CONOCOPHILLIPS 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis is the company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “budget,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “will,” “would” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 52 . The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss). Business Environment and Executive Overview ConocoPhillips is the world’s largest independent E&P company with operations and activities in 13 countries. Our diverse, low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional assets in North America, Europe and Asia; LNG developments; oil sands in Canada; and an inventory of global conventional and unconventional exploration prospects. Headquartered in Houston, Texas, at September 30, 2022, we employed approximately 9,400 people worldwide and had total assets of $95 billion. Overview Overall, we anticipate that commodity prices will continue to be cyclical and volatile, and our view is that a successful business strategy in the E&P industry must be resilient in lower price environments, while also retaining full upside exposure during periods of higher prices. As such, we are unhedged, remain highly disciplined in our investment decisions and continue to monitor market fundamentals including the impacts associated with the conflict in Ukraine, OPEC Plus supply updates, global demand for our products, oil and gas inventory levels, governmental policies, inflation, supply chain disruptions and the fluctuating global COVID-19 impacts. During the third quarter of 2022, commodity prices moved in opposite directions, with oil prices decreasing due to macroeconomic concerns while natural gas prices continued to increase as compared with the prior quarter. The macro-environment, including the energy transition, also continues to evolve. We believe ConocoPhillips is playing a valued role in the energy transition. We are guided by our triple mandate that simultaneously calls for us to reliably and responsibly deliver oil and gas production to meet energy transition pathway demand, deliver competitive returns on and of capital and achieve our net-zero operating emissions ambition. Our triple mandate is supported by financial principles and capital allocation priorities designed to allow us to deliver superior returns through the price cycles. Our financial principles consist of maintaining balance sheet strength, providing peer-leading distributions, making disciplined investments and demonstrating ESG leadership, all of which are in service to generating competitive financial returns through the price cycles. In the third quarter, total company production was 1,754 MBOED, resulting in cash provided by operating activities of $8.7 billion. We returned $1.5 billion to shareholders through our ordinary dividend and a VROC and $2.8 billion through share repurchases. We ended the quarter with cash, cash equivalents and short-term investments totaling $10.4 billion. In August 2022, we increased our 2022 expected distributions through our three-tier return of capital framework to $15 billion for the year. This framework includes our ordinary dividend, share repurchases and the VROC tier we introduced last December. In November 2022, we declared an increase to the company's quarterly ordinary dividend from 46 cents per share to 51 cents per share, representing an 11 percent increase. In addition, we also declared our first quarter 2023 VROC payment of 70 cents per share. 31 ConocoPhillips 2022 Q3 10-Q Management’s Discussion and Analysis Table of Contents Demonstrating our commitment to further enhance balance sheet strength, in the first half of 2022, we executed several activities focused on debt reduction including debt refinancing and early retirement of certain Notes. In aggregate, these transactions reduced the company's total debt by $3 billion. These activities facilitate our ability to achieve our previously announced $5 billion debt reduction target by the end of 2026, while also reducing the company's annual cash interest expense. See Note 6 . In 2022, we have taken several steps to expand our global LNG business. In the first quarter, we increased our equity share in Australia Pacific LNG (APLNG) by 10 percent to 47.5 percent. See N ote 3 . During 2022 we signed agreements forming two new joint ventures with QatarEnergy that will participate in both the North Field East (NFE) and the North Field South (NFS) LNG projects. Subject to regulatory approvals, we will hold a 25 percent interest in each joint venture. In NFE and NFS, our joint ventures will participate with 12.5 percent and 25 percent interests in the respective LNG projects. Additionally, during the third quarter, we agreed to LNG receiving terminal services for a 15-year period at the prospective German LNG Terminal in Brunsbuettel, Germany. Domestically, in July 2022, we announced a Heads of Agreement (HOA) with Sempra to potentially acquire a 30 percent direct equity holding in Port Arthur Liquefaction Holdings, LLC and an LNG offtake equivalent to approximately 5 million tonnes per annum from the Port Arthur LNG project. The HOA is a preliminary, non-binding arrangement, with development of the Port Arthur LNG project subject to concluding definitive agreements and resolving a number of risks and uncertainties, including, among others, signing engineering and construction contracts, obtaining financing and reaching a final investment decision between the parties. In support of our commitment to ESG leadership and excellence, in July 2022, we joined the Oil and Gas Methane Partnership (OGMP) 2.0 initiative. The initiative's mission is to improve industry transparency in methane emissions reporting and encourage progress in reducing those emissions. We believe that applying the rigorous OGMP 2.0 reporting standards across our global assets will be a vital step towards meeting our Paris-aligned climate-risk commitments, including our net-zero ambition for operational emissions by 2050, and will allow us to credibly demonstrate how we are delivering against our methane improvement objectives and targets. In October 2022, we demonstrated further evidence of our commitment by setting a new 2030 methane emissions intensity target of approximately 0.15 percent of gas produced, consistent with our commitment to OGMP 2.0. As part of our ongoing portfolio high-grading and optimization efforts, in the third quarter, we completed the sale of certain noncore assets in the Lower 48 segment for approximately $300 million after customary adjustments while also coring up other strategic positions in the Lower 48 segment through acquisitions of approximately $300 million after customary adjustments. See Note 3 . Operationally, we remain focused on safely executing the business. Production was 1,754 MBOED in the third quarter of 2022, an increase of 210 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions and the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis, third-quarter 2022 production increased by 30 MBOED or two percent from the same period a year ago. Organic growth from Lower 48 and other development programs more than offset decline and downtime. We re-invested $2.5 billion into the business in the form of capital expenditures and investments during the third quarter of 2022, with over half of the expenditures focused on flexible, short-cycle unconventional plays in the Lower 48 segment, where our production has access to both domestic and export markets. ConocoPhillips 2022 Q3 10-Q 32 Management’s Discussion and Analysis Table of Contents Business Environment Commodity prices are the most significant factor impacting our profitability and related returns on and of capital to our shareholders. Dynamics that could influence world energy markets and commodity prices are global economic health, supply or demand disruptions or fears thereof caused by civil unrest, global pandemics, military conflicts, actions taken by OPEC Plus and other major oil producing countries, environmental laws, tax regulations, governmental policies and weather-related disruptions. Our strategy is to create value through price cycles by delivering on the financial, operational and ESG priorities that underpin our value proposition. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15 percent minimum tax on book income of certain large corporations, a 1 percent excise tax on net stock repurchases and several tax incentives to promote lower carbon energy. We are continuing to evaluate the impacts of this legislation; however, we do not believe any impacts will be material to our consolidated financial statements. Our earnings and operating cash flows generally correlate with price levels for crude oil and natural gas, which are subject to factors external to the company and over which we have no control. The following graph depicts the trend in average benchmark prices for WTI crude oil, Brent crude oil and Henry Hub natural gas: Brent crude oil prices averaged $100.85 per barrel in the third quarter of 2022, an increase of 37 percent compared with $73.47 per barrel in the third quarter of 2021. WTI at Cushing crude oil prices averaged $91.56 per barrel in the third quarter of 2022, an increase of 30 percent compared with $70.56 per barrel in the third quarter of 2021. Oil prices increased as a result of the ongoing global economic recovery following COVID-related impacts as well as supply constraints due to Russia's invasion of Ukraine, OPEC plus adherence to agreed production quotas and supply chain bottlenecks limiting growth. Henry Hub natural gas prices averaged $8.20 per MMBTU in the third quarter of 2022, an increase of 104 percent compared with $4.02 per MMBTU in the third quarter of 2021. Henry Hub prices have increased due to strong domestic demand led by the power sector, lagging production growth, low inventories and higher export demand via pipelines and LNG. As we move into the fourth quarter of 2022, growing production in the Permian basin is approaching offtake capacity limits in the short term, which is causing regional markers to experience higher differentials to Henry Hub. As additional pipeline infrastructure is expected to be completed in the next 12 to 18 months, we anticipate these differentials to narrow to more historic levels. Our realized bitumen price averaged $49.77 per barrel in the third quarter of 2022, an increase of 21 percent compared with $41.19 per barrel in the third quarter of 2021. The increase in the third quarter of 2022 was driven by higher blend prices for Surmont sales, largely attributed to a strengthening of WTI price. We continue to optimize bitumen price realizations through the utilization of downstream transportation solutions and implementation of alternate blend capability, which results in lower diluent costs. 33 ConocoPhillips 2022 Q3 10-Q Management’s Discussion and Analysis Table of Contents For the third quarter of 2022, our total average realized price was $83.07 per BOE compared with $56.92 per BOE in the third quarter of 2021. Key Operating and Financial Summary Significant items during the third quarter of 2022 and recent announcements included the following: • Distributed $4.3 billion to shareholders through a three-tier framework, including $1.5 billion in cash through the ordinary dividend and VROC and $2.8 billion through share repurchases. • Increased quarterly dividend by 11 percent to 51 cents per share and raised existing share repurchase authorization by $20 billion. • Expanded global LNG portfolio through participation in QatarEnergy's North Field South LNG project and agreed to terminal services in Germany for a 15-year period at the prospective German LNG Terminal. • Set a new 2030 methane emissions intensity target of approximately 0.15 percent of gas produced, consistent with our commitment to OGMP 2.0. • Achieved Lower 48 production milestone of greater than 1,000 MBOED, contributing to record global production of 1,754 MBOED while successfully completing planned maintenance turnarounds. • Generated cash provided by operating activities of $8.7 billion. • Ended the quarter with cash, cash equivalents and restricted cash of $8.3 billion and short-term investments of $2.4 billion. Outlook Capital and Production Fourth-quarter 2022 production is expected to be 1.74 to 1.80 MMBOED. Full-year production remains unchanged at 1.74 MMBOED. 2022 operating capital guidance has been adjusted to $8.1 billion versus the prior guidance of $7.8 billion, reflecting inflationary impacts and partner-operated well mix in the Lower 48. This guidance excludes $1.7 billion of capital associated with the closed acquisitions of an additional 10 percent interest in APLNG and bolt-on acquisitions in the Lower 48 segment. 2022 guidance for DD&A has decreased from $7.6 billion to $7.5 billion. ConocoPhillips 2022 Q3 10-Q 34 Results of Operations Table of Contents Results of Operations Unless otherwise indicated, discussion of consolidated results for the three- and nine-month periods ended September 30, 2022, is based on a comparison with the corresponding period of 2021. Consolidated Results A summary of the company's net income (loss) by business segment follows: Millions of Dollars Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Alaska $ 580 405 1,851 935 Lower 48 2,653 1,631 9,024 3,274 Canada 119 155 726 267 Europe, Middle East and North Africa 922 241 1,719 601 Asia Pacific 520 257 2,181 749 Other International (28) (97) (28) (106) Corporate and Other (239) (213) (42) (268) Net income $ 4,527 2,379 15,431 5,452 Net income in the third quarter of 2022 increased $2,148 million. Third quarter earnings were positively impacted by: • Higher realized commodity prices. • Higher sales volumes, primarily due to our Shell Permian acquisition, partly offset by assets divested. See Note 3 . • Higher equity in earnings of affiliates, primarily due to higher LNG sales prices as well as higher sales volumes inclusive of the additional 10 percent interest in APLNG we acquired in the first quarter of 2022. See Note 3 . • Gains related to certain commodity contracts and price impacts primarily on gas transportation in Europe. Third quarter 2022 earnings were negatively impacted by: • Higher production and operating expenses, taxes other than income taxes and DD&A expenses primarily due to higher prices and production volumes. Partially offsetting the increase in DD&A expenses were lower rates from price-related reserve revisions. • Higher income tax provision. Net income in the nine-month period ended September 30, 2022, increased $9,979 million. In addition to the items mentioned above, earnings in the nine-month period were positively impacted by: • Gain on dispositions primarily due to a $462 million after-tax gain related to the divestiture of our Indonesia assets, higher contingent payments related to prior dispositions in our Canada and Lower 48 segments, divestiture of noncore assets in our Lower 48 segment in the second quarter of 2022 and absence of a $137 million after-tax loss related to the divestiture of noncore assets in our Other International segment in the third quarter of 2021. See Note 3 . • Recognized $515 million tax benefit related to the closing of an IRS audit in the first quarter. See Note 18 . • Absence of restructuring and transaction expenses of $243 million after-tax related to our Concho acquisition. • Absence of realized losses on hedges of $233 million after-tax related to derivative positions acquired in our Concho acquisition. See Note 10 . • Foreign exchange gains increased $122 million after-tax primarily as a result of the USD strengthening against the Norwegian Kroner. In addition to the items mentioned above, earnings in the nine-month period were negatively impacted by: • Absence of mark to market gains associated with Cenovus Energy (CVE) shares. See Note 5 . • Absence of $194 million after-tax gain recognized in conjunction with our Australia-West divestiture. See Note 9 . See the “Segment Results” section for additional information. 35 ConocoPhillips 2022 Q3 10-Q Results of Operations Table of Contents Income Statement Analysis Unless otherwise indicated, all results in Income Statement Analysis are before-tax. Sales and other operating revenues for the three- and nine-month periods of 2022 increased $9,687 million and $29,228 million, respectively, mainly due to higher realized commodity prices and higher sales volumes primarily due to our Shell Permian acquisition, partly offset by assets divested. See Note 3 . Equity in earnings of affiliates for the three- and nine-month periods of 2022 increased $322 million and $1,011 million, respectively, due to higher earnings primarily driven by higher LNG and crude prices as well as higher sales volumes inclusive of the additional 10 percent interest in APLNG we acquired in the first quarter of 2022. See Note 3 . Gain (loss) on dispositions in the third quarter of 2022 decreased due to the absence of contingent payments in our Canada segment and a loss of $76 million primarily related to the sale of noncore assets in the Lower 48 segment, partially offset by the absence of a loss of $179 million for the sale of noncore assets in our Other International segment divested in the third quarter of 2021. For the nine-month period of 2022, we recognized a gain of $534 million from our