Document and Entity Information
Document and Entity Information (USD $) | |
9 Months Ended
Sep. 30, 2009 | |
Document Information | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2009-09-30 |
Entity Information | |
Entity Registrant Name | CONOCOPHILLIPS |
Entity Central Index Key | 0001163165 |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | Yes |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Public Float | $143,400,000,000 |
Entity Common Stock, Shares Outstanding | 1,483,694,303 |
Consolidated Income Statement
Consolidated Income Statement (USD $) | |||||||||||||||||||
In Millions, except Share data in Thousands | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 | |||||||||||||||
Revenues and Other Income | |||||||||||||||||||
Sales and other operating revenues | $40,173 | [1] | $70,044 | [1] | $106,362 | [1] | $196,338 | [1] | |||||||||||
Equity in earnings of affiliates | 1,015 | 1,214 | 2,506 | 4,385 | |||||||||||||||
Other income | 117 | 115 | 347 | 555 | |||||||||||||||
Total Revenues and Other Income | 41,305 | 71,373 | 109,215 | 201,278 | |||||||||||||||
Costs and Expenses | |||||||||||||||||||
Purchased crude oil, natural gas and products | 28,008 | 49,608 | 72,376 | 138,642 | |||||||||||||||
Production and operating expenses | 2,534 | 3,059 | 7,652 | 8,861 | |||||||||||||||
Selling, general and administrative expenses | 427 | 513 | 1,378 | 1,668 | |||||||||||||||
Exploration expenses | 386 | 267 | 854 | 864 | |||||||||||||||
Depreciation, Depletion and Amortization | 2,327 | 2,361 | 6,904 | 6,748 | |||||||||||||||
Impairments - Expropriated assets | 0 | 0 | 51 | 0 | |||||||||||||||
Impairments - Other | 56 | 57 | 59 | 82 | |||||||||||||||
Taxes other than income taxes | 4,205 | [1] | 5,619 | [1] | 11,384 | [1] | 16,570 | [1] | |||||||||||
Accretion on discounted liabilities | 96 | 114 | 308 | 314 | |||||||||||||||
Interest and debt expense | 336 | 239 | 914 | 656 | |||||||||||||||
Foreign currency transaction (gains) losses | (17) | 54 | (28) | 11 | |||||||||||||||
Total Costs and Expenses | 38,358 | 61,891 | 101,852 | 174,416 | |||||||||||||||
Income before income taxes | 2,947 | 9,482 | 7,363 | 26,862 | |||||||||||||||
Provision for income taxes | 1,427 | 4,279 | 3,673 | 12,045 | |||||||||||||||
Net income | 1,520 | 5,203 | 3,690 | 14,817 | |||||||||||||||
Less: net income attributable to noncontrolling interests | (17) | (15) | (49) | (51) | |||||||||||||||
Net Income Attributable to ConocoPhillips | $1,503 | $5,188 | $3,641 | $14,766 | |||||||||||||||
Net Income Attributable to ConocoPhillips Per Share of Common Stock (dollars) | |||||||||||||||||||
Basic | $1 | [2] | 3.43 | 2.44 | [2] | 9.61 | |||||||||||||
Diluted | $1 | [2] | 3.39 | 2.43 | [2] | 9.5 | |||||||||||||
Dividends Paid Per Share of Common Stock (dollars) | 0.47 | 0.47 | 1.41 | 1.41 | |||||||||||||||
Average Common Shares Outstanding (in thousands) | |||||||||||||||||||
Basic | 1,488,352 | 1,510,897 | 1,486,922 | 1,535,932 | |||||||||||||||
Diluted | 1,498,204 | 1,528,187 | 1,496,391 | 1,554,952 | |||||||||||||||
[1] Includes excise taxes on petroleum products sales of $3,538 MM for the three months ended and $9,914 MM for the nine months ended September 30, 2009 and $4,022 MM for the three months ended and $11,970 MM for the nine months ended September 30, 2008. | |||||||||||||||||||
[2]For the purpose of the earnings per share calculation only, 2009 net income attributable to ConocoPhillips has been reduced by $12 million for the excess of the amount paid for the redemption of a noncontrolling interest over its carrying value, which was charged directly to retained earnings. |
Consolidated Balance Sheet
Consolidated Balance Sheet (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
Assets | ||
Cash and cash equivalents | $641 | $755 |
Accounts and notes receivable (net of allowance of $75 million in 2009 and $61 million in 2008) | 10,907 | 10,892 |
Accounts and notes receivable - related parties | 1,623 | 1,103 |
Inventories | 6,268 | 5,095 |
Prepaid expenses and other current assets | 2,814 | 2,998 |
Total Current Assets | 22,253 | 20,843 |
Investments and long-term receivables | 35,664 | 30,926 |
Loans and advances - related parties | 2,186 | 1,973 |
Net properties, plants and equipment | 87,136 | 83,947 |
Goodwill | 3,715 | 3,778 |
Intangibles | 831 | 846 |
Other assets | 642 | 552 |
Total Assets | 152,427 | 142,865 |
Liabilities | ||
Accounts payable | 13,296 | 12,852 |
Accounts payable - related parties | 1,566 | 1,138 |
Short-term debt | 2,796 | 370 |
Accrued income and other taxes | 3,844 | 4,273 |
Employee benefit obligations | 741 | 939 |
Other accruals | 2,413 | 2,208 |
Total Current Liabilities | 24,656 | 21,780 |
Long-term debt | 27,662 | 27,085 |
Asset retirement obligations and accrued environmental costs | 7,836 | 7,163 |
Joint venture acquisition obligation-related party | 5,177 | 5,669 |
Deferred income taxes | 18,294 | 18,167 |
Employee benefit obligations | 3,662 | 4,127 |
Other liabilities and deferred credits | 3,043 | 2,609 |
Total Liabilities | 90,330 | 86,600 |
Equity | ||
Common stock (2,500,000,000 shares authorized at $.01 par value), Issued (2009 - 1,731,876,757 shares; 2008 - 1,729,264,859 shares) Par value | 17 | 17 |
Capital in excess of par | 43,583 | 43,396 |
Grantor trusts (at cost: 2009 - 39,835,639 shares; 2008 - 40,739,129 shares) | (689) | (702) |
Treasury stock (at cost: 2009 and 2008 - 208,346,815 shares) | (16,211) | (16,211) |
Accumulated other comprehensive income (loss) | 2,712 | (1,875) |
Unearned employee compensation | (83) | (102) |
Retained earnings | 32,181 | 30,642 |
Total Common Stockholders' Equity | 61,510 | 55,165 |
Noncontrolling interests | 587 | 1,100 |
Total Equity | 62,097 | 56,265 |
