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cop20213q10qp1i0.gif
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
September 30, 2021
or
[ ]
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
 
to
 
Commission file number:
 
001-32395
 
ConocoPhillips
(Exact name of registrant as specified in its charter)
Delaware
01-0562944
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification
No.)
925 N. Eldridge Parkway
,
Houston
,
TX
77079
(Address of principal executive offices)
 
(Zip Code)
281
-
293-1000
 
(Registrant's telephone number,
 
including area code)
Securities registered pursuant to
 
Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
 
was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
[x]
 
No [
 
]
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to
 
be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
 
such shorter period that
the registrant was required to submit such files).
 
Yes
[x]
 
No [
 
]
Indicate by check mark whether the registrant is a large accelerated
 
filer, an accelerated
 
filer, a non-accelerated
 
filer, a smaller
reporting company, or
 
an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
 
“smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
 
Act.
 
Large accelerated filer
 
[x]
 
Accelerated filer [
 
]
 
Non-accelerated filer [
 
]
 
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company,
 
indicate by check mark if the registrant has elected not to use the
 
extended transition period for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act. [
 
]
Indicate by check mark whether the registrant is a shell company (as defined in
 
Rule 12b-2 of the Exchange Act).
 
Yes [
 
] No
[x]
The registrant had
1,318,946,867
 
shares of common stock, $.01 par value, outstanding at September 30,
 
2021.
Commonly Used Abbreviations
1
 
ConocoPhillips
 
2021 Q3 10-Q
Commonly Used Abbreviations
The following industry-specific, accounting
 
and other terms, and abbreviations may
 
be commonly used in this
report.
 
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
EUR
Euro
ASU
accounting standards update
GBP
British pound
DD&A
depreciation, depletion and
amortization
Units of Measurement
FASB
Financial Accounting Standards
BBL
barrel
Board
BCF
billion cubic feet
FIFO
first-in, first-out
BOE
barrels of oil equivalent
G&A
general and administrative
MBD
thousands of barrels per day
GAAP
generally accepted accounting
 
MCF
thousand cubic feet
principles
MBOD
thousand barrels of oil per day
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MMBOD
million barrels of oil per day
SAB
staff accounting bulletin
MBOED
thousands of barrels of oil
 
VIE
variable interest entity
MMBOED
equivalent per day
millions of barrels of oil equivalent
per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
million cubic feet per day
EPA
Environmental Protection
 
Agency
ESG
Environmental, Social and
Corporate Governance
Industry
EU
European Union
CBM
coalbed methane
FERC
Federal Energy Regulatory
 
E&P
exploration and production
Commission
FEED
front-end engineering and design
GHG
greenhouse gas
FPS
floating production system
HSE
health, safety and environment
FPSO
floating production, storage
 
and
ICC
International Chamber of
 
offloading
Commerce
G&G
geological and geophysical
ICSID
World Bank’s
 
International
 
JOA
joint operating agreement
Centre for Settlement of
LNG
liquefied natural gas
Investment Disputes
NGLs
natural gas liquids
IRS
Internal Revenue Service
OPEC
Organization of Petroleum
 
OTC
over-the-counter
Exporting Countries
NYSE
New York Stock Exchange
PSC
production sharing contract
SEC
U.S. Securities and Exchange
 
PUDs
proved undeveloped reserves
Commission
SAGD
steam-assisted gravity
 
drainage
TSR
total shareholder return
WCS
Western Canada Select
U.K.
United Kingdom
WTI
West Texas
 
Intermediate
U.S.
United States of America
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
2
PART
 
I.
 
Financial Information
Item 1.
 
Financial Statements
Consolidated Income Statement
ConocoPhillips
 
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Revenues and Other Income
Sales and other operating revenues
$
11,326
4,386
30,708
13,293
Equity in earnings of affiliates
239
35
500
346
Gain (loss) on dispositions
2
(3)
294
551
Other income (loss)
49
(38)
884
(983)
Total
 
Revenues and Other Income
11,616
4,380
32,386
13,207
Costs and Expenses
Purchased commodities
4,179
1,839
11,660
5,630
Production and operating expenses
1,389
963
4,151
3,183
Selling, general and administrative
 
expenses
128
96
556
249
Exploration expenses
65
125
206
410
Depreciation, depletion and amortization
1,672
1,411
5,425
3,980
Impairments
(89)
2
(90)
521
Taxes
 
other than income taxes
403
179
1,154
570
Accretion on discounted liabilities
61
62
186
195
Interest and debt expense
219
200
665
604
Foreign currency transaction
 
(gain) loss
(10)
(5)
19
(88)
Other expenses
17
20
78
7
Total
 
Costs and Expenses
8,034
4,892
24,010
15,261
Income (loss) before income taxes
3,582
(512)
8,376
(2,054)
Income tax provision (benefit)
1,203
(62)
2,924
(171)
Net income (loss)
2,379
(450)
5,452
(1,883)
Less: net loss attributable to noncontrolling
 
interests
-
-
-
(46)
Net Income (Loss) Attributable
 
to ConocoPhillips
$
2,379
(450)
5,452
(1,929)
Net Income (Loss) Attributable
 
to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
1.78
(0.42)
4.10
(1.79)
Diluted
1.78
(0.42)
4.09
(1.79)
Average Common Shares
 
Outstanding
(in thousands)
Basic
1,332,286
1,077,377
1,327,216
1,079,525
Diluted
1,336,379
1,077,377
1,330,652
1,079,525
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
3
 
ConocoPhillips
 
2021 Q3 10-Q
 
Consolidated Statement
 
of Comprehensive Income
ConocoPhillips
 
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Net Income (Loss)
$
2,379
(450)
5,452
(1,883)
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for
 
amortization of prior
service credit included in net income (loss)
(9)
(8)
(28)
(24)
Net actuarial gain (loss) arising during the period
8
(78)
113
(73)
Reclassification adjustment for
 
amortization of net actuarial
losses included in net income (loss)
45
45
133
81
Income taxes on defined benefit
 
plans
(9)
10
(49)
3
Defined benefit plans, net of tax
35
(31)
169
(13)
Unrealized holding gain (loss) on securities
-
-
(1)
3
Income taxes on unrealized
 
holding gain on securities
-
-
-
(1)
Unrealized holding gain (loss) on securities,
 
net of tax
-
-
(1)
2
Foreign currency translation
 
adjustments
(237)
188
(72)
(302)
Income taxes on foreign
 
currency translation adjustments
(1)
2
(1)
4
Foreign currency translation
 
adjustments, net of tax
(238)
190
(73)
(298)
Other Comprehensive Income (Loss), Net of Tax
(203)
159
95
(309)
Comprehensive Income (Loss)
2,176
(291)
5,547
(2,192)
Less: comprehensive income attributable
 
