cop-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission file number: 001-32395

ConocoPhillips

(Exact name of registrant as specified in its charter)


			Delaware			01-0562944
			(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

925 N. Eldridge Parkway, Houston, TX 77079

(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbols	Name of each exchange on which registered
Common Stock, $.01 Par Value	COP	New York Stock Exchange
7% Debentures due 2029	CUSIP—718507BK1	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 1,187,407,942 shares of common stock, $.01 par value, outstanding at September 30, 2023.

Table of Contents


			Page
Commonly Used Abbreviations			1

Part I—Financial Information

Item 1. Financial Statements
Consolidated Income Statement			2
Consolidated Statement of Comprehensive Income			3
Consolidated Balance Sheet			4
Consolidated Statement of Cash Flows			5
Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26

Item 3. Quantitative and Qualitative Disclosures About Market Risk			49

Item 4. Controls and Procedures			49

Part II—Other Information

Item 1. Legal Proceedings			49

Item 1A. Risk Factors			49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50

Item 5. Other Information			50

Item 6. Exhibits			51

Signature			52


Commonly Used Abbreviations			Table of Contents

Commonly Used Abbreviations

The following industry-specific, accounting and other terms, and abbreviations may be commonly used in this report.


Currencies		Accounting
$ or USD	U.S. dollar	ARO	asset retirement obligation
CAD	Canadian dollar	ASC	accounting standards codification
EUR	Euro	ASU	accounting standards update
GBP NOK	British pound Norwegian kroner	DD&A	depreciation, depletion and amortization
		FASB	Financial Accounting Standards Board
Units of Measurement
BBL	barrel	FIFO	first-in, first-out
BCF	billion cubic feet	G&A	general and administrative
BOE	barrel of oil equivalent	GAAP	generally accepted accounting principles
MBD	thousands of barrels per day
MCF	thousand cubic feet	LIFO	last-in, first-out
MM	million	NPNS	normal purchase normal sale
MMBOE	million barrels of oil equivalent	PP&E	properties, plants and equipment
MBOED	thousand barrels of oil equivalent per day	VIE	variable interest entity
MMBOED	million barrels of oil equivalent per day
MMBTU	million British thermal units	Miscellaneous
MMCFD MTPA	million cubic feet per day million tonnes per annum	CERCLA	Federal Comprehensive Environmental Response Compensation and Liability Act
		DEI	diversity, equity and inclusion
Industry		EPA	Environmental Protection Agency
BLM	Bureau of Land Management	ESG	Environmental, Social and Corporate Governance
CBM	coalbed methane
CCS	carbon capture and storage	EU	European Union
E&P	exploration and production	FERC	Federal Energy Regulatory Commission
FEED	front-end engineering and design
FID	final investment decision	GHG	greenhouse gas
FPS	floating production system	HSE	health, safety and environment
FPSO	floating production, storage and	ICC	International Chamber of Commerce
	offloading	ICSID	World Bank’s International
G&G	geological and geophysical		Centre for Settlement of
JOA	joint operating agreement		Investment Disputes
LNG	liquefied natural gas	IRS	Internal Revenue Service
NGLs	natural gas liquids	OTC	over-the-counter
OPEC	Organization of Petroleum	NYSE	New York Stock Exchange
	Exporting Countries	SEC	U.S. Securities and Exchange
PSC	production sharing contract		Commission
PUDs	proved undeveloped reserves	TSR	total shareholder return
SAGD	steam-assisted gravity drainage	U.K.	United Kingdom
WCS	Western Canadian Select	U.S.	United States of America
WTI	West Texas Intermediate	VROC	variable return of cash


1			ConocoPhillips 2023 Q3 10-Q


Financial Statements			Table of Contents

PART I. Financial Information

Item 1. Financial Statements


Consolidated Income Statement			ConocoPhillips


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Revenues and Other Income
Sales and other operating revenues	$	14,250	21,013	41,412	59,936
Equity in earnings of affiliates	388		561	1,299	1,511
Gain (loss) on dispositions	108		(40)	200	1,039
Other income	120		80	356	408
Total Revenues and Other Income	14,866		21,614	43,267	62,894
Costs and Expenses
Purchased commodities	5,543		9,251	16,297	25,236
Production and operating expenses	1,995		1,799	5,660	5,121
Selling, general and administrative expenses	169		148	533	431
Exploration expenses	92		89	313	301
Depreciation, depletion and amortization	2,095		1,872	6,047	5,505
Impairments	11		2	12	6
Taxes other than income taxes	536		843	1,624	2,677
Accretion on discounted liabilities	68		60	204	182
Interest and debt expense	194		199	561	627
Foreign currency transaction (gain) loss	55		(93)	(3)	(139)
Other expenses	8		4	(5)	(46)
Total Costs and Expenses	10,766		14,174	31,243	39,901
Income before income taxes	4,100		7,440	12,024	22,993
Income tax provision	1,302		2,913	4,074	7,562


Net Income	$	2,798	4,527	7,950	15,431

Net Income Per Share of Common Stock (dollars)
Basic	$	2.33	3.56	6.56	11.96
Diluted	2.32		3.55	6.54	11.93
Average Common Shares Outstanding (in thousands)
Basic	1,196,641		1,265,893	1,208,018	1,285,739
Diluted	1,199,746		1,269,321	1,211,012	1,289,953

See Notes to Consolidated Financial Statements.