Total Liabilities and Equity | $152,427 | $142,865 |
Consolidated Balance Sheet (Par
Consolidated Balance Sheet (Parentheticals) (USD $) | ||
In Millions, except Share data, unless otherwise specified | Sep. 30, 2009
| Dec. 31, 2008
|
Consolidated Balance Sheet (Parentheticals) | ||
Allowance for Doubtful Accounts | $75 | $61 |
Common Stock Shares Authorized | 2,500,000,000 | 2,500,000,000 |
Common Stock, Par or Stated Value Per Share (dollars) | 0.01 | 0.01 |
Common Stock Shares Issued | 1,731,876,757 | 1,729,264,859 |
Grantor Trust Shares | 39,835,639 | 40,739,129 |
Treasury Stock Shares | 208,346,815 | 208,346,815 |
Consolidated Statement of Cash
Consolidated Statement of Cash Flows (USD $) | ||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Cash Flows From Operating Activities | ||
Net income | $3,690 | $14,817 |
Adjustments to reconcile net income to net cash provided by operating activities | ||
Depreciation, Depletion and Amortization | 6,904 | 6,748 |
Impairments | 110 | 82 |
Dry hole costs and leasehold impairments | 471 | 399 |
Accretion on discounted liabilities | 308 | 314 |
Deferred taxes | (864) | 59 |
Undistributed equity earnings | (1,818) | (2,530) |
Gain on asset dispositions | (88) | (346) |
Other | (151) | (185) |
Working capital adjustments | ||
Decrease (increase) in accounts and notes receivable | (94) | (243) |
Decrease (increase) in inventories | (1,026) | (2,709) |
Decrease (increase) in prepaid expenses and other current assets | (286) | (689) |
Increase (decrease) in accounts payable | 910 | 1,633 |
Increase (decrease) in taxes and other accruals | (681) | 2,186 |
Net Cash Provided by Operating Activities | 7,385 | 19,536 |
Cash Flows From Investing Activities | ||
Capital expenditures and investments | (8,176) | (10,535) |
Proceeds from asset dispositions | 938 | 729 |
Long-term advances/loans-related parties | (303) | (181) |
Collection of advances/loans-related parties | 62 | 15 |
Other | 50 | (186) |
Net Cash Used in Investing Activities | (7,429) | (10,158) |
Cash Flows From Financing Activities | ||
Issuance of debt | 9,051 | 2,264 |
Repayment of debt | (6,027) | (1,857) |
Issuance of company common stock | (11) | 182 |
Repurchase of company common stock | 0 | (7,500) |
Dividends paid on company common stock | (2,090) | (2,159) |
Other | (1,091) | (426) |
Net Cash Provided by (Used in) Financing Activities | (168) | (9,496) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 98 | (222) |
Net Change in Cash and Cash Equivalents | (114) | (340) |
Cash and cash equivalents at beginning of period | 755 | 1,456 |
Cash and Cash Equivalents at End of Period | $641 | $1,116 |
Interim Financial Information
Interim Financial Information | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Interim Financial Information | |
Note 1 - Interim Financial Information | Note 1Interim Financial Information The interim-period financial information presented in the financial statements included in this report is unaudited and includes all known accruals and adjustments, in the opinion of management, 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. To enhance your understanding of these interim financial statements, see the consolidated financial statements and notes included in our 2008 Annual Report on Form 10-K. |
Changes in Accounting Principle
Changes in Accounting Principles | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Changes in Accounting Principles | |
Note 2 - Changes in Accounting Principles | Note 2Changes in Accounting Principles Codification The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-01 in June 2009. This Update, also issued as FASB Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, is effective for financial statements issued after September 15, 2009. Update 2009-01 requires that the FASBs Accounting Standards Codification (ASC) become the sole source of authoritative U.S. generally accepted accounting principles recognized by the FASB for nongovernmental entities. We adopted this Update effective July 1, 2009. Subsequent Events Effective April 1, 2009, we adopted FASB SFAS No. 165, Subsequent Events. This Statement was codified into FASB ASC Topic 855, Subsequent Events. Topic 855 establishes the accounting for, and disclosure of, material events that occur after the balance sheet date, but before the financial statements are issued. In general, these events will be recognized if the condition existed at the date of the balance sheet, but will not be recognized if the condition did not exist at the balance sheet date. Disclosure is required for nonrecognized events if required to keep the financial statements from being misleading. The guidance in this Topic is very similar to previous guidance provided in auditing literature and, therefore, should not result in significant changes in practice. Subsequent events have been evaluated through November 3, 2009, the date our interim financial statements were issued with the filing of our third-quarter 2009 Quarterly Report on Form 10-Q. Business Combinations In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations (SFAS No. 141(R)), which was subsequently amended by FASB Staff Position (FSP) FAS 141(R)-1 in April 2009. This Statement was codified into FASB ASC Topic 805, Business Combinations. Topic 805 applies prospectively to all transactions in which an entity obtains control of one or more other businesses on or after January 1, 2009. In general, Topic 805 requires the acquiring entity in a business combination to recognize the fair value of all assets acquired and liabilities assumed in the transaction; establishes the acquisition date as the fair value measurement point; and modifies disclosure requirements. It also modifies the accounting treatment for transaction costs, in-process research and development, restructuring costs, changes in deferred tax asset valuation allowances as a result of a business combination, and changes in income tax uncertainties after the acquisition date. Additionally, effective January 1, 2009, accounting for changes in valuation allowances for acquired deferred tax assets and the resolution of uncertain tax positions for prior business combinations impact tax expense instead of goodwill. Noncontrolling Interests Effective January 1, 2009, we implemented SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51. This Statement was codified into FASB ASC Topic 810, Consolidation. Topic 810 req |
