e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2007
or
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o |
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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
(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
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(I.R.S. Employer |
incorporation or organization)
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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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The registrant had 1,599,556,644 shares of common stock, $.01 par value, outstanding at
September 30, 2007.
CONOCOPHILLIPS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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Consolidated Income Statement
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ConocoPhillips |
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Millions of Dollars |
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Three Months Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues and Other Income |
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Sales and other operating revenues* |
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$ |
46,062 |
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48,076 |
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134,752 |
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142,131 |
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Equity in earnings of affiliates |
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1,314 |
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1,196 |
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3,749 |
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3,320 |
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Other income |
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557 |
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313 |
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1,696 |
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537 |
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Total Revenues and Other Income |
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47,933 |
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49,585 |
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140,197 |
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145,988 |
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Costs and Expenses |
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Purchased crude oil, natural gas and products |
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30,862 |
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30,551 |
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88,397 |
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93,454 |
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Production and operating expenses |
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2,620 |
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2,640 |
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7,669 |
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7,549 |
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Selling, general and administrative expenses |
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569 |
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650 |
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1,700 |
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1,826 |
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Exploration expenses |
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218 |
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197 |
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739 |
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443 |
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Depreciation, depletion and amortization |
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2,052 |
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2,137 |
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6,092 |
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5,282 |
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Impairmentexpropriated assets |
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4,588 |
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Impairments |
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188 |
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267 |
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285 |
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317 |
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Taxes other than income taxes* |
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4,583 |
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4,853 |
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13,654 |
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13,661 |
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Accretion on discounted liabilities |
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81 |
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74 |
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241 |
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207 |
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Interest and debt expense |
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391 |
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308 |
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1,017 |
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783 |
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Foreign currency transaction gains |
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(20 |
) |
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(50 |
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(198 |
) |
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(10 |
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Minority interests |
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25 |
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21 |
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65 |
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60 |
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Total Costs and Expenses |
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41,569 |
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41,648 |
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124,249 |
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123,572 |
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Income before income taxes |
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6,364 |
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7,937 |
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15,948 |
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22,416 |
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Provision for income taxes |
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2,691 |
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4,061 |
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8,428 |
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10,063 |
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Net Income |
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$ |
3,673 |
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3,876 |
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7,520 |
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12,353 |
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Net Income Per Share of Common Stock
(dollars) |
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Basic |
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$ |
2.26 |
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2.35 |
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4.60 |
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7.90 |
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Diluted |
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2.23 |
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2.31 |
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4.54 |
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7.78 |
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Dividends Paid Per Share of Common Stock
(dollars) |
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$ |
.41 |
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.36 |
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1.23 |
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1.08 |
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Average Common Shares Outstanding (in
thousands) |
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Basic |
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1,622,456 |
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1,652,623 |
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1,635,128 |
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1,564,423 |
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Diluted |
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1,644,267 |
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1,675,839 |
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1,657,244 |
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1,587,892 |
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*Includes excise taxes on petroleum
products sales: |
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$ |
3,954 |
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4,098 |
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11,864 |
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12,010 |
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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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2007 |
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2006 |
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Assets |
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Cash and cash equivalents |
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$ |
1,379 |
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817 |
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Accounts and notes receivable (net of allowance of $64 million
in 2007
and $45 million in 2006) |
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11,867 |
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13,456 |
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Accounts and notes receivablerelated parties |
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1,911 |
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650 |
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Inventories |
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5,312 |
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5,153 |
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Prepaid expenses and other current assets |
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3,170 |
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4,990 |
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Total Current Assets |
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23,639 |
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25,066 |
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Investments and long-term receivables |
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30,145 |
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19,595 |
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Loans and advancesrelated parties |
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1,598 |
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1,118 |
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Net properties, plants and equipment |
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87,407 |
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86,201 |
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Goodwill |
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29,374 |
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31,488 |
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Intangibles |
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899 |
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951 |
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Other assets |
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365 |
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362 |
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Total Assets |
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$ |
173,427 |
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164,781 |
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Liabilities |
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Accounts payable |
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$ |
14,629 |
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14,163 |
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Accounts payablerelated parties |
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1,628 |
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471 |
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Notes payable and long-term debt due within one year |
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405 |
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4,043 |
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Accrued income and other taxes |
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4,741 |
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4,407 |
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Employee benefit obligations |
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740 |
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895 |
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Other accruals |
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1,935 |
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2,452 |
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Total Current Liabilities |
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24,078 |
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26,431 |
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Long-term debt |
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21,471 |
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23,091 |
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Asset retirement obligations and accrued environmental costs |
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6,561 |
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5,619 |
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Joint venture acquisition obligationrelated party |
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6,445 |
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Deferred income taxes |
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20,924 |
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20,074 |
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Employee benefit obligations |
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3,419 |
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3,667 |
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Other liabilities and deferred credits |
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2,416 |
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2,051 |
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Total Liabilities |
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85,314 |
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80,933 |
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Minority Interests |
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1,180 |
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1,202 |
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Common Stockholders Equity |
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Common stock (2,500,000,000 shares authorized at $.01 par value)
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Issued (20071,717,176,211 shares; 20061,705,502,609 shares)
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Par value |
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17 |
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17 |
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Capital in excess of par |
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42,554 |
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41,926 |
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Grantor trusts (at cost: 200743,259,722 shares;
200644,358,585 shares) |
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(746 |
) |
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(766 |
) |
Treasury stock (at cost: 200774,359,845 shares;
200615,061,613 shares) |
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(5,479 |
) |
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(964 |
) |
Accumulated other comprehensive income |
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3,930 |
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|
1,289 |
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Unearned employee compensation |
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(133 |
) |
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(148 |
) |
Retained earnings |
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|
46,790 |
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|
41,292 |
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Total Common Stockholders Equity |
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|
86,933 |
|
|
|
82,646 |
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Total |
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$ |
173,427 |
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|
|
164,781 |
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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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2007 |
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2006 |
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Cash Flows From Operating Activities |
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Net income |
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$ |
7,520 |
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|
12,353 |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Non-working capital adjustments |
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|
|
|
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Depreciation, depletion and amortization |
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|
6,092 |
|
|
|
5,282 |
|
Impairmentexpropriated assets |
|
|
4,588 |
|
|
|
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Impairments |
|
|
285 |
|
|
|
317 |
|
Dry hole costs and leasehold impairments |
|
|
355 |
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|
|
141 |
|
Accretion on discounted liabilities |
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|
241 |
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|
|
207 |
|
Deferred taxes |
|
|
55 |
|
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|
273 |
|
Undistributed equity earnings |
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|
(1,472 |
) |
|
|
(1,007 |
) |
Gain on asset dispositions |
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|
(1,316 |
) |
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(64 |
) |
Other |
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|
28 |
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|
(296 |
) |
Working capital adjustments* |
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Decrease in accounts and notes receivable |
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|
411 |
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|
|
172 |
|
Increase in inventories |
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|
(334 |
) |
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|
(1,922 |
) |
Decrease (increase) in prepaid expenses and other current assets |
|
|
430 |
|
|
|
(669 |
) |
Increase in accounts payable |
|
|
1,052 |
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|
|
181 |
|
Decrease (increase) in taxes and other accruals |
|
|
(305 |
) |
|
|
911 |
|
|
Net Cash Provided by Operating Activities |
|
|
17,630 |
|
|
|
15,879 |
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Cash Flows From Investing Activities |
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Acquisition of Burlington Resources Inc.** |
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(14,285 |
) |
Capital expenditures and investments, including dry hole costs** |
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(7,907 |
) |
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|
(11,513 |
) |
Proceeds from asset dispositions |
|
|
3,057 |
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|
|
246 |
|
Long-term advances/loans to affiliates |
|
|
(449 |
) |
|
|
(632 |
) |
Collection of advances/loans to affiliates |
|
|
66 |
|
|
|
115 |
|
Other |
|
|
24 |
|
|
|
|
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|
Net Cash Used in Investing Activities |
|
|
(5,209 |
) |
|
|
(26,069 |
) |
|
|
|
|
|
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Cash Flows From Financing Activities |
|
|
|
|
|
|
|
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Issuance of debt |
|
|
824 |
|
|
|
15,263 |
|
Repayment of debt |
|
|
(6,141 |
) |
|
|
(4,325 |
) |
Issuance of company common stock |
|
|
251 |
|
|
|
145 |
|
Repurchase of company common stock |
|
|
(4,501 |
) |
|
|
(675 |
) |
Dividends paid on company common stock |
|
|
(2,009 |
) |
|
|
(1,684 |
) |
Other |
|
|
(289 |
) |
|
|
(123 |
) |
|
Net Cash Provided by (Used in) Financing Activities |
|
|
(11,865 |
) |
|
|
8,601 |
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
6 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
562 |
|
|
|
(1,518 |
) |
Cash and cash equivalents at beginning of period |
|
|
817 |
|
|
|
2,214 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
1,379 |
|
|
|
696 |
|
|
|
|
* |
Net of acquisition and disposition of businesses. |
|
** |
Net of cash acquired. |
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. The acquisition of Burlington Resources Inc. was reflected in our balance sheet
beginning at March 31, 2006, and was reflected in our results of operations beginning April 1,
2006.
To enhance your understanding of these interim financial statements, see the consolidated financial
statements and notes included in our 2006 Annual Report on Form 10-K.
Note 2Changes in Accounting Principles
Effective April 1, 2006, we implemented Emerging Issues Task Force Issue No. 04-13, Accounting for
Purchases and Sales of Inventory with the Same Counterparty. Issue No. 04-13 requires purchases
and sales of inventory with the same counterparty and entered into in contemplation of one
another to be combined and reported net (i.e., on the same income statement line). Exceptions to
this are exchanges of finished goods for raw materials or work-in-progress within the same line of
business, which are only reported net if the transaction lacks economic substance. The
implementation of Issue No. 04-13 did not have a material impact on net income.
The table below shows the actual nine months ended September 30, 2007, sales and other operating
revenues, and purchased crude oil, natural gas and products under Issue No. 04-13, and the
respective pro forma amounts had this new guidance been effective for the period included in this
report prior to April 1, 2006.
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|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
Actual |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Sales and other operating revenues |
|
$ |
134,752 |
|
|
|
135,474 |
|
Purchased crude oil, natural gas and products |
|
|
88,397 |
|
|
|
86,797 |
|
|
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48).
This Interpretation provides guidance on recognition, classification and disclosure concerning
uncertain tax liabilities. The evaluation of a tax position requires recognition of a tax benefit
if it is more likely than not it will be sustained upon examination. We adopted FIN 48 effective
January 1, 2007. The adoption did not have a material impact on our consolidated financial
statements.
At January 1, 2007, we had unrecognized tax benefits of $912 million. Included in this balance was $468 million which, if recognized, would affect our effective tax rate.
4
We recognize accrued interest related to unrecognized tax benefits in interest expense, and
penalties in production and operating expenses. At January 1, 2007, accrued liabilities for
interest and penalties totaled $99 million, net of accrued income taxes. See Note 21Income Taxes,
for additional information about income taxes.
Note 3Acquisition of Burlington Resources Inc.
On March 31, 2006, ConocoPhillips completed the $33.9 billion acquisition of Burlington Resources
Inc., an independent exploration and production company that held a substantial position in North
American natural gas proved reserves, production and exploratory acreage.
The final allocation of the purchase price to specific assets and liabilities was completed in the
first quarter of 2007. It was based on the final outside appraisal of the fair value of Burlington
Resources long-lived assets and the conclusion of the fair value determination of all other
Burlington Resources assets and liabilities.
The following table summarizes the final purchase price allocation of the fair value of the assets
acquired and liabilities assumed as of March 31, 2006:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Cash and cash equivalents |
|
$ |
3,238 |
|
Accounts and notes receivable |
|
|
1,432 |
|
Inventories |
|
|
229 |
|
Prepaid expenses and other current assets |
|
|
108 |
|
Investments and long-term receivables |
|
|
268 |
|
Properties, plants and equipment |
|
|
28,176 |
|
Goodwill |
|
|
16,787 |
|
Intangibles |
|
|
107 |
|
Other assets |
|
|
46 |
|
|
Total Assets |
|
$ |
50,391 |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,487 |
|
Notes payable and long-term debt due within one year |
|
|
1,009 |
|
Accrued income and other taxes |
|
|
697 |
|
Employee benefit obligationscurrent |
|
|
248 |
|
Other accruals |
|
|
254 |
|
Long-term debt |
|
|
3,330 |
|
Asset retirement obligations |
|
|
730 |
|
Accrued environmental costs |
|
|
174 |
|
Deferred income taxes |
|
|
7,849 |
|
Employee benefit obligations |
|
|
347 |
|
Other liabilities and deferred credits |
|
|
397 |
|
Common stockholders equity |
|
|
33,869 |
|
|
Total Liabilities and Equity |
|
$ |
50,391 |
|
|
All of the goodwill was assigned to the Worldwide Exploration and Production reporting unit. Of
the $16,787 million of goodwill, $7,953 million relates to net deferred tax liabilities arising
from differences
5
between the allocated financial bases and deductible tax bases of the acquired assets. None of the
goodwill is deductible for tax purposes.
The following table presents pro forma information for the nine months ended September 30, 2006, as
if the acquisition had occurred at the beginning of 2006.
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Pro Forma |
|
|
|
|
Sales and other operating revenues |
|
$ |
144,036 |
|
Net income |
|
|
12,747 |
|
Net income per share of common stock (dollars) |
|
|
|
|
Basic |
|
|
7.71 |
|
Diluted |
|
|
7.60 |
|
|
The pro forma information is not intended to reflect the actual results that would have occurred if
the companies had been combined during the period presented, nor is it intended to be indicative of
the results of operations that may be achieved by ConocoPhillips in the future.
Note 4Restructuring
In connection with the acquisition of Burlington Resources, we implemented a restructuring program
as part of the effort to capture the synergies of combining the two companies. Under this program,
we recorded accruals totaling $230 million in 2006 for employee severance payments, site closings,
incremental pension benefit costs associated with workforce reductions, and employee relocations.
Approximately 600 positions were identified for elimination during 2006, most of which were in the
United States. During 2007, an additional 35 positions were identified for elimination.
Of the total accrual, $224 million was reflected in the Burlington Resources purchase price
allocation as an assumed liability, and $6 million related to ConocoPhillips was reflected in
selling, general and administrative expenses in 2006. The following table summarizes activity
related to the non-pension portion of the accrual in the first nine months of 2007:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Balance at December 31, 2006 |
|
$ |
120 |
|
Benefit payments |
|
|
(57 |
) |
Adjustments |
|
|
17 |
|
|
Balance at September 30, 2007* |
|
$ |
80 |
|
|
|
|
* |
Includes current liabilities of $35 million. All workforce reductions are expected to be
completed by March 2008. Some costs for site closings, continuation of employee benefits, and
employee relocations are expected to extend beyond one year from September 30, 2007. |
6
Note 5Variable Interest Entities (VIEs)
In June 2006, ConocoPhillips acquired 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. 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 in September 2007. See Note 13Guarantees, for additional
information.
In June 2005, ConocoPhillips and OAO LUKOIL (LUKOIL) created the OOO Naryanmarneftegaz (NMNG) joint
venture to develop resources in the Timan-Pechora province of Russia. The NMNG joint venture is a
VIE, but we are not the primary beneficiary. We use the equity method of accounting for this
investment. At September 30, 2007, the book value of our investment in the venture was $1,403
million.
See Note 11Debt, for information about the liquidation of Phillips 66 Capital II.
Note 6Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
Crude oil and petroleum products |
|
$ |
4,500 |
|
|
|
4,351 |
|
Materials, supplies and other |
|
|
812 |
|
|
|
802 |
|
|
|
|
$ |
5,312 |
|
|
|
5,153 |
|
|
Inventories valued on the last-in, first-out (LIFO) basis totaled $4,156 million and $4,043 million
at September 30, 2007, and December 31, 2006, respectively. The remainder of our inventories is
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 $5,977 million and $4,178
million at September 30, 2007, and December 31, 2006, respectively.
Note 7Assets Held for Sale
In 2006, we commenced asset rationalization efforts that led to the classification of certain
assets as held for sale under Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, at December 31,
2006, we classified $3,051 million of non-current assets and $604 million of non-current
liabilities as current assets and current liabilities, respectively.
