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, 2016
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32395
ConocoPhillips
(Exact name of registrant as specified in its charter)
Delaware | 01-0562944 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
600 North Dairy Ashford, Houston, TX 77079
(Address of principal executive offices) (Zip Code)
281-293-1000
(Registrants 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.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
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 1,239,027,409 shares of common stock, $.01 par value, outstanding at September 30, 2016.
CONOCOPHILLIPS
Item 1. | FINANCIAL STATEMENTS |
Consolidated Income Statement | ConocoPhillips |
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Revenues and Other Income |
||||||||||||||||
Sales and other operating revenues |
$ | 6,415 | 7,262 | 16,884 | 23,271 | |||||||||||
Equity in earnings (losses) of affiliates |
(60 | ) | 223 | (129 | ) | 686 | ||||||||||
Gain on dispositions |
51 | 18 | 202 | 122 | ||||||||||||
Other income |
110 | 4 | 149 | 90 | ||||||||||||
|
||||||||||||||||
Total Revenues and Other Income |
6,516 | 7,507 | 17,106 | 24,169 | ||||||||||||
|
||||||||||||||||
Costs and Expenses |
||||||||||||||||
Purchased commodities |
2,819 | 3,269 | 7,046 | 9,736 | ||||||||||||
Production and operating expenses |
1,526 | 1,834 | 4,325 | 5,434 | ||||||||||||
Selling, general and administrative expenses |
203 | 293 | 556 | 670 | ||||||||||||
Exploration expenses |
457 | 1,061 | 1,572 | 2,092 | ||||||||||||
Depreciation, depletion and amortization |
2,425 | 2,271 | 7,001 | 6,731 | ||||||||||||
Impairments |
123 | 24 | 321 | 118 | ||||||||||||
Taxes other than income taxes |
161 | 206 | 538 | 655 | ||||||||||||
Accretion on discounted liabilities |
108 | 122 | 329 | 365 | ||||||||||||
Interest and debt expense |
335 | 240 | 928 | 652 | ||||||||||||
Foreign currency transaction (gains) losses |
13 | (72 | ) | 12 | (96 | ) | ||||||||||
|
||||||||||||||||
Total Costs and Expenses |
8,170 | 9,248 | 22,628 | 26,357 | ||||||||||||
|
||||||||||||||||
Loss before income taxes |
(1,654 | ) | (1,741 | ) | (5,522 | ) | (2,188 | ) | ||||||||
Income tax benefit |
(628 | ) | (685 | ) | (1,982 | ) | (1,254 | ) | ||||||||
|
||||||||||||||||
Net loss |
(1,026 | ) | (1,056 | ) | (3,540 | ) | (934 | ) | ||||||||
Less: net income attributable to noncontrolling interests |
(14 | ) | (15 | ) | (40 | ) | (44 | ) | ||||||||
|
||||||||||||||||
Net Loss Attributable to ConocoPhillips |
$ | (1,040 | ) | (1,071 | ) | (3,580 | ) | (978 | ) | |||||||
|
||||||||||||||||
Net Loss Attributable to ConocoPhillips Per Share of Common Stock (dollars) |
||||||||||||||||
Basic |
$ | (0.84 | ) | (0.87 | ) | (2.88 | ) | (0.80 | ) | |||||||
Diluted |
(0.84 | ) | (0.87 | ) | (2.88 | ) | (0.80 | ) | ||||||||
|
||||||||||||||||
Dividends Paid Per Share of Common Stock (dollars) |
$ | 0.25 | 0.74 | 0.75 | 2.20 | |||||||||||
|
||||||||||||||||
Average Common Shares Outstanding (in thousands) |
||||||||||||||||
Basic |
1,245,961 | 1,242,125 | 1,245,139 | 1,241,319 | ||||||||||||
Diluted |
1,245,961 | 1,242,125 | 1,245,139 | 1,241,319 | ||||||||||||
|
See Notes to Consolidated Financial Statements.
1
Consolidated Statement of Comprehensive Income | ConocoPhillips |
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Net Loss |
$ | (1,026 | ) | (1,056 | ) | (3,540 | ) | (934 | ) | |||||||
Other comprehensive income (loss) |
||||||||||||||||
Defined benefit plans |
||||||||||||||||
Prior service credit arising during the period |
| 163 | | 303 | ||||||||||||
Reclassification adjustment for amortization of prior service credit included in net loss |
(7 | ) | (5 | ) | (25 | ) | (9 | ) | ||||||||
Net actuarial loss arising during the period |
(31 | ) | (231 | ) | (331 | ) | (216 | ) | ||||||||
Reclassification adjustment for amortization of net actuarial losses included in net loss |
47 | 126 | 229 | 278 | ||||||||||||
Nonsponsored plans* |
2 | | 2 | | ||||||||||||
Income taxes on defined benefit plans |
(2 | ) | (18 | ) | 51 | (128 | ) | |||||||||
|
||||||||||||||||
Defined benefit plans, net of tax |
9 | 35 | (74 | ) | 228 | |||||||||||
|
||||||||||||||||
Foreign currency translation adjustments |
(82 | ) | (2,544 | ) | 877 | (4,493 | ) | |||||||||
Income taxes on foreign currency translation adjustments |
| 25 | | 42 | ||||||||||||
|
||||||||||||||||
Foreign currency translation adjustments, net of tax |
(82 | ) | (2,519 | ) | 877 | (4,451 | ) | |||||||||
|
||||||||||||||||
Other Comprehensive Income (Loss), Net of Tax |
(73 | ) | (2,484 | ) | 803 | (4,223 | ) | |||||||||
|
||||||||||||||||
Comprehensive Loss |
(1,099 | ) | (3,540 | ) | (2,737 | ) | (5,157 | ) | ||||||||
Less: comprehensive income attributable to noncontrolling interests |
(14 | ) | (15 | ) | (40 | ) | (44 | ) | ||||||||
|
||||||||||||||||
Comprehensive Loss Attributable to ConocoPhillips |
$ | (1,113 | ) | (3,555 | ) | (2,777 | ) | (5,201 | ) | |||||||
|
*Plans for which ConocoPhillips is not the primary obligor-primarily those administered by equity affiliates.
See Notes to Consolidated Financial Statements.
2
Consolidated Balance Sheet | ConocoPhillips |
Millions of Dollars | ||||||||
September 30 | December 31 | |||||||
2016 | 2015 | |||||||
|
|
|||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 4,090 | 2,368 | |||||
Short-term investments |
234 | | ||||||
Accounts and notes receivable (net of allowance of $6 million in 2016 and $7 million in 2015) |
3,163 | 4,314 | ||||||
Accounts and notes receivablerelated parties |
157 | 200 | ||||||
Inventories |
1,108 | 1,124 | ||||||
Prepaid expenses and other current assets |
889 | 783 | ||||||
|
||||||||
Total Current Assets |
9,641 | 8,789 | ||||||
Investments and long-term receivables |
21,283 | 20,490 | ||||||
Loans and advancesrelated parties |
581 | 696 | ||||||
Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $72,984 million in 2016 and $70,413 million in 2015) |
61,649 | 66,446 | ||||||
Other assets |
1,130 | 1,063 | ||||||
|
||||||||
Total Assets |
$ | 94,284 | 97,484 | |||||
|
||||||||
Liabilities |
||||||||
Accounts payable |
$ | 3,686 | 4,895 | |||||
Accounts payablerelated parties |
65 | 38 | ||||||
Short-term debt |
1,336 | 1,427 | ||||||
Accrued income and other taxes |
394 | 499 | ||||||
Employee benefit obligations |
757 | 887 | ||||||
Other accruals |
1,299 | 1,510 | ||||||
|
||||||||
Total Current Liabilities |
7,537 | 9,256 | ||||||
Long-term debt |
27,353 | 23,453 | ||||||
Asset retirement obligations and accrued environmental costs |
9,820 | 9,580 | ||||||
Deferred income taxes |
9,034 | 10,999 | ||||||
Employee benefit obligations |
2,471 | 2,286 | ||||||
Other liabilities and deferred credits |
1,613 | 1,828 | ||||||
|
||||||||
Total Liabilities |
57,828 | 57,402 | ||||||
|
||||||||
Equity |
||||||||
Common stock (2,500,000,000 shares authorized at $.01 par value) |
||||||||
Issued (20161,781,258,082 shares; 20151,778,226,388 shares) |
||||||||
Par value |
18 | 18 | ||||||
Capital in excess of par |
46,480 | 46,357 | ||||||
Treasury stock (at cost: 2016542,230,673 shares; 2015542,230,673 shares) |
(36,780 | ) | (36,780 | ) | ||||
Accumulated other comprehensive loss |
(5,444 | ) | (6,247 | ) | ||||
Retained earnings |
31,896 | 36,414 | ||||||
|
||||||||
Total Common Stockholders Equity |
36,170 | 39,762 | ||||||
Noncontrolling interests |
286 | 320 | ||||||
|
||||||||
Total Equity |
36,456 | 40,082 | ||||||
|
||||||||
Total Liabilities and Equity |
$ | 94,284 | 97,484 | |||||
|
See Notes to Consolidated Financial Statements.
