SEC EDGAR Filing

Company: CONOCOPHILLIPS
CIK: 1163165
Filing Type: 10-K
Filing Date: 2022-02-17
Period of Report: 2021-12-31
SIC Code: 2911
State of Incorporation: DE
State of Location: TX
Fiscal Year End: 1231

Filename: 1163165_10K_2021_0001562762-22-000031.htm
Filing Index: https://www.sec.gov/Archives/edgar/data/1163165/0001562762-22-000031-index.html
HTM Filing Link: https://www.sec.gov/Archives/edgar/data/1163165/000156276222000031/cop10k2021.htm
Complete Text Filing Link: https://www.sec.gov/Archives/edgar/data/1163165/0001562762-22-000031.txt

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Item 1. Business

Item 1A. Risk Factors
Item 1A. Risk Factors
You should carefully
consider the following risk factors
in addition to the other information
included in this Annual
Report on Form 10-K.
These risk factors are not
the only risks we face.
Our business could also be affected
by
additional risks and uncertainties not currently
known to us or that we currently consider
to be immaterial.
If any
of these risks or other risks that are yet unknown
were to occur,
our business, operating results and
financial
condition, as well as the value of an investment
in our common stock could be adversely
affected.
Risks Related to Our Industry
Our operating results, our ability to execute
on our strategy and the carrying value of our assets
are exposed to
the effects of changing commodity prices.
The oil and gas business is a commodity business.
Our revenues, operating results
and future rate of growth are
highly dependent on the prices we receive for
crude oil, bitumen, natural gas
and NGLs.
Such prices can fluctuate
widely depending upon global events or conditions
that affect supply and demand, most
of which are out of our
control.
In early 2020 global oil demand decreased precipitously
alongside global COVID-19 economic shutdowns.
Although global oil demand and global oil prices improved
through 2021, the global economic recovery
remains
uncertain.
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.
Lower crude oil, bitumen, natural gas
and NGL prices may have a material adverse
effect on our revenues,
operating income, cash flows
and liquidity, and
may also affect the amount of dividends we elect
to declare and
pay on our common stock and the amount
of shares we elect to acquire as part of the share repurchase
program
and the timing of such acquisitions.
Lower prices may also limit the amount of reserves we
can produce
economically,
thus adversely affecting our proved
reserves and reserve replacement ratio
and accelerating the
reduction in our existing reserve levels
as we continue production from upstream
fields. Prolonged depressed
crude oil prices may affect certain
decisions related to our operations,
including decisions to reduce capital
investments or curtail operated
production.
Significant reductions in crude oil, bitumen, natural
gas and NGL prices could also require us to
reduce our capital
expenditures, impair the carrying value of our
assets or discontinue the classification of certain
assets as proved
reserves.
In the past three years, we recognized
several impairments, which
are described in
Note 7
.
If commodity
prices decrease relative to their current
levels, and as we continue to optimize
our investments and exercise
capital flexibility,
it is reasonably likely we could
incur future impairments to long-lived assets
used in operations,
investment in nonconsolidated
entities accounted for under the equity
method and unproved properties.
Although it is not reasonably practicable to
quantify the impact of any future impairments
or estimated change to
our unit-of-production
rates at this time, our results
of operations could be adversely affected
as a result.
Our business has been, and will continue to be, adversely affected
by the coronavirus (COVID-19) pandemic.
The COVID-19 pandemic 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.
Over the course of the pandemic, 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.
Although
some of these limitations and mandates have
been relaxed in certain jurisdictions,
others have been reinstated
in
areas that have experienced a resurgence
of COVID-19 cases and there is no guarantee
restrictions will not be
reimposed in the future.
Despite the increased availability
of vaccines in certain jurisdictions, the COVID
pandemic may continue or worsen
during the upcoming months, including as a result of the emergence
of more
infectious variants of the virus,
vaccine hesitancy or increased business and
social activities, which may cause
governmental authorities to reinstate
restrictions.
As a result, the ongoing impact of the COVID-19 pandemic
Risk Factors
ConocoPhillips
2021 10-K
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, the availability
and effectiveness of vaccines
or other treatments, and how quickly and
to what extent economic conditions
improve.
See our Human Capital Management section within Item 1 and 2-Business and Properties
, for additional
information on how we have
been impacted and the steps we have
taken in response.
Our business is likely to continue to
be further negatively impacted by the COVID
-19 pandemic.
These impacts
could include but are not limited to:
●
Reduced demand for our products
as a result of reductions in travel
and commerce, whether related to
mandated restrictions or otherwise;
●
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;
●
Increased challenges in retention
of personnel caused by vaccine hesitancy
and the resistance of some in
our workforce to comply with
workplace protocols necessary to ensure
the health and safety of our
workforce and minimize disruptions
to the business, such as vaccine and testing requirements,
or the use
of personal protective equipment; 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.
Despite the rollout of vaccines, 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 and a lack of certainty
as to if or when
conditions will return to pre-COVID
levels.
Unless we successfully develop resources, the scope
of our business will decline, resulting in an adverse impact to
our business.
As we produce crude oil and natural
gas from our existing portfolio,
the amount of our remaining reserves
declines.
If we are not successful in replacing the crude oil and
natural gas we produce with
good prospects for
future organic opportunities or through
acquisitions, our business will decline.
In addition, our ability to
successfully develop our reserves is dependent
on a number of factors, including our ability to
obtain and renew
rights to develop and produce hydrocarbons;
our success at reservoir optimization; our ability
to bring long-lead
time, capital intensive projects
to completion on budget and on schedule; and our ability
to efficiently and
profitably operate mature
properties.
If we are not successful in developing the resources
in our portfolio, our
financial condition and results of operations
may be adversely affected.
The exploration and production of oil and gas is a highly comp
etitive industry.
The exploration and production
of crude oil, bitumen, natural gas and NGLs
is a highly competitive business.
We
compete with private, public
and state-owned companies in all
facets of the exploration and
production business,
including to locate and obtain new sources
of supply and to produce crude oil, bitumen, natural
gas and NGLs in an
efficient, cost-effective
manner.
We must compete for
the materials, equipment, services, employees
and other
personnel (including geologists, geophysicists,
engineers and other specialists) necessary to conduct
our business.
Some of our competitors are larger
and have greater resources
than we do, or may have
established strategic
long-
Risk Factors
ConocoPhillips
2021 10-K
term positions or strong governmental
or other relationships in countries
or areas in which we operate, or may
be
willing to incur a higher level of risk than we are willing to
incur to obtain potential sources
of supply.
As a
consequence, we may be at a competitive
disadvantage in certain respects,
such as in accessing the necessary
materials, equipment, services, resources
and personnel.
In addition, we may be at a competitive disadvantage
when competing with state-owned
companies if they are motivated
by political or other factors in making their
business decisions, with less emphasis on financial returns.
If we are not successful in our competition for
new
reserves, our financial condition and results
of operations may be adversely
affected.
Any material change in the factors and assumptions
underlying our estimates of crude oil, bitumen, natural gas
and NGL reserves could impair the quantity and value of those reserves.
Our proved reserve information
included in this annual report represents
management’s best estimates
based on
assumptions, as of a specified date, of the volumes
to be recovered from underground
accumulations of crude oil,
bitumen, natural gas and NGLs.
Such volumes cannot be directly measured and the
estimates and underlying
assumptions used by management are subject to
substantial risk and uncertainty.
Any material changes in the
factors and assumptions underlying
our estimates of these items could result
in a material negative impact to the
volume of reserves reported or could
cause us to incur impairment expenses on property
associated with the
production of those reserves.
Future reserve revisions could also
result from changes in, among other things,
governmental regulation.
Our business may be adversely affected by price controls,
government-imposed limitations on production
or
exports of crude oil, bitumen, natural gas and NGLs, or the unavailability of adequate
gathering, processing,
compression, transportation, and pipeline facilities and
equipment for our production of crude oil, bitumen,
natural gas and NGLs.
As discussed herein, our operations
are subject to extensive governmental
regulations.
From time to time,
regulatory agencies have imposed
price controls and limitations
on production by restricting the rate
of flow of
crude oil, bitumen, natural gas and
NGL wells below actual production capacity.
Similarly, in response
to increased
domestic energy costs, circumstances
determined to be in the economic interest
of the country,
or a declared
national emergency,
the U.S. government could restrict
the export of our products which would
adversely impact
our domestic business.
Because legal requirements are frequently
changed and subject to interpretation,
we
cannot predict whether future restrictions
on our business may be enacted or become applicable
to us.
Our ability to sell and deliver the crude oil, bitumen, natural
gas, NGLs and LNG that we produce also
depends on
the availability,
proximity,
and capacity of gathering, processing, compression,
transportation and pipeline facilities
and equipment, as well as any necessary diluents
to prepare our crude oil, bitumen, natural
gas, NGLs and LNG for
transport.
Furthermore, we rely on there being sufficient
facilities and takeaway
capacity to support our ambitions
to reduce routine flaring.
The facilities, equipment and diluents
we rely on may be temporarily
unavailable to us
due to market conditions, extreme
weather events, regulatory
reasons, mechanical reasons or other factors
or
conditions, many of which are beyond
our control.
In addition, in certain newer plays, the capacity
of necessary
facilities, equipment and diluents may
not be sufficient to accommodate production
from existing and new wells,
and construction and permitting delays,
permitting costs and regulatory or
other constraints could limit or delay
the construction, manufacture or other acquisition
of new facilities and equipment.
If any facilities, equipment or
diluents, or any of the transportation
methods and channels that we rely on become unavailable
for any period of
time, we may incur increased costs
to transport our crude oil, bitumen, natural
gas, NGLs and LNG for sale or we
may be forced to curtail our
production of crude oil, bitumen, natural
gas or NGLs.
Risk Factors
ConocoPhillips
2021 10-K
Our investments in joint ventures decrease
our ability to manage risk.
We conduct many of our operations
through joint ventures in which we
may share control with our
joint venture
partners.
There is a risk our joint venture participants
may at any time have economic,
business or legal interests
or goals that are inconsistent
with those of the joint venture or us, or our joint
venture partners may be unable
to
meet their economic or other obligations and
we may be required to fulfill those obligations
alone.
Failure by us,
or an entity in which we have a joint venture
interest, to adequately manage
the risks associated with any
operations, acquisitions or dispositions could
have a material adverse
effect on the financial condition or results
of
operations of our joint ventures
and, in turn, our business and operations.
Our operations present hazards and risks that require significant
and continuous oversight.
The scope and nature of our operations
present a variety of significant hazards
and risks, including operational
hazards and risks such as explosions,
fires, product spills, severe weather,
geological events, labor disputes,
geopolitical tensions, armed hostilities, terrorist
or piracy attacks, sabotage,
civil unrest or cyberattacks.
Our
operations are subject to the additional
hazards of pollution, toxic substances
and other environmental hazards
and risks.
Offshore activities may pose incrementally
greater risks because of complex
subsurface conditions such
as higher reservoir pressures, water
depths and metocean conditions.
All such hazards could result in loss of
human life, significant property
and equipment damage, environmental
pollution, impairment of operations,
substantial losses to us and damage to
our reputation.
Our business and operations may be disrupted
if we do not
respond, or are perceived not to
respond, in an appropriate manner to
any of these hazards and risks
or any other
major crisis or if we are unable to efficiently
restore or replace affected
operational components
and capacity.
Further, our
insurance may not be adequate to
compensate us for all resulting
losses, and the cost to obtain
adequate coverage may
increase for us in the future.
Legal and Regulatory Risks
We expect to continue
to incur substantial capital
expenditures and operating costs
as a result of our compliance
with existing and future environmental
laws and regulations.
Our business is subject to numerous laws and
regulations relating to the protection
of the environment, which are
expected to continue to have
an increasing impact on our operations.
For a description of the most significant of
these environmental laws and
regulations, see the “Contingencies-Environmental”
and “Contingencies-Climate
Change” sections of Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
These laws and regulations continue
to increase in both number and complexity and
affect our operations
with
respect to, among other things:
●
Permits required in connection with exploration,
drilling, production and other activities, including those
issued by national, subnational, and local authorities;
●
The discharge of pollutants into
the environment;
●
Emissions into the atmosphere, such
as nitrogen oxides, sulfur dioxide, mercury
and GHG emissions,
including methane;
●
Carbon taxes;
●
The handling, use, storage, transportation,
disposal and cleanup of hazardous materials
and hazardous
and nonhazardous wastes
;
●
The dismantlement, abandonment and restoration
of historic properties and facilities at
the end of their
useful lives;
and
●
Exploration and production
activities in certain areas, such as offshore
environments, arctic fields, oil
sands reservoirs and unconventional
plays.
We have incurred and
will continue to incur substantial
capital, operating and maintenance, and
remediation
expenditures as a result of these laws and
regulations.
In addition, to the extent these expenditures
are assumed
by a buyer as a result of a disposition, it may
result in our incurring substantial costs
if the buyer is unable to satisfy
these obligations.
Any failure by us to comply
with existing or future laws, regulations
and other requirements
could result in administrative
or civil penalties, criminal fines, other enforcement
actions or third-party litigation
Risk Factors
ConocoPhillips
2021 10-K
against us.
To the extent
these expenditures, as with all costs,
are not ultimately reflected in
the prices of our
products and services, our business, financial condition, results
of operations and cash flows in future
periods
could be materially adversely affected.
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, specific
emission standards, carbon taxes,
restrictive permitting,
increased fuel efficiency standards
and incentives or mandates for renewable
energy.
Although we may support
many of these legislative and regulatory
measures, how and when they are enacted could
result in a material
adverse effect to our
business, financial condition, results of operations
and cash flows in future periods.
For example, in November 2021,
the U.S. Environmental Protection
Agency published a Proposed Rule that would
revise the regulations governing
the emission of GHG and volatile organic compounds
from new oil and gas
production facilities, and emission guidelines
for states to use when revising
Clean Air Act implementation plans to
limit GHG emissions from existing oil and gas
facilities.
Although the company supports the direct federal
regulation of methane from new and existing
sources,
the final form and substance of any regulations
are not
currently known and could result in additional
capital expenditures and compliance,
operating and maintenance
costs, any of which may have
an adverse effect on our business
and results of operations.
Additionally,
in 2021, the U.S. joined the international community at
the 26th Conference of the Parties (COP26).
At the conclusion of COP26, the U.S. and nearly
200 other counties agreed to the Glasgow Climate
Pact,
committing to revisiting and strengthening
their current emissions targets
to 2030 in 2022 and finalizing the
outstanding elements of the Paris
Agreement.
In addition, our operations continue
in countries around the world
which are party to the Paris 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.
In September 2021, we announced an improvement
to our Paris-aligned climate risk framework,
whereby we
committed to an improvement
to our targets for reduc
ing our scope 1 and 2 emissions intensity on both a
gross
operated and net equity basis and reaffirmed
our commitment to advocate
for the reduction of scope 3 emissions
through our support for a U.S. carbon
price.
Compliance with, and achievement of,
climate change-related
internal initiatives such as the foregoing
may increase costs, require
us to purchase emission credits, or limit or
impact our business plans.
If we are not successful in select internal initiatives,
we may be adversely affected
and
potentially need to reduce
economic end-of-field life
of certain assets and impair associated
net book value.
Increasing attention to
global climate change has also resulted in pressure
from and upon stockholders,
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.
For example, Harvard University
announced in September 2021
that it will stop investing
its $42 billion endowment in fossil fuels and will let its current
investments expire without
renewal.
As public pressure continues to
mount, our access to capital on terms we
find favorable (if it is available
at all) may be limited and our costs
may increase,
our reputation could be damaged or our business
and results of
operations may be otherwise adversely
affected.
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 the U.S. have filed lawsuits
against oil and gas companies,
including ConocoPhillips, seeking compensatory
damages and equitable relief to
Risk Factors
ConocoPhillips
2021 10-K
abate alleged climate change impacts.
Additional lawsuits with similar allegations are
expected to be filed.
The
amounts claimed by plaintiffs are unspecified
and the legal and factual issues
involved in these cases are
unprecedented.
ConocoPhillips believes these lawsuits
are factually and legally meritless and
are an inappropriate
vehicle to address the challenges associated
with climate change and will vigorously
defend against such lawsuits.
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.
We could also receive lawsuits
alleging a
failure or lack of diligence to meet our
publicly stated ESG goals, so
called “greenwashing” cases.
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
and supply chain 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
.
Domestic and worldwide political and economic developments
could damage our operations and materially
reduce our profitability and cash flows.
Actions of the U.S., state, local
and foreign governments, through
sanctions, tax and other legislation, executive
order and commercial restrictions,
could reduce our operating profitability
both in the U.S. and abroad.
In certain
locations, restrictions on our operations;
leasing restrictions; special taxes
or tax assessments; and payment
transparency regulations
that could require us to disclose competitively
sensitive information or might
cause us to
violate non-disclosure laws of other countries
have been imposed or proposed by governments
or certain interest
groups.
For example, in 2020 a ballot initiative
known as the Fair Share Act was proposed
in the state of Alaska,
which, if enacted would have increased
the state’s
share of production revenues and
required producers to
publicly disclose additional financial information.
Although ultimately defeated,
similar initiatives may be
proposed and may be successful in the future.
In addition, we may face regulatory
changes in the U.S. including,
but not limited to, the enactment of tax
law changes that adversely affect
the fossil fuel industry,
new methane
emissions standards, restrictive
flaring requirements, and more stringent
environmental impact studies
and
reviews.
We also cannot rule out the possibility
of similar regulatory shifts and attendant
cost and market access
implications in other international jurisdictions.
One area subject to significant political and
regulatory activity is the use of hydraulic
fracturing, an essential
completion technique that facilitates
production of oil and natural gas
otherwise trapped in lower permeability
rock formations.
A range of local, state,
federal and national laws and
regulations currently govern or,
in some
hydraulic fracturing
operations, prohibit hydraulic
fracturing in some jurisdictions.
Although hydraulic fracturing
has been conducted safely for
many decades, a number of new laws, regulations
and permitting requirements are
under consideration which could result
in increased costs, operating restrictions,
operational delays or could
limit
the ability to develop oil and natural
gas resources.
Certain jurisdictions in which we operate have
adopted or are
considering regulations that could impose
new or more stringent permitting, disclosure
or other regulatory
requirements on hydraulic
fracturing or other oil and natural gas
operations, including subsurface water
disposal.
In addition, certain interest
groups have also proposed ballot initiatives
and constitutional amendments designed
to restrict oil and natural
gas development generally and hydraulic
fracturing in particular.
In the event that ballot
initiatives, local, state,
or national restrictions or prohibitions are
adopted and result in more stringent
limitations
on the production and development of oil and
natural gas in areas where we
conduct operations, we may
incur
significant costs to comply with
such requirements or may experience delays
or curtailment in the permitting or
pursuit of exploration,
development or production activities.
Such compliance costs and delays,
curtailments,
limitations or prohibitions could have
a material adverse effect
on our business, prospects, results of operations,
financial condition and liquidity.
Risk Factors
ConocoPhillips
2021 10-K
The U.S. government can also prevent
or restrict us from doing business in foreign
countries.
These restrictions
and those of foreign governments
have in the past limited our ability to
operate in, or gain access to,
opportunities
in various countries.
Actions by host governments, such
as the expropriation of our oil assets by the Venezuelan
government, have affected
operations significantly in the past
and may continue to do so in the future.
Changes in
domestic and international policies and regulations
may affect our ability to collect payments
such as those
pertaining
to the settlement with Petróleos
de Venezuela, S.A. (PDVSA
)
or the ICSID Award against
the
Government of Venezuela;
or to obtain or maintain licenses or permits,
including those necessary for drilling and
development of wells in various locations.
Similarly, the declaration
of a “climate emergency” could
result in
actions to limit exports of our products and other
restrictions.
Local political and economic factors
in international markets
could have a material adverse
effect on us.
Approximately 38 percent
of our hydrocarbon
production was derived from production
outside the U.S. in 2021,
and 29 percent of our proved reserves,
as of December 31, 2021, were located
outside the U.S.
We are subject to
risks associated with operations
in both domestic and international markets,
including changes in foreign
governmental policies relating
to crude oil, natural gas, bitumen, NGLs
or LNG pricing and taxation, other
political,
economic or diplomatic developments (including
the macro effects of international
trade policies and disputes),
potentially disruptive geopolitical conditions,
and international monetary and currency
rate fluctuations.
Restrictions on production of oil and
gas could increase to the extent
governments view such measures as
a viable
approach for pursuing national
and global energy and climate policies.
In addition, some countries where we
operate lack a fully independent judiciary
system.
This, coupled with changes in foreign law or policy,
results in a
lack of legal certainty that exposes
our operations to increased risks,
including increased difficulty in enforcing
our
agreements in those jurisdictions and increased risks
of adverse actions by local government authorities,
such as
expropriations.
Other Risk Factors Facing
our Business or Operations
We may need additional capital in the
future, and it may not be available on acceptable terms
or at all.
We have historically
relied primarily upon cash generated
by our operations to fund our
operations and strategy;
however,
we have also relied from time to
time on access to the debt and equity capital markets
for funding.
There can be no assurance that additional
debt or equity financing will be available in the future on
acceptable
terms or at all.
In addition, although we anticipate we will be
able to repay our existing
indebtedness when it
matures or in accordance with our stated
plans, there can be no assurance we will be able to
do so.
Our ability to
obtain additional financing or refinance our existing
indebtedness when it matures or in
accordance with our
plans, will be subject to a number of factors,
including market conditions, our
operating performance, investor
sentiment and our ability to incur additional debt
in compliance with agreements governing our then-outstanding
debt.
If we are unable to generate sufficient
funds from operations or raise
additional capital for any reason,
our
business could be adversely affected.
In addition, we are regularly evaluated
by the major rating agencies based on a number of factors,
including our
financial strength and conditions affecting
the oil and gas industry generally.
We and other industry companies
have had their ratings reduced
in the past due to negative commodity
price outlooks.
Any downgrade in our credit
rating or announcement that our credit
rating is under review for possible
downgrade could increase the cost
associated with any additional indebtedness
we incur.
Risk Factors
ConocoPhillips
2021 10-K
Our business may be adversely affected by deterioration
in the credit quality of, or defaults under
our contracts
with, third-parties with whom we do business.
The operation of our business requires
us to engage in transactions with
numerous counterparties operating
in a
variety of industries, including other companies
operating in the oil and gas industry.
These counterparties may
default on their obligations to
us as a result of operational failures
or a lack of liquidity,
or for other reasons,
including bankruptcy.
Market speculation about the credit
quality of these counterparties, or their ability
to
continue performing on their existing
obligations, may also exacerbate
any operational difficulties
or liquidity
issues they are experiencing, particularly as it relates
to other companies in the oil and gas industry
as a result of
the volatility in commodity prices.
Any default by any of our
counterparties may result in our
inability to perform
our obligations under agreements we have
made with third-parties or may otherwise adversely
affect our business
or results of operations.
In addition, our rights against any of our counterparties
as a result of a default may not be
adequate to compensate us
for the resulting harm caused or may
not be enforceable at all in some circumstances.
We may also be forced
to incur additional costs as we attempt
to enforce any rights
we have against
a defaulting
counterparty,
which could further adversely impact our results
of operations.
Our ability to execute our capital
return program is subject to certain considerations.
In December 2021, we initiated a three
-tier capital return program
that consists of our ordinary dividend, share
repurchases and a quarterly variable
return of cash (VROC).
Ordinary dividends are authorized and determined
by our Board of Directors in its
sole discretion and depend
upon a number of factors, including:
●
Cash available for distribution;
●
Our results of operations and anticipated
future results of operations;
●
Our financial condition, especially in relation to
the anticipated future capital needs of our
properties;
●
The level of distributions paid by comparable
companies;
●
Our operating expenses; and
●
Other factors our Board of Directors
deems relevant.
VROC distributions are also authorized
and determined by our Board of Directors
in its sole discretion and depend
upon a number of factors, including:
●
The anticipated level of distributions
required to meet our capital returns
commitment;
●
Forward prices;
●
Balance sheet cash;
●
Total
yield; and
●
Other factors our Board of Directors
deems relevant.
We expect to continue
to pay a quarterly ordinary dividend
to our stockholders.
In addition, based on the current
environment, we anticipate
also paying a quarterly VROC to
our shareholders staggered from
the ordinary
dividend payment, resulting in up to
eight cash distributions to shareholders
throughout the year;
however,
the
amount of the VROC is variable and will depend upon the
above factors, and our Board
of Directors may determine
not to pay a VROC in a quarter or may
cease declaring a VROC at any time.
In addition,
our Board of Directors may
reduce our ordinary dividend or cease declaring dividends
at any time, including if it determines that
our net cash
provided by operating activities,
after deducting capital expenditures
and investments, are not sufficient
to pay
our desired levels of dividends to our stockholders
or to pay dividends to our stockholders
at all.
Risk Factors
ConocoPhillips
2021 10-K
Additionally, as
of December 31, 2021, $10.9 billion of repurchase authority
remained of the $25 billion share
repurchase program our Board
of Directors had authorized.
Our share repurchase program
does not obligate us to
acquire a specific number of shares during any
period, and our decision to commence, discontinue
or resume
repurchases in any period will depend
on the same factors that our Board
of Directors may consider when
declaring dividends, among others.
In the past we have suspended our share
repurchase program in response
to
market downturns, including as a
result of the oil market downturn
that began in early 2020, and we may do so
again in the future.
Any downward revision
in the amount of our ordinary dividend or VROC or the volume of
shares we purchase
under our share repurchase program
could have an adverse effect
on the market price of our common stock.
There are substantial risks with any
acquisitions or divestitures we have completed
or that we may choose to
undertake.
We regularly review our portfolio
and pursue growth through acquisitions
and seek to divest noncore assets or
businesses.
We may not be able to complete these
transactions on favorable
terms, on a timely basis, or at all.
Even if we do complete such transactions,
our cash flow from operations may
be adversely impacted or otherwise
the transactions may not result in the
benefits anticipated due to various
risks, including, but not limited to (i) the
failure of the acquired assets or businesses
to meet or exceed expected
returns, including risk of impairment; (ii)
the inability to dispose of noncore assets and
businesses on satisfactory terms and conditions;
and (iii) the
discovery of unknown and unforeseen liabilities
or other issues related to any
acquisition for which contractual
protections are inadequate
or we lack insurance or indemnities, including environmental
liabilities, or with regard
to divested assets or businesses, claims by
purchasers to whom we have provided
contractual indemnification.
In addition, we may face difficulties
in integrating the operations,
technologies, products and personnel of any
acquired assets or businesses. For example,
we completed two major acquisitions in
2021, including the
acquisition of Concho in January and the acquisition of the Shell Permian assets
in December.
Combined, these
transactions added approximately
800,000 net acres, thereby significantly
increasing our unconventional
position
and operations in the Permian.
We may still encounter
difficulties integrating the acquired
assets into our
business.
There are a large number of processes,
policies, procedures, operations
and technologies and systems
that must be integrated
in connection with the transactions and the integration
of the acquired assets.
It is
possible that the integration process
could result in the disruption of our ongoing business;
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.
We have been
and will be required to devote management
attention and resources
to integrating the business
practices and
operations.
Any delays encountered
in the integration process
could have an adverse effect
on our revenues or on
our level of expenses or capital investment
and operating results, which may
adversely affect the value
of our
common stock.
In addition, the actual integration may
result in additional and unforeseen
expenses.
Although we
expect that the strategic benefits,
and additional income, as well as the realization
of other efficiencies related to
the integration of the acquired
assets, may offset incremental
transaction-related costs
over time, if we are not
able to adequately address integration
challenges.
Risk Factors
ConocoPhillips
2021 10-K
Our technologies, systems and networks
may be subject to cyberattacks.
Our business, like others within the oil and
gas industry,
has become increasingly dependent on digital
technologies, some of which are managed by third
-party service providers on whom we rely
to help us collect, host
or process information.
Among other activities, we rely on digital technology to
estimate oil and gas reserves,
process and record financial and operating
data, analyze seismic and drilling information
and communicate with
employees and third-parties.
As a result, we face various cybersecurity
threats such as attempts to
gain
unauthorized access to, or control
of, sensitive information
about our operations and our employees, attempts
to
render our data or systems
(or those of third-parties with whom we do business,
including third-party cloud and IT
service providers) corrupted or unusable,
threats to the security of our facilities and infrastructure
as well as those
of third-parties with whom we do business,
including third-party cloud and IT service providers,
and attempted
cyber terrorism.
In addition, computers control
oil and gas production, processing equipment
and distribution systems
globally and
are necessary to deliver our production
to market.
A disruption, failure, or a cyberattack
of these operating
systems, or of the networks
,
software and infrastructure
on which they rely,
many of which are not owned or
operated by us, could damage critical
production, distribution or storage
assets, delay or prevent delivery
to
markets,
make it difficult or impossible to accurately
account for production and settle
transactions, or negatively
impact public health or safety,
economic security, or
national security.
Although we have experienced occasional
cybersecurity incidents, none have had
a material effect on our
business, operations or reputation.
As cyberattacks have
continued
to evolve, we have become subject
to new
government-imposed security requirements
to implement specific mitigation measures
to protect against
ransomware attacks
and other known threats to information
and operations technology.
In response, we must
continually expend additional resources
to continue to modify or enhance our protective
measures or to
investigate and
remediate any vulnerabilities
detected.
Our implementation of reasonable security
procedures
and controls to monitor and mitigate
security threats and to increase security
for our information, facilities
and
infrastructure may result
in increased costs.
Despite our ongoing investments
in security resources, talent and
business practices, we are unable to assure
that any security measures will be completely
effective.
If our systems and infrastructure
were to be breached, damaged or disrupted,
we could be subject to serious
negative consequences, including disruption
of our operations, damage to our reputation,
a loss of counterparty
trust, reimbursement or other costs,
increased compliance costs, litigation
exposure and legal liability or regulatory
fines, penalties or intervention.
In addition, we have exposure to
cybersecurity incidents and the negative
impacts
of such incidents related to our data
and proprietary information housed
on third-party IT systems, including
the
cloud.
Any of these could materially and adversel
y
affect our business, results of operations
or financial condition,
and any of the foregoing can
be exacerbated by a delay
or failure to detect a cybersecurity
incident or the full
extent of such incident notwithstanding
reasonable security procedures and controls.
The prevalence of remote
working during the pandemic has introduced
additional cybersecurity risk.
Although we have business continuity
plans in place, our operations may be adversely
affected by significant
and widespread disruption to our systems
and infrastructure that support
our business.
While we continue to evolve and modify our business
continuity
plans, there can be no assurance that
they will be completely effective
in avoiding disruption and business
impacts.
Further, our
insurance may not be adequate to
compensate us for all resulting
losses, and the cost to obtain
adequate coverage may
increase for us in the future.
ConocoPhillips
2021 10-K

Item 1B. Unresolved Staff Comments
Item 1B. Unresolved Staff Comments
None.

Item 2. Properties

Item 3. Legal Proceedings
Item 3.
Legal Proceedings
We are a defendant
in a number of legal and administrative
proceedings arising in the ordinary course
of business,
including those involving governmental
authorities under federal, state
and local laws regulating the discharge
of
materials into the environment.
While it is not possible to accurately predict
the final outcome of these pending
proceedings, if any one or more of such proceedings
were to be decided adversely to
ConocoPhillips, we expect
there would be no material effect
on our consolidated financial position.
See
Note 11
for a description of such
legal and administrative
proceedings.

Item 4. Mine Safety Disclosures
Item 4.
Mine Safety Disclosures
Not applicable.
Information about our Executive
Officers
Name
Position Held
Age*
William L. Bullock, Jr.
Executive Vice President and Chief
Financial Officer
Kontessa S. Haynes-Welsh
Chief Accounting Officer
Ryan M. Lance
Chairman of the Board of Directors
and Chief Executive Officer
Timothy A. Leach
Executive Vice President, Lower
Andrew D. Lundquist
Senior Vice President, Government Affairs
Dominic E. Macklon
Executive Vice President, Strategy,
Sustainability and Technology
Nicholas G. Olds
Executive Vice President, Global
Operations
Kelly B. Rose
Senior Vice President, Legal, General
Counsel
Heather G. Sirdashney
Vice President, Human Resources
and Real Estate and Facilities
Services
*On February 17, 2022.
There are no family relationships
among any of the officers named above.
Each officer of the company is elected
by the Board of Directors at
its first meeting after the Annual Meeting of Stockholders
and thereafter as
appropriate.
Each officer of the company holds
office from the date of election until the first
meeting of the
directors held after the next Annual
Meeting of Stockholders or until a successor
is elected.
The date of the next
annual meeting is May 10, 2022.
Set forth below is information
about the executive officers.
William L. Bullock, Jr.
was appointed Executive
Vice President and Chief Financial Officer as
of September 2020,
having previously served as President,
Asia Pacific & Middle East since April 2015.
Prior to that, he was Vice
President, Corporate Planning
& Development since May 2012.
ConocoPhillips
2021 10-K
Kontessa S. Haynes-Welsh
was appointed Chief Accounting
Officer in March 2021, having previously
served as
Assistant Controller since
January 2020.
Prior to that, she was Manager,
Strategy,
Planning and Portfolio
Management from June 2018 to December 2019.
She became Manager,
Finance & Performance Analysis in
September 2016 and served in that role until
May 2018.
Ms. Haynes-Welsh previously
held the position of
Director,
Lower 48 Strategy & Portfolio
Management from February 2016 to
September 2016.
Ryan M. Lance
was appointed Chairman of the Board of Directors
and Chief Executive Officer in May
2012, having
previously served as Senior Vice President, Exploration
and Production-International since May
2009.
Timothy A. Leach
was appointed Executive
Vice President, Lower 48 in January 2021.
Prior to joining
ConocoPhillips, Mr.
Leach served as Chairman and Chief Executive Officer
of Concho Resources Inc., from
its
formation in February 2006, until its
acquisition by ConocoPhillips in January 2021.
Andrew D. Lundquist
was appointed Senior Vice President, Government
Affairs in February 2013.
Prior to that, he
served as managing partner of BlueWater
Strategies LLC, since 2002.
Dominic E. Macklon
was appointed Executive Vice President,
Strategy,
Sustainability and Tec
hnology in September
2021, having previously served as Senior Vice President,
Strategy,
Exploration and Technology
since August 2020.
Prior to that, he served as President, Lower
48 from June 2018 to August 2020, Vice President,
Corporate Planning
& Development from January 2017 to June 2018, and
President, U.K. from September
2015 to January 2017.
Mr.
Macklon previously served as Senior Vice President,
Oil Sands in Canada from July 2012 to September 2015.
Nicholas G. Olds
was appointed Executive
Vice President, Global Operations as
of August 2021,
having previously served as Senior Vice President,
Global Operations since August
2020.
Prior to that, he served as
Vice President, Corporate Planning
& Development from June 2018 to August
2020, Vice President, Mid-Continent
Business Unit, Lower 48 from September 2016 to
June 2018, and Vice President, North Slope Operations
and
Development in Alaska from August
2012 to September 2016.
Kelly B. Rose
was appointed Senior Vice President,
Legal, General Counsel in September
2018.
Prior to that, she
was a senior partner in the Houston office of an international
law firm, Baker Botts L.L.P.,
where she counseled
clients on corporate and securities matters.
She began her career at the firm in 1991.
Heather G. Sirdashney
was appointed Vice President, Human
Resources and Real Estate
and Facilities Services in
March 2021, having previously
served as Vice President, Human Resources from
January 2019.
Prior to that, she
served in other leadership roles including Human
Resources General Manager,
Human Resources Business Partner
Manager,
Lower 48, and Director of Human Resources
Shared Services.
ConocoPhillips
2021 10-K
Part II