to noncontrolling interests
-
-
-
(46)
Comprehensive Income (Loss) Attributable
 
to ConocoPhillips
$
2,176
(291)
5,547
(2,238)
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
4
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars
September 30
December 31
2021
2020
Assets
Cash and cash equivalents
$
9,833
2,991
Short-term investments
678
3,609
Accounts and notes receivable (net of allowance
 
of $
2
 
and $
4
, respectively)
5,336
2,634
Accounts and notes receivable—related
 
parties
129
120
Investment in Cenovus Energy
1,416
1,256
Inventories
1,043
1,002
Prepaid expenses and other current
 
assets
1,746
454
Total
 
Current Assets
20,181
12,066
Investments and long-term receivables
8,058
8,017
Loans and advances—related parties
-
114
Net properties, plants and equipment
(net of accumulated DD&A of $
65,223
 
and $
62,213
, respectively)
56,689
39,893
Other assets
2,376
2,528
Total
 
Assets
$
87,304
62,618
Liabilities
Accounts payable
$
4,101
2,669
Accounts payable—related
 
parties
30
29
Short-term debt
920
619
Accrued income and other taxes
2,082
320
Employee benefit obligations
691
608
Other accruals
2,625
1,121
Total
 
Current Liabilities
10,449
5,366
Long-term debt
18,748
14,750
Asset retirement obligations
 
and accrued environmental costs
5,721
5,430
Deferred income taxes
5,630
3,747
Employee benefit obligations
1,162
1,697
Other liabilities and deferred credits
1,479
1,779
Total
 
Liabilities
43,189
32,769
Equity
Common stock (
2,500,000,000
 
shares authorized at $
0.01
 
par value)
Issued (2021—
2,089,046,718
 
shares; 2020—
1,798,844,267
 
shares)
Par value
21
18
Capital in excess of par
60,431
47,133
Treasury stock
 
(at cost: 2021—
770,099,851
 
shares; 2020—
730,802,089
 
shares)
(49,521)
(47,297)
Accumulated other comprehensive
 
loss
(5,123)
(5,218)
Retained earnings
38,307
35,213
Total
 
Equity
44,115
29,849
Total
 
Liabilities and Equity
$
87,304
62,618
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
5
 
ConocoPhillips
 
2021 Q3 10-Q
Consolidated Statement
 
of Cash Flows
ConocoPhillips
Millions of Dollars
Nine Months Ended
September 30
2021
2020
Cash Flows From Operating Activities
Net income (loss)
$
5,452
(1,883)
Adjustments to reconcile net income
 
(loss) to net cash provided by operating
activities
Depreciation, depletion and amortization
5,425
3,980
Impairments
(90)
521
Dry hole costs and leasehold impairments
7
114
Accretion on discounted liabilities
186
195
Deferred taxes
895
(428)
Undistributed equity earnings
258
450
Gain on dispositions
(294)
(551)
(Gain) loss on investment in Cenovus
 
Energy
(743)
1,302
Other
(866)
(188)
Working capital adjustments
Decrease (increase) in accounts and notes
 
receivable
(1,619)
1,132
Increase in inventories
(13)
(74)
Increase in prepaid expenses and other current
 
assets
(800)
(49)
Increase (decrease) in accounts payable
682
(583)
Increase (decrease) in taxes
 
and other accruals
2,648
(808)
Net Cash Provided by Operating
 
Activities
11,128
3,130
Cash Flows From Investing Activities
Cash acquired from Concho
382
-
Capital expenditures and investments
(3,767)
(3,657)
Working capital changes
 
associated with investing activities
79
(229)
Proceeds from asset dispositions
792
1,312
Net sales (purchases) of investments
2,846
(1,089)
Collection of advances/loans—related parties
105
116
Other
(386)
(31)
Net Cash Provided by (Used in) Investing
 
Activities
51
(3,578)
Cash Flows From Financing Activities
Issuance of debt
-
300
Repayment of debt
(363)
(234)
Issuance of company common stock
27
(2)
Repurchase of company common
 
stock
(2,224)
(726)
Dividends paid
 
(1,750)
(1,367)
Other
6
(27)
Net Cash Used in Financing Activities
(4,304)
(2,056)
Effect of Exchange
 
Rate Changes on Cash, Cash Equivalents
 
and Restricted Cash
(3)
(62)
Net Change in Cash, Cash Equivalents and
 
Restricted Cash
6,872
(2,566)
Cash, cash equivalents and restricted
 
cash at beginning of period
3,315
5,362
Cash, Cash Equivalents and Restricted
 
Cash at End of Period
$
10,187
2,796
Restricted cash of $
95
 
million and $
259
 
million are included in the "Prepaid expenses and other current assets" and "Other
 
assets" lines,
respectively, of our Consolidated Balance Sheet as of September 30, 2021.
Restricted cash of $
94
 
million and $
230
 
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, 2020.
See Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
6
Notes to Consolidated
 
Financial Statements
Note 1—Basis of Presentation
The interim-period financial information
 
presented in the financial statements
 
included in this report is unaudited
and, in the opinion of management, includes all known accruals and
 
adjustments necessary for a fair presentation
of the consolidated financial position of ConocoPhillips
 
,
 
its results of operations and cash flows
 
for such periods.
 
All such adjustments are of a normal and recurring
 
nature unless otherwise disclosed.
 
Certain notes and other
information have been condensed
 
or omitted from the interim financial statements
 
included in this report.
 
Therefore, these financial statements
 
should be read in conjunction with the consolidated
 
financial statements and
notes included in our 2020 Annual Report on Form
 
10-K.
 
Note 2—Inventories
Millions of Dollars
September 30
 
December 31
2021
2020
Crude oil and natural gas
$
485
461
Materials and supplies
558
541
Total
 
Inventories
$
1,043
1,002
Inventories valued on
 
the LIFO basis
 
$
305
282
Note 3—Acquisitions and Dispositions
Announced Acquisition of Shell Permian Assets
In September 2021, we signed a definitive agreement
 
to acquire Shell Enterprises LLC’s
 
assets in the Delaware
Basin in an all-cash transaction for $
9.5
 
billion before customary
 
adjustments (Shell Permian Acquisition).
 
Assets
to be acquired include approximately
225,000
 
net acres and producing properties
 
located entirely in Texas,
 
as well
as over
600
 
miles of operated crude, gas and
 
water pipelines and infrastructure.
 
The acquisition is anticipated to
close in the fourth quarter of 2021, subject to regulatory
 
approval and other customary
 
closing conditions.
 
Under
the terms of the agreement, we paid a deposit of $
475
 
million which is presented within “Cash
 
Flows from
Investing Activities - Other” on our consolidated statement
 
of cash flows.
 
Acquisition of
Concho Resources Inc.
 