Variable Interest Entities
Variable Interest Entities (VIEs) | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Variable Interest Entities (VIEs) | |
Note 3 - Variable Interest Entities (VIEs) | Note 3Variable Interest Entities (VIEs) We hold significant variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on these VIEs follows. See Note 20New Accounting Standards for information affecting the accounting for VIEs effective January 1, 2010. We own a 24 percent interest in West2East Pipeline LLC, a company holding a 100 percent interest in Rockies Express Pipeline LLC, operated by Kinder Morgan Energy Partners, L.P. Rockies Express is constructing a natural gas pipeline from Colorado to Ohio. West2East is a VIE because a third party has a 49 percent voting interest through the end of the construction of the pipeline, but has no ownership interest. This third party was originally involved in the project, but exited and retained its voting interest to ensure project completion. We have no voting interest during the construction phase, but once the pipeline has been completed, our ownership will increase to 25 percent with a voting interest of 25 percent. Additionally, we have contracted for approximately 22 percent of the pipeline capacity for a 10-year period once the pipeline becomes operational. Construction commenced on the pipeline in 2006. The operator anticipates construction completion in late 2009 and estimates total construction costs between $6.7 billion and $6.8 billion. Our portion is being funded by a combination of equity contributions and a guarantee of debt incurred by Rockies Express. Given our 24percent ownership and the fact expected returns are shared among the equity holders in proportion to ownership, we are not the primary beneficiary. We use the equity method of accounting for our investment. At September 30, 2009, the book value of our investment in West2East was $739million. We have a 30 percent ownership interest with a 50 percent governance interest in the OOO Naryanmarneftegaz (NMNG) joint venture to develop resources in the Timan-Pechora province of Russia. The NMNG joint venture is a VIE because we and a related party, OAO LUKOIL, have disproportionate interests. When related parties are involved in a VIE, reasonable judgment should take into account the relevant facts and circumstances for the determination of the primary beneficiary. The activities of NMNG are more closely aligned with LUKOIL because they share Russia as a home country, and LUKOIL conducts extensive exploration activities in the same province. Additionally, there are no financial guarantees given by LUKOIL or us, and LUKOIL owns 70 percent, versus our 30 percent direct interest. As a result, we have determined we are not the primary beneficiary of NMNG, and we use the equity method of accounting for this investment. The funding of NMNG has been provided with equity contributions, primarily for the development of the Yuzhno Khylchuyu (YK) Field. Initial production from YK was achieved in June 2008. At September 30, 2009, the book value of our investment in the venture was $2,013 million. Production from the NMNG joint venture fields is transported via pipeline to LUKOILs terminal at Varandey Bay on the Barents Sea and then shipped via tanker to internat |
Inventories
Inventories | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Inventories | |
Note 4 - Inventories | Note 4Inventories Inventories consisted of the following: Millions of Dollars September 30 December 31 2009 2008 Crude oil and petroleum products $ 5,270 4,232 Materials, supplies and other 998 863 $ 6,268 5,095 Inventories valued on the last-in, first-out (LIFO) basis totaled $5,049 million and $3,939million at September30, 2009, and December31, 2008, respectively. The remaining inventories are valued under various methods, including first-in, first-out and weighted average. The excess of current replacement cost over LIFO cost of inventories amounted to $4,898 million and $1,959 million at September 30, 2009, and December31, 2008, respectively. |
Assets Held for Sale
Assets Held for Sale | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Assets Held for Sale | |
Note 5 - Assets Held for Sale | Note 5Assets Held for Sale In June 2009, we signed an agreement to sell our remaining interest in the Keystone Pipeline to TransCanada Corporation. The transaction closed in the third quarter of this year. |
Investments, Loans and Long-Ter
Investments, Loans and Long-Term Receivables | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Investments, Loans and Long-Term Receivables | |