Item 5. Market for Registrant's Common Equity
Item 5.
Market for Registrant's
Common Equity, Related
Stockholder
Matters and Issuer Purchases of Equity Securities
ConocoPhillips’ common stock is traded
on the New York Stock
Exchange, under the symbol “COP.”
Cash Dividends Per Share
Dividends
First
$
0.430
0.420
Second
0.430
0.420
Third
0.430
0.420
Fourth
0.460
0.430
Number of Stockholders of Record
at January 31, 2022*
38,099
*In determining the number of stockholders, we consider clearing agencies and security position
listings as one stockholder for each agency
listing.
In December 2021, we announced the addition of a VROC tier to our return
of capital program.
The declaration of
ordinary and VROC dividends are subject to
the discretion and approval of our Board
of Directors.
The Board has
adopted a dividend declaration policy
providing that the declaration of any
dividends will be determined quarterly.
For more information on factors
considered when determining the level of these
distributions
see “Item 1A - Risk
Factors - Our ability to execute our capital return program is subject to certain considerations.”
Issuer Purchases of Equity Securities
Millions of Dollars
Approximate Dollar
Shares Purchased
Value of Shares
Average
as Part of Publicly
that May Yet
Be
Total
Number of
Price Paid
Announced Plans
Purchased Under the
Period
Shares Purchased
*
Per Share
or Programs
Plans or Programs
October 1-31, 2021
6,100,833
$
73.36
6,100,833
$
11,811
November 1-30, 2021
6,367,204
73.42
6,367,204
11,344
December 1-31, 2021
6,751,987
71.65
6,751,987
10,860
19,220,024
$
19,220,024
* 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,
which has a current total program
authorization
of $25 billion of our common stock.
As of December 31, 2021, we had repurchased $14.1 billion
of shares.
Repurchases 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.
For more information
see “Item 1A - Risk Factors - Our ability to execute our capital return program is
subject to certain considerations.”
ConocoPhillips
2021 10-K
Stock Performance Graph
The following graph shows the cumulative
TSR for ConocoPhillips’ common stock
in each of the five years from
December 31, 2016 to December 31, 2021.
The graph also compares the cumulative
total returns for the
same
five-year period with the S&P 500 Index and our
performance peer group consisting
of Chevron, ExxonMobil,
Apache, Marathon Oil Corporation,
Devon, Occidental, Hess, and EOG weighted
according to the respective peer’s
stock market capitalization
at the beginning of each annual period.
The comparison assumes $100 was invested
on December 31, 2016, in ConocoPhillips stock, the S&P 500 Index
and ConocoPhillips’ peer group and assumes that
all dividends were reinvested.
The cumulative total returns
of
the peer group companies' common stock
do not include the cumulative total return
of ConocoPhillips’ common
stock.
The stock price performance included in this graph
is not necessarily indicative of future stock
price
performance.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis
Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Management’s Discussion and Analysis is the company’s
analysis of its financial performance and of significant
trends that may affect future performance.
It should be read in conjunction with the financial statements
and
notes, and supplemental oil and gas disclosures included
elsewhere in this report.
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,”
“believe,” “budget,”
“continue,”
“could,”
“effort,”
“estimate,”
“expect,”
“forecast,”
“goal,”
“guidance,”
“intend,” “may,”
“objective,”
“outlook,”
“plan,” “potential,”
“predict,” “projection,”
“seek,” “should,”
“target,” “will,”
“would,” 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
69.
The terms “earnings” and “loss” as used in Management’s
Discussion and Analysis refer to net income (loss)
attributable to ConocoPhillips.
Business Environment and Executive Overview
ConocoPhillips is one of the world’s
leading E&P companies based on both production and reserves
with
operations and activities in 14 countries.
Our diverse, low cost of supply portfolio
includes resource-rich
unconventional plays
in North America; conventional assets in North
America, Europe and Asia; LNG
developments; oil sands assets in Canada; and an
inventory of global conventional
and unconventional exploration
prospects.
Headquartered in Houston, Texas,
at December 31, 2021, we employed approximately
9,900 people
worldwide and had total
assets of $91 billion.
Completed Acquisitions
On January 15, 2021, we completed our acquisition
of Concho Resources Inc. (Concho), an independent
oil and gas
exploration and production
company with operations across
New Mexico and West Texas
in an all-stock
transaction for $13.1 billion.
See Note 3
.
In December 2021, we completed our acquisition
of Shell Enterprises LLC’s (Shell) assets in the
Delaware Basin in
an all-cash transaction for $8.7 billion after
customary adjustments.
Assets acquired include approximately
225,000 net acres of producing properties
located entirely in Texas.
See Note 3
.
See Item 1A “Risk Factors” for
further discussion of the risks related to integration of the assets acquired.
Overview
After an unprecedented 2020, the energy
landscape improved throughout
2021 with prices reaching pre-pandemic
levels in the second half of the year;
however,
we expect prices will continue to be cyclical
and volatile.
Our view is
that a successful business strategy
in the E&P industry must be resilient in lower price
environments while also
retaining upside during periods of higher prices.
As such,
we are unhedged, remain highly disciplined
in our
investment decisions and continually
monitor market fundamentals,
including OPEC Plus updates regarding
supply
guidance and inventory levels.
Although global oil demand improved through
2021, the global economic recovery
remains uncertain and subject to various
risk factors, including actions taken
to stem the proliferation
of COVID-
19.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
As the macro energy environment
continues to evolve, we
are embracing what we believe
sector leadership
requires through what we call
our triple mandate.
We believe that ConocoPhillips
will play an essential role in
meeting energy transition pathway
demand delivering superior and consistent
returns on and of capital through
the price cycles,
and achieving our net zero ambition
on operational emissions,
while retaining the flexibility to
successfully adapt as the future unfolds.
Our triple mandate is supported by financial principles
and capital allocation priorities that
should allow us to
deliver superior returns through the cycles.
Our financial principles consist of maintaining
balance sheet strength,
providing peer-leading distributions,
making disciplined investments, and delivering
ESG excellence, all of which
are in service to delivering competitive financial returns.
Our 2021 acquisitions of Concho and the Shell Permian
assets further reinforce our differential
value proposition.
In 2021, we successfully delivered on our priorities.
Total
company production was
1,567 MBOED yielding cash
provided by operating activities
of $17 billion.
We invested
$5.3 billion into the business in the form of capital
expenditures and provided returns
of capital to shareholders of approximately
$6 billion through our ordinary
dividend and share repurchases.
For 2021, our ordinary dividend returned $2.4 billion
which included an increase
from 43 cents per share to 46 cents
per share,
effective in December.
Share repurchases resumed
in February and
amounted to $3.6 billion inclusive of our paced
monetization program related
to the Cenovus Energy (CVE)
common shares owned.
See Note 5
.
We also demonstrated
our commitment to preserving our top-tier balance
sheet with an announcement to reduce the company’s
gross debt by $5 billion over five years
through a
combination of natural and accelerated
maturities.
As part of our ongoing portfolio high-grading
and optimization efforts,
in December 2021, we announced two
transactions in our Asia Pacific segment enhancing
our diverse portfolio.
This included notifying Origin Energy of
our intent to exercise
our preemption right to purchase
an additional 10 percent shareholding interest
in APLNG
for $1.645 billion, before customary
adjustments,
and the sale of our interests in Indonesia for
approximately $1.4
billion before customary adjustments.
In addition to those transactions, in January 2022, we entered
into a
divestiture agreement to sell our
interest in noncore assets within
our Lower 48 segment for $440 million.
These
transactions are expected to
close in the first half of 2022.
For more information on APLNG,
see Note 4
and for
more information on pending dispositions,
see Note 3
.
We announced an increase in our
disposition target to $4 to $5 billion in proceeds
by year-end 2023, with
approximately $2 billion sourced
from the Permian Basin.
As of year-end 2021, we have generated
$0.3 billion in
disposition proceeds.
The proceeds from these transactions will be used
in accordance with the company’s
priorities, including returns of capital to
shareholders and reduction of gross
debt.
In December 2021, we announced the initiation of a three-tier
return of capital framework.
This framework is
structured to continue delivering
a compelling, growing ordinary dividend and through
-cycle share repurchases.
It
includes the addition of a VROC tier.
The VROC tier will provide a flexible tool for
meeting our commitment of
returning greater than 30 percent
of cash from operating activities
during periods where commodity prices are
meaningfully higher than our planning price range.
We have set our expected
2022 total return of capital
from all
three tiers at approximately
$8 billion.
For more information on our three-tier return of capital framework, see
Capital Resources and Liquidity
.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
In 2021, we reaffirmed and improved
upon our commitment to ESG leadership
and excellence and the specific
targets we set in October 2020
when we became the first U.S.-based
oil and gas company to adopt
a Paris-aligned
climate-risk strategy.
Our commitment includes:
●
Net-zero ambition for
operational (scope 1 and 2) emissions
by 2050 with active advocacy for a price on
carbon to address end-use (scope 3) emissions;
●
Targeting
a reduction in gross operated
and net equity operational GHG emissions intensity
by 40 to 50
percent from 2016 levels by 2030;
●
Zero routine flaring by 2030, with
an ambition to get there by 2025;
●
10 percent reduction target
for methane emissions intensity
by 2025 from a 2019 baseline, in addition to
the 65 percent reduction we have
made since 2015;
●
Adding continuous methane detection devices to
our operations, with an initial focus
on the larger Lower
48 facilities;
●
Dedicated low carbon technology
organization responsible
for identifying and prioritizing global emissions
reduction initiatives and opportunities associated
with the energy transition,
CCUS and hydrogen; and
●
ESG performance factoring into
executive and employee compensation
programs.
To support
this commitment, in December 2021, we announced that
approximately $0.2 billion of our 2022
company-wide capital expenditures
would be dedicated to energy transition
efforts
across the company’s
global
operations aimed at accelerating
the reduction of the company’s
scope 1 and 2 emissions and to pursue business
opportunities that address end-use emissions and
early-stage low-carbon
technology opportunities that leverage
the company’s adjacencies.
Operationally,
we remain focused on safely
executing the business.
Production increased 440 MBOED or 39
percent in 2021, compared to 2020.
Production excluding Libya
for 2021 was 1,527 MBOED.
After adjusting for
closed acquisitions and dispositions, impacts from 2020 curtailments,
2021 Winter Storm Uri and the conversion
of
Concho two-stream contracted
volumes to a three-stream basis,
production increased
by 28 MBOED or 2 percent.
This increase was primarily due to new production
from the Lower 48 and other development
programs across the
portfolio,
partially offset by normal field decline.
Production from Libya averaged
40 MBOED in 2021.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
Key Operating and Financial
Summary
Significant items during 2021 and recent
announcements included the following:
●
Announced an increase to expected 2022 return
of capital to shareholders
to a total of $8 billion, with the
incremental $1 billion to be distributed
through share repurchases and
VROC tiers;
●
Acquired and integrated
Concho, capturing over $1 billion
of synergies and savings ahead of schedule;
acquired Shell’s Permian
assets on December 1, 2021;
●
Exercised preemption right
to purchase an additional 10 percent
shareholding interest in APLNG,
expected to close in the first quarter
of 2022;
●
Generated $0.3 billion in disposition proceeds
from noncore sales and entered
into agreements
to sell an
additional $1.8 billion in assets, subject to customary
closing adjustments;
●
Delivered strong operational
performance across the company’s
asset base, resulting in full-year
production of 1,527 MBOED, excluding
Libya;
●
Achieved first production from
GMT2, Malikai Phase 2, SNP Phase 2; completed
Tor II project
and started
production from a third Montney
multi-well pad;
●
Net cash provided by operating
activities was $17 billion, exceeding capital
expenditures and investments
of $5.3 billion;
●
Distributed $6.0 billion to shareholders
through $2.4 billion in dividends and $3.6 billion of share
repurchases, representing
over 30 percent return of cash
provided by operating activities
to shareholders;
●
Ended the year with cash and cash equivalents
of $5.0 billion and short-term investments
of $0.4 billion,
totaling over $5.4 billion in ending cash
and cash equivalents and short-term investments
;
●
Initiated a paced monetization of the company’s
CVE investment, generating $1.1
billion in proceeds
through the sale of 117 million shares, with the funds applied to
share repurchases; 91 million CVE shares
remained outstanding at year
-end 2021; and
●
Advanced the company’s
net-zero ambition by
announcing an increase in scope 1 and 2 GHG emissions-
intensity reduction targets
to 40 to 50 percent from a 2016 baseline on
a net equity and gross operated
basis by 2030, from the previous target
of 35 to 45 percent on only a gross operated
basis.
Business Environment
Brent crude oil prices averaged
$71 per barrel in 2021, compared with $42 per barrel in
2020.
The energy industry
has periodically experienced this type of volatility
due to fluctuating supply-and-demand conditions
and such
volatility may persist
in the future.
Commodity prices are the most significant factor
impacting our profitability
and related reinvestment
of operating cash flows into
our business.
Our strategy is to create
value through price
cycles by delivering on the financial principles that
underpin our value proposition; balance sheet strength,
peer
leading distributions, disciplined investments
and ESG excellence, all of which support
strong financial returns.
●
Balance sheet strength.
A strong balance sheet is a strategic
asset that provides flexibility through
price
cycles.
We strive to maintain
our ‘A’
-rating, and we have committed
to reducing gross debt by $5 billion
over the next five years.
This will reduce interest expense
and provide resilience in periods of volatility.
We ended the year with over
$5 billion in cash, maintaining balance sheet strength
even after completing
the all-cash acquisition of Shell’s
Permian assets.
●
Peer leading distributions.
We believe in delivering value
to our shareholders via our three-tiered
return
of capital framework,
which consists of a growing, sustainable
dividend, share repurchases, and
beginning
in 2022, the addition of VROC.
In 2021, we paid dividends on our common stock of approximately
$2.4
billion and repurchased $3.6 billion of our common stock
partially sourced from our paced monetization
program related to the
CVE common shares owned.
Our combined dividends
and repurchases
represented over 30 percent
of our net cash provided by operating
activities.
Our first VROC of $0.20
cents per share was paid on January 14, 2022, to
shareholders of record as of January
3, 2022.
Our VROC
will be made at the Board of Director’s
discretion, subject to market conditions
and other factors.
See
Note 5
.
See “Item 1A - Risk Factors Our ability to execute our capital return program is subject to certain
considerations.”
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
●
Disciplined investments.
Our goal is to achieve strong
free cash flow by exercising capital
discipline,
controlling our costs, and safely
and reliably delivering production.
We expect to make capital
investments sufficient to
sustain production throughout
the price cycles.
Free cash flow provides funds
that are available to return
to shareholders,
strengthen the balance sheet or reinvest
back into the
business for future cash flow expansion
.
o
Exercise capital discipline.
We participate in a commodity
price-driven and capital-intensive
industry, with varying
lead times from when an investment
decision is made to when an asset is
operational and generates
cash flow.
As a result, we must invest
significant capital dollars to
develop newly discovered fields,
maintain existing fields, and construct
pipelines and LNG
facilities.
We allocate capital
across a geographically diverse,
low cost of supply resource base,
which combined with legacy assets results
in low overall production decline.
Cost of supply is the
WTI equivalent price that generates
a 10 percent after-tax return
on a point-forward and fully
burdened basis.
Fully burdened includes capital infrastructure,
foreign exchange,
cost of carbon,
price-related inflation and G&A.
In setting our capital plans, we exercise
a rigorous approach
that evaluates projects
using these cost of supply criteria, which we believe will
lead to value
maximization and cash flow expansion
using an optimized investment pace,
not production
growth for growth’s
sake.
Our cash allocation priorities call for
the investment of sufficient
capital to sustain production
and provide returns of capital
to shareholders.
o
Control our costs.
Controlling operating and overhead
costs, without compromising safety
or
environmental stewardship,
is a high priority.
Using various methodologies, we monitor these
costs monthly,
on an absolute-dollar basis and a per-unit basis
and report to management.
Managing operating and overhead costs
is critical to maintaining a competitive position
in our
industry, particularly
in a low commodity price environment.
The ability to control our operating
and overhead costs positively impacts
our ability to deliver strong cash
from operations.
o
Optimize our portfolio.
In 2021, we completed the acquisition of Concho and
Shell’s Permian
assets, significantly increasing our unconventional
portfolio with many additional years
of low
cost of supply inventory.
The addition of this highly complementary acreage in the Midland
and
Delaware basins created
a sizeable Permian presence to augment
our leading unconventional
positions in the Eagle Ford and Bakken
in the Lower 48.
In our Asia Pacific segment, we notified
Origin Energy of our intent to exercise
our preemption right to purchase
an additional 10 percent
shareholding interest in
APLNG and announced the sale of our interests in
Indonesia.
See Note 3
.
We continue to evaluate
our assets to determine whether they
compete for capital within
our
portfolio and optimize as necessary,
directing capital towards
the most competitive investments
and disposing of assets that don’t compete.
As such, in conjunction with our Shell Permian
acquisition announcement, we communicated
an increase in our planned disposition target
to $4
to $5 billion in proceeds by year-end
2023 as part of our ongoing portfolio high-grading
and
optimization efforts.
o
Add to our proved reserve base.
We primarily add to our proved
reserve base in three ways:
◾
Acquire interest in existing
or new fields.
◾
Apply new technologies and processes to
improve recovery from existing
fields.
◾
Successfully explore, develop and exploit
new and existing fields.
As required by current authoritative
guidelines, the estimated future date
when an asset will
reach the end of its economic life is based on
historical 12-month first-of-month
average prices
and current costs.
This date estimates when production
will end and affects the amount of
estimated reserves.
Therefore, as prices and
cost levels change from year to year,
the estimate
of proved reserves also changes.
Generally, our
proved reserves decrease as prices
decline and
increase as prices rise.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
Reserve replacement represents
the net change in proved reserves, net
of production, divided by
our current year production, as
shown in our supplemental reserve table disclosures.
Our
reserve replacement was 377 percent
in 2021, reflecting a net increase from purchases
and sales
as well as higher prices.
Our organic reserve replacement,
which excluded a net increase of
1,115 MMBOE from sales and purchases, was
189 percent in 2021.
In the three years ended December 31, 2021, our reserve
replacement was 155 percent.
Our
organic reserve replacement
during the three years ended December 31, 2021, which
excluded a
net increase of 1,022 MMBOE related
to sales and purchases, was 88 percent.
Access to additional resources may become
increasingly difficult as commodity prices can
make
projects uneconomic or unattractive.
In addition, prohibition of direct investment
in some
nations, national fiscal terms, political
instability,
competition from national oil companies,
and
lack of access to high-potential areas due to
environmental or other regulation
may negatively
impact our ability to increase our reserve base.
As such, the timing and level at which we add to
our reserve base may,
or may not, allow us to fully replace our
production over subsequent
years.
●
ESG Leadership.
Safety and environmental
stewardship, including the operati
onal integrity of our assets,
remain our highest priorities.
We are committed to
protecting the health and safety
of everyone who has
a role in our operations and the communities
in which we operate.
We strive to conduct
our business
with respect and care for the local
and global environment and systematically
manage risk to drive
sustainable business operations.
In September 2021, we reaffirmed and improved
upon our commitment
to ESG leadership and excellence
and the specific targets that we set in
October 2020 when we became
the first U.S. based oil and gas
company to adopt a Paris-aligned
climate-risk strategy.
Our
comprehensive energy transition
strategy is designed to sustainably
meet global energy demand while
delivering competitive returns on and
of capital through the energy transition.
Our strategy also
recognizes the importance of
reducing society’s end-use emissions
to meet global climate goals.
As an
E&P company,
active only in the upstream side of the business, we do not
produce end-use products
directly for consumers.
We believe that if everyone
addressed their scope 1 and 2 emissions, scope
would also be addressed.
This is why we have consistently
taken a prominent role
in advocating that
scope 3 emissions be addressed through a well-designed
economywide price on carbon. In addition, we
are making early-stage investments
in transition opportunities with the potential
to generate competitive
returns that will help address end-use emissions,
including CCUS and Hydrogen.
We are also engaging
with our supply chain on their emissions targets.
Other significant factors that
can affect our profitability
include:
●
Energy commodity prices.
Our earnings and operating cash flows generally
correlate with crude oil and
natural gas commodity prices.
Commodity price levels are subject to factors
external to the company and
over which we have no control,
including but not limited to global economic health, supply
disruptions or
fears thereof caused by civil unrest
or military conflicts, actions taken
by OPEC Plus and other producing
countries, environmental
laws, tax regulations,
governmental policies, global pandemics and
weather-
related disruptions.
The following graph depicts the average
benchmark prices for WTI crude oil, Brent
crude oil and U.S. Henry Hub natural gas
over the past three years:
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
Brent crude oil prices averaged
$70.73 per barrel in 2021, an increase of 70 percent compared
with
$41.68 per barrel in 2020.
Similarly, WTI crude oil prices
increased 72 percent from $39.37
per barrel in
2020 to $67.92 per barrel in 2021.
Following COVID-19 economic shutdowns
in early 2020, global oil
demand increased steadily through
the year alongside the global economic recovery.
OPEC
Plus supply
restraint, capital
discipline by U.S. E&P’s and various
unplanned supply disruptions in producing countries
moderated supply growth,
reducing excess global inventories
and putting upward pressure
on global oil
prices.
Henry Hub natural gas prices increased
85 percent from an average
of $2.08 per MMBTU in 2020 to $3.85
per MMBTU in 2021.
Extreme weather events in many
parts of the world and several global LNG
liquefaction outages depleted
global natural gas inventories
in early 2021, generating strong
demand for
U.S. LNG exports and supporting robust
domestic demand.
Our realized bitumen price increased 368 percent
from an average of $8.02
per barrel in 2020 to $37.52
per barrel in 2021.
The increase was largely driven
by strength in WTI, reflective
of increasing global
demand and OPEC discipline.
The WCS differential to WTI at
Hardisty remained fairly flat as
record high
production offsets incremental
pipeline capacity.
We continue to optimize
bitumen price realizations
through improvements in alternate
blend capability which results in lower diluent
costs and access to the
U.S. Gulf Coast market through
rail and pipeline contracts.
Our worldwide annual average
realized price increased 70 percent
from $32.15
per BOE in 2020 to $54.63
per BOE in 2021 primarily due to higher realized oil,
natural gas and bitumen prices.
North America’s energy
supply landscape has been transformed
from one of resource scarcity
to one of
abundance.
In recent years, the use of hydraulic
fracturing and horizontal
drilling in unconventional
formations has led to increased
industry actual and forecasted
crude oil and natural gas production
in the
U.S.
Although providing significant short
-
and long-term growth opportunities for
our company,
the
increased abundance of crude oil and natural
gas due to development of unconventional
plays could also
have adverse financial implications
to us, including: an extended period of low commodity
prices;
production curtailments; and delay
of plans to develop areas such as unconventional
fields.
Should one
or more of these events occur,
our revenues would be reduced, and
additional asset impairments might
be possible.
Management’s Discussion and Analysis
ConocoPhillips
2021 10-K
●
Impairments
.
We participate in a capital
-intensive industry.
At times, our PP&E and investments
become
impaired when, for example,
commodity prices decline significantly for long periods
of time, our reserve
estimates are revised downward,
a decision to dispose of an asset leads to a write-down
to its fair value,
or the current fair value of an investment
is less than its carrying amount and the loss in value is deemed
other than temporary.
As we optimize our assets in the future, it is reasonably
possible we may incur
future losses upon sale or impairment charges to
long-lived assets used in operations,
investments in
nonconsolidated entities accounted
for under the equity method, and unproved
properties.
For more
information on our impairments,
see
Note 6
and
Note 7
.
●
Effective tax rate
.
Our operations are in countries
with different tax rates
and fiscal structures.
Accordingly,
even in a stable commodity price and fiscal/regulatory
environment, our overall
effective tax
rate can vary significantly
between periods based on the “mix” of before-tax
earnings within our global
operations.
●
Fiscal and regulatory environment
.
Our operations can be affected
by changing economic, regulatory
and political
environments in the various countries
in which we operate, including civil unrest
or strained
relationships with governments
that may impact our operations or
investments.
These changing
environments could negatively
impact our results of operations, and further changes
to increase
government fiscal take
could have a negative
impact on future operations.
Our management carefully
considers the fiscal and regulatory
environment when evaluating
projects or determining the levels and
locations of our activity.
Outlook
Production and Capital
2022 operating plan capital budget
is $7.2 billion.
The plan includes funding for ongoing development
drilling
programs, major projects, exploration
and appraisal activities, base maintenance and
$0.2 billion for projects to
reduce the company’s
scope 1 and 2 emissions intensity and investme
nts in several early-stage
low-carbon
opportunities that address end-use emissions.
Production guidance is 1.8 MMBOED in 2022 including Libya
but excluding the impacts from the pending
Indonesia
disposition and acquisition of additional APLNG shareholding interest.
First quarter 2022 production
is expected to
be 1.75 MMBOED to 1.79 MMBOED.
Operating Segments
We manage our operations
through six operating segments,
which are primarily defined by geographic
region:
Alaska; Lower 48; Canada; Europe, Middle
East and North Africa; Asia Pacific; and
Other International.
Corporate and Other represents
income and costs not directly associated
with an operating segment, such as most
interest expense, premiums
incurred on the early retirement
of debt, corporate overhead,
certain technology
activities, as well as licensing revenues.
Our key performance indicators,
shown in the statistical tables provided
at the beginning of the operating segment
sections that follow,
reflect results from our operations,
including commodity prices and production.
Results of Operations
ConocoPhillips
2021 10-K
Results of Operations
This section of the Form 10-K discusses year-to-year comparisons
between 2021 and 2020.
For discussion of year-
to-year comparisons between 2020 and 2019, see "Management's
Discussion and Analysis of Financial Condition
and Results of Operations" in Part II, Item
7 of our 2020 10-K.
Consolidated Results
A summary of the company’s net
income (loss) attributable to ConocoPhillips
by business segment follows:
Millions of Dollars
Years Ended
December 31
Alaska
$
1,386
(719)
1,520
Lower 48
4,932
(1,122)
Canada
(326)
Europe, Middle East and North Africa
1,167
3,170
Asia Pacific
1,483
Other International
(107)
(64)
Corporate and Other
(210)
(1,880)
Net income (loss) attributable to
ConocoPhillips
$
8,079
(2,701)
7,189
Net Income (loss) attributable to
ConocoPhillips increased $10.8 billion in 2021.
2021 earnings were positively
impacted by:
●
Higher realized commodity prices.
●
Higher sales volumes primarily due to our Concho acquisition and
absence of production curtailments.
See Note 3
.
●
A gain of $1,040 million after-tax on our
Cenovus Energy (CVE) common shares in 2021, as
compared to a
$855 million after-tax loss on those shares
in 2020.
●
Lower exploration expenses
due to:
o
Absence of a 2020 impairment for $648 million after
-tax for the entire carrying value
of
capitalized undeveloped leasehold
costs related to our Alaska
North Slope Gas asset.
o
Lower dry hole expenses.
o
Absence of early cancellation of our 2020 winter exploration
program in Alaska.
o
Absence of unproved property
impairment and dry hole expenses in 2020 for the Kamunsu
East
Field in Malaysia, which is no longer in our development
plans.
●
Higher equity in earnings of affiliates, primarily due to
higher LNG sales prices.
●
Contingent payments related
to prior dispositions in our Canada and Lower 48 segments.
●
An after-tax gain of $194 million recognized
for a FID bonus associated with our Australia
-West divestiture
in 2020.
See Note 3
.
●
Lower impairments, primarily due to the absence
of impairments recognized in 2020 for
noncore assets in
our Lower 48 segment partially offset
by an impairment in our APLNG investment
included within our Asia
Pacific segment.
See Note 7
.
These increases in net income (loss) were partly
offset by:
●
Higher production and operating expenses
and taxes other than income taxes,
primarily due to higher
sales volumes.
●
Higher DD&A expenses caused by higher production
volumes, partially offset by lower rates
driven from
positive reserve revisions due to higher
commodity prices in 2021.
●
Absence of a $597 million after-tax gain
on our Australia-West
divestiture completed in May
2020.
●
Restructuring and transaction expenses
of $341 million after-tax associated
with the Concho and Shell
acquisitions in addition to mark-to-market
impacts on certain key employee
compensation programs.
Results of Operations
ConocoPhillips
2021 10-K
●
Realized losses on hedges of $233 million after
-tax related to derivative
positions assumed through our
Concho acquisition.
These derivative positions were settled
entirely within the first quarter of 2021.
See
Note 12
.
Income Statement Analysis
Unless otherwise indicated, all results in Income Statement
Analysis are before-tax.
Sales and other operating revenues
increased 144 percent in 2021, mainly due to higher
realized commodity prices
and higher sales volumes.
Equity in earnings of affiliates increased
$400 million in 2021, primarily due to higher earnings driven
by higher
LNG and crude prices, partially offset by a higher
effective tax rate
related to equity method investments
in our
Europe, Middle East and North Africa segment
.
Gain on dispositions decreased $63 million in 2021, primarily due
to the absence of a $587 million gain related
to
our 2020 Australia-West
divestiture and a $179 million loss associated
with the sale of noncore assets in our Other
International segment.
The decreases were partially offset
by $200 million related to a FID bonus
associated with
our Australia-West
divestiture,
gains recognized for contingent
payments associated with previous
dispositions in
our Canada and Lower 48 segments and gains
on sales of certain noncore assets in our Lower 48 segment.
Other income (loss) increased $1.7 billion in 2021, primarily due
to a gain of $1,040 million on our CVE common
shares in 2021, as compared to a $855 million loss on
those shares in 2020.
See Note 5
.
Purchased commodities increased 125 percent
in 2021, primarily in line with higher gas and crude prices
and
volumes.
Production and operating expenses
increased $1,350 million in 2021, primarily in line with higher production
volumes.
Selling, general and administrative
expenses increased $289 million in 2021, primarily due to
transaction and
restructuring expenses associated
with our Concho acquisition and higher compensation and benefits
costs,
including mark-to-market impacts of certain
key employee compensation
programs.
Exploration expenses decreased
$1,113 million in 2021, primarily due to the absence of 2020 expenses
including
an $828 million impairment for the entire
carrying value of capitalized
undeveloped leasehold costs related
to our
Alaska North Slope Gas asset, the early cancellation of our
2020 winter exploration
program in Alaska, and
absence
of unproved property impairment and
dry hole expenses from 2020 for the Kamunsu
East Field in Malaysia.
also saw lower dry hole expenses in Alaska.
Impairments decreased $139 million in 2021, primarily due
to the absence of impairments recognized
in 2020 for
noncore assets in our Lower 48 segment partially
offset by an impairment in our APLNG investment
included
within our Asia Pacific segment in 2021.
For additional information,
see Note 7
and
Note 13
.
Taxes
other than income taxes increased
$880 million in 2021, caused primarily by higher commodity prices and
higher Lower 48 sales volumes.
Foreign currency transaction
(gains) losses decreased $50 million in 2021 due to the
absence of derivative gains
and other remeasurements.
See
Note 17-Income Taxes
for information regardin
g
our income tax provision
and effective tax rate.
Results of Operations
ConocoPhillips
2021 10-K
Summary Operating Statistics
Average Net Production
Crude oil (MBD)
Consolidated Operations
Equity affiliates
Total
crude oil
Natural gas liquids (MBD)
Consolidated Operations
Equity affiliates
Total
natural gas liquids
Bitumen (MBD)
Natural gas (MMCFD)
Consolidated Operations
2,109
1,339
1,753
Equity affiliates
1,053
1,055
1,052
Total
natural gas
3,162
2,394
2,805
Total Production
(MBOED)
1,567
1,127
1,348
Dollars Per Unit
Average Sales Prices
Crude oil (per bbl)
Consolidated Operations
$
67.61
39.56
60.98
Equity affiliates
69.45
39.02
61.32
Total
crude oil
67.64
39.54
60.99
Natural gas liquids (per bbl)
Consolidated Operations
31.04
12.90
18.73
Equity affiliates
54.16
32.69
36.70
Total
natural gas liquids
32.45
14.61
20.09
Bitumen (per bbl)
37.52
8.02
31.72
Natural gas (per mcf)
Consolidated Operations
6.00
3.17
4.25
Equity affiliates
5.31
3.71
6.29
Total
natural gas
5.77
3.41
5.03
Millions of Dollars
Worldwide Exploration
Expenses
General and administrative;
geological and geophysical,
lease rental, and other
$
Leasehold impairment
Dry holes
Total
Exploration Expenses
$
1,457
Results of Operations
ConocoPhillips
2021 10-K
We explore for,
produce, transport and market
crude oil, bitumen, natural gas,
LNG and NGLs on a worldwide
basis.
At December 31, 2021, our operations
were producing in the U.S., Norway,
Canada, Australia, Indonesia,
China, Malaysia, Qatar and Libya.
Total production,
including Libya, of 1,567 MBOED increased 440 MBOED or 39 percent
in 2021 compared with
2020, primarily due to:
●
Higher volumes in Lower 48 due to our Concho acquisition
.
●
New wells online in Lower 48, Canada, Norway,
Malaysia and Alaska.
●
Absence of production curtailments,
primarily in our North American assets.
●
Higher production in Libya due to the absence of a
forced shutdown of the Es Sider export
terminal and
other eastern export terminals.
●
Improved well performance in
Norway,
Canada, Alaska and China.
The increase in production during 2021 was partly
offset by:
●
Normal field decline.
●
Absence of production from Australia
-West due to our second quarter
2020 disposition.
Production excluding Libya
for 2021 was 1,527 MBOED.
After adjusting for closed acquisitions
and dispositions,
impacts from 2020 curtailments, 2021 Winter
Storm Uri and the conversion
of Concho two-stream contracted
volumes to a three-stream basis,
production increased by 28 MBOED or 2 percent.
This increase was primarily due
to new production from the Lower 48 and other
development programs across
the portfolio,
partially offset by
normal field decline. Production from Libya
averaged 40 MBOED in 2021.
Results of Operations
ConocoPhillips
2021 10-K
Alaska
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
1,386
(719)
1,520
Average Net Production
Crude oil (MBD)
Natural gas liquids (MBD)
Natural gas (MMCFD)
Total Production
(MBOED)
Average Sales Prices
Crude oil ($ per bbl)
$
69.87
42.12
64.12
Natural gas ($ per mcf)
2.81
2.91
3.19
The Alaska segment primarily explores for,
produces, transports and markets
crude oil, NGLs and natural gas.
In
2021, Alaska contributed 19 percent
of our consolidated liquids production
and less than 1 percent of our
consolidated natural
gas production.
Net Income (Loss) Attributable to ConocoPhillips
Alaska reported earnings of $1,386 million in 2021, compared
with a loss of $719 million in 2020.
Earnings were
positively impacted by:
●
Higher realized crude oil prices.
●
Absence of 2020 exploration expenses
,
including a $648 million after-tax impairment
associated with the
carrying value of our Alaska North Slope Gas assets
and the early cancellation of our winter exploration
program.
See Note 6
.
●
Lower dry hole expenses.
Earnings were negatively
impacted by:
●
Higher taxes other than income taxes
primarily due to higher realized crude oil prices.
Production
Average production
decreased 1 MBOED in 2021 compared with 2020, primarily
due to:
●
Normal field decline.
The production decrease was partly
offset by:
●
Absence of curtailments.
●
Improved production at
our Western North Slope assets
as a result of net royalty interest
changes
associated with periodic redetermination.
●
Improved performance in the Greater
Prudhoe Area and Western
North Slope assets.
●
New wells online across the segment.
Results of Operations
ConocoPhillips
2021 10-K
Lower 48
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
4,932
(1,122)
Average Net Production
Crude oil (MBD)
Natural gas liquids (MBD)*
Natural gas (MMCFD)*
1,340
Total Production
(MBOED)
Average Sales Prices
Crude oil ($ per bbl)**
$
66.12
35.17
55.30
Natural gas liquids ($ per bbl)
30.63
12.13
16.83
Natural gas ($ per mcf)**
4.38
1.65
2.12
*Includes conversion of previously acquired Concho two-stream contracts to three-stream initiated in the fourth quarter of 2021.
**Average sales prices, including the impact of hedges settling per initial contract terms in the first quarter of 2021 assumed in our
Concho
acquisition were $65.19 per barrel for crude oil and $4.33 per mcf for natural gas for the
year ended December 31, 2021.
As of March 31, 2021,
we had settled all oil and gas hedging positions acquired from Concho.
See Note 12
.
The Lower 48 segment consists of operations
located in the contiguous U.S. and
the Gulf of Mexico.
During 2021,
the Lower 48 contributed 55 percent
of our consolidated liquids production
and 64 percent of our consolidated
natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Lower 48 reported earnings of $4,932 million in 2021, compared
with a loss of $1,122 million in 2020.
Earnings
were positively impacted by:
●
Higher realized crude oil, NGL and natural
gas prices.
●
Higher sales volumes due to our Concho acquisition and the absence
of production curtailments.
●
Lower impairments, primarily related
to developed properties in our noncore
assets which were written
down to fair value due to lower commodity
prices and development plan changes.
See
Note 7
and
Note
.
●
Higher gains on dispositions related to
selling our interests in certain noncore
assets.
See Note 3
.
Earnings were negatively
impacted by:
●
Higher DD&A expenses, production and operating
expenses and taxes other than
income taxes primarily
due to higher production volumes.
Partially offsetting the increase
in DD&A expenses were lower rates
from price-related reserve revisions.
●
Impacts resulting from our Concho acquisition,
including higher selling, general and administrative
expenses for transaction and restructuring
charges, as well as realized losses
on derivative settlements.
See
Note 3
and
Note 12
.
Production
Total
average production
increased 395 MBOED in 2021 compared with 2020, primarily
due to:
●
Higher volumes due to our Concho acquisition.
●
New wells online from our development programs
in Permian, Eagle Ford
and Bakken.
●
Absence of curtailments.
These production increases were partly
offset by:
●
Normal field decline.
Results of Operations
ConocoPhillips
2021 10-K
Canada
2021*
2020*
2019**
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
(326)
Average Net Production
Crude oil (MBD)
Natural gas liquids (MBD)
-
Bitumen (MBD)
Natural gas (MMCFD)
Total Production
(MBOED)
Average Sales Prices
Crude oil ($ per bbl)
$
56.38
23.57
40.87
Natural gas liquids ($ per bbl)
31.18
5.41
19.87
Bitumen ($ per bbl)
37.52
8.02
31.72
Natural gas ($ per mcf)
2.54
1.21
0.49
*Average sales prices include unutilized transportation costs.
**Average prices for sales of bitumen produced excludes additional value realized from the purchase and sale of third-party volumes for
optimization of our pipeline capacity between Canada and the U.S. Gulf Coast.
Our Canadian operations consist of the Surmont
oil sands development in Alberta and the liquids-rich Montney
unconventional play in
British Columbia.
In 2021, Canada contributed 8 percent of our
consolidated liquids
production and 4 percent of our consolidated
natural gas production.
Net Income (Loss) Attributable to ConocoPhillips
Canada operations reported
earnings of $458 million in 2021 compared with a loss of $326 million in 2020.
Earnings were positively impacted
by:
●
Higher realized bitumen prices and crude
oil prices.
●
After-tax gains
on disposition related to contingent
payments of $246 million in 2021 associated
with the
sale of certain assets to CVE in 2017.
●
Higher sales volumes in our Surmont and Montney
assets.
Earnings were negatively impacted
by:
●
Higher production and operating expenses
primarily due to increased Surmont and Montney
production.
Production
Total
average production
increased 24 MBOED in 2021 compared with 2020.
The production increase was
primarily due to:
●
Improved well performance in
Surmont.
●
New wells online in Montney.
●
Production from our Kelt acquisition
completed in the third quarter of 2020.
●
Absence of curtailments.
Results of Operations
ConocoPhillips
2021 10-K
Europe, Middle East and North Africa
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
1,167
3,170
Consolidated Operations
Average Net Production
Crude oil (MBD)
Natural gas liquids (MBD)
Natural gas (MMCFD)
Total Production
(MBOED)
Average Sales Prices
Crude oil ($ per bbl)
$
68.97
43.30
64.94
Natural gas liquids ($ per bbl)
43.97
23.27
29.37
Natural gas ($ per mcf)
13.27
3.23
4.92
The Europe, Middle East and North Africa
segment consists of operations
principally located in the Norwegian
sector of the North Sea; the Norwegian Sea; Qatar; Libya;
and terminalling operations in the U.K.
In 2021, our
Europe, Middle East and North Africa
operations contributed
12 percent of our consolidated liquids
production
and 14 percent of our consolidated
natural gas production.
Net Income Attributable to ConocoPhillips
The Europe, Middle East and North Africa
segment reported earnings of $1,167 million in 2021 compared
with
earnings of $448 million in 2020.
Earnings were positively impacted
by:
●
Higher realized natural
gas, crude oil and NGL prices.
●
Higher LNG sales prices, reflected in equity in earnings
of affiliates.
●
Higher sales volumes of crude oil and LNG.
Earnings were negatively
impacted by:
●
Higher taxes.
●
Higher DD&A expenses and production and
operating expenses.
Partly offsetting the increase
in DD&A
expenses were lower rates
from positive reserve revisions.
Consolidated Production
Average consolidated
production increased 39 MBOED in 2021, compared
with 2020.
The consolidated production
increase was primarily due to:
●
Higher production in Libya due to the absence
of a forced shutdown of the Es Sider export
terminal and
other eastern export terminals.
●
Improved well performance in
Norway.
●
New production from Norway
drilling activities, including our Tor
II redevelopment project which
achieved full production in 2021.
These production increases were partly
offset by:
●
Normal field decline.
Results of Operations
ConocoPhillips
2021 10-K
Asia Pacific
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
1,483
Consolidated Operations
Average Net Production
Crude oil (MBD)
Natural gas liquids (MBD)
-
Natural gas (MMCFD)
Total Production
(MBOED)
Average Sales Prices
Crude oil ($ per bbl)
$
70.36
42.84
65.02
Natural gas liquids ($ per bbl)
-
33.21
37.85
Natural gas ($ per mcf)
6.56
5.39
5.91
The Asia Pacific segment has operations
in China, Indonesia, Malaysia and Australia.
During 2021, Asia Pacific
contributed 6 percent of our consolidated
liquids production and 17 percent of our consolidated
natural gas
production.
Net Income Attributable to ConocoPhillips
Asia Pacific reported earnings of $453 million
in 2021, compared with $962 million in 2020.
The decrease in earnings
was mainly due to:
●
An impairment of $688 million after-tax on
our APLNG investment.
See
Note 4
and
Note 13
.
●
Absence of a $597 million after-tax gain
related to our Australia
-West divestiture.
See Note 3
.
●
Absence of sales volumes associated with Australia
-West.
Earnings were positively impacted
by:
●
Higher crude oil and natural gas
prices.
●
Higher LNG sales prices, reflected in equity in earnings
of affiliates.
●
An after-tax gain of $194 million
recognized for a FID bonus associated
with our Australia-West
divestiture.
For additional information related
to this FID bonus, see
Note 3
and
Note 11
.
Consolidated Production
Average consolidated
production decreased 16 MBOED in 2021, compared
with 2020.
The decrease was primarily
due to:
●
The divestiture of our Australia
-West assets that contributed
18 MBOED in 2020.
●
Normal field decline.
These production decreases were partly
offset by:
●
Development activity at Bohai Bay
in China.
●
First production in Malikai
Phase 2 and SNP Phase 2.
●
The absence of curtailments across the segment
and increased demand in Indonesia from coal supply
restrictions.
Results of Operations
ConocoPhillips
2021 10-K
Other International
Net Income (Loss) Attributable
to ConocoPhillips
($MM)
$
(107)
(64)
The Other International segment includes exploration
and appraisal activities in Colombia as well as contingencies
associated with prior operations
in other countries.
As a result of our Concho acquisition, we refocused
our
exploration program
and announced our intent to pursue
managed exits
from certain areas.
Other International operations
reported a loss of $107 million in 2021, compared with a
loss of $64 million in 2020.
Earnings were negatively
impacted by:
●
A $137 million after-tax loss on divestiture
related to our Argentina
exploration interests.
See Note 3
.
●
Absence of a $29 million after-tax benefit to earnings
from the dismissal of arbitration
related to prior
operations in Senegal recognized
in the first quarter of 2020.
Changes to earnings were positively impacted
by:
●
Absence of exploration expenses
associated with dry hole costs and a full impairment of
capitalized
undeveloped leasehold costs in Colombia in the fourth
quarter of 2020.
Corporate and Other
Millions of Dollars
Net Income (Loss) Attributable
to ConocoPhillips
Net interest
$
(801)
(662)
(604)
Corporate general and administrative
expenses
(317)
(200)
(252)
Technology
(26)
Other
(992)
$
(210)
(1,880)
Net interest consists
of interest and financing expense,
net of interest income and capitalized
interest.
Net
interest expense increased $139
million in 2021 compared with 2020, primarily due to higher
debt balances
assumed due to our Concho acquisition.
See Note 9
.
Corporate G&A expenses include
compensation programs and
staff costs.
These expenses increased by $117
million in 2021 compared with 2020, primarily due to restructuring
expenses associated with our Concho
acquisition and mark to market adjustments
associated with certain compensation programs
.
See Note 16
.
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
increased by $51 million in 2021 compared with 2020,
primarily due to higher
licensing revenues.
The category “Other” includes certain foreign currency
transaction gains and losses,
environmental costs
associated with sites no longer in operation,
other costs not directly associated with an
operating segment,
premiums incurred on the early retirement
of debt,
holding gains or losses on equity securities, and
pension
settlement expense.
Earnings in “Other” increased by $1,875 million in 2021 compared
with 2020, primarily due
to a gain of $1,040 million on our CVE common shares
in 2021, compared with a $855 million loss in 2020.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Capital Resources and Liquidity
Financial Indicators
Millions of Dollars
Except as Indicated
Net cash provided by operating
activities
$
16,996
4,802
11,104
Cash and cash equivalents
5,028
2,991
5,088
Short-term investments
3,609
3,028
Short-term debt
1,200
Total
debt
19,934
15,369
14,895
Total
equity
45,406
29,849
35,050
Percent of total debt to
capital*
%
Percent of floating-rate
debt to total debt
%
*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, proceeds from asset sales,
our commercial paper and credit facility programs
and our ability to sell securities using our shelf registration
statement.
In 2021, the primary uses of our available
cash were $8.7 billion for the acquisition
of Shell Permian;
$5.3 billion to support our ongoing capital expenditures
and investments program;
$3.6 billion to repurchase our common stock;
$2.4 billion to pay dividends;
and $1.2
billion for hedging, transaction and restructuring
costs.
In 2021, cash and cash equivalents increased by
$2.0
billion to $5.0 billion.
At December 31, 2021, we had cash and cash
equivalents of $5.0 billion, short-term investments
of $0.4 billion,
and available borrowing capacity
under our credit facility of $6.0 billion, totaling
approximately $11.5 billion
of
liquidity.
We believe current cash
balances and cash generated by
operations, together with access to
external
sources of funds as described below in the “Significant Changes
in Capital” section, will be sufficient to meet our
funding requirements in the near- and
long-term, including our capital spending program,
dividend payments and
required debt payments.
Significant Changes in Capital
Operating Activities
In 2021, cash provided by operating
activities was $17 billion, compared with $4.8 billion
for 2020.
The increase is
primarily due to higher realized commodity
prices and higher sales volumes,
mostly resulting from our acquisition
of Concho.
The increase was partly offset by
the $0.8 billion in settlement of oil and gas hedging
positions
acquired from Concho, and approximately
$0.4 billion of transaction and restructuring
costs.
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.
Full-year
production averaged
1,567 MBOED in 2021.
Full-year production excluding
Libya averaged 1,527
MBOED.
Adjusting for closed acquisitions and dispositions,
impacts from 2020 curtailments, 2021 Winter Storm
Uri and the
conversion of Concho two-stream
contracted volumes to a
three-stream basis, production
increased 28 MBOED or
2 percent.
First quarter 2022 production
is expected to be 1.75 MMBOED to 1.79 MMBOED.
Future production is
subject to numerous uncertainties, including,
among others, 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;
weather-related disruptions;
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
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 on
an ongoing basis, we must continue to add
to our proved reserve
base.
Our proved reserves generally
increase as prices rise and decrease as prices decline.
Reserve replacement
represents the net change in proved
reserves, net of production, divided by our current
year production.
For
information on proved
reserves, including both developed and undeveloped
reserves,
see the reserve table
disclosures contained in “Supplementary Data - Oil and Gas Operations.”
See “Item 1A - Risk Factors - Unless we
successfully develop our resources, the scope of our business will decline, resulting in an adverse impact to our
business.”
As discussed in the “Critical Accounting Estimates”
section, engineering estimates of proved
reserves are
imprecise; therefore, reserves
may be revised upward or
downward each year due to the impact of changes
in
commodity prices or as more technical data
becomes available on reservoirs.
It is not possible to reliably predict
how revisions will impact future reserve quantities.
Investing Activities
In 2021, we invested $5.3 billion
in capital expenditures.
Capital expenditures invested
in 2020 and 2019 were
$4.7 billion and $6.6 billion, respectively.
For information about our
capital expenditures and investments,
see the
“Capital Expenditures and Investments”
section.
In December 2021, we completed our acquisition
of Shell’s assets in
the Delaware Basin for cash consideration
of
approximately $8.7 billion after
customary adjustments.
We funded this transaction with cash
on hand.
We
completed our acquisition of Concho on January 15, 2021.
The assets acquired in the transaction included
$382
million of cash.
The net impact of these items is recognized
within “Acquisition
of businesses, net of cash
acquired” on our consolidated sta
tement of cash flows.
See Note 3.
In 2021, we announced a disposition target
of $4 to $5 billion in disposition proceeds by year-end
2023.
Only
proceeds from transactions announced
or initiated in the third quarter of 2021 or later
will be counted toward this
target.
The proceeds from these transactions
will be used in accordance with the company’s
priorities, including
returns of capital to shareholders
and reduction of gross debt.
To date,
we have achieved $0.3 billion from
the
sale of noncore assets in our Lower 48 segment.
Total
proceeds from asset dispositions
in 2021 were $1.7 billion.
Including the $250 million mentioned above, we
also received cash proceeds of $1.14 billion from
sales of our investment in CVE
common shares and $244 million
of contingent payments related
to dispositions completed before
2021.
See Note 3.
In May 2021, we announced
and began a paced monetization of our
investment in CVE with the plan to
direct proceeds toward
our existing
share repurchase program.
We expect to fully dispose
of our CVE common shares by early 2022, however,
the
sales pace will be guided by market conditions,
and we retain discretion to
adjust accordingly.
See Note 5.
Proceeds from asset sales in 2020 were $1.3
billion.
We received cash
proceeds of $765 million for the divestiture
of our Australia-West
assets and operations.
We also received proceeds of $359
million and $184 million from the
sale of our Niobrara interests
and Waddell Ranch interests
in the Lower 48, respectively.
Proceeds from asset sales in 2019 were $3.0
billion, including $2.2 billion for the sale of two ConocoPhillips
U.K.
subsidiaries and $350 million for the sale of our 30 percent
interest in the Greater
Sunrise Fields.
See Note 3.
We invest in short
-term investments as part of our
cash investment strategy,
the primary objective of which is to
protect principal, maintain liquidity
and provide yield and total returns;
these investments include time deposits,
commercial paper,
as well as debt securities classified as available
for sale.
Funds for short-term needs
to support
our operating plan and provide resiliency
to react to short-term price volatility
are invested in highly liquid
instruments with maturities within the year.
Funds we consider available to maintain
resiliency in longer term
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
price downturns and to capture opportunities
outside a given operating plan may
be invested in instruments
with
maturities greater than one year.
See Note 12
.
Financing Activities
We have a revolving
credit facility totaling $6.0 billion, expiring
in May 2023.
Our revolving credit facility
may be
used for direct bank borrowings,
the issuance of letters of credit totaling
up to $500 million, or as support for our
commercial paper program.
The revolving credit facility is broadly
syndicated among financial institutions
and
does not contain any material
adverse change provisions or any
covenants requiring maintenance of specified
financial ratios or credit ratings.
The facility agreement contains
a cross-default provision relating
to the failure to
pay principal or interest
on other debt obligations of $200 million or more by
ConocoPhillips, or any of its
consolidated subsidiaries.
The amount of the facility is not subject to the redetermination
prior to its expiration
date.
Credit facility borrowings may
bear interest at a margin above
rates offered
by certain designated banks in the
London interbank market or
at a margin above the overnight federal
funds rate or prime rates
offered by certain
designated banks in the U.S.
The agreement calls for commitment
fees on available, but unused,
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
ConocoPhillips Company’s ability to
issue up to $6.0 billion of commercial
paper, which
is primarily a funding source for short-term working
capital needs.
Commercial paper maturities are
generally limited to 90 days.
With no commercial paper outstanding
and no direct borrowings or letters
of credit,
we had access to $6.0 billion in available borrowing
capacity under the revolving credit facility
at December 31,
2021.
On January 15, 2021, we completed the acquisition of Concho
in an all-stock transaction. In the acquisition,
we
assumed Concho’s publicly
traded debt and in December 2020, we launched an offer
to exchange Concho’s
publicly traded debt for debt issued
by ConocoPhillips.
There were no impacts to ConocoPhillips’
credit ratings as a
result of the debt exchange.
In June 2021, we reaffirmed our
commitment to preserving our ‘A’
-rated balance
sheet by restating our intent
to reduce gross debt by $5 billion over
the next five years, driving a more resilient
and
efficient capital structure.
See
Note 9
and
Note 3
.
On January 25, 2021, S&P revised the industry risk assessment
for the E&P industry to ‘Moderately
High’ from
‘Intermediate’ based on a view of increasing
risks from the energy transition,
price volatility,
and weaker
profitability.
On February 11, 2021, S&P downgraded its rating
of our long-term debt from “A”
to “A
-” with a
“stable” outlook and affirmed
this rating in November 2021.
In October 2021, Moody’s affirmed its “A3”
rating of
our long-term debt and revised its outlook
from “stable” to “positive”.
In December 2021, Fitch affirmed its rating
of our long-term debt as “A”
with a “stable” outlook.
We do not have any
ratings triggers on any of our corporate
debt that would cause an automatic default,
and
thereby impact our access to liquidity,
upon downgrade of our credit ratings.
If our credit ratings are downgraded
from their current levels, it could
increase the cost of corporate
debt available to us and restrict
our access to the
commercial paper markets.
If our credit rating were to deteriorate
to a level prohibiting us from accessing
the
commercial paper market, we
would still be able to access funds under our revolving
credit facility.
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 December 31, 2021 and 2020, we had direct
bank letters of credit of $337 million and
$249
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.
We have a universal
shelf registration statement
on file with the SEC under which we have the
ability to issue and
sell an indeterminate amount of various
types of debt and equity securities.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Capital Requirements
For information about our capital
expenditures and investments,
see the “Capital Expenditures and Investments”
section.
Our debt balance at December 31, 2021, was $19.9 billion,
an increase of $4.6 billion from the balance at
December 31, 2020, driven by debt acquired as part
of the Concho acquisition.
Maturities of debt (including
payments for finance leases) due in
2022 of $1.1 billion will be paid from current cash
balances and cash generated
by operations.
See Note 9
.
In December 2021, we announced our expected 2022 return
of capital program and the initiation
of a three-tier
return of capital framework.
The framework is structured
to deliver a compelling, growing ordinary dividend
and
through-cycle share repurchases.
It includes the addition of a discretionary VROC tier.
The VROC will provide a
flexible tool for meeting our commitment
of returning greater than
30 percent of cash from operating
activities
during periods where commodity prices are meaningfully
higher than our planning price range.
We have set our
expected 2022 total capital returns
at approximately $8 billion,
consisting of distributions from each of the three
tiers.
Consistent with our commitment to
deliver value to shareholders,
in 2021, we paid $2.4 billion, $1.75 per share of
common stock, in ordinary dividends. This
was an increase over 2020 and 2019, when we paid $1.69 and
$1.34 per
share of common stock, respectively.
On February 3, 2022, we announced a quarterly dividend of $0.46 per share,
payable March 1, 2022, to stockholders
of record at the close of business on February
14, 2022.
On January 14,
2022, we paid the first VROC payment
of $0.20 per share to shareholders
of record as of January 3, 2022.
On
February 3, 2022, we announced a VROC of $0.30 per share,
payable on April 14, 2022, to stockholders
of record at
the close of business on March 31, 2022.
The ordinary dividend and VROC are subject to
numerous considerations
and will be determined and approved
each quarter by the Board of Directors.
We expect to announce the VROC
when we announce our ordinary
dividend, but the quarterly payouts
will be staggered from the ordinary dividend,
resulting in up to eight cash
distributions throughout the year.
In late 2016, we initiated our current
share repurchase program
with Board of Director’s authorization
of $25
billion of our common stock.
Share repurchases were $3.6
billion, $0.9 billion, and $3.5 billion in 2021, 2020, and
2019, respectively.
As of December 31, 2021, share repurchases
since the inception of our current program
totaled 247 million shares and $14 billion.
Repurchases are made at management’s
discretion, at prevailing prices,
subject to market conditions and
other factors.
For more information on factors
considered when determining the levels of returns
of capital
see “Item 1A - Risk
Factors - Our ability to execute our capital return program is subject to certain considerations.”
In addition to the priorities described above, we have
contractual obligations
to purchase goods and services of
approximately $11.8 billion.
We expect to fulfill $6 billion of these
obligations in 2022. These figures exclude
purchase commitments for jointly
owned fields and facilities where we are not
the operator.
Purchase obligations
of $5.3 billion are related to agreements
to access and utilize the capacity of third
-party equipment and facilities,
including pipelines and LNG product terminals, to
transport, process, treat and store
commodities.
Purchase
obligations of $5.3 billion are related
to market-based contracts
for commodity product purchases
with third
parties.
The remainder is primarily our net share of purchase
commitments for materials
and services for jointly
owned fields and facilities where we are the operator.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Capital Expenditures and Investments
Millions of Dollars
Alaska
$
1,038
1,513
Lower 48
3,129
1,881
3,394
Canada
Europe, Middle East and North Africa
Asia Pacific
Other International
Corporate and Other
Capital Program*
$
5,324
4,715
6,636
* Excludes capital related to acquisitions of businesses, net of capital acquired.
Our capital expenditures and investments
for the three-year period ended December 31,
2021, totaled
$16.7 billion.
The 2021 expenditures supported
key exploration
and developments, primarily:
●
Development activities in the Lower 48, primarily Permian,
Eagle Ford, and Bakken.
●
Appraisal and development activities in Alaska
related to the Western
North Slope and development
activities in the Greater Kuparuk Area.
●
Appraisal and development activities in the
Montney and optimization of oil sands
development in
Canada.
●
Continued development activities across
assets in Norway.
●
Continued development activities in China,
Malaysia, and Indonesia.
2022 Capital Budget
In December 2021, we announced our 2022 operating plan
capital of $7.2 billion.
The plan includes funding for
ongoing development drilling programs,
major projects, exploration and
appraisal activities, base maintenance and
$0.2 billion for projects to reduce
the company’s scope
1 and 2 emissions intensity and investments
in several
early-stage low-carbon
opportunities that address end-use emissions.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Guarantor Summarized Financial
Information
We have various
cross guarantees among ConocoPhillips,
ConocoPhillips Company,
and Burlington Resources LLC
with respect to publicly held debt securities.
ConocoPhillips Company is 100 percent
owned by ConocoPhillips.
Burlington Resources LLC is
100 percent owned by ConocoPhillips Company.
ConocoPhillips and/or ConocoPhillips
Company have fully and unconditionally
guaranteed the payment obligations
of Burlington Resources LLC with
respect to its publicly held debt securities.
Similarly, ConocoPhillips
has fully and unconditionally guaranteed the
payment obligations of ConocoPhillips
Company with respect to its publicly held
debt securities.
In addition,
ConocoPhillips Company has fully and unconditionally
guaranteed the payment obligations
of ConocoPhillips with
respect to its publicly held debt securities.
All guarantees are joint and
several.
The following tables present summarized
financial information for
the Obligor Group, as defined below:
●
The Obligor Group will reflect guarantors
and issuers of guaranteed securities consisting
of
ConocoPhillips, ConocoPhillips Company
and Burlington 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 exclud
ed from this presentation.
Upon completing the Concho acquisition on January 15, 2021, we assumed
Concho’s publicly traded
debt of
approximately $3.9 billion in aggregate
principal amount, which was recorded
at the fair value of $4.7 billion on
the acquisition date.
We completed a debt exchange
offer that settled
on February 8, 2021, of which 98 percent,
or approximately $3.8 billion in
aggregate principal amount of Concho’s
notes, were tendered and accepted
for
new debt issued by ConocoPhillips.
The new debt issued in the exchange is fully and
unconditionally guaranteed
by ConocoPhillips Company.
Both the guarantor and issuer of the exchange
debt is reflected within the Obligor
Group presented here.
See Note 3
and
Note 9
.
Transactions
and balances reflecting activity between the Obligors
and Non-Obligated Subsidiaries
are presented
separately below:
Summarized Income Statement
Data
Millions of Dollars
Revenues and Other Income
$
30,457
Income (loss) before income taxes*
8,017
Net income (loss)
8,079
Net Income (Loss) Attributable
to ConocoPhillips
8,079
*Includes approximately $5.4 billion of purchased commodities expense for transactions with Non-Obligated Subsidiaries.
Summarized Balance Sheet Data
Millions of Dollars
December 31, 2021
Current assets
$
7,689
Amounts due from Non-Obligated Subsidiaries, current
1,927
Noncurrent assets
69,841
Amounts due from Non-Obligated Subsidiaries, noncurrent
7,281
Current liabilities
8,005
Amounts due to Non-Obligated Subsidiaries,
current
3,477
Noncurrent liabilities
30,677
Amounts due to Non-Obligated Subsidiaries,
noncurrent
13,007
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Contingencies
We are subject to legal proceedings,
claims, and liabilities that arise in the ordinary course of business.
We accrue
for losses associated with legal
claims when such losses are considered probable
and the amounts can be
reasonably estimated.
See “Critical Accounting Estimates”
and
Note 11
for information on contingencies.
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,
claims of alleged
environmental contamination
and damages from historic operations,
and climate change.
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 an adjustment of existing
accruals, or establishment of new accruals, is
required.
See Note 17
.
Environmental
We are subject to the same numerous
international, federal,
state, and local environmental
laws and regulations
as other companies in our industry.
The most significant of these environmental
laws and regulations include,
among others, the:
●
U.S. Federal Clean Air Act, which governs
air emissions.
●
U.S. Federal Clean Water
Act, which governs discharges
to water bodies.
●
European Union Regulation for
Registration, Evaluation,
Authorization and Restriction of Chemicals
(REACH).
●
U.S. Federal Comprehensive
Environmental Response,
Compensation and Liability Act (CERCLA or
Superfund), which imposes liability on generators,
transporters and arrangers
of hazardous substances at
sites where hazardous substance
releases have occurred or are
threatening to occur.
●
U.S. Federal Resource
Conservation and Recovery
Act (RCRA), which governs the treatment,
storage, and
disposal of solid waste.
●
U.S. Federal Oil Pollution Act
of 1990 (OPA90), under which
owners and operators
of onshore facilities
and pipelines, lessees or permittees of an area in which an
offshore facility is located,
and owners and
operators of vessels
are liable for removal costs
and damages that result from a discharge
of oil into
navigable waters
of the U.S.
●
U.S. Federal Emergency Planning
and Community Right-to-Know Act (EPCRA),
which requires facilities to
report toxic chemical inventories
with local emergency planning committees
and response departments.
●
U.S. Federal Safe Drinking
Water Act, which governs
the disposal of wastewater
in underground injection
wells.
●
U.S. Department of the Interior regulations,
which relate to offshore oil and
gas operations in U.S. waters
and impose liability for the cost of pollution
cleanup resulting from operations, as
well as potential liability
for pollution damages.
●
European Union Trading
Directive resulting in European
Emissions Trading Scheme.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
These laws and their implementing regulations
set limits on emissions and, in the case of discharges
to water,
establish water quality limits, and
establish standards and impose obligations
for the remediation of releases of
hazardous substances
and hazardous wastes.
They also, in most cases, require permits
in association with new or
modified operations.
These permits can require an applicant
to collect substantial information
in connection with
the application process, which can be expensive
and time-consuming.
In addition, there can be delays associated
with notice and comment periods and the agency’s
processing of the application.
Many of the delays associated
with the permitting process are beyond
the control of the applicant.
Many states and foreign
countries where we operate
also have or are developing, similar environmental
laws and
regulations governing these same types of activities.
While similar,
in some cases these regulations may impose
additional, or more stringent, requirements
that can add to the cost and difficulty
of marketing or transporting
products across state
and international borders.
The ultimate financial impact arising from environmental
laws and regulations is neither clearly known
nor easily
determinable as new standards,
such as air emission standards and water
quality standards, continue to
evolve.
However,
environmental laws
and regulations, including those that may
arise to address concerns about global
climate change, are expected
to continue to have an
increasing impact on our operations in the U.S. and
in other
countries in which we operate.
Notable areas of potential impacts include
air emission compliance and
remediation obligations in the U.S.
and Canada.
An example is the use of hydraulic
fracturing, an essential completion technique that
facilitates production
of oil
and natural gas otherwise trapped
in lower permeability rock formations.
A range of local, state,
federal,
or
national laws and regulations currently
govern hydraulic
fracturing operations, with hydraulic
fracturing currently
prohibited in some jurisdictions.
Although hydraulic fracturing has
been conducted for many decades,
a number of
new laws, regulations and permitting requirements
are under consideration by
various state environmental
agencies, and others which could result
in increased costs, operating restrictions,
operational delays and/or
limit
the ability to develop oil and natural
gas resources.
Governmental restrictions on hydraulic
fracturing could impact
the overall profitability or viability
of certain of our oil and natural gas
investments.
We have adopted
operating
principles that incorporate
established industry standards
designed to meet or exceed government
requirements.
Our practices continually evolve
as technology improves and regulations
change.
We also are subject to certain
laws and regulations relating to
environmental remediation
obligations associated
with current and past operations.
Such laws and regulations include CERCLA and RCRA
and their state equivalents.
Longer-term expenditures are
subject to considerable uncertainty
and may fluctuate significantly.
We occasionally receive requests
for information or notices of potential
liability from the EPA
and state
environmental agencies alleging
that we are a potentially responsible
party under 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
wastes attributable to
our past operations.
As of
December 31, 2021, there were 15 sites around
the U.S. in which we were identified as a
potentially responsible
party under CERCLA and comparable state
laws.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
For most Superfund sites, our potential
liability will be significantly less than the total
site remediation costs
because the percentage of waste
attributable to us, versus
that attributable to all other potentially
responsible
parties, is relatively low.
Although liability of those potentially responsible
is generally joint and several
for federal
sites and frequently so for state
sites, other potentially responsible parties
at sites where we are a party typically
have had the financial strength
to meet their obligations, and where they
have not, or where potentially
responsible parties could not be located,
our share of liability has not increased materially.
Many of the sites at
which we are potentially responsible
are still under investigation
by the EPA
or the state agencies concerned.
Prior
to actual cleanup, those potentially responsible
normally assess site conditions, apportion responsibility
and
determine the appropriate remediation.
In some instances, we may have
no liability or attain a settlement
of
liability.
Actual cleanup costs generally occur after
the parties obtain EPA
or equivalent state agency approval.
There are relatively few
sites where we are a major participant,
and given the timing and amounts of anticipated
expenditures, neither the cost of remediation
at those sites nor such costs at
all CERCLA sites, in the aggregate, is
expected to have a material
adverse effect on
our competitive or financial condition.
Expensed environmental costs
were $632 million in 2021 and are expected
to be about $642 million and
$700 million in 2022 and 2023, respectively.
Capitalized environmental
costs were $184 million in 2021 and are
expected to be about $218 million and $316 million in
2022 and 2023, respectively.
Accrued liabilities for remediation activities
are not reduced for potential recoveries
from insurers or other third
parties and are not discounted (except
those assumed in a purchase business combination,
which we do record on
a discounted basis).
Many of these liabilities result from CERCLA, RCRA
,
and similar state or international
laws that require us to
undertake certain investigative
and remedial activities at sites where we conduct
or once conducted operations
or
at sites where ConocoPhillips-generated
waste was disposed.
The accrual also includes a number of sites we
identified that may require environmental
remediation but which are not currently
the subject of CERCLA, RCRA,
or other agency enforcement activities.
The laws that require or address
environmental remediation
may apply
retroactively and regardless
of fault, the legality of the original activities or the current
ownership or control of
sites.
If applicable, we accrue receivables for probable
insurance or other third-party recoveries.
In the future, we
may incur significant costs under both
CERCLA and RCRA.
Remediation activities vary substantially
in duration and cost from site to
site, depending on the mix of unique site
characteristics, evolving remediation
technologies, diverse regulatory
agencies and enforcement policies,
and the
presence or absence of potentially liable third
parties.
Therefore, it is difficult to develop
reasonable estimates of
future site remediation costs.
At December 31, 2021, our balance sheet included total
accrued environmental costs
of $187 million, compared
with $180 million at December 31, 2020, for remediation
activities in the U.S. and Canada.
We expect to incur a
substantial amount of these expenditures
within the next 30 years.
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.
See Item 1A - Risk Factors - We expect to continue to incur substantial capital expenditures and operating costs as
a result of our compliance with existing and future environmental laws and regulations
and
Note 11
for information
on environmental litigatio
n.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
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:
●
European Emissions Trading
Scheme (ETS), the program through
which many of the EU member states are
implementing the Kyoto Protocol.
Our cost of compliance with the EU ETS in 2021 was
approximately $19
million (net share before-tax
).
●
U.K. Emissions Trading
Scheme, the program with which the U.K. has
replaced the ETS.
Our cost of
compliance with the U.K. ETS in 2021 was approximately
$2.8 million (net share before
-tax).
●
The Alberta Technology
Innovation and Emissions Reduction
(TIER) regulation requires any
existing facility
with emissions equal to or greater than 100,000 metric
tonnes of carbon dioxide, or equivalent,
per year
to meet a facility benchmark intensity.
The total cost of these regulations in 2021 was
approximately $1
million (net share before-tax)
.
●
The U.S. Supreme Court decision in Massachusetts
v. EPA,
549 U.S. 497, 127 S.Ct. 1438 (2007), confirmed
that the EPA
has the authority to regulate carbon dioxide
as an “air pollutant” under the Federal Clean Air
Act.
●
The U.S. EPA’s
announcement on March 29, 2010 (published as “Interpretation
of Regulations that
Determine Pollutants Covered
by Clean Air Act Permitting Programs,”
75 Fed. Reg. 17004 (April 2, 2010)),
and the EPA’s
and U.S. Department of Transportation’s
joint promulgation of a Final Rule on April 1, 2010,
that triggers 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.
●
The U.S. EPA’s
announcement on January 14, 2015, outlining a series of steps
it plans to take to address
methane and smog-forming volatile
organic compound emissions from the
oil and gas industry.
●
The U.S. government has announced
on September 17, 2021 the Global Methane Pledge,
a global
initiative to reduce global methane emissions
by at least 30 percent from 2020 levels
by 2030.
●
Carbon taxes in certain jurisdictions.
Our cost of compliance with Norwegian carbon legislation
in 2021
were fees of approximately
$35 million (net share before
-tax).
We also incur a carbon tax for
emissions
from fossil fuel combustion in our
British Columbia and Alberta operations in Canada,
totaling
approximately $5.7 million (net
share before-tax).
●
The agreement reached in Paris
in December 2015 at the 21
st
Conference of the Parties to
the United
Nations Framework Convention
on Climate Change, setting out a process
for achieving global emission
reductions.
The new administration has recommitted
the United States to the Paris
Agreement, and a
significant number of U.S. state
and local governments and major corporations
headquartered in the U.S.
have also announced related commitments.
Accordingly,
the U.S. administration set
a new target on
April 22, 2021 of a 50 to 52 percent reduction
in GHG emissions from 2005 levels in 2030.
In the U.S., some additional form of regulation
may be forthcoming in the future at
the federal and state
levels
with respect to GHG emissions.
Such regulation could take
any of several forms that
may result in the creation of
additional costs in the form of taxes,
the restriction of output, investments
of capital to maintain compliance with
laws and regulations, or required
acquisition or trading of emission allowances.
We are working to continuously
improve operational and energy
efficiency through resource and
energy conservation throughout
our operations.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
Compliance with changes in laws and regulations
that create a GHG tax, emission trading
scheme or GHG
reduction policies could significantly increase
our costs, reduce demand for fossil
energy derived products, impact
the cost and availability of capital
and increase our exposure to litigation.
Such laws and regulations could also
increase demand for less carbon intensive
energy sources, including natural
gas.
The ultimate impact on our
financial performance, either positive or negative,
will depend on a number of factors, including but
not limited to:
●
Whether and to what extent legislation
or regulation is enacted.
●
The timing of the introduction of such legislation or
regulation.
●
The nature of the legislation (such as a cap and trade
system or a tax on emissions)
or regulation.
●
The price placed on GHG emissions (either by the market
or through a tax).
●
The GHG reductions required.
●
The price and availability of offsets.
●
The amount and allocation of allowances.
●
Technological
and scientific developments leading to new products
or services.
●
Any potential significant physical
effects of climate change (such
as increased severe weather events,
changes in sea levels and changes in temperature).
●
Whether,
and the extent to which, increased compliance
costs are ultimately reflected
in the prices of our
products and services.
See Item 1A - Risk Factors - Existing and future laws, regulations and internal initiatives relating to global climate
changes, 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
and
Note 11
for information
on climate change litigation.
Company Response to Climate
-Related Risks
The company has responded by putting
in place a Sustainable Development Risk Management
Standard covering
the assessment and registration
of significant and high sustainable development
risks based on their consequence
and likelihood of occurrence.
We have developed a
company-wide Climate Change Action
Plan with the goal of
tracking mitigation activities for
each climate-related risk included in the corporate
Sustainable Development Risk
Register.
The risks addressed in our Climate Change Action
Plan fall into four broad
categories:
●
GHG-related legislation and regulation.
●
GHG emissions management.
●
Physical climate-related
impacts.
●
Climate-related disclosure
and reporting.
Emissions are categorized
into three different
scopes.
Gross operated and net
equity Scope 1 and Scope 2 GHG
emissions help us understand our climate
transition risk.
●
Scope 1 emissions are direct GHG emissions from
sources that we control
or in which we have
ownership interest.
●
Scope 2 emissions are indirect GHG emissions
from the generation of purchased
electricity or steam that
we consume.
●
Scope 3 emissions are indirect emissions from
sources that we neither own nor control.
Capital Resources and Liquidity
ConocoPhillips
2021 10-K
We announced in October 2020 the adoption
of a Paris-aligned climate risk framework
with the objective of
implementing a coherent set of choices designed
to facilitate the success
of our existing exploration
and
production business through the energy transition.
Given the uncertainties remaining about
how the energy
transition will evolve, the strategy
aims to be robust across a range
of potential future outcomes.
The strategy is comprised of four
pillars:
●
Targets
:
Our target framework
consists of a hierarchy
of targets, from a long-term ambition
that sets the
direction and aim of the strategy,
to a medium-term performance target
for GHG emissions intensity,
to
shorter-term targets for
flaring and methane intensity reductions.
These performance targets are
supported by lower-level internal
business unit goals to enable the company to
achieve the company-
wide targets.
In September 2021, we increased our interim
operational target and
have set it to reduce
our gross operated and net
equity (scope 1 and 2) emissions intensity by
40 to 50 percent from 2016
levels by 2030, an improvement
from the previously announced target
of 35 to 45 percent on only a gross
operated basis, with an ambition to
achieve net-zero operated
emissions by 2050.
We have joined the
World Bank Flaring Initiative to
work towards zero
routine flaring of associated gas
by 2030, with an
ambition to meet that goal by 2025.
●
Technology choices:
We expanded our Marginal
Abatement Cost Curve process
to provide a broader
range of opportunities for emission
reduction technology.
●
Portfolio choices: Our corporate
authorization process requires
all qualifying projects to include a GHG
price in their project approval economics.
Different GHG prices are used
depending on the region or
jurisdiction.
Projects in jurisdictions with existing GHG pricing regimes
incorporate the existing
GHG price
and forecast into
their economics.
Projects where no existing GHG pricing regime
exists utilize a scenario
forecast from our internally
consistent World
Energy Model.
In this way,
both existing and emerging
regulatory requirements are
considered in our decision-making.
The company does not use an estimated
market cost of GHG emissions when assessing
reserves in jurisdictions without existing GHG regulations
.
This is in contrast to changes
to the cost of existing GHG emission
regulations which can impact our
reserves calculations.
●
External engagement: Our external
engagement aims to differentiate
ConocoPhillips within the oil and
gas sector with our approach to managing
climate-related risk.
We are a Founding Member of the
Climate Leadership Council (CLC), an international
policy institute founded in collaboration
with business
and environmental interests
to develop a carbon dividend plan.
Participation in the CLC provides
another
opportunity for ongoing dialogue about carbon
pricing and framing the issues in alignment with our
public
policy principles.
We also belong to and fund Americans For
Carbon Dividends, the education and
advocacy branch of the CLC.
ConocoPhillips
2021 10-K
Critical Accounting Estimates
The preparation of financial statements
in conformity with GAAP requires
management to select appropriate
accounting policies and to make
estimates and assumptions that
affect the reported amounts
of assets, liabilities,
revenues and expenses.
See Note 1
for descriptions of our major accounting policies.
Certain of these accounting
policies involve judgments and uncertainties
to such an extent there is a reasonable
likelihood materially different
amounts would have been reported
under different conditions,
or if different assumptions had been
used.
These
critical accounting estimates are
discussed with the Audit and Finance Committee of the Board
of Directors at least
annually.
We believe the following discussions
of critical accounting estimates address
all important accounting
areas where the nature of accounting
estimates or assumptions is material
due to the levels of subjectivity and
judgment necessary to account for
highly uncertain matters or
the susceptibility of such matters to
change.
Oil and Gas Accounting
Accounting for oil and gas activity
is subject to special accounting rules unique to the oil
and gas industry.
The
acquisition of G&G seismic information, prior to
the discovery of proved reserves,
is expensed as incurred, similar
to accounting for research
and development costs.
However,
leasehold acquisition costs and exploratory
well
costs are capitalized
on the balance sheet pending determination of whether
proved oil and gas reserves
have
been recognized.
Property Acquisition Costs
At year-end 2021, we held $9.3 billion
of net capitalized unproved
property costs which consisted
primarily of
individually significant and pooled leaseholds, mineral
rights held in perpetuity by title ownership,
exploratory
wells currently being drilled, and to a lesser
extent, suspended exploratory
wells and capitalized interest.
This
amount increased by $6.9 billion at December 31, 2021 as compared
to December 31, 2020, primarily due to the
Concho and Shell Permian acquisitions
in the Permian Basin where we have an ongoing
significant and active
development program.
Outside of the Permian Basin, the remaining
$2.0 billion is concentrated
in 9 major
development areas.
Management periodically assesses our unproved
property for impairment based on the
results of exploration and
drilling efforts and the outlook for commercialization.
For individually significant leaseholds, management
periodically assesses for impairment based
on exploration and
drilling efforts to date.
For insignificant individual leasehold acquisition
costs, management exercises
judgment
and determines a percentage probability
that the prospect ultimately will fail to
find proved oil and gas reserves,
including estimates of future expirations,
and pools that leasehold information with others
in similar geographic
areas.
For prospects in areas with limited, or
no, previous exploratory
drilling, the percentage probability of
ultimate failure is normally judged
to be quite high.
This judgmental percentage is multiplied
by the leasehold
acquisition cost, and that product is
divided by the contractual period of the leasehold to
determine a periodic
leasehold impairment charge that is
reported in exploration expense.
This judgmental probability percentage
is
reassessed and adjusted throughout
the contractual period of the leasehold based on favorable
or unfavorable
exploratory activity on the leasehold or
on adjacent leaseholds, and leasehold impairment amortization
expense is
adjusted prospectively.
Exploratory Costs
For exploratory wells, drilling
costs are temporarily capitalized,
or “suspended,”
on the balance sheet, pending a
determination of whether potentially economic
oil and gas reserves have
been discovered by the drilling effort
to
justify development.
ConocoPhillips
2021 10-K
If exploratory wells encounter
potentially economic quantities of oil and gas,
the well costs remain capitalized
on
the balance sheet as long as sufficient progress
assessing the reserves and the economic and operating
viability of
the project is being made.
The accounting notion of “sufficient
progress” is a judgmental area,
but the accounting
rules do prohibit continued capitalization
of suspended well costs on the expectation
future market conditions will
improve or new technologies will be found
that would make the development
economically profitable.
Often, the
ability to move into the development
phase and record proved
reserves is dependent on obtaining permits and
government or co-venturer
approvals, the timing of which is ultimately
beyond our control.
Exploratory well costs
remain suspended as long as we are actively pursuing
such approvals and permits, and believe they will be
obtained.
Once all required approvals
and permits have been obtained, the projects
are moved into the
development phase, and the oil and gas
reserves are designated as proved
reserves.
At year-end 2021, total suspended
well costs were $660 million, compared
with $682 million at year-end 2020.
For additional information on suspended
wells, including an aging analysis,
see Note 6
.
Proved Reserves
Engineering estimates of the quantities of proved
reserves are inherently imprecise and
represent only
approximate amounts because
of the judgments involved in developing
such information.
Reserve estimates are
based on geological and engineering assessments of in-place
hydrocarbon volumes,
the production plan, historical
extraction recovery and processing
yield factors, installed plant
operating capacity and approved
operating limits.
The reliability of these estimates at
any point in time depends on both the quality and quantity
of the technical and
economic data and the efficiency of extracting
and processing the hydrocarbons.
Despite the inherent imprecision in
these engineering estimates, accounting
rules require disclosure of “proved”
reserve estimates due to the importance
of these estimates to better
understand the perceived value
and future
cash flows of a company’s
operations.
There are several authoritative
guidelines regarding the engineering criteria
that must be met before estimated
reserves can be designated as “proved.”
Our geosciences and reservoir
engineering organization has
policies and procedures in place consistent
with these authoritative guidelines.
We
have trained and experienced
internal engineering personnel who estimate
our proved reserves held by
consolidated companies, as well as our share
of equity affiliates.
See Oil and Gas supplemental disclosures for
additional information.
Proved reserve estimates are
adjusted annually in the fourth quarter
and during the year if significant changes
occur, and
take into account
recent production and subsurface information
about each field.
Also, as required by
current authoritative guidelines,
the estimated future date
when an asset will reach the end of its economic life is
based on 12-month average prices
and current costs.
This date estimates when production
will end and affects
the amount of estimated reserves.
Therefore, as prices and cost
levels change from year to year,
the estimate of
proved reserves also changes.
Generally, our
proved reserves decrease as prices
decline and increase as prices
rise.
Our proved reserves include estimat
ed quantities related to PSCs, reported
under the “economic interest”
method, as well as variable-royalty
regimes, and are subject to fluctuations
in commodity prices; recoverable
operating expenses; and capital
costs.
If costs remain stable, reserve quantities
attributable to recovery of costs
will change inversely to changes
in commodity prices.
We would expect reserves
from these contracts to
decrease
when product prices rise and increase when prices decline.
The estimation of proved reserves
is also important to the income statement
because the proved reserve estimate
for a field serves as the denominator in the unit-of-production
calculation of the DD&A of the capitalized costs
for that asset.
At year-end 2021, the net book value of productive
PP&E subject to a unit-of-production
calculation
was approximately $52 billion
and the DD&A recorded on these assets in
2021 was approximately $7.0 billion.
The
estimated proved reserves
for our consolidated operations
were 2.5 billion BOE at the end of 2020 and 4.0 billion
BOE at the end of 2021.
If the estimates of proved reserves
used in the unit-of-production
calculations had been
lower by 10 percent across all calculations,
before-tax DD&A in 2021 would have
increased by an estimated
$774 million.
ConocoPhillips
2021 10-K
Business Combination-Valuation
of Oil and Gas Properties
For recent transactions, management
applied the principles of acquisition accounting under FASB
ASC Topic 805
-
“Business Combinations” and allocated the purchase
price to assets acquired and liabilities assumed, based
on
their estimated fair values as
of the acquisition date.
Estimating the fair values involved
making various
assumptions, of which the most significant assumptions
relate to the fair values assigned
to proved and unproved
oil and gas properties.
Management utilized a discounted
cash flow approach, based on market participant
assumptions, and engaged third party
valuation experts in preparing fair value
estimates.
Significant inputs incorporated
within the valuation include future commodity price assumptions
and production
profiles of reserve estimates, the
pace of drilling plans, future operating and development
costs, inflation rates,
and discount rates using a market
-based weighted average
cost of capital determined at the
time of the
acquisition.
When estimating the fair value of unproved
properties, additional risk-weighting
adjustments are
applied to probable and possible reserves.
The assumptions and inputs incorporated
within the fair value estimates are
subject to considerable management
judgement and are based on industry,
market, and economic conditions prevalent
at the time of the acquisition.
Although we based these estimates on assumptions
believed to be reasonable, these estimates
are inherently
unpredictable and uncertain and actual results
could differ.
See Note 3
.
Impairments
Long-lived assets used in operations
are assessed for impairment whenever changes
in facts and circumstances
indicate a possible significant deterioration
in the future cash flows expected
to be generated by an
asset group.
If
there is an indication the carrying amount
of an asset may not be recovered,
a recoverability test
is performed
using management’s assumptions
for prices, volumes and future development
plans.
If the sum of the
undiscounted cash flows before
income-taxes is less than
the carrying value of the asset group, the carrying
value
is written down to estimated fair
value and reported as an impairment
in the periods in which the determination is
made.
Individual assets are grouped for
impairment purposes at the lowest level for
which there are identifiable
cash flows that are largely independent
of the cash flows of other groups of assets-generally
on a field-by-field
basis for E&P assets.
Because there usually is a lack of quoted market
prices for long-lived assets, the fair
value of
impaired assets is typically determined based
on the present values of expected
future cash flows using discount
rates and prices believed to
be consistent with those used by principal
market participants, or based on a multiple
of operating cash flow validated
with historical market transactions
of similar assets where possible.
The expected future cash flows used
for impairment reviews and
related fair value calculations
are based on
estimated future production volumes,
commodity prices, operating costs
and capital decisions, considering all
available evidence at the date of review.
Differing assumptions could
affect the timing and the amount of an
impairment in any period.
See
Note 6
and
Note 7
.
Investments in nonconsolidated
entities accounted for under the equity
method are assessed for impairment
whenever changes in the facts and circumstances
indicate a loss in value has occurred.
Such evidence of a loss in
value might include our inability to recover
the carrying amount, the lack of sustained earnings
capacity which
would justify the current investment
amount, or a current fair value
less than the investment’s
carrying amount.
When such a condition is judgmentally determined
to be other than temporary,
an impairment charge is
recognized for the difference
between the investment’s
carrying value and its estimated fair
value.
When
determining whether a decline in value is other than
temporary,
management considers factors
such as the length
of time and extent of the decline, the investee’s
financial condition and near-term prospects,
and our ability and
intention to retain our
investment for a period that
will be sufficient to allow for any
anticipated recovery in the
market value of the investment.
Since quoted market prices are usually
not available, the fair value is typically
based on the present value of expected future
cash flows using discount
rates and prices believed to be consistent
with those used by principal market participants,
plus market analysis of comparable
assets owned by the
investee, if appropriate.
Differing assumptions could affect
the timing and the amount of an impairment of an
investment in any period.
See the “APLNG” section
of
Note 4
.
ConocoPhillips
2021 10-K
Asset Retirement Obligations
and Environmental Costs
Under various contracts, permits
and regulations, we have material
legal obligations to remove
tangible
equipment and restore the land or
seabed at the end of operations at operational
sites.
Our largest asset removal
obligations involve
plugging and abandonment of wells, removal and disposal
of offshore oil and gas platforms
around the world, as well as oil and gas
production facilities and pipelines in Alaska.
Fair value is estimated using
a
present value approach,
incorporating assumptions about estimated
amounts and timing of settlements and
impacts of the use of technologies.
Estimating future asset removal
costs requires significant
judgement.
Most of
these removal obligations are
many years, or decades,
in the future and the contracts and regulations
often have
vague descriptions of what removal
practices and criteria must be met when the removal
event actually occurs.
The carrying value of our asset retirement
obligation estimate is sensitive
to inputs such as asset removal
technologies and costs, regulatory
and other compliance considerations,
expenditure timing, and other inputs into
valuation of the obligation,
including discount and inflation rates,
which are all subject to change between the time
of initial recognition of the liability and future settlement
of our obligation.
Normally, changes
in asset removal obligations
are reflected in the income statement
as increases or decreases to
DD&A over the remaining life of the assets.
However,
for assets at or nearing the end of their operations,
as well
as previously sold assets for which we retained
the asset removal obligation,
an increase in the asset removal
obligation can result in an immediate charge
to earnings, because any increase
in PP&E due to the increased
obligation would immediately
be subject to impairment, due to the low fair value
of these properties.
In addition to asset removal obligations,
under the above or similar contracts, permits
and regulations, we have
certain environmental-related
projects.
These are primarily related to remediation
activities required by Canada
and various states within the U.S.
at exploration and production
sites.
Future environmental remediation
costs are
difficult to estimate because they
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.
See Note 8
.
Projected Benefit Obligations
The actuarial determination of projected benefit
obligations and company
contribution requirements involves
judgment about uncertain future events,
including estimated retirement
dates, salary levels at retirement,
mortality rates, lump-sum election rates,
rates of return on plan assets,
future health care cost-trend rates,
and
rates of utilization of health
care services by retirees.
Due to the specialized nature of these
calculations, we
engage outside actuarial firms to assist
in the determination of these projected benefit
obligations and company
contribution requirements.
Ultimately,
we will be required to fund all vested
benefits under pension and
postretirement benefit plans
not funded by plan assets or investment
returns, but the judgmental assumptions
used in the actuarial calculations significantly affect
periodic financial statements and
funding patterns over time.
Projected benefit obligations
are particularly sensitive to the discount
rate assumption.
A 100 basis-point decrease
in the discount rate assumption
would increase projected benefit obligations
by $1.0 billion.
Benefit expense is
sensitive to the discount rate
and return on plan assets assumptions.
A 100 basis-point decrease in the discount
rate assumption would increase
annual benefit expense by $70 million, while a 100 basis-point
decrease in the
return on plan assets assumption would increase
annual benefit expense by $60 million.
In determining the
discount rate, we use yields
on high-quality fixed income investments
matched to the estimated benefit
cash flows
of our plans.
We are also exposed to the possibility
that lump sum retirement benefits taken
from pension plans
during the year could exceed the
total of service and interest components
of annual pension expense and
trigger accelerated recognition
of a portion of unrecognized net actuarial
losses and gains.
These benefit
payments are based on decisions by plan
participants and are therefore difficult
to predict.
In the event there is a
significant reduction in the expected years
of future service of present employees or the elimination
of the accrual
of defined benefits for some or all of their future
services for a significant number of employees,
we could
recognize a curtailment gain
or loss.
See Note 16
.
ConocoPhillips
2021 10-K
Contingencies
A number of claims and lawsuits are made against
the company arising in the ordinary course
of business.
Management exercises
judgment related to accounting
and disclosure of these claims which includes losses,
damages, and underpayments associated
with environmental remediation,
tax, contracts, and
other legal disputes.
As we learn new facts concerning contingencies,
we reassess our position both with respect to amounts
recognized and disclosed considering changes
to the probability of additional losses and potential
exposure.
However,
actual losses can and do vary from estimates
for a variety of reasons
including legal, arbitration, or other
third-party decisions; settlement discussions;
evaluation of scope of damages; interpretation
of regulatory or
contractual terms; expected
timing of future actions; and proportion of liability
shared with other responsible
parties.
Estimated future costs related
to contingencies are subject to
change as events evolve and as additional
information becomes available
during the administrative and litigation
processes.
For additional information on
contingent liabilities, see the “Contingencies”
section within “Capital Resources and
Liquidity” and
Note 11
.
Income Taxes
We are subject to income taxation
in numerous jurisdictions worldwide.
We record deferred
tax assets and
liabilities to account for the expected
future tax consequences of events
that have been recognized
in our financial
statements and our tax
returns.
We routinely assess our deferred
tax assets and reduce such assets
by a valuation
allowance if we deem it is more likely than
not that some portion,
or all, of the deferred tax assets
will not be
realized.
In assessing the need for adjustments
to existing valuation allowances,
we consider all available positive
and negative evidence.
Positive evidence includes reversals
of temporary differences,
forecasts of future taxable
income, assessment of future business assumptions
and applicable tax planning strategies
that are prudent and
feasible.
Negative evidence includes losses
in recent years as well as the forecasts
of future net income (loss) in
the realizable period.
In making our assessment regarding
valuation allowances, we weight
the evidence based on
objectivity.
Numerous judgments and assumptions are
inherent in the determination of future taxable
income,
including factors such as future operating
conditions and the assessment of the effects
of foreign taxes
on our U.S.
federal income taxes
(particularly as related to prevai
ling oil and gas prices).
See Note 17
.
We regularly assess and, if required,
establish accruals for uncertain tax
positions that could result from
assessments of additional tax by taxing
jurisdictions in countries where we operate.
We recognize a tax
benefit
from an uncertain tax position when it
is more likely than not that the
position will be sustained upon examination,
based on the technical merits of the position.
These accruals for uncertain tax positions
are subject to a significant
amount of judgment and are reviewed
and adjusted on a periodic basis in light of changing facts
and
circumstances considering the progress
of ongoing tax audits, court proceedings,
changes in applicable tax laws,
including tax case rulings and legislative guidance,
or expiration of the applicable statute
of limitations.
See Note
regarding discussion of critical accounting
estimates on deferred
tax valuation allowances.
ConocoPhillips
2021 10-K
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 operatio
ns and the anticipated impact of the Shell Enterprise
LLC (Shell) transaction on the
company’s business
and future financial and operating results 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,”
“believe,”
“budget,”
“continue,”
“could,”
“effort,”
“estimate,”
“expect,”
“forecast,”
“intend,”
“goal,”
“guidance,”
“may,”
“objective,”
“outlook,”
“plan,” “potential,”
“predict,” “projection,”
“seek,”
“should,”
“target,”
“will,” “would” and
similar expressions.
We based the forward-looking
statements on our current
expectations, estimates and
projections about ourselves
and the industries in which we operate in
general.
We caution you these
statements are not guarantees
of future
performance as they involve
assumptions that, while made in good faith, may
prove to be incorrect, and involve
risks and uncertainties we cannot predict.
In addition, we based many of these forward
-looking statements on
assumptions about future events
that may prove to be inaccurate.
Accordingly,
our actual outcomes and results
may differ materially from
what we have expressed
or forecast in the forward
-looking statements.
Any differences
could result from a variety of factors
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 OPEC and other producing
countries and the resulting company
or third-party actions in response to such changes.
●
Fluctuations in crude oil, bitumen, natural gas,
LNG and NGLs prices, including a prolonged decline in
these prices relative to historical
or future expected levels.
●
The impact of significant declines in prices for crude
oil, bitumen, natural gas, LNG and
NGLs, which may
result in recognition of impairment charges
on our long-lived assets, leaseholds and nonconsolidated
equity investments.
●
The potential for insufficient liquidity
or other factors, such as those described
herein, that could impact
our ability to repurchase shares and
declare and pay dividends, whether fixed
or variable.
●
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.
ConocoPhillips
2021 10-K
●
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,
supply chain disruptions, 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.
●
Liability resulting from litigation,
including litigation directly or indirectly
related to the transaction
with
Concho Resources Inc., 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 or investment
sentiment.
●
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.
●
The operation and financing of our joint ventures.
●
The ability of our customers and other contractual
counterparties to satisfy their obligations
to us,
including our ability to collect payments
when due from the government of Venezuela
or PDVSA.
●
Our inability to realize anticipated
cost savings and capital expenditure
reductions.
●
The inadequacy of storage capacity
for our products, and ensuing curtailments,
whether voluntary or
involuntary,
required to mitigate this physical
constraint.
●
The risk that we will be unable to retain
and hire key personnel.
●
Unanticipated integration
issues relating to the acquisition of assets from
Shell, such as potential
disruptions of our ongoing business and higher than anticipated
integration costs.
●
Uncertainty as to the long-term value of our
common stock.
●
The diversion of management time on integration
-related matters.
●
The factors generally described
in
Item 1A - Risk Factors
in this 2021 Annual Report on Form 10-K and any
additional risks described in our other filings with the SEC.
ConocoPhillips
2021 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Financial Instrument Market Risk
We and certain of our subsidiaries hold
and issue derivative contracts
and financial instruments that expose our
cash flows or earnings to changes in commodity prices,
foreign currency exchange
rates or interest
rates.
We may
use financial and commodity-based derivative
contracts to manage the risks
produced by changes in the prices of
natural gas, crude oil and related
products; fluctuations in interest
rates and foreign currency
exchange rates; or to
capture market opportunities.
Our use of derivative instruments
is governed by an “Authority
Limitations” document approved
by our Board of
Directors that prohibits
the use of highly leveraged derivatives
or derivative instruments without
sufficient
liquidity.
The Authority Limitations document also establishes
the Value at Risk (VaR)
limits for the company,
and
compliance with these limits is monitored daily.
The Executive Vice President and Chief Financial
Officer, who
reports to the Chief Executive
Officer, monitors
commodity price risk and risks resulting from
foreign currency
exchange rates and
interest rates.
The Commercial organization
manages our commercial marketing, optimizes
our commodity flows and positions, and monitors
risks.
Commodity Price Risk
Our Commercial organization
uses futures, forwards, swaps
and options in various markets
to accomplish the
following objectives:
●
Meet customer needs.
Consistent with our policy to generally
remain exposed to market
prices, we use
swap contracts to convert
fixed-price sales contracts, which
are often requested by natural
gas
consumers, to floating market
prices.
●
Enable us to use market knowledge to
capture opportunities such as moving physical
commodities to
more profitable locations and storing
commodities to capture seasonal or time premiums.
We may use
derivatives to optimize
these activities.
We use a VaR
model to estimate the loss in fair
value that could potentially result
on a single day from the effect of
adverse changes in market
conditions on the derivative financial instruments
and derivative commodity
instruments we hold or issue, including commodity
purchases and sales contracts
recorded on the balance sheet at
December 31, 2021, as derivative instruments.
Using Monte Carlo simulation, a 95 percent
confidence level and a
one-day holding period, the VaR
for those instruments issued or held for
trading purposes or held for purposes
other than trading at December 31, 2021 and 2020, was
immaterial to our consolidated
cash flows and net income
attributable to ConocoPhillips.
Interest Rate Risk
The following table provides information
about our debt instruments that are
sensitive to changes in U.S. interest
rates.
The table presents principal cash flows
and related weighted-average
interest rates
by expected maturity
dates.
Weighted-average
variable rates are based
on effective rates
at the reporting date.
The carrying amount of
our floating-rate debt approximates
its fair value.
A hypothetical 10 percent change in
prevailing interest rates
would not have a material impact
on interest expense associated
with our floating-rate debt.
The fair value of the
fixed-rate debt is measured
using prices available from a pricing service that
is corroborated by
market data.
Changes to prevailing interest
rates would not impact our cash
flows associated with fixed rate
debt, unless we
elect to repurchase or retire such
debt prior to maturity.
ConocoPhillips
2021 10-K
Millions of Dollars Except as Indicated
Debt
Fixed
Average
Floating
Average
Rate
Interest
Rate
Interest
Expected Maturity Date
Maturity
Rate
Maturity
Rate
Year-End 2021
$
2.53
%
$
1.03
%
6.64
-
-
3.51
-
-
5.32
-
-
1,355
5.06
-
-
Remaining years
14,338
5.80
0.11
Total
$
16,983
$
Fair value
$
21,668
$
Year-End 2020
$
8.47
%
$
0.22
%
2.53
1.12
7.03
-
-
3.51
-
-
5.33
-
-
Remaining years
11,793
6.28
0.11
Total
$
13,209
$
1,083
Fair value
$
18,023
$
1,083
Foreign Currency Exchange
Risk
We have foreign
currency exchange rate
risk resulting from international
operations.
We do not comprehensively
hedge the exposure to currency
exchange rate changes
although we may choose to selectively
hedge certain
foreign currency exchange
rate exposures,
such as firm commitments for capital
projects or local currency tax
payments, dividends and cash returns
from net investments in foreign
affiliates to be remitted
within the coming
year,
and investments in equity securities.
At December 31, 2021 and 2020, we held foreign
currency exchange forwards
hedging cross-border commercial
activity and foreign currency exchange
swaps for purposes of mitigating
our cash-related exposures.
Although
these forwards and swaps
hedge exposures to fluctuations in exchange
rates, we elected not to
utilize hedge
accounting.
As a result, the change in the fair value of these foreign
currency exchange derivatives
is recorded
directly in earnings.
At December 31, 2021, we had outstanding
foreign currency exchange
forward contracts
to buy $1.9 billion AUD at
$0.715 AUD against the U.S. dollar.
At December 31, 2020, we had outstanding
foreign currency exchange
forward
contracts to sell $0.45 billion CAD at $0.748
CAD against the U.S. dollar.
Based on the assumed volatility in the fair
value calculation, the net fair value
of these foreign currency contracts
at December 31, 2021 and December 31,
2020, were a before-tax
gain of $21 million and before
-tax loss of $16 million, respectively.
Based on an adverse
hypothetical 10 percent change
in the December 2021 and December 2020 exchange
rate, this would result
in an
additional before-tax loss
of $134 million and $39 million, respectively.
The sensitivity analysis is based on
changing one assumption while holding all other assumptions constant,
which in practice may be unlikely
to occur,
as changes in some of the assumptions may be correlated.
ConocoPhillips
2021 10-K
The gross notional and fair value of these positions
at December 31, 2021 and 2020, were as follows
:
Foreign Currency Exchange
Derivatives
In Millions
Notional
Fair Value*
Sell Canadian dollar,
buy U.S. dollar
CAD
-
-
(16)
Buy Canadian dollar,
sell U.S. dollar
CAD
(1)
Buy Australian dollar,
sell U.S. dollar
AUD
1,850
-
-
Sell British pound, buy euro
GBP
(8)
-
Buy British pound, sell euro
GBP
-
*Denominated in USD.
For additional information about
our use of derivative instruments,
see Note 12
.
ConocoPhillips
2021 10-K

