Edgar Filing: CONOCOPHILLIPS

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

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

For the transition period from to

Commission file number: 001-32395

ConocoPhillips

(Exact name of registrant as specified in its charter)

Delaware

01-0562944

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

600 North Dairy Ashford, Houston, TX 77079

(Address of principal executive offices) (Zip Code)

281-293-1000

(Registrant’s telephone number, including area code)

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

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

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

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

The registrant had 1,195,515,824 shares of common stock, $.01 par value, outstanding at September 30, 2017.

CONOCOPHILLIPS

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	Page

Part I—Financial Information

Item 1. Financial Statements
Consolidated Income Statement		1
Consolidated Statement of Comprehensive Income		2
Consolidated Balance Sheet		3
Consolidated Statement of Cash Flows		4
Notes to Consolidated Financial Statements		5
Supplementary Information—Condensed Consolidating Financial Information		29

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		34

Item 3. Quantitative and Qualitative Disclosures About Market Risk		58

Item 4. Controls and Procedures		58

Part II—Other Information

Item 1. Legal Proceedings		59

Item 1A. Risk Factors		59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		60

Item 6. Exhibits		61

Signature		62

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS


Consolidated Income Statement							ConocoPhillips


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016

Revenues and Other Income
Sales and other operating revenues	$	6,688			6,415			20,987			16,884
Equity in earnings (losses) of affiliates		196			(60	)		574			(129	)
Gain on dispositions		246			51			2,144			202
Other income		65			110			143			149

Total Revenues and Other Income		7,195			6,516			23,848			17,106


Costs and Expenses
Purchased commodities		2,926			2,819			9,040			7,046
Production and operating expenses		1,224			1,526			3,849			4,325
Selling, general and administrative expenses		132			203			423			556
Exploration expenses		75			457			724			1,572
Depreciation, depletion and amortization		1,608			2,425			5,212			7,001
Impairments		6			123			6,475			321
Taxes other than income taxes		175			161			604			538
Accretion on discounted liabilities		89			108			276			329
Interest and debt expense		251			335			872			928
Foreign currency transaction losses		5			13			28			12
Other expense		51			—			285			—

Total Costs and Expenses		6,542			8,170			27,788			22,628

Income (loss) before income taxes		653			(1,654	)		(3,940	)		(5,522	)
Income tax provision (benefit)		217			(628	)		(1,549	)		(1,982	)

Net Income (Loss)		436			(1,026	)		(2,391	)		(3,540	)
Less: net income attributable to noncontrolling interests		(16	)		(14	)		(43	)		(40	)

Net Income (Loss) Attributable to ConocoPhillips	$	420			(1,040	)		(2,434	)		(3,580	)


Net Income (Loss) Attributable to ConocoPhillips Per Share of Common Stock (dollars)
Basic	$	0.35			(0.84	)		(1.98	)		(2.88	)
Diluted		0.34			(0.84	)		(1.98	)		(2.88	)

Dividends Paid Per Share of Common Stock (dollars)	$	0.27			0.25			0.80			0.75

Average Common Shares Outstanding (in thousands)
Basic		1,212,454			1,245,961			1,230,742			1,245,139
Diluted		1,215,341			1,245,961			1,230,742			1,245,139

See Notes to Consolidated Financial Statements.


Consolidated Statement of Comprehensive Income		ConocoPhillips


	Millions of Dollars
	Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016


Net Income (Loss)	$	436			(1,026	)		(2,391	)		(3,540	)
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit included in net income		(9	)		(7	)		(28	)		(25	)
Net actuarial gain (loss) arising during the period		13			(31	)		(26	)		(331	)
Reclassification adjustment for amortization of net actuarial losses included in net income		49			47			205			229
Nonsponsored plans*		—			2			—			2
Income taxes on defined benefit plans		(18	)		(2	)		(52	)		51

Defined benefit plans, net of tax		35			9			99			(74	)

Unrealized holding gain on securities		551			—			127			—
Income taxes on unrealized holding gain on securities		(45	)		—			(45	)		—

Unrealized gain on securities, net of tax		506			—			82			—

Foreign currency translation adjustments		509			(82	)		720			877

Foreign currency translation adjustments, net of tax		509			(82	)		720			877

Other Comprehensive Income (Loss), Net of Tax		1,050			(73	)		901			803

Comprehensive Income (Loss)		1,486			(1,099	)		(1,490	)		(2,737	)
Less: comprehensive income attributable to noncontrolling interests		(16	)		(14	)		(43	)		(40	)

Comprehensive Income (Loss) Attributable to ConocoPhillips	$	1,470			(1,113	)		(1,533	)		(2,777	)

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

See Notes to Consolidated Financial Statements.


Consolidated Balance Sheet		ConocoPhillips


	Millions of Dollars
	September 30 2017			December 31 2016

Assets
Cash and cash equivalents	$	6,911			3,610
Short-term investments		2,696			50
Accounts and notes receivable (net of allowance of $4 million in 2017 and $5 million in 2016)		3,222			3,249
Accounts and notes receivable—related parties		142			165
Investment in Cenovus Energy		2,084			—
Inventories		1,023			1,018
Prepaid expenses and other current assets		876			517

Total Current Assets		16,954			8,609
Investments and long-term receivables		9,696			21,091
Loans and advances—related parties		461			581
Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $64,115 million in 2017 and $73,075 million in 2016)		46,669			58,331
Other assets		1,081			1,160

Total Assets	$	74,861			89,772


Liabilities
Accounts payable	$	3,378			3,631
Accounts payable—related parties		38			22
Short-term debt		1,331			1,089
Accrued income and other taxes		1,005			484
Employee benefit obligations		528			689
Other accruals		851			994

Total Current Liabilities		7,131			6,909
Long-term debt		19,673			26,186
Asset retirement obligations and accrued environmental costs		7,763			8,425
Deferred income taxes		6,262			8,949
Employee benefit obligations		1,903			2,552
Other liabilities and deferred credits		1,417			1,525

Total Liabilities		44,149			54,546


Equity
Common stock (2,500,000,000 shares authorized at $.01 par value)
Issued (2017—1,785,195,738 shares; 2016—1,782,079,107 shares)
Par value		18			18
Capital in excess of par		46,595			46,507
Treasury stock (at cost: 2017—589,679,914 shares; 2016—544,809,771 shares)		(38,951	)		(36,906	)
Accumulated other comprehensive loss		(5,292	)		(6,193	)
Retained earnings		28,130			31,548

Total Common Stockholders’ Equity		30,500			34,974
Noncontrolling interests		212			252

Total Equity		30,712			35,226

Total Liabilities and Equity	$	74,861			89,772

See Notes to Consolidated Financial Statements.


