividends are payable, and such additional ERSUs shall be subject to these terms and conditions. The number of ERSUs acquired through this reinvestment of dividend equivalents shall be calculated using the Fair Market Value at the time the dividend equivalent is accrued. ERSUs acquired from dividend equivalents shall be paid at the time and in the manner of settlement of the ERSUs as set forth in the section titled “Settlement” below.
Effective 2/11/2020 - 1 -
RETIREMENT PLAN EARNINGS: The issuance of these ERSUs does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. The value of the units at the time restrictions lapse also does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. Neither the issuance of nor lapsing of restrictions on ERSUs will have any impact on any retirement plans or any other compensation plan sponsored by a ConocoPhillips company.
TAX INFORMATION: For an Employee subject to U.S. tax laws, this matter is more thoroughly covered in the document entitled "U.S. Tax Aspects of Restricted Stock Units." However, in general terms, under current U.S. tax law, the value of these units is not considered taxable income until the restrictions lapse.
RESTRICTIONS: The following restrictions relate to the ERSUs:
The ERSUs (including any ERSUs arising from accrued dividend equivalents) will be held in escrow for the Employee. As provided herein, the Employee will have all rights of economic ownership to such units including the right to receive dividend equivalents as set forth in the section titled “Dividend Equivalents” above, except that the Employee shall not have the right to sell, transfer, assign, or otherwise dispose of such units until the escrow is terminated (such restrictions being known as the “Transfer Restrictions”).
The escrow shall end on the earliest of any of the following occurrences, with Transfer Restrictions to lapse and settlement be made as set forth in the section titled “Settlement” below:
1. The Termination of the Employee’s employment as a result of Layoff;
2. The Termination of the Employee’s employment after Retirement;
3. The Employee’s death;
4. The Termination of the Employee’s employment following Disability of the Employee;
5. The Termination of the Employee’s employment following a Change of Control; or
6. February 19, 2023.
The ERSUs eligible for lapsing of Transfer Restrictions and settlement shall be subject to the cancellation and proration provisions set forth in the section titled “Termination of Employment” below.
The Transfer Restrictions shall lapse and the remaining ERSUs (including any such that are awarded after the Separation from Service of the Employee) shall be settled on the date that is the later of (a) the end of the escrow period and (b) the earliest of the Employee’s death, February 19, 2023, or six months after the date of the Employee’s Separation from Service for a reason other than death.
1. General Rule for Termination. If, prior to the date on which restrictions lapse in accordance with the schedule set forth in the Award, the Employee's employment with a Participating Company shall be terminated for any reason except death, Disability, Retirement, or Layoff, any ERSUs remaining in escrow pursuant to such Award (including any ERSUs arising from accrued dividend equivalents) shall be canceled and all rights thereunder shall cease;
Effective 2/11/2020 - 2 -
provided, however, that the Authorized Party may, in its sole discretion, determine that all or any portion of an Award shall not be canceled due to Termination of Employment.
2. Layoff or Retirement Within Six Months. If, prior to a date six months from the date an Award is granted, the Employee's employment with a Participating Company shall be terminated by reason of Layoff or Retirement, such Award (including any ERSUs arising from accrued dividend equivalents) shall be canceled and all rights thereunder shall cease.
3. Layoff Within One Year. If, on or after a date six months from the date an Award is granted but prior to a date one year from the date an Award is granted, the Employee's employment with a Participating Company shall be terminated by reason of Layoff, the Employee shall retain a prorated number of the Award shares or units granted. The number of Award shares or units retained will be computed by multiplying the original number of Award shares or units granted by a fraction, the numerator of which is the number of full months of employment from the first day of the month in which the Award was granted until the date the employee is terminated and the denominator of which is 12. Such calculation shall be rounded down to the nearest whole share. The ERSUs arising from dividend equivalents shall be recalculated using the prorated award as the original number of Award shares. Settlement shall be made in accordance with the provisions set forth in the section titled “Settlement” below. The remainder of the Award shall be canceled, and all rights thereunder shall cease.
4. Layoff After One Year. If, on or after a date one year from the date an Award is granted, the Employee's employment with a Participating Company shall be terminated by reason of Layoff, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment (including any ERSUs arising from accrued dividend equivalents). Settlement shall be made in accordance with the settlement provisions set forth in the section titled “Settlement” below.