Note 6 - Investments, Loans and Long-Term Receivables | Note 6Investments, Loans and Long-Term Receivables LUKOIL Our ownership interest in LUKOIL was 20 percent at September 30, 2009, based on 851 million shares authorized and issued. For financial reporting under U.S. generally accepted accounting principles (GAAP), treasury shares held by LUKOIL are not considered outstanding for determining our equity method ownership interest in LUKOIL. Our ownership interest, based on estimated shares outstanding, was 20.09 percent at September 30, 2009. At September 30, 2009, the book value of our ordinary share investment in LUKOIL was $6,466 million. Our 20percent share of the net assets of LUKOIL was estimated to be $10,971 million. A majority of this negative basis difference of $4,505 million is being amortized on a straight-line basis over a 22-year useful life as an increase to equity earnings. On September 30, 2009, the closing price of LUKOIL shares on the London Stock Exchange was $54.20 per share, making the total market value of our LUKOIL investment $9,220 million. Because LUKOILs accounting cycle close and preparation of U.S. GAAP financial statements occur subsequent to our reporting deadline, our equity earnings are estimated based on current market indicators, publicly available LUKOIL information and other objective data. Once the difference between actual and estimated results is known, an adjustment is recorded. Net income attributable to ConocoPhillips for the third quarter of 2009 included a $33 million positive alignment of our second-quarter estimate of LUKOILs results to LUKOILs reported results. Loans to Related Parties As part of our normal ongoing business operations and consistent with industry practice, we invest and enter into numerous agreements with other parties to pursue business opportunities, which share costs and apportion risks among the parties as governed by the agreements. Included in such activity are loans made to certain affiliated companies. Significant loans to affiliated companies at September 30, 2009, included the following: $723 million in loan financing to Freeport LNG Development, L.P. for the construction of an LNG receiving terminal, which became operational in June 2008. Freeport began making repayments in September 2008. $291 million in loan financing at September 2009 exchange rates to Varandey Terminal Company associated with the costs of a terminal expansion. The terminal expansion was completed in June 2008. Principal repayments began in April 2009. $979 million of project financing and an additional $85 million of accrued interest to Qatargas 3, an integrated project to produce and liquefy natural gas from Qatars North Field. Our maximum exposure to this financing structure is $1.2 billion. $174 million of loan financing to WRB Refining LLC to assist it in meeting its operating and capital spending requirements. The long-term portion of these loans are included in the Loans and advancesrelated parties line on the consolidated balance sheet, while the short-term portion is in Accounts and notes receivablerelated parties. Other Investments We have investments remeasured at fair value on a recurring basis to |
Properties, Plants and Equipmen
Properties, Plants and Equipment | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Properties, Plants and Equipment | |
Note 7 - Properties, Plants and Equipment | Note 7Properties, Plants and Equipment Our investment in properties, plants and equipment (PPE), with accumulated depreciation, depletion and amortization (Accum. DDA), was: Millions of Dollars September 30, 2009 December 31, 2008 Gross PPE Accum. DDA Net PPE Gross PPE Accum. DDA Net PPE Exploration and Production (EP) $ 112,407 43,184 69,223 102,591 35,375 67,216 Midstream 123 73 50 120 70 50 Refining and Marketing (RM) 22,890 6,662 16,228 21,116 5,962 15,154 LUKOIL Investment - - - - - - Chemicals - - - - - - Emerging Businesses 1,172 292 880 1,056 293 763 Corporate and Other 1,603 848 755 1,561 797 764 $ 138,195 51,059 87,136 126,444 42,497 83,947 Suspended Wells The capitalized cost of suspended wells at September 30, 2009, was $858 million, an increase of $198million from $660 million at year-end 2008. For the category of exploratory well costs capitalized for a period greater than one year as of December 31, 2008, $29million was charged to dry hole expense during the first nine months of2009. |
Impairments
Impairments | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Impairments | |
Note 8 - Impairments | Note 8Impairments Expropriated Assets In April 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated arbitration before the World Banks International Centre for Settlement of Investment Disputes (ICSID) against The Republic of Ecuador and PetroEcuador as a result of their newly-enacted Windfall Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite a restraining order issued by the ICSID, Ecuador confiscated Burlington and its co-venturers crude oil production and sold the illegally seized crude oil. As a result, our assets in Ecuador were effectively expropriated. Accordingly, in the second quarter of 2009, we recorded a noncash charge of $51million before- and after-tax related to the full impairment of our exploration and production investments in Ecuador. In the third quarter of 2009, Ecuador took over operations in Block 7 and 21, formalizing the complete expropriation of our assets. Other Impairments In the third quarter of 2009, long-lived assets held for sale in the RM segment with a carrying amount of $140 million were written down to their fair value of $92 million, less cost to sell of $5 million, resulting in a before-tax impairment of $53 million. The fair value is a Level 3 measurement in the fair value hierarchy based on a binding negotiated price with a third party, adjusted for the fair value of certain liabilities retained, and subject to management approval. |
Debt
Debt | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Debt | |