			ConocoPhillips 2023 Q3 10-Q			2


Financial Statements			Table of Contents


Consolidated Statement of Comprehensive Income			ConocoPhillips


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Net Income	$	2,798	4,527	7,950	15,431
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit included in net income	(9)		(10)	(28)	(30)
Net change	(9)		(10)	(28)	(30)
Net actuarial loss arising during the period	—		(23)	—	(105)
Reclassification adjustment for amortization of net actuarial losses included in net income	20		17	62	58
Net change	20		(6)	62	(47)

Income taxes on defined benefit plans	(2)		4	(8)	16
Defined benefit plans, net of tax	9		(12)	26	(61)
Unrealized holding gain (loss) on securities	—		(7)	3	(16)
Reclassification adjustment for gain included in net income	(1)		(1)	(3)	(1)
Income taxes on unrealized holding loss on securities	—		2	—	4
Unrealized holding loss on securities, net of tax	(1)		(6)	—	(13)


Foreign currency translation adjustments, net of tax	(80)		(534)	(23)	(841)
Unrealized gain on hedging activities	46		—	46	—
Income taxes on unrealized gain on hedging activities	(10)		—	(10)	—
Unrealized gain on hedging activities, net of tax	36		—	36	—
Other Comprehensive Income (Loss), Net of Tax	(36)		(552)	39	(915)


Comprehensive Income	$	2,762	3,975	7,989	14,516

See Notes to Consolidated Financial Statements.


3			ConocoPhillips 2023 Q3 10-Q


Financial Statements			Table of Contents


Consolidated Balance Sheet			ConocoPhillips


	Millions of Dollars
	September 30 2023		December 31 2022
Assets
Cash and cash equivalents	$	8,830	6,458
Short-term investments	616		2,785
Accounts and notes receivable (net of allowance of $3 and $2, respectively)	5,658		7,075
Accounts and notes receivable—related parties	13		13

Inventories	1,326		1,219
Prepaid expenses and other current assets	738		1,199
Total Current Assets	17,181		18,749
Investments and long-term receivables	8,731		8,225

Net properties, plants and equipment (net of accumulated DD&A of $71,630 and $66,630, respectively)	65,561		64,866
Other assets	2,178		1,989
Total Assets	$	93,651	93,829

Liabilities
Accounts payable	$	5,119	6,113
Accounts payable—related parties	24		50
Short-term debt	881		417
Accrued income and other taxes	1,919		3,193
Employee benefit obligations	691		728
Other accruals	1,704		2,346
Total Current Liabilities	10,338		12,847
Long-term debt	18,182		16,226
Asset retirement obligations and accrued environmental costs	6,425		6,401
Deferred income taxes	8,325		7,726
Employee benefit obligations	956		1,074
Other liabilities and deferred credits	1,680		1,552
Total Liabilities	45,906		45,826

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)
Issued (2023—2,103,596,767 shares; 2022—2,100,885,134 shares)
Par value	21		21
Capital in excess of par	61,262		61,142
Treasury stock (at cost: 2023—916,188,825 shares; 2022—877,029,062 shares)	(64,529)		(60,189)
Accumulated other comprehensive loss	(5,961)		(6,000)
Retained earnings	56,952		53,029
Total Equity	47,745		48,003
Total Liabilities and Equity	$	93,651	93,829

See Notes to Consolidated Financial Statements.


			ConocoPhillips 2023 Q3 10-Q			4


Financial Statements			Table of Contents


Consolidated Statement of Cash Flows			ConocoPhillips


	Millions of Dollars
	Nine Months Ended September 30
	2023		2022
Cash Flows From Operating Activities
Net income	$	7,950	15,431
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization	6,047		5,505
Impairments	12		6
Dry hole costs and leasehold impairments	151		136
Accretion on discounted liabilities	204		182
Deferred taxes	753		1,594
Undistributed equity earnings	920		569
Gain on dispositions	(200)		(1,039)
Gain on investment in Cenovus Energy	—		(251)
Other	16		(38)
Working capital adjustments
Decrease (increase) in accounts and notes receivable	1,147		(1,317)
Increase in inventories	(114)		(64)
Decrease (increase) in prepaid expenses and other current assets	486		(469)
Increase (decrease) in accounts payable	(837)		1,098
Increase (decrease) in taxes and other accruals	(1,833)		379
Net Cash Provided by Operating Activities	14,702		21,722
Cash Flows From Investing Activities
Capital expenditures and investments	(8,365)		(7,626)
Working capital changes associated with investing activities	(175)		542
Acquisition of businesses, net of cash acquired	—		37
Proceeds from asset dispositions	613		3,354
Net sales (purchases) of investments	1,860		(2,235)
Collection of advances/loans—related parties	—		114
Other	(81)		7
Net Cash Used in Investing Activities	(6,148)		(5,807)
Cash Flows From Financing Activities
Issuance of debt	3,787		2,897
Repayment of debt	(1,243)		(5,874)
Issuance of company common stock	(57)		345
Repurchase of company common stock	(4,300)		(6,524)
Dividends paid	(4,175)		(3,336)
Other	(34)		(53)
Net Cash Used in Financing Activities	(6,022)		(12,545)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(150)		(452)
Net Change in Cash, Cash Equivalents and Restricted Cash	2,382		2,918
Cash, cash equivalents and restricted cash at beginning of period	6,694		5,398
Cash, Cash Equivalents and Restricted Cash at End of Period	$	9,076	8,316

Restricted cash of $246 million and $236 million is included in the "Other assets" line of our Consolidated Balance Sheet as of September 30, 2023 and December 31, 2022, respectively.

See Notes to Consolidated Financial Statements.


5			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation

The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips, its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2022 Annual Report on Form 10-K.

Note 2—Inventories


	Millions of Dollars
	September 30 2023		December 31 2022
Crude oil and natural gas	$	664	641
Materials and supplies	662		578
Total inventories	$	1,326	1,219

Inventories valued on the LIFO basis	$	374	396

Note 3—Acquisitions and Dispositions

Acquisitions

Surmont

On October 4, 2023, we completed our acquisition of the remaining 50 percent working interest in Surmont from TotalEnergies EP Canada Ltd. Fair value of consideration for the transaction was approximately $3.0 billion after customary adjustments (CAD $4.1 billion):


Fair value of consideration	Billions of Dollars
Cash paid	$	2.7
Contingent consideration	0.3
Total Consideration	$	3.0

The transaction will be accounted for as a business combination under FASB ASC 805 using the acquisition method, which requires assets acquired and liabilities assumed to be measured at their acquisition date fair values.

The contingent payment arrangement requires additional consideration to be paid to TotalEnergies EP Canada Ltd. up to $0.4 billion CAD ($0.3 billion) over a five-year term. The contingent payments represent $2.0 million for every dollar that WCS pricing exceeds $52 per barrel during the month, subject to certain production targets being achieved. The range of the undiscounted amounts we could pay under the contingent consideration arrangement is between $0 and $0.3 billion. The fair value of the contingent consideration on the acquisition date was $0.3 billion and estimated by applying the income approach.

We are currently in the process of finalizing the initial accounting for the transaction and provisional fair value measurements will be made in the fourth quarter of 2023. We may adjust the measurements in subsequent periods, up to one year from the acquisition date as we identify additional information to complete the necessary analysis.


			ConocoPhillips 2023 Q3 10-Q			6


Notes to Consolidated Financial Statements			Table of Contents

QatarEnergy LNG NFS(3) (NFS3), formerly Qatar Liquefied Gas Company Limited (12) (QG12)

During 2022, we were awarded a 25 percent interest in NFS3, a new joint venture with QatarEnergy, to participate in the North Field South (NFS) LNG project. Formation of the NFS joint venture, NFS3, closed in June 2023. NFS3 has a 25 percent interest in the NFS project and is reported as an equity method investment in our Europe, Middle East and North Africa segment. See Note 4.

Port Arthur Liquefaction Holdings, LLC (PALNG)

In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility for the first phase of the Port Arthur LNG project ("Phase 1"). Sempra PALNG Holdings, LLC owns the remaining 70 percent interest in the joint venture. PALNG is reported as an equity method investment in our Corporate and Other segment. See Note 4.

Planned Acquisition

Australia Pacific LNG Pty Ltd (APLNG)

In March 2023, we announced that, subject to the closing of EIG's transaction with Origin Energy, we intend to purchase up to an additional 2.49 percent shareholding interest in APLNG for $0.5 billion, subject to customary adjustments. Upon closing we will own up to 49.99 percent interest in APLNG. The transaction is expected to close in late 2023 or early 2024, with an effective date of July 1, 2022. Both EIG's transaction with Origin Energy and our shareholder acquisition are subject to regulatory approvals and other customary closing conditions.

Note 4—Investments and Long-Term Receivables

APLNG

In 2012, APLNG executed an $8.5 billion project finance facility that became non-recourse following financial completion in 2017. The facility is currently 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 principal and interest payments commenced in March 2017 and are scheduled to occur bi-annually until September 2030. At September 30, 2023, a balance of $4.7 billion was outstanding on these facilities. See Note 8.

At September 30, 2023, the carrying value of our equity method investment in APLNG was approximately $5.4 billion.

PALNG

In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility. At September 30, 2023, the carrying value of our equity method investment in PALNG was approximately $0.9 billion. See Note 3.

QatarEnergy LNG

In the third quarter of 2023, the names of all the Qatar Liquefied Gas Company Limited joint ventures were changed to QatarEnergy LNG.