5. Retirement After Six Months. If, on or after a date six months after the Grant Date of an Award, the Employee's employment with a Participating Company shall be terminated by reason of Retirement, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment (including any ERSUs arising from accrued dividend equivalents). Settlement shall be made in accordance with the settlement provisions set forth in the section titled “Settlement” below.
6. Disability. If, after the date the Award is granted, an Employee shall terminate employment following Disability of the Employee, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment (including any ERSUs arising from accrued dividend equivalents). Settlement shall be made in accordance with the settlement provisions set forth in the section titled “Settlement” below.
7. Death. If, after the date an Award is granted, an Employee shall die while in the employ of a Participating Company, or after Termination of Employment by reason of Retirement, Disability, or Layoff (and prior to the cancellation of the Award), the restrictions on the Award shall lapse on the date of death, and settlement shall be made in accordance with the settlement provisions below. Settlement shall be made to the beneficiary or beneficiaries designated by the named owner in accordance with the settlement provisions set forth in the section titled “Settlement” below. Such beneficiary or beneficiaries must be set forth under a properly completed beneficiary designation form acceptable to the Administrator which is received by the Administrator prior to the death of the named owner. In absence of such a beneficiary designation, the personal representative of the estate of the named owner or the person or persons to whom the Award shall have been validly transferred by the personal representative pursuant to will or the laws of descent and distribution shall have the right to
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settlement of the Award. No transfer of an Award, or of the unrestricted Stock or other proceeds of an Award, by beneficiary designation or by will or by the laws of descent and distribution shall be effective to bind the Company unless the Administrator shall have been furnished with written notice thereof, with a copy of the beneficiary designation or will, and with such other evidence as the Administrator may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of such Award.
8. Divestiture, Outsourcing, or Move to Joint Venture. If, after the date the Award is granted, an Employee ceases to be employed by Participating Company as a result of (a) the outsourcing of a function, (b) the sale or transfer of all or a portion of the equity interest of such Participating Company (removing it from the controlled group of companies of which the Company is a part), (c) the sale of all or substantially all of the assets of such Participating Company to another employer outside of the controlled group of corporations (whether the Employee is offered employment or accepts employment with the other employer), (d) the Termination of the Employee by a Participating Company followed by employment within a reasonable time with a company or other entity in which the Company owns, directly or indirectly, at least a 50% interest, or (e) any other sale of assets determined by the Authorized Party to be considered a divestiture under this Program, the Authorized Party may, in its sole discretion, determine that all or a portion of any such Award shall not be canceled. In such cases, the restrictions on the Award shall lapse on the date of Termination of the Employee from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions set forth in the section titled “Settlement” below.
9. Change of Control: Upon a Change of Control, the following shall apply to the ERSUs (including any ERSUs arising from accrued dividend equivalents):
(a) Each Employee shall immediately become fully vested in such ERSUs that are not assumed, or substituted for, by an acquirer in connection with the Change of Control, and such ERSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.
(b) With regard to any other ERSUs, each Employee shall become fully vested in such ERSUs upon incurring a Severance following such Change of Control, and such ERSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.
(c) In the event of vesting of ERSUs pursuant to either paragraph 1 or 2 above, all restrictions and other limitations applicable to the ERSUs shall lapse and the ERSUs shall be settled in accordance with the settlement provisions set forth in the section titled “Settlement” below.
SETTLEMENT: The Company shall, at the time stated above, register in the name of the Employee shares of Stock, free of any restriction, equal to the number of the ERSUs (including any ERSUs arising from accrued dividend equivalents), and the related ERSUs (including any ERSUs arising from accrued dividend equivalents) shall be canceled. Settlement shall be made in whole shares.
In all cases the Employee will be responsible to pay all required withholding taxes associated with the Award, including cases where a withholding tax obligation arises prior to the lapsing of Transfer Restrictions set forth in the section titled “Restrictions” above. The Employee must pay any required withholding taxes by having shares equal in value to
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the applicable withholding taxes withheld by the Company (or such other method as the Company, in its sole discretion, allows). The value of the shares withheld for this purpose shall be an amount consistent with the applicable laws and regulations. If Australian tax law applies to the Employee, then an Award is a scheme to which Subdivision 83A-C of the Income Tax Assessment Act 1997 of Australia applies (subject to the conditions in that Act).
The Fair Market Value of the Award received by the Employee shall be determined in accordance with the definition and principles set forth in the Plan.