(Concho)
We completed our acquisition
 
of Concho on
January 15, 2021
 
and as defined under the terms of the transaction
agreement, each share of Concho common stock
 
was exchanged for
1.46
 
shares of ConocoPhillips common stock,
for total consideration
 
of $
13.1
 
billion.
Total Consideration
 
Number of shares of Concho common stock issued
 
and outstanding (in thousands)*
194,243
 
Number of shares of Concho stock awards
 
outstanding (in thousands)*
1,599
Number of shares exchanged
195,842
 
Exchange ratio
1.46
 
Additional shares of ConocoPhillips common stock
 
issued as consideration (in thousands)
285,929
 
Average price per share of ConocoPhillips
 
common stock**
$
45.9025
 
Total Consideration
 
(Millions)
$
13,125
 
*Outstanding as of January 15, 2021.
**Based on the ConocoPhillips average stock
 
price on January 15, 2021.
 
 
 
 
 
 
Notes to Consolidated Financial Statements
7
 
ConocoPhillips
 
2021 Q3 10-Q
The transaction was accounted
 
for as a business combination under FASB
 
ASC 805 using the acquisition method,
which requires assets acquired and
 
liabilities assumed to be measured at their acquisition date
 
fair values.
 
Fair
value measurements were made
 
for acquired assets and liabilities, and
 
adjustments to those measurements
 
may
be made in subsequent periods, up to one year
 
from the acquisition date as we identify new information
 
about
facts and circumstances that
 
existed as of the acquisition date to
 
consider.
 
Oil and gas properties were valued
using a discounted cash flow approach
 
incorporating market participant
 
and internally generated price
assumptions; production profiles; and, operating
 
and development cost assumptions.
 
Debt assumed in the
acquisition was valued based on observable
 
market prices.
 
The fair values determined for
 
accounts receivables,
accounts payable, and most
 
other current assets and current liabilities were
 
equivalent to the carrying value
 
due to
their short-term nature.
 
The total consideration
 
of $
13.1
 
billion was allocated to the identifiable
 
assets and
liabilities based on their fair values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
382
Accounts receivable, net
745
Inventories
45
Prepaid expenses and other current
 
assets
37
Investments and long-term receivables
333
Net properties, plants and equipment
18,968
Other assets
62
Total assets
 
acquired
$
20,572
Liabilities Assumed
Accounts payable
$
638
Accrued income and other taxes
49
Employee benefit obligations
4
Other accruals
510
Long-term debt
4,696
Asset retirement obligations
 
and accrued environmental costs
310
Deferred income taxes
1,123
Other liabilities and deferred credits
117
Total liabilities
 
assumed
$
7,447
Net assets acquired
$
13,125
With the completion of the Concho transaction,
 
we acquired proved and unproved
 
properties of approximately
$
11.8
 
billion and $
6.9
 
billion, respectively.
 
We recognized approximately
 
$
157
 
million of transaction-related costs,
 
all of which were expensed in the first
quarter of 2021.
 
These non-recurring costs related
 
primarily to fees paid to advisors
 
and the settlement of share-
based awards for certain Concho
 
employees based on the terms of the Merger Agreement.
In the first quarter of 2021, we commenced
 
a company-wide restructuring program,
 
the scope of which included
combining the operations of the two companies
 
as well as other global restructuring activities.
 
For the three-
 
and
nine-month periods ending September 30, 2021, we recognized
 
non-recurring restructuring costs
 
of approximately
$
52
 
million and $
209
 
million, respectively,
 
mainly for employee severance
 
and related incremental
 
pension benefit
costs.
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
8
The impact from these transaction and restructuring
 
costs to the lines of our consolidated income statement
 
for
the nine-month period ending September 30, 2021, are
 
below:
Millions of Dollars
Transaction
 
Cost
Restructuring Cost
Total
 
Cost
Production and operating expenses
$
110
110
Selling, general and administration
 
expenses
135
64
199
Exploration expenses
18
4
22
Taxes
 
other than income taxes
4
2
6
Other expenses
-
29
29
$
157
209
366
On February 8, 2021, we completed a debt
 
exchange offer
 
related to the debt assumed from Concho.
 
As a result
of the debt exchange, we recognized
 
an additional income tax related
 
restructuring charge of $
75
 
million.
 
From the acquisition date through
 
September 30, 2021, “Total Revenues
 
and Other Income” and “Net Income
(Loss) Attributable to ConocoPhillips”
 
associated with the acquired Concho business
 
were approximately $
4,499
million and $
1,600
 
million, respectively.
 
The results associated with the Concho business
 
for the same period
include a before- and after-tax
 
loss of $
305
 
million and $
233
 
million, respectively,
 
on the acquired derivative
contracts.
 
The before-tax loss is recorded
 
within “Total Revenues
 
and Other Income” on our consolidated
 
income
statement.
 
The following summarizes the unaudited
 
supplemental pro forma financial information
 
as if we had completed the
acquisition of Concho on January 1, 2020:
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Total
 
revenues and other income
$
5,019
16,384
Net loss
(565)
(1,184)
Net loss attributable to ConocoPhillips
(565)
(1,230)
$ per share
Earnings per share:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Basic net loss
$
(0.41)
(0.90)
Diluted net loss
(0.41)
(0.90)
The unaudited supplemental pro forma
 
financial information is presented
 
for illustration purposes
 
only and is not
necessarily indicative of the operating
 
results that would have occurred
 
had the transaction been completed on
January 1, 2020, nor is it necessarily indicative of future
 
operating results of the combined entity.
 
The unaudited
pro forma financial information
 
for the three-
 
and nine-month periods ending September 30, 2020 is
 
a result of
combining the consolidated income statement
 
of ConocoPhillips with the results of Concho.
 
The pro forma results
do not include transaction-related
 
costs, nor any cost savings
 
anticipated as a result of the transaction.
 
The pro
forma results include adjustments
 
to reverse impairment expense
 
of $
10.5
 
billion and $
1.9
 
billion related to oil and
gas properties and goodwill, respectively,
 
recorded by Concho in the nine-month
 
period ending September 30,
2020.
 
Other adjustments made relate
 
primarily to DD&A, which is based on the unit-of-production
 
method,
resulting from the purchase price allocated
 
to properties, plants and equipment.
 
We believe the estimates
 
and
assumptions are reasonable, and the relative
 
effects of the transaction
 
are properly reflected.
Notes to Consolidated Financial Statements
9
 
ConocoPhillips
 
2021 Q3 10-Q
Assets Sold
In 2020, we completed the sale of our Australia
 
-West asset and operations.
 
The sales agreement entitled us to a
$
200
 
million payment upon a final investment
 
decision (FID) of the Barossa development project.
 
On March 30,
2021, FID was announced and as such, we recognized
 
a $
200
 
million gain on disposition in the first
 
quarter of 2021.
 
The purchaser failed to pay the
 
FID bonus when due.
 
We have commenced an arbitration
 
proceeding against the
purchaser to enforce our contractual
 
right to the $
200
 
million, plus interest accruing from the
 
due date.
 
Results of
operations related to
 
this transaction are reflected
 
in our Asia Pacific segment.
 