Consolidated Statement of Cash Flows			ConocoPhillips


	Millions of Dollars
	Nine Months Ended September 30
		2017		2016

Cash Flows From Operating Activities
Net loss	$	(2,391	)	(3,540	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation, depletion and amortization		5,212		7,001
Impairments		6,475		321
Dry hole costs and leasehold impairments		435		1,010
Accretion on discounted liabilities		276		329
Deferred taxes		(2,770	)	(2,152	)
Distributions received greater than equity losses (undistributed equity earnings)		(193	)	414
Gain on dispositions		(2,144	)	(202	)
Other		(367	)	(50	)
Working capital adjustments
Decrease in accounts and notes receivable		65		1,112
Decrease (increase) in inventories		(15	)	22
Decrease (increase) in prepaid expenses and other current assets		(12	)	46
Decrease in accounts payable		(212	)	(515	)
Increase (decrease) in taxes and other accruals		237		(836	)

Net Cash Provided by Operating Activities		4,596		2,960


Cash Flows From Investing Activities
Capital expenditures and investments		(3,074	)	(3,870	)
Working capital changes associated with investing activities		(18	)	(401	)
Proceeds from asset dispositions		13,740		419
Net purchases of short-term investments		(2,583	)	(229	)
Collection of advances/loans—related parties		115		108
Other		51		61

Net Cash Provided by (Used in) Investing Activities		8,231		(3,912	)


Cash Flows From Financing Activities
Issuance of debt		—		4,594
Repayment of debt		(6,594	)	(839	)
Issuance of company common stock		(65	)	(52	)
Repurchase of company common stock		(2,045	)	—
Dividends paid		(986	)	(940	)
Other		(80	)	(93	)

Net Cash Provided by (Used in) Financing Activities		(9,770	)	2,670


Effect of Exchange Rate Changes on Cash and Cash Equivalents		244		4


Net Change in Cash and Cash Equivalents		3,301		1,722
Cash and cash equivalents at beginning of period		3,610		2,368

Cash and Cash Equivalents at End of Period	$	6,911		4,090

See Notes to Consolidated Financial Statements.


Notes to Consolidated Financial Statements			ConocoPhillips

Note 1—Basis of Presentation

The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips and its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2016 Annual Report on Form 10-K.

Note 2—Variable Interest Entities (VIEs)

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

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, 2017, 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 5—Investments, Loans and Long-Term Receivables, and Note 11—Guarantees, for additional information.

Marine Well Containment Company, LLC (MWCC)

MWCC provides well containment equipment and technology and related services in the deepwater U.S. Gulf of Mexico. Its principal activities involve the development and maintenance of rapid-response hydrocarbon well containment systems that are deployable in the Gulf of Mexico on a call-out basis. We have a 10 percent ownership interest in MWCC, and it is accounted for as an equity method investment because MWCC is a limited liability company in which we are a Founding Member and exercise significant influence through our permanent seat on the ten-member Executive Committee responsible for overseeing the affairs of MWCC. In 2016, MWCC executed a $154 million term loan financing arrangement with an external financial institution whose terms required the financing be secured by letters of credit provided by certain owners of MWCC, including ConocoPhillips. In connection with the financing transaction, we issued a letter of credit of $22 million which can be drawn upon in the event of a default by MWCC on its obligation to repay the proceeds of the term loan. The fair value of this letter of credit is immaterial and not recognized on our consolidated balance sheet. MWCC is considered a VIE, as it has entered into arrangements that provide it with additional forms of subordinated financial support. We are not the primary beneficiary and do not consolidate MWCC because we share the power to govern the business and operation of the company and to undertake certain obligations that most significantly impact its economic performance with nine other unaffiliated owners of MWCC.

At September 30, 2017, the carrying value of our equity method investment in MWCC was $141 million. We have not provided any financial support to MWCC other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of MWCC.

Note 3—Inventories

Inventories consisted of the following:


	Millions of Dollars
	September 30 2017		December 31 2016


Crude oil and natural gas	$	465		418
Materials and supplies		558		600

	$	1,023		1,018

Inventories valued on the last-in, first-out (LIFO) basis totaled $297 million and $269 million at September 30, 2017 and December 31, 2016, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was approximately $90 million and $104 million at September 30, 2017 and December 31, 2016, respectively.

Note 4—Assets Held for Sale or Sold

Assets Held for Sale

On June 28, 2017, we signed a definitive agreement with an affiliate of Miller Thomson & Partners LLC to sell our interests in the Barnett for $305 million in cash, subject to customary adjustments. The transaction is subject to specific conditions precedent being satisfied, including regulatory approval, and is expected to close in the fourth quarter of 2017. We recorded a before-tax impairment of $566 million in the second quarter of 2017 to reduce the carrying value of our investment to fair value and an additional impairment of $2 million was recorded in the third quarter of 2017. As of September 30, 2017, our Barnett interests had a net carrying value of approximately $296 million and were considered held for sale resulting in the reclassification of $344 million of properties, plants and equipment (PP&E) to “Prepaid expenses and other current assets” and $49 million of noncurrent liabilities, primarily asset retirement obligations, to “Other accruals” on our consolidated balance sheet. The before-tax loss associated with our interests in the Barnett, including the $566 million and $2 million impairments noted above, was $575 million and $55 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. The Barnett results of operations are reported within our Lower 48 segment.

Assets Sold

On May 17, 2017, we completed the sale of our 50 percent nonoperated interest in the Foster Creek Christina Lake (FCCL) Partnership, as well as the majority of our western Canada gas assets to Cenovus Energy. Consideration for the transaction was $11 billion in cash after customary adjustments, including $600 million related to environmental claims, 208 million Cenovus Energy common shares and a five-year uncapped contingent payment. The cash proceeds are included in the “Cash Flows From Investing Activities” section of our consolidated statement of cash flows. The value of the shares at closing was $1.96 billion based on a price of $9.41 per share on the New York Stock Exchange. The contingent payment, calculated and paid on a quarterly basis, is $6 million Canadian dollars (CAD) for every $1 CAD by which the Western Canada Select (WCS) quarterly average crude price exceeds $52 CAD per barrel.

At closing, the carrying value of our equity investment in FCCL was $8.9 billion. The carrying value of our interest in the western Canada gas assets was $1.9 billion consisting primarily of $2.6 billion of PP&E, partly offset by asset retirement obligations of $585 million and approximately $100 million of environmental and other accruals. A before-tax gain of $1.85 billion was included in the “Gain on disposition” line on our consolidated income statement for the second quarter of 2017. An additional before-tax gain of $281 million was recognized in the third quarter of 2017. We reported before-tax losses of $26 million and $444 million for the western Canada gas producing properties for the nine-month periods ending September 30, 2017 and

September 30, 2016, respectively. We reported before-tax equity earnings of $197 million and a before-tax equity loss of $37 million for FCCL for the same periods, respectively. Both FCCL and the western Canada gas assets were reported within our Canada segment.

