CONOCOPHILLIPS 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 57.
The terms "earnings" and "loss" as used in Management's Discussion and Analysis
refer to net income (loss)
attributable to
BUSINESS ENVIRONMENT AND EXECUTIVE
OVERVIEW
with operations and activities in 15 countries.
Our diverse, low cost of supply portfolio includes resource-rich
unconventional plays in
conventional
assets in
developments; oil sands assets in
and an inventory of global conventional and unconventional exploration
prospects.
AtSeptember 30, 2020 , we employed approximately 9,800 people worldwide and had
total assets of
Announced Acquisition of Concho Resources Inc.
and Paris-Aligned
Climate Risk Strategy
On
a definitive agreement to acquire Concho
Resources Inc. (Concho) in an all-stock transaction valued at$9.7
billion based upon closing share prices
onOctober 16, 2020 .
Under the terms of the transaction, each outstanding
share of common stock of Concho will
be
converted into the right to receive 1.46 shares of
common stock.
We will also assume the debt balances of Concho, which were approximately$3.9
billion at
The combined companies are expected to capture$500 million of annual
cost and capital savings by 2022, which
would be sourced from lower general and administrative costs and a reduction
in our future global new ventures exploration
program.
The transaction is anticipated to close in the first
quarter of 2021, subject to the approval
of bothConocoPhillips and Concho shareholders, regulatory
clearance, and the satisfaction or waiver of
other
customary closing conditions.
See Item 1A. "Risk Factors" for further
discussion of risks related to the Concho acquisition.
We also announced the adoption of a
our continued commitment to ESG excellence.
This comprehensive climate risk strategy
should enable us to sustainably meet global energy demand while delivering competitive
returns through the energy transition.
We have set a target to reduce our gross operated (scope 1 and 2) emissions
intensity by 35 to 45 percent from 2016 levels
by
2030, with an ambition to achieve net zero by
2050 for operated emissions.
We are advocating for reduction of scope 3 end-use emissions intensity through
our support for a
our
commitment to the
We have joined the World
Bank Flaring Initiative to work towards zero routine flaring of gas by 2030.
We are committed to take ESG leadership to the next level as the
first
climate risk strategy. 33 Overview
The energy landscape changed dramatically in 2020 with
simultaneous demand and supply shocks that drove the industry into a severe downturn.
The demand shock was triggered by 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
resulted in significant supply coming onto the market
and
an oil price war.
These dual demand and supply shocks caused
oil prices to collapse as we exited the first quarter.
As we entered the second quarter, predictions of COVID-19 driven global
oil demand losses intensified, with forecasts of unprecedented demand declines.
Based on these forecasts,
an emergency meeting, and in April they announced a coordinated production cut that was unprecedented in both its magnitude and duration.
The
untilApril 2022 , with the volume of production cuts easing over time.
Additionally, non-
to production through the release of drilling rigs, frac crews, normal field decline and curtailments.
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 in
April for certain North American landlocked grades of crude oil were in the single digits
or even negative for particularly remote or low-grade crudes, while waterborne priced crudes such as Brent
sold at a relative advantage.
The extreme volatility experienced in the first half of the year settled down
in the third quarter, with crude oil prices stabilizing
around
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
of
of$6 billion , totaling approximately$14 billion in available
liquidity.
Additionally, we had several entity and asset sales
agreements in place, which generated
in proceeds from dispositions during the first
nine-months of 2020.
For more information about the sales of our Australia-West and non-core Lower 48 assets,
see Note 4- Asset Acquisitions and Dispositions in the
Notes to Consolidated Financial Statements.
This relative advantage allowed us to be measured in our response
to the sudden change in business environment.
In March, we announced an initial set of actions
to address the downturn and followed up with additional actions in April.
The combined announcements reflected a reduction
in our 2020 operating plan capital of$2.3 billion , a reduction to our operating costs of
program.
These actions will decrease uses of cash by approximately
We also established a framework for evaluating and implementing economic
production curtailments considering the weakness in
oil
prices during the second quarter of 2020, which resulted
in taking an additional significant step of voluntarily curtailing production, predominantly from
operated North American assets.
Due to our strong balance sheet, we were in an advantaged position to forgo some production and cash flow in anticipation of receiving higher cash flows for those volumes in the future.
In the second quarter, we curtailed production by an estimated 225 MBOED,
with 145 MBOED of the curtailments from the Lower 48, 40 MBOED from
in
The remainder of the second-quarter curtailments
were primarily in
Other industry operators also cut production and development plans
and as we progressed through the second quarter, stay-at- home restrictions eased, which partially restored
lost demand, and WTI and Brent prices exited the
second
quarter around
Based on our economic criteria, we began restoring
production from voluntary curtailments in July, and with oil stabilizing around$40 per barrel, we ended our curtailment program during the third quarter.
Curtailments in the third quarter averaged approximately
90 MBOED, with 65 MBOED attributable to the Lower 48 and 15 MBOED to
Surmont.
34
In
to acquire additional
consideration of approximately$382 million ,
subject to customary post-closing adjustments.
As part of the agreement, we assumed approximately$31 million in financing
obligations for associated partially owned infrastructure.
This
acquisition consisted primarily of undeveloped properties
and included
140,000 net acres in the liquids-rich Inga Fireweed assetMontney zone, which is
directly adjacent to our existing
We now have aMontney acreage position of 295,000 net acres
with a 100 percent working interest.
On
to resume share repurchases; however, we recently announced the pending acquisition of Concho and
our suspension of share repurchases until
after the transaction closes.
We ended the third quarter with over
investments, and available borrowings under our credit
facility of
On
to our quarterly dividend from42 cents per share to43 cents per share.
The dividend is payable on
to shareholders of record as ofOctober 19, 2020 .
Our expectation is that commodity prices will
remain cyclical and volatile, and a successful
business strategy in the E&P industry must be resilient in
lower price environments, at the same time 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 portfolio,
and strengthening our balance sheet have
put us in a strong relative position compared to our independent E&P
peers.
Although recent prices have been volatile, 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, the
Personnel are asked to perform a self-assessment for symptoms
of illness each day and, when appropriate,
are subject to more restrictive measures traveling to and working
on location.
Staffing levels in certain operating locations have been reduced to minimize health risk exposure
and increase social distancing.
A portion of our office staff have continued to work successfully remotely, with offices around the world carefully
designing and executing a flexible, phased reentry, following national, state and local guidelines.
These mitigation measures have thus far been effective at reducing business operation
disruptions.
Workforce health and safety remains the overriding driver for our actions and we have
demonstrated our ability to adapt to local
conditions as warranted.
The marketing and supply chain side of our business
has also adapted in response to COVID-19.
Our
commercial organization managed transportation commitments
during our voluntary curtailment program.
Our supply chain function is proactively working
with vendors to ensure the continuity of our business operations, monitor distressed service and materials
providers, capture deflation opportunities, and pursue
cost
reduction efforts.
Operationally, we remain focused on safely executing the business.
In the third quarter of 2020, production
of
1,067 MBOED generated cash provided by operating
activities of
We invested$1.1 billion into the business in the form of capital expenditures, including$0.4 billion of acquisition capital, and paid dividends to shareholders of$0.5 billion .
Production decreased 299 MBOED or 22 percent
in the third quarter of 2020, compared to the third quarter of 2019.
Adjusting for estimated curtailments of approximately
90
MBOED, closed acquisitions and dispositions
and
would have been 1,155 MBOED, a decrease of 46 MBOED or 4 percent
compared with the third quarter of 2019.
This decrease was primarily due to normal field decline, partly offset by new
wells online in the Lower 48,
Production from
remained in force majeure during the third
quarter.
Force
majeure was lifted in October and plans to resume
production and exports are ongoing.
[[Image Removed: COP20203q10qp37i0.gif]]
[[Image Removed: COP20203q10qp37i1.gif]]
35 - 1 2 3 4 20 40 60 80 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 WTI/Brent $/Bbl WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices Quarterly Averages WTI - $/Bbl Brent - $/Bbl HH - $/MMBTU HH Business Environment
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 pandemics, military conflicts,
actions taken by
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 price levels for crude oil
and natural gas, which are subject to factors external to the company and over
which we have no control.
The following graph depicts the trend in average benchmark prices for WTI
crude oil, Brent crude oil and
gas:
Brent crude oil prices averaged
in the third quarter of 2020,
a decrease of 31 percent compared with$61.94 per barrel in the third
quarter of 2019.
