XNYS:COP ConocoPhillips Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2012

or

 

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

For the transition period from              to             

Commission file number: 001-32395

 

 

ConocoPhillips

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   01-0562944

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

600 North Dairy Ashford, Houston, TX 77079

(Address of principal executive offices)             (Zip Code)

281-293-1000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

The registrant had 1,214,549,390 shares of common stock, $.01 par value, outstanding at June 30, 2012.

 

 

 


Table of Contents

CONOCOPHILLIPS

TABLE OF CONTENTS

 

     Page  

Part I – Financial Information

  

Item 1. Financial Statements

  

Consolidated Income Statement

     1   

Consolidated Statement of Comprehensive Income

     2   

Consolidated Balance Sheet

     3   

Consolidated Statement of Cash Flows

     4   

Consolidated Statement of Changes in Equity

     5   

Notes to Consolidated Financial Statements

     6   

Supplementary Information—Condensed Consolidating Financial Information

     27   

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

     32   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     53   

Item 4. Controls and Procedures

     53   

Part II – Other Information

  

Item 1. Legal Proceedings

     54   

Item 1A. Risk Factors

     55   

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

     55   

Item 6. Exhibits

     56   

Signature

     58   


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

Consolidated Income Statement
Consolidated Income Statement      ConocoPhillips   

 

                                                           
     Millions of Dollars  
     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2012     2011     2012     2011  
  

 

 

   

 

 

 

Revenues and Other Income

        

Sales and other operating revenues

   $ 13,988        17,176        28,972        32,956   

Equity in earnings of affiliates

     529        375        1,015        701   

Gain on dispositions

     583        35        1,523        648   

Other income

     66        82        126        166   

 

 

Total Revenues and Other Income

     15,166        17,668        31,636        34,471   

 

 

Costs and Expenses

        

Purchased commodities

     5,758        7,681        11,878        14,639   

Production and operating expenses

     1,883        1,595        3,521        3,174   

Selling, general and administrative expenses

     235        203        562        451   

Exploration expenses

     270        264        949        440   

Depreciation, depletion and amortization

     1,626        1,846        3,249        3,694   

Impairments

     82               296          

Taxes other than income taxes

     906        1,198        2,007        2,082   

Accretion on discounted liabilities

     105        107        212        212   

Interest and debt expense

     197        242        387        499   

Foreign currency transaction (gains) losses

     15        18        19        25   

 

 

Total Costs and Expenses

     11,077        13,154        23,080        25,216   

 

 

Income from continuing operations before income taxes

     4,089        4,514        8,556        9,255   

Provision for income taxes

     2,334        2,214        4,560        4,638   

 

 

Income From Continuing Operations

     1,755        2,300        3,996        4,617   

Income from discontinued operations

     534        1,119        1,248        1,844   

 

 

Net income

     2,289        3,419        5,244        6,461   

Less: net income attributable to noncontrolling interests

     (22     (17     (40     (31

 

 

Net Income Attributable to ConocoPhillips

   $ 2,267        3,402        5,204        6,430   

 

 

Net Income Attributable to ConocoPhillips Per Share of

Common Stock (dollars)

        

Basic

        

Continuing operations

   $ 1.39        1.63        3.13        3.24   

Discontinued operations

     0.43        0.80        0.98        1.30   

 

 

Net Income Attributable to ConocoPhillips Per Share of Common Stock

   $ 1.82        2.43        4.11        4.54   

 

 

Diluted

        

Continuing operations

   $ 1.38        1.62        3.10        3.21   

Discontinued operations

     0.42        0.79        0.98        1.29   

 

 

Net Income Attributable to ConocoPhillips Per Share of Common Stock

   $ 1.80        2.41        4.08        4.50   

 

 

Dividends Paid Per Share of Common Stock (dollars)

   $ 0.66        0.66        1.32        1.32   

 

 

Average Common Shares Outstanding (in thousands)

        

Basic

     1,248,300        1,399,473        1,265,896        1,415,788   

Diluted

     1,258,189        1,412,147        1,275,667        1,428,760   

 

 

See Notes to Consolidated Financial Statements.

 

1


Table of Contents

 

Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income      ConocoPhillips   

 

                                                           
     Millions of Dollars  
     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2012     2011     2012     2011  
  

 

 

   

 

 

 

Net Income

   $ 2,289        3,419        5,244        6,461   

 

 

Other comprehensive income (loss)

        

Defined benefit plans

        

Prior service cost arising during the period

                            

Reclassification adjustment for amortization of prior service cost (credit) included in net income

     (1     1        (2     1   

 

 

Net change

     (1     1        (2     1   

 

 

Net actuarial loss arising during the period

     (38            (38       

Reclassification adjustment for amortization of prior net losses included in net income

     60        52        138        103   

 

 

Net change

     22        52        100        103   

Nonsponsored plans*

     2        5        5        11   

Income taxes on defined benefit plans

     2        (20     (27     (40

 

 

Defined benefit plans, net of tax

     25        38        76        75   

 

 

Unrealized holding gain on securities**

     1               1        8   

Reclassification adjustment for gain included in net income

                          (255

Income taxes on unrealized holding gain on securities

                          89   

 

 

Unrealized gain on securities, net of tax

     1               1        (158

 

 

Foreign currency translation adjustments

     (513     549        339        1,463   

Reclassification adjustment for gain included in net income

                   1          

Income taxes on foreign currency translation adjustments

     13        (9     (6     (29

 

 

Foreign currency translation adjustments, net of tax

     (500     540        334        1,434   

 

 

Hedging activities

     5               6        1   

Income taxes on hedging activities

                            

 

 

Hedging activities, net of tax

     5               6        1   

 

 

Other Comprehensive Income (Loss), Net of Tax

     (469     578        417        1,352   

 

 

Comprehensive Income

     1,820        3,997        5,661        7,813   

Less: comprehensive income attributable to noncontrolling interests

     (22     (17     (40     (31

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 1,798        3,980        5,621        7,782   

 

 

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

**Available-for-sale securities of LUKOIL.

See Notes to Consolidated Financial Statements.

