e10vk
2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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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
(State or other jurisdiction of
incorporation or organization)
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01-0562944
(I.R.S. Employer
Identification No.) |
600 North Dairy Ashford
Houston, TX 77079
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: 281-293-1000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange
on which registered |
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Common Stock, $.01 Par Value
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New York Stock Exchange |
Preferred Share Purchase Rights Expiring June 30, 2012
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New York Stock Exchange |
6.65% Debentures due July 15, 2018
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New York Stock Exchange |
7% Debentures due 2029
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New York Stock Exchange |
9.375% Notes due 2011
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). o Yes þ No
The aggregate market value of common stock held by non-affiliates of the registrant on June 30,
2009, the last business day of the registrants most recently completed second fiscal quarter,
based on the closing price on that date of $42.06, was $62.3 billion. The registrant, solely for
the purpose of this required presentation, had deemed its Board of Directors and grantor trusts to
be affiliates, and deducted their stockholdings of 811,943 and 39,808,419 shares, respectively, in
determining the aggregate market value.
The registrant had 1,486,838,088 shares of common stock outstanding at January 31, 2010.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 2010
(Part III)
PART I
Unless otherwise indicated, the company, we, our, us and ConocoPhillips are used in this
report to refer to the businesses of ConocoPhillips and its consolidated subsidiaries. Items 1 and
2Business and Properties, contain 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 forecast, intend, believe, expect, plan, schedule, target, should,
goal, may, anticipate, estimate and similar expressions identify forward-looking
statements. The company does not undertake to update, revise or correct any forward-looking
information unless required to do so under the federal securities laws. Readers are cautioned that
such forward-looking statements should be read in conjunction with the companys 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 66.
Items 1 and 2. BUSINESS AND PROPERTIES
CORPORATE STRUCTURE
ConocoPhillips is an international, integrated energy company. ConocoPhillips was incorporated in
the state of Delaware on November 16, 2001, in connection with, and in anticipation of, the merger
between Conoco Inc. and Phillips Petroleum Company. The merger between Conoco and Phillips was
consummated on August 30, 2002.
Our business is organized into six operating segments:
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Exploration and Production (E&P)This segment primarily explores for, produces,
transports and markets crude oil, natural gas, natural gas liquids and bitumen on a
worldwide basis. |
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MidstreamThis segment gathers, processes and markets natural gas produced by
ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly
in the United States and Trinidad. The Midstream segment primarily consists of our 50
percent equity investment in DCP Midstream, LLC. |
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Refining and Marketing (R&M)This segment purchases, refines, markets and transports
crude oil and petroleum products, mainly in the United States, Europe and Asia. |
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LUKOIL InvestmentThis segment consists of our equity investment in the ordinary shares
of OAO LUKOIL, an international, integrated oil and gas company headquartered in Russia.
At December 31, 2009, our ownership interest was 20 percent based on issued shares and
20.09 percent based on estimated shares outstanding. |
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ChemicalsThis segment manufactures and markets petrochemicals and plastics on a
worldwide basis. The Chemicals segment consists of our 50 percent equity investment in
Chevron Phillips Chemical Company LLC. |
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Emerging BusinessesThis segment represents our investment in new technologies or
businesses outside our normal scope of operations. |
At December 31, 2009, ConocoPhillips employed approximately 30,000 people.
1
SEGMENT AND GEOGRAPHIC INFORMATION
For operating segment and geographic information, see Note 25Segment Disclosures and Related
Information, in the Notes to Consolidated Financial Statements, which is incorporated herein by
reference.
EXPLORATION AND PRODUCTION (E&P)
At December 31, 2009, our E&P segment represented 66 percent of ConocoPhillips total assets. This
segment primarily explores for, produces, transports and markets crude oil, natural gas, natural
gas liquids and bitumen on a worldwide basis. Operations to liquefy natural gas and transport the
resulting liquefied natural gas (LNG) are also included in the E&P segment. At December 31, 2009,
our E&P operations were producing in the United States, Norway, the United Kingdom, Canada,
Australia, offshore Timor-Leste in the Timor Sea, Indonesia, China, Vietnam, Libya, Nigeria,
Algeria and Russia.
The E&P segment does not include the financial results or statistics from our equity investment in
the ordinary shares of LUKOIL, which are reported in our LUKOIL Investment segment. As a result,
references to results, production, prices and other statistics throughout the E&P segment
discussion exclude amounts related to our investment in LUKOIL. However, our share of LUKOIL is
included in the Oil and Gas Operations disclosures, as well as in the net proved reserves table
shown below.
The information listed below appears in the Oil and Gas Operations disclosures following the
Notes to Consolidated Financial Statements and is incorporated herein by reference:
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Proved worldwide crude oil and natural gas liquids, natural gas, bitumen and synthetic
oil reserves. |
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Net production of crude oil and natural gas liquids, natural gas, bitumen and synthetic
oil. |
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Average sales prices of crude oil and natural gas liquids, natural gas, bitumen and
synthetic oil. |
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Average production costs per barrel of oil equivalent (BOE). |
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Net wells completed, wells in progress and productive wells. |
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Developed and undeveloped acreage. |
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The following table is a summary of the proved reserves information included in the Oil and Gas
Operations disclosures following the Notes to Consolidated Financial Statements. Approximately 65
percent of our proved reserves are located in politically stable countries that belong to the
Organization for Economic Cooperation and Development. Natural gas reserves are converted to BOE
based on a 6:1 ratio: six thousand cubic feet of natural gas converts to one BOE.
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Millions of Barrels of Oil Equivalent |
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Net Proved Reserves at December 31 |
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2009 |
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2008 |
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2007 |
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Crude oil and natural gas liquids |
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Consolidated operations |
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3,194 |
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3,340 |
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3,778 |
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Equity affiliates |
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1,710 |
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1,677 |
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1,834 |
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Total Crude Oil and Natural Gas Liquids |
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4,904 |
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5,017 |
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5,612 |
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Natural gas |
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Consolidated operations |
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3,161 |
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3,360 |
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3,750 |
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Equity affiliates |
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880 |
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798 |
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490 |
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Total Natural Gas |
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4,041 |
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4,158 |
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4,240 |
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Bitumen |
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Consolidated operations |
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417 |
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100 |
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85 |
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Equity affiliates |
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716 |
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700 |
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623 |
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Total Bitumen |
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1,133 |
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800 |
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708 |
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Synthetic oil |
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Consolidated operations |
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248 |
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Equity affiliates |
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Total Synthetic Oil |
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248 |
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Total consolidated operations |
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7,020 |
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6,800 |
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7,613 |
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Total equity affiliates |
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3,306 |
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3,175 |
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2,947 |
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Total company |
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10,326 |
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9,975 |
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10,560 |
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Includes amounts related to LUKOIL investment: |
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1,967 |
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1,893 |
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1,838 |
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Excludes Syncrude mining-related reserves (synthetic oil): |
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n/a |
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249 |
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221 |
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In 2009, E&Ps worldwide production, including its share of equity affiliates production
other than LUKOIL, averaged 1,854,000 barrels of oil equivalent per day (BOED), compared with
1,789,000 in 2008. During 2009, 755,000 BOED were produced in the United States, a decrease from
775,000 in 2008. Production from our international E&P operations averaged 1,099,000 BOED in 2009,
an increase compared with 1,014,000 in 2008. Worldwide production increased primarily due to new
developments in the United Kingdom, Russia, China, Canada, Vietnam and Norway, in addition to less
unplanned downtime. These increases were partially offset by field decline.
E&Ps worldwide annual average crude oil and natural gas liquids sales price decreased 37 percent,
from $88.91 per barrel in 2008 to $55.63 in 2009. E&Ps average annual worldwide natural gas sales
price decreased 48 percent, from $8.27 per thousand cubic feet in 2008 to $4.26 in 2009.
E&PUNITED STATES
In 2009, U.S. E&P operations contributed 40 percent of E&Ps worldwide liquids production and
41 percent of natural gas production, compared with 43 percent for each in 2008.
Alaska
Greater Prudhoe Area
The Greater Prudhoe Area is composed of the Prudhoe Bay Field and five satellite fields, as well as
the Greater Point McIntyre Area fields. Prudhoe Bay, the largest oil field on Alaskas North
Slope, is the site of a large
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waterflood and enhanced oil recovery operation, as well as a gas processing plant that processes
and re-injects natural gas into the reservoir. Prudhoe Bays satellites are Aurora, Borealis,
Polaris, Midnight Sun and Orion, while the Point McIntyre, Niakuk, Raven and Lisburne Fields are
part of the Greater Point McIntyre Area. We have a 36.1 percent nonoperator interest in all fields
within the Greater Prudhoe Area. Net oil and natural gas liquids production from the Greater
Prudhoe Area averaged 119,000 barrels per day in 2009, compared with 123,000 in 2008.
Greater Kuparuk Area
We operate the Greater Kuparuk Area, composed of the Kuparuk Field and four satellite fields: Tarn,
Tabasco, Meltwater and West Sak. Kuparuk is located about 40 miles west of Prudhoe Bay. Our
ownership interest in the area is approximately 55 percent. Field installations include three
central production facilities that separate oil, natural gas and water. The natural gas is either
used for fuel or compressed for re-injection. Net oil production from the area averaged 65,000
barrels per day in 2009, compared with 67,000 in 2008.
Western North Slope
On the Western North Slope we operate the Colville River Unit, composed of the Alpine Field and
three satellite fields: Nanuq, Fiord and Qannik. Alpine is located about 30 miles west of Kuparuk.
Our ownership interest in the area is approximately 78 percent. Net production in 2009 was 68,000
barrels of oil per day, compared with 70,000 in 2008. Further development of potential satellite
fields west of Alpine and into the National Petroleum ReserveAlaska (NPRA) is contingent upon the
receipt of permit approvals and additional exploration appraisal work. Planned development of one
of these satellites, the Alpine West CD5 Project, has been postponed due to the denial of a key
permit from the U.S. Army Corps of Engineers in February 2010. We expect to appeal their decision.
Cook Inlet Area
We operate the North Cook Inlet Unit, the Beluga River Unit, and the Kenai LNG Plant in the Cook
Inlet Area. We have a 100 percent interest in the North Cook Inlet Unit, while we own 33.3 percent
of the Beluga River Unit. Net production in 2009 from the Cook Inlet Area averaged 85 million
cubic feet per day of natural gas, compared with 88 million in 2008. Production from the North
Cook Inlet Unit is used primarily to supply our share of gas to the Kenai LNG Plant and also as a
backup supply to local utilities, while gas from the Beluga River Unit is primarily sold to local
utilities and is used as backup supply to the Kenai LNG Plant.
We have a 70 percent interest in the Kenai LNG Plant, which supplies LNG to two utility companies
in Japan. We sold 21 net billion cubic feet of LNG in 2009, compared with 27 billion in 2008.
Exploration
In a February 2008 lease sale conducted by the U.S. Department of Interior (DOI) under the Outer
Continental Shelf (OCS) Lands Act, we successfully bid, and were awarded 10-year primary
term leases, on 98 blocks in the Chukchi Sea, for total bid payments of $506 million. Various
special interest groups have brought two separate lawsuits challenging (1) the DOIs entire OCS
leasing program, and (2) the Chukchi Sea lease sale conducted by the DOI under that program. In
the first suit, the Court ordered the DOI to reconsider one aspect of its OCS leasing program. The
results of the DOIs reconsideration are expected during the first quarter of 2010. In the second
suit, briefs have been filed on behalf of the defendants, including the DOI, in support of the
Chukchi Sea lease sale, and a decision is expected later in 2010. We continue to progress plans
for drilling an exploration well on our Chukchi Sea leases no earlier than 2012. In January 2010,
we exchanged a 25 percent working interest in 50 of these leases for cash consideration and
additional working interests in the Lower Tertiary play of the deepwater Gulf of Mexico.
Two exploration wells were drilled in the Greater Mooses Tooth Unit, located in the NPRA. One of
the wells was expensed as a dry hole, while the second well encountered hydrocarbons. We are
evaluating the potential for future development of this latest discovery.
Transportation
We transport the petroleum liquids produced on the North Slope to south-central Alaska through an
800-mile pipeline that is part of the Trans-Alaska Pipeline System (TAPS). We have a 28.3 percent
ownership interest in TAPS, and we also have ownership interests in the Alpine, Kuparuk and Oliktok
Pipelines on the North Slope.
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Our wholly owned subsidiary, Polar Tankers, Inc., manages the marine transportation of our North
Slope production, using five company-owned double-hulled tankers in addition to chartering
third-party vessels as necessary.
In 2008, ConocoPhillips and BP plc formed a limited liability company to progress the pipeline
project named DenaliThe Alaska Gas Pipeline. The project would move Alaska natural gas to North
American markets. Denali has continued to progress the project in preparation for its open season
in 2010, during which the pipeline company will seek customers to make long-term firm
transportation commitments to the project. There is a pipeline project competing with Denali that
is structured under the Alaska Gasline Inducement Act.
U.S. Lower 48
Gulf of Mexico
At year-end 2009, our portfolio of producing properties in the Gulf of Mexico mainly consisted of
one operated field and three fields operated by co-venturers, including:
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75 percent operator interest in the Magnolia Field in Garden Banks Blocks 783 and 784. |
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16 percent nonoperator interest in the unitized Ursa Field located in the Mississippi
Canyon Area. |
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16 percent nonoperator interest in the Princess Field, a northern, subsalt extension of
the Ursa Field. |
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12.4 percent nonoperator interest in the unitized K2 Field, comprised of seven blocks in
the Green Canyon Area. |
Net production from our Gulf of Mexico properties averaged 21,000 barrels per day of liquids and
28 million cubic feet per day of natural gas in 2009, compared with 18,000 barrels per day and 24
million cubic feet per day in 2008.
Onshore
Our 2009 onshore production principally consisted of natural gas, with the majority of production
located in the San Juan Basin, Permian Basin, Lobo Trend, Bossier Trend, and panhandles of Texas
and Oklahoma. We also have operations in the Wind River, Anadarko and Fort Worth Basins, as well
as in East Texas and northern and southern Louisiana. Other onshore ownership includes properties
in the Williston Basin, the Piceance Basin and the Cedar Creek Anticline.
Onshore activities in 2009 were mostly centered on continued optimization and development of
existing assets. Combined net production from all Lower 48 onshore fields in 2009 averaged 1,899
million cubic feet per day of natural gas and 145,000 barrels per day of liquids, compared with
1,970 million cubic feet per day and 147,000 barrels per day in 2008.
The San Juan Basin, located in northwestern New Mexico and southwestern Colorado, includes the
majority of our U.S. coalbed methane (CBM) production. Additionally, we continue to pursue
development opportunities in three conventional formations in the San Juan Basin. Net production
from San Juan averaged 903 million cubic feet per day of natural gas and 49,000 barrels per day of
liquids in 2009, compared with 863 million cubic feet per day and 48,000 barrels per day in 2008.
Transportation
In 2006, we acquired a 24 percent interest in West2East Pipeline LLC, which merged into Rockies
Express Pipeline LLC in December 2009. In November 2009, Rockies Express completed construction of
a 1,679-mile natural gas pipeline from Colorado to Ohio, which has the capacity to deliver 1.8
billion cubic feet of natural gas per day to eastern markets. We increased our ownership interest
to 25 percent upon project completion.
Exploration
During 2009, we participated in two significant discoveries in the deepwater Gulf of Mexico. We
hold an 18 percent interest in the Tiber discovery and a 40 percent interest in the Shenandoah
discovery. Both discoveries require future appraisal drilling. In addition, we were the
successful bidder on 27 blocks in the March and August 2009 federal offshore lease sales. At year
end, we had interests in 287 lease blocks totaling
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1.1 million net acres in the Gulf of Mexico. In January 2010, we exchanged a 25 percent working
interest in 50 of our leases in the Chukchi Sea for cash consideration and additional working
interests in the Lower Tertiary play of the deepwater Gulf of Mexico.
We drilled and completed 52 gross onshore exploration wells. The majority of the wells were
located in the Bakken play in the Williston Basin and the Fort Worth Basin Barnett play. We have
seen encouraging results from initial wells in our Eagle Ford play in South Texas where we have
accumulated over 240,000 acres. Other areas with active exploration drilling programs included
Wyoming, Colorado and East Texas.
E&PEUROPE
In 2009, E&P operations in Europe contributed 23 percent of E&Ps worldwide liquids production,
compared with 24 percent in 2008. European operations contributed 18 percent of natural gas
production in 2009, compared with 20 percent in 2008. Our European assets are principally located
in the Norwegian and U.K. sectors of the North Sea.
Norway
We operate and hold a 35.1 percent interest in the Greater Ekofisk Area, located approximately
200 miles offshore Norway in the North Sea. The Greater Ekofisk Area is composed of four producing
fields: Ekofisk, Eldfisk, Embla and Tor. Net production in 2009 from the Greater Ekofisk Area was
92,000 barrels of liquids per day and 89 million cubic feet of natural gas per day, compared with
99,000 barrels per day and 100 million cubic feet per day in 2008.
We also have varying ownership interests in other producing fields in the Norwegian sector of the
North Sea and in the Norwegian Sea, including:
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24.3 percent interest in the Heidrun Field. |
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20 percent interest in the Alvheim Field. |
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10.3 percent interest in the Statfjord Field. |
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23.3 percent interest in the Huldra Field. |
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1.6 percent interest in the Troll Field. |
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9.1 percent interest in the Visund Field. |
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6.2 percent interest in the Grane Field. |
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2.4 percent interest in the Oseberg Area. |
Net production from these and other fields in the Norwegian sector of the North Sea and the
Norwegian Sea averaged 68,000 barrels of liquids per day and 128 million cubic feet of natural gas
per day in 2009, compared with 68,000 barrels per day and 139 million cubic feet per day in 2008.
Transportation
We have interests in the transportation and processing infrastructure in the Norwegian sector of
the North Sea, including interests in the Norpipe Oil Pipeline System and in Gassled, which owns
most of the Norwegian gas transportation system.
Exploration
We participated in eight wells in 2009, with six of the wells encountering hydrocarbons. Two
discoveries were made on the Visund East flank, two discoveries were made in the Oseberg Area and
two discoveries were made in the Alvheim Area. We were also awarded an additional 128,000 acres in
2009.
United Kingdom
In addition to our 58.7 percent interest in the Britannia natural gas and condensate field, we own
50 percent of Britannia Operator Limited, the operator of the field. We also have an 83.5 percent
interest and a 75 percent interest in the Callanish and Brodgar Britannia satellite fields,
respectively. Net production from Britannia and its satellite fields averaged 304 million cubic
feet of natural gas per day and 40,000 barrels of liquids per day in 2009, compared with 277
million cubic feet per day and 24,000 barrels per day in 2008.
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We operate and hold a 36.5 percent interest in the Judy/Joanne Fields, which together make up
J-Block. Additionally, our operated Jade Field, in which we hold a 32.5 percent interest, produces
from a wellhead platform and pipeline tied to the J-Block facilities. Together, these fields
produced a net 12,000 barrels of liquids per day and 96 million cubic feet of natural gas per day
in 2009, compared with 13,000 barrels per day and 88 million cubic feet per day in 2008.
Our various ownership interests in 18 producing gas fields in the Rotliegendes and Carboniferous
Areas of the southern North Sea yielded average net production in 2009 of 185 million cubic feet
per day of natural gas, compared with 241 million in 2008.
We also have ownership interests in several other producing fields in the U.K. sector of the North
Sea. Net production from these fields averaged 16,000 barrels of liquids per day and 12 million
cubic feet of natural gas per day in 2009, compared with 17,000 barrels per day and 14 million
cubic feet per day in 2008.
In the Atlantic Margin, we have a 24 percent interest in the Clair Field. Net production in 2009
averaged 12,000 barrels of liquids per day, compared with 11,000 in 2008.
The Millom, Dalton and Calder Fields in the East Irish Sea, in which we have a 100 percent
ownership interest, are operated on our behalf by a third party. Net production in 2009 averaged
60 million cubic feet of natural gas per day, compared with 43 million in 2008.
Transportation
The Interconnector Pipeline, linking the United Kingdom and Belgium, facilitates marketing natural
gas produced in the United Kingdom throughout Europe. Our 10 percent equity share allows us to
ship approximately 200 million cubic feet of natural gas per day to markets in continental Europe,
and our reverse-flow rights provide an 85 million cubic feet per day import capability into the
United Kingdom.
We operate the Teesside oil and Theddlethorpe gas terminals, in which we have 29.3 percent and 50
percent ownership interests, respectively. We also have a 100 percent ownership interest in the
Rivers Gas Terminal, operated by a third party, in the United Kingdom.
Exploration
We participated in three exploration wells in 2009. One well was a discovery, one was expensed as
a dry hole and the third was drilling at year end. The discovery was made in the Southern Gas
Basin and began production in 2009.
Poland
Exploration
In 2009, we entered into a shale gas venture in Poland that provides us with the opportunity to
evaluate and earn a 70 percent interest in six exploration licenses in the Baltic Basin. We
acquired seismic data in 2009 and intend to drill our first well in 2010.
E&PCANADA
In 2009, E&P operations in Canada contributed 11 percent of E&Ps worldwide liquids production,
compared with 10 percent in 2008. Canadian operations contributed 22 percent of E&Ps worldwide
natural gas production in 2009, the same as in 2008.
Western Canada
Operations in western Canada encompass oil and gas properties throughout Alberta, northeastern
British Columbia, and southern Saskatchewan. Net production from western Canada averaged 1,062
million cubic feet per day of natural gas and 40,000 barrels per day of liquids in 2009, compared
with 1,054 million cubic feet per day and 44,000 barrels per day in 2008.
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Surmont
We operate and have a 50 percent interest in the Surmont oil sands lease, located approximately 35
miles south of Fort McMurray, Alberta. The Surmont project uses an enhanced thermal oil recovery
method called steam-assisted gravity drainage (SAGD). The average net production of bitumen from
Surmont during 2009 was 7,000 barrels per day, compared with 6,000 barrels per day in 2008, with
net peak production of 12,000 barrels per day expected in 2013. Surmont Phase II was sanctioned in
2009 and is expected to begin producing in 2015, increasing Surmonts net production to 50,000
barrels per day in 2017.
FCCL
In 2007, we formed two 50/50 business ventures with EnCana Corporation (now Cenovus Energy Inc.) to
create an integrated North American heavy oil business: FCCL Partnership, a Canadian upstream
general partnership, and WRB Refining LLC, a U.S. downstream limited liability company. FCCLs
assets, operated by Cenovus, consist of the Foster Creek and Christina Lake SAGD bitumen projects,
both located in the eastern flank of the Athabasca oil sands in northeastern Alberta. Our share of
FCCLs production increased to 43,000 barrels per day in 2009, compared with 30,000 barrels per day
in 2008, primarily due to Foster Creek Phases 1D and 1E commencing operations late in the first
quarter of 2009 and continuing to ramp-up throughout the year. Construction of Christina Lake
Phase 1C continued through the year, and in the fourth quarter of 2009, we sanctioned Christina
Lake Phase 1D. See the Refining and Marketing (R&M) section for information on WRB.
Syncrude Canada Ltd.
We own a 9 percent interest in the Syncrude Canada Ltd. (SCL) joint venture, created for the
purpose of mining shallow deposits of oil sands, extracting the bitumen, and upgrading it into a
light sweet synthetic crude oil called Syncrude. The primary plant and facilities are located at
Mildred Lake, about 25 miles north of Fort McMurray, Alberta. SCL, as operator of the joint
venture, holds eight oil sands leases and the associated surface rights, of which our share is
approximately 22,400 net acres. Net production averaged 23,000 barrels per day in 2009, compared
with 22,000 in 2008.
Parsons Lake/Mackenzie Gas Project
We are working with three other energy companies, as members of the Mackenzie Delta Producers
Group, on the development of the Mackenzie Valley Pipeline and gathering system, which is proposed
to transport onshore gas production from the Mackenzie Delta in northern Canada to established
markets in North America. We have a 75 percent interest in the Parsons Lake gas field, one of the
primary fields in the Mackenzie Delta, which would anchor the pipeline development. The Joint
Review Panel, an independent body appointed by the Minister of Environment to evaluate the
potential impacts of the project on the environment and lives of the people in the project area,
conditionally recommended approval of the project in December 2009. We anticipate the Mackenzie
Delta Producers Group will continue to pursue needed regulatory authorizations, but detailed
engineering work has been deferred pending resolution with the federal government on the fiscal and
commercial framework.
Exploration
We hold exploration acreage in four areas of Canada: offshore eastern Canada, onshore western
Canada, the Mackenzie Delta/Beaufort Sea Region, and the Arctic Islands. During 2009, we began
drilling an exploration well in the Laurentian Basin, located offshore eastern Canada that
continued into 2010. We also acquired an additional 900,000 acres in the Laurentian Basin in 2009.
In western Canada, we participated in 27 wells resulting in 23 discoveries. We also acquired an
additional 71,000 acres, including over 22,000 acres in the Horn River shale gas play, increasing
our position to nearly 100,000 acres. In the Beaufort Sea Region, we acquired additional interest
in the Amauligak Strategic Discovery License.
E&PSOUTH AMERICA
Venezuela
Petrozuata, Hamaca and Corocoro
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 Venezuelan governments Nationalization Decree. In
response, Venezuelas national oil company, Petróleos de Venezuela S.A. (PDVSA), or its affiliates
directly assumed the
8
activities associated with and control over ConocoPhillips interests in the Petrozuata and Hamaca
heavy oil ventures and the offshore Corocoro development project. For additional information, see
the Expropriated Assets section of Note 10Impairments, in the Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Plataforma Deltana Block 2
We sold our 40 percent nonoperating interest in Plataforma Deltana Block 2 to PDVSA during 2009.
Peru
Exploration
At year-end 2009, we held ownership interests in four exploration blocks in Peru. Final
preparations are under way for a 2D seismic program scheduled for 2010 in Block 39. We operate
Blocks 123, 124 and 129, and are continuing preparations for a 2D seismic program scheduled to
commence in the first quarter of 2010. We relinquished Block 104 during 2009.
