What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 940 added, 910 removed, 846 unchanged (69% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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Headquartered in Houston, Texas,

at March 31, 2021, we employed approximately

10,300 people worldwide and had total

assets of $84 billion.

at June 30, 2021, we employed approximately

10,100 people worldwide and had total assets

of $85 billion.

Completed Acquisition of Concho Resources Inc.

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in the Eagle Ford, Bakken and Montney.

Consideration for the all-stock transaction was

valued at $13.1 billion, in which 1.46 shares

of ConocoPhillips

common stock were exchanged for each outstanding

share of Concho common stock, resulting

in the issuance

of approximately 286 million shares of ConocoPhillips

common stock.

We also assumed $3.9 billion in

aggregate principal amount of outstanding debt for

Concho, which was recorded at fair value of $4.7

of the closing date.

We have made significant progress since the closing of the transaction on achieving

previously announced

$750 million of annual cost and capital

savings by 2022.

Transaction and restructuring activities associated with combining

the operations of ConocoPhillips and

Concho resulted in non-recurring expenses for

employee severance payments;

pension benefit

costs related to the workforce reductions;

retention costs;

employee relocations;

financial, legal, and accounting advisors;

We recognized $291 million before-tax related to

these costs in the first quarter

of 2021 and expect to incur less of these expenses

throughout the remainder of

Additionally, we recognized $305 million of before-tax losses on commodity

derivatives related to

hedging positions assumed in the Concho acquisition.

At March 31, 2021, all oil and natural gas derivative

financial instruments acquired from Concho were

contractually settled.

In connection with the settlement, we

paid $692 million in the first quarter of 2021 and

will pay the remaining $69 million in the

second quarter of

For additional information related to the settlement

of financial derivatives acquired from Concho, see

Note 10—Derivative and Financial Instruments,

in the Notes to Consolidated Financial

For additional information related to our Concho

see Note 3—Acquisitions and Dispositions

Notes to Consolidated Financial Statements.

After an unprecedented 2020, the energy landscape improved

in the first quarter of 2021 with oil prices

rallying to peak over $60 per barrel for both Brent

and WTI, a level not seen since the outbreak of the

Oil prices have benefited from the continuation

of coordinated production cuts by the OPEC

plus countries and capital discipline by independent

oil and gas producers.

Despite the recent upswing in oil prices, we

believe that commodity prices will remain

cyclical and volatile,

and a successful business strategy in the exploration

and production industry must be resilient

in lower price

environments, while retaining upside during periods

of higher prices.

Accordingly, we remain disciplined and

are monitoring market fundamentals, including adherence

of the OPEC plus countries to production cut

and capital restraint across the broader E&P industry.

Demand is recovering but has yet to reach

Since the closing of the transaction, we have made

significant progress in integrating the two

companies and

have exceeded our own expectations in realizing

synergies and savings that should have long lasting positive

effects on our business.

We previously announced an expected $750 million of annual cost and capital

However, due to additional benefits anticipated from further cost, capital,

and margin improvements,

we now expect approximately $1 billion in annual

synergies and savings by 2022.

See Note 3 for additional

information related to our Concho acquisition.

While commodity prices continued to improve

in the second quarter of 2021, we believe that

remain cyclical and volatile.

Our view is that a successful business strategy

in the E&P industry must be

resilient in lower price environments, while

also retaining upside during periods of higher prices.

are unhedged, remain disciplined in our investment

decisions and are monitoring market

fundamentals,

including OPEC plus updates regarding supply

inventory levels, and capital restraint across

Demand is still recovering but has yet to reach

pre-pandemic levels.

The speed and extent of this recovery will

be influenced by the easing of COVID-19

restrictions that have reduced economic activity

and depressed the demand for our products.

We believe a successful strategy in the E&P industry is to create value through the price

cycles by delivering

on the foundational principles that underpin our

The speed and extent of this

recovery will be influenced by whether and at what

pace the COVID-19 restrictions that

economic activity and depressed the demand for

our products globally are eased.

As the macro energy environment continues to evolve,

we have embraced what we believe sector leadership

requires and we call it our triple mandate.

We believe ConocoPhillips can play a valued role in whatever

pathway the energy transition takes by investing in the lowest

cost of supply barrels to help meet global energy

demand, delivering competitive returns of and on capital,

and achieving our net-zero ambition on our gross

operated (scope 1 and 2) emissions.

Our triple mandate is supported by financial principles

and allocation priorities that should 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 delivering ESG excellence,

all of which are in service of delivering financial

Our acquisition of Concho further reinforced

value proposition.

free cash flow generation,

a strong balance

sheet, commitment to differential returns of and on capital,

and ESG leadership.

Our first quarter as a

combined company demonstrated the power of

Concho’s acquired assets to help deliver on our value

Total company production was 1,527 MBOED, including 405

MBOED from the Permian Basin,

resulting in net cash provided by operating activities

of $2.1 billion.

We returned 46 percent of this cash to

shareholders with dividends of $0.6 billion and share

repurchases of $0.4 billion, and ended the

cash, cash equivalents and short-term investments

totaling $6.9 billion.

Net cash provided by operating

activities in the first quarter was negatively impacted

by approximately $1 billion due to

impacts from settling

outstanding hedging contracts, in addition to transaction

and restructuring costs.

In the second quarter, total company production was 1,588

MBOED, including 435

MBOED from the Permian Basin, resulting in cash

provided by operating activities of $4.3 billion.

month period ended June 30, 2021, we have

generated $6.3 billion in cash provided by operating

returning $1.2 billion to shareholders through dividends

and $1 billion through share repurchases.

the quarter with cash, cash equivalents and short-term

investments totaling $8.9 billion.

In February 2021, we resumed our share repurchase

program, with $1.5 billion of share repurchases

anticipated in 2021.

As of March 31, 2021, approximately $14.1

billion of repurchase authority remained of

the $25 billion share repurchase program our Board

of Directors had previously authorized.

In May 2021, we announced further progress on

our value proposition principles.

We plan to undertake a

paced monetization program related to the 10 percent

of Cenovus Energy common shares we own.

obtained these shares as partial consideration in the

2017 disposition of our Foster Creek Christina

sands and western Canada Deep Basin natural

The proceeds from these sales will be directed

program at an annualized level of $1.5 billion

increased in the second quarter to an annualized level

of $2.5 billion for 2021.

Additionally, in May 2021 we announced a paced monetization program related

to the 208 million shares of

Cenovus Energy (CVE) common shares owned at that time.

We plan to fully dispose of our CVE shares by

year-end 2022, however, the sales pace for the remaining shares will be guided

by market conditions, and we

retain discretion to adjust accordingly.

The proceeds from this disposition will be deployed

incremental share repurchases.

During the second quarter of 2021 we sold 20 million

shares or approximately

10 percent of the shares held at December 31, 2020

for $180 million.

Based on current market conditions, in

2021 we anticipate $1 billion in proceeds to be directed

towards our existing share repurchase authorization,

and will be incremental to our previously announced

billion of share repurchases in 2021.

We plan to fully dispose of our Cenovus shares by year-end 2022,

the sales pace will be guided by market conditions

and we retain discretion to adjust accordingly.

Additionally, in May 2021,

we reaffirmed our commitment to preserving our top-tier

balance sheet with an

intent to reduce the company’s gross debt by $5 billion over five years, driving

a more resilient and efficient

capital structure.

We remain focused on our commitment to ESG leadership and excellence.

This commitment is demonstrated

by our continued progress on specific targets that we set in

October 2020 when we announced our adoption

a Paris-aligned climate risk framework, including:

Our ambition to become a net-zero company for

operational (scope 1 and scope 2) emissions

bringing our total 2021 share repurchases to an estimated

$3.5 billion.

See Note 5 for additional information

on our investment in CVE.

These share repurchases along with our annual

dividend of $2.3 billion amount to a total of approximately

billion in planned distributions for 2021.

we demonstrated our commitment to preserving

-rated balance sheet by announcing our

intent to reduce the company’s gross debt by $5 billion over five years through

natural and accelerated

In June 2021, we affirmed our commitment to ESG leadership

and excellence,

and to the specific targets that

we set in October 2020 when we became the first

U.S.-based oil and gas company to adopt a Paris-aligned

climate-risk strategy.

Our commitment includes:

Net-zero ambition for operational (scope 1 and

2) emissions by 2050 with active advocacy

on carbon to address end-use (scope 3) emissions;

Targeting a reduction in operational greenhouse gas emissions intensity by 35 to 45 percent

levels by 2030;

Our ambition to exceed the World Bank Zero Routine Flaring 2030 initiative by five

Zero routine flaring by 2030, with an ambition

to get there by 2025;

10 percent reduction target for methane emissions intensity

by 2025, in addition to the 65 percent

reductions we have made since 2015;

Adding continuous methane monitoring devices to

our operations, with an initial focus on our

48 facilities;

Advocating for a U.S.

carbon price to address end-use

(scope 3) emissions through our membership

the Climate Leadership Council;

Including ESG performance in executive and

employee compensation programs;

Increasing internal and external transparency of diversity

and inclusion metrics.

our operations with a focus on the larger Lower 48

Formation of a dedicated low carbon technology

organization responsible for identifying and

prioritizing global emissions reduction initiatives

and opportunities associated with the energy

transition including carbon capture, utilization

and storage (CCUS) and hydrogen;

ESG performance in executive and employee

compensation programs.

WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices

Quarterly Averages

Brent - $/Bbl

Operationally, we remain focused on safely executing the business.

In the first quarter of 2021, production of

1,527 MBOED was impacted by 50 MBOED of unplanned

downtime in the Lower 48 due to Winter Storm

Production increased approximately 238 MBOED

or 18 percent in the first quarter of 2021, compared

with the first quarter of 2020, primarily due to the

acquisition of over 300 MBOED in the

Permian Basin from

Concho, partly offset by the absence of 46 MBOED from

the disposition of our Australia-West assets in the

second quarter of 2020.

Adjusted for all acquisitions and dispositions

in the comparative periods and

excluding Libya, production

decreased 59 MBOED or 4 percent.

Production was 1,588 MBOED in the

second quarter of 2021, an increase of 607 MBOED

or 62 percent, compared with the second quarter

primarily due to the acquisition of approximately

330 MBOED in the Permian Basin from

acquisition and the absence of last year’s economic curtailments

driven by weakness in oil prices

predominantly in operated North American assets.

We re-invested $1.3 billion back into the business in the form of capital expenditures

during the first quarter,

with over half of our investments focused on flexible,

short-cycle unconventional plays in the Permian,

Ford and Bakken where our production is unhedged

and located in tax and royalty regimes.

For the full-year,

we remain disciplined capital allocators with a planned

$5.5 billion of capital expenditures in 2021.

during the second

quarter, with over half of our investments focused on flexible,

short-cycle unconventional plays in the Lower

48 segment where our production is liquids-weighted

and is accessible to both domestic and export

For the full year, driven by efficiencies we have already captured from the

Concho transaction,

reduced our 2021 capital guidance to $5.3 billion

and cost guidance to $6.1 billion for 2021.

Business Environment

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or demand disruptions or fears thereof caused

unrest, global pandemic or military conflicts,

unrest, global pandemics, military conflicts,

actions taken by OPEC plus and other major

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countries, environmental laws, tax regulations,

governmental policies and weather-related

governmental policies, and weather-related disruptions.

strategy is to create value through price cycles

by delivering on the financial and operational

priorities that

underpin our value proposition.

by delivering on the financial,

operational and ESG priorities

that underpin our value proposition.

Our earnings and operating cash flows generally

correlate with industry price levels for crude

oil and natural

gas, the prices of which are subject to factors

external to the company and over which we have

following graph depicts the trend in average benchmark

prices for WTI crude oil, Brent crude oil

Hub natural gas:

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

Brent crude oil prices averaged $68.83 per barrel

in the first quarter of 2021, an increase of 21 percent

compared with $50.31 per barrel in the first

quarter of 2020.

WTI at Cushing crude prices averaged $57.84 per

barrel in the first quarter of 2021, an increase of 26

percent compared with $46.06 per barrel in the

first quarter

Oil prices increased due to the recovery from

simultaneous demand and supply shocks experienced

the first quarter of 2020.

in the second quarter of 2021,

an increase of 136 percent

compared with $29.20 per barrel in the second quarter

WTI at Cushing crude oil prices averaged

$66.07 per barrel in the second quarter of 2021,

an increase of 137 percent compared with $27.85

per barrel in

the second quarter of 2020.

Oil prices increased alongside the ongoing global

economic recovery following

2020’s COVID closures as well as OPEC plus supply restraint.

Henry Hub natural gas prices averaged $2.83

per MMBTU in the first quarter of 2021,

per MMBTU in the second quarter of 2021,

an increase of 65

percent compared with $1.95 per MMBTU in the first

percent compared with $1.71 per MMBTU in the second

quarter of 2020.

Henry Hub prices are higher due to

Winter Storm Uri and normalization of inventories following

COVID-19 demand losses.

Henry Hub prices have increased

due to healthy domestic demand accompanied

by record levels of feedgas demand for LNG exports

Our realized bitumen price averaged $37.60 per barrel

in the first quarter of 2021, a significant

compared with $5.90 per barrel in the first

quarter of 2020.

The increase in the first quarter of 2021 was

by higher WTI prices and a strengthening

WCS differential to WTI at Hardisty.

We continue to optimize

bitumen price realizations through the utilization

of downstream transportation solutions and implementation

in the second quarter of 2021,

approximately $61 per barrel compared with negative

$23.11 per barrel in the second quarter of 2020.

increase in the second quarter of 2021 was driven

by higher blend price for Surmont sales,

largely attributed to

a strengthening of WTI price and reduced unutilized

transportation costs which negatively impacted

realized bitumen price in 2020.

We continue to optimize bitumen price realizations through the utilization of

downstream transportation solutions and implementation

of alternate blend capability which results in lower

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Our total average realized price was $50.03 per

BOE in the first quarter of 2021, compared

with $38.81 per

BOE in the first quarter of 2020, due to the recovery

from simultaneous demand and supply shocks

all of our produced commodities in 2020.

BOE in the second quarter of 2021,

increased in comparison

with $23.09 per BOE in the second quarter of

Key Operating and Financial Summary

Significant items during the first quarter

of 2021 included the following:

Completed the Concho acquisition,

enhancing both our asset portfolio and financial framework.

Significant items during the second quarter

of 2021 and recent announcements included

the following:

Delivered strong operational performance across the

company’s asset base, including successful

planned maintenance turnarounds, resulting in second

quarter production of 1,547 MBOED,

Net cash provided by operating activities was $4.3

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investments of $1.3 billion.

Net cash provided by operating activities included

approximately $1.0 billion of non-recurring

associated with our Concho acquisition.

Produced 1,488 MBOED,

excluding Libya, during the first quarter

despite incurring approximately 50

MBOED of unplanned production downtime

throughout Lower 48 caused by Winter Storm Uri.

Ended the quarter with cash and cash equivalents totaling

$2.8 billion and short-term investments of

$4.1 billion,

equaling $6.9 billion in ending cash, cash equivalents

and short-term investments.

Resumed the share repurchase program at an

annualized level of $1.5 billion.

Distributed $0.6 billion in dividends and repurchased

$0.4 billion of shares.

Recognized by the Dow Jones Sustainability

Index as the top U.S.

ESG performer in the Oil

Upstream and Integrated sector.

Reaffirmed commitment to preserving a top-tier balance sheet

with intent to reduce the company’s

gross debt by $5 billion over the next five years,

driving a more resilient and efficient capital structure.

Announced plans to sell our Cenovus shares in the

open market in a disciplined manner by year-end

2022 beginning in the second quarter of 2021, utilizing

the proceeds to fund incremental

ConocoPhillips share repurchases.

Capital and Production

Second-quarter 2021 production is expected to

to 1.54 MMBOED, reflecting the impact from

turnarounds planned in our Europe,

Middle East and North Africa and Asia Pacific

This production

guidance excludes Libya.

In February 2021, we announced 2021 operating

plan capital of $5.5 billion.

The plan includes $5.1 billion to

sustain current production and $0.4 billion

for investment in major projects, primarily

in Alaska, in addition to

ongoing exploration appraisal activity.

Distributed $1.2 billion to shareholders, comprised

of $0.6 billion in dividends and $0.6 billion

share repurchases.

Ended the quarter with cash and cash equivalents

totaling $6.6 billion and short-term investments

$2.3 billion, equaling $8.9 billion in ending cash,

cash equivalents and short-term investments.

Entered into divestiture agreements during July for

certain Lower 48 noncore assets totaling

approximately $0.2 billion, subject to customary

closing adjustments, as part of the company’s plan to

generate $2 to $3 billion in disposition proceeds

over the next 18 months.

Cost and Production

In June 2021, due to realizing synergistic savings from

our Concho acquisition earlier than anticipated,

announced reductions

of full year 2021

operating plan capital and cost guidance by

a combined $300 million.

Capital guidance was reduced to $5.3 billion

and cost guidance to $6.1 billion for the full

Third-quarter 2021 production is expected to be 1.48

to 1.52 MMBOED,

reflecting seasonal turnarounds

planned in Alaska and the Asia Pacific region.

This production guidance excludes Libya and

previously announced divestitures close during

the third quarter of 2021.

All other guidance items are

Depreciation, Depletion and Amortization

DD&A expense was $1.9 billion in the second quarter

Proved reserves estimates were updated in the

current quarter utilizing historical twelve-month

first-of-month average prices, which decreased

second quarter

DD&A expense by approximately $160 million

Depending on price fluctuations, we would expect

reserve estimates to either increase or decrease.

RESULTS OF OPERATIONS

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to the Europe and North Africa segment.

The segments have been renamed the Asia Pacific

segment and the

The segments have been renamed the Asia Pacific segment

Europe, Middle East and North Africa segment.