 

2


Table of Contents

 

Consolidated Balance Sheet
Consolidated Balance Sheet    ConocoPhillips

 

                             
     Millions of Dollars  
     June 30
2012
    December 31
2011**
 
  

 

 

 

Assets

    

Cash and cash equivalents

   $ 1,044        5,780   

Short-term investments*

            581   

Restricted cash

     5,000          

Accounts and notes receivable (net of allowance of $23 million in 2012
and $30 million in 2011)

     7,550        14,648   

Accounts and notes receivable—related parties

     169        1,878   

Inventories

     1,178        4,631   

Prepaid expenses and other current assets

     1,971        2,700   

 

 

Total Current Assets

     16,912        30,218   

Investments and long-term receivables

     23,372        32,108   

Loans and advances—related parties

     1,597        1,675   

Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $57,220 million in 2012 and $65,029 million in 2011)

     71,227        84,180   

Goodwill

            3,332   

Intangibles

     11        745   

Other assets

     889        972   

 

 

Total Assets

   $ 114,008        153,230   

 

 

Liabilities

    

Accounts payable

   $ 8,243        17,973   

Accounts payable—related parties

     853        1,680   

Short-term debt

     4,179        1,013   

Accrued income and other taxes

     2,819        4,220   

Employee benefit obligations

     594        1,111   

Other accruals

     1,672        2,071   

 

 

Total Current Liabilities

     18,360        28,068   

Long-term debt

     18,829        21,610   

Asset retirement obligations and accrued environmental costs

     8,224        9,329   

Joint venture acquisition obligation—related party

     3,201        3,582   

Deferred income taxes

     13,598        18,040   

Employee benefit obligations

     2,873        4,068   

Other liabilities and deferred credits

     2,480        2,784   

 

 

Total Liabilities

     67,565        87,481   

 

 

Equity

    

Common stock (2,500,000,000 shares authorized at $.01 par value)

    

Issued (2012—1,754,997,004 shares; 2011—1,749,550,587 shares)

    

Par value

     18        17   

Capital in excess of par

     45,016        44,725   

Treasury stock (at cost: 2012—540,447,614 shares; 2011—463,880,628 shares)

     (36,696     (31,787

Accumulated other comprehensive income

     3,877        3,246   

Unearned employee compensation

            (11

Retained earnings

     33,756        49,049   

 

 

Total Common Stockholders’ Equity

     45,971        65,239   

Noncontrolling interests

     472        510   

 

 

Total Equity

     46,443        65,749   

 

 

Total Liabilities and Equity

   $ 114,008        153,230   

 

 
*Includes marketable securities of:    $             —     232  

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

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

 

Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows    ConocoPhillips

 

                             
     Millions of Dollars  
     Six Months Ended
June 30
 
     2012     2011  
  

 

 

 

Cash Flows From Operating Activities

    

Net income

   $ 5,244        6,461   

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation, depletion and amortization

     3,249        3,694   

Impairments

     296          

Dry hole costs and leasehold impairments

     634        139   

Accretion on discounted liabilities

     212        212   

Deferred taxes

     447        (41

Undistributed equity earnings

     (251     (285

Gain on dispositions

     (1,523     (648

Income from discontinued operations

     (1,248     (1,844

Other

     (100     (140

Working capital adjustments

    

Decrease (increase) in accounts and notes receivable

     (384     (806

Decrease (increase) in inventories

     31        93   

Decrease (increase) in prepaid expenses and other current assets

     254        (323

Increase (decrease) in accounts payable

     52        547   

Increase (decrease) in taxes and other accruals

     (545     (706

 

 

Net cash provided by continuing operating activities

     6,368        6,353   

Net cash provided by discontinued operations

     164        1,868   

 

 

Net Cash Provided by Operating Activities

     6,532        8,221   

 

 

Cash Flows From Investing Activities

    

Capital expenditures and investments

     (7,858     (5,390

Proceeds from asset dispositions

     1,566        1,863   

Net sales (purchases) of short-term investments

     597        (1,594

Long-term advances/loans—related parties

     6        (3

Collection of advances/loans—related parties

     48        50   

Other

     20        32   

 

 

Net cash used in continuing investing activities

     (5,621     (5,042

Net cash provided by (used in) discontinued operations

     (304     148   

 

 

Net Cash Used in Investing Activities

     (5,925     (4,894

 

 

Cash Flows From Financing Activities

    

Issuance of debt

     831          

Repayment of debt

     (47     (378

Special cash distribution from Phillips 66

     7,818          

Change in restricted cash

     (5,000       

Issuance of company common stock

     45        99   

Repurchase of company common stock

     (4,949     (4,785

Dividends paid on company common stock

     (1,661     (1,861

Other

     (369     (357

 

 

Net cash used in continuing financing activities

     (3,332     (7,282

Net cash used in discontinued operations

     (2,019     (14

 

 

Net Cash Used in Financing Activities

     (5,351     (7,296

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     8        20   

 

 

Net Change in Cash and Cash Equivalents

     (4,736     (3,949

Cash and cash equivalents at beginning of period

     5,780        9,454   

 

 

Cash and Cash Equivalents at End of Period

   $ 1,044        5,505   

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

 

Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity    ConocoPhillips

 

                                                                                                                       
     Millions of Dollars  
     Attributable to ConocoPhillips              
     Common Stock                                 
     Par
Value
     Capital in
Excess of
Par
     Treasury
Stock
    Accum. Other
Comprehensive
Income
     Unearned
Employee
Compensation
    Retained
Earnings
    Noncontrolling
Interests
    Total  
  

 

 

 

December 31, 2011*

   $ 17         44,725         (31,787     3,246         (11     49,049        510        65,749   

Net income

                  5,204        40        5,244   

Other comprehensive income

             417               417   

Cash dividends paid on company common stock

                  (1,661       (1,661

Repurchase of company common stock

           (4,949              (4,949

Distributions to noncontrolling interests and other

                    (47     (47

Distributed under benefit plans

     1         291         40                 332   

Recognition of unearned compensation

                11            11   

Separation of Downstream business

             214           (18,855     (31     (18,672

Other

                  19          19   

 

 

June 30, 2012

   $ 18         45,016         (36,696     3,877                33,756        472        46,443   

 

 

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

See Notes to Consolidated Financial Statements.

 

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Table of Contents
Notes to Consolidated Financial Statements    ConocoPhillips

 

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation

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

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

Note 2—Separation of Downstream Business

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

In connection with the separation, Phillips 66 distributed approximately $7.8 billion to us in a special cash distribution, primarily using the proceeds from the $5.8 billion in Senior Notes issued by Phillips 66 in March 2012, as well as a portion of the approximately $3.6 billion in cash transferred to Phillips 66 at separation, comprised of funds received from the $2.0 billion term loan entered into by Phillips 66 immediately prior to the separation, and approximately $1.6 billion of cash held by Phillips 66 subsidiaries. Pursuant to the private letter ruling from the Internal Revenue Service (IRS), the principal funds from the special cash distribution will be used solely to pay dividends, repurchase common stock, repay debt, or a combination of the foregoing, within twelve months following the distribution. At June 30, 2012, the remaining balance of this cash distribution was $5,000 million and was included in the “Restricted cash” line on our consolidated balance sheet.