Ecuador
In April 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated
arbitration before the World Banks International Centre for Settlement of Investment Disputes
(ICSID) against The Republic of Ecuador and PetroEcuador as a result of the newly-enacted Windfall
Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite
a restraining order issued by the ICSID, Ecuador confiscated the crude oil production of Burlington
and its co-venturer and sold the illegally seized crude oil. As a result, our assets in Ecuador
were effectively expropriated. In the third quarter of 2009, Ecuador took over operations in Block
7 and 21, formalizing the complete expropriation of our assets. A jurisdictional hearing before
the ICSID was held in January 2010, with the outcome still pending. For additional information,
see the Expropriated Assets section of Note 10Impairments, in the Notes to Consolidated
Financial Statements.
E&PASIA PACIFIC/MIDDLE EAST
In 2009, E&P operations in the Asia Pacific/Middle East Region contributed 13 percent of E&Ps
worldwide liquids production and 16 percent of natural gas production, compared with 11 percent and
13 percent in 2008, respectively.
Australia and Timor Sea
Australia Pacific LNG
In October 2008, we closed on a transaction with Origin Energy, an integrated Australian energy
company, to further enhance our long-term Australasian natural gas business. The 50/50 joint
venture, named Australia Pacific LNG (APLNG), is focused on CBM production from the Bowen and Surat
Basins in Queensland, Australia, and LNG processing and export sales. With this transaction, we
gained access to CBM resources in Australia and will enhance our LNG position with the expected
creation of an additional LNG hub targeting Asia Pacific markets. Multiple LNG trains are
anticipated. Over 20,000 gross wells are ultimately envisioned to supply both the domestic gas
market and the LNG development. Drilling and production operations will be supported by gas
gathering systems and centralized gas processing and compression stations, as well as water
treatment facilities.
Our share of the joint ventures production in 2009 was 84 million cubic feet per day of natural gas.
Current
production is sold into the Australian domestic market. CBM field development work is ongoing in
parallel with front-end engineering associated with the planned LNG processing facilities. During
2009, Laird Point was selected as the future site for LNG facilities. Final investment decision on
the initial LNG trains is planned for the fourth quarter of 2010.
Bayu-Undan
We operate and hold a 57.2 percent ownership interest in the Bayu-Undan Field located in the Timor
Sea. The field averaged a net production rate of 35,000 barrels of liquids per day in 2009,
compared with 36,000 in 2008. Our share of natural gas production was 216 million cubic feet per
day in 2009, compared with
9
210 million in 2008. Produced natural gas is used to supply the Darwin LNG Plant, in which
we own a 57.2 percent interest. In 2009, we sold 156 billion gross cubic feet of LNG to utility
customers in Japan, compared with 159 billion in 2008.
Greater Sunrise
We have a 30 percent interest in the Greater Sunrise gas and condensate field located in the Timor
Sea. Although agreement has been reached between the governments of Australia and Timor-Leste
concerning sharing of revenues from the anticipated development of Greater Sunrise, key challenges
to be resolved before significant funding commitments can be made include gaining co-venturer and
government alignment on the development concept, and establishing fiscal stability arrangements.
Western Australia
In 2009, our share of production from the Athena/Perseus (WA-17-L) gas field, located offshore
Western Australia, was 35 million cubic feet of natural gas per day, the same as in 2008.
Exploration
During 2009, we drilled two exploration wells and started a third in the offshore Browse Basin.
The first well, Poseidon-1, was a significant discovery. Poseidon-2, the initial appraisal well
for the discovery, encountered hydrocarbons in some of the same sands as were seen in the discovery
well and is currently being evaluated. A seismic survey has recently been acquired over the
discovery. Additionally, Kontiki-1 was drilled on a prospect independent from Poseidon and was
expensed as a dry hole. We intend to drill at least one additional well in the Browse Basin in 2010.
Qatar
Qatargas 3 is an integrated project jointly owned by Qatar Petroleum (68.5 percent), ConocoPhillips
(30 percent) and Mitsui & Co., Ltd. (1.5 percent). The project comprises upstream natural gas
production facilities to produce approximately 1.4 billion gross cubic feet per day of natural gas
from Qatars North Field. The project also includes a 7.8 million-gross-ton-per-year LNG facility,
from which LNG will be shipped in new, leased LNG carriers destined for sale in the United States
and other markets. The first LNG cargoes are expected to be loaded in the second half of 2010.
In order to capture cost savings, Qatargas 3 is executing the development of the onshore and
offshore assets as a single integrated project with Qatargas 4, a joint venture between Qatar
Petroleum and Royal Dutch Shell plc. This includes the joint development of offshore facilities
situated in a common offshore block in the North Field, as well as the construction of two
identical LNG process trains and associated gas treating facilities for both the Qatargas 3 and
Qatargas 4 joint ventures. Upon completion of the Qatargas 3 and Qatargas 4 Projects, production
from the LNG plant and associated facilities will be combined and shared.
We have a 12.4 percent ownership interest in the Golden Pass LNG Terminal and affiliated Golden
Pass Pipeline. The terminal is currently under construction adjacent to the Sabine-Neches
Industrial Ship Channel northwest of Sabine Pass, Texas. Subject to the negotiation of definitive
agreements, ConocoPhillips will hold terminal and pipeline capacity for the receipt, storage and
regasification of the LNG purchased from Qatargas 3 and the transportation of regasified LNG to
interconnect with major interstate natural gas pipelines.
Indonesia
We operate seven production sharing contracts (PSCs) in Indonesia. Three of these PSCs are in
various stages of development from which net production grew to an average of 447 million cubic
feet per day of natural gas and 19,000 barrels per day of liquids in 2009, compared with 343 million
cubic feet per day and 17,000 barrels per day in 2008. Our producing assets are primarily
concentrated in two core areas: the South Natuna Sea and onshore South Sumatra.
South Natuna Sea Block B
The offshore South Natuna Sea Block B PSC, in which we have a 40 percent interest and are the
operator, has two producing oil fields and 16 natural gas fields in various stages of development.
Natural gas production is sold under international sales agreements to Malaysia and Singapore. The
North Belut Field in Block B achieved first gas production in November 2009.
10
South Sumatra
These onshore blocks are comprised of the Corridor and South Jambi B PSCs. The Corridor PSC, in
which we have a 54 percent interest, has six oil fields and six natural gas fields in various
stages of development. Natural gas is supplied from the Grissik and Suban gas processing plants to
the Duri steamflood in central Sumatra and to markets in Singapore, Batam and West Java. We have a
45 percent interest in the South Jambi B PSC, which supplies natural gas to Singapore.
Exploration
We operate three offshore exploration PSCs: Amborip VI, Kuma and Arafura Sea, where exploration
drilling is scheduled to take place in the fourth quarter of 2010 and the first quarter of 2011.
We also operate the Warim onshore exploration PSC in Papua.
Transportation
We are a 35 percent owner of a consortium company that has a 40 percent ownership in
PT Transportasi Gas Indonesia, which owns and operates the Grissik to Duri and Grissik to Singapore
natural gas pipelines.
China
We are the operator and have a 49 percent share of the Peng Lai 19-3 Field in Bohai Bay Block
11-05, as well as the nearby Peng Lai 19-9 and Peng Lai 25-6 Fields. As part of our Bohai Bay
Phase II Project, a floating production, storage and offloading (FPSO) vessel to accommodate
production from these fields was installed in May 2009. Development of Peng Lai 19-3 continues.
Net production averaged 33,000 barrels of oil per day in 2009, compared with 14,000 in 2008.
Production should continue to ramp-up over the next two years, with annual average net production
of 69,000 barrels of oil per day anticipated in 2011.
The Xijiang development consists of two fields located approximately 80 miles south of Hong Kong in
the South China Sea. Combined net production of oil from the Xijiang Fields averaged 5,000 barrels
per day in 2009, compared with 7,000 in 2008. Under the terms of the contract, our ownership
rights in the 24-3/1 Field ended in January 2010, and our rights in the 30-2 Field will end in
November 2010. Our ownership in these fields was 24.5 percent and 12.3 percent, respectively, at
December 31, 2009.
We have a 24.5 percent interest in the offshore Panyu Field, also located in the South China Sea,
which produced 11,000 net barrels of oil per day in 2009 and 12,000 in 2008.
Exploration
We entered a pilot evaluation program in a coalbed methane play in the onshore Qinshui Basin in
2009. The pilot program is expected to last between 12-18 months and will involve drilling and
monitoring the production performance of a series of horizontal wells. At the end of the program,
we will have the option to elect an assignment of a 30 percent interest in three PSCs covering the
play. We drilled two exploration wells on our existing offshore Bohai Block BZ 11/05, both of
which were expensed as dry holes.
Vietnam
Our ownership interest in Vietnam is centered around the Cuu Long Basin in the South China Sea and
consists of two primarily oil-producing blocks and one gas pipeline transportation system.
We have a 23.3 percent interest in Block 15-1 in the Cuu Long Basin. Net production in 2009 was
22,000 barrels of oil per day, compared with 13,000 in 2008. The oil is processed through a 1
million barrel FPSO vessel and through the Su Tu Vang central processing platform and floating
storage and offloading (FSO) vessel.
Also in the Cuu Long Basin, we have a 36 percent interest in the Rang Dong Field in Block 15-2.
All wellhead platforms produce into an FSO vessel. Net production in 2009 was 7,000 barrels per
day of liquids and 15 million cubic feet per day of natural gas, compared with 9,000 barrels per
day and 16 million cubic feet per day in 2008.
Transportation
We own a 16.3 percent interest in the Nam Con Son natural gas pipeline. This 244-mile
transportation system links gas supplies from the Nam Con Son Basin to gas markets in southern
Vietnam.
11
Malaysia
We have interests in three deepwater PSCs located off the eastern Malaysian state of Sabah: Block
G, Block J, and the Kebabangan Cluster. Development of the Gumusut deepwater oil discovery in
Block J is currently under way and includes the installation of a semi-submersible oil production
platform.
Exploration
We participated in two exploration wells during 2009, a successful appraisal of the Petai discovery
on Block G, and the Sigapon 1 Well in Block J, which was expensed as a dry hole.
Bangladesh
Exploration
We were formally awarded two deepwater blocks in offshore Bangladesh in 2009. PSC negotiations
continue into 2010.
Abu Dhabi
In July 2009, we signed the Shah Gas Field Joint Venture and Field Entry agreements with the Abu
Dhabi National Oil Company to progress the Shah Gas Field Project. This large-scale project
involves the development of natural gas condensate reservoirs within the onshore Shah gas field,
the construction of a new 1 billion-cubic-feet-per-day natural gas processing plant at Shah, new
natural gas and gas liquids pipelines, and sulfur-exporting facilities at Ruwais. A final
investment decision is expected in 2010, and we hold a 40 percent interest in the proposed project.
E&PAFRICA
During 2009, E&P operations in Africa contributed 7 percent of E&Ps worldwide liquids production
and 2 percent of natural gas production, compared with 8 percent and 2 percent, respectively, in
2008.
Nigeria
During 2009, we produced from four onshore Oil Mining Leases (OMLs), in which we have a 20 percent
nonoperator interest. Net production from these leases was 19,000 barrels of liquids per day and
111 million cubic feet of natural gas per day in 2009, compared with 21,000 barrels per day and 105
million cubic feet per day in 2008.
We have a 20 percent interest in a 480-megawatt gas-fired power plant in Kwale, Nigeria, which
supplies electricity to Nigerias national electricity supplier. In 2009, the plant consumed 12
million net cubic feet per day of natural gas sourced from our proved reserves in the OMLs.
We have a 17 percent equity interest in Brass LNG Limited, which plans to construct an LNG facility
in the Niger Delta.
Exploration
Development studies continue for the Uge discovery in offshore deepwater Block OPL 214. Onshore,
we participated in the start of the Obiafu SW Deep B exploration well, but the well was abandoned
and expensed due to pad location problems. We plan to redrill the well in 2010.
Libya
ConocoPhillips holds a 16.3 percent interest in the Waha concessions in Libya, which encompass
nearly 13 million gross acres. Net oil production averaged 45,000 barrels per day in 2009, versus
47,000 in 2008.
Algeria
We have interests in three fields in Block 405a: the Menzel Lejmat North Field, the Ourhoud Field,
and the development stage El Merk oil field unit. The El Merk Project was sanctioned in 2009 and
is expected to begin producing in 2012. Net production from these fields averaged 14,000 barrels
of oil per day in 2009, compared with 13,000 in 2008.
12
E&PRUSSIA
NMNG
We have a 30 percent ownership interest with a 50 percent governance interest in OOO
Naryanmarneftegaz (NMNG), a joint venture with LUKOIL. NMNG is working to develop resources in the
northern part of Russias Timan-Pechora province, including the Yuzhno Khylchuyu (YK) Field.
Initial production from YK was achieved in June 2008. Net production from the joint venture
averaged 46,000 barrels per day in 2009, compared with 13,000 in 2008. Production from the NMNG
joint venture fields is transported via pipeline to LUKOILs terminal at Varandey Bay on the
Barents Sea and then shipped via tanker to international markets.
Polar Lights
We have a 50 percent equity interest in Polar Lights Company, an entity that owns producing fields
in the Timan-Pechora Basin in northern Russia. Net production averaged 9,000 barrels of oil per
day in 2009, compared with 11,000 in 2008.
E&PCASPIAN
In the Caspian Sea, we have an 8.4 percent interest in the Republic of Kazakhstans North Caspian
Sea Production Sharing Agreement, which includes the Kashagan Field. The first phase of field
development currently being executed includes construction of artificial drilling islands with
processing facilities and living quarters, and pipelines to carry production onshore. The initial
production phase of the contract is for 20 years, with options to extend the agreement an
additional 20 years. A joint operating company oversees the Kashagan development, and expects
first production in late 2012.
Transportation
We have a 2.5 percent interest in the Baku-Tbilisi-Ceyhan Pipeline, which transports crude oil from
the Caspian Region through Azerbaijan, Georgia and Turkey for tanker loadings at the port of
Ceyhan.
Exploration
In 2009, we acquired a 24.5 percent interest in the N Block, located offshore Kazakhstan. In
addition, appraisal drilling and development studies continue for the next phase of Kashagan and
the satellite fields of Kalamkas, Kairan and Aktote.
E&POTHER
LNG
We have a long-term agreement with Freeport LNG Development, L.P. to use 0.9 billion cubic feet per
day of regasification capacity at Freeports 1.5 billion-cubic-feet-per-day LNG receiving terminal
in Quintana, Texas. Due to present market conditions, which favor the flow of LNG to European and
Asian markets, our near-to-mid-term utilization of the Freeport Terminal is expected to be limited.
We are responsible for monthly process-or-pay payments to Freeport irrespective of whether we
utilize the terminal for regasification. The financial impact of this capacity underutilization is
not expected to be material to our future earnings or cash flows.
Commercial
Our Commercial organization optimizes the commodity flows of our E&P segment. This group markets
our crude oil and natural gas production, using commodity buyers, traders and marketers in offices
in the United States, the United Kingdom, Singapore, Canada and Dubai.
E&PRESERVES
We have not filed any information with any other federal authority or agency with respect to our
estimated total proved reserves at December 31, 2009. No difference exists between our estimated
total proved reserves for year-end 2008 and year-end 2007, which are shown in this filing, and
estimates of these reserves shown in a filing with another federal agency in 2009.
13
DELIVERY COMMITMENTS
We sell crude oil and natural gas from our E&P producing operations under a variety of contractual
arrangements, some of which specify the delivery of a fixed and determinable quantity. Our
Commercial organization also enters into natural gas sales contracts where the source of the
natural gas used to fulfill the contract can be the spot market or a combination of our reserves
and the spot market. Worldwide, we are contractually committed to deliver approximately 6 trillion
cubic feet of natural gas and 60 million barrels of crude oil in the future, including
approximately 800 billion cubic feet related to the minority interests of consolidated
subsidiaries. These contracts have various expiration dates through the year 2025. We expect to
fulfill the majority of these delivery commitments with proved developed reserves. In addition, we
anticipate using proved undeveloped reserves and spot market purchases to fulfill these
commitments. See the disclosure on Proved Undeveloped Reserves in the Oil and Gas Operations
section following the Notes to Consolidated Financial Statements, for information on the
development of proved undeveloped reserves.
MIDSTREAM
At December 31, 2009, our Midstream segment represented 1 percent of ConocoPhillips total assets.
Our Midstream business is primarily conducted through our 50 percent equity investment in DCP
Midstream, LLC, a joint venture with Spectra Energy.
The Midstream business purchases raw natural gas from producers and gathers natural gas through
extensive pipeline gathering systems. The gathered natural gas is then processed to extract
natural gas liquids. 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. Total natural gas liquids extracted in 2009, including our share of DCP Midstream,
were 187,000 barrels per day, compared with 188,000 in 2008.
DCP Midstream markets a portion of its natural gas liquids to ConocoPhillips and Chevron Phillips
Chemical Company LLC under a supply agreement that continues until December 31, 2014. Beginning in
2015, the volume commitment is reduced by 20 percent each year until the volume commitment is zero.
This purchase commitment is on an if-produced, will-purchase basis and is expected to have a
relatively stable purchase pattern over the remaining term of the contract. Under the agreement,
natural gas liquids are purchased at various published market index prices, less transportation and
fractionation fees.
DCP Midstream is headquartered in Denver, Colorado. At December 31, 2009, DCP Midstream owned or
operated 53 natural gas liquids extraction and 10 natural gas liquids fractionation plants, and its
gathering and transmission systems included approximately 60,000 miles of pipeline. In 2009, DCP
Midstreams raw natural gas throughput averaged 6.1 billion cubic feet per day, and natural gas
liquids extraction averaged 358,000 barrels per day, compared with 6.2 billion cubic feet per day
and 360,000 barrels per day in 2008. DCP Midstreams assets are primarily located in the following
producing regions of the United States: Rocky Mountains, Midcontinent, Permian, East Texas/North
Louisiana, South Texas, Central Texas and Gulf Coast.
Outside of DCP Midstream, our U.S. natural gas liquids business included the following as of
year-end 2009:
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A 25,000 barrel-per-day capacity natural gas liquids fractionation plant in Gallup, New
Mexico. |
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A 22.5 percent equity interest in Gulf Coast Fractionators, which owns a natural gas
liquids fractionation plant in Mont Belvieu, Texas (with our net share of capacity at
24,300 barrels per day). |
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A 40 percent interest in a fractionation plant in Conway, Kansas (with our net share of
capacity at 43,200 barrels per day). |
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A 12.5 percent equity interest in a fractionation plant in Mont Belvieu, Texas (with our
net share of capacity at 26,000 barrels per day). |
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A commercial trading organization based in Houston, Texas, that optimizes the flow of
natural gas liquids and markets propane on a wholesale basis. |
We also own a 39 percent equity interest in Phoenix Park Gas Processors Limited, which processes
natural gas in Trinidad and markets natural gas liquids in the Caribbean, Central America and the
U.S. Gulf Coast. Its
14
facilities include a 2 billion-cubic-feet-per-day gas processing plant and a 70,000 barrel-per-day
natural gas liquids fractionator. A third gas processing train was completed in July 2009, which
increased total processing capacity to 2 billion cubic feet per day. Our share of natural gas
liquids extracted averaged 8,000 barrels per day in 2009 and 2008. Our share of fractionated
liquids averaged 17,000 barrels per day in 2009, compared with 14,000 in 2008.
REFINING AND MARKETING (R&M)
At December 31, 2009, our R&M segment represented 24 percent of ConocoPhillips total assets. R&M
operations encompass refining crude oil and other feedstocks into petroleum products (such as
gasolines, distillates and aviation fuels); buying, selling and transporting crude oil; and buying,
transporting, distributing and marketing petroleum products. R&M has operations in the United
States, Europe and the Asia Pacific Region. The R&M segment does not include the results or
statistics from our equity investment in LUKOIL, which are reported in our LUKOIL Investment
segment.
Our Commercial organization optimizes the commodity flows of our R&M segment. This organization
procures feedstocks for R&Ms refineries, facilitates supplying a portion of the gas and power
needs of the R&M facilities, supplies petroleum products to our marketing operations, and markets
petroleum products directly to third parties. Commercial has buyers, traders and marketers in
offices in the United States, the United Kingdom, Singapore, Canada and Dubai.
R&MUNITED STATES
Refining
At December 31, 2009, we owned or had an interest in 12 operated refineries in the United States.
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Net Crude Throughput |
|
Refinery |
|
Location |
|
Ownership |
|
|
Capacity (MBD) |
|
East Coast Region |
|
|
|
|
|
|
|
|
|
|
Bayway |
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Linden, New Jersey |
|
|
100.00 |
% |
|
|
238 |
|
Trainer |
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Trainer, Pennsylvania |
|
|
100.00 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast Region |
|
|
|
|
|
|
|
|
|
|
Alliance |
|
Belle Chasse, Louisiana |
|
|
100.00 |
|
|
|
247 |
|
Lake Charles |
|
Westlake, Louisiana |
|
|
100.00 |
|
|
|
239 |
|
Sweeny |
|
Old Ocean, Texas |
|
|
100.00 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Region |
|
|
|
|
|
|
|
|
|
|
Wood River |
|
Roxana, Illinois |
|
|
50.00 |
|
|
|
153 |
|
Borger |
|
Borger, Texas |
|
|
50.00 |
|
|
|
73 |
|
Ponca City |
|
Ponca City, Oklahoma |
|
|
100.00 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast Region |
|
|
|
|
|
|
|
|
|
|
Billings |
|
Billings, Montana |
|
|
100.00 |
|
|
|
58 |
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Ferndale |
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Ferndale, Washington |
|
|
100.00 |
|
|
|
100 |
|
Los Angeles |
|
Carson/Wilmington, California |
|
|
100.00 |
|
|
|
139 |
|
San Francisco |
|
Arroyo Grande/San Francisco, California |
|
100.00 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
1,986 |
|
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15
Primary crude oil characteristics and sources of crude oil for our U.S. refineries are as follows:
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Characteristics |
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Sources |
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Europe |
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Middle East |
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Sweet |
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Medium Sour |
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Heavy Sour |
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High TAN* |
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United States |
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Canada |
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South America |
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& FSU** |
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& Africa |
Bayway
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Trainer
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Alliance
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Lake Charles
|
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Sweeny
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Wood River
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Borger
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Ponca City
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Billings
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Ferndale
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Los Angeles
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San Francisco
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* |
|
High TAN (Total Acid Number): acid content greater than or equal to 1.0 milligram of potassium hydroxide (KOH) per gram. |
|
** |
|
Former Soviet Union. |
Capacities for and yields of clean products, as well as other products produced, relating to
our U.S. refineries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Clean Product Capacity (MBD) |
|
|
|
|
|
|
Other Refined Product Output |
|
|
|
|
|
|
|
|
|
|
|
Clean |
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|
Fuel Oil & |
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|
|
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|
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
Product Yield |
|
|
Other Heavy |
|
|
Natural Gas |
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|
|
|
|
|
|
Petro- |
|
|
|
|
|
|
Gasolines |
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|
Distillates |
|
|
Capability |
|
|
Intermediates |
|
|
Liquids |
|
|
Petroleum Coke |
|
|
chemical Feedstock |
|
|
Asphalt |
|
Bayway |
|
|
145 |
|
|
|
110 |
|
|
|
90 |
% |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trainer |
|
|
105 |
|
|
|
65 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance |
|
|
125 |
|
|
|
120 |
|
|
|
88 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lake Charles |
|
|
90 |
|
|
|
110 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
Sweeny |
|
|
130 |
|
|
|
120 |
|
|
|
86 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Wood River* |
|
|
83 |
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|
|
45 |
|
|
|
80 |
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|
|
|
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|
|
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|
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|
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|
|
|
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|
Borger* |
|
|
55 |
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|
|
28 |
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|
|
89 |
|
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|
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|
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|
|
|
|
|
|
Ponca City |
|
|
105 |
|
|
|
75 |
|
|
|
90 |
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|
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|
|
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|
|
|
|
|
|
|
|
Billings |
|
|
35 |
|
|
|
25 |
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|
|
89 |
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|
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|
Ferndale |
|
|
55 |
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|
|
30 |
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|
75 |
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|
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|
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|
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Los Angeles |
|
|
85 |
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|
|
61 |
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|
|
86 |
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San Francisco |
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|
52 |
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|
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52 |
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|
87 |
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* |
|
Represents our proportionate share. |
|
** |
|
Includes specialty coke. |
MSLP
Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a 70,000 barrel-per-day delayed coker
and related facilities at the Sweeny Refinery used to produce fuel-grade petroleum coke. Prior to
August 28, 2009, MSLP was owned 50/50 by us and PDVSA. Under the agreements that govern the
relationships between the partners, certain defaults by PDVSA with respect to supply of crude oil
to the Sweeny Refinery gave us the right to acquire PDVSAs 50 percent ownership interest in MSLP.
On August 28, 2009, we exercised that right. In public statements, PDVSA has challenged our
actions. We continue to use the equity method of accounting for our investment in MSLP.
16
WRB
In 2007, we closed on a business venture with EnCana Corporation (now Cenovus) to create an
integrated North American heavy oil business. This venture consists of two 50/50 business
ventures: a Canadian upstream general partnership, FCCL Partnership, and a U.S. downstream limited
liability company, WRB Refining LLC. WRB consists of the Wood River and Borger Refineries, located
in Roxana, Illinois, and Borger, Texas, respectively. We are the operator and managing partner of
WRB. See the Exploration and Production (E&P) section for additional information on FCCL.
Since formation, the joint venture has expanded the processing capability of heavy Canadian crude
to 95,000 barrels per day from 60,000 barrels per day with the startup of a coker at Borger in
2007. In addition, during 2008, the final permit was received and plans were progressed to expand
the Wood River Refinery, including the installation of a coker. With the completion of this
project, anticipated in 2011, total processing capability of heavy Canadian or similar crudes at
Wood River will increase to 225,000 barrels per day, and the majority of the existing asphalt
production at the refinery will be replaced with production of upgraded products.