3
Consolidated Statement of Cash Flows | ConocoPhillips |
Millions of Dollars | ||||||||
Nine Months Ended September 30 |
||||||||
2016 | 2015 | |||||||
|
|
|||||||
Cash Flows From Operating Activities |
||||||||
Net loss |
$ | (3,540 | ) | (934 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||
Depreciation, depletion and amortization |
7,001 | 6,731 | ||||||
Impairments |
321 | 118 | ||||||
Dry hole costs and leasehold impairments |
1,010 | 1,238 | ||||||
Accretion on discounted liabilities |
329 | 365 | ||||||
Deferred taxes |
(2,152 | ) | (1,284 | ) | ||||
Distributions received greater than equity losses (undistributed equity earnings) |
414 | (79 | ) | |||||
Gain on dispositions |
(202 | ) | (122 | ) | ||||
Other |
(50 | ) | (259 | ) | ||||
Working capital adjustments |
||||||||
Decrease in accounts and notes receivable |
1,112 | 1,913 | ||||||
Decrease in inventories |
22 | 159 | ||||||
Decrease in prepaid expenses and other current assets |
46 | 255 | ||||||
Decrease in accounts payable |
(515 | ) | (1,618 | ) | ||||
Decrease in taxes and other accruals |
(836 | ) | (507 | ) | ||||
|
||||||||
Net Cash Provided by Operating Activities |
2,960 | 5,976 | ||||||
|
||||||||
Cash Flows From Investing Activities |
||||||||
Capital expenditures and investments |
(3,870 | ) | (7,913 | ) | ||||
Working capital changes associated with investing activities |
(401 | ) | (842 | ) | ||||
Proceeds from asset dispositions |
419 | 323 | ||||||
Net purchases of short-term investments |
(229 | ) | | |||||
Collection of advances/loansrelated parties |
108 | 105 | ||||||
Other |
61 | 298 | ||||||
|
||||||||
Net Cash Used in Investing Activities |
(3,912 | ) | (8,029 | ) | ||||
|
||||||||
Cash Flows From Financing Activities |
||||||||
Issuance of debt |
4,594 | 2,498 | ||||||
Repayment of debt |
(839 | ) | (92 | ) | ||||
Issuance of company common stock |
(52 | ) | (69 | ) | ||||
Dividends paid |
(940 | ) | (2,741 | ) | ||||
Other |
(93 | ) | (50 | ) | ||||
|
||||||||
Net Cash Provided by (Used in) Financing Activities |
2,670 | (454 | ) | |||||
|
||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
4 | (142 | ) | |||||
|
||||||||
Net Change in Cash and Cash Equivalents |
1,722 | (2,649 | ) | |||||
Cash and cash equivalents at beginning of period |
2,368 | 5,062 | ||||||
|
||||||||
Cash and Cash Equivalents at End of Period |
$ | 4,090 | 2,413 | |||||
|
See Notes to Consolidated Financial Statements.
4
Notes to Consolidated Financial Statements | ConocoPhillips |
Note 1Basis 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 2015 Annual Report on Form 10-K.
Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Certain financial information has been revised for all prior periods presented to reflect the change in the composition of our operating segments. For additional information, see Note 19Segment Disclosures and Related Information.
Note 2Change in Accounting Principles
We adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2015-02, Amendments to the Consolidation Analysis, beginning January 1, 2016. The ASU amends existing requirements applicable to reporting entities that are required to evaluate whether certain legal entities, including variable interest entities (VIEs), should be consolidated. The adoption of this ASU did not have an impact on our consolidated financial statements and disclosures. See Note 3Variable Interest Entities, for additional information on our significant VIE.
Note 3Variable Interest Entities
We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on our significant VIE follows:
Australia Pacific LNG Pty Ltd (APLNG)
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 liquefied natural gas (LNG) processing and export marketing. As a result, we do not consolidate APLNG, and it is accounted for as an equity method investment.
As of September 30, 2016, we have not provided any financial support to APLNG other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of APLNG. See Note 6Investments, Loans and Long-Term Receivables, and Note 11Guarantees, for additional information.
5
Note 4Inventories
Inventories consisted of the following:
Millions of Dollars | ||||||||
September 30 2016 |
December 31 2015 |
|||||||
|
|
|||||||
Crude oil and natural gas |
$ | 436 | 406 | |||||
Materials and supplies |
672 | 718 | ||||||
|
||||||||
$ | 1,108 | 1,124 | ||||||
|
Inventories valued on the last-in, first-out (LIFO) basis totaled $307 million and $317 million at September 30, 2016 and December 31, 2015, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was approximately $62 million and $6 million at September 30, 2016 and December 31, 2015, respectively.
Note 5Assets Held for Sale, Sold, or Other Planned Dispositions
Assets Sold
All gains or losses are reported before-tax and are included net in the Gain on dispositions line on our consolidated income statement.
On April 22, 2016, we sold our interest in the Alaska Beluga River Unit natural gas field in the Cook Inlet for $134 million, net of settlement of gas imbalances and customary adjustments, and recognized a gain on disposition of $56 million. At the time of disposition, the net carrying value of our Beluga River Unit interest, which was included in the Alaska segment, was $78 million, consisting primarily of $100 million of properties, plants and equipment (PP&E) and $19 million of asset retirement obligations (ARO).
Assets Held for Sale
On September 18, 2016, we entered into a definitive agreement to sell our 40 percent interest in South Natuna Sea Block B. The transaction is expected to close in the fourth quarter of 2016. At September 30, 2016, the asset was considered held for sale and a before-tax impairment of $42 million was recorded in the third quarter to reduce the carrying value to fair value of approximately $239 million. We reclassified $162 million of related noncurrent assets, primarily PP&E, to Prepaid expenses and other current assets and $50 million of noncurrent liabilities, comprised of employee pension obligations and other liabilities, to Employee benefit obligations and Other accruals, within current liabilities, on our consolidated balance sheet as of September 30, 2016. Our interest in Block B is included in the Asia Pacific and Middle East segment.
On October 13, 2016, we completed an asset exchange with Bonavista Energy in which we gave up approximately 143,000 net acres of non-core developed properties in central Alberta in exchange for approximately 40,000 net acres of primarily undeveloped properties in northeast British Columbia. The fair value of the transaction was determined to be approximately $69 million. The divested properties, which were included in the Canada segment, were considered held for sale at September 30, 2016, resulting in the recognition of a before-tax impairment of $57 million in the third quarter of 2016 to reduce the carrying value to fair value. We reclassified $65 million of PP&E to Prepaid expenses and other current assets and $27 million of noncurrent liabilities, primarily asset retirement obligations, to Other accruals, on our consolidated balance sheet as of September 30, 2016.
6
Other Planned Dispositions
On October 28, 2016, we sold our 35 percent interest in three exploration blocks offshore Senegal for approximately $440 million, including net customary adjustments of approximately $90 million. In addition, we provided an indemnification to the buyer for certain potential losses related to the disposition. The three blocks had a net book value of approximately $285 million as of September 30, 2016. Senegal results of operations are reported within our Other International segment.
Note 6Investments, Loans and Long-Term Receivables
APLNG
APLNGs $8.5 billion project finance facility consists 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. At September 30, 2016, $8.5 billion had been drawn from the facility. 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. In October 2016, we reached completion for Train 1, which will reduce our associated guarantee by 60 percent. See Note 11Guarantees, for additional information.
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 3Variable Interest Entities, for additional information.
On July 1, 2016, APLNG changed its tax functional currency from Australian dollar to U.S. dollar and translated all APLNG assets and liabilities into U.S. dollar, utilizing the exchange rate as of that date. As a result of this change, we recorded a reduction to our investment in APLNG for the deferred tax effect of $174 million in the Equity in earnings (losses) of affiliates line of our consolidated income statement in the third quarter of 2016.
During the third quarter of 2016, the outlook for crude oil prices weakened, and as a result, the estimated fair value of our investment in APLNG declined to an amount below book value. Based on a review of the facts and circumstances surrounding this decline in fair value, we concluded the impairment was not other than temporary under the guidance of FASB Accounting Standards Codification (ASC) Topic 323, Investments Equity Method and Joint Ventures. In reaching this conclusion, we primarily considered: (1) the volatility and uncertainty in commodity markets; (2) the intent and ability of ConocoPhillips to retain our investment in APLNG; (3) the impact of the passage of time on the estimate of fair value; and (4) the short length of time book value has been less than market value (fair value exceeded book value as of June 30, 2016). Fair value has been estimated based on an internal discounted cash flow model using estimates of future production, prices from futures exchanges and pricing service companies, costs, foreign currency rates, and a discount factor believed to be consistent with those used by principal market participants.
At September 30, 2016, the fair value of our investment in APLNG was estimated to be $9,906 million, resulting in an unrecognized impairment of $272 million. We will continue to monitor the relationship between the book value and the fair value of APLNG. Should we determine in the future there has been a loss in the book value of our investment that is other than temporary, we would record a noncash impairment of our equity investment, calculated as the total difference between book value and fair value as of the end of the reporting period.
At September 30, 2016, the book value of our equity method investment in APLNG was $10,178 million. The balance is included in the Investments and long-term receivables line on our consolidated balance sheet.
FCCL
At September 30, 2016, the book value of our equity method investment in FCCL Partnership was $8,885 million, net of a $1,477 million reduction due to cumulative foreign currency translation effects. The balance is included in the Investments and long-term receivables line on our consolidated balance sheet.
7
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. At September 30, 2016, significant loans to affiliated companies included $696 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 advancesrelated parties line on our consolidated balance sheet, while the short-term portion is in Accounts and notes receivablerelated parties.
Note 7Suspended Wells and Other Exploration Expenses
The capitalized cost of suspended wells at September 30, 2016, was $1,342 million, an increase of $82 million from $1,260 million at year-end 2015. Two suspended wells in the Gulf of Mexico totaling $100 million were charged to dry hole expense during the first nine months of 2016 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2015.
In July 2016, we entered into an agreement to terminate our final Gulf of Mexico deepwater drillship contract. The drillship, used to drill our operated deepwater well inventory in the Gulf of Mexico through April 2016, was contracted on a shared, three-year term. Accordingly, we recorded before-tax rig cancellation charges and third party costs of $134 million in our Lower 48 segment in the third quarter of 2016.
These charges are included in the Exploration expenses line on our consolidated income statement.
Note 8Impairments
During the three- and nine-month periods ended September 30, 2016 and 2015, we recognized before-tax impairment charges within the following segments:
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Alaska |
$ | | 2 | | 9 | |||||||||||
Lower 48 |
1 | 6 | 61 | 6 | ||||||||||||
Canada |
60 | | 60 | | ||||||||||||
Europe and North Africa |
20 | 9 | 157 | 96 | ||||||||||||
Asia Pacific and Middle East |
42 | 6 | 43 | 6 | ||||||||||||
Corporate and Other |
| 1 | | 1 | ||||||||||||
|
||||||||||||||||
$ | 123 | 24 | 321 | 118 | ||||||||||||
|
In the three- and nine-month periods ended September 30, 2016, our Canada and Asia Pacific and Middle East segments included before-tax impairments of $60 million and $42 million, respectively, primarily related to certain developed properties in central Alberta and offshore Indonesia, which were classified as held for sale at September 30, 2016, and were written down to fair value less costs to sell. Our Europe and North Africa segment included before-tax impairments of $20 million in the three-month period ended September 30, 2016, primarily as a result of a canceled project and lower natural gas prices, both in the United Kingdom. In the nine-month period of 2016, our Europe and North Africa segment included before-tax impairments of $157 million, primarily as a result of lower natural gas prices in the United Kingdom. Our Lower 48 segment included impairments of $61 million before-tax in the nine-month period of 2016, primarily as a result of lower natural gas prices and increased asset retirement obligation estimates.