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

The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of Phillips 66 and ConocoPhillips with respect to taxes, tax attributes, tax returns, tax proceedings and certain other tax matters. In addition, the Tax Sharing Agreement imposed certain restrictions on Phillips 66 and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the tax-free status of the distribution and certain related transactions. The Tax Sharing Agreement sets forth the obligations of Phillips 66 and us as to the filing of tax returns, the administration of tax proceedings and assistance and cooperation on tax matters.

 

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Table of Contents

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

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

 

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

 

 

              
     Millions of Dollars  

Assets

  

Cash and cash equivalents

   $ 3,603   

Accounts and notes receivable

     7,295   

Accounts and notes receivable—related parties

     1,501   

Inventories

     5,017   

Prepaid expenses and other current assets

     996   

 

 

Total current assets of discontinued operations

     18,412   

Investments and long-term receivables

     10,826   

Loans and advances—related parties

     1   

Net properties, plants and equipment

     15,258   

Goodwill

     3,330   

Intangibles

     730   

Other assets

     95   

 

 

Total assets of discontinued operations

   $ 48,652   

 

 

Liabilities

  

Accounts payable

   $ 12,064   

Accounts payable—related parties

     938   

Short-term debt

     7,814   

Accrued income and other taxes

     493   

Employee benefit obligations

     219   

Other accruals

     952   

 

 

Total current liabilities of discontinued operations

     22,480   

Long-term debt

     175   

Asset retirement obligations and accrued environmental costs

     771   

Deferred income taxes

     4,990   

Employee benefit obligations

     1,138   

Other liabilities and deferred credits

     426   

 

 

Total liabilities of discontinued operations

   $ 29,980   

 

 

 

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

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
     Six Months Ended
June  30
 
     2012      2011      2012      2011  
  

 

 

    

 

 

 

Sales and other operating revenues from discontinued operations

   $ 16,609         52,591         62,107         97,364   

 

 

Income from discontinued operations before-tax

   $ 782         1,678         1,790         2,733   

Income tax expense

     248         559         542         889   

 

 

Income from discontinued operations

   $ 534         1,119         1,248         1,844   

 

 

Income from discontinued operations after-tax includes transaction, information systems and other costs incurred to effect the separation of $26 million and $70 million for the three-month and six-month periods ended June 30, 2012, respectively. No separation costs were incurred during the first six months of 2011.

Prior to the separation, commodity sales to Phillips 66 were $919 million and $4,973 million for the three-month and six-month periods ended June 30, 2012, and $3,842 million and $7,599 million for the three-month and six-month periods ended June 30, 2011. Prior to the separation, commodity purchases from Phillips 66 were $7 million and $166 million for the three-month and six-month periods ended June 30, 2012, and $112 million and $264 million for the three-month and six-month periods ended June 30, 2011. Prior to May 1, 2012, commodity sales and related costs were eliminated in consolidation between ConocoPhillips and Phillips 66. Beginning May 1, 2012, these revenues and costs represent third-party transactions with Phillips 66. Although we expect certain transactions related to the sale and purchase of crude oil, natural gas and products to continue in the future with Phillips 66, the expected continuing cash flows are not considered significant; thus, the operations and cash flows of our former Downstream business are considered to be eliminated from our ongoing operations.

Note 3—Variable Interest Entities (VIEs)

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

We have an agreement with Freeport LNG Development, L.P. (Freeport LNG) to participate in a liquefied natural gas (LNG) receiving terminal in Quintana, Texas. We have no ownership in Freeport LNG; however, we own a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which serves as the general partner managing the venture. We entered into a credit agreement with Freeport LNG, whereby we agreed to provide loan financing for the construction of the terminal. We also entered into a long-term agreement with Freeport LNG to use 0.9 billion cubic feet per day of regasification capacity. The terminal became operational in June 2008, and we began making payments under the terminal use agreement. Freeport LNG began making loan repayments in September 2008, and the loan balance outstanding was $592 million at June 30, 2012, and $612 million at December 31, 2011. Freeport LNG is a VIE because Freeport GP holds no equity in Freeport LNG, and the limited partners of Freeport LNG do not have any substantive decision making ability. We performed an analysis of the expected losses and determined we are not the primary beneficiary. This expected loss analysis took into account that the credit support arrangement requires Freeport LNG to maintain sufficient commercial insurance to mitigate any loan losses. The loan to Freeport LNG is accounted for as a financial asset, and our investment in Freeport GP is accounted for as an equity investment.

 

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Note 4—Inventories

Inventories consisted of the following:

 

 

                             
     Millions of Dollars  
     June 30
2012
     December 31
2011
 
  

 

 

 

Crude oil and petroleum products

   $ 483         3,633   

Materials, supplies and other

     695         998   

 

 
   $ 1,178         4,631   

 

 

Inventories valued on the last-in, first-out (LIFO) basis totaled $315 million and $3,387 million at June 30, 2012, and December 31, 2011, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $100 million and $8,400 million at June 30, 2012, and December 31, 2011, respectively.

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

Note 5—Assets Held for Sale or Sold

In April 2012, we sold our interest in the Statfjord Field and associated satellites, all of which are located in the North Sea, and recognized a gain of $431 million before-tax which was included in the “Gain on dispositions” line of our consolidated income statement. At the time of disposition, the carrying value of our interest, which was included in the Europe segment, included $205 million of properties, plants and equipment (PP&E) and $445 million of asset retirement obligations.

In May 2012, we sold our interest in the North Sea Alba Field and recognized a gain of $155 million before-tax, which was included in the “Gain on dispositions” line on our consolidated income statement. At the time of the disposition, the carrying value of our interest, which was included in our Europe segment, included $160 million of PP&E and $86 million of asset retirement obligations.

Note 6—Investments, Loans and Long-Term Receivables

Australia Pacific LNG

In January 2012, Australia Pacific LNG (APLNG) and China Petrochemical Corporation (Sinopec) signed an amendment to their existing LNG sales agreement for the sale and purchase of an additional 3.3 million tonnes of LNG per year through 2035. This agreement, in combination with the binding Heads of Agreement with Kansai Electric Power Co. Inc., signed in November 2011, finalized the marketing of the second train.