1 unchanged sentence

segment performance metrics presented within our results of operations for the

prior period.

Unless otherwise indicated, discussion of results for the three-month period ended

March 31, 2021, is based

on a comparison with the corresponding period of 2020.

prior comparative periods.

Unless otherwise indicated, discussion of results for the three-

and six-month periods ended June 30, 2021, is

based on a comparison with the corresponding periods of 2020.

Consolidated Results

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Three Months Ended

Six Months Ended

Europe, Middle East and North Africa

3 unchanged sentences

Net income (loss) attributable to ConocoPhillips

increased $2,721 million in the first quarter of

in the second quarter of 2021 increased $1,831 million.

Earnings were positively impacted by:

An unrealized gain of $308 million after-tax

on our Cenovus Energy (CVE) common shares,

compared with an unrealized loss of $1,691 million

after-tax in the first quarter of 2020.

Higher sales volumes, primarily in the Lower

48 due to our Concho acquisition.

For additional

information related to our Concho acquisition,

see Note 3—Acquisitions and Dispositions

to Consolidated Financial Statements.

Higher realized commodity prices.

Lower impairments, mainly in the Lower 48 due

to the absence of impairments to noncore gas assets.

A $194 million after-tax gain recognized for a contingent

payment associated with our Australia-West

divestiture completed in the second quarter

For additional information related to

see Note 3—Acquisitions and Dispositions in the

Notes to Consolidated Financial Statements.

The absence of a commodity inventory lower of

cost or market adjustment of $170 million

Earnings were negatively impacted by:

Higher selling, general and administrative

expenses due to restructuring and transaction expenses

approximately $243 million after-tax related

to our Concho acquisition and mark-to-market

on certain key employee compensation programs.

Higher sales volumes, primarily due to our

Concho acquisition and absence of production

in our operated North American assets.

For additional information related to our Concho acquisition,

Second quarter 2021 net income increases were partly

Higher DD&A expenses primarily due to our

Concho acquisition and the absence of production

curtailments in our operated North American assets,

partially offset by lower rates driven from price-

related reserve revisions due to higher commodity

prices in 2021.

Higher production and operating expenses and

taxes other than income taxes, primarily

Concho acquisition and the absence of production

curtailments in our operated North American

Absence of a $597 million after-tax gain on dispositions

related to our Australia-West divestiture in

Net income (loss) attributable to ConocoPhillips

in the six-month period ended June 30, 2021, increased

$4,552 million.

In addition to the items detailed above, earnings

were positively impacted by:

A gain of $726 million after-tax on our CVE

common shares, compared with an after-tax

$1,140 million in the first half of 2020.

For discussion of our CVE common shares, see Note 5.

Lower impairments by $519 million,

primarily due to the absence of impairments to noncore

assets in our Lower 48 segment.

In addition to the items detailed above, the increases

in earnings in the six-month period ended

June 30, 2021,

were partly offset by:

Restructuring and transaction expenses of approximately

$261 million after-tax related to our Concho

acquisition and mark-to-market impacts on certain

key employee compensation programs.

Realized losses on hedges of $233 million after-tax

related to derivative positions acquired in our

Concho acquisition.

See Note 10—Derivative and Financial

Instruments in the Notes to Consolidated

Financial Statements, for additional information.

Higher DD&A expenses,

production and operating expenses and taxes

other than income taxes,

primarily due to production from our Concho

related to derivative positions assumed through

our Concho acquisition.

These derivative positions were settled

entirely within the first quarter of

See Note 10 for additional information.

See the “Segment Results” section for additional

Income Statement Analysis

Sales and other operating revenues increased 60 percent,

mainly due to higher sales volumes and higher

commodity price realizations in the Lower 48, primarily

related to our Concho acquisition.

Equity in earnings of affiliates decreased $112 million due to lower earnings

from QG3 and APLNG because

of lower LNG prices and a higher effective tax rate related

to the equity method investments in our Europe,

Middle East and North Africa segment.

Gain (loss) on dispositions increased $275 million

due to recognizing a $200 million before-tax

payment associated with our Australia-West divestiture completed in the second quarter

of 2020 and the

absence of a $38 million before-tax loss on disposition

related to the completion of our Niobrara disposition

the first quarter of 2020.

For additional information related to the Australia-West related gain on disposition,

see Note 3—Acquisitions and Dispositions in the

Notes to Consolidated Financial Statements.

Other income (loss) increased $1,917 million

primarily due to an unrealized gain of $308 million

before-tax on

our CVE common shares, compared with an unrealized

loss of $1,691 million before-tax in the first

See Note 5—Investment in Cenovus Energy in the

Notes to Consolidated Financial Statements,

additional information related to our unrealized

gain (loss) on CVE common shares.

Purchased commodities increased $1,822 million,

primarily due to higher natural gas prices,

partly offset by

lower crude oil volumes purchased.

Production and operating expenses increased $210

primarily due to costs associated with additional

volumes in the Lower 48, mainly related to our

Concho acquisition.

Unless otherwise indicated, all results in Income Statement Analysis

are before-tax.

Sales and other operating revenues for the three-

and six-month periods of 2021 increased $6,807

$10,475 million,

respectively, mainly due to higher realized commodity prices and higher sales

volumes in the

Lower 48, primarily related to our Concho acquisition

and the absence of production curtailments in

operated North American assets.

Equity in earnings of affiliates for the three-month period

of 2021 increased $62 million primarily due to

higher earnings driven by higher LNG and crude

prices, partially offset by a higher effective tax rate related

equity method investments in our Europe, Middle

East, and North Africa segment.

For the six-month period

of 2021, Equity in earnings of affiliates decreased $50 million

primarily due to lower earnings driven by lower

LNG lagging contract prices in 2021 when compared

with the same periods in 2020.

Gain on dispositions for the three-

and six-month periods of 2021 decreased $537

million and $262 million,

respectively, primarily due to the absence of a $587 million gain associated with

our Australia-West

The six-month decrease was partially offset by recognition

of a $200 million FID bonus associated

with our Australia-West divestiture in the first quarter of 2021.

Other income (loss) for the three-month period

decreased $137 million and for the six-month

increased $1,780 million.

During these periods in 2021, we recognized

gains of $418 million and $726

respectively, on our CVE common shares, compared with a gain of $551 million

and loss of $1,140

respectively, for the same periods in 2020.

Purchased commodities for the three- and six-month

periods of 2021 increased $1,868 million

million, respectively, primarily due to higher gas and crude prices.

In the six-month period of 2021, higher

prices were partly offset by lower crude oil volumes purchased.

Production and operating expenses for the three-

and six-month periods of 2021

increased $332 million and

$542 million, respectively, primarily due to costs associated with additional

volumes in our operated North

American assets related to our Concho acquisition

and the absence of production curtailments.

Selling, general and administrative expenses increased

$314 million, primarily due to higher costs associated

with compensation and benefits, including mark-to-market

impacts of certain key employee compensation

programs, and restructuring expenses associated

with our Concho acquisition, including severance

Exploration expenses decreased $104 million,

primarily due to the absence of an unproved property

impairment and dry hole expenses related to the

Kamunsu East Field in Malaysia that is no longer in our

development plans and the absence of charges associated

with the early termination of our 2020 winter

exploration program in Alaska.

Depreciation, depletion and amortization

increased $475 million, primarily due to higher

volumes in the Lower

48 associated with our Concho acquisition;

higher volumes in Canada due to Montney

ramp up and our Kelt

acquisition in the third quarter of 2020;

expenses in Alaska due to higher DD&A rates

related reserve revisions.

Impairments decreased $524 million,

primarily due to the absence of a $511 million before-tax impairment

certain noncore gas assets in the Lower 48 due to

a significant decrease in the outlook for natural

gas prices in

the first quarter of 2020.

Taxes other than income taxes increased $120 million, primarily due to

higher volumes in the Lower 48

associated with our Concho acquisition.

Foreign currency transactions

(gain) loss increased $109 million due to the

absence of gains incurred from

foreign currency derivatives.

See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements,

for information regarding our

income tax provision and effective tax rate.

$275 million in the six-month period of 2021,

due to higher costs associated with compensation

and benefits, including mark-to-market impacts

key employee compensation programs,

and transaction and restructuring expenses

associated with our Concho

Exploration expenses for the six-month period of 2021

decreased $144 million, primarily due to the

an unproved property impairment and dry hole expenses

related to the Kamunsu East Field in Malaysia

absence of charges associated with the early termination

of our 2020 winter exploration program in Alaska.

DD&A for the three-

and six-month periods of 2021 increased $709

million and $1,184 million, respectively,

mainly due to higher production volumes in the

Lower 48 associated with our Concho acquisition

volumes in each of our North American assets

due to the absence of production curtailments,

up and Kelt acquisition in Canada.

These increases were partly offset by lower rates from

price-related reserve

revisions in Lower 48 and Canada.