8
The nine-month period of 2015 included impairments in our Europe and North Africa segment of $96 million, primarily as a result of lower natural gas prices in the United Kingdom.
The charges discussed below are included in the Exploration expenses line on our consolidated income statement and are not reflected in the table above.
Exploration expenses in the nine-month period of 2016 were aligned with our decision announced in 2015 to reduce deepwater exploration spending. We recorded a $203 million before-tax impairment for the associated carrying value of our Gibson and Tiber undeveloped leaseholds in deepwater Gulf of Mexico in the second quarter of 2016. Additionally, in the first quarter of 2016, we recorded a $95 million before-tax impairment for the associated carrying value of capitalized undeveloped leasehold costs of the Melmar prospect and a $73 million impairment in our Lower 48 segment, primarily as a result of changes in the estimated market value following the completion of an initial marketing effort.
Note 9Debt
In the first quarter of 2016, we reduced our revolving credit facility, expiring in June 2019, from $7.0 billion to $6.75 billion. We have two commercial paper programs supported by our $6.75 billion revolving credit facility: the ConocoPhillips $6.25 billion program, primarily a funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $500 million program, which is used to fund commitments relating to QG3. Commercial paper maturities are generally limited to 90 days.
At September 30, 2016 and December 31, 2015, we had no direct outstanding borrowings under the revolving credit facility, with no letters of credit as of September 30, 2016 or December 31, 2015. Under the ConocoPhillips Qatar Funding Ltd. commercial paper program, no commercial paper was outstanding at September 30, 2016, compared with $803 million at December 31, 2015. Since we had no commercial paper outstanding and had issued no letters of credit, we had access to $6.75 billion in borrowing capacity under our revolving credit facility at September 30, 2016.
On October 17, 2016, the $1,250 million 5.625% Notes due 2016 were repaid at maturity.
In March 2016, we issued notes consisting of:
| The $1,250 million of 4.20% Notes due 2021. |
| The $1,250 million of 4.95% Notes due 2026. |
| The $500 million of 5.95% Notes due 2046. |
In addition, on March 18, 2016, we entered into a $1,600 million three-year senior unsecured term loan facility. Borrowings will accrue interest at a base rate or, for certain Eurodollar borrowings, the London Interbank Offered Rate (LIBOR), in each case plus a margin that is set based on our corporate credit ratings. The applicable margin for loans bearing interest based on the base rate ranges from 0.50% to 1.00% and the applicable margin for loans bearing interest based on LIBOR ranges from 1.50% to 2.00%. Based on our current corporate credit ratings, the applicable margin for loans accruing interest at the base rate is 0.50% and the applicable margin for loans accruing interest at LIBOR is 1.50%.
The term loan facility contains customary covenants regarding, among other matters, material compliance with laws and restrictions against certain consolidations, mergers and asset sales and creation of certain liens on our assets and consolidated subsidiaries. The term loan facility also contains financial covenants including a total debt to capitalization ratio, excluding the impacts of certain noncash impairments and foreign currency translation adjustments as defined in the Term Loan Agreement, which may not exceed 65 percent. At September 30, 2016, we were in compliance with this covenant.
9
The term loan facility includes customary events of default (subject to specified cure periods, materiality qualifiers and exceptions), including the failure to pay any interest, principal or fees when due, the failure to perform or the violation of any covenant contained in the term loan facility, the making of materially inaccurate or false representations or warranties, a default on certain material indebtedness, insolvency or bankruptcy, a change of control and the occurrence of material Employee Retirement Income Security Act of 1974 (ERISA) events and certain judgments against us or our material subsidiaries.
We have the right at any time and from time to time to prepay the term loan, in whole or in part, without premium or penalty upon notice to the Administrative Agent.
The net proceeds of the notes and term loan will be used for general corporate purposes.
At September 30, 2016, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. The VRDBs are included in the Long-term debt line on our consolidated balance sheet.
Note 10Noncontrolling Interests
Activity attributable to common stockholders equity and noncontrolling interests for the first nine months of 2016 and 2015 was as follows:
Millions of Dollars | ||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Common Stockholders Equity |
Non- Controlling Interest |
Total Equity |
Common Stockholders Equity |
Non- Controlling Interest |
Total Equity |
|||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Balance at January 1 |
$ | 39,762 | 320 | 40,082 | 51,911 | 362 | 52,273 | |||||||||||||||||
Net income (loss) |
(3,580 | ) | 40 | (3,540 | ) | (978 | ) | 44 | (934 | ) | ||||||||||||||
Dividends |
(940 | ) | | (940 | ) | (2,741 | ) | | (2,741 | ) | ||||||||||||||
Distributions to noncontrolling interests |
| (75 | ) | (75 | ) | | (62 | ) | (62 | ) | ||||||||||||||
Other changes, net* |
928 | 1 | 929 | (3,982 | ) | 1 | (3,981 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Balance at September 30 |
$ | 36,170 | 286 | 36,456 | 44,210 | 345 | 44,555 | |||||||||||||||||
|
*Includes components of other comprehensive income (loss), which are disclosed separately in the Consolidated Statement of Comprehensive Income.
Note 11Guarantees
At September 30, 2016, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.
10
APLNG Guarantees
At September 30, 2016, we had outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2016 exchange rates:
| We have guaranteed APLNGs performance with regard to a construction contract executed in connection with APLNGs issuance of the Train 1 and Train 2 Notices to Proceed. We estimate the remaining term of this guarantee is one year. Our maximum potential amount of future payments related to this guarantee is approximately $80 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 tests with milestones. Our maximum exposure at September 30, 2016, is $3.2 billion based upon our pro-rata share of the facility used at that date. At September 30, 2016, the carrying value of this guarantee is approximately $114 million. In October 2016, we reached completion for Train 1, which will reduce our maximum potential amount of future payments to $1.3 billion and the carrying amount of the guarantee to approximately $45 million. The remaining guarantee is expected to be released in 2017. |
| During the third quarter of 2016, we issued a guarantee for our pro-rata portion of the funds in a project finance reserve account. We estimate the remaining term of this guarantee is 13 years. Our maximum exposure under this guarantee is approximately $100 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At September 30, 2016, the carrying value of this guarantee is approximately $9 million. |
| In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to reimburse Origin Energy for our share of the existing contingent liability arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of 1 to 26 years. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $1.0 billion ($1.9 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 projects continued development. The guarantees have remaining terms of up to 29 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $170 million and would become payable if APLNG does not perform. |
Other Guarantees
We have other guarantees with maximum future potential payment amounts totaling approximately $520 million, which consist primarily of a guarantee of the residual value of a leased office building, guarantees of the residual value of leased corporate aircraft, a guarantee for our portion of a joint ventures project finance reserve accounts, and a guarantee of minimum charter revenue for an LNG vessel. These guarantees have remaining terms of up to eight years and would become payable if, upon sale, certain asset values are lower than guaranteed amounts, business conditions decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties.
11
Indemnifications
Over the years, we have entered into agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. These agreements include indemnifications for taxes, environmental liabilities, employee claims 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, 2016, was approximately $90 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 at September 30, 2016, were approximately $40 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 12Contingencies and Commitments.
On March 1, 2015, a supplier to one of the refineries included in Phillips 66 as part of the separation of our Downstream businesses formally registered Phillips 66 as a party to the supply agreement, thereby triggering a guarantee we provided at the time of separation. Our maximum potential liability for future payments under this guarantee, which would become payable if Phillips 66 does not perform its contractual obligations under the supply agreement, is approximately $1.5 billion. At September 30, 2016, the carrying value of this guarantee is approximately $98 million and the remaining term is eight years. Because Phillips 66 has indemnified us for losses incurred under this guarantee, we have recorded an indemnification asset from Phillips 66 of approximately $98 million. The recorded indemnification asset amount represents the estimated fair value of the guarantee; however, if we are required to perform under the guarantee, we would expect to recover from Phillips 66 any amounts in excess of that value, provided Phillips 66 is a going concern.
Note 12Contingencies and Commitments
A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated but 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. With respect to income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to factors such 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.
12
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 managements 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 other sites, we are usually only one of many companies cited at a particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the agency concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit and some of the indemnifications are subject to dollar limits and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state and international sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those acquired in a purchase business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated.
Our balance sheet at both September 30, 2016 and December 31, 2015, included a total environmental accrual of $258 million, for remediation activities in the United States and Canada. We expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.
Legal Proceedings
We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties and claims of alleged environmental contamination from historic operations. We will continue to defend ourselves vigorously in these matters.
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.
13
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, 2016, we had performance obligations secured by letters of credit of $304 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, commercial activities and services incident to the ordinary conduct of business.
In 2007, we announced we had been unable to reach agreement with respect to our migration to an empresa mixta structure mandated by the Venezuelan governments Nationalization Decree. As a result, Venezuelas 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, we filed a request for international arbitration on November 2, 2007, with the World Banks International Centre for Settlement of Investment Disputes (ICSID). An arbitration hearing was held before an ICSID tribunal during the summer of 2010. On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated ConocoPhillips significant oil investments in June 2007. A separate arbitration phase is currently proceeding to determine the damages owed to ConocoPhillips for Venezuelas actions. On October 10, 2014, we filed a separate arbitration under the rules of the International Chamber of Commerce against PDVSA for contractual compensation related to the Petrozuata and Hamaca heavy crude oil projects. On October 6, 2016, ConocoPhillips brought a fraudulent transfer action in the U.S. District Court of Delaware against PDVSA, alleging that PDVSA has taken actions to improperly expatriate assets from the United States to Venezuela in an effort to avoid judgment creditors.
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 the ICSID tribunal, Ecuador confiscated the crude oil production of Burlington and its co-venturer and sold the 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. On April 24, 2012, Ecuador filed supplemental counterclaims asserting environmental damages, which we believe are not material. The ICSID tribunal issued a decision on liability on December 14, 2012, in favor of Burlington, finding that Ecuadors seizure of Blocks 7 and 21 was an unlawful expropriation in violation of the Ecuador-U.S. Bilateral Investment Treaty. An additional arbitration phase to determine the damages owed to ConocoPhillips for Ecuadors actions and to address Ecuadors counterclaims is complete. We are awaiting the tribunals award.