Item 8. Financial Statements and Supplementary Data
Item 8.
Financial Statements and Supplementary Data
ConocoPhillips
Page
Reports of Management
Reports of Independent Registered Public Accounting Firm
(PCAOB ID #
)
Consolidated Income Statement for the years ended December 31, 2021, 2020 and 2019
Consolidated Statement of Comprehensive Income for the years ended
December 31, 2021, 2020 and 2019
Consolidated Balance Sheet at December 31, 2021 and 2020
Consolidated Statement of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Consolidated Statement of Changes in Equity for the years ended
December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Supplementary Information
Oil and Gas Operations
ConocoPhillips
2021 10-K
Reports of Management
Management prepared, and is responsible
for,
the consolidated financial statements
and the other information
appearing in this annual report.
The consolidated financial statements
present fairly the company’s
financial
position, results of operations and
cash flows in conformity with accounting
principles generally accepted in the
United States.
In preparing its consolidated financial
statements, the company
includes amounts that are based on
estimates and judgments management
believes are reasonable under the circumstances.
The company’s financial
statements have
been audited by Ernst & Young
LLP,
an independent registered public accounting
firm appointed
by the Audit and Finance Committee of the Board of Directors
and ratified by stockholders.
Management has
made available to Ernst & Young
LLP all of the company’s financial records
and related data, as well as the minutes
of stockholders’ and directors’
meetings.
Assessment of Internal Control Over
Financial Reporting
Management is also responsible for establishing
and maintaining adequate internal
control over financial
reporting.
ConocoPhillips’ internal control
system was designed to
provide reasonable assurance to
the company’s
management and directors regarding
the preparation and fair presentatio
n
of published financial statements.
All internal control systems,
no matter how well designed, have
inherent limitations.
Therefore, even those
systems determined to
be effective can provide
only reasonable assurance with respect
to financial statement
preparation and presentation.
Management assessed the effectiveness
of the company’s internal
control over financial reporting as
of
December 31, 2021.
In making this assessment, it used the criteria set forth
by the Committee of Sponsoring
Organizations of the Treadway
Commission in
Internal Control-Integrated
Framework (2013)
.
Based on our
assessment, we believe the company’s
internal control over financial reporting
was effective as of
December 31, 2021.
Management’s assessment
of, and conclusion on,
the effectiveness of internal control
over
financial reporting did not include the internal controls
of the assets acquired from Shell Enterprise LLC
in
December 2021.
The total assets acquired represented
approximately 10 percent
of the company’s consolidated
total assets at December 31, 2021.
Ernst & Young
LLP has issued an audit report on the company’s
internal control over financial reporting
as of
December 31, 2021, and their report is included herein.
/s/ Ryan M. Lance
/s/ William L. Bullock, Jr.
Ryan M. Lance
William L. Bullock, Jr.
Chairman and
Chief Executive Officer
Executive Vice President and
Chief Financial Officer
ConocoPhillips
2021 10-K
Report of Independent Registered
Public Accounting Firm
To the Stockholders
and the Board of Directors of ConocoPhillips
Opinion on the Financial Statements
We have audited the
accompanying consolidated
balance sheets of ConocoPhillips (the Company) as
of December
31, 2021 and 2020, the related consolidated
income statement, consolidated
statements of comprehensive
income, changes in equity and cash flows for
each of the three years in the period ended December 31, 2021, and
the related notes (collectively referred
to as the “consolidated
financial statements”). In our opinion,
the
consolidated financial statements
present fairly,
in all material respects, the financial position of the Company
as
of December 31, 2021 and 2020, and the results of its operations
and its cash flows for each of the three years
in
the period ended December 31, 2021, in conformity with
U.S. generally accepted accounting
principles.
We also have audited,
in accordance with the standards of the Public
Company Accounting Oversight
Board
(United States) (PCAOB), the Company’s
internal control over financial reporting
as of December 31, 2021, based
on criteria established in Internal
Control-Integrated
Framework issued by the Committee
of Sponsoring
Organizations of the Treadway
Commission (2013 framework) and our report
dated February 17, 2022, expressed
an unqualified opinion thereon.
Basis for Opinion
These financial statements are
the responsibility of the Company’s
management. Our responsibility is to express
an
opinion on the Company’s financial statements
based on our audits. We are a public
accounting firm registered
with the PCAOB and are required to
be independent with respect to the Company
in accordance with the U.S.
federal securities laws and the applicable
rules and regulations of the Securities and Exchange
Commission and the
PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB.
Those standards require that
we plan
and perform the audit to obtain reasonable
assurance about whether the financial statements
are free of material
misstatement, whether due to
error or fraud. Our audits included performing
procedures to assess the risks
of
material misstatement
of the financial statements, whether
due to error or fraud, and performing
procedures that
respond to those risks. Such procedures
included examining, on a test basis, evidence
regarding the amounts and
disclosures in the financial statements.
Our audits also included evaluating the accounting
principles used and
significant estimates made by management,
as well as evaluating the overall
presentation of the financial
statements. We
believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated
below are matters
arising from the current period audit of the
consolidated financial statements
that were communicated
or required to be communicated
to the Audit and
Finance Committee and that: (1) relate
to accounts or disclosures that
are material to the consolidated financial
statements and (2) involved
our especially challenging, subjective or complex judgments.
The communication of
critical audit matters does not
alter in any way our opinion on the consolidated
financial statements, taken
as a
whole, and we are not, by communicating the
critical audit matters below,
providing separate opinions
on the
critical audit matters or on the accounts
or disclosures to which they relate.
ConocoPhillips
2021 10-K
Accounting for asset retirement
obligations for certain offshore properties
Description of
the Matter
At December 31, 2021, the asset retirement
obligation (ARO) balance totaled
$5.9 billion. As
further described in Note 8, the Company records
AROs in the period in which they are
incurred, typically when the asset is installed
at the production location. The estimation
of
obligations related to
certain offshore assets requires
significant judgment given the
magnitude and higher estimation uncertainty
related to plugging and abandonment of wells
and removal and disposal of offshore
oil and gas platforms, facilities
and pipelines costs
(collectively,
removal costs). Furthermore, given
certain of these assets are nearing the end
of their operations, the impact of changes in these AROs
may result in a material impact to
earnings given the relatively short remainin
g
useful lives of the assets.
Auditing the Company’s AROs for
the obligations identified above is
complex and highly
judgmental due to the significant
estimation required by management
in determining the
obligations. In particular,
the estimates were sensitive to
significant subjective assumptions
such as removal cost estimates
and end of field life, which are affected
by expectations
about future market or economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding,
evaluated the design and tested
the operating effectiveness
of the Company’s internal
controls over its ARO estimation
process, including management’s
review of the significant assumptions that
have a material effect on the
determination of the
obligations. We also
tested management’s controls
over the completeness and accuracy of
the financial data used in the valuation.
To test
the AROs for the obligations
identified above, our audit procedures included,
among
others, assessing the significant assumptions
and inputs used in the valuation, including
removal cost estimates
and end of field life assumptions. For example,
we evaluated
removal cost estimates
by comparing to settlements and
recent removal activities and costs.
We also compared end of field life
assumptions to production forecasts.
Depreciation, depletion and amortization of proved oil and
gas properties, plants and
equipment
Description of
the Matter
At December 31, 2021, the net book value
of the Company’s proved
oil and gas properties,
plants and equipment (PP&E) was $52 billion, and
depreciation, depletion and amortization
(DD&A) expense was $7.0 billion for the year
then ended. As described in Note 1, under the
successful efforts method of accounting,
DD&A of PP&E on producing hydrocarbon
properties and steam-assisted
gravity drainage facilities
and certain pipeline and liquified
natural gas assets (those which are
expected to have a declining utilization
pattern) are
determined by the unit-of-production
method. The unit-of-production
method uses proved
oil and gas reserves, as estimated
by the Company’s internal
reservoir engineers.
Proved oil and gas reserve
estimates are based on geological and
engineering assessments
of in-place hydrocarbon volumes,
the production plan, historical extraction
recovery and
processing yield factors,
installed plant operating capacity
and approved operating limits.
Significant judgment is required by
the Company’s internal
reservoir engineers in evaluating
geological and engineering data when estimating
proved oil and gas reserves.
Estimating
proved oil and gas reserves also
requires the selection of inputs, including oil and gas
price
assumptions, future operating and
capital costs assumptions and tax
rates by jurisdiction,
among others. Because of the complexity involved
in estimating proved oil and gas
reserves,
management also used an independent petroleum
engineering consulting firm to perform a
review of the processes and controls
used by the Company’s internal
reservoir engineers to
determine estimates of proved
oil and gas reserves.
ConocoPhillips
2021 10-K
Auditing the Company’s DD&A calculation
is complex because of the use of the work of the
internal reservoir engineers and the
independent petroleum engineering consulting firm
and
the evaluation of management’s
determination of the inputs described above used by
the
internal reservoir engineers in estimating
proved oil and gas reserves.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding,
evaluated the design and tested
the operating effectiveness
of the Company’s internal
controls over its processes
to calculate DD&A, including
management’s controls
over the completeness and accuracy
of the financial data provided
to the internal reservoir engineers for
use in estimating proved oil and
gas reserves.
Our audit procedures included, among others,
evaluating the professional
qualifications and
objectivity of the Company’s internal
reservoir engineers primarily responsible
for
overseeing the preparation
of the proved oil and gas reserve
estimates and the independent
petroleum engineering consulting firm used to
review the Company’s
processes and
controls. In addition, in assessing whether we can
use the work of the internal reservoir
engineers, we evaluated the completeness
and accuracy of the financial data and inputs
described above used by the internal reservoir
engineers in estimating proved
oil and gas
reserves by agreeing them to source
documentation and we identified and
evaluated
corroborative and contrary
evidence. We also tested the accuracy
of the DD&A calculation,
including comparing the proved oil and gas
reserve amounts used in the calculation to
the
Company’s reserve report.
Valuation and recognition of
proved and unproved oil & gas properties acquired in
business combinations
Description of
the Matter
During 2021, the Company closed its acquisition of Concho Resources
Inc. and its acquisition
of Permian assets from Shell Enterprises
LLC resulting in the recognition of proved
and
unproved oil and gas properties
within net properties, plants and equipment of $18.9 billion
and $8.6 billion, respectively.
As described in Note 3, the transactions were
accounted for as
business combinations under FASB
ASC 805 using the acquisition method, which requires
assets acquired and liabilities assumed to be measured
at their acquisition date fair values.
Oil and gas properties were valued
using a discounted cash flow approach
based on market
participant assumptions and third party valuation
experts were engaged by the Company
to
prepare fair value estimates.
Significant inputs to the valuation
of proved and unproved oil
and gas properties include estimates
of future commodity price assumptions and
production
profiles of reserve estimates, the
pace of drilling plans, future operating costs
and discount
rates using a market
-based weighted average cost
of capital.
Auditing the Company's accounting for
its valuation of proved and unproved
oil and gas
properties is complex and considerably
judgmental due to the significant estimation
required by management of reserves
and resources associated with the acquired
assets and
the sensitivity of significant assumptions used in determining
the fair value.
In evaluating
the reasonableness of management’s
estimates and assumptions used, the audit
testing
procedures performed required
a high degree of auditor judgment and additional effort,
including involving internal specialists.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding,
evaluated the design and tested
the operating effectiveness
of the Company’s internal
controls over its process
to estimate the fair value of the acquired
proved and unproved
oil and gas properties, including management’s
review of the
significant assumptions used as inputs to
the fair value calculations and final recording
of
the analysis.
ConocoPhillips
2021 10-K
To test
the estimated fair value of the acquired
proved and unproved
oil and gas properties,
our audit procedures included, among others,
evaluating the significant assumptions
used
and testing the completeness and accuracy
of the underlying data supporting the significant
assumptions. For example, we compared
certain significant assumptions
to current industry,
third-party data and historical
results for reasonableness. We
also performed sensitivity
analyses of significant assumptions, to
evaluate the extent of their impact to the
fair value
calculation. In addition, we involved
our valuation specialists to assist
with certain significant
assumptions included in the fair value estimate.
Furthermore, we evaluated
the professional
qualifications and objectivity of the third party
valuation specialist engaged by the Company
to prepare the fair value of the acquired
proved and unproved oil and
gas properties.
/s/ Ernst & Young
LLP
We have served as ConocoPhillips’
auditor since 1949.
Houston, Texas
February 17, 2022
ConocoPhillips
2021 10-K
Report of Independent Registered
Public Accounting Firm
To the Stockholders
and the Board of Directors of ConocoPhillips
Opinion on Internal Control over Financial Reporting
We have audited ConocoPhillips’
internal control over financial reporting
as of December 31, 2021, based on
criteria established in Internal Control
-Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway
Commission (2013 framework) (the COSO criteria).
In our opinion, ConocoPhillips
(the Company) maintained, in all material
respects, effective internal
control over financial reporting
as of
December 31, 2021, based on the COSO criteria. As indicated
under the heading “Assessment
of Internal Control
Over Financial Reporting” in the accompanying Reports of Management,
management’s assessment
of and
conclusion on the effectiveness
of internal control over financial reporting
did not include the internal controls
of
the assets acquired from Shell Enterprise
LLC, which is included in the 2021 consolidated financial
statements of
ConocoPhillips and constituted approximately
10 percent of consolidated total
assets as of December 31, 2021.
Our audit of internal control over
financial reporting of ConocoPhillips also did not
include an evaluation of the
internal control over financial
reporting of the assets acquired from Shell Enterprise
LLC.
We also have audited,
in accordance with the standards of the Public
Company Accounting Oversight
Board
(United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2021 and 2020, the
related consolidated income statement,
consolidated statements
of comprehensive income, changes in equity
and
cash flows for each of the three years
in the period ended December 31, 2021, and the related notes
and our
report dated February 17, 2022, expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’s management
is responsible for maintaining effective
internal control over
financial reporting and
for its assessment of the effectiveness
of internal control over financial reporting
included under the heading
“Assessment
of Internal Control Over Financial Reporting” in the
accompanying “Reports of Management.”
Our
responsibility is to express an opinion
on the Company’s internal control
over financial reporting based on our
audit. We are a public accounting
firm registered with the PCAOB and are
required to be independent with respect
to the Company in accordance with the U.S.
federal securities laws and
the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance
with the standards of the PCAOB. Those
standards require that
we plan and
perform the audit to obtain reasonable
assurance about whether effective
internal control over financial
reporting
was maintained in all material respects.
Our audit included obtaining an understanding
of internal control over financial
reporting, assessing the risk that a
material weakness exists, testing
and evaluating the design and operating
effectiveness of internal control
based
on the assessed risk, and performing such other procedures
as we considered necessary in the circumstances.
We
believe that our audit provides a reasonable
basis for our opinion.
ConocoPhillips
2021 10-K
Definition and Limitations of Internal
Control Over Financial Reporting
A company’s internal
control over financial reporting is a process
designed to provide reasonable assurance
regarding the reliability of financial reporting
and the preparation of financial statements
for external purposes in
accordance with generally accepted
accounting principles. A company’s
internal control over financial reporting
includes those policies and procedures that
(1) pertain to the maintenance of records
that, in reasonable detail,
accurately and fairly reflect
the transactions and dispositions of the assets
of the company; (2) provide reasonable
assurance that transactions
are recorded as necessary to permit preparation
of financial statements in accordance
with generally accepted accounting
principles, and that receipts and expenditures
of the company are being made
only in accordance with authorizations
of management and directors of the company;
and (3) provide reasonable
assurance regarding prevention
or timely detection of unauthorized acquisition, use,
or disposition of the
company’s assets that
could have a material effect
on the financial statements.
Because of its inherent limitations,
internal control over financial reporting
may not prevent or detect
misstatements. Also,
projections of any evaluation
of effectiveness to future periods
are subject to the risk that
controls may become inadequate
because of changes in conditions, or that the
degree of compliance with the
policies or procedures may deteriorate.
/s/
Ernst & Young LLP
Houston, Texas
February 17, 2022
Financial Statements
ConocoPhillips
2021 10-K
Consolidated Income Statement
ConocoPhillips
Years Ended
December 31
Millions of Dollars
Revenues and Other Income
Sales and other operating revenues
$
45,828
18,784
32,567
Equity in earnings of affiliates
Gain on dispositions
1,966
Other income (loss)
1,203
(509)
1,358
Total
Revenues and Other Income
48,349
19,256
36,670
Costs and Expenses
Purchased commodities
18,158
8,078
11,842
Production and operating expenses
5,694
4,344
5,322
Selling, general and administrative
expenses
Exploration expenses
1,457
Depreciation, depletion and amortization
7,208
5,521
6,090
Impairments
Taxes
other than income taxes
1,634
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction
(gains) losses
(22)
(72)
Other expenses
Total
Costs and Expenses
35,637
22,396
27,146
Income (loss) before income taxes
12,712
(3,140)
9,524
Income tax provision (benefit)
4,633
(485)
2,267
Net income (loss)
8,079
(2,655)
7,257
Less: net income attributable to noncontrolling
interests
-
(46)
(68)
Net Income (Loss) Attributable
to ConocoPhillips
$
8,079
(2,701)
7,189
Net Income (Loss) Attributable
to ConocoPhillips Per Share
of Common Stock
(dollars)
Basic
$
6.09
(2.51)
6.43
Diluted
6.07
(2.51)
6.40
Average Common Shares
Outstanding
(in thousands)
Basic
1,324,194
1,078,030
1,117,260
Diluted
1,328,151
1,078,030
1,123,536
See Notes to Consolidated Financial Statements.
Financial Statements
ConocoPhillips
2021 10-K
Consolidated Statement
of Comprehensive Income
ConocoPhillips
Years Ended
December 31
Millions of Dollars
Net Income (Loss)
$
8,079
(2,655)
7,257
Other comprehensive income (loss)
Defined benefit plans
Prior service credit arising during the period
-
-
Reclassification adjustment for
amortization of prior
service credit included in net income (loss)
(38)
(32)
(35)
Net change
(38)
(3)
(35)
Net actuarial gain (loss) arising during the period
(210)
(55)
Reclassification adjustment for
amortization of net
actuarial losses included in net income (loss)
Net change
(93)
Nonsponsored plans*
(3)
Income taxes on defined benefit
plans
(108)
(2)
Defined benefit plans, net of tax
(75)
Unrealized holding gain (loss) on
securities
(2)
-
Reclassification adjustment for
loss included in net income
(1)
-
-
Income taxes on unrealized
holding loss on securities
-
-
Unrealized holding gain (loss) on securities,
net of tax
(2)
-
Foreign currency translation
adjustments
(124)
Income taxes on foreign
currency translation adjustments
-
(4)
Foreign currency translation
adjustments, net of tax
(124)
Other Comprehensive Income, Net of Tax
Comprehensive Income (Loss)
8,347
(2,516)
8,003
Less: comprehensive income attributable
to noncontrolling interests
-
(46)
(68)
Comprehensive Income (Loss) Attributable
to ConocoPhillips
$
8,347
(2,562)
7,935
*Plans for which ConocoPhillips is not the primary obligor-primarily those administered by equity
affiliates.
See Notes to Consolidated Financial Statements.
Financial Statements
ConocoPhillips
2021 10-K
Consolidated Balance Sheet
ConocoPhillips
At December 31
Millions of Dollars
Assets
Cash and cash equivalents
$
5,028
2,991
Short-term investments
3,609
Accounts and notes receivable (net of allowance
of $
and $
, respectively)
6,543
2,634
Accounts and notes receivable-related
parties
Investment in Cenovus Energy
1,117
1,256
Inventories
1,208
1,002
Prepaid expenses and other current
assets
1,581
Total
Current Assets
16,050
12,066
Investments and long-term receivables
7,113
8,017
Loans and advances-related parties
-
Net properties, plants and equipment
(net of accumulated DD&A of $
64,735
and $
62,213
, respectively)
64,911
39,893
Other assets
2,587
2,528
Total
Assets
$
90,661
62,618
Liabilities
Accounts payable
$
5,002
2,669
Accounts payable-related
parties
Short-term debt
1,200
Accrued income and other taxes
2,862
Employee benefit obligations
Other accruals
2,179
1,121
Total
Current Liabilities
12,021
5,366
Long-term debt
18,734
14,750
Asset retirement obligations
and accrued environmental costs
5,754
5,430
Deferred income taxes
6,179
3,747
Employee benefit obligations
1,153
1,697
Other liabilities and deferred credits
1,414
1,779
Total
Liabilities
45,255
32,769
Equity
Common stock (
2,500,000,000
shares authorized at $
0.01
par value)
Issued (2021-
2,091,562,747
shares; 2020-
1,798,844,267
shares)
Par value
Capital in excess of par
60,581
47,133
Treasury stock
(at cost: 2021-
789,319,875
shares; 2020-
730,802,089
shares)
(50,920)
(47,297)
Accumulated other comprehensive
loss
(4,950)
(5,218)
Retained earnings
40,674
35,213
Total
Equity
45,406
29,849
Total
Liabilities and Equity
$
90,661
62,618
See Notes to Consolidated Financial Statements.
Financial Statements
ConocoPhillips
2021 10-K
Consolidated Statement
of Cash Flows
ConocoPhillips
Years Ended
December 31
Millions of Dollars
Cash Flows From Operating Activities
Net income (loss)
$
8,079
(2,655)
7,257
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation, depletion and amortization
7,208
5,521
6,090
Impairments
Dry hole costs and leasehold impairments
1,083
Accretion on discounted liabilities
Deferred taxes
1,346
(834)
(444)
Undistributed equity earnings
Gain on dispositions
(486)
(549)
(1,966)
(Gain) loss on CVE common shares
(1,040)
(649)
Other
(788)
(351)
Working capital adjustments
Decrease (increase) in accounts and notes
receivable
(2,500)
Increase in inventories
(160)
(25)
(67)
Decrease (increase) in prepaid expenses
and other current
assets
(649)
Increase (decrease) in accounts payable
1,399
(249)
(378)
Increase (decrease) in taxes
and other accruals
3,181
(695)
(676)
Net Cash Provided by Operating
Activities
16,996
4,802
11,104
Cash Flows From Investing Activities
Capital expenditures and investments
(5,324)
(4,715)
(6,636)
Working capital changes
associated with investing activities
(155)
(103)
Acquisition of businesses, net of cash acquired
(8,290)
-
-
Proceeds from asset dispositions
1,653
1,317
3,012
Net sales (purchases) of investments
3,091
(658)
(2,910)
Collection of advances/loans-related parties
Other
(26)
(108)
Net Cash Used in Investing Activities
(8,544)
(4,121)
(6,618)
Cash Flows From Financing Activities
Issuance of debt
-
-
Repayment of debt
(505)
(254)
(80)
Issuance of company common stock
(5)
(30)
Repurchase of company common
stock
(3,623)
(892)
(3,500)
Dividends paid
(2,359)
(1,831)
(1,500)
Other
(26)
(119)
Net Cash Used in Financing Activities
(6,335)
(2,708)
(5,229)
Effect of Exchange
Rate Changes on Cash, Cash Equivalents
and
Restricted Cash
(34)
(20)
(46)
Net Change in Cash, Cash Equivalents and
Restricted Cash
2,083
(2,047)
(789)
Cash, cash equivalents and restricted
cash at beginning of period
3,315
5,362
6,151
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
5,398
3,315
5,362
Restricted cash of $
million and $
million is included in the “Prepaid expenses and other current assets” and “Other assets”
lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2021.
Restricted cash of $
million and $
million is included in the “Prepaid expenses and other current assets” and “Other assets” lines,
respectively, of our Consolidated Balance Sheet as of December 31, 2020.
See Notes to Consolidated Financial Statements.
Financial Statements
ConocoPhillips
2021 10-K
Consolidated Statement
of Changes in Equity
ConocoPhillips
Millions of Dollars
Attributable to ConocoPhillips
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Non-
Controlling
Interests
Total
Balances at December 31, 2018
$
46,879
(42,905)
(6,063)
34,010
32,064
Net income
7,189
7,257
Other comprehensive loss
Dividends declared-ordinary ($
1.34
per share of common stock)
(1,500)
(1,500)
Repurchase of company common stock
(3,500)
(3,500)
Distributions to noncontrolling interests and other
(128)
(128)
Distributed under benefit plans
Changes in Accounting Principles*
(40)
-
Other
Balances at December 31, 2019
$
46,983
(46,405)
(5,357)
39,742
35,050
Net income (loss)
(2,701)
(2,655)
Other comprehensive income
Dividends declared-ordinary ($
1.69
per share of common stock)
(1,831)
(1,831)
Repurchase of company common stock
(892)
(892)
Distributions to noncontrolling interests and other
(32)
(32)
Disposition
(84)
(84)
Distributed under benefit plans
Other
Balances at December 31, 2020
$
47,133
(47,297)
(5,218)
35,213
-
29,849
Net income
8,079
-
8,079
Other comprehensive income
Dividends declared
Ordinary ($
1.75
per share of common stock)
(2,359)
(2,359)
Variable return of cash ($
0.20
per share of common stock)
(260)
(260)
Acquisition of Concho
13,122
13,125
Repurchase of company common stock
(3,623)
(3,623)
Distributed under benefit plans
Other
-
Balances at December 31, 2021
$
60,581
(50,920)
(4,950)
40,674
-
45,406
*Cumulative effect of the adoption of ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Notes to Consolidated
Financial Statements
Note 1-Accounting Policies
●
Consolidation Principles and Investments
-Our consolidated financial statements
include the accounts of
majority-owned, controlled subsidiaries
and, if applicable, variable interest
entities where we are the
primary beneficiary.
The equity method is used to account for
investments in affiliates
in which we have
the ability to exert significant
influence over the affiliates’ operating
and financial policies.
When we do
not have the ability to exert
significant influence, the investment
is measured at fair value except
when
the investment does not have
a readily determinable fair value.
For those exceptions, it will be measured
at cost minus impairment, plus or minus
observable price changes in orderly transactions for
an identical
or similar investment of the same issuer.
Undivided interests in oil and gas
joint ventures, pipelines,
natural gas plants and terminals
are consolidated on a proportionate
basis.
Other securities and
investments are generally
carried at cost.
We manage our operations
through
six
operating segments,
defined by geographic region:
Alaska; Lower 48; Canada; Europe, Middle
East and North Africa; Asia
Pacific; and Other International.
See Note 23
.
●
Foreign Currency Translation
-Adjustments resulting from the
process of translating foreign
functional
currency financial statements
into U.S. dollars are included
in accumulated other comprehensive
loss in
common stockholders’ equity.
Foreign currency transaction
gains and losses are included in current
earnings.
Some of our foreign operations
use their local currency as the functional currency.
●
Use of Estimates
-The preparation of financial statements
in conformity with U.S. GAAP requires
management to make estimates
and assumptions that affect the
reported amounts of assets, liabilities,
revenues and expenses and the disclosures
of contingent assets and liabilities.
Actual results could differ
from these estimates.
●
Revenue Recognition
-Revenues associated with
the sales of crude oil, bitumen, natural gas,
LNG, NGLs
and other items are recognized
at the point in time when the customer obtains
control of the asset.
In
evaluating when a customer has control
of the asset, we primarily consider whether the transfer
of legal
title and physical delivery has occurred,
whether the customer has significant risks
and rewards of
ownership and whether the customer has
accepted delivery and a right to payment
exists.
These
products are typically sold at prevailing
market prices.
We allocate variable
market-based consideration
to deliveries (performance obligations)
in the current period as that consideration
relates specifically to
our efforts to transfer
control of current period deliveries
to the customer and represents
the amount we
expect to be entitled to in exchange
for the related products.
Payment is typically due within 30 days or
less.
Revenues associated with transactions
commonly called buy/sell contracts,
in which the purchase and
sale of inventory with the same counterparty
are entered into “in contemplation”
of one another, are
combined and reported net (i.e., on the same income
statement line).
●
Shipping and Handling Costs
-We typically incur shipping and handling
costs prior to control transferring
to the customer and account for
these activities as fulfillment costs.
Accordingly,
we include shipping and
handling costs in production and operating
expenses for production activities.
Transportation
costs
related to marketing activities
are recorded in purchased commodities.
Freight costs billed to customers
are treated as a component of the transaction
price and recorded as a component of revenue
when the
customer obtains control.
●
Cash Equivalents
-Cash equivalents are highly liquid, short-term
investments that are
readily convertible
to known amounts of cash and have
original maturities of 90 days or less from their date
of purchase.
They are carried at cost plus accrued interest,
which approximates fair value.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
●
Short-Term
Investments
-Short-term investments
include investments in bank time deposits
and
marketable securities (commercial
paper and government obligations)
which are carried at cost plus
accrued interest and have
original maturities of greater than 90 days
but within one year or when the
remaining maturities are within one year.
We also invest in financial instruments
classified as available
for sale debt securities which are carried at
fair value. Those instruments
are included in short-term
investments when they have
remaining maturities within one year as of the balance
sheet date.
●
Long-Term Investments
in Debt Securities
-Long-term investments
in debt securities includes financial
instruments classified as available
for sale debt securities with remaining maturities
greater than one year
as of the balance sheet date.
They are carried at fair value
and presented within the “Investments
and
long-term receivables” line of our consolidated
balance sheet.
●
Inventories
-We have several
valuation methods for our various
types of inventories and consistently
use
the following methods for each type
of inventory.
The majority of our commodity-related inventories
are
recorded at cost using the
LIFO basis.
We measure these inventories
at the lower-of-cost-or-market
in
the aggregate.
Any necessary lower-of-cost-or-market
write-downs at year end are recorded
as
permanent adjustments to the LIFO cost
basis.
LIFO is used to better match current
inventory costs with
current revenues.
Costs include both direct and indirect expenditures
incurred in bringing an item or
product to its existing condition
and location, but not unusual/nonrecurring costs
or research and
development costs.
Materials, supplies and other miscellaneous inventories,
such as tubular goods and
well equipment, are valued using various
methods, including the weighted-average
-cost method and the
FIFO method, consistent with industry
practice.
●
Fair Value Measurements
-Assets and liabilities measured at fair value
and required to be categorized
within the fair value hierarchy
are categorized into
one of three different
levels depending on the
observability of the inputs employed in the measurement.
Level 1 inputs are quoted prices in active
markets for identical assets
or liabilities.
Level 2 inputs are observable inputs other than
quoted prices
included within Level 1 for the asset or liability,
either directly or indirectly through market
-corroborated
inputs.
Level 3 inputs are unobservable inputs for
the asset or liability reflecting significant modifications
to observable related market
data or our assumptions about pricing by market
participants.
●
Derivative Instruments
-Derivative instruments are
recorded on the balance sheet at fair
value.
If the
right of offset exists and certain
other criteria are met, derivative assets
and liabilities with the same
counterparty are netted
on the balance sheet and the collateral payable
or receivable is netted against
derivative assets and derivative
liabilities, respectively.
Recognition and classification of the gain
or loss that results from recording
and adjusting a derivative to
fair value depends on the purpose for
issuing or holding the derivative.
Gains and losses from derivatives
not accounted for as hedges
are recognized immediately in
earnings.
We do not apply hedge accounting
to our derivative instruments.
●
Oil and Gas Exploration and Development
-Oil and gas exploration and
development costs are
accounted for using the successful
efforts method of accounting.
Property Acquisition Costs
-Oil and gas leasehold acquisition costs
are capitalized and included in
the balance sheet caption PP&E.
Leasehold impairment is recognized based on
exploratory
experience and management’s
judgment.
Upon achievement of all conditions necessary for
reserves
to be classified as proved, the associated
leasehold costs are reclassified to proved
properties.
Exploratory Costs
-Geological and geophysical
costs and the costs of carrying and retaining
undeveloped properties are expensed
as incurred.
Exploratory well costs are
capitalized, or
“suspended,”
on the balance sheet pending further evaluation of whether economically
recoverable
reserves have been found.
If economically recoverable reserves
are not found, exploratory
well costs
are expensed as dry holes.
If exploratory wells encounter
potentially economic quantities
of oil and
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
gas, the well costs remain capitalized
on the balance sheet as long as sufficient progress
assessing the
reserves and the economic and operating
viability of the project is being made.
For complex
exploratory discoveries,
it is not unusual to have exploratory
wells remain suspended on the balance
sheet for several years
while we perform additional appraisal
drilling and seismic work on the
potential oil and gas field or while we seek government
or co-venturer approval
of development
plans or seek environmental permitting.
Once all required approvals
and permits have been
obtained, the projects are moved
into the development phase, and the
oil and gas resources are
designated as proved reserves.
Management reviews suspended well balances
quarterly,
continuously monitors the results
of the
additional appraisal drilling and seismic work, and expenses
the suspended well costs as dry holes
when it judges the potential field does not warrant
further investment in the near term.
See Note 6
.
Development Costs
-Costs incurred to drill and equip development
wells, including unsuccessful
development wells, are capital
ized.
Depletion and Amortization
-Leasehold costs of producing properties
are depleted using the unit-of-
production method based on estimated
proved oil and gas reserves.
Amortization of development
costs is based on the unit-of-production
method using estimated proved
developed oil and gas
reserves.
●
Capitalized Interest
-Interest from external
borrowings is capitalized on
major projects with an expected
construction period of one year or longer.
Capitalized interest
is added to the cost of the underlying asset
and is amortized over the useful lives of the assets
in the same manner as the underlying assets.
●
Depreciation and Amortization
-Depreciation and amortization of PP&E
on producing hydrocarbon
properties and SAGD facilities and
certain pipeline and LNG assets (those which are expected
to have a
declining utilization pattern),
are determined by the unit-of-production
method.
Depreciation and
amortization of all other PP&E are determined by
either the individual-unit-straight-line
method or the
group-straight-line
method (for those individual units that are
highly integrated with other units).
●
Impairment of Properties, Plants and Equipment
-Long-lived assets used in operations are assessed
for
impairment whenever changes in facts
and circumstances indicate a possible
significant deterioration in
the future cash flows expected
to be generated by an asset group.
If there is an indication the carrying
amount of an asset may not be recovered,
a recoverability test
is performed using management’s
assumptions for prices, volumes and future
development plans.
If the sum of the undiscounted cash
flows before income-taxes
is less than the carrying value of the asset group,
the carrying value is written
down to estimated fair value
and reported as an impairment in the period in which
the determination is
made.
Individual assets are grouped for
impairment purposes at the lowest level for
which there are
identifiable cash flows that are largely
independent of the cash flows of other groups
of assets-generally
on a field-by-field basis for E&P assets.
Because there usually is a lack of quoted market
prices for long-
lived assets, the fair value of impaired assets
is typically determined based on the present values
of
expected future cash flows using
discount
rates and prices believed to be consistent
with those used by
principal market participants, or based
on a multiple of operating cash flow validated
with historical
market transactions of similar assets
where possible.
The expected future cash flows used
for impairment reviews and
related fair value calculations
are based
on estimated future production
volumes, commodity prices,
operating costs and capital
decisions,
considering all available evidence at the date
of review.
The impairment review includes cash
flows from
proved developed and undeveloped
reserves, including any development
expenditures necessary to
achieve that production.
Additionally, when probable
and possible reserves exist, an appropriate
risk-
adjusted amount of these reserves may
be included in the impairment calculation.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Long-lived assets committed by
management for disposal within one year are
accounted for at the lower
of amortized cost or fair value,
less cost to sell, with fair value determined
using a binding negotiated
price, if available, or present value
of expected future cash flows
as previously described.
●
Maintenance and Repairs
-Costs of maintenance and repairs,
which are not significant improvements,
are expensed when incurred.
●
Property Dispositions
-When complete units of depreciable
property are sold, the asset cost
and related
accumulated depreciation are
eliminated, with any gain or loss
reflected in the “Gain on dispositions” line
of our consolidated income statement.
When partial units of depreciable property are
disposed of or
retired which do not significantly
alter the DD&A rate, the difference
between asset cost and salvage
value is charged or credited to
accumulated depreciation.
●
Asset Retirement Obligations
and Environmental Costs
-The
fair value of legal obligations
to retire and
remove long-lived assets are recorded
in the period in which the obligation is incurred
(typically when the
asset is installed at the production
location).
Fair value is estimated using
a present value approach,
incorporating assumptions about estimated
amounts and timing of settlements and impacts
of the use of
technologies.
See Note 8
.
Environmental expenditures
are expensed or capitalized,
depending upon their future economic benefit.
Expenditures relating to an existing
condition caused by past operations,
and those having no future
economic benefit, are expensed.
Liabilities for environmental
expenditures are recorded
on an
undiscounted basis (unless acquired through
a business combination, which we record
on a discounted
basis) when environmental assessments
or cleanups are probable and the costs
can be reasonably
estimated.
Recoveries of environmental
remediation costs from other parties
are recorded as assets
when their receipt is probable and estimable.
●
Impairment of Investments
in Nonconsolidated Entities
-Investments in nonconsolidated
entities are
assessed for impairment whenever changes
in the facts and circumstances
indicate a loss in value has
occurred.
When such a condition is judgmentally determined
to be other than temporary,
the carrying
value of the investment is written
down to fair value.
The fair value of the impaired investment
is based
on quoted market prices, if available,
or upon the present value of expected
future cash flows using
discount rates and prices believed
to be consistent with those used by
principal market participants, plus
market analysis of comparable
assets owned by the investee,
if appropriate.
●
Guarantees
-The fair value of a guarantee
is determined and recorded as a
liability at the time the
guarantee is given.
The initial liability is subsequently reduced as we are
released from exposure
under
the guarantee.
We amortize the guarantee
liability over the relevant time period, if one
exists, based on
the facts and circumstances surrounding
each type of guarantee.
In cases where the guarantee term
is
indefinite, we reverse the liability
when we have information
indicating the liability is essentially relieved
or amortize it over an appropriate
time period as the fair value of our guarantee
exposure declines over
time.
We amortize the guarantee
liability to the related income statement
line item based on the nature
of the guarantee.
When it becomes probable that we will have
to perform on a guarantee, we accrue
a
separate liability if it is reasonably estimable,
based on the facts and circumstances
at that time.
We
reverse the fair value liability
only when there is no further exposure under the
guarantee.
●
Share-Based Compensation
-We recognize share
-based compensation expense over
the shorter of the
service period (i.e., the stated period of time required
to earn the award) or the period beginning at
the
start of the service period and ending when an employee first
becomes eligible for retirement.
We have
elected to recognize expense
on a straight-line basis over the service period for
the entire award, whether
the award was granted
with ratable or cliff vesting.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
●
Income Taxes
-Deferred income taxes
are computed using the liability method
and are provided on all
temporary differences
between the financial reporting basis and the tax
basis of our assets and liabilities,
except for deferred
taxes on income and temporary
differences related
to the cumulative translation
adjustment considered to be permanently
reinvested in certain
foreign subsidiaries and foreign
corporate
joint ventures.
Allowable tax credits are applied currently
as reductions of the provision for
income taxes.
Interest related to
unrecognized tax benefits
is reflected in interest
and debt expense, and penalties
related to unrecognized
tax benefits are reflected
in production and operating
expenses.
●
Taxes
Collected from Customers
and Remitted to Governmental
Authorities
-Sales and value-added
taxes are recorded
net.
●
Net Income (Loss) Per Share of Common
Stock
-Basic net income (loss) per share of common stock
is
calculated based upon the daily weighted-average
number of common shares outstanding
during the
year.
Also, this
calculation includes fully vested stock
and unit awards that have not
yet been issued as
common stock, along with an adjustment
to net income (loss) for dividend equivalents
paid on unvested
unit awards that are considered
participating securities.
Diluted net income per share of common stock
includes unvested stock,
unit or option awards granted
under our compensation plans and vested but
unexercised stock
options, but only to the extent these instruments
dilute net income per share, primarily
under the treasury-stock method.
Diluted net loss per share, which is calculated
the same as basic net
loss per share, does not assume conversion
or exercise of securities that
would have an antidilutive effect.
Treasury stock
is excluded from the daily weighted
-average number of common
shares outstanding in
both calculations.
The earnings per share impact of the participating securities is immaterial.
Note 2-Inventories
Inventories at December 31 were:
Millions of Dollars
Crude oil and natural gas
$
Materials and supplies
Total
inventories
$
1,208
1,002
Inventories valued on
the LIFO basis
$
The estimated excess
of current replacement cost over
LIFO cost of inventories
was approximately $
million
and $
million at December 31, 2021 and 2020, respectively.
Note 3-Asset Acquisitions and Dispositions
All gains or losses on asset dispositions are reported
before-tax and are included
net in the “Gain on dispositions”
line on our consolidated income stat
ement.
All cash proceeds and payments are
included in the “Cash Flows From
Investing Activities” section of our consolidated
statement of cash flows.
During the year,
we completed the acquisitions of Concho Resources
Inc. (Concho) and of Shell Enterprises LLC’s
(Shell) Permian assets.
The acquisitions were accounted for
as business combinations under FASB
Topic ASC 805
using the acquisition method, which requires assets
acquired and liabilities assumed to be measured at their
acquisition date fair values.
Fair value measurements were
made for acquired assets and liabilities, and
adjustments to those measurements
may be made in subsequent periods, up to
one year from the acquisition date
as we identify new information
about facts and circumstances that
existed as of the acquisition date to
consider.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Acquisition of Concho Resources Inc.
In January 2021, we completed our acquisition of Concho,
an independent oil and gas exploration
and production
company with operations across
New Mexico and West Texas
focused in the Permian Basin.
Total
consideration
for the all-stock transaction
was valued at $
13.1
billion, in which 1.46 shares of ConocoPhillips common stock
were
exchanged for each outstanding
share of Concho common stock.
Total Consideration
Number of shares of Concho common stock issued
and outstanding (in thousands)*
194,243
Number of shares of Concho stock awards
outstanding (in thousands)*
1,599
Number of shares exchanged
195,842
Exchange ratio
1.46
Additional shares of ConocoPhillips common stock
issued as consideration (in thousands)
285,929
Average price per share of ConocoPhillips
common stock**
$
45.9025
Total Consideration
(Millions)
$
13,125
*Outstanding as of January 15, 2021.
**Based on the ConocoPhillips average stock price on January 15, 2021.
Oil and gas properties were valued
using a discounted cash flow approach
incorporating market
participant and
internally generated price assumptions;
production profiles; and operating
and development cost assumptions.
Debt assumed in the acquisition was valued based on
observable market prices.
The fair values determined for
accounts receivable, accounts
payable, and most other current
assets and current liabilities were equivalent
to the
carrying value due to their short-term
nature.
The total consideration of $
13.1
billion was allocated to the
identifiable assets and liabilities based on their fair
values as of January 15, 2021.
Assets Acquired
Millions of Dollars
Cash and cash equivalents
$
Accounts receivable, net
Inventories
Prepaid expenses and other current
assets
Investments and long-term receivables
Net properties, plants and equipment
18,923
Other assets
Total assets
acquired
$
20,527
Liabilities Assumed
Accounts payable
$
Accrued income and other taxes
Employee benefit obligations
Other accruals
Long-term debt
4,696
Asset retirement obligations
and accrued environmental costs
Deferred income taxes
1,071
Other liabilities and deferred credits
Total liabilities
assumed
$
7,402
Net assets acquired
$
13,125
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
With the completion of the Concho transaction,
we acquired proved and unproved
properties of approximately
$
11.8
billion and $
6.9
billion, respectively.
We recognized approximately
$
million of transaction-related costs,
all of which were expensed in the first
quarter of 2021.
These non-recurring costs related
primarily to fees paid to advisors
and the settlement of share-
based awards for certain Concho
employees based on the terms of the Merger Agreement.
In the first quarter of 2021, we commenced
a company-wide restructuring program,
the scope of which included
combining the operations of the two companies
as well as other global restructuring activities.
We recognized
non-recurring restructuring costs
mainly for employee severance and
related incremental pension
benefit costs.
The impact from these transaction and restructuring
costs to the lines of our consolidated income statement
for
the year ended December 31, 2021, are below:
Millions of Dollars
Transaction
Cost
Restructuring Cost
Total
Cost
Production and operating expenses
$
Selling, general and administration
expenses
Exploration expenses
Taxes
other than income taxes
Other expenses
-
$
On February 8, 2021, we completed a debt
exchange offer
related to the debt assumed from Concho.
As a result
of the debt exchange, we recognized
an additional income tax related
restructuring charge of $
million.
See
Note 17.
From the acquisition date through
December 31, 2021, “Total Revenues
and Other Income” and “Net Income
(Loss) Attributable to ConocoPhillips”
associated with the acquired Concho business
were approximately $
6,571
million and $
2,330
million, respectively.
The results associated with the Concho business
for the same period
include a before- and after-tax
loss of $
million and $
million, respectively,
on the acquired derivative
contracts.
The before-tax loss is recorded
within “Total Revenues
and Other Income” on our consolidated
income
statement.
See Note 12.
Acquisition of Shell Permian Assets
In December 2021, we completed our acquisition
of Shell assets in the Permian based Delaware Basin.
The
accounting close date used for reporting
purposes was December 31, 2021.
Assets acquired include approximately
225,000
net acres and producing properties
located entirely in Texas.
Total
consideration for the transaction
was
$
8.7
billion.
Oil and gas properties were valued
using a discounted cash flow approach
incorporating market
participant and
internally generated price assumptions
,
production profiles,
and operating and development cost
assumptions.
The fair values determined for
accounts receivable, accounts
payable, and most other current
assets and current
liabilities were equivalent to the carrying
value due to their short-term
nature.
The total consideration
of $
8.7
billion was allocated to the identifiable
assets and liabilities based on their fair values
at the acquisition date.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Assets Acquired
Millions of Dollars
Accounts receivable, net
$
Inventories
Net properties, plants and equipment
8,624
Other assets
Total assets
acquired
$
9,031
Liabilities Assumed
Accounts payable
$
Accrued income and other taxes
Other accruals
Asset retirement obligations
and accrued environmental costs
Other liabilities and deferred credits
Total liabilities
assumed
$
Net assets acquired
$
8,672
With the completion of the Shell Permian transaction,
we acquired proved and unproved
properties of
approximately $
4.2
billion and $
4.4
billion, respectively.
We recognized approximately
$
million of transaction-
related costs which were expensed
during 2021.
Supplemental Pro Forma (unaudited)
The following tables summarize the
unaudited supplemental pro
forma financial information fo
r
the year ended
December 31, 2021, and 2020, as if we had completed the acquisitions
of Concho and the Shell Permian assets on
January 1, 2020.
Millions of Dollars
Year Ended December 31, 2021
Pro forma
Pro forma
As reported
Shell
Combined
Total
Revenues and Other Income
$
48,349
3,220
51,569
Income (loss) before income taxes
12,712
1,201
13,913
Net Income (Loss) attributable to
ConocoPhillips
8,079
8,999
Earnings per share:
Basic net loss
$
6.09
6.78
Diluted net loss
6.07
6.76
Millions of Dollars
Year Ended December 31, 2020
Pro forma
Pro forma
Pro forma
As reported
Concho
Shell
Combined
Total
Revenues and Other Income
$
19,256
3,762
1,685
24,703
Income (loss) before income taxes
(3,140)
(247)
(2,600)
Net Income (Loss) attributable to
ConocoPhillips
(2,701)
(189)
(2,392)
Earnings per share:
Basic net loss
$
(2.51)
(1.75)
Diluted net loss
(2.51)
(1.75)
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The unaudited supplemental pro forma
financial information is presented
for illustration purposes
only and is not
necessarily indicative of the operating
results that would have occurred
had the transactions been completed on
January 1, 2020, nor is it necessarily indicative of future
operating results of the combined entity.
The unaudited
pro forma financial information
for the twelve-month period ending December 31, 2020
is a result of combining
the consolidated income statement
of ConocoPhillips with the results of Concho and the assets
acquired from
Shell.
The pro forma results do not
include transaction-related costs,
nor any cost savings anticipated
as a result of
the transactions.
The pro forma results include adjustments
from Concho’s historical
results to reverse
impairment expense of $
10.5
billion and $
1.9
billion related to oil and gas properties
and goodwill, respectively.
Other adjustments made relate primarily to
DD&A, which is based on the unit-of-production
method, resulting
from the purchase price allocated
to properties, plants and equipment.
We believe the estimates
and assumptions
are reasonable, and the relative
effects of the transaction are
properly reflected.
Announced Acquisitions
In December 2021, we announced that we have
notified Origin Energy that we are exercising
our preemption right
to purchase an additional
percent shareholding interest
in APLNG from Origin Energy for $
1.645
billion, which
will be funded from cash on the balance sheet, before
customary adjustments.
The effective date of the
transaction will be July 1, 2020 with closing anticipated
to occur in the first quarter of 2022 subject
to Australian
government approval.
See
Note 4
and
Note 7
.
Assets Sold
In 2020, we completed the sale of our Australia
-West asset and operations.
The sales agreement entitled us to a
$
million payment upon a final investment
decision (FID) of the Barossa development project.
On March 30,
2021, FID was announced and as such, we recognized
a $
million gain on disposition in the first quarter
of 2021.
The purchaser failed to pay the FID bonus
when due.
We have commenced an arbitration
proceeding against the
purchaser to enforce our contractual
right to the $
million, plus interest accruing from the due
date.
Results of
operations related to
this transaction are reflected in
our Asia Pacific segment.
See Note 11
.
In the second half of 2021, we sold our interests
in certain noncore assets in our Lower 48 segment for
approximately $
million after customary adjustments,
recognizing a before-tax gain
on sale of approximately
$
million.
We also completed the sale of our
noncore exploration
interests in Argentina,
recognizing a before-
tax loss on disposition of $
million.
Results of operations for
Argentina were reported
in our Other
International segment.
In 2021, we recorded contingent
payments of $
million relating to previous dispositions.
The contingent
payments are recorded
as gain on disposition on our consolidated
income statement and are
reflected within our
Canada and Lower 48 segments.
In our Canada segment, the
contingent payment, calculated and paid on a
quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average crude price exceeds $52
CAD per barrel
.
The term for contingent
payments in our Canada segment ends on
May 16, 2022.
In our Lower 48
segment, the
contingent payment, paid on an annual basis, is calculated monthly at $7 million per month in which
the U.S. Henry Hub price is at or above $3.20 per MMBTU
.
The term for contingent payments
in our Lower 48
segment goes through 2023.
No
contingent payments were
recorded in 2020.
Planned Dispositions
In December 2021, we entered into
an agreement to sell two subsidiaries holding
our Indonesia assets and
operations to MedcoEnergi for
$
1.355
billion, before customary
adjustments, with an effective
date of January 1,
2021.
The subsidiaries hold our
percent interest in the Indonesia
Corridor Block Production Sharing Contract
(PSC) and a
percent shareholding interest
in the Transasia Pipeline
Company.
The net carrying value is
approximately $
0.4
billion, which consists primarily of PP&E.
The assets met the held for sale criteria in the fourth
quarter,
and as of December 31, 2021, we have reclassified
$
0.3
billion of PP&E to “Prepaid expenses and
other
current assets” and $
0.1
billion of noncurrent ARO to “Other accruals”
on our consolidated balance sheet.
The
before-tax earnings associated
with our Indonesia subsidiaries were $
million, $
million and $
million for
the years ended December 31, 2021, 2020 and 2019, respectively
.
This transaction is expected to close in
early
2022, subject to regulatory approvals
and other specific conditions precedent.
Results of operations for
the
subsidiaries to be sold are reported within our
Asia Pacific segment.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
In January 2022, we entered into
an agreement to sell our interests
in certain noncore assets in the Lower 48
segment for $
million, before customary adjustments.
This transaction is expected to
close in the second
quarter of 2022.
Asset Acquisition
In August 2020, we completed the acquisition
of additional Montney acreage in Canada from Kelt
Exploration Ltd.
for $
million after customary adjustments,
plus the assumption of $
million in financing obligations
associated with partially owned infrastructure.
This acquisition consisted primarily of undeveloped
properties and
included
140,000
net acres in the liquids-rich Inga Fireweed
asset Montney zone, which is directly
adjacent to our
existing Montney position.
The transaction increased our Montney acreage
position to approximately
295,000
net
acres with a
percent working interest.
This agreement was accounted
for as an asset acquisition resulting
in
the recognition of $
million of PP&E; $
million of ARO and accrued environmental
costs; and $
million of
financing obligations recorded
primarily to long-term debt.
Results of operations for
the Montney asset are
reported in our Canada segment.
Assets Sold
In February 2020, we sold our Waddell Ranch
interests in the Permian Basin
for $
million after customary
adjustments.
No
gain or loss was recognized on the sale.
Results of operations for
the Waddell Ranch interests
sold were reported in our Lower 48 segment.
In March 2020, we completed the sale
of our Niobrara interests
for approximately $
million after customary
adjustments and recognized a
before-tax loss on disposition
of $
million.
At the time of disposition, our interest
in Niobrara had a net carrying value
of $
million, consisting primarily of $
million of PP&E and $
million of
ARO. The before-tax losses
associated with our interests
in Niobrara, including the loss on disposition
noted above
and an impairment of $
million recorded when we signed an
agreement to sell our interests
in the fourth
quarter of 2019, were $
million and $
million for the years ended December 31,
2020 and 2019, respectively.
Results of operations for
the Niobrara interests
sold were reported in our Lower 48 segment.
In May 2020, we completed the divestiture
of our subsidiaries that held our Australia
-West assets and operations,
and based on an effective date
of January 1, 2019, we received proceeds
of $
million.
We recognized a
before-
tax gain of $
million related to this transaction
in 2020.
At the time of disposition, the net carrying value
of the
subsidiaries sold was approximately
$
0.2
billion, excluding $
0.5
billion of cash.
The net carrying value consisted
