CONOCOPHILLIPS 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis is the company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “budget,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “target,” “will,” “would,” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 57. The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to ConocoPhillips. Business Environment and Executive Overview ConocoPhillips is the world’s largest independent E&P company with operations and activities in 14 countries. Our diverse, low cost of supply portfolio includes resource-rich unconventional plays in North America; conventional assets in North America, Europe, and Asia; LNG developments; oil sands in Canada; and an inventory of global conventional and unconventional exploration prospects. Headquartered in Houston, Texas, at September 30, 2021, we employed approximately 9,900 people worldwide and had total assets of $87 billion. Completed and Announced Acquisitions On January 15, 2021, we completed our acquisition of Concho Resources Inc. (Concho), an independent oil and gas exploration and production company with operations across New Mexico and West Texas. The addition of complementary acreage in the Delaware and Midland Basins resulted in a significant Permian presence to augment our leading unconventional positions in the Eagle Ford, Bakken and Montney. See Note 3. In September 2021, we signed a definitive agreement to acquire Shell Enterprises LLC ’s assets in the Delaware Basin (Shell Permian Acquisition) in an all-cash transaction for $9.5 billion before customary adjustments. Assets to be acquired include approximately 225,000 net acres and producing properties located entirely in Texas, as well as over 600 miles of operated crude, gas and water pipelines and infrastructure. This acquisition further enhances our already sizeable Permian position, and we believe that our development, operational and commercial expertise will deliver significant incremental value. This acquisition is expected to close in the fourth quarter of 2021, subject to regulatory approval and other customary closing conditions. See Note 3. See Item 1A “Risk Factors” for further discussion of the risks related to the Shell Permian Acquisition. Overview While commodity prices in the third quarter of 2021 improve d to pre-pandemic levels, we expect that they will continue to be 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. As such, we are unhedged, remain highly disciplined in our investment decisions and continually monitor market fundamentals including OPEC plus updates regarding supply guidance and inventory levels. Demand continues to recover but has yet to regain pre -pandemic levels. The speed and extent of this recovery will be influenced by continual easing of COVID-19 restrictions that have reduced economic activity and depressed the demand for our products globally. Management’s Discussion and Analysis Table of Contents ConocoPhillips 2021 Q3 10-Q 34 The energy macro-environment , including energy transition, continues to evolve. We believe ConocoPhillips can play a valued role in the energy transition. We have adopted a triple mandate that simultaneously calls for meeting energy pathway demand, delivering competitive returns of and on capital, and achieving our net-zero ambition on operational (scope 1 and 2) emissions. Our triple mandate is supported by financial principles and capital 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 investment s, and delivering ESG excellence, all of which are in service to delivering competitive financial returns. Our completed and announced acquisitions this year further reinforce our value proposition. In the third quarter, total company production was 1,544 MBOED resulting in cash provided by operating activities of $4.8 billion. In the nine-month period ended September 30, 2021, we generated $11.1 billion in cash provided by operating activities, returning $1.8 billion to shareholders through dividends and $2.2 billion through share repurchases. We ended the quarter with cash, cash equivalents and short-term investments totaling $10.5 billion. In February 2021, we resumed our share repurchase program at an annualized level of $1.5 billion, which we 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. During the third quarter of 2021, we sold 47 million shares for $404 million and inception to date have sold 67 million shares for $584 million. Proceeds from the disposition of CVE shares will be deployed toward incremental share repurchases. See Note 5. In September 2021, we declared an increase in the company’s quarterly ordinary dividend from 43 cents per share to 46 cents per share, representing a 7 percent increase. The dividend is payable on December 1, 2021, to stockholders of record at the close of business on October 28, 2021. Planned distributions for 2021 amount to a total of approximately $6 billion between dividends and share repurchases combined. Additionally in September 2021, we demonstrated our commitment to preserving our ‘A’ -rated balance sheet by restating our intent to reduce the company’s gross debt by $5 billion over five years through natural and accelerated maturities. In conjunction with our Shell Permian Acquisition announcement , we also communicated an increase to our planned disposition target that was initially set in June at $2 to $3 billion by 2022. We are now targeting $4 to $5 billion in disposition proceeds by 2023, with the additional $2 billion sourced primarily from the Permian Basin as part of our ongoing portfolio high-grading and optimization efforts. To date, we have generated $0.2 billion in disposition proceeds. The proceeds from these transactions will be used in accordance with the company’s priorities, including returns of capital to shareholders and reduction of gross debt. Management’s Discussion and Analysis Table of Contents 35 ConocoPhillips 2021 Q3 10-Q In September 2021, in conjunction with the announcement of the Shell Permian Acquisition, we reaffirmed our commitment to ESG leadership and excellence by announcing an improvement to our operational GHG emissions intensity reduction targets by 2030. Our Paris-aligned climate-risk commitment now includes: ● Net-zero ambition for operational (scope 1 and 2) emissions by 2050 with active advocacy for a price on carbon to address end-use (scope 3) emissions; ● Targeting a reduction in gross operated and net equity operational GHG emissions intensity by 40 to 50 percent from 2016 levels by 2030, an improvement from the previously announced target of 35 to 45 percent on only a gross operated basis; ● Zero routine flaring by 2030, with an ambition to get there by 2025; ● 10 percent reduction target for methane emissions intensity by 2025 from a 2019 baseline, in addition to the 65 percent reductions we have made since 2015; ● Adding continuous methane detection devices to our operations, with an initial focus on the larger Lower 48 facilities; ● 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; and ● ESG performance factoring into executive and employee compensation programs. Operationally, we remain focused on safely executing the business. Production was 1,544 MBOED in the third quarter of 2021, an increase of 477 MBOED or 45 percent, compared with the third quarter of 2020, primarily due to the addition of approximately 343 MBOED in the Permian Basin from our Concho acquisition and the absence of last year’s economic curtailments predominantly in North American operated assets as a result of lower oil prices. We re-invested $1.3 billion into the business in the form of capital expenditures during the third 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 has access to both domestic and export markets . For the full year, we remain disciplined with our allocation of capital with a planned $5.3 billion program excluding the impacts of the recently announced Shell Permian Acquisition which is anticipated to close in the fourth quarter. Business Environment Commodity prices are the most significant factor impacting our profitability and related reinvestment of operating cash flows into our business. Dynamics that could influence world energy markets and commodity prices are global economic health, supply or demand disruptions or fears thereof caused by civil unrest, global pandemics, military conflicts, actions taken by OPEC plus and other major oil producing countries, environmental laws, tax regulations, governmental policies, and weather-related disruptions. Our strategy is to create value through price cycles by delivering on the financial, operational and ESG priorities that underpin our value proposition . Our earnings and operating cash flows generally correlate with price levels for crude oil and natural gas, which are subject to factors external to the company and over which we have no control. The following graph depicts the trend in average benchmark prices for WTI crude oil, Brent crude oil and Henry Hub natural gas: Management’s Discussion and Analysis Table of Contents ConocoPhillips 2021 Q3 10-Q 36 - 1 2 3 4 5 20 40 60 80 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 