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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
(Mark One)
[X]
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
 
March 31, 2020
 
 
d
 
or
[
 
]
TRANSITION
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
Commission file number:
 
001-32395
 
 
 
ConocoPhillips
 
(Exact name of registrant as specified in its charter)
 
Delaware
01-0562944
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
925 N. Eldridge Parkway
Houston
,
TX
77079
(Address of principal executive offices) (Zip Code)
 
281
-
293-1000
 
 
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
 
[x] No [
 
]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
 
Yes
[x] No [
 
]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
 
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
 
[x]
 
Accelerated filer [
 
]
 
Non-accelerated filer [
 
]
 
Smaller reporting company
 
[
 
]
Emerging growth company
 
[
 
]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [
 
]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes [
 
]
No
 
[x]
 
The registrant had
1,072,425,162
 
shares of common stock, $.01 par value, outstanding at March 31, 2020.
 
CONOCOPHILLIPS
 
 
TABLE OF CONTENTS
 
 
 
Page
Commonly Used Abbreviations
 
..................................................................................................................
 
1
Part I—Financial Information
Item 1.
 
Financial Statements
Consolidated Income Statement
 
...........................................................................................................
 
 
2
Consolidated Statement of Comprehensive Income
 
............................................................................
 
 
3
Consolidated Balance Sheet
 
.................................................................................................................
 
 
4
Consolidated Statement of Cash Flows................................................................................................
 
 
5
Notes to Consolidated Financial Statements
 
........................................................................................
 
 
6
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
$
6,158
9,150
Equity in earnings of affiliates
234
188
Gain (loss) on dispositions
(42)
17
Other income (loss)
 
(1,539)
702
Total Revenues and
 
Other Income
4,811
10,057
Costs and Expenses
Purchased commodities
2,661
3,675
Production and operating expenses
1,173
1,271
Selling, general and administrative expenses
(3)
153
Exploration expenses
188
110
Depreciation, depletion and amortization
1,411
1,546
Impairments
521
1
Taxes other than income
 
taxes
250
275
Accretion on discounted liabilities
67
86
Interest and debt expense
202
233
Foreign currency transactions (gain) loss
(90)
12
Other expenses
(6)
8
Total Costs and Expenses
6,374
7,370
Income (loss) before income taxes
(1,563)
2,687
Income tax provision
148
841
Net income (loss)
(1,711)
1,846
Less: net income attributable to noncontrolling interests
(28)
(13)
Net Income (Loss) Attributable to ConocoPhillips
$
(1,739)
1,833
Net Income (Loss) Attributable to ConocoPhillips Per Share
 
of Common Stock
(dollars)
Basic
$
(1.60)
1.61
Diluted
(1.60)
1.60
Average Common
 
Shares Outstanding
(in thousands)
Basic
1,084,561
1,139,463
Diluted
1,084,561
1,146,515
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)
1,846
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
5
-
Reclassification adjustment for amortization of net actuarial losses included
 
in net income (loss)
18
26
Income taxes on defined benefit plans
(4)
(5)
Defined benefit plans, net of tax
11
13
Net unrealized holding loss on securities
(3)
-
Income taxes on net unrealized holding loss on securities
1
-
Net unrealized holding loss on securities, net of tax
(2)
-
Foreign currency translation adjustments
(799)
175
Income taxes on foreign currency translation adjustments
2
1
Foreign currency translation adjustments, net of tax
(797)
176
Other Comprehensive Income (Loss), Net of
 
Tax
(788)
189
Comprehensive Income (Loss)
(2,499)
2,035
Less: comprehensive income attributable to noncontrolling
 
interests
(28)
(13)
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(2,527)
2,022
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
$
3,908
5,088
Short-term investments
3,866
3,028
Accounts and notes receivable (net of allowance of $
3
 
and $
13
, respectively)
2,116
3,267
Accounts and notes receivable—related parties
148
134
Investment in Cenovus Energy
420
2,111
Inventories
726
1,026
Prepaid expenses and other current assets
1,960
2,259
Total Current Assets
13,144
16,913
Investments and long-term receivables
8,707
8,687
Loans and advances—related parties
167
219
Net properties, plants and equipment (net of accumulated depreciation,
depletion and amortization of $
55,425
 
and $
55,477
, respectively)
40,645
42,269
Other assets
2,370
2,426
Total Assets
$
65,033
70,514
Liabilities
Accounts payable
$
2,900
3,176
Accounts payable—related parties
21
24
Short-term debt
126
105
Accrued income and other taxes
853
1,030
Employee benefit obligations
323
663
Other accruals
1,852
2,045
Total Current Liabilities
6,075
7,043
Long-term debt
14,847
14,790
Asset retirement obligations and accrued environmental costs
5,316
5,352
Deferred income taxes
4,141
4,634
Employee benefit obligations
1,563
1,781
Other liabilities and deferred credits
1,704
1,864
Total Liabilities
33,646
35,464
Equity
Common stock (
2,500,000,000
 
shares authorized at $
.01
 
par value)
Issued (2020—
1,798,422,031
 
shares; 2019—
1,795,652,203
 
shares)
Par value
18
18
Capital in excess of par
47,027
46,983
Treasury stock (at cost: 2020—
725,996,869
 
shares; 2019—
710,783,814
 
shares)
(47,130)
(46,405)
Accumulated other comprehensive loss
(6,145)
(5,357)
Retained earnings
37,545
39,742
Total Common
 
Stockholders’ Equity
31,315
34,981
Noncontrolling interests
72
69
Total Equity
31,387
35,050
Total Liabilities and Equity
$
65,033
70,514
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)
1,846
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
1,411
1,546
Impairments
521
1
Dry hole costs and leasehold impairments
67
27
Accretion on discounted liabilities
67
86
Deferred taxes
(227)
(1)
Undistributed equity earnings
31
24
(Gain) loss on dispositions
42
(17)
Unrealized (gain) loss on investment in Cenovus Energy
1,691
(343)
Other
(284)
(221)
Working
 
capital adjustments
Decrease in accounts and notes receivable
1,041
179
Decrease (increase) in inventories
277
(4)
Decrease (increase) in prepaid expenses and other current assets
(79)
62
Decrease in accounts payable
(297)
(142)
Decrease in taxes and other accruals
(445)
(149)
Net Cash Provided by Operating Activities
2,105
2,894
Cash Flows From Investing Activities
Capital expenditures and investments
(1,649)
(1,637)
Working
 
capital changes associated with investing activities
81
107
Proceeds from asset dispositions
549
142
Net purchases of investments
(935)
(1)
Collection of advances/loans—related parties
66
62
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
2
(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)
75
Net Change in Cash, Cash Equivalents and Restricted Cash
(1,179)
319
Cash, cash equivalents and restricted cash at beginning of period
5,362
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
4,183
6,470
Restricted cash of $
88
 
million and $
187
 
million are included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of March 31, 2020.
Restricted cash of $
90
 
million and $
184
 
million are included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2019.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
Notes to Consolidated Financial Statements
 
ConocoPhillips
 
 
 
Note 1—Basis of Presentation
 
The interim-period financial information
 
presented in the financial statements included
 
in this report is
unaudited and, in the opinion of management,
 
includes all known accruals and adjustments
 
necessary for a fair
presentation of the consolidated financial
 
position of ConocoPhillips and its results
 
of operations and cash
flows for such periods.
 