primarily of $
1.3
billion of PP&E and $
0.1
billion of other current assets offset
by $
0.7
billion of ARO, $
0.3
billion of
deferred tax liabilities, and
$
0.2
billion of other liabilities.
The before-tax earnings associated
with the subsidiaries
sold, including the gain on disposition noted
above, were $
million and $
million for the years ended
December 31, 2020 and 2019, respectively.
Production from the beginning of the year through
the disposition
date in May 2020 averaged
MBOED.
The sales agreement entitled us to
an additional $
million upon FID of
the Barossa development project.
Results of operations for
the subsidiaries sold were reported
in our Asia Pacific
segment.
Assets Sold
In January 2019, we entered into
agreements to sell our
12.4
percent ownership interests
in the Golden Pass LNG
Terminal and
Golden Pass Pipeline.
We also entered into
agreements to amend our contractual
obligations for
retaining use of the facilities.
As a result of entering into these agreements,
we recorded a before
-tax impairment
of $
million in the first quarter of 2019 which is
included in the “Equity in earnings of affiliates”
line on our
consolidated income statement.
We completed the sale in the second
quarter of 2019.
Results of operations for
these assets were reported in our Lower
48 segment.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
In April 2019, we entered into
an agreement to sell two ConocoPhillips
U.K. subsidiaries to Chrysaor E&P Limited
for $
2.675
billion plus interest and customary
adjustments, with an effective date
of January 1, 2018.
On
September 30, 2019, we completed the sale
for proceeds of $
2.2
billion and recognized a $
1.7
billion before-tax
and $
2.1
billion after-tax gain
associated with this transaction in 2019.
Together the
subsidiaries sold indirectly
held our exploration and production
assets in the U.K.
At the time of disposition, the net carrying value
was
approximately $
0.5
billion, consisting primarily of $
1.6
billion of PP&E, $
0.5
billion of cumulative foreign currency
translation adjustments, and $
0.3
billion of deferred tax assets,
offset by $
1.8
billion of ARO and negative $
0.1
billion of working capital.
The before-tax earnings associated
with the subsidiaries sold, including the gain on
dispositions noted above, was $
2.1
billion for the year ended December 31, 2019.
Results of operations for
the
U.K. were reported within our Europe,
Middle East and North Africa segment.
In the second quarter of 2019, we recognized
an after-tax gain
of $
million upon the closing of the sale of our
percent interest in the Greater
Sunrise Fields to the government of Timor-Leste
for $
million.
The Greater
Sunrise Fields were included in our Asia Pacific
segment.
In the fourth quarter of 2019, we sold our interests
in the Magnolia field and platform for
net proceeds of $
million and recognized a before-tax
gain of $
million.
At the time of sale, the net carrying value
consisted of $
million of PP&E offset by $
million of ARO.
The Magnolia results of operations
were reported within our Lower
48 segment.
Note 4-Investments,
Loans and Long-Term
Receivables
Components of investments, loans
and long-term receivables at December 31 were:
Millions of Dollars
Equity investments
$
6,701
7,596
Loans and advances-related parties
-
Long-term receivables
Long-term investments in debt
securities
Other investments
$
7,113
8,131
Equity Investments
Affiliated companies in which we had a significant
equity investment at December 31, 2021,
included:
●
APLNG-
37.5
percent owned joint venture
with Origin Energy (
37.5
percent) and Sinopec (
percent)-
to produce CBM from the Bowen and
Surat basins in Queensland, Australia,
as well as process and export
LNG.
●
Qatar Liquefied Gas Company Limited
(3) (QG3)-
percent owned joint venture
with affiliates of
QatarEnergy (
68.5
percent) and Mitsui & Co., Ltd. (
1.5
percent)-produces and liquefies
natural gas from
Qatar’s North Field, as well as exports
LNG.
Summarized 100 percent earnings
information for equity method
investments in affiliated
companies,
combined, was as follows:
Millions of Dollars
Revenues
$
11,824
7,931
11,310
Income before income taxes
3,946
1,843
3,726
Net income
2,557
1,426
3,085
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Summarized 100 percent balance sheet information
for equity method investments
in affiliated companies,
combined, was as follows:
Millions of Dollars
Current assets
$
4,493
2,579
Noncurrent assets
36,602
35,257
Current liabilities
3,498
2,110
Noncurrent liabilities
17,465
18,099
Our share of income taxes incurred
directly by an equity method investee
is reported in equity in earnings of
affiliates, and as such is not included in income taxes
on our consolidated financial statements.
At December 31, 2021, retained earnings
included $
million related to the undistributed
earnings of affiliated
companies.
Dividends received from affiliates
were $
1,279
million, $
1,076
million and $
1,378
million in 2021, 2020
and 2019, respectively.
APLNG
APLNG is a joint venture focused on
producing CBM from the Bowen and Surat
basins in Queensland, Australia.
Natural gas is sold to domestic
customers and LNG is processed
and exported to Asia Pacific markets.
Our
investment in APLNG gives us access
to CBM resources in Australia
and enhances our LNG position.
The majority
of APLNG LNG is sold under two long-term sales and purchase
agreements, supplemented with sales
of additional
LNG spot cargoes targeting
the Asia Pacific markets.
Origin Energy,
an integrated Australian
energy company,
is
the operator of APLNG’s
production and pipeline system,
while we operate the LNG facility.
APLNG executed project financing
agreements for an $
8.5
billion project finance facility in 2012.
All amounts were
drawn from the facility.
APLNG achieved financial completion on its original
$
8.5
billion project finance facility
during the third quarter of 2017, resulting in the facility
being nonrecourse.
The project financing facility has been
refinanced over time and at December 31, 2021, this
facility was composed of a financing agreement
with the
Export-Import Bank of the United States,
a commercial bank facility and
two
United States Private
Placement note
facilities.
APLNG made its first principal and interest
repayment in March 2017 and is scheduled to
make
bi-annual
payments until September 2030.
At December 31, 2021, a balance of $
5.7
billion was outstanding on the facilities.
See Note 10
.
During the fourth quarter of 2021, Origin Energy Limited
agreed to the sale of
percent of their interest in
APLNG
for $
1.645
billion, before customary
adjustments.
ConocoPhillips announced in December 2021 that we were
exercising our preemption
right under the APLNG Shareholders Agreement
to purchase an additional
percent
shareholding interest in APLNG, subject
to government approvals.
The sales price associated with this preemption
right was determined to reflect
a relevant observable market
participant view of APLNG’s
fair value which was
below the carrying value of our existing
investment in APLNG.
Based on a review of the facts and circumstances
surrounding this decline in fair value,
we concluded in the fourth quarter of 2021 the impairment
was other than
temporary under the guidance of FASB
ASC Topic 323,
and the recognition of an impairment of our existing
investment was necessary.
Accordingly,
we recorded a noncash $
million, before-tax and
after-tax impairment
in the fourth quarter of 2021.
The impairment, which is included in the “Impairments” line on
our consolidated
income statement, had the
effect of reducing the carrying value
of our existing investment
to $
5,574
million as of
December 31, 2021.
This carrying value is included in the “Investments
and long-term receivables” line on our
consolidated balance sheet.
See Note 7
.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The historical cost basis of our
37.5
percent share of net assets on the books
of APLNG was $
5,523
million,
resulting in a basis difference of $
million on our books.
The basis difference, which is substantially
all
associated with PP&E and subject to amortization,
has been allocated on a relative
fair value basis to individual
production license areas owned by APLNG.
Any future additional payments
are expected to be allocated
in a
similar manner.
As the joint venture produces
natural gas from each license, we amortize
the basis difference
allocated to that license using the unit-of-production
method.
Included in net income (loss) attributable
to
ConocoPhillips for 2021, 2020 and 2019 was
after-tax expense
of $
million, $
million and $
million,
respectively,
representing the amortization
of this basis difference on currently
producing licenses.
QG3
QG3 is a joint venture that owns an
integrated large-scale
LNG project located in Qatar.
We provided project
financing, with a current outstanding balance of $
million as described below under “Loans.”
At December 31,
2021, the book value of our equity method investment
in QG3, excluding the project financing, was
$
million.
We have terminal and pipeline
use agreements with Golden Pass
LNG Terminal and affiliated
Golden Pass Pipeline
near Sabine Pass, Texas,
intended to provide us with terminal and
pipeline capacity for the receipt, storage
and
regasification of LNG purchased
from QG3.
We previously held a
12.4
percent interest in Golden
Pass LNG
Terminal and
Golden Pass Pipeline, but we sold those interests
in the second quarter of 2019 while retaining the
basic use agreements.
Currently,
the LNG from QG3 is being sold to markets
outside of the U.S.
See Note 3
.
Loans
As part of our normal ongoing business operations
and consistent with industry practice,
we enter into numerous
agreements with other parties to pursue
business opportunities.
Included in such activity are loans to certain
affiliated and non-affiliated
companies.
At December 31, 2021, significant loans
to affiliated companies include $
million in project financing to QG3
which is recorded within the “Accounts
and notes receivable-related
parties” line on our consolidated balance
sheet.
QG3 secured project financing of $
4.0
billion in December 2005, consisting of $
1.3
billion of loans from
export credit agencies (ECA), $
1.5
billion from commercial banks
and $
1.2
billion from ConocoPhillips.
The
ConocoPhillips loan facilities have
substantially the same terms as the ECA
and commercial bank facilities.
On
December 15, 2011, QG3 achieved financial completion
and all project loan facilities became nonrecourse
to the
project participants.
Semi-annual
repayments began in January 2011 and
will extend through July 2022.
Note 5-Investment in Cenovus
Energy
Our investment in Cenovus Energy
(CVE) common shares is carried on our balance sheet
at fair value.
December 31
Number of shares of CVE common stock (millions)
Ownership of issued and outstanding common
stock
4.5
%
16.9
Closing price on NYSE on last trading day
($/share)
$
12.28
6.04
Fair Value (millions
of dollars)
$
1,117
1,256
During 2021, we began to dispose of CVE shares,
selling
million shares during the year,
recognizing proceeds of
$
1.18
billion, $
1.14
billion of which was received during the year.
Proceeds related to the sale of our
CVE shares
are presented within “Cash Flows from
Investing Activities” on our consolidated
statement of cash flows.
Subject
to market conditions, we intend
to continue to decrease our investment.
All gains and losses are recognized
within “Other income (loss)” on our consolidated
income statement.
See Note
.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Millions of Dollars
Total
Net gain (loss) on equity securities
$
1,040
(855)
Less: Net gain (loss) on equity securities sold during
the period
Unrealized gain (loss) on equity securities
still held at
the reporting date
$
(855)
Note 6-Suspended Wells and
Exploration Expenses
The following table reflects the net
changes in suspended exploratory
well costs during 2021, 2020 and 2019:
Millions of Dollars
Beginning balance at January 1
$
1,020
Additions pending the determination of proved
reserves
Reclassifications to proved
properties
-
(42)
(11)
Sales of suspended wells
-
(313)
(54)
Charged to dry hole expense
(32)
(147)
(10)
Ending balance at December 31
$
1,020
*
*Includes $
million of assets held for sale in Australia-West at December 31, 2019.
For additional details on suspended wells charged to dry hole expense, see the Exploration Expenses section
of this Note.
The following table provides an aging
of suspended well balances at December 31:
Millions of Dollars
Exploratory well costs capitalized
for a period of one year or less
$
Exploratory well costs capitalized
for a period greater than one year
Ending balance
$
1,020
*
*Includes $
million of assets held for sale in Australia-West at December 31, 2019.
Number of projects with exploratory
well costs capitalized for
a period
greater than one year
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table provides a further
aging of those exploratory
well costs that have been capitalized
for more
than one year since the completion of drilling as of December 31, 2021:
Millions of Dollars
Suspended Since
Total
2018-2020
2015-2017
2004-2014
Willow-Alaska
(1)
-
Surmont-Canada
(1)
PL 1009-Norway
(1)
-
-
PL 891-Norway
(1)
-
-
Narwhal Trend-Alaska
(1)
-
-
WL4-00-Malaysia
(1)
-
-
PL782S-Norway
(1)
-
-
NC 98-Libya
(2)
-
-
Other of $10 million or less each
(1)(2)
Total
$
(1)Additional appraisal wells planned.
(2)Appraisal drilling complete; costs being incurred to assess development.
Exploration Expenses
The charges discussed below are included in the “Exploration
expenses” line on our consolidated income
statement.
In our Alaska segment, we recorded
a before-tax impairment
of $
million for the entire associated
carrying
value of capitalized undeveloped
leasehold costs related to
our Alaska North Slope Gas asset.
We no longer
believe the project will advance,
and there is no current market
for the asset.
In our Other International segment, our interests
in the Middle Magdalena Basin of Colombia are in force
majeure.
As we had no immediate plans to perform
under existing contracts;
therefore, in 2020, we recorded
a before-tax
expense totaling $
million for dry hole costs of a previously
suspended well and an impairment of the associated
capitalized undeveloped leasehold
carrying value.
In our Asia Pacific segment, we recorded
before-tax expense
of $
million related to dry hole costs
of a previously
suspended well and an impairment of the associated capitalized
undeveloped leasehold carrying value associated
with the Kamunsu East Field in Malaysia
that is no longer in our development plans.
In our Lower 48 segment, we recorded
a before-tax impairment
of $
million for the associated carrying value
of
capitalized undeveloped leasehold
costs and dry hole expenses of $
million before-tax
due to our decision to
discontinue exploration
activities related to our Central Louisiana
Austin Chalk acreage.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 7-Impairments
During 2021, 2020 and 2019, we recognized the following
before-tax impairment
charges:
Millions of Dollars
Alaska
$
-
-
Lower 48
(8)
Canada
Europe, Middle East and North Africa
(24)
Asia Pacific
-
-
$
We recorded an impairment
of $
million on our APLNG investment included within
the Asia Pacific segment.
See
Note 4
and
Note 13
.
In our Lower 48 segment, we recorded
a credit to impairment of $
million due to a decreased ARO estimate
for a
previously sold asset, in which we retained
the ARO liability.
This was offset by recorded
impairments of $
million during the fourth quarter of 2021, related
to certain noncore assets
due to changes in development plans.
See Note 13
.
In our Europe, Middle East and North
Africa segment, we recorded a credit
to impairment of $
million due to
decreased ARO estimates on fields
in Norway which ceased production and
were fully depreciated in prior years.
We recorded impairments
of $
million, primarily related to certain
noncore assets in the Lower 48.
Due to a
significant
decrease in the outlook for current and
long-term natural gas prices
in early 2020, we recorded
impairments of $
million, primarily for the Wind River Basin operations
area, consisting of developed
properties in the Madden Field and the Lost Cabin
Gas Plant, in the first quarter of 2020.
Additionally,
due
primarily to changes in development plans
solidified in the last quarter of 2020, we recognized
additional
impairments of $
million in the Lower 48 during the fourth
quarter.
See Note 13
.
In the Lower 48, we recorded impairments
of $
million, primarily related to developed
properties in our
Niobrara asset which were written
down to fair value less costs
to sell.
See Note 3
.
Note 8-Asset Retirement
Obligations and Accrued Environmental
Costs
Asset retirement obligations
and accrued environmental costs
at December 31 were:
Millions of Dollars
Asset retirement obligations
$
5,926
5,573
Accrued environmental costs
Total
asset retirement obligations
and accrued environmental costs
6,113
5,753
Asset retirement obligations
and accrued environmental costs
due within one year*
(359)
(323)
Long-term asset retirement obligations
and accrued environmental costs
$
5,754
5,430
*Classified as a current liability on the balance sheet under “Other accruals.”
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Asset Retirement Obligations
We record the fair value
of a liability for an ARO when it is incurred (typically
when the asset is installed at the
production location).
When the liability is initially recorded, we capitalize
the associated asset retirement
cost by
increasing the carrying amount of the related
PP&E.
If, in subsequent
periods, our estimate of this liability
changes, we will record an adjustment
to both the liability and PP&E.
Over time, the liability increases for the
change in its present value, while the capitalized
cost depreciates over
the useful life of the related asset.
Reductions to estimated liabilities
for assets that are no longer producing
are recorded as a credit to
impairment, if
the asset had been previously impaired, or as a credit
to DD&A, if the asset had not been previously impaired
.
We have numerous
AROs we are required to perform
under law or contract once an asset is permanently
taken
out of service.
Most of these obligations are not
expected to be paid until several
years, or decades, in the future
and will be funded from general company
resources at the time of removal.
Our largest individual obligations
involve plugging and abandonment of wells and
removal and disposal of offshore
oil and gas platforms around
the
world, as well as oil and gas production
facilities and pipelines in Alaska.
During 2021 and 2020, our overall ARO changed as
follows:
Millions of Dollars
Balance at January 1
$
5,573
6,206
Accretion of discount
New obligations
Changes in estimates of existing
obligations
(113)
(307)
Spending on existing obligations
(164)
(116)
Property dispositions
(108)
(771)
Foreign currency translation
(55)
Balance at December 31
$
5,926
5,573
Accrued Environmental Costs
Total
accrued environmental costs
at December 31, 2021 and 2020, were $
million and $
million,
respectively.
We had accrued environmental
costs of $
million and $
million at December 31, 2021 and 2020,
respectively,
related to remediation
activities in the U.S. and Canada.
We had also accrued in Corporate
and Other
$
million and $
million of environmental costs
associated with sites no longer in operation
at December 31,
2021 and 2020, respectively.
In addition, both December 31, 2021 and 2020, included a $
million accrual, where
the company has been named a potentially
responsible party under the Federal Comprehensive
Environmental
Response, Compensation and Liability Act, or similar state
laws.
Accrued environmental liabilities are
expected to
be paid over periods extending up to
years.
Expected expenditures for environmental
obligations acquired in various
business combinations are discounted
using a weighted-average
percent discount factor,
resulting in an accrued balance for acquired
environmental
liabilities of $
million at December 31, 2021.
The total expected future undiscounted
payments related to the
portion of the accrued environmental costs
that have been discounted
are $
million.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 9-Debt
Long-term debt at December 31 was:
Millions of Dollars
9.125
% Debentures due 2021
$
-
2.4
% Notes due 2022
7.65
% Debentures due 2023
3.35
% Notes due 2024
8.2
% Debentures due 2025
3.35
% Notes due 2025
6.875
% Debentures due 2026
4.95
% Notes due 2026
1,250
1,250
7.8
% Debentures due 2027
3.75
% Notes due 2027
-
3.75
% Notes due 2027
-
4.3
% Notes due 2028
-
4.3
% Notes due 2028
-
7.375
% Debentures due 2029
% Debentures due 2029
6.95
% Notes due 2029
1,549
1,549
8.125
% Notes due 2030
2.4
% Notes due 2031
-
2.4
% Notes due 2031
-
7.2
% Notes due 2031
7.25
% Notes due 2031
7.4
% Notes due 2031
5.9
% Notes due 2032
4.15
% Notes due 2034
5.95
% Notes due 2036
5.951
% Notes due 2037
5.9
% Notes due 2038
6.5
% Notes due 2039
2,750
2,750
4.3
% Notes due 2044
5.95
% Notes due 2046
7.9
% Debentures due 2047
4.875
% Notes due 2047
-
4.85
% Notes due 2048
-
4.85
% Notes due 2048
-
Floating rate notes due 2022 at
1.02
% -
1.12
% during 2021 and
1.12
% -
2.81
% during 2020
Marine Terminal
Revenue Refunding Bonds due 2031 at
0.04
% -
0.15
% during
2021 and
0.1
% -
7.5
% during 2020
Industrial Development Bonds due 2035 at
0.04
% -
0.12
% during 2021 and
0.11
% -
7.5
% during 2020
Commercial Paper at
0.05
% -
0.22
% during 2021
-
Other
Debt at face value
17,766
14,292
Finance leases
1,261
Net unamortized premiums, discounts and debt
issuance costs
Total
debt
19,934
15,369
Short-term debt
(1,200)
(619)
Long-term debt
$
18,734
14,750
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
On January 15, 2021, we completed the acquisition of Concho
in an all-stock transaction.
In the acquisition, we
assumed Concho’s publicly
traded debt, with an outstanding principal balance
of $
3.9
billion, which was recorded
at fair value of $
4.7
billion on the acquisition date.
The adjustment to fair value of the senior notes
of
approximately $
0.8
billion on the acquisition date will be amortized as
an adjustment to interest
expense over the
remaining contractual terms
of the senior notes.
In the first quarter of 2021, we completed
a debt exchange offer
related to the debt assumed from
Concho.
Of the
approximately $
3.9
billion in aggregate principal amount
of Concho’s senior notes
offered in the exchange,
percent, or approximately
$
3.8
billion, was tendered and accepted.
The new debt issued by ConocoPhillips had
the same interest rates
and maturity dates as the Concho senior notes.
The portion not exchanged, approximately
$
million, remained outstanding across
five series of senior notes issued by Concho.
The debt exchange was
treated as a debt modification for
accounting purposes resulting in a portion
of the unamortized fair value
adjustment of the Concho senior notes allocated
to the new debt issued by ConocoPhillips on the settlement
date
of the exchange.
The new debt issued in the exchange is
fully and unconditionally guaranteed by
ConocoPhillips
Company.
See Note 3.
We have a revolving
credit facility totaling $
6.0
billion with an expiration date
of May 2023.
Our revolving credit
facility may be used for direct
bank borrowings, the issuance of letters
of credit totaling up to $
million, or as
support for our commercial paper program.
The revolving credit facility is broadly
syndicated among financial
institutions and does not contain any
material adverse change provisions
or any covenants requiring maintenance
of specified financial ratios or credit ratings.
The facility agreement contains
a cross-default provision
relating to
the failure to pay principal or
interest on other debt obligations
of $
million or more by ConocoPhillips, or any
of its consolidated subsidiaries.
The amount of the facility is not subject to redetermination
prior to its expiration
date.
Credit facility borrowings may
bear interest at a margin above
rates offered
by certain designated banks in the
London interbank market or
at a margin above the overnight federal
funds rate or prime rates
offered by certain
designated banks in the U.S.
The facility agreement calls for
commitment fees on available,
but unused, amounts.
The agreement also contains early termination
rights if our current directors
or their approved successors
cease to
be a majority of the Board of Directors.
The revolving credit facility supports
our ability to issue up to $
6.0
billion of commercial paper,
which is primarily a
funding source for short-term
working capital needs.
Commercial paper maturities are generally
limited to
days
.
With no commercial paper outstanding
and
no
direct borrowings or letters
of credit, we had access to
$
6.0
billion in available borrowing capacity
under our revolving credit facility
at December 31, 2021.
We had
no
direct borrowings, letters
of credit, and $
million of commercial paper outstanding
as of December 31, 2020.
For information on Finance Leases,
see Note 15
.
The current credit ratings on our
long-term debt are:
●
Fitch: “A” with a “stable” outlook
.
●
S&P: “A-” with a “stable” outlook
.
●
Moody’s: “A3” with a “positive” 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,
upon downgrade of our credit ratings.
If our credit ratings are downgraded
from their current levels, it could
increase the cost of corporate
debt available to us and restrict
our access to the
commercial paper markets.
If our credit rating were to
deteriorate to a level
prohibiting us from accessing the
commercial paper market, we
would still be able to access funds under our revolving
credit facility.
At both December 31, 2021 and 2020, we had $
million of certain variable rate
demand bonds (VRDBs)
outstanding with maturities ranging
through 2035.
The VRDBs are redeemable at the option of the bondholders
on any business day.
If they are ever redeemed, we have
the ability and intent to refinance on
a long-term basis,
therefore, the VRDBs are included
in the “Long-term debt” line on our consolidated balance sheet.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 10-Guarantees
At December 31, 2021, we were liable for
certain contingent obligations
under various contractual arrangements
as described below.
We recognize a liability,
at inception, for the fair value
of our obligation as a guarantor
for
newly issued or modified guarantees.
Unless the carrying amount of the liability is noted below,
we have not
recognized a liability because the
fair value of the obligation
is immaterial.
In addition, unless otherwise stated, we
are not currently performing with any
significance under the guarantee and expect
future performance to be
either immaterial or have only a remote
chance of occurrence.
APLNG Guarantees
At December 31, 2021, we had outstanding
multiple guarantees in connection with our
37.5
percent ownership
interest in APLNG.
The following is a description of the guarantees
with values calculated utilizing December 2021
exchange rates:
●
During the third quarter of 2016, we issued a guarantee
to facilitate the withdrawal
of our pro-rata
portion of the funds in a project finance reserve account.
We estimate the remaining
term of this
guarantee to be
years.
Our maximum exposure under this guarantee
is approximately $
million and
may become payable if an enforcement
action is commenced by the project finance lenders
against
APLNG.
At December 31, 2021, the carrying value of this
guarantee is approximately
$
million.
●
In conjunction with our original purchase of an ownership
interest in APLNG from Origin Energy
in
October 2008, we agreed to reimburse
Origin Energy for our share of the existing
contingent liability
arising under guarantees of an existing
obligation of APLNG to deliver natural
gas under several sales
agreements.
The final guarantee expires
in the fourth quarter of 2041.
Our maximum potential liability
for future payments, or cost
of volume delivery, under
these guarantees is estimated
to be $
million
($
1.2
billion in the event of intentional
or reckless breach) and would become payable
if APLNG fails to
meet its obligations under these agreements
and the obligations cannot otherwise be mitigated.
Future
payments are considered unlikely,
as the payments, or cost of volume delivery,
would only be triggered if
APLNG does not have enough natural
gas to meet these sales commitments and
if the co-ventures do not
make necessary equity contributions
into APLNG.
●
We have guaranteed
the performance of APLNG with regard
to certain other contracts
executed in
connection with the project’s continued
development.
The guarantees have
remaining terms of
15 to 24
years
or the life of the venture.
Our maximum potential amount of future payments
related to these
guarantees is approximately
$
million and would become payable
if APLNG does not perform.
At
December 31, 2021, the carrying value of these guarantees
was approximately $
million.
Other Guarantees
We have other guarantees
with maximum future potential payment
amounts totaling approximately
$
million,
which consist primarily of guarantees
of the residual value of leased office buildings, guarantees
of the residual
value of corporate aircraft,
and a guarantee for our portion
of a joint venture’s
project finance reserve accounts.
These guarantees have remaining
terms of
one to five years
and would become payable if certain asset
values are
lower than guaranteed amounts
at the end of the lease or contract term, business
conditions decline at
guaranteed entities, or as a result
of nonperformance of contractual
terms by guaranteed parties.
At
December 31, 2021, the carrying value of these guarantees
was approximately $
million.
Indemnifications
Over the years, we have entered
into agreements to sell ownership
interests in certain legal
entities, joint ventures
and assets that gave rise to
qualifying indemnifications.
These agreements include indemnifications for
taxes and
environmental liabilities.
The carrying amount recorded for
these indemnifications at December 31, 2021, was
approximately $
million.
Those related to environmental
issues have terms that are generally
indefinite and the
maximum amounts
of future payments are generally
unlimited.
Although it is reasonably possible future
payments may exceed
amounts recorded, due to
the nature of the indemnifications, it is not possible to
make a
reasonable estimate of the maximum potential
amount of future payments.
See Note 11
for additional
information about environmental
liabilities.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 11-Contingencies and Commitments
A number of lawsuits involving a variety
of claims arising in the ordinary course of business
have been filed against
ConocoPhillips.
We also may be required
to remove or mitigate
the effects on the environment
of the placement,
storage, disposal or release of
certain chemical, mineral and petroleum
substances at various
active and inactive
sites.
We regularly assess the need for accounting
recognition or disclosure of these contingencies.
In the case of
all known contingencies (other than those related
to income taxes), we accrue
a liability when the loss is probable
and the amount is reasonably estimable.
If a range of amounts can be reasonably
estimated and no amount within
the range is a better estimate
than any other amount, then the low end of the range
is accrued.
We do not reduce
these liabilities for potential insurance
or third-party recoveries.
We accrue receivables for
insurance or other
third-party recoveries when applicable.
With respect to income tax-related
contingencies, we use a cumulative
probability-weighted loss
accrual in cases where sustaining a tax
position is less than certain.
See Note 17
,
for
additional information about income tax
-related contingencies.
Based on currently available information,
we believe it is remote that future
costs related to known
contingent
liability exposures will exceed
current accruals by an amount that
would have a material adverse
impact on our
consolidated financial statements.
As we learn new facts concerning contingencies,
we reassess our position both
with respect to accrued liabilities and other potential
exposures.
Estimates particularly sensitive to future
changes
include contingent liabilities recorded
for environmental
remediation, tax and legal matters.
Estimated future
environmental remediation
costs are subject to change due to
such factors as the uncertain
magnitude of cleanup
costs, the unknown time and extent of such
remedial actions that may be required,
and the determination of our
liability in proportion to that of other responsible
parties.
Estimated future costs
related to tax and legal
matters
are subject to change as events
evolve and as additional information
becomes available during the administrative
and litigation processes.
Environmental
We are subject to international,
federal, state and
local environmental laws
and regulations and record
accruals for
environmental liabilities based on
management’s best estimates
.
These estimates are based on currently
available
facts, existing technology,
and presently enacted laws and regulations,
taking into account stakeholder
and
business considerations.
When measuring environmental liabilities,
we also consider our prior experience in
remediation of contaminated
sites, other companies’ cleanup experience, and data
released by the U.S. EPA
or
other organizations.
We consider unasserted claims in our determination
of environmental liabilities,
and we
accrue them in the period they are both probable and
reasonably estimable.
Although liability of those potentially responsible
for environmental remediation
costs is generally joint and
several for federal
sites and frequently so for other
sites, we are usually only one of many companies
cited at a
particular site.
Due to the joint and several liabilities, we could
be responsible for all cleanup costs related
to any
site at which we have been designated
as a potentially responsible party.
We have been successful to
date in
sharing cleanup costs with other financially sound
companies.
Many of the sites at which we are potentially
responsible are still under investigation
by the EPA or
the agency concerned.
Prior to actual cleanup, those
potentially responsible normally assess the
site conditions, apportion responsibility and determine
the appropriate
remediation.
In some instances, we may have
no liability or may attain a settlement
of liability.
Where it appears
that other potentially responsible parties may
be financially unable to bear their proportional share,
we consider
this inability in estimating our potential liability,
and we adjust our accruals accordingly.
As a result of various
acquisitions in the past, we assumed certain environmental
obligations.
Some of these environmental obligations
are mitigated by indemnifications
made by others for our benefit, and some of the indemnifications
are subject to
dollar limits and time limits.
We are currently participating
in environmental assessments
and cleanups at numerous federal
Superfund and
comparable state and
international sites.
After an assessment of environmental
exposures for cleanup and other
costs, we make accruals on an
undiscounted basis (except
those acquired in a purchase business combination,
which we record on a discounted
basis) for planned investigation
and remediation activities for sites where
it is
probable future costs will be incurred
and these costs can be reasonably estimated.
We have not reduced
these
accruals for possible insurance recoveries.
In the future, we may be involved
in additional environmental
assessments, cleanups and proceedings.
See
Note 8
,
for a summary of our accrued environmental
liabilities.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Litigation and Other Contingencies
We are subject to various
lawsuits and claims including but not limited to matters
involving oil and gas royalty
and
severance tax payments,
gas measurement and valuation
methods, contract disputes,
environmental damages,
climate change, personal injury,
and property damage.
Our primary exposures for such matters
relate to alleged
royalty and tax underpayments
on certain federal, state
and privately owned properties,
claims of alleged
environmental contamination
and damages from historic operations
,
and climate change.
We will continue to
defend ourselves vigorously
in these matters.
Our legal organization
applies its knowledge, experience and professional
judgment to the specific characteristics
of our cases, employing a litigation management
process to manage and monitor the legal
proceedings against us.
Our process facilitates the
early evaluation and quantification
of potential exposures in individual cases.
This
process also enables us to track those
cases that have been scheduled for
trial and/or mediation.
Based on
professional judgment and experience
in using these litigation management
tools and available information
about
current developments in all our cases,
our legal organization regularly
assesses the adequacy of current accruals
and determines if adjustment of existing
accruals, or establishment of new accruals, is
required.
We have contingent
liabilities resulting from throughput agreements
with pipeline and processing companies not
associated with financing arrangements.
Under these agreements, we may be required
to provide any such
company with additional funds through
advances and penalties for fees related
to throughput capacity not utilized.
In addition, at December 31, 2021, we had performance
obligations secured by letters
of credit of $
million (issued as direct bank letters of credit)
related to various
purchase commitments for materials,
supplies,
commercial activities and services incident to the ordinary
conduct of business.
In 2007, ConocoPhillips was unable to reach
agreement with respect to the empresa
mixta structure mandated
by
the Venezuelan government’s
Nationalization Decree.
As a result, Venezuela’s
national oil company,
Petróleos de
Venezuela, S.A. (PDVSA),
or its affiliates, directly assumed control
over ConocoPhillips’ interests
in the Petrozuata
and Hamaca heavy oil ventures and
the offshore Corocoro development
project.
In response to this expropriation,
ConocoPhillips initiated international
arbitration on November 2, 2007, with the ICSID.
On September 3, 2013, an
ICSID arbitration tribunal held that Venezuela
unlawfully expropriated ConocoPhillips’
significant oil investments in
June 2007.
On January 17, 2017, the Tribunal reconfirmed
the decision that the expropriation
was unlawful.
In
March 2019, the Tribunal unanimously
ordered the government of Venezuela
to pay ConocoPhillips approximately
$
8.7
billion in compensation for the government’s
unlawful expropriation of the company’s
investments in
Venezuela in 2007.
On August 29, 2019, the ICSID Tribunal
issued a decision rectifying the award and
reducing it
by approximately $
million.
The award now stands at
$
8.5
billion plus interest.
The government of Venezuela
sought annulment of the award,
which automatically stayed
enforcement of the award.
On September 29, 2021,
the ICSID annulment committee lifted the
stay of enforcement
of the award.
The annulment proceedings have
been suspended as a result of Venezuela’s
non-payment of advances
to cover the costs of these proceedings.
In 2014, ConocoPhillips filed a separate
and independent arbitration under the rules
of the ICC against PDVSA
under the contracts that had established
the Petrozuata
and Hamaca projects.
The ICC Tribunal issued
an award in
April 2018, finding that PDVSA owed ConocoPhillips
approximately $
billion under their agreements in connection
with the expropriation of the projects
and other pre-expropriation fiscal
measures.
In August 2018, ConocoPhillips
entered into a settlement with PDVSA to recover the full amount of this ICC award, plus interest through the
payment period, including initial payments totaling approximately $500 million within a period of 90 days from the
time of signing of the settlement agreement. The balance of the settlement is to be paid quarterly over a period of
four and a half years.
Per the settlement, PDVSA recognized
the ICC award as a judgment in various
jurisdictions,
and ConocoPhillips agreed to suspend
its legal enforcement actions.
ConocoPhillips sent notices of default to
PDVSA on October 14 and November 12, 2019, and
to date PDVSA has failed to
cure its breach.
As a result,
ConocoPhillips has resumed legal enforcement
actions.
To date,
ConocoPhillips has received approximately
$
million in connection with the ICC award.
ConocoPhillips has ensured that
the settlement and any actions taken
in
enforcement thereof meet all
appropriate U.S. regulatory
requirements, including those related
to any applicable
sanctions imposed by the U.S. against
Venezuela.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
In 2016, ConocoPhillips filed a separate
and independent arbitration under the rules
of the ICC against PDVSA
under the contracts that had established
the Corocoro Project.
On August 2, 2019, the ICC Tribunal
awarded
ConocoPhillips approximately
$
million plus interest under the Corocoro
contracts.
ConocoPhillips is seeking
recognition and enforcement
of the award in various jurisdictions.
ConocoPhillips has ensured that all the actions
related to the award meet
all appropriate U.S. regulatory
requirements, including those related
to any applicable
sanctions imposed by the U.S. against
Venezuela.
The Office of Natural Resources
Revenue (ONRR) has conducted audits
of ConocoPhillips’ payment of royalties
on
federal lands and has issued multiple orders
to pay additional royalties
to the federal government.
ConocoPhillips
and the ONRR entered into a settlement
agreement on March 23, 2021, to resolve
the dispute.
All orders and
associated appeals have been withdrawn
with prejudice.
Beginning in 2017, governmental and
other entities in several states
in the U.S. have filed lawsuits against
oil and
gas companies, including ConocoPhillips,
seeking compensatory damages and equitable relief
to abate alleged
climate change impacts.
Additional lawsuits with similar allegations
are expected to be filed.
The amounts
claimed by plaintiffs are unspecified and
the legal and factual issues involved
in these cases are unprecedented.
ConocoPhillips believes these lawsuits are
factually and legally meritless and are
an inappropriate vehicle to
address the challenges associated with climate
change and will vigorously defend
against such lawsuits.
Several Louisiana parishes and the State
of Louisiana have filed
lawsuits under Louisiana’s
State and Local
Coastal Resources Management
Act (SLCRMA) against oil and gas
companies, including ConocoPhillips, seeking
compensatory damages for contamination
and erosion of the Louisiana coastline allegedly
caused by historical oil
and gas operations.
ConocoPhillips entities are defendants
in
of the lawsuits and will vigorously defend
against
them.
Because Plaintiffs’ SLCRMA theories are
unprecedented, there is uncertainty
about these claims (both as to
scope and damages) and we continue to
evaluate our exposure in these lawsuits
.
In October 2020, the Bureau of Safety and
Environmental Enforcement
(BSEE) ordered the prior owners of Outer
Continental Shelf (OCS) Lease P-0166,
including ConocoPhillips, to decommission
the lease facilities, including two
offshore platforms located
near Carpinteria, California.
This order was sent after the current
owner of OCS Lease
P-0166 relinquished the lease and
abandoned the lease platforms and facilities.
BSEE’s order to
ConocoPhillips is
premised on its connection to Phillips Petroleum
Company,
a legacy company of ConocoPhillips,
which held a
historical
percent interest in this
lease and operated these facilities, but
sold its interest approximately
years
ago.
ConocoPhillips continues to evaluate
our exposure in these lawsuits.
On May 10, 2021, ConocoPhillips filed arbitration
under the rules of the Singapore International
Arbitration Centre
(SIAC) against Santos KOTN
Pty Ltd. and Santos Limited for
their failure to timely pay the $
million bonus due
upon FID of the Barossa development project
under the sale and purchase agreement.
Santos KOTN
Pty Ltd. and
Santos Limited have filed a response
and counterclaim, and the arbitration
is underway.
In July 2021, a federal securities class action
was filed against Concho, certain
of Concho’s officers,
and
ConocoPhillips as Concho’s
successor in the United States District Court
for the Southern District of Texas.
On
October 21, 2021, the court issued an order appointing
Utah Retirement Systems
and the Construction Laborers
Pension Trust
for Southern California as lead plaintiffs
(Lead Plaintiffs).
On January 7, 2022, the Lead Plaintiffs filed
their consolidated complaint alleging that
Concho made materially false and misleading
statements regarding
its
business and operations in violation of the federal
securities laws and seeking unspecified damages, attorneys’
fees, costs, equitable/injunctive
relief, and such
other relief that may be deemed appropriate.
We believe the
allegations in the action are without merit, and we
intend to vigorously defend
this litigation.
Long-Term Throughput
Agreements and Take
-or-Pay Agreements
We have certain throughput
agreements and take-or-pay
agreements in support of financing arrangements.
The
agreements typically provide for
natural gas or crude oil transportation
to be used in the ordinary course of
business.
The aggregate amounts of estimated
payments under these various agreements
are: 2022-$
million;
2023-$
million; 2024-$
million; 2025-$
million; 2026-$
million; and 2027 and after-$
million.
Total
payments under the agreements were
$
million in 2021, $
million in 2020 and $
million in 2019.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 12-Derivative and Financial Instruments
We use futures, forwards,
swaps and options in various markets
to meet our customer needs, capture
market
opportunities, and manage foreign exchange
currency risk.
Commodity Derivative Instruments
Our commodity business primarily consists of natural
gas, crude oil, bitumen, LNG and NGLs.
Commodity derivative instruments
are held at fair value on our consolidated
balance sheet.
Where these balances
have the right of setoff,
they are presented on a net basis.
Related cash flows are recorded
as operating activities
on our consolidated statement
of cash flows.
On our consolidated income statement,
gains and losses are
recognized either on a gross
basis if directly related to our physical
business or a net basis if held for trading.
Gains
and losses related to contracts
that meet and are designated with the NPNS exception
are recognized upon
settlement.
We generally apply this
exception to eligible crude contracts
and certain gas contracts.
We do not
apply hedge accounting for our commodity
derivatives.
The following table presents the gross
fair values of our commodity derivatives,
excluding collateral,
and the line
items where they appear on our consolidated
balance sheet:
Millions of Dollars
Assets
Prepaid expenses and other current
assets
$
1,168
Other assets
Liabilities
Other accruals
1,160
Other liabilities and deferred credits
The gains (losses) from commodity derivatives
incurred, and the line items where they appear on our
consolidated
income statement were:
Millions of Dollars
Sales and other operating revenues
$
(228)
Other income (loss)
Purchased commodities
(118)
On January 15, 2021, we assumed financial derivative instruments
consisting of oil and natural gas
swaps in
connection with the acquisition of Concho.
At the acquisition date, the financial derivative
instruments acquired
were recognized at fair
value as a net liability of $
million with settlement dates under the contracts
through
December 31, 2022.
During 2021, we recognized a loss
on settlement of the contracts for
$
million.
This loss
associated with the acquired financial instruments
is recorded within the “Sales and other operating
revenues” line
on our consolidated income statement.
In connection with the settlement, we issued
a cash payment of $
million during 2021.
Cash settlements related to
the derivative contracts
are presented within “Cash Flows From
Operating Activities” on our consolidated
statement of cash flows.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The table below summarizes our material
net exposures resulting from
outstanding commodity derivative
contracts:
Open Position
Long/(Short)
Commodity
Natural gas and power (billions
of cubic feet equivalent)
Fixed price
(20)
Basis
(22)
(10)
Foreign Currency Exchange
Derivatives
We have foreign
currency exchange rate
risk resulting from international
operations.
Our foreign currency
exchange derivative activity
primarily relates to managing our cash
-related foreign currency
exchange rate
exposures, such as firm commitments for
capital programs or local currency
tax payments, dividends and
cash
returns from net investments
in foreign affiliates, and
investments in equity securities.
Our foreign currency exchange
derivative instruments are
held at fair value on our consolidated
balance sheet.
Related cash flows are included
within operating activities on our consolidated
statement of cash flows.
We do
not elect hedge accounting on our foreign
currency exchange derivatives.
The following table presents the gross
fair values of our foreign currency
exchange derivatives,
excluding
collateral, and the line items where
they appear on our consolidated balance
sheet:
Millions of Dollars
Assets
Prepaid expenses and other current
assets
$
Liabilities
Other accruals
The (gains) losses from foreign
currency exchange derivatives
incurred and the line item where they appear
on our consolidated income statement
were:
Millions of Dollars
Foreign currency transaction
(gains) losses
$
(5)
(40)
We had the following net notional
position of outstanding foreign currency
exchange derivatives:
In Millions
Notional Currency
Foreign Currency Exchange
Derivatives
Buy British pound, sell euro
GBP
-
Sell British pound, buy euro
GBP
-
Sell Canadian dollar,
buy U.S. dollar
CAD
-
Buy Canadian dollar,
sell U.S. dollar
CAD
-
Buy Australian dollar,
sell U.S. dollar
AUD
1,850
-
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
At December 31, 2021, we had outstanding foreign currency exchange forward contracts to buy $1.9 billion AUD at
$0.715 AUD against the U.S. dollar in anticipation of our future acquisition of an additional interest in APLNG. At
December 31, 2020, we had outstanding foreign currency exchange forward contracts to sell $0.45 billion CAD at
$0.748 CAD against the U.S. dollar
.
Financial Instruments
We invest in financial
instruments with maturities based on our cash
forecasts for the various
accounts and
currency pools we manage.
The types of financial instruments in which we currently
invest include:
●
Time deposits: Interest bearing deposits
placed with financial institutions for a predetermined
amount of
time.
●
Demand deposits:
Interest bearing deposits placed with financial
institutions.
Deposited funds can be
withdrawn without notice.
●
Commercial paper: Unsecured promissory
notes issued by a corporation, commercial
bank or government
agency purchased at a discount to
mature at par.
●
U.S. government or government
agency obligations: Securities issued by the U.S.
government or U.S.
government agencies.
●
Foreign government obligations:
Securities issued by foreign governments.
●
Corporate bonds:
Unsecured debt securities issued by corporations.
●
Asset-backed securities: Collateralized
debt securities.
The following investments
are carried on our consolidated
balance sheet at cost, plus accrued interest
and the
table reflects remaining maturities
at December 31, 2021 and 2020:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
Investments
Investments and Long-
Term Receivables
Cash
$
Demand Deposits
1,554
1,133
Time Deposits
1 to 90 days
2,363
1,225
2,859
91 to 180 days
Within one year
One year through five years
-
U.S. Government Obligations
1 to 90 days
-
-
$
5,018
2,978
3,320
-
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following investments
in debt securities classified as available for
sale are carried at fair value on
our
consolidated balance sheet at December 31, 2021 and
2020:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
Investments
Investments and Long-
Term Receivables
Major Security Type
Corporate Bonds
$
-
Commercial Paper
U.S. Government Obligations
-
-
-
U.S. Government Agency
Obligations
-
Foreign Government Obligations
-
Asset-backed Securities
-
$
Cash and Cash Equivalents and Short-Term
Investments have
remaining maturities within one year.
Investments and Long-Term
Receivables have remaining
maturities that vary from greater
than one year through
eight years.
The following table summarizes the
amortized cost basis and fair value
of investments in debt securities classified
as available for sale at December 31:
Millions of Dollars
Amortized Cost Basis
Fair Value
Major Security Type
Corporate Bonds
$
Commercial Paper
U.S. Government Obligations
U.S. Government Agency Obligations
Foreign Government Obligations
Asset-Backed Securities
$
As of December 31, 2021 and 2020, total unrealized
losses for debt securities classified as available
for sale with
net losses were negligible.
Additionally,
as of December 31, 2021 and 2020, investments in these
debt securities in
an unrealized loss position for which an
allowance for credit losses has not been
recorded were negligible.
For the years
ended December 31, 2021 and 2020, proceeds from sales and
redemptions of investments
in debt
securities classified as available for sale were
$
million and $
million, respectively.
Gross realized gains and
losses included in earnings from those sales and redemptions
were negligible.
The cost of securities sold and
redeemed is determined using the specific identification
method.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Credit Risk
Financial instruments potentially exposed
to concentrations of credit
risk consist primarily of cash equivalents,
short-term investments, long-term
investments in debt securities,
OTC derivative contracts
and trade receivables.
Our cash equivalents and short-term
investments are placed
in high-quality commercial paper,
government money
market funds, U.S. government
and government agency obligations,
time deposits with major international banks
and financial institutions, high-quality corporate
bonds, foreign government obligations
and asset-backed
securities.
Our long-term investments in debt
securities are placed in high-quality corporate
bonds, asset-backed
securities, U.S. government and government
agency obligations, foreign
government obligations, and
time
deposits with major international banks
and financial institutions.
The credit risk from our OTC derivative
contracts, such as forwards,
swaps and options, derives from the
counterparty to the transaction.
Individual counterparty exposure is
managed within predetermined credit limits
and includes the use of cash-call margins when appropriate,
thereby reducing the risk of significant
nonperformance.
We also use futures, swaps
and option contracts that have
a negligible credit risk because these
trades are cleared primarily with an
exchange clearinghouse and subject to
mandatory margin requirements until
settled; however,
we are exposed to the credit risk
of those exchange brokers
for receivables arising from
daily
margin cash calls, as well as for cash
deposited to meet initial margin requirements.
Our trade receivables result primarily
from our petroleum operations
and reflect a broad national and
international customer base, which limits
our exposure to concentrations
of credit risk.
The majority of these
receivables have payment
terms of
30 days or less
, and we continually monitor this exposure
and the
creditworthiness of the counterparties.
We may require collateral
to limit the exposure to loss including,
letters of
credit, prepayments and surety
bonds, as well as master netting arrangements
to mitigate credit risk with
counterparties that both buy from and
sell to us, as these agreements permit the amounts
owed by us or owed to
others to be offset against
amounts due to us.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure
exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable
threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for
lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below
investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of
credit as collateral, such as transactions administered through the New York Mercantile Exchange.
The aggregate fair value
of all derivative instruments with such credit
risk-related contingent
features that were in
a liability position on December 31, 2021 and December 31, 2020, was $
million and $
million, respectively.
For these instruments,
no
collateral was posted as
of December 31, 2021 or December 31, 2020.
If our credit
rating had been downgraded below investment
grade on December 31, 2021, we would
have been required to
post $
million of additional collateral, either with cash
or letters of credit.
Note 13-Fair Value
Measurement
We carry a portion of our assets and liabilities at
fair value that are measured at
the reporting date using an exit
price (i.e., the price that would be received to sell an
asset or paid to transfer
a liability) and disclosed according to
the quality of valuation inputs under the fair value
hierarchy.
The classification of an asset or liability is based on the lowest
level of input significant to its fair value.
Those that
are initially classified as Level 3 are subsequently
reported as Level 2 when the fair value derived
from unobservable
inputs is inconsequential to the overall
fair value, or if corroborated
market data becomes available.
Assets and
liabilities initially reported as Level 2 are subsequently
reported as Level 3 if corroborated
market data is no longer
available.
There were no material transfers
into or out of Level 3 during 2021 or 2020.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Recurring Fair Value
Measurement
Financial assets and liabilities reported at fair
value on a recurring basis primarily include our investment
in CVE
common shares, our investment
s
in debt securities classified as available for
sale, and commodity derivatives.
●
Level 1 derivative assets and
liabilities primarily represent exchange
-traded futures and options that
are
valued using unadjusted prices available
from the underlying exchange.
Level 1 also includes our investment
in common shares of CVE, which is valued using
quotes for shares on the NYSE, and
our investments in U.S.
government obligations classified
as available for sale debt securities,
which are valued using exchange
prices.
●
Level 2 derivative assets and
liabilities primarily represent OTC
swaps, options and forward
purchase and sale
contracts that are valued
using adjusted exchange prices,
prices provided by brokers
or pricing service
companies that are all corroborated
by market data.
Level 2 also includes our investments
in debt securities
classified as available for sale including
investments in corporate
bonds, commercial paper,
asset-backed
securities, U.S. government agency obligations
and foreign government obligations
that are valued using
pricing provided by brokers
or pricing service companies that are corroborated
with market data.
●
Level 3 derivative assets and
liabilities consist of OTC swaps,
options and forward purchase and
sale contracts
where a significant portion of fair value
is calculated from underlying market
data that is not readily available.
The derived value uses industry standard
methodologies that may consider the historical
relationships among
various commodities, modeled market
prices, time value, volatility factors
and other relevant economic
measures.
The use of these inputs results in management’s
best estimate of fair value.
Level 3 activity was
not material for all periods presented.
The following table summarizes the
fair value hierarchy
for gross financial assets and liabilities (i.e., unadjusted
where the right of setoff exists
for commodity derivatives accounted
for at fair value on a recurring
basis):
Millions of Dollars
December 31, 2021
December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investment in Cenovus Energy
$
1,117
-
-
1,117
1,256
-
-
1,256
Investments in debt securities
-
-
Commodity derivatives
1,243
Total
assets
$
1,681
1,096
2,839
1,415
2,029
Liabilities
Commodity derivatives
$
1,223
Total
liabilities
$
1,223
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table summarizes those
commodity derivative balances subject to
the right of setoff as
presented on our consolidated
balance sheet.
We have elected to
offset the recognized fair
value amounts for
multiple derivative instruments
executed with the same counterparty
in our financial statements when a legal
right of setoff exists.
Millions of Dollars
Amounts Subject to Right of Setoff
Gross
Amounts Not
Gross
Net
Amounts
Subject to
Gross
Amounts
Amounts
Cash
Net
Recognized
Right of Setoff
Amounts
Offset
Presented
Collateral
Amounts
December 31, 2021
Assets
$
1,243
1,158
-
Liabilities
1,223
1,141
December 31, 2020
Assets
$
Liabilities
At December 31, 2021 and December 31, 2020, we did not present
any amounts gross on our consolidated
balance sheet where we had the right of setoff.
Non-Recurring Fair Value
Measurement
The following table summarizes the
fair value hierarchy
by major category and date of remeasurement
for assets
accounted for at fair value
on a non-recurring basis:
Millions of Dollars
Fair Value Measurements
Using
Fair Value
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Before-Tax
Loss
Year ended
December 31, 2021
Net PP&E (held for use)
December 31, 2021
$
-
-
Equity Method Investments
December 31, 2021
5,574
-
5,574
-
Year ended December 31,
Net PP&E (held for use)
March 31, 2020
$
-
-
December 31, 2020
-
-
Net PP&E (held for use)
During 2021 and 2020, the estimated fair value
of certain noncore assets included
in our Lower 48 segment
declined to amounts below the carrying values.
The carrying values were written down
to fair value.
The fair
values were estimated based
on internal discounted cash
flow models using the following estimated assumptions:
estimated future production,
an outlook of future prices from a combination
of exchanges (short-term) coupled
with pricing service companies and our internal outlook
(long-term), future operating costs
and capital
expenditures, and a discount rate
believed to be consistent with
those used by principal market participants.
The
range and arithmetic average
of significant unobservable inputs used in the Level
3 fair value measurements for
significant assets were as follows:
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
(Arithmetic Average)
December 31, 2021
Lower 48 Gulf Coast and
Rockies noncore field
$
Discounted
cash flow
Commodity production
(MBOED)
0.2
-
(
5.4
)
Commodity price outlook*
($/BOE)
$
41.45
- $
93.68
($
64.39
)
Discount rate**
7.3
%
-
9.7
% (
8.7
%)
*Commodity price outlook based on a combination of external
pricing service companies' and our internal
outlook for years 2024-2050; future prices escalated
at
2.0
% annually after year 2050.
**Determined as the weighted average cost
of capital of a group of peer companies,
adjusted for risks where appropriate.
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
(Arithmetic Average)
March 31, 2020
Wind River Basin
$
Discounted
cash flow
Natural gas production
(MMCFD)
8.4
-
55.2
(
22.9
)
Natural gas price outlook*
($/MMBTU)
$
2.67
- $
9.17
($
5.68
)