In the third quarter of 2021, we sold our interests
 
in certain noncore assets in our Lower 48 segment
 
for
approximately $
150
 
million after customary adjustments,
 
recognizing a before-tax gain
 
on sale of approximately
$
26
 
million.
 
Production from these noncore Lower
 
48 properties averaged
 
approximately
15
 
MBOED in the nine-
months ended September 30, 2021.
 
We also completed the sale of our
 
noncore exploration interests
 
in Argentina,
recognizing a before-tax
 
loss on disposition of $
179
 
million. Results of operations
 
for Argentina were reported
 
in
our Other International segment.
 
For the three- and nine-months ended September
 
30, 2021, we recorded contingent
 
payments of $
121
 
million and
$
222
 
million, respectively,
 
relating to previous dispositions.
 
The contingent payments are
 
recorded as gain on
disposition on our consolidated income statement
 
and are reflected within our Canada
 
and Lower 48 segments.
 
No
 
contingent payments were
 
recorded in 2020.
 
Note 4—Investments,
 
Loans and Long-Term
 
Receivables
 
Australia Pacific LNG Pty Ltd
 
(APLNG)
APLNG executed project financing
 
agreements for an $
8.5
 
billion project finance facility in 2012.
 
All amounts were
drawn from the facility.
 
The project financing facility has been restructured
 
over time and at September 30, 2021,
this facility was composed of a financing agreement
 
with the Export-Import Bank of the United States,
 
a
commercial bank facility and
two
 
United States Private
 
Placement note facilities.
 
APLNG made its first principal
and interest repayme
 
nt in March 2017 and is scheduled to make
 
bi-annual payments until September
 
2030.
 
At
September 30, 2021, a balance of $
5.7
 
billion was outstanding on these
 
facilities.
 
 
During the fourth quarter of 2020, the estimated
 
fair value of our investment
 
in APLNG declined to an amount
below carrying value, primarily due to the weakening
 
of the U.S. dollar relative to the Australian
 
dollar.
 
Based on a
review of the facts and circumstances
 
surrounding this decline in fair value, we concluded
 
the impairment was not
other than temporary under the guidance of FASB
 
ASC Topic
 
323, “Investments – Equity
 
Method and Joint
Ventures.”
 
Due primarily to improved outlooks for
 
commodity prices and the strengthening
 
of the U.S. dollar
relative to the Australian
 
dollar during the first nine months of 2021, the estimated
 
fair value of our investment
increased and is above carrying value at
 
September 30, 2021.
 
On October 25, 2021, Origin Energy Limited agreed
 
to the sale of
10
 
percent of their interest
 
in APLNG for
approximately $
1.6
 
billion which is expected to close in the fourth
 
quarter of 2021.
 
The transaction is subject to
preemption rights in favor
 
of ConocoPhillips and Sinopec among other considerations.
 
We will continue to
monitor and evaluate the relationship
 
between the carrying value and fair value
 
of APLNG, including any impact
from this announced transaction.
At September 30, 2021, the carrying value
 
of our equity method investment
 
in APLNG was $
6.4
 
billion.
 
The
balance is included in the “Investments and
 
long-term receivables” line on our consolidated
 
balance sheet.
Loans
As part of our normal ongoing business operations,
 
and consistent with industry practice, we enter
 
into numerous
agreements with other parties to pursue
 
business opportunities.
 
Included in such activity are loans made to
certain affiliated and non-affiliated
 
companies.
 
At September 30, 2021, significant loans
 
to affiliated companies
included $
114
 
million in project financing to Qatar Liquefied
 
Gas Company Limited (3), which is recorded
 
within
the “Accounts
 
and notes receivable—related
 
parties” line on our consolidated balance sheet
.
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
10
Note 5—Investment in Cenovus
 
Energy
Our investment in Cenovus Energy
 
(CVE) shares is carried on our consolidated
 
balance sheet at fair value of $
1.4
billion based on the closing price of $
10.06
 
per share on the NYSE on the last trading
 
day of the quarter.
 
At
September 30, 2021 and December 31, 2020, we held
141
 
million and
208
 
million shares of CVE common stock,
respectively.
 
At September 30, 2021, our investment
 
approximated
7
 
percent of the issued and outstanding
 
CVE
common stock.
During the third quarter,
 
we sold
47
 
million shares of our CVE common stock, recognizing
 
proceeds of $
404
 
million.
 
Since we began disposing of our CVE shares
 
in May 2021, we have sold
67
 
million shares for total proceeds
 
of $
584
million, of which $
569
 
million was received by the end of the third
 
quarter.
 
Subject to market conditions, we
intend to continue to decrease
 
our investment over time.
 
All gains and losses are recognized
 
within “Other income (loss)” on our consolidated
 
income statement.
 
Proceeds
related to the sale of our CVE shares are
 
presented within “Cash Flows from Investing
 
Activities” on our
consolidated statement
 
of cash flows.
 
for information related
 
to fair value measurement
.
Millions of Dollars
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Total
 
Net gain (loss) on equity securities
$
17
(162)
743
(1,302)
Less: Net gain (loss) on equity securities sold during
 
the period
(50)
-
177
-
Unrealized gain (loss) on equity securities
 
still held at
 
the reporting date
$
67
(162)
566
(1,302)
Note 6—Impairments
 
During the three-
 
and nine-month periods ended September 30, 2021 and
 
2020, we recognized before
 
-tax
impairment charges within the following
 
segments:
Millions of Dollars
 
Three Months Ended
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Alaska
$
-
-
3
-
Lower 48
 
(89)
1
(93)
514
Europe, Middle East and North Africa
-
1
-
7
$
(89)
2
(90)
521
In the three-month period ended September 30, 2021,
 
we recorded a credit to impairment
 
of $
89
 
million in our
Lower 48 segment due to a decreased ARO
 
estimate for a previously
 
sold asset, in which we retained the ARO
liability.
 
In the first quarter of 2020, we recorded
 
impairments of $
511
 
million related to certain noncore
 
natural gas assets
in the Lower 48 segment which were written
 
down to fair value.
 
Notes to Consolidated Financial Statements
11
 
ConocoPhillips
 
2021 Q3 10-Q
Note 7—Debt
 
Our debt balance at September 30, 2021, was
 
$
19.7
 
billion compared with $
15.4
 
billion at December 31, 2020.
 
On January 15, 2021, we completed the acquisition of Concho
 
in an all-stock transaction.
 
In the acquisition, we
assumed Concho’s publicly
 
traded debt, with an outstanding principal balance
 
of $
3.9
 
billion, which was recorded
at fair value of $
4.7
 
billion on the acquisition date.
 
