e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X] |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For
the quarterly period ended
September 30, 2008 |
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or
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[ ] |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
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Commission file number: 001-32395 |
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ConocoPhillips
(Exact name of registrant as specified in its charter)
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Delaware
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01-0562944 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
600 North Dairy Ashford, Houston, TX 77079
(Address of principal executive offices) (Zip Code)
281-293-1000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [X]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes No X
The registrant had 1,490,817,631 shares of common stock, $.01 par value, outstanding at September
30, 2008.
CONOCOPHILLIPS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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Consolidated Income Statement
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ConocoPhillips |
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Millions of Dollars |
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Three Months Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues and Other Income |
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Sales and other operating revenues* |
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$ |
70,044 |
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46,062 |
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196,338 |
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134,752 |
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Equity in earnings of affiliates |
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1,214 |
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1,314 |
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4,385 |
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3,749 |
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Other income |
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115 |
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557 |
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555 |
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1,696 |
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Total Revenues and Other Income |
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71,373 |
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47,933 |
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201,278 |
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140,197 |
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Costs and Expenses |
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Purchased crude oil, natural gas and products |
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49,608 |
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30,862 |
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138,642 |
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88,397 |
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Production and operating expenses |
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3,059 |
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2,620 |
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8,861 |
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7,669 |
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Selling, general and administrative expenses |
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513 |
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569 |
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1,668 |
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1,700 |
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Exploration expenses |
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267 |
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218 |
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864 |
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739 |
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Depreciation, depletion and amortization |
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2,361 |
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2,052 |
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6,748 |
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6,092 |
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Impairmentexpropriated assets |
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- |
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- |
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- |
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4,588 |
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Impairments |
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57 |
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188 |
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82 |
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285 |
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Taxes other than income taxes* |
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5,619 |
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4,583 |
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16,570 |
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13,654 |
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Accretion on discounted liabilities |
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114 |
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81 |
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314 |
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241 |
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Interest and debt expense |
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239 |
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391 |
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656 |
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1,017 |
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Foreign currency transaction losses (gains) |
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54 |
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(20 |
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11 |
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(198 |
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Minority interests |
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15 |
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25 |
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51 |
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65 |
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Total Costs and Expenses |
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61,906 |
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41,569 |
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174,467 |
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124,249 |
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Income before income taxes |
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9,467 |
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6,364 |
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26,811 |
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15,948 |
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Provision for income taxes |
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4,279 |
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2,691 |
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12,045 |
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8,428 |
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Net Income |
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$ |
5,188 |
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3,673 |
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14,766 |
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7,520 |
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Net Income Per Share of Common Stock (dollars) |
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Basic |
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$ |
3.43 |
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2.26 |
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9.61 |
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4.60 |
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Diluted |
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3.39 |
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2.23 |
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9.50 |
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4.54 |
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Dividends Paid Per Share of Common Stock (dollars) |
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$ |
.47 |
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.41 |
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1.41 |
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1.23 |
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Average Common Shares Outstanding (in thousands) |
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Basic |
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1,510,897 |
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1,622,456 |
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1,535,932 |
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1,635,128 |
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Diluted |
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1,528,187 |
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1,644,267 |
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1,554,952 |
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1,657,244 |
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*Includes excise taxes on petroleum products sales: |
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$ |
4,022 |
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3,954 |
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11,970 |
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11,864 |
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See Notes to Consolidated Financial Statements.
1
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Consolidated Balance Sheet
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ConocoPhillips |
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Millions of Dollars |
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September 30 |
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December 31 |
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2008 |
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2007 |
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Assets |
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Cash and cash equivalents |
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$ |
1,116 |
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1,456 |
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Accounts and
notes receivable (net of allowance of $83 million in 2008 and $58 million in 2007) |
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14,514 |
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14,687 |
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Accounts and notes receivablerelated parties |
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2,472 |
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1,667 |
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Inventories |
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6,741 |
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4,223 |
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Prepaid expenses and other current assets |
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3,483 |
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2,702 |
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Total Current Assets |
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28,326 |
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24,735 |
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Investments and long-term receivables |
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34,344 |
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31,457 |
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Loans and advancesrelated parties |
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2,053 |
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1,871 |
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Net properties, plants and equipment |
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89,259 |
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89,003 |
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Goodwill |
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29,224 |
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29,336 |
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Intangibles |
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861 |
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896 |
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Other assets |
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540 |
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459 |
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Total Assets |
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$ |
184,607 |
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177,757 |
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Liabilities |
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Accounts payable |
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$ |
17,364 |
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16,591 |
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Accounts payablerelated parties |
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1,873 |
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1,270 |
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Short-term debt |
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387 |
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1,398 |
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Accrued income and other taxes |
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6,369 |
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4,814 |
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Employee benefit obligations |
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758 |
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920 |
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Other accruals |
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2,759 |
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1,889 |
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Total Current Liabilities |
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29,510 |
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26,882 |
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Long-term debt |
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21,713 |
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20,289 |
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Asset retirement obligations and accrued environmental costs |
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7,713 |
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7,261 |
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Joint venture acquisition obligationrelated party |
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5,828 |
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6,294 |
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Deferred income taxes |
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20,408 |
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21,018 |
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Employee benefit obligations |
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2,813 |
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3,191 |
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Other liabilities and deferred credits |
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2,619 |
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2,666 |
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Total Liabilities |
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90,604 |
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87,601 |
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Minority Interests |
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1,127 |
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1,173 |
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Common Stockholders Equity |
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Common stock (2,500,000,000 shares authorized at $.01 par value)
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Issued (20081,728,185,223 shares; 20071,718,448,829 shares) |
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Par value |
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17 |
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17 |
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Capital in excess of par |
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43,308 |
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42,724 |
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Grantor trusts (at cost: 200841,599,027 shares; 200742,411,331 shares) |
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(716 |
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(731 |
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Treasury stock (at cost: 2008195,768,565 shares; 2007104,607,149 shares) |
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(15,469 |
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(7,969 |
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Accumulated other comprehensive income |
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2,742 |
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4,560 |
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Unearned employee compensation |
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(109 |
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(128 |
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Retained earnings |
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63,103 |
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50,510 |
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Total Common Stockholders Equity |
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92,876 |
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88,983 |
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Total |
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$ |
184,607 |
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177,757 |
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See Notes to Consolidated Financial Statements.
2
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Consolidated Statement of Cash Flows
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ConocoPhillips |
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Millions of Dollars |
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Nine Months Ended |
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September 30 |
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2008 |
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2007 |
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Cash Flows From Operating Activities |
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Net income |
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$ |
14,766 |
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7,520 |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation, depletion and amortization |
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6,748 |
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6,092 |
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Impairmentexpropriated assets |
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- |
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4,588 |
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Impairments |
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82 |
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285 |
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Dry hole costs and leasehold impairments |
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399 |
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355 |
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Accretion on discounted liabilities |
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314 |
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241 |
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Deferred taxes |
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59 |
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55 |
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Undistributed equity earnings |
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(2,530 |
) |
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(1,472 |
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Gain on asset dispositions |
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(346 |
) |
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(1,316 |
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Other |
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(134 |
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28 |
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Working capital adjustments* |
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Decrease (increase) in accounts and notes receivable |
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(243 |
) |
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411 |
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Increase in inventories |
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(2,709 |
) |
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(334 |
) |
Decrease (increase) in prepaid expenses and other current assets |
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(689 |
) |
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430 |
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Increase in accounts payable |
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1,633 |
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1,052 |
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Increase (decrease) in taxes and other accruals |
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2,186 |
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(305 |
) |
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Net Cash Provided by Operating Activities |
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19,536 |
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17,630 |
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Cash Flows From Investing Activities |
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Capital expenditures and investments |
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(10,535 |
) |
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(7,907 |
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Proceeds from asset dispositions |
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729 |
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3,057 |
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Long-term advances/loansrelated parties |
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(181 |
) |
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(449 |
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Collection of advances/loansrelated parties |
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15 |
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66 |
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Other |
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(186 |
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24 |
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Net Cash Used in Investing Activities |
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(10,158 |
) |
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(5,209 |
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Cash Flows From Financing Activities |
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Issuance of debt |
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2,264 |
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|
824 |
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Repayment of debt |
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(1,857 |
) |
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(6,141 |
) |
Issuance of company common stock |
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182 |
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|
251 |
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Repurchase of company common stock |
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(7,500 |
) |
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(4,501 |
) |
Dividends paid on company common stock |
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(2,159 |
) |
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|
(2,009 |
) |
Other |
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(426 |
) |
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(289 |
) |
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Net Cash Used in Financing Activities |
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(9,496 |
) |
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(11,865 |
) |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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(222 |
) |
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|
6 |
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Net Change in Cash and Cash Equivalents |
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|
(340 |
) |
|
|
562 |
|
Cash and cash equivalents at beginning of period |
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|
1,456 |
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|
|
817 |
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Cash and Cash Equivalents at End of Period |
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$ |
1,116 |
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|
|
1,379 |
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|
*Net of acquisition and disposition of businesses.
See Notes to Consolidated Financial Statements.
3
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Notes to Consolidated Financial Statements
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ConocoPhillips |
Note 1Interim Financial Information
The interim-period financial information presented in the financial statements included in this
report is unaudited and includes all known accruals and adjustments, in the opinion of management,
necessary for a fair presentation of the consolidated financial position of ConocoPhillips and its
results of operations and cash flows for such periods. All such adjustments are of a normal and
recurring nature. To enhance your understanding of these interim financial statements, see the
consolidated financial statements and notes included in our 2007 Annual Report on Form 10-K.
Note 2Changes in Accounting Principles
SFAS No. 157
Effective January 1, 2008, we implemented Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, which defines fair value,
establishes a framework for its measurement and expands disclosures about fair value measurements.
We elected to implement this Statement with the one-year deferral permitted by FASB Staff Position
(FSP) 157-2 for nonfinancial assets and nonfinancial liabilities measured at fair value, except
those that are recognized or disclosed on a recurring basis (at least annually). The deferral
applies to nonfinancial assets and liabilities measured at fair value in a business combination;
impaired properties, plants and equipment; intangible assets and goodwill; and initial recognition
of asset retirement obligations and restructuring costs for which we use fair value. We do not
expect any significant impact to our consolidated financial statements when we implement SFAS No.
157 for these assets and liabilities.
Due to our election under FSP 157-2, for 2008, SFAS No. 157 applies to commodity and foreign
currency derivative contracts and certain nonqualified deferred compensation and retirement plan
assets that are measured at fair value on a recurring basis in periods subsequent to initial
recognition. The implementation of SFAS No. 157 did not cause a change in the method of
calculating fair value of assets or liabilities, with the exception of incorporating the impact of
our nonperformance risk on derivative liabilitieswhich was not material. The primary impact from
adoption was additional disclosures.
SFAS No. 157 requires disclosures that categorize assets and liabilities measured at fair value
into one of three different levels depending on the observability of the inputs employed in the
measurement. Level 1 inputs are quoted prices in active markets for identical assets or
liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1
for the asset or liability, either directly or indirectly through market-corroborated inputs.
Level 3 inputs are unobservable inputs for the asset or liability reflecting significant
modifications to observable related market data or our assumptions about pricing by market
participants.
We value our exchange-cleared derivatives using unadjusted closing prices provided by the exchange
as of the balance sheet date, and these are classified as Level 1 in the fair value hierarchy.
Over the counter (OTC) financial swaps and physical commodity purchase and sale contracts are
generally valued using quotations provided by brokers and price index developers such as Platts and
Oil Price Information Service. These are classified as Level 2. In certain less liquid markets or
for longer-term contracts, forward prices are not as readily available. In these circumstances,
OTC swaps and physical commodity purchase and sale contracts are valued using internally developed
methodologies that consider historical relationships among various commodities that result in
managements best estimate of fair value. These contracts are classified as Level 3.
Exchange-cleared financial options are valued using exchange closing prices and are classified as
Level 1. Financial OTC and physical commodity options are valued using industry-standard models
that consider
various assumptions, including quoted forward prices for commodities, time value,
volatility factors, and
4
contractual prices for the underlying instruments, as well as other relevant economic measures.
The degree to which these inputs are observable in the forward markets determines whether the option is
classified as Level 2 or 3.
As permitted under SFAS No. 157, we use a mid-market pricing convention (the mid-point price
between bid and ask prices). When appropriate, valuations are adjusted to reflect credit
considerations, generally based on available market evidence.
The fair value hierarchy for our financial assets and liabilities accounted for at fair value on a
recurring basis at September 30, 2008, was:
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Millions of Dollars |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets |
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|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
5,868 |
|
|
|
2,874 |
|
|
|
20 |
|
|
|
8,762 |
|
Foreign exchange derivatives |
|
|
- |
|
|
|
101 |
|
|
|
- |
|
|
|
101 |
|
Nonqualified benefit plans |
|
|
365 |
|
|
|
- |
|
|
|
- |
|
|
|
365 |
|
|
|
Total assets |
|
|
6,233 |
|
|
|
2,975 |
|
|
|
20 |
|
|
|
9,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
|
(5,628 |
) |
|
|
(2,670 |
) |
|
|
(8 |
) |
|
|
(8,306 |
) |
Foreign exchange derivatives |
|
|
- |
|
|
|
(182 |
) |
|
|
- |
|
|
|
(182 |
) |
|
|
Total liabilities |
|
|
(5,628 |
) |
|
|
(2,852 |
) |
|
|
(8 |
) |
|
|
(8,488 |
) |
|
|
Net assets |
|
$ |
605 |
|
|
|
123 |
|
|
|
12 |
|
|
|
740 |
|
|
|
The derivative values above are based on analysis of each contract as the fundamental unit of
account as required by SFAS No. 157; therefore, derivative assets and liabilities with the same
counterparty are not netted where the legal right of offset exists, which is different than the net
presentation basis in Note 13Financial Instruments and Derivative Contracts. Gains or losses from
contracts in one level may be offset by gains or losses on contracts in another level or by changes
in values of physical contracts or positions that are not reflected in the table above.
5
Changes in the fair value of net commodity derivatives classified as Level 3 in the fair value
hierarchy during the three- and nine-month periods ended September 30, 2008, were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
(56 |
) |
|
|
(34 |
) |
Total gains (losses), realized and unrealized
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
45 |
|
|
|
(8 |
) |
Included in other comprehensive income |
|
|
- |
|
|
|
- |
|
Purchases, issuances and settlements |
|
|
20 |
|
|
|
44 |
|
Transfers in and/or out of Level 3 |
|
|
3 |
|
|
|
10 |
|
|
|
Balance at September 30, 2008 |
|
$ |
12 |
|
|
|
12 |
|
|
|
The amount of total gains (losses) for the three- and nine-month periods included in earnings
attributable to the change in unrealized gains (losses) relating to assets and liabilities held at
September 30, 2008, were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
Related to assets |
|
$ |
16 |
|
|
|
8 |
|
Related to liabilities |
|
|
(16 |
) |
|
|
(9 |
) |
|
|
Gains and losses, realized and unrealized, included in earnings for the three- and nine-month
periods ended September 30, 2008, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
Other |
|
|
Crude Oil, |
|
|
|
|
|
|
Other |
|
|
Crude Oil, |
|
|
|
|
|
|
Operating |
|
|
Natural Gas |
|
|
|
|
|
|
Operating |
|
|
Natural Gas |
|
|
|
|
|
|
Revenues |
|
|
and Products |
|
|
Total |
|
|
Revenues |
|
|
and Products |
|
|
Total |
|
Total gains
(losses) included
in earnings |
|
$ |
55 |
|
|
|
(10 |
) |
|
|
45 |
|
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized gains
(losses) relating
to assets held at
September 30, 2008 |
|
$ |
16 |
|
|
|
- |
|
|
|
16 |
|
|
|
8 |
|
|
|
- |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized gains
(losses) relating
to liabilities held
at September 30, 2008 |
|
$ |
(9 |
) |
|
|
(7 |
) |
|
|
(16 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(9 |
) |
|
|
6
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. This Statement permits
the election to carry financial instruments and certain other items similar to financial
instruments at fair value on the balance sheet, with all changes in fair value reported in
earnings. By electing the fair value option in conjunction with a derivative, an entity can
achieve an accounting result similar to a fair value hedge without having to comply with complex
hedge accounting rules. We adopted this Statement effective January 1, 2008, but did not make a
fair value election at that time or during the first nine months of 2008 for any financial
instruments not already carried at fair value in accordance with other accounting standards.
Accordingly, the adoption of SFAS No. 159 did not impact our consolidated financial statements.
Note 3Variable Interest Entities (VIEs)
We have a 24 percent interest in West2East Pipeline LLC (West2East), a company holding a 100
percent interest in Rockies Express Pipeline LLC (Rockies Express). West2East is a VIE, but we are
not the primary beneficiary. We use the equity method of accounting for our investment. In 2007,
we issued a guarantee
for 24 percent of the $2 billion in credit facilities of Rockies Express. In addition, we have a
guarantee for
24 percent of $600 million of Floating Rate Notes due 2009 issued by Rockies Express. At September
30, 2008, the book value of our investment in West2East was $246 million. See Note 11Guarantees,
for additional information.
We have a 30 percent ownership interest with a 50 percent governance interest in the OOO
Naryanmarneftegaz (NMNG) joint venture to develop resources in the Timan-Pechora province of
Russia. The NMNG joint venture is a VIE because we and our related party, OAO LUKOIL, have
disproportionate interests. We are
not the primary beneficiary of the VIE and we use the equity method of accounting for this
investment. At September 30, 2008, the book value of our investment in the venture was $1,995
million.
Note 4Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Crude oil and petroleum products |
|
$ |
5,827 |
|
|
|
3,373 |
|
Materials, supplies and other |
|
|
914 |
|
|
|
850 |
|
|
|
|
|
$ |
6,741 |
|
|
|
4,223 |
|
|
|
Inventories valued on the last-in, first-out (LIFO) basis totaled $5,497 million and $2,974 million
at
September 30, 2008, and December 31, 2007, respectively. The remaining inventories were valued
under various methods, including first-in, first-out and weighted average. The excess of current
replacement cost over LIFO cost of inventories amounted to $7,022 million and $6,668 million at
September 30, 2008, and December 31, 2007, respectively.
7
Note 5Assets Held for Sale
Noncurrent assets and noncurrent liabilities classified as current assets and current liabilities
under the held for sale provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, totaled $1,092 million and $159 million, respectively, at December 31, 2007.
During the first nine months of 2008, a portion of these held-for-sale assets were sold, and
additional assets met the held-for-sale criteria. As a result, at September 30, 2008, we
classified $1,039 million of noncurrent assets as Prepaid expenses and other current assets on
our consolidated balance sheet and we classified $272 million of noncurrent liabilities as current
liabilities, consisting of $145 million in Accrued income and other taxes and $127 million in
Other accruals. Contingent upon necessary regulatory approvals and negotiation of final contract
terms, we expect the majority of these assets to be sold by the end of 2008, with the remainder to
be sold in 2009.
The major classes of noncurrent assets and noncurrent liabilities held for sale and classified as
current were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
Assets |
|
|
|
|
|
|
|
|
Investments and long-term receivables |
|
$ |
7 |
|
|
|
48 |
|
Net properties, plants and equipment |
|
|
865 |
|
|
|
946 |
|
Goodwill |
|
|
164 |
|
|
|
89 |
|
Intangibles |
|
|
2 |
|
|
|
2 |
|
Other assets |
|
|
1 |
|
|
|
7 |
|
|
|
Total assets |
|
$ |
1,039 |
|
|
|
1,092 |
|
|
|
Exploration and Production |
|
$ |
283 |
|
|
|
189 |
|
Refining and Marketing |
|
|
756 |
|
|
|
903 |
|
|
|
|
|
$ |
1,039 |
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Asset retirement obligations and accrued environmental costs |
|
$ |
120 |
|
|
|
23 |
|
Deferred income taxes |
|
|
145 |
|
|
|
133 |
|
Other liabilities and deferred credits |
|
|
7 |
|
|
|
3 |
|
|
|
Total liabilities |
|
$ |
272 |
|
|
|
159 |
|
|
|
Exploration and Production |
|
$ |
158 |
|
|
|
35 |
|
Refining and Marketing |
|
|
114 |
|
|
|
124 |
|
|
|
|
|
$ |
272 |
|
|
|
159 |
|
|
|
8
Note 6Investments, Loans and Long-Term Receivables
LUKOIL
Our ownership interest in LUKOIL was 20 percent at September 30, 2008, based on 851 million shares
authorized and issued. For financial reporting under U.S. generally accepted accounting
principles, treasury shares held by LUKOIL are not considered outstanding for determining our
equity-method ownership interest in LUKOIL. Our ownership interest, based on estimated shares
outstanding, was also 20 percent at September 30, 2008, compared with 20.6 percent at December 31,
2007.