During the first nine months of 2007, a portion of these held-for-sale assets were sold, additional
assets met the held-for-sale criteria, and other assets no longer met the held-for-sale criteria.
As a result, at September 30, 2007, we classified $1,352 million of non-current assets as Prepaid
expenses and other current assets on our consolidated balance sheet and we classified $193 million
of non-current liabilities as current liabilities, consisting of $142 million in Accrued income and other taxes and $51
million in Other accruals. We expect the disposal of these assets to be substantially completed
by the end of 2008.
7
The major classes of non-current assets and non-current liabilities held for sale at September 30,
2007, classified as current were:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Assets |
|
|
|
|
Investments and long-term receivables |
|
$ |
53 |
|
Net properties, plants and equipment |
|
|
1,215 |
|
Goodwill |
|
|
65 |
|
Intangibles |
|
|
2 |
|
Other assets |
|
|
17 |
|
|
Total assets reclassified |
|
$ |
1,352 |
|
|
Exploration and Production (E&P) |
|
$ |
214 |
|
Refining and Marketing (R&M) |
|
|
1,138 |
|
|
|
|
$ |
1,352 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Asset retirement obligations and accrued environmental costs |
|
$ |
28 |
|
Deferred income taxes |
|
|
142 |
|
Other liabilities and deferred credits |
|
|
23 |
|
|
Total liabilities reclassified |
|
$ |
193 |
|
|
E&P |
|
$ |
29 |
|
R&M |
|
|
164 |
|
|
|
|
$ |
193 |
|
|
Note 8Investments, Loans and Long-Term Receivables
Investments in Venezuela
See the Expropriated Assets section of Note 10Impairments, for information on the complete
impairment of our investments in the Hamaca and Petrozuata projects.
EnCana Business Ventures
In October 2006, we announced a business venture with EnCana Corporation (EnCana) to create an
integrated North American heavy-oil business. The transaction closed on January 3, 2007, and
consists of two 50/50 business ventures, a Canadian upstream general partnership, FCCL Oil Sands
Partnership (FCCL), and a U.S. downstream limited liability company, WRB Refining LLC (WRB). We
use the equity method of accounting for both entities, with the operating results of our investment
in FCCL reflecting its use of the full-cost method of accounting for oil and gas exploration and
development activities.
FCCLs operating assets consist of the Foster Creek and Christina Lake steam-assisted gravity
drainage bitumen projects, both located in the eastern flank of the Athabasca oil sands in
northeast Alberta. A subsidiary of EnCana is the operator and managing partner of FCCL. We are
obligated to contribute $7.5 billion, plus accrued interest, to FCCL over a 10-year period
beginning in 2007. For additional information on this obligation, see Note 17Joint Venture
Acquisition Obligation.
WRBs operating assets consist of the Wood River and Borger refineries, located in Roxana,
Illinois, and Borger, Texas, respectively. As a result of our contribution of these two assets to
WRB, a basis difference of $5.0 billion was created due to the fair value of the contributed assets
recorded by WRB exceeding their
8
historic book value. The difference is amortized and recognized as
a benefit evenly over a period of 25 years, which is the estimated remaining useful life of the refineries at the closing
date. The basis difference at September 30, 2007, was approximately $4.9 billion. We are the
operator and managing partner of WRB. EnCana is obligated to contribute $7.5 billion, plus accrued
interest, to WRB over a 10-year period beginning in 2007. For the Wood River refinery, operating
results are shared 50/50 starting upon formation. For the Borger refinery, we are entitled to 85
percent of the operating results in 2007, 65 percent in 2008, and 50 percent in all years
thereafter.
LUKOIL
Our ownership interest in LUKOIL was 20.0 percent at September 30, 2007, based on 851 million
issued shares. 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
20.5 percent at
September 30, 2007.
At September 30, 2007, the book value of our ordinary share investment in LUKOIL was $10,496
million. Our share of the net assets of LUKOIL was estimated to be $7,939 million. This basis
difference of $2,557 million is primarily being amortized on a unit-of-production basis and recognized as a
reduction of earnings. On September 30, 2007, the closing price of LUKOIL shares on the London
Stock Exchange was $83.00 per share, making the total market value of our LUKOIL investment $14,119
million.
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, 2007, included the following:
|
|
|
$648 million in loan financing, including $74 million of accrued interest, to
Freeport LNG for the construction of a liquefied natural gas (LNG) facility. We expect to provide loan financing of
approximately $631 million for the construction of the facility, excluding accrued
interest. |
|
|
|
|
$303 million in loan financing, including $25 million of accrued interest, to Varandey
Terminal Company associated with the costs of a terminal expansion. We expect our total
obligation for the terminal expansion to be approximately $410 million at current exchange
rates, excluding interest to be accrued during construction. |
|
|
|
|
$608 million of project financing, including $34 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, excluding accrued
interest. |
9
Note 9Properties, 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, 2007 |
|
|
December 31, 2006 |
|
|
|
Gross |
|
|
Accum. |
|
|
Net |
|
|
Gross |
|
|
Accum. |
|
|
Net |
|
|
|
PP&E |
|
|
DD&A |
|
|
PP&E |
|
|
PP&E |
|
|
DD&A |
|
|
PP&E |
|
E&P |
|
$ |
99,574 |
|
|
|
28,799 |
|
|
|
70,775 |
|
|
|
88,592 |
|
|
|
21,102 |
|
|
|
67,490 |
|
Midstream |
|
|
332 |
|
|
|
167 |
|
|
|
165 |
|
|
|
330 |
|
|
|
157 |
|
|
|
173 |
|
R&M |
|
|
19,252 |
|
|
|
4,506 |
|
|
|
14,746 |
|
|
|
22,115 |
|
|
|
5,199 |
|
|
|
16,916 |
|
LUKOIL Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Businesses |
|
|
1,167 |
|
|
|
130 |
|
|
|
1,037 |
|
|
|
1,006 |
|
|
|
98 |
|
|
|
908 |
|
Corporate and Other |
|
|
1,355 |
|
|
|
671 |
|
|
|
684 |
|
|
|
1,229 |
|
|
|
515 |
|
|
|
714 |
|
|
|
|
$ |
121,680 |
|
|
|
34,273 |
|
|
|
87,407 |
|
|
|
113,272 |
|
|
|
27,071 |
|
|
|
86,201 |
|
|
Suspended Wells
The following table reflects the net changes in suspended exploratory well costs during the first
nine months of 2007:
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30, 2007 |
|
Beginning balance at January 1 |
|
$ |
537 |
|
Additions pending the determination of proved reserves |
|
|
100 |
|
Reclassifications to proved properties |
|
|
(24 |
) |
Sales of suspended well investment |
|
|
(22 |
) |
Charged to dry hole expense |
|
|
(10 |
) |
|
Ending balance at September 30 |
|
$ |
581 |
|
|
The following table provides an aging of suspended well balances at September 30, 2007, and
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
Exploratory well costs capitalized for a period of one year or less |
|
$ |
167 |
|
|
|
225 |
|
Exploratory well costs capitalized for a period greater than one year |
|
|
414 |
|
|
|
312 |
|
|
Ending balance |
|
$ |
581 |
|
|
|
537 |
|
|
Number of projects that have exploratory well costs that have been
capitalized for a period greater than one year |
|
|
36 |
|
|
|
22 |
|
|
10
The following table provides a further aging of those exploratory well costs that have been
capitalized for more than one year after drilling is completed, as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
|
|
|
|
Suspended Since |
|
Project |
|
Total |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
Alpine satelliteAlaska (2) |
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
KashaganKazakhstan (1) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
AktoteKazakhstan (2) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
KairanKazakhstan (2) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GumusutMalaysia (2) |
|
|
30 |
|
|
|
|
|
|
|
6 |
|
|
|
11 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
MalikaiMalaysia (2) |
|
|
45 |
|
|
|
16 |
|
|
|
19 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plataforma DeltanaVenezuela (2) |
|
|
21 |
|
|
|
|
|
|
|
6 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
UgeNigeria (1) |
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Su Tu TrangVietnam (2) |
|
|
23 |
|
|
|
7 |
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
CalditaAustralia (1) |
|
|
33 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enochdhu/FinlaggenU.K. (1) |
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HumphreyU.K. (2) |
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ClairU.K. (1) |
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K4U.K. (2) |
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West SakAlaska (2) |
|
|
10 |
|
|
|
6 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
JasmineU.K. (1) |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty projects of less than
$10 million each (1)(2) |
|
|
86 |
|
|
|
36 |
|
|
|
33 |
|
|
|
2 |
|
|
|
11 |
|
|
|
4 |
|
|
|
|
|
|
Total of 36 projects |
|
$ |
414 |
|
|
|
145 |
|
|
|
123 |
|
|
|
59 |
|
|
|
53 |
|
|
|
25 |
|
|
|
9 |
|
|
|
|
(1) |
Additional appraisal wells planned. |
|
(2) |
Appraisal drilling complete; costs being incurred to assess development. |
Note 10Impairments
Expropriated Assets
On January 31, 2007, Venezuelas National Assembly passed a law allowing the president of Venezuela
to pass laws on certain matters by decree. On February 26, 2007, the president of Venezuela issued
a decree (the Nationalization Decree) mandating the termination of the then-existing structures
related to our heavy-oil ventures and oil production risk contracts and the transfer of all rights
relating to our heavy-oil ventures and oil production risk contracts to joint ventures (empresas
mixtas) that will be controlled by the Venezuelan national oil company or its subsidiaries.
On June 26, 2007, we announced we had been unable to reach agreement with respect to our migration
to an empresa mixta structure mandated by the Nationalization Decree. In response, Petróleos de
Venezuela S.A. (PDVSA) or its affiliates directly assumed the activities associated with
ConocoPhillips interests in the Petrozuata and Hamaca heavy-oil ventures and the offshore Corocoro
oil development project. Based on Venezuelan statements that the expropriation of our oil
interests in Venezuela occurred on June 26, 2007, management determined such expropriation required
a complete impairment, under U.S. generally accepted accounting principles, of our investments in
the Petrozuata and Hamaca heavy-oil ventures and the offshore Corocoro oil development project.
Accordingly, we recorded a non-cash impairment, including allocable goodwill, of $4,588 million
before-tax ($4,512 million after-tax) in the second quarter of 2007.
11
The
impairment included equity-method investments and properties, plants and equipment. Also, this expropriation of our oil interests is viewed as a partial disposition of our Worldwide Exploration
and Production reporting unit and, under the guidance in SFAS No. 142, Goodwill and Other
Intangible Assets, required an allocation of goodwill to the expropriation event. The amount of
goodwill impaired as a result of this allocation was $1,925 million.
Negotiations continue between ConocoPhillips and Venezuelan authorities concerning appropriate
compensation for the expropriation of the companys interests. We continue to preserve all our
rights with respect to this situation, including our rights under the contracts we signed and under
international and Venezuelan law. We continue to evaluate our options in realizing adequate
compensation for the value of our oil investments and operations in Venezuela and expect to file a
request for international arbitration on November 2, 2007.
We believe the value of our expropriated Venezuelan oil operations substantially exceeds the
historical cost-based carrying value plus goodwill allocable to those operations. Although
negotiations continue with Venezuelan authorities, it is not possible to predict with any certainty
the outcome of these negotiations. Additionally, should we pursue other means of dispute
resolution, U.S. generally accepted accounting principles require a claim that is the subject of
litigation be presumed to not be probable of realization. Accordingly, any compensation for our
expropriated assets was not considered when making the impairment determination, since to do so
could result in the recognition of compensation for the expropriation prior to its realization.
At December 31, 2006, we had recorded 1,088 million barrels of oil equivalent of proved reserves
related to Petrozuata and Hamaca, and 17 million barrels of oil equivalent of proved reserves
related to Corocoro. The loss of proved reserves related to these projects will be reflected as a
downward adjustment in our 2007 reserves.
Other Impairments
During the first nine months of 2007 and 2006, we recognized the following net impairments,
excluding impairments of expropriated assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Asset write-downs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
|
|
|
|
|
|
|
|
1 |
|
|
|
40 |
|
International |
|
|
151 |
|
|
|
7 |
|
|
|
326 |
|
|
|
17 |
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets |
|
|
10 |
|
|
|
130 |
|
|
|
8 |
|
|
|
130 |
|
Other |
|
|
21 |
|
|
|
130 |
|
|
|
70 |
|
|
|
130 |
|
Corporate |
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in fair value of
previously impaired assetsR&M |
|
|
(2 |
) |
|
|
|
|
|
|
(128 |
) |
|
|
|
|
|
|
|
$ |
188 |
|
|
|
267 |
|
|
|
285 |
|
|
|
317 |
|
|
12
During the third quarter and nine-month period of 2007, we recorded property impairments primarily
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 primarily reflect
finalized sales agreements. This gain was netted with write-downs into the Impairments line of
the consolidated income statement.
Impairments during the third quarter of 2006 included $266 million associated with planned asset
dispositions in our E&P and R&M segments. Impairments for the nine-month period of 2006 also
included a $40 million property impairment as a result of our decision to withdraw an application
for a proposed liquefied natural gas regasification terminal. We also impaired properties due to
changes in asset retirement obligation estimates for properties at the end of their economic life.
Note 11Debt
In September 2007, we replaced our $5 billion and $2.5 billion revolving credit facilities with a
$7.5 billion revolving credit facility expiring in September 2012. The new facility contains the
same terms as the previous facilities. The facility may be used as direct bank borrowings, as support
for the ConocoPhillips $7.5 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, 2007, and December 31, 2006, we had no
outstanding borrowings under our credit facilities, but $41 million in letters of credit had been
issued at both dates. Under both commercial paper programs, there was $603 million of commercial
paper outstanding at September 30, 2007, compared with $2,931 million at December 31, 2006.
At September 30, 2007, we had classified $603 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.
At December 31, 2006, Phillips 66 Capital II (Trust II), an unconsolidated VIE, had outstanding
$350 million of 8% Capital Securities (Capital Securities). The sole asset of Trust II was
$361 million of the companys 8% Junior Subordinated Deferrable Interest Debentures due 2037
(Subordinated Debt Securities II). Effective January 15, 2007, we redeemed the Subordinated Debt
Securities II at a premium of $14 million, plus accrued interest, resulting in the immediate
redemption of the Capital Securities. Upon redemption of the Capital Securities, Trust II was
liquidated.
In January 2007, we redeemed our $153 million 7.25% Notes due 2007 upon their maturity. In
February 2007, we reduced our Floating Rate Five-Year Term Note due 2011 from $5 billion to $4
billion, with a subsequent reduction in July 2007 to $3 billion. In April 2007, we redeemed our $1
billion Floating Rate Notes due 2007 upon their maturity.
In May 2007, Polar Tankers, Inc., a wholly owned subsidiary, issued an offering of $645 million
5.951% Notes due 2037. The notes are fully and unconditionally guaranteed by ConocoPhillips and
ConocoPhillips Company.
On October 31, 2007, we redeemed $300 million of ConocoPhillips Australia Funding Companys
Floating Rate Notes due 2009 at par plus accrued interest.
13
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. See Note 2Changes in Accounting Principles
and Note 21Income Taxes, for additional information about income-tax related contingencies.
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 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 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 consideration the likely effects of societal and economic
factors. 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 adjust our accruals
accordingly.
14
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, 2007, our balance sheet included a total environmental accrual of $1,042 million,
compared with $1,062 million at December 31, 2006. 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.
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 our 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 only a remote likelihood 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.
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, 2007, we had performance
obligations secured by letters of credit totaling $1,041 million (of which $41 million was issued
under the provisions of our revolving credit facilities, 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.
See Note 10Impairments, for additional information about expropriated assets in Venezuela and the
contingencies related to receiving adequate compensation for our oil interests in Venezuela.