Impairments decreased $520 million in

the six-month period of 2021, primarily due to the

absence of a $511

million impairment of certain non-core gas assets

in our Lower 48 segment.

Taxes other than income taxes for the three-

and six-month periods of 2021 increased

$240 million and $360

million, respectively, primarily due to higher sales volumes in Lower 48 from

our Concho acquisition,

absence of production curtailments

in all of our North American assets and higher commodity

Foreign currency transaction (gain) loss in the

six-month period of 2021 was a loss of $29 million

with a gain of $83 million in the six-month period

This increase of $112 million was primarily due to

the absence of gains recognized from foreign currency

derivatives and other foreign currency remeasurements.

Note 18—Income Taxes

for information regarding our income tax provision

(benefit) and effective tax

Summary Operating Statistics

Three Months Ended

Six Months Ended

Average Net Production

Crude oil (MBD)

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Equity affiliates

Total natural gas

Total natural gas liquids

Bitumen (MBD)

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Total natural gas

Total Production

Dollars Per Unit

Average Sales

Average Sales Prices

Crude oil (per bbl)

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Equity affiliates

Total natural gas

Total natural gas liquids

Bitumen (per bbl)

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Exploration Expenses

General administrative, geological and geophysical, and

General administrative, geological and geophysical,

lease rental, and other

Leasehold impairment

*Average sales prices, including the impact of hedges settling per initial contract terms

in the first quarter of 2021 assumed in our Concho

acquisition, were $55.03 per barrel for crude oil and $4.76 per mcf for natural gas.

As of March 31, 2021, we had settled all oil and gas hedging

positions acquired from Concho.

See Note 10—Derivative and Financial Instruments, in the

Notes to Consolidated Financial Statements.

*Average sales prices, including the impact of hedges settling per initial contract

terms in the first quarter of 2021 assumed in our Concho

acquisition, were $60.59 per barrel for crude oil and $4.50 per mcf for natural gas for the six-month

period ended June 30, 2021.

31, 2021, we had settled all oil and gas hedging positions acquired from Concho.

See Note 10 for additional information.

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on

At March 31, 2021, our operations were producing

At June 30, 2021, our operations were producing

in the U.S., Norway, Canada, Australia, Indonesia,

China, Malaysia, Qatar and Libya.

Total production, including Libya, of 1,527 MBOED increased 238 MBOED

or 18 percent in the first quarter

of 2021, primarily due to:

China, Malaysia,

Qatar and Libya.

Total production of 1,588 MBOED increased 607 MBOED or 62 percent in

the second quarter of 2021 and

423 MBOED or 37 percent in the six-month period

primarily due to:

Higher volumes in the Lower 48 due to our

Concho acquisition.

Higher volumes in our operated North American

assets and Malaysia due to the absence

of production

curtailments.

New wells online in the Lower 48, Canada,

Norway, China and Malaysia.

Higher production in Libya due to the absence

of a forced shutdown of the Es Sider export

and other eastern export terminals after a period

of civil unrest.

The increase in first quarter 2021 production

was partly offset by:

Norway, Malaysia, and Australia.

Higher production in Libya due the absence of

a forced shutdown of the Es Sider export terminal

other eastern export terminals after a period of

civil unrest.

The increase in the second quarter and in the six-month

period of 2021 was partly offset by:

Normal field decline.

Disposition activity, including our Australia-West divestiture completed in the second quarter of 2020

and noncore Lower 48 assets disposed in the first

Disposition activity primarily related to our

Australia-West divestiture completed in the second

quarter of 2020.

For additional information related

to our Australia-West divestiture, see Note 3—Acquisitions and Dispositions in

Consolidated Financial Statements.

In addition to the items detailed above, in the six-month

period of 2021, production also decreased

Higher unplanned downtime in the Lower 48

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approximately 50 MBOED in the first quarter

Total production,

excluding Libya, of 1,488 MBOED increased

210 MBOED or 16 percent in the first

Adjusted for acquisitions and dispositions and excluding

Libya, production decreased by 59 MBOED

or 4 percent.

Production excluding Libya for the second quarter

of 2021 was 1,547 MBOED, an increase of 566

from the same period a year ago.

After adjusting for closed acquisitions and dispositions

as well as estimated

impacts from the 2020 curtailment program, second-quarter

2021 production increased 46 MBOED or 3

This increase was primarily due to new production

from the Lower 48 and other development

programs across the portfolio, partially offset by normal

field decline.

Production from Libya averaged 41

Production excluding Libya for the six-month period

of 2021 was 1,518 MBOED, an increase

from the same period a year ago.

After adjusting for closed acquisitions and dispositions,

estimated impacts

from the 2020 curtailment program and Winter Storm Uri impacts

from 2021, production increased 18

This increase was primarily due to new production

from the Lower 48 and other development

programs across the portfolio, partially offset by normal

field decline.

Production from Libya averaged 40

Segment Results

Three Months Ended

Net Income Attributable to ConocoPhillips

(millions of dollars)

Six Months Ended

Net income (loss) attributable to ConocoPhillips

Average Net Production

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and markets crude oil, NGLs and natural gas.

As of March 31, 2021, Alaska contributed 21

percent of our consolidated liquids production

and less than 1

As of June 30, 2021, Alaska contributed 20 percent

of our consolidated liquids production and less

percent of our consolidated natural gas production.

Net Income Attributable to ConocoPhillips

Earnings for Alaska increased by $78 million

in the first quarter of 2021,

compared with the same period of

Net Income (Loss) Attributable to ConocoPhillips

Earnings from Alaska increased $512 million

in the second quarter of 2021

and increased $590 million in the

six-month period of 2021, respectively.

Earnings were positively impacted by:

The absence of a $96 million after-tax lower of cost

or market commodity inventory adjustment.

Higher realized crude oil prices.

Higher volumes due to the absence of production

curtailments.

Lower exploration expenses due to the absence

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2020 winter exploration program.

Earnings were negatively impacted by:

Higher DD&A expenses, primarily due to higher

DD&A rates from price-related reserve revisions.

Lower crude oil sales volumes.

Average production decreased 10 MBOED or 5 percent in the first quarter

of 2021 compared with the same

period of 2020.

The production decrease was primarily due to:

Partly offsetting the increase in earnings was:

Higher DD&A expenses primarily driven

by higher production volumes and higher rates.

Average production increased 34 MBOED in the second quarter of 2021 and 13 MBOED

in the six-month

period of 2021, respectively.

The increase was primarily due to:

Absence of curtailments at our operated assets.

Partly offsetting the increase in production was:

Normal field decline.

These production decreases were partly offset by:

Improved well performance at the Greater Prudhoe

Three Months Ended

Six Months Ended

Net Income (Loss) Attributable to ConocoPhillips

(millions of dollars)

Average Net Production

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terms in the first quarter of 2021 assumed in our Concho

acquisition, were $51.58 per barrel for crude oil and $4.35 per mcf for natural gas.

As of March 31, 2021, we had settled all oil and gas hedging

positions acquired from Concho.

Derivative and Financial Instruments in the Notes to

Consolidated Financial Statements.

acquisition, were $58.25 per barrel for crude oil and $3.78 per mcf for natural gas for the six-month

period ended June 30, 2021.

31, 2021, we had settled all oil and gas hedging positions acquired from Concho.

See Note 10 for additional information

The Lower 48 segment consists of operations located

in the contiguous U.S.

and the Gulf of Mexico.

March 31, 2021, the Lower 48 contributed 51

percent of our consolidated liquids production

and 64 percent of

our consolidated natural gas production.

Concho Acquisition

On January 15, 2021, we completed our acquisition

of Concho, an independent oil and gas exploration

production company with operations across New

Mexico and West Texas.

The addition of complementary

acreage in the Delaware and Midland Basins creates

a sizeable Permian presence to augment

unconventional positions in the Eagle Ford and

Bakken in the Lower 48.

For additional information related to

this transaction, see Note 3—Acquisitions and

Dispositions in the Notes to Consolidated Financial

Lower 48 states, as well as producing

properties in the Gulf of Mexico.

As of June 30, 2021, the Lower 48 contributed

53 percent of our

consolidated liquids production and 65 percent

of our consolidated natural gas production.

Net Income (Loss) Attributable to ConocoPhillips

Earnings for the Lower 48 increased by $905

million in the first quarter of 2021, compared

with the same

period of 2020.

Earnings from the Lower 48 increased $1,540 million

in the second quarter of 2021 and increased $2,445

million in the six-month period of 2021, respectively.

Earnings were positively impacted by:

Higher sales volumes of crude oil and natural gas

due to our Concho acquisition.

due to our Concho acquisition and the absence

production curtailments.

Higher realized crude oil, natural gas, and NGL

Partly offsetting the increase in earnings was:

Higher DD&A expenses primarily due to higher

production from our Concho acquisition

of production related curtailment partially

offset by lower rates from price-related reserve revisions.

Higher production and operating expenses and

taxes other than income taxes, primarily

due to higher

production from our Concho acquisition and the absence

of production curtailments.