At September 30, 2008, the book value of our ordinary share investment in LUKOIL was $12,864
million. Our share of the net assets of LUKOIL was estimated to be $10,393 million. The majority
of this basis difference of $2,471 million is being amortized on a unit-of-production basis.
At September 30, 2008, the closing price of LUKOIL shares (ADRs) on the London Stock Exchange was
$58.80 per share, down $39.80 per share, or 40 percent, from June 30, 2008. The aggregate market
value of our LUKOIL investment at September 30 was, therefore,
$10,003 million, or $2,861 million
below the $12,864 million book value of our LUKOIL investment. Book value includes $7.5 billion of
share acquisition costs, along with undistributed equity earnings and basis difference
amortization. We evaluated the decrease in market value below book value of our LUKOIL investment
and concluded the decline did not meet the other-than-temporary impairment recognition guidance of
Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock. In reaching this conclusion, we considered: 1) the lack of deterioration in
LUKOILs financial condition and near-term prospects during the quarter; 2) general oil and gas
industry downward stock price trends during the quarter, as well as the historical volatility of
oil and gas commodity prices, which often create short-term volatility in energy industry stock
prices; 3) the intent and ability of ConocoPhillips to retain its investment in LUKOIL; 4) the
short length of time book value has been less than market value; and 5) non-energy-related factors
impacting the U.S. and Russian financial markets during the quarter.
At October 29, 2008, the closing price of LUKOIL shares on the London Stock Exchange was $33.01 per
share, 44 percent lower than at September 30, 2008. We will continue to closely monitor
the relationship between the carrying value and market value of our LUKOIL investment. Should we
determine in the future there has been a loss in the carrying value of our investment that is other
than temporary, we would record a noncash impairment of our investment, calculated as the total
difference between carrying value and market value as of the end of the reporting period.
Loans to Related Parties
As part of our normal ongoing business operations and consistent with industry practice, we invest
and enter into numerous agreements with other parties to pursue business opportunities, which share
costs and apportion risks among the parties as governed by the agreements. Included in such
activity are loans made to certain affiliated companies. The long-term portion of these loans are
included in the Loans and advancesrelated parties balance sheet line item, while the short-term
portion is included in Accounts and notes receivablerelated parties. Significant loans to
affiliated companies at September 30, 2008, included the following:
|
|
|
$768 million in loan financing to Freeport LNG Development, L.P. This loan was provided
for the construction of a liquefied natural gas (LNG) facility which became operational
late in the second quarter of 2008. The loan was converted from a construction loan to
term loan in August 2008 and Freeport started making repayments in September 2008. At the
time of the loan conversion in August, it consisted of $650 million of principal and $124
million of accrued interest. |
|
|
|
|
$330 million in loan financing and an additional $43 million of accrued interest to
Varandey Terminal Company associated with the costs of a terminal expansion. The terminal
construction was completed in late second-quarter 2008, and the final loan amount was $330
million at current exchange rates, excluding accrued interest. Although repayments are not
required to start until May 2010, Varandey used available cash to repay $7 million of
interest in third-quarter 2008. |
9
|
|
|
$817 million of project financing and an additional $67 million of accrued interest to
Qatargas 3, an integrated project to produce and liquefy natural gas from Qatars North
field. Our maximum exposure to this financing structure is $1.2 billion. |
|
|
|
|
$197 million in short-term loan financing and an additional $1 million of accrued
interest to TransCanada Keystone Pipeline LP, which is expected to be repaid before year
end. |
Note 7Properties, Plants and Equipment
The companys investment in properties, plants and equipment (PP&E), with accumulated depreciation,
depletion and amortization (Accum. DD&A), was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30, 2008 |
|
|
December 31, 2007 |
|
|
|
Gross |
|
|
Accum. |
|
|
Net |
|
|
Gross |
|
|
Accum. |
|
|
Net |
|
|
|
PP&E |
|
|
DD&A |
|
|
PP&E |
|
|
PP&E |
|
|
DD&A |
|
|
PP&E |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
$ |
107,175 |
|
|
|
35,391 |
|
|
|
71,784 |
|
|
|
102,550 |
|
|
|
30,701 |
|
|
|
71,849 |
|
Midstream |
|
|
115 |
|
|
|
68 |
|
|
|
47 |
|
|
|
267 |
|
|
|
103 |
|
|
|
164 |
|
R&M |
|
|
20,792 |
|
|
|
5,217 |
|
|
|
15,575 |
|
|
|
19,926 |
|
|
|
4,733 |
|
|
|
15,193 |
|
LUKOIL Investment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chemicals |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Emerging Businesses |
|
|
1,219 |
|
|
|
152 |
|
|
|
1,067 |
|
|
|
1,204 |
|
|
|
138 |
|
|
|
1,066 |
|
Corporate and Other |
|
|
1,517 |
|
|
|
731 |
|
|
|
786 |
|
|
|
1,414 |
|
|
|
683 |
|
|
|
731 |
|
|
|
|
|
$ |
130,818 |
|
|
|
41,559 |
|
|
|
89,259 |
|
|
|
125,361 |
|
|
|
36,358 |
|
|
|
89,003 |
|
|
|
Suspended Wells
The companys capitalized cost of suspended wells at September 30, 2008, was $685 million, an
increase of
$96 million from $589 million at year-end 2007. For the category of exploratory well costs
capitalized
for a period greater than one year as of December 31, 2007, $12 million was charged to dry hole
expense during the first nine months of 2008.
10
Note 8Impairments
Expropriated Assets
In the second quarter of 2007, we recorded a noncash impairment, including allocable goodwill, of
$4,588 million before-tax ($4,512 million after-tax) related to our investments in the Petrozuata
and Hamaca heavy-oil ventures and the offshore Corocoro oil development project in Venezuela. See
Note 13Impairments, in our 2007 Annual Report on Form 10-K, for additional information.
Other Impairments
We recognized the following net impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
International |
|
|
56 |
|
|
|
151 |
|
|
|
59 |
|
|
|
326 |
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
1 |
|
|
|
1 |
|
|
|
23 |
|
|
|
48 |
|
International |
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
|
30 |
|
Increase in fair value of previously impaired assets |
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(128 |
) |
Corporate |
|
|
- |
|
|
|
8 |
|
|
|
- |
|
|
|
8 |
|
|
|
|
|
$ |
57 |
|
|
|
188 |
|
|
|
82 |
|
|
|
285 |
|
|
|
During the third quarter and nine-month period of 2008, property impairments were primarily
associated with changes in asset retirement obligations for properties at the end of their economic
life. In addition, the nine-month period also includes amounts related to planned asset
dispositions.
During the third quarter and nine-month period of 2007, we recorded property impairments for:
|
|
|
The write-down of held-for-sale assets to fair value, less cost to sell. |
|
|
|
|
Changes in asset retirement obligations for properties at the end of their economic
life. |
|
|
|
|
The write-down of abandoned properties or projects. |
In addition and in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the nine-month period of 2007 included a $128 million gain for the subsequent
increase in the fair value of certain assets impaired in the prior year to reflect finalized sales
agreements. This gain was netted with write-downs into the Impairments line of the consolidated
income statement.
Note 9Debt
In January 2008, we reduced our Floating Rate Five-Year Term Note due 2011 from $3 billion to $2
billion, with a subsequent reduction in June 2008 to $1.5 billion. In March 2008, we redeemed our
$300 million 7.125% Debentures due 2028 at a premium of $8 million, plus accrued interest.
In May 2008, we issued notes consisting of $400 million of 4.40% Notes due 2013, $500 million of
5.20% Notes due 2018 and $600 million of 5.90% Notes due 2038. The proceeds from the offering were
used to reduce commercial paper and for general corporate purposes.
11
At September 30, 2008, we had a $7.35 billion revolving credit facility, which expires in September
2012.
The facility was reduced from $7.5 billion due to the bankruptcy of Lehman Commercial Paper
Inc., one of the revolver participants. The facility may be used as direct bank borrowings, as
support for the ConocoPhillips $7.35 billion commercial paper program, as support for the
ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program, or as support for
issuances of letters of credit totaling up to $750 million. At September 30, 2008, and December
31, 2007, we had no outstanding borrowings under the credit facility, but $40 million and $41
million, respectively, in letters of credit had been issued. Under the combined commercial paper
programs, $1,519 million of commercial paper was outstanding at September 30, 2008, compared with
$725 million at December 31, 2007.
Also at September 30, 2008, we classified $2,469 million of short-term debt as long-term debt,
based on our ability and intent to refinance the obligations on a long-term basis under our
revolving credit facility.
On October 1, 2008, we entered into a $2.5 billion 364-day bank facility to provide additional
support to temporarily expand our commercial paper program to $9.85 billion. We expanded our
commercial paper program to ensure adequate liquidity after the initial funding of our transaction
with Origin Energy. For additional information, see Note 21Joint Venture with Origin Energy.
Note 10Joint Venture Acquisition Obligation
On January 3, 2007, we closed on a business venture with EnCana Corporation. As part of this
transaction, we are obligated to contribute $7.5 billion, plus interest, over a ten-year period,
which began in 2007, to the upstream business venture, FCCL Oil Sands Partnership, which was formed
as a result of the transaction.
Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and
will continue until the balance is paid. Of the principal obligation amount, approximately $617
million is short-term and is included in the Accounts payablerelated parties line on our
September 30, 2008, consolidated balance sheet. The principal portion of these payments, which
totaled $442 million in the first nine months of 2008, is included in the Other line in the
financing activities section of our consolidated statement of cash flows. Interest accrues at a
fixed annual rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly
interest payment is reflected as a capital contribution and is included in the Capital
expenditures and investments line on our consolidated statement of cash flows.
Note 11Guarantees
At September 30, 2008, we were liable for certain contingent obligations under various contractual
arrangements as described below. We recognize a liability, at inception, for the fair value of our
obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of
the liability is noted below, we have not recognized a liability either because the guarantees were
issued prior to December 31, 2002, or because the fair value of the obligation is immaterial.
Construction Completion Guarantees
|
|
|
In December 2005, we issued a construction completion guarantee for 30 percent of the
$4.0 billion in loan facilities of Qatargas 3, which will be used to construct an LNG train
in Qatar. Of the $4.0 billion in loan facilities, ConocoPhillips has committed to provide
$1.2 billion. The maximum potential amount of future payments to third-party lenders under
the guarantee is estimated to be $850 million, which could become payable if the full debt
financing is utilized and completion of the Qatargas 3 project is |
12
|
|
|
not achieved. The project financing will be nonrecourse to ConocoPhillips upon certified
completion, currently expected in 2010. At September 30, 2008, the carrying value of the
guarantee to the third-party lenders was $11 million. For additional information, see Note
6Investments, Loans and Long-Term Receivables. |
Guarantees of Joint-Venture Debt
|
|
|
In June 2006, we issued a guarantee for 24 percent of the $2 billion in credit facilities
of Rockies Express Pipeline LLC (Rockies Express), which will be used to construct a natural
gas pipeline across a portion of the United States. At September 30, 2008, Rockies Express
had $854 million outstanding under the credit facilities, with our 24 percent guarantee
equaling $205 million. The maximum potential amount of future payments to third-party
lenders under the guarantee is estimated to be $480 million, which could become payable if
the credit facilities are fully utilized and Rockies Express fails to meet its obligations
under the credit agreement. In addition, we also have a guarantee for 24 percent of
$600 million of Floating Rate Notes due 2009 issued by Rockies Express in September 2007. It
is anticipated final construction completion will be achieved in 2009, and refinancing will
take place at that time, making the debt nonrecourse to ConocoPhillips. At September 30,
2008, the total carrying value of these guarantees to third-party lenders was $12 million.
See Note 3Variable Interest Entities (VIEs), for additional information. |
|
|
|
|
At September 30, 2008, we had other guarantees outstanding for our portion of
joint-venture debt obligations, which have terms of up to 17 years. The maximum potential
amount of future payments under the guarantees is approximately $80 million. Payment would
be required if a joint venture defaults on its debt obligations. |
Other Guarantees
|
|
|
The Merey Sweeny, L.P. (MSLP) joint-venture project agreement requires the partners in the
venture to pay cash calls to cover operating expenses in the event the venture does not have
enough cash to cover operating expenses after setting aside the amount required for debt
service over the next 16 years. Although there is no maximum limit stated in the agreement,
the intent is to cover short-term cash deficiencies should they occur. Our maximum potential
future payments under the agreement are currently estimated to be $100 million, assuming such
a shortfall exists at some point in the future due to an extended operational disruption. |
|
|
|
|
In February 2003, we entered into two agreements establishing separate guarantee
facilities of $50 million each for two LNG ships. Subject to the terms of each such
facility, we will be required to make payments should the charter revenue generated by the
respective ship fall below certain specified minimum thresholds, and we will receive payments
to the extent that such revenues exceed those thresholds. The net maximum future payments
that we may have to make over the 20-year terms of the two agreements could be up to
$100 million in total. To the extent we receive any such payments, our actual gross payments
over the 20 years could exceed that amount. In the event either ship is sold or a total loss
occurs, we also may have recourse to the sales or insurance proceeds to recoup payments made
under the guarantee facilities. |
|
|
|
|
We have guarantees of the residual value of leased corporate aircraft. The maximum
potential payment under these guarantees at September 30, 2008, was $170 million. |
|
|
|
|
In December 2007, we acquired a 50 percent equity interest in the Keystone Oil Pipeline
(Keystone) to form a 50/50 joint venture with TransCanada Corporation. Keystone plans to
construct a crude oil pipeline originating in Hardisty, Alberta, with delivery points at Wood
River and Patoka, Illinois, and Cushing, Oklahoma. In connection with certain planning and
construction activities, agreements were put in place with third parties to guarantee the
payments due. Our maximum potential amount of future payments under those agreements is
estimated to be $400 million, which could become payable if Keystone fails to meet its
obligations under the agreements noted above and the obligation cannot otherwise be
mitigated. Payments under the guarantees are contingent upon the partners not making
|
13
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|
|
necessary equity contributions into Keystone; therefore, it is considered unlikely that
payments would be required. All but $15 million of the guarantees will terminate after
construction is completed, currently estimated to occur in 2010. |
|
|
|
In addition to the above guarantee, in order to obtain long-term shipping commitments that
would enable a pipeline expansion starting at Hardisty, Alberta, and extending to near Port
Arthur, Texas, the Keystone owners entered into a 20-year guarantee in July 2008 to ship
volumes for certain shippers to the Gulf Coast. Our maximum potential amount of future
payments, or cost of volume delivery, under this guarantee is estimated to be $550 million,
which could become payable if Keystone fails to meet its obligations under the agreements
noted above and cannot otherwise be mitigated. This is considered unlikely as payment, or
cost of volume delivery, is contingent upon the partners defaulting on their obligation to
construct and operate in accordance with the terms of the agreement. In October 2008, we
elected to exercise an option to reduce our equity interest from 50 percent to 20.01 percent.
The change in equity will occur through a dilution mechanism, which is expected to gradually
lower our ownership interest, as well as our guarantee obligation, until reaching 20.01 percent
by the third quarter of 2009. |
|
|
|
|
We have other guarantees with maximum future potential payment amounts totaling $200
million, which consist primarily of dealer and jobber loan guarantees to support our
marketing business, guarantees to fund the short-term cash liquidity deficits of certain
joint ventures, one small construction completion guarantee, guarantees relating to the
startup of a refining joint venture, and guarantees of the lease payment obligations of a
joint venture. These guarantees generally extend up to 10 years or life of the venture and
payment would be required only if the dealer, jobber or lessee goes into default, if the
joint ventures have cash liquidity issues, if a construction project is not completed, or if
a guaranteed party defaults on lease payments. |
Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain
corporations and joint ventures and have sold several assets, including downstream and midstream
assets, certain exploration and production assets, and downstream retail and wholesale sites that
gave rise to qualifying indemnifications. Agreements associated with these sales include
indemnifications for taxes, environmental liabilities, permits and licenses, employee claims, real
estate indemnity against tenant defaults, and litigation. The terms of these indemnifications vary
greatly. The majority of these indemnifications are related to environmental issues, the term is
generally indefinite and the maximum amount of future payments is generally unlimited. The
carrying amount recorded for these indemnifications at September 30, 2008, was $454 million. We
amortize the indemnification liability over the relevant time period, if one exists, based on the
facts and circumstances surrounding each type of indemnity. In cases where the indemnification
term is indefinite, we will reverse the liability when we have information the liability is
essentially relieved or amortize the liability over an appropriate time period as the fair value of
our indemnification exposure declines. Although it is reasonably possible future payments may
exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a
reasonable estimate of the maximum potential amount of future payments. Included in the carrying
amount recorded were $253 million of environmental accruals for known contamination that is
included in asset retirement obligations and accrued environmental costs at September 30, 2008.
For additional information about environmental liabilities, see Note 12Contingencies and
Commitments.
Note 12Contingencies and Commitments
In the case of all known non-income-tax-related contingencies, we accrue a liability when the loss
is probable and the amount is reasonably estimable. If a range of amounts can be reasonably
estimated and no amount within the range is a better estimate than any other amount, then the
minimum of the range is accrued. We do not reduce these liabilities for potential insurance or
third-party recoveries. If applicable, we accrue
receivables for probable insurance or other third-party recoveries. In the case of
income-tax-related contingencies, we adopted FIN 48, effective January 1, 2007. FIN 48 requires a
cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than
certain.
14
Based on currently available information, we believe it is remote that future costs related to
known contingent liability exposures will exceed current accruals by an amount that would have a
material adverse impact on our consolidated financial statements. As we learn new facts concerning
contingencies, we reassess our position both with respect to accrued liabilities and other
potential exposures. Estimates that are particularly sensitive to future changes include
contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated
future environmental remediation costs are subject to change due to such factors as the uncertain
magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be
required, and the determination of our liability in proportion to that of other responsible
parties. Estimated future costs related to tax and legal matters are subject to change as events
evolve and as additional information becomes available during the administrative and litigation
processes.
Environmental
We are subject to federal, state and local environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical, mineral and petroleum substances at various sites. When
we prepare our consolidated financial statements, we record accruals for environmental liabilities
based on managements best estimates, using all information that is available at the time. We
measure estimates and base liabilities on currently available facts, existing technology, and
presently enacted laws and regulations, taking into account stakeholder and business
considerations. When measuring environmental liabilities, we also consider our prior experience in
remediation of contaminated sites, other companies cleanup experience, and data released by the
U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims
in our determination of environmental liabilities and we accrue them in the period that they are
both probable and reasonably estimable.
Although liability of those potentially responsible for environmental remediation costs is
generally joint and several for federal sites and frequently so for state sites, we are usually
only one of many companies cited at a particular site. Due to the joint and several liabilities,
we could be responsible for all of the cleanup costs related to any site at which we have been
designated as a potentially responsible party. If we were solely responsible, the costs, in some
cases, could be material to our, or one of our segments, results of operations, capital resources
or liquidity. However, settlements and costs incurred in matters that previously have been
resolved have not been material to our results of operations or financial condition. We have been
successful to date in sharing cleanup costs with other financially sound companies. Many of the
sites at which we are potentially responsible are still under investigation by the EPA or the state
agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the
site conditions, apportion responsibility and determine the appropriate remediation. In some
instances, we may have no liability or may attain a settlement of liability. Where it appears that
other potentially responsible parties may be financially unable to bear their proportional share,
we consider this inability in estimating our potential liability and we adjust our accruals
accordingly.
