Edgar Filing: CONOCOPHILLIPS

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

¨	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.)

600 North Dairy Ashford, Houston, TX 77079
(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

The registrant had 1,213,894,641 shares of common stock, $.01 par value, outstanding at September 30, 2012.

CONOCOPHILLIPS

TABLE OF CONTENTS


	Page
Part I—Financial Information

Item 1. Financial Statements
Consolidated Income Statement		1
Consolidated Statement of Comprehensive Income		2
Consolidated Balance Sheet		3
Consolidated Statement of Cash Flows		4
Consolidated Statement of Changes in Equity		5
Notes to Consolidated Financial Statements		6
Supplementary Information—Condensed Consolidating Financial Information		28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33

Item 3. Quantitative and Qualitative Disclosures About Market Risk		54

Item 4. Controls and Procedures		54

Part II—Other Information

Item 1. Legal Proceedings		55

Item 1A. Risk Factors		56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 6. Exhibits		57

Signature		58

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
	2012			2011			2012			2011

Revenues and Other Income
Sales and other operating revenues	$	14,520			16,506			43,492			49,462
Equity in earnings of affiliates		409			443			1,424			1,144
Gain (loss) on dispositions		118			(260	)		1,641			388
Other income		42			6			168			172

Total Revenues and Other Income		15,089			16,695			46,725			51,166


Costs and Expenses
Purchased commodities		6,436			7,976			18,314			22,615
Production and operating expenses		1,711			1,767			5,232			4,941
Selling, general and administrative expenses		330			145			892			596
Exploration expenses		219			266			1,168			706
Depreciation, depletion and amortization		1,699			1,645			4,948			5,339
Impairments		—			—			296			—
Taxes other than income taxes		676			904			2,683			2,986
Accretion on discounted liabilities		102			107			314			319
Interest and debt expense		161			230			548			729
Foreign currency transaction (gains) losses		(1	)		50			18			75

Total Costs and Expenses		11,333			13,090			34,413			38,306

Income from continuing operations before income taxes		3,756			3,605			12,312			12,860
Provision for income taxes		1,945			2,110			6,505			6,748

Income From Continuing Operations		1,811			1,495			5,807			6,112
Income from discontinued operations		2			1,136			1,250			2,980

Net income		1,813			2,631			7,057			9,092
Less: net income attributable to noncontrolling interests		(15	)		(15	)		(55	)		(46	)

Net Income Attributable to ConocoPhillips	$	1,798			2,616			7,002			9,046


Net Income Attributable to ConocoPhillips Per Share of Common Stock (dollars)
Basic
Continuing operations	$	1.47			1.09			4.60			4.35
Discontinued operations		—			0.84			1.00			2.13

Net Income Attributable to ConocoPhillips Per Share of Common Stock	$	1.47			1.93			5.60			6.48

Diluted
Continuing operations	$	1.46			1.08			4.56			4.31
Discontinued operations		—			0.83			0.99			2.11

Net Income Attributable to ConocoPhillips Per Share of Common Stock	$	1.46			1.91			5.55			6.42


Dividends Paid Per Share of Common Stock (dollars)	$	0.66			0.66			1.98			1.98


Average Common Shares Outstanding (in thousands)
Basic		1,220,462			1,357,710			1,250,641			1,396,216
Diluted		1,229,343			1,369,562			1,260,212			1,408,846

See Notes to Consolidated Financial Statements.


Consolidated Statement of Comprehensive Income			ConocoPhillips


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011

Net Income	$	1,813			2,631			7,057			9,092

Other comprehensive income (loss)
Defined benefit plans
Prior service cost arising during the period		—			—			—			—
Reclassification adjustment for amortization of prior service cost (credit) included in net income		(1	)		1			(3	)		2

Net change		(1	)		1			(3	)		2

Net actuarial loss arising during the period		(432	)		—			(470	)		—
Reclassification adjustment for amortization of prior net losses included in net income		189			70			327			173

Net change		(243	)		70			(143	)		173
Nonsponsored plans*		—			6			5			17
Income taxes on defined benefit plans		94			(29	)		67			(69	)

Defined benefit plans, net of tax		(150	)		48			(74	)		123

Unrealized holding gain on securities**		—			—			1			8
Reclassification adjustment for gain included in net income		—			—			—			(255	)
Income taxes on unrealized holding gain on securities		—			—			—			89

Unrealized gain (loss) on securities, net of tax		—			—			1			(158	)

Foreign currency translation adjustments		925			(2,486	)		1,244			(1,023	)
Reclassification adjustment for loss included in net income		(320	)		(516	)		(319	)		(516	)
Income taxes on foreign currency translation adjustments		7			32			21			3

Foreign currency translation adjustments, net of tax		612			(2,970	)		946			(1,536	)

Hedging activities		—			—			6			1
Income taxes on hedging activities		—			—			—			—

Hedging activities, net of tax		—			—			6			1

Other Comprehensive Income (Loss), Net of Tax		462			(2,922	)		879			(1,570	)

Comprehensive Income (Loss)		2,275			(291	)		7,936			7,522
Less: comprehensive income attributable to noncontrolling interests		(15	)		(15	)		(55	)		(46	)

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	2,260			(306	)		7,881			7,476

*Plans for which ConocoPhillips is not the primary obligor—primarily those administered by equity affiliates.

**Available-for-sale securities of LUKOIL.

See Notes to Consolidated Financial Statements.


Consolidated Balance Sheet			ConocoPhillips


	Millions of Dollars
	September 30 2012			December 31 2011**

Assets
Cash and cash equivalents	$	1,268			5,780
Short-term investments*		—			581
Restricted cash		2,468			—
Accounts and notes receivable (net of allowance of $12 million in 2012 and $30 million in 2011)		9,021			14,648
Accounts and notes receivable—related parties		162			1,878
Inventories		1,176			4,631
Prepaid expenses and other current assets		1,686			2,700

Total Current Assets		15,781			30,218
Investments and long-term receivables		23,500			32,108
Loans and advances—related parties		1,564			1,675
Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $59,890 million in 2012 and $65,029 million in 2011)		73,612			84,180
Goodwill		—			3,332
Intangibles		10			745
Other assets		902			972

Total Assets	$	115,369			153,230


Liabilities
Accounts payable	$	9,133			17,973
Accounts payable—related parties		849			1,680
Short-term debt		2,335			1,013
Accrued income and other taxes		2,837			4,220
Employee benefit obligations		678			1,111
Other accruals		1,551			2,071

Total Current Liabilities		17,383			28,068
Long-term debt		18,782			21,610
Asset retirement obligations and accrued environmental costs		8,421			9,329
Joint venture acquisition obligation—related party		3,006			3,582
Deferred income taxes		14,155			18,040
Employee benefit obligations		3,222			4,068
Other liabilities and deferred credits		2,523			2,784

Total Liabilities		67,492			87,481


Equity
Common stock (2,500,000,000 shares authorized at $.01 par value)
Issued (2012—1,757,089,796 shares; 2011—1,749,550,587 shares)
Par value		18			17
Capital in excess of par		45,130			44,725
Treasury stock (at cost: 2012—543,195,155 shares; 2011—463,880,628 shares)		(36,845	)		(31,787)
Accumulated other comprehensive income		4,339			3,246
Unearned employee compensation		—			(11)
Retained earnings		34,764			49,049

Total Common Stockholders’ Equity		47,406			65,239
Noncontrolling interests		471			510

Total Equity		47,877			65,749

Total Liabilities and Equity	$	115,369			153,230

*Includes marketable securities of:	$	—			232
*Certain amounts have been restated to reflect a prior period adjustment. See Note 16—Accumulated Other Comprehensive Income, in the Notes to Consolidated Financial Statements.*

See Notes to Consolidated Financial Statements.