15
Note 13Guarantees
At September 30, 2007, 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, 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 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,
2007, Rockies Express had $1,758 million outstanding under the credit
facilities, with our 24 percent guarantee equaling $422 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 facility is 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 that construction completion will be achieved at the end
of 2009, and refinancing will take place at that time, making the debt non-recourse. At
September 30, 2007, the total carrying value of these guarantees to third-party lenders was
$12 million. See Note 5Variable Interest Entities (VIEs), for additional information. |
|
|
|
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 not achieved. The project financing will be non-recourse upon
certified completion, which is expected in 2010. At September 30, 2007, the carrying value of
the guarantee to the third-party lenders was $11 million. For additional information, see
Note 8Investments, Loans and Long-Term Receivables. |
Guarantees of Joint-Venture Debt
|
|
|
At September 30, 2007, we had 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 $130 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 17 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 |
16
|
|
|
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, 2007, was $150 million. |
|
|
|
|
We have other guarantees with maximum future potential payment amounts totaling $350
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, two small construction completion guarantees, a guarantee associated with a pending
lawsuit, guarantees relating to the startup of a refining joint venture, a guarantee
supporting a third-party pipeline construction and guarantees of the lease payment
obligations of a joint venture. The carrying amount recorded for these other guarantees, at
September 30, 2007, was $55 million. These guarantees generally extend up to 15 years and
payment would be required only if the dealer, jobber or lessee goes into default, if the
joint ventures have cash liquidity issues, if construction projects
are not completed, if guaranteed parties default on lease payments, or if an adverse decision
occurs in the pending lawsuit. |
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, 2007, was $457 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 $280 million of environmental accruals for known contamination that is
included in asset retirement obligations and accrued environmental costs at September 30, 2007.
For additional information about environmental liabilities, see Note 12Contingencies and
Commitments.
17
Note 14Financial Instruments and Derivative Contracts
Derivative assets and liabilities were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
Derivative Assets |
|
|
|
|
|
|
|
|
Current |
|
$ |
545 |
|
|
|
924 |
|
Long-term |
|
|
97 |
|
|
|
82 |
|
|
|
|
$ |
642 |
|
|
|
1,006 |
|
|
Derivative Liabilities |
|
|
|
|
|
|
|
|
Current |
|
$ |
533 |
|
|
|
681 |
|
Long-term |
|
|
58 |
|
|
|
126 |
|
|
|
|
$ |
591 |
|
|
|
807 |
|
|
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.
Note 15Comprehensive Income
ConocoPhillips comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
3,673 |
|
|
|
3,876 |
|
|
|
7,520 |
|
|
|
12,353 |
|
After-tax changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
|
5 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
Net actuarial loss |
|
|
8 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Non-sponsored plans |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Foreign currency translation adjustments |
|
|
1,320 |
|
|
|
(32 |
) |
|
|
2,596 |
|
|
|
906 |
|
Hedging activities |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
2 |
|
|
Comprehensive income |
|
$ |
5,004 |
|
|
|
3,839 |
|
|
|
10,161 |
|
|
|
13,261 |
|
|
Accumulated other comprehensive income in the equity section of the balance sheet included:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
Defined benefit pension plans |
|
$ |
(615 |
) |
|
|
(665 |
) |
Foreign currency translation adjustments |
|
|
4,554 |
|
|
|
1,958 |
|
Deferred net hedging loss |
|
|
(9 |
) |
|
|
(4 |
) |
|
Accumulated other comprehensive income |
|
$ |
3,930 |
|
|
|
1,289 |
|
|
18
Note 16Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Issuance of stock and options for the acquisition of Burlington Resources Inc. |
|
$ |
|
|
|
|
16,343 |
|
Investment in an upstream business venture through issuance of an
acquisition obligation |
|
|
7,313 |
|
|
|
|
|
Investment in a downstream business venture through contribution of
non-cash assets and liabilities |
|
|
2,415 |
|
|
|
|
|
|
Cash Payments |
|
|
|
|
|
|
|
|
Interest |
|
$ |
650 |
|
|
|
514 |
|
Income taxes |
|
|
7,969 |
|
|
|
9,313 |
|
|
Note 17Joint Venture Acquisition Obligation
On January 3, 2007, we closed on a business venture with EnCana Corporation. As part of this
transaction, we expect to add approximately 400 million barrels of oil equivalent to our proved
reserves in 2007. In addition, we are obligated to contribute $7.5 billion, plus accrued interest,
over a 10-year period, beginning in 2007, to the upstream business venture, FCCL Oil Sands
Partnership, formed as a result of the transaction. An initial cash contribution of $188 million
was made upon closing in January.
Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and
will continue until the balance is paid. This obligation is reflected as a liability on our
September 30, 2007, consolidated balance sheet. Of the principal obligation amount, approximately
$586 million is short-term and is included in the Accounts payablerelated parties line on our
consolidated balance sheet. The principal portion of these payments is presented on our
consolidated statement of cash flows as an other financing activity. 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 an investment purchase and is
included in the Capital expenditures and investments line on our consolidated statement of cash
flows.
19
Note 18Employee Benefit Plans
Pension and Postretirement Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
September 30 |
|
|
September 30 |
|
Components of Net Periodic Benefit Cost |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
U.S. |
|
|
Intl. |
|
|
U.S. |
|
|
Intl. |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
44 |
|
|
|
25 |
|
|
|
44 |
|
|
|
22 |
|
|
|
3 |
|
|
|
4 |
|
Interest cost |
|
|
57 |
|
|
|
41 |
|
|
|
54 |
|
|
|
34 |
|
|
|
12 |
|
|
|
12 |
|
Expected return on plan assets |
|
|
(51 |
) |
|
|
(37 |
) |
|
|
(43 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
4 |
|
Recognized net actuarial loss (gain) |
|
|
15 |
|
|
|
12 |
|
|
|
22 |
|
|
|
10 |
|
|
|
(5 |
) |
|
|
(4 |
) |
|
Net periodic benefit costs |
|
$ |
68 |
|
|
|
42 |
|
|
|
79 |
|
|
|
37 |
|
|
|
13 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
132 |
|
|
|
73 |
|
|
|
130 |
|
|
|
65 |
|
|
|
10 |
|
|
|
11 |
|
Interest cost |
|
|
171 |
|
|
|
120 |
|
|
|
157 |
|
|
|
99 |
|
|
|
34 |
|
|
|
35 |
|
Expected return on plan assets |
|
|
(153 |
) |
|
|
(109 |
) |
|
|
(126 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
8 |
|
|
|
5 |
|
|
|
7 |
|
|
|
6 |
|
|
|
10 |
|
|
|
14 |
|
Recognized net actuarial loss (gain) |
|
|
46 |
|
|
|
35 |
|
|
|
66 |
|
|
|
30 |
|
|
|
(15 |
) |
|
|
(12 |
) |
|
Net periodic benefit costs |
|
$ |
204 |
|
|
|
124 |
|
|
|
234 |
|
|
|
109 |
|
|
|
39 |
|
|
|
48 |
|
|
During the first nine months of 2007, we contributed $415 million to our domestic qualified and
non-qualified plans and $135 million to our international benefit plans. We currently expect to
contribute a total of $440 million to our domestic plans and $195 million to our international
plans in 2007.
20
Note 19Related Party Transactions
Significant transactions with related parties were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
* |
|
2007 |
|
|
2006 |
* |
|
|
|
|
|
|
|
Revenues and other income (a) |
|
$ |
2,465 |
|
|
|
2,391 |
|
|
|
7,967 |
|
|
|
6,610 |
|
Purchases (b) |
|
|
4,156 |
|
|
|
1,966 |
|
|
|
11,455 |
|
|
|
5,286 |
|
Operating expenses and
selling, general and
administrative expenses (c) |
|
|
103 |
|
|
|
103 |
|
|
|
309 |
|
|
|
282 |
|
Net interest income (d) |
|
|
25 |
|
|
|
2 |
|
|
|
80 |
|
|
|
10 |
|
|
|
|
* Restated to include additional related party amounts. |
(a) |
|
We sold natural gas to DCP Midstream 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. We also sold various international marketing
companies to LUKOIL in the second quarter of 2007. In addition, we charged several of our
affiliates, including CPChem, Merey Sweeny L.P. (MSLP), and Hamaca Holding LLC, (up through
June 25, 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. (up through June 25, 2007) and refined products from MRC. We also paid fees
to various pipeline equity companies for transporting finished refined products and a price
upgrade to MSLP for heavy crude 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. |
Elimination amounts related to our equity percentage share of profit or loss on the above
transactions were not material.
21
Note 20Segment 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 and markets crude oil, natural gas
and natural gas liquids on a worldwide basis. At September 30, 2007, our E&P operations
were producing in the United States, Norway, the United Kingdom, the Netherlands, Canada,
Nigeria, Ecuador, Argentina, offshore Timor Leste in the Timor Sea, Australia, China,
Indonesia, Algeria, Libya, Vietnam, and Russia. The E&P segments U.S. and international
operations are disclosed separately for reporting purposes. |
|
|
2) |
|
MidstreamThis segment gathers, processes and markets natural gas produced by
ConocoPhillips and others, and fractionates and markets natural gas liquids, primarily 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. At September 30, 2007, we owned or
had an interest in 12 refineries in the United States, one in the United Kingdom, one in
Ireland, two in Germany, and one in Malaysia. The R&M segments U.S. and international
operations are disclosed separately for reporting purposes. |
|
|
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, 2007, our ownership interest was 20 percent, based on issued shares, and 20.5
percent, based on 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 BusinessesThe 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 other items, such as
carbon-to-liquids, technology solutions, and alternative energy and programs, such as
advanced hydrocarbon processes, energy conversion technologies, new petroleum-based
products, and renewable fuels. |
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.
See Note 2Changes in Accounting Principles, for information affecting the comparability of sales
and other operating revenues presented in the following tables of our segment disclosures.
22
Analysis of Results by Operating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
Sales and Other Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
9,416 |
|
|
|
9,040 |
|
|
|
27,153 |
|
|
|
27,157 |
|
International |
|
|
5,559 |
|
|
|
6,552 |
|
|
|
17,052 |
|
|
|
21,076 |
|
Intersegment eliminationsU.S. |
|
|
(1,612 |
) |
|
|
(1,564 |
) |
|
|
(4,264 |
) |
|
|
(4,286 |
) |
Intersegment eliminationsinternational |
|
|
(1,927 |
) |
|
|
(1,869 |
) |
|
|
(4,844 |
) |
|
|
(5,244 |
) |
|
E&P |
|
|
11,436 |
|
|
|
12,159 |
|
|
|
35,097 |
|
|
|
38,703 |
|
|
Midstream |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
|
1,182 |
|
|
|
1,012 |
|
|
|
3,396 |
|
|
|
3,212 |
|
Intersegment eliminations |
|
|
(39 |
) |
|
|
(265 |
) |
|
|
(143 |
) |
|
|
(796 |
) |
|
Midstream |
|
|
1,143 |
|
|
|
747 |
|
|
|
3,253 |
|
|
|
2,416 |
|
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
24,369 |
|
|
|
25,240 |
|
|
|
69,022 |
|
|
|
73,681 |
|
International |
|
|
9,178 |
|
|
|
10,107 |
|
|
|
27,606 |
|
|
|
27,819 |
|
Intersegment eliminationsU.S. |
|
|
(113 |
) |
|
|
(211 |
) |
|
|
(376 |
) |
|
|
(612 |
) |
Intersegment eliminationsinternational |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(14 |
) |
|
R&M |
|
|
33,432 |
|
|
|
35,131 |
|
|
|
96,245 |
|
|
|
100,874 |
|
|
LUKOIL Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
|
2 |
|
|
|
3 |
|
|
|
8 |
|
|
|
10 |
|
|
Emerging Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
|
150 |
|
|
|
167 |
|
|
|
450 |
|
|
|
483 |
|
Intersegment eliminations |
|
|
(105 |
) |
|
|
(133 |
) |
|
|
(310 |
) |
|
|
(361 |
) |
|
Emerging Businesses |
|
|
45 |
|
|
|
34 |
|
|
|
140 |
|
|
|
122 |
|
|
Corporate and Other |
|
|
4 |
|
|
|
2 |
|
|
|
9 |
|
|
|
6 |
|
|
Consolidated sales and other operating revenues |
|
$ |
46,062 |
|
|
|
48,076 |
|
|
|
134,752 |
|
|
|
142,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,225 |
|
|
|
995 |
|
|
|
3,196 |
|
|
|
3,476 |
|
International |
|
|
857 |
|
|
|
909 |
|
|
|
(1,189 |
) |
|
|
4,285 |
|
|
Total E&P |
|
|
2,082 |
|
|
|
1,904 |
|
|
|
2,007 |
|
|
|
7,761 |
|
|
Midstream |
|
|
104 |
|
|
|
169 |
|
|
|
291 |
|
|
|
387 |
|
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
873 |
|
|
|
1,444 |
|
|
|
3,648 |
|
|
|
3,174 |
|
International |
|
|
434 |
|
|
|
20 |
|
|
|
1,153 |
|
|
|
388 |
|
|
Total R&M |
|
|
1,307 |
|
|
|
1,464 |
|
|
|
4,801 |
|
|
|
3,562 |
|
|
LUKOIL Investment |
|
|
387 |
|
|
|
487 |
|
|
|
1,169 |
|
|
|
1,123 |
|
Chemicals |
|
|
110 |
|
|
|
142 |
|
|
|
260 |
|
|
|
394 |
|
Emerging Businesses |
|
|
3 |
|
|
|
11 |
|
|
|
(10 |
) |
|
|
7 |
|
Corporate and Other |
|
|
(320 |
) |
|
|
(301 |
) |
|
|
(998 |
) |
|
|
(881 |
) |
|
Consolidated net income |
|
$ |
3,673 |
|
|
|
3,876 |
|
|
|
7,520 |
|
|
|
12,353 |
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
|
E&P |
|
|
|
|
|
|
|
|
United States |
|
$ |
34,550 |
|
|
|
35,523 |
|
International |
|
|
56,414 |
|
|
|
48,143 |
|
Goodwill |
|
|
25,617 |
|
|
|
27,712 |
|
|
Total E&P |
|
|
116,581 |
|
|
|
111,378 |
|
|
Midstream |
|
|
2,026 |
|
|
|
2,045 |
|
|
R&M |
|
|
|
|
|
|
|
|
United States |
|
|
24,737 |
|
|
|
22,936 |
|
International |
|
|
9,225 |
|
|
|
9,135 |
|
Goodwill |
|
|
3,757 |
|
|
|
3,776 |
|
|
Total R&M |
|
|
37,719 |
|
|
|
35,847 |
|
|
LUKOIL Investment |
|
|
10,622 |
|
|
|
9,564 |
|
Chemicals |
|
|
2,331 |
|
|
|
2,379 |
|
Emerging Businesses |
|
|
1,104 |
|
|
|
977 |
|
Corporate and Other |
|
|
3,044 |
|
|
|
2,591 |
|
|
Consolidated total assets |
|
$ |
173,427 |
|
|
|
164,781 |
|
|
Note 21Income Taxes
Our effective tax rate for the third quarter and first nine months of 2007 was 42 percent and 53
percent, respectively, compared with 51 percent and 45 percent for the same two periods of 2006.
The change in the effective tax rate for the third quarter of 2007, versus the third quarter of
2006, was primarily due to a tax rate increase enacted in the United Kingdom in the third quarter
of 2006, the effect of our asset rationalization efforts, and a tax rate decrease enacted in
Germany in the third quarter of 2007. The change in the effective rate for the nine months of
2007, compared with the same period of 2006, was primarily due to the impact of the expropriation
of our oil interests in Venezuela in the second quarter of 2007 (see Note 10Impairments, for
additional information). This impact was partially offset by a higher proportion of income in
higher-tax-rate jurisdictions for the first nine months of 2006. The effective tax rate in excess
of the domestic federal statutory rate of 35 percent was primarily due to the impact of foreign
taxes.
Effective January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109. See Note 2Changes in Accounting
Principles, for additional information about the adoption of this Interpretation.
Unrecognized tax benefits increased to $1,120 million at September 30, 2007, mainly due to
increases occurring in the second quarter related to tax positions taken during the current year.
Included in this balance is $676 million which, if recognized, would affect our effective tax rate.
We and our subsidiaries file tax returns in the U.S. Federal jurisdiction and in many foreign and
state jurisdictions. Audits in major jurisdictions, including the United States, Canada, Norway
and the United Kingdom, are generally complete through 2001. Issues in dispute for audited years
and audits for subsequent years are ongoing and in various stages of completion in the many
jurisdictions in which we operate around the world. As a consequence, the balance in unrecognized
tax benefits can be expected to fluctuate from period to period. It is reasonably possible that
such changes could be significant when compared to our total
unrecognized tax benefits, but the amount of change is not estimable.