Capital Projects
In 2009, capital was directed toward projects to meet environmental and air emission standards and
to further improve the operating reliability, safety and energy efficiency of processing units.
During 2009, we expanded a hydrocracker at the Rodeo facility of our San Francisco Refinery. The
hydrocracker was commissioned in September 2009, resulting in a 12 percent increase in clean
product yield.
Marketing
In the United States as of December 31, 2009, we marketed gasoline, diesel and aviation fuel
through approximately 8,500 outlets in 49 states. The majority of these sites utilize the Phillips
66, Conoco or 76 brands.
Wholesale
At December 31, 2009, our wholesale operations utilized a network of marketers operating
approximately 7,680 outlets that provided refined product offtake from our refineries. A strong
emphasis is placed on the wholesale channel of trade because of its lower capital requirements. We
also buy and sell petroleum products in the spot market. Our refined products are marketed on both
a branded and unbranded basis.
In addition to automotive gasoline and diesel, we produce and market aviation gasoline, which is
used by smaller, piston engine aircraft. At December 31, 2009, aviation gasoline and jet fuel were
sold through independent marketers at approximately 710 Phillips 66-branded locations in the United
States.
Retail
At December 31, 2009, CFJ Properties, our 50/50 joint venture with Flying J, owned and operated
approximately 110 Flying J-branded truck travel plazas. Flying J filed for Chapter 11 bankruptcy
protection in December 2008. In July 2009, Flying J and Pilot Travel Centers LLC (Pilot) announced
a planned merger of their retail businesses, which was approved by the bankruptcy court in January
2010, and is currently under governmental antitrust review. Subject to the closing of the Flying
J/Pilot merger and other customary conditions, we have agreed to sell our interest in CFJ to Pilot.
In December 2006, we announced our U.S. company-owned and company-operated retail outlets and our
U.S. company-owned and dealer-operated retail outlets would be divested to new or existing
wholesale marketers. Of the approximately 830 sites included in the held for sale plans,
approximately 100 dealer-operated sites remain to be sold in 2010.
17
Transportation
We distribute refined products to our customers via company-owned and common-carrier pipeline,
barge, railcar and truck.
Pipelines and Terminals
At December 31, 2009, R&M managed approximately 30,000 miles of common-carrier crude oil, raw
natural gas liquids, and petroleum products pipeline systems in the United States, including those
partially owned or operated by affiliates. We also owned or operated 44 finished product
terminals, seven liquefied petroleum gas terminals, five crude oil terminals and one coke exporting
facility.
In December 2007, we acquired a 50 percent equity interest in four Keystone Pipeline entities, to
create a joint venture with TransCanada Corporation. In 2008 we exercised an option to reduce our
equity interest through a dilution mechanism, which gradually lowered our ownership interest to
20.01 percent by the third quarter of 2009. In the third quarter of 2009, we sold our remaining
ownership interest in Keystone.
Tankers
At December 31, 2009, we had 21 double-hulled crude oil tankers under charter, with capacities
ranging in size from 713,000 to 2,100,000 barrels. These tankers are used primarily to transport
feedstocks to certain of our U.S. refineries. In addition, we utilitized five double-hulled
product tankers to transport our heavy and clean products. The tankers discussed here exclude the
operations of the companys subsidiary, Polar Tankers, Inc., which are discussed in the E&P
segment, as well as an owned tanker on lease to a third party for use in the North Sea.
Specialty Businesses
We manufacture and sell a variety of specialty products including petroleum cokes, lubes (such as
automotive and industrial lubricants), solvents, polypropylene and pipeline flow improvers. Our
lubes are marketed under the Phillips 66, Conoco, 76 and Kendall brands. We also manufacture and
market high-quality graphite and anode-grade petroleum cokes in the United States and Europe for
use in the global steel and aluminum industries.
The companys 50 percent owned Excel Paralubes joint venture owns a hydrocracked lubricant base oil
manufacturing plant located adjacent to the Lake Charles Refinery. The facility produces
approximately 20,000 barrels per day of high-quality, clear hydrocracked base oils.
18
R&MINTERNATIONAL
Refining
At December 31, 2009, R&M owned or had an interest in five refineries outside the United States.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Crude Throughput |
|
|
Location |
|
Ownership |
|
Capacity (MBD) |
Humber
|
|
N. Lincolnshire, United Kingdom
|
|
|
100.00 |
% |
|
|
221 |
|
Whitegate
|
|
Cork, Ireland
|
|
|
100.00 |
|
|
|
71 |
|
Wilhelmshaven
|
|
Wilhelmshaven, Germany
|
|
|
100.00 |
|
|
|
260 |
|
MiRO*
|
|
Karlsruhe, Germany
|
|
|
18.75 |
|
|
|
58 |
|
Melaka
|
|
Melaka, Malaysia
|
|
|
47.00 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
671 |
|
|
|
|
|
* |
|
Mineraloelraffinerie Oberrhein GmbH. |
Primary crude oil characteristics and sources of crude oil for our international refineries
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Characteristics |
|
Sources |
|
|
|
|
Medium |
|
Heavy |
|
High |
|
Europe |
|
Middle East |
|
|
Sweet |
|
Sour |
|
Sour |
|
TAN* |
|
& FSU** |
|
& Africa |
Humber
|
|
|
|
|
|
|
|
|
|
|
|
|
Whitegate
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilhelmshaven
|
|
|
|
|
|
|
|
|
|
|
|
|
MiRO
|
|
|
|
|
|
|
|
|
|
|
|
|
Melaka
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
High TAN (Total Acid Number): acid content greater than or equal to 1.0 milligram of potassium hydroxide (KOH) per gram.
|
** |
|
Former Soviet Union. |
Capacities for and yields of clean products, as well as other products produced, relating to
our international refineries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean Product Capacity (MBD) |
|
Other Refined Product Output |
|
|
|
|
|
|
Clean |
|
Fuel Oil & |
|
|
|
|
|
|
|
|
|
|
|
|
Product Yield |
|
Other Heavy |
|
|
|
|
|
|
|
|
Gasolines |
|
Distillates |
|
Capability |
|
Intermediates |
|
Natural Gas Liquids |
|
Petroleum Coke |
|
Asphalt |
Humber |
|
84 |
|
112 |
|
84% |
|
|
|
|
|
* |
|
|
Whitegate |
|
15 |
|
30 |
|
65 |
|
|
|
|
|
|
|
|
Wilhelmshaven |
|
36 |
|
102 |
|
53 |
|
|
|
|
|
|
|
|
MiRO |
|
25 |
|
26 |
|
85 |
|
|
|
|
|
|
|
|
Melaka |
|
14 |
|
36 |
|
85 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes specialty coke. |
19
We operate a crude oil and products storage complex consisting of 7.5 million barrels of
storage capacity and an offshore mooring buoy, located about 80 miles southwest of the Whitegate
Refinery in Bantry Bay, Ireland.
In November 2009, we announced a delay in the planned upgrade of the Wilhelmshaven Refinery.
During 2010, we expect to complete procurement of long lead items in anticipation of project
commencement in 2012, contingent upon market conditions.
The project to expand the crude oil, conversion and treating unit capacity of the Melaka Refinery
is expected to be completed by the fourth quarter of 2010. When complete, our net share of the
refinerys crude throughput capacity will increase from 61,000 to 80,000 barrels per day.
In 2006, we signed a Memorandum of Understanding with Saudi Aramco to conduct a detailed evaluation
of the proposed development of a 400,000 barrel-per-day, full-conversion refinery in Yanbu, Saudi
Arabia. The refinery would be designed to process Arabian heavy crude oil and produce
high-quality, ultra-low-sulfur refined products. Final investment decision on this project is
estimated to occur in 2010.
Marketing
At December 31, 2009, R&M had marketing operations in five European countries. Our European
marketing strategy is to sell primarily through owned, leased or joint venture retail sites using a
low-cost, high-volume strategy. We use the JET brand name to market retail and wholesale products
in Austria, Germany and the United Kingdom. In addition, a joint venture in which we have an
equity interest markets products in Switzerland under the Coop brand name. We also market aviation
fuels, liquid petroleum gases, heating oils, transportation fuels and marine bunkers to commercial
customers and into the bulk or spot market in the aforementioned countries and Ireland.
As of December 31, 2009, we had approximately 1,225 marketing outlets in our European operations,
of which approximately 880 were company-owned and 345 were dealer-owned. Through our joint venture
operations in Switzerland, we also have interests in 225 additional sites.
LUKOIL INVESTMENT
At December 31, 2009, our LUKOIL Investment segment represented 4 percent of ConocoPhillips total
assets. In 2004, we became a strategic equity investor in OAO LUKOIL, an international, integrated
oil and gas company headquartered in Russia. Under the Shareholder Agreement between the two
companies, we have representation on the LUKOIL Board of Directors, and LUKOILs corporate charter
requires unanimous Board consent for certain key decisions. At year-end 2009, we had a 20 percent
ownership interest in LUKOIL based on authorized and issued shares. Based on estimated shares
outstanding at year end, our ownership was 20.09 percent. We use the equity method of accounting
for our investment in LUKOIL. See Note 6Investments, Loans and Long-Term Receivables, in the
Notes to Consolidated Financial Statements, for additional information.
As reported in LUKOILs publicly available 2008 annual report, the majority of its 2008 upstream
oil production was sourced within Russia, with 59 percent from the western Siberia Region, 18
percent from the Timan-Pechora Province and 12 percent from the Urals Region. Outside of Russia,
LUKOIL had 2008 oil production in Kazakhstan, Uzbekistan, Egypt and Azerbaijan, and gas production
in Uzbekistan, Azerbaijan and Kazakhstan. Seventy-five percent of LUKOILs natural gas production
was sourced within Russia. In addition, LUKOIL has an active exploration program primarily focused
in Russia, with additional activity in several countries. Downstream, LUKOIL has seven refineries,
as well as a 49 percent interest in the ISAB refinery complex in Italy, resulting in total net
crude oil throughput capacity of approximately 1.3 million barrels per day. In 2009, LUKOIL
acquired a 45 percent interest in a Dutch refinery. LUKOIL also has a marketing network extending
to 25 countries, with the majority of wholesale and retail sales in Russia, the United States and
Europe.
20
CHEMICALS
At December 31, 2009, our Chemicals segment represented 2 percent of ConocoPhillips total assets.
The Chemicals segment consists of our 50 percent equity investment in Chevron Phillips Chemical
Company LLC (CPChem), a joint venture with Chevron Corporation, headquartered in The Woodlands,
Texas.
CPChems business is structured around two primary operating segments: Olefins & Polyolefins and
Specialties, Aromatics & Styrenics. The Olefins & Polyolefins segment produces and markets
ethylene, propylene, and other olefin products, which are primarily consumed within CPChem for the
production of polyethylene, normal alpha olefins, polypropylene and polyethylene pipe. The
Specialties, Aromatics & Styrenics segment manufactures and markets aromatics products, such as
benzene, styrene, paraxylene and cyclohexane. This segment also manufactures and markets
polystyrene, as well as styrene-butadiene copolymers. Furthermore, this segment manufactures and
markets a variety of specialty chemical products including organosulfur chemicals, solvents,
catalysts, drilling chemicals, mining chemicals and high-performance engineering plastics and
compounds.
CPChems manufacturing facilities are located in Belgium, Brazil, China, Colombia, Qatar, Saudi
Arabia, Singapore, South Korea and the United States.
CPChem owns a 49 percent interest in Qatar Chemical Company Ltd. (Q-Chem), a joint venture that
owns a major olefins and polyolefins complex in Mesaieed, Qatar. CPChem also owns a 49 percent
interest in Qatar Chemical Company II Ltd. (Q-Chem II), a joint venture that began construction of
a second complex in Mesaieed in 2005. This Q-Chem II facility is designed to produce polyethylene
and normal alpha olefins on a site adjacent to the Q-Chem complex. In connection with this
project, CPChem entered into a separate agreement establishing a joint venture to develop an
ethylene cracker in Ras Laffan Industrial City, Qatar. Operational startup of the Q-Chem II
project is anticipated in the second half of 2010.
In 2008, Jubail Chevron Phillips Company, a 50 percent owned joint venture of CPChem, commenced
startup of an integrated styrene facility in Al Jubail, Saudi Arabia. The facility was built
adjacent to the existing aromatics complex owned by Saudi Chevron Phillips Company (SCP), another
50 percent owned CPChem joint venture. Project completion was achieved in July 2009.
In 2007, CPChem formed a 50 percent owned joint venture, Saudi Polymers Company (SPCo), to
construct and operate an integrated petrochemicals complex at Al Jubail, Saudi Arabia.
Construction began in January 2008, and commercial production is scheduled to begin in late 2011.
In July 2009, an initial public offering of shares in CPChems joint venture partners company was
completed, resulting in a corresponding increase in the partners ownership interest in SPCo, which
reduced CPChems ownership to 35 percent.
EMERGING BUSINESSES
At December 31, 2009, our Emerging Businesses segment represented 1 percent of ConocoPhillips
total assets. The segment encompasses the development of new technologies and businesses outside
our normal operations. Activities within this segment are focused on power generation and new
technologies related to conventional and nonconventional hydrocarbon recovery (including heavy
oil), refining, alternative energy, biofuels and the environment.
The focus of our power business is on developing projects to support our E&P and R&M strategies.
While projects primarily in place to enable these strategies are included within their respective
segments, projects with a significant merchant component are included in the Emerging Businesses
segment.
The Immingham combined heat and power plant (CHP), a wholly owned 730-megawatt facility in the
United Kingdom, provides steam and electricity to the Humber Refinery and steam to a neighboring
refinery, as well as merchant power into the U.K. market. In December 2009, commercial operation
began on a 450-megawatt expansion, bringing total capacity to 1,180 megawatts.
21
We also own a gas-fired cogeneration plant in Orange, Texas, as well as a 50 percent operating
interest in Sweeny Cogeneration LP, a joint venture near the Sweeny Refinery complex.
Our Technology group focuses on developing new business opportunities designed to provide future
growth prospects for ConocoPhillips. Focus areas include advanced hydrocarbon processes, energy
efficiency technologies, new petroleum-based products, renewable fuels and carbon capture and
conversion technologies. We have commercialized production of renewable diesel, a new type of
renewable fuel that utilizes existing infrastructure. Relationships with Iowa State University,
Colorado Center for Biorefining and Biofuels, and Archer Daniels Midland to develop
second-generation biofuels have also been initiated. In addition, we have formed an internal group
to evaluate wind, solar and geothermal investment opportunities.
Our technology center in Qatar, which we developed with General Electric Company to research water
sustainability solutions for petroleum, petrochemical, municipal and agricultural applications,
opened in 2009.
We offer a gasification technology (E-Gas) that uses petroleum coke, coal, and other low-value
hydrocarbons as feedstock, resulting in high-value synthesis gas used for a slate of products,
including power, substitute natural gas (SNG), hydrogen and chemicals. This clean, efficient
technology facilitates carbon capture and storage as well as minimizes criteria pollutant emissions
and reduces water consumption. E-Gas Technology has been utilized in commercial applications
since 1987 and is currently licensed to several third parties. We are currently pursuing three
projects that apply the E-Gas Technology, two in the United States and one in the United Kingdom.
We are also pursuing several additional licensing opportunities, primarily in Asia and North
America.
COMPETITION
We compete with private, public and state-owned companies in all facets of the petroleum and
chemicals businesses. Some of our competitors are larger and have greater resources. Each of our
segments is highly competitive. No single competitor, or small group of competitors, dominates any
of our business lines.
Upstream, our E&P segment competes with numerous other companies in the industry, including
state-owned companies, to locate and obtain new sources of supply and to produce oil and natural
gas in an efficient, cost-effective manner. Based on publicly available year-end 2008 reserves
statistics, we had the seventh-largest total of worldwide proved reserves of
nongovernment-controlled companies. We deliver our oil and natural gas production into the
worldwide oil and natural gas commodity markets. Principal methods of competing include
geological, geophysical and engineering research and technology; experience and expertise; economic
analysis in connection with portfolio management; and operating efficient oil and gas producing
properties.
The Midstream segment, through our equity investment in DCP Midstream and our consolidated
operations, competes with numerous other integrated petroleum companies, as well as natural gas
transmission and distribution companies, to deliver components of natural gas to end users in the
commodity natural gas markets. DCP Midstream is a large producer of natural gas liquids in the
United States. Principal methods of competing include economically securing the right to purchase
raw natural gas into gathering systems, managing the pressure of those systems, operating efficient
natural gas liquids processing plants and securing markets for the products produced.
Downstream, our R&M segment competes primarily in the United States, Europe and the Asia Pacific
Region. Based on the statistics published in the December 21, 2009, issue of the Oil & Gas
Journal, our R&M segment had the largest U.S. refining capacity of 17 large refiners of petroleum
products. Worldwide, our refining capacity ranked fourth among nongovernment-controlled companies.
In the Chemicals segment, CPChem generally ranked within the top 10 producers of many of its major
product lines, based on average 2009 production capacity, as published by industry sources.
Petroleum products, petrochemicals and plastics are delivered into the worldwide commodity markets.
Elements of competition for both our R&M and Chemicals segments include product improvement, new
product development, low-cost structures, and efficient manufacturing and distribution systems. In
the marketing portion of the business, competitive factors include product properties and
processibility, reliability of supply, customer service, price and credit terms, advertising and
sales promotion, and development of customer loyalty to ConocoPhillips or CPChems branded
products.
22
GENERAL
At the end of 2009, we held a total of 1,435 active patents in 72 countries worldwide, including
565 active U.S. patents. During 2009, we received 30 patents in the United States and 59 foreign
patents. Our products and processes generated licensing revenues of $14 million in 2009. The
overall profitability of any business segment is not dependent on any single patent, trademark,
license, franchise or concession.
Company-sponsored research and development activities charged against earnings were $190 million,
$209 million, and $160 million in 2009, 2008 and 2007, respectively.
Our Health, Safety and Environment (HSE) organization provides tools and support to our business
units and staff groups to help them ensure consistent health, safety and environmental excellence.
In support of the goal of zero incidents, we have implemented an HSE Excellence process, which
enables business units to measure their performance and compliance with our HSE Management System
requirements, identify gaps, and develop improvement plans. Assessments are conducted annually to
capture progress and set new targets. We are also committed to continuously improving process
safety and preventing releases of hazardous materials.
The environmental information contained in Managements Discussion and Analysis of Financial
Condition and Results of Operations on pages 58 through 61 under the captions Environmental and Climate Change is
incorporated herein by reference. It includes information on expensed and capitalized
environmental costs for 2009 and those expected for 2010 and 2011.
Web Site Access to SEC Reports
Our Internet Web site address is http://www.conocophillips.com. Information contained on our
Internet Web site is not part of this report on Form 10-K.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available on our Web site, free of charge, as soon as
reasonably practicable after such reports are filed with, or furnished to, the U.S. Securities and
Exchange Commission (SEC). Alternatively, you may access these reports at the SECs Web site at
http://www.sec.gov.
23
Item 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information
included in this Annual Report on Form 10-K. Each of these risk factors could adversely affect our
business, operating results and financial condition, as well as adversely affect the value of an
investment in our common stock.
Our operating results, our future rate of growth and the carrying value of our assets are exposed
to the effects of changing commodity prices and refining margins.
Our revenues, operating results and future rate of growth are highly dependent on the prices we
receive for our crude oil, natural gas, natural gas liquids and refined products. The factors
influencing the prices of crude oil, natural gas, natural gas liquids and refined products are
beyond our control. Lower crude oil, natural gas, natural gas liquids and refined products prices
may reduce the amount of these commodities we can produce economically, which may have a material
adverse effect on our revenues, operating income and cash flows.
Unless we successfully add to our existing proved reserves, our future crude oil and natural gas
production will decline, resulting in an adverse impact to our business.
The rate of production from crude oil and natural gas properties generally declines as reserves are
depleted. Except to the extent that we conduct successful exploration and development activities,
or, through engineering studies, identify additional or secondary recovery reserves, our proved
reserves will decline materially as we produce crude oil and natural gas. Accordingly, to the
extent we are unsuccessful in replacing the crude oil and natural gas we produce with good
prospects for future production, our business will experience reduced cash flows and results of
operations.
Any material change in the factors and assumptions underlying our estimates of crude oil and
natural gas reserves could impair the quantity and value of those reserves.
Our proved crude oil and natural gas reserve information included in this annual report has been
derived from engineering estimates prepared or reviewed by our personnel. Any significant future
price changes will have a material effect on the quantity and present value of our proved reserves.
Future reserve revisions could also result from changes in, among other things, governmental
regulation. Reserve estimation is a process that involves estimating volumes to be recovered from
underground accumulations of crude oil and natural gas that cannot be directly measured. As a
result, different petroleum engineers, each using industry-accepted geologic and engineering
practices and scientific methods, may produce different estimates of reserves and future net cash
flows based on the same available data. Any changes in the factors and assumptions underlying our
estimates of these items could result in a material negative impact to the volume of reserves
reported.
We expect to continue to incur substantial capital expenditures and operating costs as a result of
our compliance with existing and future environmental laws and regulations. Likewise, future
environmental laws and regulations may impact or limit our current business plans and reduce demand
for our products.
Our businesses are subject to numerous laws and regulations relating to the protection of the
environment. These laws and regulations continue to increase in both number and complexity and
affect our operations with respect to, among other things:
|
|
|
The discharge of pollutants into the environment. |
|
|
|
|
Emissions into the atmosphere (such as nitrogen oxides, sulfur dioxide and mercury
emissions, and greenhouse gas emissions as they are, or may become, regulated). |
|
|
|
|
The handling, use, storage, transportation, disposal and clean up of hazardous materials
and hazardous and nonhazardous wastes. |
|
|
|
|
The dismantlement, abandonment and restoration of our properties and facilities at the
end of their useful lives. |
24
We have incurred and will continue to incur substantial capital, operating and maintenance, and
remediation expenditures as a result of these laws and regulations. To the extent these
expenditures, as with all costs, are not ultimately reflected in the prices of our products and
services, our business, financial condition, results of operations and cash flows in future periods
could be materially adversely affected.
In addition, our business operations are designed and operated to accommodate expected climatic
conditions. To the extent there are significant changes in the Earths climate, such as more
severe or frequent weather conditions in the markets we serve or the areas where our assets reside,
we could incur increased expenses, our operations could be materially impacted, and demand for our
products could fall.
Domestic and worldwide political and economic developments could damage our operations and
materially reduce our profitability and cash flows.
Actions of the U.S., state and local governments through tax and other legislation, executive order
and commercial restrictions could reduce our operating profitability both in the United States and
abroad. The U.S. government can prevent or restrict us from doing business in foreign countries.
These restrictions and those of foreign governments have in the past limited our ability to operate
in, or gain access to, opportunities in various countries. Actions by both the United States and
host governments have affected operations significantly in the past, such as the expropriation of
our oil assets by the Venezuelan government, and may continue to do so in the future.
Local political and economic factors in international markets could have a material adverse effect
on us. Approximately 67 percent of our hydrocarbon production in 2009 was derived from production
outside the United States, and 64 percent of our proved reserves, as of December 31, 2009, were
located outside the United States. We are subject to risks associated with operations in
international markets, including changes in foreign governmental policies relating to crude oil,
natural gas, natural gas liquids or refined product pricing and taxation, other political, economic
or diplomatic developments, changing political conditions and international monetary fluctuations.
Changes in governmental regulations may impose price controls and limitations on production of
crude oil and natural gas.
Our operations are subject to extensive governmental regulations. From time to time, regulatory
agencies have imposed price controls and limitations on production by restricting the rate of flow
of crude oil and natural gas wells below actual production capacity in order to conserve supplies
of crude oil and natural gas. Because legal requirements are frequently changed and subject to
interpretation, we cannot predict the effect of these requirements.
Our investments in joint ventures decrease our ability to manage risk.
We conduct many of our operations through joint ventures in which we may share control with our
joint venture participants. There is a risk that our joint venture participants may at any time
have economic, business or legal interests or goals that are inconsistent with those of the joint
venture or us, or that our joint venture participants may be unable to meet their economic or other
obligations and we may be required to fulfill those obligations alone. Failure by us, or an entity
in which we have a joint venture interest, to adequately manage the risks associated with any
acquisitions or joint ventures could have a material adverse effect on the financial condition or
results of operations of our joint ventures and, in turn, our business and operations.
Our operations present hazards and risks that require significant and continuous oversight.
The scope and nature of our operations present a variety of operational hazards and risks that must
be managed through continual oversight and control. These risks are present throughout the process
of extraction, transportation, refinement and storage of the hydrocarbons we produce. Failure to
manage these risks could result in injury or loss of life, environmental damage, loss of revenues
and damage to our reputation.
25
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 3. 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 fourth quarter of 2009, as well as matters previously reported in our 2008
Form 10-K and our first-, second- and third-quarter 2009 Form 10-Qs that were not resolved prior to
the fourth quarter of 2009. Material developments to the previously reported matters have been
included in the descriptions below. While it is not possible to accurately predict the final
outcome of these pending proceedings, if any one or more of such proceedings was 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 (SEC) regulations.
Our U.S. refineries are implementing two separate consent decrees, regarding alleged violations of
the Federal Clean Air Act, with the U.S. Environmental Protection Agency (EPA), six states and one
local air pollution agency. Some of the requirements and limitations contained in the decrees
provide for stipulated penalties for violations. Stipulated penalties under the decrees are not
automatic, but must be requested by one of the agency signatories. As part of periodic reports
under the decrees or other reports required by permits or regulations, we occasionally report
matters that could be subject to a request for stipulated penalties. If a specific request for
stipulated penalties meeting the reporting threshold set forth in SEC 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
In May 2008, the EPA issued a Compliance Order to ConocoPhillips alleging our Argenta and Sunnyside
Compressor Station facilities in Colorado violated provisions of the Clean Air Act and failed to
comply with several permit conditions. On February 5, 2010, we settled this matter for a
payment of $175,000 and agreement to install certain emission control equipment.