WTI/Brent $/Bbl WTI Crude Oil, Brent Crude Oil and Henry Hub Natural Gas Prices Quarterly Averages WTI - $/Bbl Brent - $/Bbl HH - $/MMBTU HH $/MMBTU Brent crude oil prices averaged $73.47 per barrel in the third quarter of 2021, an increase of 71 percent compared with $43.00 per barrel in the third quarter of 2020. WTI at Cushing crude oil prices averaged $70.56 per barrel in the third quarter of 2021, an increase of 72 percent compared with $40.93 per barrel in the third quarter of 2020. Oil prices increased alongside the ongoing global economic recovery following 2020’s COVID impacts as well as OPEC plus supply restraint, continued capital discipline by U.S. E&P’s and various unplanned supply disruptions in producing countries. Henry Hub natural gas prices averaged $4.02 per MMBTU in the third quarter of 2021, an increase of 103 percent compared with $1.98 per MMBTU in the third quarter of 2020. Henry Hub prices have increased due to healthy domestic demand accompanied by record levels of feedgas demand for LNG exports to Europe and Asia. Our realized bitumen price averaged $41.19 per barrel in the third quarter of 2021, an increase of 160 percent compared with $15.87 per barrel in the third quarter of 2020. The increase in the third quarter of 2021 was driven by higher blend price for Surmont sales, largely attributed to a strengthening of WTI price. We continue to optimize bitumen price realizations through the utilization of downstream transportation solutions and implementation of alternate blend capability which results in lower diluent costs. For the third quarter of 2021 our total average realized price increased to $56.92 per BOE compared with $30.94 per BOE in the third quarter of 2020. Management’s Discussion and Analysis Table of Contents 37 ConocoPhillips 2021 Q3 10-Q Key Operating and Financial Summary Significant items during the third 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 third quarter production of 1,507 MBOED, excluding Libya. ● Net cash provided by operating activities was $4.8 billion, exceeding capital expenditures and investments of $1.3 billion. ● Distributed a total of $4.0 billion to shareholders year to date, comprised of $2.2 billion in share repurchases and $1.8 billion in dividends as part of the company’s plan to return approximately $6.0 billion to shareholders during 2021. ● Announced an increase to the quarterly dividend by 7 percent to 46 cents per share. ● Ended the quarter with cash and cash equivalents totaling $9.8 billion and short-term investments of $0.7 billion, equaling $10.5 billion in ending cash, cash equivalents and short-term investments. ● As part of a commitment to ESG excellence, announced an improvement to the company’s scope 1 and 2 GHG emissions intensity reduction targets from a 2016 baseline to 40 to 50 percent on a net equity and gross operated basis, from the previous target of 35 to 45 percent on only a gross operated basis . ● Announced highly accretive pending acquisition of Shell Enterprises LLC’s complementary Delaware Basin position in the Permian for $9.5 billion in cash, before customary closing adjustments. ● Generated approximately $0.2 billion in disposition proceeds from Lower 48 noncore asset sales as part of the company’s target to generate $4 to $5 billion in proceeds by 2023. Production from the disposed assets average approximately 15 MBOED in the first nine months of 2021. Outlook Capital, Cost and Production Fourth-quarter 2021 production is expected to be 1.53 to 1.57 MMBOED. This guidance excludes Libya and impacts from pending acquisitions. Guidance regarding capital and cost are unchanged. This production guidance includes the impact of planned conversion of the significant majority of previously acquired Concho two-stream contracted volumes to a three-stream (crude oil, natural gas and natural gas liquids) reporting basis as Concho volumes are integrated into the company’s commercial activities. The conversion to three-stream reporting is neutral to earnings. Effective in the fourth quarter, this conversion is expected to add production of approximately 40 MBOED and increase revenue and operating costs by roughly $70 million. Depreciation, Depletion and Amortization Our proved reserve estimates are greatly impacted by commodity price fluctuations, and generally decrease as prices decline and increase as prices rise. Proved reserves estimates were updated and increased in the current quarter utilizing historical twelve-month first-of-month average prices, which decreased third quarter DD&A expense by approximately $240 million before-tax. As such, the company reduced its 2021 DD&A expense guidance by $0.3 billion to $7.1 billion. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 38 Results of Operations Unless otherwise indicated, discussion of results for the three - and nine-month periods ended September 30, 2021, is based on a comparison with the corresponding periods of 2020. Consolidated Results A summary of the company's net income (loss) attributable to ConocoPhillips by business segment follows: Millions of Dollars Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Alaska $ 405 (16) 935 (76) Lower 48 1,631 (78) 3,274 (880) Canada 155 (75) 267 (270) Europe, Middle East and North Africa 241 92 601 318 Asia Pacific 257 25 749 945 Other International (97) (8) (106) 14 Corporate and Other (213) (390) (268) (1,980) Net income (loss) attributable to ConocoPhillips $ 2,379 (450) 5,452 (1,929) Net income (loss) attributable to ConocoPhillips in the third quarter of 2021 increased $2,829 million. Third quarter earnings were positively impacted by: ● Higher realized commodity prices. ● Higher sales volumes, primarily due to our Concho acquisition and absence of production curtailments in our North American operated assets. See Note 3. ● Higher equity in earnings of affiliates, primarily due to higher LNG sales prices. ● A gain of $17 million after-tax on our CVE common shares in the third quarter of 2021, as compared to a $162 million after-tax loss on those shares in the third quarter of 2020. See Note 5. Third quarter 2021 net income increases were partly offset by: ● Higher production and operating expenses and taxes other than income taxes, primarily due to higher sales volumes. ● Higher DD&A expenses caused by higher production volumes, partially offset by lower rates driven from price-related reserve revisions due to higher commodity prices in 2021. Net income (loss) attributable to ConocoPhillips in the nine-month period ended September 30, 2021, increased $7,381 million. ● Inclusive of the third quarter gain associated with our CVE common shares, in the nine-month period we recognized a gain of $743 million after-tax on our CVE common shares, compared with an after-tax loss of $1,302 million in the nine-month period of 2020. In addition to the items detailed above, earnings in the nine-month period were positively impacted by: ● Lower impairments of $611 million, primarily due to a credit recognized for a decrease in the ARO estimate of a previously sold asset, in which we retained the ARO liability, as well as the absence of impairments recognized in the prior period for non-core gas assets in our Lower 48 segment. See Note 6. ● An after-tax gain of $194 million recognized for a FID bonus associated with our Australia-West divestiture completed in the second quarter of 2020. See Note 3. ● Lower exploration expenses due to the absence of charges associated with the early cancellation of our 2020 winter exploration program as well as the absence of 2020 dry hole expenses in Alaska , and unproved property impairment and dry hole expenses for the Kamunsu East Field in Malaysia, which is no longer in our development plans. Results of Operations Table of Contents 39 ConocoPhillips 2021 Q3 10-Q In addition to the items detailed above, the increases in earnings in the nine-month period ended September 30, 2021, were partly offset by: ● Absence of a $597 million after-tax gain on our Australia-West divestiture completed in May 2020. ● Restructuring and transaction expenses of $288 million after-tax associated with the 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 assumed through our Concho acquisition. These derivative positions were settled entirely within the first quarter of 2021. See Note 11. ● Absence of gains recorded in 2020 from foreign currency derivatives. See the “Segment Results” section for additional information. Income Statement Analysis Unless otherwise indicated, all results in Income Statement Analysis are before-tax. Sales and other operating revenues for the three- and nine-month periods of 2021 increased $6,940 million and $17,415 million, respectively, mainly due to higher realized commodity prices and higher sales volumes. Equity in earnings of affiliates for the three- and nine-month periods of 2021 increased $204 million and $154 million, respectively, primarily due to higher earnings driven by higher LNG and crude prices, partially offset by a higher effective tax rate related to equity method investments in our Europe, Middle East, and North Africa segment. Gain (loss) on