FORFEITURE: An Employee's right, title, and interest in ERSUs awarded under the Program (including any ERSUs arising from accrued dividend equivalents) or derived from such ERSUs, or the ownership thereof, shall be forfeited if the Employee terminates employment prior to termination of the escrow period for any reason other than Termination after Layoff, Termination after Retirement, death, Termination following Disability, or Termination following a Change in Control; provided, however, any transfer between the Company and any Subsidiary, or between Subsidiaries at the request of the Company or such Subsidiaries, shall not result in forfeiture. Furthermore, an Employee's right, title, and interest in ERSUs awarded under the Program (including any ERSUs arising from accrued dividend equivalents) or derived from such ERSUs, or the ownership thereof, shall be forfeited if the Employee terminates employment by reason of Layoff or Retirement and does not complete six full months of employment after the date of the grant of the Award, unless otherwise approved by the Authorized Party.
DETRIMENTAL ACTIVITIES: If the Authorized Party determines that, subsequent to the grant of any Award but prior to any Change of Control, the Employee has engaged or is engaging in any activity which, in the sole judgment of the Authorized Party, is or may be detrimental to the Company or a subsidiary, the Authorized Party may cancel all or part of the ERSUs (including any ERSUs arising from accrued dividend equivalents) held in escrow pursuant to the Award granted to that Employee. Upon any Change of Control, the Authorized Party may cancel all or part of the ERSUs (including any ERSUs arising from accrued dividend equivalents) held in escrow pursuant to the Award granted to that Employee only upon a determination by the Authorized Party that the Employee has given the Company Cause for such cancellation.
If the Authorized Party, in its sole discretion, determines that the lapsing of restrictions on ERSUs (including any ERSUs arising from accrued dividend equivalents) held in escrow pursuant to any Award has the possibility of violating any law, regulation, or decree pertaining to the Company, any of its subsidiaries, or the Employee, the Authorized Party may freeze or suspend the Employee’s right to settlement or payout of the Award until such time as the lapse of restrictions would no longer, in the sole discretion of the Authorized Party, have the possibility of violating such law, regulation, or decree.
Notwithstanding anything herein to the contrary, this Award is subject to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.
RECAPITALIZATION: Upon any change in the outstanding stock of the Company by reason of any stock dividend, stock split, reverse stock split, recapitalization, reclassification, or other similar change, the Committee shall make corresponding adjustments to the ERSUs (including any ERSUs arising from accrued dividend equivalents).
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DEFINITIONS:
Capitalized terms not defined below shall have the meanings set forth in the Plan under which the Award is granted.
“Administrator” means the CEO, who is authorized, with regard to outstanding Awards, to administer the Program and take action under this the Program. The CEO may delegate such administrative duties and responsibilities as shall be deemed desirable.
“Authorized Party” means the person who is authorized to approve an Award, exercise discretion, or take action under the Administrative Procedure for the Executive Restricted Stock Unit Program and pursuant to the Program. With regard to Senior Officers, the Committee is the Authorized Party. With regard to other Employees, the Chief Executive Officer, acting as the Special Equity Award Committee of the Board of Directors of the Company, is the Authorized Party, although the Committee may act concurrently as the Authorized Party. The Authorized Party may delegate duties and responsibilities regarding the operation of the Program, other than the authority to grant an Award.
“Award” means any Executive Restricted Stock Units granted to an Employee pursuant to such applicable terms, conditions, and limitations as the Authorized Party may establish in order to fulfill the objectives of the Program.
“Cause” means “Cause” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.
“Change of Control” has the meaning set forth in Attachment A to these Terms and Conditions.
“Chief Executive Officer” or “CEO” means the Chief Executive Officer of the Company.
“Committee” means the Human Resources and Compensation Committee of the Board of Directors of the Company, or any successor committee to it.
“Company” means ConocoPhillips, a Delaware corporation.
“Disability” means a disability for which the employee in question has been determined to be entitled to either (i) benefits under the applicable plan of long-term disability of the Company or its subsidiaries or (ii) disability benefits under the Social Security Act. In the absence of any such determination, the Authorized Party may make a determination that the employee has a Disability.
“Fair Market Value” means, as of a particular date, the mean between the highest and lowest sales price per share of such Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at a designated time.
“Good Reason” means “Good Reason” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.
“Grant Price” means the Fair Market Value for one share of Stock as of the date of the grant of an Award. Grant Price is not adjusted for any restrictions applicable to the Award.