Indonesia divestiture and a gain of $80 million for the sale of noncore assets in the Lower 48 from the second quarter. In the nine-month period of 2022, we recognized higher contingent payments in our Canada and Lower 48 segments than in the same periods of 2021. Offsetting the increase in gains in the nine-month period of 2022 was the absence of a $200 million gain associated with our Australia-West divestiture recognized in the first quarter of 2021. See Note 3 . Other income for the nine-month period of 2022 decreased $476 million primarily due to the absence of mark to market gains associated with our CVE common shares which were fully divested in the first quarter of 2022. See Note 5 . Purchased commodities for the three- and nine-month periods of 2022 increased $5,072 million and $13,576 million, respectively, primarily due to higher gas, crude and power prices and volumes. Production and operating expenses for the three- and nine-month periods of 2022 increased $410 million and $970 million, respectively, primarily due to higher production volumes and inflationary impacts. Selling, general and administrative expenses decreased $125 million in the nine-month period primarily due to the absence of transaction and restructuring expenses associated with our Concho acquisition in 2021. Exploration expenses for the nine-month period of 2022 increased $95 million primarily due to dry hole expenses in the Europe, Middle East and North Africa and Asia Pacific segments related to 2022 exploration programs. DD&A Expenses for the three- and nine-month periods of 2022 increased $200 million and $80 million, respectively, mainly due to higher overall production volumes primarily associated with our Shell Permian acquisition partially offset by lower rates from price-related reserve revisions and the absence of DD&A from disposed assets. Taxes other than income taxes for the three- and nine-month periods of 2022 increased $440 million and $1,523 million, respectively, caused by higher commodity prices and higher production volumes. Foreign currency transaction (gain) loss for the three- and nine-month periods of 2022 was improved by $83 million and $158 million, respectively, primarily as a result of the USD strengthening against the Norwegian Kroner. Other expenses for the nine-month period of 2022, other expenses decreased $124 million primarily related to a gain of $127 million associated with extinguishment of debt from the first quarter of 2022. See Note 6 . See Note 18 —Income Taxes for information regarding our Income tax provision and effective tax rate. ConocoPhillips 2022 Q3 10-Q 36 Results of Operations Table of Contents Summary Operating Statistics Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Average Net Production Crude oil (MBD) Consolidated operations 882 802 881 814 Equity affiliates 13 13 13 13 Total crude oil 895 815 894 827 Natural gas liquids (MBD) Consolidated operations 263 123 238 116 Equity affiliates 8 7 8 8 Total natural gas liquids 271 130 246 124 Bitumen (MBD) 69 69 65 69 Natural gas (MMCFD) Consolidated operations 1,899 2,144 1,966 2,143 Equity affiliates 1,214 1,033 1,192 1,055 Total natural gas 3,113 3,177 3,158 3,198 Total Production (MBOED) 1,754 1,544 1,731 1,553 Dollars Per Unit Average Sales Prices Crude oil (per bbl) Consolidated operations $ 97.60 70.39 101.19 64.62 Equity affiliates 94.58 73.44 101.38 65.71 Total crude oil 97.56 70.43 101.19 64.63 Natural gas liquids (per bbl) Consolidated operations 34.83 33.28 39.06 28.02 Equity affiliates 55.51 56.70 64.91 49.81 Total natural gas liquids 35.47 34.79 39.90 29.58 Bitumen (per bbl) 49.77 41.19 63.14 36.61 Natural gas (per MCF) Consolidated operations 14.14 5.93 10.98 5.02 Equity affiliates 11.37 5.95 10.15 4.48 Total natural gas 13.04 5.94 10.66 4.84 Millions of Dollars Exploration Expenses General administrative, geological and geophysical, lease rental and other $ 57 65 165 199 Leasehold impairment 7 — 23 1 Dry holes 25 — 113 6 $ 89 65 301 206 37 ConocoPhillips 2022 Q3 10-Q Results of Operations Table of Contents We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide basis. In the quarter ending September 30, 2022, our operations were producing in the U.S., Norway, Canada, Australia, China, Malaysia, Qatar and Libya. Total production of 1,754 MBOED increased 210 MBOED or 14 percent in the third quarter of 2022 and 178 MBOED or 11 percent in the nine-month period of 2022, primarily due to: • New wells online in the Lower 48, Alaska, Australia and China. • Acquisitions including Shell Permian in the Lower 48 and additional working interest at APLNG in Asia Pacific. • Conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis. Production increases in the third quarter and in the nine-month period of 2022 were partly offset due to: • Normal field decline. • Divestitures of Indonesia and noncore assets in the Lower 48 segment. Production for the third quarter of 2022 was 1,754 MBOED, an increase of 210 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions and the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis, third-quarter 2022 production increased by 30 MBOED or two percent from the same period a year ago. Organic growth from Lower 48 and other development programs more than offset decline and downtime. Production for the first nine months of 2022 was 1,731 MBOED, an increase of 178 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions, the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis and 2021 Winter Storm Uri impacts, production decreased 23 MBOED or one percent from the same period a year ago. Organic growth from Lower 48 and other development programs more than offset decline; however, production was lower overall primarily due to planned and unplanned downtime. ConocoPhillips 2022 Q3 10-Q 38 Results of Operations Table of Contents Segment Results Unless otherwise indicated, discussion of segment results for the three- and nine-month periods ended September 30, 2022, is based on a comparison with the corresponding period of 2021 and are shown after-tax. Alaska Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income ($MM) $ 580 405 1,851 935 Average Net Production Crude oil (MBD) 171 163 177 179 Natural gas liquids (MBD) 15 13 16 15 Natural gas (MMCFD) 29 11 33 10 Total Production (MBOED) 191 178 198 196 Average Sales Prices Crude oil ($ per bbl) $ 103.90 72.55 104.83 66.78 Natural gas ($ per MCF) 4.38 2.63 3.82 3.06 The Alaska segment primarily explores for, produces, transports and markets crude oil, NGLs and natural gas. As of September 30, 2022, Alaska contributed 16 percent of our consolidated liquids production and two percent of our consolidated natural gas production. Net Income Earnings from Alaska increased $175 million and $916 million in the three- and nine-month periods of 2022, respectively. Increases to earnings are primarily due to higher realized prices. Offsets to the earnings increase include higher taxes other than income taxes associated with higher realized commodity prices and higher production volumes. Production Average production increased 13 MBOED and 2 MBOED in the three- and nine-month periods of 2022, respectively. Increases to production include: • New wells online at our Western North Slope assets. • Lower turnaround impacts at our Western North Slope assets. • Higher gas volumes in our Greater Prudhoe Area. Offsets to the production increases include normal field decline. 