WTI atCushing crude oil prices averaged$40.93 per barrel in the third quarter of 2020,
a decrease of 27 percent compared with
$56.44 per barrel in the third quarter of 2019.
Oil prices are lower due to high inventory levels
and contractions in economic activity due to COVID-19 restrictions.
per MMBTU in the third quarter of 2020,
a decrease of 11 percent compared with$2.23 per MMBTU in the third
quarter of 2019.
Current periodHenry Hub prices are depressed due to high storage levels and seasonally
weak demand.
Our realized bitumen price averaged
in the third quarter of 2020, a decrease of 51
percent
compared with
quarter of 2019.
The decrease in the third quarter of 2020 was driven by a lower blend price for Surmont sales, largely attributed to a weaker WTI price and a narrower spread between the local market andU.S. sales
points, which challenged both pipeline and rail
economics.
In
addition, we incurred unutilized transportation
costs which negatively impacted our realized
bitumen price.
Our total average realized price was
BOE in the third quarter of 2020, compared with
$47.07 per BOE in the third quarter of 2019.
36
Key Operating and Financial Summary
Significant items during the third quarter of 2020
and recent announcements included the following:
?
Produced 1,066 MBOED excluding
quarter;
curtailed approximately 90 MBOED. ?
Distributed
an increase to the quarterly dividend. ?
Ended the quarter with cash, cash equivalents and
restricted cash totaling
billion and short-term investments of$4.0 billion . ?
As part of a commitment to ESG excellence, announced
adoption of aParis -aligned climate risk framework to achieve net zero operated emissions by 2050. ?
Completed bolt-on acquisition of adjacent acreage
in the liquids-richMontney inCanada for$0.4 billion . ?
Announced agreement to acquire Concho in an
all-stock transaction for 1.46 shares of
Outlook Capital and Production
In
plan capital of
In response to the oil market downturn earlier this year, we announced capital
expenditure reductions totaling
Full
year 2020 operating plan capital is now expected
to be
This does not include approximately$0.5 billion of capital for acquisitions completed during
the year, of which
Fourth quarter 2020 production is expected to
be 1,125 to 1,165 MBOED, resulting in anticipated
full-year
2020 production of 1,115 to 1,125 MBOED.
This outlook excludes
Depreciation, Depletion and Amortization DD&A expense was$4.0 billion in the nine-month
period of 2020.
Proved reserves estimates were updated
in
the interim periods of 2020 utilizing trailing
twelve-month oil and gas prices, which increased DD&A
expense
in the nine-month period of 2020 by approximately
If oil and gas prices persist at depressed levels, our reserve estimates may
decrease further, which could incrementally increase the rate used to determine DD&A expense on our unit-of-production
method properties. Impairments
In
Concho, thereby significantly expanding our unconventional acreage position in thePermian Basin .
The planned addition of unproved properties
in theDelaware and Midland Basins would reduce our
need for resource additions through organic exploration,
and
we expect to decrease capital allocated to our global
new ventures exploration program going forward.
An
evaluation of our exploration program is ongoing
and may result in future impairments.
This transaction is anticipated to close in the first
quarter of 2021, subject to the approval of both
and Concho shareholders, regulatory clearance, and other customary closing conditions. 37 RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three-
and nine-month periods endedSeptember 30, 2020 , is based on a comparison with the corresponding periods
of 2019.
Effective with the third quarter of 2020, we have restructured our segments to align with
changes to our internal organization.
The
segment
to the
The segments have been renamed the
and theEurope ,Middle East andNorth Africa segment.
We have revised segment information disclosures and segment performance metrics presented within our results of operations for the
current and prior comparative periods.
Consolidated Results
A summary of the company's net income (loss)
attributable to
follows: Millions ofDollars Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019Alaska $ (16) 306 (76) 1,152 Lower 48 (78) 26 (880) 425Canada (75) 51 (270) 273Europe ,Middle East andNorth Africa 92 2,171 318 3,050Asia Pacific 25 443 945 1,220 Other International (8) 73 14 285 Corporate and Other (390) (14) (1,980) 64 Net income (loss) attributable toConocoPhillips $ (450) 3,056 (1,929) 6,469
Net income (loss) attributable to
in the third quarter of 2020 decreased
Earnings were negatively impacted by:
?
The absence of a
with the completion of the sale of two ConocoPhillipsU.K. subsidiaries. ? Lower realized commodity prices. ?
Lower sales volumes, primarily due to normal field
decline, production curtailments across our
North
American operated assets and the divestiture of our
A
Energy (CVE) common shares in the third quarter of 2020, as compared to a$116 million after-tax gain on those shares in the third quarter of 2019. ?
Lower equity in earnings of affiliates, primarily due to
lower LNG sales prices. ?
The absence of a
related to deepwater incentive tax credits
recognized for Malaysia Block G. 38
Third quarter 2020 net income decreases were partly
offset by:
?
Lower production and operating expenses, primarily
due to the absence of costs related to ourU.K. and Australia-West divestitures and decreased wellwork and transportation costs resulting from production curtailments across our North American operated assets. ?
Lower exploration expenses, primarily
due to the absence of
our decision to discontinue exploration
activities in the Central LouisianaAustin Chalk trend. ?
Lower DD&A, primarily due to lower volumes resulting
from production curtailments and our
Australia-West divestiture, partly offset by higher DD&A rates due to price-related downward reserve revisions.
Net income (loss) attributable to
in the nine-month period ended
Earnings were negatively impacted by:
? Lower realized commodity prices. ?
Lower sales volumes, primarily due to normal field
decline, production curtailments across our
North
American operated assets and the divestiture of
our
and our Australia-West assets in the second quarter of 2020. ?
The absence of a
billion after-tax gain associated with the completion
of the sale of two ConocoPhillipsU.K. subsidiaries. ?
A
common shares in the nine-month period of 2020, as compared to a$0.5 billion after-tax gain on those
shares in the nine-month period of 2019.
?
Higher impairments of approximately
after-tax, primarily related to non-core gas assets in our Lower 48 segment. ?
The absence of other income of
related to our settlement agreement withPDVSA . ?
Lower equity in earnings of affiliates, primarily due to
lower LNG sales prices, partly offset by the absence of$120 million after-tax of impairments
to equity method investments.
The decreases in earnings in the nine-month period
endedSeptember 30, 2020 , were partly offset by: ?
A
to our Australia-West divestiture.
?
Lower production and operating expenses, primarily
due to decreased wellwork and transportation costs resulting from production curtailments across
our North American operated assets as well
as the
absence of costs related to our
Lower DD&A expenses, primarily due to lower volumes
related to production curtailments and our Australia-West andU.K. divestitures, partly offset by higher DD&A rates due to price-related downward reserve revisions. ?
Lower exploration expenses, primarily due
to the absence of
our decision to discontinue exploration
activities in the Central LouisianaAustin Chalk trend.
See the "Segment Results" section for additional
information. 39 Income Statement Analysis
Sales and other operating revenues for the three-
and nine-month periods of 2020 decreased
$3,370 million and$11,566 million ,
respectively, mainly due to lower realized commodity prices and lower sales
volumes.
Sales
volumes decreased due to normal field decline,
production curtailments from our North American
operated
assets and the divestiture of our
the third quarter of 2019 and our Australia-West assets in the second quarter of 2020.
Equity in earnings of affiliates for the three-
and nine-month periods of 2020 decreased
$255 million and$305 million ,
respectively, primarily due to lower earnings from QG3 and APLNG as a result
of lower LNG sales prices.
Partly offsetting this decrease was the absence of impairments
related to equity method investments in our Lower 48 segment of$155 million in the
nine-month period of 2019.
Gain on dispositions for the three-
and nine-month periods of 2020 decreased
million and$1,333 million ,
respectively, primarily due to the absence of a
with the completion of the sale of twoConocoPhillips
Partly offsetting the decrease in the nine- month period of 2020, was a$587 million before-tax
gain associated with our Australia-West divestiture.
For
more information related to our Australia-West divestiture,
see Note 4-Asset Acquisitions and Dispositions in the Notes to Consolidated Financial Statements.
Other income (loss) for the third quarter of 2020
decreased
due to an unrealized loss of$162 million before-tax on our CVE common shares
in the third quarter of 2020, and the absence
of a$116 million before-tax gain on those shares in the third
quarter of 2019.
Other income (loss) for the nine-month period of 2020 decreased$2,119 million ,
primarily due to an unrealized loss of
million before-tax on our CVE common shares in the nine-month period
of 2020, and the absence of a
before-tax gain on those shares in the nine-month period of 2019.
Additionally, other income (loss) in the nine-month period
of 2020 decreased due to the absence of
before-tax related to our settlement agreement with
For discussion of our Cenovus Energy shares, see Note
6-Investment in Cenovus Energy, in the Notes to Consolidated Financial Statements.
For discussion of our
12-Contingencies
and Commitments, in the Notes to Consolidated Financial
Statements.
Purchased commodities for the three- and nine-month
periods
of 2020 decreased$871 million and$3,429 million , respectively, primarily due to lower natural gas and crude oil prices and lower crude oil and natural gas volumes purchased.
Production and operating expenses for the three-
and nine-month periods of 2020 decreased
$368 million and$837 million ,
respectively, primarily due to decreased wellwork and transportation costs
associated with production curtailments across our North American
operated assets as well as the absence of costs
related to ourU.K. and Australia-West divestitures.
Additionally, in the nine-month period of 2020, production and operating expenses decreased due to lower legal
accruals in our Lower 48 and Other International
segments.
Selling, general and administrative expenses decreased
$120 million in the nine-month period of 2020, primarily due to lower costs associated with compensation
and benefits, including mark to market impacts
of
certain key employee compensation programs.
Exploration expenses for the three- and nine-month
periods of 2020 decreased
and
impairment expense due to our decision to discontinue exploration activities
in the Central Louisiana
dry
hole costs in the Lower 48, primarily
related to this play; partly offset by higher dry hole expenses in
In addition to the items detailed above, in the nine-month
period of 2020, the decrease in exploration expenses were partly offset by an unproved property impairment
and dry hole expenses related to the Kamunsu East Field inMalaysia that is no longer in our development
plans and charges related to the early termination of the
40 DD&A for the three-
and nine-month periods of 2020 decreased
$155 million and$622 million , respectively, mainly due to lower production volumes because of
production curtailments and the divestiture
of our Australia-West asset, partly offset by higher DD&A rates due to price-related downward
reserve revisions.
In
addition to the items detailed above, DD&A in the
nine-month period of 2020 decreased due to our
divestiture, which met held-for-sale status in the
second quarter of 2019.
For more information regarding the Australia-West divestiture, see Note 4-Asset Acquisitions and Dispositions in the Notes
to Consolidated Financial Statements.
Impairments increased
the nine-month period of 2020, primarily due to
a$511 million before- tax impairment of certain non-core gas assets in
our Lower 48 segment because of a significant
decrease in the outlook for natural gas prices.
See Note 8-Impairments in the Notes to Consolidated
Financial Statements, for additional information.
Taxes other than income taxes for the three-
and nine-month periods of 2020 decreased
Foreign currency
transaction (gain) loss decreased
in the nine-month period of 2020,
resulting
from gains recognized from foreign currency derivatives
and other foreign currency remeasurements.
See
Note 13-Derivative and Financial Instruments
in the Notes to Consolidated Financial Statements,
for
additional information.
See Note 21-Income Taxes, in the Notes to Consolidated Financial Statements,
for information regarding our income tax provision (benefit) and effective tax rate. 41 Summary Operating Statistics Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019 Average Net Production Crude oil (MBD) Consolidated operations 535 696 546 696 Equity affiliates 13 14 13 13 Total crude oil 548 710 559 709 Natural gas liquids (MBD) Consolidated operations 89 106 97 106 Equity affiliates 8 8 7 8 Total natural gas liquids 97 114 104 114 Bitumen (MBD) 49 63 50 59 Natural gas (MMCFD) Consolidated operations 1,201 1,795 1,353 1,783 Equity affiliates 1,034 1,076 1,042 1,043 Total natural gas* 2,235 2,871 2,395 2,826 Total Production (MBOED) 1,067 1,366 1,1121,353 Dollars Per Unit Average Sales Prices Crude oil (per bbl) Consolidated operations$ 39.49 59.56 39.04 61.26 Equity affiliates 37.56 59.91 38.22 61.23 Total crude oil 39.45 59.57 39.02 61.26 Natural gas liquids (per bbl) Consolidated operations 13.73 14.33 11.72 18.90 Equity affiliates 30.21 30.18 31.65 36.49 Total natural gas liquids 15.29 15.59 13.45 20.24 Bitumen (per bbl) 15.87 32.54 2.90 34.11 Natural gas (per MCF) Consolidated operations 2.77 3.73 3.07 4.37 Equity affiliates 2.61 6.40 3.98 6.48 Total natural gas 2.70 4.74 3.47 5.17 Millions of Dollars Exploration Expenses General administrative, geological and geophysical, lease rental, and other$ 81 67 296 231 Leasehold impairment - 154 31 196 Dry holes 44 139 83 165$ 125 360 410 592
*Represents quantities available for sale and excludes gas equivalent of natural
gas liquids included above. 42
We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a
worldwide basis. AtSeptember 30, 2020 ,
our operations were producing in the
Total production decreased 299 MBOED or 22 percent in the third quarter of 2020,
primarily due to: ? Normal field decline. ?
The divestiture of our
quarter of 2019, our Australia-West assets in the second quarter of 2020, and non-core Lower 48 assets in
the first quarter of 2020. ?
Production curtailments, primarily from
our North American operated assets. ?
Less production in
of the Es Sider export terminal and other
eastern
export terminals after a period of civil unrest.
The decrease in third quarter 2020 production was
partly offset by:
?
New wells online in the Lower 48,
Total production decreased 241 MBOED or 18 percent in the nine-month period of
2020, primarily due to: ? Normal field decline. ?
Production curtailments, primarily from
our North American operated assets andMalaysia . ?
The divestiture of our
quarter of 2019, our Australia-West assets in the second quarter of 2020, and non-core Lower 48 assets in
the first quarter of 2020. ?
Lower production in
of the Es Sider export terminal and other eastern export terminals after a period of civil unrest
in the first quarter of 2020.
The decrease in production during the nine-month period
of 2020 was partly offset by:
?
New wells online in the Lower 48,
Production excluding
the third quarter of 2020, a decrease
of 256 MBOED compared with the same period of 2019.
Adjusting for estimated curtailments of approximately
90 MBOED, closed acquisitions and dispositions andLibya , third
quarter 2020 production would have been 1,155
MBOED,
a decrease of 46 MBOED or 4 percent compared with
the third quarter of 2019. This decrease was primarily due to normal field decline,
partly offset by new wells online in the Lower 48,
and
Production
from
force majeure during the third quarter.
Production excluding
the nine-month period of 2020, a decrease
of 202 MBOED compared with the same period of 2019.
Adjusting for estimated curtailments of approximately
105 MBOED, closed acquisitions and dispositions andLibya , nine-month period 2020 production would have been 1,186 MBOED, an
increase of 6 MBOED compared with the same
period a year ago.
This increase was primarily due to new wells online in the Lower 48,Canada ,
Alaska , andChina , partly offset by normal field decline.
Production from
as it has been in force majeure for most
of the year. 43 Segment ResultsAlaska Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019 Net income (loss) attributable toConocoPhillips ($MM)$ (16) 306 (76) 1,152 Average Net Production Crude oil (MBD) 184 190 179 200 Natural gas liquids (MBD) 14 11 15 15 Natural gas (MMCFD) 14 6 10 7 Total Production (MBOED) 201 202 195 216 Average Sales Prices Crude oil ($ per bbl)$ 40.88 62.78 41.92 64.34 Natural gas ($ per MCF) 2.48 3.01 2.71 3.23
The
and markets crude oil, NGLs and natural gas.
As of
28 percent of our consolidated liquids production
and less than 1 percent of our consolidated natural gas production.
Earnings from
in the third quarter of 2020,
primarily driven by lower realized crude oil prices and higher DD&A expense due
to increased DD&A rates from price-related
downward reserve revisions.
Partly offsetting the decrease in earnings were lower production
and operating expenses, primarily at the Greater Prudhoe Area.
Earnings from
in the nine-month period of 2020, primarily
driven by lower realized crude oil prices and lower sales volumes
due to production curtailments at our
operated assets on theNorth Slope -the Greater Kuparuk Area (GKA)
and
Partly offsetting the earnings decrease was lower production and
operating expenses primarily associated with
lower transportation and terminaling costs as well as lower wellwork
across our assets.
Average production decreased 1 MBOED in the third quarter of 2020, primarily
due to normal field decline, partly offset by lower planned downtime and new wells
online.
Average production decreased 21 MBOED in the nine-month period of 2020, primarily due to
normal field decline and curtailments at
our operated assets on the North Slope-GKA and WNS, partly offset by new
wells online.
Curtailment Update Based on our economic criteria, we restored curtailed
production in
44 Lower 48 Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019 Net Income (Loss) Attributable toConocoPhillips ($MM)$ (78) 26 (880) 425 Average Net Production Crude oil (MBD) 197 277 211 264 Natural gas liquids (MBD) 68 84 74 80 Natural gas (MMCFD) 566 649 577 604 Total Production (MBOED) 359 469 381 444 Average Sales Prices Crude oil ($ per bbl)$ 36.43 54.38 34.02 55.63 Natural gas liquids ($ per bbl) 13.51 13.04 10.96 17.03 Natural gas ($ per MCF) 1.63 1.80 1.45 2.19
The Lower 48 segment consists of operations located
in theU.S. Lower 48 states, as well as producing properties in theGulf of Mexico .
As of
41 percent of our consolidated liquids production and 43 percent
of our consolidated natural gas production.
Earnings from the Lower 48 decreased
in the third quarter of 2020,
primarily due to lower sales volumes due to normal field decline and production
curtailments and lower realized crude oil
prices.
Partly
offsetting this decrease in earnings were lower exploration
expenses due to the absence of
after-
tax of leasehold impairment and dry hole costs
associated with our decision to discontinue
exploration
activities in the Central Louisiana
trend; lower DD&A expense due to lower volumes,
partly
offset by higher DD&A rates due to price-related reserve
revisions; and higher other income due to a favorable
Earnings from the Lower 48 decreased
million in the nine-month period of 2020,
primarily due to lower realized crude oil, NGL and natural gas prices;
lower crude oil sales volumes due to normal
field decline and production curtailments;
and a
to certain non-core gas assets in theWind River Basin operations area.
Partly offsetting this decrease in earnings was the
absence of$194 million after-tax of leasehold impairment
and dry hole costs associated with our decision
to discontinue exploration activities in theCentral Louisiana
lower
volumes, partly offset by higher DD&A rates due to price-related
reserve revisions; and the absence of$120 million of impairments in equity method investments.
See Note 8-Impairments and Note 14-Fair
Value
Measurement in the Notes to Consolidated Financial
Statements, for additional information
related to the WindRiver Basin operations area impairment.
Total average production decreased 110 MBOED and 63 MBOED in the three-
and nine-month periods of 2020, respectively, primarily due to normal field decline and production curtailments.
Partly offsetting the production decrease was new production from unconventional
assets in the Eagle Ford, Permian and Bakken.
Curtailment Update The third quarter 2020 production impact from
curtailments in the Lower 48 was estimated
to be 65 MBOED.
Based on our economic criteria, we began restoring
curtailed volumes in July and ended
our curtailment program by the end of the third quarter. 45Canada Three Months Ended Nine Months EndedSeptember 30 September 30 2020 * 2019** 2020* 2019** Net Income (Loss) Attributable toConocoPhillips ($MM)$ (75) 51 (270) 273 Average Net Production Crude oil (MBD) 6 1 4 1 Natural gas liquids (MBD) 2 - 2 - Bitumen (MBD) 49 63 50 59 Natural gas (MMCFD) 43 9 35 8 Total Production (MBOED) 64 66 62 62 Average Sales Prices Crude oil ($ per bbl)$ 25.16 - 19.84 - Natural gas liquids ($ per bbl) 5.99 - 3.60 - Bitumen ($ per bbl) 15.87 32.54 2.90 34.11 Natural gas ($ per MCF) 0.71 - 0.91 - *Average sales prices include unutilized transportation costs. **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 betweenCanada and theU.S. Gulf Coast .
Our Canadian operations mainly consist of an oil
sands development in the
northeastern
in western
As ofSeptember 30, 2020 ,Canada contributed 8 percent of our consolidated liquids
production and 3 percent of our consolidated
natural gas production.
Earnings from
and$543 million , respectively, in the three- and nine-month periods of 2020, primarily due to lower bitumen
and crude oil price realizations,
lower sales volumes related to production curtailments,
higher DD&A expense associated with increased
production from theMontney and price-related reserve revisions, and lower gain on
dispositions related to the absence of
contingent payments.
Partly offsetting the decreases in earnings in both periods
were higher sales volumes from new wells online
at
Total average production decreased 2 MBOED in the third quarter of 2020, primarily
due to production curtailments and a planned turnaround at Surmont,
partly offset by new wells online at
Total
average production was flat in the nine-month period
of 2020, with production decreases from curtailments
at
Surmont offset by new wells online at
planned downtime at Surmont.
Curtailment Update The third quarter 2020 production impact from
curtailments in
net.
Based on our economic criteria, we began to restore
curtailed production at Surmont in July and ended
our
voluntary curtailment program by the end of the third
quarter.
Completed Acquisition InAugust 2020 , we completed the agreement
to acquire additional
consideration of approximately$382 million , subject to customary
post-closing adjustments.
As part of the agreement, we assumed approximately$31 million in financing
obligations for associated partially owned infrastructure.
This
acquisition consisted primarily of undeveloped properties
and included
140,000 net acres in the liquids-rich Inga Fireweed assetMontney zone, which is directly
adjacent to our existing
We now have aMontney acreage position of 295,000 net acres
with a 100 percent working interest.
46Europe ,Middle East andNorth Africa Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 * 2020 2019 * Net Income Attributable toConocoPhillips ($MM)$ 92 2,171 318 3,050 Consolidated Operations Average Net Production Crude oil (MBD) 77 149 82 143 Natural gas liquids (MBD) 5 7 5 7 Natural gas (MMCFD) 256 473 276 531 Total Production (MBOED) 125 235 133 238 Average Sales Prices Crude oil ($ per bbl)$ 41.79 63.47 43.72 65.17 Natural gas liquids ($ per bbl) 23.50 23.20 20.01 28.65 Natural gas ($ per MCF) 2.40 3.60 2.85 4.98
*Prior periods have been updated to reflect the Middle East Business Unit moving
fromAsia Pacific to theEurope ,Middle East andNorth Africa segment. See Note 20 - Segment Disclosures and Related Information in the Notes to Consolidated Financial Statements for additional information. TheEurope ,
of operations principally located in the Norwegian
sector of the
As ofSeptember 30, 2020 , ourEurope ,
13 percent of our consolidated liquids production and 20 percent
of our consolidated natural gas production.
Earnings for
million and$2,732 million in the three- and nine-month periods of 2020, respectively, primarily due to impacts associated with ourU.K. divestiture in 2019.
We recorded a
ConocoPhillipsU.K. subsidiaries.
In addition to the items detailed above, earnings
in both periods decreased due to lower equity
in
earnings of affiliates,
primarily due to lower LNG sales prices;
and lower realized crude oil prices in
Consolidated production decreased 110 MBOED and 105 MBOED
in the three-
and nine-month periods of
2020, respectively, primarily due to our
2019, lower production inLibya due to a cessation of production following
a period of civil unrest and normal field decline.
In addition to the items detailed above, in the nine-month period
of 2020, the production decrease was partly
offset by new wells online inNorway . Force Majeure inLibya Production ceasedFebruary 12, 2020 , due to a forced
shutdown of the Es Sider export terminal
and other eastern export terminals after a period of civil unrest.
Force majeure was lifted on
Plans to resume production and exports are ongoing. 47Asia Pacific Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 * 2020 2019 * Net Income Attributable toConocoPhillips ($MM)$ 25 443 945 1,220 Consolidated Operations Average Net Production Crude oil (MBD) 71 79 70 88 Natural gas liquids (MBD) - 4 1 4 Natural gas (MMCFD) 322 658 455 633 Total Production (MBOED) 125 193 147 198 Average Sales Prices Crude oil ($ per bbl)$ 42.79 62.01 42.94 64.75 Natural gas liquids ($ per bbl) - 30.13 33.21 38.13 Natural gas ($ per MCF) 5.33 5.78 5.42 6.01
*Prior periods have been updated to reflect the Middle East Business Unit moving to
the
See
Note 20-Segment Disclosures and Related Information in the Notes to Consolidated
Financial Statements for additional information.
The
As ofSeptember 30, 2020 ,Asia Pacific contributed 10 percent of our consolidated liquids production and 33 percent of our consolidated natural gas production.
Earnings decreased
quarter of 2020, mainly due to the sale of our disposed
West assets;
the absence of a
related to deepwater incentive tax credits from
the
Malaysia Block G; and lower equity in earnings
of affiliates, primarily due to lower LNG sales prices.
Earnings decreased
period of 2020, primarily due to lower realized
crude oil and natural gas prices; lower oil sales volumes, primarily
related to curtailments in
and the absence of a$164 million income tax benefit related to deepwater incentive tax credits
from the Malaysia Block G.
The decrease was partly offset by a$597 million after-tax gain on disposition related
to our Australia-West divestiture.
Consolidated production decreased 68 MBOED and
51 MBOED in the three-
and nine-month periods of 2020, primarily due to the divestiture of our Australia-West assets, normal field decline, the expiration
of the Panyu production license inChina and higher unplanned
downtime due to the rupture of a third-party
pipeline
impacting gas production from the Kebabangan
Field in
Partly offsetting these production decreases, was new production from development activity
at
Asset Disposition In the second quarter of 2020, we completed the divestiture of our Australia-West assets and operations, and based on an effective date ofJanuary 1, 2019 , we received
proceeds of
decision of the proposed Barossa development
project.
Production from the beginning of the year through the disposition
date in
reserves
associated with the disposed assets was approximately
17 MMBOE at year-end 2019.
For additional information related to this transaction, see Note 4-Asset Acquisitions and Dispositions. 48 Other International Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019 Net Income (Loss) Attributable toConocoPhillips ($MM)$ (8) 73 14 285
and appraisal activities in
Earnings from our Other International operations
decreased
the three- and nine-month periods of 2020, respectively.
The decrease in earnings was primarily due
to the absence of recognizing$86 million and$317 million after-tax
in other income from a settlement award with
in the three-
and nine-month periods of 2019, respectively.
See
Note 12-Contingencies and Commitments in
the Notes to Consolidated Financial Statements,
for additional information. 49 Corporate and Other Millions ofDollars Three Months Ended Nine Months EndedSeptember 30 September 30 2020 2019 2020 2019 Net Income (Loss) Attributable toConocoPhillips Net interest expense$ (179) (123) (508) (450) Corporate general and administrative expenses (50) (34) (90) (148) Technology (8) 43 (16) 129 Other income (expense) (153) 100 (1,366) 533$ (390) (14) (1,980) 64
Net interest expense consists of interest and financing
expense, net of interest income and capitalized
interest.
Net interest expense increased by
and
of 2020, respectively, primarily due to lower interest income related to lower cash and cash
equivalent balances and higher interest expense.
Corporate G&A expenses include compensation
programs and staff costs.
These expenses increased by$16 million and decreased by$58 million in the three-
and nine-month periods of 2020,
respectively, primarily due to mark to market adjustments associated with certain
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 by
of 2020, respectively, primarily due to lower licensing revenues.
Other income (expense) or "Other" includes certain
corporate tax-related items, foreign currency
transaction
gains and losses, environmental costs associated
with sites no longer in operation, other costs not directly associated with an operating segment, premiums
incurred on the early retirement of debt, unrealized
holding
gains or losses on equity securities, and pension settlement
expense.
"Other"
decreased by$253 million in the third quarter of 2020,
primarily due to an unrealized loss of
after-tax on our CVE common shares in the third quarter of 2020, and the absence of a
In the nine-month period of 2020, "Other" decreased
by
primarily due to an unrealized loss of$1,302 million after-tax
on our CVE common shares in the nine-month
period of 2020, and the absence of a$489 million after-tax gain on those
shares in the nine-month period of 2019.
50 CAPITAL RESOURCES AND LIQUIDITY Financial Indicators Millions of DollarsSeptember 30 December 31 2020 2019 Short-term debt$ 482 105 Total debt 15,387 14,895 Total equity 30,783 35,050 Percent of total debt to capital* 33 % 30 Percent of floating-rate debt to total debt 7 % 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 nine months of 2020, the primary uses
of
our available cash were
our ongoing capital expenditures and investments
program,
including the
additional
for net purchases of investments,
and
During the first nine months of 2020, our cash,
cash equivalents and restricted cash decreased
by$2,566 million to$2,796 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
approximately$14 billion in available liquidity.
This strong foundation allowed us to be measured
in our response to the sudden change in business environment as we exited the first
quarter of 2020.
In response to the oil market downturn
earlier
this year, we announced the following capital, operating cost
and share repurchase reductions.
We reduced our 2020 operating plan capital expenditures by a total
of
percent of the original guidance.
We suspended our share repurchase program, further reducing cash outlays by
approximately
We also reduced our operating costs by approximately
Collectively, these actions represent a reduction in 2020 cash uses of
approximately
plan.
Considering the weakness in oil prices during the
second quarter of 2020, we established a
framework for evaluating and implementing economic curtailments,
which resulted in taking an additional significant
step of curtailing production, predominantly from
operated North American assets.
Due to our strong balance sheet, we were in an advantaged position to forgo some production and cash flow in anticipation of receiving higher cash flows for those volumes in the future.
Based on our economic criteria, we began restoring
production
from voluntary curtailments in July, and with oil stabilizing around
ended our curtailment program by the end of the third quarter.
At the end of the third quarter, we had cash and cash equivalents of
$2.5 billion , short-term investments of$4.0 billion , and available borrowing capacity under
our credit facility of
over$12 billion of liquidity.
We believe current cash balances and cash generated by operations, the recent adjustments
to our 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. 51
Significant Sources of Capital
Operating Activities
Cash provided by operating activities was
for the first nine months of 2020, compared with
The decrease in cash provided by operating
activities is primarily due to lower realized commodity prices, normal
field decline, production curtailments,
the divestiture of our
agreement withPDVSA . Our short-
and long-term operating cash flows are highly
dependent upon prices for crude oil, bitumen, natural gas, LNG and NGLs.
Prices and margins in our industry have historically
been volatile and are driven by market conditions over which we have no control.
Absent other mitigating factors, as these prices
and margins fluctuate, we would expect a corresponding change
in our operating cash flows.
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.
To maintain or grow our production volumes, we must continue to add to our
proved reserve base.
Due to recent capital reductions, our reserve replacement could
be delayed thus limiting our ability to
replace depleted reserves. Investing Activities Proceeds from asset sales in the first nine months
of 2020 were
compared with$2.9 billion in the corresponding period of 2019.
In the second quarter of 2020, we completed
the divestiture of ourAustralia - West assets and operations.
Based on an effective date of
closing adjustments, we received cash proceeds of$765 million in
the second quarter with another
payment due upon final investment decision of the proposed Barossa
development project.
In the first quarter of 2020, proceeds from asset sales were$549 million , which included
the sale of our Niobrara interests and
and
See Note 4-Asset Acquisitions and Dispositions in the Notes to Consolidated
Financial Statements, for additional information
on
these transactions.
Proceeds from asset sales in the first nine months
of 2019 were
which consisted primarily of$2.2 billion related to the sale of twoConocoPhillips
30 percent interest in the Greater Sunrise Fields
and
Cenovus Energy.
Commercial Paper and Credit Facilities We have a revolving credit facility totaling$6.0 billion , expiring inMay 2023 . Our revolving credit facility may be used for direct bank borrowings, the issuance
of letters of credit totaling up to
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 byConocoPhillips , 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 theLondon interbank market or at a margin above the overnight
federal funds rate or prime rates offered by
52
certain designated banks in the
The agreement calls for commitment fees
on available, but unused, 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
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.
With
borrowings or letters of credit, we had$5.7 billion in available
borrowing capacity under the revolving credit facility
at
We may consider issuing additional commercial paper in the future to supplement
our
cash position.
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
long-term debt and revised its outlook to "stable" from "negative," Fitch affirmed its rating of "A" with a "stable"
outlook and Moody's affirmed its rating of "A3" 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
direct bank letters of credit of$240 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
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. 53
Guarantor Summarized Financial Information
We have various cross guarantees among
andBurlington Resources LLC , with respect to publicly held debt securities.
owned byConocoPhillips .
owned by
have fully and unconditionally guaranteed
the payment obligations ofBurlington Resources LLC , with respect
to its publicly held debt securities.
Similarly,
guaranteed the payment obligations of
Company
with respect to its publicly held debt securities.
In addition,
has fully and unconditionally guaranteed the payment obligations
of
held debt securities.
All guarantees are joint and several.
In March of 2020, the
to simplify the financial disclosure requirements
for
guarantors and issuers of guaranteed securities
registered under Rule 3-10 of Regulation S-X.
Based on our evaluation of our existing guarantee relationships,
we qualify for the transition to alternative disclosures.
We
have elected early voluntary compliance with
the final amendments beginning in the third
quarter of 2020.
Accordingly, condensed consolidating information by guarantor and issuer of guaranteed
securities will no longer be reported, and alternative disclosures
of summarized financial information for the
consolidated
The following tables present summarized financial
information for the Obligor Group, as defined below: ?
issuers of guaranteed securities consisting ofConocoPhillips ,ConocoPhillips Company andBurlington Resources LLC . ?
Consolidating adjustments for elimination
of investments in and transactions between the collective guarantors and issuers of guaranteed securities
are reflected in the balances of the summarized financial information. ?
Non-Obligated Subsidiaries are excluded from
this presentation.
Transactions and balances reflecting activity between the Obligors and Non-Obligated
Subsidiaries are presented below:
Summarized Income Statement Data Millions ofDollars Nine Months EndedSeptember 30, 2020 Revenues and Other Income$ 5,690 Income (loss) before income taxes (2,018) Net income (loss) (1,929) Net Income (Loss) Attributable toConocoPhillips (1,929) Summarized Balance Sheet Data Millions of DollarsSeptember 30 2020 December 31 2019 Current assets$ 7,890 10,829 Amounts due from Non-Obligated Subsidiaries, current 473 732 Noncurrent assets 40,026 43,194 Amounts due from Non-Obligated Subsidiaries, noncurrent 7,622 7,977 Current liabilities 3,247 3,813 Amounts due to Non-Obligated Subsidiaries, current 1,361 1,836 Noncurrent liabilities 20,444 21,787 Amounts due to Non-Obligated Subsidiaries, noncurrent 5,725 6,974 54 Capital Requirements
For information about our capital expenditures
and investments, see the "Capital Expenditures"
section.
Our debt balance at
was
atDecember 31, 2019 .
Maturities of debt for the remainder of 2020,
and for each of the years 2021 through 2024, are:
million,
and
On
dividend of
The dividend was paid onMarch 2, 2020 , to stockholders of record at the close
of business on
OnApril 30, 2020 , we announced a quarterly dividend of42 cents per share.
The dividend was paid on
stockholders
of record at the close of business on
On
42
cents per share, payable
of record at the close of business on
2020.
On
our quarterly dividend from
to43 cents per share.
The dividend is payable on
to shareholders of record as of
In late 2016, we initiated our current share repurchase
program.
As ofSeptember 30, 2020 , we had announced a total authorization to repurchase$25 billion
of our common stock.
As ofDecember 31, 2019 , we had repurchased$9.6 billion of shares.
In the first quarter of 2020, we repurchased
an additional$0.7 billion of shares before suspending repurchases during
the second and third quarters of 2020.
OnSeptember 30, 2020 , we announced our intent to resume share repurchases; however, we recently announced the pending acquisition of Concho, and our suspension of share
repurchases until after the transaction closes.
Capital Expenditures Millions ofDollars Nine Months EndedSeptember 30 2020 2019Alaska $ 882 1,207 Lower 48 1,398 2,613Canada 593 315Europe ,Middle East andNorth Africa 410 537Asia Pacific 280 322 Other International 66 1 Corporate and Other 28 46 Capital expenditures and investments$ 3,657 5,041
During the first nine months of 2020, capital expenditures
and investments supported key exploration and development programs, primarily: ?
Development,
appraisal and exploration activities in the
Lower 48, includingEagle Ford , Permian Unconventional and Bakken. ? Appraisal,
exploration and development activities
inAlaska related to theWestern North Slope ; development activities in the Greater Kuparuk
Area and the Greater Prudhoe Area.
?
Development and exploration activities across
assets inNorway . ?
Appraisal activities in the liquids-rich portion
of the
of oil sands development. ?
Continued development in
?
Lease acquisition and appraisal activities
inArgentina . 55
In
plan capital of
In response to the oil market downturn earlier this year, we announced capital
expenditure reductions totaling
Full
year 2020 operating plan capital is now expected
to be
This does not include approximately$0.5 billion of capital for acquisitions completed during
the year, of which
In
of additional
after
customary adjustments, plus the assumption of
with partially owned infrastructure.
See Note 4-Asset Acquisitions and Dispositions,
in the Notes to Consolidated Financial Statements, for additional information.
Contingencies
A number of lawsuits involving a variety of claims
arising in the ordinary course of business
have been filed againstConocoPhillips .
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, legal and
tax 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 legal and tax 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. 56 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 theEPA 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 ofSeptember 30, 2020 , there were 15 sites around theU.S. in which
we were identified as a potentially responsible
party under CERCLA and comparable state laws.
At
a total environmental accrual of
compared
with
activities in the
We expect to incur a 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: ? TheEPA 's
and
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. ?
has proposed natural gas waste rules as part ofNew Mexico's statewide, enforceable regulatory framework to secure reductions in oil and gas sector emissions and to prevent natural gas
waste from new and existing sources.
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.
We announced in
as part of our continued commitment to ESG excellence.
This comprehensive climate risk strategy
should enable us to sustainably meet global energy demand while delivering competitive
returns through the energy transition.
We have set a target to reduce our gross operated (scope 1 and 2) emissions
intensity by 35 to 45 percent from 2016 levels
by
2030, with an ambition to achieve net zero by
2050 for operated emissions.
We are advocating for reduction of scope 3 end-use emissions intensity through
our support for a
We have joined the World Bank Flaring Initiative to work towards zero routine flaring of gas by 2030. We are committed to take ESG 57
leadership to the next level as the first
oil and gas company to adopt a
climate risk strategy.
In
of the
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. In ourOctober 2020 Paris aligned-climate risk framework announcement,
we reaffirmed our commitment to the
Beginning in 2017, cities, counties, governments
and other entities in several states in the
filed
lawsuits against oil and gas companies, including
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.
and legally meritless and are an inappropriate vehicle to address
the challenges associated with climate
change and will vigorously defend against such lawsuits.
Several
have filed 43 lawsuits under
against oil and gas companies, including
and erosion of the
allegedly caused by historical oil and gas operations.
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 any potential financial impact on the company.
CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements
within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.
All statements other than statements of historical fact included or incorporated by reference
in this report, including, without limitation,
statements
regarding our future financial position, business
strategy, budgets, projected revenues, projected costs and plans, objectives of management for future operations,
the anticipated benefits of the proposed transaction between us and Concho, the anticipated impact
of the proposed transaction on the combined company's business and future financial and operating results,
the expected amount and the timing of synergies from
the
proposed transaction, and the anticipated closing
date for the proposed transaction 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. 58
We based the forward-looking statements on our current expectations, estimates
and projections about ourselves and the industries in which we operate in
general.
We caution you these statements are not guarantees of future performance as they involve
assumptions that, while made in good faith,
may prove to be incorrect, and involve risks and uncertainties
we cannot predict.
In addition, we based many of these forward- looking statements on assumptions about future events
that may prove to be inaccurate.
Accordingly, our actual outcomes and results may differ materially from
what we have expressed or forecast in the forward- looking statements.
Any differences could result from a variety of factors
and uncertainties, including, but not limited to, the following: ?
The impact of public health crises, including pandemics
(such as COVID-19) and epidemics and any related company or government policies or
actions.
?
Global and regional changes in the demand, supply, prices, differentials or other market
conditions
affecting oil and gas, including changes resulting from a public
health crisis or from the imposition or lifting of crude oil production quotas or other
actions that might be imposed by
and other producing countries and the resulting company
or third-party actions in response to such changes. ?
Fluctuations in crude oil, bitumen, natural gas,
LNG and NGLs prices, including a prolonged
decline
in these prices relative to historical or future
expected levels. ?
The impact of significant declines in prices for
crude oil, bitumen, natural gas, LNG and NGLs,
which
may result in recognition of impairment charges on our
long-lived assets, leaseholds and nonconsolidated equity investments. ?
Potential failures or delays in achieving expected
reserve or production levels from existing
and future oil and gas developments, including due to operating hazards, drilling risks and the inherent uncertainties in predicting reserves and reservoir
performance.
?
Reductions in reserves replacement rates, whether
as a result of the significant declines in commodity prices or otherwise. ?
Unsuccessful exploratory drilling activities
or the inability to obtain access to exploratory acreage. ?
Unexpected changes in costs or technical requirements
for constructing, modifying or operating E&P facilities. ?
Legislative and regulatory initiatives
addressing environmental concerns, including initiatives addressing the impact of global climate change or further
regulating hydraulic fracturing, methane emissions, flaring or water disposal. ?
Lack of, or disruptions in, adequate and reliable
transportation for our crude oil, bitumen, natural
gas,
LNG and NGLs. ?
Inability to timely obtain or maintain permits,
including those necessary for construction, drilling and/or development, or inability to make capital
expenditures required to maintain compliance
with
any necessary permits or applicable laws or regulations. ?
Failure to complete definitive agreements and feasibility
studies for, and to complete construction of, announced and future E&P and LNG development in a timely manner (if at all) or on budget. ?
Potential disruption or interruption of our operations
due to accidents, extraordinary weather events, civil unrest, political events, war, terrorism, cyber attacks, and information technology failures, constraints or disruptions. ?
Changes in international monetary conditions and
foreign currency exchange rate fluctuations. ?
Changes in international trade relationships,
including the imposition of trade restrictions
or tariffs relating to crude oil, bitumen, natural gas, LNG, NGLs and any materials or products (such as aluminum and steel) used in the operation of our
business.
?
Substantial investment in and development use
of, competing or alternative energy sources, including as a result of existing or future environmental
rules and regulations. ?
Liability for remedial actions, including removal
and reclamation obligations, under existing
and
future environmental regulations and litigation. ?
Significant operational or investment changes imposed
by existing or future environmental
statutes
and regulations, including international agreements
and national or regional legislation and regulatory measures to limit or reduce GHG emissions.
59
?
Liability resulting from litigation, including the
potential for litigation related to the
proposed
transaction, or our failure to comply with applicable
laws and regulations.
?
General domestic and international economic and
political developments, including armed
hostilities;
expropriation of assets; changes in governmental
policies relating to crude oil, bitumen, natural
gas,
LNG and NGLs pricing, regulation or taxation;
and other political, economic or diplomatic developments. ? Volatility in the commodity futures markets. ?
Changes in tax and other laws, regulations (including
alternative energy mandates), or royalty rules applicable to our business. ?
Competition and consolidation in the oil and gas E&P
industry.
?
Any limitations on our access to capital or increase
in our cost of capital, including as a result
of
illiquidity or uncertainty in domestic or international
financial markets. ?
Our inability to execute, or delays in the completion,
of any asset dispositions or acquisitions
we elect to pursue. ?
Potential failure to obtain, or delays in obtaining, any
necessary regulatory approvals for
pending or future asset dispositions or acquisitions,
or that such approvals may require modification
to the terms of the transactions or the operation of our remaining
business.
?
Potential disruption of our operations as a result
of pending or future asset dispositions or acquisitions, including the diversion of management time and attention. ?
Our inability to deploy the net proceeds from any
asset dispositions that are pending or
that we elect to undertake in the future in the manner and timeframe we currently anticipate, if at all. ?
Our inability to liquidate the common stock issued
to us by Cenovus Energy as part of our sale of certain assets in westernCanada 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
?
Our inability to realize anticipated cost savings and
capital expenditure reductions. ?
The inadequacy of storage capacity for our products,
and ensuing curtailments, whether voluntary
or
involuntary, required to mitigate this physical constraint. ?
Our ability to successfully integrate Concho's business. ?
The risk that the expected benefits and cost
reductions associated with the proposed transaction
may
not be fully achieved in a timely manner, or at all. ?
The risk that we or Concho will be unable to retain
and hire key personnel. ?
The risk associated with our and Concho's ability to obtain the approvals of
our respective stockholders required to consummate the proposed
transaction and the timing of the closing
of the proposed transaction, including the risk that
the conditions to the transaction are not satisfied
on a timely basis or at all or the failure of the transaction
to close for any other reason or to close on the anticipated terms, including the anticipated tax treatment. ?
The risk that any regulatory approval, consent or
authorization that may be required for
the proposed transaction is not obtained or is obtained subject to conditions that are not anticipated. ?
Unanticipated difficulties or expenditures relating to
the transaction, the response of business
partners
and retention as a result of the announcement and
pendency of the transaction. ?
Uncertainty as to the long-term value of our common
stock.
?
The diversion of management time on transaction-related
matters.
?
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, in our Forms 8-K
filed with the
theSEC . Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Information about market risks for the nine months
ended
from
that discussed under Item 7A in our 2019 Annual Report
on Form 10-K. 60 Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure information required
to be disclosed in reports we file or submit under the Securities
Exchange Act of 1934, as amended (the Act),
is recorded, processed, summarized and reported within the
time periods specified in
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 ofSeptember 30, 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
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 September
30, 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
Risks Related to the Business
Existing and future laws, regulations and internal
initiatives relating to global climate change,
such as limitations on GHG emissions, may impact or limit
our business plans, result in significant expenditures, promote alternative uses of energy or reduce demand
for our products.
Continuing political and social attention to the
issue of global climate change has resulted in
both existing and pending international agreements and national,
regional or local legislation and regulatory
measures to limit GHG emissions, such as cap and trade regimes, carbon
taxes, restrictive permitting, increased fuel efficiency standards and incentives or mandates for renewable
energy.
For example, inDecember 2015 , theU.S. joined the international community at the 21st Conference of the Parties of theUnited Nations Framework Convention on Climate Change inParis that
prepared an agreement requiring member countries
to review and represent a progression in their intended GHG
emission reduction goals every five years
beginning in 2020.
While the
from the Paris Agreement, there is no guarantee
that the commitments made by theU.S. will not be implemented, in whole or in part, byU.S. state and local governments or by major corporations headquartered
in the
In addition, our operations continue in countries around the world which are party to, and
have not announced an intent to withdraw
from, theParis Agreement.
The implementation of current agreements and
regulatory measures, as well as any future agreements or measures addressing climate
change and GHG emissions, may adversely impact
the demand for our products, impose taxes on our products or operations
or require us to purchase emission credits
or reduce emission of GHGs from our operations.
As a result, we may experience declines in commodity
prices or incur substantial capital expenditures and compliance,
operating, maintenance and remediation costs,
any of which may have an adverse effect on our business and results
of operations.
61
Compliance with the various climate change related
internal initiatives described in the "Business
Environment
and Executive Overview" section of Management's Discussion and Analysis
of Financial Condition and Results of Operations may increase costs, require
us to purchase emission credits, or limit
or impact our business plans, potentially resulting in the reduction
to the economic end-of-field life of certain
assets and an impairment of the associated net book value.
Additionally, increasing attention to global climate change has resulted in pressure
upon shareholders, financial institutions and/or financial markets
to modify their relationships with oil and gas companies
and to limit investments and/or funding to such companies,
which could increase our costs or otherwise
adversely
affect our business and results of operations.
Furthermore, increasing attention to global climate
change has resulted in an increased likelihood
of
governmental investigations and private litigation,
which could increase our costs or otherwise adversely
affect
our business.
Beginning in 2017, cities, counties, governments
and other entities in several states in theU.S. have filed lawsuits against oil and gas companies,
including
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.
and legally meritless and are an inappropriate vehicle to address
the challenges associated with climate
change and will vigorously defend against such lawsuits.
The ultimate outcome and impact to us cannot
be predicted with certainty, and we could incur substantial legal costs associated with defending these
and similar lawsuits in the future.
In addition, although we design and operate our
business operations to accommodate expected
climatic
conditions, to the extent there are significant
changes in the earth's climate, such as more severe or frequent weather conditions in the markets where we operate
or the areas where our assets reside, we could
incur
increased expenses, our operations could be adversely
impacted, and demand for our products could
fall.
For more information on legislation or precursors
for possible regulation relating to global climate
change that affect or could affect our operations and a description of the company's response, see the
"Contingencies-
Climate Change" section of Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Our business has been, and will continue to
be, affected by the coronavirus (COVID-19) pandemic.
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.
Public health officials have recommended or mandated certain precautions to mitigate
the spread of COVID-19, 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 or reductions
in capacity for non-essential businesses.
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.
According to theNational Bureau of Economic Research , as a result
of the pandemic and its broad reach across the
entire
economy, the
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.
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;
62
?
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 portion of
our workforce continuing to telecommute,
as well as the implementation and maintenance of protections for employees commuting 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.
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 extent to which those nations party
to the
to increase production of crude oil, bitumen, natural gas and
NGLs 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
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, earnings, 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 oil market downturn earlier
this year, we suspended our share repurchase program.
Lower prices may also limit the amount of reserves
we can produce economically, 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.
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 63 assets as proved reserves.
In the nine-month period of 2020, we recognized
several impairments, which are described in Note 8-Impairments.
If the outlook for commodity prices remains
low relative to 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.
If oil and gas prices persist at depressed levels, our reserve estimates may decrease further, which could incrementally increase the rate used to determine DD&A expense on our unit-of-production
method properties.
See Management's Discussion and Analysis for further examination of DD&A
rate impacts versus comparative periods.
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.
Risks Related to the Proposed Acquisition of
Concho Resources Inc. (Concho)
Our ability to complete the acquisition of Concho
is subject to various closing conditions,
including
approval by our and Concho's stockholders and regulatory clearance, which may
impose conditions that could adversely affect us or cause the acquisition not to be
completed.
On
agreement (the Merger Agreement)
to acquire Concho, one of the largest unconventional shale producers in the Permian
Basin.
The Merger is subject to a number of conditions to closing
as specified in the Merger Agreement.
These
closing conditions include, among others, (1) the
receipt of the required approvals from
stockholders and Concho stockholders, (2) the expiration
or termination of the waiting period under the
Hart-
Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the HSR Act) and (3) the
absence of any governmental order or law that makes consummation
of the Merger illegal or otherwise prohibited.
No
assurance can be given that the required stockholder
approvals and regulatory clearance be obtained
or that the required conditions to closing will be satisfied,
and, if all required approvals and regulatory
clearance are obtained and the required conditions are satisfied,
no assurance can be given as to the terms,
conditions and timing of such approvals and clearance,
including whether any required conditions
will materially adversely affect the combined company following the acquisition.
Any delay in completing the Merger could cause the combined company not to realize, or to be delayed
in realizing, some or all of the benefits
that we and Concho expect to achieve if the Merger is successfully completed
within its expected time frame.
We can provide no assurance that these conditions will not result in the abandonment
or delay of the acquisition.
The occurrence of any of these events individually
or in combination could have a material adverse effect on our results of operations and the trading
price of our common stock.
The termination of the Merger Agreement could
negatively impact our business or result
in our having to pay a termination fee.
If the Merger is not completed for any reason, including
as a result of a failure to obtain the required approvals from our stockholders or Concho's stockholders, our ongoing business may
be adversely affected and, without realizing any of the expected benefits of having completed the Merger, we would be subject to a number of risks, including the following: ?
we may experience negative reactions from the
financial markets, including negative impacts
on our stock price; ?
we may experience negative reactions from our commercial
and vendor partners and employees; and ?
we will be required to pay our costs relating to
the Merger, such as financial advisory, legal, financing and accounting costs and associated fees and expenses,
whether or not the Merger is completed.
Additionally, if the Merger Agreement is terminated under certain circumstances, we
may be required
to pay a termination fee of
if the proposed Merger is terminated because our Board
of
Directors has changed its recommendation in respect
of the stockholder proposal relating to the Merger.
In
64
addition, we may be required to reimburse Concho
for its expenses in an amount equal
to
Merger Agreement is terminated because of a failure of our
stockholders to approve the stockholder proposal.
Whether or not the Merger is completed, the announcement
and pendency of the Merger could cause disruptions in our business, which could have an
adverse effect on our business and financial results.
Whether or not the Merger is completed, the announcement
and pendency of the Merger could cause disruptions in our business. Specifically: ?
our and Concho's current and prospective employees will experience uncertainty
about their future roles with the combined company, which might adversely affect the two companies' abilities
to retain key managers and other employees; ?
uncertainty regarding the completion of the Merger may
cause our and Concho's commercial and vendor partners or others that deal with us or Concho
to delay or defer certain business decisions
or to decide to seek to terminate, change or renegotiate
their relationships with us or Concho, which
could
negatively affect our respective revenues, earnings and cash
flows;
?
the Merger Agreement restricts us and our subsidiaries
from taking specified actions during the pendency of the Merger without Concho's consent, which may prevent us from making appropriate changes to our business or organizational structure or prevent us from pursuing attractive business opportunities or strategic transactions that may arise prior to the completion of the Merger; and ?
the attention of our and Concho's management may be directed toward
the completion of the Merger, as well as integration planning, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial
to our business.
We have and will continue to divert significant management resources in an effort to complete
the Merger and are subject to restrictions contained in the Merger Agreement
on the conduct of our business.
If the Merger is not completed, we will have incurred significant
costs, including the diversion of management resources,
for
which we will have received little or no benefit.
The market value of our common stock could
decline if large amounts of our common
stock are sold following the Concho acquisition.
If the Merger is consummated,
issue shares of
to former Concho stockholders.
Former Concho stockholders may decide not to
hold the shares ofConocoPhillips common stock that they will receive in the Merger, andConocoPhillips stockholders may decide to reduce their investment inConocoPhillips as a result
of the changes to
profile as a result of the Merger.
Other Concho stockholders, such as funds
with limitations on their permitted holdings of
stock
in individual issuers, may be required to sell the
shares of
they receive in the Merger.
Such sales of
could have the effect of depressing the market price
for
Combining our business with Concho's may be more difficult, costly or time-consuming
than expected and the combined company may fail to realize
the anticipated benefits of the Merger, which may adversely affect the combined company's business results and negatively affect the value of the combined
company's common stock.
The success of the Merger will depend on, among other
things, the ability of the two companies to combine their businesses in a manner that facilitates
growth opportunities and realizes expected cost
savings.
The
combined company may encounter difficulties in integrating
our and Concho's businesses and realizing the anticipated benefits of the Merger.
The combined company must achieve the
anticipated improvement in free cash flow generation and returns and achieve the
planned cost savings without adversely affecting current revenues or compromising the disciplined investment
philosophy for future growth.
If the combined company is not able to successfully achieve these objectives,
the anticipated benefits of the Merger may not be
realized
fully, or at all, or may take longer to realize than expected.
65
The Merger involves the combination of two companies
which currently operate, and until the completion
of
the Merger will continue to operate, as independent public
companies.
There can be no assurances that our respective businesses can be integrated successfully.
It is possible that the integration process could result
in
the loss of key employees from both companies;
the loss of commercial and vendor partners;
the disruption of our, Concho's or both companies' ongoing businesses;
inconsistencies in standards, controls, procedures
and
policies;
unexpected integration issues;
higher than expected integration costs and an overall
post-completion
integration process that takes longer than originally
anticipated.
The combined company will be required
to
devote management attention and resources to integrating
its business practices and operations, and prior
to the Merger, management attention and resources will be required to plan for
such integration.
An inability to realize the full extent of the anticipated
benefits of the Merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock
of the combined company.
In addition, the actual integration may result
in additional and unforeseen expenses, and the
anticipated
benefits of the integration plan may not be realized.
There are a large number of processes, policies, procedures, operations and technologies and systems
that must be integrated in connection with
the Merger and the integration of Concho's business.
Although we expect that the elimination of duplicative
costs,
strategic benefits, and additional income, as well
as the realization of other efficiencies related to the integration of the business, may offset incremental transaction
and Merger-related costs over time, any net benefit may not be achieved in the near term
or at all.
If we and Concho are not able to adequately
address
integration challenges, we may be unable to successfully
integrate operations or realize the anticipated
benefits
of the integration of the two companies.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
Issuer Purchases ofEquity 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 ProgramsJuly 1-31, 2020 - $ - -$ 14,649 August 1-31, 2020 - - - 14,649September 1-30, 2020 - - - 14,649 - $ - -
*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 ofSeptember 30, 2020 , we had announced a total authorization to repurchase$25 billion
of our common stock.
As ofDecember 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
downturn, we announced we were suspending our share repurchase program,
and on
intent to resume share repurchases of$1 billion in the fourth quarter;
however, on
into a definitive agreement to acquire Concho and would
suspend share repurchases until after
the transaction closes.
The transaction is expected to close in the first
quarter of 2021.
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. 66 Item 6. EXHIBITS 2.1
Agreement and Plan of Merger, dated as of
Current Report of
10.1*
Successor Trustee Agreement of the Deferred Compensation Trust Agreement for Non-
Employee Directors of
10.2*
First Amendment to the Successor Trustee Agreement of the
Agreement for Non-Employee Directors of
22*
Subsidiary Guarantors of
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32*
Certifications pursuant to 18 U.S.C. Section 1350. 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.
67
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