dispositions in the third quarter of 2021 recognized a loss of $179 million for the sale of noncore assets in our Other International segment. Offsetting the loss were gains recognized for contingent payments associated with previous dispositions in our Canada and Lower 48 segments and gains on sales of certain noncore assets in our Lower 48 segment. For the nine-month period of 2021, net gains on dispositions decreased $257 million primarily due to the absence of a $587 million gain associated with our Australia -West divestiture, partially offset by a $200 million FID bonus recognized in the first quarter of 2021 associated with our Australia-West divestiture. Other income (loss) for the three- and nine-month periods of 2021 increased $87 million and $1,867 million, respectively. During these periods in 2021, we recognized gains of $17 million and $743 million, respectively, on our CVE common shares, compared with losses of $162 million and $1,302 million for the same periods in 2020. Purchased commodities for the three - and nine-month periods of 2021 increased $2,340 million and $6,030 million, respectively, primarily due to higher gas and crude prices and volumes. Production and operating expenses for the three- and nine-month periods of 2021 increased $426 million and $968 million, respectively, primarily in line with higher production volumes. Selling, general and administrative expenses increased $307 million in the nine-month period of 2021, primarily due to transaction and restructuring expenses associated with our Concho acquisition , and higher costs associated with compensation and benefits, including mark-to -market impacts of certain key employee compensation programs. Exploration expenses for the nine-month period of 2021 decreased $204 million, primarily due to the absence of charges associated with the early cancellation of our 2020 winter exploration program as well as the absence of 2020 dry hole expenses in Alaska and an unproved property impairment and dry hole expenses related to the Kamunsu East Field in Malaysia. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 40 DD&A for the three- and nine-month periods of 2021 increased $261 million and $1,445 million, respectively, mainly due to higher production volumes partly offset by lower rates from price-related reserve revisions . Impairments decreased $91 million in the third quarter of 2021, primarily due to a decrease in an ARO estimate for a previously sold asset, in which we retained the ARO liability. The decrease of $611 million in the nine-month period of 2021 was also impacted by the absence of impairments recorded for certain non-core gas assets in our Lower 48 segment. Taxes other than income taxes for the three- and nine-month periods of 2021 increased $224 million and $584 million, respectively, caused by higher sales volumes primarily in Lower 48 and higher commodity prices. Foreign currency transaction (gain) loss for the nine-month period of 2021 was impaired by $107 million due to the absence of derivative gains and other remeasurements. See Note 19—Income Taxes for information regarding our income tax provision (benefit) and effective tax rate. Results of Operations Table of Contents 41 ConocoPhillips 2021 Q3 10-Q Summary Operating Statistics Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Average Net Production Crude oil (MBD) Consolidated operations 802 535 814 546 Equity affiliates 13 13 13 13 Total crude oil 815 548 827 559 Natural gas liquids (MBD) Consolidated operations 123 89 116 97 Equity affiliates 7 8 8 7 Total natural gas liquids 130 97 124 104 Bitumen (MBD) 69 49 69 50 Natural gas (MMCFD) Consolidated operations 2,144 1,201 2,143 1,353 Equity affiliates 1,033 1,034 1,055 1,042 Total natural gas 3,177 2,235 3,198 2,395 Total Production (MBOED) 1,544 1,067 1,553 1,112 Dollars Per Unit Average Sales Prices Crude oil (per bbl) Consolidated operations* $ 70.39 39.49 64.62 39.04 Equity affiliates 73.44 37.56 65.71 38.22 Total crude oil 70.43 39.45 64.63 39.02 Natural gas liquids (per bbl) Consolidated operations 33.28 13.73 28.02 11.72 Equity affiliates 56.70 30.21 49.81 31.65 Total natural gas liquids 34.79 15.29 29.58 13.45 Bitumen (per bbl) 41.19 15.87 36.61 2.90 Natural gas (per MCF) Consolidated operations* 5.93 2.77 5.02 3.07 Equity affiliates 5.95 2.61 4.48 3.98 Total natural gas 5.94 2.70 4.84 3.47 Millions of Dollars Exploration Expenses General administrative, geological and geophysical, lease rental, and other $ 65 81 199 296 Leasehold impairment - - 1 31 Dry holes - 44 6 83 $ 65 125 206 410 *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 $63.95 per barrel for crude oil and $4.98 per mcf for natural gas for the nine-month period ended September 30, 2021. As of March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho. See Note 11. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 42 We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and NGLs on a worldwide basis. At September 30, 2021, our operations were producing in the U.S., Norway, Canada, Australia, Indonesia, China, Malaysia, Qatar and Libya. Total production of 1,544 MBOED increased 477 MBOED or 45 percent in the third quarter of 2021 and 441 MBOED or 40 percent in the nine-month period of 2021, primarily due to: ● Higher volumes in the Lower 48 due to our Concho acquisition. ● New wells online in the Lower 48, Canada, Norway and Malaysia. ● Higher volumes in our North American operated assets due to the absence of production curtailments. ● Higher production in Libya due 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, Canada, Alaska and China. Production increases in the third quarter and in the nine-month period of 2021 were partly offset by normal field decline. In addition to the normal field decline, in the nine-month period of 2021, production also decreased due to: ● Absence of production from Australia -West due to our second quarter 2020 disposition. ● Higher unplanned downtime in the Lower 48 due to Winter Storm Uri, which impacted production by approximately 50 MBOED in the first quarter of 2021. Production excluding Libya for the third quarter of 2021 was 1,507 MBOED, an increase of 441 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions as well as estimated impacts from the 2020 curtailment program, third-quarter 2021 production increased 26 MBOED or 2 percent. 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 37 MBOED. Production excluding Libya for the nine-month period of 2021 was 1,514 MBOED, an increase of 406 MBOED from the same period a year ago. After adjusting for closed acquisitions and dispositions as well as impacts from the 2020 curtailment program and Winter Storm Uri impacts from 2021, production increased 17 MBOED or 1 percent. 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 39 MBOED. Results of Operations Table of Contents 43 ConocoPhillips 2021 Q3 10-Q Segment Results Alaska Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income (Loss) Attributable to ConocoPhillips ($MM) $ 405 (16) 935 (76) Average Net Production Crude oil (MBD) 163 184 179 179 Natural gas liquids (MBD) 13 14 15 15 Natural gas (MMCFD) 11 14 10 10 Total Production (MBOED) 178 201 196 195 Average Sales Prices Crude oil ($ per bbl) $ 72.55 40.88 66.78 41.92 Natural gas ($ per MCF) 2.63 2.48 3.06 2.71 The Alaska segment primarily explores for, produces, transports and markets crude oil, NGLs and natural gas. As of September 30, 2021, Alaska contributed 19 percent of our consolidated liquids production and less than 1 percent of our consolidated natural gas production. Net Income (Loss) Attributable to ConocoPhillips Earnings from Alaska increased $421 million in the third quarter of 2021 and $1,011 million in the nine-month period of 2021, respectively. In the third quarter, increases to earnings include: ● Higher realized crude oil prices. ● Lower DD&A expenses primarily driven by lower production volumes and lower rates in the quarter from price-related reserve revisions . Offsets to the earnings increase include : ● Lower volumes due to a July turnaround at our Western North Slope assets. In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to: ● Lower exploration expenses due to the absence of charges associated with the early cancellation of our 2020 winter exploration program as well as the absence of 2020 dry hole expenses. ● Higher volumes due to the absence of production curtailments. In addition to the items detailed above, in the nine-month period of 2021, earnings also decreased due to: ● Higher DD&A expenses primarily caused by higher rates in the first half of 2021. Production Average production decreased 23 MBOED in the third quarter of 2021 and increased 1 MBOED in the nine-month period of 2021, respectively. In the third quarter of 2021, decreases to production include: ● Normal field decline. ● A July turnaround at our Western North Slope assets. More than offsetting the items detailed above, in the nine-month period of 2021, production increased due to: ● Absence of curtailments. ● Improved performance in the Greater Prudhoe Area and Western North Slope assets. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 44 Willow Update In August 2021, an Alaska federal judge vacated the U.S. government’s approval granted to our planned Willow project previously approved by the Bureau of Land Management (BLM) in October 2020. The Department of Justice did not appeal the decision and neither did we. We believe the best path forward is to work closely with the BLM and engage directly with the relevant agencies to address the matters described in the decision. In the interim, we are continuing with FEED work in service of a final investment decision. Lower 48 Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income (Loss) Attributable to ConocoPhillips ($MM) $ 1,631 (78) 3,274 (880) Average Net Production* Crude oil (MBD) 457 197 442 211 Natural gas liquids (MBD) 101 68 93 74 Natural gas (MMCFD) 1,389 566 1,389 577 Total Production (MBOED) 790 359 767 381 Average Sales Prices Crude oil ($ per bbl)** $ 68.59 36.43 63.14 34.02 Natural gas liquids ($ per bbl) 32.87 13.51 27.48 10.96 Natural gas ($ per MCF)** 4.63 1.63 4.13 1.45 *Subsequent to the current period, we anticipate a change in both product mix and average net production attributed to the planned conversion of previously acquired two-stream contracted volumes to three-stream. **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 $61.90 per barrel for crude oil and $4.07 per mcf for natural gas for the nine-month period ended September 30, 2021. As of March 31, 2021, we had settled all oil and gas hedging positions acquired from Concho. See Note 11. The Lower 48 segment consists of operations located in the U.S. Lower 48 states, as well as producing properties in the Gulf of Mexico. As of September 30, 2021, the Lower 48 contributed 54 percent of our consolidated liquids production and 65 percent of our consolidated natural gas production. Net Income (Loss) Attributable to ConocoPhillips Earnings from the Lower 48 increased $1,709 million in the third quarter of 2021 and increased $4,154 million in the nine-month period of 2021, respectively. In the third quarter, increases to earnings include: ● Higher realized crude oil, natural gas and NGL prices. ● Higher sales volumes of crude oil and natural gas due to our Concho acquisition and the absence of production curtailments. Offsets to the earnings increase include: ● Higher DD&A expenses, production and operating expenses and taxes other than income taxes primarily due to higher production volumes. Partially offsetting the increase in DD&A expenses were lower rates from price-related reserve revisions. In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to : ● The absence of $399 million in after-tax impairments related to certain noncore gas assets. In addition to the items detailed above, in the nine-month period of 2021, earnings also decreased due to: ● Impacts resulting from our Concho Acquisition, including higher selling, general and administrative expenses for transaction and restructuring charges, as well as realized losses on derivative settlements. See Note 3 and Note 11. Results of Operations Table of Contents 45 ConocoPhillips 2021 Q3 10-Q Production Average production increased 431 MBOED and 386 MBOED in the three- and nine-month periods of 2021, respectively. In the third quarter, increases to production include: ● Higher volumes due to our Concho acquisition. ● New wells online from our development programs in Permian, Eagle Ford and Bakken. ● Absence of curtailments. Offsets to the production increases include: ● Normal field decline. In addition to normal field decline, in the nine-month period of 2021, production also decreased due to: ● Higher unplanned downtime, primarily due to Winter Storm Uri. Asset Acquisitions and Dispositions In September 2021, we announced the Shell Permian Acquisition for $9.5 billion in cash before customary adjustments. The transaction is anticipated to close in the fourth quarter of 2021, subject to regulatory approval and other customary closing conditions. See Note 3. See Item 1A “Risk Factors” for further discussion of risks related to the Shell Permian Acquisition. Additionally in September 2021, we completed divestitures of certain noncore assets in our Lower 48 segment , recording proceeds of approximately $150 million. Production from these assets averaged approximately 15 MBOED in the nine-months ended September 30, 2021. See Note 3. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 46 Canada Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income (Loss) Attributable to ConocoPhillips ($MM) $ 155 (75) 267 (270) Average Net Production Crude oil (MBD) 8 6 10 4 Natural gas liquids (MBD) 4 2 4 2 Bitumen (MBD) 69 49 69 50 Natural gas (MMCFD) 73 43 83 35 Total Production (MBOED) 93 64 96 62 Average Sales Prices Crude oil ($ per bbl) $ 58.99 25.16 53.81 15.39 Natural gas liquids ($ per bbl) 33.47 5.99 28.49 1.89 Bitumen ($ per bbl) 41.19 15.87 36.61 2.90 Natural gas ($ per MCF) 2.45 0.71 2.36 1.05 Average sales prices include unutilized transportation costs. Our Canadian operations mainly consist of the Surmont oil sands development in Alberta and the liquids-rich Montney unconventional play in British Columbia. As of September 30, 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 from Canada increased $230 million and $537 million, respectively, in the three- and nine-month periods of 2021. Increases to earnings include: ● Higher realized bitumen and crude oil prices. ● Higher sales volumes in our Surmont and Montney assets. ● After-tax gains on disposition related to contingent payments of $77 million and $149 million in the three- and nine-month periods of 2021, respectively, associated with the sale of certain assets to CVE in 2017. See Note 3. Offsets to the earnings increase include : ● Higher production and operating expenses primarily due to increased Surmont and Montney production. Production Average production increased 29 MBOED in the third quarter of 2021 and increased 34 MBOED in the nine-month period of 2021, respectively. In the third quarter, increases to production include: ● Absence of curtailments. ● Absence of third quarter 2020 turnaround activity in the Surmont. ● New wells online in the Montney. ● Production from our Kelt acquisition completed in the third quarter of 2020. Offsets to the production increases include: ● Higher well failures, plant power trips and facility upsets in the Surmont. In addition to the items detailed above, in the nine-month period of 2021, production also increased due to: ● Improved well performance in the Surmont. Results of Operations Table of Contents 47 ConocoPhillips 2021 Q3 10-Q Europe, Middle East and North Africa Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income Attributable to ConocoPhillips ($MM) $ 241 92 601 318 Consolidated Operations Average Net Production Crude oil (MBD) 117 77 118 82 Natural gas liquids (MBD) 5 5 4 5 Natural gas (MMCFD) 303 256 303 276 Total Production (MBOED) 172 125 172 133 Average Sales Prices Crude oil ($ per bbl) $ 72.43 41.79 65.94 43.72 Natural gas liquids ($ per bbl) 50.32 23.50 40.75 20.01 Natural gas ($ per MCF) 11.96 2.40 8.40 2.85 The Europe, Middle East and North Africa segment consists of operations principally located in the Norwegian sector of the North Sea and the Norwegian Sea, Qatar, Libya and commercial operations in the U.K. As of September 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 from Europe, Middle East and North Africa increased by $149 million and $283 million in the three - and nine-month periods of 2021, respectively. Increases to earnings include: ● Higher realized natural gas, crude oil and NGL prices. ● Higher LNG sales prices, reflected in equity in earnings of affiliates. ● Higher sales volumes of crude oil and LNG. Offsets to the earnings increases include: ● Higher taxes. ● Higher production and operating expenses and DD&A expenses. Consolidated Production Average consolidated production increased 47 MBOED and 39 MBOED in the three - and nine-month periods of 2021, respectively. Increases to production include: ● Higher production in Libya due to the absence of a forced shutdown of the Es Sider export terminal and other eastern export terminals after a period of civil unrest. ● Improved well performance in Norway. ● New production from Norway drilling activities including our Tor II redevelopment project with first production in December 2020. Offsets to the production increases include: ● Normal field decline. Results of Operations Table of Contents ConocoPhillips 2021 Q3 10-Q 48 Asia Pacific Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income Attributable to ConocoPhillips ($MM) $ 257 25 749 945 Consolidated Operations Average Net Production Crude oil (MBD) 57 71 65 70 Natural gas liquids (MBD) - - - 1 Natural gas (MMCFD) 368 322 358 455 Total Production (MBOED) 119 125 125 147 Average Sales Prices Crude oil ($ per bbl) $ 74.66 42.79 67.41 42.94 Natural gas liquids ($ per bbl) - - - 33.21 Natural gas ($ per MCF) 6.66 5.33 6.30 5.42 The Asia Pacific segment has operations in China, Indonesia, Malaysia and Australia. As of September 30, 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 from Asia Pacific increased $232 million in the third quarter of 2021 and decreased $196 million in the nine- month period of 2021, respectively. In the third quarter, increases to earnings include: ● Higher crude oil and natural gas prices. ● Higher LNG sales prices, reflected in equity in earnings of affiliates. ● Lower DD&A expenses in the third quarter of 2021 primarily driven by lower production volumes and lower rates from price-related reserve revisions. In addition to the items detailed above, in the nine-month period of 2021, earnings also increased due to: ● A $200 million gain on disposition related to a FID bonus from our Australia-West divestiture. For additional information related to this FID bonus, see Note 3 and Note 10 . ● Lower production and operating expenses related to the absence of Australia -West. Offsetting the items detailed above, in the nine-month period of 2021, earnings decreased due to: ● Absence of a $597 million after-tax gain related to our Australia -West divestiture. ● Absence of sales volumes associated with Australia -West. Consolidated Production Average consolidated production decreased 6 MBOED and 22 MBOED in the three - and nine-month periods of 2021, respectively. In the third quarter, the primary decrease to production was normal field decline. Partly offsetting the decrease in production was: ● Increased production in Malaysia associated with Malikai Phase 2 first production and ramp-up. ● Bohai Bay development activity in China. In addition to normal field decline, in the nine-month period of 2021, production also decreased due to: ● The divestiture of our Australia -West assets that contributed 23 MBOED in the nine-month period of 2020. In addition to the items detailed above, in the nine-month period of 2021, production also increased due to: ● The absence of curtailments across the segment and increased demand in Indonesia from coal supply restrictions. Results of Operations Table of Contents 49 ConocoPhillips 2021 Q3 10-Q Other International Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Income (Loss) Attributable to ConocoPhillips ($MM) $ (97) (8) (106) 14 The Other International segment consists of exploration and appraisal activities in Colombia as well as contingencies associated with prior operations in other countries. Earnings from our Other International operations decreased $89 million and $120 million in the three- and nine- month periods of 2021, respectively, due to a loss on divestiture related to our Argentina exploration interests in the third quarter as well as an absence of a $29 million after -tax benefit to earnings from the dismissal of arbitration related to prior operations in Senegal recognized in the first quarter of 2020. See Note 3 for additional information regarding the divestiture. Corporate and Other Millions of Dollars Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Net Loss Attributable to ConocoPhillips Net interest expense $ (176) (179) (627) (508) Corporate general and administrative expenses (57) (50) (251) (90) Technology (6) (8) 31 (16) Other income (expense) 26 (153) 579 (1,366) $ (213) (390) (268) (1,980) Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest expense increased by $119 million in the nine-month period of 2021 primarily due to higher debt balances assumed due to our Concho acquisition. See Note 7. Corporate G&A expenses include compensation programs and staff costs. These expenses increased by $7 million in the three-month period of 2021 primarily due to mark to market adjustments associated with certain compensation programs. For the nine-month period of 2021, Corporate G&A expenses increased by $161 million primarily due to restructuring expenses associated with our Concho acquisition. See Note 15. Technology includes our investment in new technologies or businesses, as well as licensing revenues. Activities are focused on both conventional and tight oil reservoirs, shale gas, heavy oil, oil sands, enhanced oil recovery, as well as LNG. Earnings from Technology increased $47 million in the nine-month period of 2021 primarily due to higher licensing revenues. Other income (expense) or “Other” includes certain corporate tax-related items, foreign currency transaction gains and losses, environmental costs associated with sites no longer in operation, other costs not directly associated with an operating segment, premiums incurred on the early retirement of debt, holding gains or losses on equity securities, and pension settlement expense. For the three- and nine-month periods of 2021, “Other” increased $179 million and $1,945 million, respectively. During these periods in 2021, we recognized gains of $17 million and $743 million, respectively, on our CVE common shares, compared with losses of $162 million and $1,302 million for the same periods in 2020. Partially offsetting the impact on the nine-month period was the release of a $92 million deferred tax asset associated with our Australia West divestiture. Capital Resources and Liquidity Table of Contents ConocoPhillips 2021 Q3 10-Q 50 Capital Resources and Liquidity Financial Indicators Millions of Dollars September 30 December 31 2021 2020 Cash and cash equivalents $ 9,833 2,991 Short-term investments 678 3,609 Total debt 19,668 15,369 Total equity 44,115 29,849 Percent of total debt to capital* 31 % 34 Percent of floating-rate debt to total debt 4 % 7 *Capital includes total debt and total equity. To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, including cash generated from operating activities, our commercial paper and credit facility programs, and our ability to sell securities using our shelf registration statement. During the first nine months of 2021, the primary uses of our available cash were $3.8 billion to support our ongoing capital expenditures and investments program ; $2.2 billion to repurchase common stock , $1.8 billion to pay dividends, and $1.1 billion of hedging, transaction and restructuring costs. During the first nine months of 2021, our cash and cash equivalents increased by $6.8 billion to $9.8 billion. At September 30, 2021, we had cash and cash equivalents of $9.8 billion, short-term investments of $0.7 billion, and available borrowing capacity under our credit facility of $6.0 billion, totaling approximately $16.5 billion of liquidity. We believe current cash balances and cash generated by operating activities, together with access to external sources of funds as described below in the “Significant Changes in Capital” section, will be sufficient to meet our funding requirements in the near- and long-term, including our capital spending prog ram, acquisitions, dividend payments and debt obligations . On September 20, 2021, we signed a definitive agreement for the Shell Permian Acquisition for $9.5 billion in cash before customary adjustments . The effective date of the transaction is July 1, 2021, and we expect to close in the fourth quarter of 2021 subject to regulatory clearance and the satisfaction of other customary closing conditions. The transaction will be funded from available cash, and we expect our remaining cash to meet our obligations and business needs. Significant Changes in Capital Operating Activities Cash provided by operating activities was $11.1 billion for the first nine months of 2021, compared with $3.1 billion for the corresponding period of 2020. The increase in cash provided by operating activities is primarily due to higher realized commodity prices and higher sales volumes mostly due to our acquisition of Concho. The increase in cash provided by operating activities was partly offset by the settlement of all oil and gas hedging positions acquired from Concho, and transaction and restructuring cost s. Our short- and long-term operating cash flows are highly dependent upon prices for crude oil, bitumen, natural gas, LNG and NGLs. Prices and margins in our industry have historically been volatile and are driven by market conditions over which we have no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows. Capital Resources and Liquidity Table of Contents 51 ConocoPhillips 2021 Q3 10-Q The level of production volumes, as well as product and location mix, impacts our cash flows. Future production is subject to numerous uncertainties, including, among others, the volatile crude oil and natural gas price environment, which may impact investment decisions; the effects of price changes on production sharing and variable-royalty contracts; acquisition and disposition of fields; field production decline rates; new technologies; operating efficiencies; timing of startups and major turnarounds; political instability; impacts of a global pandemic; weather-related disruptions; and the addition of proved reserves through exploratory success and their timely and cost-effective development. While we actively manage these factors, production levels can cause variability in cash flows, although generally this variability has not been as significant as that caused by commodity prices. To maintain or grow our production volumes, we must continue to add to our proved reserve base. See the “Capital Expenditures