39 ConocoPhillips 2022 Q3 10-Q Results of Operations Table of Contents Lower 48 Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income ($MM) $ 2,653 1,631 9,024 3,274 Average Net Production Crude oil (MBD) 537 457 534 442 Natural gas liquids (MBD)* 241 101 216 93 Natural gas (MMCFD)* 1,410 1,389 1,416 1,389 Total Production (MBOED) 1,013 790 986 767 Average Sales Prices Crude oil ($ per bbl) $ 93.19 68.59 98.64 63.14 Natural gas liquids ($ per bbl) 34.59 32.87 38.74 27.48 Natural gas ($ per MCF) 7.36 4.63 6.28 4.13 *2022 includes the conversion of previously acquired Concho two-stream contracts to three-stream initiated in the fourth quarter of 2021. The Lower 48 segment consists of operations located in the U.S. Lower 48 states, as well as producing properties in the Gulf of Mexico. As of September 30, 2022, the Lower 48 contributed 64 percent of our consolidated liquids production and 72 percent of our consolidated natural gas production. Net Income Earnings from the Lower 48 increased $1,022 million and $5,750 million in the three- and nine-month periods of 2022, respectively. Increases to earnings include: • Higher realized prices. • Higher sales volumes primarily related to our Shell Permian Acquisition. See Note 3 . Offsets to the earnings increase include higher production and operating expenses, taxes other than income taxes and DD&A expenses primarily due to higher prices and production volumes. Partially offsetting the increase in DD&A expenses were lower rates from price-related reserve revisions. In addition to the items detailed above, in the nine-month period of 2022, earnings also increased due to the absence of one-time impacts from our Concho acquisition including realized losses on hedges related to derivative positions acquired and higher selling, general and administrative expenses for transaction and restructuring charges. See Note 10 . Production Average production increased 223 MBOED and 219 MBOED in the three- and nine-month periods of 2022, respectively. Increases to production include: • New wells online from our development programs in Permian, Eagle Ford and Bakken. • Higher volumes due to our Shell Permian acquisition, partly offset by assets divested. See Note 3 . • Conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis. Offsets to the production increases include normal field decline. Asset Acquisitions and Dispositions We completed multiple divestitures of noncore assets in the nine-month period of 2022 totaling approximately $700 million in proceeds after customary adjustments. Production from these assets averaged approximately 18 MBOED in 2021. In the third quarter of 2022, we also cored up strategic positions through acquisitions of approximately $300 million after customary adjustments. See Note 3 . ConocoPhillips 2022 Q3 10-Q 40 Results of Operations Table of Contents Canada Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income ($MM) $ 119 155 726 267 Average Net Production Crude oil (MBD) 4 8 5 10 Natural gas liquids (MBD) 3 4 3 4 Bitumen (MBD) 69 69 65 69 Natural gas (MMCFD) 49 73 59 83 Total Production (MBOED) 84 93 83 96 Average Sales Prices Crude oil ($ per bbl) $ 71.11 58.99 83.36 53.81 Natural gas liquids ($ per bbl) 29.62 33.47 39.24 28.49 Bitumen ($ per bbl) 49.77 41.19 63.14 36.61 Natural gas ($ per MCF) 2.40 2.45 3.47 2.36 Average sales prices include unutilized transportation costs. Our Canadian operations mainly consist of the Surmont oil sands development in Alberta and the liquids-rich Montney unconventional play in British Columbia. As of September 30, 2022, Canada contributed six percent of our consolidated liquids production and three percent of our consolidated natural gas production. Net Income Earnings from Canada decreased $36 million and increased $459 million in the three- and nine-month periods of 2022, respectively. In the third quarter, decreases to earnings include: • The absence of contingent payments associated with the prior sale of certain assets to CVE. The term for contingent payments in our Canada segment ended in the second quarter of 2022. See Note 3 . • Lower sales volumes. • Higher production and operating expenses primarily due to higher electricity and fuel gas costs in the Surmont. Offsetting the earnings decreases were higher realized crude oil and bitumen prices. In addition to the items detailed above, in the nine-month period of 2022, earnings increased due to higher after-tax gains on disposition related to contingent payments of $282 million in the nine-month period of 2022, associated with the prior sale of certain assets to CVE, compared to $149 million in the same period of 2021. See Note 3 . Production Average production decreased 9 MBOED and 13 MBOED in the three- and nine-month periods of 2022, respectively. Decreases to production include: • Normal field decline. • Higher royalty rates across the segment due to higher commodity prices. • Planned turnaround in our Montney assets in the third quarter of 2022. Offsets to the production decreases include absence of higher well failures, plant power trips and facility upsets experienced in the third quarter of 2021. In addition to the items detailed above, in the nine-month period of 2022, production decreased due to a planned turnaround at the Surmont Central Processing Facility 1 during the second quarter of 2022. 41 ConocoPhillips 2022 Q3 10-Q Results of Operations Table of Contents Europe, Middle East and North Africa Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income ($MM) $ 922 241 1,719 601 Consolidated Operations Average Net Production Crude oil (MBD) 107 117 104 118 Natural gas liquids (MBD) 4 5 3 4 Natural gas (MMCFD) 331 303 323 303 Total Production (MBOED) 166 172 161 172 Average Sales Prices Crude oil ($ per bbl) $ 102.70 72.43 103.03 65.94 Natural gas liquids ($ per bbl) 51.67 50.32 57.01 40.75 Natural gas ($ per MCF) 48.10 11.96 35.35 8.40 The Europe, Middle East and North Africa segment consists of operations principally located in the Norwegian sector of the North Sea and the Norwegian Sea, Qatar, Libya and commercial operations in the U.K. During the current year, we have increased our capacity and supply arrangements on future gas purchases, which are primarily offset by future gas sales contracts, primarily in Europe. As of September 30, 2022, our Europe, Middle East and North Africa operations contributed nine percent of our consolidated liquids production and 16 percent of our consolidated natural gas production. Net Income Earnings from Europe, Middle East and North Africa increased by $681 million and $1,118 million in the three- and nine-month periods of 2022, respectively. Increases to earnings include: • Higher realized prices. • Gains related to certain commodity contracts and price impacts primarily on gas transportation in Europe. • Foreign exchange gains as the USD strengthened against the Norwegian Kroner. • Higher equity in earnings of affiliates, primarily due to higher LNG sales prices. Consolidated Production Average consolidated production decreased 6 MBOED and 11 MBOED in the three- and nine-month periods of 2022, respectively. Decreases to production include: • Normal field decline. • Curtailed production in Libya due to the force majeure at the Es Sider export terminal in July. Offsets to the production decreases include new wells online, improved performance and higher exports in Norway. In addition to the items detailed above, in the nine-month period of 2022, production also decreased due to field-wide turnarounds in the Greater Ekofisk Area of Norway in the second quarter of 2022. Force Majeure in Libya Production ceased the last week of June 2022, due to a forced shutdown of the Es Sider export terminal after a period of civil unrest. Force majeure was lifted and production resumed late July 2022. Exploration Activity The fourth and last well from our 2022 operated exploration and appraisal campaign in Norway was drilled in the third quarter. In total for the year, we drilled four operated wells, all of which were determined to be dry holes, including the Slagugle appraisal well which effectively delineated the 2020 discovery. Slagugle is a discovery we are continuing to evaluate. ConocoPhillips 2022 Q3 10-Q 42 Results of Operations Table of Contents Asia Pacific Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income ($MM) $ 520 257 2,181 749 Consolidated Operations Average Net Production Crude oil (MBD) 63 57 61 65 Natural gas (MMCFD) 80 368 135 358 Total Production (MBOED) 76 119 84 125 Average Sales Prices Crude oil ($ per bbl) $ 108.99 74.66 110.25 67.41 Natural gas ($ per MCF) 4.18 6.66 6.05 6.30 The Asia Pacific segment has operations in China, Malaysia, Australia and commercial operations in Singapore and Japan. As of September 30, 2022, Asia Pacific contributed five percent of our consolidated liquids production and seven percent of our consolidated natural gas production. Net Income Earnings from Asia Pacific increased $263 million and $1,432 million in the three- and nine-month periods of 2022, respectively. Increases to earnings include: • Higher equity in earnings of affiliates reflecting higher LNG sales prices as well as our increased interest in APLNG. • Higher realized crude oil prices. Offsets to the earnings increases include: • Lower sales volumes primarily due to the divestiture of our Indonesia assets. • Higher taxes other than income taxes primarily due to higher realized crude oil prices. In addition to the items detailed above, in the nine-month period of 2022, earnings impacts include: • Increase due to an after-tax gain of $534 million associated with the divestiture of our Indonesia assets. See Note 3 . • Decrease due to the absence of an after-tax gain of $200 million recognized in the first quarter of 2021 related to a contingent payment from our Australia-West divestiture in 2020. See Note 9 . • Lower DD&A expenses associated with lower production volumes primarily driven by the divestiture of our Indonesia assets. Consolidated Production Average consolidated production decreased 43 MBOED and 41 MBOED in the three- and nine-month periods of 2022, respectively. Decreases to production include: • Divestiture of our Indonesia assets in the first quarter of 2022. • Normal field decline. Offsets to the production decreases include Bohai Bay development activity in China. Asset Acquisitions and Dispositions In the first quarter of 2022, we completed the acquisition of an additional 10 percent interest in APLNG increasing our ownership to 47.5 percent. Also in the first quarter, we completed the divestiture of our subsidiaries that held our Indonesia assets and operations. Production from the disposed assets averaged approximately 33 MBOED in the three-months ended March 31, 2022. See Note 3 . 