All such adjustments are of a normal and recurring
 
nature unless otherwise disclosed.
Certain notes and other information have been
 
condensed or omitted from the interim
 
financial statements
included in this report.
 
Therefore, these financial statements should
 
be read in conjunction with the
consolidated financial statements and notes included
 
in our 2019 Annual Report on Form
 
10-K.
 
 
The unrealized (gain) loss on investment in Cenovus
 
Energy included on our consolidated statement of cash
flows, previously reflected on the line item
 
“Other” within net cash provided by operating
 
activities, has been
reclassified in the comparative period to conform
 
with the current period’s presentation.
 
 
Note 2—Changes in Accounting Principles
 
We
adopted
 
the provisions of FASB ASU No. 2016-13, “Measurement of Credit Losses
 
on Financial
Instruments,” (ASC Topic 326) and its amendments,
beginning
January 1, 2020
.
 
This ASU, as amended, sets
forth the current expected credit loss model,
 
a new forward-looking impairment model
 
for certain financial
instruments measured at amortized cost basis
 
based on expected losses rather than incurred losses.
 
This ASU,
as amended, which primarily applies to our accounts
 
receivable, also requires credit losses related
 
to available-
for-sale debt securities to be recorded through an allowance
 
for credit losses.
 
The adoption of this ASU did
not have a material impact to our financial statements.
 
The majority of our receivables are due within
 
30 days
or less.
 
We monitor the credit quality of our counterparties through review of collections,
 
credit ratings, and
other analyses.
 
We develop our estimated allowance for credit losses primarily using an aging method
 
and
analyses of historical loss rates as well as consideration
 
of current and future conditions that could impact
 
our
counterparties’ credit quality and liquidity.
 
 
 
Note 3—Inventories
Inventories consisted of the following:
Millions of Dollars
March 31
 
December 31
2020
2019
Crude oil and natural gas
$
192
472
Materials and supplies
534
554
$
726
1,026
 
As a result of declining commodity prices in
 
the first quarter of 2020, we recorded a lower of
 
cost or market
adjustment of $
228
 
million to our crude oil and natural gas
 
inventories.
 
This adjustment is included in the
“Purchased commodities” line on our consolidated
 
income statement.
 
Inventories valued on the LIFO basis
totaled $
133
 
million and $
286
 
million at March 31, 2020 and December 31, 2019,
 
respectively.
 
 
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 $
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.
 
These
subsidiaries hold our
37.5
 
percent interest in the Barossa Project and
 
Caldita Field, our
56.9
 
percent interest in
the Darwin LNG Facility and Bayu-Undan Field,
 
our
40
 
percent interest in the Greater Poseidon Fields, and
our
50
 
percent interest in the Athena Field.
 
The transaction is expected to close in the second
 
quarter of 2020.
 
At March 31, 2020, the net carrying value of the
 
subsidiaries to be sold was approximately
 
$
0.7
 
billion,
consisting primarily of $
1.3
 
billion of PP&E and $
0.4
 
billion of cash and working capital, offset by $
0.7
 
billion
of ARO and $
0.3
 
billion of deferred tax liabilities.
 
The assets met held for sale criteria in the fourth
 
quarter of
2019, and as of March 31, 2020, $
1.3
 
billion of PP&E is classified as “Prepaid expenses
 
and other current
assets” and $
0.7
 
billion of noncurrent ARO is classified as
 
“Other accruals” on our consolidated balance sheet.
 
The before-tax earnings associated with our
 
Australia-West subsidiaries to be sold were $
192
 
million and $
115
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 $
184
 
million after customary
adjustments.
 
No gain or loss was recognized on the sale.
 
 
In March 2020, we completed the sale of our
 
Niobrara interests for approximately $
359
 
million after
customary adjustments and recognized a before-tax
 
loss on disposition of $
38
 
million.
 
At the time of
disposition, our interest in Niobrara had a net carrying
 
value of $
397
 
million, consisting primarily of $
433
million of PP&E and $
34
 
million of ARO.
 
The before-tax earnings associated with our
 
interests in Niobrara,
including the loss on disposition, were a loss of $
27
 
million and income of less than $
1
 
million for the three-
month periods ended March 31, 2020 and 2019,
 
respectively.
 
 
Production from these non-core Lower 48 properties
 
averaged
15
 
MBOED in 2019
.
 
 
 
Note 5—Investments, Loans and Long-Term Receivables
 
 
APLNG
APLNG executed project financing agreements
 
for an $
8.5
 
billion project finance facility in 2012.
 
The $8.5
billion project finance facility was initially composed
 
of financing agreements executed by APLNG
 
with the
Export-Import Bank of the United States for approximately
 
$
2.9
 
billion, the Export-Import Bank of China for
approximately $
2.7
 
billion, and a syndicate of Australian and international
 
commercial banks for
approximately $
2.9
 
billion.
 
All amounts were drawn from the facility.
 
APLNG made its first principal and
interest repayment in March 2017 and is scheduled
 
to make
bi-annual
 
payments until March 2029.
 
 
APLNG made a voluntary repayment of $
1.4
 
billion to the Export-Import Bank of China
 
in September 2018.
 
At the same time, APLNG obtained a United
 
States Private Placement (USPP) bond facility
 
of $
1.4
 
billion.
 
APLNG made its first interest payment related to
 
this facility in March 2019, and principal
 
payments are
scheduled to commence in September 2023,
 
with
bi-annual
 
payments due on the facility until September
 
2030.
 
 
During the first quarter of 2019, APLNG refinanced
 
$
3.2
 
billion of existing project finance debt through two
transactions.
 
As a result of the first transaction, APLNG
 
obtained a commercial bank facility of $
2.6
 
billion.
 
APLNG made its first principal and interest
 
repayment in September 2019 with
bi-annual
 
payments due on the
facility until March 2028.
 
Through the second transaction, APLNG obtained
 
a USPP bond facility of $
0.6
billion.
 