24
Note 22New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines
fair value, establishes a framework for its measurement and expands disclosures about fair value
measurements. We use fair value measurements to measure, among other items, purchased assets and
investments, leases, derivative contracts and financial guarantees. We also use them to assess
impairment of properties, plants and equipment, intangible assets and goodwill. The Statement does
not apply to share-based payment transactions and inventory pricing. We plan to adopt this
Statement effective January 1, 2008. We continue to evaluate the Statement, but we do not expect any significant
impact to our consolidated financial statements, other than additional disclosures.
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 an
entity to choose to measure financial instruments and certain other items similar to financial
instruments at fair value, with all subsequent changes in fair value for the financial instrument
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 plan to adopt this Statement effective January 1, 2008, and do
not expect any significant impact to our consolidated financial statements.
25
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 non-guarantor 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 prior year amounts have been
reclassified to conform to current period presentation.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631 |
|
|
|
|
|
|
|
557 |
|
Intercompany
revenues |
|
|
1 |
|
|
|
814 |
|
|
|
30 |
|
|
|
21 |
|
|
|
13 |
|
|
|
4,648 |
|
|
|
(5,527 |
) |
|
|
|
|
|
Total Revenues and
Other Income |
|
|
3,732 |
|
|
|
34,097 |
|
|
|
30 |
|
|
|
21 |
|
|
|
13 |
|
|
|
21,813 |
|
|
|
(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 |
|
Impairmentexpropriated
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
236 |
|
|
|
28 |
|
|
|
20 |
|
|
|
14 |
|
|
|
604 |
|
|
|
(596 |
) |
|
|
391 |
|
Foreign currency
transaction (gains)
losses |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
83 |
|
|
|
44 |
|
|
|
(153 |
) |
|
|
|
|
|
|
(20 |
) |
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
Total Costs and
Expenses |
|
|
89 |
|
|
|
29,946 |
|
|
|
28 |
|
|
|
103 |
|
|
|
58 |
|
|
|
16,872 |
|
|
|
(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 |
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Australia Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues |
|
$ |
|
|
|
|
30,727 |
|
|
|
|
|
|
|
17,349 |
|
|
|
|
|
|
|
48,076 |
|
Equity in earnings of
affiliates |
|
|
3,972 |
|
|
|
2,460 |
|
|
|
|
|
|
|
1,005 |
|
|
|
(6,241 |
) |
|
|
1,196 |
|
Other income |
|
|
|
|
|
|
253 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
313 |
|
Intercompany revenues |
|
|
28 |
|
|
|
673 |
|
|
|
38 |
|
|
|
4,654 |
|
|
|
(5,393 |
) |
|
|
|
|
|
Total Revenues and Other
Income |
|
|
4,000 |
|
|
|
34,113 |
|
|
|
38 |
|
|
|
23,068 |
|
|
|
(11,634 |
) |
|
|
49,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil,
natural gas and products |
|
|
|
|
|
|
25,463 |
|
|
|
|
|
|
|
9,977 |
|
|
|
(4,889 |
) |
|
|
30,551 |
|
Production and operating
expenses |
|
|
|
|
|
|
1,090 |
|
|
|
|
|
|
|
1,573 |
|
|
|
(23 |
) |
|
|
2,640 |
|
Selling, general and
administrative expenses |
|
|
3 |
|
|
|
427 |
|
|
|
|
|
|
|
231 |
|
|
|
(11 |
) |
|
|
650 |
|
Exploration expenses |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
197 |
|
Depreciation, depletion
and amortization |
|
|
|
|
|
|
438 |
|
|
|
|
|
|
|
1,699 |
|
|
|
|
|
|
|
2,137 |
|
Impairments |
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
267 |
|
Taxes other than income
taxes |
|
|
|
|
|
|
1,498 |
|
|
|
|
|
|
|
3,423 |
|
|
|
(68 |
) |
|
|
4,853 |
|
Accretion on discounted
liabilities |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
74 |
|
Interest and debt expense |
|
|
172 |
|
|
|
275 |
|
|
|
28 |
|
|
|
235 |
|
|
|
(402 |
) |
|
|
308 |
|
Foreign currency
transaction gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
(50 |
) |
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
|
Total Costs and Expenses |
|
|
175 |
|
|
|
29,389 |
|
|
|
28 |
|
|
|
17,449 |
|
|
|
(5,393 |
) |
|
|
41,648 |
|
|
Income before income
taxes |
|
|
3,825 |
|
|
|
4,724 |
|
|
|
10 |
|
|
|
5,619 |
|
|
|
(6,241 |
) |
|
|
7,937 |
|
Provision for income
taxes |
|
|
(51 |
) |
|
|
934 |
|
|
|
3 |
|
|
|
3,175 |
|
|
|
|
|
|
|
4,061 |
|
|
Net Income |
|
$ |
3,876 |
|
|
|
3,790 |
|
|
|
7 |
|
|
|
2,444 |
|
|
|
(6,241 |
) |
|
|
3,876 |
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,946 |
|
|
|
|
|
|
|
1,696 |
|
Intercompany
revenues |
|
|
148 |
|
|
|
2,303 |
|
|
|
90 |
|
|
|
60 |
|
|
|
37 |
|
|
|
13,215 |
|
|
|
(15,853 |
) |
|
|
|
|
|
Total Revenues and
Other Income |
|
|
7,775 |
|
|
|
95,952 |
|
|
|
90 |
|
|
|
60 |
|
|
|
37 |
|
|
|
64,818 |
|
|
|
(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 |
|
|
|
882 |
|
|
|
84 |
|
|
|
58 |
|
|
|
40 |
|
|
|
1,483 |
|
|
|
(1,826 |
) |
|
|
1,017 |
|
Foreign currency
transaction (gains)
losses |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
181 |
|
|
|
121 |
|
|
|
(516 |
) |
|
|
|
|
|
|
(198 |
) |
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
Total Costs and
Expenses |
|
|
309 |
|
|
|
86,783 |
|
|
|
84 |
|
|
|
239 |
|
|
|
161 |
|
|
|
52,526 |
|
|
|
(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 |
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Australia Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating
revenues |
|
$ |
|
|
|
|
90,113 |
|
|
|
|
|
|
|
52,018 |
|
|
|
|
|
|
|
142,131 |
|
Equity in earnings of
affiliates |
|
|
12,585 |
|
|
|
8,627 |
|
|
|
|
|
|
|
2,841 |
|
|
|
(20,733 |
) |
|
|
3,320 |
|
Other income |
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
537 |
|
Intercompany revenues |
|
|
49 |
|
|
|
1,898 |
|
|
|
64 |
|
|
|
11,489 |
|
|
|
(13,500 |
) |
|
|
|
|
|
Total Revenues and
Other Income |
|
|
12,634 |
|
|
|
100,940 |
|
|
|
64 |
|
|
|
66,583 |
|
|
|
(34,233 |
) |
|
|
145,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil,
natural gas and products |
|
|
|
|
|
|
75,380 |
|
|
|
|
|
|
|
30,410 |
|
|
|
(12,336 |
) |
|
|
93,454 |
|
Production and operating
expenses |
|
|
|
|
|
|
3,493 |
|
|
|
|
|
|
|
4,129 |
|
|
|
(73 |
) |
|
|
7,549 |
|
Selling, general and
administrative expenses |
|
|
13 |
|
|
|
1,177 |
|
|
|
|
|
|
|
675 |
|
|
|
(39 |
) |
|
|
1,826 |
|
Exploration expenses |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
394 |
|
|
|
|
|
|
|
443 |
|
Depreciation, depletion
and amortization |
|
|
|
|
|
|
1,276 |
|
|
|
|
|
|
|
4,006 |
|
|
|
|
|
|
|
5,282 |
|
Impairments |
|
|
|
|
|
|
204 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
317 |
|
Taxes other than income
taxes |
|
|
|
|
|
|
4,439 |
|
|
|
|
|
|
|
9,422 |
|
|
|
(200 |
) |
|
|
13,661 |
|
Accretion on discounted
liabilities |
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
207 |
|
Interest and debt expense |
|
|
392 |
|
|
|
656 |
|
|
|
52 |
|
|
|
535 |
|
|
|
(852 |
) |
|
|
783 |
|
Foreign currency
transaction gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
Total Costs and Expenses |
|
|
405 |
|
|
|
86,717 |
|
|
|
52 |
|
|
|
49,898 |
|
|
|
(13,500 |
) |
|
|
123,572 |
|
|
Income before income taxes |
|
|
12,229 |
|
|
|
14,223 |
|
|
|
12 |
|
|
|
16,685 |
|
|
|
(20,733 |
) |
|
|
22,416 |
|
Provision for income taxes |
|
|
(124 |
) |
|
|
2,357 |
|
|
|
4 |
|
|
|
7,826 |
|
|
|
|
|
|
|
10,063 |
|
|
Net Income |
|
$ |
12,353 |
|
|
|
11,866 |
|
|
|
8 |
|
|
|
8,859 |
|
|
|
(20,733 |
) |
|
|
12,353 |
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1,678 |
|
|
|
(373 |
) |
|
|
1,379 |
|
Accounts and notes
receivable |
|
|
73 |
|
|
|
11,200 |
|
|
|
331 |
|
|
|
12 |
|
|
|
4 |
|
|
|
18,760 |
|
|
|
(16,602 |
) |
|
|
13,778 |
|
Inventories |
|
|
|
|
|
|
2,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,374 |
|
|
|
(4 |
) |
|
|
5,312 |
|
Prepaid expenses and
other current assets |
|
|
4 |
|
|
|
825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341 |
|
|
|
|
|
|
|
3,170 |
|
|
Total Current
Assets |
|
|
77 |
|
|
|
15,040 |
|
|
|
331 |
|
|
|
12 |
|
|
|
5 |
|
|
|
25,153 |
|
|
|
(16,979 |
) |
|
|
23,639 |
|
Investments, loans
and long-term
receivables* |
|
|
89,198 |
|
|
|
79,337 |
|
|
|
1,700 |
|
|
|
1,473 |
|
|
|
997 |
|
|
|
45,498 |
|
|
|
(186,460 |
) |
|
|
31,743 |
|
Net properties, plants
and equipment |
|
|
|
|
|
|
17,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,196 |
|
|
|
13 |
|
|
|
87,407 |
|
Goodwill |
|
|
|
|
|
|
12,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,617 |
|
|
|
|
|
|
|
29,374 |
|
Intangibles |
|
|
|
|
|
|
813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
899 |
|
Other assets |
|
|
8 |
|
|
|
147 |
|
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
|
|
445 |
|
|
|
(249 |
) |
|
|
365 |
|
|
Total Assets |
|
|
89,283 |
|
|
|
125,292 |
|
|
|
2,035 |
|
|
|
1,490 |
|
|
|
1,007 |
|
|
|
157,995 |
|
|
|
(203,675 |
) |
|
|
173,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
18 |
|
|
|
18,668 |
|
|
|
|
|
|
|
9 |
|
|
|
4 |
|
|
|
14,160 |
|
|
|
(16,602 |
) |
|
|
16,257 |
|
Notes payable and
long-term debt due
within
one year |
|
|
|
|
|
|
12 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
405 |
|
Accrued income and
other taxes |
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
4,125 |
|
|
|
97 |
|
|
|
4,741 |
|
Employee benefit
obligations |
|
|
|
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
1 |
|
|
|
740 |
|
Other accruals |
|
|
45 |
|
|
|
705 |
|
|
|
35 |
|
|
|
33 |
|
|
|
23 |
|
|
|
1,096 |
|
|
|
(2 |
) |
|
|
1,935 |
|
|
Total Current
Liabilities |
|
|
63 |
|
|
|
20,337 |
|
|
|
335 |
|
|
|
43 |
|
|
|
27 |
|
|
|
19,779 |
|
|
|
(16,506 |
) |
|
|
24,078 |
|
Long-term debt |
|
|
4,393 |
|
|
|
6,000 |
|
|
|
1,699 |
|
|
|
1,250 |
|
|
|
848 |
|
|
|
7,281 |
|
|
|
|
|
|
|
21,471 |
|
Asset retirement
obligations and
accrued
environmental costs |
|
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,558 |
|
|
|
|
|
|
|
6,561 |
|
Joint venture
acquisition
obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,445 |
|
|
|
|
|
|
|
6,445 |
|
Deferred income taxes |
|
|
(3 |
) |
|
|
3,199 |
|
|
|
|
|
|
|
26 |
|
|
|
16 |
|
|
|
17,675 |
|
|
|
11 |
|
|
|
20,924 |
|
Employee benefit
obligations |
|
|
|
|
|
|
2,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,222 |
|
|
|
|
|
|
|
3,419 |
|
Other liabilities and
deferred credits* |
|
|
4,623 |
|
|
|
32,473 |
|
|
|
|
|
|
|
149 |
|
|
|
100 |
|
|
|
30,349 |
|
|
|
(65,278 |
) |
|
|
2,416 |
|
|
Total Liabilities |
|
|
9,076 |
|
|
|
65,209 |
|
|
|
2,034 |
|
|
|
1,468 |
|
|
|
991 |
|
|
|
88,309 |
|
|
|
(81,773 |
) |
|
|
85,314 |
|
Minority interests |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,201 |
|
|
|
(2 |
) |
|
|
1,180 |
|
Retained earnings |
|
|
40,268 |
|
|
|
29,842 |
|
|
|
1 |
|
|
|
(159 |
) |
|
|
(102 |
) |
|
|
33,480 |
|
|
|
(56,540 |
) |
|
|
46,790 |
|
Other stockholders
equity |
|
|
39,939 |
|
|
|
30,260 |
|
|
|
|
|
|
|
181 |
|
|
|
118 |
|
|
|
35,005 |
|
|
|
(65,360 |
) |
|
|
40,143 |
|
|
Total |
|
$ |
89,283 |
|
|
|
125,292 |
|
|
|
2,035 |
|
|
|
1,490 |
|
|
|
1,007 |
|
|
|
157,995 |
|
|
|
(203,675 |
) |
|
|
173,427 |
|
|
|
|
* Includes intercompany loans. |
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
|
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1,042 |
|
|
|
(342 |
) |
|
|
817 |
|
Accounts and notes
receivable |
|
|
65 |
|
|
|
13,233 |
|
|
|
22 |
|
|
|
10 |
|
|
|
2 |
|
|
|
17,224 |
|
|
|
(16,450 |
) |
|
|
14,106 |
|
Inventories |
|
|
|
|
|
|
2,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,247 |
|
|
|
|
|
|
|
5,153 |
|
Prepaid expenses and
other current assets |
|
|
11 |
|
|
|
895 |
|
|
|
|
|
|
|
10 |
|
|
|
7 |
|
|
|
4,067 |
|
|
|
|
|
|
|
4,990 |
|
|
Total Current
Assets |
|
|
76 |
|
|
|
17,150 |
|
|
|
22 |
|
|
|
20 |
|
|
|
10 |
|
|
|
24,580 |
|
|
|
(16,792 |
) |
|
|
25,066 |
|
Investments, loans
and long-term
receivables* |
|
|
86,292 |
|
|
|
58,530 |
|
|
|
2,000 |
|
|
|
1,241 |
|
|
|
841 |
|
|
|
28,372 |
|
|
|
(156,563 |
) |
|
|
20,713 |
|
Net properties, plants
and equipment |
|
|
|
|
|
|
19,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,122 |
|
|
|
7 |
|
|
|
86,201 |
|
Goodwill |
|
|
|
|
|
|
15,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,262 |
|
|
|
|
|
|
|
31,488 |
|
Intangibles |
|
|
|
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
951 |
|
Other assets |
|
|
10 |
|
|
|
141 |
|
|
|
5 |
|
|
|
35 |
|
|
|
24 |
|
|
|
195 |
|
|
|
(48 |
) |
|
|
362 |
|
|
Total Assets |
|
|
86,378 |
|
|
|
110,971 |
|
|
|
2,027 |
|
|
|
1,296 |
|
|
|
875 |
|
|
|
136,630 |
|
|
|
(173,396 |
) |
|
|
164,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
68 |
|
|
|
16,641 |
|
|
|
|
|
|
|
5 |
|
|
|
3 |
|
|
|
14,367 |
|
|
|
(16,450 |
) |
|
|
14,634 |
|
Notes payable and
long-term debt due
within
one year |
|
|
3,431 |
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
4,043 |
|
Accrued income and
other taxes |
|
|
|
|
|
|
732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,577 |
|
|
|
98 |
|
|
|
4,407 |
|
Employee benefit
obligations |
|
|
|
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431 |
|
|
|
|
|
|
|
895 |
|
Other accruals |
|
|
50 |
|
|
|
804 |
|
|
|
24 |
|
|
|
16 |
|
|
|
10 |
|
|
|
1,565 |
|
|
|
(17 |
) |
|
|
2,452 |
|
|
Total Current
Liabilities |
|
|
3,549 |
|
|
|
19,166 |
|
|
|
24 |
|
|
|
21 |
|
|
|
13 |
|
|
|
20,027 |
|
|
|
(16,369 |
) |
|
|
26,431 |
|
Long-term debt |
|
|
6,521 |
|
|
|
6,036 |
|
|
|
1,999 |
|
|
|
1,250 |
|
|
|
848 |
|
|
|
6,437 |
|
|
|
|
|
|
|
23,091 |
|
Asset retirement
obligations and
accrued
environmental costs |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,524 |
|
|
|
|
|
|
|
5,619 |
|
Deferred income taxes |
|
|
(8 |
) |
|
|
2,969 |
|
|
|
|
|
|
|
16 |
|
|
|
10 |
|
|
|
17,086 |
|
|
|
1 |
|
|
|
20,074 |
|
Employee benefit
obligations |
|
|
|
|
|
|
2,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288 |
|
|
|
|
|
|
|
3,667 |
|
Other liabilities and
deferred credits* |
|
|
29 |
|
|
|
28,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,300 |
|
|
|
(48,584 |
) |
|
|
2,051 |
|
|
Total Liabilities |
|
|
10,091 |
|
|
|
59,951 |
|
|
|
2,023 |
|
|
|
1,287 |
|
|
|
871 |
|
|
|
71,662 |
|
|
|
(64,952 |
) |
|
|
80,933 |
|
Minority interests |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
|
|
|
|
|
|
1,202 |
|
Retained earnings |
|
|
34,756 |
|
|
|
22,939 |
|
|
|
4 |
|
|
|
29 |
|
|
|
26 |
|
|
|