43 ConocoPhillips 2022 Q3 10-Q Results of Operations Table of Contents Other International Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Loss ($MM) $ (28) (97) (28) (106) The Other International segment consists of exploration and appraisal activities in Colombia as well as contingencies associated with prior operations in other countries. As a result of recent acquisitions, we refocused our exploration program and announced our intent to pursue managed exits from certain areas. Earnings from our Other International operations improved $69 million in the third quarter of 2022 and $78 million in the nine-month period ended September 30, 2022, compared with the same periods of 2021 primarily due to the absence of a $137 million after-tax loss on divestiture related to our Argentina exploration interests in the third quarter of 2021, partially offset by higher taxes related to legal settlements in the third quarter of 2022. Corporate and Other Millions of Dollars Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Income (Loss) Net interest expense $ (125) (176) (507) (627) Corporate general and administrative expenses (62) (57) (157) (251) Technology (8) (6) 41 31 Other income (expense) (44) 26 581 579 $ (239) (213) (42) (268) Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest expense improved by $51 million and $120 million in the three- and nine-month periods of 2022, respectively, primarily due to higher interest income as well as lower interest expenses as a result of our debt reduction transactions. Improvement in the nine-month period also includes the absence of a prior year tax adjustment. Corporate G&A expenses include compensation programs and staff costs. In the nine-month period of 2022 these expenses decreased by $94 million primarily due to the absence of restructuring expenses associated with our 2021 acquisition of Concho Resources Inc. Technology includes our investment in new technologies or businesses, as well as licensing revenues. Activities are focused on both conventional and tight oil reservoirs, shale gas, heavy oil, oil sands, enhanced oil recovery, as well as LNG. See Note 16 . Other income (expense) or “Other” includes certain corporate tax-related items, foreign currency transaction gains and losses, environmental costs associated with sites no longer in operation, other costs not directly associated with an operating segment, gains/losses on the early retirement of debt, holding gains or losses on equity securities, and pension settlement expense. In the third quarter of 2022, “Other” decreased $70 million primarily due to the absence of unrealized gains associated with our CVE common shares, which were fully divested in the first quarter of 2022, and foreign currency transaction losses. For the nine-month period of 2022, " Other " increased $2 million due to the IRS closing the 2017 audit of our U.S. federal income tax return resulting in a $474 million federal tax benefit, the absence of a release of a $92 million deferred tax asset associated with prior dispositions and recognizing an after-tax gain of $62 million associated with the debt restructuring transactions. These increases were offset by the absence of $492 million in gains related to our CVE common shares and a $101 million tax impact associated with the disposition of our Indonesia assets. See Note 5 for information on our CVE common shares, Note 18 for information about the tax benefit, Note 6 for information regarding debt and Note 3 for information on our Indonesia divestiture. ConocoPhillips 2022 Q3 10-Q 44 Capital Resources and Liquidity Table of Contents Capital Resources and Liquidity Financial Indicators Millions of Dollars September 30 2022 December 31 2021 Cash and cash equivalents $ 8,010 5,028 Short-term investments 2,412 446 Total debt 16,961 19,934 Total equity 49,079 45,406 Percent of total debt to capital* 26 % 31 Percent of floating-rate debt to total debt 2 % 4 * Capital includes total debt and total equity. To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, including cash generated from operating activities, our commercial paper and credit facility programs, and our ability to sell securities using our shelf registration statement. During the first nine months of 2022, the primary uses of our available cash were $7.6 billion to support our ongoing capital expenditures and investments program, $6.5 billion to repurchase common stock, $3.0 billion net to reduce debt as part of refinancing transactions and retirements, $3.3 billion to pay dividends, including the ordinary dividend and a VROC, and $2.2 billion net purchases of investments. At September 30, 2022, we had total liquidity of $15.9 billion , including cash and cash equivalen ts of $8.0 billion , short-term investments of $2.4 billion , and available borrowing capacity under our credit facility of $5.5 billion. We believe current cash balances and cash generated by operating activities, together with access to external sources of funds as described below in the “Significant Changes in Capital” section, will be sufficient to meet our funding requirements in t he near- and long-term, including our capital spending program, acquisitions, dividend payments and debt obligations. Significant Changes in Capital Operating Activities Cash provided by operating activities was $21.7 billion for the first nine months of 2022, compared with $11.1 billion for the corresponding period of 2021. The increase in cash provided by operating activities is primarily due to higher realized commodity prices, higher sales volumes mostly due to our acquisition of Shell Permian assets, and the absence of the 2021 settlement of all oil and gas hedging positions acquired from Concho. The increase in cash provided by operating activities was partly offset by foreign tax and royalty payments primarily in Libya and Norway in addition to U.S. tax payments. Our short- and long-term operating cash flows are highly dependent upon prices for crude oil, bitumen, natural gas, LNG and NGLs. Prices and margins in our industry have historically been volatile and are driven by market conditions over which we have no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows. The level of production volumes, as well as product and location mix, impacts our cash flows. Future production is subject to numerous uncertainties, including, among others, the volatile crude oil and natural gas price environment, which may impact investment decisions; the effects of price changes on production sharing and variable-royalty contracts; acquisition and disposition of fields; field production decline rates; new technologies; operating efficiencies; timing of startups and major turnarounds; political instability; impacts of a global pandemic; weather-related disruptions; and the addition of proved reserves through exploratory success and their timely and cost-effective development. While we actively manage for these factors, production levels can cause variability in cash flows, although generally this variability has not been as significant as that caused by commodity prices. To maintain or grow our production volumes, we must continue to add to our proved reserve base. See the “Capital Expenditures and Investments” section. 