In 2009, ConocoPhillips notified the EPA and the U.S. Department of Justice (DOJ) that it had
self-identified certain compliance issues related to Benzene Waste Operations National Emission
Standard for Hazardous Air Pollutants requirements at its Trainer, Pennsylvania, and Borger, Texas,
facilities. On January 6, 2010, the DOJ provided its initial penalty demand for this matter as
part of our confidential settlement negotiations. We continue to work with the DOJ to resolve this
matter.
On December 17, 2009, the San Francisco Regional Water Quality Control Boards enforcement staff
(SFRWQCB) issued an Administrative Civil Liability Complaint alleging 18 exceedances of the Rodeo
facilitys stormwater permit that occurred during 2008 and 2009. The Complaint seeks a penalty of
$490,000. We are working with the SFRWQCB to resolve this matter.
On January 22, 2010, the Bay Area Air Quality Management District (BAAQMD) issued a settlement
demand to resolve 16 Notices of Violation (NOVs) issued in 2008 and 2009 that allege violations of
air pollution control regulations and/or facility permit conditions at the Rodeo facility. The
amount of the settlement demand is $179,000. We are working with BAAQMD to resolve this matter.
Matters Previously Reported
ConocoPhillips Pipe Line Company (CPPL) received a Notice of Probable Violation and Proposed
Civil Penalty (NOPV) from the U.S. Department of Transportations Pipeline and Hazardous Materials
Safety Administration (DOT) dated March 30, 2009. The NOPV alleges that CPPL violated certain
operation and
26
safety regulations regarding the control room response to a release on January 8, 2008, near
Denver City, Texas. DOTs proposed penalty for the alleged violation is $200,000. We are working
with DOT to resolve this matter.
On October 23, 2008, ConocoPhillips received a demand from the Los Angeles Regional Water Quality
Control Board (LARWQCB) to settle multiple alleged exceedances of National Pollutant Discharge
Elimination System permit effluent limits at its Los Angeles lubricants plant dating back to 2000.
We paid a negotiated settlement of $150,000 to the LARWQCB on January 25, 2010, to resolve this
matter.
In October 2003, the District Attorneys Office in Sacramento, California, filed a complaint in
Superior Court for alleged methyl tertiary-butyl ether (MTBE) contamination in groundwater. On
April 4, 2008, the District Attorneys Office filed an amended complaint that included alleged
violations of state regulations relating to operation or maintenance of underground storage tanks.
There are numerous defendants named in the suit in addition to ConocoPhillips. We intend to
continue to contest this lawsuit.
In October 2007, we received a Complaint from the 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 are
working with the EPA and the U.S. Coast Guard to resolve this matter.
In March 2005, CPPL received an NOPV from 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 has provided additional information in support of its position. We are currently
awaiting a ruling from DOT.
In 2006, Polar Tankers, Inc. and ConocoPhillips resolved and agreed to pay, with no admission of
liability, civil penalties and response costs associated with a 2004 oil spill in Puget Sound. We
remain in negotiations with the natural resource trustees regarding the natural resource damage
assessment to better the environment.
In April 2004, in response to several historical spills at the Albuquerque Products Terminal, we
received an Administrative Compliance Order from the New Mexico Environment Department. The order
does not propose a penalty assessment, but rather attempts to impose specific design, construction
and operational changes. ConocoPhillips transferred its interest in the terminal, and the current
owner has ceased operations. The spills have been remediated in compliance with New Mexico
Environmental Department standards. ConocoPhillips has withdrawn its settlement offer and
requested that this Order be dismissed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
27
EXECUTIVE OFFICERS OF THE REGISTRANT
|
|
|
|
|
Name |
|
Position Held |
|
Age* |
John A. Carrig |
|
President and Chief Operating Officer |
|
58 |
W. C. W. Chiang |
|
Senior Vice President, Refining, Marketing and Transportation |
|
49 |
Sigmund L. Cornelius |
|
Senior Vice President, Finance, and Chief Financial Officer |
|
55 |
Janet L. Kelly |
|
Senior Vice President, Legal, General Counsel and Corporate Secretary |
|
52 |
Ryan M. Lance |
|
Senior Vice President, Exploration and Production International |
|
47 |
Kevin O. Meyers |
|
Senior Vice President, Exploration and Production Americas |
|
56 |
James J. Mulva |
|
Chairman of the Board of Directors and Chief Executive Officer |
|
63 |
Glenda M. Schwarz |
|
Vice President and Controller |
|
44 |
Jeff W. Sheets |
|
Senior Vice President, Planning and Strategy |
|
52 |
There are no family relationships among any of the officers named above. Each officer of
the company is elected by the Board of Directors at its first meeting after the Annual Meeting of
Stockholders and thereafter as appropriate. Each officer of the company holds office from date of
election until the first meeting of the directors held after the next Annual Meeting of
Stockholders or until a successor is elected. The date of the next annual meeting is May 12, 2010.
Set forth below is information about the executive officers.
John A. Carrig was appointed President and Chief Operating Officer in October 2008, having
previously served as Executive Vice President, Finance, and Chief Financial Officer since the
merger of Conoco and Phillips in 2002 (the merger).
W. C. W. Chiang was appointed Senior Vice President, Refining, Marketing and Transportation in
October 2008. He previously served as Senior Vice President, Commercial since 2007. Prior to
that, he served as President, Americas Supply & Trading, Commercial, from 2005 through 2007 and as
President, Downstream Strategy, Integration and Specialty Businesses from 2003 through 2005.
Sigmund L. Cornelius was appointed Senior Vice President, Finance, and Chief Financial Officer in
October 2008. Prior to that, he served as Senior Vice President, Planning, Strategy and Corporate
Affairs since September 2007, having previously served as President, Exploration and
ProductionLower 48 since 2006 and President, Global Gas since 2004.
Janet L. Kelly was appointed Senior Vice President, Legal, General Counsel and Corporate Secretary
effective September 1, 2007, having previously served as Deputy General Counsel since 2006. Prior
to joining ConocoPhillips in 2006, she was a partner at Zelle, Hoffman, Voelbel, Mason and Gette
during 2005 and 2006.
Ryan M. Lance was appointed Senior Vice President, Exploration and Production International, in
May 2009. Prior to that, he served as President, Exploration and Production Asia, Africa,
Middle East and Russia/Caspian since April 2009, having previously served as President, Exploration
and Production Europe, Asia, Africa and the Middle East since September 2007. He served as
Senior Vice President, Technology since February 2007, and prior to that served as Senior Vice
President, Technology and Major Projects since 2006. He served as President, Downstream Strategy,
Integration and Specialty Businesses since 2005.
28
Kevin O. Meyers was appointed Senior Vice President, Exploration and Production Americas, in May
2009, having previously served as President, Canada, Exploration & Production, since 2006. He
served as President, ConocoPhillips Russia & Caspian Region, from 2004 to 2006.
James J. Mulva has served as Chairman of the Board of Directors and Chief Executive Officer since
October 2008, having previously served as Chairman of the Board of Directors, President and Chief
Executive Officer since October 2004. Prior to that, he served as President and Chief Executive
Officer since the merger.
Glenda M. Schwarz was appointed Vice President and Controller in April 2009. She previously served
as General Auditor and Chief Ethics Officer since 2008, having previously served as General
Manager, Downstream Finance and Performance Analysis since 2005, and prior to that served as
Assistant Controller, External Reporting and Accounting Policy since 2004.
Jeff W. Sheets was appointed Senior Vice President, Planning and Strategy in October 2008, having
previously served as Vice President and Treasurer since the merger.
29
PART II
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Quarterly Common Stock Prices and Cash Dividends Per Share
ConocoPhillips common stock is traded on the New York Stock Exchange, under the symbol COP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price |
|
|
|
|
|
|
High |
|
|
Low |
|
|
Dividends |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
$ |
57.44 |
|
|
|
34.12 |
|
|
|
.47 |
|
Second |
|
|
48.71 |
|
|
|
37.52 |
|
|
|
.47 |
|
Third |
|
|
47.30 |
|
|
|
38.62 |
|
|
|
.47 |
|
Fourth |
|
|
54.13 |
|
|
|
44.88 |
|
|
|
.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
$ |
89.71 |
|
|
|
67.85 |
|
|
|
.47 |
|
Second |
|
|
95.96 |
|
|
|
75.52 |
|
|
|
.47 |
|
Third |
|
|
94.65 |
|
|
|
67.31 |
|
|
|
.47 |
|
Fourth |
|
|
72.25 |
|
|
|
41.27 |
|
|
|
.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Stock Price at December 31, 2009 |
|
|
|
|
|
|
|
|
|
$ |
51.07 |
|
Closing Stock Price at January 31, 2010 |
|
|
|
|
|
|
|
|
|
$ |
48.00 |
|
Number of Stockholders of Record at January 31, 2010* |
|
|
|
|
|
|
|
|
|
|
61,039 |
|
|
|
|
|
* |
|
In determining the number of stockholders, we consider clearing
agencies and security position listings as one stockholder for each
agency or listing. |
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Value of Shares |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
that May Yet Be |
|
|
|
Total Number of |
|
|
Average Price Paid Per |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Period |
|
Shares Purchased * |
|
|
Share |
|
|
Programs |
|
|
Plans or Programs |
|
|
October 1-31, 2009 |
|
|
157,478 |
|
|
$ |
50.72 |
|
|
|
|
|
|
|
|
|
November
1-30, 2009 |
|
|
17,369 |
|
|
|
51.98 |
|
|
|
|
|
|
|
|
|
December
1-31, 2009 |
|
|
3,324 |
|
|
|
50.75 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
178,171 |
|
|
$ |
50.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents the repurchase of common shares from company employees in connection with the
companys broad-based employee incentive plans. |
30
Item 6. SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars Except Per Share Amounts |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Sales and other operating revenues |
|
$ |
149,341 |
|
|
|
240,842 |
|
|
|
187,437 |
|
|
|
183,650 |
|
|
|
179,442 |
|
Income (loss) from continuing operations |
|
|
4,936 |
|
|
|
(16,928 |
) |
|
|
11,978 |
|
|
|
15,626 |
|
|
|
13,673 |
|
Income (loss) from continuing operations
attributable to ConocoPhillips |
|
|
4,858 |
|
|
|
(16,998 |
) |
|
|
11,891 |
|
|
|
15,550 |
|
|
|
13,640 |
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3.26 |
|
|
|
(11.16 |
) |
|
|
7.32 |
|
|
|
9.80 |
|
|
|
9.79 |
|
Diluted |
|
|
3.24 |
|
|
|
(11.16 |
) |
|
|
7.22 |
|
|
|
9.66 |
|
|
|
9.63 |
|
Net income (loss) |
|
|
4,936 |
|
|
|
(16,928 |
) |
|
|
11,978 |
|
|
|
15,626 |
|
|
|
13,562 |
|
Net income
(loss) attributable to ConocoPhillips |
|
|
4,858 |
|
|
|
(16,998 |
) |
|
|
11,891 |
|
|
|
15,550 |
|
|
|
13,529 |
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3.26 |
|
|
|
(11.16 |
) |
|
|
7.32 |
|
|
|
9.80 |
|
|
|
9.71 |
|
Diluted |
|
|
3.24 |
|
|
|
(11.16 |
) |
|
|
7.22 |
|
|
|
9.66 |
|
|
|
9.55 |
|
Total assets |
|
|
152,588 |
|
|
|
142,865 |
|
|
|
177,757 |
|
|
|
164,781 |
|
|
|
106,999 |
|
Long-term debt |
|
|
26,925 |
|
|
|
27,085 |
|
|
|
20,289 |
|
|
|
23,091 |
|
|
|
10,758 |
|
Joint venture acquisition obligationlong-term |
|
|
5,009 |
|
|
|
5,669 |
|
|
|
6,294 |
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
|
1.91 |
|
|
|
1.88 |
|
|
|
1.64 |
|
|
|
1.44 |
|
|
|
1.18 |
|
|
See Managements Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of factors that will enhance an understanding of this data.
The financial data for 2008 includes the impact of impairments relating to goodwill and to our
LUKOIL investment that together amount to $32,853 million before- and after-tax. For additional
information, see the Goodwill Impairment section of Note 9Goodwill and Intangibles and the
LUKOIL section of Note 6Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial
Statements.
The financial data for 2007 includes the impact of a $4,588 million before-tax ($4,512 million
after-tax) impairment 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.
Additionally, the acquisition of Burlington Resources in 2006 affects the comparability of the
amounts included in the table above.
31
|
|
|
Item 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
February 25, 2010
Managements Discussion and Analysis is the companys analysis of its financial performance and of
significant trends that may affect future performance. It should be read in conjunction with the
financial statements and notes, and supplemental oil and gas disclosures. It contains
forward-looking statements including, without limitation, statements relating to the companys
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 forecast,
intend, believe, expect, plan, schedule, target, should, goal, may, anticipate,
estimate and similar expressions identify forward-looking statements. The company does not
undertake to update, revise or correct any of the forward-looking information unless required to do
so under the federal securities laws. Readers are cautioned that such forward-looking statements
should be read in conjunction with the companys 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 66.
The terms earnings and loss as used in Managements Discussion and Analysis refer to net income
(loss) attributable to ConocoPhillips.
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. We have approximately 30,000
employees worldwide, and at year-end 2009 had assets of $153 billion. Our stock is listed on the
New York Stock Exchange under the symbol COP.
Our business is organized into six operating segments:
|
|
|
Exploration and Production (E&P)This segment primarily explores for, produces,
transports and markets crude oil, natural gas, natural gas liquids and bitumen on a
worldwide basis. |
|
|
|
MidstreamThis segment gathers, processes and markets natural gas produced by
ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly
in the United States and Trinidad. The Midstream segment primarily consists of our 50
percent equity investment in DCP Midstream, LLC. |
|
|
|
Refining and Marketing (R&M)This segment purchases, refines, markets and transports
crude oil and petroleum products, mainly in the United States, Europe and Asia. |
|
|
|
LUKOIL InvestmentThis segment consists of our equity investment in the ordinary shares
of OAO LUKOIL, an international, integrated oil and gas company headquartered in Russia.
At December 31, 2009, our ownership interest was 20 percent based on issued shares and
20.09 percent based on estimated shares outstanding. |
|
|
|
ChemicalsThis segment manufactures and markets petrochemicals and plastics on a
worldwide basis. The Chemicals segment consists of our 50 percent equity investment in
Chevron Phillips Chemical Company LLC (CPChem). |
|
|
|
Emerging BusinessesThis segment represents our investment in new technologies or
businesses outside our normal scope of operations. |
32
The business environment for the energy industry in 2009 continued to experience volatility
associated with the supply/demand factors that drive its commodity prices and margins. During
2008, forecasts of worldwide economic growth and increasingly scarce supply, a weakening U.S.
dollar, and other factors helped drive crude oil prices to record highs by mid-year, with the
benchmark West Texas Intermediate (WTI) peaking at almost $150 per barrel. This was followed by an
abrupt shift into a severe global financial recession, which drove crude oil prices to the
low-$30-per-barrel range by the end of 2008. As the global economy began to recover, oil prices
steadily improved during 2009 and have remained fairly strong due to demand in Asia. The recovery
from the recession in the United States, however, has been slower and has impacted demand for U.S.
natural gas and refined products.
In response to this challenging business environment, ConocoPhillips announced several strategic
initiatives in late 2009 designed to improve its financial position and increase returns on
capital. This will be accomplished primarily through a combination of enhanced capital discipline
and asset portfolio rationalization, consistent with our objectives of creating shareholder value
and improving financial flexibility, while pursuing long-term strategic projects. Our total
capital program in 2010 is expected to be $11.2 billion, down from a budgeted $12.5 billion in
2009. To improve our financial position and strengthen the balance sheet, we intend to raise
approximately $10 billion from asset dispositions over the next two years. Proceeds will be
targeted to debt reduction, accelerating the return to our targeted debt-to-capital ratio of 20
percent to 25 percent. After these initiatives, we intend to continue to replace reserves and
increase production from a reduced, but more strategic, asset base.
Crude oil and natural gas prices, along with refining margins, are the most significant factors in
our profitability, and are driven by market factors over which we have no control. As noted above,
these prices and margins are subject to extreme volatility. However, from a competitive
perspective, there are other important factors we must manage well to be successful, including:
|
|
|
Operating our producing properties and refining and marketing operations safely,
consistently and in an environmentally sound manner. Safety is our first priority, and
we are committed to protecting the health and safety of everyone who has a role in our
operations and the communities in which we operate. Optimizing utilization rates at our
refineries and minimizing downtime in producing fields enable us to capture the value
available in the market in terms of prices and margins. During 2009, our worldwide
refining capacity utilization rate was 84 percent, compared with 90 percent in 2008. The
lower rate primarily reflects reduced throughput at our U.S. and German refineries due to
economic conditions, as well as higher planned downtime, efficiently utilizing periods of
lower margins for maintenance. Although certain North America production was shut-in
during part of 2009 due to the natural gas pricing environment, we increased total
production on a barrel-of-oil-equivalent basis in 2009 by 2 percent. Finally, we strive to
conduct our operations in a manner consistent with our environmental stewardship
principles. |
|
|
|
Adding to our proved reserve base. We primarily add to our proved reserve base
in three ways: |
|
o |
|
Successful exploration and development of new fields. |
|
|
o |
|
Acquisition of existing fields. |
|
|
o |
|
Application of new technologies and processes to improve recovery from existing fields. |
Through a combination of the methods listed above, we have been successful in the past in
maintaining or adding to our production and proved reserve base, and we anticipate being
able to do so in the future. In the five years ending December 31, 2009, our reserve
replacement was 145 percent. Over this period we added reserves through acquisitions and
project developments, partially offset by the impact of asset expropriations in Venezuela
and Ecuador.
Access to additional resources has become increasingly difficult as direct investment is
prohibited in some nations, while fiscal and other terms in other countries can make
projects uneconomic or unattractive. In addition, political instability, competition from
national oil companies, and lack of access to high-potential areas due to environmental or
other regulation may negatively impact our ability to increase our reserve base. As such, the timing and level at which we add to our
reserve base may, or may not, allow us to replace our production over subsequent years.
33
|
|
|
Controlling costs and expenses. Since we cannot control the prices of the
commodity products we sell, controlling operating and overhead costs, within the context of
our commitment to safety and environmental stewardship, are high priorities. We monitor
these costs using various methodologies that are reported to senior management monthly, on
both an absolute-dollar basis and a per-unit basis. Because managing operating and overhead
costs is critical to maintaining competitive positions in our industries, cost control is a
component of our variable compensation programs. Operating and overhead costs were reduced
13 percent in 2009, compared with 2008, reflecting both market conditions and our continued
emphasis on cost control throughout the year. |
|
|
|
Selecting the appropriate projects in which to invest our capital dollars. We
participate in capital-intensive industries. As a result, we must often invest significant
capital dollars to explore for new oil and gas fields, develop newly discovered fields,
maintain existing fields, or continue to maintain and improve our refinery complexes. We
invest in projects that are expected to provide an adequate financial return on invested
dollars. However, there are often long lead times from the time we make an investment to
the time that investment is operational and begins generating financial returns. |
|
|
|
The capital expenditures and investments portion of our capital program totaled $10.9
billion in 2009, and we anticipate capital expenditures and investments to be approximately
$10.5 billion in 2010. The 2010 budget is consistent with our recently announced plan to
improve returns through increased capital discipline, while still funding existing projects
and enabling us to preserve flexibility to develop major projects in the future. In
addition to our capital program, we paid dividends on our common stock of $2.8 billion in
2009. |
|
|
|
Managing our asset portfolio. We continually evaluate our assets to determine
whether they no longer fit our strategic plans and should be sold or otherwise disposed.
In 2008, we sold our retail marketing assets in Norway, Sweden and Denmark, in addition to
our E&P properties in Argentina and the Netherlands. In 2009, we sold a majority of our
U.S. retail marketing assets. Also in 2009, we announced our intention to raise
approximately $10 billion from asset dispositions over the next two years. |
|
|
|
Developing and retaining a talented work force. We strive to attract, train,
develop and retain individuals with the knowledge and skills to implement our business
strategy and who support our values and ethics. Throughout the company, we focus on the
continued learning, development and technical training of our employees. Professional new
hires participate in structured development programs designed to accelerate their technical
and functional skills. |
Our key performance indicators are shown in the statistical tables provided at the beginning of the
operating segment sections that follow. These include crude oil and natural gas liquids prices,
natural gas prices, production, refining capacity utilization, and refinery output.
34
Other significant factors that can affect our profitability include:
|
|
|
Impairments. As mentioned above, we participate in capital-intensive
industries. At times, our investments become impaired when our reserve estimates are
revised downward, when crude oil prices, natural gas prices or refining margins decline
significantly for long periods of time, or when a decision to dispose of an asset leads to
a write-down to its fair market value. We may also invest large amounts of money in
exploration blocks which, if exploratory drilling proves unsuccessful, could lead to a
material impairment of leasehold values. Before-tax impairments in 2009 totaled $0.8
billion and primarily related to certain natural gas properties in western Canada and our
equity investment in Naraynmarneftegaz (NMNG). Before-tax impairments in 2008, excluding
the goodwill impairment discussed below and a $7.4 billion impairment related to our LUKOIL
investment, totaled $1.7 billion. |
|
|
|
Goodwill. At year-end 2009 and 2008, we had $3.6
billion and $3.8 billion, respectively,
of goodwill on our balance sheet, compared with $29.3 billion at year-end 2007. In 2008,
we recorded a $25.4 billion complete impairment of our E&P segment goodwill, primarily as a
function of decreased year-end commodity prices and the decline in our market
capitalization. For additional information, see Note 9Goodwill and Intangibles, in the
Notes to Consolidated Financial Statements. Deterioration of market conditions in the
future could lead to other goodwill impairments that may have a substantial negative,
though noncash, effect on our profitability. |
|
|
|
Effective tax rate. Our operations are located in countries with different tax
rates and fiscal structures. Accordingly, even in a stable commodity price and
fiscal/regulatory environment, our overall effective tax rate can vary significantly
between periods based on the mix of pretax earnings within our global operations. |
|
|
|
Fiscal and regulatory environment. As commodity prices and refining
margins fluctuated upward over the last several years, certain governments responded with
changes to their fiscal take. These changes have generally negatively impacted our results
of operations, and further changes to government fiscal take could have a negative impact
on future operations. In June 2007, our Venezuelan oil projects were expropriated, and we
recorded a $4.5 billion after-tax impairment. In the second quarter of 2009, our assets in
Ecuador were effectively expropriated, and we recorded a $51 million before- and after-tax
impairment (see the Expropriated Assets section of Note 10Impairments, in the Notes to
Consolidated Financial Statements). We were also negatively impacted by increased
production taxes enacted by the state of Alaska in the fourth quarter of 2007. In Canada,
the Alberta provincial government changed the royalty structure for Crown lands, effective
January 1, 2009, so that a component of the new royalty rate is tied to prevailing prices.
In October 2008, we and our co-venturers signed definitive agreements for the proportional
dilution of our equity interests in the Republic of Kazakhstans North Caspian Sea
Production Sharing Agreement, which includes the Kashagan Field, to allow the state-owned
energy company to increase its ownership percentage effective January 1, 2008. Partially
offsetting the above fiscal take increases were lower corporate income tax rates enacted by
Canada and Germany during 2007. These tax rate reductions applied to all corporations and
were not exclusive to the oil and gas industry. |
35
Segment Analysis
The E&P segments results are most closely linked to crude oil and natural gas prices. These are
commodity products, the prices of which are subject to factors external to our company and over
which we have no control. Industry crude oil prices for West Texas Intermediate were lower in
2009, compared with 2008, averaging $61.69 per barrel in 2009, a decrease of 38 percent. Crude oil
prices steadily trended upward during 2009, as global crude inventories were reduced due to lower
production and economic recovery that stimulated the resumption of global oil demand growth.
Industry natural gas prices for Henry Hub decreased 56 percent during 2009 to an average price of
$3.99 per million British thermal units, primarily as a result of lower demand due to the U.S.
recession and higher domestic production due to increased shale gas production.
The Midstream segments results are most closely linked to natural gas liquids prices. The most
important factor affecting the profitability of this segment is the results from our 50 percent
equity investment in DCP Midstream. DCP Midstreams natural gas liquids prices decreased 43
percent in 2009.
Refining margins, refinery utilization, cost control and marketing margins primarily drive the R&M
segments results. Refining margins are subject to movements in the cost of crude oil and other
feedstocks, and the sales prices for refined products, both of which are subject to market factors
over which we have no control. Global refining margins remained weak in 2009. The U.S. benchmark
3:2:1 crack spread decreased almost 20 percent in 2009, while the N.W. Europe benchmark declined 54
percent. Demand, particularly for distillates, continued to be suppressed by the global economic
slowdown. In addition, the compressed differential in prices for high-quality crude oil, compared
with those of lower-quality crude oil, reduced margins for those refineries configured to
capitalize on the ability to process lower-quality crudes.
The LUKOIL Investment segment consists of our investment in the ordinary shares of LUKOIL. At
December 31, 2009, our ownership interest in LUKOIL was 20 percent based on issued shares and 20.09
percent based on estimated shares outstanding. LUKOILs results are subject to factors similar to
those of our E&P and R&M segments. LUKOILs upstream results are closely linked to Russian (Urals)
crude oil prices and are heavily impacted by extraction tax rates. Refining margins are
significant factors on LUKOILs downstream results. Export tariff rates for crude oil and refined
products also have a significant impact on both upstream and downstream results.
The Chemicals segment consists of our 50 percent interest in CPChem. The chemicals and plastics
industry is mainly a commodity-based industry where the margins for key products are based on
market factors over which CPChem has little or no control. CPChem is investing in
feedstock-advantaged areas in the Middle East with access to large, growing markets, such as Asia.
The Emerging Businesses segment represents our investment in new technologies or businesses outside
our normal scope of operations. Activities within this segment are currently focused on power
generation and innovation of new technologies, such as those related to conventional and
nonconventional hydrocarbon recovery (including heavy oil), refining, alternative energy, biofuels
and the environment. Some of these technologies have the potential to become important drivers of
profitability in future years.