Note 9 - Debt | Note 9Debt In February 2009, we issued $1.5 billion of 4.75% Notes due 2014, $2.25 billion of 5.75% Notes due 2019, and $2.25 billion of 6.50% Notes due 2039. In addition, in May 2009, we issued $1.5 billion of 4.60% Notes due 2015, $1.0 billion of 6.00% Notes due 2020 and an additional $500 million of 6.50% Notes due 2039. The proceeds from the notes were primarily used to reduce outstanding commercial paper balances and for general corporate purposes. During the first nine months of 2009, we used proceeds from the issuance of commercial paper to redeem $284million of 6.375% Notes and $950 million of Floating Rate Notes upon their maturity. At September 30, 2009, we had two revolving credit facilities totaling $7.85 billion, consisting of a $7.35billion facility, expiring in September 2012, and a $500 million facility expiring in July 2012. The facilities may be used as direct bank borrowings, as support for the ConocoPhillips $6.35 billion commercial paper program, as support for the ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program, or as support for issuances of letters of credit totaling up to $750 million. At both September 30, 2009, and December 31, 2008, we had no outstanding borrowings under the credit facilities, but $40million in letters of credit had been issued. Under both ConocoPhillips commercial paper programs, $2,342 million of commercial paper was outstanding at September 30, 2009, compared with $6,933 million at December 31, 2008. Since we had $2,342 million of commercial paper outstanding and had issued $40 million of letters of credit, we had access to $5.5 billion in borrowing capacity under our revolving credit facilities at September 30, 2009. At September 30, 2009, we classified $1,037 million of short-term debt as long-term debt, based on our ability and intent to refinance the obligation on a long-term basis under our revolving credit facility. |
Joint Venture Acquisition Oblig
Joint Venture Acquisition Obligation | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Joint Venture Acquisition Obligation | |
Note10 - Joint Venture Acquisition Obligation | Note 10Joint Venture Acquisition Obligation We are obligated to contribute $7.5 billion, plus interest, over a 10-year period, beginning in 2007, to FCCL Partnership. Quarterly principal and interest payments of $237 million began in the second quarter of 2007 and will continue until the balance is paid. Of the principal obligation amount, approximately $651million was short-term and was included in the Accounts payablerelated parties line on our September 30, 2009, consolidated balance sheet. The principal portion of these payments, which totaled $466 million in the first nine months of 2009, are included in the Other line in the financing activities section of our consolidated statement of cash flows. Interest accrues at a fixed annual rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest payment is reflected as a capital contribution and is included in the Capital expenditures and investments line on our consolidated statement of cash flows. |
Guarantees
Guarantees | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Guarantees | |
Note 11 - Guarantees | Note 11Guarantees At September 30, 2009, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence. Construction Completion Guarantees In December 2005, we issued a construction completion guarantee for 30percent of the $4billion in loan facilities of Qatargas 3, which are being used to finance the construction of an LNG train in Qatar. Of the $4billion in loan facilities, we committed to provide $1.2billion. The maximum potential amount of future payments to third-party lenders under the guarantee is estimated to be $850 million, which could become payable if the full debt financing is utilized and completion of the Qatargas 3 project is not achieved. The project financing will be nonrecourse to ConocoPhillips upon certified completion, expected in 2011. At September 30, 2009, the carrying value of the guarantee to third-party lenders was $11million. Guarantees of Joint Venture Debt In June 2006, we issued a guarantee for 24 percent of $2 billion in credit facilities of Rockies Express Pipeline LLC, operated by Kinder Morgan Energy Partners, L.P. At September 30, 2009, Rockies Express had $1,871 million outstanding under the credit facilities, with our 24 percent guarantee equaling $449million. The maximum potential amount of future payments to third-party lenders under the guarantee is estimated to be $480million, which could become payable if the credit facilities are fully utilized and Rockies Express fails to meet its obligations under the credit agreement. The operator anticipates construction completion in late 2009. Refinancing of the $2 billion credit facility, which will make the debt nonrecourse to ConocoPhillips, is expected to begin at that time. At September 30, 2009, the total carrying value of this guarantee to third-party lenders was $11 million. At September 30, 2009, we had guarantees outstanding for our portion of joint venture debt obligations, which have terms of up to 16 years. The maximum potential amount of future payments under the guarantees is approximately $80 million. Payment would be required if a joint venture defaults on its debt obligations. Other Guarantees In conjunction with our purchase of a 50 percent ownership interest in Australia Pacific LNG (APLNG) from Origin Energy in October 2008, we agreed to participate, if and when requested, in any parent company guarantees that were outstanding at the time we purchased our interest in APLNG. These parent company guarantees cover the obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of |
Contingencies and Commitments
Contingencies and Commitments | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Contingencies and Commitments | |
Note 12 - Contingencies and Commitments | Note 12Contingencies and Commitments In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes. Environmental We are subject to federal, state and local environmental laws and regulations. These may result in obligations 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 sites. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on managements best estimates, using all information available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies cleanup experience, and data released by the U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable. Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies cited at a particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs |
Financial Instruments and Deriv
Financial Instruments and Derivative Contracts | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Financial Instruments and Derivative Contracts | |
Note 13 - Financial Instruments and Derivative Contracts | Note 13Financial Instruments and Derivative Contracts Derivative Instruments We use financial and commodity-based derivative contracts to manage exposures to fluctuations in foreign currency exchange rates, commodity prices and interest rates, or to exploit market opportunities. Since we are not currently using hedge accounting, all gains and losses, realized or unrealized, from derivative contracts have been recognized in the consolidated income statement. Gains and losses from derivative contracts held for trading not directly related to our physical business, whether realized or unrealized, have been reported net in other income. Purchase and sales contracts for commodities that are readily convertible to cash (e.g., crude oil, natural gas and gasoline) are recorded on the balance sheet as derivatives unless the contracts are for quantities we expect to use or sell over a reasonable period in the normal course of business (i.e., contracts eligible for the normal purchases and normal sales exception). We record most of our contracts to buy or sell natural gas as derivatives, but we do apply the normal purchases and normal sales exception to certain long-term contracts to sell our natural gas production. We generally apply this normal purchases and normal sales exception to eligible crude oil and refined product commodity purchase and sales contracts; however, we may elect not to apply this exception (e.g., when another derivative instrument will be used to mitigate the risk of the purchase or sale contract but hedge accounting will not be applied, in which case both the purchase or sales contract and the derivative contract mitigating the resulting risk will be recorded on the balance sheet at fair value). We value our exchange-cleared derivatives using closing prices provided by the exchange as of the balance sheet date, and these are classified as Level 1 in the fair value hierarchy. Over-the-counter (OTC) financial swaps and physical commodity forward purchase and sale contracts are generally valued using quotations provided by brokers and price index developers such as Platts and Oil Price Information Service. These quotes are corroborated with market data and are classified as Level 2. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, OTC swaps and physical commodity purchase and sale contracts are valued using internally developed methodologies that consider historical relationships among various commodities that result in managements best estimate of fair value. These contracts are classified as Level 3. Exchange-cleared financial options are valued using exchange closing prices and are classified as Level 1. Financial OTC and physical commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. |
Comprehensive Income
Comprehensive Income | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Comprehensive Income | |
Note 14 - Comprehensive Income | Note 14Comprehensive Income ConocoPhillips comprehensive income was as follows: Millions of Dollars Three Months Ended September 30 Nine Months Ended September 30 2009 2008 2009 2008 Net income $ 1,520 5,203 3,690 14,817 After-tax changes in: Defined benefit pension plans Net prior service cost 3 7 9 (3 ) Net actuarial loss 33 10 100 17 Nonsponsored plans 4 4 2 8 Foreign currency translation adjustments 1,672 (1,584 ) 4,473 (1,841 ) Hedging activities 2 1 3 1 Comprehensive income 3,234 3,641 8,277 12,999 Less: comprehensive income attributable to noncontrolling interests (17 ) (15 ) (49 ) (51 ) Comprehensive income attributable to ConocoPhillips $ 3,217 3,626 8,228 12,948 Accumulated other comprehensive income (loss) in the equity section of the balance sheet included: Millions of Dollars September 30 2009 December 31 2008 Defined benefit pension plans $ (1,323 ) (1,434 ) Foreign currency translation adjustments 4,042 (431 ) Deferred net hedging loss (7 ) (10 ) Accumulated other comprehensive income (loss) $ 2,712 (1,875 ) None of the items within accumulated other comprehensive income (loss) related to noncontrolling interests. |
Cash Flow Information
Cash Flow Information | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Cash Flow Information | |
Note 15 - Cash Flow Information | Note 15Cash Flow Information Millions of Dollars Nine Months Ended September 30 2009 2008 Cash Payments Interest $ 647 475 Income taxes 4,807 10,250 |
Employee Benefit Plans
Employee Benefit Plans | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Employee Benefit Plans | |