28,029 |
|
|
|
(44,491 |
) |
|
|
41,292 |
|
Other stockholders
equity |
|
|
41,531 |
|
|
|
28,100 |
|
|
|
|
|
|
|
(20 |
) |
|
|
(22 |
) |
|
|
35,718 |
|
|
|
(63,953 |
) |
|
|
41,354 |
|
|
Total |
|
$ |
86,378 |
|
|
|
110,971 |
|
|
|
2,027 |
|
|
|
1,296 |
|
|
|
875 |
|
|
|
136,630 |
|
|
|
(173,396 |
) |
|
|
164,781 |
|
|
|
|
*Includes intercompany loans. |
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
ConocoPhillips |
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Funding |
|
|
Canada Funding |
|
|
Canada Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Company I |
|
|
Company II |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in)
Operating Activities |
|
$ |
11,862 |
|
|
|
(2,048 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
8,473 |
|
|
|
(664 |
) |
|
|
17,630 |
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Burlington Resources
Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and investments,
including dry hole costs |
|
|
|
|
|
|
(1,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,288 |
) |
|
|
202 |
|
|
|
(7,907 |
) |
Proceeds from asset dispositions |
|
|
|
|
|
|
1,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,604 |
|
|
|
(846 |
) |
|
|
3,057 |
|
Long-term advances/loans to affiliates |
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,486 |
) |
|
|
2,180 |
|
|
|
(449 |
) |
Collection of advances/loans to
affiliates |
|
|
|
|
|
|
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 company 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 year |
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1,042 |
|
|
|
(342 |
) |
|
|
817 |
|
|
Cash and Cash Equivalents at End of
Year |
|
$ |
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1,678 |
|
|
|
(373 |
) |
|
|
1,379 |
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ConocoPhillips |
|
|
Australia Funding |
|
|
All Other |
|
|
Consolidating |
|
|
Total |
|
|
|
ConocoPhillips |
|
|
Company |
|
|
Company |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities |
|
$ |
28,139 |
|
|
|
2,881 |
|
|
|
|
|
|
|
5,780 |
|
|
|
(20,921 |
) |
|
|
15,879 |
|
|
|
Cash Flows From
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
Burlington Resources
Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,285 |
) |
|
|
|
|
|
|
(14,285 |
) |
Capital expenditures
and investments,
including dry holes |
|
|
(17,494 |
) |
|
|
(2,760 |
) |
|
|
|
|
|
|
(9,404 |
) |
|
|
18,145 |
|
|
|
(11,513 |
) |
Proceeds from asset
dispositions |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
246 |
|
Long-term
advances/loans to
affiliates and other
investments |
|
|
(14,989 |
) |
|
|
(241 |
) |
|
|
(1,992 |
) |
|
|
(3,771 |
) |
|
|
20,361 |
|
|
|
(632 |
) |
Collection of
advances/loans to
affiliates |
|
|
|
|
|
|
2,513 |
|
|
|
|
|
|
|
1,107 |
|
|
|
(3,505 |
) |
|
|
115 |
|
|
Net Cash Used in
Investing Activities |
|
|
(32,483 |
) |
|
|
(484 |
) |
|
|
(1,992 |
) |
|
|
(26,111 |
) |
|
|
35,001 |
|
|
|
(26,069 |
) |
|
|
Cash Flows From
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
12,968 |
|
|
|
18,369 |
|
|
|
2,000 |
|
|
|
2,287 |
|
|
|
(20,361 |
) |
|
|
15,263 |
|
Repayment of debt |
|
|
(6,400 |
) |
|
|
(1,259 |
) |
|
|
|
|
|
|
(171 |
) |
|
|
3,505 |
|
|
|
(4,325 |
) |
Issuance of company
common stock |
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145 |
|
Repurchase of company
common stock |
|
|
(675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(675 |
) |
Dividends paid on
company common stock |
|
|
(1,684 |
) |
|
|
(20,000 |
) |
|
|
(1 |
) |
|
|
(748 |
) |
|
|
20,749 |
|
|
|
(1,684 |
) |
Other |
|
|
(10 |
) |
|
|
(58 |
) |
|
|
(7 |
) |
|
|
18,097 |
|
|
|
(18,145 |
) |
|
|
(123 |
) |
|
Net Cash Provided by
(Used in) Financing
Activities |
|
|
4,344 |
|
|
|
(2,948 |
) |
|
|
1,992 |
|
|
|
19,465 |
|
|
|
(14,252 |
) |
|
|
8,601 |
|
|
|
Effect of Exchange
Rate Changes on Cash
and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
71 |
|
|
|
Net Change in Cash and
Cash Equivalents |
|
|
|
|
|
|
(551 |
) |
|
|
|
|
|
|
(795 |
) |
|
|
(172 |
) |
|
|
(1,518 |
) |
Cash and cash
equivalents at
beginning of year |
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
1,601 |
|
|
|
|
|
|
|
2,214 |
|
|
Cash and Cash
Equivalents at End of
Period |
|
$ |
|
|
|
|
62 |
|
|
|
|
|
|
|
806 |
|
|
|
(172 |
) |
|
|
696 |
|
|
34
|
|
|
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, 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 58.
BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
ConocoPhillips is an international, integrated energy company. We are the third-largest integrated
energy company in the United States, based on market capitalization and proved reserves. At
September 30, 2007, we had total assets of $173 billion. Our stock is listed on the New York Stock
Exchange under the
symbol COP.
Our Exploration and Production (E&P) segment had net income of $2,082 million in the third quarter
of 2007. This compares with a net loss of $2,404 million in the second quarter of 2007, and net
income of $1,904 million in the third quarter of 2006. In the second quarter of 2007, we recorded
a non-cash 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 10Impairments, in the Notes to Consolidated Financial Statements.
Crude oil and natural gas prices, along with refining margins, are driven by market factors over
which we have no control. The results for the third quarter of 2007, compared with the second
quarter of 2007, were impacted by an increase in crude oil prices. Industry crude oil prices for
West Texas Intermediate averaged $75.48 per barrel in the third quarter of 2007, or $10.59 per
barrel higher than the second quarter of 2007. Crude oil prices were influenced by steady growth
in the demand for oil, coupled with supply concerns. Anticipated supply increases were not viewed
as sufficient to meet the seasonal demand increase in the second half of the year.
Industry natural gas prices for Henry Hub decreased during the third quarter of 2007 to $6.16 per
million British thermal units (MMBTU), down $1.39 per MMBTU from the second quarter of 2007.
Natural gas prices trended lower during the third quarter of 2007 as inventory storage levels
increased. Liquefied natural gas (LNG) imports into the United States increased during July and
August, helping to create the high inventory levels. The United States attracted a higher level of
imports than previously expected due to lower natural gas prices in Europe. The decrease in prices
due to higher storage levels was partially offset by hurricane concerns, as well as temperatures
during August that were higher than anticipated. As hurricane season progressed without any major
hurricanes impacting the Gulf of Mexico natural gas production region, Henry Hub prices moved
lower.
Our Refining and Marketing segment had net income of $1,307 million in the third quarter of 2007,
compared with $2,358 million in the second quarter of 2007, and $1,464 million in the third quarter
of 2006. Third-quarter 2007 realized refining and marketing margins were significantly lower than
the previous period, as gasoline prices declined and diesel prices did not keep pace with the rise
in crude oil prices due to market supply and demand conditions for refined products.
35
On January 3, 2007, we closed on the business venture with EnCana Corporation to create an
integrated
North American heavy-oil business. The venture consists of two 50/50 business ventures,
a Canadian upstream general partnership, FCCL Oil Sands Partnership, and a U.S. downstream limited
liability company, WRB Refining LLC. We use the equity method of accounting for both entities, and
the transaction is reflected in our results of operations beginning in the first quarter of 2007.
On March 31, 2006, we completed the $33.9 billion acquisition of Burlington Resources Inc.
(Burlington Resources). This acquisition is reflected in our results of operations beginning in
the second quarter of 2006.
In July 2007, we announced plans to repurchase up to $15 billion of our common stock through the
end of 2008. We repurchased $2.5 billion of our common stock in the third quarter of 2007 and expect
to repurchase $2 billion to $3 billion under this program in the fourth quarter of 2007.
RESULTS OF OPERATIONS
Unless
otherwise indicated, discussion of results for the three- and nine-month periods ending September 30, 2007, is based on a comparison with the corresponding periods of 2006.
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 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Exploration and Production (E&P) |
|
$ |
2,082 |
|
|
|
1,904 |
|
|
|
2,007 |
|
|
|
7,761 |
|
Midstream |
|
|
104 |
|
|
|
169 |
|
|
|
291 |
|
|
|
387 |
|
Refining and Marketing (R&M) |
|
|
1,307 |
|
|
|
1,464 |
|
|
|
4,801 |
|
|
|
3,562 |
|
LUKOIL Investment |
|
|
387 |
|
|
|
487 |
|
|
|
1,169 |
|
|
|
1,123 |
|
Chemicals |
|
|
110 |
|
|
|
142 |
|
|
|
260 |
|
|
|
394 |
|
Emerging Businesses |
|
|
3 |
|
|
|
11 |
|
|
|
(10 |
) |
|
|
7 |
|
Corporate and Other |
|
|
(320 |
) |
|
|
(301 |
) |
|
|
(998 |
) |
|
|
(881 |
) |
|
Net income |
|
$ |
3,673 |
|
|
|
3,876 |
|
|
|
7,520 |
|
|
|
12,353 |
|
|
Net income was $3,673 million in the third quarter of 2007, compared with $3,876 million in the
third quarter of 2006. For the nine-month periods ended September 30, 2007 and 2006, net income
was $7,520 million and $12,353 million, respectively.
The results for the third quarter of 2007 decreased primarily due to lower refining and marketing
margins in the R&M segment, as well as lower equity earnings from our investment in LUKOIL. These
decreases were partially offset by the net impact of asset rationalization efforts in our E&P and
R&M segments, as well as the settlement of retroactive adjustments for crude oil quality
differentials on Trans-Alaska Pipeline System shipments (Quality Bank). Additionally, the lower
results were partially offset by the impact of changes in tax laws and higher crude oil prices in
the E&P segment.
36
The lower results in the nine-month period were primarily the result of a complete impairment
($4,512 million after-tax) of our oil interests in Venezuela, resulting from their expropriation in
June of 2007. The nine-month period of 2007 benefited from the net impact of asset rationalization
efforts, as well as the Alaska Quality Bank settlements.
See the Segment Results section for additional information on our segment results.
Income Statement Analysis
Equity in earnings of affiliates increased 10 percent in the third quarter of 2007 and 13 percent
in the nine-month period, reflecting results from WRB Refining LLC, our new downstream business
venture with EnCana. The improved results for both 2007 periods were partially offset by lower
equity earnings from:
|
|
|
Hamaca and Petrozuata, our heavy-oil joint ventures in Venezuela, primarily due to the
expropriation of our oil interests during the second quarter of 2007. |
|
|
|
|
Chevron Phillips Chemical Company LLC, our chemicals joint venture, due to lower olefins
and polyolefins margins. |
|
|
|
|
DCP Midstream, our midstream joint venture, primarily due to higher operating costs and
a positive tax adjustment included in 2006 results. |
Earnings from our investment in LUKOIL were lower during the third quarter of 2007 due to an
alignment of estimated net income to reported results, as well as higher estimated operating costs.
Other income increased significantly during the third quarter and nine-month period of 2007. The
increase in both 2007 periods was primarily due to higher net gains on asset dispositions
associated with asset rationalization efforts. In addition, other income increased due to the
Alaska Quality Bank settlements. These increases were partially offset by the inclusion of a
benefit related to business interruption insurance in 2006 results.
Exploration expenses increased during the first nine months of 2007, partially reflecting the
amortization of unproved North American leaseholds obtained in the Burlington Resources acquisition
and the impairment of an international exploration license. The increase also reflects higher dry
hole costs and geological and geophysical expenses.
Depreciation, depletion and amortization (DD&A) increased 15 percent in the nine-month period of
2007, primarily resulting from the addition of Burlington Resources assets in the E&P segments
depreciable asset base.
Impairmentexpropriated assets reflects a non-cash impairment of $4,588 million before-tax related
to the expropriation of our oil interests in Venezuela recorded in the second quarter of 2007. For
additional information, see the Expropriated Assets section of Note 10Impairments, in the Notes
to Consolidated Financial Statements, which is incorporated herein by reference.
Interest and debt expense increased 27 percent in the third quarter of 2007 and 30 percent in the
nine-month period. The increase in both 2007 periods is primarily due to the interest expense
component of the Alaska Quality Bank settlements, as well as higher expense associated with the
funding requirements for the business venture with EnCana. The increase in the third quarter of
2007 is partially offset by lower average debt levels compared with the third quarter of 2006.
Our effective tax rate for the third quarter and first nine months of 2007 was 42 percent and 53
percent, respectively, compared with 51 percent and 45 percent for the corresponding periods of
2006. The change
37
in the effective tax rate for the third quarter of 2007 was primarily due to a tax rate increase
enacted in the United Kingdom in the third quarter of 2006, the effect of asset rationalization
efforts, and a tax rate decrease enacted in Germany in the third quarter of 2007. The change in
the effective rate for the nine-month period was primarily due to the impact of the expropriation
of our oil interests in Venezuela in the second quarter of 2007 (see Note 10Impairments, in the
Notes to Consolidated Financial Statements, for additional information). This impact was partially
offset by a higher proportion of income in higher-tax-rate jurisdictions for the nine months of
2006.
Foreign currency transaction gains in the first nine months of 2007 primarily reflect the
strengthening of the Canadian dollar against the U.S. dollar.