For more information on the Canada disposition and our investment in Cenovus Energy see Note 6—Investment in Cenovus Energy, Note 14—Fair Value Measurement, and Note 15—Accumulated Other Comprehensive Income (Loss).

On July 31, 2017, we completed the sale of our interests in the San Juan Basin to an affiliate of Hilcorp Energy Company for $2.5 billion in cash after customary adjustments, and recognized a loss on disposition of $22 million. The $2.5 billion of cash proceeds are included in the “Cash Flows From Investing Activities” section of our consolidated statement of cash flows. The transaction includes a contingent payment of up to $300 million. The six-year contingent payment is effective beginning January 1, 2018, and is due annually for the periods in which the monthly U.S. Henry Hub price is at or above $3.20 per million British thermal units.

In the second quarter of 2017, we recorded a before-tax impairment of $3.3 billion to reduce the carrying value of our interests in the San Juan Basin to fair value. At the time of disposition, the San Juan Basin interests had a net carrying value of approximately $2.5 billion, consisting of $2.9 billion of PP&E and $406 million of liabilities, primarily asset retirement obligations. The before-tax loss associated with our interests in the San Juan Basin, including both the $3.3 billion impairment and $22 million loss on disposition noted above, was $3.2 billion and $226 million for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively. The San Juan Basin results of operations are reported within our Lower 48 segment.

On September 29, 2017, we completed the sale of our interest in the Panhandle assets for $178 million in cash after customary adjustments, and recognized a before-tax loss on disposition of $28 million. The proceeds are included in the “Cash Flows From Investing Activities” section of our consolidated statement of cash flows. At the time of the disposition, the carrying value of our interest was $206 million, consisting primarily of $279 million of PP&E and $72 million of asset retirement obligations. Including the $28 million loss on disposition noted above, we reported before-tax losses for the Panhandle properties of $16 million and $28 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. The Panhandle results are reported within our Lower 48 segment.

Note 5—Investments, Loans and Long-Term Receivables

APLNG

APLNG’s $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. All amounts have been drawn from the facility. APLNG made its first principal and interest repayment in March 2017 and will continue to make bi-annual payments until March 2029. At September 30, 2017, a balance of $7.9 billion was outstanding on 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 achieved financial completion. In October 2016, we reached financial completion for Train 1, which reduced our associated guarantee by 60 percent. In August 2017, we reached financial completion for Train 2, which removed the remaining guarantee. See Note 11—Guarantees, 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 2—Variable Interest Entities (VIEs), for additional information.

During the first and second quarters of 2017, the outlook for crude oil prices deteriorated, and as a result of significantly reduced price outlooks, the estimated fair value of our investment in APLNG declined to an amount below carrying value. Based on a review of the facts and circumstances surrounding this decline in

fair value, we concluded in the second quarter of 2017 the impairment was other than temporary under the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 323, “Investments – Equity Method and Joint Ventures,” and the recognition of an impairment of our investment to fair value was necessary. Accordingly, we recorded a noncash $2,384 million, before- and after-tax impairment in our second-quarter 2017 results. Fair value was estimated based on an internal discounted cash flow model using estimated future production, an outlook of future prices from a combination of exchanges (short-term) and pricing service companies (long-term), costs, a market outlook of foreign exchange rates provided by a third party, and a discount rate believed to be consistent with those used by principal market participants. The impairment was included in the “Impairments” line on our consolidated income statement.

At September 30, 2017, the carrying value of our equity method investment in APLNG was $7,661 million. The balance is included in the “Investments and long-term receivables” line item on our consolidated balance sheet.

FCCL

On May 17, 2017, we completed the sale of our 50 percent nonoperated interest in the FCCL Partnership, as well as the majority of our western Canada gas assets to Cenovus Energy. For additional information on the Canada disposition and our investment in Cenovus Energy, see Note 4—Assets Held for Sale or Sold and Note 6—Investment in Cenovus Energy.

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, 2017, significant loans to affiliated companies included $581 million in project financing to Qatar Liquefied Gas Company Limited (3) (QG3).

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

Note 6-–Investment in Cenovus Energy

On May 17, 2017, we completed the sale of our 50 percent nonoperated interest in the FCCL Partnership, as well as the majority of our western Canada gas assets to Cenovus Energy. Consideration for the transaction included 208 million Cenovus Energy common shares. See Note 4—Assets Held for Sale or Sold, for additional information on the Canada disposition.

At closing, the fair value and cost basis of our investment in 208 million Cenovus Energy common shares was $1.96 billion based on a price of $9.41 per share on the New York Stock Exchange. Our ownership approximates to 16.9 percent of issued and outstanding Cenovus common shares, and under an investor agreement with Cenovus Energy, we have agreed not to transfer any of our Cenovus Energy common shares until six months from the closing date (the “Lock-up Termination Date”).

We have classified our investment as an available-for-sale equity security on our consolidated balance sheet and, as of September 30, 2017, our investment is carried at fair value of $2.08 billion, reflecting the closing price of Cenovus Energy shares on the New York Stock Exchange of $10.02 per share. The carrying value reflects a before-tax unrealized gain of $127 million and an after-tax unrealized gain of $82 million over our cost basis of $1.96 billion. The unrealized gain is reported as a component of accumulated other comprehensive loss. See Note 14—Fair Value Measurement, for additional information. Following the Lock-up Termination Date, we intend to decrease our investment over time through market transactions, private agreements or otherwise.

Note 7—Suspended Wells and Other Exploration Expenses

The capitalized cost of suspended wells at September 30, 2017, was $872 million, a decrease of $191 million from $1,063 million at year-end 2016. Two suspended wells in Shenandoah in the Gulf of Mexico totaling $94 million, one suspended well in Alaska totaling $17 million, and one suspended well in Malaysia totaling $23 million were charged to dry hole expense during the first nine months of 2017 relating to exploratory well costs capitalized for a period greater than one year as of December 31, 2016.

We reached a settlement agreement on our contract for the Athena drilling rig, initially secured for our four-well commitment program in Angola. As a result of the cancellation, we recorded a before-tax charge of $43 million net in the first quarter of 2017. This charge is included in the “Exploration expenses” line on our consolidated income statement.

Note 8—Impairments

During the three- and nine-month periods ended September 30, 2017 and 2016, we recognized before-tax impairment charges within the following segments:


	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2017		2016		2017		2016


Alaska	$	1		—		178		—
Lower 48		3		1		3,888		61
Canada		—		60		18		60
Europe and North Africa		2		20		7		157
Asia Pacific and Middle East		—		42		2,384		43

	$	6		123		6,475		321

In the nine-month period of 2017, our Lower 48 segment included impairments of $3,888 million primarily due to certain developed properties which were written down to fair value less costs to sell. See Note 4—Assets Held for Sale or Sold, for additional information on our dispositions. Additionally, the nine-month period of 2017 included the impairment of our APLNG investment reported within the Asia Pacific and Middle East segment. For more information, see the “APLNG” section of Note 5—Investments, Loans and Long-Term Receivables. The nine-month period also included an impairment in our Alaska segment in the first quarter of 2017 of $174 million for the associated PP&E carrying value of our small interest in a nonoperated producing property.