APLNG made its first interest payment in September
 
2019, and principal payments are scheduled
 
to
commence in September 2023, with
bi-annual
 
payments due on the facility until
 
September 2030.
 
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 $
2.2
 
billion and $
1.0
 
billion to a syndicate of Australian
and international commercial banks and the Export-Import
 
Bank of China, respectively.
 
At March 31, 2020, a balance of $
6.5
 
billion was outstanding on the facilities.
 
See Note 11—Guarantees, for
additional information.
 
At March 31, 2020, the carrying value of our
 
equity method investment in APLNG was
 
$
7,229
 
million.
 
The
balance is included in the “Investments and long-term
 
receivables” line on our consolidated balance
 
sheet.
 
Loans and Long-Term Receivables
As part of our normal ongoing business operations,
 
and consistent with industry practice,
 
we enter into
numerous agreements with other parties to pursue
 
business opportunities.
 
Included in such activity are loans
made to certain affiliated and non-affiliated companies.
 
At March 31, 2020, significant loans to affiliated
companies included $
270
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3).
 
On our
 
consolidated balance sheet, the long-term portion
 
of these loans is included in the “Loans and
advances—related parties” line, while the short-term
 
portion is in the “Accounts and notes receivable—related
parties” line.
 
 
Note 6-–Investment in Cenovus Energy
 
On May 17, 2017, we completed the sale of our
50
 
percent nonoperated interest in the FCCL
 
Partnership, as
well as the majority of our western Canada gas
 
assets, to Cenovus Energy.
 
Consideration for the transaction
included
208
 
million Cenovus Energy common shares, which,
 
at closing, approximated
16.9
 
percent of issued
and outstanding Cenovus Energy common stock.
 
The fair value and cost basis of our investment
 
in 208
million Cenovus Energy common shares was $
1.96
 
billion based on a price of $
9.41
 
per share on the NYSE on
the closing date.
 
At March 31, 2020, the investment included
 
on our consolidated balance sheet was $
420
 
million and is carried
at fair value.
 
The fair value of the
208
 
million Cenovus Energy common shares reflects
 
the closing price of
$
2.02
 
per share on the NYSE on the last trading
 
day of the quarter, a decrease of $
1.69
 
billion from $
2.11
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 $
990
 
million, a decrease of $
30
 
million from
$
1,020
 
million at year-end 2019.
 
One
 
suspended well in the Kamunsu East
 
Field offshore Malaysia totaling
$
19
 
million was charged to dry hole expense during
 
the first three months of 2020 relating to exploratory
 
well
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, $
313
 
million relates to wells held for sale.
 
See Note 4—Asset
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
 
Three Months Ended
March 31
2020
2019
Lower 48
511
-
Europe and North Africa
10
1
$
521
1
 
 
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 $
511
 
million
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 $
31
 
million related to
the associated carrying value of capitalized undeveloped
 
leasehold costs for the Kamunsu East Field in
Malaysia that is no longer in our development plans.
 
This charge is included in the “Exploration expenses”
line on our consolidated income statement and
 
is not reflected in the table above.
 
 
Note 9—Debt
 
 
 
Our debt balance as of March 31, 2020 was $
14,973
 
million compared with $
14,895
 
million at December 31,
2019.
 
 
Our revolving credit facility provides a total commitment
 
of $
6.0
 
billion and expires in
May 2023
.
 
Our
revolving credit facility may be used for direct
 
bank borrowings, the issuance of letters of credit
 
totaling up to
$
500
 
million, or as support for our commercial paper
 
program.
 
Our commercial paper program consists
 
of the
ConocoPhillips Company $
6.0
 
billion program, primarily a funding source for
 
short-term working capital
needs.
 
Commercial paper maturities are generally limited
 
to
90 days
.
 
 
We had
no
 
commercial paper outstanding at 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.
 
In March 2020, S&P affirmed its “A” rating on our senior long-term debt and revised its outlook to “negative”
from “stable”.
In April 2020, Moody’s affirmed their rating of “A3” with a “stable” outlook.
 
Our current
rating from Fitch is “A” with a “stable” outlook.
 
At March 31, 2020, we had $
283
 
million of certain variable rate demand
 
bonds (VRDBs) outstanding with
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income (loss)
(1,739)
28
(1,711)
Other comprehensive income (loss)
(788)
(788)
Dividends paid ($
0.42
 
per common share)
(458)
(458)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(26)
(26)
Distributed
 
under benefit plans
44
44
Other
1
1
2
Balances at March 31, 2020
$
18
47,027
(47,130)
(6,145)
37,545
72
31,387
For the three months ended March 31, 2019
Balances at December 31, 2018
$
18
46,879
(42,905)
(6,063)
34,010
125
32,064
Net income
1,833
13
1,846
Other comprehensive income
189
189
Dividends paid ($
0.31
 
per common share)
(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)
40
-
Other
1
1
1
3
Balances at March 31, 2019
$
18
46,877
(43,656)
(5,914)
35,534
122
32,981
*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
37.5
 
percent ownership
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
11 years
.
 
Our maximum exposure under this guarantee is
 
approximately $
170
 
million and
may become payable if an enforcement action is
 
commenced by the project finance lenders against
APLNG.
 
At March 31, 2020, the carrying value of this
 
guarantee was approximately $
14
 
million.
 
 
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy in
October 2008, we agreed to reimburse Origin
 
Energy for our share of the existing contingent liability
arising under guarantees of an existing obligation
 
of APLNG to deliver natural gas under
 
several sales
agreements with remaining terms of up to
22 years
.
 
Our maximum potential liability for future
payments, or cost of volume delivery, under these guarantees is estimated
 
to be $
640
 
million ($
1.2
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
26
years or the life of the venture
.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately $
120
 
million and would become payable if APLNG
 
does not perform.
 
At
March 31, 2020, the carrying value of these guarantees
 
was approximately $
6
 
million.
 
 
Other Guarantees
 
We have other guarantees with maximum future potential payment amounts totaling
 
approximately
$
810
 
million, which consist primarily of
 
guarantees of the residual value of leased office buildings,
 
guarantees
of the residual value of corporate aircrafts,
 
and a guarantee for our portion of a joint venture’s project finance
reserve accounts.
 
These guarantees have remaining terms
 
of up to
five years
 
and would become payable if,
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
 
$
11
 
million.
 
 
Indemnifications
Over the years, we have entered into agreements to
 
sell ownership interests in certain corporations,
 
joint
ventures and assets that gave rise to qualifying
 
indemnifications.
 
These agreements include indemnifications
for taxes and environmental liabilities.
 
The majority of these indemnifications are related
 
to tax issues and the
majority of these expire in 2021.
 