36
RESULTS OF OPERATIONS
Consolidated Results
A summary of the companys net income (loss) attributable to ConocoPhillips by business segment
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
Years Ended December 31 |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Exploration and Production (E&P) |
|
$ |
3,604 |
|
|
|
(13,479 |
) |
|
|
4,615 |
|
Midstream |
|
|
313 |
|
|
|
541 |
|
|
|
453 |
|
Refining and Marketing (R&M) |
|
|
37 |
|
|
|
2,322 |
|
|
|
5,923 |
|
LUKOIL Investment |
|
|
1,663 |
|
|
|
(5,488 |
) |
|
|
1,818 |
|
Chemicals |
|
|
248 |
|
|
|
110 |
|
|
|
359 |
|
Emerging Businesses |
|
|
3 |
|
|
|
30 |
|
|
|
(8 |
) |
Corporate and Other |
|
|
(1,010 |
) |
|
|
(1,034 |
) |
|
|
(1,269 |
) |
|
Net income (loss) attributable to ConocoPhillips |
|
$ |
4,858 |
|
|
|
(16,998 |
) |
|
|
11,891 |
|
|
2009 vs. 2008
The improved results in 2009 were primarily the result of:
|
|
|
The absence of a $25,443 million before- and after-tax impairment of all E&P segment
goodwill in 2008. |
|
|
|
The absence of a $7,410 million before- and after-tax impairment of our LUKOIL
investment in 2008. |
|
|
|
Lower production taxes. |
|
|
|
Reduced operating and overhead expenses. |
These items were partially offset by:
|
|
|
Lower crude oil, natural gas and natural gas liquids prices, which impacted our E&P,
Midstream and LUKOIL Investment segments. |
|
|
|
Lower refining margins in our R&M segment. |
2008 vs. 2007
The lower results in 2008 were primarily the result of:
|
|
|
The goodwill and LUKOIL impairments, noted above. |
|
|
|
Lower U.S. refining margins in our R&M segment. |
|
|
|
An increase in other asset impairments, predominantly in our E&P and R&M segments. |
These items were partially offset by:
|
|
|
Higher crude oil, natural gas and natural gas liquids prices, which
benefitted our E&P, Midstream and LUKOIL Investment segments. Commodity price benefits
were somewhat counteracted by increased production taxes. |
|
|
|
A 2007 complete impairment ($4,588 million before-tax, $4,512 million after-tax) of our
oil interests in Venezuela, resulting from their expropriation. |
37
Statement of Operations Analysis
2009 vs. 2008
Sales and other operating revenues decreased 38 percent in 2009, while purchased crude
oil, natural gas and products decreased 39 percent. These decreases were mainly the result of
significantly lower prices for petroleum products, crude oil, natural gas and natural gas liquids.
Equity in earnings of affiliates decreased 30 percent in 2009, primarily due to reduced
earnings from DCP Midstream; LUKOIL; Merey Sweeny, L.P. (MSLP); Malaysian Refining Company Sdn.
Bhd.; and Excel Paralubes, which were partially offset by higher earnings from Chevron Phillips
Chemical Company LLC. The decreases were mainly the result of lower commodity prices and refining
margins.
Other income decreased 52 percent during 2009. The decrease was primarily due to 2008
gains related to asset dispositions in our E&P and R&M segments.
Production
and operating expenses decreased 13 percent in 2009, as a result of lower
utilities costs, favorable foreign exchange impacts, and our cost reduction efforts.
Selling, general and administrative expense decreased 18 percent in 2009, primarily due to
disposition of U.S. and international marketing assets.
Taxes other than income taxes decreased 25 percent in 2009, primarily due to lower
production taxes resulting from lower crude oil prices, as well as reduced excise taxes on
petroleum product sales.
Impairments decreased from $34,539 million in 2008 to $535 million in 2009, primarily
reflecting the 2008 goodwill and LUKOIL impairments. Other impairments decreased $1,202 million
during 2009. For additional information, see Note 6Investments, Loans and Long-Term
Receivables, Note 9Goodwill and Intangibles, and Note 10Impairments, in the Notes to
Consolidated Financial Statements.
Interest and debt expense increased 38 percent in 2009, as a result of a higher average
debt level, partially offset by lower interest rates. Interest expense also increased as a result
of lower capitalized interest.
See Note 20Income Taxes, in the Notes to Consolidated Financial Statements, for information
regarding our income tax expense and effective tax rate.
2008 vs. 2007
Sales and other operating revenues increased 28 percent in 2008, while purchased crude
oil, natural gas and products increased 37 percent. These increases were the result of higher
petroleum product prices and higher prices for crude oil, natural gas and natural gas liquids.
38
Equity in earnings of affiliates decreased 16 percent in 2008, reflecting:
|
|
|
Lower results from WRB Refining LLC, due to lower margins and a decline in equity
ownership in accordance with the designed formation of the venture. |
|
|
|
Lower results from CPChem, due to higher operating costs, lower specialties, aromatics
and styrenics margins, and lower olefins and polyolefins volumes. |
|
|
|
The absence of earnings from our heavy oil joint ventures expropriated by Venezuela in
2007. |
|
|
|
Increased losses related to our NMNG joint venture as a result of higher production
taxes and increased depreciation, depletion and amortization (DD&A) costs during the
startup and early production phase of the Yuzhno Khylchuyu (YK) Field. |
These negative results were somewhat offset by improved results from the FCCL Partnership, DCP
Midstream, LUKOIL (excluding the investment impairment), and CFJ Properties.
Other income decreased 45 percent during 2008, mainly due to a lower net benefit from asset
rationalization efforts, the release in 2007 of escrowed funds associated with our Hamaca joint
venture in Venezuela, and the settlement of retroactive adjustments for crude oil quality
differentials on Trans-Alaska Pipeline System shipments (Quality Bank) in 2007.
Exploration expenses increased 33 percent during 2008, reflecting increased dry hole costs
and higher expenses for post-discovery feasibility and development planning studies.
Impairments increased from $5,030 million in 2007 to $34,539 million in 2008. This
increase primarily reflects the 2008 goodwill and LUKOIL impairments, partially offset by a 2007
impairment of $4,588 million related to the expropriation of our oil interests in Venezuela.
Interest and debt expense decreased 25 percent in 2008, primarily due to lower average
interest rates, as well as the absence of 2007 interest expense related to the Alaska Quality Bank
settlements.
Foreign currency transaction losses incurred during 2008 totaled $117 million, compared
with foreign currency transaction gains of $201 million in 2007. This change occurred as the
Canadian dollar, Russian rouble, British pound, and euro all weakened against the U.S. dollar
during 2008, compared with the strengthening of these currencies against the U.S. dollar in 2007.
See Note 20Income Taxes, in the Notes to Consolidated Financial Statements, for information
regarding our income tax expense and effective tax rate.
39
Segment Results
E&P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Millions of Dollars |
|
Net Income (Loss) Attributable to ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
$ |
1,540 |
|
|
|
2,315 |
|
|
|
2,255 |
|
Lower 48 |
|
|
(37 |
) |
|
|
2,673 |
|
|
|
1,993 |
|
|
United States |
|
|
1,503 |
|
|
|
4,988 |
|
|
|
4,248 |
|
International |
|
|
2,101 |
|
|
|
6,976 |
|
|
|
367 |
|
Goodwill impairment |
|
|
|
|
|
|
(25,443 |
) |
|
|
|
|
|
|
|
$ |
3,604 |
|
|
|
(13,479 |
) |
|
|
4,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Unit |
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and natural gas liquids (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
53.21 |
|
|
|
89.38 |
|
|
|
63.87 |
|
International |
|
|
57.40 |
|
|
|
89.32 |
|
|
|
68.09 |
|
Total consolidated operations |
|
|
55.47 |
|
|
|
89.35 |
|
|
|
66.01 |
|
Equity affiliates |
|
|
58.23 |
|
|
|
71.15 |
|
|
|
48.72 |
|
Total E&P |
|
|
55.63 |
|
|
|
88.91 |
|
|
|
64.99 |
|
Synthetic oil (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
62.01 |
|
|
|
103.31 |
|
|
|
74.32 |
|
Bitumen (per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
39.67 |
|
|
|
46.85 |
|
|
|
|
|
Equity affiliates |
|
|
45.69 |
|
|
|
58.54 |
|
|
|
37.94 |
|
Total E&P |
|
|
44.84 |
|
|
|
56.72 |
|
|
|
37.94 |
|
Natural gas (per thousand cubic feet) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
3.45 |
|
|
|
7.67 |
|
|
|
5.98 |
|
International |
|
|
4.94 |
|
|
|
8.76 |
|
|
|
6.51 |
|
Total consolidated operations |
|
|
4.30 |
|
|
|
8.28 |
|
|
|
6.26 |
|
Equity affiliates |
|
|
2.35 |
|
|
|
2.04 |
|
|
|
.30 |
|
Total E&P |
|
|
4.26 |
|
|
|
8.27 |
|
|
|
6.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Production Costs Per Barrel of Oil Equivalent |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
7.73 |
|
|
|
8.34 |
|
|
|
6.52 |
|
International* |
|
|
7.72 |
|
|
|
8.03 |
|
|
|
7.64 |
|
Total consolidated operations* |
|
|
7.73 |
|
|
|
8.17 |
|
|
|
7.11 |
|
Equity affiliates |
|
|
7.68 |
|
|
|
13.36 |
|
|
|
8.92 |
|
Total E&P* |
|
|
7.72 |
|
|
|
8.33 |
|
|
|
7.19 |
|
|
|
|
|
* |
|
Amounts in 2008 and 2007 were adjusted for certain production cost reclassifications. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
Worldwide Exploration Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative; geological and geophysical; and lease rentals |
|
$ |
576 |
|
|
|
639 |
|
|
|
544 |
|
Leasehold impairment |
|
|
247 |
|
|
|
273 |
|
|
|
254 |
|
Dry holes |
|
|
359 |
|
|
|
425 |
|
|
|
209 |
|
|
|
|
$ |
1,182 |
|
|
|
1,337 |
|
|
|
1,007 |
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Thousands of Barrels Daily |
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and natural gas liquids produced |
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
252 |
|
|
|
261 |
|
|
|
280 |
|
Lower 48 |
|
|
166 |
|
|
|
165 |
|
|
|
181 |
|
|
United States |
|
|
418 |
|
|
|
426 |
|
|
|
461 |
|
Canada |
|
|
40 |
|
|
|
44 |
|
|
|
46 |
|
Europe |
|
|
241 |
|
|
|
233 |
|
|
|
224 |
|
Asia Pacific/Middle East |
|
|
132 |
|
|
|
107 |
|
|
|
106 |
|
Africa |
|
|
78 |
|
|
|
80 |
|
|
|
78 |
|
Other areas |
|
|
4 |
|
|
|
9 |
|
|
|
10 |
|
|
Total consolidated operations |
|
|
913 |
|
|
|
899 |
|
|
|
925 |
|
Equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
Russia |
|
|
55 |
|
|
|
24 |
|
|
|
15 |
|
Other areas |
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
968 |
|
|
|
923 |
|
|
|
982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synthetic oil produced |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operationsCanada |
|
|
23 |
|
|
|
22 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bitumen produced |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operationsCanada |
|
|
7 |
|
|
|
6 |
|
|
|
|
|
Equity affiliatesCanada |
|
|
43 |
|
|
|
30 |
|
|
|
27 |
|
|
|
|
|
50 |
|
|
|
36 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Cubic Feet Daily |
|
Natural gas produced* |
|
|
|
|
|
|
|
|
|
|
|
|
Alaska |
|
|
94 |
|
|
|
97 |
|
|
|
110 |
|
Lower 48 |
|
|
1,927 |
|
|
|
1,994 |
|
|
|
2,182 |
|
|
United States |
|
|
2,021 |
|
|
|
2,091 |
|
|
|
2,292 |
|
Canada |
|
|
1,062 |
|
|
|
1,054 |
|
|
|
1,106 |
|
Europe |
|
|
876 |
|
|
|
954 |
|
|
|
961 |
|
Asia Pacific/Middle East |
|
|
713 |
|
|
|
609 |
|
|
|
579 |
|
Africa |
|
|
121 |
|
|
|
114 |
|
|
|
125 |
|
Other areas |
|
|
|
|
|
|
14 |
|
|
|
19 |
|
|
Total consolidated operations |
|
|
4,793 |
|
|
|
4,836 |
|
|
|
5,082 |
|
Equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific/Middle East |
|
|
84 |
|
|
|
11 |
|
|
|
|
|
Other areas |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
4,877 |
|
|
|
4,847 |
|
|
|
5,087 |
|
|
|
|
|
* |
|
Represents quantities available for sale. Excludes gas equivalent of natural
gas liquids included above. |
Equity affiliate statistics exclude our share of
LUKOIL, which is reported in the LUKOIL Investment segment.
The E&P segment primarily explores for, produces, transports and markets crude oil, natural
gas, natural gas liquids and bitumen on a worldwide basis. At December 31, 2009, our E&P
operations were producing in the United States, Norway, the United Kingdom, Canada, Australia,
offshore Timor-Leste in the Timor Sea, Indonesia, China, Vietnam, Libya, Nigeria, Algeria and
Russia.
41
2009 vs. 2008
The E&P segment had earnings of $3,604 million during 2009. In 2008, the E&P segment had a loss of
$13,479 million, which included a $25,443 million before- and after-tax complete impairment of E&P
segment goodwill. For additional information, see the Goodwill Impairment section of Note
9Goodwill and Intangibles, in the Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
Excluding the impact from the goodwill impairment, earnings from the E&P segment decreased 70
percent during 2009, primarily due to substantially lower crude oil, natural gas and natural gas
liquids prices. Our E&P segment also recognized property impairment charges. These decreases were
partially offset by lower Alaska and Lower 48 production taxes due to lower prices, as well as
higher international volumes and improved operating costs. See the Business Environment and
Executive Overview section for additional information on industry crude oil and natural gas
prices.
Proved reserves at year-end 2009 were 8.36 billion barrels of oil equivalent (BOE), compared with
8.08 billion at year-end 2008. This excludes the estimated 1,967 million BOE and 1,893 million BOE
included in the LUKOIL Investment segment at year-end 2009 and 2008, respectively. Also excluded
for 2008 is our share of Canadian Syncrude reserves of 249 million barrels.
U.S. E&P
Earnings from our U.S. E&P operations decreased 70 percent, due to significantly lower crude oil,
natural gas and natural gas liquids prices. Lower production taxes, lower property impairments in
the Lower 48 and improved operating costs partially offset the decrease.
U.S. E&P production averaged 755,000 BOE per day in 2009, a decrease of 3 percent from 775,000 in
2008. Less unplanned downtime and improved well performance were more than offset by field
decline.
International E&P
Earnings from our international E&P operations were $2,101 million in 2009, compared with $6,976
million in 2008. The decline was primarily a result of significantly lower crude oil, natural gas
and natural gas liquids prices and higher impairments. These decreases were partially offset by
higher volumes and lower operating costs.
International E&P production averaged 1,099,000 BOE per day in 2009, an increase of 8 percent from
1,014,000 in 2008. The increase was predominantly due to new production in the United Kingdom,
Russia, China, Canada, Norway and Vietnam. In addition, production increased due to the impacts
from the royalty framework in Alberta, Canada, as well as less unplanned downtime and the impact of
lower prices on production sharing arrangements. These increases were partially offset by field
decline and more planned downtime.
2008 vs. 2007
The E&P segment recorded a loss of $13,479 million during 2008. This amount included a $25,443
million before- and after-tax complete impairment of E&P segment goodwill. In 2007, the E&P
segment had earnings of $4,615 million, which included the impact of a $4,588 million before-tax
impairment ($4,512 million after-tax) related to the expropriation of our oil interests in
Venezuela. For additional information, see the Goodwill Impairment section of Note 9Goodwill
and Intangibles, and the Expropriated Assets section of Note 10Impairments, in the Notes to
Consolidated Financial Statements, which are incorporated herein by reference.
42
The decrease in earnings resulted from the goodwill impairment, higher taxes other than income
(mainly in Alaska), lower production volumes, higher operating and exploration costs, increased
property impairments and depreciation expense, and the absence of a 2007 benefit related to release
of escrowed funds associated with our Hamaca joint venture in Venezuela. The decrease was
partially offset by the absence of the 2007 Venezuela impairment, as well as higher crude oil,
natural gas and natural gas liquids prices. During 2008, our E&P segment recognized property
impairment charges totaling $511 million after-tax, mostly due to revised capital spending plans as
a result of current project economics, as well as a significantly diminished outlook for commodity
prices. A large portion of these impairments relate to fields in the U.S. Lower 48 and Canada.
U.S. E&P
Earnings from our U.S. E&P operations increased 17 percent, primarily due to higher crude oil,
natural gas and natural gas liquids prices. The increase was partially offset by higher production
taxes (mainly in Alaska), lower volumes, an increase in impairments of properties in the Lower 48,
and higher operating costs.
E&P production on a BOE basis averaged 775,000 per day in 2008, a decrease of 8 percent from
843,000 in 2007. The production decrease was primarily attributable to field decline and unplanned
downtime in the Lower 48 due to hurricane disruptions.
International E&P
Earnings from our international E&P operations increased from $367 million in 2007 to $6,976
million in 2008. The increase was attributed to the impact of the Venezuelan impairment on our
prior-year results and higher crude oil, natural gas and natural gas liquids prices. The increase
was partially offset by higher depreciation expense due to increased rates and new assets being
placed in service, increased taxes other than income, higher operating costs, and the absence of a
2007 benefit related to release of escrowed funds associated with our Hamaca joint venture in
Venezuela.
International E&P production averaged 1,014,000 BOE per day in 2008, a decrease of 2 percent from
1,037,000 in 2007. Decreases in production were caused by field decline and the expropriation of
our Venezuelan oil interests. These decreases were mostly offset by increased production from new
developments in the United Kingdom, Indonesia, Russia, Norway and Canada.
Midstream
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Millions of Dollars |
|
Net Income Attributable to ConocoPhillips* |
|
$ |
313 |
|
|
|
541 |
|
|
|
453 |
|
|
|
* Includes DCP Midstream-related earnings: |
|
$ |
183 |
|
|
|
458 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Barrel |
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. natural gas liquids* |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
33.63 |
|
|
|
56.29 |
|
|
|
47.93 |
|
Equity affiliates |
|
|
29.80 |
|
|
|
52.08 |
|
|
|
46.80 |
|
|
|
|
|
* |
|
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* |
|
|
187 |
|
|
|
188 |
|
|
|
211 |
|
Natural gas liquids fractionated** |
|
|
166 |
|
|
|
165 |
|
|
|
173 |
|
|
|
|
|
* |
|
Includes our share of equity affiliates, except LUKOIL, which is included in the LUKOIL Investment segment. |
|
** |
|
Excludes DCP Midstream. |
43
The Midstream segment purchases raw natural gas from producers and gathers natural gas
through an extensive network of pipeline gathering systems. The natural gas is then processed to
extract natural gas liquids from the raw gas stream. The remaining residue gas is marketed to
electrical utilities, industrial users, and gas marketing companies. Most of the natural gas
liquids are fractionatedseparated into individual components like ethane, butane and propaneand
marketed as chemical feedstock, fuel or blendstock. The Midstream segment consists of our 50
percent equity investment in DCP Midstream, 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.
2009 vs. 2008
Earnings from the Midstream segment decreased 42 percent in 2009. The decrease was primarily due
to substantially lower realized natural gas liquids prices, partially offset by the recognition of
an $88 million after-tax benefit in the first quarter of 2009 resulting from a DCP Midstream
subsidiary converting subordinated units to common units.
2008 vs. 2007
Earnings from the Midstream segment increased 19 percent in 2008. The increase was primarily due
to higher realized natural gas liquids prices, partially offset by higher operating costs and
higher depreciation expense.
44
R&M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Millions of Dollars |
|
Net Income (Loss) Attributable to ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
(192 |
) |
|
|
1,540 |
|
|
|
4,615 |
|
International |
|
|
229 |
|
|
|
782 |
|
|
|
1,308 |
|
|
|
|
$ |
37 |
|
|
|
2,322 |
|
|
|
5,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars Per Gallon |
|
U.S. Average Wholesale Prices* |
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
$ |
1.84 |
|
|
|
2.65 |
|
|
|
2.27 |
|
Distillates |
|
|
1.76 |
|
|
|
3.06 |
|
|
|
2.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Barrels Daily |
|
Operating Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operations* |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
1,986 |
|
|
|
2,008 |
|
|
|
2,035 |
|
Crude oil processed |
|
|
1,731 |
|
|
|
1,849 |
|
|
|
1,944 |
|
Capacity utilization (percent) |
|
|
87 |
% |
|
|
92 |
|
|
|
96 |
|
Refinery production |
|
|
1,891 |
|
|
|
2,035 |
|
|
|
2,146 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
671 |
|
|
|
670 |
|
|
|
687 |
|
Crude oil processed |
|
|
495 |
|
|
|
567 |
|
|
|
616 |
|
Capacity utilization (percent) |
|
|
74 |
% |
|
|
85 |
|
|
|
90 |
|
Refinery production |
|
|
504 |
|
|
|
575 |
|
|
|
633 |
|
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil capacity** |
|
|
2,657 |
|
|
|
2,678 |
|
|
|
2,722 |
|
Crude oil processed |
|
|
2,226 |
|
|
|
2,416 |
|
|
|
2,560 |
|
Capacity utilization (percent) |
|
|
84 |
% |
|
|
90 |
|
|
|
94 |
|
Refinery production |
|
|
2,395 |
|
|
|
2,610 |
|
|
|
2,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum products sales volumes |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
1,130 |
|
|
|
1,128 |
|
|
|
1,244 |
|
Distillates |
|
|
858 |
|
|
|
893 |
|
|
|
872 |
|
Other products |
|
|
367 |
|
|
|
374 |
|
|
|
432 |
|
|
|
|
|
2,355 |
|
|
|
2,395 |
|
|
|
2,548 |
|
International |
|
|
619 |
|
|
|
645 |
|
|
|
697 |
|
|
|
|
|
2,974 |
|
|
|
3,040 |
|
|
|
3,245 |
|
|
|
|
|
* |
|
Includes our share of equity affiliates, except LUKOIL, which is included in the LUKOIL
Investment segment. |
|
** |
|
Weighted-average crude oil capacity for the periods. Actual capacity at
year-end 2007 was 2,037,000 barrels per day for our domestic refineries and 669,000 barrels per
day for our international refineries. |
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 the Asia Pacific Region.
45
2009 vs. 2008
R&M reported earnings of $37 million in 2009, compared with $2,322 million in 2008. The decrease
was primarily a result of significantly lower U.S. and international refining margins, lower
volumes, lower international marketing margins and a lower net benefit from asset rationalization
efforts. These decreases were partially offset by lower operating expenses, lower property
impairments and positive foreign currency exchange impacts. During 2008, our R&M segment had
property impairments totaling $511 million after-tax, mostly due to a significantly diminished
outlook for refining margins.
During 2009, our worldwide refining capacity utilization rate was 84 percent, compared with 90
percent in 2008.
U.S. R&M
Our U.S. R&M operations reported a loss of $192 million in 2009, compared with earnings of $1,540
million in 2008. The decrease was primarily due to significantly lower U.S. refining margins,
lower U.S. refining and marketing volumes and a lower net benefit from asset sales. These
decreases were partially offset by lower operating expenses and lower property impairments.
Our U.S. refining capacity utilization rate was 87 percent in 2009, compared with 92 percent in
2008. The current-year rate was mainly affected by run reductions due to market conditions and
increased turnaround activity, while the prior-year rate was impacted by downtime associated with
hurricanes.
International R&M
International R&M reported earnings of $229 million in 2009 and earnings of $782 million in 2008.
The decrease in earnings was primarily due to significantly lower international refining and
marketing margins, lower international marketing volumes and a lower net benefit from asset sales.
These decreases were partially offset by positive foreign currency impacts, lower property
impairments and lower operating expenses.
Our international refining capacity utilization rate was 74 percent in 2009, compared with 85
percent in 2008. The current-year rate reflects higher turnaround activity. In addition, the
utilization rate for both periods reflects run reductions in response to market conditions.
2008 vs. 2007
R&M earnings decreased 61 percent in 2008. The results were lower due to decreases in U.S.
refining margins and volumes, increased property impairments, higher operating costs, a reduced
benefit from asset rationalization efforts, and lower international marketing and refining volumes
due to asset sales. These R&M decreases were partially offset by higher international marketing
margins.
During 2008, our worldwide refining capacity utilization rate was 90 percent, compared with 94
percent in 2007.
U.S. R&M
Earnings from our U.S. R&M operations decreased 67 percent in 2008. Results for 2008 also included
an impairment related to one of our U.S. refineries.
Our U.S. refining capacity utilization rate was 92 percent in 2008, compared with 96 percent in
2007. The decline in the 2008 rate resulted mainly from refinery optimization and
unplanned downtime, which included the impact of hurricanes on our U.S. Gulf Coast refineries.
International R&M
Earnings from our international R&M operations decreased 40 percent in 2008. Contributing to the
decrease was the impairment of a refinery in Europe and the absence of a $141 million 2007 German
tax legislation benefit.
46
Our international refining capacity utilization rate was 85 percent in 2008, compared with 90
percent during the previous year. The utilization rate was primarily impacted by reduced crude
throughput at our Wilhelmshaven Refinery due to economic conditions and planned maintenance.
LUKOIL Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net Income (Loss) Attributable to ConocoPhillips |
|
$ |
1,663 |
|
|
|
(5,488 |
) |
|
|
1,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Statistics* |
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil production (thousands of barrels daily) |
|
|
387 |
|
|
|
386 |
|
|
|
401 |
|
Natural gas production (millions of cubic feet daily) |
|
|
280 |
|
|
|
356 |
|
|
|
256 |
|
Refinery crude oil processed (thousands of barrels daily) |
|
|
245 |
|
|
|
229 |
|
|
|
214 |
|
|
|
|
|
* |
|
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. At December 31, 2009, our ownership interest in LUKOIL was 20 percent based on authorized
and issued shares. Our ownership interest based on estimated shares outstanding, used for equity
method accounting, was 20.09 percent at that date.