In addition to the items detailed above, in the six-month

period of 2021, earnings also increased due to:

The absence of $399 million in after-tax impairments

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River Basin operations area.

Earnings were negatively impacted by:

Higher DD&A expenses, production and operating

expenses and taxes other than income taxes,

primarily due to higher production from our Concho

Realized losses on hedges of $233 million after-tax

related to derivative positions acquired in our

Concho acquisition.

See Note 10—Derivative and Financial

Instruments in the Notes to Consolidated

Financial Statements, for additional information.

In addition to the items detailed above, in the six-month

period of 2021, earnings also decreased due

Realized losses on hedges related to derivative

positions acquired in our Concho acquisition.

Note 10 for additional information.

Higher selling, general and administrative

expenses, primarily due to transaction and restructuring

charges related to our Concho acquisition.

Average production increased 243 MBOED in the first quarter of 2021, compared

with the same period of

The production increase was primarily

Higher volumes in the Permian due to our Concho

charges related

to our Concho acquisition.

For additional information see Note 3.

Average production increased 483 MBOED and 363 MBOED in the three-

and six-month periods of 2021,

respectively, primarily due to:

Higher volumes due to our Concho acquisition.

New wells online from our development programs

in the Eagle Ford, Permian and Bakken.

in Eagle Ford, Permian and Bakken.

Absence of curtailments.

These production increases were partly offset by:

Normal field decline.

Higher unplanned downtime, primarily

due to Winter Storm Uri which impacted production by

approximately 50 MBOED in the first quarter

In addition to the items detailed above, in the six-month

period of 2021, production also decreased

Higher unplanned downtime, primarily due to

Winter Storm Uri.

Planned Dispositions

In July 2021, we entered into divestiture agreements

to sell our interests in certain noncore assets

Proceeds from these agreements total approximately

$0.2 billion before customary adjustments.

The transactions are expected to close in the third

quarter of 2021.

Three Months Ended

Six Months Ended

Net Income (Loss) Attributable to ConocoPhillips

(millions of dollars)

Average Net Production

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Montney unconventional play in British Columbia.

As of March 31, 2021, Canada contributed

our consolidated liquids production and 4 percent

As of June 30, 2021, Canada contributed

8 percent of our

consolidated liquids production and 4 percent

of our consolidated natural gas production.

Net Income (Loss) Attributable to ConocoPhillips

Earnings for Canada increased by $119 million in the first quarter

of 2021, compared with the same period of

Earnings from Canada increased $188 million

and $307 million,

respectively, in the three-

and six-month

periods of 2021.

Earnings were positively impacted by:

Higher realized commodity prices.

The absence of a $31 million after-tax lower of cost

or market adjustment to commodity inventory.

Increased liquids and natural gas volumes in the

A $20 million after-tax gain on disposition related

to a contingent payment associated with the

certain assets to Cenovus Energy in 2017.

For additional information, see Note 3—Acquisitions

Dispositions in the Notes to Consolidated Financial

Earnings were negatively impacted by:

Higher DD&A expenses, primarily due to increased

Montney production.

Higher production and operating expenses,

primarily due to increased Montney production.

Total average production increased 28 MBOED in the first quarter of 2021,

compared with the same period of

2020, due to new wells online from Pad 2 and

3 in the Montney, as well as production from our Kelt

acquisition in the third quarter of 2020.

Higher realized bitumen and crude oil prices.

After-tax gains on disposition related to contingent

payments of $52 million and $72 million

and six-month periods of 2021, respectively, associated with the sale of certain

assets to CVE in

See Note 3 for additional information about the transaction.

Partly offsetting the increase in earnings was:

Higher production and operating expenses primarily

due to the absence of production curtailment

increased Montney production.

Higher DD&A expenses primarily driven

by higher production volumes partially offset by lower rates

from price-related reserve revisions.

Absence of a $48 million refund from the Alberta

Tax & Revenue Administration.

Average production increased 47 MBOED in the second quarter of 2021

and increased 38 MBOED in the six-

month period of 2021, respectively.

The production increase was primarily due to:

Absence of curtailments at our Surmont operated

Wells online from Pad 2 and 3 in the Montney.

Production from our Kelt acquisition in the third

quarter of 2020.

Improved well performance at our Surmont operated

Europe, Middle East and North Africa

Three Months Ended

Six Months Ended

Net Income Attributable to ConocoPhillips

(millions of dollars)

Consolidated Operations

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Natural gas ($ per MCF)

*The prior period has been updated to reflect the Middle East Business Unit

moving from Asia Pacific to the Europe, Middle East and North

Africa segment.

See Note 17—Segment Disclosures and Related Information in the Notes to Consolidated

Financial Statements for additional

*Prior periods have been updated to reflect the Middle East Business Unit

moving from Asia Pacific to the Europe, Middle East and North Africa

See Note 17 for additional information on our segments.

Middle East and North Africa segment consists

of operations principally located in the Norwegian

sector of the North Sea;

the Norwegian Sea;

and commercial and terminalling

operations in the

As of March 31, 2021, our Europe,

Middle East and North Africa operations

contributed 12 percent of

our consolidated liquids production and 15 percent

sector of the North Sea and the Norwegian Sea,

Qatar, Libya and commercial operations in the U.K.

June 30, 2021, our Europe,

Middle East and North Africa operations contributed

12 percent of our

consolidated liquids production and 14 percent

of our consolidated natural gas production.

Net Income Attributable to ConocoPhillips

Earnings for Europe,

Middle East and North Africa decreased by $48

million in the first quarter of 2021,

compared with the same period of 2020.

Earnings were negatively impacted by:

Lower LNG sales prices, reflected in equity in earnings

of affiliates.

Higher taxes from our equity method investments.

The absence of foreign currency gains.

Net Income (Loss) Attributable to ConocoPhillips

Earnings from Europe,

Middle East and North Africa increased by

$182 million and $134 million in the three-

and six-month periods of 2021, respectively.

Earnings were positively impacted by:

Higher LNG sales volumes, reflected in equity

in earnings of affiliates.

Higher natural gas, crude oil and NGL price realizations.

Higher realized natural gas, crude oil and NGL

Higher LNG sales prices, reflected in equity in

earnings of affiliates.

Partly offsetting the increase in earnings was:

Higher taxes.

Higher DD&A expenses and production and operating

Absence of foreign currency gains.

Consolidated Production

Average consolidated production increased 23 MBOED in the first quarter of 2021

compared with the same

period of 2020.

Average consolidated production increased 49 MBOED and 35 MBOED in the three-

and six-month periods

of 2021, respectively.

The production increase was primarily due:

Higher oil production from Libya due to the absence

of a cessation of production following a period of

civil unrest.

Higher production in Libya due to the absence

of a forced shutdown of the Es Sider export terminal

and other eastern export terminals after

a period of civil unrest.

Improved well performance in Norway.

New production from Norway drilling activities

including first production from Tor II redevelopment

achieved in December 2020.

These production increases were partly offset by normal

field decline.

including the completion of our Tor II redevelopment

project first achieved in December 2020.

Partly offsetting the increase in production was:

Normal field decline.

Three Months Ended

Six Months Ended

Net Income Attributable to ConocoPhillips

(millions of dollars)

Consolidated Operations

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Natural gas ($ per MCF)

*The prior period has been updated to reflect the Middle East Business Unit

moving from Asia Pacific to the Europe, Middle East and North

Africa segment.

Segment Disclosures and Related Information in the Notes to Consolidated Financial

Statements for additional

The Asia Pacific segment has operations in China,

Indonesia, Malaysia and Australia.

As of March 31, 2021,

Asia Pacific contributed 7 percent of our consolidated

liquids production and 17 percent of our consolidated

natural gas production.

Net Income Attributable to ConocoPhillips

Earnings for Asia Pacific increased $45 million

in the first quarter of 2021, compared with the same

The earnings increase was primarily due to:

*Prior periods have been updated to reflect the Middle East Business Unit

moving from Asia Pacific to the Europe, Middle East and North Africa

See Note 17 for additional information on our segments.

The Asia Pacific

segment has operations in China, Indonesia,

Malaysia and Australia.

As of June 30, 2021, Asia

Pacific contributed 7 percent of our consolidated

liquids production and 17 percent of our

consolidated natural

gas production.

Net Income (Loss) Attributable to ConocoPhillips

Earnings decreased $473 million in the second

quarter of 2021 and decreased $428 million

in the six-month

period of 2021,

respectively.

Earnings were negatively impacted by:

Absence of a $597 million after-tax gain related

to our Australia-West divestiture.

Lower earnings due to our Australia-West divestiture completed in the second quarter

Higher taxes associated with higher production and

prices in Malaysia and Indonesia.

Partly offsetting the decrease in earnings was:

Higher crude oil and natural gas prices.

Lower production and operating expenses related

to our Australia-West divestiture.

In addition to the items detailed above, in the six-month

period of 2021, earnings also decreased due

Lower equity in earnings of affiliates, primarily due to lower

LNG lagging contract prices, partly offset

by increased LNG sales volumes.