“Key Employee Change in Control Severance Plan of ConocoPhillips” means the plan of that name (or a successor plan to the plan of that name) in effect on an applicable Change of Control. If no plan of that
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name (or successor plan to the plan of that name) is in effect on an applicable Change of Control, it shall mean instead the plan of that name in effect on the date of the Award.
“Layoff” means an applicable Termination of Employment due to layoff under the ConocoPhillips Severance Pay Plan, the ConocoPhillips Executive Severance Plan, or the ConocoPhillips Key Employee Change in Control Severance Plan, or layoff or redundancy under any similar layoff or redundancy plan which the Company or its subsidiaries may adopt from time to time. If all or any portion of the benefits under the redundancy or layoff plan are contingent on the employee’s signing a general release of liability, such Termination shall not be considered as a “Layoff” for purposes of this Award unless the employee executes and does not revoke a general release of liability, acceptable to the Company, under the terms of such layoff or redundancy plan. In order to be considered a layoff for purposes of this Award, the Termination of Employment must also be considered a Separation from Service.
“Participating Company” includes ConocoPhillips and its 100% owned subsidiaries, including both those directly owned and those owned through subsidiaries, whose participation has been approved by the Authorized Party.
“Executive Restricted Stock Unit” or “ERSU” means the type of restricted stock unit issued under the Executive Restricted Stock Unit Program (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.
“Restricted Stock Unit” means a unit equal to one share of Stock (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.
“Retirement” means Termination at age 55 or older with a minimum of 5 years of service with a Participating Company; provided, however, that with regard to an Employee not on the United States payroll, the CEO may approve the use of a different definition. Service is defined by the policies of the Participating Company.
“Senior Officer” means the Chairman of the Board, the CEO, all other executive officers of the Company (determined in accordance with the Company’s custom and practice pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended), all other employees of the Company who report directly to the CEO and whose salary grade is 23 or higher, and all other employees of the Company whose salary grade is 26 or higher.
“Severance” means “Severance” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan, and shall also incorporate the meaning of the terms “Cause” and “Good Reason” contained in the definition of “Severance” in such plan.
“Stock” means shares of common stock of the Company, par value $.01. Stock may also be referred to as “Common Stock.”
“Termination,” “Termination of Employment,” and “Separation from Service” each mean “separation from service” as that term is used in section 409A of the Internal Revenue Code.
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Attachment A
“Change of Control”
The following definitions apply to the Change of Control provision of the Plan.
“Affiliate” shall have the meaning ascribed to such term in Rule 12b‑2 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination.
“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.
“Beneficial Owner” shall mean, with reference to any securities, any Person if:
(a) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d‑3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities;
(b) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or
(c) such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d‑5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a shareholder list, to call a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of section 14(a) of the Exchange Act) in respect of such security.
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The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”
“Board” shall have the meaning set forth in the Plan.
“Change of Control” shall mean any of the following occurring on or after January 1, 2020:
(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding solely as a result of (i) any acquisition directly from the Company or (ii) any acquisition by a Person pursuant to a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition;
(b) individuals who, as of January 1, 2020, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 1, 2020 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(c) the Company shall consummate a reorganization, merger, statutory share exchange, consolidation, or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such Business Combination were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such Business Combination; or
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(d) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition.
“Common Stock” shall have the meaning set forth in the Plan.
“Company” shall have the meaning set forth in the Plan.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Exempt Person” shall mean any of the Company, any entity controlled by the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, and any Person organized, appointed, or established by the Company for or pursuant to the terms of any such employee benefit plan.
“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock (i.e., are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of January 1, 2020 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.
“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization, or other entity.
“Voting Stock” shall mean, (a) with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of, or to appoint by contract, directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (b) with respect to an entity which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.
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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.
May 5, 2020
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/s/ Ryan M. Lance |
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Ryan M. Lance |
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Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Don E. Wallette, 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.
May 5, 2020
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/s/ Don E. Wallette, Jr. |
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Don E. Wallette, Jr. |
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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 March 31, 2020, 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.
May 5, 2020
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/s/ Ryan M. Lance |
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Ryan M. Lance |
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Chairman and Chief Executive Officer |
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/s/ Don E. Wallette, Jr. |
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Don E. Wallette, Jr. |
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Executive Vice President and Chief Financial Officer |