Note 16 - Employee Benefit Plans | Note 16Employee Benefit Plans Pension and Postretirement Plans Millions of Dollars Pension Benefits Other Benefits Components of Net Periodic Benefit Cost 2009 2008 2009 2008 U.S. Intl. U.S. Intl. Three Months Ended September 30 Service cost $ 48 20 46 24 2 2 Interest cost 69 38 61 44 12 8 Expected return on plan assets (46 ) (33 ) (55 ) (45 ) - - Amortization of prior service cost 3 - 4 - 2 3 Recognized net actuarial (gain) loss 47 9 15 3 (4 ) (3 ) Net periodic benefit costs $ 121 34 71 26 12 10 Nine Months Ended September 30 Service cost $ 145 58 140 71 6 9 Interest cost 208 106 185 134 35 36 Expected return on plan assets (138 ) (92 ) (167 ) (134 ) - - Amortization of prior service cost 8 - 8 - 6 8 Recognized net actuarial (gain) loss 140 26 48 9 (11 ) (13 ) Net periodic benefit costs $ 363 98 214 80 36 40 During the first nine months of 2009, we contributed $721 million to our domestic benefit plans and $116million to our international benefit plans. We currently expect to make additional contributions of approximately $29million to our domestic benefit plans and $24 million to our international benefit plans for totals of $750million and $140 million, respectively, in 2009. Severance Accrual As a result of the current business environments impact on our operating and capital plans, a reduction in our overall employee work force is occurring during 2009. Various business units and staff groups recorded accruals in the fourth quarter of 2008 for severance and related employee benefits totaling $162 million. The following table summarizes our severance accrual activity: Millions of Dollars September 30 2009 December 31 2008 Beginning balance $ 162 - Accruals 5 162 Benefit payments (72 ) - Accrual reversals (64 ) - Ending balance $ 31 162 The remaining balance at September 30, 2009, of $31 million is classified as short-term. |
Related Party Transactions
Related Party Transactions | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Related Party Transactions | |
Note 17 - Related Party Transactions | Note 17Related Party Transactions Significant transactions with related parties were: Millions of Dollars Three Months Ended September 30 Nine Months Ended September 30 2009 2008 2009 2008 Operating revenues and other income (a) $ 1,871 3,944 5,236 11,115 Purchases (b) 3,614 6,038 9,264 16,129 Operating expenses and selling, general and administrative expenses (c) 85 142 241 385 Net interest expense (d) 19 15 58 55 (a) We sold natural gas to DCP Midstream, LLC and crude oil to the Malaysian Refining Company Sdn. Bhd. (MRC), among others, for processing and marketing. Natural gas liquids, solvents and petrochemical feedstocks were sold to Chevron Phillips Chemical Company LLC (CPChem), gas oil and hydrogen feedstocks were sold to Excel Paralubes and refined products were sold primarily to CFJProperties and LUKOIL. Natural gas, crude oil, blendstock and other intermediate products were sold to WRB Refining LLC. In addition, we charged several of our affiliates including CPChem and Merey Sweeny, L.P. (MSLP) for the use of common facilities, such as steam generators, waste and water treaters, and warehouse facilities. (b) We purchased refined products from WRB Refining. We purchased natural gas and natural gas liquids from DCP Midstream and CPChem for use in our refinery processes and other feedstocks from various affiliates. We purchased crude oil from LUKOIL and refined products from MRC. We also paid fees to various pipeline equity companies for transporting finished refined products and natural gas, as well as a price upgrade to MSLP for heavy crude processing. We purchased base oils and fuel products from Excel Paralubes for use in our refinery and specialty businesses. (c) We paid processing fees to various affiliates. Additionally, we paid crude oil transportation fees to pipeline equity companies. (d) We paid and/or received interest to/from various affiliates, including FCCL Partnership. See Note 6Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies. |
Segment Disclosures and Related
Segment Disclosures and Related Information | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Segment Disclosures and Related Information | |
Note 18 - Segment Disclosures and Related Information | Note 18Segment Disclosures and Related Information We have organized our reporting structure based on the grouping of similar products and services, resulting in six operating segments: 1) EPThis segment primarily explores for, produces, transports and markets crude oil, natural gas and natural gas liquids on a worldwide basis. 2) MidstreamThis segment gathers, processes and markets natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly in the United States and Trinidad. The Midstream segment primarily consists of our 50 percent equity investment in DCP Midstream, LLC. 3) RMThis segment purchases, refines, markets and transports crude oil and petroleum products, mainly in the United States, Europe and Asia. 4) LUKOIL InvestmentThis segment represents our investment in the ordinary shares of OAO LUKOIL, an international, integrated oil and gas company headquartered in Russia. At September 30, 2009, our ownership interest was 20 percent based on issued shares and 20.09 percent based on estimated shares outstanding. 