45 ConocoPhillips 2022 Q3 10-Q Capital Resources and Liquidity Table of Contents Investing Activities For the first nine months of 2022, we i nv ested $7.6 billion in capital expenditures a nd investments; $1.7 billion of which was acquisition capital for the additional 10 percent interest in APLNG and acquisition of certain Lower 48 assets, and the remainder funding our operating capital program. Our 2022 operating plan capital expenditures are currently expected to be $8.1 billion versus the prior guidance of $7.8 billion, reflecting inflationary impacts and partner-operated well mix in the L48. This guidance excludes approximately $1.7 billion of acquisition capital. Our 2021 capital expenditures and investments were $5.3 billion. See the “Capital Expenditures and Investments” section. In May 2021, we initiated the monetization of our investment in CVE common shares with the plan to direct proceeds toward our existing share repurchase program. We began disposing of our CVE shares in May 2021, and by the end of the first quarter, we fully divested of our investment, recognizing proceeds of $1.4 billion in the first quarter of 2022. Since inception, we have generated total proceeds of $2.5 billion. See Note 5. Other proceeds from dispositions received in the current year include our divestitures in Asia Pacific and Lower 48 segments for approximately $1.4 billion after customary adjustments and $500 million in contingent payments associated with prior divestitures. S ee Note 3. In the third quarter, we completed the sale of certain noncore assets in the Lower 48 segment for approximately $300 million after customary adjustments while also coring up other strategic positions in the Lower 48 segment through acquisitions of approximately $300 million after customary adjustments. See Note 3 . We invest in short-term investments as part of our cash investment strategy, the primary objective of which is to protect principal, maintain liquidity and provide yield and total returns; these investments include time deposits, commercial paper, as well as debt securities classified as available for sale. Funds for short-term needs to support our operating plan and provide resiliency to react to short-term price volatility are invested in highly liquid instruments with maturities within the year. Funds we consider available to maintain resiliency in longer term price downturns and to capture opportunities outside a given operating plan may be invested in instruments with maturities greater than one year. Investing activities in the first nine months of 2022 included net purchases of $2,235 million of investments. We had net purchases of $1,663 million of short-term instruments and $572 million of long-term instruments . See Note 13. Financing Activities In February 2022, we refinanced our revolving credit facility from a total aggregate principal amount of $6.0 billion to $5.5 billion with an expiration date of February 2027. The credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. With no commercial paper outstanding and no direct borrowings or letters of credit, we had access to $5.5 billion in available borrowing capacity under our revolving credit facility at September 30, 2022. Our debt balance at September 30, 2022 was $17.0 billion compared with $19.9 billion at December 31, 2021. The current portion of debt, including payments for finance leases, is $0.7 billion . Payments will b e made using current cash balances and cash generated by operating activities. In the second quarter of 2022, we repurchased notes and retired floating rate debt and in the first quarter of 2022, we executed a debt refinancing comprised of concurrent transactions including new debt issuances, a cash tender offer and debt exchange offers. In aggregate, the transactions reduced the company's total debt by $3.0 billion. The refinancing facilitates our ability to achieve our previously announced $5 billion debt reduction target by the end of 2026 while also reducing the company's annual cash interest expense. The current credit ratings on our long-term debt are: • Fitch: “A” with a “stable” outlook • S&P: “A-” with a “stable” outlook • Moody's: "A2" with a "stable" outlook See Note 6 for additional information on debt, revolving credit facility and credit ratings. Certain of our project-related contracts, commercial contracts and derivative instruments contain provisions requiring us to post collateral. Many of these contracts and instruments permit us to post either cash or letters of credit as collateral. At September 30, 2022 and December 31, 2021, we had direct bank letters of credit of $261 million and $337 million, respectively, which secured performance obligations related to various purchase commitments incident to the ordinary conduct of business. In the event of a credit rating downgrade, we may be required to post additional letters of credit. ConocoPhillips 2022 Q3 10-Q 46 Capital Resources and Liquidity Table of Contents Shelf Registration We have a universal shelf registration statement on file with the SEC under which we have the ability to issue and sell an indeterminate number of various types of debt and equity securities. Capital Requirements For information about our capital expenditures and investments, see the “Capital Expenditures and Investments” section. In 2021, as part of our objective to maintain a strong balance sheet, we announced our intention to reduce our total debt by $5 billion by the end of 2026. In the first half of 2022, we executed concurrent debt refinancing transactions, repurchased existing notes, and retired floating rates notes upon natural maturity, that in aggregate reduced the company's total debt by $3 billion and progressed the achievement of our debt reduction target while also lowering our annual cash interest expense and extending the weighted average maturity of our debt portfolio. See Note 6. In December 2021, we announced our expected 2022 return of capital program and the initiation of a three-tier return of capital framework. The framework is structured to deliver a compelling, growing ordinary dividend and through-cycle share repurchases. In addition to the ordinary dividend and share repurchases, beginning in December 2021, the framework includes the addition of a discretionary VROC tier. The VROC will provide a flexible tool for meeting our commitment of returning greater than 30 percent of cash from operating activities during periods where commodity prices are meaningfully higher than our planning price range. Our expected 2022 total capital return is $15 billion. In the first nine months of 2022, we paid ordinary dividends of $1.38 per common share and VROC dividends of $1.20 per common share. In the first nine months of 2021, we paid ordinary dividends of $1.29 per common share. In November 2022, we declared an increase in the company's quarterly ordinary dividend from 46 cents per share to 51 cents per share representing an 11 percent increase. In addition, we declared a VROC dividend of 70 cents per share. The ordinary dividend of 51 cents per share is payable December 1, 2022, to shareholders of record on November 15, 2022. The VROC of 70 cents per share is payable January 13, 2023, to shareholders of record on December 27, 2022. In late 2016, we initiated our current share repurchase program. As of September 30, 2022, share repurchases since the inception of our current program totaled 312 million shares and $20.7 billion. In the nine months ended September 30, 2022, we repurchased 65 million shares for a cost of $6.5 billion. In October 2022, our Board of Directors approved an increase to our authorization from $25 billion to $45 billion of our common stock to support our plan for future share repurchases. Repurchases are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. See Part I—Item 1A—Risk Factors – “ Our ability to execute our capital return program is subject to certain considerations ” in our 2021 Annual Report on Form 10-K. 47 ConocoPhillips 2022 Q3 10-Q Capital Resources and Liquidity Table of Contents Capital Expenditures and Investments Millions of Dollars Nine Months Ended September 30 2022 2021 Alaska 740 698 Lower 48 4,120 2,250 Canada 382 129 Europe, Middle East and North Africa 531 385 Asia Pacific 1,791 235 Other International — 33 Corporate and Other 62 37 Capital expenditures and investments 7,626 3,767 During the first nine months of 2022, capital expenditures and investments supported key operating activities and acquisitions, primarily: • Development activities in the Lower 48, primarily in the Permian, Eagle Ford and Bakken and inclusive of our recent acquisitions. • Appraisal and development activities in Alaska related to the Western North Slope and development activities in the Greater Kuparuk Area. • Appraisal and development activities in the Montney as well as development and optimization of oil sands development in Canada. • Development and exploration activities across assets in Norway. • Continued development and exploration activities in Malaysia and China. • Acquisition capital associated with additional interest in APLNG and in certain Lower 48 assets. Our 2022 operating plan capital expenditure guidance is currently expected to be $8.1 billion. This guidance excludes