In addition to the items detailed above, in the six-month

period of 2021, earnings also increased due to:

A $200 million gain on disposition related

to a contingent payment from our Australia-West divestiture

completed in the second quarter of 2020.

For additional information related to this

gain, please see Note

3—Acquisitions and Dispositions in the Notes to

Consolidated Financial Statements.

to a FID bonus from our Australia-West divestiture.

additional information related to this FID bonus,

Lower exploration expenses, due to the absence

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expenses related to the Kamunsu East Field in Malaysia.

Earnings were negatively impacted by:

Lower earnings due to our Australia-West divestiture completed in the second quarter

Lower equity in earnings of affiliates, primarily due to lower

realized LNG prices.

Consolidated Production

Average consolidated production decreased 56 MBOED

or 30 percent in the first quarter of 2021, compared

the same period of 2020.

The decrease was primarily due to:

The divestiture of our Australia-West assets that contributed 46 MBOED in first quarter

Average consolidated production decreased 4 MBOED and 30 MBOED in the three-

and six-month periods of

2021, respectively.

The production decrease was primarily due to:

The divestiture of our Australia-West assets that contributed 24 MBOED in the second

quarter and 35

MBOED in the six-month period of 2020.

Normal field decline.

These production decreases were partly offset by:

Bohai Bay development activity in China, including

first production from Phase 4A Project at the

Penglai 25-6 Field and first production from Malikai

Phase 2 in Malaysia.

Bohai Bay Well Control Incident

On April 5, 2021, a shallow gas kick occurred during

drilling operations, resulting in a fire on the

V platform in

Bohai Bay, China.

On April 6, 2021, the fire was extinguished.

We are working with the operator to fully

understand the impacts.

Partly offsetting the decrease in production was:

Absence of curtailments in Malaysia.

Bohai Bay development activity in China.

Increased production in Malaysia associated

with Malakai Phase 2 first production and ramp-up.

Other International

Three Months Ended

Six Months Ended

Net Income (Loss) Attributable to ConocoPhillips

(millions of dollars)

The Other International segment consists of exploration

activities in Colombia and Argentina and

contingencies associated with prior operations

and appraisal activities in Colombia and Argentina as

well as contingencies associated with prior operations

in other countries.

Earnings for Other International decreased $32 million

in the first quarter of 2021, compared

with the same

period of 2020.

Earnings were lower primarily due to the absence

of a $29 million after-tax benefit to earnings

from the dismissal of arbitration related to prior

operations in Senegal.

Earnings from our Other International operations

increased $1 million and decreased $31 million

in the three-

and six-month periods of 2021, respectively.

The decrease in earnings was primarily due to the absence

$29 million after-tax benefit to earnings from the

dismissal of arbitration related to prior operations

recognized in the first quarter of 2020.

Corporate and Other

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Three Months Ended

Net Loss Attributable to ConocoPhillips

Six Months Ended

Net Income (Loss) Attributable to ConocoPhillips

Net interest expense

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expense, net of interest income and capitalized

Net interest expense increased by $115 million in the first

quarter of 2021, primarily due to higher debt

See Note 6—Debt in the Notes to Consolidated

Financial Statements for more information

debt acquired in our Concho transaction.

Net interest expense also increased due to lower

interest income

from lower cash and cash equivalent balances and

Net interest expense increased by $7 million

and $122 million in the three-and six-month

periods of 2021,

respectively, primarily due to higher debt balances assumed due to our Concho

For additional

information regarding the debt acquired in our Concho transaction, see Note 6.

Corporate G&A expenses include compensation

programs and staff costs.

These expenses increased by $179

million mainly due to mark-to-market adjustments

associated with certain key employee compensation

programs and restructuring expenses associated

with our Concho acquisition.

For additional information about

restructuring expenses, see Note 14—Employee

Benefit Plans in the Notes to Consolidated Financial

These expenses decreased by $25

million in the three-month period of 2021 primarily

due to mark to market adjustments associated

compensation programs.

For the six-month period of 2021, Corporate

G&A expenses increased by $154

million primarily due to restructuring expenses

associated with our Concho acquisition.

For additional

information about restructuring expenses, see Note 14.

Technology includes our investment in new technologies or businesses, as well

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sands, enhanced

oil recovery and LNG.

Earnings from Technology increased $40 million in the first quarter of 2021

due to higher licensing revenues.

oil recovery, as well as LNG.

Earnings from Technology increased $45 million in the six-month period of

2021 primarily due to higher licensing revenues.

Other income (expense) or “Other” includes certain

foreign currency transaction gains and losses,

environmental costs associated with sites no longer

in operation, other costs not directly associated

operating segment, premiums incurred on the early

retirement of debt, unrealized holding gains or

equity securities, and pension settlement expense.

Earnings in “Other” increased by $1,908 million

corporate tax-related items, foreign currency

gains and losses, environmental costs associated

with sites no longer in operation, other costs not

associated with an operating segment, premiums

incurred on the early retirement of debt, holding

losses on equity securities, and pension settlement

“Other” decreased by $142 million in the second

quarter of 2021, primarily due to an after-tax

gain of $418 million on our CVE common shares

in the second

quarter of 2021

compared with the same period of 2020,

primarily due to an unrealized gain of $308 million

after-tax in the first quarter of 2021 on our

CVE common shares, compared with an unrealized

loss of $1,691

million after-tax on those shares in the first

compared with an after-tax gain of $551 million

in the same period of 2020 as well as the

absence of the release of a $92 million deferred

tax asset related to our Australia-West divestiture in the second

quarter of 2020.

In the six-month period of 2021, “Other”

increased by $1,766 million,

primarily due to an

after-tax gain of $726 million on our CVE common

shares in the six-month period of 2021, and

the absence of

a $1,140 million after-tax loss on those shares

in the six-month period of 2020.

CAPITAL RESOURCES AND LIQUIDITY

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*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

To meet our short-

and long-term liquidity requirements, we look

to a variety of funding sources, including

cash generated from operating activities,

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sell securities using our shelf registration

During the first quarter of 2021, the primary uses of

available cash were $1,200 million to

support our ongoing capital expenditures and investments

During the first six months of 2021, the primary uses

our available cash were $2,465 million to support

our ongoing capital expenditures and investments

$1,171 million to pay dividends,

approximately $1.0 billion of hedging, transaction

and restructuring costs,

to pay dividends;

million of net purchases of investments;

and $981 million to repurchase common stock.

During the first

quarter of 2021, our cash and cash equivalents

decreased by $160 million to $2,831 million.

On January 15, 2021, we completed the acquisition

of Concho in an all-stock transaction.

In the acquisition,

we assumed Concho’s publicly traded debt, which was recorded at fair value

of $4.7 billion on the acquisition

See Note 6—Debt and Note 3—Acquisitions

and Dispositions, in the Notes to Consolidated

Statements for additional information.

At March 31, 2021, we had cash and cash equivalents

During the first six months of 2021, our cash and

equivalents increased by $3,617 million to

$6,608 million.

At June 30, 2021, we had cash and cash equivalents

of $6.6 billion, short-term investments of $2.3

and available borrowing capacity under our credit

facility of $5.7 billion,

totaling over $12 billion of liquidity.

We believe current cash balances and cash generated by operations, together with

access to external sources of

available borrowing capacity under our credit facility

of $5.7 billion, totaling over $14

billion of liquidity.

believe current cash balances and cash generated

by operations, 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

in Capital” section, will be sufficient to meet our

requirements in the near- and long-term, including our capital

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Cash provided by operating activities was $6,331

million for the first quarter of 2021, compared

million for the first quarter of 2020.

The decrease in cash provided by operating

activities is primarily due to

the settlement of all oil and gas hedging positions

acquired from Concho, normal field decline, transaction

restructuring costs, and the divestiture of our Australia-West assets.

The decrease in cash provided by

operating activities was partly offset by higher sales

volumes and higher realized commodity

prices in the

Lower 48, primarily due to our acquisition of

million for the first six months of 2021, compared

$2,262 million for the corresponding period of 2020.

The increase in cash provided by operating activities

primarily due to higher realized commodity prices

and higher sales volumes mostly due to our acquisition

The increase in cash provided by operating activities

was partly offset by the settlement of all oil and

gas hedging positions acquired from Concho,

normal field decline, transaction and restructuring

costs, and the

divestiture of our Australia-West assets.

and long-term operating cash flows are highly

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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.

Absent other mitigating factors, as these prices

fluctuate, we would expect a corresponding change

in our operating cash flows.

The level of absolute 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

natural gas price environment, which may impact

investment decisions;

the effects of price changes

production sharing and variable-royalty contracts;

acquisition and disposition of fields;

decline rates;

new technologies;

production is subject to numerous uncertainties, including,

among others, the volatile crude oil and natural

price environment, which may impact investment

the effects of price changes on production

and variable-royalty contracts;

acquisition and disposition

field production decline rates;

technologies;

operating efficiencies;

timing of startups and major turnarounds;

timing of startups

and major turnarounds;

political instability;

a global pandemic;

weather-related disruptions;

and the addition of

proved reserves through exploratory success and

their timely and cost-effective development.

and the addition of proved reserves through exploratory

success and their timely and cost-effective development.