5) ChemicalsThis segment manufactures and markets petrochemicals and plastics on a worldwide basis. The Chemicals segment consists of our 50percent equity investment in Chevron Phillips Chemical Company LLC. 6) Emerging BusinessesThis segment represents our investment in new technologies or businesses outside our normal scope of operations. Corporate and Other includes general corporate overhead, most interest expense and various other corporate activities. Corporate assets include all cash and cash equivalents. We evaluate performance and allocate resources based on net income attributable to ConocoPhillips. Intersegment sales are at prices that approximate market. Analysis of Results by Operating Segment Millions of Dollars Three Months Ended September 30 Nine Months Ended September 30 2009 2008 2009 2008 Sales and Other Operating Revenues EP United States $ 5,655 15,320 17,148 42,831 International 5,908 10,333 17,607 27,245 Intersegment eliminationsU.S. (1,225 ) (2,263 ) (3,271 ) (6,900 ) Intersegment eliminationsinternational (1,998 ) (3,005 ) (4,783 ) (8,852 ) EP 8,340 20,385 26,701 54,324 Midstream Total sales 1,325 2,112 3,220 5,854 Intersegment eliminations (76 ) (52 ) (177 ) (171 ) Midstream 1,249 2,060 3,043 5,683 RM United States 21,070 33,778 52,485 97,989 International 9,637 14,065 24,469 38,960 Intersegment eliminationsU.S. (157 ) (293 ) (414 ) (797 ) Intersegment eliminationsinternational (18 ) (17 ) (38 ) (37 ) RM 30,532 47,533 76,502 136,115 LUKOIL Investment - - - - Chemicals 2 2 8 8 Emerging Businesses Total sales 134 303 421 |
Income Taxes
Income Taxes | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Income Taxes | |
Note 19 - Income Taxes | Note 19Income Taxes Our effective tax rates for the third quarter and first nine months of 2009 were 48 percent and 50 percent, respectively, compared with 45 percent for each of the same two periods of 2008. The change in the effective tax rate for the third quarter and nine-month periods of 2009, versus the corresponding periods of 2008, was primarily due to a higher proportion of income earned in higher tax jurisdictions in 2009. The effective tax rate in excess of the domestic federal statutory rate of 35percent was primarily due to foreign taxes. |
New Accounting Standards
New Accounting Standards | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
New Accounting Standards | |
Note 20 - New Accounting Standards | Note 20New Accounting Standards In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140. This Statement will be codified primarily into FASB ASC Topic 860, Transfers and Servicing. This Statement removes the concept of a qualifying special purpose entity (SPE) and the exception for qualifying SPEs from the consolidation guidance. Additionally, the Statement clarifies the requirements for financial asset transfers eligible for sale accounting. This Statement is effective January 1, 2010, and we do not expect any significant impact to our consolidated financial statements. Also in June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), to address the effects of the elimination of the qualifying SPE concept in SFAS No. 166, and other concerns about the application of key provisions of consolidation guidance for VIEs. This Statement will be codified primarily into FASB ASC Topic 810, Consolidation. More specifically, SFAS No. 167 requires a qualitative rather than a quantitative approach to determine the primary beneficiary of a VIE, it amends certain guidance pertaining to the determination of the primary beneficiary when related parties are involved, and it amends certain guidance for determining whether an entity is a VIE. Additionally, this Statement requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE. This Statement is effective January 1, 2010. We are currently evaluating the impact on our consolidated financial statements. In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, to improve the transparency associated with disclosures about the plan assets of a defined benefit pension or other postretirement plan. This Statement was codified into FASB ASC Topic 715, CompensationRetirement Benefits. Topic 715 requires the disclosure of each major asset category at fair value using the fair value hierarchy. This Topic is effective for annual financial statements beginning with the 2009 fiscal year, but will not impact our consolidated financial statements, other than requiring additional disclosures. |
Supplementary Information - Con
Supplementary Information - Condensed Consolidating Financial Information | |
3 Months Ended
Sep. 30, 2009 USD / shares | |
Condensed Consolidating Financial Information | |
Supplementary Information - Condensed Consolidating Financial Information | Supplementary InformationCondensed Consolidating Financial Information We have various cross guarantees among ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to publicly held debt securities. ConocoPhillips Company is wholly owned by ConocoPhillips. ConocoPhillips Australia Funding Company is an indirect, wholly owned subsidiary of ConocoPhillips Company. ConocoPhillips Canada Funding Company I and ConocoPhillips Canada Funding Company II are indirect, wholly owned subsidiaries of ConocoPhillips. ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II, with respect to their publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for: ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting). All other nonguarantor subsidiaries of ConocoPhillips. The consolidating adjustments necessary to present ConocoPhillips results on a consolidated basis. This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes. Millions of Dollars Three Months Ended September 30, 2009 Income Statement ConocoPhillips ConocoPhillips Company ConocoPhillips Australia Funding Company ConocoPhillips Canada Funding Company I ConocoPhillips Canada Funding Company II All Other Subsidiaries Consolidating Adjustments Total Consolidated Revenues and Other Income Sales and other operating revenues $ - 24,981 - - - 15,192 - 40,173 Equity in earnings of affiliates 1,609 1,728 - - - 700 (3,022 ) 1,015 Other income (loss) 1 150 - - - (34 ) - 117 Intercompany revenues 13 264 11 20 12 5,377 (5,697 ) - Total Revenues and Other Income 1,623 27,123 11 20 12 21,235 (8,719 ) 41,305 Costs and Expenses Purchased crude oil, natural gas and products - 22,158 - - - 11,395 (5,545 ) 28,008 Production and operating expenses |