and Investments” section, for information about our capital expenditures and investments. On January 15, 2021, we assumed financial derivative instruments consisting of oil and natural gas swaps in connection with our acquisition of Concho. At March 31, 2021, all oil and natural gas derivative financial instruments acquired from Concho were contractually settled. In the first six months of 2021, we paid $761 million relating to these settlements. See Note 11. Investing Activities For the first nine months of 2021, we invested $3.8 billion in capital expenditures. Our 2021 operating plan capital expenditures is currently expected to be $5.3 billion compared with $4.7 billion in 2020. See the “Capital Expenditures and Investments” section, for information about our capital expenditures and investments. For additional information on Acquisitions & Dispositions discussed below, see Note 3. We completed our acquisition of Concho on January 15, 2021. The assets acquired in the transaction included $382 million of cash. In May 2021, we announced and began a paced monetization of our investment in CVE common shares with the plan to direct proceeds toward our existing share repurchase 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. Since we began our monetization program, we have sold 67 million CVE shares, representing 32% of our holdings at December 31, 2020, receiving $569 million of cash proceeds. See Note 5. Other proceeds from dispositions include our sale of certain noncore assets in our Lower 48 segment for approximately $150 million and contingent payments associated with previous divestitures. In September 2021, we signed a definitive agreement to acquire the Shell Permian assets for $9.5 billion, before customary adjustments. Under the terms of the agreement, we paid a deposit of $475 million which is presented within “Cash Flows from Investing Activities - Other” on our consolidated statement of cash flows. See Item 1A “Risk Factors” for further discussion of risks related to the Shell Permian Acquisition. We invest in short -term investments as part of our cash investment strategy, the primary objective of which is to protect principal, maintain liquidity and provide yield and total returns; these investments include time deposits, commercial paper, as well as debt securities classified as available for sale. Funds for short-term needs to support our operating plan and provide resiliency to react to short-term price volatility are invested in highly liquid instruments with maturities within the year. Funds we consider available to maintain resiliency in longer term price downturns and to capture opportunities outside a given operating plan may be invested in instruments with maturities greater than one year. Investing activities in the first nine months of 2021 included net sales of $2,846 million of investments. We sold $2,991 million of short-term instruments and invested $145 million in long-term instruments . See Note 11. Capital Resources and Liquidity Table of Contents ConocoPhillips 2021 Q3 10-Q 52 Financing Activities We have a revolving credit facility totaling $6.0 billion, expiring in May 2023. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. With no commercial paper outstanding and no direct borrowings or letters of credit, we had access to $6.0 billion in available borrowing capacity under our revolving credit facility at September 30, 2021. 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 date. In June 2021, we reaffirmed our commitment to preserving our ‘A’ -rated balance sheet by restating our intent to reduce gross debt by $5 billion over the next five years, driving a more resilient and efficient capital structure. The current credit ratings on our long-term debt are: ● Fitch: “A” with a “stable” outlook ● S&P: “A-” with a “stable” outlook ● Moody’s: “A3” with a “positive” outlook See Note 3 for additional information on our Concho acquisition and Note 7 for additional information on debt , revolving credit facility and credit ratings. Certain of our project-related contracts, commercial contracts and derivative instruments contain provisions requiring us to post collateral. Many of these contracts and instruments permit us to post either cash or letters of credit as collateral. At September 30, 2021 and December 31, 2020, we had direct bank letters of credit of $281 million and $249 million, respectively, which secured performance obligations related to various purchase commitments incident to the ordinary conduct of business. In the event of credit ratings downgrades, we may be required to post additional letters of credit. Shelf Registration We have a universal shelf registration statement on file with the SEC under which we have the ability to issue and sell an indeterminate number of various types of debt and equity securities. Capital Requirements For information about our capital expenditures and investments, see the “Capital Expenditures and Investments” section. In addition to our capital expenditure and investments program, we anticipate completing the Shell Permian Acquisition in the fourth quarter for $9.5 billion before customary adjustments. See Note 3 . Our debt balance at September 30, 2021, was $19.7 billion, compared with $15.4 billion at December 31, 2020. The 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 $920 million. Payments will be made using current cash balances and cash generated by operations. See Note 7. We believe in delivering va lue to our shareholders through a growing and sustainable dividend supplemented by additional returns of capital, including share repurchases. In 2020, we paid $1.8 billion, equating to $1.69 per share of common stock, in dividends. In the first nine months of 2021, we paid dividends totaling $1.8 billion, the equivalent of $1.29 per share. On September 20, 2021, we announced an increase in our quarterly dividend from $0.43 per share to $0.46 per share, representing a 7 percent increase. The dividend is payable December 1, 2021, to stockholders of record at the close of business on October 28, 2021. We anticipate returning approximately $2.4 billion to shareholders in dividends in 2021, or $1.75 per share. Capital Resources and Liquidity Table of Contents 53 ConocoPhillips 2021 Q3 10-Q In late 2016, we initiated our current share repurchase program, which has a total program authorization of $25 billion. In May 2021, we began a paced monetization of our CVE shares, the proceeds of which, have been applied to share repurchases. The pace of CVE share sales will be guided by market conditions, and we retain the discretion to adjust accordingly. In the nine months ended September 30, 2021, we repurchased 39.3 million shares at a cost of $2,224 million, $561 million of which was funded using CVE share proceeds. Since the inception of the share repurchase program, we have repurchased 228 million shares at a cost of $12.7 billion. Our total planned distributions for 2021, including dividends and share repurchases, is approximately $6.0 billion. Our dividend and share repurchase programs are subject to numerous considerations, including market conditions, management discretion and other factors. See “Item 1A—Risk Factors – Our ability to declare and pay dividends and repurchase shares is subject to certain considerations” in Part I—Item 1A in our 2020 Annual Report on Form 10-K. Capital Expenditures and Investments Millions of Dollars Nine Months Ended September 30 2021 2020 Alaska $ 698 882 Lower 48 2,250 1,398 Canada 129 593 Europe, Middle East and North Africa 385 410 Asia Pacific 235 280 Other International 33 66 Corporate and Other 37 28 Capital expenditures and investments $ 3,767 3,657 During the first nine months of 2021, capital expenditures and investments supported key development programs, primarily: ● Development activities in the Lower 48, primarily Permian, Eagle Ford and Bakken. ● Appraisal and development activities in Alaska related to the Western North Slope and development activities in the Greater Kuparuk Area. ● Appraisal activities in liquids-rich plays and optimization of oils sands development in Canada. ● Continued development activities across assets in Norway. ● Continued development activities in China, Malaysia and Indonesia. In February 2021, we announced 2021 operating plan capital expenditures of $5.5 billion. In June 2021, we reduced capital guidance to $5.3 billion, recognizing synergistic savings from our Concho acquisition. Capital Resources and Liquidity Table of Contents ConocoPhillips 2021 Q3 10-Q 54 Guarantor Summarized Financial Information We have various cross guarantees among our Obligor group; ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. Burlington Resources LLC is 100 percent owned by ConocoPhillips Company. ConocoPhillips and/or ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of Burlington Resources LLC, with respect to its publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following tables present summarized financial information for the Obligor Group, as defined below: ● The Obligor Group will reflect guarantors and issuers of guaranteed securities