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, publicly
available LUKOIL information, 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 estimated equity share of
LUKOILs earnings, this segment reflects the amortization of the basis difference between our
equity interest in the net assets of LUKOIL and the book value of our investment. The segment also
includes the costs associated with our employees seconded to LUKOIL.
2009 vs. 2008
The LUKOIL Investment segment had earnings of $1,663 million during 2009, compared with a loss of
$5,488 million in 2008. Results for 2008 included a $7,410 million noncash, before- and after-tax
impairment of our LUKOIL investment taken during the fourth quarter. For additional information,
see the LUKOIL section of Note 6Investments, Loans and Long-Term Receivables, in the Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
Excluding the impact of the impairment, earnings from the LUKOIL Investment segment decreased 13
percent in 2009. The decrease was primarily due to lower estimated realized refined product and
crude oil prices, which was mostly offset by lower estimated extraction taxes and export tariff
rates, and a benefit from basis difference amortization.
2008 vs. 2007
The LUKOIL Investment segment had a $5,488 million loss in 2008, compared with $1,818 million of
earnings in 2007. Excluding the impact of the impairment, earnings from the LUKOIL Investment
segment increased 6 percent in 2008. This increase was primarily due to higher estimated realized
prices of both refined product and crude oil sales. Partially offsetting these positive impacts
were higher estimated extraction taxes and higher estimated crude and refined product export tariff
rates, as well as higher estimated operating costs and lower estimated crude volumes.
47
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net Income Attributable to ConocoPhillips |
|
$ |
248 |
|
|
|
110 |
|
|
|
359 |
|
|
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.
2009 vs. 2008
Earnings from the Chemicals segment increased $138 million in 2009 due to lower operating costs and
higher margins in the specialties, aromatics and styrenics business line. These increases were
partially offset by lower margins in the olefins and polyolefins business line.
2008 vs. 2007
Earnings from the Chemicals segment decreased by $249 million in 2008 due to higher utilities and
other operating costs, the absence of 2007 one-time tax benefits, lower margins in the specialties,
aromatics and styrenics business line, and lower volumes from the olefins and polyolefins business
line. Increases in olefins and polyolefins margins somewhat offset these negative effects.
Emerging Businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net Income (Loss) Attributable to ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
Power |
|
$ |
105 |
|
|
|
106 |
|
|
|
53 |
|
Other |
|
|
(102 |
) |
|
|
(76 |
) |
|
|
(61 |
) |
|
|
|
$ |
3 |
|
|
|
30 |
|
|
|
(8 |
) |
|
The Emerging Businesses segment represents our investment in new technologies or businesses outside
our normal scope of operations. Activities within this segment are currently focused on power
generation and innovation of new technologies, such as those related to conventional and
nonconventional hydrocarbon recovery (including heavy oil), refining, alternative energy, biofuels,
and the environment.
2009 vs. 2008
Emerging Businesses reported earnings of $3 million in 2009, compared with $30 million in 2008.
The decrease was primarily due to lower international power results and higher technology
development expenses, which were mostly offset by the absence of an $85 million after-tax
impairment of a U.S. cogeneration power plant in 2008.
2008 vs. 2007
Emerging Businesses reported earnings of $30 million in 2008, compared with a loss of $8 million in
2007. The increase primarily reflects improved international power generation results, including
the impact of higher spark spreads. These benefits were partially offset by an $85 million
after-tax impairment of a U.S. cogeneration power plant, as well as by lower domestic power
results.
48
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net Loss Attributable to ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest |
|
$ |
(851 |
) |
|
|
(558 |
) |
|
|
(820 |
) |
Corporate general and administrative expenses |
|
|
(108 |
) |
|
|
(202 |
) |
|
|
(176 |
) |
Acquisition/merger-related costs |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
Other |
|
|
(51 |
) |
|
|
(274 |
) |
|
|
(229 |
) |
|
|
|
$ |
(1,010 |
) |
|
|
(1,034 |
) |
|
|
(1,269 |
) |
|
2009 vs. 2008
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 increased 53
percent in 2009 as a result of higher average debt levels, partially offset by lower average
interest rates. Capitalized interest was also lower in 2009. Corporate general and administrative
expenses decreased 47 percent due to decreased costs related to compensation plans and overhead.
The category Other includes certain foreign currency transaction gains and losses, environmental
costs associated with sites no longer in operation, and other costs not directly associated with an
operating segment. Changes in the Other category are primarily due to higher foreign currency
transaction gains.
2008 vs. 2007
Net interest decreased 32 percent in 2008, primarily due to lower average interest rates and a
higher effective tax rate. Corporate general and administrative expenses increased 15 percent in
2008, mainly as a result of increased charitable contributions. Acquisition-related costs in 2007
included transition costs associated with the Burlington Resources acquisition. Other expenses
increased in 2008 due to various tax-related adjustments, partially offset by lower foreign
currency losses.
49
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Except as Indicated |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Net cash provided by operating activities |
|
$ |
12,479 |
|
|
|
22,658 |
|
|
|
24,550 |
|
Short-term debt |
|
|
1,728 |
|
|
|
370 |
|
|
|
1,398 |
|
Total debt* |
|
|
28,653 |
|
|
|
27,455 |
|
|
|
21,687 |
|
Total equity |
|
|
63,057 |
|
|
|
56,265 |
|
|
|
90,156 |
|
Percent of total debt to capital** |
|
|
31 |
% |
|
|
33 |
|
|
|
19 |
|
Percent of floating-rate debt to total debt |
|
|
9 |
|
|
|
37 |
|
|
|
25 |
|
|
|
|
|
* |
|
Total debt includes short-term and long-term debt, as shown on our consolidated
balance sheet. |
|
** |
|
Capital includes total debt and total 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 2009 $1,229 million of net debt was issued, and we received $1,270 million in proceeds from
asset sales. During 2009, available cash was used to support our ongoing capital expenditures and
investments program, pay dividends, and meet the funding requirements to FCCL Partnership. Total
dividends paid on our common stock during the year were $2,832 million. During 2009, cash and cash
equivalents decreased by $213 million to $542 million.
In addition to cash flows from operating activities and proceeds from asset sales, we rely on our
commercial paper and credit facility programs and our shelf registration statement to support our
short- and long-term liquidity requirements. The credit markets, including the commercial paper
markets in the United States, have experienced adverse conditions during 2008 and 2009. Although
we have not been materially impacted by these conditions, continuing volatility in the credit
markets may increase costs associated with issuing commercial paper or other debt instruments due
to increased spreads over relevant interest rate benchmarks. Such volatility may also affect our
ability, the ability of our joint ventures and equity affiliates, and the ability of third parties
with whom we seek to do business, to access those credit markets. Notwithstanding these adverse
market conditions, we believe current cash and short-term investment balances and cash generated by
operations, together with access to external sources of funds as described below in the
Significant Sources of Capital section, will be sufficient to meet our funding requirements in
the near and long term, including our capital spending program, dividend payments, required debt
payments and the funding requirements to FCCL.
Significant Sources of Capital
Operating Activities
During 2009, cash of $12,479 million was provided by operating activities, a 45 percent decrease
from cash from operations of $22,658 million in 2008. The decline was primarily due to
significantly lower commodity prices in our E&P segment and lower refining margins in our R&M
segment.
During 2008, cash flow from operations decreased $1,892 million, compared with 2007. Contributing
to the decrease were lower U.S. refining margins and volumetric inventory builds in our R&M segment
in 2008, versus reductions in 2007. These factors were partially offset by higher commodity prices
in our E&P segment.
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 2008 and 2007, we benefited from favorable crude oil and
natural gas prices, although these prices deteriorated significantly in the fourth quarter of 2008.
Crude oil and natural gas prices generally trended higher during 2009. Refining margins
deteriorated significantly in the fourth quarter of 2008 and
50
remained low throughout 2009. Prices and margins in our industry are typically volatile, and are
driven by market conditions over which we have no control. Absent other mitigating factors, as
these prices and margins fluctuate, we would expect a corresponding change in our operating cash
flows.
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 their timely
and cost-effective development. While we actively manage these factors, production levels can
cause variability in cash flows, although historically this variability has not been as significant
as that caused by commodity prices.
Our production for 2009, including our share of production from equity affiliates, averaged 2.29
million BOE per day. Future production is subject to numerous uncertainties, including, among
others, the volatile crude oil and natural gas price environment, which may impact project
investment decisions; the effects of price changes on production sharing and variable-royalty
contracts; timing of project startups and major turnarounds; and weather-related disruptions. Our
production in 2010, including the impact of anticipated dispositions, is expected to be in the
range of 2.2 million BOE per day, similar to 2008 production levels. We continue to evaluate
various properties as potential candidates for our recently announced disposition program. The
makeup and timing of our disposition program will also impact 2010 and future years production
levels.
To maintain or grow our production volumes, we must continue to add to our proved reserve base.
Our reserve replacement in 2009 was 141 percent, including 133 percent from consolidated
operations. The
U.S. Securities and Exchange Commission (SEC)
adopted new reserves reporting rules effective in 2009, which allowed us to
include Syncrude oil sands mining operations in our proved reserves. Excluding the impact of the
addition of Syncrude, we replaced 112 percent of total production in 2009, reflecting progress on
major projects, including the sanctioning of additional phases of in-situ oil sands projects in
Canada, as well as reserve additions from our LUKOIL Investment segment. Over the five-year period
ending December 31, 2009, our reserve replacement was 145 percent, including 120 percent from
consolidated operations. Over this period we added reserves through acquisitions and project
developments, partially offset by the impact of asset expropriations in Venezuela and Ecuador. The
reserve replacement amounts above were based on the sum of our net additions (revisions, improved
recovery, purchases, extensions and discoveries, and sales) divided by our production, as shown in
our reserve table disclosures. For additional information about our proved reserves, including
both developed and undeveloped reserves, see the Oil and Gas Operations section of this report.
We are developing and pursuing projects we anticipate will allow us to add to our reserve base.
However, access to additional resources has become increasingly difficult as direct investment is
prohibited in some nations, while fiscal and other terms in other countries can make projects
uneconomic or unattractive. In addition, political instability, competition from national oil
companies, and lack of access to high-potential areas due to environmental or other regulation may
negatively impact our ability to increase our reserve base. As such, the timing and level at which
we add to our reserve base may, or may not, allow us to replace our production over subsequent
years.
As discussed in the Critical Accounting Estimates section, engineering estimates of proved
reserves are imprecise, and therefore, each year reserves may be revised upward or downward due to
the impact of changes in oil and gas prices or as more technical data becomes available on
reservoirs. In 2009 and 2007, revisions increased reserves, while in 2008 revisions decreased
reserves. It is not possible to reliably predict how revisions will impact reserve quantities in
the future.
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, market conditions, 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 caused by refining margins.
51
Asset Sales
Proceeds from asset sales in 2009 were $1,270 million, compared with $1,640 million in 2008. In
2009, we closed on the sale of our ownership interest in the Keystone Pipeline and a large part of
our U.S. retail marketing assets, which included seller financing in the form of a $370 million
five-year note and letters of credit totaling $54 million.
We plan to raise approximately $10 billion from asset dispositions over the next two years. We
will continue to identify the assets and begin marketing efforts over the near term, with
disposition candidates across the companys operations being considered. Proceeds will be
targeted toward debt reduction.
Commercial Paper and Credit Facilities
At December 31, 2009, we had two revolving credit facilities totaling $7.85 billion, consisting of
a $7.35 billion facility expiring in September 2012 and a $500 million facility expiring in July
2012. Our revolving credit facilities may be used as direct bank borrowings, as support for
issuances of letters of credit totaling up to $750 million, or as support for our commercial paper
programs. The revolving credit facilities are broadly syndicated among financial institutions and
do not contain any material adverse change provisions or any covenants requiring maintenance of
specified financial ratios or ratings. The facility agreements contain a cross-default provision
relating to the failure to pay principal or interest on other debt obligations of $200 million or
more by ConocoPhillips, or by any of its consolidated subsidiaries.
Credit facility borrowings may bear interest at a margin above rates offered by certain designated
banks in the London interbank market or at a margin above the overnight federal funds rate or prime
rates offered by certain designated banks in the United States. The agreements call for commitment
fees on available, but unused, amounts. The agreements also contain early termination rights if
our current directors or their approved successors cease to be a majority of the Board of
Directors.
Our primary funding source for short-term working capital needs is the ConocoPhillips $6.35 billion
commercial paper program. Commercial paper maturities are generally limited to 90 days. We also
have the ConocoPhillips Qatar Funding Ltd. $1.5 billion commercial paper program, which is used to
fund commitments relating to the Qatargas 3 Project. At December 31, 2009 and 2008, we had no
direct borrowings under the revolving credit facilities, but $40 million in letters of credit had
been issued at both periods. In addition, under the two ConocoPhillips commercial paper programs,
$1,300 million of commercial paper was outstanding at December 31, 2009, compared with $6,933
million at December 31, 2008. Since we had $1,300 million of commercial paper outstanding and had
issued $40 million of letters of credit, we had access to $6.5 billion in borrowing capacity under
our revolving credit facilities at December 31, 2009.
Shelf Registration
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. Under SEC shelf
registrations, in early February 2009, we issued $1.5 billion of 4.75% Notes due 2014, $2.25
billion of 5.75% Notes due 2019, and $2.25 billion of 6.50% Notes due 2039, and in May 2009, we
issued $1.5 billion of 4.60% Notes due 2015, $1.0 billion of 6.00% Notes due 2020 and an additional
$500 million of 6.50% Notes due 2039. The proceeds from these notes were primarily used to reduce
outstanding commercial paper balances and for general corporate purposes.
Our senior long-term debt is rated A1 by Moodys Investor Service and A by both Standard and
Poors Rating Service and by Fitch. We do not have any ratings triggers on any of our corporate
debt that would cause an automatic default, and thereby impact our access to liquidity, in the
event of a downgrade of our credit rating. If our credit rating were to deteriorate to a level
prohibiting us from accessing the commercial paper market, we would still be able to access funds
under our $7.35 billion revolving credit facility and our $500 million credit facility.
Noncontrolling Interests
At December 31, 2009, and December 31, 2008, we had $590 million and $1,100 million, respectively,
of equity in less-than-wholly owned consolidated subsidiaries held by noncontrolling interest
owners. The decline from year-end 2008 was primarily due to Ashford Energy Capital S.A. redeeming
for $500 million,
52
plus accrued dividends, the investment in Ashford held by Cold Spring Finance S.a.r.l. in the third
quarter of 2009. The remaining noncontrolling interests at December 31, 2009, primarily represent
operating joint ventures we control. The largest of these, amounting to $565 million, was related
to Darwin liquefied natural gas (LNG) operations, located in Australias Northern Territory.
Off-Balance Sheet Arrangements
As part of our normal ongoing business operations and consistent with normal industry practice, we
enter into numerous agreements with other parties to pursue business opportunities, which share
costs and apportion risks among the parties as governed by the agreements. At December 31, 2009,
we were liable for certain contingent obligations under the following contractual arrangements:
|
|
|
Qatargas 3: We own a 30 percent interest in Qatargas 3, an integrated project to
produce and liquefy natural gas from Qatars North Field. The other participants in the
project are affiliates of Qatar Petroleum (68.5 percent) and Mitsui & Co., Ltd. (1.5
percent). Our interest is held through a jointly owned company, Qatar Liquefied Gas
Company Limited (3), for which we use the equity method of accounting. Qatargas 3 secured
project financing of $4 billion in December 2005, consisting of $1.3 billion of loans from
export credit agencies (ECA), $1.5 billion from commercial banks, and $1.2 billion from
ConocoPhillips. The ConocoPhillips loan facilities have substantially the same terms as
the ECA and commercial bank facilities. Prior to project completion certification, all
loans, including the ConocoPhillips loan facilities, are guaranteed by the participants,
based on their respective ownership interests. Accordingly, our maximum exposure to this
financing structure is $1.2 billion. Upon completion certification, currently expected in
2011, all project loan facilities, including the ConocoPhillips loan facilities, will
become nonrecourse to the project participants. At December 31, 2009, Qatargas 3 had
approximately $3.6 billion outstanding under all the loan facilities, of which
ConocoPhillips provided $1 billion, and an additional $88 million of accrued interest. |
|
|
|
Rockies Express Pipeline: In June 2006, we issued a guarantee for 24 percent of
$2 billion in credit facilities issued to Rockies Express Pipeline LLC, operated by Kinder
Morgan Energy Partners, L.P. Rockies Express completed construction of a natural gas
pipeline across a portion of the United States in November 2009. Shortly after completion,
ConocoPhillips increased its ownership from 24 to 25 percent. The maximum potential amount
of future payments to third-party lenders under the guarantee is estimated to be $500
million, which could become payable if the credit facilities are fully utilized and Rockies
Express fails to meet its obligations under the credit agreement. At December 31, 2009,
Rockies Express had $1,673 million outstanding under the credit facilities, with our 25
percent guarantee equaling $418 million. The guarantee expires in April 2011. However,
it is anticipated
refinancing of all or a portion of the $2 billion credit facility will take place in 2010,
which is expected to reduce our guarantee exposure. |
For additional information about guarantees, see Note 14Guarantees, in the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
Capital Requirements
Our debt balance at December 31, 2009, was $28.7 billion, an increase of $1.2 billion during 2009,
and our debt-to-capital ratio was 31 percent at year-end 2009, versus 33 percent at the end of
2008. The change in the debt-to-capital ratio was due to an increase in equity. Our
debt-to-capital ratio target range is 20 to 25 percent.
During 2009, we used proceeds from the issuance of commercial paper to redeem $284 million of
6.375% Notes and $950 million of Floating Rate Notes upon their maturity, and prepaid $750 million
of Floating Rate Five-Year Term Notes.
On January 3, 2007, we closed on a business venture with EnCana (now Cenovus). As part of this
transaction, we are obligated to contribute $7.5 billion, plus accrued interest, over a 10-year
period that began in 2007, to the upstream business venture, FCCL, formed as a result of the
transaction. An initial 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. Of the principal obligation
53
amount, approximately $660 million was short-term and was included in the Accounts payablerelated
parties line on our December 31, 2009, consolidated balance sheet. The principal portion of these
payments, which totaled $625 million in 2009, are included in the Other line in the financing
activities section of our consolidated statement of cash flows. Interest accrues at a fixed annual
rate of 5.3 percent on the unpaid principal balance. Fifty percent of the quarterly interest
payment is reflected as a capital contribution and is included in the Capital expenditures and
investments line on our consolidated statement of cash flows.
We have provided loan financing to WRB Refining LLC, to assist it in meeting its operating and
capital spending requirements. At December 31, 2009, $350 million of such financing was
outstanding and was classified as long term.
In February 2010, we announced a quarterly dividend of 50 cents per share. The dividend is payable
March 1, 2010, to stockholders of record at the close of business February 22, 2010.
Contractual Obligations
The following table summarizes our aggregate contractual fixed and variable obligations as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Up to |
|
|
Year |
|
|
Year |
|
|
After |
|
|
|
Total |
|
|
1 Year |
|
|
2-3 |
|
|
4-5 |
|
|
5 Years |
|
Debt obligations (a) |
|
$ |
28,622 |
|
|
|
1,719 |
|
|
|
6,311 |
|
|
|
2,806 |
|
|
|
17,786 |
|
Capital lease obligations |
|
|
31 |
|
|
|
9 |
|
|
|
6 |
|
|
|
3 |
|
|
|
13 |
|
|
Total debt |
|
|
28,653 |
|
|
|
1,728 |
|
|
|
6,317 |
|
|
|
2,809 |
|
|
|
17,799 |
|
|
Interest on debt and other obligations |
|
|
20,680 |
|
|
|
1,678 |
|
|
|
2,866 |
|
|
|
2,363 |
|
|
|
13,773 |
|
Operating lease obligations |
|
|
3,377 |
|
|
|
872 |
|
|
|
1,166 |
|
|
|
618 |
|
|
|
721 |
|
Purchase obligations (b) |
|
|
112,131 |
|
|
|
45,291 |
|
|
|
13,615 |
|
|
|
9,088 |
|
|
|
44,137 |
|
Joint venture acquisition obligation (c) |
|
|
5,669 |
|
|
|
660 |
|
|
|
1,427 |
|
|
|
1,586 |
|
|
|
1,996 |
|
Other long-term liabilities (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations |
|
|
8,295 |
|
|
|
407 |
|
|
|
519 |
|
|
|
532 |
|
|
|
6,837 |
|
Accrued environmental costs |
|
|
1,017 |
|
|
|
192 |
|
|
|
222 |
|
|
|
113 |
|
|
|
490 |
|
Unrecognized tax benefits (e) |
|
|
60 |
|
|
|
60 |
|
|
|
(e |
) |
|
|
(e |
) |
|
|
(e |
) |
|
Total |
|
$ |
179,882 |
|
|
|
50,888 |
|
|
|
26,132 |
|
|
|
17,109 |
|
|
|
85,753 |
|
|
|
|
|
(a) |
|
Includes $502 million of net unamortized premiums and discounts. See Note 12Debt, in the
Notes to Consolidated Financial Statements, for additional information. |
|
(b) |
|
Represents any agreement to purchase goods or services that is enforceable and legally
binding and that specifies all significant terms. Does not include purchase commitments for
jointly owned fields and facilities where we are not the operator. |
|
|
|
The majority of the purchase obligations are market-based contracts, including exchanges and
futures, for the purchase of products such as crude oil, unfractionated natural gas liquids
(NGL), natural gas and power. The products are mostly used to supply our refineries and
fractionators, optimize the supply chain, and resell to customers. Product purchase
commitments with third parties totaled $58,935 million. In addition, $40,739 million are
product purchases from CPChem, mostly for natural gas and NGL over the remaining term of 90
years, and Excel Paralubes, for base oil over the remaining initial term of 15 years. |
|
|
|
Purchase obligations of $8,226 million are related to agreements to access and utilize the
capacity of third-party equipment and facilities, including pipelines and LNG and product
terminals, to transport, process, treat, and store products. |
54
|
|
|
|
|
The remainder is primarily our net share of purchase commitments for materials and services
for jointly owned fields and facilities where we are the operator. |
|
(c) |
|
Represents the remaining amount of contributions, excluding interest, due over a seven-year
period to the FCCL upstream joint venture with Cenovus. |
|
(d) |
|
Does not include: Pensionsfor the 2010 through 2014 time period, we expect to contribute an
average of $540 million per year to our qualified and nonqualified pension and postretirement
benefit plans in the United States and an average of $250 million per year to our non-U.S.
plans, which are expected to be in excess of required minimums in many cases. The U.S.
five-year average consists of $530 million for 2010 and then approximately $540 million per
year for the remaining four years. Our required minimum funding in 2010 is expected to be
$130 million in the United States and $170 million outside the United States. |
|
(e) |
|
Excludes unrecognized tax benefits of $1,148 million because the ultimate disposition and
timing of any payments to be made with regard to such amount are not reasonably estimable.
Although unrecognized tax benefits are not a contractual obligation, they are presented in
this table because they represent potential demands on our liquidity. |
Capital Spending
Capital Expenditures and Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Budget |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United StatesAlaska |
|
$ |
854 |
|
|
|
810 |
|
|
|
1,414 |
|
|
|
666 |
|
United StatesLower 48 |
|
|
1,621 |
|
|
|
2,664 |
|
|
|
3,836 |
|
|
|
3,122 |
|
International |
|
|
6,470 |
|
|
|
5,425 |
|
|
|
11,206 |
|
|
|
6,147 |
|
|
|
|
|
8,945 |
|
|
|
8,899 |
|
|
|
16,456 |
|
|
|
9,935 |
|
|
Midstream |
|
|
14 |
|
|
|
5 |
|
|
|
4 |
|
|
|
5 |
|
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
934 |
|
|
|
1,299 |
|
|
|
1,643 |
|
|
|
1,146 |
|
International |
|
|
385 |
|
|
|
427 |
|
|
|
626 |
|
|
|
240 |
|
|
|
|
|
1,319 |
|
|
|
1,726 |
|
|
|
2,269 |
|
|
|
1,386 |
|
|
LUKOIL Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Businesses |
|
|
30 |
|
|
|
97 |
|
|
|
156 |
|
|
|
257 |
|
Corporate and Other |
|
|
157 |
|
|
|
134 |
|
|
|
214 |
|
|
|
208 |
|
|
|
|
$ |
10,465 |
|
|
|
10,861 |
|
|
|
19,099 |
|
|
|
11,791 |
|
|
United States |
|
$ |
3,590 |
|
|
|
4,921 |
|
|
|
7,111 |
|
|
|
5,225 |
|
International |
|
|
6,875 |
|
|
|
5,940 |
|
|
|
11,988 |
|
|
|
6,566 |
|
|
|
|
$ |
10,465 |
|
|
|
10,861 |
|
|
|
19,099 |
|
|
|
11,791 |
|
|
Our capital expenditures and investments for the three-year period ending December 31, 2009,
totaled $41.8 billion, with 85 percent allocated to our E&P segment.
Our capital expenditures and investments budget for 2010 is $10.5 billion. Included in this amount
is approximately $500 million in capitalized interest. We plan to direct 85 percent of the capital
expenditures and investments budget to E&P and 13 percent to R&M. With the addition of loans to
certain affiliated companies and principal contributions related to funding our portion of the FCCL
business venture, our total capital program for 2010 is approximately $11.2 billion.