In October 2017, we expect to record an estimated $60 million before-tax impairment of a gas processing plant in Norway, primarily due to restructured ownership and a change in commercial premises. This impairment will be reflected in our year-end results within our Europe and North Africa segment.

In the three- and nine-month periods ended September 30, 2016, our Canada and Asia Pacific and Middle East segments included impairments of $60 million and $42 million, respectively, primarily related to certain developed properties in central Alberta and offshore Indonesia, which were written down to fair value less costs to sell. Our Europe and North Africa segment included 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 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.

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 three- and nine-month periods of 2017 and 2016 were aligned with our decision announced in 2015 to reduce deepwater exploration spending.

In the first quarter of 2017, we recorded a before-tax impairment of $51 million for the associated carrying value of capitalized undeveloped leasehold costs of Shenandoah in deepwater Gulf of Mexico following the suspension of appraisal activity by the operator.

In the second quarter of 2016, 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 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 the majority of a $79 million impairment in deepwater Gulf of Mexico, mainly as a result of changes in the estimated market value following the completion of an initial marketing effort.

Note 9—Debt

As of September 30, 2017, our revolving credit facility, expiring in June 2019, was $6.75 billion. The credit facility supports two commercial paper programs: 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, 2017 and December 31, 2016, we had no direct outstanding borrowings under the revolving credit facility and no letters of credit. We had no commercial paper outstanding at September 30, 2017 or December 31, 2016, under both the ConocoPhillips and the ConocoPhillips Qatar Funding Ltd. commercial paper programs. 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, 2017.

In the first quarter of 2017, we made a prepayment of $805 million on our floating rate term loan facility due in 2019. In the third quarter of 2017, we prepaid the remaining balance of $645 million.

During the nine-month period of 2017, we redeemed a total $4.8 billion of debt as described below.

In the second quarter of 2017, we redeemed $3.0 billion of debt across the following instruments:

•

6.65% Debentures due 2018 with principal of $297 million.

•

5.75% Notes due 2019 with principal of $2.25 billion (partial redemption of $1.7 billion).

•

6.00% Notes due 2020 with principal of $1.0 billion.

In the third quarter of 2017, we redeemed $1.8 billion of debt across the following instruments:

•

5.20% Notes due 2018 with principal of $500 million.

•

1.50% Notes due 2018 with principal of $750 million.

•

5.75% Notes due 2019 with principal of $550 million.

We incurred premiums above book value to redeem the debt instruments of $234 million and $50 million in the second and third quarter of 2017, respectively. These costs are reported in the “Other expense” line on our consolidated income statement.

In October 2017, we gave notice to make a partial redemption of $250 million on the $1.25 billion 4.20% Notes due in 2021. The prepayment will occur in the fourth quarter of 2017, and we expect to incur approximately $20 million in premiums above book value, subject to pricing, related to this redemption when paid.

At September 30, 2017, 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 10—Noncontrolling Interests

Activity attributable to common stockholders’ equity and noncontrolling interests for the first nine months of 2017 and 2016 was as follows:


	Millions of Dollars
	2017									2016
	Common Stockholders’ Equity			Non- Controlling Interest			Total Equity			Common Stockholders’ Equity			Non- Controlling Interest			Total Equity


Balance at January 1	$	34,974			252			35,226			39,762			320			40,082
Net income (loss)		(2,434	)		43			(2,391	)		(3,580	)		40			(3,540	)
Dividends		(986	)		—			(986	)		(940	)		—			(940	)
Repurchase of company common stock		(2,045	)		—			(2,045	)		—			—			—
Distributions to noncontrolling interests		—			(84	)		(84	)		—			(75	)		(75	)
Other changes, net*		991			1			992			928			1			929

Balance at September 30	$	30,500			212			30,712			36,170			286			36,456

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

Note 11—Guarantees

At September 30, 2017, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

APLNG Guarantees

At September 30, 2017, 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 2017 exchange rates:

•

We guaranteed APLNG’s performance with regard to a construction contract executed in connection with APLNG’s issuance of the Train 1 and Train 2 Notices to Proceed. Our maximum potential amount of future payments related to this guarantee became immaterial in the second quarter of 2017.

•

We issued a construction completion guarantee related to the third-party project financing secured by APLNG. In October 2016, we reached financial completion for Train 1, releasing a portion of our guarantee. In August 2017, the two-train project finance lenders’ test was completed, releasing the remaining guarantee.

•

During the third quarter of 2016, we issued a guarantee to facilitate the withdrawal of our pro-rata portion of the funds in a project finance reserve account. We estimate the remaining term of this guarantee is 12 years. Our maximum exposure under this guarantee is approximately $200 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At September 30, 2017, the carrying value of this guarantee was approximately $14 million.

•

In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy 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 up to 25 years. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $1 billion ($1.75 billion in the event of intentional or reckless breach), and would become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

•

We have guaranteed the performance of APLNG with regard to certain other contracts executed in connection with the project’s continued development. The guarantees have remaining terms of up to 28 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $160 million and would become payable if APLNG does not perform.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $780 million, which consist primarily of guarantees of the residual value of leased office buildings, guarantees of the residual value of leased corporate aircraft, and a guarantee for our portion of a joint venture’s project finance reserve accounts. These guarantees have remaining terms of up to six 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.

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, 2017, was approximately $100 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, 2017, 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 12—Contingencies 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 $1.28 billion. At September 30, 2017, the carrying value of this guarantee is approximately $98 million and the remaining term is seven 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 12—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated 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.

Environmental

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

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for 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.

At September 30, 2017, our balance sheet included a total environmental accrual of $182 million, compared with $247 million at December 31, 2016, 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.