In July 2012, we sanctioned the development of the second 4.5-million-tonnes-per-year LNG production train for our APLNG coal seam gas to LNG project. In addition, APLNG signed project financing agreements during the second quarter of 2012, which are subject to certain conditions precedent. APLNG expects to begin drawing on the financing in the fourth quarter of 2012. LNG exports from the second train are expected to commence in early 2016 under binding sales agreements to Sinopec and Kansai. Upon sanctioning of the second train in July and in conjunction with the LNG sales agreement, Sinopec subscribed for additional shares in APLNG, which increased its equity interest from 15 percent to 25 percent. As a result, on July 12, 2012, both our ownership interest and Origin Energy’s ownership interest diluted from 42.5 percent to 37.5 percent. This reduction, along with project financing, lowers our future capital requirements to fund the APLNG Project. We expect to record a loss of approximately $135 million after-tax from the dilution in the third quarter of 2012.

 

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Loans and Long-Term Receivables

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

 

   

$592 million in loan financing to Freeport LNG.

 

   

$1,131 million in project financing to Qatar Liquefied Gas Company Limited (3) (QG3).

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

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

Note 7—Suspended Wells

The capitalized cost of suspended wells at June 30, 2012, was $1,057 million, an increase of $20 million from $1,037 million at year-end 2011. For the category of exploratory well costs capitalized for a period greater than one year as of December 31, 2011, no wells were charged to dry hole expense during the first six months of 2012.

Note 8—Impairments

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

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
     Six Months Ended
June  30
 
     2012      2011      2012      2011  
  

 

 

    

 

 

 

Canada

   $                 213           

Europe

     78                 79           

Asia Pacific and Middle East

     4                 4           

 

 
   $ 82                 296           

 

 

The three- and six-month periods of 2012 included a $78 million impairment in our Europe segment, primarily due to an increase in the asset retirement obligation for the Don Field in the United Kingdom, which has ceased production. Additionally, the six-month period of 2012 included a $213 million property impairment in our Canada segment for the carrying value of capitalized project development costs associated with our Mackenzie Gas Project. Advancement of the project was suspended indefinitely in the first quarter of 2012 due to a continued decline in market conditions and the lack of acceptable commercial terms. We also recorded a $481 million impairment for the undeveloped leasehold costs associated with the project, which was included in the “Exploration expenses” line on our consolidated income statement. See Note 20—Segment Disclosures and Related Information, for additional information on our segments.

 

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Note 9—Debt

In May 2012, we decreased our total revolving credit facilities from $8.0 billion to $7.5 billion by terminating all commitments under the $500 million credit facility which was due to expire in July 2012.

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

At both June 30, 2012, and December 31, 2011, we had no direct outstanding borrowings under our revolving credit facilities, with no letters of credit issued as of June 30, 2012, and $40 million as of December 31, 2011. In addition, under the two commercial paper programs, there was $1,929 million of commercial paper outstanding at June 30, 2012, compared with $1,128 million at December 31, 2011. Since we had $1,929 million of commercial paper outstanding and had issued no letters of credit, we had access to $5.6 billion in borrowing capacity under our revolving credit facilities at June 30, 2012.

At June 30, 2012, we classified $1,011 million of short-term debt as long-term debt, based on our ability and intent to refinance the obligation on a long-term basis under our revolving credit facilities. In July 2012, irrevocable early redemption notices were issued for settlement with respect to $1.5 billion of outstanding bonds. Accordingly, those bonds with due dates beyond one year were classified as short-term debt on our consolidated balance sheet as of June 30, 2012. Upon settlement in the third quarter of 2012, a before-tax loss on the redemption of approximately $75 million is expected, consisting of a make-whole premium and unamortized issuance costs.

Note 10—Joint Venture Acquisition Obligation

We are obligated to contribute $7.5 billion, plus interest, over a 10-year period that began in 2007, to FCCL Partnership. Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and will continue until the balance is paid. Of the principal obligation amount, approximately $752 million was short-term and was included in the “Accounts payable—related parties” line on our June 30, 2012, consolidated balance sheet. The principal portion of these payments, which totaled $361 million in the first six months of 2012, is included in the “Other” line in the financing activities section on our consolidated statement of cash flows. Interest accrues at a fixed annual rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest payment is reflected as a capital contribution and is included in the “Capital expenditures and investments” line on our consolidated statement of cash flows.

 

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Note 11—Noncontrolling Interests

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

 

 

                                                                                         
     Millions of Dollars  
     2012     2011  
     Common
Stockholders’
Equity
   

Non-

Controlling
Interest

    Total
Equity
    Common
Stockholders’
Equity*
    Non-
Controlling
Interest
    Total
Equity*
 
  

 

 

   

 

 

 

Balance at January 1

   $ 65,239        510        65,749        68,577        547        69,124   

Net income

     5,204        40        5,244        6,430        31        6,461   

Dividends

     (1,661            (1,661     (1,861            (1,861

Repurchase of company common stock

     (4,949            (4,949     (4,785            (4,785

Distributions to noncontrolling interests

            (47     (47            (59     (59

Separation of Downstream business

     (18,641     (31     (18,672                     

Other changes, net**

     779               779        1,713               1,713   

 

 

Balance at June 30

   $ 45,971        472        46,443        70,074        519        70,593   

 

 

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

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

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

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
     Six Months Ended
June  30
 
     2012         2011         2012         2011   
  

 

 

    

 

 

 

Income from continuing operations

   $ 1,733         2,284         3,958         4,588   

Income from discontinued operations

     534         1,118         1,246         1,842   

 

 

Net Income

   $ 2,267         3,402         5,204         6,430   

 

 

Note 12—Guarantees

At June 30, 2012, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

Construction Completion Guarantee

At June 30, 2012, we have guaranteed the performance of APLNG with regard to a construction contract executed in connection with APLNG’s issuance of the Train 1 Notice to Proceed. Our maximum potential amount of future payments related to this guarantee is approximately $200 million at June 2012 exchange rates based on our 42.5 percent ownership in APLNG and would become payable if APLNG cancels the applicable construction contract and does not perform with respect to the amounts owed to the contractor. See below for additional guarantees of APLNG’s performance.