While we actively manage these factors, production

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.

levels can cause variability in cash flows, although

generally this variability has not been as significant

caused by commodity prices.

To maintain or grow our production volumes, we must continue to add to our

proved reserve base.

“Capital Expenditures and Investments” section,

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On January 15, 2021, we assumed financial derivative

instruments consisting of oil and natural gas swaps

following the acquisition of Concho.

instruments consisting of oil and natural gas

connection with our acquisition of Concho.

At March 31, 2021, all oil and natural gas derivative

instruments acquired from Concho were contractually

In connection with the settlement, we paid $692

million in the first quarter of 2021 and will

pay the remaining $69 million in the second

quarter of 2021.

additional information, see Note 10—Derivative

and Financial Instruments in the Notes to

Financial Statements.

In the first six months of 2021, we paid $761

million relating to these settlements.

See Note 10 for additional information.

Investing Activities

In the first quarter of 2021, we invested $1.2 billion

in capital expenditures.

Our 2021 operating plan capital

expenditures is $5.5 billion compared with

$4.7 billion in 2020.

See the “Capital Expenditures and

Investments” section, for information about our

capital expenditures and investments.

For the first six months of 2021, we invested $2.5

billion in capital expenditures.

Our 2021 operating plan

capital expenditures is currently expected to be

$5.3 billion compared with $4.7 billion

“Capital Expenditures and Investments” section,

for information about our capital expenditures

We completed our acquisition of Concho on January 15, 2021.

The assets acquired in the transaction included

$382 million of cash which is reflected in the

“Net Cash Used in Investing Activities” section

consolidated statement of cash flows.

See Note 3—Acquisitions

and Dispositions, in the Notes to Consolidated

Financial Statements for additional information.

$382 million of cash.

See Note 3 for additional information.

In May 2021, we announced a paced monetization

of our investment in CVE common shares with

direct proceeds toward our existing share repurchase

authorization program.

We expect to fully dispose of our

CVE shares by year-end 2022, however, the sales pace will

be guided by market conditions, and we retain

discretion to adjust accordingly.

In the second quarter of 2021, we sold 20 million

of these shares,

representing approximately 10% of the shares held

at December 31, 2020, for $180 million

Note 5 for additional information.

We invest in short-term investments as part of our cash investment strategy, the primary objective of which is

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yield and total returns;

these investments include time

deposits, commercial paper as well as debt securities

classified as available for sale.

these investments include

deposits, commercial paper, as well as debt securities classified

as available for sale.

Funds for short-term

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in longer term price downturns and to capture

opportunities outside a given operating

plan may be invested in

opportunities outside a given operating plan

may be invested in

instruments with maturities greater than one year.

Investing activities in the first quarter of 2021 included

net purchases of $499 million of investments,

$466 million was invested in short-term instruments

and $33 million was invested in long-term instruments.

See Note 10—Derivative and Financial Instruments,

in the Notes to Consolidated Financial

Statements for

Investing activities in the first six months of 2021

included net sales of $1,302 million of investments.

$1,403 million of short-term instruments

and invested $101 million in long-term instruments.

See Note 10 for

additional information.

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may be used for direct bank borrowings, the issuance

of letters of credit totaling up to $500 million,

of letters of credit totaling up to $500 million, or

support for our commercial paper program.

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adverse change provisions or any covenants

of specified financial ratios or credit ratings.

maintenance of specified financial ratios or credit

The facility agreement contains a cross-default

provision relating to the failure to pay principal or

interest on other debt obligations of

$200 million or more

provision relating to the failure to pay principal or interest

on other debt obligations of $200 million or more

by ConocoPhillips, or any of its consolidated subsidiaries.

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redetermination prior to its expiration date.

Credit facility borrowings may bear interest at

a margin above rates offered by certain designated banks in the

Credit facility borrowings may bear interest at a margin above

rates offered by certain designated banks in the

London interbank market or at a margin above the overnight

federal funds rate or prime rates offered by

federal funds rate or prime

rates offered by

certain designated banks in the U.S.

The agreement calls for commitment fees

on available, but unused,

The agreement also contains early termination

rights if our current directors or their approved

successors cease to be a majority of the Board

of Directors.

The revolving credit facility supports the ConocoPhillips

The facility agreement calls for commitment

fees on available, but

unused, amounts.

The facility agreement also contains early termination

rights if our current directors or their

approved successors

cease to be a majority of the Board of

The revolving credit facility supports ConocoPhillips

Company’s ability to issue up to $6.0 billion of

commercial paper, which is primarily a funding source for short-term

working capital needs.

paper maturities are generally limited to 90 days.

With $300 million of commercial paper outstanding and no

direct borrowings or letters of credit, we had $5.7

billion in available borrowing capacity

under the revolving

credit facility at March 31, 2021.

We may consider issuing additional commercial paper in the future to

supplement our cash position.

commercial paper.

Commercial paper maturities are generally

limited to 90 days.

With $300 million of

commercial paper outstanding and no direct borrowings

or letters of credit, we had $5.7 billion in

borrowing capacity under the revolving credit facility

at June 30, 2021.

We may consider issuing additional

commercial paper in the future to supplement our

cash position.

On January 15, 2021, we completed the acquisition

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of $4.7 billion on the acquisition

See Note 3—Acquisitions and Dispositions and

Note 6—Debt, in the Notes to Consolidated

Statements for additional information.

In May 2021, we reaffirmed our commitment to

preserving a top-tier

balance sheet with an intent to reduce the company’s gross debt by $5

billion over the next five years, driving a

more resilient and efficient capital structure.

In October 2020, Moody’s affirmed its rating of our senior long-term debt of “A3”

with a “stable” outlook, and

affirmed its rating of our short-term debt as “Prime-2.”

In January 2021, Fitch affirmed its rating of our long-

term debt as “A” with a “stable” outlook and affirmed its

rating of our short-term debt as “F1+.”

25, 2021, S&P revised the industry risk assessment

for the E&P industry to “Moderately High” from

“Intermediate” based on a view of increasing risks

from the energy transition, price volatility, and weaker

profitability.

On February 11, 2021, S&P downgraded its rating of our long-term debt

from “A” to “A-” with a

“stable” outlook and downgraded its rating of our short-term

debt from “A-1” to “A-2.”

We do not have any

ratings triggers on any of our corporate debt

that would cause an automatic default, and

thereby impact our

access to liquidity, upon downgrade of our credit ratings.

If our credit ratings

are downgraded from their

current levels, it could increase the cost of corporate

debt available to us and restrict our access to

commercial paper markets.

If our credit rating were to deteriorate

to a level prohibiting us from accessing the

commercial paper market, we would still

be able to access funds under our revolving credit

In June 2021, we reaffirmed our commitment to preserving

our ‘A’-rated balance sheet with the intent to

reduce gross debt by $5 billion over the next five

years, driving a more resilient and efficient

capital structure.

See Note 3 for additional information on our Concho acquisition and

see Note 6 for additional information on

In January 2021, Fitch affirmed its rating of our long-term

debt as “A” with a “stable” outlook and affirmed its

rating of our short-term debt as “F1+.” On January

25, 2021, S&P revised its industry risk

assessment of the

E&P industry to “Moderately High” from “Intermediate”

based on a view of increasing risks from the energy

transition, price volatility, and weaker profitability.

On February 11, 2021, S&P downgraded its rating of our

long-term debt from “A” to “A-” with a “stable”

outlook and downgraded its rating of

our short-term debt

from “A-1” to “A-2.”

In May 2021, Moody’s affirmed its rating of our senior long-term debt of

“stable” outlook.

Moody’s rates our short-term debt as “Prime-2.”

We do not have any ratings triggers on any

of our corporate debt that would cause an automatic

default, and thereby impact our access to liquidity, upon

downgrade of our credit ratings.

If our credit ratings are downgraded from their

current levels, it could

increase the cost of corporate debt available to

us and restrict our access to the commercial

paper markets.

our credit rating were to deteriorate to a level

prohibiting us from accessing the commercial

paper market, we

would still be able to access funds under our revolving

credit facility.

Certain of our project-related contracts, commercial

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of credit as collateral.

At March 31, 2021 and December 31, 2020,

At June 30, 2021 and December 31, 2020,

we had direct bank letters of credit of $222

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related to various purchase

commitments incident to the ordinary conduct of business.

In the event of credit ratings downgrades, we may

commitments incident to the ordinary conduct of

In the event of credit ratings downgrades, we

be required to post additional letters of

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Guarantor Summarized Financial Information

We have various cross guarantees among ConocoPhillips, ConocoPhillips Company

and Burlington Resources

LLC, with respect to publicly held debt securities.

ConocoPhillips Company is 100 percent

We have various cross guarantees among our Obligor group;

ConocoPhillips,

Burlington Resources LLC is 100 percent

owned by ConocoPhillips Company.