approximately $1.7 billion of acquisition capital. Our operating capital was $5.3 billion in 2021. ConocoPhillips 2022 Q3 10-Q 48 Capital Resources and Liquidity Table of Contents Guarantor Summarized Financial Information We have various cross guarantees among our Obligor group; ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. Burlington Resources LLC is 100 percent owned by ConocoPhillips Company. ConocoPhillips and/or ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of Burlington Resources LLC, with respect to its publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following tables present summarized financial information for the Obligor Group, as defined below: • The Obligor Group will reflect guarantors and issuers of guaranteed securities consisting of ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC. • Consolidating adjustments for elimination of investments in and transactions between the collective guarantors and issuers of guaranteed securities are reflected in the balances of the summarized financial information. • Non-Obligated Subsidiaries are excluded from the presentation. Transactions and balances reflecting activity between the Obligors and Non-Obligated Subsidiaries are presented below: Summarized Income Statement Data Millions of Dollars Nine Months Ended September 30, 2022 Revenues and Other Income $ 42,822 Income before income taxes* 15,081 Net Income 15,431 *Includes approximately $7.4 billion of purchased commodities expense for transactions with Non-Obligated Subsidiaries. Summarized Balance Sheet Data Millions of Dollars September 30, 2022 December 31, 2021 Current assets $ 10,428 7,689 Amounts due from Non-Obligated Subsidiaries, current 1,613 1,927 Noncurrent assets 77,913 69,841 Amounts due from Non-Obligated Subsidiaries, noncurrent 8,421 7,281 Current liabilities 9,186 8,005 Amounts due to Non-Obligated Subsidiaries, current 3,355 3,477 Noncurrent liabilities 36,634 30,677 Amounts due to Non-Obligated Subsidiaries, noncurrent 20,946 13,007 Contingencies We are subject to legal proceedings, claims and liabilities that arise in the ordinary course of business. We accrue for losses associated with legal claims when such losses are considered probable and the amounts can be reasonably estimated. See Note 9 . 49 ConocoPhillips 2022 Q3 10-Q Capital Resources and Liquidity Table of Contents Legal and Tax Matters We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, climate change, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties, claims of alleged environmental contamination and damages from historic operations, and climate change. We will continue to defend ourselves vigorously in these matters. Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. Environmental We are subject to the same numerous international, federal, state and local environmental laws and regulations as other companies in our industry. For a discussion of the most significant of these environmental laws and regulations, including those with associated remediation obligations, see the “Environmental” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 58–60 of our 2021 Annual Report on Form 10-K. We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain waste attributable to our past operations. As of September 30, 2022, there were 15 sites around the U.S. in which we were identified as a potentially responsible party under CERCLA and comparable state laws. At September 30, 2022, our balance sheet included a total environmental accrual of $182 million, compared with $187 million at December 31, 2021, for remediation activities in the U.S. and Canada. We expect to incur a substantial amount of these expenditures within the next 30 years. Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in our operations and products, and there can be no assurance that material costs and liabilities will not be incurred. However, we currently do not expect any material adverse effect upon our results of operations or financial position as a result of compliance with current environmental laws and regulations. See Part I—Item 1A—Risk Factors – "We expect to continue to incur substantial capital expenditures and operating costs as a result of our compliance with existing and future environmental laws and regulations" in our 2021 Annual Report on Form 10-K and Note 9 for information on environmental litigation. Climate Change Continuing political and social attention to the issue of global climate change has resulted in a broad range of proposed or promulgated state, national and international laws focusing on GHG reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future. Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a material impact on our results of operations and financial condition. For examples of legislation or precursors for possible regulation and factors on which the ultimate impact on our financial performance will depend, see the “Climate Change” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 61–63 of our 2021 Annual Report on Form 10-K. See Part I—Item 1A—Risk Factors – "Existing and future laws, regulations and internal initiatives relating to global climate changes, such as limitations on GHG emissions may impact or limit our business plans, result in significant expenditures, promote alternative uses of energy or reduce demand for our products" in our 2021 Annual Report on Form 10-K and Note 9 for information on climate change litigation. ConocoPhillips 2022 Q3 10-Q 50 Capital Resources and Liquidity Table of Contents Company Response to Climate-Related Risks The company has responded by putting in place a Sustainable Development Risk Management Standard covering the assessment and registration of significant and high sustainable development risks based on their consequence and likelihood of occurrence. We have developed a company-wide Climate Change Action Plan with the goal of tracking mitigation activities for each climate-related risk included in the corporate Sustainable Development Risk Register. The risks addressed in our Climate Change Action Plan fall into four broad categories: • GHG-related legislation and regulation. • GHG emissions management. • Physical climate-related impacts. • Climate-related disclosure and reporting. We announced in October 2020 the adoption of a Paris-aligned climate risk framework with the objective of implementing a coherent set of choices designed to facilitate the success of our existing exploration and production business through the energy transition. Given the uncertainties remaining about how the energy transition will evolve, the strategy aims to be robust across a range of potential future outcomes. We announced in July 2022 that ConocoPhillips has joined the OGMP 2.0 initiative. The initiative's mission is to improve industry transparency in methane emissions reporting and encourage progress in reducing those emissions. We believe that applying the rigorous OGMP 2.0 reporting standards across our global assets will be a vital step towards meeting our Paris-aligned climate-risk commitments, including our net-zero ambition for operational emissions by 2050, and will allow us to credibly demonstrate how we are delivering against our methane improvement objectives and targets. In 2022, we published our Plan for the Net-Zero Energy Transition (the ‘Plan’) focusing on meeting energy transition pathway demand, delivering competitive returns on and of capital and achieving our net-zero operational emissions ambitions. Our Plan includes the following: • Build a resilient asset portfolio: Focus on low cost of supply and low GHG intensity resources. • Commit to near, medium and long-term targets: Reducing operational (Scope 1 and 2) emissions over which we have ownership and control with an ambition to become a net-zero company for Scope 1 and 2 emissions by 2050. These targets include: • Strengthening our previously announced operational GHG emissions intensity reduction target to 40-50% by 2030 and expanding it to apply to both a gross operated and net equity basis. • Meeting a further 10% reduction target for methane emissions intensity by 2025 from our 2019 baseline. • Achieving zero routine flaring by 2025. • Achieving a near-zero methane intensity target, defined as 1.5 kilograms of carbon dioxide equivalent per BOE or approximately 0.15 percent of natural gas produced by 2030. • Address end-use emissions: Advocate for a well-designed, economy-wide price on carbon and other policies that would address end-use demand and emissions from high-carbon intensity energy use. • Pursue transition opportunities: Evaluate potential investments in emerging energy transition and low-carbon technologies. • In 2021, we established a multi-disciplinary Low-Carbon Technologies organization to identify and evaluate business opportunities that address end-use emissions and early-stage low-carbon technology opportunities that would leverage our existing expertise and adjacencies. • In the 2022 capital budget, we allocated $200 million to advance energy transition activities, the majority of which will address Scope 1 and 2 emissions reduction projects across our global operations, with the rest allocated for early-stage low-carbon technology opportunities. • Track the energy transition: Utilize a comprehensive scenario planning process to calibrate and understand alternative energy transition pathways. • Maintain capital discipline: Use scenario analyses and a fully-burdened cost of supply, including an appropriate cost of carbon, as the primary basis for capital allocation. 