Discount rate**
7.9
% -
9.1
% (
8.3
%)
*Henry Hub natural gas price outlook based on a combination
of external pricing service companies' outlooks
for years 2022-2034; future prices escalated
at
2.2
%
annually after year 2034.
**Determined as the weighted average cost
of capital of a group of peer companies,
adjusted for risks where appropriate.
Fair Value
(Millions of
Dollars)
Valuation
Technique
Unobservable Inputs
Range
(Arithmetic Average)
December 31, 2020
Central Basin Platform
$
Discounted
cash flow
Commodity production
(MBOED)
0.5
-
12.7
(
3.4
)
Commodity price outlook*
($/BOE)
$
37.35
- $
115.29
($
73.80
)
Discount rate**
6.8
% -
7.7
% (
7.4
%)
*Commodity price outlook based on a combination of external
pricing service companies' and our internal
outlook for years 2023-2050; future prices escalated
at
2.0
% annually after year 2050.
**Determined as the weighted average cost
of capital of a group of peer companies,
adjusted for risks where appropriate.
Equity Method Investments
During the fourth quarter of 2021, Origin Energy Limited
agreed to the sale of
percent of their interest in
APLNG
for $
1.645
billion, before customary
adjustments.
ConocoPhillips announced in December 2021 that we were
exercising our preemption
right under the APLNG Shareholders Agreement
to purchase an additional 10 percent
shareholding interest in APLNG, subject
to government approvals.
The sales price associated with this preemption
right was determined to reflect
a relevant observable market
participant view of APLNG’s
fair value which was
below the carrying value of our existing
investment in APLNG.
As such, our investment in APLNG was
written
down to its fair value of $
5,574
million, resulting in a before-tax
charge of $
million.
See Note 4
and
Note 7
.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Reported Fair Values
of Financial Instruments
We used the following methods
and assumptions to estimate the fair value
of financial instruments:
●
Cash and cash equivalents and short-term investments:
The carrying amount reported on the balance
sheet approximates fair
value.
For those investments classified as
available for sale debt securities,
the
carrying amount reported on the balance sheet
is fair value.
●
Accounts and notes receivable (including
long-term and related parties): The carrying
amount reported on
the balance sheet approximates
fair value.
The valuation technique and methods
used to estimate the
fair value of the current portion of fixed
-rate related party
loans is consistent with Loans and advances-
related parties.
●
Investment in Cenovus Energy:
See Note 5
for a discussion of the carrying value and fair
value of our
investment in CVE common shares.
●
Investments in debt securities classified
as available for sale: The fair value
of investments in debt
securities categorized as Level
1 in the fair value hierarchy
is measured using exchange prices.
The fair
value of investments in debt
securities categorized as Level 2 in
the fair value hierarchy
is measured using
pricing provided by brokers
or pricing service companies that are corroborate
d
with market data.
See
Note
.
●
Loans and advances-related parties: The carrying
amount of floating-rate loans
approximates fair value.
The fair value of fixed-rate
loan activity is measured using market
observable data and is categorized
as
Level 2 in the fair value hierarchy.
See Note
.
●
Accounts payable (including related
parties) and floating-rate debt:
The carrying amount of accounts
payable and floating-rate
debt reported on the balance sheet approximates
fair value.
●
Fixed-rate debt: The estimated
fair value of fixed-rate
debt is measured using prices available from
a
pricing service that is corroborated
by market data; therefore,
these liabilities are categorized
as Level 2 in
the fair value hierarchy.
●
Commercial paper: The carrying amount of our commercial
paper instruments approximates
fair value
and is reported on the balance sheet as short-term
debt
.
The following table summarizes the
net fair value of financial instruments
(i.e., adjusted where the right of setoff
exists for commodity derivatives):
Millions of Dollars
Carrying Amount
Fair Value
Financial assets
Investment in CVE common shares
$
1,117
1,256
1,117
1,256
Commodity derivatives
Investments in debt securities
Loans and advances-related parties
Financial liabilities
Total
debt, excluding finance leases
18,673
14,478
22,451
19,106
Commodity derivatives
Commodity Derivatives
At December 31, 2021, commodity derivative
assets and liabilities are presented net with
no
obligation to return
cash collateral and $
million of rights to reclaim cash collateral,
respectively.
At December 31, 2020, commodity
derivative assets and liabilities are presented
net with $
million in obligations to return
cash collateral and
$
million of rights to reclaim cash collateral,
respectively.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 14-Equity
Common Stock
The changes in our shares of common stock,
as categorized in the equity section
of the balance sheet, were:
Shares
Issued
Beginning of year
1,798,844,267
1,795,652,203
1,791,637,434
Acquisition of Concho
285,928,872
-
-
Distributed under benefit plans
6,789,608
3,192,064
4,014,769
End of year
2,091,562,747
1,798,844,267
1,795,652,203
Held in Treasury
Beginning of year
730,802,089
710,783,814
653,288,213
Repurchase of common stock
58,517,786
20,018,275
57,495,601
End of year
789,319,875
730,802,089
710,783,814
Preferred Stock
We have authorized
million shares of preferred
stock, par value $
0.01
per share,
none
of which was issued or
outstanding at December 31, 2021 or 2020.
Noncontrolling Interests
In the second quarter of 2020, we completed the divestiture
of our subsidiaries that held our Australia
-West assets
and operations.
These assets included the Darwin LNG and Bayu-Darwin Pipeline operating
joint ventures in which
there was a noncontrolling interest.
As a result, as of December 31, 2021 and 2020, we had no
noncontrolling
interests.
Repurchase of Common Stock
In late 2016, we initiated our current
share repurchase program,
which has a current total program
authorization
of $
billion of our common stock.
In May 2021, we began a paced monetization
of our CVE common shares, the
proceeds of which have been applied to
share repurchases.
Share repurchases since inception of our current
program totaled
million shares at a cost of $
billion through the end of December 2021.
Note 15-Non-Mineral Leases
The company primarily leases office buildings
and drilling equipment, as well as ocean transport
vessels, tugboats,
corporate aircraft,
and other facilities and equipment.
Certain leases include escalation clauses for
adjusting rental
payments to reflect changes in
price indices and other leases include payment provisions
that vary based on the
nature of usage of the leased asset.
Additionally, the company
has executed certain leases that
provide it with the
option to extend or renew the term of
the lease, terminate the lease prior to the end
of the lease term, or
purchase the leased asset as of the end of the lease term.
In other cases, the company has executed
lease
agreements that require it to
guarantee the residual value
of certain leased office buildings.
For additional
information about guarantees,
see Note 10
.
There are no significant restrictions
imposed on us by the lease
agreements with regard to
dividends, asset dispositions or borrowing ability.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Certain arrangements may
contain both lease and non-lease components
and we determine if an arrangement
is
or contains a lease at contract
inception.
We adopted the provisions
of FASB ASU No. 2016-02, “Leases” (ASC
Topic 842) and
its amendments, beginning January 1, 2019.
This ASU superseded the requirements in
FASB ASC
Topic 840 “Leases”
(ASC Topic
840).
Only the lease components of these contractual
arrangements are subject to
the provisions of ASC Topic
842, and any non-lease components
are subject to other applicable accounting
guidance; however,
we have elected to adopt
the optional practical expedient not to
separate lease components
apart from non-lease components for
accounting purposes.
This policy election has been adopted for each of the
company’s leased asset
classes existing as of the effective date
and subject to the transition provisions
of ASC
Topic 842 and will be applied
to all new or modified leases executed on
or after January 1, 2019.
For contractual
arrangements executed
in subsequent periods involving
a new leased asset class, the company will determine
at
contract inception whether it will apply
the optional practical expedient to
the new leased asset class.
Leases are evaluated for classification
as operating or finance leases at the commencement
date of the lease and
right-of-use assets and corresponding
liabilities are recognized on our
consolidated balance sheet based on the
present value of future lease payments
relating to the use of the underlying asset during the lease term.
Future
lease payments include variable lease payments
that depend upon an index or rate
using the index or rate at the
commencement date and probable
amounts owed under residual value
guarantees.
The amount of future lease
payments may be increased to
include additional payments related
to lease extension, termination,
and/or
purchase options when the company has
determined, at or subsequent to lease commencement,
generally due to
limited asset availability or operating
commitments, it is reasonably certain
of exercising such options.
We use our
incremental borrowing rate
as the discount rate in
determining the present value of future
lease payments, unless
the interest rate implicit in
the lease arrangement is readily
determinable.
Lease payments that vary
subsequent
to the commencement date based on future
usage levels, the nature of leased asset activities,
or certain other
contingencies are not included in the measurement
of lease right-of-use assets and corresponding
liabilities.
We
have elected not to record
assets and liabilities on our consolidated balance
sheet for lease arrangements with
terms of 12 months or less.
We often enter into
leasing arrangements acting in the capacity as
operator for and/or
on behalf of certain oil and
gas joint ventures of undivided interests.
If the lease arrangement can be legally enforced
only against us as
operator and there is no separate
arrangement to sublease the underlying
leased asset to our coventurers,
we
recognize at lease commencement
a right-of-use asset and corresponding
lease liability on our consolidated
balance sheet on a gross basis.
While we record lease costs on a
gross basis in our consolidated income statement
and statement of cash flows,
such costs are offset by the reimbursement
we receive from our coventurers
for their
share of the lease cost as the underlying leased asset
is utilized in joint venture activities.
As a result, lease cost is
presented in our consolidated
income statement and statement
of cash flows on a proportional basis.
If we are a
nonoperating coventurer,
we recognize a right-of-use asset and
corresponding lease liability only if we were a
specified contractual party to the lease arrangement
and the arrangement could be legally
enforced against us.
In
this circumstance, we would recogni
ze both the right-of-use asset
and corresponding lease liability on our
consolidated balance sheet on a proportional
basis consistent with our undivided interest
ownership in the related
joint venture.
The company has historically recorded
certain finance leases executed
by investee companies
accounted for under
the proportionate consolidation
method of accounting on its consolidated
balance sheet on a proportional basis
consistent with its ownership
interest in the investee
company.
In addition, the company has historically
recorded
finance lease assets and liabilities associated with certain
oil and gas joint ventures on a proportional
basis
pursuant to accounting guidance applicable
prior to January 1, 2019.
In accordance with the transition
provisions
of ASC Topic 842, and
since we have elected to adopt
the package of optional transition-related
practical
expedients, the historical accounting
treatment for these leases has been carried
forward and is subject to
reconsideration upon the modification
or other required reassessment
of the arrangements prior to lease term
expiration.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table summarizes the
right-of-use assets and lease liabilities for both
the operating and finance
leases on our consolidated balance sheet as of December 31:
Millions of Dollars
Operating
Leases
Finance
Leases
Operating
Leases
Finance
Leases
Right-of-Use Assets
Properties, plants and equipment
Gross
$
1,812
1,375
Accumulated DD&A
(857)
(721)
Net PP&E
*
Prepaid expenses and other current
assets
$
Other assets
Lease Liabilities
Short-term debt
**
$
Other accruals
Long-term debt
***
Other liabilities and deferred credits
Total
lease liabilities
$
1,261
*
Includes proportionately consolidated finance lease assets of $
million at December 31, 2021 and $
million at December 31, 2020.
**
Includes proportionately consolidated finance lease liabilities of $
million at December 31, 2021 and $
million at December 31, 2020.
***
Includes proportionately consolidated finance lease liabilities of $
million at December 31, 2021 and $
million at December 31,
2020.
The following table summarizes our
lease costs:
Millions of Dollars
Lease Cost
*
Operating lease cost
$
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Short-term lease cost
**
Total
lease cost
***
$
*
The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas
coventurers.
**
Short-term leases are not recorded on our consolidated balance sheet.
*** Variable lease cost and sublease income are immaterial for the periods presented and therefore are not included in the table above
.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table summarizes the
lease terms and discount rates
as of December 31:
Lease Term
and Discount Rate
Weighted-average
term (years)
Operating leases
5.97
6.11
Finance leases
7.49
7.12
Weighted-average
discount rate (percent)
Operating leases
2.66
2.78
Finance leases
3.24
4.27
The following table summarizes other
lease information:
Millions of Dollars
Other Information
*
Cash paid for amounts included in the measurement
of lease liabilities
Operating cash flows from operating
leases
$
Operating cash flows from finance
leases
Financing cash flows from finance leases
Right-of-use assets obtained
in exchange for operating
lease liabilities
$
Right-of-use assets obtained
in exchange for finance lease liabilities
*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers.
In addition, pursuant to other applicable accounting guidance, lease payments made in connection with preparing another asset for its
intended use are reported in the "Cash Flows From Investing Activities" section of our consolidated statement of cash flows.
The following table summarizes future
lease payments for operating
and finance leases at December 31, 2021:
Millions of Dollars
Operating
Leases
Finance
Leases
Maturity of Lease Liabilities
$
Remaining years
Total
*
1,450
Less: portion representing imputed
interest
(62)
(189)
Total
lease liabilities
$
1,261
*Future lease payments for operating and finance leases commencing on or after January 1, 2019, also include payments related to non-lease
components in accordance with our election to adopt the optional practical expedient not to separate lease components apart from non-lease
components for accounting purposes.
In addition, future payments related to operating and finance leases proportionately consolidated by the
company have been included in the table on a proportionate basis consistent with our respective ownership interest in the underlying investee
company or oil and gas venture.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 16-Employee Benefit Plans
Pension and Postretirement
Plans
An analysis of the projected benefit obligations
for our pension plans and accumulated benefit obligations
for
our postretirement health and life
insurance plans follows:
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
U.S.
Int’l.
Change in Benefit Obligation
Benefit obligation at January 1
$
2,548
4,403
2,319
3,880
Service cost
Interest cost
Plan participant contributions
-
-
-
Plan amendments
-
-
-
-
(30)
Actuarial (gain) loss
(117)
(176)
(16)
Benefits paid
(654)
(162)
(241)
(151)
(40)
(49)
Curtailment
-
-
-
Recognition of termination benefits
-
-
-
-
Foreign currency exchange
rate change
-
(81)
-
-
-
Benefit obligation at December 31
*
$
1,924
4,124
2,548
4,403
*Accumulated benefit obligation portion of above at
December 31:
$
1,793
3,658
2,359
4,095
Change in Fair Value
of Plan Assets
Fair value of plan assets at January
$
1,770
4,793
1,591
4,306
-
-
Actual return on plan assets
-
-
Company contributions
Plan participant contributions
-
-
Benefits paid
(654)
(162)
(241)
(151)
(40)
(49)
Foreign currency exchange
rate change
-
(86)
-
-
-
Fair value of plan assets at December 31
$
1,664
4,812
1,770
4,793
-
-
Funded Status
$
(260)
(778)
(137)
(170)
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
U.S.
Int’l.
Amounts Recognized in the
Consolidated Balance Sheet at
December 31
Noncurrent assets
$
-
-
-
Current liabilities
(29)
(15)
(56)
(11)
(34)
(39)
Noncurrent liabilities
(232)
(288)
(722)
(345)
(103)
(131)
Total
recognized
$
(260)
(778)
(137)
(170)
Weighted-Average
Assumptions Used to
Determine Benefit Obligations at
December 31
Discount rate
2.80
%
2.15
2.30
1.80
2.65
2.15
Rate of compensation increase
4.00
3.40
4.00
3.10
Interest crediting rate
for applicable benefits
2.50
2.10
Weighted-Average
Assumptions Used to
Determine Net Periodic Benefit Cost
for
Years Ended
December 31
Discount rate
2.60
%
1.80
3.05
2.35
2.35
3.10
Expected return on plan assets
5.20
2.50
5.80
3.60
Rate of compensation increase
4.00
3.40
4.00
3.35
Interest crediting rate
for applicable benefits
2.10
4.10
For both U.S. and international pension
plans, the overall expected long-term
rate of return is developed
from the
expected future return of each asset
class, weighted by the expected allocation
of pension assets to that asset
class.
We rely on a variety of independent
market forecasts
in developing the expected rate
of return for each
class of assets.
During 2021, the actuarial gains related
to the benefit obligations for
U.S. and international plans were primarily
related to an increase in the discount
rates.
During 2020 and 2019, the actuarial losses related to
the benefit
obligations for U.S. and international
plans were primarily related to a decrease
in the discount rates.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following tables summarize information
related to the Company's
pension plans with projected and
accumulated benefit obligations
in excess of the fair value of the plans'
assets:
Millions of Dollars
Pension Benefits
U.S.
Int’l.
U.S.
Int’l.
Pension Plans with Projected Benefit Obligation
in
Excess of Plan Assets
Projected benefit obligation
$
2,548
Fair value of plan assets
-
1,770
Pension Plans with Accumulated Benefit
Obligation in
Excess of Plan Assets
Accumulated benefit obligation
$
2,359
Fair value of plan assets
-
1,770
Included in accumulated other comprehensive
income (loss) at December 31 were the following
before-tax
amounts that had not been recognized
in net periodic benefit cost:
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
U.S.
Int’l.
Unrecognized net actuarial loss
(gain)
$
(1)
Unrecognized prior service cost
(credit)
-
-
-
(145)
(182)
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
U.S.
Int’l.
Sources of Change in Other
Comprehensive Income (Loss)
Net gain (loss) arising during the period
$
(83)
(120)
(7)
Amortization of actuarial loss included
in income (loss)*
-
Net change during the period
$
(99)
(6)
Prior service credit (cost) arising during the
period
$
-
-
-
(1)
-
Amortization of prior service (credit)
included in income (loss)
-
(1)
-
(1)
(37)
(31)
Net change during the period
$
-
(1)
-
(2)
(37)
(1)
*Includes settlement (gains) losses recognized in 2021 and 2020.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The components of net periodic benefit cost of all defined
benefit plans are presented in the following
table:
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
U.S.
Int’l.
U.S.
Int’l.
Components of Net
Periodic Benefit Cost
Service cost
$
Interest cost
Expected return on plan
assets
(80)
(120)
(85)
(145)
(74)
(138)
-
-
-
Amortization of prior
service credit
-
(1)
-
(1)
-
(2)
(37)
(31)
(33)
Recognized net actuarial
loss (gain)
-
(2)
Settlements loss (gain)
-
(1)
-
-
-
-
Curtailment loss
-
-
-
-
-
-
-
-
Net periodic benefit cost
$
(31)
(22)
(26)
The components of net periodic benefit cost,
other than the service cost component, are included
in the “Other
expenses” line item on our consolidated
income statement.
We recognized pension
settlement losses of $
million in 2021, $
million in 2020, and $
million in 2019 as
lump-sum benefit payments from certain
U.S. and international pension
plans exceeded the sum of service and
interest costs for
those plans and led to recognition of settlement
losses.
In determining net pension and other postretirement
benefit costs, we amortize
prior service costs on a straight-
line basis over the average
remaining service period of employees expected to
receive benefits under the plan.
For
net actuarial gains and losses, we amortize
percent of the unamortized balance each year.
We have multiple non-pension
postretirement benefit plans
for health and life insurance.
The health care plans
are contributory and subject to various
cost sharing features, with participant
and company contributions adjusted
annually; the life insurance plans
are noncontributory.
The measurement of the U.S. pre-65 retiree
medical
accumulated postretirement
benefit obligation assumes a health care
cost trend rate of
6.5
percent in 2022 that
declines to
percent by 2028.
The measurement of the U.S. post-65
retiree medical accumulated
postretirement
benefit obligation assumes a health care
cost trend rate of
4.25
percent in 2022 that increases to
percent by
2028.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Plan Assets
We follow a policy of broadly
diversifying pension plan assets across asset
classes and individual holdings.
As a
result, our plan assets have no significant
concentrations of credit risk.
Asset classes that are considered
appropriate include U.S. equities,
non-U.S. equities, U.S. fixed
income, non-U.S. fixed income, real
estate and
private equity investments.
Plan fiduciaries may consider and add other asset classes to
the investment program
from time to time.
The target allocations for
plan assets are
percent equity securities,
percent debt
securities,
percent real estate
and
percent other.
Generally,
the plan investments are publicly
traded,
therefore minimizing liquidity risk
in the portfolio.
The following is a description of the valuation
methodologies used for the pension plan assets.
There have been
no changes in the methodologies used at December 31, 2021 and
2020.
●
Fair values of equity securities and government
debt securities categorized in Level
1 are primarily based
on quoted market prices in active
markets for identical assets
and liabilities.
●
Fair values of corporate
debt securities, agency and mortgage-backed
securities and government debt
securities categorized in Level
2 are estimated using recently
executed transactions
and quoted market
prices for similar assets and liabilities in active markets
and for identical assets and liabilities in markets
that are not active.
If there have been no market transactions
in a particular fixed income security,
its fair
value is calculated by pricing models that
benchmark the security against other securities with actual
market prices.
When observable quoted market
prices are not available, fair
value is based on pricing
models that use something other than actual market
prices (e.g., observable inputs such as benchmark
yields, reported trades and issuer spreads
for similar securities), and these securities are categorized
in
Level 3 of the fair value hierarchy.
●
Fair values of investments
in common/collective trusts are
determined by the issuer of each fund based
on the fair value of the underlying assets.
●
Fair values of mutual funds are based
on quoted market prices, which represent
the net asset value of
shares held.
●
Time deposits are valued at cost,
which approximates fair value.
●
Cash is valued at cost, which approximates
fair value.
Fair values of international
cash equivalents
categorized in Level 2 are
valued using observable yield curves, discounting
and interest rates.
U.S. cash
balances held in the form of short-term fund units
that are redeemable at the measurement
date are
categorized as Level 2.
●
Fair values of exchange
-traded derivatives classified
in Level 1 are based on quoted market
prices.
For
other derivatives classified in Level 2, the values
are generally calculated from
pricing models with market
input parameters from third
-party sources.
●
Fair values of insurance contracts
are valued at the present value
of the future benefit payments owed
by
the insurance company to
the plans’ participants.
●
Fair values of real estate
investments are valued
using real estate valuation
techniques and other
methods that include reference
to third-party sources and sales comparables
where available.
●
A portion of U.S. pension plan assets is held as a participating interest
in an insurance annuity contract,
which is calculated as the market
value of investments held under
this contract, less the accumulated
benefit obligation covered by
the contract.
The participating interest is classified as
Level 3 in the fair
value hierarchy as
the fair value is determined via a combination
of quoted market prices, recently
executed transactions,
and an actuarial present value computation
for contract obligations.
At
December 31, 2021, the participating interest
in the annuity contract was valued
at $
million and
consisted of $
million in debt securities, less $
million for the accumulated benefit obligation
covered by the contract.
At December 31, 2020, the participating interest
in the annuity contract was
valued at $
million and consisted of $
million in debt securities, less $
million for the
accumulated benefit obligation
covered by the contract.
The participating interest is not available
for
meeting general pension benefit obligations
in the near term.
No future company contributions
are
required and no new benefits are being accrued under
this insurance annuity contract.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The fair values of our pension plan assets at
December 31, by asset class were as follows:
Millions of Dollars
U.S.
International
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity securities
U.S.
$
-
-
-
-
-
International
-
-
-
-
-
-
Mutual funds
-
-
-
Debt securities
Corporate
-
-
-
-
-
-
Mutual funds
-
-
-
-
-
-
Cash and cash equivalents
-
-
-
-
-
-
Real estate
-
-
-
-
-
-
Total in fair
value hierarchy
$
1,375
Investments measured at net asset value*
Equity securities
Common/collective trusts
$
Debt securities
Common/collective trusts
1,073
3,015
Cash and cash equivalents
-
Real estate
Total**
$
1,580
4,808
*In accordance with FASB ASC Topic 715, “Compensation-Retirement Benefits,”
certain investments that are to be measured at fair value
using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The fair value
amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Change in
Fair Value of Plan Assets.
**Excludes the participating interest in the insurance annuity contract with a net asset of $
million and net receivables related to security
transactions of $
million.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The fair values of our pension plan assets at
December 31, by asset class were as follows:
Millions of Dollars
U.S.
International
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity securities
U.S.
$
-
-
-
-
-
International
-
-
-
-
-
-
Mutual funds
-
-
-
Debt securities
Corporate
-
-
-
-
-
-
Mutual funds
-
-
-
-
-
-
Cash and cash equivalents
-
-
-
-
-
-
Derivatives
-
-
-
-
-
-
Real estate
-
-
-
-
-
-
Total in fair
value hierarchy
$
1,296
Investments measured at net asset value*
Equity securities
Common/collective trusts
$
Debt securities
Common/collective trusts
3,007
Cash and cash equivalents
-
Real estate
Total**
$
1,675
4,787
*In accordance with FASB ASC Topic 715, “Compensation-Retirement Benefits,”
certain investments that are to be measured at fair value
using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The fair value
amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Change in
Fair Value of Plan Assets.
**Excludes the participating interest in the insurance annuity contract with a net asset of $
million and net receivables related to security
transactions of $
million.
Level 3 activity was not material for all periods.
Our funding policy for U.S. plans is to contribute
at least the minimum required by the Employee
Retirement
Income Security Act of 1974 and the Internal Revenue
Code of 1986, as amended.
Contributions to foreign plans
are dependent upon local laws and tax
regulations.
In 2022, we expect to contribute
approximately $
million
to our domestic qualified and nonqualified pension
and postretirement benefit plans
and $
million to our
international qualified and nonqualified pension and
postretirement benefit plans.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following benefit payments,
which are exclusive of amounts
to be paid from the insurance annuity contract
and which reflect expected future
service, as appropriate, are expected
to be paid:
Millions of Dollars
Pension
Other
Benefits
Benefits
U.S.
Int’l.
$
2027-2031
The following table summarizes our
severance accrual activity:
Millions of Dollars
Balance at January 1
$
Accruals
(1)
Benefit payments
(116)
(13)
(24)
Balance at December 31
$
Accruals include severance costs
associated with our company-wide restructuring
program.
Of the remaining
balance at December 31, 2021, $
million is classified as short-term.
Defined Contribution Plans
Most U.S. employees are eligible
to participate in the ConocoPhillips Savings
Plan (CPSP).
Employees can deposit
up to
percent of their eligible pay,
subject to statutory limits, in the CPSP to a choice of
investment options.
Employees who participate in the CPSP and contribute
percent of their eligible pay receive
a
percent company
cash match with a potential company
discretionary cash contribution of up
to
percent.
Effective January 1, 2019,
new employees, rehires, and employees
that elected to opt out of Title II of the ConocoPhillips
Retirement Plan are
eligible to receive a Company Retirement
Contribution (CRC) of
percent of eligible pay into
their CPSP.
After
three years
of service with the company,
the employee is
percent vested in any
CRC.
Company contributions
charged to expense for the CPSP and
predecessor plans were $
million in 2021, $
million in 2020, and $
million in 2019.
We have several
defined contribution plans for our
international employees, each with its own
terms and eligibility
depending on location.
Total
compensation expense recognized
for these international plans was
approximately
$
million in 2021, $
million in 2020, and $
million in 2019.
Share-Based Compensation Plans
The 2014 Omnibus Stock and Performance Incentive
Plan of ConocoPhillips (the Plan) was approved
by
shareholders in May 2014, replacing
similar prior plans and providing that no new awards
shall be granted under
the prior plans.
Over its
-year life, the Plan allows the issuance
of up to
million shares of our common stock
for compensation to our employees
and directors; however,
as of the effective date of the
Plan, (i) any shares of
common stock available for
future awards under the prior plans
and (ii) any shares of common stock
represented
by awards granted
under the Plan or the prior plans that are forfeited,
expire or are cancelled without
delivery of
shares of common stock or which result
in the forfeiture of shares
of common stock back to the company
shall be
available for awards
under the Plan.
Of the
million shares available for
issuance under the Plan, no more than
million shares of common stock are
available for incentive stock
options.
The Human Resources and
Compensation Committee of our Board
of Directors is authorized to
determine the types, terms, conditions and
limitations of awards granted.
Awards may be granted
in the form of, but not
limited to, stock options, restricted
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
stock units and performance share units
to employees and non-employee directors
who contribute to the
company’s continued
success and profitability.
Total
share-based compensation expense is
measured using the grant date
fair value for our equity-classified
awards and the settlement date
fair value for our liability-classified awards.
We recognize share
-based
compensation expense over the shorter
of the service period (i.e., the stated period of time required
to earn the
award); or the period beginning at the start
of the service period and ending when an employee first becomes
eligible for retirement, but
not less than six months, as this is the minimum period of time required
for an award to
not be subject to forfeiture.
Our share-based compensation programs
generally provide accelerated
vesting (i.e., a
waiver of the remaining period of service required
to earn an award) for awards
held by employees at the time of
their retirement.
Some of our share-based awards
vest ratably (i.e., portions
of the award vest at different
times)
while some of our awards cliff vest
(i.e., all of the award vests at
the same time).
We recognize
expense on a
straight-line basis over the service period for
the entire award, whether the
award was granted
with ratable or cliff
vesting.
Compensation Expense
-Total
share-based compensation expense recognized
in net income (loss) and the
associated tax benefit were:
Millions of Dollars
Compensation cost
$
Tax benefit
Stock Options
-Stock options granted under
the provisions of the Plan and prior plans permit purchase of our
common stock at exercise
prices equivalent to the average
fair market value of ConocoPhillips
common stock on
the date the options were granted.
The options have terms of 10 years
and generally vest ratably,
with one-third
of the options awarded vesting and
becoming exercisable on
each anniversary date following the date
of grant.
Options awarded to certain employees
already eligible for retirement
vest within six months of the grant
date, but
those options do not become exercisable
until the end of the normal vesting period.
Beginning in 2018, stock
option grants were discontinued
and replaced with three-year,
time-vested restricted
stock units which generally
will be cash-settled for 2018 and 2019 awards
and stock-settled beginning
with 2020 awards.
The following summarizes our stock
option activity for the year ended December 31, 2021:
Millions of Dollars
Weighted-Average
Aggregate
Options
Exercise Price
Intrinsic Value
Outstanding at December 31, 2020
16,922,525
$
55.12
$
Exercised
(3,846,361)
51.40
Expired or cancelled
(1,102,381)
53.47
Outstanding at December 31, 2021
11,973,783
$
56.46
$
Vested at December
31, 2021
11,973,783
$
56.46
$
Exercisable at December 31, 2021
11,973,783
$
56.46
$
The weighted-average remaining
contractual term of outstanding
options, vested options and exercisable
options
at December 31, 2021, were all
3.06
years.
The aggregate intrinsic value
of options exercised was
$
million in
2020 and $
million in 2019.
During 2021, we received $
million in cash and realized a tax
benefit of $
million from the exercise of
options.
At December 31, 2021, all outstanding stock
options were fully vested and there
was no remaining
compensation cost to be recorded.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Stock Unit Program-
Generally,
restricted stock units are granted
annually under the provisions of the Plan and
vest in an aggregate installment
on the third anniversary of the grant
date.
In addition, restricted stock
units
granted under the Plan for a variable
long-term incentive program
vest ratably in three
equal annual installments
beginning on the first anniversary of the grant
date.
Restricted stock units are also
granted ad hoc to attract
or
retain key personnel,
and the terms and conditions under which these restricted
stock units vest vary by award.
Stock-Settled
Upon vesting, these restricted stock
units are settled by issuing one share of ConocoPhillips
common stock per
unit.
Units awarded to retirement
eligible employees vest six months
from the grant date; however,
those units
are not issued as common stock until
the earlier of separation from the company
or the end of the regularly
scheduled vesting period.
Until issued as stock, most recipients
of the restricted stock units receive
a cash
payment of a dividend equivalent or
an accrued reinvested dividend
equivalent that is charged to retained
earnings.
The grant date fair market
value of these restricted stock
units is deemed equal to the average
ConocoPhillips stock price on the grant
date.
The grant date fair market
value of units that do not receive a
dividend equivalent while unvested
is deemed equal to the average
ConocoPhillips stock price on the grant
date,
less the net present value of the dividends that
will not be received.
The following summarizes our stock
-settled stock unit activity for the year
ended December 31, 2021:
Weighted-Average
Millions of Dollars
Stock Units
Grant Date Fair Value
Total
Fair Value
Outstanding at December 31, 2020
6,431,985
$
58.94
Granted
4,590,103
46.56
Forfeited
(566,047)
48.59
Issued
(2,810,730)
54.74
$
Outstanding at December 31, 2021
7,645,311
$
53.81
Not Vested at
December 31, 2021
5,509,133
53.81
At December 31, 2021, the remaining unrecognized
compensation cost from the unvested
stock-settled units was
$
million, which will be recognized over
a weighted-average
period of
1.67
years, the longest period being
2.59
years.
The weighted-average
grant date fair value
of stock unit awards granted
during 2020 and 2019 was $
57.40
and $
67.77
, respectively.
The total fair value of stock
units issued during 2020 and 2019 was $
million and
$
million, respectively.
Cash-Settled
Cash settled executive restricted
stock units granted in 2018 and
2019 replaced the stock option program.
These
restricted stock units, subject to
elections to defer,
will be settled in cash equal to the fair
market value of a share
of ConocoPhillips common stock per unit
on the settlement date and are classified
as liabilities on the balance
sheet.
Units awarded to retirement
eligible employees vest six months
from the grant date; however,
those units
are not settled until the earlier of separation
from the company or the end of the regularly
scheduled vesting
period.
Compensation expense is initially measured
using the average fair market
value of ConocoPhillips common
stock and is subsequently adjusted,
based on changes in the ConocoPhillips stock price through
the end of each
subsequent reporting period, through
the settlement date.
Recipients receive an accrued reinvested
dividend
equivalent that is charged to
compensation expense.
The accrued reinvested dividend
is paid at the time of
settlement, subject to the terms and
conditions of the award.
Beginning with executive restricted
stock units
granted in 2020 awards will be
settled in stock.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following summarizes our cash
-settled stock unit activity for the year
ended December 31, 2021:
Weighted-Average
Millions of Dollars
Stock Units
Grant Date Fair Value
Total
Fair Value
Outstanding at December 31, 2020
614,615
$
39.95
Granted
11,186
57.19
Forfeited
(2,927)
51.43
Issued
(396,398)
50.75
$
Outstanding at December 31, 2021
226,476
$
72.18
Not Vested at
December 31, 2021
59,443
72.18
At December 31, 2021, there was
no
remaining unrecognized compensation
cost to be recorded for the unvested
cash-settled units.
The weighted-average grant
date fair value of stock
unit awards granted during
2020 and 2019
were $
41.59
and $
68.20
, respectively.
The total fair value of stock
units issued during 2020 and 2019 were
negligible and $
million, respectively.
Performance Share Program
-Under the Plan, we also annually grant restricted
performance share units (PSUs) to
senior management.
These PSUs are authorized three years
prior to their effective grant
date (the performance
period).
Compensation expense is initially measured
using the average fair market
value of ConocoPhillips
common stock and is subsequently adjusted,
based on changes in the ConocoPhillips stock price through
the end
of each subsequent reporting period, through
the grant date for stock
-settled awards and the settlement
date for
cash-settled awards.
Stock-Settled
For performance periods beginning before
2009, PSUs do not vest until the employee becomes
eligible for
retirement by reaching age 55
with five years of service, and restrictions
do not lapse until the employee separates
from the company.
With respect to awards for performance
periods beginning in 2009 through 2012, PSUs do not
vest until the earlier of the date the employee
becomes eligible for retirement
by reaching age 55 with five years
of service or five years after the grant
date of the award, and restrictions
do not lapse until the earlier of the
employee’s separation
from the company or five years
after the grant date (although
recipients can elect to defer
the lapsing of restrictions until separation).
We recognize compensation
expense for these awards
beginning on
the grant date and ending on the date
the PSUs are scheduled to vest.
Since these awards are authorized
three
years prior to the effective
grant date, for
employees eligible for retirement
by or shortly after the grant date,
we
recognize compensation expense
over the period beginning on the date of authorization
and ending on the date of
grant.
Until issued as stock, recipients of the PSUs receive
a quarterly cash payment of a dividend
equivalent that
is charged to retained earnings.
Beginning in 2013, PSUs authorized for future grants
will vest, absent employee
election to defer,
upon settlement following the conclusion
of the three-year performance period.
We recognize
compensation expense over the period beginning
on the date of authorization and
ending on the conclusion of the
performance period.
PSUs are settled by issuing one share
of ConocoPhillips common stock per unit.
The following summarizes our stock
-settled Performance Share
Program activity for the year ended
December 31, 2021:
Weighted-Average
Millions of Dollars
Stock Units
Grant Date Fair Value
Total
Fair Value
Outstanding at December 31, 2020
1,736,728
$
50.56
Issued
(287,881)
49.91
$
Outstanding at December 31, 2021
1,448,847
$
50.69
Not Vested at
December 31, 2021
3,191
$
48.61
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
At December 31, 2021, there was
no
remaining unrecognized compensation
cost to be recorded on the unvested
stock-settled performance share
s.
The weighted-average grant
date fair value of stock-settled
PSUs granted
during 2020 and 2019 was $
58.61
and $
68.90
, respectively.
The total fair value of stock-settled
PSUs issued during
2020 and 2019 was $
million and $
million, respectively.
Cash-Settled
In connection with and immediately following
the separation of our Downstream
businesses in 2012, grants of new
PSUs, subject to a shortened performance period,
were authorized.
Once granted, these PSUs vest,
absent
employee election to defer,
on the earlier of five years after
the grant date of the award
or the date the employee
becomes eligible for retirement.
For employees eligible for retirement
by or shortly after the grant date,
we
recognize compensation expense
over the period beginning on the date of authorization
and ending on the date of
grant.
Otherwise, we recognize compensation
expense beginning on the grant
date and ending on the date the
PSUs are scheduled to vest.
These PSUs are settled in cash equal to the fair
market value of a share
of
ConocoPhillips common stock per unit on
the settlement date and thus are classified
as liabilities on the balance
sheet.
Until settlement occurs,
recipients of the PSUs receive a quarterly cash
payment of a dividend equivalent
that is charged to compensation expense.
Beginning in 2013, PSUs authorized for future
grants will vest upon settlement
following the conclusion of the
three-year performance period.
We recognize compensation
expense over the period beginning on the date
of
authorization and ending at the conclusion
of the performance period.
These PSUs will be settled in cash equal to
the fair market value of a share
of ConocoPhillips common stock per unit
on the settlement date and are
classified
as liabilities on the balance sheet.
For performance periods beginning before
2018, during the performance
period, recipients of the PSUs do not receive a
quarterly cash payment of a dividend
equivalent, but after the
performance period ends, until settlement
in cash occurs, recipients of the PSUs receive
a quarterly cash payment
of a dividend equivalent that is charged
to compensation expense.
For the performance period beginning in 2018,
recipients of the PSUs receive an accrued reinvested
dividend equivalent that is charged
to compensation expense.
The accrued reinvested dividend
is paid at the time of settlement, subject to the terms
and conditions of the
award.
The following summarizes our cash
-settled Performance Share
Program activity for the year ended
December 31, 2021:
Weighted-Average
Millions of Dollars
Stock Units
Grant Date Fair Value
Total
Fair Value
Outstanding at December 31, 2020
124,529
$
39.95
Granted
1,073,228
46.65
Settled
(1,080,078)
48.13
$
Outstanding at December 31, 2021
117,679
$
72.18
At December 31, 2021, all outstanding
cash-settled performance awards
were fully vested and there was
no
remaining compensation cost to
be recorded.
The weighted-average
grant date fair value
of cash-settled PSUs
granted during 2020 and 2019 was $
58.61
and $
68.90
, respectively.
The total fair value of cash-settled
performance share awards
settled during 2020 and 2019 was $
million and $
million, respectively.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
From inception of the Performance Share
Program through 2013,
approved PSU awards were
granted after the
conclusion of performance periods.
Beginning in February 2014, initial target PSU awards
are issued near the
beginning of new performance periods.
These initial target PSU awards
will terminate at the end of the
performance periods and will be settled after the
performance periods have ended.
Also in 2014, initial target PSU
awards were issued for open
performance periods that began in
prior years.
For the open performance period
beginning in 2012, the initial target PSU awards
terminated at the end of the three-year
performance period and
were replaced with approved
PSU awards.
For the open performance period beginning in
2013, the initial target
PSU awards terminated at
the end of the three-year performance period
and were settled after the performance
period ended.
There is no effect on recognition
of compensation expense.
Other
-In addition to the above active programs,
we have outstanding shares
of restricted stock and restricted
stock units that were either issued
as part of our non-employee director compensation
program for current
and
former members of the company’s
Board of Directors,
as part of an executive compensation
program that has
been discontinued or acquired as a result
of an acquisition.
Generally, the recipients
of the restricted shares or
units receive a dividend or dividend equivalent.
The following summarizes the aggregate
activity of these restricted shares
and units for the year ended
December 31, 2021:
Weighted-Average
Millions of Dollars
Stock Units
Grant Date Fair Value
Total
Fair Value
Outstanding at December 31, 2020
970,099
$
47.78
Granted
797,704
46.43
Cancelled
(1,948)
27.80
Issued
(149,488)
46.80
$
Outstanding at December 31, 2021
1,616,367
$
47.24
Not Vested at
December 31, 2021
695,958
$
45.87
At December 31, 2021, the remaining compensation
cost from the unvested
restricted stock was $
million,
which will be recognized over a weighted-average
period of
1.46
years, the longest period being
years. The
weighted-average
grant date fair value
of awards granted during
2020 and 2019 was $
51.46
and $
63.58
,
respectively.
The total fair value of awards
issued during 2020 and 2019 was $
million and $
million,
respectively.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 17-Income Taxes
Components of income tax provision
(benefit) were:
Millions of Dollars
Income Taxes
Federal
Current
$
Deferred
1,161
(625)
(113)
Foreign
Current
3,128
2,545
Deferred
(70)
(323)
State and local
Current
(4)
Deferred
(139)
(8)
Total
tax provision (benefit)
$
4,633
(485)
2,267
Deferred income taxes
reflect the net tax effect
of temporary differences
between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for tax purposes.
Major components
of deferred tax liabilities and
assets at December 31 were:
Millions of Dollars
Deferred Tax
Liabilities
PP&E and intangibles
$
10,170
7,744
Inventory
Other
Total
deferred tax liabilities
10,427
8,050
Deferred Tax
Assets
Benefit plan accruals
Asset retirement obligations
and accrued environmental costs
2,297
2,262
Investments in joint ventures
1,684
1,653
Other financial accruals and deferrals
Loss and credit carryforwards
7,402
8,904
Other
Total
deferred tax assets
12,930
14,631
Less: valuation allowance
(8,342)
(9,965)
Total
deferred tax assets
net of valuation allowance
4,588
4,666
Net deferred tax liabilities
$
5,839
3,384
At December 31, 2021, noncurrent assets
and liabilities included deferred taxes
of $
million and $
6,179
million,
respectively.
At December 31, 2020, noncurrent assets
and liabilities included deferred taxes
of $
million and
$
3,747
million, respectively.
At December 31, 2021, the loss and credit carryforward
deferred tax assets
were primarily related to U.S.
foreign
tax credit carryforwards
of $
5.5
billion and various jurisdictions net operating
loss and credit carryforwards of $
1.9
billion.
If not utilized, U.S. foreign
tax credits and net operating
losses will begin to expire in 2022.
Our overall deferred
tax liability increased during 2021 by $
1.1
billion due to our Concho acquisition.
See Note 3
.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table shows a reconciliation
of the beginning and ending deferred tax
asset valuation allowance for
for 2021, 2020 and 2019:
Millions of Dollars
Balance at January 1
$
9,965
10,214
3,040
Charged to expense (benefit)
(45)
(225)
Other*
(1,578)
(709)
7,399
Balance at December 31
$
8,342
9,965
10,214
*Represents changes due to originating deferred tax asset that have no impact to our effective tax rate, acquisitions/dispositions/revisions and
the effect of translating foreign financial statements.
Valuation allowances
have been established to
reduce deferred tax assets
to an amount that will, more likely than
not, be realized.
At December 31, 2021, we have maintained
a valuation allowance with respect to
substantially all
U.S. foreign tax credit
carryforwards as well as certain
net operating loss carryforwards
for various jurisdictions.
During 2021, the valuation allowance movement
charged to earnings primarily relates
to the fair value
measurement of our CVE common shares that
are not expected to be realized,
and the expected realization of
certain U.S. tax attributes
associated with our planned disposition of our Indonesia assets.
This is partially offset
by Australian tax benefits
associated with our impairment of APLNG that we do not
expect to be realized.
Other
movements are primarily related
to valuation allowances on expiring
tax attributes.
Based on our historical
taxable income, expectations
for the future, and available
tax-planning strategies, management
expects deferred
tax assets, net of valuation
allowances, will primarily be realized as offsets
to reversing deferred
tax liabilities.
For
more information on our pending Indonesia
disposition
see Note 3
.
During 2020, the valuation allowance movement
charged to earnings primarily related
to capital losses in Australia
and to the fair value measurement of our
CVE common shares that are not expected
to be realized.
Other
movements are primarily related
to valuation allowances on expiring
tax attributes.
On December 2, 2019, the Internal Revenue Service finalized
foreign tax credit regulations
related to the 2017 Tax
Cuts and Jobs Act.
Due to the finalization of these regulations,
in the fourth quarter of 2019 we recognized
$
million of net deferred tax
assets.
Correspondingly,
we recorded $
6,642
million of existing foreign tax
credit
carryovers where recognition
was previously considered to
be remote.
Present legislation still makes
their
realization unlikely and
therefore these credits have
been offset with a full valuation allowance.
At December 31, 2021, unremitted
income considered to be permanently reinvested
in certain foreign subsidiaries
and foreign corporate
joint ventures totaled
approximately $
4,384
million.
Deferred income taxes
have not been
provided on this amount, as we do not plan to
initiate any action that would require
the payment of income taxes.
The estimated amount of additional tax,
primarily local withholding tax, that would
be payable on this income if
distributed is approximately
$
million.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The following table shows a reconciliation
of the beginning and ending unrecognized
tax benefits for 2021,
2020 and 2019:
Millions of Dollars
Balance at January 1
$
1,206
1,177
1,081
Additions based on tax positions related
to the current year
Additions for tax positions of prior years
Reductions for tax positions
of prior years
(5)
(34)
(22)
Settlements
-
(9)
(9)
Lapse of statute
(48)
(1)
(2)
Balance at December 31
$
1,345
1,206
1,177
Included in the balance of unrecognized tax
benefits for 2021, 2020 and 2019 were $
1,261
million, $
1,128
million
and $
1,100
million, respectively,
which, if recognized, would impact our effective
tax rate.
The balance of the
unrecognized tax benefits
increased
in 2021 mainly due to U.S. tax credits acquired
through our Concho
acquisition.
The balance of the unrecognized tax benefits
increased in 2019 mainly due to the treatment
of our
PDVSA settlement.
See Note 3
and
Note 11
.
At December 31, 2021, 2020 and 2019, accrued liabilities for
interest and penalties totaled $
million, $
million
and $
million, respectively,
net of accrued income taxes.
Interest and penalties resulted
in a reduction to
earnings of $
million in 2021, a reduction of $
million in 2020, and benefit to earnings of $
million in 2019.
We file tax returns
in the U.S. federal jurisdiction and
in many foreign and state
jurisdictions.
Audits in major
jurisdictions are generally complete as
follows: Canada (2016), U.S. (2017)
and Norway (2020).
Issues in dispute
for audited years and audits
for subsequent years are ongoing
and in various stages of completion in
the many
jurisdictions in which we operate around
the world.
Consequently,
the balance in unrecognized tax benefits
can
be expected to fluctuate from
period to period.
Within the next twelve months, we may
have audit periods close
that could significantly impact our total
unrecognized tax benefits.
It is reasonably possible such changes could be
significant when compared with our total
unrecognized tax benefits, but
the amount of change is not estimable.
In January 2022, the IRS closed the 2017 audit of our U.S. federal
income tax return.
As a result, in the first quarter
of 2022, we will recognize a previously
unrecognized $
million federal tax benefit
related to the recovery
of
outside tax basis previously offset
by a full reserve.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
The amounts of U.S. and foreign income
(loss) before income taxes,
with a reconciliation of tax at
the federal
statutory rate
to the provision for income taxes,
were:
Millions of Dollars
Percent of Pre-Tax
Income (Loss)
Income (loss) before income taxes
United States
$
8,024
(3,587)
4,704
63.1
%
114.2
49.4
Foreign
4,688
4,820
36.9
(14.2)
50.6
$
12,712
(3,140)
9,524
100.0
%
100.0
100.0
Federal statutory
income tax
$
2,670
(659)
2,000
21.0
%
21.0
21.0
Non-U.S. effective tax
rates
1,915
1,399
15.1
(6.2)
14.7
Tax impact of debt
restructuring
-
-
0.6
-
-
Australia disposition
-
(349)
-
-
11.1
-
U.K. disposition
-
-
(732)
-
-
(7.7)
Recovery of outside basis
(55)
(22)
(77)
(0.4)
0.7
(0.8)
Adjustment to tax reserves
(11)
(0.1)
(0.6)
0.1
Adjustment to valuation allowance
(45)
(225)
(0.4)
(14.6)
(2.4)
State income tax
(112)
1.5
3.6
1.3
Malaysia Deepwater Incentive
-
-
(164)
-
-
(1.7)
Enhanced oil recovery credit
(99)
(6)
(27)
(0.8)
0.2
(0.3)
Other
(11)
(9)
(39)
(0.1)
0.3
(0.4)
Tota
l
$
4,633
(485)
2,267
36.4
%
15.5
23.8
Our effective tax rate
for 2021 was driven by our
jurisdictional tax rates for
this profit mix with net favorable
impacts from routine tax credits
and valuation allowance adjustments.
The valuation allowance adjustment is
primarily related to the fair value
measurement and disposition of our CVE common shares
of $
million and the
ability to utilize the U.S. foreign
tax credit and capital loss carryforward
due to our anticipated disposition
of our
Indonesia entities of $
million. This was partially offset by an increase
to our valuation allowance related
to the
tax impact of the impairment of our APLNG investment
of $
million for which we do not expect to receive
a tax
benefit.
Our effective tax rate
for 2020 was impacted by the disposition
of our Australia-West
assets as well as the
valuation allowance related
to the fair value measurement of our
CVE common shares.
The Australia-West
disposition generated a before-tax
gain of $
million with an associated tax benefit
of $
million and resulted in
the de-recognition of deferred
tax assets resulting in $
million of tax expense.
The disposition also generated an
Australia capital loss tax
benefit of $
million which has been fully offset by a valuation
allowance.
Due to
changes in the fair market value
of CVE common shares, the valuation allowance
was increased by $
million to
offset the expected capital
loss.
Our effective tax rate
for 2019 was favorably
impacted by the sale of two of our U.K. subsidiaries. The disposition
generated a before-tax
gain of more than $
1.7
billion with an associated tax
benefit of $
million. The
disposition generated a U.S.
capital loss of approximately
$
2.1
billion which has generated a U.S.
tax benefit of
approximately $
million. The remaining U.S. capital loss has
been recorded as a deferred
tax asset fully offset
with a valuation allowance.
See Note 3.
During 2019, we received final partner approval
in Malaysia Block G to claim certain deepwater
tax credits.
As a
result, we recorded an income tax
benefit of $
million.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 18-Accumulated Other Comprehensive
Loss
Accumulated other comprehensive
loss in the equity section of the balance sheet included:
Millions of Dollars
Defined
Benefit Plans
Net
Unrealized
Gain/(Loss)
on Securities
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
Loss
December 31, 2018
$
(361)
-
(5,702)
(6,063)
Other comprehensive income (loss)
-
Cumulative effect of adopting
ASU No. 2018-02*
(40)
-
-
(40)
December 31, 2019
(350)
-
(5,007)
(5,357)
Other comprehensive income
(75)
December 31, 2020
(425)
(4,795)
(5,218)
Other comprehensive income (loss)
(2)
(124)
December 31, 2021
$
(31)
-
(4,919)
(4,950)
*We adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," beginning January 1,
2019.
During 2019, we recognized $
million of foreign currency translation
adjustments related to the completion
of
our sale of two ConocoPhillips U.K. subsidiaries.
See Note 3
.
The following table summarizes reclassifications
out of accumulated other comprehensive
loss during the years
ended December 31:
Millions of Dollars
Defined Benefit Plans
$
Above amounts are included in the computation of net periodic benefit cost and
are presented net of tax expense of:
$
See Note 16.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 19-Cash Flow Information
Millions of Dollars
Noncash Investing Activities
Increase (decrease) in PP&E related to
an increase (decrease) in asset
retirement obligations
$
(116)
Cash Payments
Interest
$
Income taxes
2,905
Net Sales (Purchases) of Investments
Short-term investments
purchased
$
(5,554)
(12,435)
(4,902)
Short-term investments
sold
8,810
12,015
2,138
Investments and long-term receivables
purchased
(279)
(325)
(146)
Investments and long-term receivables
sold
-
$
3,091
(658)
(2,910)
The following items are included in the “Cash
Flows from Operating Activities” section
of our consolidated cash
flows.
In 2021, we made a total of $
million in contributions to our U.S. qualified
pension plan.
In 2019, we made a
$
million contribution to our U.K. pension
plan.
We collected $
million in 2019 from PDVSA under settlement
agreements related to an
award issued by the ICC
Tribunal in 2018.
For more information on these
settlements,
see Note 11
.
See
Note 3
and
Note 12
for additional information on cash
and non-cash changes to our consolidated
balance
sheet associated with our Concho acquisition.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 20-Other Financial Information
Millions of Dollars
Interest and Debt Expense
Incurred
Debt
$
Other
Capitalized
(62)
(55)
(57)
Expensed
$
Other Income (Loss)
Interest income
$
Gain (loss) on investment in Cenovus
Energy*
1,040
(855)
Other, net
$
1,203
(509)
1,358
*See Note 5.
Research and Development Expenditures
-expensed
$
Shipping and Handling Costs
$
1,047
1,008
Foreign Currency Transaction
(Gains) Losses
-after-tax
Alaska
$
-
-
-
Lower 48
-
-
-
Canada
(1)
(7)
Europe, Middle East and North Africa
(11)
(15)
-
Asia Pacific
(11)
Other International
Corporate and Other
(7)
(31)
$
(16)
(62)
Millions of Dollars
Properties, Plants and Equipment
Proved properties*
$
114,274
**
94,312
Unproved properties*
10,993
4,141
Other
4,379
3,653
Gross properties, plants and equipment
129,646
102,106
Less: Accumulated depreciation,
depletion and amortization
(64,735)
**
(62,213)
Net properties, plants and equipment
$
64,911
39,893
*Proved and Unproved properties increased by $
20.0
billion and $
6.9
billion, respectively, in 2021 compared with 2020, primarily due to
the Concho and Shell Permian acquisitions.
**Excludes assets classified as held for sale at December 31, 2021.
See Note 3.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 21-Related Party
Transactions
Our related parties primarily include equity method
investments and certain trusts
for the benefit of employees.
For disclosures on trusts for
the benefit of employees,
see Note 16
.
Significant transactions with our equity
affiliates were:
Millions of Dollars
Operating revenues and other income
$
Purchases
-
Operating expenses and selling, general
and administrative expenses
Net interest income*
(2)
(5)
(13)
*We paid interest to, or received interest from, various affiliates.
See Note 4, for additional information on loans to
affiliated companies.
Note 22-Sales and Other Operating Revenues
Revenue from Contracts
with Customers
The following table provides further
disaggregation of our consolidated
sales and other operating revenues:
Millions of Dollars
Revenue from contracts
with customers
$
34,590
13,662
26,106
Revenue from contracts
outside the scope of ASC Topic
Physical contracts
meeting the definition of a derivative
11,500
5,177
6,558