Consolidated Statement of Cash Flows			ConocoPhillips


	Millions of Dollars
	Nine Months Ended September 30
	2012			2011

Cash Flows From Operating Activities
Net income	$	7,057			9,092
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization		4,948			5,339
Impairments		296			—
Dry hole costs and leasehold impairments		703			290
Accretion on discounted liabilities		314			319
Deferred taxes		878			230
Undistributed equity earnings		(401	)		(292	)
Gain (loss) on dispositions		(1,641	)		(388	)
Income from discontinued operations		(1,250	)		(2,980	)
Other		(54	)		(180	)
Working capital adjustments
Decrease (increase) in accounts and notes receivable		(1,804	)		(109	)
Decrease (increase) in inventories		3			8
Decrease (increase) in prepaid expenses and other current assets		456			(223	)
Increase (decrease) in accounts payable		894			893
Increase (decrease) in taxes and other accruals		(553	)		(603	)

Net cash provided by continuing operating activities		9,846			11,396
Net cash provided by discontinued operations		206			2,438

Net Cash Provided by Operating Activities		10,052			13,834


Cash Flows From Investing Activities
Capital expenditures and investments		(11,337	)		(8,747	)
Proceeds from asset dispositions		2,088			1,954
Net sales (purchases) of short-term investments		597			(1,623	)
Long-term advances/loans—related parties		(19	)		(14	)
Collection of advances/loans—related parties		100			88
Other		177			39

Net cash used in continuing investing activities		(8,394	)		(8,303	)
Net cash provided by (used in) discontinued operations		(304	)		164

Net Cash Used in Investing Activities		(8,698	)		(8,139	)


Cash Flows From Financing Activities
Issuance of debt		485			—
Repayment of debt		(1,668	)		(419	)
Special cash distribution from Phillips 66		7,818			—
Change in restricted cash		(2,468	)		—
Issuance of company common stock		83			109
Repurchase of company common stock		(5,098	)		(7,984	)
Dividends paid		(2,469	)		(2,761	)
Other		(547	)		(542	)

Net cash used in continuing financing activities		(3,864	)		(11,597	)
Net cash used in discontinued operations		(2,019	)		(21	)

Net Cash Used in Financing Activities		(5,883	)		(11,618	)


Effect of Exchange Rate Changes on Cash and Cash Equivalents		17			(94	)


Net Change in Cash and Cash Equivalents		(4,512	)		(6,017	)
Cash and cash equivalents at beginning of period		5,780			9,454

Cash and Cash Equivalents at End of Period	$	1,268			3,437

See Notes to Consolidated Financial Statements.


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		Unearned Employee Compensation			Retained Earnings			Noncontrolling Interests			Total

December 31, 2011*	$	17		44,725		(31,787	)		3,246		(11	)		49,049			510			65,749
Net income														7,002			55			7,057
Other comprehensive income									879											879
Cash dividends paid														(2,469	)					(2,469	)
Repurchase of company common stock						(5,098	)													(5,098	)
Distributions to noncontrolling interests and other																	(63	)		(63	)
Distributed under benefit plans		1		405		40														446
Recognition of unearned compensation											11									11
Separation of Downstream business									214					(18,837	)		(31	)		(18,654	)
Other														19						19

September 30, 2012	$	18		45,130		(36,845	)		4,339		—			34,764			471			47,877

*	Certain amounts have been restated to reflect a prior period adjustment. See Note 16—Accumulated Other Comprehensive Income, in the Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.


Notes to Consolidated Financial Statements		ConocoPhillips

Note 1—Basis of Presentation

The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips and its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2011 Annual Report on Form 10-K.

The results of operations for our refining, marketing and transportation businesses; most of our Midstream segment; our Chemicals segment; and our power generation and certain technology operations included in our Emerging Businesses segment (collectively, our “Downstream business”), have been classified as discontinued operations for all periods presented. See Note 2—Separation of Downstream Business, for additional information. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our continuing operations.

Note 2—Separation of Downstream Business

On April 30, 2012, the separation of our Downstream business was completed, creating two independent energy companies: ConocoPhillips and Phillips 66. After the close of the New York Stock Exchange on April 30, 2012, the shareholders of record as of 5:00 p.m. Eastern time on April 16, 2012 (the Record Date), received one share of Phillips 66 common stock for every two ConocoPhillips common shares held as of the Record Date.

In connection with the separation, Phillips 66 distributed approximately $7.8 billion to us in a special cash distribution, primarily using the proceeds from the private placement of $5.8 billion in Senior Notes issued by Phillips 66 in March 2012, as well as a portion of the approximately $3.6 billion in cash transferred to Phillips 66 at separation, consisting of funds received from the $2.0 billion term loan that Phillips 66 entered into immediately prior to the separation, and approximately $1.6 billion of cash held by Phillips 66 subsidiaries. Pursuant to a private letter ruling from the Internal Revenue Service, the principal funds from the special cash distribution will be used solely to pay dividends, repurchase common stock, repay debt, or a combination of the foregoing, within twelve months following the distribution. At September 30, 2012, the remaining balance of the cash distribution was $2,468 million and was included in the “Restricted cash” line on our consolidated balance sheet.

In order to effect the separation and govern our relationship with Phillips 66 after the separation, we entered into a Separation and Distribution Agreement, an Indemnification and Release Agreement, an Intellectual Property Assignment and License Agreement, a Tax Sharing Agreement, an Employee Matters Agreement and a Transition Services Agreement. The Separation and Distribution Agreement governs the separation of the Downstream business, the transfer of assets and other matters related to our relationship with Phillips 66. The Indemnification and Release Agreement provides for cross-indemnities between Phillips 66 and us and established procedures for handling claims subject to indemnification and related matters. The Intellectual Property Assignment and License Agreement governs the allocation of intellectual property rights and assets between Phillips 66 and us.

The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of Phillips 66 and ConocoPhillips with respect to taxes, tax attributes, tax returns, tax proceedings and certain other tax matters. In addition, the Tax Sharing Agreement imposes certain restrictions on Phillips 66 and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that

are designed to preserve the tax-free status of the distribution and certain related transactions. The Tax Sharing Agreement sets forth the obligations of Phillips 66 and us as to the filing of tax returns, the administration of tax proceedings and assistance and cooperation on tax matters.

The Employee Matters Agreement governs the compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of Phillips 66 and ConocoPhillips, and generally allocates liabilities and responsibilities relating to employee compensation, benefit plans and programs. The Employee Matters Agreement provides that employees of Phillips 66 will no longer participate in benefit plans sponsored or maintained by ConocoPhillips. In addition, the Employee Matters Agreement provides that each of the parties will be responsible for their respective current employees and compensation plans for such current employees, and we will be responsible for all liabilities relating to former employees. The Employee Matters Agreement sets forth the general principles relating to employee matters and also addresses any special circumstances during the transition period. The Employee Matters Agreement also provides that (i) the distribution does not constitute a change in control under existing plans, programs, agreements or arrangements, and (ii) the distribution and the assignment, transfer or continuation of the employment of employees with another entity will not constitute a severance event under the applicable plans, programs, agreements or arrangements.

The Transition Services Agreement sets forth the terms on which we will provide Phillips 66, and Phillips 66 will provide to us, certain services or functions Phillips 66 and ConocoPhillips historically have shared. Transition services include administrative, payroll, human resources, data processing, environmental health and safety, financial audit support, financial transaction support, and other support services, information technology systems and various other corporate services. The agreement provides for the provision of specified transition services, generally for a period of up to 12 months, with a possible extension of 6 months (an aggregate of 18 months), on a cost or a cost-plus basis.

The following table presents the carrying value of the major categories of assets and liabilities of Phillips 66, immediately preceding the separation of our Downstream business on April 30, 2012, excluded from our consolidated balance sheet at September 30, 2012:


	Millions of Dollars

Assets
Cash and cash equivalents	$	3,603
Accounts and notes receivable		7,295
Accounts and notes receivable—related parties		1,501
Inventories		5,017
Prepaid expenses and other current assets		996

Total current assets of discontinued operations		18,412
Investments and long-term receivables		10,826
Loans and advances—related parties		1
Net properties, plants and equipment		15,258
Goodwill		3,330
Intangibles		730
Other assets		95

Total assets of discontinued operations	$	48,652


Liabilities
Accounts payable	$	12,064
Accounts payable—related parties		938
Short-term debt		7,814
Accrued income and other taxes		493
Employee benefit obligations		219
Other accruals		952

Total current liabilities of discontinued operations		22,480
Long-term debt		175
Asset retirement obligations and accrued environmental costs		771
Deferred income taxes		4,980
Employee benefit obligations		1,166
Other liabilities and deferred credits		426

Total liabilities of discontinued operations	$	29,998

Sales and other operating revenues and income from discontinued operations were as follows:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
		2012	2011		2012	2011

Sales and other operating revenues from discontinued operations	$	2	50,590		62,109	147,954

Income from discontinued operations before-tax	$	2	1,574		1,792	4,307
Income tax expense		—	438		542	1,327

Income from discontinued operations	$	2	1,136		1,250	2,980

Income from discontinued operations after-tax includes transaction, information systems and other costs incurred to effect the separation of $70 million for the nine-month period ended September 30, 2012. No separation costs were incurred during the first nine months of 2011.

Prior to the separation, commodity sales to Phillips 66 were $4,973 million for the nine-month period ended September 30, 2012, and $4,012 million and $11,611 million for the three- and nine-month periods ended September 30, 2011. Prior to the separation, commodity purchases from Phillips 66 were $166 million for the nine-month period ended September 30, 2012, and $129 million and $393 million for the three- and nine-month periods ended September 30, 2011. Prior to May 1, 2012, commodity sales and related costs were eliminated in consolidation between ConocoPhillips and Phillips 66. Beginning May 1, 2012, these revenues and costs represent third-party transactions with Phillips 66. Although we expect certain transactions related to the sale and purchase of crude oil, natural gas and products to continue in the future with Phillips 66, the expected continuing cash flows are not considered significant; thus, the operations and cash flows of our former Downstream business are considered to be eliminated from our ongoing operations.

Note 3—Variable Interest Entities (VIEs)

We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on our significant VIEs follows:

Freeport LNG Development, L.P. (Freeport LNG)

We have an agreement with Freeport LNG to participate in a liquefied natural gas (LNG) receiving terminal in Quintana, Texas. We have no ownership in Freeport LNG; however, we own a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which serves as the general partner managing the venture. We entered into a credit agreement with Freeport LNG, whereby we agreed to provide loan financing for the construction of the terminal. We also entered into a long-term agreement with Freeport LNG to use 0.9 billion cubic feet per day of regasification capacity. The terminal became operational in June 2008, and we began making payments under the terminal use agreement. Freeport LNG began making loan repayments in September 2008, and the loan balance outstanding was $579 million at September 30, 2012, and $612 million at December 31, 2011. Freeport LNG is a VIE because Freeport GP holds no equity in Freeport LNG, and the limited partners of Freeport LNG do not have any substantive decision making ability. We performed an analysis of the expected losses and determined we are not the primary beneficiary. This expected loss analysis took into account that the credit support arrangement requires Freeport LNG to maintain sufficient commercial insurance to mitigate any loan losses. The loan to Freeport LNG is accounted for as a financial asset, and our investment in Freeport GP is accounted for as an equity investment.

Australia Pacific LNG (APLNG)

As of the third quarter of 2012, APLNG is considered a VIE, as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. We are not the primary beneficiary of APLNG because we share with Origin Energy and China Petrochemical Corporation (Sinopec) the power to direct the key activities of APLNG that most significantly impact its economic performance, which involve activities related to the production and commercialization of coalbed methane, as well as LNG processing and export marketing. As a result, we do not consolidate APLNG, and it is accounted for as an equity method investment.

No other financial support that was not previously contractually required was provided to APLNG as of the nine months ended September 30, 2012, or is expected to be provided in the future. In addition, unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of APLNG. See Note 6—Investments, Loans and Long-Term Receivables, and Note 12—Guarantees, for additional information.

Note 4—Inventories

Inventories consisted of the following:


	Millions of Dollars
	September 30 2012		December 31 2011

Crude oil and petroleum products	$	436		3,633
Materials, supplies and other		740		998

	$	1,176		4,631

Inventories valued on the last-in, first-out (LIFO) basis totaled $332 million and $3,387 million at September 30, 2012, and December 31, 2011, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $100 million and $8,400 million at September 30, 2012, and December 31, 2011, respectively.

A significant portion of our inventories at December 31, 2011, was related to our Downstream business. See Note 2—Separation of Downstream Business, for additional information.

Note 5—Assets Held for Sale or Sold

In August 2012, we sold our 30 percent interest in Naryanmarneftegaz (NMNG) and certain related assets and recognized a gain of $206 million before-tax, which was included in the “Gain (loss) on dispositions” line on our consolidated income statement. At the time of the disposition, the carrying value of our equity investment in NMNG, which was included in our Other International segment, was $244 million.

Note 6—Investments, Loans and Long-Term Receivables

APLNG

In January 2012, APLNG and Sinopec signed an amendment to their existing LNG sales agreement for the sale and purchase of an additional 3.3 million tonnes of LNG per year through 2035. This agreement, in combination with the execution of an LNG sale and purchase agreement with The Kansai Electric Power Co. Inc., in June 2012 for approximately 1.0 million tonnes of LNG per year through 2035, finalized the marketing of the second train.

In July 2012, we sanctioned the development of the second 4.5-million-tonnes-per-year LNG production train for our APLNG coal seam gas to LNG project. LNG exports from the second train are expected to commence in early 2016 under binding sales agreements to Sinopec and Kansai. Upon sanctioning of the second train in July and in conjunction with the LNG sales agreement, Sinopec subscribed to additional shares in APLNG, which increased its equity interest from 15 percent to 25 percent. As a result, on July 12, 2012, both our ownership interest and Origin’s ownership interest diluted from 42.5 percent to 37.5 percent. We recorded a before- and after-tax loss of $133 million from the dilution in the third quarter of 2012. The book value of our investment in APLNG was reduced by $453 million, and we reduced the foreign currency translation adjustment associated with our investment by $320 million. As of September 30, 2012, the book value of our equity method investment in APLNG was $10,444 million, which included $3,438 million of cumulative translation effects due to a strengthening Australian dollar relative to the U.S. Dollar, and is included in the “Investments and long-term receivables” line on our consolidated balance sheet.

In addition, APLNG executed project financing agreements for an $8.5 billion project finance facility during the third quarter of 2012. The $8.5 billion project finance facility is composed of financing agreements executed by APLNG with the Export-Import Bank of the United States for approximately $2.9 billion,

the Export-Import Bank of China for approximately $2.7 billion, and a syndicate of Australian and international commercial banks for approximately $2.9 billion. In connection with the execution of the project financing, we provided a completion guarantee for our pro-rata share of the project finance facility until the project achieves financial completion. See Note 12—Guarantees, for additional information.

As of the third quarter of 2012, APLNG is considered a VIE as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. See Note 3—Variable Interest Entities (VIEs) for additional information.

Loans and Long-Term Receivables

As part of our normal ongoing business operations and consistent with industry practice, we enter into numerous agreements with other parties to pursue business opportunities. Included in such activity are loans made to certain affiliated and non-affiliated companies. Significant loans to affiliated companies at September 30, 2012, included the following:

•

$579 million in loan financing to Freeport LNG.

•

$1,092 million in project financing to Qatar Liquefied Gas Company Limited (3) (QG3).

The long-term portion of these loans is included in the “Loans and advances—related parties” line on our consolidated balance sheet, while the short-term portion is in “Accounts and notes receivable—related parties.”

Long-term receivables from non-affiliated companies are included in the “Investments and long-term receivables” line on our consolidated balance sheet, while the short-term portion related to non-affiliate loans is in “Accounts and notes receivable.”

Note 7—Suspended Wells

The capitalized cost of suspended wells at September 30, 2012, was $1,013 million, a decrease of $24 million from $1,037 million at year-end 2011. No suspended wells were charged to dry hole expense during the first nine months of 2012 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2011.

Note 8—Impairments

During the three- and nine-month periods of 2012 and 2011, we recognized before-tax impairment charges within the following segments:


	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2012		2011		2012		2011

Canada	$	—		—		213		—
Europe		—		—		79		—
Asia Pacific and Middle East		—		—		4		—

	$	—		—		296		—

The nine-month period of 2012 included a $213 million property impairment in our Canada segment for the carrying value of capitalized project development costs associated with our Mackenzie Gas Project. Advancement of the project was suspended indefinitely in the first quarter of 2012 due to a continued decline in market conditions and the lack of acceptable commercial terms. We also recorded a $481 million impairment for the undeveloped leasehold costs associated with the project, which was included in the

“Exploration expenses” line on our consolidated income statement. In addition, the nine-month period of 2012 included a $78 million impairment in our Europe segment, primarily due to an increase in the asset retirement obligation for the Don Field in the United Kingdom, which has ceased production. See Note 20—Segment Disclosures and Related Information, for additional information on our segments.

Note 9—Debt

We have two commercial paper programs supported by our $7.5 billion revolving credit facility: the ConocoPhillips $6.35 billion program, primarily a funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $1.15 billion commercial paper program, which is used to fund commitments relating to the QG3 Project. Commercial paper maturities are generally limited to 90 days.

At both September 30, 2012, and December 31, 2011, we had no direct outstanding borrowings under our revolving credit facilities, with no letters of credit issued as of September 30, 2012, and $40 million as of December 31, 2011. In addition, under the two commercial paper programs, there was $1,540 million of commercial paper outstanding at September 30, 2012, compared with $1,128 million at December 31, 2011. Since we had $1,540 million of commercial paper outstanding and had issued no letters of credit, we had access to $6.0 billion in borrowing capacity under our revolving credit facilities at September 30, 2012.

At September 30, 2012, we classified $967 million of short-term debt as long-term debt, based on our ability and intent to refinance the obligation on a long-term basis under our revolving credit facilities.

During the first nine months of 2012, the following debt instruments were repaid prior to their maturity:

•

The $400 million 4.4% Notes due 2013.

•

$1,100 million of the $1,500 million 4.75% Notes due 2014.

We incurred a before-tax loss on redemption of $79 million, consisting of a make-whole premium and unamortized issuance costs.

Note 10—Joint Venture Acquisition Obligation

We are obligated to contribute $7.5 billion, plus interest, over a 10-year period that began in 2007, to FCCL Partnership. Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and will continue until the balance is paid. Of the principal obligation amount, approximately $763 million was short-term and was included in the “Accounts payable—related parties” line on our September 30, 2012, consolidated balance sheet. The principal portion of these payments, which totaled $546 million in the first nine months of 2012, is included in the “Other” line in the financing activities section on our consolidated statement of cash flows. Interest accrues at a fixed annual rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest payment is reflected as a capital contribution and is included in the “Capital expenditures and investments” line on our consolidated statement of cash flows.

Note 11—Noncontrolling Interests

Activity attributable to common stockholders’ equity and noncontrolling interests for the first nine months of 2012 and 2011 was as follows:


	Millions of Dollars
	2012									2011
	Common Stockholders’ Equity			Non- Controlling Interest			Total Equity			Common Stockholders’ Equity*		Non- Controlling Interest			Total Equity*

Balance at January 1	$	65,239			510			65,749			68,577		547			69,124
Net income		7,002			55			7,057			9,046		46			9,092
Dividends		(2,469	)		—			(2,469	)		(2,761)		—			(2,761)
Repurchase of company common stock		(5,098	)		—			(5,098	)		(7,984)		—			(7,984)
Distributions to noncontrolling interests		—			(63	)		(63	)		—		(70	)		(70)
Separation of Downstream business		(18,623	)		(31	)		(18,654	)		—		—			—
Other changes, net**		1,355			—			1,355			(1,057)		(3	)		(1,060)

Balance at September 30	$	47,406			471			47,877			65,821		520			66,341

* Certain amounts have been restated to reflect a prior period adjustment. See Note 16—Accumulated Other Comprehensive Income.

**Includes components of other comprehensive income, which are disclosed separately in the Consolidated Statement of Comprehensive Income.

Income from continuing operations and discontinued operations attributable to ConocoPhillips for the three- and nine-month periods of 2012 and 2011 were as follows:


	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2012		2011		2012		2011

Income from continuing operations	$	1,797		1,482		5,755		6,070
Income from discontinued operations		1		1,134		1,247		2,976

Net Income	$	1,798		2,616		7,002		9,046

Note 12—Guarantees

At September 30, 2012, 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 either because the guarantees were issued prior to December 31, 2002, or 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, 2012, we have outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2012 exchange rates:

•

We have guaranteed APLNG’s performance with regard to a construction contract executed in connection with APLNG’s issuance of the Train 1 and Train 2 Notices to Proceed. Our maximum potential amount of future payments related to this guarantee is approximately $120 million and would become payable if APLNG cancels the applicable construction contract and does not perform with respect to the amounts owed to the contractor.

•

We have issued a construction completion guarantee related to the third-party project financing secured by APLNG. Our maximum potential amount of future payments under the guarantee is estimated to be $3.2 billion, which could be payable if the full debt financing capacity is utilized and completion of the project is not achieved. Our guarantee of the project financing will be released upon meeting certain completion milestones, which we estimate would occur beginning in 2016. Our maximum exposure at September 30, 2012, is zero based upon our pro-rata share of the facility used at that date. In connection with issuance of the guarantee, we recorded a guarantee liability of $114 million.

•

In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to guarantee an existing obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of 4 to 19 years. Our maximum potential amount of future payments, or cost of volume delivery, under these guarantees is estimated to be $1.1 billion ($2.6 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. Our maximum potential amount of future payments related to these guarantees is approximately $110 million and would become payable if APLNG does not perform.

Guarantees of Joint Venture Debt

At September 30, 2012, we had guarantees outstanding for our portion of joint venture debt obligations, which have terms of up to 24 years. The maximum potential amount of future payments under the guarantees is approximately $70 million. Payment would be required if a joint venture defaults on its debt obligations.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $380 million, which consist primarily of a guarantee to fund the short-term cash liquidity deficit of two joint ventures, a guarantee of minimum charter revenue for an LNG vessel, one small construction completion guarantee, guarantees of the lease payment obligations of a joint venture, guarantees of the residual value of leased corporate aircraft, and guarantees of the performance of a business partner or some of its customers. These guarantees generally extend up to 12 years or life of the venture.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. Agreements associated with these sales include indemnifications for taxes, environmental liabilities, permits and licenses, employee claims, real estate indemnity against tenant defaults, and litigation. The terms of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, the term is generally indefinite and the

maximum amount of future payments is generally unlimited. The carrying amount recorded for these indemnifications at September 30, 2012, was approximately $70 million. We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were approximately $60 million of environmental accruals for known contamination that are included in the “Asset retirement obligations and accrued environmental costs” line on our consolidated balance sheet. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments. “Asset retirement obligations and accrued environmental costs” line on our consolidated balance sheet.

In connection with the separation of the Downstream business, the Company entered into an Indemnification and Release Agreement with Phillips 66. See Note 2—Separation of Downstream Business, for additional information. This agreement provides for cross-indemnities between Phillips 66 and ConocoPhillips and established procedures for handling claims subject to indemnification and related matters. We evaluated the impact of the indemnifications given and the Phillips 66 indemnifications received as of the separation date and concluded those fair values were immaterial.

Note 13—Contingencies and Commitments

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

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

Environmental

We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency (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 state 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 state agencies 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 and time limits.

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except in respect of sites 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. At September 30, 2012, our balance sheet included a total environmental accrual of $380 million, compared with $922 million at December 31, 2011. A significant portion of our environmental contingencies at December 31, 2011, was related to our Downstream business. See Note 2—Separation of Downstream Business, for additional information. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

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, are required.

Other Contingencies

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized. In addition, at September 30, 2012, we had performance obligations secured by letters of credit of $837 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, services and items of permanent investment incident to the ordinary conduct of business.

In 2007, we announced we had been unable to reach agreement with respect to our migration to an 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, in November 2007 we filed a request for international arbitration, with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). An arbitration hearing was held before an ICSID tribunal during the summer of 2010. We are currently awaiting an interim decision on key legal and factual issues, which we anticipate receiving in the first half of 2013. In a separate commercial arbitration from the Company’s ICSID claim discussed above, on September 17, 2012, an International Chamber of Commerce

arbitration tribunal issued a decision in favor of the Company finding PDVSA owes $67 million for pre-expropriation breaches of the Petrozuata project agreements.

In 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated arbitration before ICSID against The Republic of Ecuador, as a result of the newly enacted Windfall Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite a restraining order issued by ICSID, Ecuador confiscated the crude oil production of Burlington and its co-venturer and sold the illegally seized crude oil. In 2009, Ecuador took over operations in Blocks 7 and 21, fully expropriating our assets. In June 2010, the ICSID tribunal concluded it has jurisdiction to hear the expropriation claim. An arbitration hearing on case merits occurred in March 2011, and we are awaiting a decision. On April 24, 2012, Ecuador filed a revised supplemental counterclaim asserting environmental damages, which we believe are not material. The arbitration process is ongoing.

Note 14—Derivative and Financial Instruments

Derivative Instruments

We use derivative instruments to manage our exposure to cash flow variability from commodity price risk. We occasionally use derivatives to capture market opportunities based on our industry knowledge. Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and natural gas liquids.

Our derivative instruments are held at fair value on our consolidated balance sheet. Where these balances have the right of setoff, they are presented net. Related cash flows are recorded as operating activities on our consolidated statement of cash flows. On our consolidated income statement, realized and unrealized gains and losses are recognized either on a gross basis if directly related to our physical business or a net basis if held for trading. Gains and losses related to contracts that meet and are designated with the normal purchase normal sale exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use 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 would appear on our consolidated balance sheet:


	Millions of Dollars
	September 30 2012		December 31 2011

Assets
Prepaid expenses and other current assets	$	2,429		4,433
Other assets		188		415
Liabilities
Other accruals		2,389		4,350
Other liabilities and deferred credits		189		374

The gains (losses) from commodity derivatives incurred, and the line items where they appear on our consolidated income statement were:


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011

Sales and other operating revenues	$	(217	)		249			(357	)		198
Other income		3			(6	)		(2	)		(2	)
Purchased commodities		184			(191	)		288			(129	)

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


	Open Position Long / (Short)
	September 30 2012			December 31 2011

Commodity
Crude oil, refined products and natural gas liquids (millions of barrels)		—			(13	)
Natural gas and power (billions of cubic feet equivalent)
Fixed price		(64	)		(57	)
Basis		97			(25	)

Foreign Currency Exchange Derivatives

We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily consists of transactions designed to mitigate our cash-related and 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. 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 would appear on our consolidated balance sheet:


	Millions of Dollars
	September 30 2012		December 31 2011

Assets
Prepaid expenses and other current assets	$	72		12
Other assets		—		1
Liabilities
Other accruals		16		23
Other liabilities and deferred credits		1		—

The (gains) losses from foreign currency exchange derivatives incurred, and the line items where they appear on our consolidated income statement were:


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011

Foreign currency transaction (gains) losses	$	(39	)		(11	)		(129	)		(15	)

We had the following net notional position of outstanding foreign currency exchange derivatives:

In Millions
Notional Currency⁽¹⁾

September 30

2012

December 31

2011

Sell U.S. dollar, buy other currencies⁽²⁾

USD

285

1,949

Sell euro, buy other currencies⁽³⁾

EUR

—

Buy U.S. dollar, sell other currencies⁽⁴⁾

USD

477

—

Buy British pound, sell other currencies⁽⁵⁾

GBP

3,709

—

Buy euro, sell British pound

EUR

176

—

(1) Denominated in U.S. dollars (USD), British pound (GBP) and euros (EUR).

(2) Primarily euro, Canadian dollar, Norwegian krone and British pound.

(3) Primarily Norwegian krone and British pound.

(4) Primarily Canadian dollar, euro and Norwegian krone.

(5) Primarily euro and U.S. dollar.

Financial Instruments

We have certain financial instruments on the consolidated balance sheet related to interest bearing time deposits and commercial paper. These held-to-maturity financial instruments are included in “Cash and cash equivalents” on our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less; otherwise, these investments are included in “Short-term investments” on our consolidated balance sheet.

These balances consisted of the following:


	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents				Short-Term Investments
	September 30 2012		December 31 2011		September 30 2012		December 31 2011

Cash	$	636		1,169		—		—

Time Deposits
Remaining maturities from 1 to 90 days		632		4,318		—		349
Commercial Paper
Remaining maturities from 1 to 90 days		—		293		—		232

	$	1,268		5,780		—		581

In conjunction with the separation of our Downstream business, we received a special cash distribution from Phillips 66 of $7,818 million. See Note 2—Separation of Downstream Business, for additional information. At September 30, 2012, the unused amount of the special cash distribution was $2,468 million and is designated as “Restricted cash” on our consolidated balance sheet. At September 30, 2012, the funds in the restricted cash account were invested in U.S. Treasury Bills ($268 million) and money market funds ($2,200 million) with maturities within 90 days from September 30, 2012.

Credit Risk

Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, over-the-counter (OTC) derivative contracts and trade receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper, money market funds, government debt securities and time deposits with major international banks and financial institutions.

The credit risk from our OTC derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins or letters of credit when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements until settled; however, we are exposed to the credit and performance risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements.

Our trade receivables result primarily from our petroleum operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less, and we continually monitor this exposure and the creditworthiness of the counterparties. We do not generally require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments and master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due 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.

The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position on September 30, 2012, and December 31, 2011, was $142 million and $237 million, respectively. No collateral was posted for September 30, 2012, and $3 million was posted for December 31, 2011. If our credit rating had been lowered one level from its “A” rating (per Standard and Poor’s) on September 30, 2012, we would be required to post no additional collateral to our counterparties. If we had been downgraded below investment grade, we would be required to post $142 million of additional collateral, either with cash or letters of credit.

Note 15—Fair Value Measurement

We carry a portion of our assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to the quality of valuation inputs under the following hierarchy:

•

Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.

•

Level 2: Inputs other than quoted prices that are directly or indirectly observable.

•

Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.

The classification 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 that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. There were no material transfers in or out of Level 1.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include derivative instruments and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. 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 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 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts that are long term in nature and 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. As reflected in the table below, Level 3 activity was not material.

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, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets
Deferred compensation investments	$	309		—		—		309		336		—		—		336
Commodity derivatives		1,788		803		18		2,609		2,807		1,947		72		4,826

Total assets	$	2,097		803		18		2,918		3,143		1,947		72		5,162


Liabilities
Commodity derivatives	$	1,749		814		7		2,570		2,970		1,722		10		4,702

Total liabilities	$	1,749		814		7		2,570		2,970		1,722		10		4,702

Non-Recurring Fair Value Measurement

There were no significant non-recurring fair value measurements as of September 30, 2012.

Reported Fair Value of Financial Instruments

The following are the valuation techniques and methods used to estimate the fair value of financial assets and liabilities reported on the balance sheet:

•

Cash and cash equivalents, restricted cash and short-term investments: The carrying amount reported on the balance sheet approximates 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.

•

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 6—Investments, Loans and Long-Term Receivables, for additional information.

•

Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of the joint venture acquisition obligation reported in accounts payable is consistent with the methodology below.

•

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.

•

Joint venture acquisition obligation—related party: Fair value is estimated based on the net present value of the future cash flows as a Level 2 fair value, discounted at September 30, 2012, and December 31, 2011, effective yield rates of 0.76 percent and 1.24 percent, respectively, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 10—Joint Venture Acquisition Obligation, for additional information.

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

2012

December 31

2011

September 30

2012

December 31

2011

Financial assets

Deferred compensation investments

309

336

309

336

Commodity derivatives

295

814

295

814

Total loans and advances—related parties

1,710

1,793

1,914

1,994

Financial liabilities

Total debt, excluding capital leases

21,100

22,592

26,012

27,065

Total joint venture acquisition obligation

3,769

4,314

4,192

4,820

Commodity derivatives

237

446

237

446

At September 30, 2012, commodity derivative assets and liabilities appear net of $31 million of obligations to return cash collateral and $50 million of rights to reclaim cash collateral, respectively. At December 31, 2011, commodity derivative assets and liabilities appear net of no obligations to return cash collateral and $244 million of rights to reclaim cash collateral.

Note 16—Accumulated Other Comprehensive Income

Accumulated other comprehensive income in the equity section of the balance sheet included:


	Millions of Dollars
	Defined Benefit Plans			Net Unrealized Gain on Securities		Foreign Currency Translation			Hedging			Accumulated Other Comprehensive Income

December 31, 2011*	$	(1,971	)		—		5,223			(6	)		3,246
Other comprehensive income (loss)		(74	)		1		946			6			879
Separation of Downstream business		683			—		(469	)		—			214

September 30, 2012	$	(1,362	)		1		5,700			—			4,339

* The beginning balance of retained earnings has been restated primarily to reflect certain intercompany loans as permanently invested in 2004 and prior periods, which resulted in a $160 million increase in Foreign Currency Translation and Accumulated Other Comprehensive Income, a $15 million decrease to Total Liabilities, and a $145 million reduction in Retained Earnings. The impact on net income and earnings per share was de minimis for the three- and nine-month periods ended September 30, 2012 and 2011.

There were no items within accumulated other comprehensive income related to noncontrolling interests.

Note 17—Cash Flow Information


	Millions of Dollars
	Nine Months Ended September 30
	2012			2011

Cash Payments
Interest	$	596			739
Income taxes		6,394			7,145


Net Sales (Purchases) of Short-Term Investments
Short-term investments purchased	$	(497	)		(6,642	)
Short-term investments sold		1,094			5,019

	$	597			(1,623	)

Note 18—Employee Benefit Plans

In connection with the separation of the Downstream business, ConocoPhillips entered into an Employee Matters Agreement with Phillips 66 (see Note 2—Separation of Downstream Business), which provides that employees of Phillips 66 will no longer participate in benefit plans sponsored or maintained by ConocoPhillips. Upon separation, the ConocoPhillips Pension Plan transferred assets and obligations to the Phillips 66 Pension Plan resulting in a net decrease in sponsored pension plan obligations of $1,127 million. Additionally, as a result of the transfer of unrecognized losses to Phillips 66, deferred income taxes and other comprehensive income decreased $335 million and $570 million, respectively.

Pension and Postretirement Plans


	Millions of Dollars
	Pension Benefits												Other Benefits
	2012						2011						2012			2011

	U.S.			Int’l.			U.S.			Int’l.

Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost	$	33			20			56			25			1			3
Interest cost		39			35			62			45			8			10
Expected return on plan assets		(47	)		(37	)		(70	)		(44	)		—			—
Amortization of prior service cost		1			(2	)		2			—			(1	)		(1	)
Recognized net actuarial (gain) loss		41			13			42			11			—			(1	)

Net periodic benefit costs	$	67			29			92			37			8			11


Nine Months Ended September 30
Service cost	$	133			70			169			74			5			8
Interest cost		150			116			185			133			26			31
Expected return on plan assets		(177	)		(120	)		(210	)		(131	)		—			—
Amortization of prior service cost		5			(6	)		7			—			(3	)		(5	)
Recognized net actuarial (gain) loss		145			46			124			34			(1	)		(4	)

Net periodic benefit costs	$	256			106			275			110			27			30

During the first nine months of 2012, we contributed $258 million to our domestic benefit plans and $161 million to our international benefit plans. In 2012, we expect to contribute approximately $410 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $210 million to our international qualified and nonqualified pension and postretirement benefit plans.

During the three months ended September 30, 2012, it became probable that lump-sum benefit payments would exceed the sum of service and interest costs for the plan year for the U.S. qualified pension plan and U.S. non-qualified supplemental retirement plan. As a result, we recognized a proportionate share of prior actuarial losses, or pension settlement expense, of $137 million. In conjunction with the recognition of pension settlement expense, the assets and pension benefit obligation of the qualified pension plan were remeasured. At the measurement date, the net pension liability increased $432 million to $1,283 million, resulting in a corresponding decrease to other comprehensive income. The increase in the liability was primarily due to a reduction of the discount rate used to determine benefit obligations from 4.30% at December 31, 2011 to 3.35% at the measurement date. The assumptions used for rate of compensation increased from 4.25% to 4.75% over the same time period.

In addition, pursuant to the Employee Matters Agreement we made certain adjustments to the exercise price and number of our stock-based compensation awards with the intention of preserving the intrinsic value of the awards prior to the separation. Outstanding options to purchase common shares of ConocoPhillips stock that were exercisable prior to the separation were adjusted so the holders of those options would then hold options to purchase common shares of both ConocoPhillips and Phillips 66 stock. Non-exercisable stock options were converted to those of the entity where the employee is working post-separation. In addition, former employee holders and a specified group of holders of stock options and restricted stock units who retired or terminated employment upon or shortly after the separation, received both adjusted ConocoPhillips awards and Phillips 66 awards. ConocoPhillips restricted stock and performance share units awarded for completed performance periods under the Performance Share Program, as well as restricted stock units held by current or former directors, were adjusted to provide holders one restricted share or restricted stock unit of Phillips 66 for every two restricted shares or restricted stock units of ConocoPhillips. Each employee holder of restricted stock and restricted stock units awarded under all other programs were adjusted to provide holders restricted shares or restricted stock units in the company that employs such employee following the separation. Adjustments to our stock-based compensation awards did not have a material impact on compensation expense.

Note 19—Related Party Transactions

Significant transactions with related parties were:


	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2012		2011		2012		2011

Operating revenues and other income	$	9		11		42		38
Purchases		37		44		121		287
Operating expenses and selling, general and administrative expenses		52		57		133		190
Net interest expense*		8		15		30		47

* We paid and/or received interest to/from various affiliates, including FCCL Partnership. See Note 6—Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.

Note 20—Segment Disclosures and Related Information

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and natural gas liquids on a worldwide basis. We manage our operations through six operating segments, which are defined by geographic region: Alaska, Lower 48 and Latin America, Canada, Europe, Asia Pacific and Middle East, and Other International.

On April 30, 2012, our Downstream business was separated into a stand-alone, publicly traded corporation, Phillips 66, and has been reported as discontinued operations in all periods presented. Our reportable segments changed upon separation, and, as a result, all prior periods presented have been restated. Commodity sales to Phillips 66, which were previously eliminated in consolidation prior to the separation, are now reported as third-party sales. For additional information, see Note 2—Separation of Downstream Business.

Our LUKOIL Investment represents our prior investment in the ordinary shares of OAO LUKOIL, an international, integrated oil and gas company headquartered in Russia. We completed the divestiture of our entire interest in LUKOIL in the first quarter of 2011.

Corporate and Other represents costs not directly associated with an operating segment, such as most interest expense, corporate overhead, ongoing costs associated with the separation and certain technology activities, net of licensing revenues. Corporate assets include all cash and cash equivalents, short-term investments and restricted cash.

We evaluate performance and allocate resources based on net income attributable to ConocoPhillips. Intersegment sales are at prices that approximate market.

Analysis of Results by Operating Segment


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011

Sales and Other Operating Revenues
Alaska	$	2,005			2,363			7,135			7,280

Lower 48 and Latin America		4,807			6,296			14,110			17,921
Intersegment eliminations		(40	)		(63	)		(196	)		(227	)

Lower 48 and Latin America		4,767			6,233			13,914			17,694

Canada		1,288			1,595			3,580			4,681
Intersegment eliminations		(117	)		(230	)		(330	)		(758	)

Canada		1,171			1,365			3,250			3,923

Europe		3,285			3,915			10,813			12,294
Intersegment eliminations		—			—			(72	)		(50	)

Europe		3,285			3,915			10,741			12,244

Asia Pacific and Middle East		2,167			2,151			5,697			6,730
Intersegment eliminations		(41	)		(1	)		(41	)		(1	)

Asia Pacific and Middle East		2,126			2,150			5,656			6,729

Other International		1,067			399			2,663			1,442
LUKOIL Investment		—			—			—			—
Corporate and Other		99			81			133			150

Consolidated sales and other operating revenues	$	14,520			16,506			43,492			49,462


Net Income Attributable to ConocoPhillips
Alaska	$	535			502			1,706			1,558
Lower 48 and Latin America		182			334			556			996
Canada		(31	)		73			(674	)		201
Europe		132			266			1,190			1,265
Asia Pacific and Middle East		669			469			3,179			2,288
Other International		567			53			634			251
LUKOIL Investment		—			—			—			239
Corporate and Other		(257	)		(215	)		(836	)		(728	)
Discontinued operations		1			1,134			1,247			2,976

Consolidated net income attributable to ConocoPhillips	$	1,798			2,616			7,002			9,046


	Millions of Dollars
	September 30 2012		December 31 2011

Total Assets
Alaska	$	11,062		10,723
Lower 48 and Latin America		28,444		25,872
Canada		22,075		20,847
Europe		14,305		12,452
Asia Pacific and Middle East		23,532		22,374
Other International		9,741		9,070
LUKOIL Investment		—		—
Corporate and Other		6,210		8,485
Discontinued operations		—		43,407

Consolidated total assets	$	115,369		153,230

Note 21—Income Taxes

Our effective tax rate from continuing operations for the third quarter of 2012 was 52 percent compared with 59 percent for the third quarter of 2011. The lower rate was due primarily to tax benefits associated with asset dispositions occurring in 2012, partially offset by higher income in higher tax rate jurisdictions in 2012.

Our effective tax rate from continuing operations for the first nine months of 2012 was 53 percent compared with 52 percent for the first nine months of 2011.

For both the third quarter and the first nine months of 2012, the effective tax rate in excess of the domestic federal statutory rate of 35 percent was primarily due to foreign taxes.

In the United Kingdom, legislation was enacted on July 17, 2012, restricting corporate tax relief on decommissioning costs to 50 percent, retroactively effective from March 21, 2012. Our third quarter 2012 earnings were reduced by $170 million due to the remeasurement of deferred tax balances as of the effective date.

Supplementary Information—Condensed Consolidating Financial Information

We have various cross guarantees among ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I and ConocoPhillips Canada Funding Company II are indirect, 100 percent owned subsidiaries of ConocoPhillips Company. ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to their publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:

•

ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).

•

All other nonguarantor subsidiaries of ConocoPhillips.

•

The consolidating adjustments necessary to present ConocoPhillips’ results on a consolidated basis.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.


	Millions of Dollars
	Three Months Ended September 30, 2012
Income Statement	ConocoPhillips			ConocoPhillips Company			ConocoPhillips Australia Funding Company		ConocoPhillips Canada Funding Company I			ConocoPhillips Canada Funding Company II			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—			4,029			—		—			—			10,491			—			14,520
Equity in earnings of affiliates		2,169			2,555			—		—			—			327			(4,642	)		409
Gain on dispositions		—			3			—		—			—			115			—			118
Other income (loss)		(78	)		100			—		—			—			20			—			42
Intercompany revenues		21			94			11		22			8			752			(908	)		—

Total Revenues and Other Income		2,112			6,781			11		22			8			11,705			(5,550	)		15,089

Costs and Expenses
Purchased commodities		—			3,470			—		—			—			3,338			(372	)		6,436
Production and operating expenses		—			313			—		—			—			1,400			(2	)		1,711
Selling, general and administrative expenses		2			260			—		—			—			68			—			330
Exploration expenses		—			101			—		—			—			118			—			219
Depreciation, depletion and amortization		—			197			—		—			—			1,502			—			1,699
Taxes other than income taxes		—			57			—		—			—			619			—			676
Accretion on discounted liabilities		—			13			—		—			—			89			—			102
Interest and debt expense		542			76			10		19			8			40			(534	)		161
Foreign currency transaction (gains) losses		(28	)		(7	)		—		46			46			(58	)		—			(1	)

Total Costs and Expenses		516			4,480			10		65			54			7,116			(908	)		11,333

Income (loss) from continuing operations before income taxes		1,596			2,301			1		(43	)		(46	)		4,589			(4,642	)		3,756
Provision for income taxes		(200	)		132			—		1			(6	)		2,018			—			1,945

Income (Loss) From Continuing Operations		1,796			2,169			1		(44	)		(40	)		2,571			(4,642	)		1,811
Income from discontinued operations		2			2			—		—			—			2			(4	)		2

Net income (loss)		1,798			2,171			1		(44	)		(40	)		2,573			(4,646	)		1,813
Less: net income attributable to noncontrolling interests		—			—			—		—			—			(15	)		—			(15	)

Net Income (Loss) Attributable to ConocoPhillips	$	1,798			2,171			1		(44	)		(40	)		2,558			(4,646	)		1,798

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	2,260			2,633			1		7			(20	)		3,280			(5,901	)		2,260


Income Statement	Three Months Ended September 30, 2011
Revenues and Other Income
Sales and other operating revenues	$	—			5,585			—		—			—			10,921			—			16,506
Equity in earnings of affiliates		1,759			1,914			—		—			—			638			(3,868	)		443
Gain (loss) on dispositions		—			(2	)		—		—			—			(258	)		—			(260	)
Other income (loss)		(1	)		(23	)		—		—			—			30			—			6
Intercompany revenues		1			191			11		23			9			834			(1,069	)		—

Total Revenues and Other Income		1,759			7,665			11		23			9			12,165			(4,937	)		16,695

Costs and Expenses
Purchased commodities		—			4,857			—		—			—			3,729			(610	)		7,976
Production and operating expenses		—			293			—		—			—			1,479			(5	)		1,767
Selling, general and administrative expenses		2			88			—		—			—			56			(1	)		145
Exploration expenses		—			99			—		—			—			167			—			266
Depreciation, depletion and amortization		—			216			—		—			—			1,429			—			1,645
Taxes other than income taxes		—			66			—		—			—			838			—			904
Accretion on discounted liabilities		—			12			—		—			—			95			—			107
Interest and debt expense		427			106			10		19			8			113			(453	)		230
Foreign currency transaction (gains) losses		—			8			—		(106	)		(101	)		249			—			50

Total Costs and Expenses		429			5,745			10		(87	)		(93	)		8,155			(1,069	)		13,090

Income from continuing operations before income taxes		1,330			1,920			1		110			102			4,010			(3,868	)		3,605
Provision for income taxes		(150	)		161			—		2			16			2,081			—			2,110

Income From Continuing Operations		1,480			1,759			1		108			86			1,929			(3,868	)		1,495
Income from discontinued operations		1,136			1,136			—		—			—			750			(1,886	)		1,136

Net income		2,616			2,895			1		108			86			2,679			(5,754	)		2,631
Less: net income (loss) attributable to noncontrolling interests		—			—			—		—			—			(15	)		—			(15	)

Net Income Attributable to ConocoPhillips	$	2,616			2,895			1		108			86			2,664			(5,754	)		2,616

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	(306	)		(27	)		1		(3	)		42			(277	)		264			(306	)


	Millions of Dollars
	Nine Months Ended September 30, 2012
Income Statement	ConocoPhillips			ConocoPhillips Company			ConocoPhillips Australia Funding Company		ConocoPhillips Canada Funding Company I			ConocoPhillips Canada Funding Company II			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—			12,598			—		—			—			30,894			—			43,492
Equity in earnings of affiliates		6,848			7,785			—		—			—			1,355			(14,564	)		1,424
Gain on dispositions		—			3			—		—			—			1,638			—			1,641
Other income (loss)		(77	)		155			—		—			—			90			—			168
Intercompany revenues		40			779			34		67			25			3,192			(4,137	)		—

Total Revenues and Other Income		6,811			21,320			34		67			25			37,169			(18,701	)		46,725

Costs and Expenses
Purchased commodities		—			11,044			—		—			—			9,642			(2,372	)		18,314
Production and operating expenses		—			917			—		—			—			4,336			(21	)		5,232
Selling, general and administrative expenses		10			690			—		—			—			201			(9	)		892
Exploration expenses		—			287			—		—			—			881			—			1,168
Depreciation, depletion and amortization		—			605			—		—			—			4,343			—			4,948
Impairments		—			—			—		—			—			296			—			296
Taxes other than income taxes		—			207			—		—			—			2,476			—			2,683
Accretion on discounted liabilities		—			39			—		—			—			275			—			314
Interest and debt expense		1,668			247			31		58			24			255			(1,735	)		548
Foreign currency transaction (gains) losses		(30	)		19			—		34			47			(52	)		—			18

Total Costs and Expenses		1,648			14,055			31		92			71			22,653			(4,137	)		34,413

Income (loss) from continuing operations before income taxes		5,163			7,265			3		(25	)		(46	)		14,516			(14,564	)		12,312
Provision for income taxes		(589	)		417			1		7			(6	)		6,675			—			6,505

Income (Loss) From Continuing Operations		5,752			6,848			2		(32	)		(40	)		7,841			(14,564	)		5,807
Income from discontinued operations		1,250			1,250			—		—			—			997			(2,247	)		1,250

Net income (loss)		7,002			8,098			2		(32	)		(40	)		8,838			(16,811	)		7,057
Less: net income attributable to noncontrolling interests		—			—			—		—			—			(55	)		—			(55	)

Net Income (Loss) Attributable to ConocoPhillips	$	7,002			8,098			2		(32	)		(40	)		8,783			(16,811	)		7,002

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	7,881			8,968			2		24			(18	)		9,356			(18,332	)		7,881


Income Statement	Nine Months Ended September 30, 2011
Revenues and Other Income
Sales and other operating revenues	$	—			15,904			—		—			—			33,558			—			49,462
Equity in earnings of affiliates		6,793			6,722			—		—			—			1,277			(13,648	)		1,144
Gain on dispositions		—			263			—		—			—			125			—			388
Other income (loss)		(1	)		46			—		—			—			127			—			172
Intercompany revenues		3			1,072			34		69			26			2,000			(3,204	)		—

Total Revenues and Other Income		6,795			24,007			34		69			26			37,087			(16,852	)		51,166

Costs and Expenses
Purchased commodities		—			13,927			—		—			—			10,622			(1,934	)		22,615
Production and operating expenses		—			855			—		—			—			4,145			(59	)		4,941
Selling, general and administrative expenses		11			405			—		—			—			189			(9	)		596
Exploration expenses		—			225			—		—			—			481			—			706
Depreciation, depletion and amortization		—			660			—		—			—			4,679			—			5,339
Taxes other than income taxes		—			226			—		—			—			2,760			—			2,986
Accretion on discounted liabilities		—			35			—		—			—			284			—			319
Interest and debt expense		1,109			343			31		58			24			366			(1,202	)		729
Foreign currency transaction (gains) losses		—			(8	)		—		(50	)		(93	)		226			—			75

Total Costs and Expenses		1,120			16,668			31		8			(69	)		23,752			(3,204	)		38,306

Income from continuing operations before income taxes		5,675			7,339			3		61			95			13,335			(13,648	)		12,860
Provision for income taxes		(391	)		546			1		1			24			6,567			—			6,748

Income From Continuing Operations		6,066			6,793			2		60			71			6,768			(13,648	)		6,112
Income from discontinued operations		2,980			2,980			—		—			—			2,149			(5,129	)		2,980

Net income		9,046			9,773			2		60			71			8,917			(18,777	)		9,092
Less: net income attributable to noncontrolling interests		—			—			—		—			—			(46	)		—			(46	)

Net Income Attributable to ConocoPhillips	$	9,046			9,773			2		60			71			8,871			(18,777	)		9,046

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	7,476			8,203			2		(2	)		46			7,189			(15,438	)		7,476


	Millions of Dollars
	September 30, 2012
Balance Sheet	ConocoPhillips		ConocoPhillips Company		ConocoPhillips Australia Funding Company		ConocoPhillips Canada Funding Company I		ConocoPhillips Canada Funding Company II		All Other Subsidiaries		Consolidating Adjustments			Total Consolidated
Assets
Cash and cash equivalents	$	1		12		3		44		1		1,207		—			1,268
Restricted cash		2,468		—		—		—		—		—		—			2,468
Accounts and notes receivable		20		6,905		—		—		—		12,619		(10,361	)		9,183
Inventories		—		167		—		—		—		1,009		—			1,176
Prepaid expenses and other current assets		19		728		—		1		—		938		—			1,686

Total Current Assets		2,508		7,812		3		45		1		15,773		(10,361	)		15,781
Investments, loans and long-term receivables*		79,733		115,262		771		1,496		595		40,667		(213,460	)		25,064
Net properties, plants and equipment		—		8,519		—		—		—		65,093		—			73,612
Intangibles		—		8		—		—		—		2		—			10
Other assets		57		204		—		2		3		636		—			902

Total Assets	$	82,298		131,805		774		1,543		599		122,171		(223,821	)		115,369

Liabilities and Stockholders’ Equity
Accounts payable	$	—		14,605		—		3		1		5,734		(10,361	)		9,982
Short-term debt		1,378		4		750		—		—		203		—			2,335
Accrued income and other taxes		—		129		—		4		—		2,704		—			2,837
Employee benefit obligations		—		470		—		—		—		208		—			678
Other accruals		139		210		19		32		11		1,140		—			1,551

Total Current Liabilities		1,517		15,418		769		39		12		9,989		(10,361	)		17,383
Long-term debt		9,454		3,220		—		1,250		499		4,359		—			18,782
Asset retirement obligations and accrued environmental costs		—		1,168		—		—		—		7,253		—			8,421
Joint venture acquisition obligation		—		—		—		—		—		3,006		—			3,006
Deferred income taxes		14		58		—

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company