38
Segment Results
E&P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Millions of Dollars |
|
|
|
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
$ |
765 |
|
|
|
425 |
|
|
|
1,807 |
|
|
|
1,877 |
|
Lower 48 |
|
|
460 |
|
|
|
570 |
|
|
|
1,389 |
|
|
|
1,599 |
|
|
United States |
|
|
1,225 |
|
|
|
995 |
|
|
|
3,196 |
|
|
|
3,476 |
|
International |
|
|
857 |
|
|
|
909 |
|
|
|
(1,189 |
) |
|
|
4,285 |
|
|
|
|
$ |
2,082 |
|
|
|
1,904 |
|
|
|
2,007 |
|
|
|
7,761 |
|
|
|
|
|
Dollars Per Unit
|
|
|
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
72.00 |
|
|
|
67.25 |
|
|
|
62.70 |
|
|
|
63.05 |
|
International |
|
|
74.03 |
|
|
|
67.45 |
|
|
|
65.19 |
|
|
|
65.27 |
|
Total consolidated |
|
|
73.01 |
|
|
|
67.37 |
|
|
|
63.99 |
|
|
|
64.30 |
|
Equity affiliates* |
|
|
44.60 |
|
|
|
46.98 |
|
|
|
44.30 |
|
|
|
47.36 |
|
Worldwide E&P |
|
|
71.34 |
|
|
|
65.04 |
|
|
|
61.80 |
|
|
|
62.18 |
|
Natural gas (per thousand cubic feet) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
5.36 |
|
|
|
5.98 |
|
|
|
6.01 |
|
|
|
6.21 |
|
International |
|
|
5.75 |
|
|
|
5.87 |
|
|
|
6.24 |
|
|
|
6.23 |
|
Total consolidated |
|
|
5.56 |
|
|
|
5.92 |
|
|
|
6.13 |
|
|
|
6.22 |
|
Equity affiliates* |
|
|
|
|
|
|
.32 |
|
|
|
.30 |
|
|
|
.30 |
|
Worldwide E&P |
|
|
5.56 |
|
|
|
5.91 |
|
|
|
6.13 |
|
|
|
6.21 |
|
Natural gas liquids (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
47.73 |
|
|
|
42.68 |
|
|
|
43.34 |
|
|
|
41.86 |
|
International |
|
|
48.63 |
|
|
|
44.89 |
|
|
|
44.21 |
|
|
|
43.84 |
|
Total consolidated |
|
|
48.09 |
|
|
|
43.62 |
|
|
|
43.71 |
|
|
|
42.78 |
|
Equity affiliates* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide E&P |
|
|
48.09 |
|
|
|
43.62 |
|
|
|
43.71 |
|
|
|
42.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
Worldwide Exploration Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General administrative; geological and geophysical; and
lease rentals |
|
$ |
144 |
|
|
|
142 |
|
|
|
384 |
|
|
|
302 |
|
Leasehold impairment |
|
|
51 |
|
|
|
37 |
|
|
|
196 |
|
|
|
89 |
|
Dry holes |
|
|
23 |
|
|
|
18 |
|
|
|
159 |
|
|
|
52 |
|
|
|
|
$ |
218 |
|
|
|
197 |
|
|
|
739 |
|
|
|
443 |
|
|
|
|
|
* Excludes our equity share of LUKOIL reported in the LUKOIL Investment segment. |
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Thousands of Barrels Daily |
|
|
|
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil produced |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
241 |
|
|
|
234 |
|
|
|
261 |
|
|
|
265 |
|
Lower 48 |
|
|
103 |
|
|
|
119 |
|
|
|
104 |
|
|
|
101 |
|
|
United States |
|
|
344 |
|
|
|
353 |
|
|
|
365 |
|
|
|
366 |
|
Europe |
|
|
203 |
|
|
|
240 |
|
|
|
210 |
|
|
|
246 |
|
Asia Pacific |
|
|
83 |
|
|
|
111 |
|
|
|
91 |
|
|
|
109 |
|
Canada |
|
|
17 |
|
|
|
26 |
|
|
|
19 |
|
|
|
25 |
|
Middle East and Africa |
|
|
73 |
|
|
|
126 |
|
|
|
80 |
|
|
|
103 |
|
Other areas |
|
|
10 |
|
|
|
9 |
|
|
|
10 |
|
|
|
6 |
|
|
Total consolidated |
|
|
730 |
|
|
|
865 |
|
|
|
775 |
|
|
|
855 |
|
Equity affiliates* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
29 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
Russia and Caspian |
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
Venezuela |
|
|
|
|
|
|
89 |
|
|
|
56 |
|
|
|
102 |
|
|
|
|
|
774 |
|
|
|
969 |
|
|
|
873 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids produced |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
15 |
|
|
|
11 |
|
|
|
18 |
|
|
|
18 |
|
Lower 48 |
|
|
73 |
|
|
|
75 |
|
|
|
71 |
|
|
|
58 |
|
|
United States |
|
|
88 |
|
|
|
86 |
|
|
|
89 |
|
|
|
76 |
|
Europe |
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
|
|
12 |
|
Asia Pacific |
|
|
13 |
|
|
|
20 |
|
|
|
13 |
|
|
|
20 |
|
Canada |
|
|
26 |
|
|
|
28 |
|
|
|
29 |
|
|
|
23 |
|
Middle East and Africa |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
139 |
|
|
|
146 |
|
|
|
145 |
|
|
|
132 |
|
|
|
|
|
Millions of Cubic Feet Daily
|
|
|
|
Natural gas produced** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
116 |
|
|
|
123 |
|
|
|
113 |
|
|
|
150 |
|
Lower 48 |
|
|
2,219 |
|
|
|
2,320 |
|
|
|
2,210 |
|
|
|
1,953 |
|
|
United States |
|
|
2,335 |
|
|
|
2,443 |
|
|
|
2,323 |
|
|
|
2,103 |
|
Europe |
|
|
793 |
|
|
|
955 |
|
|
|
932 |
|
|
|
1,061 |
|
Asia Pacific |
|
|
575 |
|
|
|
670 |
|
|
|
592 |
|
|
|
579 |
|
Canada |
|
|
1,069 |
|
|
|
1,154 |
|
|
|
1,118 |
|
|
|
930 |
|
Middle East and Africa |
|
|
124 |
|
|
|
134 |
|
|
|
130 |
|
|
|
129 |
|
Other areas |
|
|
20 |
|
|
|
23 |
|
|
|
21 |
|
|
|
16 |
|
|
Total consolidated |
|
|
4,916 |
|
|
|
5,379 |
|
|
|
5,116 |
|
|
|
4,818 |
|
Equity affiliates* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venezuela |
|
|
|
|
|
|
8 |
|
|
|
6 |
|
|
|
9 |
|
|
|
|
|
4,916 |
|
|
|
5,387 |
|
|
|
5,122 |
|
|
|
4,827 |
|
|
|
|
* |
Excludes our equity share of LUKOIL reported in the LUKOIL Investment segment. |
|
** |
Represents quantities available for sale. Excludes gas equivalent of natural gas liquids shown above. |
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Thousands of Barrels Daily |
|
|
|
|
Mining operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syncrude produced |
|
|
27 |
|
|
|
23 |
|
|
|
24 |
|
|
|
20 |
|
|
The E&P segment explores for, produces 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, 2007, our E&P operations were producing in
the United States, Norway, the United Kingdom, the Netherlands, Canada, Nigeria, Ecuador,
Argentina, offshore Timor Leste in the Timor Sea, Australia, China, Indonesia, Algeria, Libya,
Vietnam, and Russia.
Net income for the E&P segment increased 9 percent in the third quarter of 2007, primarily due to
the negative impact of changes in tax laws on the results for the third quarter of 2006. The
increase also resulted from higher crude oil prices and a net benefit associated with asset
rationalization efforts. In addition, the third quarter of 2007 was impacted by the Quality Bank
settlements. These increases were partially offset by lower crude oil and natural gas production,
as well as lower natural gas prices and higher operating costs.
Net income for the E&P segment was $2,007 million in the nine-month period of 2007, compared with
net income of $7,761 million in the corresponding period of 2006. In the second quarter of 2007,
we recorded a non-cash 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 10Impairments, in the Notes to Consolidated Financial
Statements, which is incorporated herein by reference. The results for the nine-month period
reflect this impairment of expropriated assets in Venezuela, as well as higher DD&A expense,
operating costs and taxes, and lower realized crude oil and natural gas prices. These decreases
were partially offset by a net benefit from asset rationalization efforts and net foreign exchange
gains.
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 23 percent in the third quarter of 2007,
primarily due to higher crude oil prices and sales volumes, as well as the Alaska Quality Bank
settlements recorded in the third quarter of 2007. These increases were partially offset by lower
natural gas prices and production, higher operating costs, and higher production taxes in Alaska.
Net income for the first nine months of 2007 decreased 8 percent, primarily due to higher operating
costs, lower crude oil and natural gas prices, and higher production taxes in Alaska. These
decreases were partially offset by higher gas production, as well as the Alaska Quality Bank
settlements recorded in 2007. In addition, results included gains on the sale of assets in Alaska
and the Gulf of Mexico.
U.S. E&P production on a barrel-of-oil-equivalent (BOE) basis averaged 821,000 BOE per day in the
third quarter of 2007, a decrease of 3 percent from 846,000 BOE per day in the third quarter of
2006. Production was impacted in 2007 by normal field decline, offset slightly by less downtime in
Alaska and new production from satellite fields in Alaska.
41
International E&P
Net income from our international E&P operations decreased 6 percent in the third quarter of 2007.
The decrease in net income was primarily due to lower crude oil production and, to a lesser extent,
lower natural gas production. In addition, the results reflect higher operating costs and a
decrease in natural gas prices. These decreases were partially offset by a U.K. tax increase
enacted in the third quarter of 2006, as well as higher crude oil prices and a net benefit from
asset rationalization efforts.
Our international E&P operations reported a net loss of $1,189 million in the nine-month period of
2007, compared with net income of $4,285 million in the corresponding period of 2006. The results
were impacted by the impairment of expropriated assets, lower crude oil production, and higher
operating costs. These decreases were partially offset by a net benefit from asset rationalization
efforts and higher natural gas production.
International E&P production averaged 911,000 BOE per day in the third quarter of 2007, a decrease
of
22 percent from 1,167,000 BOE per day in the third quarter of 2006. Production was impacted by the
expropriation of our Venezuelan oil projects, our exit from Dubai, planned and unplanned downtime
in Australia and the North Sea, production sharing contract impacts, and the effect of asset
dispositions. These decreases were slightly offset by production volumes from our upstream
business venture with EnCana.
Estimated production for the first six months of 2007 at Petrozuata and Hamaca was 83,000 net
barrels per day of crude oil after application of disproportionate OPEC restrictions imposed by the
Venezuelan government for January through mid-May, 2007. The estimated net loss attributable to our
Venezuelan operations for the first six months of 2007 was $4,393 million, including the $4,512
million (after-tax) impairment of our expropriated Venezuelan oil assets.
ConocoPhillips 40 percent interest in Block 2 of Plataforma Deltana, a natural gas region on
Venezuelas continental shelf, was not included in the Nationalization Decree. We continue to
evaluate our opportunities for commercial development of Block 2.
In October of 2007, the president of Ecuador issued a decree increasing the amount of government
royalty entitlement on crude oil production to 99 percent of any increase in the price of crude oil
above a contractual reference price. This decree was published into law effective October 18,
2007. We are currently evaluating the impact of this law on our operations.
Our Canadian Syncrude mining operations produced 27,000 barrels per day in the third quarter of
2007, compared with 23,000 barrels per day in the third quarter of 2006.
42
Midstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Millions of Dollars |
|
|
|
|
Net Income* |
|
$ |
104 |
|
|
|
169 |
|
|
|
291 |
|
|
|
387 |
|
|
*Includes DCP Midstream-related net income: |
|
$ |
90 |
|
|
|
128 |
|
|
|
216 |
|
|
|
312 |
|
|
|
|
Dollars Per Barrel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. natural gas liquids* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
48.62 |
|
|
|
44.10 |
|
|
|
43.85 |
|
|
|
41.16 |
|
Equity |
|
|
47.73 |
|
|
|
43.00 |
|
|
|
42.86 |
|
|
|
40.49 |
|
|
|
|
* |
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* |
|
|
216 |
|
|
|
210 |
|
|
|
208 |
|
|
|
209 |
|
Natural gas liquids fractionated** |
|
|
168 |
|
|
|
138 |
|
|
|
173 |
|
|
|
143 |
|
|
|
|
* |
Includes our share of equity affiliates. |
|
** |
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 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 decreased 38 percent in the third quarter of 2007 and 25
percent in the first nine months of 2007, primarily due to a positive tax adjustment included in
the 2006 results. In addition, the results for both 2007 periods reflect a gradual shift in
natural gas purchase contract terms that are more favorable to natural gas producers. Earnings
from DCP Midstream were lower in both 2007 periods, primarily due to increased operating costs,
mainly repairs, maintenance and asset integrity work. These decreases were slightly offset by
higher natural gas liquids prices.
43
R&M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Millions of Dollars |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
873 |
|
|
|
1,444 |
|
|
|
3,648 |
|
|
|
3,174 |
|
International |
|
|
434 |
|
|
|
20 |
|
|
|
1,153 |
|
|
|
388 |
|
|
|
|
$ |
1,307 |
|
|
|
1,464 |
|
|
|
4,801 |
|
|
|
3,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Gallon |
|
|
|
|
U.S. Average Sales Prices* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
2.32 |
|
|
|
2.27 |
|
|
|
2.23 |
|
|
|
2.13 |
|
Retail |
|
|
2.43 |
|
|
|
2.46 |
|
|
|
2.38 |
|
|
|
2.28 |
|
Distillateswholesale |
|
|
2.36 |
|
|
|
2.31 |
|
|
|
2.18 |
|
|
|
2.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Barrels Daily |
|
|
|
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining operations* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
2,037 |
|
|
|
2,208 |
|
|
|
2,034 |
|
|
|
2,208 |
|
Crude oil runs |
|
|
1,980 |
|
|
|
2,127 |
|
|
|
1,938 |
|
|
|
1,990 |
|
Capacity utilization (percent) |
|
|
97 |
% |
|
|
96 |
|
|
|
95 |
% |
|
|
90 |
|
Refinery production |
|
|
2,177 |
|
|
|
2,334 |
|
|
|
2,139 |
|
|
|
2,173 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
687 |
|
|
|
693 |
|
|
|
693 |
|
|
|
637 |
|
Crude oil runs |
|
|
574 |
|
|
|
617 |
|
|
|
616 |
|
|
|
586 |
|
Capacity utilization (percent) |
|
|
84 |
% |
|
|
89 |
|
|
|
89 |
% |
|
|
92 |
|
Refinery production |
|
|
593 |
|
|
|
643 |
|
|
|
634 |
|
|
|
613 |
|
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
2,724 |
|
|
|
2,901 |
|
|
|
2,727 |
|
|
|
2,845 |
|
Crude oil runs |
|
|
2,554 |
|
|
|
2,744 |
|
|
|
2,554 |
|
|
|
2,576 |
|
Capacity utilization (percent) |
|
|
94 |
% |
|
|
95 |
|
|
|
94 |
% |
|
|
91 |
|
Refinery production |
|
|
2,770 |
|
|
|
2,977 |
|
|
|
2,773 |
|
|
|
2,786 |
|
|
|
|
* |
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. Actual capacity at September 30, 2007 and 2006, was 2,037,000 and 2,208,000 barrels per day, respectively, for
our domestic refineries, 669,000 and 693,000 barrels per day, respectively, for our international refineries and 2,706,000 and 2,901,000 barrels per day, respectively, worldwide.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
products sales volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
1,212 |
|
|
|
1,369 |
|
|
|
1,256 |
|
|
|
1,309 |
|
Distillates |
|
|
869 |
|
|
|
848 |
|
|
|
853 |
|
|
|
827 |
|
Other products |
|
|
439 |
|
|
|
519 |
|
|
|
473 |
|
|
|
530 |
|
|
|
|
|
2,520 |
|
|
|
2,736 |
|
|
|
2,582 |
|
|
|
2,666 |
|
International |
|
|
629 |
|
|
|
749 |
|
|
|
694 |
|
|
|
772 |
|
|
|
|
|
3,149 |
|
|
|
3,485 |
|
|
|
3,276 |
|
|
|
3,438 |
|
|
44
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, 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 11 percent in the third quarter of 2007, primarily due to
lower realized refining and marketing margins and a business interruption insurance benefit
recognized in the prior year. This decrease was further attributed to the net impact of our
contribution of assets to WRB Refining LLC (WRB), our downstream business venture with EnCana.