Those related to environmental issues have terms
 
that are generally indefinite
and the maximum amounts
 
of future payments are generally unlimited.
 
The carrying amount recorded for
these indemnification obligations at March 31, 2020,
 
was approximately $
70
 
million.
 
We amortize the
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 $
30
 
million
of environmental accruals for known contamination
 
that are included in the “Asset retirement
 
obligations and
accrued environmental costs” line on our consolidated
 
balance sheet.
 
For additional information about
environmental liabilities, see Note 12—Contingencies
 
and Commitments.
 
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 $
170
 
million,
compared with $
171
 
million at December 31, 2019, for remediation
 
activities in the U.S. and Canada.
 
We
expect to incur a substantial amount of these expenditures
 
within the next 30 years.
 
In the future, we may be
involved in additional environmental assessments,
 
cleanups and proceedings.
 
Legal Proceedings
We are subject to various lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
and severance tax payments, gas measurement and
 
valuation methods, contract disputes,
 
environmental
damages, climate change, personal injury, and property damage.
 
Our primary exposures for such matters
relate to alleged royalty and tax underpayments
 
on certain federal, state and privately owned
 
properties and
claims of alleged environmental contamination
 
from historic operations.
 
We will continue to defend ourselves
vigorously in these matters.
 
Our legal organization applies its knowledge, experience
 
and professional judgment to the specific
characteristics of our cases, employing a litigation
 
management process to manage and monitor the
 
legal
proceedings against us.
 
Our process facilitates the early evaluation and
 
quantification of potential exposures in
individual cases.
 
This process also enables us to track those cases that
 
have been scheduled for trial and/or
mediation.
 
Based on professional judgment and experience
 
in using these litigation management tools and
available information about current developments
 
in all our cases, our legal organization regularly assesses
 
the
adequacy of current accruals and determines if
 
adjustment of existing accruals, or establishment
 
of new
accruals, is required.
 
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and
 
processing companies
not associated with financing arrangements.
 
Under these agreements, we may be required
 
to provide any such
company with additional funds through advances
 
and penalties for fees related to throughput capacity
 
not
utilized.
 
In addition, at March 31, 2020, we had performance
 
obligations secured by letters of credit
 
of $
273
million (issued as direct bank letters of credit)
 
related to various purchase commitments for materials,
 
supplies,
commercial activities and services incident to
 
the ordinary conduct of business.
 
 
In 2007, ConocoPhillips was unable to reach agreement
 
with respect to the empresa mixta structure
 
mandated
by the Venezuelan government’s Nationalization Decree.
 
As a result, Venezuela’s
 
national oil company,
Petróleos de Venezuela, S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’
interests in the Petrozuata and Hamaca heavy oil
 
ventures and the offshore Corocoro development project.
 
In
response to this expropriation, ConocoPhillips
 
initiated international arbitration on November 2,
 
2007, with the
ICSID.
 
On September 3, 2013, an ICSID arbitration tribunal
 
held that Venezuela unlawfully expropriated
ConocoPhillips’ significant oil investments
 
in June 2007.
 
On January 17, 2017, the Tribunal reconfirmed the
decision that the expropriation was unlawful.
 
In March 2019, the Tribunal unanimously ordered the
government of Venezuela to pay ConocoPhillips approximately $
8.7
 
billion in compensation for the
government’s unlawful expropriation of the company’s investments in Venezuela in 2007.
 
ConocoPhillips has
filed a request for recognition of the award in several
 
jurisdictions.
 
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and reducing
 
it by approximately $
227
 
million.
 
The award now stands
at $
8.5
 
billion plus interest.
 
The government of Venezuela sought annulment of the award, which
automatically stayed enforcement of the award.
 
Annulment proceedings are underway.
 
 
In 2014, ConocoPhillips filed a separate and independent
 
arbitration under the rules of the ICC against
PDVSA under the contracts that had established the
 
Petrozuata and Hamaca projects.
 
The ICC Tribunal issued
an award in April 2018, finding that PDVSA owed
 
ConocoPhillips approximately $
2
 
billion under their
agreements in connection with the expropriation of the
 
projects and other pre-expropriation fiscal
 
measures.
 
In
August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC
award, plus interest through the payment period, including initial payments totaling approximately $500
million within a period of 90 days from the time of signing of the settlement agreement. The balance of the
settlement is to be paid quarterly over a period of four and a half years.
To date, ConocoPhillips has received
approximately $
754
 
million.
 
Per the settlement, PDVSA recognized the ICC
 
award as a judgment in various
 
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 $
55
 
million under the Corocoro contracts.
 
ConocoPhillips is seeking
recognition and enforcement of the award in various
 
jurisdictions.
 
ConocoPhillips has ensured that all the
actions related to the award meet all appropriate
 
U.S. regulatory requirements, including those
 
related to any
applicable sanctions imposed by the U.S. against
 
Venezuela.
 
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
$
364
288
Other assets
35
34
Liabilities
Other accruals
336
283
Other liabilities and deferred credits
23
28
 
 
The gains (losses) from commodity derivatives
 
incurred, and the line items where they appear
 
on our
consolidated income statement were:
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Sales and other operating revenues
$
47
19
Other income (loss)
2
(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)
 
Fixed price
-
(5)
 
Basis
(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
$
40
1
Other Assets
21
-
Liabilities
Other accruals
14
20
Other liabilities and deferred credits
-
8
 
 
The gains from foreign currency exchange derivatives
 
incurred and the line item where they appear
 
on our
consolidated income statement were:
Millions of Dollars
 
Three Months Ended
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
5
4
Sell CAD, buy USD
CAD
441
1,337
 
 
In the second quarter of 2019, we entered into foreign
 
currency exchange contracts to sell
CAD
1.35
 
billion at
CAD
0.748
 
against the
USD
.
 
In the first quarter of 2020, we entered into
 
forward currency exchange contracts
to buy
CAD
0.9
 
billion at CAD
0.718
 
against the
USD
.
 
 
 
Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for
 
the various accounts and
currency pools we manage.
 
The types of financial instruments in which we
 
currently invest include:
 
 
Time deposits: Interest bearing deposits placed with financial
 
institutions for a predetermined amount
of time.
 
 
Demand deposits:
 
Interest bearing deposits placed with financial
 
institutions.
 
Deposited funds can be
withdrawn without notice.
 
Commercial paper: Unsecured promissory notes issued
 
by a corporation, commercial bank or
government agency purchased at a discount to
 
mature at par.
 
U.S. government or government agency obligations:
 
Securities issued by the U.S. government
 
or U.S.
government agencies.
 
Corporate bonds:
 
Unsecured debt securities issued by corporations.
 