Our equity method investments in Qatar include the following:

•QatarEnergy LNG N(3) (N3), formerly Qatar Liquefied Gas Company Limited (3) (QG3)—30 percent owned joint venture with affiliates of QatarEnergy (68.5 percent) and Mitsui (1.5 percent)—produces and liquefies natural gas from Qatar’s North Field, as well as exports LNG.

•QatarEnergy LNG NFE(4) (NFE4), formerly Qatar Liquefied Gas Company Limited (8) (QG8)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the North Field East project.

•QatarEnergy LNG NFS(3) (NFS3), formerly Qatar Liquefied Gas Company Limited (12) (QG12)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the North Field South project. See Note 3.

At September 30, 2023, the carrying value of our Qatar equity method investments was approximately $1.1 billion.

Note 5—Investment in Cenovus Energy

During the first quarter of 2022, we sold our remaining 91 million common shares of Cenovus Energy (CVE), recognizing proceeds of $1.4 billion and a net gain of $251 million. The gain was recognized within "Other income” on our consolidated income statement. Proceeds related to the sale of our CVE shares were included within "Cash Flows From Investing Activities" on our consolidated statement of cash flows.


7			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Note 6—Debt

In the third quarter of 2023, we issued $2.7 billion in new Notes through our universal shelf registration statement and prospectus supplement. The net proceeds were used to fund the acquisition of the remaining 50 percent working interest in Surmont, which was completed on October 4, 2023. See Note 3. The following Notes were issued:

•5.05% Notes due 2033 with principal of $1.0 billion

•5.55% Notes due 2054 with principal of $1.0 billion

•5.70% Notes due 2063 with principal of $0.7 billion

In the second quarter of 2023, as described further below, we initiated and completed two concurrent transactions as part of our debt refinancing strategy. We issued $1.1 billion in new Notes through our universal shelf registration statement and prospectus supplement and used the proceeds to repurchase $1.1 billion of existing debt.

New Debt Issuance

On May 23, 2023, we issued 5.3% Notes due 2053 with principal of $1.1 billion.

Tender Offers

On May 25, 2023, we repurchased a total of $1,133 million aggregate principal amount of debt as listed below. We paid $33 million below face value to repurchase these debt instruments and recognized a gain on debt extinguishment of $27 million which is included in the "Other expenses" line on our consolidated income statement.

•2.125% Notes due 2024 with principal of $900 million (partial repurchase of $439 million)

•3.350% Notes due 2024 with principal of $426 million (partial repurchase of $160 million)

•2.400% Notes due 2025 with principal of $900 million (partial repurchase of $534 million)

Our debt balance at September 30, 2023 was $19.1 billion, compared with $16.6 billion at December 31, 2022.

Our revolving credit facility provides a total borrowing capacity of $5.5 billion with an expiration date of February 2027. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. The revolving credit facility is broadly syndicated among financial institutions and does not contain any material adverse change provisions or any covenants requiring maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more by ConocoPhillips, or any of its consolidated subsidiaries. The amount of the facility is not subject to redetermination prior to its expiration date.

Credit facility borrowings may bear interest at a margin above the Secured Overnight Financing Rate (SOFR). The facility agreement calls for commitment fees on available, but unused, amounts. The facility agreement also contains early termination rights if our current directors or their approved successors cease to be a majority of the Board of Directors.

The revolving credit facility supports our ability to issue up to $5.5 billion of commercial paper. Commercial paper is generally limited to maturities of 90 days and is included in short-term debt on our consolidated balance sheet. With no commercial paper outstanding and no direct borrowings or letters of credit, we had access to $5.5 billion in available borrowing capacity under our revolving credit facility at September 30, 2023. At December 31, 2022, we had no commercial paper outstanding and no direct borrowings or letters of credit issued.

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 ratings were to deteriorate to a level prohibiting us from accessing the commercial paper market, we would still be able to access funds under our revolving credit facility.

At September 30, 2023, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. If they are ever redeemed, we have the ability and intent to refinance on a long-term basis; therefore, the VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.


			ConocoPhillips 2023 Q3 10-Q			8


Notes to Consolidated Financial Statements			Table of Contents

Note 7—Changes in Equity


	Millions of Dollars

	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Accum. Other Comprehensive Income (Loss)	Retained Earnings	Total
For the three months ended September 30, 2023
Balances at June 30, 2023	$	21	61,169	(63,217)	(5,925)	55,483	47,531
Net income						2,798	2,798
Other comprehensive loss					(36)		(36)
Dividends declared
Ordinary ($0.51 per common share)						(613)	(613)
Variable return of cash ($0.60 per common share)						(717)	(717)
Repurchase of company common stock				(1,300)			(1,300)
Excise tax on share repurchases				(12)			(12)
Distributed under benefit plans			92				92
Other			1			1	2
Balances at September 30, 2023	$	21	61,262	(64,529)	(5,961)	56,952	47,745

For the nine months ended September 30, 2023
Balances at December 31, 2022	$	21	61,142	(60,189)	(6,000)	53,029	48,003
Net income						7,950	7,950
Other comprehensive income					39		39
Dividends declared
Ordinary ($1.53 per common share)						(1,858)	(1,858)
Variable return of cash ($1.80 per common share)						(2,171)	(2,171)
Repurchase of company common stock				(4,300)			(4,300)
Excise tax on share repurchases				(40)			(40)
Distributed under benefit plans			119				119
Other			1			2	3
Balances at September 30, 2023	$	21	61,262	(64,529)	(5,961)	56,952	47,745



	Millions of Dollars
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Accum. Other Comprehensive Income (Loss)	Retained Earnings	Total
For the three months ended September 30, 2022
Balances at June 30, 2022	$	21	61,045	(54,644)	(5,313)	49,093	50,202
Net income						4,527	4,527
Other comprehensive loss					(552)		(552)
Dividends declared
Ordinary ($0.46 per common share)						(588)	(588)
Variable return of cash ($1.40 per common share)						(1,754)	(1,754)
Repurchase of company common stock				(2,799)			(2,799)
Distributed under benefit plans			44				44
Other				(1)			(1)
Balances at September 30, 2022	$	21	61,089	(57,444)	(5,865)	51,278	49,079

For the nine months ended September 30, 2022
Balances at December 31, 2021	$	21	60,581	(50,920)	(4,950)	40,674	45,406
Net income						15,431	15,431
Other comprehensive loss					(915)		(915)
Dividends declared
Ordinary ($1.38 per common share)						(1,789)	(1,789)
Variable return of cash ($2.40 per common share)						(3,040)	(3,040)
Repurchase of company common stock				(6,524)			(6,524)
Distributed under benefit plans			508				508
Other						2	2
Balances at September 30, 2022	$	21	61,089	(57,444)	(5,865)	51,278	49,079


9			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Note 8—Guarantees

At September 30, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

APLNG Guarantees

At September 30, 2023, we had outstanding multiple guarantees in connection with our 47.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2023 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 seven years. Our maximum exposure under this guarantee is approximately $210 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At September 30, 2023, the carrying value of this guarantee was approximately $14 million.

•In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy Limited in October 2008, we agreed to reimburse Origin Energy Limited for our share of the existing contingent liability arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales agreements. 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 $710 million ($1.2 billion in the event of intentional or reckless breach) and would become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

•We have guaranteed the performance of APLNG with regard to certain other contracts executed in connection with the project’s continued development. The guarantees have remaining terms of 13 to 22 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $380 million and would become payable if APLNG does not perform. At September 30, 2023, the carrying value of these guarantees was approximately $29 million.

QatarEnergy LNG Guarantees

We have guaranteed our portion of certain fiscal and other joint venture obligations as a shareholder in NFE4 and NFS3. These guarantees have an approximate 30-year term with no maximum limit. At September 30, 2023, the carrying value of these guarantees was approximately $14 million.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $590 million, which consist primarily of guarantees of the residual value of leased office buildings and guarantees of the residual value of corporate aircraft. These guarantees have remaining terms of two to four years and would become payable if certain asset values are lower than guaranteed amounts at the end of the lease or contract term, business conditions decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties. At September 30, 2023, there was no carrying value associated with these guarantees.

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 indemnification obligations at September 30, 2023, was approximately $20 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 9 for additional information about environmental liabilities.


			ConocoPhillips 2023 Q3 10-Q			10


Notes to Consolidated Financial Statements			Table of Contents

Note 9—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the low end of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. With respect to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

Environmental

We are subject to international, federal, state and local environmental laws and regulations and record accruals for environmental liabilities based on management’s best estimates. These estimates are based on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. EPA or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for other sites, we are usually only one of many companies cited at a particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the agency concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, and some of the indemnifications are subject to dollar limits and time limits.

We are currently participating in environmental assessments and cleanups at numerous CERCLA and other 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.

For remediation activities in the U.S. and Canada, our consolidated balance sheet included a total environmental accrual of $187 million at September 30, 2023, compared with $182 million at December 31, 2022. We expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.


11			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

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 September 30, 2023, we had performance obligations secured by letters of credit of $398 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 ("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 Tribunal issued a decision rectifying the award and reducing it by approximately $227 million. The award now stands at $8.5 billion plus interest. The government of Venezuela sought annulment of the award, which automatically stayed enforcement of the award. On September 29, 2021, the ICSID annulment committee lifted the stay of enforcement of the award. The annulment proceedings are underway.

In 2014, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Petrozuata and Hamaca projects. The ICC Tribunal issued an award in April 2018, finding that PDVSA owed ConocoPhillips approximately $2 billion under their agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures. In August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC award, plus interest through the payment period, including initial payments totaling approximately $500 million within a period of 90 days from the time of signing the settlement agreement. The balance of the settlement was 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 $777 million in connection with the ICC award. ConocoPhillips has ensured that the settlement and any actions taken in enforcement thereof meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.

In 2016, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Corocoro Project. On August 2, 2019, the ICC Tribunal awarded ConocoPhillips approximately $33 million plus interest under the Corocoro contracts. ConocoPhillips is seeking recognition and enforcement of the award in various jurisdictions. ConocoPhillips has ensured that all the actions related to the award meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.


			ConocoPhillips 2023 Q3 10-Q			12


Notes to Consolidated Financial Statements			Table of Contents

Beginning in 2017, governmental and other entities in several states/territories 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 legal and factual issues are unprecedented, therefore, there is significant uncertainty about the scope of the claims and alleged damages and any potential impact on the Company’s financial condition. ConocoPhillips believes these lawsuits are factually and legally meritless and are an inappropriate vehicle to address the challenges associated with climate change and will vigorously defend against such lawsuits.

Several Louisiana parishes and the State of Louisiana have filed 43 lawsuits under Louisiana’s State and Local Coastal Resources Management Act (SLCRMA) against oil and gas companies, including ConocoPhillips, seeking compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil and gas operations. ConocoPhillips entities are defendants in 22 of the lawsuits and will vigorously defend against them. On October 17, 2022, the Fifth Circuit affirmed remand of the lead case to state court and the subsequent request for rehearing was denied. On February 27, 2023, the Supreme Court denied a certiorari petition from the defendants regarding the Fifth Circuit ruling. Accordingly, the federal district courts have issued remands to state court. 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 25 percent interest in this lease and operated these facilities but sold its interest approximately 30 years ago. ConocoPhillips continues to evaluate its exposure in this matter.

On May 10, 2021, ConocoPhillips filed arbitration under the rules of the Singapore International Arbitration Centre (SIAC) against Santos KOTN Pty Ltd. and Santos Limited for their failure to timely pay the $200 million bonus due upon final investment decision of the Barossa development project under the sale and purchase agreement for the sale of our Australia-West asset and operations. The matter was resolved in April 2023 to our satisfaction.

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. The defendants filed a motion to dismiss the consolidated complaint on March 8, 2022. On June 23, 2023, the court denied defendants’ motion as to most defendants including Concho/ConocoPhillips. We believe the allegations in the action are without merit and are vigorously defending this litigation.

ConocoPhillips is involved in pending disputes with commercial counterparties relating to the propriety of its force majeure notices following Winter Storm Uri in 2021. We believe these claims are without merit and are vigorously defending them.

Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput 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 transport and LNG purchase commitments. The fixed and determinable portion of the remaining estimated payments under these various agreements as of September 30, 2023 are: 2023—$2 million; 2024—$7 million; 2025—$7 million; 2026—$7 million; 2027—$7 million; and 2028 and after—$11 billion. Generally, variable components of these obligations include commodity futures prices and inflation rates. Purchases of LNG under these commitments are expected to be offset in the same or approximately same periods by cash received from the related sales transactions.


13			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Note 10—Derivative and Financial Instruments

We use futures, forwards, swaps and options in various markets to meet our customers' needs, capture market opportunities and manage foreign exchange currency risk. Certain of our equity method investments use swaps to manage interest rate risk.

Commodity Derivative Instruments

Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG, NGLs and power.

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, on our consolidated balance sheet:


	Millions of Dollars
	September 30 2023		December 31 2022
Assets
Prepaid expenses and other current assets	$	535	1,795
Other assets	127		242
Liabilities
Other accruals	506		1,800
Other liabilities and deferred credits	97		210

The gains (losses) from commodity derivatives included in our consolidated income statement are presented in the following table:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022

Sales and other operating revenues	$	(11)	(129)	1	(549)
Other income	(5)		(4)	(6)	(2)
Purchased commodities	7		6	(49)	352

The table below summarizes our net exposures resulting from outstanding commodity derivative contracts:


	Open Position Long (Short)
	September 30 2023	December 31 2022
Commodity
Natural gas and power (billions of cubic feet equivalent)
Fixed price	(23)	(14)
Basis	(4)	(8)


			ConocoPhillips 2023 Q3 10-Q			14


Notes to Consolidated Financial Statements			Table of Contents

Foreign Currency Exchange Derivatives

In the second quarter of 2023, we entered into foreign exchange forward contracts to buy $5.2 billion CAD at $0.751 against the USD for settlement in September 2023, in anticipation of our planned acquisition of the additional interest in Surmont. For both the three- and nine-month periods ended September 30, 2023, we recorded a realized loss of $76 million in the "Foreign currency transaction (gain) loss" line on our consolidated income statement. The related cash flows associated with the loss on derivatives are included in the "Other" line within investing activities on our consolidated statement of cash flows. We subsequently entered into additional foreign exchange forward contracts to buy $4.3 billion CAD at $0.736 against the USD. At September 30, 2023, the forward contracts had a net fair value of $36 million. The derivative asset of $47 million and the derivative liability of $11 million are reported within the "Prepaid expenses and other current assets" and "Other accruals" lines, respectively, on our consolidated balance sheet. For the three- and nine-month periods ended September 30, 2023, we recorded an unrealized gain of $17 million and $36 million, respectively, in the "Foreign currency transaction (gain) loss" line on our consolidated income statement related to these contracts, which settled in the fourth quarter.

Interest Rate Derivative Instruments

During 2023, PALNG executed interest rate swaps that had the effect of converting 60 percent of the projected term loans outstanding to finance the cost of development and construction of Phase 1 from floating to fixed rate. These swaps were designated and qualify for hedge accounting under ASC Topic 815, "Derivatives and Hedging", as a cash flow hedge with changes in the fair value of the designated hedging instrument reported as a component of other comprehensive income and reclassified into earnings in the same periods that the hedged transactions will affect earnings. We recognize our proportionate share of PALNG’s adjustments for other comprehensive income as a change to our equity method investment with corresponding adjustments in equity. For the three- and nine-month periods ended September 30, 2023, we recognized an unrealized gain of $46 million in other comprehensive income related to these swaps.

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, reaching par value at maturity.

•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.


15			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

The following investments are carried on our consolidated balance sheet at cost, plus accrued interest, and the table reflects remaining maturities at September 30, 2023, and December 31, 2022:


	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents			Short-Term Investments
	September 30 2023		December 31 2022	September 30 2023	December 31 2022
Cash	$	500	593
Demand Deposits	2,459		1,638
Time Deposits
1 to 90 days	3,895		4,116	86	1,288
91 to 180 days				11	883
Within one year				15	11
U.S. Government Obligations
1 to 90 days	1,965		14	—	—
	$	8,819	6,361	112	2,182

The following investments in debt securities classified as available for sale are carried at fair value on our consolidated balance sheet at September 30, 2023, and December 31, 2022:


	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents			Short-Term Investments		Investments and Long-Term Receivables
	September 30 2023		December 31 2022	September 30 2023	December 31 2022	September 30 2023	December 31 2022
Major Security Type
Corporate Bonds	$	1	—	220	323	517	309
Commercial Paper	10		97	150	156
U.S. Government Obligations	—		—	118	115	158	63
U.S. Government Agency Obligations				12	8	6	5
Foreign Government Obligations				3	—	8	7
Asset-Backed Securities				1	1	150	138
	$	11	97	504	603	839	522

Cash and Cash Equivalents and Short-Term Investments have remaining maturities within one year.

Investments and Long-Term Receivables have remaining maturities greater than one year through five years.


			ConocoPhillips 2023 Q3 10-Q			16


Notes to Consolidated Financial Statements			Table of Contents

The following table summarizes the amortized cost basis and fair value of investments in debt securities classified as available for sale:


	Millions of Dollars
	Amortized Cost Basis			Fair Value
	September 30 2023		December 31 2022	September 30 2023	December 31 2022
Major Security Type
Corporate Bonds	$	747	641	738	632
Commercial Paper	160		253	160	253
U.S. Government Obligations	280		181	276	178
U.S. Government Agency Obligations	18		13	18	13
Foreign Government Obligations	11		7	11	7
Asset-Backed Securities	152		139	151	139
	$	1,368	1,234	1,354	1,222

As of September 30, 2023, and December 31, 2022, total unrealized losses for debt securities classified as available for sale with net losses were $14 million and $12 million, respectively. No allowance for credit losses has been recorded on investments in debt securities which are in an unrealized loss position.

For the three- and nine-month periods ended September 30, 2023, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $258 million and $809 million, respectively. For the three- and nine-month periods ended September 30, 2022, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $198 million and $399 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.

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, and foreign government obligations.

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 oil and gas 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.


17			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position at September 30, 2023, and December 31, 2022, was $108 million and $333 million, respectively. For these instruments, no collateral was posted at September 30, 2023, and $42 million of collateral was posted at December 31, 2022. If our credit rating had been downgraded below investment grade at September 30, 2023, we would have been required to post $89 million of additional collateral, either with cash or letters of credit.

Note 11—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 the nine-month period ended September 30, 2023, nor during the year ended December 31, 2022.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis include our investments in debt securities classified as available for sale and commodity derivatives.

•Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 1 also includes our 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
	September 30, 2023					December 31, 2022
	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Investments in debt securities	$	276	1,078	—	1,354	178	1,044	—	1,222
Commodity derivatives	361		231	70	662	958	951	128	2,037
Total assets	$	637	1,309	70	2,016	1,136	1,995	128	3,259

Liabilities
Commodity derivatives	$	376	203	24	603	906	843	261	2,010
Total liabilities	$	376	203	24	603	906	843	261	2,010


			ConocoPhillips 2023 Q3 10-Q			18


Notes to Consolidated Financial Statements			Table of Contents

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 Recognized		Amounts Not Subject to Right of Setoff	Gross Amounts	Gross Amounts Offset	Net Amounts Presented	Cash Collateral	Net Amounts
September 30, 2023
Assets	$	662	30	632	418	214	1	213
Liabilities	603		27	576	418	158	23	135

December 31, 2022
Assets	$	2,037	39	1,998	1,176	822	37	785
Liabilities	2,010		20	1,990	1,176	814	52	762

At September 30, 2023 and December 31, 2022, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.

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.

•Investments in debt securities classified as available for sale: The fair value of investments in debt securities categorized as Level 1 in the fair value hierarchy is measured using exchange prices. The fair value of investments in debt securities categorized as Level 2 in the fair value hierarchy is measured using pricing provided by brokers or pricing service companies that are corroborated with market data. See Note 10.

•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
	September 30 2023	December 31 2022	September 30 2023	December 31 2022
Financial assets
Commodity derivatives	243	824	243	824
Investments in debt securities	1,354	1,222	1,354	1,222

Financial liabilities
Total debt, excluding finance leases	17,906	15,323	17,375	15,545
Commodity derivatives	162	782	162	782


19			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Note 12—Suspended Wells

The capitalized cost of suspended wells at September 30, 2023 was $459 million, a decrease of $68 million from December 31, 2022. In the third quarter of 2023, after further evaluation we recognized dry hole expense of $37 million for the suspended Warka discovery well on license PL 1009 in the Norwegian Sea.

Note 13—Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss in the equity section of our consolidated balance sheet includes:


	Millions of Dollars
	Defined Benefit Plans		Unrealized Holding Loss on Securities	Foreign Currency Translation	Unrealized Gain on Hedging Activities	Accumulated Other Comprehensive Loss
December 31, 2022	$	(448)	(11)	(5,541)	—	(6,000)
Other comprehensive income (loss)	26		—	(23)	36	39
September 30, 2023	$	(422)	(11)	(5,564)	36	(5,961)

The following table summarizes reclassifications out of accumulated other comprehensive loss and into net income:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Defined benefit plans	$	9	6	26	22

The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $2 million and $1 million for the three-month periods ended September 30, 2023 and September 30, 2022, respectively, and $8 million and $6 million for the nine-month periods ended

September 30, 2023 and September 30, 2022, respectively. See Note 15.

Note 14—Cash Flow Information


	Millions of Dollars
	Nine Months Ended September 30
	2023		2022
Cash Payments
Interest	$	533	706
Income taxes	4,141		5,602

Net Sales (Purchases) of Investments
Short-term investments purchased	$	(917)	(2,960)
Short-term investments sold	3,350		1,297
Long-term investments purchased	(676)		(640)
Long-term investments sold	103		68
	$	1,860	(2,235)


			ConocoPhillips 2023 Q3 10-Q			20


Notes to Consolidated Financial Statements			Table of Contents

Note 15—Employee Benefit Plans

Pension and Postretirement Plans


	Millions of Dollars
	Pension Benefits					Other Benefits
	2023			2022		2023	2022
	U.S.		Int'l.	U.S.	Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost	$	12	10	13	13	—	—
Interest cost	19		28	18	19	1	1
Expected return on plan assets	(15)		(38)	(10)	(31)	—	—
Amortization of prior service credit	—		—	—	(1)	(9)	(9)
Recognized net actuarial loss (gain)	3		16	6	2	(1)	—
Settlements	2		—	9	—	—	—
Net periodic benefit cost	$	21	16	36	2	(9)	(8)

Nine Months Ended September 30
Service cost	$	38	29	45	39	—	1
Interest cost	58		85	42	61	4	3
Expected return on plan assets	(44)		(112)	(36)	(99)	—	—
Amortization of prior service credit	—		—	—	(1)	(28)	(29)
Recognized net actuarial loss (gain)	9		50	17	6	(3)	—
Settlements	6		—	31	—	—	—


Net periodic benefit cost	$	67	52	99	6	(27)	(25)

The components of net periodic benefit cost, other than the service cost component, are included in the "Other expenses" line of our consolidated income statement.

During the first nine months of 2023, we contributed $126 million to our domestic benefit plans and $51 million to our international benefit plans. We expect our total contributions in 2023 to be approximately $135 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $60 million to our international qualified and nonqualified pension and postretirement benefit plans.

Note 16—Related Party Transactions

Our related parties primarily include equity method investments and certain trusts for the benefit of employees.


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Significant Transactions with Equity Affiliates
Operating revenues and other income	$	23	21	67	64
Purchases	—		—	—	1
Operating expenses and selling, general and administrative expenses	73		55	224	145
Net interest income	—		—	—	(1)


21			ConocoPhillips 2023 Q3 10-Q


Notes to Consolidated Financial Statements			Table of Contents

Note 17—Sales and Other Operating Revenues

Revenue from Contracts with Customers

The following table provides further disaggregation of our consolidated sales and other operating revenues:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Revenue from contracts with customers	$	12,599	15,968	35,578	47,202
Revenue from contracts outside the scope of ASC Topic 606
Physical contracts meeting the definition of a derivative	1,697		5,012	6,289	12,563
Financial derivative contracts	(46)		33	(455)	171
Consolidated sales and other operating revenues	$	14,250	21,013	41,412	59,936

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 19—Segment Disclosures and Related Information:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2023		2022	2023	2022
Revenue from Contracts Outside the Scope of ASC Topic 606 by Segment
Lower 48	$	1,478	4,275	5,067	10,202
Canada	207		553	978	1,920
Europe, Middle East and North Africa	12		184	244	441
Physical contracts meeting the definition of a derivative	$	1,697	5,012	6,289	12,563


Millions of Dollars
Three Months Ended September 30		Nine Months Ended September 30
2023	2022	2023