These decreases were largely offset by a net benefit from asset rationalization efforts and the
impact of a tax law change in Germany.
Net income for the first nine months of 2007 increased 35 percent. This increase was primarily due
to a net benefit from asset rationalization efforts, higher Gulf and East Coast refining volumes,
higher realized refining and marketing margins, and the tax law change in Germany. The increase
was partially offset by the net impact of the contribution of assets to WRB, as well as the
business interruption insurance benefit recognized in the prior year.
U.S.
R&M
Net income from our U.S. R&M operations decreased 40 percent in the third quarter of 2007,
primarily due to lower refining and marketing margins. In addition, net income decreased due to
the inclusion of a benefit related to business interruption insurance in the results for 2006, as
well as the net impact of our contribution of assets to WRB. These decreases were slightly offset
by a net benefit from asset rationalization efforts.
Net income for the first nine months of 2007 increased 15 percent, primarily due to higher Gulf and
East Coast refining volumes, higher realized refining and marketing margins and a net benefit from
asset rationalization efforts. The increase was partially offset by the net impact associated with
the contribution of assets to WRB and the inclusion of a benefit related to business interruption
insurance in 2006 results.
Our U.S. refining capacity utilization rate was 97 percent in the third quarter of 2007, a slight
improvement from the third-quarter 2006 rate of 96 percent.
International
R&M
Net income from our international R&M operations was $434 million in the third quarter of 2007 and
$1,153 million in the first nine months of 2007, compared with net income of $20 million and $388
million, respectively, in the corresponding periods of 2006. The increases in both 2007 periods
were primarily due to a net benefit from asset rationalization efforts, as well as a tax law change
in Germany during the third quarter of 2007. The results for the first nine months of 2007 also
benefited from a slight increase in refining and marketing margins. The increase in the third
quarter of 2007 was slightly offset by lower refining and marketing margins.
Our international refining capacity utilization rate was 84 percent in the third quarter of 2007,
compared with 89 percent in the third quarter of 2006. The Wilhelmshaven refinery in Germany was
temporarily shut down during the month of August due to economic conditions.
45
LUKOIL Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Income |
|
$ |
387 |
|
|
|
487 |
|
|
|
1,169 |
|
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Statistics* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net crude oil production (thousands of barrels daily) |
|
|
390 |
|
|
|
388 |
|
|
|
404 |
|
|
|
347 |
|
Net natural gas production (millions of cubic feet daily) |
|
|
249 |
|
|
|
288 |
|
|
|
278 |
|
|
|
244 |
|
Net refinery crude oil processed (thousands of barrels daily) |
|
|
226 |
|
|
|
164 |
|
|
|
210 |
|
|
|
165 |
|
|
|
|
|
*Represents our net share of our estimate of LUKOILs
production and processing. |
This 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, 2007, our ownership interest in LUKOIL was 20 percent based on 851
million issued shares. Our ownership interest based on estimated shares outstanding, used for
equity-method accounting, was 20.5 percent at September 30, 2007.
Because 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, historical
production and cost trends of LUKOIL, 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.
In addition to our estimate of our 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 historical cost of our investment in LUKOIL, and also includes the costs associated with our
employees seconded to LUKOIL and accruals for dividend withholding taxes.
Net income from the LUKOIL Investment segment decreased 21 percent in the third quarter of 2007,
primarily due to an alignment of estimated net income to reported results, as well as higher
estimated operating costs. These decreases were partially offset by higher estimated volumes and
petroleum product prices, as well as an increase in our equity ownership.
Net income for the first nine months of 2007 increased 4 percent, primarily due to higher estimated
volumes, an increase in our equity ownership, and higher estimated petroleum product prices. These
increases were partially offset by the alignment of estimated net income to reported results, as
well as higher estimated operating costs.
46
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Income |
|
$ |
110 |
|
|
|
142 |
|
|
|
260 |
|
|
|
394 |
|
|
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 23 percent in the third quarter of 2007, primarily
due to lower olefins and polyolefins margins and, to a lesser extent, lower margins from aromatics
and styrenics.
Net income for the first nine months of 2007 decreased 34 percent, reflecting lower margins from
olefins and polyolefins and higher expense resulting from planned turnarounds and unplanned
maintenance at certain facilities.
Emerging Businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power |
|
$ |
21 |
|
|
|
26 |
|
|
|
33 |
|
|
|
60 |
|
Other |
|
|
(18 |
) |
|
|
(15 |
) |
|
|
(43 |
) |
|
|
(53 |
) |
|
|
|
$ |
3 |
|
|
|
11 |
|
|
|
(10 |
) |
|
|
7 |
|
|
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 other items, such as carbon-to-liquids, technology solutions, and alternative energy
and programs, such as advanced hydrocarbon processes, energy conversion technologies, new
petroleum-based products, and renewable fuels.
The Emerging Businesses segment reported net income of $3 million in the third quarter of 2007,
compared with net income of $11 million in the corresponding quarter of 2006. The first nine
months of 2007 resulted in a net loss of $10 million, compared with net income of $7 million in the
first nine months of 2006. Both periods reflect lower margins from the Immingham power plant in
the United Kingdom.
47
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest |
|
$ |
(195 |
) |
|
|
(242 |
) |
|
|
(663 |
) |
|
|
(602 |
) |
Corporate general and administrative expenses |
|
|
(49 |
) |
|
|
(35 |
) |
|
|
(126 |
) |
|
|
(100 |
) |
Acquisition/merger-related costs |
|
|
(11 |
) |
|
|
(32 |
) |
|
|
(40 |
) |
|
|
(76 |
) |
Other |
|
|
(65 |
) |
|
|
8 |
|
|
|
(169 |
) |
|
|
(103 |
) |
|
|
|
$ |
(320 |
) |
|
|
(301 |
) |
|
|
(998 |
) |
|
|
(881 |
) |
|
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. Net interest decreased 19
percent in the third quarter of 2007, primarily due to lower average debt levels, as well as higher
amounts of interest being capitalized. These items were slightly offset by the net impact of the
interest components of the Quality Bank settlements. Net interest increased 10 percent in the
first nine months of 2007, primarily due to the net impact of the Quality Bank settlements and a
premium on the early retirement of debt, partially offset by higher amounts of interest being
capitalized.
Corporate general and administrative expenses increased 40 percent in the third quarter of 2007 and
26 percent in the first nine months of 2007. The increase in both periods was primarily due to
increased benefit-related expenses.
Acquisition/merger-related costs include seismic relicensing and other transition costs associated
with the Burlington Resources acquisition.
The category Other includes certain foreign currency transaction gains and losses, and
environmental costs associated with sites no longer in operation. Results from Other were
primarily impacted by foreign currency losses in 2007.
48
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
At September 30 |
|
|
At December 31 |
|
|
|
2007 |
|
|
2006 |
|
Notes payable and long-term debt due within one year |
|
$ |
405 |
|
|
|
4,043 |
|
Total debt* |
|
$ |
21,876 |
|
|
|
27,134 |
|
Minority interests |
|
$ |
1,180 |
|
|
|
1,202 |
|
Common stockholders equity |
|
$ |
86,933 |
|
|
|
82,646 |
|
Percent of total debt to capital** |
|
|
20 |
% |
|
|
24 |
|
Percent of floating-rate debt to total debt |
|
|
27 |
% |
|
|
41 |
|
|
|
|
* |
Total debt includes notes payable and long-term debt due within one year, 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 2007, we raised $3,057 million from the sale of assets. During the first nine
months, available cash was used to support our ongoing capital expenditures and investments
program, repurchase shares of our common stock, repay debt, provide loan financing to certain
equity affiliates, pay dividends, and meet the funding requirements related to the business venture
with EnCana Corporation (EnCana), which closed January 3, 2007. Total dividends paid on our common
stock during the first nine months were $2,009 million. During the first nine months of 2007, cash
and cash equivalents increased $562 million to $1,379 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. We anticipate these sources of
liquidity will be adequate to meet our funding requirements through 2008, including our capital
spending program, our share repurchase programs, dividend payments, required debt payments and the
funding requirements related to our business venture with EnCana.
Significant Sources of Capital
Operating
Activities
During the first nine months of 2007, cash of $17,630 million was provided by operating activities,
an
11 percent increase from cash from operations of $15,879 million in the corresponding period of
2006. Contributing to the increase was a lower inventory build in the 2007 period, partially related to the formation of the WRB downstream business venture; the impact of
the Burlington Resources acquisition late in the first quarter of 2006; and higher U.S. refining
and marketing margins in 2007. These positive factors were partially offset by the absence of
dividends from our Venezuelan operations in 2007 and lower crude oil and natural gas prices.
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 2007 and 2006, we benefited
from favorable crude oil and
49
natural gas prices, as well as refining margins. The sustainability
of these prices and margins is 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 certain of 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.
In 2006, we received approximately $1.1 billion in distributions from two heavy-oil projects in
Venezuela. The majority of these distributions represented operating results from previous years.
We did not receive a distribution related to these projects in the first nine months of 2007. See
the Outlook section for additional discussion concerning our operations in Venezuela.
Asset Sales
Proceeds from asset sales during the first nine months of 2007 were $3,057 million, compared with
$246 million for the same period of 2006. The increase is mainly due to our ongoing asset
rationalization efforts.
Commercial Paper and Credit Facilities
In September 2007, we replaced our $5 billion and $2.5 billion revolving credit facilities with a
$7.5 billion revolving credit facility expiring in September 2012. The new facility contains the
same terms as the previous facilities. The facility may be used as direct bank borrowings, as
support for the ConocoPhillips $7.5 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, 2007, and December
31, 2006, we had no outstanding borrowings under our credit facilities, but $41 million in letters
of credit had been issued at both dates. Under both commercial paper programs, there was $603
million of commercial paper outstanding at
September 30, 2007, compared with $2,931 million at December 31, 2006.
At September 30, 2007, our primary funding source for short-term working capital needs was the
ConocoPhillips $7.5 billion commercial paper program, a portion of which may be denominated in
other currencies (limited to euro 3 billion equivalent). Commercial paper maturities are generally
limited to 90 days. Based on $603 million of commercial paper outstanding and $41 million of
issued letters of credit, we had access to $6.9 billion in unused borrowing capacity under our
revolving credit facility at
September 30, 2007.
In October 2007, Standard and Poors Rating Service and Fitch both increased their ratings on our
senior long-term debt and our short-term debt. Standard and Poors increased our long-term rating
from A- to A and our short-term rating from A-2 to A-1. Fitch increased our long-term
rating from A- to A and our short-term rating from F2 to F1.
50
Shelf Registrations
We have a universal shelf registration statement on file with the 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.
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, 2007, we had outstanding $1,180 million of equity in less than wholly owned
consolidated subsidiaries held by minority interest owners, including a minority interest of $508
million in Ashford Energy Capital S.A. and a minority interest of $646 million related to Darwin
LNG, located in northern Australia.
Off-Balance Sheet Arrangements
As part of our normal ongoing business operations and consistent with 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, 2007, we were
liable for certain contingent obligations under the following contractual arrangements:
|
|
|
Qatargas 3: Qatargas 3 is an integrated project to produce and liquefy natural
gas from Qatars North field. We own a 30 percent interest in the project. 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, excluding accrued interest. Upon completion certification,
which is expected in 2010, all project loan facilities, including the ConocoPhillips loan
facilities, will become non-recourse to the project participants. At September 30, 2007,
Qatargas 3 had $2.0 billion outstanding under all the loan facilities, of which
ConocoPhillips provided $608 million, including $34 million of accrued interest. |
|
|
|
|
Rockies Express Pipeline LLC: In June 2006, we issued a guarantee for 24
percent of the $2.0 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. 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 facility is fully utilized and Rockies Express fails to meet its obligations under
the credit agreement. At September 30, 2007, Rockies Express had $1,758 million
outstanding under the credit facilities, with our 24 percent guarantee equaling
$422 million. In addition, we have a 24 percent guarantee on $600 million of Floating Rate
Notes due 2009 issued by Rockies Express in September 2007. It is anticipated that
construction completion will be achieved at the end of 2009, and refinancing will take place
at that time, making the debt non-recourse. |
51
Other: At September 30, 2007, we had 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 was approximately $130 million. Payment would
be required if a joint venture defaults on its debt obligations.
For additional information about guarantees, see Note 13Guarantees, in the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
Capital Requirements
Our debt balance at September 30, 2007, was $21.9 billion, a decrease of $5.3 billion during the
first nine months of 2007.
On February 9, 2007, we announced plans to repurchase $4 billion of our common stock in 2007. On July 9, 2007, we announced plans to repurchase up to $15 billion of our common stock through the
end of 2008. This amount included $2 billion remaining under the $4 billion program announced in
February 2007. During the first nine months of 2007, we repurchased 59.3 million shares of our
common stock at a cost of $4.5 billion, including 177,000 shares at a cost of $14 million from a
consolidated Burlington Resources grantor trust. We anticipate fourth-quarter 2007 share
repurchases to be $2 billion to $3 billion.
In December 2005, we entered into a credit agreement with Qatargas 3 to provide loan financing of
approximately $1.2 billion, excluding accrued interest for the construction of an LNG train in
Qatar. This financing will represent 30 percent of the projects total debt financing. Through
September 30, 2007, we had provided $608 million in loan financing, including $34 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 LNG) to
participate in an LNG receiving terminal in Quintana, Texas. We entered into a credit agreement
with Freeport LNG to provide loan financing of approximately $631 million, excluding accrued
interest for the construction of the facility, which began in early 2005. Through September 30,
2007, we had provided $648 million in loan financing, including $74 million of accrued interest.
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 will have no governance or ownership interest in the terminal. We estimate our
total loan obligation for the terminal expansion to be approximately $410 million at current
exchange rates, excluding interest to be accrued during construction. This amount will be adjusted
as the projects cost estimate and schedule are updated and the ruble exchange rate fluctuates.
Through September 30, 2007, we had provided $303 million in loan financing, including $25 million
of accrued interest.
Our loans to Qatargas 3, Freeport LNG and Varandey Terminal Company are included in the Loans and
advancesrelated parties line on our consolidated balance sheet.
On January 3, 2007, we closed on the previously announced business venture with EnCana. As part of
this transaction, we are obligated to contribute $7.5 billion, plus accrued interest, over a
10-year period beginning in 2007, to the upstream business venture formed as a result of the
transaction. An initial cash contribution of $188 million was made upon closing in January.
Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and
will continue until the balance is paid. This obligation is reflected as a liability on our
September 30, 2007, consolidated balance sheet. Of the principal obligation amount, approximately
$586 million is short-term and is included in the Accounts
52
payablerelated parties line on our consolidated balance sheet. The principal portion of these
payments is presented on our consolidated statement of cash flows as an other financing activity.
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 an investment purchase and is included in
the Capital expenditures and investments line on our consolidated statement of cash flows.
Effective January 15, 2007, we redeemed the 8% Junior Subordinated Deferrable Interest Debentures
due 2037, at a premium of $14 million, plus accrued interest. This redemption resulted in the
immediate redemption by Phillips 66 Capital II of $350 million of 8% Capital Securities. See Note
11Debt, in the Notes to Consolidated Financial Statements, for additional information.
Also, in January 2007, we redeemed our $153 million 7.25% Notes due 2007 upon their maturity. In
February 2007, we reduced our Floating Rate Five-Year Term Note due 2011 from $5 billion to $4
billion, with a subsequent reduction in July 2007 to $3 billion. In April 2007, we redeemed our $1
billion Floating Rate Notes due 2007 upon their maturity.
In May 2007, Polar Tankers Inc., a wholly owned subsidiary, issued an offering of $645 million
5.951% Notes due 2037. The notes are fully and unconditionally guaranteed by ConocoPhillips and
ConocoPhillips Company.
On October 31, 2007, we redeemed $300 million of ConocoPhillips Australia Funding Companys
Floating Rate Notes due 2009 at par plus accrued interest.