55
E&P
Capital expenditures and investments for E&P during the three-year period ended December 31, 2009,
totaled $35.3 billion. The expenditures over this period supported key exploration and development
projects including:
|
|
|
Oil and natural gas developments in the Lower 48, including New Mexico, Texas,
Louisiana, Oklahoma, Montana, North Dakota, Colorado, Wyoming, and offshore in the Gulf of
Mexico. |
|
|
|
The initial investment in 2008 related to the Australia Pacific LNG (APLNG) 50/50 joint
venture and subsequent expenditures to advance the associated coalbed methane projects. |
|
|
|
Oil sands projects and ongoing natural gas projects in Canada. |
|
|
|
Alaska activities related to development drilling in the Greater Kuparuk Area, the
Greater Prudhoe Bay Area, the Western North Slope and the Cook Inlet Area; and exploration. |
|
|
|
Development drilling and facilities projects in the Greater Ekofisk Area, Alvheim,
Heidrun and Statfjord, located in the Norwegian sector of the North Sea. |
|
|
|
The Peng Lai 19-3 development in Chinas Bohai Bay. |
|
|
|
The Kashagan Field and satellite prospects in the Caspian Sea offshore Kazakhstan. |
|
|
|
In the U.K. sector of the North Sea, the Britannia satellite developments and various
southern and central North Sea assets. |
|
|
|
Development of the YK Field in the northern part of Russias Timan-Pechora province
through the NMNG joint venture with LUKOIL. |
|
|
|
Investment in Rockies Express Pipeline LLC. |
|
|
|
Significant U.S. lease acquisitions in the federal waters of the Chukchi Sea offshore
Alaska, as well as in the deepwater Gulf of Mexico. |
|
|
|
The North Belut Field, as well as other projects in offshore Block B and onshore South
Sumatra in Indonesia. |
|
|
|
The Qatargas 3 Project, an integrated project to produce and liquefy natural gas from
Qatars North Field. |
|
|
|
The Gumusut-Kakap development offshore Sabah, Malaysia. |
2010 CAPITAL EXPENDITURES AND INVESTMENTS BUDGET
E&Ps 2010 capital expenditures and investments budget is $8.9 billion, which is essentially the
same as actual expenditures in 2009. Twenty-eight percent of E&Ps 2010 capital expenditures and
investments budget is planned for the United States.
Capital spending for our Alaskan operations is expected to be directed toward the Prudhoe Bay
and Kuparuk Fields, as well as the Alpine Field and satellites on the Western North Slope.
In the Lower 48, we expect to make capital expenditures and investments for ongoing development in
the San Juan and Permian Basins and the Bakken and Lobo Trends. Also, we expect to direct capital
spending towards exploration activities in the deepwater Gulf of Mexico and the Eagle Ford shale
position in Texas.
E&P is directing $6.5 billion of its 2010 capital expenditures and investments budget to
international projects. Funds in 2010 will be directed to developing major long-term projects
including:
|
|
|
Canadian oil sands projects and ongoing natural gas projects in the western Canada gas
basins. |
|
|
|
Further development of coalbed methane projects associated with the APLNG joint
venture in Australia. |
|
|
|
Completion of the Qatargas 3 Project in Qatar. |
|
|
|
Elsewhere in the Asia Pacific/Middle East Region, continued development of Bohai Bay
in China, new fields offshore Malaysia, offshore Block B and onshore South Sumatra in
Indonesia, and offshore Vietnam. |
|
|
|
In the North Sea, the Ekofisk Area, Greater Britannia Fields, various southern North
Sea assets, and development of the Jasmine discovery in the J Block and the Clair Ridge
Project. |
|
|
|
The Kashagan Field in the Caspian Sea. |
56
|
|
|
Onshore developments in Nigeria, Algeria and Libya. |
|
|
|
Exploration activities in Australias Browse Basin, Kazakhstans Block N, offshore
eastern Canada, offshore Indonesia and the North Sea, as well as a coal seam gas play in
China and shale gas play in Poland. |
For information on proved undeveloped reserves and the associated cost to develop these reserves,
see the Oil and Gas Operations section.
R&M
Capital spending for R&M during the three-year period ended December 31, 2009, was primarily for
clean fuels projects to meet new environmental standards, refinery upgrade projects to improve
product yields and increase heavy crude oil processing capability, improving the operating
integrity of key processing units, as well as for safety projects. During this three-year period,
R&M capital spending was $5.4 billion, representing 13 percent of our total capital expenditures
and investments.
Key projects during the three-year period included:
|
|
|
Installation of a 20,000 barrel-per-day hydrocracker at the Rodeo facility of our San
Francisco Refinery. |
|
|
|
Installation of a 25,000 barrel-per-day coker and new vacuum unit at the Borger
Refinery. |
|
|
|
Installations, revamps and expansions of equipment at all U.S. refineries to enable
production of low-sulfur and ultra-low-sulfur fuels. |
|
|
|
Upgrading the distillate desulfurization capability at the Humber Refinery. |
|
|
|
Debottlenecking of a crude and fluid catalytic cracking unit, and completion of a new
sulfur plant at the Ferndale Refinery. |
|
|
|
Investment to obtain an equity interest in four Keystone Pipeline entities, and
associated investment to construct a crude oil pipeline from Hardisty, Alberta, to delivery
points in the United States. We disposed of our interest in the Keystone Pipeline in 2009. |
Major construction activities in progress include:
|
|
|
Installation of a 65,000 barrel-per-day coker and a major reconfiguration of the Wood
River Refinery to handle advantaged crude and increase capacity, partially funded through
long-term advances from ConocoPhillips. |
|
|
|
U.S. programs aimed at air emission reductions. |
2010 CAPITAL EXPENDITURES AND INVESTMENTS BUDGET
R&Ms 2010 capital budget is $1.3 billion, a 24 percent decrease from actual spending in 2009, with
about $0.9 billion for its U.S. downstream businesses and $0.4 billion for international R&M.
These funds will be used for projects related to sustaining and improving the existing business
with a focus on safety, regulatory compliance and reliability. As previously announced, the
refinery upgrade project at Wilhelmshaven has been delayed.
Emerging Businesses
Capital spending for Emerging Businesses during the three-year period ended December 31, 2009, was
primarily for an expansion of the Immingham combined heat and power cogeneration plant near our
Humber Refinery in the United Kingdom. In addition, in October 2007, we purchased a 50 percent
interest in Sweeny Cogeneration LP.
Contingencies
Legal and Tax Matters
We accrue a liability for known contingencies (other than those related to income taxes) 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
57
accrued. In the case of income-tax-related contingencies, we use a cumulative probability-weighted
loss accrual in cases where sustaining a tax position is less than certain. Based on currently
available information, we believe it is remote that future costs related to known contingent
liability exposures will exceed current accruals by an amount that would have a material adverse
impact on our consolidated financial statements.
Environmental
We are subject to the same numerous international, federal, state and local environmental laws and
regulations as other companies in the petroleum exploration and production, refining, and crude oil
and refined product marketing and transportation businesses. The most significant of these
environmental laws and regulations include, among others, the:
|
|
|
U.S. Federal Clean Air Act, which governs air emissions. |
|
|
|
U.S. Federal Clean Water Act, which governs discharges to water bodies. |
|
|
|
European Union Regulation for Registration, Evaluation, Authorization and Restriction of
Chemicals (REACH). |
|
|
|
U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), which imposes liability on generators, transporters and arrangers of hazardous
substances at sites where hazardous substance releases have occurred or are threatening to
occur. |
|
|
|
U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs the treatment,
storage and disposal of solid waste. |
|
|
|
U.S. Federal Oil Pollution Act of 1990 (OPA90), under which owners and operators of
onshore facilities and pipelines, lessees or permittees of an area in which an offshore
facility is located, and owners and operators of vessels are liable for removal costs and
damages that result from a discharge of oil into navigable waters of the United States. |
|
|
|
U.S. Federal Emergency Planning and Community Right-to-Know Act (EPCRA), which requires
facilities to report toxic chemical inventories with local emergency planning committees
and response departments. |
|
|
|
U.S. Federal Safe Drinking Water Act, which governs the disposal of wastewater in
underground injection wells. |
|
|
|
U.S. Department of the Interior regulations, which relate to offshore oil and gas
operations in U.S. waters and impose liability for the cost of pollution cleanup resulting
from operations, as well as potential liability for pollution damages. |
|
|
|
European Union Trading Directive resulting in European Emissions Trading Scheme. |
These laws and their implementing regulations set limits on emissions and, in the case of
discharges to water, establish water quality limits. They also, in most cases, require permits in
association with new or modified operations. These permits can require an applicant to collect
substantial information in connection with the application process, which can be expensive and
time-consuming. In addition, there can be delays associated with notice and comment periods and
the agencys processing of the application. Many of the delays associated with the permitting
process are beyond the control of the applicant.
Many states and foreign countries where we operate also have, or are developing, similar
environmental laws and regulations governing these same types of activities. While similar, in
some cases these regulations may impose additional, or more stringent, requirements that can add to
the cost and difficulty of marketing or transporting products across state and international
borders.
The ultimate financial impact arising from environmental laws and regulations is neither clearly
known nor easily determinable as new standards, such as air emission standards, water quality
standards and stricter fuel regulations continue to evolve. However, environmental laws and
regulations, including those that may arise to address concerns about global climate change, are
expected to continue to have an increasing impact on our operations in the United States and in
other countries in which we operate. Notable areas of potential impacts include air emission
compliance and remediation obligations in the United States.
For example, the Energy Policy Act of 2005 imposed obligations to provide increasing volumes on a
percentage basis of renewable fuels in transportation motor fuels through 2012. These obligations
were changed with the enactment of the Energy Independence & Security Act of 2007, which was signed
in
58
December 2007. The 2007 law requires fuel producers and importers to provide approximately 66
percent more renewable fuels in 2008 as compared with amounts set forth in the Energy Policy Act of
2005, with further increases in amounts of renewable fuels required through 2022. We have met the
increased requirements to date while establishing implementation, operating and capital strategies,
along with advanced technology development, to address projected future requirements. Implementing
regulations and standards for 2010 and beyond remain uncertain as the U.S. Environmental Protection Agency
(EPA) has not promulgated final provisions.
We also are subject to certain laws and regulations relating to environmental remediation
obligations associated with current and past operations. Such laws and regulations include CERCLA
and RCRA and their state equivalents. Remediation obligations include cleanup responsibility
arising from petroleum releases from underground storage tanks located at numerous past and present
ConocoPhillips-owned and/or operated petroleum-marketing outlets throughout the United States.
Federal and state laws require contamination caused by such underground storage tank releases be
assessed and remediated to meet applicable standards. In addition to other cleanup standards, many
states adopted cleanup criteria for methyl tertiary-butyl ether (MTBE) for both soil and
groundwater.
At RCRA-permitted facilities, we are required to assess environmental conditions. If conditions
warrant, we may be required to remediate contamination caused by prior operations. In contrast to
CERCLA, which is often referred to as Superfund, the cost of corrective action activities under
RCRA corrective action programs typically is borne solely by us. We anticipate increased
expenditures for RCRA remediation activities may be required, but such annual expenditures for the
near term are not expected to vary significantly from the range of such expenditures we have
experienced over the past few years. Longer-term expenditures are subject to considerable
uncertainty and may fluctuate significantly.
We, from time to time, receive requests for information or notices of potential liability from the
EPA and state environmental agencies alleging that we are a potentially responsible party under
CERCLA or an equivalent state statute. On occasion, we also have been made a party to cost
recovery litigation by those agencies or by private parties. These requests, notices and lawsuits
assert potential liability for remediation costs at various sites that typically are not owned by
us, but allegedly contain wastes attributable to our past operations. As of December 31, 2008, we
reported we had been notified of potential liability under CERCLA and comparable state laws at 65
sites around the United States. At December 31, 2009, we resolved and closed two sites, re-opened
one site, and received one notice of potential liability, leaving 65 unresolved sites where we have
been notified of potential liability.
For most Superfund sites, our potential liability will be significantly less than the total site
remediation costs because the percentage of waste attributable to us, versus that attributable to
all other potentially responsible parties, is relatively low. Although liability of those
potentially responsible is generally joint and several for federal sites and frequently so for
state sites, other potentially responsible parties at sites where we are a party typically have had
the financial strength to meet their obligations, and where they have not, or where potentially
responsible parties could not be located, our share of liability has not increased materially.
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 site conditions, apportion responsibility and determine the appropriate remediation. In
some instances, we may have no liability or attain a settlement of liability. Actual cleanup costs
generally occur after the parties obtain EPA or equivalent state agency approval. There are
relatively few sites where we are a major participant, and given the timing and amounts of
anticipated expenditures, neither the cost of remediation at those sites nor such costs at all
CERCLA sites, in the aggregate, is expected to have a material adverse effect on our competitive or
financial condition.
Expensed environmental costs were $1,070 million in 2009 and are expected to be about $1.1 billion
per year in 2010 and 2011. Capitalized environmental costs were $891 million in 2009 and are
expected to be about $830 million per year in 2010 and 2011.
We accrue for remediation activities when it is probable that a liability has been incurred and
reasonable estimates of the liability can be made. These accrued liabilities are not reduced for
potential recoveries from
59
insurers or other third parties and are not discounted (except those assumed in a purchase business
combination, which we do record on a discounted basis).
Many of these liabilities result from CERCLA, RCRA and similar state laws that require us to
undertake certain investigative and remedial activities at sites where we conduct, or once
conducted, operations or at sites where ConocoPhillips-generated waste was disposed. The accrual
also includes a number of sites we identified that may require environmental remediation, but which
are not currently the subject of CERCLA, RCRA or state enforcement activities. If applicable, we
accrue receivables for probable insurance or other third-party recoveries. In the future, we may
incur significant costs under both CERCLA and RCRA. Considerable uncertainty exists with respect
to these costs, and under adverse changes in circumstances, potential liability may exceed amounts
accrued as of December 31, 2009.
Remediation activities vary substantially in duration and cost from site to site, depending on the
mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies
and enforcement policies, and the presence or absence of potentially liable third parties.
Therefore, it is difficult to develop reasonable estimates of future site remediation costs.
At December 31, 2009, our balance sheet included total accrued environmental costs of $1,017
million, compared with $979 million at December 31, 2008. We expect to incur a substantial amount
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 upon our results of operations or financial position as a
result of compliance with current environmental laws and regulations.
Climate Change
There has been a broad range of proposed or promulgated state, national and international laws
focusing on greenhouse gas (GHG) reduction. These proposed or promulgated laws apply or could
apply in countries where we have interests or may have interests in the future. Laws in this field
continue to evolve, and while it is not possible to accurately estimate either a timetable for
implementation or our future compliance costs relating to implementation, such laws, if enacted,
could have a material impact on our results of operations and financial condition. Examples of
legislation or precursors for possible regulation that do or could affect our operations include:
|
|
|
European Emissions Trading Scheme (ETS), the program through which many of the European
Union (EU) member states are implementing the Kyoto Protocol. |
|
|
|
Californias Global Warming Solutions Act, which requires the California Air Resources
Board (CARB) to develop regulations and market mechanisms that will ultimately reduce
Californias GHG emissions by 25 percent by 2020. |
|
|
|
Two regulations issued by the Alberta government in 2007 under the Climate Change and
Emissions Act. These regulations require any existing facility with emissions equal to or
greater than 100,000 metric tons of carbon dioxide or equivalent per year to reduce the net
emissions intensity of that facility by 2 percent per year beginning July 1, 2007, with an
ultimate reduction target of 12 percent of baseline emissions. |
|
|
|
The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S.Ct.
1438 (2007) confirming that the EPA has the authority to regulate carbon dioxide as an air
pollutant under the Federal Clean Air Act. |
|
|
|
The EPAs announcement on December 7, 2009, Endangerment and Cause or Contribute
Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74, Fed. Reg.
66,495, finalizing its findings that GHG emissions threaten public health and the
environment and that cars and light trucks cause or contribute to this threat. While these
findings do not themselves impose any requirements on any industry or company at this time,
these findings may lead to greater regulation of GHG emissions by the EPA, may trigger more
climate-based claims for damages, and may result in longer agency review time for
development projects to determine the extent of climate change. |
60
In the EU, we have assets that are subject to the ETS. The first phase of the EU ETS was completed
at the end of 2007, with EU ETS Phase II running from 2008 through 2012. The European Commission
has approved most of the Phase II national allocation plans. We are actively engaged to minimize
any financial impact from the trading scheme.
In the United States, there is growing consensus that some form of regulation will be forthcoming
at the federal level with respect to GHG emissions. Such regulation could take any of several
forms that result in the creation of additional costs in the form of taxes, the restriction of
output, investments of capital to maintain compliance with laws and regulations, or required
acquisition or trading of emission allowances. We are working to continuously improve operational
and energy efficiency through resource and energy conservation throughout our operations.
Compliance with changes in laws and regulations that create a GHG emission trading scheme or GHG
reduction policies could significantly increase our costs, reduce demand for fossil energy derived
products, impact the cost and availability of capital and increase our exposure to litigation.
Such laws and regulations could also increase demand for less carbon intensive energy sources,
including natural gas. The ultimate impact on our financial performance, either positive or
negative, will depend on a number of factors, including but not limited to:
|
|
|
Whether and to what extent legislation is enacted. |
|
|
|
The nature of the legislation (such as a cap and trade system or a tax on emissions). |
|
|
|
The GHG reductions required. |
|
|
|
The price and availability of offsets. |
|
|
|
The amount and allocation of allowances. |
|
|
|
Technological and scientific developments leading to new products or services. |
|
|
|
Any potential significant physical effects of climate change (such as increased severe
weather events, changes in sea levels and changes in temperature). |
|
|
|
Whether, and the extent to which, increased compliance costs are ultimately reflected in
the prices of our products and services. |
Other
We have deferred tax assets related to certain accrued liabilities, loss carryforwards and credit
carryforwards. Valuation allowances have been established to reduce these deferred tax assets to
an amount that will, more likely than not, be realized. Based on our historical taxable income,
our expectations for the future, and available tax-planning strategies, management expects that the
net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as
reductions in future taxable income.
NEW ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets, an amendment of
FASB Statement No. 140. This Statement was codified into FASB Accounting Standards Codification (ASC) Topic 860, Transfers and
Servicing. This Statement removes the concept of a qualifying special purpose entity (SPE) and
the exception for qualifying SPEs from the consolidation guidance. Additionally, the Statement
clarifies the requirements for financial asset transfers eligible for sale accounting. This
Statement is effective January 1, 2010, and is not expected to have a material impact on our
consolidated financial statements.
Also in June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), to
address the effects of the elimination of the qualifying SPE concept in SFAS No. 166, and other
concerns about the application of key provisions of consolidation guidance for variable interest
entities (VIEs). This Statement was codified into FASB ASC Topic 810, Consolidation. More
specifically, SFAS No. 167 requires a qualitative rather than a quantitative approach to determine
the primary beneficiary of a VIE, it amends certain guidance pertaining to the determination of the
primary beneficiary when related parties are involved, and it amends certain guidance for
determining whether an entity is a VIE. Additionally, this
61
Statement requires continuous assessments of whether an enterprise is the primary beneficiary of a
VIE. This Statement is effective January 1, 2010, and is not expected to have a material impact on
our consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to select appropriate accounting policies and to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses. See Note
1Accounting Policies, in the Notes to Consolidated Financial Statements, for descriptions of our
major accounting policies. Certain of these accounting policies involve judgments and
uncertainties to such an extent that there is a reasonable likelihood that materially different
amounts would have been reported under different conditions, or if different assumptions had been
used. These critical accounting estimates are discussed with the Audit and Finance Committee of
the Board of Directors at least annually. We believe the following discussions of critical
accounting estimates, along with the discussions of contingencies and of deferred tax asset
valuation allowances in this report, address all important accounting areas where the nature of
accounting estimates or assumptions is material due to the levels of subjectivity and judgment
necessary to account for highly uncertain matters or the susceptibility of such matters to change.
Oil and Gas Accounting
Accounting for oil and gas exploratory activity is subject to special accounting rules unique to
the oil and gas industry. The acquisition of geological and geophysical seismic information, prior
to the discovery of proved reserves, is expensed as incurred, similar to accounting for research
and development costs. However, leasehold acquisition costs and exploratory well costs are
capitalized on the balance sheet pending determination of whether proved oil and gas reserves have
been discovered on the prospect.
Property Acquisition Costs
For individually significant leaseholds, management periodically assesses for impairment based on
exploration and drilling efforts to date. For leasehold acquisition costs that individually are
relatively small, management exercises judgment and determines a percentage probability that the
prospect ultimately will fail to find proved oil and gas reserves and pools that leasehold
information with others in the geographic area. For prospects in areas that have had limited, or
no, previous exploratory drilling, the percentage probability of ultimate failure is normally
judged to be quite high. This judgmental percentage is multiplied by the leasehold acquisition
cost, and that product is divided by the contractual period of the leasehold to determine a
periodic leasehold impairment charge that is reported in exploration expense.
This judgmental probability percentage is reassessed and adjusted throughout the contractual period
of the leasehold based on favorable or unfavorable exploratory activity on the leasehold or on
adjacent leaseholds, and leasehold impairment amortization expense is adjusted prospectively. At
year-end 2009, the book value of the pools of property acquisition costs that individually are
relatively small and thus subject to the above-described periodic leasehold impairment calculation,
was $1,466 million and the accumulated impairment reserve was $551 million. The weighted-average
judgmental percentage probability of ultimate failure was approximately 62 percent, and the
weighted-average amortization period was approximately 2.5 years. If that judgmental percentage
were to be raised by 5 percent across all calculations, pretax leasehold impairment expense in 2010
would increase by approximately $32 million. The remaining $5,040 million of gross capitalized
unproved property costs at year-end 2009 consisted of individually significant leaseholds, mineral
rights held in perpetuity by title ownership, exploratory wells currently drilling, and suspended
exploratory wells. Management periodically assesses individually significant leaseholds for
impairment based on the results of exploration and drilling efforts and the outlook for project
commercialization. Of this amount, approximately $2.6 billion is concentrated in 10 major
development areas. One of these major assets totaling $102 million is expected to move to proved
properties in 2010.
Exploratory Costs
For exploratory wells, drilling costs are temporarily capitalized, or suspended, on the balance
sheet, pending a determination of whether potentially economic oil and gas reserves have been
discovered by the drilling effort to justify completion of the find as a producing well.
62
If exploratory wells encounter potentially economic quantities of oil and gas, the well costs
remain capitalized on the balance sheet as long as sufficient progress assessing the reserves and
the economic and operating viability of the project is being made. The accounting notion of
sufficient progress is a judgmental area, but the accounting rules do prohibit continued
capitalization of suspended well costs on the mere chance that future market conditions will
improve or new technologies will be found that would make the projects development economically
profitable. Often, the ability to move the project into the development phase and record proved
reserves is dependent on obtaining permits and government or co-venturer approvals, the timing of
which is ultimately beyond our control. Exploratory well costs remain suspended as long as we are
actively pursuing such approvals and permits, and believe they will be obtained. Once all required
approvals and permits have been obtained, the projects are moved into the development phase, and
the oil and gas reserves are designated as proved reserves. For complex exploratory discoveries,
it is not unusual to have exploratory wells remain suspended on the balance sheet for several years
while we perform additional appraisal drilling and seismic work on the potential oil and gas field
or while we seek government or co-venturer approval of development plans or seek environmental
permitting. Once a determination is made the well did not encounter potentially economic oil and
gas quantities, the well costs are expensed as a dry hole and reported in exploration expense.
Management reviews suspended well balances quarterly, continuously monitors the results of the
additional appraisal drilling and seismic work, and expenses the suspended well costs as a dry hole
when it determines the potential field does not warrant further investment in the near term.
Criteria utilized in making this determination include evaluation of the reservoir characteristics
and hydrocarbon properties, expected development costs, ability to apply existing technology to
produce the reserves, fiscal terms, regulations or contract negotiations, and our required return
on investment.
At year-end 2009, total suspended well costs were $908 million, compared with $660 million at
year-end 2008. For additional information on suspended wells, including an aging analysis, see
Note 8Suspended Wells, in the Notes to Consolidated Financial Statements.
Proved Reserves
Engineering estimates of the quantities of proved reserves are inherently imprecise and represent
only approximate amounts because of the judgments involved in developing such
information. Reserve estimates are based on geological and
engineering assessments of in-place hydrocarbon volumes, the production plan, historical extraction
recovery and processing yield factors, installed plant operating capacity and operating approval
limits. The reliability of these estimates at any point in time depends on both the quality and
quantity of the technical and economic data and the efficiency of extracting and processing the
hydrocarbons.
Despite the inherent imprecision in these engineering estimates, accounting rules require
disclosure of proved reserve estimates due to the importance of these estimates to better
understand the perceived value and future cash flows of a companys E&P operations. There are
several authoritative guidelines regarding the engineering criteria that must be met before
estimated reserves can be designated as proved. Our reservoir engineering organization has
policies and procedures in place consistent with these authoritative guidelines. We have trained
and experienced internal engineering personnel who estimate our proved reserves held by
consolidated companies, as well as our share of equity affiliates.
Proved reserve estimates are adjusted annually and during the year if significant changes occur,
and take into account recent production and subsurface information about each field. Also, as
required by current authoritative guidelines, the estimated future date when a field will be
permanently shut down for economic reasons is based on 12-month average prices and year-end costs.
This estimated date when production will end affects the amount of estimated reserves. Therefore,
as prices and cost levels change from year to year, the estimate of proved reserves also changes.
Our proved reserves include estimated quantities related to production sharing contracts, which are
reported under the economic interest method and are subject to fluctuations in prices of crude
oil, natural gas and natural gas liquids; recoverable operating expenses; and capital costs. If
costs remain stable, reserve quantities attributable to recovery of costs will change inversely to
changes in commodity prices. For example, if prices increase, then our applicable reserve
quantities would decline. The estimation of proved developed reserves
63
also is important to the statement of operations because the proved developed reserve estimate for
a field serves as the denominator in the unit-of-production calculation of depreciation, depletion
and amortization of the capitalized costs for that asset. At year-end 2009, the net book value of
productive E&P properties, plants and equipment subject to a unit-of-production calculation was
approximately $60 billion and the depreciation, depletion and amortization recorded on these assets
in 2009 was approximately $8 billion. The estimated proved developed reserves for our consolidated
operations were 5.5 billion BOE at the beginning of 2009 and were 5.6 billion BOE at the end of
2009. If the estimates of proved reserves used in the unit-of-production calculations had been
lower by 5 percent across all calculations, pretax depreciation, depletion and amortization in 2009
would have increased by an estimated $424 million. Impairments of producing properties resulting
from downward revisions of proved reserves due to reservoir performance were not material in the
last three years.