 

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Guarantees of Joint Venture Debt

At June 30, 2012, we had guarantees outstanding for our portion of joint venture debt obligations, which have terms of up to 24 years. The maximum potential amount of future payments under the guarantees is approximately $60 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 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 4 to 19 years. Our maximum potential amount of future payments, or cost of volume delivery, under these guarantees is estimated to be $1,268 million ($2,836 million in the event of intentional or reckless breach) at June 2012 exchange rates based on our 42.5 percent share of the remaining contracted volumes, which could 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. Additionally, we have guaranteed the performance of APLNG with regard to certain contracts executed in connection with APLNG’s issuance of the Train 1 Notice to Proceed. Our maximum potential amount of future payments related to these guarantees is approximately $80 million at June 2012 exchange rates based on our 42.5 percent ownership in APLNG and would become payable if APLNG does not perform.

 

   

We have other guarantees with maximum future potential payment amounts totaling approximately $330 million, which consist primarily of a guarantee to fund the short-term cash liquidity deficit of a joint venture, a guarantee of minimum charter revenue for an LNG vessel, one small construction completion guarantee, guarantees of the lease payment obligations of a joint venture, guarantees of the residual value of leased corporate aircraft, and guarantees of the performance of a business partner or some of its customers. These guarantees generally extend up to 12 years or life of the venture.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. Agreements associated with these sales include indemnifications for taxes, environmental liabilities, permits and licenses, employee claims, real estate indemnity against tenant defaults, and litigation. The terms of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, the term is generally indefinite and the maximum amount of future payments is generally unlimited. The carrying amount recorded for these indemnifications at June 30, 2012, was approximately $80 million. We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were approximately $60 million of environmental accruals for known contamination that are included in asset retirement obligations and accrued environmental costs at June 30, 2012. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments.

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

 

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Note 13—Contingencies and Commitments

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

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

Environmental

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

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

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except in respect of sites acquired in a purchase business combination,

 

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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 June 30, 2012, our balance sheet included a total environmental accrual of $440 million, compared with $922 million at December 31, 2011. A significant portion of our environmental contingencies at December 31, 2011, was related to our Downstream business. See Note 2—Separation of Downstream Business, for additional information. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, are required.

Other Contingencies

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized. In addition, at June 30, 2012, we had performance obligations secured by letters of credit of $1,035 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, services and items of permanent investment incident to the ordinary conduct of business.

In 2007, we announced we had been unable to reach agreement with respect to our migration to an empresa mixta structure mandated by the Venezuelan government’s Nationalization Decree. As a result, Venezuela’s national oil company, Petróleos de Venezuela S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’ interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In response to this expropriation, 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, and we are currently awaiting an interim decision on key legal and factual issues. A different arbitration hearing was held in January 2012 with the International Chamber of Commerce on ConocoPhillips’ separate claims against PDVSA for certain breaches of their Association Agreements prior to the expropriation. The arbitration process is ongoing.

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

 

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Note 14—Derivative and Financial Instruments

Derivative Instruments

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

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

The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the line items where they would appear on our consolidated balance sheet:

 

 

                             
     Millions of Dollars  
     June 30
2012
     December 31
2011
 
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $ 3,074         4,433   

Other assets

     332         415   

Liabilities

     

Other accruals

     3,061         4,350   

Other liabilities and deferred credits

     362         374   

 

 

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

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
    Six Months Ended
June  30
 
     2012        2011        2012        2011   
  

 

 

   

 

 

 

Sales and other operating revenues

   $ 583        286        17        (131

Other income

     1               (5     4   

Purchased commodities

     (619     (286     (58     130   

 

 

 

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

 

 

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

 

 

 

Commodity

    

Crude oil, refined products and natural gas liquids (millions of barrels)

     (1     (13

Natural gas and power (billions of cubic feet equivalent)

    

Fixed price

     (32     (57

Basis

     200        (25

 

 

Financial Instruments

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

 

 

                                                           
     Millions of Dollars  
     Carrying Amount  
     Cash and Cash Equivalents      Short-Term Investments  
     June 30
2012
    

December 31

2011

     June 30
2012
     December 31
2011
 
  

 

 

    

 

 

 

Cash

   $ 641         1,169                   

Time Deposits

           

Remaining maturities from 1 to 90 days

     403         4,318                 349   

Commercial Paper

           

Remaining maturities from 1 to 90 days

             293                 232   

 

 
   $ 1,044         5,780                 581   

 

 

In conjunction with the separation of our Downstream business, we received a special cash distribution from Phillips 66 of $7,818 million. See Note 2—Separation of Downstream Business, for additional information. At June 30, 2012, the unused amount of the special cash distribution was $5,000 million and is designated as “Restricted cash” on our consolidated balance sheet. At June 30, 2012, the funds in the restricted cash account were invested in U.S. Treasury Bills ($2,650 million), money market funds ($2,200 million) and cash ($150 million), all with maturities within 90 days from June 30, 2012.

 

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Credit Risk

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

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

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

Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of credit as collateral.

The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position on June 30, 2012, and December 31, 2011, was $238 million and $237 million, respectively. No collateral was posted for June 30, 2012, and $3 million was posted for December 31, 2011. If our credit rating was lowered one level from its “A” rating (per Standard and Poor’s) on June 30, 2012, we would be required to post no additional collateral to our counterparties. If we were downgraded below investment grade, we would be required to post $238 million of additional collateral, either with cash or letters of credit.

 

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Note 15—Fair Value Measurement

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

 

   

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

 

   

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

 

   

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

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include derivative instruments and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 2 derivative assets and liabilities primarily represent OTC swaps, options and forward purchase and sale contracts that are valued using adjusted exchange prices, prices provided by brokers or pricing service companies that are all corroborated by market data. Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts that are long term in nature and where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value. As reflected in the table below, Level 3 activity was not material.

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

 

 

                                                                                                                       
     Millions of Dollars  
     June 30, 2012      December 31, 2011  
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  
  

 

 

    

 

 

 

Assets

                       

Deferred compensation investments

   $ 304         —           —           304         336         —           —           336   

Commodity derivatives

     2,028         1,336         40         3,404         2,807         1,947         72         4,826   

 

 

Total assets

   $ 2,332         1,336         40         3,708         3,143         1,947         72         5,162   

 

 

Liabilities

                       

Commodity derivatives

   $ 2,157         1,258         6         3,421         2,970         1,722         10         4,702   

 

 

Total liabilities

   $ 2,157         1,258         6         3,421         2,970         1,722         10         4,702   

 

 

Non-Recurring Fair Value Measurement

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

 

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Reported Fair Value of Financial Instruments

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

 

   

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

 

   

Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans and advances—related parties.