Debt assumed consisted of the following:
3.75
% Notes due
2027
 
with principal of $
1,000
 
million
4.3
% Notes due
2028
 
with principal of $
1,000
 
million
2.4
% Notes due
2031
 
with principal of $
500
 
million
4.875
% Notes due
2047
 
with principal of $
800
 
million
4.85
% Notes due
2048
 
with principal of $
600
 
million
The adjustment to fair value of the senior
 
notes of approximately $
0.8
 
billion on the acquisition date will be
amortized as an adjustment to interest
 
expense over the remaining contractual
 
terms of the senior notes.
In the first quarter of 2021, we completed
 
a debt exchange offer
 
related to the debt assumed from
 
Concho.
 
Of the
approximately $
3.9
 
billion in aggregate principal amount
 
of Concho’s senior notes
 
offered in the exchange,
98
percent, or approximately
 
$
3.8
 
billion, were tendered and accepted.
 
The new debt issued by ConocoPhillips had
the same interest rates
 
and maturity dates as the Concho senior notes.
 
The portion not exchanged, approximately
$
67
 
million, remained outstanding across
 
five series of senior notes issued by Concho.
 
The debt exchange was
treated as a debt modification for
 
accounting purposes resulting in a portion
 
of the unamortized fair value
adjustment of the Concho senior notes allocated
 
to the new debt issued by ConocoPhillips on the settlement
 
date
of the exchange.
 
The new debt issued in the exchange is
 
fully and unconditionally guaranteed by
 
ConocoPhillips
Company.
 
We have a revolving
 
credit facility totaling $
6.0
 
billion with an expiration date
 
of
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 facility agreement calls for
 
commitment fees on available,
 
but unused, amounts.
 
The facility agreement also contains
 
early termination rights if our current directors
 
or their approved successors
cease to be a majority of the Board of Directors.
The revolving credit facility supports
 
our ability to issue up to $
6.0
 
billion of commercial paper.
 
Commercial paper
is generally limited to
maturities of 90 days
 
and is included in the short-term debt on our consolidated
 
balance
sheet. With no commercial paper outstanding
 
and
no
 
direct borrowings or letters
 
of credit, we had access to $
6.0
billion in available borrowing capacity
 
under our revolving credit facility at
 
September 30, 2021.
 
At December 31,
2020, we had $
300
 
million of commercial paper outstanding
 
and
no
 
direct borrowings or letters of credit
 
issued.
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
12
Following our September 20, 2021, announcement
 
regarding the Shell Permian
 
Acquisition,
 
the three rating
agencies reviewed their pre-announcement
 
ratings on our debt resulting in the
 
following:
Fitch affirmed its rating of our long-term debt as “A” with a “stable” outlook.
 
S&P affirmed its rating of our long-term debt of “A-” with a “stable” outlook.
 
Moody’s affirmed its rating of our senior long-term debt of “A3” and upgraded the outlook to “positive”
from “stable.”
 
We do not have any
 
ratings triggers on any of our
 
corporate debt that would
 
cause an automatic default, and
thereby impact our access to liquidity,
 
upon downgrade of our credit ratings.
 
If our credit ratings are downgraded
from their current levels, it could
 
increase the cost of corporate
 
debt available to us and restrict
 
our access to the
commercial paper markets.
 
If our credit rating were to deteriorate
 
to a level prohibiting us from accessing
 
the
commercial paper market, we
 
would still be able to access funds under our revolving
 
credit facility.
 
At September 30, 2021, we had $
283
 
million of certain variable rate
 
demand bonds (VRDBs) outstanding with
maturities ranging through 2035.
 
The VRDBs are redeemable at the option of the bondholders
 
on any business
day.
 
If they are ever redeemed, we have
 
the ability and intent to refinance on
 
a long-term basis, therefore, the
VRDBs are included in the “Long-term debt” line on our consolidated
 
balance sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
13
 
ConocoPhillips
 
2021 Q3 10-Q
Note 8—Changes in Equity
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2021
Balances at June 30, 2021
$
21
60,337
(48,278)
(4,920)
37,116
44,276
Net income
2,379
2,379
Other comprehensive income
(203)
(203)
Dividends paid ($
0.43
 
per common share)
(579)
(579)
Dividends payable ($
0.46
 
per common share)
(609)
(609)
Repurchase of company common stock
(1,243)
(1,243)
Distributed under benefit plans
94
94
Balances at September 30, 2021
$
21
60,431
(49,521)
(5,123)
38,307
-
44,115
For the nine months ended September 30, 2021
Balances at December 31, 2020
$
18
47,133
(47,297)
(5,218)
35,213
29,849
Net income
5,452
5,452
Other comprehensive income
95
95
Dividends paid ($
1.29
 
per common share)
(1,750)
(1,750)
Dividends payable ($
0.46
 
per common share)
(609)
(609)
Acquisition of Concho
3
13,122
13,125
Repurchase of company common stock
(2,224)
(2,224)
Distributed under benefit plans
176
176
Other
 
1
1
Balances at September 30, 2021
$
21
60,431
(49,521)
(5,123)
38,307
-
44,115
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
For the three months ended September 30, 2020
Balances at June 30, 2020
$
18
47,079
(47,130)
(5,825)
37,351
31,493
Net income
(450)
(450)
Other comprehensive income
159
159
Dividends paid ($
0.42
 
per common share)
(454)
(454)
Distributed under benefit plans
34
34
Other
 
1
1
Balances at September 30, 2020
$
18
47,113
(47,130)
(5,666)
36,448
-
30,783
For the nine months ended September 30, 2020
Balances at December 31, 2019
$
18
46,983
(46,405)
(5,357)
39,742
69
35,050
Net income
(1,929)
46
(1,883)
Other comprehensive loss
(309)
(309)
Dividends paid ($
1.26
 
per common share)
(1,367)
(1,367)
Repurchase of company common stock
(726)
(726)
Distributions to noncontrolling interests and other
(32)
(32)
Dispositions
(84)
(84)
Distributed under benefit plans
130
130
Other
 
1
2
1
4
Balances at September 30, 2020
$
18
47,113
(47,130)
(5,666)
36,448
-
30,783
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
14
Note 9—Guarantees
At September 30, 2021, we were
 
liable for certain contingent
 
obligations under various contractual
 
arrangements
as described below.
 
We recognize a liability,
 
at inception, for the fair value
 
of our obligation as a guarantor
 
for
newly issued or modified guarantees.
 
Unless the carrying amount of the liability is noted below,
 
we have not
recognized a liability because the
 
fair value of the obligation
 
is immaterial.
 
In addition, unless otherwise stated, we
are not currently performing with any
 
significance under the guarantee and expect
 
future performance to be
either immaterial or have only a remote
 
chance of occurrence.
APLNG Guarantees
At September 30, 2021, we had outstanding
 
multiple guarantees in connection with our
37.5
 
percent ownership
interest in APLNG.
 
The following is a description of the guarantees
 
with values calculated utilizing September
 
2021
exchange rates:
 
 
During the third quarter of 2016, we issued a guarantee
 
to facilitate the withdrawal
 
of our pro-rata portion
of the funds in a project finance reserve account.
 