Asset-backed securities:
 
Collateralized debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
550
759
Demand Deposits
1,387
1,483
-
-
-
-
Time Deposits
Remaining maturities from 1 to 90 days
1,935
2,030
3,345
1,395
-
-
Remaining maturities from 91 to 180 days
-
-
274
465
-
-
Remaining maturities within one year
-
-
11
-
-
-
Remaining maturities greater than one year through
five years
-
-
-
-
3
-
Commercial Paper
Remaining maturities from 1 to 90 days
-
413
-
1,069
-
-
U.S. Government Obligations
Remaining maturities from 1 to 90 days
17
394
-
-
-
-
$
3,889
5,079
3,630
2,929
3
-
 
The following investments in debt securities
 
classified as available for sale are carried on our
 
consolidated balance
sheet at fair value:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
Investments and Long-Term
Receivables
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
March 31,
2020
December 31,
2019
Corporate Bonds
Maturities within one year
$
-
1
126
59
-
-
Maturities greater than one year through five years
-
-
-
-
140
99
Commercial Paper
Maturities within one year
19
8
110
30
-
-
U.S. Government Obligations
Maturities within one year
-
-
-
10
-
-
Maturities greater than one year through five years
-
-
-
-
21
15
U.S. Government Agency Obligations
Maturities greater than one year through five years
-
-
-
-
5
-
Asset-backed Securities
Maturities greater than one year through five years
-
-
-
-
38
19
$
19
9
236
99
204
133
 
 
 
 
 
 
 
 
 
 
 
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
$
269
266
Commercial paper
129
129
U.S. government obligations
21
21
U.S. government agency obligations
5
5
Asset-backed securities
38
38
$
462
459
 
 
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
30 days
 
or less, and we continually monitor this exposure
 
and the
creditworthiness of the counterparties.
 
We do not generally require collateral to limit the exposure to loss;
however, we will sometimes use letters of credit, prepayments
 
and master netting arrangements to mitigate
credit risk with counterparties that both buy from
 
and sell to us, as these agreements permit
 
the amounts owed
by us or owed to others to be offset against amounts
 
due to us.
 
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative
exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts
with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts
typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert
 
19
 
to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also
permit us to post letters of credit as collateral, such as transactions administered through the New York
Mercantile Exchange.
 
The aggregate fair value of all derivative
 
instruments with such credit risk-related contingent
 
features that were
in a liability position at March 31, 2020 and
 
December 31, 2019, was $
65
 
million and $
79
 
million,
respectively.
 
For these instruments,
no
 
collateral was posted as of March 31, 2020 or
 
December 31, 2019.
 
If
our credit rating had been downgraded below investment
 
grade at March 31, 2020,
 
we would have been
required to post $
63
 
million of additional collateral, either with
 
cash or letters of credit.
 
 
Note 14—Fair Value Measurement
 
We carry a portion of our assets and liabilities at fair value measured at the reporting date
 
using an exit price
(i.e., the price that would be received to sell an asset
 
or paid to transfer a liability) and disclosed
 
according to
the quality of valuation inputs under the following
 
hierarchy:
 
 
Level 1: Quoted prices (unadjusted) in an active
 
market for identical assets or liabilities.
 
Level 2: Inputs other than quoted prices that
 
are directly or indirectly observable.
 
Level 3: Unobservable inputs that are significant
 
to the fair value of assets or liabilities.
 
The classification hierarchy of an asset or liability
 
is based on the lowest level of input significant
 
to its fair
value.
 
Those that are initially classified as Level 3
 
are subsequently reported as Level 2 when
 
the fair value
derived from unobservable inputs is inconsequential
 
to the overall fair value, or if corroborated market
 
data
becomes available.
 
Assets and liabilities initially reported as Level
 
2 are subsequently reported as Level 3 if
corroborated market data is no longer available.
 
There were no material transfers into or
 
out of Level 3 during
2020 or 2019.
 
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair
 
value on a recurring basis primarily include
 
our investment in
Cenovus Energy common shares, our investments in debt
 
securities classified as available for sale, and
commodity derivatives.
 
 
 
Level 1 derivative assets and liabilities primarily
 
represent exchange-traded futures and options that are
valued using unadjusted prices available from the
 
underlying exchange.
 
Level 1 also includes our
investment in common shares of Cenovus Energy, which is valued using quotes for shares
 
on the NYSE,
and our investments in U.S. government obligations
 
classified as available for sale debt securities,
 
which
are valued using exchange prices.
 
 
Level 2 derivative assets and liabilities primarily
 
represent OTC swaps, options and forward purchase
 
and
sale contracts that are valued using adjusted exchange
 
prices, prices provided by brokers or pricing
 
service
companies that are all corroborated by market
 
data.
 
Level 2 also includes our investments in
 
debt
securities classified as available for sale including
 
investments in corporate bonds, commercial
 
paper,
asset-backed securities, and U.S. government
 
agency obligations that are valued using
 
pricing provided by
brokers or pricing service companies that are
 
corroborated with market data.
 
 
Level 3 derivative assets and liabilities consist
 
of OTC swaps, options and forward purchase and
 
sale
contracts where a significant portion of fair
 
value is calculated from underlying market
 
data that is not
readily available.
 
The derived value uses industry standard
 
methodologies that may consider the historical
relationships among various commodities, modeled
 
market prices, time value, volatility factors and other
relevant economic measures.
 
The use of these inputs results in management’s best estimate of fair
 
value.
 
Level 3 activity was not material for all
 
periods presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
420
-
-
420
2,111
-
-
2,111
Investments in debt securities
21
438
459
25
216
-
241
Commodity derivatives
196
168
35
399
172
114
36
322
Total assets
$
637
606
35
1,278
2,308
330
36
2,674
Liabilities
Commodity derivatives
$
244
102
13
359
174
115
22
311
Total liabilities
$
244
102
13
359
174
115
22
311
 
 
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
$
399
2
397
213
184
5
179
Liabilities
359
2
357
213
144
56
88
December 31, 2019
Assets
$
322
3
319
193
126
4
122
Liabilities
311
4
307
193
114
12
102
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
$
77
77
510
 
 
 
 
 
 
 
 
 
21
 
During the first quarter of 2020
, 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 carrying value was written down to fair value. The fair value was estimated based on
an internal discounted cash flow model using estimates of future production, an outlook of future prices using
a combination of exchanges (short-term) and external pricing services companies (long-term), future operating
costs and capital expenditures, and a discount rate believed to be consistent with those used by principal
market participants.
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
$
77
Discounted cash
flow
Natural gas production
(MMCFD)
8.4
 
-
55.2
 
(
22.9
)
Natural gas price outlook*
($/MMBTU)
$
2.67
 
- $
9.17
 
($
5.68
)
Discount rate**
7.9
%
 
-
9.1
% (
8.3
%)
* Henry Hub natural gas price outlook based on external pricing
 
service companies' outlooks for years 2022-2034; future
 
prices escalated at
2.2
% 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
$
420
2,111
420
2,111
Commodity derivatives
181
125
181
125
Investments in debt securities
459
241
459
241
Total loans and advances—related parties
270
339
270
339
Financial liabilities
Total debt, excluding finance leases
14,160
14,175
15,841
18,108
Commodity derivatives
90
106
90
106
 
 
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)
11
(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
$
8
13
The above amounts are included in the computation of net periodic benefit
 
cost and are presented net of tax expense of $
2
 
million and
$
5
 
million for the three-month periods ended March 31, 2020 and 2019, respectively.
 