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, 2017, we had performance obligations secured by letters of credit of $286 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 government’s Nationalization Decree. As a result, Venezuela’s national oil company, Petróleos de Venezuela S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’ interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In response to this expropriation, we filed a request for international arbitration on November 2, 2007, with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). An arbitration hearing was held before an ICSID tribunal during the summer of 2010. On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the decision that the expropriation was unlawful. A separate arbitration phase is currently proceeding to determine the damages owed to ConocoPhillips for Venezuela’s actions. Separate arbitrations for contractual compensation against PDVSA are also pending before International Chamber of Commerce (ICC) arbitration tribunals. In addition,

ConocoPhillips brought fraudulent transfer actions in the U.S. District Court of Delaware, 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 Ecuador’s seizure of Blocks 7 and 21 was an unlawful expropriation in violation of the Ecuador-U.S. Bilateral Investment Treaty. In February 2017, the tribunal unanimously awarded Burlington $380 million for Ecuador’s unlawful expropriation and breach of the U.S.-Ecuador bilateral investment treaty. The tribunal also issued a separate decision finding Ecuador to be entitled to $42 million for limited environmental and infrastructure impacts associated with the operations of Burlington and its co-venturer. Ecuador filed a request for annulment of this decision with ICSID, triggering a provisional stay of enforcement of the award. On August 31, the ICSID Annulment Committee issued a decision terminating the provisional stay. The annulment proceeding is ongoing.

In December 2016, ConocoPhillips Angola filed a notice of arbitration against Sonangol E.P. under the Block 36 Production Sharing Contract relating to disputes arising thereunder. The arbitration is being conducted under the United Nations Commission on International Trade Laws (UNCITRAL) rules using a three-person tribunal. The arbitration is ongoing.

In June 2017, FAR Ltd. initiated arbitration before the ICC against ConocoPhillips Senegal B.V. in connection with the sale of ConocoPhillips Senegal B.V. to Woodside Energy Holdings (Senegal) Limited in 2016. The arbitral tribunal is in the process of being constituted.

Note 13—Derivative 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 2017		December 31 2016

Assets
Prepaid expenses and other current assets	$	170		268
Other assets		32		44
Liabilities
Other accruals		167		300
Other liabilities and deferred credits		23		34

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
	2017			2016		2017			2016


Sales and other operating revenues	$	17			11		120			(155	)
Other income		(1	)		1		(1	)		(1	)
Purchased commodities		(19	)		7		(88	)		136

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


	Open Position Long/(Short)
	September 30 2017			December 31 2016


Commodity
Natural gas and power (billions of cubic feet equivalent)
Fixed price		(33	)		(31	)
Basis		42			2

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 2017		December 31 2016

Assets
Prepaid expenses and other current assets	$	1		1
Liabilities
Other accruals		—		168

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
	2017			2016		2017		2016


Foreign currency transaction (gains) losses	$	(1	)		35		2		218

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


	In Millions Notional Currency
	September 30 2017		December 31 2016


Sell U.S. dollar, buy other currencies*	USD	26		13
Buy U.S. dollar, sell other currencies**	USD	—		25
Buy British pound, sell other currencies***	GBP	3		1,069
Sell British pound, buy Norwegian krone	GBP	—		51

*Primarily Canadian dollar.

**Primarily British pound.

***Primarily Euro and Canadian dollar.

Financial Instruments

We invest excess cash in financial instruments with maturities based on our cash forecasts for the various currency pools we manage. The maturities of these investments may from time to time extend beyond 90 days. The types of financial instruments in which we currently invest include:

•

Time deposits: Interest bearing deposits placed with approved financial institutions.

•

Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or government agency purchased at a discount to mature at par.

These financial instruments appear in the “Cash and cash equivalents” line of our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less; otherwise, these financial instruments are included in the “Short-term investments” line on our consolidated balance sheet.


	Millions of Dollars
	Carrying Amount
	Cash and Cash Equivalents				Short-Term Investments
	September 30 2017		December 31 2016		September 30 2017		December 31 2016


Cash	$	925		623		—		—
Time deposits
Remaining maturities from 1 to 90 days		5,462		2,987		1,103		39
Remaining maturities from 91 to 180 days		—		—		74		11
Commercial paper
Remaining maturities from 1 to 90 days		524		—		1,320		—
Remaining maturities from 91 to 180 days		—		—		199		—

	$	6,911		3,610		2,696		50

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, government 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, 2017 and December 31, 2016, was $39 million and $42 million, respectively. For these instruments, no collateral was posted as of September 30, 2017 or December 31, 2016. If our credit rating had been downgraded below investment grade on September 30, 2017, we would be required to post $39 million of additional collateral, either with cash or letters of credit.

Note 14—Fair Value Measurement

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

•

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

•

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

•

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

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities 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 2017 or 2016.

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. This also includes our investment in common shares of Cenovus Energy, currently subject to a trading restriction, which is valued using quotes for shares on the New York Stock Exchange. Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value. Level 3 activity was not material for all periods presented.

The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):


	Millions of Dollars
	September 30, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets
Investment in Cenovus Energy	$	—		2,084		—		2,084		—		—		—		—
Commodity derivatives		109		69		24		202		194		96		22		312

Total assets	$	109		2,153		24		2,286		194		96		22		312


Liabilities
Commodity derivatives	$	112		61		17		190		207		105		22		334

Total liabilities	$	112		61		17		190		207		105		22		334

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, 2017
Assets	$	202		118		84		4		4		76
Liabilities		190		118		72		9		3		60


December 31, 2016
Assets	$	312		221		91		—		5		86
Liabilities		334		221		113		12		12		89

At September 30, 2017 and December 31, 2016, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.

Non-Recurring Fair Value Measurement

The following table summarizes the fair value hierarchy by major category and date of remeasurement for assets accounted for at fair value on a non-recurring basis:

Millions of Dollars

Fair Value
Measurements Using

Fair Value

Level 1
Inputs

Level 3
Inputs

Before-

Tax Loss

June 30, 2017 (remeasurement date)

Net PP&E (held for sale)

2,830

—

3,882

Cost and equity method investments

7,656

—

7,656

2,384

During the second quarter of 2017, 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. For additional information see Note 4—Assets Held for Sale or Sold.

During the second quarter of 2017, our equity method investment in APLNG was determined to have fair value below its carrying value, and the impairment was considered to be other than temporary. See the “APLNG” section of Note 5—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment.

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 advances—related parties.

•

Investment in Cenovus Energy shares: See Note 6—Investment in Cenovus Energy, for a discussion of the carrying value and fair value of our investment in Cenovus Energy shares.

•

Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair value. The fair value of fixed-rate loan activity is measured using market observable data and is categorized as Level 2 in the fair value hierarchy. See Note 5—Investments, Loans and Long-Term Receivables, for additional information.

•

Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value.

•

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
	2017		2016		2017		2016

Financial assets
Investment in Cenovus Energy	$	2,084		—		2,084		—
Commodity derivatives		80		91		80		91
Total loans and advances—related parties		583		701		583		701
Financial liabilities
Total debt, excluding capital leases		20,181		26,423		23,451		29,307
Commodity derivatives		63		101		63		101

Note 15—Accumulated Other Comprehensive Income (Loss)

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


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


December 31, 2016	$	(547	)		—		(5,646	)		(6,193	)
Other comprehensive income		99			82		720			901

September 30, 2017	$	(448	)		82		(4,926	)		(5,292	)

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

The following table summarizes reclassifications out of accumulated other comprehensive loss:


	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2017		2016		2017		2016


Defined benefit plans	$	26		27		116		132

Above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of:	$	14		13		61		72

See Note 17—Employee Benefit Plans, for additional information.