Financial derivative contracts
(262)
(55)
(97)
Consolidated sales and other operating
revenues
$
45,828
18,784
32,567
Revenues from contracts
outside the scope of ASC Topic
606 relate primarily to physical
gas contracts at market
prices which qualify as derivatives accounted
for under ASC Topic
815, “Derivatives and Hedging,”
and for which
we have not elected NPNS.
There is no significant difference
in contractual terms or the policy for
recognition of
revenue from these contracts
and those within the scope of ASC Topic
606.
The following disaggregation
of
revenues is provided in conjunction
with
Note 23-Segment Disclosures and Related Information
:
Millions of Dollars
Revenue from Outside the Scope of ASC Topic
by Segment
Lower 48
$
9,050
3,966
4,989
Canada
1,457
Europe, Middle East and North Africa
Physical contracts
meeting the definition of a derivative
$
11,500
5,177
6,558
Millions of Dollars
Revenue from Outside the Scope of ASC Topic
by Product
Crude oil
$
Natural gas
10,034
4,339
5,313
Other
Physical contracts
meeting the definition of a derivative
$
11,500
5,177
6,558
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Practical Expedients
Typically,
our commodity sales contracts are
less than 12 months in duration; however,
in certain specific cases
may extend longer,
which may be out to the end of field life.
We have long-term commodity sales contracts which
use prevailing market prices at the time of delivery, and under these contracts, the market-based variable
consideration for each performance obligation (i.e., delivery of commodity) is allocated to each wholly unsatisfied
performance obligation within the contract.
Accordingly,
we have applied the practical expedient allowed in ASC
Topic 606 and do not disclose the aggregate amount of the transaction price allocated to performance obligations
or when we expect to recognize revenues that are unsatisfied (or partially unsatisfied) as of the end of the
reporting period.
Receivables and Contract
Liabilities
Receivables from Contracts with Customers
At December 31, 2021, the “Accounts
and notes receivable” line on our consolidated
balance sheet included trade
receivables of $
5,268
million compared with $
1,827
million at December 31, 2020, and included both contracts
with customers within the scope of ASC Topic
606 and those that are outside the scope of ASC Topic
606.
We
typically receive payment within 30 days or less (depending on the terms of the invoice) once delivery is made.
Revenues that are outside the scope
of ASC Topic 606 relate
primarily to physical gas sales contracts
at market
prices for which we do not elect NPNS and are
therefore accounted
for as a derivative under ASC Topic
815.
There
is little distinction in the nature of the customer
or credit quality of trade receivables
associated with gas sold
under contracts for which NPNS
has not been elected compared with trade
receivables where NPNS has been
elected.
Contract Liabilities from Contracts with Customers
We have entered into contractual arrangements where we license proprietary technology to customers related to
the optimization process for operating LNG plants. The agreements typically provide for negotiated payments to
be made at stated milestones. The payments are not directly related to our performance under the contract and
are recorded as deferred revenue to be recognized as revenue when the customer can utilize and benefit from
their right to use the license. Payments are received in installments over the construction period.
Millions of Dollars
Contract Liabilities
At December 31, 2020
$
Contractual payments received
Revenue recognized
(62)
At December 31, 2021
$
Amounts Recognized in the Consolidated
Balance Sheet at December 31, 2021
Current liabilities
$
We expect to recognize the contract liabilities as of December 31, 2021, as revenue during 2022.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Note 23-Segment Disclosures and Related
Information
We explore for,
produce, transport and market
crude oil, bitumen, natural gas,
LNG and NGLs on a worldwide
basis.
We manage our operations
through
six
operating segments, which are primarily defined
by geographic
region: Alaska; Lower 48; Canada; Europe,
Middle East and North Africa; Asia Pacific; and
Other International.
Corporate and Other represents
income and costs not directly associated
with an operating segment, such as most
interest expense, premiums
on early retirement of debt, corporate
overhead and certain technology activities,
including licensing revenues.
Corporate assets include all cash
and cash equivalents and short-term investments.
We evaluate performance
and allocate resources based
on net income (loss) attributable to ConocoPhillips.
Segment accounting policies are the same as those
in
Note 1
.
Intersegment sales are at
prices that approximate
market.
In 2021, we completed our acquisition of Concho,
an independent oil and gas exploration
and production company
with operations across New Mexico
and West Texas
as well as our acquisition of Shell’s
Permian assets in the Texas
Delaware Basin.
The accounting close date of the Shell transaction
,
used for reporting purposes, was December
31, 2021.
Results of operations for
Concho and assets acquired from Shell are included in
our Lower 48 segment.
Certain transaction and restructuring
costs associated with these acquisitions
are included in our Corporate and
Other segment.
See Note 3
.
Analysis of Results by Operating Segment
Millions of Dollars
Sales and Other Operating Revenues
Alaska
$
5,480
3,408
5,483
Intersegment eliminations
-
(11)
-
Alaska
5,480
3,397
5,483
Lower 48
29,306
9,872
15,514
Intersegment eliminations
(12)
(51)
(46)
Lower 48
29,294
9,821
15,468
Canada
4,077
1,666
2,910
Intersegment eliminations
(1,583)
(405)
(1,141)
Canada
2,494
1,261
1,769
Europe, Middle East and North Africa
5,902
1,919
5,101
Intersegment eliminations
-
(2)
-
Europe, Middle East and North Africa
5,902
1,917
5,101
Asia Pacific
2,579
2,363
4,525
Other International
-
Corporate and Other
Consolidated sales and other operating
revenues
$
45,828
18,784
32,567
The market for our products
is large and diverse, therefore,
our sales and other operating revenues
are not
dependent upon any single customer.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Millions of Dollars
Depreciation, Depletion, Amortization
and Impairments
Alaska
$
1,002
Lower 48
4,067
3,358
3,224
Canada
Europe, Middle East and North Africa
Asia Pacific
1,483
1,285
Other International
-
-
-
Corporate and Other
Consolidated depreciation, depletion,
amortization and impairments
$
7,882
6,334
6,495
Equity in Earnings of Affiliates
Alaska
$
(7)
Lower 48
(18)
(11)
(159)
Canada
-
-
-
Europe, Middle East and North Africa
Asia Pacific
Other International
-
-
Corporate and Other
-
-
-
Consolidated equity in earnings of affiliates
$
Income Tax
Provision (Benefit)
Alaska
$
(256)
Lower 48
1,390
(378)
Canada
(185)
(43)
Europe, Middle East and North Africa
2,543
1,425
Asia Pacific
Other International
(53)
(20)
Corporate and Other
(282)
(76)
(233)
Consolidated income tax provision
(benefit)
$
4,633
(485)
2,267
Net Income (Loss) Attributable
to ConocoPhillips
Alaska
$
1,386
(719)
1,520
Lower 48
4,932
(1,122)
Canada
(326)
Europe, Middle East and North Africa
1,167
3,170
Asia Pacific
1,483
Other International
(107)
(64)
Corporate and Other
(210)
(1,880)
Consolidated net income (loss) attributable
to ConocoPhillips
$
8,079
(2,701)
7,189
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Millions of Dollars
Investments in and Advances to
Affiliates
Alaska
$
Lower 48
Canada
-
-
-
Europe, Middle East and North Africa
1,070
Asia Pacific
5,603
6,705
7,265
Other International
-
-
Corporate and Other
-
-
-
Consolidated investments
in and advances to affiliates
$
6,701
7,710
8,453
Total Assets
Alaska
$
14,812
14,623
15,453
Lower 48
41,699
11,932
14,425
Canada
7,439
6,863
6,350
Europe, Middle East and North Africa
9,125
8,756
9,269
Asia Pacific
9,840
11,231
13,568
Other International
Corporate and Other
7,745
8,987
11,164
Consolidated total assets
$
90,661
62,618
70,514
Capital Expenditures and Investments
Alaska
$
1,038
1,513
Lower 48
3,129
1,881
3,394
Canada
Europe, Middle East and North Africa
Asia Pacific
Other International
Corporate and Other
Consolidated capital expenditures
and investments
$
5,324
4,715
6,636
Interest Income and Expense
Interest income
Alaska
$
-
-
-
Lower 48
-
-
-
Canada
-
-
-
Europe, Middle East and North Africa
Asia Pacific
Other International
-
-
-
Corporate and Other
Interest and debt expense
Corporate and Other
$
Sales and Other Operating Revenues
by Product
Crude oil
$
23,648
9,736
18,482
Natural gas
16,904
6,427
8,715
Natural gas liquids
1,668
Other*
3,608
2,093
4,556
Consolidated sales and other operating
revenues by product
$
45,828
18,784
32,567
*Includes LNG and bitumen.
Notes to Consolidated Financial Statements
ConocoPhillips
2021 10-K
Geographic Information
Millions of Dollars
Sales and Other Operating Revenues
(1)
Long-Lived Assets
(2)
United States
$
34,847
13,230
21,159
50,580
24,034
26,566
Australia and Timor-Leste
-
1,647
5,579
6,676
7,228
Canada
2,494
1,261
1,769
6,608
6,385
5,769
China
1,476
1,491
1,447
Indonesia
(3)
Libya
1,102
1,103
Malaysia
1,230
1,252
1,501
1,871
Norway
2,563
1,426
2,349
4,681
5,294
5,258
United Kingdom
2,236
1,649
Other foreign countries
1,087
1,308
Worldwide consolidated
$
45,828
18,784
32,567
71,612
47,603
50,722
(1) Sales and other operating revenues are attributable to countries based on the location of the selling operation.
(2) Defined as net PP&E plus equity investments and advances to affiliated companies.
(3) Met held for sale criteria in 2021 in conjunction with our agreement to sell our subsidiary holding
our Indonesia assets.
Supplementary Data
ConocoPhillips
2021 10-K
Oil and Gas Operations
(Unaudited)
In accordance with FASB
ASC Topic
932, “Extractive Activities-Oil and Gas,”
and regulations of the SEC, we are
making certain supplemental disclosures
about our oil and gas exploration and
production operations.
These disclosures include information about
our consolidated oil and gas activities and our proportionate
share of
our equity affiliates’ oil and gas
activities in our operating segments.
As a result, amounts reported as equity
affiliates in Oil and Gas Operations
may differ from those shown in the
individual segment disclosures reported
elsewhere in this report.
Our disclosures by geographic
area include the U.S., Canada, Europe, Asia Pacific/Middle
East (inclusive of equity affiliates)
,
and Africa.
As required by current authoritative
guidelines, the estimated future date
when an asset will be permanently shut
down for economic reasons is based on
historical 12-month
first-of-month average
prices and current costs.
This
estimated date when production
will end affects the amount of estimated
reserves.
Therefore, as prices and cost
levels change from year to year,
the estimate of proved reserves
also changes.
Generally,
our proved reserves
decrease as prices decline and increase as prices rise.
Our proved reserves include estimated
quantities related to PSCs, which are
reported under the “economic
interest” method, as well as variable-royalty
regimes, and are subject to fluctuations
in commodity prices,
recoverable operating
expenses and capital costs.
If costs remain stable, reserve quantities
attributable to
recovery of costs will change inversely
to changes in commodity prices.
For example, if prices increase, then
our
applicable reserve quantities would decline.
At December 31, 2021, approximately
4 percent of our total proved
reserves were under PSCs, located
in our Asia Pacific/Middle East geographic
reporting area, and 5 percent of our
total proved reserves
were under a variable-royalty
regime, located in our Canada geographic
reporting area.
Reserves Governance
The recording and reporting of proved
reserves are governed by criteria
established by regulations of the SEC
and
FASB.
Proved reserves are those
quantities of oil and gas, which, by analysis
of geoscience and engineering data,
can be estimated with reasonable certainty
to be economically producible-from a
given date forward,
from
known reservoirs, and under existing
economic conditions, operating methods,
and government regulations-prior
to the time at which contracts providing
the right to operate expire, unless
evidence indicates renewal is
reasonably certain, regardless
of whether deterministic or probabilistic
methods are used for the estimation.
The
project to extract the hydrocarbons
must have commenced or the operator
must be reasonably certain it will
commence the project within a reasonable time.
Proved reserves are further classified
as either developed or undeveloped.
Proved developed reserves are
proved
reserves that can be expected to
be recovered through existing
wells with existing equipment and operating
methods, or in which the cost of the required equipment
is relatively minor compared
with the cost of a new well,
and through installed extraction
equipment and infrastructure operational
at the time of the reserves estimate if
the extraction is by means not involving
a well.
Proved undeveloped reserves are
proved reserves expected
to be
recovered from new wells
on undrilled acreage, or from existing
wells where a relatively major expenditure
is
required for recompletion. Reserves
on undrilled acreage are limited to those
directly offsetting development
spacing areas that are reasonably
certain of production when drilled, unless evidence provided
by reliable
technologies exists that establishes
reasonable certainty of economic producibility
at greater distances.
As defined
by SEC regulations, reliable technologies
may be used in reserve estimation when
they have been demonstrated
in
the field to provide reasonably certain
results with consistency and repeatability
in the formation being evaluated
or in an analogous formation. The technologies
and data used in the estimation of our proved
reserves include, but
are not limited to,
performance-based methods, volumetric
-based methods, geologic maps, seismic interpretation,
well logs, well test data, core
data, analogy and statistical
analysis.
Supplementary Data
ConocoPhillips
2021 10-K
We have a company
-wide, comprehensive, SEC-compliant
internal policy that governs
the determination and
reporting of proved reserves.
This policy is applied by the geoscientists and
reservoir engineers in our business
units around the world.
As part of our internal control process,
each business unit’s reserves processes
and
controls are reviewed
annually by an internal team which is headed by
the company’s Manager of Reserves
Compliance and Reporting.
This team, composed of internal reservoir
engineers, geoscientists, finance personnel
and a senior representative
from DeGolyer and MacNaughton (D&M), a third
-party petroleum engineering
consulting firm, reviews the business
units’ reserves for adherence to SEC
guidelines and company policy through
on-site visits, teleconferences
and review of documentation.
In addition to providing independent reviews,
this
internal team also ensures reserves
are calculated using consistent
and appropriate standards
and procedures.
This team is independent of business unit line management
and is responsible for reporting its findings
to senior
management.
The team is responsible for communicating
our reserves policy and procedures
and is available for
internal peer reviews and consultation
on major projects or technical issues throughout
the year.
All of our proved
reserves held by consolidated companies
and our share of equity affiliates have
been estimated by ConocoPhillips.
During 2021, our processes and controls
used to assess over 90 percent of proved
reserves as of December 31,
2021, were reviewed by D&M.
The purpose of their review was to assess whether
the adequacy and effectiveness
of our internal processes and controls
used to determine estimates of proved
reserves are in accordance with SEC
regulations.
In such review,
ConocoPhillips’ technical staff
presented D&M with an overview of the reserves
data,
as well as the methods and assumptions used in estimating
reserves.
The data presented included pertinent
seismic information, geologic maps,
well logs, production tests, material
balance calculations, reservoir simulation
models, well performance data, operating
procedures and relevant economic
criteria.
Management’s intent
in
retaining D&M to review its processes
and controls was to provide
objective third-party input on these processes
and controls.
D&M’s opinion was the general
processes and controls
employed by ConocoPhillips in estimating its
December 31, 2021, proved reserves for
the properties reviewed are in
accordance with the SEC reserves
definitions.
D&M’s report is
included as Exhibit 99 of this Annual Report on Form 10-K.
The technical person primarily responsible
for overseeing the processes and
internal controls used in the
preparation of the company’s
reserves estimates is the Manager of Reserves
Compliance and Reporting.
This
individual holds a master’s degree in petroleum
engineering.
He is a member of the Society of Petroleum
Engineers with over 25 years of oil and
gas industry experience and has held positions of increasing
responsibility
in reservoir engineering, subsurface and asset
management in the U.S. and several
international field locations.
Engineering estimates of the quantities of proved
reserves are inherently imprecise.
See the “Critical Accounting
Estimates” section of Management’s
Discussion and Analysis of Financial Condition and Results
of Operations for
additional discussion of the sensitivities surrounding these
estimates.
Supplementary Data
ConocoPhillips
2021 10-K
Proved Reserves
Years Ended
Crude Oil
December 31
Millions of Barrels
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed and Undeveloped
Consolidated operations
End of 2018
1,233
1,936
2,533
Revisions
(36)
(1)
(5)
Improved recovery
-
-
-
-
-
Purchases
-
-
-
-
-
Extensions and discoveries
-
-
Production
(74)
(95)
(169)
-
(36)
(31)
(14)
(250)
Sales
-
(2)
(2)
-
(30)
-
-
(32)
End of 2019
1,231
2,028
2,562
Revisions
(297)
(126)
(423)
(2)
(4)
(3)
(428)
Improved recovery
-
-
-
-
-
-
Purchases
-
-
-
-
Extensions and discoveries
-
-
-
Production
(65)
(77)
(142)
(2)
(28)
(25)
(3)
(200)
Sales
-
(14)
(14)
(1)
-
-
-
(15)
End of 2020
1,572
2,051
Revisions
(52)
Improved recovery
-
-
-
-
-
Purchases
-
-
-
-
-
Extensions and discoveries
-
Production
(64)
(160)
(224)
(3)
(29)
(24)
(13)
(293)
Sales
-
(9)
(9)
-
-
-
-
(9)
End of 2021
1,035
1,452
2,487
2,964
Equity affiliates
End of 2018
-
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
-
Production
-
-
-
-
-
(5)
-
(5)
Sales
-
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
-
Production
-
-
-
-
-
(5)
-
(5)
Sales
-
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
-
Production
-
-
-
-
-
(5)
-
(5)
Sales
-
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Total
company
End of 2018
1,233
1,936
2,611
End of 2019
1,231
2,028
2,635
End of 2020
1,572
2,119
End of 2021
1,035
1,452
2,487
3,027
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Crude Oil
December 31
Millions of Barrels
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed
Consolidated operations
End of 2018
1,058
1,404
1,896
End of 2019
1,048
1,382
1,809
End of 2020
1,028
1,415
End of 2021
1,828
2,223
Equity affiliates
End of 2018
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Undeveloped
Consolidated operations
End of 2018
End of 2019
End of 2020
-
End of 2021
Equity affiliates
End of 2018
-
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
-
-
Notable changes in proved crude oil reserves
in the three years ended December 31, 2021,
included:
●
Revisions
: In 2021, Alaska upward revisions
were primarily driven by higher prices.
Downward revisions in Lower 48 were
due to development timing for specific well
locations from unconventional
plays of 203 million barrels and technical
revisions of 35 million barrels, partially offset
by upward revisions due to
higher prices of 115 million barrels and additional
infill drilling in the unconventional plays
of 71 million barrels.
Upward revisions in Europe were
primarily due to higher
prices. In Asia Pacific/Middle East,
increases were due to higher prices of 21 million barrels
and technical revisions of 16
million barrels.
In 2020, Alaska downward revisions
were primarily driven by lower prices of 243 million barrels
and development plan
changes of 54 million barrels.
Downward revisions in Lower
48 were due to lower prices of 89 million barrels
and
development timing for specific well locations
from unconventional plays
of 82 million barrels, partially offset by upward
technical revisions and additional infill drilling
in the unconventional plays
of 45 million barrels.
In 2019, Alaska upward revisions
were due to cost and technical revisions
of 74 million barrels, partially offset by downward
price revisions of 34 million barrels.
Upward revisions in Europe and
Africa were primarily due to infill drilling and technical
revisions.
Downward revisions in Lower 48 were
due to changes in development timing for
specific well locations from the
unconventional plays
of 71 million barrels and price revisions of 22 million barrels, partially
offset by upward revisions
related to infill drilling and improved
well performance of 57 million barrels.
Supplementary Data
ConocoPhillips
2021 10-K
●
Purchases
:
In 2021, Lower 48 purchases were due to
the Concho and Shell Permian acquisitions.
●
Extensions and discoveries
: In 2021, extensions and discoveries in Lower
48 were due to planned development
to add
specific well locations from the unconventional
plays which more than offset the decreases
resulting from development
plan timing in the revisions category.
In 2020, extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
which more than offset the decreases resulting
from development plan timing in the revisions
category.
In 2019, extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
which more than offset the decreases in the revisions
category.
In Asia Pacific/Middle East, increases
were due to sanctioning of development
programs in China and Malaysia.
●
Sales
: In 2019, Europe sales represent the disposition
of the U.K. assets.
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Natural Gas Liquids
December 31
Millions of Barrels
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Total
Developed and Undeveloped
Consolidated operations
End of 2018
Revisions
(1)
(11)
(12)
-
(1)
(10)
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
Production
(5)
(28)
(33)
-
(3)
(1)
(37)
Sales
-
-
-
-
(4)
-
(4)
End of 2019
Revisions
-
(26)
(26)
-
(1)
(26)
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
Extensions and discoveries
-
-
-
Production
(6)
(27)
(33)
(1)
(2)
-
(36)
Sales
-
(5)
(5)
-
-
-
(5)
End of 2020
-
Revisions
(6)
-
-
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
-
Extensions and discoveries
-
-
-
Production
(6)
(50)
(56)
(1)
(2)
-
(59)
Sales
-
(1)
(1)
-
-
-
(1)
End of 2021
-
Equity affiliates
End of 2018
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
Production
-
-
-
-
-
(3)
(3)
Sales
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
Production
-
-
-
-
-
(3)
(3)
Sales
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
Revisions
-
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
-
Production
-
-
-
-
-
(3)
(3)
Sales
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
Total
company
End of 2018
End of 2019
End of 2020
End of 2021
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Natural Gas Liquids
December 31
Millions of Barrels
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Total
Developed
Consolidated operations
End of 2018
-
End of 2019
End of 2020
-
End of 2021
-
Equity affiliates
End of 2018
-
-
-
-
-
End of 2019
-
-
-
-
-
End of 2020
-
-
-
-
-
End of 2021
-
-
-
-
-
Undeveloped
Consolidated operations
End of 2018
-
-
End of 2019
-
-
End of 2020
-
-
-
End of 2021
-
-
Equity affiliates
End of 2018
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
-
Notable changes in proved NGL reserves
in the three years ended December 31,
2021, included:
●
Revisions
: In 2021, upward revisions
in Lower 48 were due to conversion
of acquired Concho Permian two-stream
contracts
to a three-stream (crude oil, natural
gas and natural gas liquids) basis,
adding 182 million barrels, additional infill drilling in
the unconventional plays
of 44 million barrels, technical revisions
of 21 million barrels and higher prices of 28 million
barrels, partially offset by downward
revisions related to development
timing for specific well locations
from
unconventional plays
of 62 million barrels.
In 2020, downward revisions in Lower
48 were due to lower prices of 33 million barrels
and development timing for specific
well locations from unconventional
plays of 20 million barrels, partially offset
by upward technical revisions
and additional
infill drilling in the unconventional plays
of 27 million barrels.
In 2019, downward revisions in Lower
48 were due to changes in development
timing for specific well locations from
the
unconventional plays
of 32 million barrels and price revisions of 11 million barrels, partially
offset by upward revisions
related to infill drilling and improved
well performance of 32 million barrels.
●
Purchases
: In 2021, Lower 48 purchases were due to
the Shell Permian acquisition.
●
Extensions and discoveries
: In 2021, extensions and discoveries in Lower
48 were due to planned development
to add
specific well locations from the unconventional
plays which more than offset the decreases
in the revisions category.
In 2020, extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
,
which more than offset the decreases in the revisions
category.
In 2019, extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
,
which more than offset the decreases in the revisions
category.
●
Sales
: In 2019, Europe sales represent the disposition
of the U.K. assets.
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Natural Gas
December 31
Billions of Cubic Feet
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed and Undeveloped
Consolidated operations
End of 2018
2,736
2,318
5,054
1,212
1,079
7,585
Revisions
(113)
(83)
(2)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
Extensions and discoveries
-
-
Production
(85)
(252)
(337)
(4)
(178)
(250)
(11)
(780)
Sales
-
(7)
(7)
-
(298)
-
-
(305)
End of 2019
2,688
2,431
5,119
7,259
Revisions
(607)
(439)
(1,046)
(15)
(917)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
Extensions and discoveries
-
-
-
Production
(85)
(231)
(316)
(16)
(112)
(171)
(2)
(617)
Sales
-
(39)
(39)
-
-
(58)
-
(97)
End of 2020
1,996
2,100
4,096
6,070
Revisions
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
2,438
2,438
-
-
-
-
2,438
Extensions and discoveries
-
-
-
Production
(86)
(473)
(559)
(30)
(113)
(147)
(7)
(856)
Sales
-
(270)
(270)
-
-
-
-
(270)
End of 2021
2,625
4,658
7,283
9,137
Equity affiliates
End of 2018
-
-
-
-
-
4,564
-
4,564
Revisions
-
-
-
-
-
(7)
-
(7)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(388)
-
(388)
Sales
-
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
4,421
-
4,421
Revisions
-
-
-
-
-
(382)
-
(382)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(395)
-
(395)
Sales
-
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
3,724
-
3,724
Revisions
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(390)
-
(390)
Sales
-
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
3,697
-
3,697
Total
company
End of 2018
2,736
2,318
5,054
1,212
5,643
12,149
End of 2019
2,688
2,431
5,119
5,398
11,680
End of 2020
1,996
2,100
4,096
4,575
9,794
End of 2021
2,625
4,658
7,283
4,461
12,834
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Natural Gas
December 31
Billions of Cubic Feet
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed
Consolidated operations
End of 2018
2,720
1,427
4,147
1,052
6,188
End of 2019
2,601
1,398
3,999
5,793
End of 2020
1,961
1,051
3,012
4,714
End of 2021
2,579
3,100
5,679
7,315
Equity affiliates
End of 2018
-
-
-
-
-
4,059
-
4,059
End of 2019
-
-
-
-
-
3,898
-
3,898
End of 2020
-
-
-
-
-
3,293
-
3,293
End of 2021
-
-
-
-
-
3,204
-
3,204
Undeveloped
Consolidated operations
End of 2018
-
1,397
End of 2019
1,033
1,120
-
1,466
End of 2020
1,049
1,084
-
-
1,356
End of 2021
1,558
1,604
-
1,822
Equity affiliates
End of 2018
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Natural gas production
in the reserves table may differ
from gas production (delivered
for sale) in our statistics
disclosure, primarily
because the quantities above include gas
consumed in production operations.
Quantities consumed in production operations
are
not significant in the periods presented.
The value of net production consumed
in operations is not reflected in net revenues
and
production expenses, nor do the volumes impact the respective
per unit metrics.
Reserve volumes include natural gas
to be consumed in operations of 2,748 Bcf,
2,286 Bcf and 3,141 Bcf, as
of December 31, 2021,
2020 and 2019, respectively.
These volumes are not included in the calculation of our
Standardized Measure of Discounted
Future
Net Cash Flows Relating to Proved
Oil and Gas Reserve Quantities.
Natural gas reserves are
computed at 14.65 pounds per square inch absolute
and 60 degrees Fahrenheit.
Notable changes in proved natural
gas reserves in the three years
ended December 31, 2021, included:
●
Revisions
: In 2021, upward revisions
in Alaska were due to higher prices of 587 Bcf and technical
revisions of 128 Bcf.
In
Lower 48, upward revisions of 614 Bcf were
due to higher prices, additional infill drilling in the unconventional
plays of 277
Bcf and technical revisions of 60 Bcf,
partially offset by downward
revisions due to development timing for
specific well
locations from unconventional
plays of 498 Bcf and conversion
of previously acquired Permian two-stream
contracted
volumes to a three-stream (crude
oil, natural gas and natural
gas liquids) basis of 412 Bcf.
Upward revisions in Canada were
due to higher prices of 29 Bcf, partially
offset by downward revisions
due to technical revisions of 14 Bcf.
In Europe,
upward revisions were primarily
due to higher prices.
Upward revisions in our consolidated
operations in Asia
Pacific/Middle East were due
to technical revisions of 76 Bcf,
partially offset by price revisions
of 16 Bcf.
In our equity
affiliates in Asia Pacific/Middle East,
upward revisions were due
to higher prices of 124 Bcf and technical and cost
revisions
of 123 Bcf.
In 2020,
downward revisions in Alaska
were primarily due to lower prices.
In Lower 48, downward revisions
of 372 Bcf were
due to lower prices and 154 Bcf were due to development
timing for specific well locations from
unconventional plays,
partially offset by technical revisions
of 87 Bcf.
Downward revisions in our
equity affiliates in Asia Pacific/Middle East
were
Supplementary Data
ConocoPhillips
2021 10-K
due to lower prices of 426 Bcf,
partially offset by performance revisions
of 44 Bcf.
Upward revisions
in our consolidated
operations in Asia Pacific/Middle East
were due to technical revisions
of 88 Bcf and price revisions of 15 Bcf.
In 2019, upward revisions in Europe
were due to technical and cost
revisions.
In Asia Pacific/Middle East upward
revisions
were primarily due to the Indonesia Corridor PSC term
extension.
Downward revisions in Lower 48 were
due to changes in
development timing for specific well locations
from the unconventional plays
of 207 Bcf and price revisions of 125 Bcf,
partially offset by upward
revisions related to infill drilling
and improved well performance of 219 Bcf.
●
Purchases
: In 2021, Lower 48 purchases were due to
the Concho and Shell Permian acquisitions.
In 2020, Canada purchases were due to the acquisition
of additional Montney acreage.
●
Extensions and discoveries
: In 2021, extensions and discoveries in Lower
48 were due to planned development
to add
specific well locations from the unconventional
plays which more than offset the decreases
resulting from development
plan timing in the revisions category.
Extensions and discoveries in Canada were primarily
driven by ongoing drilling
successes in Montney.
In 2020,
extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
which more than offset the decreases resulting
from development plan timing in the revisions
category.
Extensions and discoveries in Canada were primarily
driven by ongoing drilling successes in Montney.
In 2019, extensions and discoveries in Lower
48 were due to planned development
to add specific well locations from
the
unconventional plays
which more than offset the decreases in the revisions
category.
Extensions and discoveries in our
equity affiliates were due to ongoing
development in APLNG.
●
Sales
: In 2021, Lower 48 sales represent the disposition
of noncore assets.
In 2020, Asia Pacific/Middle East sales
represent the disposition of the Australia
-West assets.
In 2019, Europe sales represent the disposition
of the U.K. assets.
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Bitumen
December 31
Millions of Barrels
Canada
Developed and Undeveloped
Consolidated operations
End of 2018
Revisions
Improved recovery
-
Purchases
-
Extensions and discoveries
Production
(22)
Sales
-
End of 2019
Revisions
(15)
Improved recovery
-
Purchases
-
Extensions and discoveries
Production
(20)
Sales
-
End of 2020
Revisions
(50)
Improved recovery
-
Purchases
-
Extensions and discoveries
-
Production
(25)
Sales
-
End of 2021
Equity affiliates
End of 2018
-
Revisions
-
Improved recovery
-
Purchases
-
Extensions and discoveries
-
Production
-
Sales
-
End of 2019
-
Revisions
-
Improved recovery
-
Purchases
-
Extensions and discoveries
-
Production
-
Sales
-
End of 2020
-
Revisions
-
Improved recovery
-
Purchases
-
Extensions and discoveries
-
Production
-
Sales
-
End of 2021
-
Total
company
End of 2018
End of 2019
End of 2020
End of 2021
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Bitumen
December 31
Millions of Barrels
Canada
Developed
Consolidated operations
End of 2018
End of 2019
End of 2020
End of 2021
Equity affiliates
End of 2018
-
End of 2019
-
End of 2020
-
End of 2021
-
Undeveloped
Consolidated operations
End of 2018
End of 2019
End of 2020
End of 2021
Equity affiliates
End of 2018
-
End of 2019
-
End of 2020
-
End of 2021
-
Notable changes in proved bitumen reserves
in the three years ended December 31, 2021,
included:
●
Revisions
: In 2021, downward revisions
of 64 million barrels were driven by changes in carbon
tax costs
and 39 million barrels due to changes in development
timing for specific pad locations from the Surmont
development program, partially
offset by upward revisions
from price of 53 million barrels.
In 2020,
downward revisions in Canada
were due to changes in development
timing for specific pad
locations from the Surmont development
program of 12 million barrels
with the remaining revisions
primarily related to lower prices.
In 2019, upward revisions in Canada were
due to technical revisions in
Surmont of 70 million barrels,
partially offset by downward
revisions due to changes in development
timing for specific pad locations
from the Surmont development program
of 31 million barrels.
●
Extensions and discoveries
: In 2020,
extensions and discoveries in
Canada were primarily due to planned
development to add specific pad locations
from the Surmont development program,
which more than
offset the decrease in the revisions
category.
In 2019, extensions and discoveries in Canada
were due to planned development to
add specific pad
locations from the Surmont development
program, which offset
the decrease in the revisions category
of
31 million barrels.
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Total Proved
Reserves
December 31
Millions of Barrels of Oil Equivalent
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed and Undeveloped
Consolidated operations
End of 2018
1,795
1,312
3,107
4,383
Revisions
(67)
(23)
Improved recovery
-
-
-
-
-
Purchases
-
-
-
-
-
Extensions and discoveries
-
-
Production
(93)
(165)
(258)
(23)
(68)
(74)
(16)
(439)
Sales
-
(3)
(3)
-
(85)
-
-
(88)
End of 2019
1,779
1,447
3,226
4,414
Revisions
(398)
(226)
(624)
(20)
(3)
(622)
Improved recovery
-
-
-
-
-
-
Purchases
-
-
-
-
Extensions and discoveries
-
-
-
Production
(85)
(142)
(227)
(25)
(49)
(55)
(3)
(359)
Sales
-
(25)
(25)
(1)
-
(10)
-
(36)
End of 2020
1,306
1,273
2,579
3,734
Revisions
(45)
Improved recovery
-
-
-
-
-
Purchases
-
1,169
1,169
-
-
-
-
1,169
Extensions and discoveries
-
Production
(84)
(289)
(373)
(35)
(50)
(48)
(14)
(520)
Sales
-
(54)
(54)
-
-
-
-
(54)
End of 2021
1,555
2,775
4,330
5,388
Equity affiliates
End of 2018
-
-
-
-
-
-
Revisions
-
-
-
-
-
(1)
-
(1)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(73)
-
(73)
Sales
-
-
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
Revisions
-
-
-
-
-
(63)
-
(63)
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(73)
-
(73)
Sales
-
-
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
Revisions
-
-
-
-
-
-
Improved recovery
-
-
-
-
-
-
-
-
Purchases
-
-
-
-
-
-
-
-
Extensions and discoveries
-
-
-
-
-
-
Production
-
-
-
-
-
(73)
-
(73)
Sales
-
-
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Total
company
End of 2018
1,795
1,312
3,107
1,222
5,263
End of 2019
1,779
1,447
3,226
1,146
5,262
End of 2020
1,306
1,273
2,579
4,459
End of 2021
1,555
2,775
4,330
6,101
Supplementary Data
ConocoPhillips
2021 10-K
Years Ended
Total Proved
Reserves
December 31
Millions of Barrels of Oil Equivalent
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Developed
Consolidated operations
End of 2018
1,617
2,298
3,305
End of 2019
1,582
2,248
3,174
End of 2020
1,186
1,707
2,508
End of 2021
1,424
1,767
3,191
4,020
Equity affiliates
End of 2018
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Undeveloped
Consolidated operations
End of 2018
1,078
End of 2019
1,240
End of 2020
1,226
End of 2021
1,008
1,139
1,368
Equity affiliates
End of 2018
-
-
-
-
-
-
End of 2019
-
-
-
-
-
-
End of 2020
-
-
-
-
-
-
End of 2021
-
-
-
-
-
-
Natural gas reserves are
converted to barrels of oil equivalent
(BOE) based on a 6:1 ratio: six MCF of natural
gas converts to
one
BOE.
Proved Undeveloped Reserves
The following table shows changes
in total proved undeveloped
reserves for 2021:
Proved Undeveloped Reserves
Millions of Barrels of
Oil Equivalent
End of 2020
1,298
Revisions
(167)
Improved recovery
Purchases
Extensions and discoveries
Sales
-
Transfers
to proved developed
(288)
End of 2021
1,450
Downward revisions were
driven by changes in development timing
of 389 MMBOE primarily in North America and negative
bitumen revisions in Canada due to changes in
carbon tax costs of 65 MMBOE, partially offset
by upward revisions for
Lower 48 infill
drilling of 162 MMBOE and higher prices of 125 MMBOE.
Purchases were driven by Lower 48 due to
the Concho acquisition.
Supplementary Data
ConocoPhillips
2021 10-K
Extensions and discoveries were largely
driven by an addition of 399 MMBOE in Lower 48 for
the continued development of
unconventional plays.
The remaining extensions and discoveries were
driven by the continued development
planned in the other
geographic regions.
Transfers
to proved developed reserves
were driven by the ongoing development
of our assets. Approximately
65 percent of the
transfers were
from the development of our Lower 48 unconventional
plays. The remainder of transfers
were from development
across the other geographic regions.
At December 31, 2021, our PUDs represented
24 percent of total proved
reserves, compared with 29 percent at
December 31, 2020.
Costs incurred for the year ended
December 31, 2021, relating to the development
of PUDs were $3.8 billion.
A portion of our costs
incurred each year relates to development
projects where the PUDs will be converted
to proved developed reserves
in future years.
At the end of 2021, approximately
93 percent of total PUDs were under development
or scheduled for development
within five
years of initial disclosure, including all of our Lower
48 PUDs. The remaining PUDs are in major development
areas which are
currently producing and within our Canada
and Asia Pacific/Middle East geographic
areas.
Results of Operations
The company’s results
of operations from oil and gas
activities for the years 2021, 2020 and 2019 are
shown in the following tables.
Non-oil and gas activities, such as pipeline and marine operations,
LNG operations, crude oil and gas marketing
activities, and the
profit element of transportation
operations in which we have an
ownership interest are
excluded.
Additional information about
selected line items within the results of operations
tables is shown below:
●
Sales include sales to unaffiliated entities attributable
primarily to the company’s
net working interests and royalty
interests.
Sales are net of fees to transport
our produced hydrocarbons
beyond the production function to
a final delivery
point using transportation operations
which are not consolidated.
●
Transportation
costs reflect fees to transport
our produced hydrocarbons
beyond the production function to a
final delivery
point using transportatio
n
operations which are consolidated.
●
Other revenues include gains and losses
from asset sales, certain amounts resulting from
the purchase and sale of
hydrocarbons, and other miscellaneous
income.
●
Production costs include costs incurred
to operate and maintain
wells, related equipment and facilities
used in the
production of petroleum liquids and natural
gas.
●
Taxes
other than income taxes include
production, property and other non-income taxes.
●
Depreciation of support equipment is reclassified as
applicable.
●
Other related expenses include inventory
fluctuations, foreign currency transaction
gains and losses and other
miscellaneous expenses.
Supplementary Data
ConocoPhillips
2021 10-K
Results of Operations
Year Ended
Millions of Dollars
December 31, 2021
Lower
Total
Asia Pacific/
Other
Alaska
U.S.
Canada
Europe
Middle East
Africa
Areas
Total
Consolidated operations
Sales
$
4,832
14,093
18,925
1,219
3,568
2,525
-
27,154
Transfers
-
-
-
-
-
-
Transportation costs
(626)
-
(626)
-
-
-
-
-
(626)
Other revenues
(5)
(161)
Total revenues
4,224
14,228
18,452
1,542
3,563
2,762
1,058
(161)
27,216
Production costs excluding taxes
1,073
2,414
3,487
-
5,001
Taxes
other than income taxes
1,379
1,531
Exploration expenses
Depreciation, depletion and
amortization
4,053
4,917
-
6,966
Impairments
(8)
(3)
(24)
-
-
(14)
Other related expenses
(31)
(19)
(22)
(42)
(63)
Accretion
-
-
1,720
6,675
8,395
2,171
1,330
(189)
13,265
Income tax provision (benefit)
1,467
1,845
1,673
(53)
4,974
Results of operations
$
1,342
5,208
6,550
(136)
8,291
Equity affiliates
Sales
$
-
-
-
-
-
-
-
Transfers
-
-
-
-
-
1,797
-
-
1,797
Transportation costs
-
-
-
-
-
-
-
-
-
Other revenues
-
-
-
-
-
-
-
Total revenues
-
-
-
-
-
2,547
-
-
2,547
Production costs excluding taxes
-
-
-
-
-
-
-
Taxes
other than income taxes
-
-
-
-
-
-
-
Exploration expenses
-
-
-
-
-
-
-
Depreciation, depletion and
amortization
-
-
-
-
-
Impairments
-
-
-
-
-
-
-
Other related expenses
-
-
-
-
-
-
-
Accretion
-
-
-
-
-
-
-
-
-
-
-
-
(205)
-
-
(205)
Income tax provision (benefit)
-
-
-
-
-
(42)
-
-
(42)
Results of operations
$
-
-
-
-
-
(163)
-
-
(163)
Supplementary Data
ConocoPhillips
2021 10-K
Year Ended
Millions of Dollars
December 31, 2020
Lower
Total
Asia Pacific/
Other
Alaska
U.S.
Canada
Europe
Middle East
Africa
Areas
Total
Consolidated operations
Sales
$
2,944
3,421
6,365
1,560
1,717
-
10,001
Transfers
-
-
-
-
-
Transportation costs
(587)
-
(587)
-
-
(19)
-
-
(606)
Other revenues
(1)
(20)
(21)
(21)
Total revenues
2,360
3,401
5,761
1,539
2,465
10,185
Production costs excluding taxes
1,058
1,399
2,457
3,741
Taxes
other than income taxes
Exploration expenses
1,099
1,172
1,456
Depreciation, depletion and
amortization
2,544
3,384
-
5,290
Impairments
-
-
-
-
Other related expenses
(58)
(25)
(29)
(54)
Accretion
-
-
(1,051)
(1,733)
(2,784)
(503)
1,058
(103)
(1,943)
Income tax provision (benefit)
(271)
(430)
(701)
(191)
(20)
(431)
Results of operations
$
(780)
(1,303)
(2,083)
(312)
(83)
(1,512)
Equity affiliates
Sales
$
-
-
-
-
-
-
-
Transfers
-
-
-
-
-
1,205
-
-
1,205
Transportation costs
-
-
-
-
-
-
-
-
-
Other revenues
-
-
-
-
-
-
-
Total revenues
-
-
-
-
-
1,696
-
-
1,696
Production costs excluding taxes
-
-
-
-
-
-
-
Taxes
other than income taxes
-
-
-
-
-
-
-
Exploration expenses
-
-
-
-
-
-
-
Depreciation, depletion and
amortization
-
-
-
-
-
-
-
Impairments
-
-
-
-
-
-
-
-
-
Other related expenses
-
-
-
-
-
(2)
-
-
(2)
Accretion
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Income tax provision (benefit)
-
-
-
-
-
-
-
Results of operations
$
-
-
-
-
-
-
-
Supplementary Data
ConocoPhillips
2021 10-K
Year Ended
Millions of Dollars
December 31, 2019
Lower
Total
Asia Pacific/
Other
Alaska
U.S.
Canada
Europe
Middle East
Africa
Areas
Total
Consolidated operations
Sales
$
4,883
6,356
11,239
3,207
3,032
-
19,106
Transfers
-
-
-
-
-
Transportation costs
(629)
-
(629)
-
-
(41)
-
-
(670)
Other revenues
1,785
2,449
Total revenues
4,319
6,434
10,753
4,992
3,452
1,020
21,338
Production costs excluding taxes
1,235
1,578
2,813
(8)
4,615
Taxes
other than income taxes
(2)
Exploration expenses
Depreciation, depletion and
amortization
2,804
3,504
1,172
-
5,785
Impairments
-
-
-
-
Other related expenses
(12)
(38)
(42)
Accretion
-
-
1,929
2,547
3,207
1,426
8,520
Income tax provision (benefit)
(74)
2,406
Results of operations
$
1,485
1,956
2,616
6,114
Equity affiliates
Sales
$
-
-
-
-
-
-
-
Transfers
-
-
-
-
-
2,229
-
-
2,229
Transportation costs
-
-
-
-
-
-
-
-
-
Other revenues
-
-
-
-
-
-
-
Total revenues
-
-
-
-
-
2,859
-
-
2,859
Production costs excluding taxes
-
-
-
-
-
-
-
Taxes
other than income taxes
-
-
-
-
-
-
-
Exploration expenses
-
-
-
-
-
-
-
-
-
Depreciation, depletion and
amortization
-
-
-
-
-
-
-
Impairments
-
-
-
-
-
-
-
-
-
Other related expenses
-
-
-
-
-
-
-
Accretion
-
-
-
-
-
-
-
-
-
-
-
-
1,098
-
-
1,098
Income tax provision (benefit)
-
-
-
-
-
-
-
Results of operations
$
-
-
-
-
-
-
-
Supplementary Data
ConocoPhillips
2021 10-K
Statistics
Net Production
Thousands of Barrels Daily
Crude Oil
Consolidated operations
Alaska
Lower 48
United States
Canada
Europe
Asia Pacific
Africa
Total
consolidated operations
Equity affiliates-
Asia Pacific/Middle East
Total
company
Delaware Basin Area (Lower 48)*
Greater Prudhoe Area (Alaska)*
Natural Gas Liquids
Consolidated operations
Alaska
Lower 48
United States
Canada
-
Europe
Asia Pacific
-
Total
consolidated operations
Equity affiliates-
Asia Pacific/Middle East
Total
company
Delaware Basin Area (Lower 48)*
Greater Prudhoe Area (Alaska)*
Bitumen
Consolidated operations-
Canada
Total
company
Natural Gas
Millions of Cubic Feet Daily
Consolidated operations
Alaska
Lower 48
1,340
United States
1,356
Canada
Europe
Asia Pacific
Africa
Total
consolidated operations
2,109
1,339
1,753
Equity affiliates-
Asia Pacific/Middle East
1,053
1,055
1,052
Total
company
3,162
2,394
2,805
Delaware Basin Area (Lower 48)*
Greater Prudhoe Area (Alaska)*
*At year-end 2021, the Delaware Basin Area in Lower 48 contained more than 15 percent of our total proved reserves. At year-end 2021, 2020
and 2019, the Greater Prudhoe Area in Alaska contained more than 15 percent of our total proved reserves.
Supplementary Data
ConocoPhillips
2021 10-K
Average Sales Prices
Crude Oil Per Barrel
Consolidated operations
Alaska*
$
60.81
33.72
55.85
Lower 48
66.12
35.17
55.30
United States
64.53
34.48
55.54
Canada
56.38
23.57
40.87
Europe
68.94
42.80
65.12
Asia Pacific
70.36
42.84
65.02
Africa
69.06
48.64
64.47
Total
international
68.85
42.39
64.85
Total
consolidated operations
65.53
36.69
58.51
Equity affiliates
-Asia Pacific/Middle East
69.45
39.02
61.32
Total
operations
65.59
36.75
58.57
Natural Gas Liquids Per Barrel
Consolidated operations
Lower 48
$
30.63
12.13
16.83
United States
30.63
12.13
16.85
Canada
31.18
5.41
19.87
Europe
43.97
23.27
29.37
Asia Pacific
-
33.21
37.85
Total
international
37.50
20.25
32.29
Total
consolidated operations
31.04
12.90
18.73
Equity affiliates
-Asia Pacific/Middle East
54.16
32.69
36.70
Total
operations
32.45
14.61
20.09
Bitumen Per Barrel
Consolidated operations-
Canada
$
37.52
8.02
**
31.72
Natural Gas Per Thousand Cubic Feet
Consolidated operations
Alaska
$
2.81
2.91
3.19
Lower 48
4.38
1.65
2.12
United States
4.38
1.66
2.12
Canada
2.54
1.21
0.49
Europe
13.75
3.23
4.92
Asia Pacific*
6.56
5.27
5.73
Africa
3.73
3.71
4.87
Total
international
8.91
4.31
5.35
Total
consolidated operations
6.00
3.13
4.19
Equity affiliates
-Asia Pacific/Middle East
5.31
3.71
6.29
Total
operations
5.77
3.38
4.99
*Average sales prices for Alaska crude oil and Asia Pacific natural gas above reflect a reduction for transportation costs in which we
have an ownership interest that are incurred subsequent to the terminal point of the production function.
Accordingly, the average sales prices
differ from those discussed in Item 7 of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
**Average sales prices include unutilized transportation costs.
Supplementary Data
ConocoPhillips
2021 10-K
Average Production Costs
Per Barrel of Oil Equivalent*
Consolidated operations
Alaska
$
14.92
14.60
15.52
Lower 48
8.48
9.93
9.59
United States
9.78
11.51
11.52
Canada
15.10
14.29
16.53
Europe
9.88
8.97
11.22
Asia Pacific
10.21
9.26
8.74
Africa
2.95
6.38
4.46
Total
international
10.53
10.11
10.26
Total
consolidated operations
9.99
10.99
10.99
Equity affiliates-
Asia Pacific/Middle East
4.60
4.01
4.68
Average Production Costs
Per Barrel-Bitumen
Consolidated operations-
Canada
$
13.41
12.45
13.74
Taxes
Other Than Income Taxes
Per Barrel of Oil Equivalent
Consolidated operations
Alaska
$
6.15
4.08
3.87
Lower 48
3.29
1.87
2.65
United States
3.87
2.62
3.05
Canada
0.67
0.62
0.78
Europe
0.73
0.65
0.48
Asia Pacific
1.99
0.81
0.76
Africa
0.07
0.91
0.19
Total
international
1.06
0.72
0.60
Total
consolidated operations
3.06
1.91
2.03
Equity affiliates-
Asia Pacific/Middle East
11.52
6.96
11.46
Depreciation, Depletion and Amortization Per Barrel of Oil Equivalent
Consolidated operations
Alaska
$
12.02
11.59
8.80
Lower 48
14.24
18.05
17.03
United States
13.79
15.86
14.35
Canada
11.16
13.08
10.00
Europe
17.13
16.24
12.75
Asia Pacific
17.25
15.66
16.55
Africa
2.40
2.43
2.36
Total
international
14.25
15.01
12.99
Total
consolidated operations
13.92
15.54
13.78
Equity affiliates-
Asia Pacific/Middle East
8.29
7.89
8.09
*Includes bitumen.
Supplementary Data
ConocoPhillips
2021 10-K
Development and Exploration Activities
The following two tables summarize
our net interest in productive
and dry exploratory and development
wells in
the years ended December 31, 2021, 2020 and 2019.
A “development well”
is a well drilled within the proved area
of a reservoir to the depth of a stratigraphic
horizon known to be productive.
An “exploratory
well” is a well drilled
to find and produce crude oil or natural
gas in an unknown field or a new reservoir within a proven
field.
Exploratory wells also include wells drilled in areas
near or offsetting current production,
or in areas where well
density or production history have
not achieved statistical certainty
of results.
Excluded from the exploratory
well
count are stratigraphic
-type exploratory wells, primarily relating
to oil sands delineation wells located in Canada
and CBM test wells located in Asia
Pacific/Middle East.
Net Wells Completed
Productive
Dry
Exploratory
Consolidated operations
Alaska
-
-
-
Lower 48
-
-
United States
Canada
-
-
-
-
Europe
-
-
-
*
Asia Pacific/Middle East
*
*
*
*
Africa
-
-
-
-
*
-
Other areas
-
-
-
-
*
-
Total
consolidated operations
Equity affiliates
Asia Pacific/Middle East
-
-
-
Total
equity affiliates
-
-
-
Development
Consolidated operations
Alaska
-
-
-
Lower 48
-
-
-
United States
-
-
-
Canada
-
-
-
-
Europe
-
-
-
Asia Pacific/Middle East
-
-
-
Africa
-
-
-
Other areas
-
-
-
-
-
-
Total
consolidated operations
-
-
-
Equity affiliates
Asia Pacific/Middle East
-
-
-
Total
equity affiliates
-
-
-
*Our total proportionate interest was less than one.
Supplementary Data
ConocoPhillips
2021 10-K
The table below represents the status
of our wells drilling at December 31, 2021, and includes wells in the
process of drilling or in active completion.
It also represents gross and net
productive wells, including producing
wells and wells capable of production at
December 31, 2021.
Wells at December 31, 2021
Productive
In Progress
Oil
Gas
Gross
Net
Gross
Net
Gross
Net
Consolidated operations
Alaska
1,602
-
-
Lower 48
16,306
8,015
5,091
2,211
United States
17,908
8,955
5,091
2,211
Canada
Europe
Asia Pacific/Middle East
Africa
Other areas
-
-
-
-
-
-
Total
consolidated operations
19,797
9,439
5,347
2,382
Equity affiliates
Asia Pacific/Middle East
-
-
4,908
1,171
Total
equity affiliates
-
-
4,908
1,171
Acreage at December 31, 2021
Thousands of Acres
Developed
Undeveloped
Gross
Net
Gross
Net
Consolidated operations
Alaska
1,341
1,329
Lower 48
4,096
2,538
10,514
8,233
United States
4,759
3,017
11,855
9,562
Canada
3,433
1,948
Europe
Asia Pacific/Middle East
10,451
6,930
Africa
12,545
2,049
Other areas
-
-
Total
consolidated operations
6,765
3,765
39,378
20,985
Equity affiliates
Asia Pacific/Middle East
1,039
3,807
Total equity
affiliates
1,039
3,807
Supplementary Data
ConocoPhillips
2021 10-K
Costs Incurred
Year Ended
Millions of Dollars
December 31
Lower
Total
Asia Pacific/
Other
Alaska
U.S.
Canada
Europe
Middle East
Africa
Areas
Total
Consolidated operations
Unproved property acquisition
$
11,261
11,262
-
-
-
-
11,266
Proved property acquisition
-
16,101
16,101
-
-
-
-
16,102
27,362
27,363
-
-
-
-
27,368
Exploration
1,053
Development
2,461
3,410
-
4,440
$
1,034
30,588
31,622
32,861
Equity affiliates
Unproved property acquisition
$
-
-
-
-
-
-
-
-
-
Proved property acquisition
-
-
-
-
-
-
-
-
-
-
-
Exploration
-
-
-
-
-
-
-
Development
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
Consolidated operations
Unproved property acquisition
$
-
-
Proved property acquisition
-
-
-
-
-
-
-
Exploration
Development
1,758
2,503
-
3,501
$
1,036
1,946
2,982
4,901
Equity affiliates
Unproved property acquisition
$
-
-
-
-
-
-
-
-
-
Proved property acquisition
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exploration
-
-
-
-
-
-
-
Development
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
Consolidated operations
Unproved property acquisition
$
-
-
-
Proved property acquisition
-
-
-
-
-
-
Exploration
1,103
Development
1,125
3,028
4,153
-
5,501
$
1,508
3,579
5,087
7,193
Equity affiliates
Unproved property acquisition
$
-
-
-
-
-
-
-
Proved property acquisition
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exploration
-
-
-
-
-
-
-
Development
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
Supplementary Data
ConocoPhillips
2021 10-K
Capitalized Costs
At December 31
Millions of Dollars
Lower
Total
Asia Pacific/
Other
Alaska
U.S.
Canada
Europe
Middle East
Africa
Areas
Total
Consolidated operations
Proved property
$
22,750
58,561
81,311
7,380
14,514
12,226
-
116,397
Unproved property
1,402
7,704
9,106
1,517
10,993
24,152
66,265
90,417
8,897
14,669
12,318
1,080
127,390
Accumulated depreciation,
depletion and amortization
11,945
29,975
41,920
2,749
10,166
9,240
64,506
$
12,207
36,290
48,497
6,148
4,503
3,078
-
62,884
Equity affiliates
Proved property
$
-
-
-
-
-
10,357
-
-
10,357
Unproved property
-
-
-
-
-
2,162
-
-
2,162
-
-
-
-
-
12,519
-
-
12,519
Accumulated depreciation,
depletion and amortization
-
-
-
-
-
8,539
-
-
8,539
$
-
-
-
-
-
3,980
-
-
3,980
Consolidated operations
Proved property
$
21,819
37,452
59,271
7,255
14,931
11,913
-
94,312
Unproved property
1,398
2,029
1,529
4,141
23,217
38,083
61,300
8,784
15,082
12,002
1,056
98,453
Accumulated depreciation,
depletion and amortization
11,098
27,948
39,046
2,431
10,015
8,567
60,455
$
12,119
10,135
22,254
6,353
5,067
3,435
37,998
Equity affiliates
Proved property
$
-
-
-
-
-
10,310
-
-
10,310
Unproved property
-
-
-
-
-
2,187
-
-
2,187
-
-
-
-
-
12,497
-
-
12,497
Accumulated depreciation,
depletion and amortization
-
-
-
-
-
6,959
-
-
6,959
$
-
-
-
-
-
5,538
-
-
5,538
Supplementary Data
ConocoPhillips
2021 10-K
Standardized Measure of
Discounted Future Net Cash Flows Relatin
g
to Proved Oil and Gas Reserve Quantities
In accordance with SEC and FASB
requirements, amounts were
computed using 12-month average
prices (adjusted only for existing
contractual terms) and end-of-year
costs, appropriate statutory
tax rates and a prescri
bed 10 percent discount factor.
Twelve-
month average prices are calculated
as the unweighted arithmetic average
of the first-day-of-the-month
price for each month within
the 12-month period prior to the end of the reporting period.
For all years, continuation of year
-end economic conditions was
assumed.
The calculations were based on estimates
of proved reserves, which are revised
over time as new data becomes available.
Probable or possible reserves, which may become
proved in the future, were not considered.
The calculations also require
assumptions as to the timing of future production
of proved reserves and the timing and amount
of future development costs,
including dismantlement, and future production
costs, including taxes other than
income taxes.
While due care was taken in
its preparation, we do not represent
that this data is the fair value of our
oil and gas properties, or a fair
estimate of the present value
of cash flows to be obtained from their development
and production.
Discounted Future Net Cash Flows
Millions of Dollars
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Consolidated operations
Future cash inflows
$
65,910
125,197
191,107
10,847
21,670
11,583
15,778
250,985
Less:
Future production costs
34,444
43,034
77,478
4,960
6,090
4,987
94,316
Future development costs
8,033
13,386
21,419
3,960
1,314
28,029
Future income tax provisions
5,310
13,167
18,477
8,345
1,542
13,506
41,987
Future net cash flows
18,123
55,610
73,733
4,847
3,275
3,740
1,058
86,653
10 percent annual discount
7,963
22,290
30,253
1,639
33,958
Discounted future net cash flows
$
10,160
33,320
43,480
3,208
2,579
2,810
52,695
Equity affiliates
Future cash inflows
$
-
-
-
-
-
27,851
-
27,851
Less:
Future production costs
-
-
-
-
-
15,491
-
15,491
Future development costs
-
-
-
-
-
1,649
-
1,649
Future income tax provisions
-
-
-
-
-
3,071
-
3,071
Future net cash flows
-
-
-
-
-
7,640
-
7,640
10 percent annual discount
-
-
-
-
-
2,640
-
2,640
Discounted future net cash flows
$
-
-
-
-
-
5,000
-
5,000
Total
company
Discounted future net cash flows
$
10,160
33,320
43,480
3,208
2,579
7,810
57,695
Supplementary Data
ConocoPhillips
2021 10-K
Millions of Dollars
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada*
Europe
Middle East
Africa
Total
Consolidated operations
Future cash inflows
$
30,145
31,533
61,678
4,198
9,857
7,940
9,997
93,670
Less:
Future production costs
22,905
17,582
40,487
4,316
4,770
3,838
1,277
54,688
Future development costs
7,932
12,799
20,731
3,688
1,289
26,919
Future income tax provisions
-
-
1,075
7,571
9,289
Future net cash flows
(692)
(868)
1,132
1,738
2,774
10 percent annual discount
(1,501)
(820)
(2,321)
(396)
(1,900)
Discounted future net cash flows
$
1,596
2,405
(472)
1,015
1,332
4,674
Equity affiliates
Future cash inflows
$
-
-
-
-
-
17,284
-
17,284
Less:
Future production costs
-
-
-
-
-
10,239
-
10,239
Future development costs
-
-
-
-
-
1,186
-
1,186
Future income tax provisions
-
-
-
-
-
1,728
-
1,728
Future net cash flows
-
-
-
-
-
4,131
-
4,131
10 percent annual discount
-
-
-
-
-
1,269
-
1,269
Discounted future net cash flows
$
-
-
-
-
-
2,862
-
2,862
Total
company
Discounted future net cash flows
$
1,596
2,405
(472)
1,015
4,194
7,536
*Undiscounted future net cash flows related to the proved oil and gas reserves disclosed for Canada for the year ending
December 31, 2020, are negative due to the
inclusion of asset retirement costs and certain indirect costs in the calculation of the standardized measure of discounted future net cash flows. These costs are not
required to be included in the economic limit test for proved developed reserves as defined in Regulation S-X Rule 4-10.
Future net cash flows for Canada were also
impacted by lower 12-month average pricing for bitumen and crude oil in 2020.
Commodity prices have since improved in the current environment.
Supplementary Data
ConocoPhillips
2021 10-K
Millions of Dollars
Lower
Total
Asia Pacific/
Alaska
U.S.
Canada
Europe
Middle East
Africa
Total
Consolidated operations
Future cash inflows
$
70,341
53,400
123,741
8,244
16,919
13,084
15,582
177,570
Less:
Future production costs
40,464
22,194
62,658
4,525
5,843
5,162
1,314
79,502
Future development costs
9,721
14,083
23,804
4,143
2,179
31,187
Future income tax provisions
3,904
2,793
6,697
-
4,201
1,931
12,747
25,576
Future net cash flows
16,252
14,330
30,582
3,142
2,732
3,812
1,037
41,305
10 percent annual discount
6,571
4,311
10,882
1,198
13,933
Discounted future net cash flows
$
9,681
10,019
19,700
1,944
2,174
2,977
27,372
Equity affiliates
Future cash inflows
$
-
-
-
-
-
31,671
-
31,671
Less:
Future production costs
-
-
-
-
-
16,157
-
16,157
Future development costs
-
-
-
-
-
1,218
-
1,218
Future income tax provisions
-
-
-
-
-
3,086
-
3,086
Future net cash flows
-
-
-
-
-
11,210
-
11,210
10 percent annual discount
-
-
-
-
-
4,040
-
4,040
Discounted future net cash flows
$
-
-
-
-
-
7,170
-
7,170
Total
company
Discounted future net cash flows
$
9,681
10,019
19,700
1,944
2,174
10,147
34,542
Supplementary Data
ConocoPhillips
2021 10-K
Sources of Change in Discounted
Future Net Cash Flows
Millions of Dollars
Consolidated Operations
Equity Affiliates
Total Company
Discounted future net cash flows
at the beginning of the year
$
4,674
27,372
35,434
2,862
7,170
7,929
7,536
34,542
43,363
Changes during the year
Revenues less production
costs for the year
(20,000)
(5,198)
(13,424)
(1,389)
(897)
(1,673)
(21,389)
(6,095)
(15,097)
Net change in prices and
production costs
50,956
(34,307)
(13,538)
3,822
(4,769)
(422)
54,778
(39,076)
(13,960)
Extensions, discoveries and
improved recovery,
less
estimated future costs
10,420
2,985
(44)
10,376
3,245
Development costs for the year
4,396
3,593
5,333
4,487
3,785
5,572
Changes in estimated future
development costs
(33)
(104)
(205)
(21)
(137)
Purchases of reserves in place,
less estimated future costs
17,833
-
(3)
-
17,833
(2)
Sales of reserves in place,
less estimated future costs
(468)
(302)
(1,997)
-
-
-
(468)
(302)
(1,997)
Revisions of previous quantity
estimates
2,985
(2,299)
2,099
(42)
3,163
(2,341)
2,168
Accretion of discount
3,984
5,144
1,308
4,788
6,013
Net change in income taxes
(19,032)
10,189
4,767
(760)
(80)
(19,792)
10,779
4,687
Total changes
48,021
(22,698)
(8,062)
2,138
(4,308)
(759)
50,159
(27,006)
(8,821)
Discounted future net cash flows
at year end
$
52,695
4,674
27,372
5,000
2,862
7,170
57,695
7,536
34,542
●
The net change in prices and production costs
is the beginning-of-year reserve-production
forecast multiplied by the net annual
change in the per-unit sales price and production
cost, discounted at 10 percent.
●
Purchases and sales of reserves in place, along with extensions,
discoveries and improved recovery,
are calculated using
production forecasts
of the applicable reserve quantities for the year
multiplied by the 12-month average
sales prices, less
future estimated costs, discounted
at 10 percent.
●
Revisions of previous quantity estimates
are calculated using production
forecast changes for
the year,
including changes in the
timing of production, multiplied by the 12-month average
sales prices, less future estimated costs,
discounted at 10 percent.
●
The accretion of discount is 10 percent of the prior
year’s discounted future
cash inflows, less future production
and
development costs.
●
The net change in income taxes
is the annual change in the discounted future
income tax provisions.
ConocoPhillips
2021 10-K