See Note 17—Employee Benefit Plans, for additional
information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
Note 16—Cash Flow Information
Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Payments
Interest
$
200
199
Income taxes
465
700
Net Sales (Purchases) of Investments
Short-term investments purchased
$
(3,423)
(250)
Short-term investments sold
2,606
249
Investments and Long-term receivables purchased
(143)
-
Investments and Long-term receivables sold
25
-
$
(935)
(1)
 
 
Note 17—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
 
Pension Benefits
Other Benefits
2020
2019
2020
2019
U.S.
Int’l.
U.S.
Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost
$
21
14
20
19
1
-
Interest cost
17
22
21
26
2
2
Expected return on plan assets
(21)
(37)
(18)
(35)
-
-
Amortization of prior service credit
-
-
-
-
(8)
(8)
Recognized net actuarial loss (gain)
12
6
13
8
-
(1)
Settlements
1
(1)
6
-
-
-
Net periodic benefit cost
$
30
4
42
18
(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
 
$
12
 
million to our domestic benefit plans and
$
37
 
million to our international benefit plans.
 
In 2020, we expect to contribute a total of
 
approximately $
130
million to our domestic qualified and nonqualified
 
pension and postretirement benefit plans and $
70
 
million to
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
$
23
Accruals
5
Benefit payments
(4)
Foreign currency translation adjustments
(4)
Balance at March 31, 2020
$
20
 
 
Of the remaining balance at March 31, 2020, $
6
 
million is classified as short-term.
 
 
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
$
17
21
Purchases
-
21
Operating expenses and selling, general and administrative
 
expenses
15
14
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
 
Three Months Ended
March 31
2020
2019
Revenue from contracts with customers
$
4,911
7,059
Revenue from contracts outside the scope of ASC
 
Topic 606
Physical contracts meeting the definition of a derivative
1,296
2,081
Financial derivative contracts
(49)
10
Consolidated sales and other operating revenues
$
6,158
9,150
 
 
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
 
Three Months Ended
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment
Lower 48
$
976
1,613
Canada
179
241
Europe and North Africa
141
227
Physical contracts meeting the definition of a derivative
$
1,296
2,081
 
 
Millions of Dollars
 
Three Months Ended
March 31
2020
2019
Revenue from Contracts Outside the Scope of ASC Topic 606 by Product
Crude oil
$
92
188
Natural gas
1,090
1,768
Other
114
125
Physical contracts meeting the definition of a derivative
$
1,296
2,081
 
 
 
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.
 
We have long-term commodity sales
contracts which use prevailing market prices at the time of delivery, and under these contracts, the market-
based variable consideration for each performance obligation (i.e., delivery of commodity) is allocated to each
wholly unsatisfied performance obligation within the contract.
 
Accordingly,
we have applied the practical
expedient allowed in ASC Topic 606 and do not disclose the aggregate amount of the transaction price
allocated to performance obligations or when we expect to recognize revenues that are unsatisfied (or partially
unsatisfied) as of the end of the reporting period.
 
 
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 $
1,287
 
million compared with $
2,372
 
million at December 31, 2019, and includes
 
both
contracts with customers within the scope of ASC
 
Topic 606 and those that are outside the scope of ASC
Topic 606.
 
We typically receive payment within 30 days or less (depending on the terms of the invoice) once
delivery is made.
 
Revenues that are outside the scope of ASC Topic 606 relate primarily to
 
physical gas sales
contracts at market prices for which we do not
 
elect NPNS and are therefore accounted for
 
as a derivative
under ASC Topic 815.
 
There is little distinction in the nature
 
of the customer or credit quality of trade
receivables associated with gas sold under contracts
 
for which NPNS has not been elected
 
compared to trade
receivables where NPNS has been elected.
 
 
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology to customers related
to the optimization process for operating LNG plants. The agreements typically provide for negotiated
payments to be made at stated milestones. The payments are not directly related to our performance under the
contract and are recorded as deferred revenue to be recognized as revenue when the customer can utilize and
benefit from their right to use the license. Payments are received in installments over the construction period.
As of March 31, 2020 and December 31, 2019,
 
we had $
80
 
million of contract liabilities,
which we expect to
recognize as revenue during 2021 and 2022
.
 
There were
no
 
revenues recognized during the period included
 
in
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
six
 
operating segments, which are primarily defined
 
by geographic
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
$
1,113
1,407
Lower 48
3,103
4,153
Intersegment eliminations
(10)
(12)
Lower 48
3,093
4,141
Canada
513
823
Intersegment eliminations
(180)
(250)
Canada
333
573
Europe and North Africa
600
1,546
Asia Pacific and Middle East
1,003
1,343
Other International
3
-
Corporate and Other
13
140
Consolidated sales and other operating revenues
$
6,158
9,150
Sales and Other Operating Revenues by
 
Geographic Location
(1)
United States
$
4,217
5,686
Australia
437
559
Canada
333
573
China
146
243
Indonesia
204
205
Libya
44
254
Malaysia
216
336
Norway
446
588
United Kingdom
110
704
Other foreign countries
5
2
Worldwide consolidated
$
6,158
9,150
Sales and Other Operating Revenues by
 
Product
Crude oil
$
3,444
4,581
Natural gas
1,655
3,003
Natural gas liquids
151
238
Other
(2)
908
1,328
Consolidated sales and other operating revenues
 
by product
$
6,158
9,150
(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
$
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
Consolidated net income (loss) attributable
 
to ConocoPhillips
$
(1,739)
1,833
 
 
Millions of Dollars
March 31
December 31
2020
2019
Total Assets
Alaska
$
15,603
15,453
Lower 48
12,717
14,425
Canada
5,682
6,350
Europe and North Africa
7,056
8,121
Asia Pacific and Middle East
14,337
14,716
Other International
289
285
Corporate and Other
9,349
11,164
Consolidated total assets
$
65,033
70,514
 
 
Note 21—Income Taxes
 
Our effective tax rate for the first quarter of 2020
 
was negative
9.5
 
percent compared with
31
 
percent for the
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 $
346
 
million compared to a
decrease of $
103
 
million for the first quarter of 2019.
 