ConocoPhillips served a Notice of Arbitration on the Timor-Leste Minister of Finance in October 2012 for outstanding disputes related to a series of tax assessments. The arbitration hearing was conducted in Singapore in June 2014 under the United Nations Commission on International Trade Laws (UNCITRAL) arbitration rules, pursuant to the terms of the Tax Stability Agreement with the Timor-Leste government. We have now reached a settlement with the Timor-Leste government on these disputes.
14
Note 13Derivative and Financial Instruments
Derivative Instruments
We use futures, forwards, swaps and options in various markets to meet our customer needs and capture market opportunities. 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 on a net basis. 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 appear on our consolidated balance sheet:
Millions of Dollars | ||||||||
September 30 2016 |
December 31 2015 |
|||||||
|
|
|||||||
Assets |
||||||||
Prepaid expenses and other current assets |
$ | 246 | 768 | |||||
Other assets |
38 | 60 | ||||||
Liabilities |
||||||||
Other accruals |
247 | 754 | ||||||
Other liabilities and deferred credits |
32 | 46 | ||||||
|
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 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Sales and other operating revenues |
$ | 11 | 89 | (155 | ) | 117 | ||||||||||
Other income |
1 | | (1 | ) | 1 | |||||||||||
Purchased commodities |
7 | (85 | ) | 136 | (88 | ) | ||||||||||
|
The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts:
Open Position Long/(Short) |
||||||||
September 30 2016 |
December 31 2015 |
|||||||
|
|
|||||||
Commodity |
||||||||
Natural gas and power (billions of cubic feet equivalent) |
||||||||
Fixed price |
(36 | ) | (14 | ) | ||||
Basis |
21 | (17 | ) | |||||
|
15
Foreign Currency Exchange Derivatives
We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily relates to managing our cash-related and foreign currency exchange rate exposures, such as firm commitments for capital programs or local currency tax payments, dividends, and cash returns from net investments in foreign affiliates. We do not elect hedge accounting on our foreign currency exchange derivatives.
The following table presents the gross fair values of our foreign currency exchange derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:
Millions of Dollars | ||||||||
September 30 2016 |
December 31 2015 |
|||||||
|
|
|||||||
Assets |
||||||||
Prepaid expenses and other current assets |
$ | | 47 | |||||
Liabilities |
||||||||
Other accruals |
137 | 8 | ||||||
|
The (gains) losses from foreign currency exchange derivatives incurred, and the line item where they appear on our consolidated income statement were:
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Foreign currency transaction (gains) losses |
$ | 35 | (17 | ) | 218 | (30 | ) | |||||||||
|
We had the following net notional position of outstanding foreign currency exchange derivatives:
In Millions Notional Currency |
||||||||||
September 30 2016 |
December 31 2015 |
|||||||||
|
||||||||||
Sell U.S. dollar, buy other currencies* |
USD | 14 | 347 | |||||||
Buy U.S. dollar, sell other currencies** |
USD | | 20 | |||||||
Buy British pound, sell other currencies*** |
GBP | 1,073 | 567 | |||||||
|
* Primarily Canadian dollar, Norwegian krone and British pound.
** Primarily Canadian dollar.
*** Primarily Canadian dollar and euro.
Financial Instruments
We have certain financial instruments on our 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.
16
Millions of Dollars | ||||||||||||||||
Carrying Amount | ||||||||||||||||
Cash and Cash Equivalents | Short-Term Investments | |||||||||||||||
September 30 2016 |
December 31 2015 |
September 30 2016 |
December 31 2015 |
|||||||||||||
|
|
|
|
|
|
|||||||||||
Cash |
$ | 728 | 528 | | | |||||||||||
Time deposits |
||||||||||||||||
Remaining maturities from 1 to 90 days |
3,362 | 1,840 | 209 | | ||||||||||||
Remaining maturities from 91 to 180 days |
| | 25 | | ||||||||||||
|
||||||||||||||||
$ | 4,090 | 2,368 | 234 | | ||||||||||||
|
Credit Risk
Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, 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 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 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 to us.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of credit as collateral, such as transactions administered through the New York Mercantile Exchange.
The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position on September 30, 2016 and December 31, 2015, was $52 million and $158 million, respectively. For these instruments, $1 million of collateral was posted as of September 30, 2016, and $2 million of collateral was posted as of December 31, 2015. If our credit rating had been downgraded below investment grade on September 30, 2016, we would be required to post $51 million of additional collateral, either with cash or letters of credit.
17
Note 14Fair 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 initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1 during 2016 or 2015.
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair value on a recurring basis primarily include commodity derivatives. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 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 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 managements best estimate of fair value. Level 3 activity was not material for all periods presented.
The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):
Millions of Dollars | ||||||||||||||||||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Commodity derivatives |
$ | 164 | 94 | 26 | 284 | 516 | 242 | 70 | 828 | |||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Total assets |
$ | 164 | 94 | 26 | 284 | 516 | 242 | 70 | 828 | |||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||
Commodity derivatives |
$ | 161 | 101 | 17 | 279 | 515 | 273 | 12 | 800 | |||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Total liabilities |
$ | 161 | 101 | 17 | 279 | 515 | 273 | 12 | 800 | |||||||||||||||||||||||
|
18
The following table summarizes those commodity derivative balances subject to the right of setoff as presented on our consolidated balance sheet. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of setoff exists.
Millions of Dollars | ||||||||||||||||||||||||
Gross Amounts Recognized |
Gross Amounts Offset |
Net Amounts Presented |
Cash Collateral |
Gross Amounts without Right of Setoff |
Net Amounts |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
September 30, 2016 |
||||||||||||||||||||||||
Assets |
$ | 284 | 190 | 94 | | 5 | 89 | |||||||||||||||||
Liabilities |
279 | 190 | 89 | 6 | 7 | 76 | ||||||||||||||||||
|
||||||||||||||||||||||||
December 31, 2015 |
||||||||||||||||||||||||
Assets |
$ | 828 | 600 | 228 | | 8 | 220 | |||||||||||||||||
Liabilities |
800 | 600 | 200 | 1 | 11 | 188 | ||||||||||||||||||
|
At September 30, 2016 and December 31, 2015, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.
Non-Recurring Fair Value Measurement
The following table summarizes the fair value hierarchy by major category and date of remeasurement for assets accounted for at fair value on a non-recurring basis during the year:
Millions of Dollars | ||||||||||||||||
Fair Value Measurements Using |
||||||||||||||||
Fair Value | Level 1 Inputs |
Level 3 Inputs |
Before- Tax Loss |
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2016 |
||||||||||||||||
Net PP&E (held for sale) |
$ | 217 | 217 | | 99 | |||||||||||
|
||||||||||||||||
June 30, 2016 |
||||||||||||||||
Net PP&E (held for use) |
$ | 23 | | 23 | 53 | |||||||||||
|
||||||||||||||||
March 31, 2016 |
||||||||||||||||
Net PP&E (held for use) |
$ | 217 | | 217 | 129 | |||||||||||
|
Net PP&E held for sale was written down to fair value, less costs to sell. The fair value of each asset was determined by its negotiated selling price.
Net PP&E held for use is comprised of various producing properties impaired to their individual fair values less costs to sell. The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges and pricing service companies, costs, and a discount factor believed to be consistent with those used by principal market participants.
19
Reported Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial instruments:
| Cash and cash equivalents and short-term investments: The carrying amount reported on the balance sheet approximates fair value. |
| 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 advancesrelated parties. |
| Loans and advancesrelated 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 6Investments, 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. |
| 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. |
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 | December 31 | September 30 | December 31 | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Financial assets |
||||||||||||||||
Commodity derivatives |
$ | 94 | 228 | 94 | 228 | |||||||||||
Total loans and advancesrelated parties |
698 | 808 | 698 | 808 | ||||||||||||
Financial liabilities |
||||||||||||||||
Total debt, excluding capital leases |
27,824 | 24,062 | 31,046 | 24,785 | ||||||||||||
Commodity derivatives |
83 | 199 | 83 | 199 | ||||||||||||
|
Note 15Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of our consolidated balance sheet included:
Millions of Dollars | ||||||||||||
Defined Benefit Plans |
Foreign Currency Translation |
Accumulated Other Comprehensive Income (Loss) |
||||||||||
|
|
|||||||||||
December 31, 2015 |
$ | (443 | ) | (5,804 | ) | (6,247 | ) | |||||
Other comprehensive income (loss) |
(74 | ) | 877 | * | 803 | |||||||
|
||||||||||||
September 30, 2016 |
$ | (517 | ) | (4,927 | ) | (5,444 | ) | |||||
|
* Foreign Currency Translation is primarily a result of the weakening of the U.S. dollar relative to the Canadian dollar and Norwegian krone.
There were no items within accumulated other comprehensive loss related to noncontrolling interests.
20
The following table summarizes reclassifications out of accumulated other comprehensive loss:
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Defined benefit plans |
$ | 27 | 77 | 132 | 173 | |||||||||||
|
||||||||||||||||
Above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of: | $ | 13 | 44 | 72 | 96 |
See Note 17Employee Benefit Plans, for additional information.
Note 16Cash Flow Information
Millions of Dollars | ||||||||
Nine Months Ended September 30 |
||||||||
2016 | 2015 | |||||||
|
|
|||||||
Cash Payments (Receipts) |
||||||||
Interest |
$ | 854 | 633 | |||||
Income taxes* |
(339 | ) | 376 | |||||
|
||||||||
Net Sales (Purchases) of Short-Term Investments |
||||||||
Short-term investments purchased |
$ | (1,704 | ) | | ||||
Short-term investments sold |
1,475 | | ||||||
|
||||||||
$ | (229 | ) | | |||||
|
* Net of $569 million and $556 million in 2016 and 2015, respectively, related to refunds received from the Internal Revenue Service.
In May 2015, we liquidated certain deferred compensation investments for proceeds of $267 million, which is included in the Other line within Cash Flows From Investing Activities on our consolidated statement of cash flows.
21
Note 17Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars | ||||||||||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
U.S. | Intl. | U.S. | Intl. | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Components of Net Periodic Benefit Cost |
||||||||||||||||||||||||
Three Months Ended September 30 |
||||||||||||||||||||||||
Service cost |
$ | 27 | 19 | 36 | 31 | | 2 | |||||||||||||||||
Interest cost |
32 | 30 | 41 | 34 | 3 | 5 | ||||||||||||||||||
Expected return on plan assets |
(34 | ) | (39 | ) | (50 | ) | (44 | ) | | | ||||||||||||||
Amortization of prior service cost (credit) |
2 | (1 | ) | 1 | (1 | ) | (9 | ) | (6 | ) | ||||||||||||||
Recognized net actuarial loss |
22 | 6 | 27 | 20 | | | ||||||||||||||||||
Settlements |
22 | | 79 | | | | ||||||||||||||||||
Curtailment loss |
14 | | 35 | | 1 | | ||||||||||||||||||
|
||||||||||||||||||||||||
Net periodic benefit cost |
$ | 85 | 15 | 169 | 40 | (5 | ) | 1 | ||||||||||||||||
|
||||||||||||||||||||||||
Nine Months Ended September 30 |
||||||||||||||||||||||||
Service cost |
$ | 82 | 59 | 108 | 94 | 1 | 3 | |||||||||||||||||
Interest cost |
104 | 93 | 120 | 102 | 10 | 19 | ||||||||||||||||||
Expected return on plan assets |
(112 | ) | (121 | ) | (157 | ) | (131 | ) | | | ||||||||||||||
Amortization of prior service cost (credit) |
4 | (4 | ) | 4 | (5 | ) | (26 | ) | (9 | ) | ||||||||||||||
Recognized net actuarial loss (gain) |
64 | 20 | 84 | 62 | (1 | ) | 1 | |||||||||||||||||
Settlements |
149 | | 131 | | | | ||||||||||||||||||
Curtailment loss |
14 | | 35 | | 1 | | ||||||||||||||||||
|
||||||||||||||||||||||||
Net periodic benefit cost |
$ | 305 | 47 | 325 | 122 | (15 | ) | 14 | ||||||||||||||||
|
During the first nine months of 2016, we contributed $223 million to our domestic benefit plans and $82 million to our international benefit plans. In 2016, we expect to contribute approximately $260 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $130 million to our international qualified and nonqualified pension and postretirement benefit plans.
In conjunction with the recognition of pension settlement expense, the fair market values of pension plan assets were updated, and the pension benefit obligations of the U.S. qualified pension plan and a U.S. nonqualified supplemental retirement plan were remeasured. At the measurement dates, the net pension liability increased by $33 million and $334 million for the three- and nine-month periods ended September 30, 2016, respectively. This is primarily a result of a decrease in the discount rate from 4.5 percent at December 31, 2015, to 3.4 percent for the U.S. qualified pension plan and to 2.8 percent for a U.S. nonqualified supplemental retirement plan at September 30, 2016, resulting in a corresponding decrease to other comprehensive income (loss).
As part of the ongoing restructuring program in the United States, we concluded that actions taken during the three-month period ended September 30, 2016, would result in a significant reduction of future services of active employees in the U.S. qualified pension plan, a U.S. nonqualified supplemental retirement plan and the U.S. other postretirement benefit plan. As a result, we recognized an increase in the benefit obligation and a proportionate share of prior service cost from other comprehensive income (loss) as a curtailment loss of $14 million on the U.S. pension benefit plans and $1 million on the U.S. other postretirement benefit plan during the three-month period ended September 30, 2016.
22
Due to the ongoing restructuring program in the United States, we recognized additional expense of $14 million during the three-month period ended September 30, 2016, associated with employee special termination benefits for certain participants in the U.S. qualified pension plan and a U.S. nonqualified supplemental retirement plan.
Severance Accrual
As a result of the current business environments impact on our operating and capital plans, a reduction in our overall employee workforce occurred primarily during the third quarter of 2016. Severance accruals of $119 million and $126 million were recorded during the three- and nine-month periods ended September 30, 2016, respectively. The following table summarizes our severance accrual activity for the nine-month period ended September 30, 2016:
Millions of Dollars | ||||
Balance at December 31, 2015 |
$ | 156 | ||
Accruals |
126 | |||
Benefit payments |
(130 | ) | ||
Foreign currency translation adjustments |
4 | |||
|
||||
Balance at September 30, 2016 |
$ | 156 | ||
|
Of the remaining balance at September 30, 2016, $123 million is classified as short-term.
Note 18Related Party Transactions
Our related parties primarily include equity method investments and certain trusts for the benefit of employees.
Significant transactions with our equity affiliates were:
Millions of Dollars | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Operating revenues and other income |
$ | 41 | 28 | 96 | 80 | |||||||||||
Purchases |
26 | 25 | 75 | 72 | ||||||||||||
Operating expenses and selling, general and administrative expenses |
20 | 18 | 48 | 53 | ||||||||||||
Net interest (income) expense* |
(3 | ) | (3 | ) | (9 | ) | (7 | ) | ||||||||
|
* We paid interest to, or received interest from, various affiliates. See Note 6Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.
23
Note 19Segment 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 primarily defined by geographic region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International.
Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Accordingly, results of operations for the Other International and Europe and North Africa segments have been revised for all prior periods presented. There was no impact on our consolidated financial statements, and the impact on our segment presentation is immaterial.
Corporate and Other represents costs not directly associated with an operating segment, such as most interest expense, corporate overhead and certain technology activities, including licensing revenues. Corporate assets include all cash and cash equivalents and short-term investments.
We evaluate performance and allocate resources based on net income (loss) attributable to ConocoPhillips. 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 |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
|
|
|
|
|||||||||||||
Sales and Other Operating Revenues |
||||||||||||||||
Alaska |
$ | 925 | 1,067 | 2,639 | 3,455 | |||||||||||
|
||||||||||||||||
Lower 48 |
2,993 | 3,106 | 7,533 | 9,421 | ||||||||||||
Intersegment eliminations |
(3 | ) | (15 | ) | (15 | ) | (50 | ) | ||||||||
|
||||||||||||||||
Lower 48 |
2,990 | 3,091 | 7,518 | 9,371 | ||||||||||||
|
||||||||||||||||
Canada |
615 | 576 | 1,431 | 1,932 | ||||||||||||
Intersegment eliminations |
(73 | ) | (76 | ) | (138 | ) | (265 | ) | ||||||||
|
||||||||||||||||
Canada |
542 | 500 | 1,293 | 1,667 | ||||||||||||
|
||||||||||||||||
Europe and North Africa |
946 | 1,480 | 2,605 | 4,804 | ||||||||||||
Intersegment eliminations |
| (2 | ) | | (3 | ) | ||||||||||
|
||||||||||||||||
Europe and North Africa |
946 | 1,478 | 2,605 | 4,801 | ||||||||||||
|
||||||||||||||||
Asia Pacific and Middle East |
942 | 1,074 | 2,676 | 3,748 | ||||||||||||
Corporate and Other |
70 | 52 | 153 | 229 | ||||||||||||
|
||||||||||||||||
Consolidated sales and other operating revenues |
$ | 6,415 | 7,262 | 16,884 | 23,271 | |||||||||||
|
||||||||||||||||
Net Income (Loss) Attributable to ConocoPhillips |
||||||||||||||||
Alaska |
$ | 59 | 53 | 204 | 393 | |||||||||||
Lower 48 |
(491 | ) | (852 | ) | (2,082 | ) | (1,550 | ) | ||||||||
Canada |
(314 | ) | (145 | ) | (783 | ) | (469 | ) | ||||||||
Europe and North Africa |
163 | (5 | ) | 132 | 667 | |||||||||||
Asia Pacific and Middle East |
(87 | ) | 258 | (20 | ) | 981 | ||||||||||
Other International |
(47 | ) | (42 | ) | (100 | ) | (281 | ) | ||||||||
Corporate and Other |
(323 | ) | (338 | ) | (931 | ) | (719 | ) | ||||||||
|
||||||||||||||||
Consolidated net loss attributable to ConocoPhillips |
$ | (1,040 | ) | (1,071 | ) | (3,580 | ) | (978 | ) | |||||||
|
24
Millions of Dollars | ||||||||
September 30 2016 |
December 31 2015 |
|||||||
|
|
|||||||
Total Assets |
||||||||
Alaska |
$ | 12,548 | 12,555 | |||||
Lower 48 |
23,331 | 26,932 | ||||||
Canada |
17,976 | 17,221 | ||||||
Europe and North Africa |
13,241 | 13,703 | ||||||
Asia Pacific and Middle East |
21,138 | 22,318 | ||||||
Other International |
356 | 282 | ||||||
Corporate and Other |
5,694 | 4,473 | ||||||
|
||||||||
Consolidated total assets |
$ | 94,284 | 97,484 | |||||
|
Note 20Income Taxes
Our effective tax rates for the third quarter and first nine months of 2016 were positive 38 percent and 36 percent, respectively, compared with 39 percent and 57 percent for the same periods of 2015. The decrease in the effective tax rate for the third quarter of 2016 was primarily due to the effect of the 2016 U.K. tax law change, discussed below, and a shift in the mix of income between high and low tax jurisdictions. The decrease in the effective tax rate for the first nine months of 2016 was primarily due to the absence of the effect of the 2015 U.K. tax law change, discussed below, and the mix of income between high and low tax jurisdictions, partially offset by the recognition of state deferred tax assets, the enactment of the 2016 U.K. tax law change and the absence of the 2015 Canadian tax law change, discussed below.
In the United Kingdom, legislation was enacted on September 15, 2016, to decrease the overall U.K. upstream corporation tax rate from 50 percent to 40 percent effective January 1, 2016. As a result, a $138 million net tax benefit resulting from re-measurement of deferred tax liabilities at January 1, 2016 and application of the new rate through September 30, 2016, is reflected in the Income tax benefit line on our consolidated income statement.
During the second quarter of 2016, previously unrecognized state deferred tax assets were recognized. As a result, a $68 million tax benefit is reflected in the Income tax benefit line on our consolidated income statement.
In the United Kingdom, legislation was enacted on March 26, 2015, to decrease the overall U.K. upstream corporation tax rate from 62 percent to 50 percent effective January 1, 2015. As a result, a $555 million net tax benefit for revaluing the U.K. deferred tax liability is reflected in the Income tax benefit line on our consolidated income statement.
In Canada, legislation was enacted on June 29, 2015, to increase the overall Canadian corporation tax rate from 25 percent to 27 percent effective July 1, 2015. As a result, a $129 million net tax expense for revaluing the Canadian deferred tax liability is reflected in the Income tax benefit line on our consolidated income statement.
25
Note 21New Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU No. 2014-09), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, which defers the effective date of ASU No. 2014-09. The ASU is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for interim and annual periods beginning after December 15, 2016. Entities may choose to adopt the standard using either a full retrospective approach or a modified retrospective approach.
ASU No. 2014-09 was amended in March 2016 by the provisions of ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), in April 2016 by the provisions of ASU No. 2016-10, Identifying Performance Obligations and Licensing, and in May 2016 by the provisions of ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients. We are currently evaluating the impact of the adoption of ASU No. 2014-09, as amended, and continue to monitor proposals issued by the FASB to clarify the ASU.
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU No. 2016-02), which establishes comprehensive accounting and financial reporting requirements for leasing arrangements. This ASU supersedes the existing requirements in FASB ASC Topic 840, Leases, and requires lessees to recognize substantially all lease assets and lease liabilities on the balance sheet. The provisions of ASU No. 2016-02 also modify the definition of a lease and outline requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. The ASU is effective for interim and annual periods beginning after December 15, 2018, and early adoption of the standard is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply the provisions of ASU No. 2016-02 to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the adoption of this ASU.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU No. 2016-13), which sets forth the current expected credit loss model, a new forward-looking impairment model for certain financial instruments based on expected losses rather than incurred losses. The ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption of the standard is permitted. Entities are required to adopt ASU No. 2016-13 using a modified retrospective approach, subject to certain limited exceptions. We are currently evaluating the impact of the adoption of this ASU.
26
Supplementary InformationCondensed Consolidating Financial Information
We have various cross guarantees among ConocoPhillips, ConocoPhillips Company and ConocoPhillips Canada Funding Company I, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. ConocoPhillips Canada Funding Company I is an indirect, 100 percent owned subsidiary of ConocoPhillips Company. ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of ConocoPhillips Canada Funding Company I, with respect to its publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:
| ConocoPhillips, ConocoPhillips Company and ConocoPhillips Canada Funding Company I (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. |
In February 2016, ConocoPhillips received a $2.3 billion return of capital from ConocoPhillips Company to settle certain accumulated intercompany balances. The transaction had no impact on our consolidated financial statements.
In October 2016, ConocoPhillips Canada Funding Company I repaid $1.25 billion of external debt. This transaction will be reflected in the full-year 2016 condensed consolidating financial statements.
This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.
27
Millions of Dollars | ||||||||||||||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
Income Statement | ConocoPhillips | ConocoPhillips Company |
ConocoPhillips Canada Funding Company I |
All Other Subsidiaries |
Consolidating Adjustments |
Total Consolidated |
||||||||||||||||||
Revenues and Other Income |
||||||||||||||||||||||||
Sales and other operating revenues |
$ | | 2,933 | | 3,482 | | 6,415 | |||||||||||||||||
Equity in losses of affiliates |
(958 | ) | (397 | ) | | (26 | ) | 1,321 | (60 | ) | ||||||||||||||
Gain on dispositions |
| 11 | | 40 | | 51 | ||||||||||||||||||
Other income |
1 | 3 | | 106 | | 110 | ||||||||||||||||||
Intercompany revenues |
18 | 71 | 60 | 793 | (942 | ) | | |||||||||||||||||
|
||||||||||||||||||||||||
Total Revenues and Other Income |
(939 | ) | 2,621 | 60 | 4,395 | 379 | 6,516 | |||||||||||||||||
|
||||||||||||||||||||||||
Costs and Expenses |
||||||||||||||||||||||||
Purchased commodities |
| 2,563 | | 1,024 | (768 | ) | 2,819 | |||||||||||||||||
Production and operating expenses |
| 324 | | 1,207 | (5 | ) | 1,526 | |||||||||||||||||
Selling, general and administrative expenses |
2 | 158 | | 43 | | 203 | ||||||||||||||||||
Exploration expenses |
| 192 | | 265 | | 457 | ||||||||||||||||||
Depreciation, depletion and amortization |
| 351 | | 2,074 | | 2,425 | ||||||||||||||||||
Impairments |
| | | 123 | | 123 | ||||||||||||||||||
Taxes other than income taxes |
| 26 | | 135 | | 161 | ||||||||||||||||||
Accretion on discounted liabilities |
| 11 | | 97 | | 108 | ||||||||||||||||||
Interest and debt expense |
135 | 159 | 56 | 154 | (169 | ) | 335 | |||||||||||||||||
Foreign currency transaction (gains) losses |
8 | | (26 | ) | 31 | | 13 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Costs and Expenses |
145 | 3,784 | 30 | 5,153 | (942 | ) | 8,170 | |||||||||||||||||
|
||||||||||||||||||||||||
Income (loss) before income taxes |
(1,084 | ) | (1,163 | ) | 30 | (758 | ) | 1,321 | (1,654 | ) | ||||||||||||||
Income tax benefit |
(44 | ) | (205 | ) | (4 | ) | (375 | ) | | (628 | ) | |||||||||||||
|
||||||||||||||||||||||||
Net income (loss) |
(1,040 | ) | (958 | ) | 34 | (383 | ) | 1,321 | (1,026 | ) | ||||||||||||||
Less: net income attributable to noncontrolling interests |
| | | (14 | ) | | (14 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Income (Loss) Attributable to ConocoPhillips |
$ | (1,040 | ) | (958 | ) | 34 | (397 | ) | 1,321 | (1,040 | ) | |||||||||||||
|
||||||||||||||||||||||||
Comprehensive Loss Attributable to ConocoPhillips |
$ | (1,113 | ) | (1,031 | ) | (10 | ) | (460 | ) | 1,501 | (1,113 | ) | ||||||||||||
|
||||||||||||||||||||||||
Income Statement | Three Months Ended September 30, 2015 | |||||||||||||||||||||||
Revenues and Other Income |
||||||||||||||||||||||||
Sales and other operating revenues |
$ | | 2,954 | | 4,308 | | 7,262 | |||||||||||||||||
Equity in earnings (losses) of affiliates |
(973 | ) | (19 | ) | | 559 | 656 | 223 | ||||||||||||||||
Gain on dispositions |
| 5 | | 13 | | 18 | ||||||||||||||||||
Other income (loss) |
(1 | ) | (8 | ) | | 13 | | 4 | ||||||||||||||||
Intercompany revenues |
19 | 81 | 60 | 862 | (1,022 | ) | | |||||||||||||||||
|
||||||||||||||||||||||||
Total Revenues and Other Income |
(955 | ) | 3,013 | 60 | 5,755 | (366 | ) | 7,507 | ||||||||||||||||
|
||||||||||||||||||||||||
Costs and Expenses |
||||||||||||||||||||||||
Purchased commodities |
| 2,623 | | 1,501 | (855 | ) | 3,269 | |||||||||||||||||
Production and operating expenses |
| 390 | | 1,447 | (3 | ) | 1,834 | |||||||||||||||||
Selling, general and administrative expenses |
1 | 239 | | 53 | | 293 | ||||||||||||||||||
Exploration expenses |
| 761 | | 300 | | 1,061 | ||||||||||||||||||
Depreciation, depletion and amortization |
| 322 | | 1,949 | | 2,271 | ||||||||||||||||||
Impairments |
| 1 | | 23 | | 24 | ||||||||||||||||||
Taxes other than income taxes |
| 38 | | 168 | | 206 | ||||||||||||||||||
Accretion on discounted liabilities |
| 14 | | 108 | | 122 | ||||||||||||||||||
Interest and debt expense |
121 | 113 | 57 | 113 | (164 | ) | 240 | |||||||||||||||||
Foreign currency transaction (gains) losses |
47 | | (359 | ) | 240 | | (72 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Total Costs and Expenses |
169 | 4,501 | (302 | ) | 5,902 | (1,022 | ) | 9,248 | ||||||||||||||||
|
||||||||||||||||||||||||
Income (loss) before income taxes |
(1,124 | ) | (1,488 | ) | 362 | (147 | ) | 656 | (1,741 | ) | ||||||||||||||
Income tax provision (benefit) |
(53 | ) | (515 | ) | 27 | (144 | ) | | (685 | ) | ||||||||||||||
|
||||||||||||||||||||||||
Net income (loss) |
(1,071 | ) | (973 | ) | 335 | (3 | ) | 656 | (1,056 | ) | ||||||||||||||
Less: net income attributable to noncontrolling interests |
| | | (15 | ) | | (15 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Income (Loss) Attributable to ConocoPhillips |
$ | (1,071 | ) | (973 | ) | 335 | (18 | ) | 656 | (1,071 | ) | |||||||||||||
|
||||||||||||||||||||||||
Comprehensive Income (Loss) Attributable to ConocoPhillips |
$ | (3,555 | ) | (3,457 | ) | 70 | (2,507 | ) | 5,894 | (3,555 | ) | |||||||||||||
|
28
Millions of Dollars | ||||||||||||||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
Income Statement | ConocoPhillips | ConocoPhillips Company |
ConocoPhillips Canada Funding Company I |
All Other Subsidiaries |
Consolidating Adjustments |
Total Consolidated |
||||||||||||||||||
Revenues and Other Income |
||||||||||||||||||||||||
Sales and other operating revenues |
$ | | 7,289 | | 9,595 | | 16,884 | |||||||||||||||||
Equity in losses of affiliates |
(3,388 | ) | (1,168 | ) | | (325 | ) | 4,752 | (129 | ) | ||||||||||||||
Gain on dispositions |
| 96 | | 106 | | 202 | ||||||||||||||||||
Other income (loss) |
1 | (2 | ) | | 150 | | 149 | |||||||||||||||||
Intercompany revenues |
62 | 220 | 176 | 2,246 | (2,704 | ) | | |||||||||||||||||
|
||||||||||||||||||||||||
Total Revenues and Other Income |
(3,325 | ) | 6,435 | 176 | 11,772 | 2,048 | 17,106 | |||||||||||||||||
|
||||||||||||||||||||||||
Costs and Expenses |
||||||||||||||||||||||||
Purchased commodities |
| 6,409 | | 2,585 | (1,948 | ) | 7,046 | |||||||||||||||||
Production and operating expenses |
| 1,065 | | 3,502 | (242 | ) | 4,325 | |||||||||||||||||
Selling, general and administrative expenses |
7 | 448 | | 107 | (6 | ) | 556 | |||||||||||||||||
Exploration expenses |
| 1,174 | | 398 | | 1,572 | ||||||||||||||||||
Depreciation, depletion and amortization |
| 914 | | 6,087 | | 7,001 | ||||||||||||||||||
Impairments |
| 41 | | 280 | | 321 | ||||||||||||||||||
Taxes other than income taxes |
| 122 | | 416 | | 538 | ||||||||||||||||||
Accretion on discounted liabilities |
| 35 | | 294 | | 329 | ||||||||||||||||||
Interest and debt expense |
385 | 457 | 168 | 426 | (508 | ) | 928 | |||||||||||||||||
Foreign currency transaction (gains) losses |
(34 | ) | 2 | 207 | (163 | ) | | 12 | ||||||||||||||||
|
||||||||||||||||||||||||
Total Costs and Expenses |
358 | 10,667 | 375 | 13,932 | (2,704 | ) | 22,628 | |||||||||||||||||
|
||||||||||||||||||||||||
Loss before income taxes |
(3,683 | ) | (4,232 | ) | (199 | ) | (2,160 | ) | 4,752 | (5,522 | ) | |||||||||||||
Income tax benefit |
(103 | ) | (844 | ) | (3 | ) | (1,032 | ) | | (1,982 | ) | |||||||||||||
|
||||||||||||||||||||||||
Net loss |
(3,580 | ) | (3,388 | ) | (196 | ) | (1,128 | ) | 4,752 | (3,540 | ) | |||||||||||||
Less: net income attributable to noncontrolling interests |
| | | (40 | ) | | (40 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Loss Attributable to ConocoPhillips |
$ | (3,580 | ) | (3,388 | ) | (196 | ) | (1,168 | ) | 4,752 | (3,580 | ) | ||||||||||||
|
||||||||||||||||||||||||
Comprehensive Loss Attributable to ConocoPhillips |
$ | (2,777 | ) | (2,585 | ) | (6 | ) | (230 | ) | 2,821 | (2,777 | ) | ||||||||||||
|
||||||||||||||||||||||||
Income Statement | Nine Months Ended September 30, 2015 | |||||||||||||||||||||||
Revenues and Other Income |
||||||||||||||||||||||||
Sales and other operating revenues |
$ | | 8,989 | | 14,282 | | 23,271 | |||||||||||||||||
Equity in earnings (losses) of affiliates |
(712 | ) | 1,009 | | 1,275 | (886 | ) | 686 | ||||||||||||||||
Gain on dispositions |
| 38 | | 84 | | 122 | ||||||||||||||||||
Other income (loss) |
(1 | ) | 9 | | 82 | | 90 | |||||||||||||||||
Intercompany revenues |
56 | 261 | 187 | 2,657 | (3,161 | ) | | |||||||||||||||||
|
||||||||||||||||||||||||
Total Revenues and Other Income |
(657 | ) | 10,306 | 187 | 18,380 | (4,047 | ) | 24,169 | ||||||||||||||||
|
||||||||||||||||||||||||
Costs and Expenses |
||||||||||||||||||||||||
Purchased commodities |
| 7,751 | | 4,605 | (2,620 | ) | 9,736 | |||||||||||||||||
Production and operating expenses |
| 1,185 | | 4,286 | (37 | ) | 5,434 | |||||||||||||||||
Selling, general and administrative expenses |
7 | 521 | | 151 | (9 | ) | 670 | |||||||||||||||||
Exploration expenses |
| 1,104 | | 988 | | 2,092 | ||||||||||||||||||
Depreciation, depletion and amortization |
| 882 | | 5,849 | | 6,731 | ||||||||||||||||||
Impairments |
| 1 | | 117 | | 118 | ||||||||||||||||||
Taxes other than income taxes |
| 157 | | 498 | | 655 | ||||||||||||||||||
Accretion on discounted liabilities |
| 43 | | 322 | | 365 | ||||||||||||||||||
Interest and debt expense |
363 | 325 | 171 | 288 | (495 | ) | 652 | |||||||||||||||||
Foreign currency transaction (gains) losses |
94 | | (591 | ) | 401 | | (96 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Total Costs and Expenses |
464 | 11,969 | (420 | ) | 17,505 | (3,161 | ) | 26,357 | ||||||||||||||||
|
||||||||||||||||||||||||
Income (loss) before income taxes |
(1,121 | ) | (1,663 | ) | 607 | 875 | (886 | ) | (2,188 | ) | ||||||||||||||
Income tax provision (benefit) |
(143 | ) | (951 | ) | 18 | (178 | ) | | (1,254 | ) | ||||||||||||||
|
||||||||||||||||||||||||
Net income (loss) |
(978 | ) | (712 | ) | 589 | 1,053 | (886 | ) | (934 | ) | ||||||||||||||
Less: net income attributable to noncontrolling interests |
| | | (44 | ) | | (44 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Income (Loss) Attributable to ConocoPhillips |
$ | (978 | ) | (712 | ) | 589 | 1,009 | (886 | ) | (978 | ) | |||||||||||||
|
||||||||||||||||||||||||
Comprehensive Income (Loss) Attributable to ConocoPhillips |
$ | (5,201 | ) | (4,935 | ) | 67 | (3,393 | ) | 8,261 | (5,201 | ) | |||||||||||||
|
29
Millions of Dollars | ||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||
Balance Sheet | ConocoPhillips | ConocoPhillips Company |
ConocoPhillips Canada Funding Company I |
All Other Subsidiaries |
Consolidating Adjustments |
Total Consolidated |
||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | 275 | 11 | 3,804 | | 4,090 | |||||||||||||||||
Short-term investments |
| | | 234 | | 234 | ||||||||||||||||||
Accounts and notes receivable |
15 | 1,678 | 23 | 5,315 | (3,711 | ) | 3,320 | |||||||||||||||||
Inventories |
| 115 | | 993 | | 1,108 | ||||||||||||||||||
Prepaid expenses and other current assets |
1 | 222 | 182 | 684 | (200 | ) | 889 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Current Assets |
16 | 2,290 | 216 | 11,030 | (3,911 | ) | 9,641 | |||||||||||||||||
Investments, loans and long-term receivables* |
38,921 | 64,440 | 3,489 | 31,283 | (116,269 | ) | 21,864 | |||||||||||||||||
Net properties, plants and equipment |
| 6,609 | | 55,040 | | 61,649 | ||||||||||||||||||
Other assets |
8 | 2,182 | 235 | 1,328 | (2,623 | ) | 1,130 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Assets |
$ | 38,945 | 75,521 | 3,940 | 98,681 | (122,803 | ) | 94,284 | ||||||||||||||||
|
||||||||||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Accounts payable |
$ | | 4,013 | 8 | 3,441 | (3,711 | ) | 3,751 | ||||||||||||||||
Short-term debt |
(10 | ) | (2 | ) | 1,256 | 92 | | 1,336 | ||||||||||||||||
Accrued income and other taxes |
| 86 | | 308 | | 394 | ||||||||||||||||||
Employee benefit obligations |
| 500 | | 257 | | 757 | ||||||||||||||||||
Other accruals |
101 | 351 | 82 | 966 | (201 | ) | 1,299 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Current Liabilities |
91 | 4,948 | 1,346 | 5,064 | (3,912 | ) | 7,537 | |||||||||||||||||
Long-term debt |
9,123 | 13,635 | 1,711 | 2,884 | | 27,353 | ||||||||||||||||||
Asset retirement obligations and accrued environmental costs |
| 1,042 | | 8,778 | | 9,820 | ||||||||||||||||||
Deferred income taxes |
| | | 11,086 | (2,052 | ) | 9,034 | |||||||||||||||||
Employee benefit obligations |
| 2,023 | | 448 | | 2,471 | ||||||||||||||||||
Other liabilities and deferred credits* |
122 | 10,084 | 807 | 18,664 | (28,064 | ) | 1,613 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Liabilities |
9,336 | 31,732 | 3,864 | 46,924 | (34,028 | ) | 57,828 | |||||||||||||||||
Retained earnings (losses) |
25,373 | 13,979 | (585 | ) | 12,764 | (19,635 | ) | 31,896 | ||||||||||||||||
Other common stockholders equity |
4,236 | 29,810 | 661 | 38,707 | (69,140 | ) | 4,274 | |||||||||||||||||
Noncontrolling interests |
| | | 286 | | 286 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 38,945 | 75,521 | 3,940 | 98,681 | (122,803 | ) | 94,284 | ||||||||||||||||
|
||||||||||||||||||||||||
*Includes intercompany loans. |
||||||||||||||||||||||||
Balance Sheet | December 31, 2015 | |||||||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | 4 | 15 | 2,349 | | 2,368 | |||||||||||||||||
Accounts and notes receivable |
21 | 2,905 | 21 | 7,228 | (5,661 | ) | 4,514 | |||||||||||||||||
Inventories |
| 142 | | 982 | | 1,124 | ||||||||||||||||||
Prepaid expenses and other current assets |
2 | 206 | 252 | 589 | (266 | ) | 783 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Current Assets |
23 | 3,257 | 288 | 11,148 | (5,927 | ) | 8,789 | |||||||||||||||||
Investments, loans and long-term receivables* |
43,532 | 64,015 | 3,264 | 27,839 | (117,464 | ) | 21,186 | |||||||||||||||||
Net properties, plants and equipment |
| 8,110 | | 58,336 | | 66,446 | ||||||||||||||||||
Other assets |
7 | 950 | 233 | 1,158 | (1,285 | ) | 1,063 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Assets |
$ | 43,562 | 76,332 | 3,785 | 98,481 | (124,676 | ) | 97,484 | ||||||||||||||||
|
||||||||||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Accounts payable |
$ | | 5,684 | 13 | 4,897 | (5,661 | ) | 4,933 | ||||||||||||||||
Short-term debt |
(9 | ) | 1 | 1,255 | 180 | | 1,427 | |||||||||||||||||
Accrued income and other taxes |
| 62 | | 437 | | 499 | ||||||||||||||||||
Employee benefit obligations |
| 629 | | 258 | | 887 | ||||||||||||||||||
Other accruals |
170 | 465 | 52 | 1,087 | (264 | ) | 1,510 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Current Liabilities |
161 | 6,841 | 1,320 | 6,859 | (5,925 | ) | 9,256 | |||||||||||||||||
Long-term debt |
7,518 | 10,660 | 1,716 | 3,559 | | 23,453 | ||||||||||||||||||
Asset retirement obligations and accrued environmental costs |
| 1,107 | | 8,473 | | 9,580 | ||||||||||||||||||
Deferred income taxes |
| | | 11,814 | (815 | ) | 10,999 | |||||||||||||||||
Employee benefit obligations |
| 1,760 | | 526 | | 2,286 | ||||||||||||||||||
Other liabilities and deferred credits* |
2,681 | 7,291 | 667 | 15,181 | (23,992 | ) | 1,828 | |||||||||||||||||
|
||||||||||||||||||||||||
Total Liabilities |