Contractual Obligations
Our contractual purchase obligations at September 30, 2007, were estimated to be $118 billion, an
increase of $25 billion from the amount reported at December 31, 2006, of $93 billion. The
increase primarily results from the EnCana joint venture acquisition obligation, as well as mostly
higher crude oil, natural gas and NGL prices, and commodity derivative positions.
53
Capital Spending
Capital Expenditures and Investments
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
2007 |
|
|
2006 |
|
E&P |
|
|
|
|
|
|
|
|
United StatesAlaska |
|
$ |
471 |
|
|
|
615 |
|
United StatesLower 48 |
|
|
2,085 |
|
|
|
1,388 |
|
International |
|
|
4,339 |
|
|
|
4,829 |
|
|
|
|
|
6,895 |
|
|
|
6,832 |
|
|
Midstream |
|
|
2 |
|
|
|
2 |
|
|
R&M |
|
|
|
|
|
|
|
|
United States |
|
|
617 |
|
|
|
1,128 |
|
International |
|
|
135 |
|
|
|
1,356 |
|
|
|
|
|
752 |
|
|
|
2,484 |
|
|
LUKOIL Investment |
|
|
|
|
|
|
1,962 |
|
Chemicals |
|
|
|
|
|
|
|
|
Emerging Businesses |
|
|
127 |
|
|
|
46 |
|
Corporate and Other |
|
|
131 |
|
|
|
187 |
|
|
|
|
$ |
7,907 |
|
|
|
11,513 |
|
|
United States |
|
$ |
3,306 |
|
|
|
3,358 |
|
International |
|
|
4,601 |
|
|
|
8,155 |
|
|
|
|
$ |
7,907 |
|
|
|
11,513 |
|
|
E&P
UNITED STATES
Alaska
During the first nine months of 2007, we continued development drilling in the Greater Kuparuk Area
(including the West Sak development), the Greater Prudhoe Area, and the Alpine field and Alpine
satellite fields. Work on a project to upgrade the Trans-Alaska Pipeline System pump stations
continued with the first pump station placed on line in February 2007.
Lower 48 States
Onshore, we focused on natural gas developments in the San Juan Basin of New Mexico, the Lobo Trend
of South Texas, the Bossier and Cotton Valley Trends of East Texas and North Louisiana, the Barnett
Shale Trend of North Texas, and the Anadarko Basin of western Oklahoma. We also continue to pursue
oil development in the Williston Basin of Montana and North Dakota, as well as oil and gas
developments in southern Louisiana and in the Permian Basin of West Texas. In addition, we
invested funds on a new gas development project in the Piceance Basin of northwest Colorado.
Offshore, expenditures were primarily focused on the Ursa development in the Gulf of Mexico.
CANADA
During the first nine months of 2007, we continued with the development of our Surmont heavy-oil
project, where steam injection began in the second quarter, and initial production began in October
of
54
2007. We also continued the development of our conventional oil and gas reserves in western
Canada. In addition, we invested approximately $284 million related to our initial cash
contribution and quarterly interest payments to the upstream business venture with EnCana. See
Note 17Joint Venture Acquisition Obligation, in the Notes to Consolidated Financial Statements,
for additional information.
EUROPE
In the U.K. and Norwegian sectors of the North Sea, funds were invested during the first nine
months of 2007 for development of the Britannia satellite fields, Callanish and Brodgar, where
production is expected to begin in 2008; the Alvheim project, where production is scheduled to
begin in the first quarter of 2008; the Statfjord Late-Life Project, where production began in
October 2007; and continued development of the Ekofisk Area.
MIDDLE EAST AND AFRICA
Libya
During the first nine months of 2007, funds were expended to continue the development of the Waha
concessions.
Qatar
In Qatar, work continued on Qatargas 3, an integrated project to produce and liquefy natural gas
from Qatars North field.
Algeria
In Algeria, during the first nine months of 2007, funds were invested in three fields in Block
405A, the Menzel Lejmat North field, the Ourhoud field, and the EMK (El Merk) oil field unit.
RUSSIA AND CASPIAN
Russia
Through OOO Naryanmarneftegaz, a joint venture with LUKOIL, we are working to develop the Yuzhno
Khylchuyu field in the northern part of Russias Timan-Pechora province.
Caspian
We continued to participate in construction activities to develop the Kashagan field on the
Kazakhstan shelf in the Caspian Sea. Kashagan Phase I Development is in the execution phase,
aiming for first production in 2010. The revised Kashagan Development Plan was submitted to the
Republic of Kazakhstan Authority at the end of June 2007, incorporating reconfigured offshore
design and related cost increases and schedule delays. In August, the Republic of Kazakhstan
triggered dispute proceedings under the North Caspian Sea Production Sharing Agreement. In October, Kazakhstan enacted a revised subsoil law allowing termination of contracts that violate national security.
Negotiations are currently under way in order to reach a resolution.
ASIA PACIFIC
Indonesia
During the first nine months of 2007, we continued to invest funds on the development of the
Belanak, Kerisi, Hiu, Belut, and Suban Phase II projects.
55
China
Work continued on the development of Phase II of the Peng Lai 19-3 field, as well as concurrent
development of the nearby Peng Lai 25-6 field in 2007.
R&M
In the United States, we expended funds during the first nine months of 2007 related to sustaining
and improving the existing business with a focus on reliability, energy efficiency, capital
maintenance and regulatory compliance. Work also continued on projects to increase crude oil
capacity, expand conversion capability and increase clean product yield. An expansion at our
Ferndale refinery resulted in a 4 percent increase in the refinerys crude oil capacity and
improved energy efficiency. In addition, we commissioned a new coker at the Borger refinery, part
of WRB Refining LLC, our downstream business venture with EnCana.
Internationally, our focus during the first nine months of 2007 was on projects related to
reliability, safety and the environment.
Emerging Businesses
In October 2007, we purchased a 50 percent interest in Sweeny Cogeneration LP (SCLP). SCLP
provides steam and electric power to the Sweeny refinery complex with any excess power sold into
the market. We will account for this joint venture using the equity method of accounting.
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 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 are 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 85 through 88 of our 2006 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
56
contain wastes attributable to our past operations. As of December 31, 2006, we reported we had
been notified of potential liability under CERCLA and comparable state laws at 64 sites around the
United States. At September 30, 2007, we had resolved five of these sites and had received five
new notices of potential liability, leaving 64 unresolved sites where we have been notified of
potential liability.
At September 30, 2007, our balance sheet included a total environmental accrual of $1,042 million,
compared with $1,062 million at December 31, 2006. We expect to incur a substantial 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 September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for its measurement and
expands disclosures about fair value measurements. We use fair value measurements to measure,
among other items, purchased assets and investments, leases, derivative contracts and financial
guarantees. We also use them to assess impairment of properties, plants and equipment, intangible
assets and goodwill. The Statement does not apply to share-based payment transactions and
inventory pricing. We plan to adopt this Statement effective January 1, 2008. We continue to
evaluate the Statement, but we do not expect any significant impact to our consolidated financial
statements, other than additional disclosures.
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 an entity to choose to measure financial instruments
and certain other items similar to financial instruments at fair value, with all subsequent changes
in fair value for the financial instrument 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 plan to adopt
this Statement effective January 1, 2008, and we do not expect any significant impact to our
consolidated financial statements.
OUTLOOK
Alaska
A special session of the Alaskan legislature began in October 2007 at the request of the governor
to review Alaskas petroleum profits tax. The governor submitted a bill proposing changes to the
current production tax system. If adopted by the legislature, those changes would substantially
increase taxes paid by Alaska oil producers.
Venezuela
Negotiations continue between ConocoPhillips and Venezuelan authorities concerning appropriate
compensation for the expropriation of the companys oil interests. We continue to preserve all our
rights with respect to this situation, including our rights under the contracts we signed and under
international and Venezuelan law. We continue to evaluate our options in realizing adequate
compensation for the
57
value of our oil investments and operations in Venezuela and expect to file a request for
international arbitration on November 2, 2007.
Canada
On October 25, 2007, the Alberta government announced a new royalty regime for the provinces
non-renewable energy resources. The new royalty regime will use a sliding scale system based on
price and volume and is designed to increase the governments royalty share. The new regime is
effective
January 1, 2009. We are currently evaluating the impact of this royalty change on our Canadian
operations.
Other
In E&P, we expect our fourth-quarter 2007 production to be 50,000 to 60,000 barrels of oil
equivalent per day higher than the level in the third quarter of 2007 due to normal seasonality and
the completion of our summer maintenance program.
In R&M, we expect our crude oil capacity utilization in the fourth quarter of 2007 to be in the mid-90 percent range.
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 that 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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The operation and financing of our midstream and chemicals joint ventures. |
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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. |
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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 projects, manufacturing or refining. |
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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. |
58
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Inability to timely obtain or maintain permits, including those necessary for
construction of LNG terminals or regasification facilities, 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 LNG and refinery projects and related
facilities. |
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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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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 and 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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Inability to obtain economical financing for projects, construction or modification of
facilities and general corporate purposes. |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the nine months ended September 30, 2007, does not differ
materially from that discussed under Item 7A of ConocoPhillips Annual Report on Form 10-K for the
year ended
December 31, 2006.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2007, with the participation of our management, our Chairman, President and
Chief Executive Officer (principal executive officer) and our Executive 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, President and Chief
Executive Officer and our Executive Vice President, Finance, and Chief Financial Officer concluded
that our disclosure controls and procedures were operating effectively as of September 30, 2007.
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.
59
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 2007 and any material developments with respect to those
matters previously reported in ConocoPhillips 2006 Form 10-K or first or second-quarter 2007 Form
10-Qs. 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 decree
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 decree and/or other reports required by permits or regulations, we occasionally report
matters which could be subject to 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, SCAQMD issued three Notices of Violations (NOVs)
alleging multiple counts of non-compliance. SCAQMD has not yet specified a penalty for these
alleged violations. We are currently assessing these allegations and expect to work with SCAQMD
toward a resolution of these NOVs.
On September 25, 2007, the Sweeny refinery received a draft order to resolve a July 6, 2007, Notice
of Enforcement (NOE) relating to alleged violations of the Texas Clean Air Act. The allegations
relate to compliance with limitations contained in the refinerys Title V operating permit and one
emission event. The draft order proposes a penalty of $294,300. We are evaluating the draft order
and expect to work with the agency to resolve the matter.
In October 2007, we received a Complaint from the U.S. EPA alleging violations of the Clean Water
Act related to a 2006 oil spill at our Bayway refinery and proposing a penalty of $156,000. We
have begun discussions with the EPA to settle this matter and will work with the agency to resolve this
matter.
Matters Previously Reported
In March 2007, the Sweeny refinery received a series of NOEs from the Texas Commission on
Environmental Quality (TCEQ). These NOEs generally relate to emission events such as flaring and
other unplanned releases. The TCEQ proposed a penalty of $487,120 in a draft order received August
30, 2007. We expect to work with the TCEQ toward a resolution of this matter.
60
On November 9, 2006, the Bay Area Air Quality Management District (BAAQMD) issued a demand seeking
civil penalties for 33 NOVs between October 2005 and October 2006. The NOVs alleged
violations of various BAAQMD regulations or permit requirements at our San Francisco area refinery.
During the third quarter of 2007, we settled this matter with a payment of $185,500 to BAAQMD.
In March 2005, ConocoPhillips Pipe Line Company (CPPL) received a Notice of Probable Violation and
Proposed Civil Penalty from the Department of Transportations Pipeline and Hazardous Materials
Safety Administration (DOT) alleging violation of DOT operation and safety regulations at certain
facilities in Kansas, Missouri, Illinois, Indiana, Wyoming and Nebraska. DOT is proposing
penalties in the amount of $184,500. An information hearing was held on September 24, 2007. CPPL
will provide additional information in support of its position. A DOT ruling is not anticipated
until the first quarter of 2008.
In July 2004, Polar Tankers, Inc. notified the U.S. Coast Guard of possible environmental
violations onboard the vessel Polar Discovery. On June 29, 2005, the U.S. Attorneys office in
Anchorage issued a subpoena to Polar Tankers for records regarding the possible environmental
violations onboard that vessel. Polar Tankers and the U.S. Attorneys office in Anchorage settled
the matter on October 23, 2007, with the filing of a plea agreement. Under the agreement, Polar
Tankers pled guilty to one count of failing to properly maintain an oil record book, agreed to the
payment of a $500,000 fine and a payment of $2 million to the National Fish and Wildlife
Foundation. Polar Tankers further agreed to implement an enhanced environmental compliance program
monitored by an independent third party during a three-year probation period.
In August 2004, Polar Tankers, Inc. self-reported to the U.S. Coast Guard that a company employee
had disclosed to management potential environmental violations onboard the vessel Polar Alaska.
The potential violations related to allegations that certain actions may have resulted in the
discharge of one or more wastewater streams potentially having concentrations of oil exceeding an
applicable regulatory limit of 15 parts per million. On September 1, 2004, the U.S. Attorneys
office in Anchorage issued a subpoena to ConocoPhillips Company and Polar Tankers for records
relating to the companys report of potential violations. As part of the plea agreement relating
to the Polar Discovery, the U.S. Attorney declined prosecution of this matter.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in the Risk Factors section
of our Annual Report on Form 10-K for the year ended December 31, 2006.
61
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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Millions of Dollars |
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Total Number of |
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Approximate Dollar |
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Shares Purchased |
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Value of Shares |
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as Part of Publicly |
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that May Yet Be |
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Total Number of |
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Average Price |
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Announced Plans |
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Purchased Under the |
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Period |
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Shares Purchased |
* |
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Paid per Share |
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or Programs |
** |
|
Plans or Programs |
** |
July 1-31, 2007 |
|
|
3,388,555 |
|
|
$ |
84.51 |
|
|
|
3,385,700 |
|
|
$ |
14,821 |
|
August 1-31, 2007 |
|
|
14,596,063 |
|
|
|
79.18 |
|
|
|
14,595,700 |
|
|
|
13,665 |
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September
1-30, 2007 |
|
|
12,623,357 |
|
|
|
84.65 |
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12,613,100 |
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12,598 |
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Total |
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30,607,975 |
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$ |
82.03 |
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30,594,500 |
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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 includes the $2 billion remaining under the previously announced $4 billion stock buyout
authorization. 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. |
Item 5. OTHER INFORMATION
The following information is filed herewith in lieu of including on Form 8-K in Item 5.02,
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
On October 26, 2007, Randy L. Limbacher, president, Exploration & Production Americas, gave the
Company notice that he would be departing ConocoPhillips effective October 31, 2007. In
recognition of Mr. Limbachers service to the Company following our acquisition of Burlington
Resources Inc., the Compensation Committee of the Board of Directors approved the following with
respect to Mr. Limbachers compensation arrangements: (i) continuing eligibility for consideration
under the Performance Share Program (on a pro-rata basis for periods in which he participated more
than 12 months); (ii) continuing eligibility for consideration under the 2007 Variable Cash
Incentive Program (on a pro-rata basis); and (iii) the following modifications to the terms of Mr.
Limbachers equity awards:
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|
Vesting of 18,929 shares of restricted stock granted April 4, 2006, which were
scheduled to vest on April 4, 2008. |
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Vesting of 12,261 shares of restricted stock granted January 25, 2006, which were
scheduled to vest on January 25, 2009. |
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With respect to the January 25, 2006, award of 43,275 options to purchase shares of
ConocoPhillips common stock with an exercise price of $62.9925, the unvested portion of
the award will become exercisable concurrent with Mr. Limbachers departure date and
the award will remain exercisable until October 31, 2010. |
In making
the foregoing decisions, the Compensation Committee considered
Mr. Limbachers agreement to waive the right to severance
payments under the Burlington Resources Executive Change in
Control Severance Plan.
62
Item 6. EXHIBITS
Exhibits
12 |
|
Computation of Ratio of Earnings to Fixed Charges. |
|
31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934. |
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31.2 |
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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. |
63
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 |
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(Chief Accounting and Duly Authorized Officer) |
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October 31, 2007
64
INDEX
TO EXHIBITS
Exhibits
12 |
|
Computation of Ratio of Earnings to Fixed Charges. |
|
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. |