The change to our U.S. valuation allowance
 
for both
periods relates primarily to the fair value measurement
 
of our Cenovus Energy common shares and our
expectation of the tax impact related to incremental
 
capital gains (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
100
 
percent owned by
ConocoPhillips.
 
Burlington Resources LLC is
100
 
percent owned by ConocoPhillips Company.
 
ConocoPhillips and/or ConocoPhillips Company
 
have fully and unconditionally guaranteed
 
the payment
obligations of Burlington Resources LLC, with respect
 
to its publicly held debt securities.
 
Similarly,
ConocoPhillips has fully and unconditionally
 
guaranteed the payment obligations of ConocoPhillips
 
Company
with respect to its publicly held debt securities.
 
In addition, ConocoPhillips Company has
 
fully and
unconditionally guaranteed the payment obligations
 
of ConocoPhillips with respect to its publicly
 
held debt
securities.
 
All guarantees are joint and several.
 
The following 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
$
-
2,903
-
3,255
-
6,158
Equity in earnings (losses) of affiliates
(1,681)
120
(426)
233
1,988
234
Gain (loss) on dispositions
-
9
-
(51)
-
(42)
Other income (loss)
(1)
(1,646)
1
107
-
(1,539)
Intercompany revenues
-
30
3
907
(940)
-
Total Revenues and Other
 
Income (Loss)
(1,682)
1,416
(422)
4,451
1,048
4,811
Costs and Expenses
Purchased commodities
-
2,612
-
946
(897)
2,661
Production and operating expenses
-
160
1
1,013
(1)
1,173
Selling, general and administrative expenses
2
(23)
-
23
(5)
(3)
Exploration expenses
-
25
-
163
-
188
Depreciation, depletion and amortization
-
147
-
1,264
-
1,411
Impairments
-
2
-
519
-
521
Taxes other than income taxes
-
48
-
202
-
250
Accretion on discounted liabilities
-
4
-
63
-
67
Interest and debt expense
70
107
33
29
(37)
202
Foreign currency transaction gains
-
(1)
-
(89)
-
(90)
Other expenses
-
(6)
-
-
-
(6)
Total Costs and Expenses
72
3,075
34
4,133
(940)
6,374
Income (loss) before income taxes
(1,754)
(1,659)
(456)
318
1,988
(1,563)
Income tax provision (benefit)
(15)
22
(6)
147
-
148
Net income (loss)
(1,739)
(1,681)
(450)
171
1,988
(1,711)
Less: net income attributable to noncontrolling interests
-
-
-
(28)
-
(28)
Net Income (Loss) Attributable to ConocoPhillips
$
(1,739)
(1,681)
(450)
143
1,988
(1,739)
Comprehensive Income (Loss) Attributable to ConocoPhillips
$
(2,527)
(2,469)
(1,047)
(649)
4,165
(2,527)
Income Statement
Three Months Ended March 31, 2019
Revenues and Other Income
Sales and other operating revenues
$
-
3,981
-
5,169
-
9,150
Equity in earnings of affiliates
1,890
1,622
473
186
(3,983)
188
Gain (loss) on dispositions
-
(5)
-
22
-
17
Other income
1
508
-
193
-
702
Intercompany revenues
-
26
13
1,161
(1,200)
-
Total Revenues and Other
 
Income
1,891
6,132
486
6,731
(5,183)
10,057
Costs and Expenses
Purchased commodities
-
3,497
-
1,304
(1,126)
3,675
Production and operating expenses
-
180
1
1,091
(1)
1,271
Selling, general and administrative expenses
4
129
-
25
(5)
153
Exploration expenses
-
47
-
63
-
110
Depreciation, depletion and amortization
-
136
-
1,410
-
1,546
Impairments
-
-
-
1
-
1
Taxes other than income taxes
-
46
-
229
-
275
Accretion on discounted liabilities
-
4
-
82
-
86
Interest and debt expense
69
149
33
50
(68)
233
Foreign currency transaction losses
-
6
-
6
-
12
Other expenses
-
12
-
(4)
-
8
Total Costs and Expenses
73
4,206
34
4,257
(1,200)
7,370
Income before income taxes
1,818
1,926
452
2,474
(3,983)
2,687
Income tax provision (benefit)
(15)
36
(5)
825
-
841
Net income
1,833
1,890
457
1,649
(3,983)
1,846
Less: net income attributable to noncontrolling interests
-
-
-
(13)
-
(13)
Net Income Attributable to ConocoPhillips
$
1,833
1,890
457
1,636
(3,983)
1,833
Comprehensive Income Attributable to ConocoPhillips
$
2,022
2,079
581
1,816
(4,476)
2,022
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
$
-
1,903
-
2,005
-
3,908
Short-term investments
-
3,799
-
67
-
3,866
Accounts and notes receivable
5
1,688
2
2,876
(2,307)
2,264
Investment in Cenovus Energy
-
420
-
-
-
420
Inventories
-
60
-
666
-
726
Prepaid expenses and other current assets
1
256
-
1,703
-
1,960
Total Current Assets
6
8,126
2
7,317
(2,307)
13,144
Investments, loans and long-term receivables*
31,605
45,415
10,756
16,644
(95,546)
8,874
Net properties, plants and equipment
-
3,591
-
37,054
-
40,645
Other assets
4
661
249
2,065
(609)
2,370
Total Assets
$
31,615
57,793
11,007
63,080
(98,462)
65,033
Liabilities and Stockholders’ Equity
Accounts payable
$
-
2,148
66
3,014
(2,307)
2,921
Short-term debt
(3)
4
14
111
-
126
Accrued income and other taxes
-
85
-
768
-
853
Employee benefit obligations
-
237
-
86
-
323
Other accruals
57
354
38
1,403
-
1,852
Total Current Liabilities
54
2,828
118
5,382
(2,307)
6,075
Long-term debt
3,794
6,670
2,125
2,258
-
14,847
Asset retirement obligations and accrued environmental costs
-
322
-
4,994
-
5,316
Deferred income taxes
-
-
-
4,751
(610)
4,141
Employee benefit obligations
-
1,184
-
379
-
1,563
Other liabilities and deferred credits*
3,010
8,649
918
8,941
(19,814)
1,704
Total Liabilities
6,858
19,653
3,161
26,705
(22,731)
33,646
Retained earnings
30,987
20,217
1,713
10,625
(25,997)
37,545
Other common stockholders’ equity
(6,230)
17,923
6,133
25,678
(49,734)
(6,230)
Noncontrolling interests
-
-
-
72
-
72
Total Liabilities and Stockholders’
 