Note 16—Cash Flow Information


	Millions of Dollars
	Nine Months Ended
	September 30
		2017		2016

Cash Payments (Receipts)
Interest	$	918		854
Income taxes*		574		(339	)


Net Sales (Purchases) of Short-Term Investments
Short-term investments purchased	$	(4,999	)	(1,704	)
Short-term investments sold		2,416		1,475

	$	(2,583	)	(229	)

*Net of $569 million in 2016 related to refunds received from the Internal Revenue Service.

During the first quarter of 2017, we recognized a $180 million adverse cash impact from the settlement of cross-currency swap transactions which is included in the “Cash Flows From Operating Activities” section of our consolidated statement of cash flow.

Note 17—Employee Benefit Plans

Pension and Postretirement Plans


	Millions of Dollars
	Pension Benefits												Other Benefits
	2017						2016						2017			2016

	U.S.			Int’l.			U.S.			Int’l.

Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost	$	21			20			27			19			—			—
Interest cost		29			27			32			30			3			3
Expected return on plan assets		(32	)		(41	)		(34	)		(39	)		—			—
Amortization of prior service cost (credit)		1			(1	)		2			(1	)		(9	)		(9	)
Recognized net actuarial loss (gain)		17			12			22			6			(1	)		—
Settlements		21			—			22			—			—			—
Curtailment Loss		—			—			14			—			—			1

Net periodic benefit cost	$	57			17			85			15			(7	)		(5	)


Nine Months Ended September 30
Service cost	$	67			59			82			59			1			1
Interest cost		90			78			104			93			7			10
Expected return on plan assets		(97	)		(119	)		(112	)		(121	)		—			—
Amortization of prior service cost (credit)		3			(4	)		4			(4	)		(27	)		(26	)
Recognized net actuarial loss (gain)		53			36			64			20			(2	)		(1	)
Settlements		118			—			149			—			—			—
Curtailment Loss		—			—			14			—			—			1

Net periodic benefit cost	$	234			50			305			47			(21	)		(15	)

During the first nine months of 2017, we contributed $783 million to our domestic benefit plans and $89 million to our international benefit plans. In 2017, we expect to contribute approximately $800 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $120 million to our international qualified and nonqualified pension and postretirement benefit plans.

We recognized a proportionate share of prior actuarial losses from other comprehensive income as pension settlement expense of $21 million and $118 million during the three- and nine-month periods ended September 30, 2017, respectively. In conjunction with the recognition of pension settlement expense, the fair market values of U.S. 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 as of September 30, 2017. As part of the remeasurement, the expected rate of return on the U.S. qualified pension plan assets was reduced from 6.8 percent at January 1, 2017, to 5.8 percent at September 30, 2017.

Severance Accrual

As a result of selling our 50 percent nonoperated interest in the FCCL Partnership and the majority of our western Canada gas assets, as well as our interests in the San Juan Basin, a reduction in our overall employee workforce began during the second quarter of 2017. Severance accruals of $7 million and $62 million were recorded during the three- and nine-month periods ended September 30, 2017, respectively. The following table summarizes our severance accrual activity for the nine-month period ended September 30, 2017:


	Millions of Dollars

Balance at December 31, 2016	$	80
Accruals		62
Benefit payments		(84	)
Foreign currency translation adjustments		2

Balance at September 30, 2017	$	60

Of the remaining balance at September 30, 2017, $36 million is classified as short-term.

Note 18—Related 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
	2017			2016			2017			2016


Operating revenues and other income	$	24			41			83			96
Purchases		26			26			74			75
Operating expenses and selling, general and administrative expenses		16			20			42			48
Net interest (income) expense*		(4	)		(3	)		(10	)		(9	)

*We paid interest to, or received interest from, various affiliates. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.

Note 19—Segment Disclosures and Related Information

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

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
	2017			2016			2017			2016

Sales and Other Operating Revenues
Alaska	$	932			925			3,010			2,639

Lower 48		3,102			2,993			9,422			7,533
Intersegment eliminations		(2	)		(3	)		(7	)		(15	)

Lower 48		3,100			2,990			9,415			7,518

Canada		699			615			2,357			1,431
Intersegment eliminations		(155	)		(73	)		(330	)		(138	)

Canada		544			542			2,027			1,293

Europe and North Africa		1,110			946			3,564			2,605
Asia Pacific and Middle East		959			942			2,877			2,676
Corporate and Other		43			70			94			153

Consolidated sales and other operating revenues	$	6,688			6,415			20,987			16,884


Net Income (Loss) Attributable to ConocoPhillips
Alaska	$	103			59			291			204
Lower 48		(97	)		(491	)		(2,995	)		(2,082	)
Canada		280			(314	)		2,607			(783	)
Europe and North Africa		85			163			379			132
Asia Pacific and Middle East		396			(87	)		(1,540	)		(20	)
Other International		(20	)		(47	)		(77	)		(100	)
Corporate and Other		(327	)		(323	)		(1,099	)		(931	)

Consolidated net income (loss) attributable to ConocoPhillips	$	420			(1,040	)		(2,434	)		(3,580	)


	Millions of Dollars
	September 30 2017		December 31 2016

Total Assets
Alaska	$	12,094		12,314
Lower 48		14,376		22,673
Canada		6,281		17,548
Europe and North Africa		12,066		11,727
Asia Pacific and Middle East		17,094		20,451
Other International		122		97
Corporate and Other		12,828		4,962

Consolidated total assets	$	74,861		89,772

Note 20—Income Taxes

Our effective tax rates for the third quarter and nine-month period ended September 30, 2017, were 33 percent and 39 percent, respectively, compared with 38 percent and 36 percent for the same periods of 2016. The amounts of U.S. and foreign income (loss) from continuing operations before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes were:


	Millions of Dollars												Percent of Pre-Tax Income (Loss)
	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016			2017			2016			2017			2016


Income (loss) from continuing operations before income taxes
United States	$	(197	)		(1,001	)		(5,259	)		(3,965	)		(30.2	)%		60.5			133.5			71.8
Foreign		850			(653	)		1,319			(1,557	)		130.2			39.5			(33.5	)		28.2