51 ConocoPhillips 2022 Q3 10-Q Table of Contents Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995 This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. Examples of forward-looking statements contained in this report include our expected production growth and outlook on the business environment generally, our expected capital budget and capital expenditures, and discussions concerning future dividends. You can often identify our forward-looking statements by the words “anticipate,” “believe,” “budget,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,” “intend,” “goal,” “guidance,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “will,” “would” and similar expressions. We based the forward-looking statements on our current expectations, estimates and projections about ourselves and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors and uncertainties, including, but not limited to, the following: • The impact of public health crises, including pandemics (such as COVID-19) and epidemics and any related company or government policies or actions. • Global and regional changes in the demand, supply, prices, differentials or other market conditions affecting oil and gas, including changes as a result of any ongoing military conflict, including the conflict between Russia and Ukraine, and the global response to such conflict, security threats on facilities and infrastructure, or from a public health crisis or from the imposition or lifting of crude oil production quotas or other actions that might be imposed by OPEC and other producing countries and the resulting company or third-party actions in response to such changes. • Fluctuations in crude oil, bitumen, natural gas, LNG and NGLs prices, including a prolonged decline in these prices relative to historical or future expected levels. • The impact of significant declines in prices for crude oil, bitumen, natural gas, LNG and NGLs, which may result in recognition of impairment charges on our long-lived assets, leaseholds and nonconsolidated equity investments. • The potential for insufficient liquidity or other factors, such as those described herein, that could impact our ability to repurchase shares and declare and pay dividends, whether fixed or variable. • Potential failures or delays in achieving expected reserve or production levels from existing and future oil and gas developments, including due to operating hazards, drilling risks and the inherent uncertainties in predicting reserves and reservoir performance. • Reductions in reserves replacement rates, whether as a result of the significant declines in commodity prices or otherwise. • Unsuccessful exploratory drilling activities or the inability to obtain access to exploratory acreage. • Unexpected changes in costs, inflationary pressures or technical requirements for constructing, modifying or operating E&P facilities. • Legislative and regulatory initiatives addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal. • Lack of, or disruptions in, adequate and reliable transportation for our crude oil, bitumen, natural gas, LNG and NGLs. • Inability to timely obtain or maintain permits, including those necessary for construction, drilling and/or development, or inability to make capital expenditures required to maintain compliance with any necessary permits or applicable laws or regulations. • Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future E&P and LNG development in a timely manner (if at all) or on budget. ConocoPhillips 2022 Q3 10-Q 52 Table of Contents • Potential disruption or interruption of our operations due to accidents, extraordinary weather events, supply chain disruptions, civil unrest, political events, war, terrorism, cyber attacks, and information technology failures, constraints or disruptions. • Changes in international monetary conditions and foreign currency exchange rate fluctuations. • Changes in international trade relationships, including the imposition of trade restrictions or tariffs relating to crude oil, bitumen, natural gas, LNG, NGLs and any materials or products (such as aluminum and steel) used in the operation of our business, including any sanctions imposed as a result of any ongoing military conflict, including the conflict between Russia and Ukraine. • Substantial investment in and development use of, competing or alternative energy sources, including as a result of existing or future environmental rules and regulations. • Liability for remedial actions, including removal and reclamation obligations, under existing and future environmental regulations and litigation. • Significant operational or investment changes imposed by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce GHG emissions. • Liability resulting from litigation, including litigation directly or indirectly related to the transaction with Concho Resources Inc., or our failure to comply with applicable laws and regulations. • General domestic and international economic and political developments, including armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, bitumen, natural gas, LNG and NGLs pricing; regulation or taxation; and other political, economic or diplomatic developments, including as a result of any ongoing military conflict, including the conflict between Russia and Ukraine. • Volatility in the commodity futures markets. • Changes in tax and other laws, regulations (including alternative energy mandates) or royalty rules applicable to our business. • Competition and consolidation in the oil and gas E&P industry. • Any limitations on our access to capital or increase in our cost of capital, including as a result of illiquidity or uncertainty in domestic or international financial markets or investment sentiment. • Our inability to execute, or delays in the completion of, any asset dispositions or acquisitions we elect to pursue. • Potential failure to obtain, or delays in obtaining, any necessary regulatory approvals for pending or future asset dispositions or acquisitions, or that such approvals may require modification to the terms of the transactions or the operation of our remaining business. • Potential disruption of our operations as a result of pending or future asset dispositions or acquisitions, including the diversion of management time and attention. • Our inability to deploy the net proceeds from any asset dispositions that are pending or that we elect to undertake in the future in the manner and timeframe we currently anticipate, if at all. • The operation and financing of our joint ventures. • The ability of our customers and other contractual counterparties to satisfy their obligations to us, including our ability to collect payments when due from the government of Venezuela or PDVSA. • Our inability to realize anticipated cost savings and capital expenditure reductions. • The inadequacy of storage capacity for our products, and ensuing curtailments, whether voluntary or involuntary, required to mitigate this physical constraint. • The risk that we will be unable to retain and hire key personnel. • Unanticipated integration issues relating to the acquisition of assets from Shell, such as potential disruptions of our ongoing business and higher than anticipated integration costs. • Uncertainty as to the long-term value of our common stock. • The diversion of management time on integration-related matters. • The factors generally described in Part I—Item 1A in our 2021 Annual Report on Form 10-K and any additional risks described in our other filings with the SEC. 53 ConocoPhillips 2022 Q3 10-Q Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk Information about market risks for the nine months ended September 30, 2022 does not differ materially from that discussed under Item 7A in our 2021 Annual Report on Form 10-K.