Equity
$
31,615
57,793
11,007
63,080
(98,462)
65,033
*Includes intercompany loans.
Balance Sheet
December 31, 2019
Assets
Cash and cash equivalents
$
-
3,439
-
1,649
-
5,088
Short-term investments
-
2,670
-
358
-
3,028
Accounts and notes receivable
5
2,088
2
3,881
(2,575)
3,401
Investment in Cenovus Energy
-
2,111
-
-
-
2,111
Inventories
-
168
-
858
-
1,026
Prepaid expenses and other current assets
1
352
-
1,906
-
2,259
Total Current Assets
6
10,828
2
8,652
(2,575)
16,913
Investments, loans and long-term receivables*
34,076
44,969
11,662
15,612
(97,413)
8,906
Net properties, plants and equipment
-
3,552
-
38,717
-
42,269
Other assets
3
765
253
2,210
(805)
2,426
Total Assets
$
34,085
60,114
11,917
65,191
(100,793)
70,514
Liabilities and Stockholders’ Equity
Accounts payable
$
-
2,670
21
3,084
(2,575)
3,200
Short-term debt
(3)
4
13
91
-
105
Accrued income and other taxes
-
79
-
951
-
1,030
Employee benefit obligations
-
508
-
155
-
663
Other accruals
84
408
35
1,518
-
2,045
Total Current Liabilities
81
3,669
69
5,799
(2,575)
7,043
Long-term debt
3,794
6,670
2,129
2,197
-
14,790
Asset retirement obligations and accrued environmental costs
-
322
-
5,030
-
5,352
Deferred income taxes
-
-
-
5,438
(804)
4,634
Employee benefit obligations
-
1,329
-
452
-
1,781
Other liabilities and deferred credits*
1,787
7,514
826
9,271
(17,534)
1,864
Total Liabilities
5,662
19,504
3,024
28,187
(20,913)
35,464
Retained earnings
33,184
21,898
2,164
10,481
(27,985)
39,742
Other common stockholders’ equity
(4,761)
18,712
6,729
26,454
(51,895)
(4,761)
Noncontrolling interests
-
-
-
69
-
69
Total Liabilities and Stockholders’
 
Equity
$
34,085
60,114
11,917
65,191
(100,793)
70,514
*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)
25
2,401
41
2,105
Cash Flows From Investing Activities
Capital expenditures and investments
-
(197)
(14)
(1,452)
14
(1,649)
Working capital changes associated
 
with investing activities
-
(9)
-
90
-
81
Proceeds from asset dispositions
-
140
-
409
-
549
Purchases of investments
-
(1,207)
-
272
-
(935)
Long-term advances/loans—related parties
-
(10)
-
-
10
-
Collection of advances/loans—related parties
-
71
-
66
(71)
66
Intercompany cash management
1,225
(48)
(11)
(1,166)
-
-
Other
-
-
-
(44)
-
(44)
Net Cash Provided by (Used in) Investing Activities
1,225
(1,260)
(25)
(1,825)
(47)
(1,932)
Cash Flows From Financing Activities
Issuance of debt
-
-
-
10
(10)
-
Repayment of debt
-
-
-
(95)
71
(24)
Issuance of company common stock
43
-
-
-
(41)
2
Repurchase of company common stock
(726)
-
-
-
-
(726)
Dividends paid
(458)
-
-
-
-
(458)
Other
1
-
-
(11)
(14)
(24)
Net Cash Used in Financing Activities
(1,140)
-
-
(96)
6
(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)
-
358
-
(1,179)
Cash, cash equivalents and restricted cash at beginning of period
-
3,443
-
1,919
-
5,362
Cash, Cash Equivalents and Restricted Cash at End of Period
$
-
1,906
-
2,277
-
4,183
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)
3,448
(359)
2,894
Cash Flows From Investing Activities
Capital expenditures and investments
-
(208)
-
(1,429)
-
(1,637)
Working capital changes associated
 
with investing activities
-
18
-
89
-
107
Proceeds from asset dispositions
-
142
-
-
-
142
Purchases of short-term investments
-
-
-
(1)
-
(1)
Long-term advances/loans—related parties
 
-
(19)
-
-
19
-
Collection of advances/loans—related parties
-
69
-
82
(89)
62
Intercompany cash management
1,163
205
16
(1,384)
-
-
Other
-
(150)
-
-
-
(150)
Net Cash Provided by (Used in) Investing Activities
1,163
57
16
(2,643)
(70)
(1,477)
Cash Flows From Financing Activities
Issuance of debt
-
-
-
19
(19)
-
Repayment of debt
-
(20)
-
(88)
89
(19)
Issuance of company common stock
(1)
-
-
-
(37)
(38)
Repurchase of company common stock
(752)
-
-
-
-
(752)
Dividends paid
(350)
-
-
(396)
396
(350)
Other
2
-
-
(16)
-
(14)
Net Cash Used in Financing Activities
(1,101)
(20)
-
(481)
429
(1,173)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted
 
Cash
-
-
-
75
-
75
Net Change in Cash, Cash Equivalents and Restricted Cash
-
(80)
-
399
-
319
Cash, cash equivalents and restricted cash at beginning of period
-
1,428
-
4,723
-
6,151
Cash, Cash Equivalents and Restricted Cash at End of Period
$
-
1,348
-
5,122
-
6,470
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
 
they announced a
 
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:
 
 
 
 
 
https://cdn.kscope.io/8d1e1afc919204350b5c6771cfad51f0-cop38i0.jpg
 
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
 
(millions of dollars)
$
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
 
(millions of dollars)
$
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
 
 
10.1*
 
31.1*
 
31.2*
 
32*
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
Attachment 1

 

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. 

 

 

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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.

 

TERMINATION OF EMPLOYMENT:

 

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;

 

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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.

 

 

Effective 2/11/2020                                               - 10 -

             


 

 

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

 

 

/s/ Ryan M. Lance

 

Ryan M. Lance

 

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

 

/s/ Don E. Wallette, Jr.

 

Don E. Wallette, Jr.

 

Executive Vice President and

Chief Financial Officer

 

 


 

Exhibit 32

 

 

 

 

 

 

 

 

 

 

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of ConocoPhillips (the Company) on Form 10-Q for the period ended 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

 

 

 

/s/ Ryan M. Lance

 

Ryan M. Lance

 

Chairman and

Chief Executive Officer

 

 

 

 

/s/ Don E. Wallette, Jr.

 

Don E. Wallette, Jr.

 

Executive Vice President and

Chief Financial Officer