10,360 | 27,659 | 3,703 | 46,412 | (30,732 | ) | 57,402 | |||||||||||||||||
Retained earnings (losses) |
29,892 | 17,366 | (389 | ) | 15,177 | (25,632 | ) | 36,414 | ||||||||||||||||
Other common stockholders equity |
3,310 | 31,307 | 471 | 36,572 | (68,312 | ) | 3,348 | |||||||||||||||||
Noncontrolling interests |
| | | 320 | | 320 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 43,562 | 76,332 | 3,785 | 98,481 | (124,676 | ) | 97,484 | ||||||||||||||||
|
||||||||||||||||||||||||
*Includes intercompany loans. |
30
Millions of Dollars | ||||||||||||||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
Statement of Cash Flows | ConocoPhillips | ConocoPhillips Company |
ConocoPhillips Canada Funding Company I |
All Other Subsidiaries |
Consolidating Adjustments |
Total Consolidated |
||||||||||||||||||
Cash Flows From Operating Activities |
||||||||||||||||||||||||
Net Cash Provided by (Used in) Operating Activities |
$ | (315 | ) | (124 | ) | (4 | ) | 4,307 | (904 | ) | 2,960 | |||||||||||||
|
||||||||||||||||||||||||
Cash Flows From Investing Activities |
||||||||||||||||||||||||
Capital expenditures and investments |
| (889 | ) | | (3,382 | ) | 401 | (3,870 | ) | |||||||||||||||
Working capital changes associated with investing activities |
| (135 | ) | | (266 | ) | | (401 | ) | |||||||||||||||
Proceeds from asset dispositions |
2,300 | 175 | | 275 | (2,331 | ) | 419 | |||||||||||||||||
Purchases of short-term investments |
| | | (229 | ) | | (229 | ) | ||||||||||||||||
Long-term advances/loansrelated parties |
| (803 | ) | | | 803 | | |||||||||||||||||
Collection of advances/loansrelated parties |
| 60 | | 1,072 | (1,024 | ) | 108 | |||||||||||||||||
Intercompany cash management |
(2,767 | ) | 2,272 | | 495 | | | |||||||||||||||||
Other |
| 3 | | 58 | | 61 | ||||||||||||||||||
|
||||||||||||||||||||||||
Net Cash Provided by (Used in) Investing Activities |
(467 | ) | 683 | | (1,977 | ) | (2,151 | ) | (3,912 | ) | ||||||||||||||
|
||||||||||||||||||||||||
Cash Flows From Financing Activities |
||||||||||||||||||||||||
Issuance of debt |
1,600 | 2,994 | | 803 | (803 | ) | 4,594 | |||||||||||||||||
Repayment of debt |
| (964 | ) | | (899 | ) | 1,024 | (839 | ) | |||||||||||||||
Issuance of company common stock |
122 | | | | (174 | ) | (52 | ) | ||||||||||||||||
Dividends paid |
(940 | ) | | | (1,078 | ) | 1,078 | (940 | ) | |||||||||||||||
Other |
| (2,318 | ) | | 295 | 1,930 | (93 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Cash Provided by (Used in) Financing Activities |
782 | (288 | ) | | (879 | ) | 3,055 | 2,670 | ||||||||||||||||
|
||||||||||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
| | | 4 | | 4 | ||||||||||||||||||
|
||||||||||||||||||||||||
Net Change in Cash and Cash Equivalents |
| 271 | (4 | ) | 1,455 | | 1,722 | |||||||||||||||||
Cash and cash equivalents at beginning of period |
| 4 | 15 | 2,349 | | 2,368 | ||||||||||||||||||
|
||||||||||||||||||||||||
Cash and Cash Equivalents at End of Period |
$ | | 275 | 11 | 3,804 | | 4,090 | |||||||||||||||||
|
||||||||||||||||||||||||
Statement of Cash Flows | Nine Months Ended September 30, 2015 | |||||||||||||||||||||||
Cash Flows From Operating Activities |
||||||||||||||||||||||||
Net Cash Provided by (Used in) Operating Activities |
$ | (263 | ) | (110 | ) | 2 | 6,165 | 182 | 5,976 | |||||||||||||||
|
||||||||||||||||||||||||
Cash Flows From Investing Activities |
||||||||||||||||||||||||
Capital expenditures and investments |
| (2,346 | ) | | (6,640 | ) | 1,073 | (7,913 | ) | |||||||||||||||
Working capital changes associated with investing activities |
| (15 | ) | | (827 | ) | | (842 | ) | |||||||||||||||
Proceeds from asset dispositions |
2,000 | 190 | | 232 | (2,099 | ) | 323 | |||||||||||||||||
Long-term advances/loansrelated parties |
| (248 | ) | | (1,973 | ) | 2,221 | | ||||||||||||||||
Collection of advances/loansrelated parties |
| | | 205 | (100 | ) | 105 | |||||||||||||||||
Intercompany cash management |
764 | (892 | ) | | 128 | | | |||||||||||||||||
Other |
| 297 | | 1 | | 298 | ||||||||||||||||||
|
||||||||||||||||||||||||
Net Cash Provided by (Used in) Investing Activities |
2,764 | (3,014 | ) | | (8,874 | ) | 1,095 | (8,029 | ) | |||||||||||||||
|
||||||||||||||||||||||||
Cash Flows From Financing Activities |
||||||||||||||||||||||||
Issuance of debt |
| 4,471 | | 248 | (2,221 | ) | 2,498 | |||||||||||||||||
Repayment of debt |
| (100 | ) | | (92 | ) | 100 | (92 | ) | |||||||||||||||
Issuance of company common stock |
237 | | | | (306 | ) | (69 | ) | ||||||||||||||||
Dividends paid |
(2,741 | ) | | | (124 | ) | 124 | (2,741 | ) | |||||||||||||||
Other |
3 | (1,994 | ) | | 915 | 1,026 | (50 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Cash Provided by (Used in) Financing Activities |
(2,501 | ) | 2,377 | | 947 | (1,277 | ) | (454 | ) | |||||||||||||||
|
||||||||||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
| | | (142 | ) | | (142 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Net Change in Cash and Cash Equivalents |
| (747 | ) | 2 | (1,904 | ) | | (2,649 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period |
| 770 | 7 | 4,285 | | 5,062 | ||||||||||||||||||
|
||||||||||||||||||||||||
Cash and Cash Equivalents at End of Period |
$ | | 23 | 9 | 2,381 | | 2,413 | |||||||||||||||||
|
31
Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Managements Discussion and Analysis is the Companys analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes. It contains forward-looking statements including, without limitation, statements relating to the Companys plans, strategies, objectives, expectations and intentions that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words anticipate, estimate, believe, budget, continue, could, intend, may, plan, potential, predict, seek, should, will, would, expect, objective, projection, forecast, goal, guidance, outlook, effort, target and similar expressions identify forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Companys disclosures under the heading: CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, beginning on page 54.
The terms earnings and loss as used in Managements Discussion and Analysis refer to net income (loss) attributable to ConocoPhillips.
BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
ConocoPhillips is the worlds largest independent exploration and production (E&P) company, based on proved reserves and production of liquids and natural gas. Headquartered in Houston, Texas, we had operations and activities in 20 countries, approximately 14,900 employees worldwide and total assets of $94 billion as of September 30, 2016.
Overview
We are an independent E&P company focused on exploring for, developing and producing crude oil and natural gas globally. We have a diverse, low cost of supply resource base and a unique set of producing assets that includes legacy assets in North America, Europe and Asia; North American tight oil assets; resource-rich oil sands assets in Canada; and liquefied natural gas (LNG) assets in Asia Pacific, the Middle East and Alaska. Our value proposition, which combines our unique portfolio attributes with prudent capital allocation principles, includes shareholder distributions; maintaining a strong investment grade balance sheet, which includes reducing debt levels; and exercising disciplined growth on an absolute or a per-share basis.
The energy landscape continues to be challenged. Global production oversupply has caused continued weakness in commodity prices in 2016, following a year of weak prices in 2015. Ongoing uncertainty around the timing of a price recovery, coupled with tightening credit capacity across the industry, caused us to take actions to preserve our balance sheet strength and mitigate the impacts of possible prolonged weak prices.
During the first quarter of 2016, we reduced our quarterly dividend by 66 percent, to $0.25 per share, issued $3.0 billion of debt and obtained a $1.6 billion three-year term loan to secure sufficient cash and liquidity through the downturn. We revised our 2016 operating plan, reducing our capital expenditures guidance from $6.4 billion in February to $5.5 billion in July, and further reduced our guidance to $5.2 billion in October 2016, primarily due to lower costs and deferrals across the portfolio, as well as reduced deepwater exploration activity. Realized commodity prices improved relative to the first quarter of 2016, and on October 17, 2016, $1.25 billion of Notes due were repaid at maturity.
We continue to stay focused on safely executing our capital program and remaining attentive to our costs. We produced 1,557 thousand barrels of oil equivalent per day (MBOED) in the third quarter of 2016, an increase of 3 MBOED compared with the same period of 2015. Production increased as growth from major projects and development programs, as well as improved well performance and lower planned downtime exceeded
32
impacts from normal field decline and dispositions. When adjusted for 53 MBOED from dispositions and downtime, production increased 56 MBOED, or 4 percent, compared with the third quarter of 2015. We also saw continued strong operational performance across our portfolio, including the achievement of first production at APLNG Train 2 in Australia, as well as completion of project finance tests for Train 1 in October 2016. We continue to pursue sustainable operating cost reductions within our business. Operating costs include production and operating expense; selling, gen