As a result of various acquisitions in the past, we assumed certain environmental obligations.
Some of these environmental obligations are mitigated by indemnifications made by others for our
benefit and some of the indemnifications are subject to dollar limits and time limits. We have not
recorded accruals for any potential contingent liabilities that we expect to be funded by the prior
owners under these indemnifications.
We are currently participating in environmental assessments and cleanups at numerous federal
Superfund and comparable state sites. After an assessment of environmental exposures for cleanup
and other costs, we make accruals on an undiscounted basis (except for those acquired in a purchase
business combination, which we record on a discounted basis) for planned investigation and
remediation activities for sites where it is probable that future costs will be incurred and these
costs can be reasonably estimated. At September 30, 2008, our balance sheet included a total
environmental accrual of $1,028 million, compared with
$1,089 million at
December 31, 2007. We expect to incur the majority of these expenditures within the next 30 years.
We have not reduced these accruals for possible insurance recoveries. In the future, we may be
involved in additional environmental assessments, cleanups and proceedings.
15
Legal Proceedings
Our legal organization applies its knowledge, experience, and professional judgment to the specific
characteristics of our cases, employing a litigation management process to manage and monitor the
legal proceedings against us. Our process facilitates the early evaluation and quantification of
potential exposures in individual cases. This process also enables us to track those cases which
have been scheduled for trial, as well as the pace of settlement discussions in individual matters.
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 believes
there is a remote likelihood 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.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing
companies not associated with financing arrangements. Under these agreements, we may be required
to provide any
such company with additional funds through advances and penalties for fees related to throughput
capacity
not utilized. In addition, at September 30, 2008, we had performance obligations secured by
letters of credit of $2,213 million (of which $40 million was issued under the provisions of our
revolving credit facility, and
the remainder was issued as direct bank letters of credit) and various purchase commitments for
materials, supplies, services and items of permanent investment incident to the ordinary conduct of
business.
Note 13Financial Instruments and Derivative Contracts
Derivative assets and liabilities were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
Derivative Assets |
|
|
|
|
|
|
|
|
Current |
|
$ |
1,173 |
|
|
|
453 |
|
Long-term |
|
|
141 |
|
|
|
89 |
|
|
|
|
|
$ |
1,314 |
|
|
|
542 |
|
|
|
Derivative Liabilities |
|
|
|
|
|
|
|
|
Current |
|
$ |
969 |
|
|
|
493 |
|
Long-term |
|
|
162 |
|
|
|
67 |
|
|
|
|
|
$ |
1,131 |
|
|
|
560 |
|
|
|
In the preceding table, the 2008 derivative assets appear net of $224 million of obligations to
return cash collateral, and the 2008 derivative liabilities appear net of $32 million of rights to
reclaim cash collateral. These derivative assets and liabilities appear as prepaid expenses and
other current assets, other assets, other accruals, or other liabilities and deferred credits on
the balance sheet.
16
Note 14Comprehensive Income
ConocoPhillips comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,188 |
|
|
|
3,673 |
|
|
|
14,766 |
|
|
|
7,520 |
|
After-tax changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
|
7 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
15 |
|
Net actuarial loss |
|
|
10 |
|
|
|
8 |
|
|
|
17 |
|
|
|
38 |
|
Nonsponsored plans |
|
|
4 |
|
|
|
- |
|
|
|
8 |
|
|
|
(3 |
) |
Foreign currency translation adjustments |
|
|
(1,584 |
) |
|
|
1,320 |
|
|
|
(1,841 |
) |
|
|
2,596 |
|
Hedging activities |
|
|
1 |
|
|
|
(2 |
) |
|
|
1 |
|
|
|
(5 |
) |
|
|
Comprehensive income |
|
$ |
3,626 |
|
|
|
5,004 |
|
|
|
12,948 |
|
|
|
10,161 |
|
|
|
Accumulated other comprehensive income in the equity section of the balance sheet included:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
$ |
(443 |
) |
|
|
(465 |
) |
Foreign currency translation adjustments |
|
|
3,192 |
|
|
|
5,033 |
|
Deferred net hedging loss |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
Accumulated other comprehensive income |
|
$ |
2,742 |
|
|
|
4,560 |
|
|
|
Note 15Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Investment
in an upstream business venture through issuance of an acquisition obligation |
|
$ |
- |
|
|
|
7,313 |
|
Investment in a downstream business venture through contribution of
noncash assets and liabilities |
|
|
- |
|
|
|
2,415 |
|
|
|
Cash Payments |
|
|
|
|
|
|
|
|
Interest |
|
$ |
475 |
|
|
|
650 |
|
Income taxes |
|
|
10,250 |
|
|
|
7,969 |
|
|
|
17
Note 16Employee Benefit Plans
Pension and Postretirement Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
September 30 |
|
|
September 30 |
|
Components of Net Periodic Benefit Cost |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
U.S. |
|
|
Intl. |
|
|
U.S. |
|
|
Intl. |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
46 |
|
|
|
24 |
|
|
|
44 |
|
|
|
25 |
|
|
|
2 |
|
|
|
3 |
|
Interest cost |
|
|
61 |
|
|
|
44 |
|
|
|
57 |
|
|
|
41 |
|
|
|
8 |
|
|
|
12 |
|
Expected return on plan assets |
|
|
(55 |
) |
|
|
(45 |
) |
|
|
(51 |
) |
|
|
(37 |
) |
|
|
- |
|
|
|
- |
|
Amortization of prior service cost |
|
|
4 |
|
|
|
- |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
Recognized net actuarial loss (gain) |
|
|
15 |
|
|
|
3 |
|
|
|
15 |
|
|
|
12 |
|
|
|
(3 |
) |
|
|
(5 |
) |
|
|
Net periodic benefit costs |
|
$ |
71 |
|
|
|
26 |
|
|
|
68 |
|
|
|
42 |
|
|
|
10 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
140 |
|
|
|
71 |
|
|
|
132 |
|
|
|
73 |
|
|
|
9 |
|
|
|
10 |
|
Interest cost |
|
|
185 |
|
|
|
134 |
|
|
|
171 |
|
|
|
120 |
|
|
|
36 |
|
|
|
34 |
|
Expected return on plan assets |
|
|
(167 |
) |
|
|
(134 |
) |
|
|
(153 |
) |
|
|
(109 |
) |
|
|
- |
|
|
|
- |
|
Amortization of prior service cost |
|
|
8 |
|
|
|
- |
|
|
|
8 |
|
|
|
5 |
|
|
|
8 |
|
|
|
10 |
|
Recognized net actuarial loss (gain) |
|
|
48 |
|
|
|
9 |
|
|
|
46 |
|
|
|
35 |
|
|
|
(13 |
) |
|
|
(15 |
) |
|
|
Net periodic benefit costs |
|
$ |
214 |
|
|
|
80 |
|
|
|
204 |
|
|
|
124 |
|
|
|
40 |
|
|
|
39 |
|
|
|
During the first nine months of 2008, we contributed $357 million to our domestic qualified and
nonqualified plans and $123 million to our international benefit plans. We currently expect to
contribute a total of $470 million to our domestic plans and $182 million to our international
plans in 2008.
18
Note 17Related Party Transactions
Significant transactions with related parties were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues (a) |
|
$ |
3,944 |
|
|
|
2,465 |
|
|
|
11,115 |
|
|
|
7,967 |
|
Purchases (b) |
|
|
6,038 |
|
|
|
4,156 |
|
|
|
16,129 |
|
|
|
11,455 |
|
Operating expenses and
selling, general and
administrative
expenses (c) |
|
|
142 |
|
|
|
103 |
|
|
|
385 |
|
|
|
309 |
|
Net interest income (d) |
|
|
15 |
|
|
|
25 |
|
|
|
55 |
|
|
|
80 |
|
|
|
|
|
|
(a) |
|
We sold natural gas to DCP Midstream, LLC and crude oil to the Malaysian Refining Company
Sdn. Bhd. (MRC), among others, for processing and marketing. Natural gas liquids, solvents
and petrochemical feedstocks were sold to Chevron Phillips Chemical Company LLC (CPChem), gas
oil and hydrogen feedstocks were sold to Excel Paralubes and refined products were sold
primarily to CFJ Properties and LUKOIL. Natural gas, crude oil, blendstock and other
intermediate products were sold to WRB Refining LLC. In addition, we charged several of our
affiliates including CPChem, Merey Sweeny L.P. (MSLP) and Hamaca Holding LLC (until
expropriation on June 26, 2007) for the use of common facilities, such as steam generators,
waste and water treaters, and warehouse facilities. |
|
(b) |
|
We purchased refined products from WRB Refining. We purchased natural gas and natural gas
liquids from DCP Midstream and CPChem for use in our refinery processes and other feedstocks
from various affiliates. We purchased crude oil from LUKOIL, upgraded crude oil from
Petrozuata C.A. (as a related party until expropriation on June 26, 2007) and refined products
from MRC. We also paid fees to various pipeline equity companies for transporting finished
refined products and natural gas, and a price upgrade to MSLP for heavy crude oil processing.
We purchased base oils and fuel products from Excel Paralubes for use in our refinery and
specialty businesses. |
|
(c) |
|
We paid processing fees to various affiliates. Additionally, we paid crude oil
transportation fees to pipeline equity companies. |
|
(d) |
|
We paid and/or received interest to/from various affiliates, including FCCL Oil Sands
Partnership. See Note 6Investments, Loans and Long-Term Receivables, for additional
information on loans to affiliated companies. |
19
Note 18Segment Disclosures and Related Information
We have organized our reporting structure based on the grouping of similar products and services,
resulting in six operating segments:
|
1) |
|
E&PThis segment primarily explores for, produces, transports and markets crude oil,
natural gas and natural gas liquids on a worldwide basis. |
|
|
2) |
|
MidstreamThis segment gathers, processes and markets natural gas produced by
ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly
in the United States and Trinidad. The Midstream segment primarily consists of our 50
percent equity investment in DCP Midstream. |
|
|
3) |
|
R&MThis segment purchases, refines, markets and transports crude oil and petroleum
products, mainly in the United States, Europe and Asia Pacific. |
|
|
4) |
|
LUKOIL InvestmentThis segment represents our investment in the ordinary shares of
LUKOIL, an international, integrated oil and gas company headquartered in Russia. At
September 30, 2008, our ownership interest was 20 percent based on both authorized and
issued shares and estimated shares outstanding. |
|
|
5) |
|
ChemicalsThis segment manufactures and markets petrochemicals and plastics on a
worldwide basis. The Chemicals segment consists of our 50 percent equity investment in
CPChem. |
|
|
6) |
|
Emerging BusinessesThis segment represents our investment in new technologies or
businesses outside our normal scope of operations. |
Corporate and Other includes general corporate overhead, most interest income and expense,
restructuring charges, and various other corporate activities. Corporate assets include all cash
and cash equivalents.
We evaluate performance and allocate resources based on net income. Intersegment sales are at
prices that approximate market.
20
Analysis of Results by Operating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Sales and Other Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
15,320 |
|
|
|
9,416 |
|
|
|
42,831 |
|
|
|
27,153 |
|
International |
|
|
10,333 |
|
|
|
5,559 |
|
|
|
27,245 |
|
|
|
17,052 |
|
Intersegment eliminationsU.S. |
|
|
(2,263 |
) |
|
|
(1,612 |
) |
|
|
(6,900 |
) |
|
|
(4,264 |
) |
Intersegment eliminationsinternational |
|
|
(3,005 |
) |
|
|
(1,927 |
) |
|
|
(8,852 |
) |
|
|
(4,844 |
) |
|
|
E&P |
|
|
20,385 |
|
|
|
11,436 |
|
|
|
54,324 |
|
|
|
35,097 |
|
|
|
Midstream |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
|
2,112 |
|
|
|
1,182 |
|
|
|
5,854 |
|
|
|
3,396 |
|
Intersegment eliminations |
|
|
(52 |
) |
|
|
(39 |
) |
|
|
(171 |
) |
|
|
(143 |
) |
|
|
Midstream |
|
|
2,060 |
|
|
|
1,143 |
|
|
|
5,683 |
|
|
|
3,253 |
|
|
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
33,778 |
|
|
|
24,369 |
|
|
|
97,989 |
|
|
|
69,022 |
|
International |
|
|
14,065 |
|
|
|
9,178 |
|
|
|
38,960 |
|
|
|
27,606 |
|
Intersegment eliminationsU.S. |
|
|
(293 |
) |
|
|
(113 |
) |
|
|
(797 |
) |
|
|
(376 |
) |
Intersegment eliminationsinternational |
|
|
(17 |
) |
|
|
(2 |
) |
|
|
(37 |
) |
|
|
(7 |
) |
|
|
R&M |
|
|
47,533 |
|
|
|
33,432 |
|
|
|
136,115 |
|
|
|
96,245 |
|
|
|
LUKOIL Investment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chemicals |
|
|
2 |
|
|
|
2 |
|
|
|
8 |
|
|
|
8 |
|
|
|
Emerging Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
|
303 |
|
|
|
150 |
|
|
|
791 |
|
|
|
450 |
|
Intersegment eliminations |
|
|
(244 |
) |
|
|
(105 |
) |
|
|
(600 |
) |
|
|
(310 |
) |
|
|
Emerging Businesses |
|
|
59 |
|
|
|
45 |
|
|
|
191 |
|
|
|
140 |
|
|
|
Corporate and Other |
|
|
5 |
|
|
|
4 |
|
|
|
17 |
|
|
|
9 |
|
|
|
Consolidated sales and other operating revenues |
|
$ |
70,044 |
|
|
|
46,062 |
|
|
|
196,338 |
|
|
|
134,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,606 |
|
|
|
1,225 |
|
|
|
4,807 |
|
|
|
3,196 |
|
International |
|
|
2,322 |
|
|
|
857 |
|
|
|
6,007 |
|
|
|
(1,189 |
) |
|
|
Total E&P |
|
|
3,928 |
|
|
|
2,082 |
|
|
|
10,814 |
|
|
|
2,007 |
|
|
|
Midstream |
|
|
173 |
|
|
|
104 |
|
|
|
472 |
|
|
|
291 |
|
|
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
524 |
|
|
|
873 |
|
|
|
1,546 |
|
|
|
3,648 |
|
International |
|
|
325 |
|
|
|
434 |
|
|
|
487 |
|
|
|
1,153 |
|
|
|
Total R&M |
|
|
849 |
|
|
|
1,307 |
|
|
|
2,033 |
|
|
|
4,801 |
|
|
|
LUKOIL Investment |
|
|
438 |
|
|
|
387 |
|
|
|
1,922 |
|
|
|
1,169 |
|
Chemicals |
|
|
46 |
|
|
|
110 |
|
|
|
116 |
|
|
|
260 |
|
Emerging Businesses |
|
|
35 |
|
|
|
3 |
|
|
|
55 |
|
|
|
(10 |
) |
Corporate and Other |
|
|
(281 |
) |
|
|
(320 |
) |
|
|
(646 |
) |
|
|
(998 |
) |
|
|
Consolidated net income |
|
$ |
5,188 |
|
|
|
3,673 |
|
|
|
14,766 |
|
|
|
7,520 |
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
Total Assets |
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
United States |
|
$ |
37,606 |
|
|
|
35,160 |
|
International |
|
|
58,522 |
|
|
|
59,412 |
|
Goodwill |
|
|
25,457 |
|
|
|
25,569 |
|
|
|
Total E&P |
|
|
121,585 |
|
|
|
120,141 |
|
|
|
Midstream |
|
|
1,905 |
|
|
|
2,016 |
|
|
|
R&M |
|
|
|
|
|
|
|
|
United States |
|
|
27,440 |
|
|
|
24,336 |
|
International |
|
|
10,494 |
|
|
|
9,766 |
|
Goodwill |
|
|
3,767 |
|
|
|
3,767 |
|
|
|
Total R&M |
|
|
41,701 |
|
|
|
37,869 |
|
|
|
LUKOIL Investment |
|
|
13,038 |
|
|
|
11,164 |
|
Chemicals |
|
|
2,312 |
|
|
|
2,225 |
|
Emerging Businesses |
|
|
1,239 |
|
|
|
1,230 |
|
Corporate and Other |
|
|
2,827 |
|
|
|
3,112 |
|
|
|
Consolidated total assets |
|
$ |
184,607 |
|
|
|
177,757 |
|
|
|
Note 19Income Taxes
Our effective tax rate for both the third quarter and first nine months of 2008 was 45 percent,
compared with 42 percent and 53 percent for the same two periods of 2007. The change in the
effective tax rate for the third quarter of 2008, versus the third quarter of 2007, was primarily
due to a tax rate decrease enacted in Germany in the third quarter of 2007. The change in the
effective tax rate for the nine months of 2008, compared with the same period of 2007, was
primarily due to the impact of the expropriation of our oil interests in Venezuela on 2007 results
(see the Expropriated Assets section of Note 13Impairments, in our 2007 Annual Report on Form
10-K, for additional information), partially offset by the impact of a higher proportion of income
in higher tax-rate jurisdictions in 2008. The effective tax rate in excess of the domestic federal
statutory rate of 35 percent was primarily due to the impact of foreign taxes.
Note 20New Accounting Standards
In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations (SFAS No.
141(R)). This Statement will apply to all transactions in which an entity obtains control of one
or more other businesses. In general, SFAS No. 141(R) requires the acquiring entity in a business
combination to recognize the fair value of all the assets acquired and liabilities assumed in the
transaction; establishes the acquisition date as the fair value measurement point; and modifies the
disclosure requirements. This Statement applies prospectively to business combinations for which
the acquisition date is on or after January 1, 2009. However,
starting
January 1, 2009, accounting for changes in valuation allowances for acquired deferred tax assets
and the resolution of uncertain tax positions for prior business combinations will impact tax
expense instead of impacting goodwill. We are currently evaluating the changes provided for in
this Statement.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51, which changes the classification of
noncontrolling interests, sometimes called minority interests, in the consolidated financial
statements. Additionally, this Statement establishes a single method of accounting for changes in
a parent companys ownership interest that do not result in deconsolidation and requires a parent
company to recognize a gain or loss when a subsidiary is deconsolidated. This Statement is
effective January 1, 2009, and will be applied prospectively with the
22
exception of the presentation and disclosure requirements, which must be applied retrospectively
for all
periods presented. We are currently evaluating the impact of this Statement on our consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB No. 133. This Statement expands the annual and interim disclosure
requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, for
derivative instruments within the scope of that Statement. We must adopt SFAS No. 161 no later
than
January 1, 2009, but it will not have any impact on our consolidated financial statements, other
than the additional disclosures.
Note 21Joint Venture with Origin Energy
In October 2008, we closed on a transaction with Origin Energy (Origin), an integrated Australian
energy company, to create a long-term Australasian natural gas business. The 50/50 joint venture
will focus on
coalbed methane production from the Bowen and Surat basins in Queensland, Australia, and liquefied
natural gas (LNG) processing and export sales.
With this transaction, we have gained access to a leading coalbed methane resource in Australia and
will enhance our LNG position with the expected creation of an additional LNG hub serving the Asia
Pacific markets.
Under the terms of the transaction, we paid US$5 billion at closing. In addition, we will carry
Origin for AU$1.15 billion related to their initial share of joint venture funding requirements,
when incurred. We have committed to make up to four additional payments of US$500 million each,
expected within the next decade, when each of four expected LNG trains are approved by the joint
venture for development, for a total possible cash acquisition investment of approximately US$8
billion at current exchange rates. We funded our initial upfront payment by issuing approximately
$4.9 billion of commercial paper and with cash on hand.
23
Supplementary InformationCondensed Consolidating Financial Information
We have various cross guarantees among ConocoPhillips, ConocoPhillips Company, ConocoPhillips
Australia Funding Company, ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada
Funding Company II, with respect to publicly held debt securities. ConocoPhillips Company is
wholly owned by ConocoPhillips. ConocoPhillips Australia Funding Company is an indirect, wholly
owned subsidiary of ConocoPhillips Company. ConocoPhillips Canada Funding Company I and
ConocoPhillips Canada Funding Company II are indirect, wholly owned subsidiaries of ConocoPhillips.
ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment
obligations of ConocoPhillips Australia Funding Company, ConocoPhillips Canada Funding Company I,
and ConocoPhillips Canada Funding Company II, with respect to their publicly held debt securities.
Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of
ConocoPhillips Company with respect to its publicly held debt securities. In addition,
ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of
ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and
several. The following condensed consolidating financial information presents the results of
operations, financial position and cash flows for:
|
|
|
ConocoPhillips, ConocoPhillips Company, ConocoPhillips Australia Funding Company,
ConocoPhillips Canada Funding Company I, and ConocoPhillips Canada Funding Company II
(in each case, reflecting investments in subsidiaries utilizing the equity method of
accounting). |
|
|
|
|
All other nonguarantor subsidiaries of ConocoPhillips. |
|
|
|
|
The consolidating adjustments necessary to present ConocoPhillips results on a
consolidated basis. |
This condensed consolidating financial information should be read in conjunction with the
accompanying consolidated financial statements and notes. Certain previously reported amounts
appearing on the 2007 income statements have been reclassified to conform to the current year
presentation.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Income Statement |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
- |
|
|
|
45,549 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,495 |
|
|
|
- |
|
|
|
70,044 |
|
Equity in earnings of affiliates |
|
|
5,256 |
|
|
|
3,856 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,181 |
|
|
|
(9,079 |
) |
|
|
1,214 |
|
Other income (loss) |
|
|
(1 |
) |
|
|
135 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(19 |
) |
|
|
- |
|
|
|
115 |
|
Intercompany revenues |
|
|
1 |
|
|
|
1,166 |
|
|
|
20 |
|
|
|
22 |
|
|
|
14 |
|
|
|
9,720 |
|
|
|
(10,943 |
) |
|
|
- |
|
|
|
Total Revenues and Other Income |
|
|
5,256 |
|
|
|
50,706 |
|
|
|
20 |
|
|
|
22 |
|
|
|
14 |
|
|
|
35,377 |
|
|
|
(20,022 |
) |
|
|
71,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, natural gas and products |
|
|
- |
|
|
|
41,990 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,180 |
|
|
|
(10,562 |
) |
|
|
49,608 |
|
Production and operating expenses |
|
|
- |
|
|
|
1,243 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,841 |
|
|
|
(25 |
) |
|
|
3,059 |
|
Selling, general and administrative expenses |
|
|
7 |
|
|
|
339 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
180 |
|
|
|
(13 |
) |
|
|
513 |
|
Exploration expenses |
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
236 |
|
|
|
- |
|
|
|
267 |
|
Depreciation, depletion and amortization |
|
|
- |
|
|
|
393 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,968 |
|
|
|
- |
|
|
|
2,361 |
|
Impairments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
|
|
- |
|
|
|
57 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
1,280 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,396 |
|
|
|
(57 |
) |
|
|
5,619 |
|
Accretion on discounted liabilities |
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100 |
|
|
|
- |
|
|
|
114 |
|
Interest and debt expense |
|
|
97 |
|
|
|
132 |
|
|
|
17 |
|
|
|
19 |
|
|
|
14 |
|
|
|
246 |
|
|
|
(286 |
) |
|
|
239 |
|
Foreign currency transaction losses (gains) |
|
|
- |
|
|
|
18 |
|
|
|
- |
|
|
|
(71 |
) |
|
|
(99 |
) |
|
|
206 |
|
|
|
- |
|
|
|
54 |
|
Minority interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
|
|
15 |
|
|
|
Total Costs and Expenses |
|
|
104 |
|
|
|
45,440 |
|
|
|
17 |
|
|
|
(52 |
) |
|
|
(85 |
) |
|
|
27,425 |
|
|
|
(10,943 |
) |
|
|
61,906 |
|
|
|
Income before income taxes |
|
|
5,152 |
|
|
|
5,266 |
|
|
|
3 |
|
|
|
74 |
|
|
|
99 |
|
|
|
7,952 |
|
|
|
(9,079 |
) |
|
|
9,467 |
|
Provision for income taxes |
|
|
(36 |
) |
|
|
618 |
|
|
|
1 |
|
|
|
7 |
|
|
|
17 |
|
|
|
3,672 |
|
|
|
- |
|
|
|
4,279 |
|
|
|
Net Income |
|
$ |
5,188 |
|
|
|
4,648 |
|
|
|
2 |
|
|
|
67 |
|
|
|
82 |
|
|
|
4,280 |
|
|
|
(9,079 |
) |
|
|
5,188 |
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Income Statement |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
- |
|
|
|
30,130 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,932 |
|
|
|
- |
|
|
|
46,062 |
|
Equity in earnings of affiliates |
|
|
3,731 |
|
|
|
3,227 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
602 |
|
|
|
(6,246 |
) |
|
|
1,314 |
|
Other income |
|
|
- |
|
|
|
121 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
436 |
|
|
|
- |
|
|
|
557 |
|
Intercompany revenues |
|
|
1 |
|
|
|
814 |
|
|
|
30 |
|
|
|
21 |
|
|
|
13 |
|
|
|
4,648 |
|
|
|
(5,527 |
) |
|
|
- |
|
|
|
Total Revenues and Other Income |
|
|
3,732 |
|
|
|
34,292 |
|
|
|
30 |
|
|
|
21 |
|
|
|
13 |
|
|
|
21,618 |
|
|
|
(11,773 |
) |
|
|
47,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, natural gas and products |
|
|
- |
|
|
|
26,477 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,211 |
|
|
|
(4,826 |
) |
|
|
30,862 |
|
Production and operating expenses |
|
|
- |
|
|
|
1,054 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,588 |
|
|
|
(22 |
) |
|
|
2,620 |
|
Selling, general and administrative expenses |
|
|
4 |
|
|
|
365 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
212 |
|
|
|
(12 |
) |
|
|
569 |
|
Exploration expenses |
|
|
- |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
189 |
|
|
|
- |
|
|
|
218 |
|
Depreciation, depletion and amortization |
|
|
- |
|
|
|
388 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,664 |
|
|
|
- |
|
|
|
2,052 |
|
Impairments |
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
172 |
|
|
|
- |
|
|
|
188 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
1,363 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,291 |
|
|
|
(71 |
) |
|
|
4,583 |
|
Accretion on discounted liabilities |
|
|
- |
|
|
|
12 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69 |
|
|
|
- |
|
|
|
81 |
|
Interest and debt expense |
|
|
85 |
|
|
|
431 |
|
|
|
28 |
|
|
|
20 |
|
|
|
14 |
|
|
|
409 |
|
|
|
(596 |
) |
|
|
391 |
|
Foreign currency transaction losses (gains) |
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
83 |
|
|
|
44 |
|
|
|
(153 |
) |
|
|
- |
|
|
|
(20 |
) |
Minority interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
- |
|
|
|
25 |
|
|
|
Total Costs and Expenses |
|
|
89 |
|
|
|
30,141 |
|
|
|
28 |
|
|
|
103 |
|
|
|
58 |
|
|
|
16,677 |
|
|
|
(5,527 |
) |
|
|
41,569 |
|
|
|
Income (loss) before income taxes |
|
|
3,643 |
|
|
|
4,151 |
|
|
|
2 |
|
|
|
(82 |
) |
|
|
(45 |
) |
|
|
4,941 |
|
|
|
(6,246 |
) |
|
|
6,364 |
|
Provision for income taxes |
|
|
(30 |
) |
|
|
581 |
|
|
|
- |
|
|
|
11 |
|
|
|
6 |
|
|
|
2,123 |
|
|
|
- |
|
|
|
2,691 |
|
|
|
Net Income (Loss) |
|
$ |
3,673 |
|
|
|
3,570 |
|
|
|
2 |
|
|
|
(93 |
) |
|
|
(51 |
) |
|
|
2,818 |
|
|
|
(6,246 |
) |
|
|
3,673 |
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Income Statement |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
- |
|
|
|
128,145 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68,193 |
|
|
|
- |
|
|
|
196,338 |
|
Equity in earnings of affiliates |
|
|
14,907 |
|
|
|
10,713 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,935 |
|
|
|
(25,170 |
) |
|
|
4,385 |
|
Other income (loss) |
|
|
(2 |
) |
|
|
622 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(65 |
) |
|
|
- |
|
|
|
555 |
|
Intercompany revenues |
|
|
25 |
|
|
|
2,798 |
|
|
|
63 |
|
|
|
67 |
|
|
|
41 |
|
|
|
25,463 |
|
|
|
(28,457 |
) |
|
|
- |
|
|
|
Total Revenues and Other Income |
|
|
14,930 |
|
|
|
142,278 |
|
|
|
63 |
|
|
|
67 |
|
|
|
41 |
|
|
|
97,526 |
|
|
|
(53,627 |
) |
|
|
201,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, natural gas and products |
|
|
- |
|
|
|
117,520 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,363 |
|
|
|
(27,241 |
) |
|
|
138,642 |
|
Production and operating expenses |
|
|
- |
|
|
|
3,690 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,266 |
|
|
|
(95 |
) |
|
|
8,861 |
|
Selling, general and administrative expenses |
|
|
14 |
|
|
|
1,124 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
576 |
|
|
|
(46 |
) |
|
|
1,668 |
|
Exploration expenses |
|
|
- |
|
|
|
131 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
733 |
|
|
|
- |
|
|
|
864 |
|
Depreciation, depletion and amortization |
|
|
- |
|
|
|
1,144 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,604 |
|
|
|
- |
|
|
|
6,748 |
|
Impairments |
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
61 |
|
|
|
- |
|
|
|
82 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
3,819 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,927 |
|
|
|
(176 |
) |
|
|
16,570 |
|
Accretion on discounted liabilities |
|
|
- |
|
|
|
43 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
271 |
|
|
|
- |
|
|
|
314 |
|
Interest and debt expense |
|
|
225 |
|
|
|
457 |
|
|
|
57 |
|
|
|
58 |
|
|
|
40 |
|
|
|
718 |
|
|
|
(899 |
) |
|
|
656 |
|
Foreign currency transaction losses (gains) |
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
(85 |
) |
|
|
(106 |
) |
|
|
186 |
|
|
|
- |
|
|
|
11 |
|
Minority interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51 |
|
|
|
- |
|
|
|
51 |
|
|
|
Total Costs and Expenses |
|
|
239 |
|
|
|
127,965 |
|
|
|
57 |
|
|
|
(27 |
) |
|
|
(66 |
) |
|
|
74,756 |
|
|
|
(28,457 |
) |
|
|
174,467 |
|
|
|
Income before income taxes |
|
|
14,691 |
|
|
|
14,313 |
|
|
|
6 |
|
|
|
94 |
|
|
|
107 |
|
|
|
22,770 |
|
|
|
(25,170 |
) |
|
|
26,811 |
|
Provision for income taxes |
|
|
(75 |
) |
|
|
1,605 |
|
|
|
2 |
|
|
|
(6 |
) |
|
|
4 |
|
|
|
10,515 |
|
|
|
- |
|
|
|
12,045 |
|
|
|
Net Income |
|
$ |
14,766 |
|
|
|
12,708 |
|
|
|
4 |
|
|
|
100 |
|
|
|
103 |
|
|
|
12,255 |
|
|
|
(25,170 |
) |
|
|
14,766 |
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Income Statement |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues |
|
$ |
- |
|
|
|
87,022 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
47,730 |
|
|
|
- |
|
|
|
134,752 |
|
Equity in earnings of affiliates |
|
|
7,623 |
|
|
|
6,881 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,927 |
|
|
|
(12,682 |
) |
|
|
3,749 |
|
Other income |
|
|
4 |
|
|
|
263 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,429 |
|
|
|
- |
|
|
|
1,696 |
|
Intercompany revenues |
|
|
148 |
|
|
|
2,303 |
|
|
|
90 |
|
|
|
60 |
|
|
|
37 |
|
|
|
13,215 |
|
|
|
(15,853 |
) |
|
|
- |
|
|
|
Total Revenues and Other Income |
|
|
7,775 |
|
|
|
96,469 |
|
|
|
90 |
|
|
|
60 |
|
|
|
37 |
|
|
|
64,301 |
|
|
|
(28,535 |
) |
|
|
140,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, natural gas and products |
|
|
- |
|
|
|
74,279 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27,831 |
|
|
|
(13,713 |
) |
|
|
88,397 |
|
Production and operating expenses |
|
|
- |
|
|
|
3,249 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,484 |
|
|
|
(64 |
) |
|
|
7,669 |
|
Selling, general and administrative expenses |
|
|
13 |
|
|
|
1,053 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
676 |
|
|
|
(42 |
) |
|
|
1,700 |
|
Exploration expenses |
|
|
- |
|
|
|
75 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
664 |
|
|
|
- |
|
|
|
739 |
|
Depreciation, depletion and amortization |
|
|
- |
|
|
|
1,111 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,981 |
|
|
|
- |
|
|
|
6,092 |
|
Impairmentexpropriated assets |
|
|
- |
|
|
|
1,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,663 |
|
|
|
- |
|
|
|
4,588 |
|
Impairments |
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
293 |
|
|
|
- |
|
|
|
285 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
4,161 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,701 |
|
|
|
(208 |
) |
|
|
13,654 |
|
Accretion on discounted liabilities |
|
|
- |
|
|
|
40 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
201 |
|
|
|
- |
|
|
|
241 |
|
Interest and debt expense |
|
|
296 |
|
|
|
1,399 |
|
|
|
84 |
|
|
|
58 |
|
|
|
40 |
|
|
|
966 |
|
|
|
(1,826 |
) |
|
|
1,017 |
|
Foreign currency transaction losses (gains) |
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
181 |
|
|
|
121 |
|
|
|
(516 |
) |
|
|
- |
|
|
|
(198 |
) |
Minority interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
65 |
|
|
|
- |
|
|
|
65 |
|
|
|
Total Costs and Expenses |
|
|
309 |
|
|
|
87,300 |
|
|
|
84 |
|
|
|
239 |
|
|
|
161 |
|
|
|
52,009 |
|
|
|
(15,853 |
) |
|
|
124,249 |
|
|
|
Income (loss) before income taxes |
|
|
7,466 |
|
|
|
9,169 |
|
|
|
6 |
|
|
|
(179 |
) |
|
|
(124 |
) |
|
|
12,292 |
|
|
|
(12,682 |
) |
|
|
15,948 |
|
Provision for income taxes |
|
|
(54 |
) |
|
|
2,255 |
|
|
|
2 |
|
|
|
9 |
|
|
|
4 |
|
|
|
6,212 |
|
|
|
- |
|
|
|
8,428 |
|
|
|
Net Income (Loss) |
|
$ |
7,520 |
|
|
|
6,914 |
|
|
|
4 |
|
|
|
(188 |
) |
|
|
(128 |
) |
|
|
6,080 |
|
|
|
(12,682 |
) |
|
|
7,520 |
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Balance Sheet |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
- |
|
|
|
244 |
|
|
|
- |
|
|
|
6 |
|
|
|
1 |
|
|
|
1,110 |
|
|
|
(245 |
) |
|
|
1,116 |
|
Accounts and notes receivable |
|
|
49 |
|
|
|
13,230 |
|
|
|
19 |
|
|
|
1 |
|
|
|
- |
|
|
|
22,889 |
|
|
|
(19,202 |
) |
|
|
16,986 |
|
Inventories |
|
|
- |
|
|
|
4,334 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,516 |
|
|
|
(109 |
) |
|
|
6,741 |
|
Prepaid expenses and other current assets |
|
|
3 |
|
|
|
887 |
|
|
|
- |
|
|
|
4 |
|
|
|
3 |
|
|
|
2,586 |
|
|
|
- |
|
|
|
3,483 |
|
|
|
Total Current Assets |
|
|
52 |
|
|
|
18,695 |
|
|
|
19 |
|
|
|
11 |
|
|
|
4 |
|
|
|
29,101 |
|
|
|
(19,556 |
) |
|
|
28,326 |
|
Investments, loans and long-term receivables* |
|
|
97,446 |
|
|
|
105,372 |
|
|
|
1,700 |
|
|
|
1,396 |
|
|
|
945 |
|
|
|
40,520 |
|
|
|
(210,982 |
) |
|
|
36,397 |
|
Net properties, plants and equipment |
|
|
- |
|
|
|
19,541 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69,716 |
|
|
|
2 |
|
|
|
89,259 |
|
Goodwill |
|
|
- |
|
|
|
12,711 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,513 |
|
|
|
- |
|
|
|
29,224 |
|
Intangibles |
|
|
- |
|
|
|
789 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
- |
|
|
|
861 |
|
Other assets |
|
|
14 |
|
|
|
176 |
|
|
|
2 |
|
|
|
4 |
|
|
|
27 |
|
|
|
413 |
|
|
|
(96 |
) |
|
|
540 |
|
|
|
Total Assets |
|
$ |
97,512 |
|
|
|
157,284 |
|
|
|
1,721 |
|
|
|
1,411 |
|
|
|
976 |
|
|
|
156,335 |
|
|
|
(230,632 |
) |
|
|
184,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
26 |
|
|
|
20,942 |
|
|
|
- |
|
|
|
3 |
|
|
|
4 |
|
|
|
17,464 |
|
|
|
(19,202 |
) |
|
|
19,237 |
|
Short-term debt |
|
|
- |
|
|
|
301 |
|
|
|
950 |
|
|
|
- |
|
|
|
- |
|
|
|
86 |
|
|
|
(950 |
) |
|
|
387 |
|
Accrued income and other taxes |
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
6,360 |
|
|
|
- |
|
|
|
6,369 |
|
Employee benefit obligations |
|
|
- |
|
|
|
461 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
295 |
|
|
|
2 |
|
|
|
758 |
|
Other accruals |
|
|
63 |
|
|
|
894 |
|
|
|
25 |
|
|
|
32 |
|
|
|
22 |
|
|
|
1,729 |
|
|
|
(6 |
) |
|
|
2,759 |
|
|
|
Total Current Liabilities |
|
|
89 |
|
|
|
22,607 |
|
|
|
975 |
|
|
|
36 |
|
|
|
25 |
|
|
|
25,934 |
|
|
|
(20,156 |
) |
|
|
29,510 |
|
Long-term debt |
|
|
5,048 |
|
|
|
5,377 |
|
|
|
749 |
|
|
|
1,250 |
|
|
|
848 |
|
|
|
7,491 |
|
|
|
950 |
|
|
|
21,713 |
|
Asset retirement obligations and accrued environmental costs |
|
|
- |
|
|
|
1,111 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,602 |
|
|
|
- |
|
|
|
7,713 |
|
Joint venture acquisition obligation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,828 |
|
|
|
- |
|
|
|
5,828 |
|
Deferred income taxes |
|
|
(3 |
) |
|
|
3,421 |
|
|
|
- |
|
|
|
15 |
|
|
|
18 |
|
|
|
16,973 |
|
|
|
(16 |
) |
|
|
20,408 |
|
Employee benefit obligations |
|
|
- |
|
|
|
2,076 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
737 |
|
|
|
- |
|
|
|
2,813 |
|
Other liabilities and deferred credits* |
|
|
6,174 |
|
|
|
21,104 |
|
|
|
- |
|
|
|
51 |
|
|
|
23 |
|
|
|
12,982 |
|
|
|
(37,715 |
) |
|
|
2,619 |
|
|
|
Total Liabilities |
|
|
11,308 |
|
|
|
55,696 |
|
|
|
1,724 |
|
|
|
1,352 |
|
|
|
914 |
|
|
|
76,547 |
|
|
|
(56,937 |
) |
|
|
90,604 |
|
Minority interests |
|
|
- |
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,139 |
|
|
|
- |
|
|
|
1,127 |
|
Retained earnings (deficit) |
|
|
56,590 |
|
|
|
36,660 |
|
|
|
(3 |
) |
|
|
(47 |
) |
|
|
(4 |
) |
|
|
29,849 |
|
|
|
(59,942 |
) |
|
|
63,103 |
|
Other stockholders equity |
|
|
29,614 |
|
|
|
64,940 |
|
|
|
- |
|
|
|
106 |
|
|
|
66 |
|
|
|
48,800 |
|
|
|
(113,753 |
) |
|
|
29,773 |
|
|
|
Total |
|
$ |
97,512 |
|
|
|
157,284 |
|
|
|
1,721 |
|
|
|
1,411 |
|
|
|
976 |
|
|
|
156,335 |
|
|
|
(230,632 |
) |
|
|
184,607 |
|
|
|
*Includes intercompany loans.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Balance Sheet |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
- |
|
|
|
195 |
|
|
|
- |
|
|
|
7 |
|
|
|
1 |
|
|
|
1,626 |
|
|
|
(373 |
) |
|
|
1,456 |
|
Accounts and notes receivable |
|
|
40 |
|
|
|
12,421 |
|
|
|
15 |
|
|
|
12 |
|
|
|
4 |
|
|
|
19,548 |
|
|
|
(15,686 |
) |
|
|
16,354 |
|
Inventories |
|
|
- |
|
|
|
2,043 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,190 |
|
|
|
(10 |
) |
|
|
4,223 |
|
Prepaid expenses and other current assets |
|
|
9 |
|
|
|
578 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
2,114 |
|
|
|
- |
|
|
|
2,702 |
|
|
|
Total Current Assets |
|
|
49 |
|
|
|
15,237 |
|
|
|
15 |
|
|
|
20 |
|
|
|
5 |
|
|
|
25,478 |
|
|
|
(16,069 |
) |
|
|
24,735 |
|
Investments, loans and long-term receivables* |
|
|
86,942 |
|
|
|
57,936 |
|
|
|
1,700 |
|
|
|
1,470 |
|
|
|
997 |
|
|
|
18,972 |
|
|
|
(134,689 |
) |
|
|
33,328 |
|
Net
properties, plants and equipment |
|
|
- |
|
|
|
17,677 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
71,317 |
|
|
|
9 |
|
|
|
89,003 |
|
Goodwill |
|
|
- |
|
|
|
12,746 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,590 |
|
|
|
- |
|
|
|
29,336 |
|
Intangibles |
|
|
- |
|
|
|
808 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
88 |
|
|
|
- |
|
|
|
896 |
|
Other assets |
|
|
8 |
|
|
|
153 |
|
|
|
3 |
|
|
|
5 |
|
|
|
4 |
|
|
|
520 |
|
|
|
(234 |
) |
|
|
459 |
|
|
|
Total Assets |
|
$ |
86,999 |
|
|
|
104,557 |
|
|
|
1,718 |
|
|
|
1,495 |
|
|
|
1,006 |
|
|
|
132,965 |
|
|
|
(150,983 |
) |
|
|
177,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6 |
|
|
|
18,792 |
|
|
|
- |
|
|
|
10 |
|
|
|
4 |
|
|
|
15,108 |
|
|
|
(16,059 |
) |
|
|
17,861 |
|
Short-term debt |
|
|
1,000 |
|
|
|
309 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
89 |
|
|
|
- |
|
|
|
1,398 |
|
Accrued income and other taxes |
|
|
- |
|
|
|
601 |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
4,117 |
|
|
|
97 |
|
|
|
4,814 |
|
Employee benefit obligations |
|
|
- |
|
|
|
509 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
411 |
|
|
|
- |
|
|
|
920 |
|
Other accruals |
|
|
21 |
|
|
|
594 |
|
|
|
20 |
|
|
|
16 |
|
|
|
11 |
|
|
|
1,230 |
|
|
|
(3 |
) |
|
|
1,889 |
|
|
|
Total Current Liabilities |
|
|
1,027 |
|
|
|
20,805 |
|
|
|
20 |
|
|
|
26 |
|
|
|
14 |
|
|
|
20,955 |
|
|
|
(15,965 |
) |
|
|
26,882 |
|
Long-term debt |
|
|
3,402 |
|
|
|
5,694 |
|
|
|
1,699 |
|
|
|
1,250 |
|
|
|
848 |
|
|
|
7,396 |
|
|
|
- |
|
|
|
20,289 |
|
Asset retirement obligations and accrued environmental costs |
|
|
- |
|
|
|
1,167 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,094 |
|
|
|
- |
|
|
|
7,261 |
|
Joint venture acquisition obligation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,294 |
|
|
|
- |
|
|
|
6,294 |
|
Deferred income taxes |
|
|
(3 |
) |
|
|
3,050 |
|
|
|
- |
|
|
|
32 |
|
|
|
18 |
|
|
|
17,907 |
|
|
|
14 |
|
|
|
21,018 |
|
Employee benefit obligations |
|
|
- |
|
|
|
2,292 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
899 |
|
|
|
- |
|
|
|
3,191 |
|
Other liabilities and deferred credits* |
|
|
42 |
|
|
|
16,447 |
|
|
|
- |
|
|
|
132 |
|
|
|
102 |
|
|
|
15,489 |
|
|
|
(29,546 |
) |
|
|
2,666 |
|
|
|
Total Liabilities |
|
|
4,468 |
|
|
|
49,455 |
|
|
|
1,719 |
|
|
|
1,440 |
|
|
|
982 |
|
|
|
75,034 |
|
|
|
(45,497 |
) |
|
|
87,601 |
|
Minority interests |
|
|
- |
|
|
|
(19 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,194 |
|
|
|
(2 |
) |
|
|
1,173 |
|
Retained earnings (deficit) |
|
|
43,988 |
|
|
|
23,952 |
|
|
|
(1 |
) |
|
|
(147 |
) |
|
|
(107 |
) |
|
|
20,738 |
|
|
|
(37,913 |
) |
|
|
50,510 |
|
Other stockholders equity |
|
|
38,543 |
|
|
|
31,169 |
|
|
|
- |
|
|
|
202 |
|
|
|
131 |
|
|
|
35,999 |
|
|
|
(67,571 |
) |
|
|
38,473 |
|
|
|
Total |
|
$ |
86,999 |
|
|
|
104,557 |
|
|
|
1,718 |
|
|
|
1,495 |
|
|
|
1,006 |
|
|
|
132,965 |
|
|
|
(150,983 |
) |
|
|
177,757 |
|
|
|
*Includes intercompany loans.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Statement of Cash Flows |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities |
|
$ |
8,852 |
|
|
|
1,769 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
11,922 |
|
|
|
(3,012 |
) |
|
|
19,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and investments |
|
|
- |
|
|
|
(3,901 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,341 |
) |
|
|
707 |
|
|
|
(10,535 |
) |
Proceeds from asset dispositions |
|
|
- |
|
|
|
251 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
658 |
|
|
|
(180 |
) |
|
|
729 |
|
Long-term advances/loansrelated parties |
|
|
- |
|
|
|
(400 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,812 |
) |
|
|
3,031 |
|
|
|
(181 |
) |
Collection of advances/loansrelated parties |
|
|
- |
|
|
|
224 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12 |
|
|
|
(221 |
) |
|
|
15 |
|
Other |
|
|
- |
|
|
|
(183 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(186 |
) |
|
|
Net Cash Used in Investing Activities |
|
|
- |
|
|
|
(4,009 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,486 |
) |
|
|
3,337 |
|
|
|
(10,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
2,136 |
|
|
|
2,671 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
488 |
|
|
|
(3,031 |
) |
|
|
2,264 |
|
Repayment of debt |
|
|
(1,500 |
) |
|
|
(350 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(228 |
) |
|
|
221 |
|
|
|
(1,857 |
) |
Issuance of company common stock |
|
|
182 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
182 |
|
Repurchase of company common stock |
|
|
(7,500 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,500 |
) |
Dividends paid on common stock |
|
|
(2,159 |
) |
|
|
- |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,134 |
) |
|
|
3,140 |
|
|
|
(2,159 |
) |
Other |
|
|
(11 |
) |
|
|
126 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14 |
) |
|
|
(527 |
) |
|
|
(426 |
) |
|
|
Net Cash Provided by (Used in) Financing Activities |
|
|
(8,852 |
) |
|
|
2,447 |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,888 |
) |
|
|
(197 |
) |
|
|
(9,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
Exchange Rate Changes on Cash and Cash Equivalents |
|
|
- |
|
|
|
(158 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(64 |
) |
|
|
- |
|
|
|
(222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
- |
|
|
|
49 |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(516 |
) |
|
|
128 |
|
|
|
(340 |
) |
Cash and cash equivalents at beginning of period |
|
|
- |
|
|
|
195 |
|
|
|
- |
|
|
|
7 |
|
|
|
1 |
|
|
|
1,626 |
|
|
|
(373 |
) |
|
|
1,456 |
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
- |
|
|
|
244 |
|
|
|
- |
|
|
|
6 |
|
|
|
1 |
|
|
|
1,110 |
|
|
|
(245 |
) |
|
|
1,116 |
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
Statement of Cash Flows |
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities |
|
$ |
11,862 |
|
|
|
(2,048 |
) |
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
8,473 |
|
|
|
(664 |
) |
|
|
17,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and investments |
|
|
- |
|
|
|
(1,821 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,288 |
) |
|
|
202 |
|
|
|
(7,907 |
) |
Proceeds from asset dispositions |
|
|
- |
|
|
|
1,299 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,604 |
|
|
|
(846 |
) |
|
|
3,057 |
|
Long-term advances/loans related parties |
|
|
- |
|
|
|
(143 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,486 |
) |
|
|
2,180 |
|
|
|
(449 |
) |
Collection of advances/loansrelated parties |
|
|
- |
|
|
|
954 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
(889 |
) |
|
|
66 |
|
Other |
|
|
1 |
|
|
|
22 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
24 |
|
|
|
Net Cash Provided by (Used in) Investing Activities |
|
|
1 |
|
|
|
311 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,168 |
) |
|
|
647 |
|
|
|
(5,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
(36 |
) |
|
|
2,179 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
861 |
|
|
|
(2,180 |
) |
|
|
824 |
|
Repayment of debt |
|
|
(5,564 |
) |
|
|
(561 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(905 |
) |
|
|
889 |
|
|
|
(6,141 |
) |
Issuance of company common stock |
|
|
251 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
251 |
|
Repurchase of company common stock |
|
|
(4,501 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,501 |
) |
Dividends paid on common stock |
|
|
(2,009 |
) |
|
|
- |
|
|
|
(7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(626 |
) |
|
|
633 |
|
|
|
(2,009 |
) |
Other |
|
|
(4 |
) |
|
|
76 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,005 |
) |
|
|
644 |
|
|
|
(289 |
) |
|
|
Net Cash Provided by (Used in) Financing Activities |
|
|
(11,863 |
) |
|
|
1,694 |
|
|
|
(7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,675 |
) |
|
|
(14 |
) |
|
|
(11,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
- |
|
|
|
(43 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
636 |
|
|
|
(31 |
) |
|
|
562 |
|
Cash and cash equivalents at beginning of period |
|
|
- |
|
|
|
116 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1,042 |
|
|
|
(342 |
) |
|
|
817 |
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
- |
|
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1,678 |
|
|
|
(373 |
) |
|
|
1,379 |
|
|
|
32
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis contains forward-looking statements including, without
limitation, statements relating to our 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 intends, believes, expects, plans, scheduled, should,
anticipates, estimates, and similar expressions identify forward-looking statements. We do not
undertake to update, revise or correct any of the forward-looking information. Readers are
cautioned that such forward-looking statements should be read in conjunction with the 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 54.
BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
Our Exploration and Production (E&P) segment had net income of $3,928 million in the third quarter
of 2008, which accounted for 76 percent of our total net income in the quarter. This compares with
E&P net income of $3,999 million in the second quarter of 2008, and $2,082 million in the third
quarter of 2007.
E&P net income in the third quarter of 2008 was impacted by a decrease in commodity prices.
Industry crude oil prices for West Texas Intermediate averaged $117.83 per barrel in the third
quarter of 2008, or $6.15 per barrel lower than the second quarter of 2008, but $42.35 higher than
in the same period a year earlier. Crude oil prices were influenced, among other factors, by
growing concerns about financial markets and the slowing worldwide economys expected adverse
impact on oil demand growth.
Industry natural gas prices for Henry Hub decreased during the third quarter of 2008 to $10.25 per
million British thermal units (MMBTU), down $0.69 per MMBTU from the second quarter of 2008 but
$4.09 higher than in the same period a year earlier. Natural gas prices trended lower during the
third quarter due to rising domestic unconventional gas production in the face of slowing natural
gas demand growth due to the weakening U.S. economy. Although production fell in September due to
hurricane outages, natural gas storage still moved above the five year average, further influencing
the downward move in the natural gas price.
Our Refining and Marketing (R&M) segment had net income of $849 million in the third quarter of
2008, compared with $664 million in the second quarter of 2008, and $1,307 million in the third
quarter of 2007. The increase in net income from the previous quarter was primarily due to
improved global realized marketing margins and lower turnaround costs, which were partially offset
by lower refining volumes. The decrease in net income from the third quarter of 2007 reflects a
lower net benefit from the companys asset rationalization efforts, the absence of a third-quarter
2007 German tax legislation benefit and lower refining volumes. These items were partially offset
by improved global realized marketing margins.
33
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three- and nine-month periods ending
September 30, 2008, is based on a comparison with the corresponding periods of 2007.
Consolidated Results
A summary of net income (loss) by business segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production (E&P) |
|
$ |
3,928 |
|
|
|
2,082 |
|
|
|
10,814 |
|
|
|
2,007 |
|
Midstream |
|
|
173 |
|
|
|
104 |
|
|
|
472 |
|
|
|
291 |
|
Refining and Marketing (R&M) |
|
|
849 |
|
|
|
1,307 |
|
|
|
2,033 |
|
|
|
4,801 |
|
LUKOIL Investment |
|
|
438 |
|
|
|
387 |
|
|
|
1,922 |
|
|
|
1,169 |
|
Chemicals |
|
|
46 |
|
|
|
110 |
|
|
|
116 |
|
|
|
260 |
|
Emerging Businesses |
|
|
35 |
|
|
|
3 |
|
|
|
55 |
|
|
|
(10 |
) |
Corporate and Other |
|
|
(281 |
) |
|
|
(320 |
) |
|
|
(646 |
) |
|
|
(998 |
) |
|
|
Net income |
|
$ |
5,188 |
|
|
|
3,673 |
|
|
|
14,766 |
|
|
|
7,520 |
|
|
|
Net income was $5,188 million in the third quarter of 2008, compared with $3,673 million in the
third quarter of 2007. For the nine-month periods ended September 30, 2008 and 2007, net income
was $14,766 million and $7,520 million, respectively. The nine-month period in 2007 included a
complete impairment ($4,512 million after-tax) of our oil interests in Venezuela, resulting from
their expropriation on June 26, 2007.
The results in both 2008 periods were enhanced by significantly higher crude oil, natural gas and
natural gas liquids prices, benefiting our E&P, Midstream and LUKOIL Investment segments. These
increases were partially offset by a decrease in net income from our R&M segment.
See the Segment Results section for additional information on our segment results.
Income Statement Analysis
Sales and other operating revenues increased 52 percent in the third quarter of 2008 and 46 percent
in the nine-month period, while purchased crude oil, natural gas and products increased 61 percent
and 57 percent, respectively. These increases were mainly the result of higher petroleum product
prices, and higher prices for crude oil, natural gas and natural gas liquids.
Equity in earnings of affiliates decreased 8 percent in the third quarter of 2008, mainly due to
lower earnings from WRB Refining LLC and Chevron Phillips Chemical Company LLC (CPChem), partially
offset by increased earnings from FCCL Oil Sands Partnership, DCP Midstream, LLC and LUKOIL.
Equity in earnings of affiliates increased 17 percent in the nine-month period, reflecting improved
results from LUKOIL, FCCL and DCP Midstream, partially offset by lower results from WRB and CPChem,
as well as the absence of earnings from Hamaca and Petrozuata, our heavy-oil joint ventures
expropriated by Venezuela in the second quarter of 2007.
34
Other income decreased 79 percent and 67 percent during the third quarter and first nine months of
2008, respectively. The decrease was primarily due to higher 2007 net gains on asset dispositions
associated with asset rationalization efforts. In addition, the 2007 periods included a net
benefit from the Alaska Quality Bank settlements.
Production and operating costs increased 17 percent and 16 percent during the third quarter and
first nine months of 2008, respectively. Contributing to the increase were higher maintenance and
well workover costs, as well as unfavorable foreign currency exchange impacts in E&P and higher
turnaround and utility costs in R&M.
Depreciation, depletion and amortization increased 15 percent during the third quarter and 11
percent during the first nine months of 2008. The increases were mostly associated with our E&P
segment, reflecting startup of new developments, foreign currency exchange impacts and changes in
asset retirement obligations.
Impairmentexpropriated assets reflects a second-quarter 2007 noncash impairment of $4,588 million
before-tax related to the expropriation of our oil interests in Venezuela. For additional
information, see the Expropriated Assets section of Note 13Impairments, in our 2007 Annual
Report on Form 10-K.
Taxes other than income taxes increased 23 percent and 21 percent during the third quarter and
first nine months of 2008, respectively, primarily due to increased production taxes in our E&P
segment, a significant portion of which relates to Alaska.
Interest and debt expense decreased 39 percent and 35 percent during both periods of 2008,
respectively, primarily due to lower average interest rates, as well as impacts related to the
Alaska Quality Bank settlements, which occurred in the third quarter of 2007. In addition, the
decrease in the nine-month period was also affected by a lower average debt level.
35
Segment Results
E&P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Millions of Dollars |
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
$ |
556 |
|
|
|
765 |
|
|
|
1,859 |
|
|
|
1,807 |
|
Lower 48 |
|
|
1,050 |
|
|
|
460 |
|
|
|
2,948 |
|
|
|
1,389 |
|
|
|
United States |
|
|
1,606 |
|
|
|
1,225 |
|
|
|
4,807 |
|
|
|
3,196 |
|
International |
|
|
2,322 |
|
|
|
857 |
|
|
|
6,007 |
|
|
|
(1,189 |
) |
|
|
|
|
$ |
3,928 |
|
|
|
2,082 |
|
|
|
10,814 |
|
|
|
2,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Unit |
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
118.90 |
|
|
|
72.00 |
|
|
|
110.26 |
|
|
|
62.70 |
|
International |
|
|
110.84 |
|
|
|
74.03 |
|
|
|
108.94 |
|
|
|
65.19 |
|
Total consolidated |
|
|
114.20 |
|
|
|
73.01 |
|
|
|
109.53 |
|
|
|
63.99 |
|
Equity affiliates* |
|
|
88.32 |
|
|
|
44.60 |
|
|
|
81.74 |
|
|
|
44.30 |
|
Worldwide E&P |
|
|
112.19 |
|
|
|
71.34 |
|
|
|
107.84 |
|
|
|
61.80 |
|
Natural gas (per thousand cubic feet) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
8.64 |
|
|
|
5.36 |
|
|
|
8.66 |
|
|
|
6.01 |
|
International |
|
|
9.13 |
|
|
|
5.75 |
|
|
|
9.14 |
|
|
|
6.24 |
|
Total consolidated |
|
|
8.91 |
|
|
|
5.56 |
|
|
|
8.93 |
|
|
|
6.13 |
|
Equity affiliates* |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
.30 |
|
Worldwide E&P |
|
|
8.91 |
|
|
|
5.56 |
|
|
|
8.93 |
|
|
|
6.13 |
|
Natural gas liquids (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
68.84 |
|
|
|
47.73 |
|
|
|
64.53 |
|
|
|
43.34 |
|
International |
|
|
68.78 |
|
|
|
48.63 |
|
|
|
67.46 |
|
|
|
44.21 |
|
Total consolidated |
|
|
68.81 |
|
|
|
48.09 |
|
|
|
65.85 |
|
|
|
43.71 |
|
Equity affiliates* |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Worldwide E&P |
|
|
68.81 |
|
|
|
48.09 |
|
|
|
65.85 |
|
|
|
43.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
Worldwide Exploration Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative; geological and geophysical;
and lease rentals |
|
$ |
149 |
|
|
|
144 |
|
|
|
465 |
|
|
|
384 |
|
Leasehold impairment |
|
|
60 |
|
|
|
51 |
|
|
|
179 |
|
|
|
196 |
|
Dry holes |
|
|
58 |
|
|
|
23 |
|
|
|
220 |
|
|
|
159 |
|
|
|
|
|
$ |
267 |
|
|
|
218 |
|
|
|
864 |
|
|
|
739 |
|
|
|
*Excludes our equity share of LUKOIL, which is reported in the LUKOIL Investment segment.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Thousands of Barrels Daily |
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil produced |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
218 |
|
|
|
241 |
|
|
|
239 |
|
|
|
261 |
|
Lower 48 |
|
|
85 |
|
|
|
103 |
|
|
|
92 |
|
|
|
104 |
|
|
|
United States |
|
|
303 |
|
|
|
344 |
|
|
|
331 |
|
|
|
365 |
|
Europe |
|
|
221 |
|
|
|
203 |
|
|
|
205 |
|
|
|
210 |
|
Asia Pacific |
|
|
87 |
|
|
|
83 |
|
|
|
88 |
|
|
|
91 |
|
Canada |
|
|
25 |
|
|
|
17 |
|
|
|
24 |
|
|
|
19 |
|
Middle East and Africa |
|
|
73 |
|
|
|
73 |
|
|
|
78 |
|
|
|
80 |
|
Other areas |
|
|
9 |
|
|
|
10 |
|
|
|
9 |
|
|
|
10 |
|
|
|
Total consolidated |
|
|
718 |
|
|
|
730 |
|
|
|
735 |
|
|
|
775 |
|
Equity affiliates* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
32 |
|
|
|
29 |
|
|
|
29 |
|
|
|
27 |
|
Russia and Caspian |
|
|
31 |
|
|
|
15 |
|
|
|
21 |
|
|
|
15 |
|
Venezuela |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56 |
|
|
|
|
|
|
781 |
|
|
|
774 |
|
|
|
785 |
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids produced |
|
|
Alaska |
|
|
13 |
|
|
|
15 |
|
|
|
16 |
|
|
|
18 |
|
Lower 48 |
|
|
74 |
|
|
|
73 |
|
|
|
73 |
|
|
|
71 |
|
|
|
United States |
|
|
87 |
|
|
|
88 |
|
|
|
89 |
|
|
|
89 |
|
Europe |
|
|
15 |
|
|
|
11 |
|
|
|
19 |
|
|
|
12 |
|
Asia Pacific |
|
|
19 |
|
|
|
13 |
|
|
|
17 |
|
|
|
13 |
|
Canada |
|
|
24 |
|
|
|
26 |
|
|
|
25 |
|
|
|
29 |
|
Middle East and Africa |
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
148 |
|
|
|
139 |
|
|
|
153 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Cubic Feet Daily
|
|
|
|
|
Natural gas produced** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
102 |
|
|
|
116 |
|
|
|
100 |
|
|
|
113 |
|
Lower 48 |
|
|
1,971 |
|
|
|
2,219 |
|
|
|
1,989 |
|
|
|
2,210 |
|
|
|
United States |
|
|
2,073 |
|
|
|
2,335 |
|
|
|
2,089 |
|
|
|
2,323 |
|
Europe |
|
|
847 |
|
|
|
793 |
|
|
|
918 |
|
|
|
932 |
|
Asia Pacific |
|
|
648 |
|
|
|
575 |
|
|
|
617 |
|
|
|
592 |
|
Canada |
|
|
1,061 |
|
|
|
1,069 |
|
|
|
1,072 |
|
|
|
1,118 |
|
Middle East and Africa |
|
|
122 |
|
|
|
124 |
|
|
|
114 |
|
|
|
130 |
|
Other areas |
|
|
18 |
|
|
|
20 |
|
|
|
19 |
|
|
|
21 |
|
|
|
Total consolidated |
|
|
4,769 |
|
|
|
4,916 |
|
|
|
4,829 |
|
|
|
5,116 |
|
Equity affiliates* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venezuela |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
|
|
|
4,769 |
|
|
|
4,916 |
|
|
|
4,829 |
|
|
|
5,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Barrels Daily
|
|
|
|
|
Mining operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syncrude produced |
|
|
24 |
|
|
|
27 |
|
|
|
21 |
|
|
|
24 |
|
|
|
|
|
* |
Excludes our equity share of LUKOIL, which is reported in the LUKOIL Investment segment. |
** |
Represents quantities available for sale. Excludes gas equivalent of natural gas liquids shown
above. |
37
The E&P segment explores for, produces, transports and markets crude oil, natural gas and natural
gas liquids on a worldwide basis. It also mines deposits of oil sands in Canada to extract the
bitumen and upgrade it into a synthetic crude oil. At September 30, 2008, our E&P operations were
producing in the United States, Norway, the United Kingdom, the Netherlands, Canada, Nigeria,
Ecuador, offshore Timor-Leste in the Timor Sea, Australia, China, Indonesia, Algeria, Libya,
Vietnam, and Russia.
The E&P segment reported net income of $3,928 million in the third quarter of 2008, compared with
$2,082 million in the third quarter of 2007. Results for the third quarter of 2008 reflected
higher crude oil, natural gas and natural gas liquids prices, partially offset by higher production
taxes, higher operating costs, and lower volumes.
Net income for the E&P segment for the first nine months of 2008 was $10,814 million, compared with
$2,007 million for the corresponding period of 2007. The nine-month 2007 period results included a
noncash impairment of $4,588 million before-tax ($4,512 million after-tax) related to the
expropriation of our oil interests in Venezuela. For additional information, see the Expropriated
Assets section of Note 13Impairments, in our 2007 Annual Report on Form 10-K. The increase in
net income was attributed to the impact of the Venezuela impairment on our prior-year results and
higher crude oil, natural gas and natural gas liquids prices. The increase was partially offset by
higher production taxes, lower volumes, higher operating costs and a reduced net benefit from asset
rationalization efforts. See the Business Environment and Executive Overview section for
additional information on industry crude oil and natural gas prices.
U.S. E&P
Net income from our U.S. E&P operations increased 31 percent and 50 percent in the third quarter
and first nine months of 2008, respectively, primarily due to higher crude oil, natural gas and
natural gas liquids prices. The increases were partially offset by higher production taxes (mainly
in Alaska), lower crude oil and natural gas volumes, higher operating costs and the absence of a
net benefit from the Alaska Quality Bank settlements recorded in the third quarter of 2007.
U.S. E&P production on a barrel-of-oil-equivalent (BOE) basis averaged 736,000 BOE per day in the
third quarter of 2008, a decrease of 10 percent from 821,000 BOE per day in the third quarter of
2007. The production decrease was primarily due to normal field decline, unplanned downtime mostly
related to hurricane disruptions, and planned maintenance activities in Alaska.
International E&P
Net income from our international E&P operations was $2,322 million in the third quarter of 2008,
compared with $857 million in the third quarter of 2007. The increase was primarily attributed to
higher crude oil, natural gas and natural gas liquids prices, as well as increased volumes. This
was partially offset by higher depreciation expense.
Net income from our international E&P operations was $6,007 million in the first nine months of
2008, compared with a net loss of $1,189 million in the corresponding period of 2007. The increase
in net income was attributed to the impact of the Venezuela impairment on our prior-year results
and higher crude oil, natural gas and natural gas liquids prices. The increase was partially
offset by higher depreciation expense, increased operating costs, lower volumes primarily due to
the expropriation of our oil interests in Venezuela, and a lower net benefit from asset
rationalization efforts.
International E&P production averaged 988,000 BOE per day in the third quarter of 2008, an increase
of 8 percent from 911,000 BOE per day in the third quarter of 2007, primarily due to production
from new developments in the United Kingdom, Russia, Indonesia, Norway and Canada, as well as less
planned and unplanned downtime. This increase was partially offset by normal field decline and the
impact of higher commodity prices on production sharing contracts.
38
Our Syncrude mining operations produced 24,000 barrels per day in the third quarter of 2008,
compared with 27,000 barrels per day in the third quarter of 2007.
Midstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Millions of Dollars |
|
|
Net Income* |
|
$ |
173 |
|
|
|
104 |
|
|
|
472 |
|
|
|
291 |
|
|
|
*Includes DCP Midstream-related net income: |
|
$ |
153 |
|
|
|
90 |
|
|
|
408 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Barrel |
|
|
|
|
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. natural gas liquids* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
67.39 |
|
|
|
48.62 |
|
|
|
65.23 |
|
|
|
43.85 |
|
Equity affiliates |
|
|
60.46 |
|
|
|
47.73 |
|
|
|
59.82 |
|
|
|
42.86 |
|
|
|
*Prices are based on index prices from the Mont Belvieu and Conway market hubs that are weighted by natural gas liquids component and location mix. |
|
|
|
|
|
Thousands of Barrels Daily |
|
|
|
|
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids extracted* |
|
|
176 |
|
|
|
216 |
|
|
|
190 |
|
|
|
208 |
|
Natural gas liquids fractionated** |
|
|
181 |
|
|
|
168 |
|
|
|
166 |
|
|
|
173 |
|
|
|
|
|
* |
Includes our share of equity affiliates, except LUKOIL, which is included in the LUKOIL Investment segment. |
** |
Excludes DCP Midstream. |
The Midstream segment purchases raw natural gas from producers and gathers natural gas through an
extensive network of pipeline gathering systems. The natural gas is then processed to extract
natural gas liquids from the raw gas stream. The remaining residue gas is marketed to electrical
utilities, industrial users and gas marketing companies. Most of the natural gas liquids are
fractionatedseparated into individual components like ethane, butane and propaneand marketed as
chemical feedstock, fuel or blendstock. The Midstream segment consists of our 50 percent equity
investment in DCP Midstream, LLC, as well as our other natural gas gathering and processing
operations, and natural gas liquids fractionation and marketing businesses, primarily in the United
States and Trinidad.
Net income from the Midstream segment increased 66 percent and 62 percent in the third quarter and
first nine months of 2008. The increase in both periods was primarily due to higher realized
natural gas liquids prices, partially offset by higher costs, including increased fuel costs and
repairs and maintenance work. In addition, the third quarter was negatively impacted by lower
volumes, primarily related to hurricane impacts.
39
R&M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Millions of Dollars |
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
524 |
|
|
|
873 |
|
|
|
1,546 |
|
|
|
3,648 |
|
International |
|
|
325 |
|
|
|
434 |
|
|
|
487 |
|
|
|
1,153 |
|
|
|
|
|
$ |
849 |
|
|
|
1,307 |
|
|
|
2,033 |
|
|
|
4,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Gallon |
|
|
|
|
|
U.S. Average Sales Prices* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
3.21 |
|
|
|
2.32 |
|
|
|
3.00 |
|
|
|
2.23 |
|
Retail |
|
|
3.42 |
|
|
|
2.43 |
|
|
|
3.14 |
|
|
|
2.38 |
|
Distillateswholesale |
|
|
3.56 |
|
|
|
2.36 |
|
|
|
3.41 |
|
|
|
2.18 |
|
|
|
*Excludes excise taxes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Barrels Daily |
|
|
|
|
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining operations* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
2,008 |
|
|
|
2,037 |
|
|
|
2,008 |
|
|
|
2,034 |
|
Crude oil runs |
|
|
1,813 |
|
|
|
1,980 |
|
|
|
1,837 |
|
|
|
1,938 |
|
Capacity utilization (percent) |
|
|
90 |
% |
|
|
97 |
|
|
|
91 |
|
|
|
95 |
|
Refinery production |
|
|
1,975 |
|
|
|
2,177 |
|
|
|
2,020 |
|
|
|
2,139 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
670 |
|
|
|
687 |
|
|
|
670 |
|
|
|
693 |
|
Crude oil runs |
|
|
505 |
|
|
|
574 |
|
|
|
557 |
|
|
|
616 |
|
Capacity utilization (percent) |
|
|
75 |
% |
|
|
84 |
|
|
|
83 |
|
|
|
89 |
|
Refinery production |
|
|
523 |
|
|
|
593 |
|
|
|
562 |
|
|
|
634 |
|
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
2,678 |
|
|
|
2,724 |
|
|
|
2,678 |
|
|
|
2,727 |
|
Crude oil runs |
|
|
2,318 |
|
|
|
2,554 |
|
|
|
2,394 |
|
|
|
2,554 |
|
Capacity utilization (percent) |
|
|
87 |
% |
|
|
94 |
|
|
|
89 |
|
|
|
94 |
|
Refinery production |
|
|
2,498 |
|
|
|
2,770 |
|
|
|
2,582 |
|
|
|
2,773 |
|
|
|
|
|
* |
Includes our share of equity affiliates, except for our share of LUKOIL, which is reported in the LUKOIL Investment segment. |
** |
Weighted-average crude oil capacity for the three- and nine-month periods of 2007. Actual capacity at September 30, 2007, was 2,037,000, 669,000 and 2,706,000 barrels per day,
respectively, for our U.S. refineries, our international refineries and worldwide. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum products sales volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
1,089 |
|
|
|
1,212 |
|
|
|
1,095 |
|
|
|
1,256 |
|
Distillates |
|
|
858 |
|
|
|
869 |
|
|
|
880 |
|
|
|
853 |
|
Other products |
|
|
365 |
|
|
|
439 |
|
|
|
384 |
|
|
|
473 |
|
|
|
|
|
|
2,312 |
|
|
|
2,520 |
|
|
|
2,359 |
|
|
|
2,582 |
|
International |
|
|
634 |
|
|
|
629 |
|
|
|
645 |
|
|
|
694 |
|
|
|
|
|
|
2,946 |
|
|
|
3,149 |
|
|
|
3,004 |
|
|
|
3,276 |
|
|
|
40
The R&M segments operations encompass refining crude oil and other feedstocks into petroleum
products (such as gasoline, distillates and aviation fuels); buying, selling and transporting crude
oil; and buying, selling, transporting, distributing and marketing petroleum products. R&M has
operations mainly in the United States, Europe and Asia Pacific.
Net income from the R&M segment decreased 35 percent during the third quarter of 2008 and 58
percent in the first nine months of 2008. The results in both periods were lower due to decreased
refining volumes, the absence of a $141 million third-quarter 2007 German tax legislation benefit
and a reduced benefit from asset rationalization efforts. Additionally, the first nine months were
impacted by significantly lower U.S. realized refining margins and higher operating costs, while
higher global realized marketing margins partially offset these negative impacts.
U.S. R&M
Net income from our U.S. R&M operations decreased 40 percent in the third quarter of 2008 and 58
percent in the first nine months of 2008. The decrease in both periods was primarily the result of
lower refining margins and volumes and higher turnaround and utility costs. Higher marketing
margins partially offset the decrease during both periods.
Our U.S. refining capacity utilization rate was 90 percent in the third quarter of 2008, compared
with 97 percent in the third quarter of 2007. The decline in the current year rate resulted mainly
from downtime associated with hurricanes.
In September 2008, WRB, our refining business venture with EnCana, received final government
approval on a key permit associated with the expansion of the Wood River refinery.
International R&M
Net income from our international R&M operations decreased 25 percent in the third quarter of 2008
and 58 percent for the first nine months of 2008. Contributing to the decrease in both periods
were negative foreign currency exchange impacts, the absence of a third-quarter 2007 German tax
legislation benefit, and a reduced net benefit from asset rationalization efforts. Higher
international refining and marketing margins partially offset these decreases. Additionally, the
first nine months were impacted by decreased refining and marketing volumes.
Our international refining capacity utilization rate was 75 percent in the third quarter of 2008,
compared with 84 percent in the same quarter of 2007. The utilization rate was primarily impacted
in both periods by reduced crude throughput at our Wilhelmshaven refinery due to economic
conditions.
41
LUKOIL Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
438 |
|
|
|
387 |
|
|
|
1,922 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Statistics* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net crude oil production (thousands of barrels daily) |
|
|
371 |
|
|
|
390 |
|
|
|
384 |
|
|
|
404 |
|
Net natural gas production (millions of cubic feet daily) |
|
|
303 |
|
|
|
249 |
|
|
|
356 |
|
|
|
278 |
|
Net refinery crude oil processed (thousands of barrels daily) |
|
|
228 |
|
|
|
226 |
|
|
|
222 |
|
|
|
210 |
|
|
|
*Represents our net share of our estimate of LUKOILs production and processing.
The LUKOIL Investment segment represents our investment in the ordinary shares of LUKOIL, an
international, integrated oil and gas company headquartered in Russia, which we account for under
the equity method. As of September 30, 2008, our ownership interest in LUKOIL was 20 percent based
on authorized and issued shares. Our ownership interest based on estimated shares outstanding,
used for equity-method accounting, was also 20 percent at September 30, 2008. Since LUKOILs
accounting cycle close and preparation of U.S. generally accepted accounting principles financial
statements occur subsequent to our reporting deadline, our equity earnings and statistics for our
LUKOIL investment are estimated based on current market indicators, publicly available LUKOIL
operating results and other objective data. Once the difference between actual and estimated
results is known, an adjustment is recorded. This estimate-to-actual adjustment will be a
recurring component of future period results. The adjustment to second-quarter 2008 estimates,
recorded in the third quarter of 2008, reduced net income $101 million. This compares with a
reduction to net income of $85 million recorded in the third quarter of 2007.
In addition to our estimated equity share of LUKOILs earnings, this segment reflects the
amortization of the basis difference between our equity interest in the net assets of LUKOIL and
the book value of our investment. The segment also includes the costs associated with our
employees seconded to LUKOIL.
Net income from the LUKOIL Investment segment increased 13 percent in the third quarter of 2008 and
64 percent in the first nine months of 2008. The increase in both periods was primarily due to
higher estimated realized prices, partially offset by higher estimated taxes and operating costs,
as well as a decrease in estimated volumes.
At September 30, 2008, the closing price of LUKOIL shares (ADRs) on the London Stock Exchange was
$58.80 per share, down $39.80 per share, or 40 percent, from June 30, 2008. The aggregate market
value of our LUKOIL investment at September 30 was, therefore,
$10,003 million, or $2,861 million
below the $12,864 million book value of our LUKOIL investment. Book value includes $7.5 billion of
share acquisition costs, along with undistributed equity earnings and basis difference
amortization. We evaluated the decrease in market value below book value of our LUKOIL investment
and concluded the decline did not meet the other-than-temporary impairment recognition guidance of
Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock. In reaching this conclusion, we considered: 1) the lack of deterioration in
LUKOILs financial condition and near-term prospects during the quarter; 2) general oil and gas
industry downward stock price trends during the quarter, as well as the historical volatility of
oil and gas commodity prices, which often create short-term volatility in energy industry stock
prices; 3) the intent and ability of ConocoPhillips to retain its investment in LUKOIL; 4) the
short length of time book value has been less than market value; and 5) non-energy-related factors
impacting the U.S. and Russian financial markets during the quarter.
42
At October 29, 2008, the closing price of LUKOIL shares on the London Stock Exchange was $33.01 per
share, 44 percent lower than at September 30, 2008. We will continue to closely monitor
the relationship between the carrying value and market value of our LUKOIL investment. Should we
determine in the future there has been a loss in the carrying value of our investment that is other
than temporary, we would record a noncash impairment of our investment, calculated as the total
difference between carrying value and market value as of the end of the reporting period.
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
46 |
|
|
|
110 |
|
|
|
116 |
|
|
|
260 |
|
|
|
The Chemicals segment consists of our 50 percent interest in Chevron Phillips Chemical Company LLC
(CPChem), which we account for under the equity method. CPChem uses natural gas liquids and other
feedstocks to produce petrochemicals. These products are then marketed and sold, or used as
feedstocks to produce plastics and commodity chemicals.
Net income from the Chemicals segment decreased 58 percent and 55 percent in the third quarter and
first nine months of 2008, respectively. The decrease in both periods was due to lower aromatics
and styrenics margins, as well as higher utility and turnaround costs. Both periods also had
increased olefin and polyolefin margins. Business conditions in the chemicals and plastics
industry are expected to remain challenging in the near term.
Emerging Businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power |
|
$ |
53 |
|
|
|
21 |
|
|
|
106 |
|
|
|
33 |
|
Other |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
(51 |
) |
|
|
(43 |
) |
|
|
|
|
$ |
35 |
|
|
|
3 |
|
|
|
55 |
|
|
|
(10 |
) |
|
|
The Emerging Businesses segment represents our investment in new technologies or businesses outside
our normal scope of operations. Activities within this segment are currently focused on power
generation and innovation of new technologies, such as those related to conventional and
unconventional hydrocarbon recovery (including heavy oil), refining, alternative energy, biofuels,
and the environment.
The Emerging Businesses segment reported net income of $35 million in the third quarter of 2008,
compared with $3 million in the same quarter of 2007. Net income for the first nine months of 2008
was $55 million, compared with a net loss of $10 million for the same period a year ago. The
improvement for both periods primarily reflects improved international power generation results,
partially offset by lower domestic power results.
43
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest |
|
$ |
(149 |
) |
|
|
(195 |
) |
|
|
(376 |
) |
|
|
(663 |
) |
Corporate general and administrative expenses |
|
|
(41 |
) |
|
|
(49 |
) |
|
|
(153 |
) |
|
|
(126 |
) |
Acquisition/merger-related costs |
|
|
- |
|
|
|
(11 |
) |
|
|
- |
|
|
|
(40 |
) |
Other |
|
|
(91 |
) |
|
|
(65 |
) |
|
|
(117 |
) |
|
|
(169 |
) |
|
|
|
|
$ |
(281 |
) |
|
|
(320 |
) |
|
|
(646 |
) |
|
|
(998 |
) |
|
|
Net interest consists of interest and financing expense, net of interest income and capitalized
interest, as well as premiums incurred on the early retirement of debt. In 2008, net interest
decreased 24 percent in the third quarter and 43 percent in the first nine months. The decrease in
both periods was affected by lower average interest rates, while the decrease in the first nine
months was also affected by a lower average debt level.
Corporate general and administrative expenses decreased 16 percent in the third quarter, primarily
due to lower benefit-related expenses, partially offset by higher charitable contributions and
advertising costs. Corporate general and administrative expenses increased 21 percent in the first
nine months of 2008, as higher charitable contributions and advertising costs were only partially
offset by lower benefit-related expenses.
Acquisition-related costs in 2007 included transition costs associated with the Burlington
Resources acquisition.
The category Other includes certain foreign currency transaction gains and losses, environmental
costs associated with sites no longer in operation, and other costs not directly associated with an
operating segment. Increased expenses for the third quarter of 2008 mainly related to higher
foreign currency losses. Improved results from Other in the first nine months of 2008 included
lower foreign currency losses.
44
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At September 30 2008 |
|
|
At December 31 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
387 |
|
|
|
1,398 |
|
Total debt* |
|
$ |
22,100 |
|
|
|
21,687 |
|
Minority interests |
|
$ |
1,127 |
|
|
|
1,173 |
|
Common stockholders equity |
|
$ |
92,876 |
|
|
|
88,983 |
|
Percent of total debt to capital** |
|
|
19 |
% |
|
|
19 |
|
Percent of floating-rate debt to total debt |
|
|
21 |
% |
|
|
25 |
|
|
|
|
|
* |
Total debt includes short-term and long-term debt, as shown on our consolidated balance sheet. |
** |
Capital includes total debt, minority interests and common stockholders equity. |
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources.
Cash generated from operating activities is the primary source of funding. In addition, during the
first nine months of 2008, we raised $729 million in proceeds from asset dispositions. During the
first nine months, available cash was used to support our ongoing capital expenditures and
investments program, repurchase shares of our common stock, provide loan financing to certain
equity affiliates, pay dividends, and meet the funding requirements to FCCL Oil Sands Partnership.
Total dividends paid on our common stock during the first nine months were $2,159 million. During
the first nine months of 2008, cash and cash equivalents decreased $340 million to $1,116 million.
In addition to cash flows from operating activities and proceeds from asset sales, we rely on our
cash balance, commercial paper and credit facility programs, and our shelf registration statements
to support our short- and long-term liquidity requirements. The credit markets, including the
commercial paper markets in the United States, have recently experienced adverse conditions.
Although we have not been materially impacted by these conditions, continuing volatility in the
credit markets may increase costs associated with issuing commercial paper or other debt
instruments due to increased spreads over relevant interest rate benchmarks, or affect our, or
third parties we seek to do business with, ability to access those markets. Notwithstanding these
adverse market conditions, we believe current cash and short-term investment balances and cash
generated by operations, together with access to external sources of funds as described below in
the Significant Sources of Capital section, will be sufficient to meet our funding requirements
in the near- and long-term, including our capital spending program, dividend payments, required
debt payments and the funding requirements to FCCL. Share repurchase levels for the remainder of
2008 will depend on market conditions and capital commitments.
Significant Sources of Capital
Operating Activities
During the first nine months of 2008, cash of $19,536 million was provided by operating activities,
an 11 percent increase from cash from operations of $17,630 million in the corresponding period of
2007. Contributing to the increase were higher commodity prices in our E&P segment, partially
offset by lower U.S. refining margins.
While the stability of our cash flows from operating activities benefits from geographic diversity
and the effects of upstream and downstream integration, our short- and long-term operating cash
flows are highly dependent upon prices for crude oil, natural gas and natural gas liquids, as well
as refining and marketing margins. During the first nine months of 2008 and 2007, we benefited
from favorable crude oil and natural gas
45
prices. Prices and margins are driven by market conditions over which we have no control. Absent
other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding
change in our operating cash flows.
The level of our production volumes of crude oil, natural gas and natural gas liquids also impacts
our cash flows. These production levels are impacted by such factors as acquisitions and
dispositions of fields, field production decline rates, new technologies, operating efficiency,
weather conditions, the addition of proved reserves through exploratory success, and the timely and
cost-effective development of those proved reserves. While we actively manage these factors,
production levels can cause variability in cash flows, although historically this variability has
not been as significant as that experienced with commodity prices.
In addition, the level and quality of output from our refineries impacts our cash flows. The
output at our refineries is impacted by such factors as operating efficiency, maintenance
turnarounds, feedstock availability and weather conditions. We actively manage the operations of
our refineries and, typically, any variability in their operations has not been as significant to
cash flows as that experienced with refining margins.
Asset Sales
Proceeds from asset sales during the first nine months of 2008 were $729 million, compared with
$3,057 million in the same period of 2007. Proceeds for both periods primarily reflect our ongoing
efforts to dispose of assets that no longer fit into our strategic plans or those that could bring
more value by being monetized in the near term.
Commercial Paper and Credit Facilities
At September 30, 2008, we had a $7.35 billion revolving credit facility, which expires in September
2012. The facility was reduced from $7.5 billion due to the bankruptcy of Lehman Commercial Paper
Inc., one of the revolver participants. This facility may be used as direct bank borrowings, as
support for the ConocoPhillips $7.35 billion commercial paper program, as support for the
ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program, or as support for
issuances of letters of credit totaling up to $750 million. The facility is broadly syndicated
among financial institutions and does not contain any material adverse change provisions or any
covenants requiring maintenance of specified financial ratios or ratings. The credit agreement
contains a cross-default provision relating to the failure to pay principal or interest on other
debt obligations of $200 million or more by ConocoPhillips, or by any of its consolidated
subsidiaries. At September 30, 2008 and December 31, 2007, we had no outstanding borrowings under
the credit facility, but $40 million and $41 million, respectively, in letters of credit had been
issued. Under the combined commercial paper programs, $1,519 million of commercial paper was
outstanding at September 30, 2008, compared with $725 million at December 31, 2007.
At September 30, 2008, our primary funding source for short-term working capital needs was the
ConocoPhillips $7.35 billion commercial paper program. Commercial paper maturities are generally
limited to 90 days. The ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program is
used to fund commitments relating to the Qatargas 3 project. Since we had $1,519 million of
commercial paper outstanding and had issued $40 million of letters of credit, we had access to
$5.8 billion in borrowing capacity under our revolving credit facility at September 30, 2008.
On October 1, 2008, we entered into a $2.5 billion 364-day bank facility to provide additional
support to temporarily expand our commercial paper program to $9.85 billion. We expanded our
commercial paper program to ensure adequate liquidity after the initial funding of our transaction
with Origin Energy. See Note 21Joint Venture with Origin Energy, in the Notes to Consolidated
Financial Statements, for additional information.
46
Shelf Registrations
We have a universal shelf registration statement on file with the U.S. Securities and Exchange
Commission (SEC) under which we, as a well-known seasoned issuer, have the ability to issue and
sell an indeterminate amount of various types of debt and equity securities. Under this shelf, in
May 2008 we issued notes consisting of $400 million of 4.40% Notes due 2013, $500 million of 5.20%
Notes due 2018 and $600 million of 5.90% Notes due 2038. The proceeds from the offering were used
to reduce commercial paper and for general corporate purposes.
We also have on file with the SEC a shelf registration statement under which ConocoPhillips Canada
Funding Company I and ConocoPhillips Canada Funding Company II, both wholly owned subsidiaries,
could issue an indeterminate amount of senior debt securities, fully and unconditionally guaranteed
by ConocoPhillips and ConocoPhillips Company.
Minority Interests
At September 30, 2008, we had outstanding $1,127 million of equity in less than wholly owned
consolidated subsidiaries held by minority interest owners, including a minority interest of
$505 million in Ashford Energy Capital S.A. The remaining minority interest amounts are primarily
related to operating joint ventures we control. The largest of these, $602 million, was related to
the Darwin LNG project located in northern Australia.
Off-Balance Sheet Arrangements
As part of our normal ongoing business operations and consistent with normal industry practice, we
enter into numerous agreements with other parties to pursue business opportunities, which share
costs and apportion risks among the parties as governed by the agreements. At September 30, 2008,
we were liable for certain contingent obligations under the following contractual arrangements:
|
|
|
Qatargas 3: We own a 30 percent interest in Qatargas 3, an integrated project
to produce and liquefy natural gas from Qatars North field. Our interest is held through
a jointly owned company, Qatar Liquefied Gas Company Limited (3), for which we use the
equity method of accounting. Qatargas 3 secured project financing of $4 billion in
December 2005, consisting of $1.3 billion of loans from export credit agencies (ECA),
$1.5 billion from commercial banks, and $1.2 billion from ConocoPhillips. The
ConocoPhillips loan facilities have substantially the same terms as the ECA and commercial
bank facilities. Prior to project completion certification, all loans, including the
ConocoPhillips loan facilities, are guaranteed by the participants, based on their
respective ownership interests. Accordingly, our maximum exposure to this financing
structure is $1.2 billion. Upon completion certification, currently expected in 2010, all
project loan facilities, including the ConocoPhillips loan facilities, will become
nonrecourse to the project participants. At September 30, 2008, Qatargas 3 had $2.9
billion outstanding under all the loan facilities, of which ConocoPhillips provided $817
million, and an additional $67 million of accrued interest. |
|
|
|
|
Rockies Express Pipeline LLC: In June 2006, we issued a guarantee for 24
percent of $2.0 billion in credit facilities issued to Rockies Express Pipeline LLC
(Rockies Express). Rockies Express intends to construct a natural gas pipeline across a
portion of the United States. The maximum potential amount of future payments to
third-party lenders under the guarantee is estimated to be $480 million, which could become
payable if the credit facilities are fully utilized and Rockies Express fails to meet its
obligations under the credit agreement. At September 30, 2008, Rockies Express had $854
million outstanding under the credit facilities, with our 24 percent guarantee equaling
$205 million. In addition, we have a 24 percent guarantee on $600 million of Floating Rate
Notes due 2009. It is anticipated that construction completion will be achieved in 2009,
and refinancing will take place at that time, making the debt nonrecourse. |
47
|
|
|
Keystone Oil Pipeline: We own a 50 percent equity interest in the Keystone Oil
Pipeline (Keystone), a joint venture with TransCanada Corporation. Keystone plans to
construct a crude oil pipeline originating in Alberta, with delivery points in Illinois and
Oklahoma. In connection with certain planning and construction activities, agreements were
put in place with third parties to guarantee the payments due under those agreements. Our
maximum potential amount of future payments under those agreements is estimated to be $400
million, which could become payable if Keystone fails to meet its obligations under the
agreements noted above and the obligations cannot otherwise be mitigated. Payments under the
guarantees are contingent upon the partners not making necessary equity contributions into
Keystone; therefore, it is considered unlikely that payments would be required. All but $15
million of the guarantees will terminate after construction is completed, currently estimated
to occur in 2010. |
|
|
|
|
In addition to the above guarantee, in order to obtain long-term shipping commitments that
would enable a pipeline expansion starting at Hardisty, Alberta, and extending to near Port
Arthur, Texas, the Keystone owners entered into a 20-year guarantee in July 2008 to ship
volumes for certain shippers to the Gulf Coast. Our maximum potential amount of future
payments, or cost of volume delivery, under this guarantee is estimated to be $550 million,
which could become payable if Keystone fails to meet its obligations under the agreements
noted above and cannot otherwise be mitigated. This is considered unlikely as payment, or
cost of volume delivery, is contingent upon the partners defaulting on their obligation to
construct and operate in accordance with the terms of the agreement. In October 2008, we
elected to exercise an option to reduce our equity interest from 50 percent to 20.01 percent.
The change in equity will occur through a dilution mechanism, which is expected to gradually
lower our ownership interest, as well as our guaranty obligation, until reaching
20.01 percent by the third quarter of 2009. |
For additional information about guarantees, see Note 11Guarantees, in the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
Capital Requirements
For information about our capital expenditures and investments, see the Capital Spending section.
Our debt balance at September 30, 2008, was $22.1 billion, a slight increase from the balance at
December 31, 2007.
In January 2008, we reduced our Floating Rate Five-Year Term Note due 2011 from $3 billion to $2
billion, with a subsequent reduction in June 2008 to $1.5 billion. In March 2008, we redeemed our
$300 million 7.125% Debentures due 2028 at a premium of $8 million, plus accrued interest.
On January 3, 2007, we closed on a business venture with EnCana. As part of this transaction, we
are obligated to contribute $7.5 billion, plus interest, over a ten-year period, which began in
2007, to the upstream business venture, FCCL, formed as a result of the transaction. Quarterly
principal and interest payments of $237 million began in the second quarter of 2007, and will
continue until the balance is paid. Of the principal obligation amount, approximately $617 million
is short-term and is included in the Accounts payablerelated parties line on our September 30,
2008, consolidated balance sheet. The principal portion of these payments, which totaled $442
million in the first nine months of 2008, is included in the Other line in the financing
activities section of our consolidated statement of cash flows. Interest accrues at a fixed annual
rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest
payment is reflected as a capital contribution and is included in the Capital expenditures and
investments line on our consolidated statement of cash flows.
48
At year-end 2007, approximately $10.1 billion remained authorized for share repurchases in 2008 for
our share repurchase programs announced in 2007. During the first nine months of 2008, we
repurchased 91.2 million shares of our common stock at a cost of $7.5 billion. Share repurchases
have continued into the fourth quarter. Through the end of October we will have purchased
approximately $8 billion in 2008 under our previously announced program. Share repurchase levels
for the balance of the year will depend on market conditions and capital commitments.
In December 2005, we entered into a credit agreement with Qatargas 3, whereby we will provide loan
financing of approximately $1.2 billion for the construction of a liquefied natural gas (LNG) train
in Qatar. This financing will represent 30 percent of the projects total debt financing. Through
September 30, 2008, we had provided $817 million in loan financing, and an additional $67 million
of accrued interest. See the Off-Balance Sheet Arrangements section for additional information
on Qatargas 3.
In 2004, we finalized our transaction with Freeport LNG Development, L.P. (Freeport) to participate
in a proposed LNG receiving terminal in Quintana, Texas. We entered into a credit agreement with
Freeport to provide loan financing for the construction of the facility. The terminal became
operational late in the second quarter of 2008 and in August 2008, when the loan was converted from
a construction loan to a term loan, it consisted of $650 million in loan financing and $124 million
of accrued interest. Freeport began making repayments in September 2008, and the loan balance
outstanding at September 30, 2008, was $768 million.
In the fall of 2004, ConocoPhillips and LUKOIL agreed to the expansion of the Varandey terminal as
part of our investment in the OOO Naryanmarneftegaz (NMNG) joint venture. We have an obligation to
provide loan financing to Varandey Terminal Company for 30 percent of the costs of the terminal
expansion, but we have no governance or ownership interest in the terminal. The terminal
construction was completed in late second-quarter 2008, and the final loan amount was $330 million
at current exchange rates, excluding accrued interest. Although repayments are not required to
start until May 2010, Varandey used available cash to repay $7 million of interest in third-quarter
2008. The outstanding accrued interest at September 30, 2008, was $43 million at current exchange
rates.
The long-term portion of our loans to Qatargas 3, Freeport and Varandey Terminal Company are
included in the Loans and advancesrelated parties line on the balance sheet, while the
short-term portion is in Accounts and notes receivablerelated parties.
49
Capital Spending
Capital Expenditures and Investments
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
2008 |
|
|
2007 |
|
E&P |
|
|
|
|
|
|
|
|
United StatesAlaska |
|
$ |
1,083 |
|
|
|
471 |
|
United StatesLower 48 |
|
|
2,887 |
|
|
|
2,085 |
|
International |
|
|
4,733 |
|
|
|
4,339 |
|
|
|
|
|
|
8,703 |
|
|
|
6,895 |
|
|
|
Midstream |
|
|
- |
|
|
|
2 |
|
|
|
R&M |
|
|
|
|
|
|
|
|
United States |
|
|
1,092 |
|
|
|
617 |
|
International |
|
|
455 |
|
|
|
135 |
|
|
|
|
|
|
1,547 |
|
|
|
752 |
|
|
|
LUKOIL Investment |
|
|
- |
|
|
|
- |
|
Chemicals |
|
|
- |
|
|
|
- |
|
Emerging Businesses |
|
|
137 |
|
|
|
127 |
|
Corporate and Other |
|
|
148 |
|
|
|
131 |
|
|
|
|
|
$ |
10,535 |
|
|
|
7,907 |
|
|
|
United States |
|
$ |
5,210 |
|
|
|
3,306 |
|
International |
|
|
5,325 |
|
|
|
4,601 |
|
|
|
|
|
$ |
10,535 |
|
|
|
7,907 |
|
|
|
E&P
Capital expenditures and investments for E&P during the first nine months of 2008 totaled
$8.7 billion. The expenditures supported key exploration and development projects including:
|
|
|
Significant U.S. lease acquisitions in the federal waters of the Chukchi Sea, offshore
Alaska, as well as in the deepwater Gulf of Mexico. |
|
|
|
|
Alaska activities related to development drilling in the Greater Kuparuk Area, including
West Sak; the Greater Prudhoe Bay Area; the Alpine field, including satellite field
prospects; and the Cook Inlet Area; as well as exploration activities. |
|
|
|
|
Oil and natural gas developments in the Lower 48, including New Mexico, Texas,
Louisiana, Oklahoma, Montana, North Dakota, Colorado, Wyoming, and offshore in the Gulf of
Mexico. |
|
|
|
|
Investment in the West2East Pipeline LLC (West2East), a company holding a 100 percent
interest in Rockies Express Pipeline LLC (Rockies Express). |
|
|
|
|
The development of the Surmont heavy-oil project, investments related to FCCL, and
development of conventional oil and gas reserves, all in Canada. |
|
|
|
|
Development drilling and facilities projects in the Greater Ekofisk Area located in the
Norwegian North Sea. |
|
|
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The Britannia satellite developments in the U.K. North Sea. |
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An integrated project to produce and liquefy natural gas from Qatars North field. |
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The Kashagan field in the Caspian Sea, offshore Kazakhstan. |
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Development of the Yuzhno Khylchuyu (YK) field in the northern part of Russias
Timan-Pechora province through the NMNG joint venture with LUKOIL. |
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The Peng Lai 19-3 development in Chinas Bohai Bay. |
50
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The Gumusut-Kakap development offshore Sabah, Malaysia. |
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Projects offshore Block B and onshore South Sumatra in Indonesia. |
In July 2008, we announced the signing of an interim agreement with the Abu Dhabi National Oil
Company (ADNOC) to develop the Shah gas field in Abu Dhabi. Final project agreements are targeted
for year-end 2008. ADNOC will have a 60 percent interest and we will have a 40 percent interest in
the project.
In October 2008, we closed on a transaction with Origin Energy, an integrated Australian energy
company, to create a long-term Australasian natural gas business. We paid $5 billion at closing.
See Note 21Joint Venture with Origin Energy, in the Notes to Consolidated Financial Statements,
for additional information.
R&M
Capital spending for R&M during the first nine months of 2008 totaled $1.5 billion and included
projects to meet environmental standards and improve the operating integrity, safety and energy
efficiency of processing units. Capital also was spent on pipeline development and refinery
upgrade projects to increase crude oil capacity, expand conversion capability and increase clean
product yield.
Major project activities in progress include:
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Expansion of a hydrocracker at the Rodeo facility of our San Francisco refinery. |
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Investment in the Keystone Oil Pipeline. |
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U.S. programs aimed at air emission reductions. |
51
Contingencies
Legal and Tax Matters
We accrue for non-income-tax-related contingencies when a loss is probable and the amounts can be
reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the
range is a better estimate than any other amount, then the minimum of the range is accrued. In the
case of income-tax-related contingencies, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109 (FIN 48), effective January 1, 2007. FIN 48 requires 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.
Environmental
We are subject to the same numerous international, federal, state, and local environmental laws and
regulations as other companies in the petroleum exploration and production, refining and crude oil
and refined product marketing and transportation businesses. For a discussion of the most
significant of these environmental laws and regulations, including those with associated
remediation obligations, see the Environmental section in Managements Discussion and Analysis of
Financial Condition and Results of Operations on pages 81 through 84 of our 2007 Annual Report on
Form 10-K.
We, from time to time, receive requests for information or notices of potential liability from the
Environmental Protection Agency 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 wastes attributable to our past operations. As of December 31,
2007, we reported we had been notified of potential liability under CERCLA and comparable state
laws at 68 sites around the United States. At September 30, 2008, we reopened two sites and closed
one of those two sites, resolved and closed four sites, and received two new notices of potential
liability, leaving 67 unresolved sites where we have been notified of potential liability.
At September 30, 2008, our balance sheet included a total environmental accrual of $1,028 million,
compared with $1,089 million at December 31, 2007. We expect to incur the majority of
these expenditures within the next 30 years.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses,
environmental costs and liabilities are inherent 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 on our results of operations or financial position as a
result of compliance with environmental laws and regulations.
NEW ACCOUNTING STANDARDS
In December 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141
(Revised), Business Combinations (SFAS No. 141(R)). This Statement will apply to all
transactions in which an entity obtains control of one or more other businesses. In general, SFAS
No. 141(R) requires the acquiring entity in a business combination to recognize the fair value of
all the assets acquired and liabilities assumed in the transaction; establishes the acquisition
date as the fair value measurement point; and modifies the disclosure requirements. This Statement
applies prospectively to business combinations for which the acquisition date is on or after
January 1, 2009. However, starting January 1, 2009, accounting for changes in valuation allowances
for acquired deferred tax assets and the resolution of uncertain tax positions for prior business
52
combinations will impact tax expense instead of impacting goodwill. We are currently evaluating
the changes provided for in this Statement.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51, which changes the classification of
noncontrolling interests, sometimes called minority interests, in the consolidated financial
statements. Additionally, this Statement establishes a single method of accounting for changes in
a parent companys ownership interest that do not result in deconsolidation and requires a parent
company to recognize a gain or loss when a subsidiary is deconsolidated. This Statement is
effective January 1, 2009, and will be applied prospectively with the exception of the presentation
and disclosure requirements, which must be applied retrospectively for all periods presented. We
are currently evaluating the impact of this Statement on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB No. 133. This Statement expands the annual and interim disclosure
requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, for
derivative instruments within the scope of that Statement. We must adopt SFAS No. 161 no later
than January 1, 2009, but it will not have any impact on our consolidated financial statements, other
than the additional disclosures.
OUTLOOK
In E&P, we expect our fourth-quarter 2008 production to be higher than the third quarter of 2008.
We anticipate full-year 2008 production to be slightly below 1.8 million BOE per day due to the
impact of higher prices on production-sharing contracts and lost production associated with
Hurricanes Gustav and Ike.
In R&M, we expect our crude oil capacity utilization rate in the fourth quarter of 2008 to be in
the mid-90-percent range.
53
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. You can identify our
forward-looking statements by the words anticipate, estimate, believe, continue, could,
intend, may, plan, potential, predict, should, will, expect, objective,
projection, forecast, goal, guidance, outlook, effort, target and similar
expressions.
We based the forward-looking statements relating to our operations on our current expectations,
estimates and projections about ourselves and the industries in which we operate in general. We
caution you that these statements are not guarantees of future performance and involve risks,
uncertainties and assumptions 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, including the following:
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Fluctuations in crude oil, natural gas and natural gas liquids prices, refining and
marketing margins and margins for our chemicals business. |
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Potential failure or delays in achieving expected reserve or production levels from
existing and future oil and gas development projects due to operating hazards, drilling
risks and the inherent uncertainties in predicting oil and gas reserves and oil and gas
reservoir performance. |
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Unsuccessful exploratory drilling activities or the inability to obtain access to
exploratory acreage. |
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Failure of new products and services to achieve market acceptance. |
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Unexpected changes in costs or technical requirements for constructing, modifying or
operating facilities for exploration and production, manufacturing, refining or
transportation projects. |
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Unexpected technological or commercial difficulties in manufacturing, refining, or
transporting our products, including synthetic crude oil and chemicals products. |
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Lack of, or disruptions in, adequate and reliable transportation for our crude oil,
natural gas, natural gas liquids, LNG and refined products. |
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Inability to timely obtain or maintain permits, including those necessary for
construction of LNG terminals or regasification facilities, or refinery projects; comply
with government regulations; or make capital expenditures required to maintain compliance. |
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Failure to complete definitive agreements and feasibility studies for, and to timely
complete construction of, announced and future exploration and production, LNG, refinery
and transportation projects. |
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Potential disruption or interruption of our operations due to accidents, extraordinary
weather events, civil unrest, political events or terrorism. |
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International monetary conditions and exchange controls. |
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Substantial investment or reduced demand for products as a result of existing or future
environmental rules and regulations. |
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Liability for remedial actions, including removal and reclamation obligations, under
environmental regulations. |
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Liability resulting from litigation. |
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|
General domestic and international economic and political developments, including:
armed hostilities; expropriation of assets; changes in governmental policies relating to
crude oil, natural gas, natural gas liquids or refined product pricing, regulation, or
taxation; other political, economic or diplomatic developments; and international monetary
fluctuations. |
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Changes in tax and other laws, regulations (including alternative energy mandates), or
royalty rules applicable to our business. |
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Limited access to capital or significantly higher cost of capital related to illiquidity
or uncertainty in the domestic or international financial markets. |
54
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Inability to obtain economical financing for projects, construction or modification of
facilities and general corporate purposes. |
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The operation and financing of our midstream and chemicals joint ventures. |
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The factors set forth under the heading Risk Factors on pages 34 through 39 of our
2007 Annual Report on Form 10-K. |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the nine months ended September 30, 2008, does not differ
materially
from that discussed under Item 7A in our 2007 Annual Report on Form 10-K.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2008, with the participation of our management, our Chairman and Chief
Executive Officer (principal executive officer) and our Senior Vice President, Finance, and Chief
Financial Officer (principal financial officer) carried out an evaluation, pursuant to Rule
13a-15(b) of the Securities Exchange Act of 1934, as amended (the Act), of the effectiveness of the
design and operation of ConocoPhillips disclosure controls and procedures (as defined in Rule
13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and
our Senior Vice President, Finance, and Chief Financial Officer concluded that our disclosure
controls and procedures were operating effectively as of September 30, 2008.
There have been no changes in our internal control over financial reporting, as defined in
Rule 13a-15(f) of the Act, in the period covered by this report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
55
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following is a description of reportable legal proceedings including those involving
governmental authorities under federal, state and local laws regulating the discharge of materials
into the environment for this reporting period. The following proceedings include those matters
that arose during the third quarter of 2008 and any material developments with respect to matters
previously reported in our 2007 Annual Report on Form 10-K or first and second 2008 Quarterly
Reports on Form 10-Q. While it is not possible to accurately predict the final outcome of these
pending proceedings, if any one or more of such proceedings were decided adversely to
ConocoPhillips, we expect there would be no material effect on our consolidated financial
position. Nevertheless, such proceedings are reported pursuant to the U.S. Securities and Exchange
Commissions regulations.
Our U.S. refineries are implementing two separate consent decrees, regarding alleged violations of
the Federal Clean Air Act, with the U.S. Environmental Protection Agency (EPA), six states and one
local air pollution agency. Some of the requirements and limitations contained in the decrees
provide for stipulated penalties for violations. Stipulated penalties under the decrees are not
automatic, but must be requested by one of the agency signatories. As part of periodic reports
under the decrees and/or other reports required by permits or regulations, we occasionally report
matters which could be subject to a request for stipulated penalties. If a specific request for
stipulated penalties meeting the reporting threshold set forth in U.S. Securities and Exchange
Commission rules is made pursuant to these decrees based on a given reported exceedance, we will
separately report that matter and the amount of the proposed penalty.
New Matters
The South Coast Air Quality Management District (SCAQMD) conducted an audit of the Los Angeles
refinery to assess compliance with applicable local, state, and federal regulations related to
fugitive emissions. As a result of the audit, on August 28, 2008, SCAQMD issued five Notices of
Violations (NOVs) alleging noncompliance. SCAQMD has not yet specified a penalty for these alleged
violations. We are currently assessing the allegations and expect to work with SCAQMD toward a
resolution of these NOVs.
Matters Previously Reported
On June 19, 2008, the Trainer refinery received a demand for stipulated penalties under the
Refinery Enforcement Initiative Consent Decree in the amount of $110,000 for alleged violations
associated with its leak detection and repair program. The penalty was paid in the third quarter
of 2008.
In the fall of 2006, the Wood River refinery experienced two incidents where coker oil mist was
released from the Distilling West coker. In a letter dated February 9, 2007, the state of Illinois
demanded $50,000 for each release. During March 2008, we reached agreement with the state of
Illinois to settle this matter for a cash penalty of $25,000 and performance of two local recycling
events. The penalty was paid in the third quarter of 2008 and the recycling events have been
completed.
On March 27, 2008, the Trainer refinery received a proposed Consent Assessment of Civil Penalty
from the Pennsylvania Department of Environmental Protection (PADEP) for alleged air quality
violations that occurred from 2002 to 2007. The assessment covers several categories of alleged
air quality violations including emission events, air emissions inventory reporting, and violation
of permit conditions. The proposed penalty is $129,424, and we are working with the PADEP to
resolve this matter.
On December 16, 2005, the Bayway refinery experienced a hydrocarbon spill to the Rahway River and
Arthur Kill. As a result of this spill, we signed an Order on Consent (Order) with the state of
New York, and are also negotiating similar settlements with the state of New Jersey and the federal
government. Under the final New York Order, we paid a penalty of $50,000 and conducted a beach
cleanup. The proposed natural resources
56
damages have been assessed at $70,000, with an additional $40,000 in federal and state oversight
costs. We are working to resolve this matter.
On March 27, 2008, the Sweeny refinery received a Notice of Enforcement (NOE) from the Texas
Commission on Environmental Quality (TCEQ) for an emissions event related to flaring that occurred
on January 28, 2008. A penalty of $32,000 was submitted to the TCEQ in September 2008. This
matter is subject to formal approval by the TCEQ Commissioners. We expect consideration of
approval to occur in fourth quarter of 2008.
Item 1A. RISK FACTORS
Except for the risk factor set forth below, there have been no material changes to the risk factors
disclosed in Item 1A of Part I in our Form 10-K for the year ended December 31, 2007 (Form 10-K).
The risk factor set forth below was disclosed in our Form 10-K, but has been updated to provide
additional information.
Worldwide political and economic developments could damage our operations and materially reduce our
profitability and cash flows.
Local political and economic factors in international markets could have a material adverse effect
on us. Approximately 63 percent of our crude oil, natural gas and natural gas liquids production
in 2007 was derived from production outside the United States, and 59 percent of our proved
reserves, as of December 31, 2007, were located outside the United States.
There are many risks associated with operations in international markets, including changes in
foreign governmental policies relating to crude oil, natural gas, natural gas liquids or refined
product pricing and taxation, other political, economic or diplomatic developments, changing
political conditions and international monetary fluctuations. These risks include, among others:
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Political and economic instability, war, acts of terrorism and civil disturbances. |
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The possibility that a foreign government may seize our property, with or without
compensation, may attempt to renegotiate or revoke existing contractual arrangements and
concessions, or may impose additional taxes or royalties. |
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Fluctuating currency values, hard currency shortages and currency controls. |
Continued hostilities and turmoil in the world and the occurrence or threat of future terrorist
attacks could affect the economies of the United States and other developed countries. A lower
level of economic activity could result in a decline in energy consumption, which could cause our
revenues and margins to decline and limit our future growth prospects. More specifically, our
energy-related assets may be at greater risk of future terrorist attacks than other possible
targets. A direct attack on our assets, or assets used by us, could have a material adverse effect
on our operations, financial condition, results of operations and prospects. These risks could
lead to increased volatility in prices for crude oil, natural gas, natural gas liquids and refined
products and could increase instability in the financial and insurance markets, making it more
difficult for us to access capital and to obtain the insurance coverage that we consider adequate.
Actions of the U.S., state and local governments through tax and other legislation, executive order
and commercial restrictions could reduce our operating profitability both in the United States and
abroad. The U.S. government can prevent or restrict us from doing business in foreign countries.
These restrictions and those of foreign governments have in the past limited our ability to operate
in, or gain access to, opportunities in various countries. Actions by both the United States and
host governments have affected operations significantly in the past and will continue to do so in
the future.
57
We also are exposed to fluctuations in foreign currency exchange rates. We do not comprehensively
hedge our exposure to currency rate changes, although we may choose to selectively hedge certain
working capital balances, firm commitments, cash returns from affiliates and/or tax payments.
These efforts may not be successful.
Recent disruptions in the credit markets and concerns about global economic growth have had a
significant adverse impact on global financial markets and commodity prices, both of which have
contributed to a decline in our stock price and corresponding market capitalization. Further stock
price or commodity price decreases in the fourth quarter could result in noncash impairments of
long-lived assets and goodwill, as well as other-than-temporary noncash impairments of equity method
investments. At December 31, 2007, we had $29.3 billion of goodwill recorded in conjunction with
past business combinations and $731 million of intangible assets determined to have indefinite
useful lives. Decreased returns on pension fund assets may also materially increase our pension
funding requirements.
Likewise, the capital and credit markets have become increasingly volatile as a result of adverse
conditions. If the capital and credit markets continue to experience volatility and the
availability of funds remains limited, we, and third parties with whom we do business, may incur increased costs associated with issuing
commercial paper and/or other debt instruments and this, in turn, could adversely affect our ability to advance our strategic plans as currently contemplated. In this context, changes in our debt rating could
have a material adverse effect on our interest costs and financing sources. Our debt rating can be
materially influenced by a number of factors including, but not limited to, acquisitions,
investment decisions, and capital management activities.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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|
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|
Millions of Dollars |
|
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|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Value of Shares |
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|
|
|
|
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Average Price |
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|
Part of Publicly |
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|
that May Yet Be |
|
|
|
Total Number of |
|
|
Paid per Total |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Period |
|
Shares Purchased |
* |
|
Shares Purchased |
|
|
Programs |
** |
|
Plans or Programs |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1-31, 2008 |
|
|
9,747,673 |
|
|
$ |
87.40 |
|
|
|
9,745,778 |
|
|
$ |
4,236 |
|
August 1-31, 2008 |
|
|
10,133,449 |
|
|
|
80.84 |
|
|
|
10,129,914 |
|
|
|
3,417 |
|
September
1-30, 2008 |
|
|
10,885,253 |
|
|
|
75.39 |
|
|
|
10,883,073 |
|
|
|
2,597 |
|
|
|
Total |
|
|
30,766,375 |
|
|
$ |
80.99 |
|
|
|
30,758,765 |
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|
|
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|
|
|
|
|
* |
Includes the repurchase of common shares from company employees in connection with the companys broad-based employee incentive plans. |
** |
On January 12, 2007, we announced a stock repurchase program that provided for the repurchase of up to $1 billion of the companys common
stock. On February 9, 2007, we announced plans to repurchase $4 billion of our common stock in 2007, including the $1 billion announced on
January 12, 2007. On July 9, 2007, we announced plans to repurchase up to $15 billion of the companys common stock through the end of
2008, which included the $2 billion remaining under the previously announced $4 billion program. Acquisitions for the share repurchase
programs are made at managements discretion, at prevailing prices, subject to market conditions and other factors. Repurchases may be
increased, decreased or discontinued at any time without prior notice. Shares of stock repurchased under the plans are held as treasury shares. |
58
Item 5. OTHER INFORMATION
On October 29, 2008, following receipt of approval from Australias Foreign Investment Review
Board, we closed on a transaction with Origin Energy to create a long-term Australasian natural gas
business. The 50/50 joint venture will focus on coalbed methane production from the Bowen and
Surat basins in Queensland, Australia, and liquefied natural gas processing and export sales.
Under the terms of the transaction, we paid $5 billion at closing.
Our initial payment was funded through cash on hand as well as the issuance of approximately $4.9
billion in commercial paper borrowings under our commercial paper program as described in
Managements Discussion and Analysis of Financial Condition and Results of Operations under the
section entitled Liquidity and Capital Resources Significant Sources of Capital Commercial
Paper and Credit Facilities on page 46, which is incorporated herein by reference. Interest rates on commercial
paper borrowings are subject to conditions of the short-term money markets.
Item 6. EXHIBITS
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Exhibits |
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3.1
|
|
By-Laws of ConocoPhillips, as amended and restated on October 1, 2008 (incorporated by
reference to Exhibit 99.2 to the Current Report of ConocoPhillips on Form 8-K filed on October
1, 2008; File No. 001-32395). |
|
|
|
10.1
|
|
Letter Agreement between ConocoPhillips and John E. Lowe, dated October 1, 2008 (incorporated
by reference to Exhibit 99.1 to the Current Report of ConocoPhillips on Form 8-K filed on
October 1, 2008; File No. 001-32395). |
|
|
|
12
|
|
Computation of Ratio of Earnings to Fixed Charges. |
|
|
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31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934. |
|
|
|
32
|
|
Certifications pursuant to 18 U.S.C. Section 1350. |
59
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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|
CONOCOPHILLIPS |
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/s/ Rand C. Berney |
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|
|
|
Rand C. Berney |
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|
Vice President and Controller |
|
|
(Chief Accounting and Duly Authorized Officer) |
October 29, 2008
60