 

   

Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair value. The fair value of fixed-rate loan activity is measured using market observable data and is categorized as Level 2 in the fair value hierarchy. See Note 6—Investments, Loans and Long-Term Receivables, for additional information.

 

   

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

 

   

Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level 2 in the fair value hierarchy.

 

   

Joint venture acquisition obligation—related party: Fair value is estimated based on the net present value of the future cash flows as a Level 2 fair value, discounted at June 30, 2012, and December 31, 2011, effective yield rates of 1.04 percent and 1.24 percent, respectively, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 10—Joint Venture Acquisition Obligation, for additional information.

The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of setoff exists for commodity derivatives):

 

 

                                                           
     Millions of Dollars  
     Carrying Amount      Fair Value  
     June 30
2012
    

December 31

2011

     June 30
2012
     December 31
2011
 
  

 

 

    

 

 

 

Financial assets

           

Deferred compensation investments

   $ 304         336         304         336   

Commodity derivatives

     489         814         489         814   

Total loans and advances—related parties

     1,741         1,793         1,941         1,994   

Financial liabilities

           

Total debt, excluding capital leases

     22,992         22,592         27,667         27,065   

Total joint venture acquisition obligation

     3,953         4,314         4,394         4,820   

Commodity derivatives

     332         446         332         446   

 

 

At June 30, 2012, commodity derivative assets and liabilities appear net of $28 million of obligations to return cash collateral and $202 million of rights to reclaim cash collateral, respectively. At December 31, 2011, commodity derivative assets and liabilities appear net of no obligations to return cash collateral and $244 million of rights to reclaim cash collateral.

 

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Note 16—Accumulated Other Comprehensive Income

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

 

 

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

 

 

 

December 31, 2011*

   $ (1,971             5,223        (6     3,246   

Other comprehensive income

     76        1         334        6        417   

Separation of Downstream business

     683                (469            214   

 

 

June 30, 2012

   $ (1,212     1         5,088               3,877   

 

 

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

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

Note 17—Cash Flow Information

 

 

                             
     Millions of Dollars  
     Six Months Ended
June 30
 
     2012     2011  
  

 

 

 

Cash Payments

    

Interest

   $ 383        488   

Income taxes

     4,696        5,348   

 

 

Net Sales (Purchases) of Short-Term Investments

    

Short-term investments purchased

   $ (497     (4,562

Short-term investments sold

     1,094        2,968   

 

 
   $ 597        (1,594

 

 

 

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Note 18—Employee Benefit Plans

In connection with the separation of the Downstream business, ConocoPhillips entered into an Employee Matters Agreement with Phillips 66, see Note 2—Separation of Downstream Business, which provides that employees of Phillips 66 will no longer participate in benefit plans sponsored or maintained by ConocoPhillips. Upon separation, the ConocoPhillips Pension Plan transferred assets and obligations to the Phillips 66 Pension Plan resulting in a net decrease in sponsored pension plan obligations of $1,098 million, a corresponding decrease in deferred income taxes of $335 million and a decrease in other comprehensive income of $570 million.

Pension and Postretirement Plans

 

 

                                                                                         
     Millions of Dollars  
     Pension Benefits     Other Benefits  
     2012     2011     2012     2011  
  

 

 

   

 

 

 
     U.S.     Int’l.     U.S.     Int’l.              
  

 

 

   

 

 

     

Components of Net Periodic Benefit Cost

            

Three Months Ended June 30

            

Service cost

   $ 42        22        49        25        2        2   

Interest cost

     48        38        61        44        8        11   

Expected return on plan assets

     (56     (40     (70     (44              

Amortization of prior service cost

     2        (2     3               (1     (2

Recognized net actuarial (gain) loss

     45        15        41        12               (2

 

 

Net periodic benefit costs

   $ 81        33        84        37        9        9   

 

 

Six Months Ended June 30

            

Service cost

   $ 100        50        113        49        4        5   

Interest cost

     111        81        123        88        18        21   

Expected return on plan assets

     (130     (83     (140     (87              

Amortization of prior service cost

     4        (4     5               (2     (4

Recognized net actuarial (gain) loss

     104        33        82        23        (1     (3

 

 

Net periodic benefit costs

   $ 189        77        183        73        19        19   

 

 

During the first six months of 2012, we contributed $167 million to our domestic benefit plans and $103 million to our international benefit plans. In 2012, we expect to contribute approximately $540 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $210 million to our international qualified and nonqualified pension and postretirement benefit plans.

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

 

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Table of Contents

Note 19—Related Party Transactions

Significant transactions with related parties were:

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
     Six Months Ended
June  30
 
     2012         2011         2012         2011   
  

 

 

    

 

 

 

Operating revenues and other income

   $ 11         23         35         31   

Purchases

     93         579         254         950   

Operating expenses and selling, general and administrative expenses

     41         74         81         149   

Net interest expense*

     10         16         22         32   

 

 

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

Note 20—Segment Disclosures and Related Information

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and natural gas liquids on a worldwide basis. We manage our operations through six operating segments, which are defined by geographic region: Alaska, Lower 48 and Latin America, Canada, Europe, Asia Pacific and Middle East, and Other International. This is a change in our reportable segments, and, as a result, all prior periods presented have been restated.

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

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

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

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

 

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Table of Contents

Analysis of Results by Operating Segment

 

 

                                                           
     Millions of Dollars  
     Three Months Ended
June  30
    Six Months Ended
June  30
 
     2012     2011     2012     2011  
  

 

 

   

 

 

 

Sales and Other Operating Revenues

        

Alaska

   $ 2,393        2,632        5,130        4,917   

 

 

Lower 48 and Latin America

     4,172        5,977        9,303        11,625   

Intersegment eliminations

     (41     (78     (156     (164

 

 

Lower 48 and Latin America

     4,131        5,899        9,147        11,461   

 

 

Canada

     1,074        1,509        2,292        3,086   

Intersegment eliminations

     (77     (233     (213     (528

 

 

Canada

     997        1,276        2,079        2,558   

 

 

Europe

     3,926        4,565        7,528        8,379   

Intersegment eliminations

                   (72     (50

 

 

Europe

     3,926        4,565        7,456        8,329   

 

 