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

ConocoPhillips and/or ConocoPhillips Company

have fully and unconditionally guaranteed

obligations of Burlington Resources LLC, with respect

to its publicly held debt securities.

have fully and unconditionally guaranteed the

payment obligations of Burlington Resources

LLC, with respect to its publicly held debt

ConocoPhillips has fully and unconditionally

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is reflected within the Obligor Group presented

See Note 3—Acquisitions and Dispositions

6—Debt, in the Notes to Consolidated Financial

Statements for additional information.

for additional information

relating to the Concho transaction.

Transactions and balances reflecting activity between the Obligors

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Millions of Dollars

Three Months Ended

March 31, 2021

Six Months Ended

June 30, 2021

Revenues and Other Income

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Investments” section.

Our debt balance as of March 31, 2021, was $20.0

billion compared with $15.4 billion at

December 31, 2020.

The increase of $4.6 billion is due to debt assumed

in the Concho acquisition.

The current portion of debt,

including payments for finance leases, is $0.7

Payments will be made using current cash balances

cash generated by operations.

See Note 6—Debt, in the Notes to Consolidated

Financial Statements for

additional information on debt.

Our debt balance at June 30, 2021, was $20.0

billion, compared with $15.4 billion at December

net increase is primarily due to $4.7 billion of

debt assumed in the Concho acquisition.

The current portion of

debt, including payments for finance leases, is

$1,205 million.

Payments will be made using current cash

balances and cash generated by operations.

For additional information regarding debt, see Note 6.

We believe in delivering value to our shareholders through a growing and sustainable

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by additional returns of capital, including share repurchases.

In 2020, we paid $1.8 billion,

equating to $1.69

In 2020, we paid $1.8 billion, equating to $1.69

per share of common stock, in dividends.

On February 2, 2021, we announced a quarterly

dividend of $0.43

The dividend was paid on March 1, 2021, to stockholders

of record at the close of business on

February 12, 2021.

On May 4, 2021, we announced a quarterly

dividend of $0.43

per share, payable June 1,

2021, to stockholders of record at the close of business

on May 14, 2021.

We anticipate returning $2.3 billion to shareholders in the form of

dividends in 2021.

In the first six months of 2021, we paid

dividends totaling $1.2 billion, the equivalent of

$0.86 per share.

On July 13, 2021, we announced

a quarterly dividend of $0.43 per share, payable

In late 2016, we initiated our current share repurchase

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repurchase $25 billion of our common stock.

In February 2021, we resumed the program

at an annualized

level of $1.5 billion.

In May 2021, we announced our plan to dispose

of our 208 million shares of Cenovus

Energy by year-end 2022.

The sales pace will be guided by market conditions,

with ConocoPhillips retaining

discretion to adjust accordingly.

The proceeds from this disposition will be deployed

towards incremental

share repurchases.

In the first quarter of 2021, we repurchased

As of June 30, 2021, our plan is to repurchase approximately

$3.5 billion in 2021 and we anticipate funding

approximately $1.0 billion of that amount

through proceeds

from the sales of our CVE common stock.

The pace of CVE share sales will be guided

by market conditions,

and we retain the discretion to adjust accordingly.

In the six months ended June 30, 2021, we repurchased

17.7 million shares at a cost of $981 million, $159

million of which was funded using CVE share

Since the inception of the program, we have repurchased

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Millions of Dollars

Three Months Ended

Six Months Ended

Europe, Middle East and North Africa

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Capital expenditures and investments

During the first quarter of 2021, capital expenditures

and investments supported key exploration

During the first six months of 2021, capital expenditures

and investments supported key exploration and

development programs, primarily:

Development and appraisal activities

in the Lower 48, primarily Permian, Eagle Ford,

in the Lower 48, primarily Permian, Eagle Ford, and Bakken.

Appraisal and development activities

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plan capital expenditures of $5.5 billion.

The plan includes

$5.1 billion to sustain current production and $0.4

billion for investment in major projects, primarily

in addition to ongoing exploration appraisal activity.

In June 2021, we

reduced capital guidance to $5.3 billion, recognizing

synergistic savings from our Concho acquisition.

Contingencies

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consolidated financial statements.

For information on other contingencies, see

Note 9—Contingencies and

Commitments, in the Notes to Consolidated Financial

Legal and Tax

For information on other contingencies, see Note 9.

Legal and Tax Matters

We are subject to various lawsuits and claims including but not limited to matters

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on certain federal, state and privately owned

claims of alleged environmental contamination

from historic operations.

We will continue to defend ourselves

vigorously in these matters.

of alleged environmental contamination from

historic operations,

and other contract disputes.

continue to defend ourselves vigorously in these matters.

Our legal organization applies its knowledge, experience

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to our past operations.

As of March 31, 2021,

there were 15 sites around the U.S.

which we were identified as a potentially responsible

CERCLA and comparable state laws.

At March 31, 2021,

our balance sheet included a total environmental

accrual of $188 million, compared with

$180 million at December 31, 2020,

for remediation activities in the U.S.

As of June 30, 2021, 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 June 30, 2021, our balance sheet included a total

environmental accrual of $188 million,

compared with

$180 million at December 31, 2020, for remediation

activities in the U.S.

We expect to incur a

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in several states in the U.S.

have filed lawsuits

have filed lawsuits against

and gas companies, including ConocoPhillips,

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factually and legally meritless and are an

inappropriate vehicle to address the challenges

associated with climate change and will

vigorously defend

inappropriate vehicle to address the challenges associated

with climate change and will vigorously defend

against such lawsuits.

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historical oil and gas operations.

ConocoPhillips entities are defendants

in 22 of the lawsuits and will

ConocoPhillips entities are defendants in

22 of the lawsuits and will

vigorously defend against them.

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about these claims (both as to scope and damages)

and any potential financial impact on the company.

and we continue to evaluate our exposure in these

Company Response to Climate-Related Risks

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covering the assessment and registering of significant

and high sustainable development risks based on their

and high sustainable development risks based

consequence and likelihood of occurrence.

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Emissions are categorized into three different scopes.

Gross operated Scope 1 and Scope 2 GHG emissions

Gross operated scope 1 and scope 2 GHG

help us understand our climate transition

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We have joined the World

Bank Flaring Initiative to work towards

Bank Flaring Initiative to work towards zero

flaring of gas by 2030.

Technology choices:

We expanded our Marginal Abatement Cost Curve process to provide a broader

expanded our Marginal Abatement Cost Curve process

to provide a broader

range of opportunities for emission reduction

Portfolio choices:

Our corporate authorization process requires

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our internally consistent World Energy Model.

way, both existing and emerging regulatory requirements are considered in our

decision-making.

way, both existing and emerging regulatory requirements are considered in our decision-making.

company does not use an estimated market cost

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All statements other than statements of

historical fact included or incorporated by reference

in this report, including, without limitation,

historical fact included or incorporated by reference in

this report, including, without limitation,

regarding our future financial position, business

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the anticipated benefits of the transaction

and Concho, the anticipated impact of the transaction

on the combined company’s business and future

financial and operating results, the expected amount

and the timing of synergies from the transaction

forward-looking statements.

and Concho Resources Inc.

(Concho), the anticipated

impact of the transaction on the combined company’s

business and future financial and operating results,

the expected amount and the timing of synergies from

transaction 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.

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

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expected levels.

The impact of significant declines in prices for crude

oil, bitumen, natural gas, LNG and NGLs,

The impact of significant declines in prices for

crude oil, bitumen, natural gas, LNG and NGLs,

may result in recognition of impairment charges on

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Potential disruption or interruption of our operations

due to accidents, extraordinary weather

due to accidents, extraordinary weather events,

civil unrest, political events, war, terrorism, cyber attacks,

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of, competing or alternative energy sources, including

as a result of existing or future environmental rules

and regulations.

as a result of existing or future environmental

rules and regulations.

Liability for remedial actions, including removal

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Significant operational or investment changes imposed

by existing or future environmental statutes

by existing or future environmental

and regulations, including international agreements

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Liability resulting from litigation, including the

potential for litigation related to the transaction

potential for litigation related to the

transaction with

Concho, or our failure to comply with applicable

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regulation or taxation;

and other political, economic

or diplomatic

and other political, economic or diplomatic

developments.

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Potential failure to obtain, or delays in obtaining,

any necessary regulatory approvals for

any necessary regulatory approvals for pending

future asset dispositions or acquisitions,

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The diversion of management time on integration-related

The factors generally described in Part I—Item

1A in our 2020 Annual Report on Form

The factors generally described in Part I—Item 1A

in our 2020 Annual Report on Form

additional risks described in our other filings

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DISCLOSURES ABOUT MARKET RISK

Other information about market risks for

the three months ended March 31, 2021, does

not differ materially

from that discussed under Item 7A in our 2020

Annual Report on Form 10-K.

Information about market risks for the six months

ended June 30, 2021, does not differ materially

discussed under Item 7A in our 2020 Annual Report

on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis