UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

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

For the quarterly period ended		September 30, 2010

or

[  ]

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

For the transition period from   to

Commission file number:		001-32395

ConocoPhillips

	Delaware		01-0562944
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)

600 North Dairy Ashford, Houston, TX 77079
(Address of principal executive offices)          (Zip Code)

281-293-1000
(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer [x]		Accelerated filer [  ]		Non-accelerated filer [  ] (Do not check if a smaller reporting company)		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 1,469,224,505 shares of common stock, $.01 par value, outstanding at September 30, 2010.

CONOCOPHILLIPS

TABLE OF CONTENTS

		Page
Part I – Financial Information
Item 1. Financial Statements
Consolidated Income Statement			1
Consolidated Balance Sheet			2
Consolidated Statement of Cash Flows			3
Notes to Consolidated Financial Statements			4
Supplementary Information—Condensed Consolidating Financial Information			29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			53
Item 4. Controls and Procedures			53
Part II – Other Information
Item 1. Legal Proceedings			54
Item 1A. Risk Factors			55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 6. Exhibits			56
Signature			57
EX-12
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Consolidated Income Statement		ConocoPhillips

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009		(2)		2010				2009		(2)
Revenues and Other Income
Sales and other operating revenues(1)		$	47,208				40,173				137,715				106,362
Equity in earnings of affiliates			1,004				981				2,960				1,986
Gain on sale of Syncrude			-				-				2,878				-
Other income			1,337				117				1,885				347
Total Revenues and Other Income			49,549				41,271				145,438				108,695
Costs and Expenses
Purchased crude oil, natural gas and products			34,051				28,008				97,660				72,376
Production and operating expenses			2,583				2,534				7,729				7,652
Selling, general and administrative expenses			493				427				1,375				1,378
Exploration expenses			252				386				848				854
Depreciation, depletion and amortization			2,246				2,327				6,844				6,904
Impairments			59				56				1,682				110
Taxes other than income taxes(1)			4,227				4,205				12,511				11,384
Accretion on discounted liabilities			110				96				337				308
Interest and debt expense			264				336				914				914
Foreign currency transaction (gains) losses			(10	)			(17	)			80				(28	)
Total Costs and Expenses			44,275				38,358				129,980				101,852
Income before income taxes			5,274				2,913				15,458				6,843
Provision for income taxes			2,205				1,426				6,094				3,665
Net income			3,069				1,487				9,364				3,178
Less: net income attributable to noncontrolling interests			(14	)			(17	)			(47	)			(49	)
Net Income Attributable to ConocoPhillips		$	3,055				1,470				9,317				3,129
Net Income Attributable to ConocoPhillips Per Share of Common Stock (dollars) (3)
Basic		$	2.06				.98				6.26				2.10
Diluted			2.05				.97				6.21				2.08
Dividends Paid Per Share of Common Stock (dollars)		$	.55				.47				1.60				1.41
Average Common Shares Outstanding (in thousands)
Basic			1,481,522				1,488,352				1,488,024				1,486,922
Diluted			1,493,080				1,498,204				1,499,367				1,496,391
(1)Includes excise taxes on petroleum products sales:		$	3,544				3,538				10,181				9,914

See Notes to Consolidated Financial Statements.

Consolidated Balance Sheet		ConocoPhillips

		Millions of Dollars
		September 30				December 31
		2010				2009		*
Assets
Cash and cash equivalents		$	7,996				542
Accounts and notes receivable (net of allowance of $28 million in 2010 and $76 million in 2009)			11,723				11,861
Accounts and notes receivable—related parties			1,755				1,354
Investment in LUKOIL			2,856				-
Inventories			7,741				4,940
Prepaid expenses and other current assets			3,246				2,470
Total Current Assets			35,317				21,167
Investments and long-term receivables			31,182				35,742
Loans and advances—related parties			2,175				2,352
Net properties, plants and equipment			81,460				87,708
Goodwill			3,637				3,638
Intangibles			806				823
Other assets			756				708
Total Assets		$	155,333				152,138
Liabilities
Accounts payable		$	14,148				14,168
Accounts payable—related parties			1,916				1,317
Short-term debt			376				1,728
Accrued income and other taxes			5,186				3,402
Employee benefit obligations			768				846
Other accruals			3,027				2,234
Total Current Liabilities			25,421				23,695
Long-term debt			23,225				26,925
Asset retirement obligations and accrued environmental costs			8,518				8,713
Joint venture acquisition obligation—related party			4,492				5,009
Deferred income taxes			17,286				17,956
Employee benefit obligations			3,732				4,130
Other liabilities and deferred credits			2,742				3,097
Total Liabilities			85,416				89,525
Equity
Common stock (2,500,000,000 shares authorized at $.01 par value)
Issued (2010—1,737,649,139 shares; 2009—1,733,345,558 shares)
Par value			17				17
Capital in excess of par			43,956				43,681
Grantor trusts (at cost: 2010—37,798,903 shares; 2009—38,742,261 shares)			(650	)			(667	)
Treasury stock (at cost: 2010—230,625,731 shares; 2009—208,346,815 shares)			(17,468	)			(16,211	)
Accumulated other comprehensive income			4,405				3,065
Unearned employee compensation			(55	)			(76	)
Retained earnings			39,156				32,214
Total Common Stockholders’ Equity			69,361				62,023
Noncontrolling interests			556				590
Total Equity			69,917				62,613
Total Liabilities and Equity		$	155,333				152,138

*Recast to reflect a change in accounting principle. See Note 2—Changes in Accounting Principles, for more information.

See Notes to Consolidated Financial Statements.

Consolidated Statement of Cash Flows		ConocoPhillips

		Millions of Dollars
		Nine Months Ended
		September 30
		2010				2009		*
Cash Flows From Operating Activities
Net income		$	9,364				3,178
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization			6,844				6,904
Impairments			1,682				110
Dry hole costs and leasehold impairments			327				471
Accretion on discounted liabilities			337				308
Deferred taxes			(935	)			(872	)
Undistributed equity earnings			(1,642	)			(1,298	)
Gain on asset dispositions			(4,671	)			(88	)
Other			(221	)			(151	)
Working capital adjustments
Decrease (increase) in accounts and notes receivable			323				(94	)
Decrease (increase) in inventories			(2,898	)			(1,026	)
Decrease (increase) in prepaid expenses and other current assets			(459	)			(286	)
Increase (decrease) in accounts payable			401				910
Increase (decrease) in taxes and other accruals			2,402				(681	)
Net Cash Provided by Operating Activities			10,854				7,385
Cash Flows From Investing Activities
Capital expenditures and investments			(6,371	)			(8,176	)
Proceeds from asset dispositions			12,233				938
Long-term advances/loans—related parties			(296	)			(303	)
Collection of advances/loans—related parties			104				62
Other			114				50
Net Cash Provided by (Used in) Investing Activities			5,784				(7,429	)
Cash Flows From Financing Activities
Issuance of debt			96				9,051
Repayment of debt			(5,304	)			(6,027	)
Issuance of company common stock			59				(11	)
Repurchase of company common stock			(1,258	)			-
Dividends paid on company common stock			(2,376	)			(2,090	)
Other			(544	)			(1,091	)
Net Cash Used in Financing Activities			(9,327	)			(168	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			143				98
Net Change in Cash and Cash Equivalents			7,454				(114	)
Cash and cash equivalents at beginning of period			542				755
Cash and Cash Equivalents at End of Period		$	7,996				641

*Recast to reflect a change in accounting principle. See Note 2—Changes in Accounting Principles, for more information.

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements		ConocoPhillips

Note 1—Interim 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 2009 Annual Report on Form 10-K.

Note 2—Changes in Accounting Principles

LUKOIL Accounting

Effective January 1, 2010, we changed the method used to determine our equity-method share of OAO LUKOIL’s earnings. Prior to 2010, we estimated our LUKOIL equity earnings for the current quarter based on current market indicators, publicly available LUKOIL information and other objective data. This earnings estimation process was necessary because, historically, LUKOIL’s accounting cycle close and preparation of U.S. generally accepted accounting principles financial statements occurred subsequent to our reporting deadline, and for certain periods this timing gap exceeded 93 days. Although Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 323, “Investments—Equity Method and Joint Ventures,” provides that when financial statements of an investee are not sufficiently timely, then the investor should record its share of earnings or loss based on the most recently available financial statements, U.S. Securities and Exchange Commission guidance indicates this timing gap generally should not exceed 93 days. Recently, the timing gap has been reduced to less than 93 days for all reporting periods. Accordingly, we believe it is preferable to implement a change in accounting principle to record our equity-method share of LUKOIL’s earnings on a one-quarter-lag basis, rather than using an earnings estimate for the current quarter, because it improves reporting reliability, while maintaining an acceptable level of relevance.

This change in accounting principle to a one-quarter lag under ASC Topic 323 has been applied retrospectively, by recasting prior period financial information. The following table summarizes the line items affected on the consolidated income statement:

		Millions of Dollars
		Three Months Ended September 30
		2010												2009
		Computed				As				Effect				As								Effect
		with				Reported				of				Originally				As				of
		Estimate				with Lag				Change				Reported				Adjusted				Change
Equity in earnings of affiliates		$	892				1,004				112				1,015				981				(34	)
Other income			1,207				1,337				130				117				117				-
Provision for income taxes			2,247				2,205				(42	)			1,427				1,426				(1	)
Net income			2,785				3,069				284				1,520				1,487				(33	)
Net income attributable to ConocoPhillips			2,771				3,055				284				1,503				1,470				(33	)
Net income attributable to ConocoPhillips per share of common stock (dollars)
Basic		$	1.87				2.06				.19				1.00				.98				(.02	)
Diluted			1.86				2.05				.19				1.00				.97				(.03	)

		Millions of Dollars
		Nine Months Ended September 30
		2010												2009
		Computed				As				Effect				As								Effect
		with				Reported				of				Originally				As				of
		Estimate				with Lag				Change				Reported				Adjusted				Change
Equity in earnings of affiliates		$	2,778				2,960				182				2,506				1,986				(520	)
Other income			1,755				1,885				130				347				347				-
Provision for income taxes			6,137				6,094				(43	)			3,673				3,665				(8	)
Net income			9,009				9,364				355				3,690				3,178				(512	)
Net income attributable to ConocoPhillips			8,962				9,317				355				3,641				3,129				(512	)
Net income attributable to ConocoPhillips per share of common stock (dollars)
Basic		$	6.02				6.26				.24				2.44				2.10				(.34	)
Diluted			5.98				6.21				.23				2.43				2.08				(.35	)

The following table summarizes the line items affected on the consolidated balance sheet:

		Millions of Dollars
		September 30, 2010												December 31, 2009
		Computed				As				Effect				As								Effect
		with				Reported				of				Originally				As				of
		Estimate				with Lag				Change				Reported				Adjusted				Change
Investments and long-term receivables		$	31,182				31,182				-				36,192				35,742				(450	)
Deferred income taxes			17,278				17,286				8				17,962				17,956				(6	)
Accumulated other comprehensive income			4,324				4,405				81				3,065				3,065				-
Retained earnings			39,245				39,156				(89	)			32,658				32,214				(444	)

There was no cumulative impact to retained earnings as of January 1, 2009, as a result of the accounting change. This was due to the impairment of our LUKOIL investment during 2008 to its fair market value on December 31, 2008.

The following table summarizes the line items affected on the consolidated statement of cash flows:

		Millions of Dollars
		Nine Months Ended September 30
		2010												2009
		Computed				As				Effect				As								Effect
		with				Reported				of				Originally				As				of
		Estimate				with Lag				Change				Reported				Adjusted				Change
Net income		$	9,009				9,364				355				3,690				3,178				(512	)
Deferred taxes			(892	)			(935	)			(43	)			(864	)			(872	)			(8	)
Undistributed equity earnings			(1,460	)			(1,642	)			(182	)			(1,818	)			(1,298	)			520
Gain on asset dispositions			(4,541	)			(4,671	)			(130	)			(88	)			(88	)			-

See Note 6—Investments, Loans and Long-Term Receivables, for additional information relating to our LUKOIL investment.

Transfers of Financial Assets

In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140,” which was codified into FASB ASC Topic 860, “Transfers and Servicing.” This Statement removes the concept of a qualifying special purpose entity (SPE) and the exception for qualifying SPEs from the consolidation guidance. Additionally, the Statement clarifies the requirements for financial asset transfers eligible for sale accounting. This Statement was effective January 1, 2010, and did not impact our consolidated financial statements.

Variable Interest Entities (VIEs)

Also in June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” to address the effects of the elimination of the qualifying SPE concept in SFAS No. 166, and other concerns about the application of key provisions of consolidation guidance for VIEs. This Statement was codified into FASB ASC Topic 810, “Consolidation.” More specifically, Topic 810 requires a qualitative rather than a quantitative approach to determine the primary beneficiary of a VIE, it amends certain guidance pertaining to the determination of the primary beneficiary when related parties are involved, and it amends certain guidance for determining whether an entity is a VIE. Additionally, this Statement requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE. This Statement was effective January 1, 2010, and its adoption did not impact our consolidated financial statements, other than the required disclosures. For additional information, see Note 3—Variable Interest Entities (VIEs).

Note 3—Variable Interest Entities (VIEs)

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

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 LUKOIL have disproportionate interests, and LUKOIL was a related party at inception of the joint venture. Since LUKOIL is no longer a related party, we do not believe NMNG would be a VIE if reconsidered today. LUKOIL owns 70 percent versus our 30 percent direct interest; therefore, we have determined we are not the primary beneficiary of NMNG, and we use the equity method of accounting for this investment. The funding of NMNG has been provided with equity contributions, primarily for the development of the Yuzhno Khylchuyu (YK) Field. At September 30, 2010, the book value of our investment in the venture was $1,414 million.

We have an agreement with Freeport LNG Development, L.P. (Freeport LNG) to participate in a liquefied natural gas (LNG) receiving terminal in Quintana, Texas. We have no ownership in Freeport LNG; however, we own a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which serves as the general partner managing the venture. We entered into a credit agreement with Freeport LNG, whereby we agreed to provide loan financing for the construction of the terminal. We also entered into a long-term agreement with Freeport LNG to use 0.9 billion cubic feet per day of regasification capacity. The terminal became operational in June 2008, and we began making payments under the terminal use agreement. Freeport LNG began making loan repayments in September 2008, and the loan balance outstanding as of September 30, 2010, was $663 million. Freeport LNG is a VIE because Freeport GP holds no equity in Freeport LNG, and the limited partners of Freeport LNG do not have any substantive decision making ability. We are not the primary beneficiary because the equity holders of Freeport GP are not related parties and have equally shared power. Neither party has the power to direct the significant activities without the consent of the other party, in which case neither party is considered to be the primary beneficiary. The loan to Freeport LNG is accounted for as a financial asset, and our investment in Freeport GP is accounted for as an equity investment.

Note 4—Inventories

Inventories consisted of the following:

		Millions of Dollars
		September 30				December 31
		2010				2009
Crude oil and petroleum products		$	6,771				3,955
Materials, supplies and other			970				985
		$	7,741				4,940

Inventories valued on the last-in, first-out (LIFO) basis totaled $6,563 million and $3,747 million at September 30, 2010, and December 31, 2009, respectively. The excess of current replacement cost over LIFO cost of inventories amounted to $5,666 million and $5,627 million at September 30, 2010, and December 31, 2009, respectively.

Note 5—Assets Held for Sale

In the fourth quarter of 2009, we announced plans to raise approximately $10 billion from asset sales through the end of 2011. At December 31, 2009, we classified $323 million of Refining and Marketing (R&M) noncurrent assets, primarily investment in equity affiliates, and $75 million of R&M noncurrent deferred income tax liabilities as held for sale. During 2010, these assets and others were sold, and in the third quarter of 2010, additional Exploration and Production (E&P) assets in the United States and Canada met the held for sale criteria. As a result, at September 30, 2010, we classified $638 million of properties, plants and equipment as “Prepaid expenses and other current assets” and $219 million of asset retirement obligations and accrued environmental costs as “Other accruals” on our consolidated balance sheet. We also classified $54 million of deferred income taxes as current. Contingent upon necessary regulatory approvals and negotiation of final contract terms, we expect these assets to be sold by the end of 2010 or early 2011. Excluding the Syncrude sale discussed below, and the gain on the sale of our LUKOIL shares discussed in Note 6—Investments, Loans and Long-Term Receivables, the net before-tax gain from asset dispositions during the nine-month period ended September 30, 2010, was $475 million, and this amount was included in the “Other income” line of our consolidated income statement.

On June 25, 2010, we sold our 9.03 percent interest in the Syncrude Canada Ltd. joint venture for $4.6 billion. Syncrude was included in our E&P segment and had synthetic oil proved reserves of 248 million barrels at December 31, 2009. Production in 2009 was 23,000 barrels per day. The $2.9 billion before-tax gain on this disposition was included as a separate line in the “Total Revenues and Other Income” section of our consolidated income statement. The cash proceeds were included in the “Proceeds from asset dispositions” line within the investing cash flow section of our consolidated statement of cash flows. At the time of disposition, Syncrude had a net carrying value of $1.75 billion, which included $1.97 billion of properties, plants and equipment. During fiscal 2010 until its disposition, Syncrude contributed $327 million in intercompany sales and other operating revenues, and generated income before taxes of $127 million and net income of $93 million.

Note 6—Investments, Loans and Long-Term Receivables

LUKOIL

Our average ownership interest in LUKOIL in the second quarter of 2010, used to record our equity-method share of LUKOIL’s second-quarter results on a lag basis, was 19.46 percent. On July 28, 2010, we announced our intention to sell our entire interest in LUKOIL, then consisting of 163,367,629 shares. This decision is being implemented as follows:

	•		On July 28, 2010, we entered into a stock purchase and option agreement (the Agreement) with a wholly owned subsidiary of LUKOIL, pursuant to which such subsidiary would purchase 64,638,729 shares from us at a price of $53.25 per share, or $3.44 billion in total. This transaction closed on August 16, 2010.
	•		Also pursuant to the Agreement, the LUKOIL subsidiary had a 60-day option, expiring on September 26, 2010, to purchase any or all of our interest remaining at the time of exercise of the option, at a price of $56 per share. Upon exercise of this option, we sold 42,500,000 shares on September 29, 2010, for proceeds of $2.38 billion.
	•		Finally, we intend to sell our remaining shares in the open market from time to time, subject to the terms of the Shareholder Agreement, by the end of 2011.

In total, during the third quarter of 2010, we sold 113 million shares of LUKOIL for $6,161 million, realizing a before-tax gain on disposition of $1,219 million, which was included in the “Other income” line of the consolidated income statement. As a result of these sales, our ownership interest has declined to a level at which we are no longer able to exercise significant influence over the operating and financial policies of LUKOIL, and going forward we will no longer account for our remaining investment in LUKOIL using the equity method. We will also no longer report proved reserves or production related to our LUKOIL investment, which were 1,967 million barrels of oil equivalent (BOE) at December 31, 2009, and 437 thousand BOE per day for the nine-month period ended September 30, 2010, respectively.

At September 30, 2010, our remaining 5.9 percent investment in LUKOIL was reclassified from “Investments and long-term receivables” to current assets on our consolidated balance sheet as an available-for-sale equity security and carried at fair value of $2,856 million, reflecting a closing price of LUKOIL shares on the London Stock Exchange of $56.80 per share. The carrying value reflects a pretax unrealized gain over our cost of $663 million. This unrealized gain, net of related income taxes, is reported as a component of accumulated other comprehensive income. The fair value is categorized as Level 1 in the fair value hierarchy. See Note 2—Changes in Accounting Principles, for additional information about accounting for our LUKOIL investment.

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. Significant loans to affiliated companies at September 30, 2010, included the following:

	•		$663 million in loan financing to Freeport LNG Development, L.P.
	•		$1,096 million in project financing and an additional $94 million of accrued interest to Qatargas 3.
	•		$551 million in loan financing to WRB Refining LLC.

The long-term portion of these loans are included in the “Loans and advances—related parties” line on the consolidated balance sheet, while the short-term portion is in “Accounts and notes receivable—related parties.” At September 30, 2010, the Varandey Terminal Company is no longer considered a related party. Accordingly, the long-term portion of this loan is included in the “Investments and long-term receivables” line of the consolidated balance sheet, while the short-term portion is in “Prepaid expenses and other current assets.”

Other Investments

We have investments remeasured at fair value on a recurring basis to support certain nonqualified deferred compensation plans. The fair value of these assets at September 30, 2010, was $315 million, and at December 31, 2009, was $338 million. Substantially the entire value is categorized in Level 1 of the fair value hierarchy. These investments are measured at fair value using a market approach based on quotations from national securities exchanges.

Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a 70,000 barrel-per-day delayed coker and related facilities at the Sweeny Refinery. MSLP processes our long residue, which is produced from heavy sour crude oil, for a processing fee. Fuel-grade petroleum coke is produced as a by-product and becomes the property of MSLP. Prior to August 28, 2009, MSLP was owned 50/50 by us and Petróleos de Venezuela S.A. (PDVSA). Under the agreements that govern the relationships between the partners, certain defaults by PDVSA with respect to supply of crude oil to the Sweeny Refinery gave us the right to acquire PDVSA’s 50 percent ownership interest in MSLP. On August 28, 2009, we exercised that right. PDVSA has initiated arbitration in the International Chamber of Commerce challenging our actions, and this arbitration is underway. We continue to use the equity method of accounting for our investment in MSLP.

Note 7—Properties, Plants and Equipment

Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, depletion and amortization (Accum. DD&A), was:

		Millions of Dollars
		September 30, 2010												December 31, 2009
		Gross				Accum.				Net				Gross				Accum.				Net
		PP&E				DD&A				PP&E				PP&E				DD&A				PP&E
E&P		$	114,281				48,921				65,360				115,224				45,577				69,647
Midstream			126				79				47				123				74				49
R&M			23,294				8,858				14,436				23,047				6,714				16,333
LUKOIL Investment			-				-				-				-				-				-
Chemicals			-				-				-				-				-				-
Emerging Businesses			1,193				342				851				1,198				300				898
Corporate and Other			1,680				914				766				1,650				869				781
		$	140,574				59,114				81,460				141,242				53,534				87,708

Suspended Wells

The capitalized cost of suspended wells at September 30, 2010, was $1,061 million, an increase of $153 million from $908 million at year-end 2009. For the category of exploratory well costs capitalized for a period greater than one year as of December 31, 2009, no wells were charged to dry hole expense during the first nine months of 2010.

Note 8—Impairments

During the first nine months of 2010 and 2009, we recognized the following before-tax impairment charges:

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
E&P
United States		$	29				-				29				-
International			4				-				5				59
R&M
United States			-				55				17				50
International			-				-				1,600				-
Emerging Businesses			26				-				31				-
Corporate			-				1				-				1
		$	59				56				1,682				110

2010

The nine-month period of 2010 included the $1,502 million impairment of our refinery in Wilhelmshaven, Germany, due to cancelled plans for a project to upgrade the refinery, and a $98 million impairment as a result of our decision to end our participation in a new refinery project in Yanbu Industrial City, Saudi Arabia.

2009

In the second quarter of 2009, we recorded a noncash charge of $51 million before- and after-tax related to the full impairment of our exploration and production investments in Ecuador, due to their expropriation. An arbitration hearing on case merits is scheduled for March 2011, with a decision on case merits expected in December 2011.

Fair Value Remeasurements

The following table shows the values of assets at September 30, 2010, and December 31, 2009, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition:

		Millions of Dollars
						Fair Value
						Measurements Using
						Level 1				Level 3				Before-Tax
		Fair Value				Inputs				Inputs				Loss
September 30, 2010
Net properties, plants and equipment (held for use)		$	297				-				297				1,588	*
Net properties, plants and equipment (held for sale)			23				23				-				43
December 31, 2009
Net properties, plants and equipment (held for use)		$	210				-				210				385
Net properties, plants and equipment (held for sale)			121				35				86				62
Equity method investments			1,784				-				1,784				286

*Includes a $55 million leasehold impairment charged to exploration expenses.

2010

During 2010, net properties, plants and equipment held for use with a carrying amount of $1,885 million were written down to a fair value of $297 million, resulting in a before-tax loss of $1,588 million. The fair values were determined by the use of internal discounted cash flow models using estimates of future production, prices, costs and a discount rate believed to be consistent with those used by principal market participants and cash flow multiples for similar assets and alternative use.

During 2010, net properties, plants and equipment held for sale with a carrying amount of $64 million were written down to their fair value of $23 million less cost to sell of $2 million for a net $21 million, resulting in a before-tax loss of $43 million. The fair values were primarily determined by binding negotiated selling prices with third parties, with some adjusted for the fair value of certain liabilities retained.

2009

During 2009, net properties, plants and equipment held for use with a carrying amount of $610 million were written down to a fair value of $210 million, resulting in a before-tax loss of $385 million. In addition, certain equity method investments associated with our E&P segment were determined to have a fair value below carrying amount, and the impairment was considered to be other than temporary. These investments with a book value of $2,070 million were written down to a fair value of $1,784 million resulting in a charge of $286 million before-tax, which is included in the “Equity in earnings of affiliates” line of our consolidated income statement. The fair values were determined by the application of an internal discounted cash flow model using estimates of future production, prices, costs and a discount rate believed to be consistent with those used by principal market participants. In addition, the equity investment fair value considered market analysis of certain similar undeveloped properties owned by one of the investees.

Also during 2009, net properties, plants and equipment held for sale with a carrying amount of $178 million were written down to a fair value of $121 million, less cost to sell of $5 million for a net $116 million, resulting in a before-tax loss of $62 million. The fair values were largely based on binding negotiated prices with third parties, with some adjusted for the fair value of certain liabilities retained.

Note 9—Debt

We have two commercial paper programs supported by our $7.85 billion revolving credit facilities: the ConocoPhillips $6.35 billion program, primarily a funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program, which is used to fund commitments relating to the Qatargas 3 Project. Commercial paper maturities are generally limited to 90 days.

At both September 30, 2010, and December 31, 2009, we had no direct outstanding borrowings under our revolving credit facilities, but $40 million in letters of credit had been issued. In addition, under the two commercial paper programs, there was $1,159 million of commercial paper outstanding at September 30, 2010, compared with $1,300 million at December 31, 2009. Since we had $1,159 million of commercial paper outstanding and had issued $40 million of letters of credit, we had access to $6.7 billion in borrowing capacity under our revolving credit facilities at September 30, 2010.

During the first nine months of 2010, the following debt instruments were repaid prior to their maturity:

	•		The $400 million 6.68% bonds.
	•		The $178 million 6.4% bonds.
	•		The $1,750 million 6.35% bonds.
	•		The $350 million 5.30% bonds.
	•		The $750 million remaining balance of the Floating Rate Five-Year Term Notes.

During the first nine months of 2010, the following debt instruments were repaid at their maturity:

	•		The $150 million 9.875% bonds.
	•		The $1,264 million 8.75% bonds.

At September 30, 2010, we classified $1,159 million of short-term debt as long-term debt, based on our ability and intent to refinance the obligation on a long-term basis under our revolving credit facilities.

Note 10—Joint Venture Acquisition Obligation

We are obligated to contribute $7.5 billion, plus interest, over a 10-year period that began in 2007, to FCCL Partnership. Quarterly principal and interest payments of $237 million began in the second quarter of 2007 and will continue until the balance is paid. Of the principal obligation amount, $686 million was short-term and was included in the “Accounts payable—related parties” line on our September 30, 2010, consolidated balance sheet. The principal portion of these payments, which totaled $491 million in the first nine months of 2010, 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 11—Noncontrolling Interests

Activity for the equity attributable to noncontrolling interests for the first nine months of 2010 and 2009 was as follows:

		Millions of Dollars
		2010												2009*
		Common				Non-								Common				Non-
		Stockholders’				Controlling				Total				Stockholders’				Controlling				Total
		Equity				Interests				Equity				Equity				Interests				Equity
Balance at January 1		$	62,023				590				62,613				55,165				1,100				56,265
Net income			9,317				47				9,364				3,129				49				3,178
Dividends			(2,376	)			-				(2,376	)			(2,090	)			-				(2,090	)
Repurchase of company common stock			(1,258	)			-				(1,258	)			-				-				-
Distributions to noncontrolling interests			-				(80	)			(80	)			-				(74	)			(74	)
Other changes, net**			1,655				(1	)			1,654				4,795				(488	)			4,307
Balance at September 30		$	69,361				556				69,917				60,999				587				61,586

  *Recast to reflect a change in accounting principle. See Note 2—Changes in Accounting Principles, for more information.

**Includes components of other comprehensive income, which are disclosed separately in Note 15—Comprehensive Income.

Note 12—Guarantees

At September 30, 2010, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

Construction Completion Guarantees

•

In December 2005, we issued a construction completion guarantee for 30 percent of the $4 billion in loan facilities of Qatargas 3, which are being used to finance the construction of an LNG train in Qatar. Of the $4 billion in loan facilities, we 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 not achieved. The project financing will be nonrecourse to ConocoPhillips upon certified completion, which is expected in 2011. At September 30, 2010, the carrying value of the guarantee to third-party lenders was $11 million.

Guarantees of Joint Venture Debt

•

At September 30, 2010, we had guarantees outstanding for our portion of joint venture debt obligations, which have terms of up to 15 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

•

In conjunction with our purchase of a 50 percent ownership interest in Australia Pacific LNG Pty Limited (APLNG) from Origin Energy in October 2008, we agreed to participate, if and when

requested, in any parent company guarantees that were outstanding at the time we purchased our interest in APLNG. These parent company guarantees cover the obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of 7 to 21 years. Our maximum potential amount of future payments, or cost of volume delivery, under these guarantees is estimated to be $1,572 million ($3,396 million in the event of intentional or reckless breach) at September 2010 exchange rates based on our 50 percent share of the remaining contracted volumes, which could become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

•

We have other guarantees with maximum future potential payment amounts totaling $440 million, which consist primarily of guarantees to fund the short-term cash liquidity deficits of certain joint ventures, guarantees of minimum charter revenue for two LNG vessels, one small construction completion guarantee, guarantees of the lease payment obligations of a joint venture, and guarantees of the residual value of leased corporate aircraft. These guarantees generally extend up to 14 years or life of the venture.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. Agreements associated with these sales include indemnifications for taxes, environmental liabilities, permits and licenses, employee claims, real estate indemnity against tenant defaults, and litigation. The terms of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, the term is generally indefinite and the maximum amount of future payments is generally unlimited. The carrying amount recorded for these indemnifications at September 30, 2010, was $395 million. We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were $245 million of environmental accruals for known contamination that are included in asset retirement obligations and accrued environmental costs at September 30, 2010. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments.

Note 13—Contingencies and Commitments

In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

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

the determination of our liability in proportion to that of other responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

Environmental

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

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies cited at a particular site. Due to the joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. If we were solely responsible, the costs, in some cases, could be material to our results of operations, capital resources or liquidity, or to those of one of our segments. 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 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 future costs will be incurred and these costs can be reasonably estimated. At September 30, 2010, our balance sheet included a total environmental accrual of $987 million, compared with $1,017 million at December 31, 2009. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial, 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, 2010, we had performance obligations secured by letters of credit of $1,684 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) related to various purchase commitments for materials, supplies, services and items of permanent investment incident to the ordinary conduct of business.

Long-Term Throughput Agreements and Take-or-Pay Agreements

Our obligation under throughput agreements to support third-party shipper financing arrangements for a crude oil transportation system commenced during the second quarter of 2010. The aggregate amounts of estimated future payments under these agreements are: 2010—$25 million; 2011—$233 million; 2012—$277 million; 2013—$276 million; 2014—$276 million; and 2015 and after—$4,423 million.

Note 14—Financial Instruments and Derivative Contracts

Derivative Instruments

We use financial and commodity-based derivative contracts to manage exposures to fluctuations in foreign currency exchange rates, commodity prices, and interest rates, or to capture market opportunities. Since we are not currently using cash flow hedge accounting, all gains and losses, realized or unrealized, from derivative contracts have been recognized in the consolidated income statement. Gains and losses from derivative contracts held for trading not directly related to our physical business, whether realized or unrealized, have been reported net in other income.

Purchase and sales contracts for commodities that are readily convertible to cash (e.g., crude oil, natural gas and gasoline) are recorded on the balance sheet as derivatives unless the contracts are for quantities we expect to use or sell over a reasonable period in the normal course of business (i.e., contracts eligible for the normal purchases and normal sales exception). We record most of our contracts to buy or sell natural gas and the majority of our contracts to sell power as derivatives, but we do apply the normal purchases and normal sales exception to certain long-term contracts to sell our natural gas production. We generally apply this normal purchases and normal sales exception to eligible crude oil and refined product commodity purchase and sales contracts; however, we may elect not to apply this exception (e.g., when another derivative instrument will be used to mitigate the risk of the purchase or sales contract but hedge accounting will not be applied, in which case both the purchase or sales contract and the derivative contract mitigating the resulting risk will be recorded on the balance sheet at fair value).

We value our exchange-cleared derivatives using 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 forward purchase and sales contracts are generally valued using quotations provided by brokers and price index developers, such as Platts and Oil Price Information Service. These quotes are corroborated with market data and 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 sales contracts are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. These contracts are classified as Level 3. A contract that is initially classified as Level 3 due to absence or insufficient corroboration of broker quotes over a material portion of the contract will transfer to Level 2 when the portion of the trade having no quotes or insufficient corroboration becomes an insignificant portion of the contract. A contract would also transfer to Level 2 if we began using a corroborated broker quote that has

become available. Conversely, if a corroborated broker quote ceases to be available or used by us, the contract would transfer from Level 2 to Level 3. There were no transfers in or out of Level 1.

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 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 options are classified as Level 2 or 3.

We use a mid-market pricing convention (the mid-point 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 derivative assets and liabilities accounted for at fair value on a recurring basis was:

		Millions of Dollars
		September 30, 2010																December 31, 2009
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets
Commodity derivatives		$	2,766				1,109				60				3,935				1,710				1,659				61				3,430
Interest rate derivatives			-				28				-				28				-				-				-				-
Foreign exchange derivatives			-				45				-				45				-				45				-				45
Total assets			2,766				1,182				60				4,008				1,710				1,704				61				3,475
Liabilities
Commodity derivatives			2,989				917				18				3,924				1,797				1,496				24				3,317
Foreign exchange derivatives			-				12				-				12				-				47				-				47
Total liabilities			2,989				929				18				3,936				1,797				1,543				24				3,364
Net assets (liabilities)		$	(223	)			253				42				72				(87	)			161				37				111

The derivative values above are based on analysis of each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are not reflected net where the legal right of offset exists. 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.

The fair value of net commodity derivatives classified as Level 3 in the fair value hierarchy changed as follows:

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance		$	41				74				37				40
Total net gains (losses), realized and unrealized, included in earnings			28				(10	)			60				8
Net purchases, issuances and settlements			(20	)			(20	)			(42	)			(47	)
Transfers into Level 3			-				4				1				65
Transfers out of Level 3			(7	)			(11	)			(14	)			(29	)
Ending balance		$	42				37				42				37

The amounts of Level 3 gains (losses) included in earnings were:

		Millions of Dollars
		2010												2009
						Purchased												Purchased
		Other				Crude Oil,								Other				Crude Oil,
		Operating				Natural Gas								Operating				Natural Gas
		Revenues				and Products				Total				Revenues				and Products				Total
Three Months Ended September 30
Total gains (losses) included in earnings		$	41				(13	)			28				(10	)			-				(10	)
Change in unrealized gains (losses) relating to assets held at September 30		$	44				1				45				3				-				3
Change in unrealized gains (losses) relating to liabilities held at September 30		$	(10	)			(12	)			(22	)			(16	)			-				(16	)
Nine Months Ended September 30
Total gains (losses) included in earnings		$	95				(35	)			60				8				-				8
Change in unrealized gains (losses) relating to assets held at September 30		$	84				1				85				11				-				11
Change in unrealized gains (losses) relating to liabilities held at September 30		$	(12	)			(21	)			(33	)			(21	)			-				(21	)

Commodity Derivative Contracts—We operate in the worldwide crude oil, refined product, natural gas, natural gas liquids and electric power markets and are exposed to fluctuations in the prices for these commodities. These fluctuations can affect our revenues, as well as the cost of operating, investing and financing activities. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited, immaterial amount of trading not directly related to our physical business. These activities may move our risk profile away from market average prices.

The fair value of commodity derivative assets and liabilities and the line items where they appear on our consolidated balance sheet were:

		Millions of Dollars
		September 30				December 31
		2010				2009
Assets
Prepaid expenses and other current assets		$	3,695				3,084
Other assets			266				359
Liabilities
Other accruals			3,710				3,006
Other liabilities and deferred credits			240				324

Hedge accounting has not been used for any items in the table. The amounts shown are presented gross (i.e., without netting assets and liabilities with the same counterparty where the right of offset and intent to net exist).

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

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
Sales and other operating revenues		$	227				727				(430	)			1,118
Other income			3				(4	)			(26	)			21
Purchased crude oil, natural gas and products			(270	)			(599	)			596				(1,554	)

Hedge accounting has not been used for any items in the table.

The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from non-derivative positions such as inventory volumes or firm natural gas transport contracts. Financial derivative contracts may also offset physical derivative contracts, such as forward sales contracts.

		Open Position
		Long/(Short)
		September 30				December 31
		2010				2009
Commodity
Crude oil, refined products and natural gas liquids (millions of barrels)			(43	)			(16	)
Natural gas and power (billions of cubic feet)
Fixed price			(76	)			(60	)
Basis			(110	)			154

Interest Rate Derivative Contracts—During the second quarter of 2010, we executed interest rate swaps to synthetically convert $500 million of our 4.60% fixed-rate notes due in 2015 to a London Interbank Offered Rate (LIBOR)-based floating rate. These swaps qualify for and are designated as fair-value hedges using the short-cut method of hedge accounting. The short-cut method permits the assumption that changes in the value of the derivative perfectly offset changes in the value of the debt; therefore, no gain or loss has been recognized due to hedge ineffectiveness.

The fair value of interest rate derivative assets and liabilities and the line items where they appear on our consolidated balance sheet were:

		Millions of Dollars
		September 30				December 31
		2010				2009
Assets
Prepaid expenses and other current assets		$	10				-
Other assets			18				-

Hedge accounting was used for all items in the table. The amounts shown are presented gross.

The (gains) and losses from interest rate derivatives used in a fair-value hedge, losses and (gains) from changes in the fair value of the hedged debt, and the line item where they appear on our consolidated income statement were:

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
Recorded in interest and debt expense
From the interest rate derivatives		$	(14	)			-				(30	)			-
From the hedged debt			12				-				26				-

The extent to which the change in value of the interest rate derivatives differs from the change in value of the hedged debt is an adjustment to recorded interest expense on the fixed-rate debt that effectively results in interest expense for the period being recorded at variable-rate LIBOR.

Foreign Exchange Derivatives—We have foreign currency exchange rate risk resulting from international operations. We do not comprehensively hedge the exposure to movements in currency exchange rates, although we may choose to selectively hedge certain foreign currency exchange rate exposures, such as firm commitments for capital projects or local currency tax payments, dividends, and cash returns from net investments in foreign affiliates to be remitted within the coming year.

The fair value of foreign exchange derivative assets and liabilities, and the line items where they appear on our consolidated balance sheet were:

		Millions of Dollars
		September 30				December 31
		2010				2009
Assets
Prepaid expenses and other current assets		$	44				38
Other assets			1				7
Liabilities
Other accruals			12				40
Other liabilities and deferred credits			-				7

Hedge accounting has not been used for any items in the table. The amounts shown are presented gross.

Gains and losses from foreign exchange derivatives, and the line item where they appear on our consolidated income statement were:

		Millions of Dollars
		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
Foreign exchange transaction (gains) losses		$	18				40				121				(133	)

Hedge accounting has not been used for any items in the table.

We had the following net notional position of outstanding foreign exchange derivatives:

		In Millions
		Notional Currency*
		September 30				December 31
		2010				2009
Foreign Exchange Derivatives
Sell U.S. dollar, buy other currencies**		USD	1,061				3,211
Sell euro, buy British pound		EUR	248				267

  *Denominated in U.S. dollars (USD) and euros (EUR).
**Primarily euro, Canadian dollar, Norwegian krone and British pound.

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

The credit risk from our OTC derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures contracts, but futures have a negligible credit risk because they are traded on the New York Mercantile Exchange or the IntercontinentalExchange (ICE) Futures.

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

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

The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position on September 30, 2010, and December 31, 2009, was $226 million and $381 million, respectively, for which no collateral was posted in the normal course of business in 2010 and 2009. If our credit rating were lowered one level from its “A” rating (per Standard and Poor’s) on September 30, 2010, we would be required to post no additional collateral to our counterparties. If we were downgraded below investment grade, we would be required to post $226 million of additional collateral, either with cash or letters of credit.

Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial instruments:

•

Cash and cash equivalents: The carrying amount reported on the balance sheet approximates fair value.

•

Accounts and notes receivable: The carrying amount reported on the balance sheet approximates fair value.

•

Investment in LUKOIL shares: See Note 6—Investments, Loans and Long-Term Receivables, for a discussion of the carrying value and fair value of our investment in LUKOIL shares.

•

Debt: The carrying amount of our floating-rate debt approximates fair value. The fair value of the fixed-rate debt is estimated based on quoted market prices.

•

Fixed-rate 5.3 percent joint venture acquisition obligation: Fair value is estimated based on the net present value of the future cash flows, discounted at a September 30 effective yield rate of 1.63 percent, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 10—Joint Venture Acquisition Obligation, for additional information.

•

Commodity swaps: Fair value is estimated based on forward market prices and approximates the exit price at period end. When forward market prices are not available, they are estimated using the forward prices of a similar commodity with adjustments for differences in quality or location.

•

Futures: Fair values are based on quoted market prices obtained from the New York Mercantile Exchange, the ICE Futures, or other traded exchanges.

•

Interest rate swap contracts: Fair value is estimated based on a pricing model and market observable interest rate swap curves obtained from a third-party market data provider.