	$	653			(1,654	)		(3,940	)		(5,522	)		100.0	%		100.0			100.0			100.0


Federal statutory income tax	$	228			(578	)		(1,379	)		(1,932	)		34.9	%		34.9			35.0			35.0
Non-U.S. effective tax rates		137			147			503			320			21.0			(8.9	)		(12.8	)		(5.8	)
U.K. rate change		—			(138	)		—			(138	)		—			8.3			—			2.5
Canada disposition		(8	)		—			(1,176	)		—			(1.2	)		—			29.8			—
Recovery of outside basis		(118	)		(15	)		(957	)		(38	)		(18.1	)		0.9			24.3			0.7
Adjustment to tax reserves		(17	)		—			764			—			(2.6	)		—			(19.4	)		—
APLNG impairment		—			—			834			—			—			—			(21.2	)		—
State income tax		14			(15	)		(74	)		(126	)		2.1			0.9			1.9			2.3
Enhanced oil recovery credit		(5	)		(28	)		(49	)		(62	)		(0.8	)		1.7			1.2			1.1
Other		(14	)		(1	)		(15	)		(6	)		(2.1	)		0.2			0.4			0.1

	$	217			(628	)		(1,549	)		(1,982	)		33.2	%		38.0			39.3			35.9

Our effective tax rate for the three- and nine-month periods ended September 30, 2017, was favorably impacted by a tax benefit of $114 million related to our prior decision to exit Nova Scotia deepwater exploration. This benefit is included in the “Recovery of Outside Tax Basis” line of the table above.

The impairment of our APLNG investment in the second quarter of 2017 did not generate a tax benefit. See the “APLNG” section of Note 5—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment.

Our effective tax rate for the nine-month period ended September 30, 2017, was favorably impacted by a tax benefit of $1,176 million associated with our Canada disposition. The benefit was primarily associated with a deferred tax recovery related to the Canadian capital gains exclusion component of the transaction and the recognition of previously unrealizable Canadian capital asset tax basis. The disposition, along with the associated restructuring of our Canadian operations, may generate an additional tax benefit of $822 million related to the recovery of outside basis. However, since we believe it is not likely we will receive a corresponding cash tax savings of this amount, the benefit has been offset by a full reserve. See Note 4—Assets Held for Sale or Sold, for additional information on our Canada disposition.

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.

Note 21—New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (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,” in May 2016 by the provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts With Customers.”

We will adopt the provisions of ASU No. 2014-09, as amended, with effect from January 1, 2018, and have elected not to early adopt the standard. We intend to adopt the new standard using the modified retrospective approach which we will apply only to contracts within the scope of the standard that are not complete at the date of initial application. Under this approach, we will apply the guidance retrospectively only to the most current period presented in the financial statements. We continue to assess the impact of adoption of the standard on our current accounting policies and revenue-related disclosures. The impact to our financial statements is expected to be immaterial.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU No. 2016-01), to meet its objective of providing more decision-useful information about financial instruments. The ASU, among other things, requires entities to record the changes in fair value of equity investments, other than investments accounted for using the equity method, within net income. Under this ASU, entities will no longer be able to recognize unrealized holding gains and losses on available-for-sale securities in other comprehensive income. The ASU also requires additional disclosures relating to fair value measurement categories for financial assets and liabilities and eliminates certain disclosure requirements related to financial instruments measured at amortized cost. ASU No. 2016-01 is effective for interim and annual periods beginning after December 15, 2017, and the ASU should be adopted using a cumulative-effect adjustment to retained earnings as of the date of adoption.

Upon adoption of the standard, we will make a cumulative-effect adjustment to reclassify the accumulated unrealized holding gains and losses related to our investment in Cenovus Energy from other comprehensive income to retained earnings, and from the date of adoption, we will begin reporting the changes in the fair value of our investment within net income. The impact on our consolidated financial statements and disclosures will depend on the amount of accumulated unrealized holding gains and losses recognized in other comprehensive income at December 31, 2017, and changes in the fair value of our investment in Cenovus Energy subsequent to that date. For additional information on our investment in Cenovus Energy, see Note 6—Investment in Cenovus Energy, Note 14—Fair Value Measurement, and Note 15—Accumulated Other Comprehensive Income (Loss).

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 plan to adopt ASU No. 2016-02 effective January 1, 2019, and continue to evaluate the ASU to determine the impact of adoption on our consolidated financial statements and disclosures, accounting policies and systems, business processes, and internal controls. While our evaluation of ASU No. 2016-02 and related implementation activities are ongoing, we expect the adoption of the ASU to have a material impact on our consolidated financial statements and disclosures.

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.

Supplementary Information—Condensed 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/or 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 May 2017, ConocoPhillips Company received a $9.8 billion return of capital from a nonguarantor subsidiary to settle certain accumulated intercompany balances. The transaction had no impact on our consolidated financial statements.

In September 2017, ConocoPhillips received a $5.0 billion return of capital from ConocoPhillips Company to settle certain accumulated intercompany balances. The transaction had no impact on our consolidated financial statements.

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


	Millions of Dollars
	Three Months Ended September 30, 2017
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	$	—			2,997			—			3,691			—			6,688
Equity in earnings (losses) of affiliates		486			348			—			119			(757	)		196
Gain on dispositions		—			879			—			(633	)		—			246
Other income		—			12			—			53			—			65
Intercompany revenues		10			77			43			774			(904	)		—

Total Revenues and Other Income		496			4,313			43			4,004			(1,661	)		7,195


Costs and Expenses
Purchased commodities		—			2,666			—			1,001			(741	)		2,926
Production and operating expenses		—			221			—			1,004			(1	)		1,224
Selling, general and administrative expenses		2			119			—			11			—			132
Exploration expenses		—			30			—			45			—			75
Depreciation, depletion and amortization		—			203			—			1,405			—			1,608
Impairments		—			1			—			5			—			6
Taxes other than income taxes		—			29			—			146			—			175
Accretion on discounted liabilities		—			8			—			81			—			89
Interest and debt expense		86			169			37			121			(162	)		251
Foreign currency transaction (gains) losses		(27	)		1			77			(46	)		—			5
Other expenses		50			1			—			—			—			51

Total Costs and Expenses		111			3,448			114			3,773			(904	)		6,542

Income (Loss) before income taxes		385			865			(71	)		231			(757	)		653
Income tax provision (benefit)		(35	)		379			6			(133	)		—			217

Net income (loss)		420			486			(77	)		364			(757	)		436
Less: net income attributable to noncontrolling interests		—			—			—			(16	)		—			(16	)

Net Income (Loss) Attributable to ConocoPhillips	$	420			486			(77	)		348			(757	)		420


Comprehensive Income (Loss) Attributable to ConocoPhillips	$	1,470			1,536			22			864			(2,422	)		1,470


Income Statement	Three Months Ended September 30, 2016
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	)


	Millions of Dollars
	Nine Months Ended September 30, 2017
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	$	—			9,066			—			11,921			—			20,987
Equity in earnings (losses) of affiliates		(2,092	)		(776	)		—			432			3,010			574
Gain on dispositions		—			908			—			1,236			—			2,144
Other income		1			27			—			115			—			143
Intercompany revenues		39			222			126			2,360			(2,747	)		—