Item 9. Changes in and Disagreements with Accountants
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.

Item 9A. Controls and Procedures
Item 9A. 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 Securities and Exchange Commission rules
and
forms, and that such information
is accumulated and communicated
to management, including our principal
executive and principal financial officers,
as appropriate, to allow timely decisions
regarding required disclosure.
As of December 31, 2021, with the participation of our management,
our Chairman and Chief Executive Officer
(principal executive officer) and
our Executive Vice President and
Chief Financial Officer (principal financial officer)
carried out an evaluation, pursuant
to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure controls
and
procedures (as defined in Rule 13a-15(e) of the Act).
Based upon that evaluation, our Chairman and
Chief
Executive Officer and our Executive
Vice President and Chief Financial Officer concluded
our disclosure controls
and procedures were operating
effectively as of December 31, 2021.
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.
Management’s Annual Report
on Internal Control Over Financial Reporting
This report is included in Item 8 on page
and is incorporated herein by
reference.
Report of Independent Registered
Public Accounting Firm
This report is included in Item 8 on page 76 and is incorporated
herein by reference.

Item 9B. Other Information
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections
Not applicable.
ConocoPhillips
2021 10-K
Part III

Item 10. Directors, Executive Officers and Corporate Governance
Item 10.
Directors, Executive Officers
and Corporate Governance
Information regarding
our executive officers
appears in Part I of this report on page
30.
Code of Business Ethics and Conduct for Directors
and Employees
We have a Code of Business Ethics
and Conduct for Directors and Employees
(Code of Ethics), including our
principal executive officer,
principal financial officer,
principal accounting officer and persons
performing similar
functions.
We have posted
a copy of our Code of Ethics on the “Corporate
Governance” section of our internet
website at
www.conocophillips.com
(within the Investors>Corporate
Governance section)
.
Any waivers of the
Code of Ethics must be approved, in advance,
by our full Board of Directors.
Any amendments to, or waivers
from,
the Code of Ethics that apply to our executive
officers and directors
will be posted on the “Corporate Governance”
section of our internet website.
All other information required
by Item 10 of Part III will be included in our Proxy
Statement relating to our 2022
Annual Meeting of Stockholders, to be filed pursuant
to Regulation 14A on or before April
30, 2022, and is
incorporated herein by
reference.*