We estimate the remaining
 
term of this guarantee
 
is
9
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 September 30,
2021, the carrying value of this guarantee
 
was $
14
 
million.
In conjunction with our original purchase of an ownership
 
interest in APLNG from Origin Energy
 
Limited in
October 2008, we agreed to reimburse
 
Origin Energy Limited for our share
 
of the existing contingent liability
arising under guarantees of an existing
 
obligation of APLNG to deliver natural
 
gas under several sales
agreements with remaining terms of
1 to 21 years
.
 
Our maximum potential liability for future
 
payments, or
cost of volume delivery,
 
under these guarantees is estimated
 
to be $
670
 
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
15 to 24
years
 
or the life of the venture.
 
Our maximum potential amount of future payments
 
related to these
guarantees is approximately
 
$
180
 
million and would become payable
 
if APLNG does not perform.
 
At
September 30, 2021, the carrying value of these guarantees
 
was $
11
 
million.
 
Other Guarantees
We have other guarantees
 
with maximum future potential payment
 
amounts totaling approximately
 
$
720
 
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
one to five years
 
and would become payable if certain asset
 
values are
lower than guaranteed amounts
 
at the end of the lease or contract term, business
 
conditions decline at
guaranteed entities, or as a result
 
of nonperformance of contractual
 
terms by guaranteed parties.
 
At September
30, 2021, the carrying value of these guarantees
 
was $
11
 
million.
 
Indemnifications
Over the years, we have entered
 
into agreements to sell ownership
 
interests in certain legal entities,
 
joint ventures
and assets that gave rise to
 
qualifying indemnifications.
 
These agreements include indemnifications for
 
taxes,
lease commitments and environmental
 
liabilities.
 
Those related to environmental
 
issues have terms that are
generally indefinite and the maximum
 
amounts of future payments are
 
generally unlimited.
 
The carrying amount
recorded for these indemnification
 
obligations at September 30, 2021, was $
30
 
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
Notes to Consolidated Financial Statements
15
 
ConocoPhillips
 
2021 Q3 10-Q
an appropriate time period as the fair
 
value of our indemnification exposure
 
declines.
 
Although it is reasonably
possible future payments may exceed
 
amounts recorded, due to the nature
 
of the indemnifications, it is not
possible to make a reasonable estimate
 
of the maximum potential amount
 
of future payments.
 
for
additional information about environmental
 
liabilities
.
 
Note 10—Contingencies and Commitments
A number of lawsuits involving a variety
 
of claims arising in the ordinary course of business
 
have been filed against
ConocoPhillips.
 
We also may be required
 
to remove or mitigate
 
the effects on the environment
 
of the placement,
storage, disposal or release of
 
certain chemical, mineral and petroleum
 
substances at various
 
active and inactive
sites.
 
We regularly assess the need for accounting
 
recognition or disclosure of these contingencies.
 
In the case of
all known contingencies (other than those related
 
to income taxes), we accrue
 
a liability when the loss is probable
and the amount is reasonably estimable.
 
If a range of amounts can be reasonably
 
estimated and no amount within
the range is a better estimate
 
than any other amount, then the low end of the range
 
is accrued.
 
We do not reduce
these liabilities for potential insurance
 
or third-party recoveries.
 
We accrue receivables for
 
insurance or other
third-party recoveries when applicable.
 
With respect to income tax-related
 
contingencies, we use a cumulative
probability-weighted loss accrual
 
in cases where sustaining a tax
 
position is less than certain.
Based on currently available information,
 
we believe it is remote that future
 
costs related to known
 
contingent
liability exposures will exceed
 
current accruals by an amount that
 
would have a material adverse
 
impact on our
consolidated financial statements.
 
As we learn new facts concerning contingencies,
 
we reassess our position both
with respect to accrued liabilities and other potential
 
exposures.
 
Estimates particularly sensitive to future
 
changes
include contingent liabilities recorded
 
for environmental
 
remediation, tax and legal matters.
 
Estimated future
environmental remediation
 
costs are subject to change due to
 
such factors as the uncertain
 
magnitude of cleanup
costs, the unknown time and extent of such
 
remedial actions that may be required,
 
and the determination of our
liability in proportion to that of other responsible
 
parties.
 
Estimated future costs
 
related to tax and legal
 
matters
are subject to change as events
 
evolve and as additional information
 
becomes available during the administrative
and litigation processes.
Environmental
We are subject to international,
 
federal, state and
 
local environmental laws
 
and regulations and record
 
accruals for
environmental liabilities based on
 
management’s best estimates.
 
These estimates are based on currently
 
available
facts, existing technology,
 
and presently enacted laws and regulations,
 
taking into account stakeholder
 
and
business considerations.
 
When measuring environmental liabilities,
 
we also consider our prior experience in
remediation of contaminated
 
sites, other companies’ cleanup experience, and data
 
released by the U.S. EPA
 
or
other organizations.
 
We consider unasserted claims in our determination
 
of environmental liabilities,
 
and we
accrue them in the period they are both probable and
 
reasonably estimable.
Although liability of those potentially responsible
 
for environmental remediation
 
costs is generally joint and
several for federal
 
sites and frequently so for other
 
sites, we are usually only one of many companies
 
cited at a
particular site.
 
Due to the joint and several liabilities, we could
 
be responsible for all cleanup costs related
 
to any
site at which we have been designated
 
as a potentially responsible party.
 
We have been successful to
 
date in
sharing cleanup costs with other financially sound
 
companies.
 
Many of the sites at which we are potentially
responsible are still under investigation
 
by the EPA or
 
the agency concerned.
 
Prior to actual cleanup, those
potentially responsible normally assess the
 
site conditions, apportion responsibility and determine
 
the appropriate
remediation.
 
In some instances, we may have
 
no liability or may attain a settlement
 
of liability.
 
Where it appears
that other potentially responsible parties may
 
be financially unable to bear their proportional share,
 
we consider
this inability in estimating our potential liability,
 
and we adjust our accruals accordingly.
 
As a result of various
acquisitions in the past, we assumed certain environmental
 
obligations.
 
Some of these environmental obligations
are mitigated by indemnifications
 
made by others for our benefit, and some of the indemnifications
 
are subject to
dollar limits and time limits.
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
16
We are currently participating
 
in environmental assessments
 
and cleanups at numerous federal
 
Superfund and
comparable state and
 
international sites.
 
After an assessment of environmental
 
exposures for cleanup and other
costs, we make accruals on an
 
undiscounted basis (except
 
those acquired in a purchase business combination,
which we record on a discounted
 
basis) for planned investigation
 
and remediation activities for sites where
 
it is
probable future costs will be incurred
 
and these costs can be reasonably estimated.
 
We have not reduced
 
these
accruals for possible insurance recoveries
 
.
At September 30, 2021, our balance sheet included
 
a total environmental
 
accrual of $
191
 
million, compared with
$
180
 
million at December 31, 2020, for remediation
 
activities in the U.S. and Canada.
 