consisting of ConocoPhillips, ConocoPhillips Company and Burlington Resources LLC. ● Consolidating adjustments for elimination of investments in and transactions between the collective guarantors and issuers of guaranteed securities are reflected in the balances of the summarized financial information. ● Non-Obligated Subsidiaries are excluded from the presentation. Upon completion of the Concho acquisition on January 15, 2021, we assumed Concho’s publicly traded debt of approximately $3.9 billion in aggregate principal amount, which was recorded at fair value of $4.7 billion on the acquisition date. We completed a debt exchange offer that settled on February 8, 2021, of which 98 percent, or approximately $3.8 billion in aggregate principal amount of Concho’s notes, were tendered and accepted for new debt issued by ConocoPhillips. The new debt issued in the exchange is fully and unconditionally guaranteed by ConocoPhillips Company. Both the guarantor and issuer of the exchange debt is reflected within the Obligor Group presented here. See Note 3 and Note 7 for additional information relating to the Concho transaction. Transactions and balances reflecting activity between the Obligors and Non-Obligated Subsidiaries are presented below: Summarized Income Statement Data Millions of Dollars Nine Months Ended September 30, 2021 Revenues and Other Income $ 20,893 Income (loss) before income taxes* 5,445 Net income (loss) 5,452 Net Income (Loss) Attributable to ConocoPhillips 5,452 *Includes approximately $3.6 billion of purchased commodities expense for transactions with Non-Obligated Subsidiaries. Summarized Balance Sheet Data Millions of Dollars September 30 December 31 2021 2020 Current assets $ 12,955 8,535 Amounts due from Non-Obligated Subsidiaries, current 1,194 440 Noncurrent assets 59,997 37,180 Amounts due from Non-Obligated Subsidiaries, noncurrent 8,223 7,730 Current liabilities 7,059 3,797 Amounts due to Non-Obligated Subsidiaries, current 2,778 1,365 Noncurrent liabilities 28,336 18,627 Amounts due to Non-Obligated Subsidiaries, noncurrent 10,304 3,972 Capital Resources and Liquidity Table of Contents 55 ConocoPhillips 2021 Q3 10-Q Contingencies A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable, and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the low end of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. With respect to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. See Note 10 . Legal and Tax Matters We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, climate change, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties, claims of alleged environmental contamination from historic operations, and other contract disputes. We will continue to defend ourselves vigorously in these matters. Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. Environmental We are subject to the same numerous international, federal, state and local environmental laws and regulations as other companies in our industry. For a discussion of the most significant of these environmental laws and regulations, including those with associated remediation obligations, see the “Environmental” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 64–66 of our 2020 Annual Report on Form 10-K. We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain waste attributable to our past operations. As of September 30, 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 September 30, 2021, our balance sheet included a total environmental accrual of $191 million, compared with $180 million at December 31, 2020, for remediation activities in the U.S. and Canada. We expect to incur a substantial amount of these expe nditures within the next 30 years. Capital Resources and Liquidity Table of Contents ConocoPhillips 2021 Q3 10-Q 56 Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in our operations and products, and there can be no assurance that material costs and liabilities will not be incurred. However, we currently do not expect any material adverse effect upon our results of operations or financial position as a result of compliance with current environmental laws and regulations. Environmental Litigation Several Louisiana parishes and the State of Louisiana have filed 43 lawsuits under Louisiana’s State and Local Coastal Resources Management Act (SLCRMA) against oil and gas companies, including ConocoPhillips, seeking compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil and gas operations. ConocoPhillips entities are defendants in 22 of the lawsuits and will vigorously defend against them. Because Plaintiffs’ SLCRMA theories are unprecedented, there is uncertainty about these claims (both as to scope and damages) and we continue to evaluate our exposure in these lawsuits. Climate Change Continuing political and social attention to the issue of global climate change has resulted in a broad range of proposed or promulgated state, national and international laws focusing on GHG reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future. Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a material impact on our results of operations and financial condition. For examples of legislation or precursors for possible regulation and factors on which the ultimate impact on our financial performance will depend, see the “Climate Change” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 67–69 of our 2020 Annual Report on Form 10-K. Climate Change Litigation Beginning in 2017, governmental and other entities in several states in the U.S. have filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to abate alleged climate change impacts. Additional lawsuits with similar allegations are expected to be filed. The amounts claimed by plaintiffs are unspecified and the legal and factual issues involved in these cases are unprecedented. ConocoPhillips believes these lawsuits are factually and legally meritless and are an inappropriate vehicle to address the challenges associated with climate change and will vigorously defend against such lawsuits. Company Response to Climate -Related Risks The company has responded by putting in place a Sustainable Development Risk Management Standard covering the assessment and registering of significant and high sustainable development risks based on their consequence and likelihood of occurrence. We have developed a company-wide Climate Change Action Plan with the goal of tracking mitigation activities for each climate-related risk included in the corporate Sustainable Development Risk Register. The risks addressed in our Climate Change Action Plan fall into four broad categories: ● GHG-related legislation and regulation. ● GHG emissions management. ● Physical climate-related impacts. ● Climate-related disclosure and reporting. Emissions are categorized into three different scopes. Gross operated scope 1 and scope 2 GHG emissions help us understand our climate transition risk. ● Scope 1 emissions are direct GHG emissions from sources that we own or control. ● Scope 2 emissions are GHG emissions from the generation of purchased electricity or steam that we consume. Scope 3 emissions are indirect emissions from sources that we neither own nor control. Capital Resources and Liquidity Table of Contents 57 ConocoPhillips 2021 Q3 10-Q We announced in October 2020 the adoption of a Paris-aligned climate risk framework with the objective of implementing a coherent set of choices designed to facilitate the success of our existing exploration and production business through the energy transition. Given the uncertainties remaining about how the energy transition will evolve, the strategy aims to be robust across a range of potential future outcomes. The strategy is comprised of four pillars: ● Targets : Our target framework consists of a hierarchy of targets, from a long-term ambition that sets the direction and aim of the strategy, to a medium-term performance target for GHG emissions intensity, to shorter-term targets for flaring and methane intensity reductions. These performance targets are supported by lower-level internal business unit goals to enable the company to achieve the company- wide targets. In September 2021, we increased our interim operational target and have set it to reduce our gross operated and net equity (scope 1 and 2) emissions intensity by 40 to 50 percent from 2016 levels by 2030, an improvement from the previously announced target of 35 to 45 percent on only a gross operated basis, with an ambition to achieve net-zero operated emissions by 2050. We have joined the World Bank Flaring Initiative to work towards zero routine flaring of associated gas by 2030, with an ambition to meet that goal by 2025. ● Technology choices: We expanded our Marginal Abatement Cost Curve process to provide a broader range of opportunities for emission reduction technology. ● Portfolio choices: Our corporate authorization process requires all qualifying projects to include a GHG price in their project approval economics. Different GHG prices are used depending on the region or jurisdiction. Projects in jurisdictions with existing GHG pricing regimes incorporate the existing GHG price and forecast into their economics. Projects where no existing GHG pricing regime exists utilize a scenario forecast from our internally consistent World Energy Model. In this way, both existing and emerging regulatory requirements are considered in our decision-making. The company does not use an estimated market cost of GHG emissions when assessing reserves in jurisdictions without existing GHG regulations. ● External engagement: Our external engagement aims to differentiate ConocoPhillips within the oil and gas sector with our approach to managing climate-related risk. We are a Founding Member of the Climate Leadership Council (CLC), an international policy institute founded in collaboration with business and environmental interests to develop a carbon dividend plan. Participation in the CLC provides another opportunity for ongoing dialogue about carbon pricing and framing the issues in alignment with our public policy principles. We also belong to and fund Americans For Carbon Dividends, the education and advocacy branch of the CLC. Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995 This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans, objectives of management for future operations, the anticipated benefits of the transaction between us and Concho Resources Inc. (Concho), including the expected amount and the timing of synergies from such transaction, the anticipated closing of the acquisition of assets from Shell Enterprises LLC (Shell), and the anticipated impact of the Concho and Shell transactions on the combined company’s business and future financial and operating results 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. Table of Contents ConocoPhillips 2021 Q3 10-Q 58 We based the forward-looking statements on our current expectations, estimates and projections about ourselves and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward -looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward -looking statements. Any differences could result from a variety of factors and uncertainties, including, but not limited to, the following: ● The impact of public health crises, including pandemics (such as COVID -19) and epidemics and any related company or government policies or actions. ● Global and regional changes in the demand, supply, prices, differentials or other market conditions affecting oil and gas, including changes resulting from a public health crisis or from the imposition or lifting of crude oil production quotas or other actions that might be imposed by OPEC and other producing countries and the resulting company or third-party actions in response to such changes. ● Fluctuations in crude oil, bitumen, natural gas, LNG and NGLs prices, including a prolonged decline in these prices relative to historical or future expected levels. ● The impact of significant declines in prices for crude oil, bitumen, natural gas, LNG and NGLs, which may result in recognition of impairment charges on our long-lived assets, leaseholds and nonconsolidated equity investments. ● Potential failures or delays in achieving expected reserve or production levels from existing and future oil and gas developments, including due to operating hazards, drilling risks and the inherent uncertainties in predicting reserves and reservoir performance. ● Reductions in reserves replacement rates, whether as a result of the significant declines in commodity prices or otherwise. ● Unsuccessful exploratory drilling activities or the inability to obtain access to exploratory acreage. ● Unexpected changes in costs or technical requirements for constructing, modifying or operating E&P facilities. ● Legislative and regulatory initiatives addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal. ● Lack of, or disruptions in, adequate and reliable transportation for our crude oil, bitumen, natural gas, LNG and NGLs. ● Inability to timely obtain or maintain permits, including those necessary for construction, drilling and/or development, or inability to make capital expenditures required to maintain compliance with any necessary permits or applicable laws or regulations. ● Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future E&P and LNG development in a timely manner (if at all) or on budget. ● Potential disruption or interruption of our operations due to accidents, extraordinary weather events, civil unrest, political events, war, terrorism, cyber attacks, and information technology failures, constraints or disruptions. ● Changes in international monetary conditions and foreign currency exchange rate fluctuations. ● Changes in international trade relationships, including the imposition of trade restrictions or tariffs relating to crude oil, bitumen, natural gas, LNG, NGLs and any materials or products (such as aluminum and steel) used in the operation of our business. ● Substantial investment in and development use of, competing or alternative energy sources, including as a result of existing or future environmental rules and regulations. ● Liability for remedial actions, including removal and reclamation obligations, under existing and future environmental regulations and litigation. ● Significant operational or investment changes imposed by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce GHG emissions. Table of Contents 59 ConocoPhillips 2021 Q3 10-Q ● Liability resulting from litigation, including litigation related to the transaction with Concho, or our failure to comply with applicable laws and regulations. ● General domestic and international economic and political developments, including armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, bitumen, natural gas, LNG and NGLs pricing; regulation or taxation; and other political, economic or diplomatic developments. ● Volatility in the commodity futures markets. ● Changes in tax and other laws, regulations (including alternative energy mandates), or royalty rules applicable to our business. ● Competition and consolidation in the oil and gas E&P industry. ● Any limitations on our access to capital or increase in our cost of capital, including as a result of illiquidity or uncertainty in domestic or international financial markets or investment sentiment. ● Our inability to execute, or delays in the completion, of any asset dispositions or acquisitions we elect to pursue. ● Potential failure to obtain, or delays in obtaining, any necessary regulatory approvals for pending or future asset dispositions or acquisitions, or that such approvals may require modification to the terms of the transactions or the operation of our remaining business. ● Potential disruption of our operations as a result of pending or future asset dispositions or acquisitions, including the diversion of management time and attention. ● Our inability to deploy the net proceeds from any asset dispositions that are pending or that we elect to undertake in the future in the manner and timeframe we currently anticipate, if at all. ● Our inability to liquidate the common stock issued to us by Cenovus Energy as part of our sale of certain assets in western Canada at prices we deem acceptable, or at all. ● The operation and financing of our joint ve ntures. ● The ability of our customers and other contractual counterparties to satisfy their obligations to us, including our ability to collect payments when due from the government of Venezuela or PDVSA. ● Our inability to realize anticipated cost savings and capital expenditure reductions. ● The inadequacy of storage capacity for our products, and ensuing curtailments, whether voluntary or involuntary, required to mitigate this physical constraint. ● Our ability to successfully integrate Concho’s business and fully achieve the expected benefits and cost reductions associated with the transaction with Concho in a timely manner or at all. ● The risk that we will be unable to retain and hire key personnel. ● Unanticipated difficulties or expenditures relating to integration with Concho. ● The risk that the conditions to close the acquisition of assets from Shell are not satisfied on a timely basis or at all, or the failure of the transaction to close for any reason. ● The risk that any regulatory approval, consent or authorization that may be required for the proposed acquisition of assets from Shell is not obtained or is obtained subject to conditions that are not anticipated. ● Unanticipated integration issues relating to the proposed acquisition of assets from Shell, such as potential disruptions of our ongoing business and higher than anticipated integration costs. ● Uncertainty as to the long-term value of our common stock. ● The diversion of management time on integration -related matters. ● The factors generally described in Part I—Item 1A in our 2020 Annual Report on Form 10-K and any additional risks described in our other filings with the SEC. Item 3. Quantitative and Qualitative Disclosures about Market Risk Information about market risks for the nine months ended September 30, 2021, does not differ materially from that discussed under Item 7A in our 2020 Annual Report on Form 10-K. Table of Contents ConocoPhillips 2021 Q3 10-Q 60