Item 11. Executive Compensation
Item 11.
Executive Compensation
Information required by Item
11 of Part III will be included in our Proxy
Statement relating to our 2022 Annual
Meeting of Stockholders, to be filed pursuant
to Regulation 14A on or before
April 30, 2022, and is incorporated
herein by reference.*

Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information required by Item
12 of Part III will be included in our Proxy
Statement relating to our 2022 Annual
Meeting of Stockholders, to be filed pursuant
to Regulation 14A on or before
April 30, 2022, and is incorporated
herein by reference.*

Item 13. Certain Relationships and Related Transactions
Item 13.
Certain Relationships and Related Transactions,
and Director
Independence
Information required by Item
13 of Part III will be included in our Proxy
Statement relating to our 2022 Annual
Meeting of Stockholders, to be filed pursuant
to Regulation 14A on or before
April 30, 2022, and is incorporated
herein by reference.*

Item 14. Principal Accountant Fees and Services
Item 14.
Principal Accounting Fees and Services
Information required by Item
14 of Part III will be included in our Proxy
Statement relating to our 2022 Annual
Meeting of Stockholders, to be filed pursuant
to Regulation 14A on or before
April 30, 2022, and is incorporated
herein by reference.*
_________________________
*Except for information or data specifically incorporated herein by reference under Items 10 through 14, other information and data appearing
in our 2022 Proxy
Statement are not deemed to be a part of this Annual Report on Form 10-K or deemed to be filed with the Commission as a
part of this report.
ConocoPhillips
2021 10-K
Part IV

Item 15. Exhibits and Financial Statement Schedules
Item 15.
Exhibits, Financial Statement Schedules
(a)
1.
Financial Statements and Supplementary
Data
The financial statements and supplementary
information listed in the Index
to Financial Statements,
which appears on page
, are filed as part of this annual report.
2.
Financial Statement Schedules
All financial statement schedules
are omitted because they are
not required, not significant, not
applicable or the information is shown
in another schedule, the financial statements
or the notes to
consolidated financial statements.
3.
Exhibits
The exhibits listed in the Index to
Exhibits, which appears on pages
through 185, are filed as part of
this annual report.
ConocoPhillips
2021 10-K
ConocoPhillips
Index to Exhibits
Incorporated by Reference
Exhibit
No.
Description
Exhibit
Form
File No.
2.1
Separation and Distribution Agreement Between ConocoPhillips and Phillips
66, dated April 26, 2012.
2.1
8-K
001-32395
2.2†‡
Purchase and Sale Agreement, dated March 29, 2017, by and among
ConocoPhillips Company, ConocoPhillips Canada Resources Corp.,
ConocoPhillips Canada Energy Partnership, ConocoPhillips Western Canada
Partnership, ConocoPhillips Canada (BRC) Partnership, ConocoPhillips Canada
E&P ULC, and Cenovus Energy Inc.
2.1
10-Q
001-32395
2.3†‡
Asset Purchase and Sale Agreement Amending Agreement, dated as of May
16, 2017, by and among ConocoPhillips Company, ConocoPhillips Canada
Resources Corp., ConocoPhillips Canada Energy Partnership, ConocoPhillips
Western Canada Partnership, ConocoPhillips Canada (BRC) Partnership,
ConocoPhillips Canada E&P ULC, and Cenovus Energy Inc.
2.2
8-K
001-32395
2.4
Agreement and Plan of Merger, dated as of October 18, 2020, among
ConocoPhillips, Falcon Merger Sub Corp. and Concho Resources Inc.
2.1
8-K
001-32395
3.1
Amended and Restated Certificate of Incorporation.
3.1
10-Q
001-32395
3.2
Certificate of Designations of Series A Junior Participating Preferred Stock of
ConocoPhillips.
3.2
8-K
000-49987
3.3
Amended and Restated By-Laws of ConocoPhillips, as amended and restated
as of October 9, 2015.
3.1
8-K
001-32395
3.4*
Restated Certificate of Incorporation of ConocoPhillips Company, dated
February 6, 2019.
ConocoPhillips and its subsidiaries are parties to
several debt instruments
under which the total amount of securities authorized
does not exceed
10 percent of the total assets of ConocoPhillips
and its subsidiaries on a
consolidated basis.
Pursuant to paragraph
4(iii)(A) of Item 601(b) of
Regulation S-K, ConocoPhillips
agrees to furnish a copy of such instruments
to
the SEC upon request.
4.1
Description of Securities of the Registrant.
4.1
10-K
001-32395
10.1
1986 Stock Plan of Phillips Petroleum Company.
10.11
10-K
004-49987
10.2
1990 Stock Plan of Phillips Petroleum Company.
10.12
10-K
004-49987
10.5
Amendment and Restatement of ConocoPhillips Supplemental Executive
Retirement Plan, dated April 19, 2012.
10.14
10-Q
001-32395
10.7
Omnibus Securities Plan of Phillips Petroleum Company.
10.19
10-K
004-49987
10.10.1
Amended and Restated ConocoPhillips Key Employee Supplemental
Retirement Plan, dated January 1, 2020.
10.10.1
10-K
001-32395
10.10.2
Eighth Amendment to Retirement Plans as amended and restated effective
January 1, 2016.
10.1
10-Q
001-32395
ConocoPhillips
2021 10-K
10.11.1
Amended and Restated Defined Contribution Make-Up Plan of
ConocoPhillips-Title I, dated January 1, 2020.
10.11.1
10-K
001-32395
10.11.2
Amended and Restated Defined Contribution Make-Up Plan of
ConocoPhillips-Title II, dated January 1, 2020.
10.11.2
10-K
001-32395
10.12
2002 Omnibus Securities Plan of Phillips Petroleum Company.
10.26
10-K
000-49987
10.15
Deferred Compensation Plan for Non-Employee Directors of ConocoPhillips.
10.17
10-K
001-32395
10.16.1
Rabbi Trust Agreement dated December 17, 1999.
10.11
10-K
001-14521
10.16.2
Amendment to Rabbi Trust Agreement dated February 25, 2002.
10.39.1
10-K
000-49987
10.16.3
Phillips Petroleum Company Grantor Trust Agreement, dated June 1, 1998.
10.17.3
10-K
001-32395
10.16.4
First Amendment to the Trust Agreement under the Phillips Petroleum
Company Grantor Trust Agreement, dated May 3, 1999.
10.17.4
10-K
001-32395
10.16.5
Second Amendment to the Trust Agreement under the Phillips Petroleum
Company Grantor Trust Agreement, dated January 15, 2002.
10.17.5
10-K
001-32395
10.16.6
Third Amendment to the Trust Agreement under the Phillips Petroleum
Company Grantor Trust Agreement, dated October 5, 2006.
10.17.6
10-K
001-32395
10.16.7
Fourth Amendment to the Trust Agreement under the
ConocoPhillips Company Grantor Trust Agreement, dated May 1, 2012.
10.17.7
10-K
001-32395
10.16.8
Fifth Amendment to the Trust Agreement under the ConocoPhillips Company
Grantor Trust Agreement, dated May 20, 2015.
10.17.8
10-K
001-32395
10.17.1
ConocoPhillips Directors’ Charitable Gift Program.
10.40
10-K
000-49987
10.17.2
First and Second Amendments to the ConocoPhillips Directors’ Charitable Gift
Program.
10-Q
001-32395
10.19.1
Amended and Restated Key Employee Deferred Compensation Plan of
ConocoPhillips-Title I, dated January 1, 2020.
10.19.1
10-K
001-32395
10.19.2
Amended and Restated Key Employee Deferred Compensation Plan of
ConocoPhillips-Title II, dated January 1, 2020.
10.19.2
10-K
001-32395
10.20
Amendment and Restatement of ConocoPhillips Key Employee Change in
Control Severance Plan, effective January 1, 2014.
10.21
10-K
001-32395
10.20.1*
Amendment and Restatement of ConocoPhillips Key Employee Change in
Control Severance Plan, effective December 2, 2021.
10.22.1
2004 Omnibus Stock and Performance Incentive Plan of ConocoPhillips.
Schedule
14A
Proxy
000-49987
10.22.2
Form of Stock Option Award Agreement under the Stock Option and Stock
Appreciation Rights Program under the 2004 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips.
10.26
10-K
001-32395
10.22.3
Form of Performance Share Unit Award Agreement under the Performance
Share Program under the 2004 Omnibus Stock and Performance Incentive
Plan of ConocoPhillips.
10.27
10-K
001-32395
10.23
Omnibus Amendments to certain ConocoPhillips employee benefit plans,
adopted December 7, 2007.
10.30
10-K
001-32395
ConocoPhillips
2021 10-K
10.24
2009 Omnibus Stock and Performance Incentive Plan of ConocoPhillips.
Schedule
14A
Proxy
001-32395
10.25.1
2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips.
Schedule
14A
Proxy
001-32395
10.25.2
Form of Stock Option Award Agreement under the Stock Option and Stock
Appreciation Rights Program under the 2011 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips, effective February 9, 2012.
10-Q
001-32395
10.25.4
Form of Performance Share Unit Agreement under the Restricted Stock
Program under the 2011 Omnibus Stock and Performance Incentive Plan of
ConocoPhillips, dated February 5, 2013.
10.26.6
10-K
001-32395
10.25.7
Form of Stock Option Award Agreement under the Stock Option and Stock
Appreciation Rights Program under the 2011 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips, dated February 5, 2013.
10.26.9
10-K
001-32395
10.25.8
Form of Make-Up Grant Award Agreement under the 2011 Omnibus Stock and
Performance Incentive Plan of ConocoPhillips, dated January 1, 2012.
10.2
10-Q
001-32395
10.25.9
Form of Key Employee Award Agreement, as part of the ConocoPhillips Stock
Option Program granted under the 2011 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips, dated February 18, 2014.
10.1
10-Q
001-32395
10.25.10
Form of Key Employee Award Agreement, as part of the ConocoPhillips Stock
Option Program granted under the 2014 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips, dated February 16, 2016.
10.26.12
10-K
001-32395
10.25.12
Form of Performance Period IX Award Agreement, as part of the
ConocoPhillips Performance Share Program granted under the 2011 Omnibus
Stock and Performance Incentive Plan of ConocoPhillips, dated February 18,
2014.
10.3
10-Q
001-32395
10.25.14
Form of Performance Period X Award Agreement, as part of the
ConocoPhillips Performance Share Program granted under the 2011 Omnibus
Stock and Performance Incentive Plan of ConocoPhillips, dated February 18,
2014.
10.5
10-Q
001-32395
10.25.17
Form of Inducement Grant Award Agreement under the 2011 Omnibus Stock
and Performance Incentive Plan of ConocoPhillips, dated March 31, 2014.
10.11
10-Q
001-32395
10.25.18
Form of Performance Share Unit Award Terms and Conditions for
Performance Period 18, as part of the ConocoPhillips Performance Share
Program granted under the 2014 Omnibus Stock and Performance Incentive
Plan of ConocoPhillips, dated February 13, 2018.
10.26.24
10-K
001-32395
10.26.1
2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips.
10.1
8-K
001-32395
10.26.4
Form of Non-Employee Director Restricted Stock Units Terms and Conditions,
as part of the Deferred Compensation Plan for Non-Employee Directors of
ConocoPhillips, dated January 15, 2016.
10.3
10-Q
001-32395
10.26.7
Form of Key Employee Award Terms and Conditions, as part of the
ConocoPhillips Stock Option Program granted under the 2014 Omnibus Stock
and Performance Incentive Plan of ConocoPhillips, dated February 14, 2017.
10.1
10-Q
001-32395
ConocoPhillips
2021 10-K
10.26.11
Form of Key Employee Award Terms and Conditions as part of the
ConocoPhillips Executive Restricted Stock Unit Program granted under the
2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated
February 13, 2018.
10.27.12
10-K
001-32395
10.26.13
Form of Key Employee Award Terms and Conditions as part of the
ConocoPhillips Restricted Stock Program granted under the 2014 Omnibus
Stock and Performance Incentive Plan of ConocoPhillips, dated February 13,
2018.
10.27.14
10-K
001-32395
10.26.14
Form of Retention Award Terms and Conditions, 2017 revision, as part of the
Restricted Stock Unit Award, granted under the 2014 Omnibus Stock and
Performance Incentive Plan of ConocoPhillips.
10.27.15
10-K
001-32395
10.26.15
Form of Key Employee Award Terms and Conditions as part of the
ConocoPhillips Restricted Stock Unit Program granted under the 2014
Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated
February 14, 2019.
10.27.16
10-K
001-32395
10.27
Amended and Restated 409A Annex to Nonqualified Deferred Compensation
Arrangements of ConocoPhillips, dated January 1, 2020.
10.27
10-K
001-32395
10.29
Amendment and Restatement of the Burlington Resources Inc. Management
Supplemental Benefits Plan, dated April 19, 2012.
10.9
10-Q
001-32395
10.30.1
Successor Trustee Agreement of the Deferred Compensation Trust Agreement
for Non-Employee Directors of ConocoPhillips dated July 31, 2020.
10.1
10-Q
001-32395
10.30.2
First Amendment to the Successor Trust Agreement of the Deferred
Compensation Trust Agreement for Non-Employee Directors of
ConocoPhillips, dated August 4, 2020.
10.2
10-Q
001-32395
10.31
Indemnification and Release Agreement between ConocoPhillips and Phillips
66, dated April 26, 2012.
10.1
8-K
001-32395
10.32
Intellectual Property Assignment and License Agreement between
ConocoPhillips and Phillips 66, dated April 26, 2012.
10.2
8-K
001-32395
10.33
Tax Sharing Agreement between ConocoPhillips and Phillips 66, dated April
26, 2012.
10.3
8-K
001-32395
10.34
Employee Matters Agreement between ConocoPhillips and Phillips 66, dated
April 12, 2012.
10.4
8-K
001-32395
10.36
ConocoPhillips Clawback Policy dated October 3, 2012.
10.3
10-Q
001-32395
10.37
Term Loan Agreement, between ConocoPhillips, as borrower, ConocoPhillips
Company, as guarantor, Toronto Dominion (Texas) LLC, as administrative
agent and the banks party thereto, with TD Securities (USA) LLC, as lead
arranger and bookrunner, dated March 18, 2016.
10.1
8-K
001-32395
10.38
Company Retirement Contribution Make-Up Plan of ConocoPhillips, dated
December 28, 2018.
10.39
10-K
001-32395
10.40
Form of Key Employee Award Terms and Conditions, as part of the
ConocoPhillips Targeted Variable Long Term Incentive Program, granted under
the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips,
dated September 23, 2019.
10.1
10-Q
001-32395
10.41
ConocoPhillips Executive Restricted Stock Unit Program, dated February 11,
2020.
10.1
10-Q
001-32395
ConocoPhillips
2021 10-K
10.42
Form of Retention Award Terms and Conditions, as part of the Restricted
Stock Unit Award, granted under the 2014 Omnibus Stock and Performance
Incentive Plan of ConocoPhillips.
10.1
10-Q
001-32395
10.43
Form of Inducement Grant Award Agreement under the 2014 Omnibus Stock
and Performance Incentive Plan of ConocoPhillips, dated January 15, 2021.
10.3
10-Q
001-32395
10.44
Compensation Resolutions regarding Matthew J. Fox, dated April 8, 2021.
10.1
10-Q
001-32395
10.45
Form of Aircraft Time Sharing Agreement by and between certain executives
and ConocoPhillips dated June 21, 2021.
10.2
10-Q
001-32395
10.46
Purchase and Sale Agreement, dated as of September 20, 2021, by and
between Shell Enterprises LLC and ConocoPhillips.
10.1
10-Q
001-32395
10.47*
Amendment and Restatement of ConocoPhillips Executive Severance Plan,
dated December 2, 2021.
21*
List of Subsidiaries of ConocoPhillips.
22*
Subsidiary Guarantors of Guaranteed Securities.
23.1*
Consent of Ernst & Young LLP.
23.2*
Consent of DeGolyer and MacNaughton.
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.
99*
Report of DeGolyer and MacNaughton.
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Schema Document.
101.CAL*
Inline XBRL Calculation Linkbase Document.
101.DEF*
Inline XBRL Definition Linkbase Document.
101.LAB*
Inline XBRL Labels Linkbase Document.
101.PRE*
Inline XBRL Presentation Linkbase Document.
104*
Cover Page Interactive
Data File (formatted
as Inline XBRL and contained in
Exhibit 101).
*
Filed herewith.
†
The schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
ConocoPhillips agrees to furnish
a copy of any schedule omitted from this exhibit to the SEC upon request.
‡ ConocoPhillips has previously been granted confidential treatment for certain portions
of this exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
ConocoPhillips
2021 10-K
Signature
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONOCOPHILLIPS
February 17, 2022
/s/ Ryan M. Lance
Ryan M. Lance
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report
has been signed, as of February
17, 2022, on behalf of the registrant
by the following officers in the capacity
indicated and by a majority of
directors.
Signature
Title
/s/ Ryan M. Lance
Chairman of the Board of Directors
Ryan M. Lance
and Chief Executive Officer
(Principal executive officer)
/s/ William L. Bullock, Jr.
Executive Vice President and
William L. Bullock, Jr.
Chief Financial Officer
(Principal financial officer)
/s/ Kontessa S. Haynes-Welsh
Chief Accounting Officer
Kontessa S. Haynes-Welsh
(Principal accounting officer)
ConocoPhillips
2021 10-K
/s/ Charles E. Bunch
Director
Charles E. Bunch
/s/ Caroline M. Devine
Director
Caroline M. Devine
/s/ Gay Huey Evans
Director
Gay Huey Evans
/s/ John V.
Faraci
Director
John V.
Faraci
/s/ Jody Freeman
Director
Jody Freeman
/s/ Jeffrey A. Joerres
Director
Jeffrey A. Joerres
/s/ Timothy A. Leach
Director
Timothy A. Leach
/s/ William H. McRaven
Director
William H. McRaven
/s/ Sharmila Mulligan
Director
Sharmila Mulligan
/s/ Eric D. Mullins
Director
Eric D. Mullins
/s/ Arjun N. Murti
Director
Arjun N. Murti
/s/ Robert A. Niblock
Director
Robert A. Niblock
/s/ David T.
Seaton
Director
David T.
Seaton
/s/ R.A. Walker
Director
R.A. Walker