We expect to incur a
substantial amount of these expenditures
 
within the next
30 years
.
 
In the future, we may be involved
 
in additional
environmental assessments,
 
cleanups and proceedings.
Litigation and Other Contingencies
We are subject to various
 
lawsuits and claims including but not limited to matters
 
involving oil and gas royalty
 
and
severance tax payments,
 
gas measurement and valuation
 
methods, contract disputes,
 
environmental damages,
climate change, personal injury,
 
and property damage.
 
Our primary exposures for such matters
 
relate to alleged
royalty and tax underpayments
 
on certain federal, state
 
and privately owned properties, claims
 
of alleged
environmental contamination
 
from historic operations,
 
and other contract disputes.
 
We will continue to defend
ourselves vigorously in these matters.
Our legal organization
 
applies its knowledge, experience and professional
 
judgment to the specific characteristics
of our cases, employing a litigation management
 
process to manage and monitor the legal
 
proceedings against us.
 
Our process facilitates the
 
early evaluation and quantification
 
of potential exposures in individual cases.
 
This
process also enables us to track those cases
 
that have been scheduled for trial and/or
 
mediation.
 
Based on
professional judgment and experience
 
in using these litigation management
 
tools and available information
 
about
current developments in all our cases,
 
our legal organization regularly
 
assesses the adequacy of current accruals
and determines if adjustment of existing
 
accruals, or establishment of new accruals, is
 
required.
We have contingent
 
liabilities resulting from throughput agreements
 
with pipeline and processing companies not
associated with financing arrangements.
 
Under these agreements, we may be required
 
to provide any such
company with additional funds through
 
advances and penalties for fees related
 
to throughput capacity not utilized.
 
In addition, at September 30, 2021, we had performance
 
obligations secured by letters
 
of credit of
 
$
281
 
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 unan
 
imously 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.
 
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.
 
On September 29, 2021,
the ICSID annulment committee lifted the
 
stay of enforcement
 
of the award.
 
The annulment proceedings have
been suspended as a result of Venezuela’s
 
non-payment of advances
 
to cover the costs of these proceedings.
Notes to Consolidated Financial Statements
17
 
ConocoPhillips
 
2021 Q3 10-Q
In 2014, ConocoPhillips filed a separate
 
and independent arbitration under the rules
 
of the ICC against PDVSA
under the contracts that had established
 
the Petrozuata
 
and Hamaca projects.
 
The ICC Tribunal issued
 
an award in
April 2018, finding that PDVSA owed ConocoPhillips
 
approximately $
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.
 
Per the settlement, PDVSA recognized
 
the ICC award as a judgment in various
 
jurisdictions,
and ConocoPhillips agreed to suspend
 
its legal enforcement actions.
 
ConocoPhillips sent notices of default to
PDVSA
 
on October 14 and November 12, 2019, and to
 
date PDVSA has failed to cure
 
its breach.
 
As a result,
ConocoPhillips has resumed legal enforcement
 
actions.
 
To date,
 
ConocoPhillips has received approximately
 
$
766
million in connection with the ICC award.
 
ConocoPhillips has ensured that
 
the settlement and any actions taken
 
in
enforcement thereof meet all
 
appropriate U.S. regulatory
 
requirements, including those related
 
to any applicable
sanctions imposed by the U.S. against
 
Venezuela.
In 2016, ConocoPhillips filed a separate
 
and independent arbitration under the rules
 
of the ICC against PDVSA
under the contracts that had established
 
the Corocoro Project.
 
On August 2, 2019, the ICC Tribunal
 
awarded
ConocoPhillips approximately
 
$
33
 
million plus interest under the Corocoro
 
contracts.
 
ConocoPhillips is seeking
recognition and enforcement
 
of the award in various jurisdictions.
 
ConocoPhillips has ensured that all the actions
related to the award meet
 
all appropriate U.S. regulatory
 
requirements, including those related
 
to any applicable
sanctions imposed by the U.S. against
 
Venezuela.
The Office of Natural Resources
 
Revenue (ONRR) has conducted audits
 
of ConocoPhillips’ payment of royalties
 
on
federal lands and has issued multiple orders
 
to pay additional royalties
 
to the federal government.
 
ConocoPhillips
and the ONRR entered into a settlement
 
agreement on March 23, 2021, to resolve
 
the dispute.
 
All orders and
associated appeals have been withdrawn
 
with prejudice.
Beginning in 2017, cities, counties, governments
 
and other entities in several states
 
in the U.S. have filed lawsuits
against oil and gas companies,
 
including ConocoPhillips, seeking compensatory
 
damages and equitable relief to
abate alleged climate change impacts.
 
Additional lawsuits with similar allegations are
 
expected to be filed.
 
The
amounts claimed by plaintiffs are
 
unspecified and the legal and factual issues
 
involved in these cases are
unprecedented.
 
ConocoPhillips believes these lawsuits
 
are factually and legally meritless and
 
are an inappropriate
vehicle to address the challenges associated
 
with climate change and will vigorously
 
defend against such lawsuits.
Several Louisiana parishes and the State
 
of Louisiana have filed
43
 
lawsuits under Louisiana’s
 
State and Local
Coastal Resources Management
 
Act (SLCRMA) against oil and gas
 
companies, including ConocoPhillips, seeking
compensatory damages for contamination
 
and erosion of the Louisiana coastline allegedly
 
caused by historical oil
and gas operations.
 
ConocoPhillips entities are defendants
 
in
22
 
of the lawsuits and will vigorously defend
 
against
them.
 
Because Plaintiffs’ SLCRMA theories are
 
unprecedented, there is uncertainty
 
about these claims (both as to
scope and damages) and we continue to
 
evaluate our exposure in these
 
lawsuits.
In October 2020, the Bureau of Safety
 
and Environmental Enforcement
 
(BSEE) ordered the prior owners of Outer
Continental Shelf (OCS) Lease P-0166,
 
including ConocoPhillips, to decommission
 
the lease facilities, including two
offshore platforms located
 
near Carpinteria, California.
 
ConocoPhillips is challenging this order.
 
This order was
sent after the current owner of OCS Lease P-0166
 
relinquished the lease and abandoned the lease platforms
 
and
facilities.
 
BSEE’s order to
 
ConocoPhillips is premised on its connection to
 
Phillips Petroleum Company,
 
a legacy
company of ConocoPhillips, which held a historical
25
 
percent interest in this
 
lease and operated these facilities,
but sold its interest approximately
30 years
 
ago.
 
ConocoPhillips continues to evaluate
 
its exposure in this matter.
On May 10, 2021, ConocoPhillips filed arbitration
 
under the rules of the Singapore International
 
Arbitration Centre
(SIAC) against Santos KOTN
 
Pty Ltd. and Santos Limited for
 
their failure to timely pay the $
200
 
million bonus due
upon FID of the Barossa development project
 
under the sale and purchase agreement.
 
Santos KOTN
 
Pty Ltd. and
Santos Limited have filed a counterclaim,
 
and the arbitration is underway.
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
18
Note 11—Derivative and Financial Instruments
We use futures, forwards,
 
swaps and options in various markets
 
to meet our customer needs, capture
 
market
opportunities and manage foreign exchange
 
currency risk.
 
Commodity Derivative Instruments
Our commodity business primarily consists of natural
 
gas, crude oil, bitumen, LNG and NGLs.
 
Commodity derivative instruments
 
are held at fair value on our consolidated
 
balance sheet.
 
Where these balances
have the right of setoff,
 
they are presented on a net basis.
 
Related cash flows are recorded
 
as operating
 
activities
on our consolidated statement
 
of cash flows.
 
On our consolidated income statement,
 
gains and losses are
recognized either on a gross
 
basis if directly related to our physical
 
business or a net basis if held for trading.
 
Gains
and losses related to contracts
 
that meet and are designated with the NPNS
 
exception are recognized
 
upon
settlement.
 
We generally apply this
 
exception to eligible crude contracts
 
and certain gas contracts.
 
We do not
apply hedge accounting for our commodity
 
derivatives.
The following table presents the gross
 
fair values of our commodity derivatives,
 
excluding collateral,
 
and the line
items where they appear on our consolidated
 
balance sheet:
Millions of Dollars
September 30
December 31
2021
2020
Assets
Prepaid expenses and other current
 
assets
$
1,601
229
Other assets
109
26
Liabilities
Other accruals
1,681
202
Other liabilities and deferred credits
94
18
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
Nine Months Ended
September 30
September 30
2021
2020
2021
2020
Sales and other operating revenues
$
(483)
33
(862)
30
Other income (loss)
7
(2)
23
3
Purchased commodities
405
(27)
550
(29)
On January 15, 2021, we assumed financial derivative instruments
 
consisting of oil and natural gas
 
swaps in
connection with the acquisition of Concho.
 
At the acquisition date, the financial derivative
 
instruments acquired
were recognized at fair
 
value as a net liability of $
456
 
million with settlement dates under the contracts
 
through
December 31, 2022.
 
During the first quarter of 2021, we recognized
 
a loss of $
173
 
million on Concho derivative
contracts with settlement dates
 
on or before March 31, 2021, and an
 
additional $
132
 
million loss related to all
remaining Concho derivative contracts
 
with settlement dates subsequent
 
to March 31, 2021, for a total loss of
$
305
 
million.
 
This loss associated with the acquired financial
 
instruments is recorded within the
 
“Sales and other
operating revenues” line on our
 
consolidated income statement.
 
 
 
Notes to Consolidated Financial Statements
19
 
ConocoPhillips
 
2021 Q3 10-Q
By the end of March 2021, all oil and natural
 
gas derivative financial instruments
 
acquired from Concho were
contractually settled.
 
In connection with the settlement, we issued
 
a cash payment of $
692
 
million in the first
quarter of 2021 and $
69
 
million in the second quarter of 2021.
 
Cash settlements related
 
to the Concho derivative
contracts are presented
 
within “Cash Flows From Operating Activities”
 
on our consolidated statement
 
of cash
flows.
The table below summarizes our material
 
net exposures resulting from
 
outstanding commodity derivative
contracts:
Open Position
Long/(Short)
September 30
December 31
2021
2020
Commodity
Natural gas and power (billions
 
of cubic feet equivalent)
 
Fixed price
10
(20)
 
Basis
(19)
(10)
Financial Instruments
We invest in financial
 
instruments with maturities based on our cash
 
forecasts for the various
 
accounts and
currency pools we manage.
 
The types of financial instruments in which we currently
 
invest include:
Time deposits: Interest bearing deposits
 
placed with financial institutions for a predetermined
 
amount of
time.
 
Demand deposits: Interest bearing deposits
 
placed with financial institutions.
 
Deposited funds can be
withdrawn without notice.
Commercial paper: Unsecured promissory
 
notes issued by a corporation, commercial
 
bank or government
agency purchased at a discount to
 
mature at par.
U.S. government or government
 
agency obligations: Securities issued by the U.S.
 
government or U.S.
government agencies.
Foreign government obligations:
 
Securities issued by foreign governments.
Corporate bonds: Unsecured debt
 
securities issued by corporations.
Asset-backed securities: Collateralized
 
debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
ConocoPhillips
 
2021 Q3 10-Q
 
20
The following investments are
 
carried on our consolidated balance sheet at cost, plus accrued
 
interest and the table
reflects remaining maturities at September 30, 2021 and
 
December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term
 
Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Cash
$
634
597
Demand Deposits
1,847
1,133
Time Deposits
1 to 90 days
7,226
1,225
469
2,859
91 to 180 days
8
448
Within one year
5
13
One year through five years
2
1
U.S. Government
 
Obligations
1 to 90 days
16
23
-
-
$
9,723
2,978
482
3,320
2
1
The following investments in debt securities
 
classified as available for sale are carried at
 
fair value on our consolidated
balance sheet at September 30, 2021 and December 31, 2020:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term
 
Investments
Investments and Long-Term
Receivables
September 30
December 31
September 30
December 31
September 30
December 31
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
-
-
113
130
184
143
Commercial Paper
110
13
69
155
U.S. Government
 
Obligations
-
-
-
4
6
13
U.S. Government
 
Agency Obligations
2
-
8
17
Foreign Government
 
Obligations
10
-
3
2
Asset-backed
 
Securities
2
-
59
41
$
110
13
196
289
260
216
Cash and Cash Equivalents and Short-Term
 
Investments have remaining maturities
 
within one year.
Investments and Long-Term
 
Receivables have remaining maturities greater
 
than one year through eight years.
 
 
 
 
 
Notes to Consolidated Financial Statements
21
 
ConocoPhillips
 
2021 Q3 10-Q
The following table summarizes the
 
amortized cost basis and fair value
 
of investments in debt securities classified
as available for sale:
Millions of Dollars
Amortized Cost Basis
Fair Value
September 30
December 31
September 30
December 31
2021
2020
2021
2020
Major Security Type
Corporate bonds
$
296
271
297
273
Commercial paper
179
168
179
168
U.S. government obligations
6
17
6
17
U.S. government agency obligations
10
17
10
17
Foreign government obligations
13
2
13
2
Asset-backed securities
61
41
61
41
$
565
516
566
518
At September 30, 2021 and December 31, 2020, total
 
unrealized losses for debt
 
securities classified as available for
sale with net losses were negligible.
 
Additionally, at
 
September 30, 2021 and December 31, 2020, investment
 
s
 
in
these debt securities in an unrealized loss position
 
for which an allowance for
 
credit losses has not been recorded
were negligible.
 
For the three-
 
and nine-month periods ended September 30, 2021, proceeds
 
from sales and redemptions of
investments in debt securities classified
 
as available for sale were $