Asia Pacific and Middle East

     1,634        2,330        3,530        4,579   

Other International

     895        440        1,596        1,043   

LUKOIL Investment

                            

Corporate and Other

     12        34        34        69   

 

 

Consolidated sales and other operating revenues

   $ 13,988        17,176        28,972        32,956   

 

 

Net Income Attributable to ConocoPhillips

        

Alaska

   $ 551        492        1,171        1,056   

Lower 48 and Latin America

     119        337        374        662   

Canada

     (94     101        (643     128   

Europe

     669        533        1,058        999   

Asia Pacific and Middle East

     772        956        2,510        1,819   

Other International

     (19     79        67        198   

LUKOIL Investment

                          239   

Corporate and Other

     (265     (214     (579     (513

Discontinued operations

     534        1,118        1,246        1,842   

 

 

Consolidated net income attributable to ConocoPhillips

   $ 2,267        3,402        5,204        6,430   

 

 

 

                             
     Millions of Dollars  
    
 
June 30
2012
  
  
    

 

December 31

2011

  

  

  

 

 

 

Total Assets

     

Alaska

   $ 11,002         10,723   

Lower 48 and Latin America

     27,413         25,872   

Canada

     20,982         20,847   

Europe

     13,035         12,452   

Asia Pacific and Middle East

     23,328         22,374   

Other International

     9,775         9,070   

LUKOIL Investment

               

Corporate and Other

     8,473         8,485   

Discontinued operations

             43,407   

 

 

Consolidated total assets

   $ 114,008         153,230   

 

 

 

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Table of Contents

Note 21—Income Taxes

Our effective tax rate from continuing operations for the second quarter of 2012 was 57 percent compared with 49 percent for the second quarter of 2011. The increase was primarily due to a larger proportion of income in higher tax rate jurisdictions in 2012.

Our effective tax rate from continuing operations for the first six months of 2012 was 53 percent compared with 50 percent for the first six months of 2011. The increase was primarily due to a larger proportion of income in higher tax rate jurisdictions and asset impairments in 2012, partially offset by gains on asset dispositions in 2012.

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

In the United Kingdom, legislation was enacted on July 17, 2012, restricting corporate tax relief on decommissioning costs to 50 percent, retroactively effective from March 21, 2012. We anticipate our third quarter 2012 earnings will be reduced by approximately $175 million due to the remeasurement of deferred tax balances.

 

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Table of Contents

 

Supplementary Information— Condensed Consolidating Financial Information

Supplementary Information—Condensed Consolidating Financial Information

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

 

   

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

 

   

All other nonguarantor subsidiaries of ConocoPhillips.

 

   

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

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

 

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Table of Contents

 

                                                                                                                       
     Millions of Dollars  
     Three Months Ended June 30, 2012  
Income Statement    ConocoPhillips     ConocoPhillips
Company
     ConocoPhillips
Australia
Funding
Company
     ConocoPhillips
Canada
Funding
Company I
    ConocoPhillips
Canada
Funding
Company II
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Revenues and Other Income

                  

Sales and other operating revenues

   $        4,277                               9,711               13,988   

Equity in earnings of affiliates

     2,103        2,467                               570        (4,611     529   

Gain on dispositions

                                          583               583   

Other income

            24                               42               66   

Intercompany revenues

     18        245         12         23        9        1,615        (1,922       

 

 

Total Revenues and Other Income

     2,121        7,013         12         23        9        12,521        (6,533     15,166   

 

 

Costs and Expenses

                  

Purchased commodities

            3,767                               3,287        (1,296     5,758   

Production and operating expenses

            337                               1,550        (4     1,883   

Selling, general and administrative expenses

     3        167                               66        (1     235   

Exploration expenses

            96                               174               270   

Depreciation, depletion and amortization

            204                               1,422               1,626   

Impairments

                                          82               82   

Taxes other than income taxes

            68                               838               906   

Accretion on discounted liabilities

            13                               92               105   

Interest and debt expense

     586        90         11         20        8        103        (621     197   

Foreign currency transaction (gains) losses

     (2     54                 (23     (15     1               15   

 

 

Total Costs and Expenses

     587        4,796         11         (3     (7     7,615        (1,922     11,077   

 

 

Income from continuing operations before income taxes

     1,534        2,217         1         26        16        4,906        (4,611     4,089   

Provision for income taxes

     (199     114         1                1        2,417               2,334   

 

 

Income From Continuing Operations

     1,733        2,103                 26        15        2,489        (4,611     1,755   

Income from discontinued operations

     534        534                               280        (814     534   

 

 

Net income

     2,267        2,637                 26        15        2,769        (5,425     2,289   

Less: net income attributable to noncontrolling interests

                                          (22            (22

 

 

Net Income Attributable to ConocoPhillips

   $ 2,267        2,637                 26        15        2,747        (5,425     2,267   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 2,276        3,168                 (2     4        1,777        (5,425     1,798   

 

 
Income Statement    Three Months Ended June 30, 2011  

Revenues and Other Income

                  

Sales and other operating revenues

   $        5,337                               11,839               17,176   

Equity in earnings of affiliates

     2,524        2,208                               353        (4,710     375   

Gain on dispositions

                                          35               35   

Other income

            38                               44               82   

Intercompany revenues

     1        566         12         23        8        428        (1,038       

 

 

Total Revenues and Other Income

     2,525        8,149         12         23        8        12,699        (5,748     17,668   

 

 

Costs and Expenses

                  

Purchased commodities

            4,558                               3,737        (614     7,681   

Production and operating expenses

            273                               1,335        (13     1,595   

Selling, general and administrative expenses

     4        137                               63        (1     203   

Exploration expenses

            72                               192               264   

Depreciation, depletion and amortization

            219                               1,627               1,846   

Taxes other than income taxes

            73                               1,125               1,198   

Accretion on discounted liabilities

            11                               96               107   

Interest and debt expense

     367        118         11         20        8        128        (410     242   

Foreign currency transaction (gains) losses

            1                 19        11        (13            18   

 

 

Total Costs and Expenses

     371        5,462         11         39        19        8,290        (1,038     13,154   

 

 

Income from continuing operations before income taxes

     2,154        2,687         1         (16     (11     4,409        (4,710     4,514   

Provision for income taxes

     (129     163         1         (2     (2     2,183               2,214   

 

 

Income (Loss) from Continuing Operations

     2,283        2,524                 (14     (9     2,226        (4,710     2,300   

Income from discontinued operations

     1,119        1,119                               994        (2,113     1,119   

 