Total Revenues and Other Income		(2,052	)		9,447			126			16,064			263			23,848


Costs and Expenses
Purchased commodities		—			8,068			—			3,229			(2,257	)		9,040
Production and operating expenses		—			501			—			3,351			(3	)		3,849
Selling, general and administrative expenses		8			365			—			55			(5	)		423
Exploration expenses		—			435			—			289			—			724
Depreciation, depletion and amortization		—			658			—			4,554			—			5,212
Impairments		—			1,075			—			5,400			—			6,475
Taxes other than income taxes		—			114			—			490			—			604
Accretion on discounted liabilities		—			28			—			248			—			276
Interest and debt expense		340			505			110			399			(482	)		872
Foreign currency transaction (gains) losses		(49	)		3			145			(71	)		—			28
Other expense		267			18			—			—			—			285

Total Costs and Expenses		566			11,770			255			17,944			(2,747	)		27,788

Loss before income taxes		(2,618	)		(2,323	)		(129	)		(1,880	)		3,010			(3,940	)
Income tax provision (benefit)		(184	)		(231	)		12			(1,146	)		—			(1,549	)

Net loss		(2,434	)		(2,092	)		(141	)		(734	)		3,010			(2,391	)
Less: net income attributable to noncontrolling interests		—			—			—			(43	)		—			(43	)

Net Loss Attributable to ConocoPhillips	$	(2,434	)		(2,092	)		(141	)		(777	)		3,010			(2,434	)


Comprehensive Income (Loss) Attributable to ConocoPhillips	$	(1,533	)		(1,191	)		39			(37	)		1,189			(1,533	)


Income Statement	Nine Months Ended September 30, 2016
Revenues and Other Income
Sales and other operating revenues	$	—			7,289			—			9,595			—			16,884
Equity in earnings 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 provision (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	)


	Millions of Dollars
	September 30, 2017
Balance Sheet	ConocoPhillips			ConocoPhillips Company		ConocoPhillips Canada Funding Company I			All Other Subsidiaries		Consolidating Adjustments			Total Consolidated
Assets
Cash and cash equivalents	$	—			226		35			6,650		—			6,911
Short-term investments		—			—		—			2,696		—			2,696
Accounts and notes receivable		19			1,738		35			3,952		(2,380	)		3,364
Investment in Cenovus Energy		—			2,084		—			—		—			2,084
Inventories		—			138		—			885		—			1,023
Prepaid expenses and other current assets		1			128		6			771		(30	)		876

Total Current Assets		20			4,314		76			14,954		(2,410	)		16,954
Investments, loans and long-term receivables*		31,001			52,867		2,493			18,571		(94,775	)		10,157
Net properties, plants and equipment		—			4,391		—			42,759		(481	)		46,669
Other assets		34			2,140		188			1,288		(2,569	)		1,081

Total Assets	$	31,055			63,712		2,757			77,572		(100,235	)		74,861


Liabilities and Stockholders’ Equity
Accounts payable	$	—			2,480		2			3,314		(2,380	)		3,416
Short-term debt		(5	)		1,263		7			78		(12	)		1,331
Accrued income and other taxes		—			107		—			898		—			1,005
Employee benefit obligations		—			379		—			149		—			528
Other accruals		57			255		55			514		(30	)		851

Total Current Liabilities		52			4,484		64			4,953		(2,422	)		7,131
Long-term debt		3,785			11,816		1,705			2,845		(478	)		19,673
Asset retirement obligations and accrued environmental costs		—			490		—			7,273		—			7,763
Deferred income taxes		—			—		—			8,267		(2,005	)		6,262
Employee benefit obligations		—			1,278		—			625		—			1,903
Other liabilities and deferred credits*		3,280			8,769		893			14,962		(26,487	)		1,417

Total Liabilities		7,117			26,837		2,662			38,925		(31,392	)		44,149
Retained earnings		21,607			11,914		(682	)		9,193		(13,902	)		28,130
Other common stockholders’ equity		2,331			24,961		777			29,242		(54,941	)		2,370
Noncontrolling interests		—			—		—			212		—			212

Total Liabilities and Stockholders’ Equity	$	31,055			63,712		2,757			77,572		(100,235	)		74,861

*Includes intercompany loans.

Balance Sheet	December 31, 2016
Assets
Cash and cash equivalents	$	—			358		13			3,239		—			3,610
Short-term investments		—			—		—			50		—			50
Accounts and notes receivable		22			1,968		23			6,103		(4,702	)		3,414
Inventories		—			84		—			934		—			1,018
Prepaid expenses and other current assets		2			116		8			415		(24	)		517

Total Current Assets		24			2,526		44			10,741		(4,726	)		8,609
Investments, loans and long-term receivables*		37,901			64,434		2,296			31,643		(114,602	)		21,672
Net properties, plants and equipment		—			6,301		—			52,030		—			58,331
Other assets		40			2,194		220			1,240		(2,534	)		1,160

Total Assets	$	37,965			75,455		2,560			95,654		(121,862	)		89,772


Liabilities and Stockholders’ Equity
Accounts payable	$	—			4,683		1			3,671		(4,702	)		3,653
Short-term debt		(10	)		999		6			94		—			1,089
Accrued income and other taxes		—			85		—			399		—			484
Employee benefit obligations		—			489		—			200		—			689
Other accruals		171			271		40			536		(24	)		994

Total Current Liabilities		161			6,527		47			4,900		(4,726	)		6,909
Long-term debt		8,975			12,635		1,710			2,866		—			26,186
Asset retirement obligations and accrued environmental costs		—			925		—			7,500		—			8,425
Deferred income taxes		—			—		—			10,972		(2,023	)		8,949
Employee benefit obligations		—			1,901		—			651		—			2,552
Other liabilities and deferred credits*		417			10,391		748			17,832		(27,863	)		1,525

Total Liabilities		9,553			32,379		2,505			44,721		(34,612	)		54,546
Retained earnings		25,025			14,015		(541	)		12,883		(19,834	)		31,548
Other common stockholders’ equity		3,387			29,061		596			37,798		(67,416	)		3,426
Noncontrolling interests		—			—		—			252		—			252

Total Liabilities and Stockholders’ Equity	$	37,965			75,455		2,560			95,654		(121,862	)		89,772

*Includes intercompany loans.


	Millions of Dollars
	Nine Months Ended September 30, 2017
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	$	(161	)		634			22		6,868			(2,767	)		4,596

Cash Flows From Investing Activities
Capital expenditures and investments		—			(1,230	)		—		(2,711	)		867			(3,074	)
Working capital changes associated with investing activities		—			36			—		(54	)		—			(18	)
Proceeds from asset dispositions		5,000			10,974			—		12,737			(14,971

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company