 

Net income (loss)

     3,402        3,643                 (14     (9     3,220        (6,823     3,419   

Less: net income attributable to noncontrolling interests

                                          (17            (17

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ 3,402        3,643                 (14     (9     3,203        (6,823     3,402   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 3,402        3,677                 (4     (5     3,733        (6,823     3,980   

 

 

 

28


Table of Contents
                                                                                                                       
     Millions of Dollars  
     Six Months Ended June 30, 2012  
Income Statement    ConocoPhillips     ConocoPhillips
Company
    ConocoPhillips
Australia
Funding
Company
     ConocoPhillips
Canada
Funding
Company I
    ConocoPhillips
Canada
Funding
Company II
    All Other
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

Revenues and Other Income

                 

Sales and other operating revenues

   $        8,569                              20,403               28,972   

Equity in earnings of affiliates

     4,679        5,230                              1,028        (9,922     1,015   

Gain on dispositions

                                         1,523               1,523   

Other income

     1        55                              70               126   

Intercompany revenues

     19        685        23         45        17        2,440        (3,229       

 

 

Total Revenues and Other Income

     4,699        14,539        23         45        17        25,464        (13,151     31,636   

 

 

Costs and Expenses

                 

Purchased commodities

            7,574                              6,304        (2,000     11,878   

Production and operating expenses

            604                              2,936        (19     3,521   

Selling, general and administrative expenses

     8        430                              133        (9     562   

Exploration expenses

            186                              763               949   

Depreciation, depletion and amortization

            408                              2,841               3,249   

Impairments

                                         296               296   

Taxes other than income taxes

            150                              1,857               2,007   

Accretion on discounted liabilities

            26                              186               212   

Interest and debt expense

     1,126        171        21         39        16        215        (1,201     387   

Foreign currency transaction (gains) losses

     (2     26                (12     1        6               19   

 

 

Total Costs and Expenses

     1,132        9,575        21         27        17        15,537        (3,229     23,080   

 

 

Income from continuing operations before income taxes

     3,567        4,964        2         18               9,927        (9,922     8,556   

Provision for income taxes

     (389     285        1         6               4,657               4,560   

 

 

Income From Continuing Operations

     3,956        4,679        1         12               5,270        (9,922     3,996   

Income from discontinued operations

     1,248        1,248                              995        (2,243     1,248   

 

 

Net income

     5,204        5,927        1         12               6,265        (12,165     5,244   

Less: net income attributable to noncontrolling interests

                                         (40            (40

 

 

Net Income Attributable to ConocoPhillips

   $ 5,204        5,927        1         12               6,225        (12,165     5,204   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 5,213        6,539        1         17        2        6,014        (12,165     5,621   

 

 
Income Statement    Six Months Ended June 30, 2011  

Revenues and Other Income

                 

Sales and other operating revenues

   $        10,319                              22,637               32,956   

Equity in earnings of affiliates

     5,034        4,808                              639        (9,780     701   

Gain on dispositions

            265                              383               648   

Other income

            69                              97               166   

Intercompany revenues

     2        881        23         46        17        1,166        (2,135       

 

 

Total Revenues and Other Income

     5,036        16,342        23         46        17        24,922        (11,915     34,471   

 

 

Costs and Expenses

                 

Purchased commodities

            9,070                              6,893        (1,324     14,639   

Production and operating expenses

            562                              2,666        (54     3,174   

Selling, general and administrative expenses

     9        317                              133        (8     451   

Exploration expenses

            126                              314               440   

Depreciation, depletion and amortization

            444                              3,250               3,694   

Taxes other than income taxes

            160                              1,922               2,082   

Accretion on discounted liabilities

            23                              189               212   

Interest and debt expense

     682        237        21         39        16        253        (749     499   

Foreign currency transaction (gains) losses

            (16             56        8        (23            25   

 

 

Total Costs and Expenses

     691        10,923        21         95        24        15,597        (2,135     25,216   

 

 

Income from continuing operations before income taxes

     4,345        5,419        2         (49     (7     9,325        (9,780     9,255   

Provision for income taxes

     (241     385        1         (1     8        4,486               4,638   

 

 

Income (Loss) From Continuing Operations

     4,586        5,034        1         (48     (15     4,839        (9,780     4,617   

Income from discontinued operations

     1,844        1,844                              1,399        (3,243     1,844   

 

 

Net income (loss)

     6,430        6,878        1         (48     (15     6,238        (13,023     6,461   

Less: net income attributable to noncontrolling interests

                                         (31            (31

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ 6,430        6,878        1         (48     (15     6,207        (13,023     6,430   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 6,430        6,971        1         1        5        7,397        (13,023     7,782   

 

 

 

29


Table of Contents

 

                                                                                                                       
     Millions of Dollars  
     June 30, 2012  
Balance Sheet    ConocoPhillips     ConocoPhillips
Company
     ConocoPhillips
Australia
Funding
Company
     ConocoPhillips
Canada
Funding
Company I
    ConocoPhillips
Canada
Funding
Company II
    All Other
Subsidiaries
     Consolidating
Adjustments
    Total
Consolidated
 

Assets

                   

Cash and cash equivalents

   $        12         3         44        1        984                1,044   

Restricted cash

     5,000                                                     5,000   

Accounts and notes receivable

     68        6,262                               12,332         (10,943     7,719   

Inventories

            196                               982                1,178   

Prepaid expenses and other current assets

     20        1,318                 1               1,147         (515     1,971   

 

 

Total Current Assets

     5,088        7,788         3         45        1        15,445         (11,458     16,912   

Investments, loans and long-term receivables*

     76,771        117,652         760         1,422        568        44,923         (217,127     24,969   

Net properties, plants and equipment

            8,416                               62,811                71,227   

Intangibles

            9                               2                11   

Other assets

     62        206                 2        3        616                889   

 

 

Total Assets

   $ 81,921        134,071         763         1,469        572        123,797         (228,585     114,008   

 

 

Liabilities and Stockholders’ Equity

                   

Accounts payable

   $        14,521                               5,494         (10,919     9,096   

Short-term debt

     3,222        4         750                       203                4,179   

Accrued income and other taxes

            315                 4               3,039         (539     2,819   

Employee benefit obligations

            417                               177                594   

Other accruals

     244        259         9         15        6        1,139                1,672   

 

 

Total Current Liabilities

     3,466