Impairments
Long-lived assets used in operations are assessed for impairment whenever changes in facts and
circumstances indicate a possible significant deterioration in future cash flows expected to be
generated by an asset group and annually following updates to corporate planning assumptions. If,
upon review, the sum of the undiscounted pretax cash flows is less than the carrying value of the
asset group, the carrying value is written down to estimated fair value. Individual assets are
grouped for impairment purposes based on a judgmental assessment of the lowest level for which
there are identifiable cash flows that are largely independent of the cash flows of other groups of
assetsgenerally on a field-by-field basis for exploration and production assets, or at an entire
complex level for downstream assets. Because there usually is a lack of quoted market prices for
long-lived assets, the fair value of impaired assets is determined based on the present values of
expected future cash flows using discount rates believed to be consistent with those used by
principal market participants, or based on a multiple of operating cash flow validated with
historical market transactions of similar assets where possible. The expected future cash flows
used for impairment reviews and related fair value calculations are based on judgmental assessments
of future production volumes, commodity prices, operating costs, refining margins and capital
project decisions, considering all available information at the date of review. See Note
10Impairments, in the Notes to Consolidated Financial Statements, for additional information.
Investments in nonconsolidated entities accounted for under the equity method are reviewed for
impairment when there is evidence of a loss in value and annually following updates to corporate
planning assumptions. Such evidence of a loss in value might include our inability to recover the
carrying amount, the lack of sustained earnings capacity which would justify the current investment
amount, or a current fair value less than the investments carrying amount. When it is determined
such a loss in value is other than temporary, an impairment charge is recognized for the difference
between the investments carrying value and its estimated fair value. When determining whether a
decline in value is other than temporary, management considers factors such as the length of time
and extent of the decline, the investees financial condition and near-term prospects, and our
ability and intention to retain our investment for a period that will be sufficient to allow for
any anticipated recovery in the market value of the investment. When quoted market prices are not
available, the fair value is usually based on the present value of expected future cash flows using
discount rates believed to be consistent with those used by principal market participants, plus
market analysis of comparable assets owned by the investee, if appropriate. Differing assumptions
could affect the timing and the amount of an impairment of an investment in any period. For
additional information, see the LUKOIL and NMNG sections of Note 6Investments, Loans and
Long-Term Receivables, in the Notes to Consolidated Financial Statements.
Asset Retirement Obligations and Environmental Costs
Under various contracts, permits and regulations, we have material legal obligations to remove
tangible equipment and restore the land or seabed at the end of operations at operational sites.
Our largest asset removal obligations involve removal and disposal of offshore oil and gas
platforms around the world, oil and gas production facilities and pipelines in Alaska, and asbestos
abatement at refineries. The fair values of obligations for dismantling and removing these
facilities are accrued at the installation of the asset based on estimated discounted costs.
Estimating the future asset removal costs necessary for this accounting calculation is difficult.
Most of these removal obligations are many years, or decades, in the future and the contracts and
regulations often have vague descriptions of what removal practices and criteria must be met when
the removal
64
event actually occurs. Asset removal technologies and costs, regulatory and other compliance
considerations,
expenditure timing, and other inputs into valuation of the obligation, including
discount and inflation rates, are also subject to change.
In addition, under the above or similar contracts, permits and regulations, we have certain
obligations to complete environmental-related projects. These projects are primarily related to
cleanup at domestic refineries and underground storage tanks at U.S. service stations, and
remediation activities required by Canada and the state of Alaska at exploration and production
sites. Future environmental remediation costs are difficult to estimate because they 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.
Business Acquisitions
Assets Acquired and Liabilities Assumed
Accounting for the acquisition of a business requires the recognition of the consideration paid, as
well as the various assets and liabilities of the acquired business. For most assets and
liabilities, the asset or liability is recorded at its estimated fair value. The most difficult
estimates of individual fair values are those involving properties, plants and equipment and
identifiable intangible assets. We use all available information to make these fair value
determinations. We have, if necessary, up to one year after the acquisition closing date to
finalize these fair value determinations.
Intangible Assets and Goodwill
At December 31, 2009, we had $740 million of intangible assets determined to have indefinite useful
lives, thus they are not amortized. This judgmental assessment of an indefinite useful life must
be continuously evaluated in the future. If, due to changes in facts and circumstances, management
determines these intangible assets have definite useful lives, amortization will have to commence
at that time on a prospective basis. As long as these intangible assets are judged to have
indefinite lives, they will be subject to periodic lower-of-cost-or-market tests that require
managements judgment of the estimated fair value of these intangible assets.
In the fourth quarter of 2008, we fully impaired the recorded goodwill associated with our
Worldwide E&P reporting unit. At December 31, 2009, we had $3,638 million of goodwill remaining on
our balance sheet, all of which was attributable to the Worldwide R&M reporting unit. See Note
9Goodwill and Intangibles, in the Notes to Consolidated Financial Statements, for additional
information on intangibles and goodwill, including a detailed discussion of the facts and
circumstances leading to the goodwill impairment, as well as the judgments required by management
in the analysis leading to the impairment determination.
Projected Benefit Obligations
Determination of the projected benefit obligations for our defined benefit pension and
postretirement plans are important to the recorded amounts for such obligations on the balance
sheet and to the amount of benefit expense in the statement of operations. The actuarial
determination of projected benefit obligations and company contribution requirements involves
judgment about uncertain future events, including estimated retirement dates, salary levels at
retirement, mortality rates, lump-sum election rates, rates of return on plan assets, future health
care cost-trend rates, and rates of utilization of health care services by retirees. Due to the
specialized nature of these calculations, we engage outside actuarial firms to assist in the
determination of these projected benefit obligations and company contribution requirements. For
Employee Retirement Income Security Act-qualified pension plans, the actuary exercises fiduciary
care on behalf of plan participants in the determination of the judgmental assumptions used in
determining required company contributions into the plan. Due to differing objectives and
requirements between financial accounting rules and the pension plan funding regulations
promulgated by governmental agencies, the actuarial methods and assumptions for the two purposes
differ in certain important respects. Ultimately, we will be required to fund all promised
benefits under pension and postretirement benefit plans not funded by plan assets or investment
returns, but the judgmental assumptions used in the actuarial calculations significantly affect
periodic financial statements and funding patterns over time. Benefit expense is particularly
sensitive to the discount rate and return on plan assets assumptions. A 1 percent decrease in the
discount rate assumption would increase annual benefit expense by $140 million, while a 1 percent
decrease in the return on plan assets assumption would increase
65
annual benefit expense by $60 million. In determining the discount rate, we use yields on
high-quality fixed
income investments matched to the estimated benefit cash flows of our plans.
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 on our current expectations, estimates and projections
about ourselves and the industries in which we operate in general. We caution you these statements
are not guarantees of future performance as they involve assumptions that, while made in good
faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In
addition, we based many of these forward-looking statements on assumptions about future events that
may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially
from what we have expressed or forecast in the forward-looking statements. Any differences could
result from a variety of factors, including the following:
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Fluctuations in crude oil, natural gas and natural gas liquids prices, refining and
marketing margins and margins for our chemicals business. |
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Potential failures or delays in achieving expected reserve or production levels from
existing and future oil and gas development projects due to operating hazards, drilling
risks and the inherent uncertainties in predicting oil and gas reserves and oil and gas
reservoir performance. |
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|
Unsuccessful exploratory drilling activities or the inability to obtain access to
exploratory acreage. |
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Failure of new products and services to achieve market acceptance. |
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Unexpected changes in costs or technical requirements for constructing, modifying or
operating facilities for exploration and production, manufacturing, refining or
transportation projects. |
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Unexpected technological or commercial difficulties in manufacturing, refining or
transporting our products, including synthetic crude oil and chemicals products. |
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|
Lack of, or disruptions in, adequate and reliable transportation for our crude oil,
natural gas, natural gas liquids, LNG and refined products. |
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Inability to timely obtain or maintain permits, including those necessary for
construction of LNG terminals or regasification facilities, or refinery projects; comply
with government regulations; or make capital expenditures required to maintain compliance. |
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|
Failure to complete definitive agreements and feasibility studies for, and to timely
complete construction of, announced and future exploration and production, LNG, refinery
and transportation projects. |
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Potential disruption or interruption of our operations due to accidents, extraordinary
weather events, civil unrest, political events or terrorism. |
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International monetary conditions and exchange controls. |
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Substantial investment or reduced demand for products as a result of existing or future
environmental rules and regulations. |
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Liability for remedial actions, including removal and reclamation obligations, under
environmental regulations. |
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Liability resulting from litigation. |
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General domestic and international economic and political developments, including armed
hostilities; expropriation of assets; changes in governmental policies relating to crude
oil, natural gas, natural gas liquids or refined product pricing, regulation or taxation;
other political, economic or diplomatic developments; and international monetary
fluctuations. |
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|
Changes in tax and other laws, regulations (including alternative energy mandates), or
royalty rules applicable to our business. |
66
|
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Limited access to capital or significantly higher cost of capital related to illiquidity or
uncertainty in the domestic or international financial markets. |
|
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Delays in, or our inability to implement, our recently announced asset disposition plan. |
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Inability to obtain economical financing for projects, construction or modification of
facilities and general corporate purposes. |
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The operation and financing of our midstream and chemicals joint ventures. |
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The factors generally described in Item 1ARisk Factors in this report. |
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Item 7A. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Financial Instrument Market Risk
We and certain of our subsidiaries hold and issue derivative contracts and financial instruments
that expose our cash flows or earnings to changes in commodity prices, foreign exchange rates or
interest rates. We may use financial and commodity-based derivative contracts to manage the risks
produced by changes in the prices of electric power, natural gas, crude oil and related products;
fluctuations in interest rates and foreign currency exchange rates; or to capture market
opportunities.
Our use of derivative instruments is governed by an Authority Limitations document approved by
our Board of Directors that prohibits the use of highly leveraged derivatives or derivative
instruments without sufficient liquidity for comparable valuations. The Authority Limitations
document also establishes the Value at Risk (VaR) limits for the company, and compliance with these
limits is monitored daily. The Chief Financial Officer monitors risks resulting from foreign
currency exchange rates and interest rates and reports to the Chief Executive Officer. The Senior
Vice President of Commercial monitors commodity price risk and reports to the Chief Operating
Officer. The Commercial organization manages our commercial marketing, optimizes our commodity
flows and positions, and monitors related risks of our upstream and downstream businesses.
Commodity Price Risk
We operate in the worldwide crude oil, refined products, natural gas, natural gas liquids, and
electric power markets and are exposed to fluctuations in the prices for these commodities. These
fluctuations can affect our revenues, as well as the cost of operating, investing and financing
activities. Generally, our policy is to remain exposed to the market prices of commodities.
Our Commercial organization uses futures, forwards, swaps and options in various markets to
optimize the value of our supply chain, which may move our risk profile away from market average
prices to accomplish the following objectives:
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|
Balance physical systems. In addition to cash settlement prior to contract expiration,
exchange-traded futures contracts also may be settled by physical delivery of the
commodity, providing another source of supply to meet our refinery requirements or
marketing demand. |
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|
Meet customer needs. Consistent with our policy to generally remain exposed to market
prices, we use swap contracts to convert fixed-price sales contracts, which are often
requested by natural gas and refined product consumers, to a floating market price. |
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|
Manage the risk to our cash flows from price exposures on specific crude oil, natural
gas, refined product and electric power transactions. |
|
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|
Enable us to use the market knowledge gained from these activities to do a limited
amount of commodity trading around our asset base. |
We use a VaR model to estimate the loss in fair value that could potentially result on a single day
from the effect of adverse changes in market conditions on the derivative financial instruments and
derivative
67
commodity instruments held or issued, including commodity purchase and sales contracts recorded on
the balance sheet at December 31, 2009, as derivative instruments. Using Monte Carlo simulation, a
95 percent confidence level and a one-day holding period, the VaR for those instruments issued or held for
trading purposes at December 31, 2009 and 2008, was immaterial to our cash flows and net income
attributable to ConocoPhillips.
The VaR for instruments held for purposes other than trading at December 31, 2009 and 2008, was
also immaterial to our cash flows and net income attributable to ConocoPhillips.
Interest Rate Risk
The following table provides information about our financial instruments that are sensitive to
changes in short-term U.S. interest rates. The debt portion of the table presents principal cash
flows and related weighted-average interest rates by expected maturity dates. Weighted-average
variable rates are based on implied forward rates in the yield curve at the reporting date. The
carrying amount of our floating-rate debt approximates its fair value. The fair value of the
fixed-rate financial instruments is estimated based on quoted market prices. The joint venture
acquisition obligation portion of the table presents principal cash flows of the fixed-rate 5.3
percent joint venture acquisition obligation owed to FCCL Partnership. The fair value of the
obligation is estimated based on the net present value of the future cash flows, discounted at a
year-end 2009 and 2008 effective yield rate of 2.63 percent and 5.4 percent, respectively, based on
yields of U.S. Treasury securities of a similar average duration adjusted for ConocoPhillips
average credit risk spread and the amortizing nature of the obligation principal.
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Millions of Dollars Except as Indicated |
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|
|
Joint Venture |
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|
Debt |
|
|
Acquisition Obligation |
|
|
|
Fixed |
|
|
Average |
|
|
Floating |
|
|
Average |
|
|
Fixed |
|
|
Average |
|
Expected |
|
Rate |
|
|
Interest |
|
|
Rate |
|
|
Interest |
|
|
Rate |
|
|
Interest |
|
Maturity Date |
|
Maturity |
|
|
Rate |
|
|
Maturity |
|
|
Rate |
|
|
Maturity |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
Year-End 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
1,439 |
|
|
|
8.82 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
660 |
|
|
|
5.30 |
% |
2011 |
|
|
3,183 |
|
|
|
6.72 |
|
|
|
750 |
|
|
|
0.45 |
|
|
|
695 |
|
|
|
5.30 |
|
2012 |
|
|
1,264 |
|
|
|
4.94 |
|
|
|
1,303 |
|
|
|
0.25 |
|
|
|
732 |
|
|
|
5.30 |
|
2013 |
|
|
1,262 |
|
|
|
5.33 |
|
|
|
|
|
|
|
|
|
|
|
772 |
|
|
|
5.30 |
|
2014 |
|
|
1,513 |
|
|
|
4.77 |
|
|
|
3 |
|
|
|
2.01 |
|
|
|
814 |
|
|
|
5.30 |
|
Remaining years |
|
|
16,805 |
|
|
|
6.28 |
|
|
|
598 |
|
|
|
0.61 |
|
|
|
1,996 |
|
|
|
5.30 |
|
|
|
|
|
|
Total |
|
$ |
25,466 |
|
|
|
|
|
|
$ |
2,654 |
|
|
|
|
|
|
$ |
5,669 |
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
27,911 |
|
|
|
|
|
|
$ |
2,654 |
|
|
|
|
|
|
$ |
6,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-End 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
303 |
|
|
|
6.43 |
% |
|
$ |
950 |
|
|
|
4.42 |
% |
|
|
625 |
|
|
|
5.30 |
% |
2010 |
|
|
1,441 |
|
|
|
8.83 |
|
|
|
|
|
|
|
|
|
|
|
659 |
|
|
|
5.30 |
|
2011 |
|
|
3,174 |
|
|
|
6.74 |
|
|
|
1,500 |
|
|
|
1.64 |
|
|
|
695 |
|
|
|
5.30 |
|
2012 |
|
|
1,266 |
|
|
|
4.94 |
|
|
|
6,936 |
|
|
|
1.23 |
|
|
|
733 |
|
|
|
5.30 |
|
2013 |
|
|
1,262 |
|
|
|
5.33 |
|
|
|
10 |
|
|
|
2.46 |
|
|
|
772 |
|
|
|
5.30 |
|
Remaining years |
|
|
9,318 |
|
|
|
6.64 |
|
|
|
628 |
|
|
|
2.58 |
|
|
|
2,810 |
|
|
|
5.30 |
|
|
|
|
|
|
Total |
|
$ |
16,764 |
|
|
|
|
|
|
$ |
10,024 |
|
|
|
|
|
|
$ |
6,294 |
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
16,882 |
|
|
|
|
|
|
$ |
10,024 |
|
|
|
|
|
|
$ |
6,294 |
|
|
|
|
|
|
|
|
|
|
Foreign Currency Risk
We have foreign currency exchange rate risk resulting from international operations. We do not
comprehensively hedge the exposure to currency rate changes although we may choose to selectively
hedge certain foreign currency exchange rate exposures, such as firm commitments for capital
projects or local currency tax payments, dividends and cash returns from net investments in foreign
affiliates to be remitted within the coming year.
68
At December 31, 2009 and 2008, we held foreign currency swaps hedging short-term
intercompany loans between European subsidiaries and a U.S. subsidiary. Although these swaps hedge
exposures to fluctuations in exchange rates, we elected not to utilize hedge accounting as allowed
by FASB ASC Topic 815. As a result, the change in the fair value of these foreign currency swaps
is recorded directly in earnings. Since the gain or loss on the swaps is offset by the gain or
loss from remeasuring the intercompany loans into the functional currency of the lender or
borrower, there would be no material impact to income from an adverse hypothetical 10 percent
change in the December 31, 2009 or 2008, exchange rates. The notional and fair market values of
these positions at December 31, 2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Millions |
|
|
Notional* |
|
Fair Market Value** |
Foreign Currency Swaps |
|
|
|
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Sell U.S. dollar, buy euro |
|
USD |
|
|
246 |
|
|
|
526 |
|
|
$ |
(2 |
) |
|
|
53 |
|
Sell U.S. dollar, buy British pound |
|
USD |
|
|
1,664 |
|
|
|
1,657 |
|
|
|
(16 |
) |
|
|
(46 |
) |
Sell U.S. dollar, buy Canadian dollar |
|
USD |
|
|
554 |
|
|
|
1,474 |
|
|
|
34 |
|
|
|
13 |
|
Sell U.S. dollar, buy Czech koruna |
|
USD |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
(2 |
) |
Sell U.S. dollar, buy Danish krone |
|
USD |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Sell U.S. dollar, buy Norwegian kroner |
|
USD |
|
|
744 |
|
|
|
1,103 |
|
|
|
(4 |
) |
|
|
(10 |
) |
Sell U.S. dollar, buy Swedish krona |
|
USD |
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
1 |
|
Sell U.S. dollar, buy Australian dollar |
|
USD |
|
|
3 |
|
|
|
246 |
|
|
|
|
|
|
|
3 |
|
Sell euro, buy Canadian dollar |
|
EUR |
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
Sell euro, buy British pound |
|
EUR |
|
|
267 |
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
Buy euro, sell British pound |
|
EUR |
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
* |
|
Denominated in U.S. dollars (USD) and euro (EUR). |
|
** |
|
Denominated in U.S. dollars. |
For additional information about our use of derivative instruments, see Note 16Financial
Instruments and Derivative Contracts, in the Notes to Consolidated Financial Statements.
69
|
|
|
Item 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
CONOCOPHILLIPS
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Page |
|
|
71 |
|
|
|
|
|
72 |
|
|
|
|
|
73 |
|
|
|
|
|
74 |
|
|
|
|
|
75 |
|
|
|
|
|
76 |
|
|
|
|
|
77 |
|
|
|
|
|
78 |
|
|
|
Supplementary Information |
|
|
|
|
|
|
|
137 |
|
|
|
|
|
164 |
|
|
|
|
|
165 |
70
Report of Management
Management prepared, and is responsible for, the consolidated financial statements and the other
information appearing in this annual report. The consolidated financial statements present fairly
the companys financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States. In preparing its consolidated
financial statements, the company includes amounts that are based on estimates and judgments
management believes are reasonable under the circumstances. The companys financial statements
have been audited by Ernst & Young LLP, an independent registered public accounting firm appointed
by the Audit and Finance Committee of the Board of Directors and ratified by stockholders.
Management has made available to Ernst & Young LLP all of the companys financial records and
related data, as well as the minutes of stockholders and directors meetings.
Assessment of Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over
financial reporting. ConocoPhillips internal control system was designed to provide reasonable
assurance to the companys management and directors regarding the preparation and fair presentation
of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management assessed the effectiveness of the companys internal control over financial reporting as
of December 31, 2009. In making this assessment, it used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework.
Based on our assessment, we believe the companys internal control over financial reporting was
effective as of December 31, 2009.
Ernst & Young LLP has issued an audit report on the companys internal control over financial
reporting as of December 31, 2009, and their report is included herein.
|
|
|
|
/s/ James J. Mulva
|
|
/s/ Sigmund L. Cornelius |
|
|
James J. Mulva
|
|
Sigmund L. Cornelius |
|
Chairman and
|
|
Senior Vice President, Finance, |
|
Chief Executive Officer
|
|
and Chief Financial Officer |
|
February 25, 2010
71
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
The Board of Directors and Stockholders
ConocoPhillips
We have audited the accompanying consolidated balance sheets of ConocoPhillips as of December 31,
2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash
flows for each of the three years in the period ended December 31, 2009. Our audits also included
the related condensed consolidating financial information listed in the Index at Item 8 and
financial statement schedule listed in Item 15(a). These financial statements, condensed
consolidating financial information, and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements, condensed
consolidating financial information, and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of ConocoPhillips at December 31, 2009 and 2008, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related condensed consolidating financial information and financial
statement schedule, when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2009 ConocoPhillips has changed
its reserve estimates and related disclosures as a result of adopting new oil and gas reserve
estimation and disclosure requirements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), ConocoPhillips internal control over financial reporting as of December 31,
2009, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25,
2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
February 25, 2010
72
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
The Board of Directors and Stockholders
ConocoPhillips
We have audited ConocoPhillips internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). ConocoPhillips
management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included under
the heading Assessment of Internal Control Over Financial Reporting in the accompanying Report
of Management. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, ConocoPhillips maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2009 consolidated financial statements of ConocoPhillips and our report
dated February 25, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
February 25, 2010
73
|
|
|
|
|
|
Consolidated Statement of Operations
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
Years Ended December 31 |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Revenues and Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues* |
|
$ |
149,341 |
|
|
|
240,842 |
|
|
|
187,437 |
|
Equity in earnings of affiliates |
|
|
2,981 |
|
|
|
4,250 |
|
|
|
5,087 |
|
Other income |
|
|
518 |
|
|
|
1,090 |
|
|
|
1,971 |
|
|
Total Revenues and Other Income |
|
|
152,840 |
|
|
|
246,182 |
|
|
|
194,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, natural gas and products |
|
|
102,433 |
|
|
|
168,663 |
|
|
|
123,429 |
|
Production and operating expenses |
|
|
10,339 |
|
|
|
11,818 |
|
|
|
10,683 |
|
Selling, general and administrative expenses |
|
|
1,830 |
|
|
|
2,229 |
|
|
|
2,306 |
|
Exploration expenses |
|
|
1,182 |
|
|
|
1,337 |
|
|
|
1,007 |
|
Depreciation, depletion and amortization |
|
|
9,295 |
|
|
|
9,012 |
|
|
|
8,298 |
|
Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
25,443 |
|
|
|
|
|
LUKOIL investment |
|
|
|
|
|
|
7,410 |
|
|
|
|
|
Expropriated assets** |
|
|
51 |
|
|
|
|
|
|
|
4,588 |
|
Other |
|
|
484 |
|
|
|
1,686 |
|
|
|
442 |
|
Taxes other than income taxes* |
|
|
15,529 |
|
|
|
20,637 |
|
|
|
18,990 |
|
Accretion on discounted liabilities |
|
|
422 |
|
|
|
418 |
|
|
|
341 |
|
Interest and debt expense |
|
|
1,289 |
|
|
|
935 |
|
|
|
1,253 |
|
Foreign currency transaction (gains) losses |
|
|
(46 |
) |
|
|
117 |
|
|
|
(201 |
) |
|
Total Costs and Expenses |
|
|
142,808 |
|
|
|
249,705 |
|
|
|
171,136 |
|
|
Income (loss) before income taxes |
|
|
10,032 |
|
|
|
(3,523 |
) |
|
|
23,359 |
|
Provision for income taxes |
|
|
5,096 |
|
|
|
13,405 |
|
|
|
11,381 |
|
|
Net income (loss) |
|
|
4,936 |
|
|
|
(16,928 |
) |
|
|
11,978 |
|
Less: net income attributable to noncontrolling interests |
|
|
(78 |
) |
|
|
(70 |
) |
|
|
(87 |
) |
|
Net Income (Loss) Attributable to ConocoPhillips |
|
$ |
4,858 |
|
|
|
(16,998 |
) |
|
|
11,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Attributable to ConocoPhillips Per Share of
Common Stock (dollars)*** |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.26 |
|
|
|
(11.16 |
) |
|
|
7.32 |
|
Diluted |
|
|
3.24 |
|
|
|
(11.16 |
) |
|
|
7.22 |
|
|
Average Common Shares Outstanding (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1,487,650 |
|
|
|
1,523,432 |
|
|
|
1,623,994 |
|
Diluted |
|
|
1,497,608 |
|
|
|
1,523,432 |
|
|
|
1,645,919 |
|
|
* Includes excise taxes on petroleum products sales: |
|
$ |
13,325 |
|
|
|
15,418 |
|
|
|
15,937 |
|
|
|
|
** |
|
Includes allocated goodwill. |
|
*** |
|
For the purpose of the earnings per share calculation only, 2009 net income attributable to ConocoPhillips has been reduced by $12
million for the excess of the amount paid for the redemption of a noncontrolling interest over its carrying value, which was charged
directly to retained earnings. |
See Notes to Consolidated Financial Statements.
74
|
|
|
|
|
|
Consolidated Balance Sheet
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
At December 31 |
|
2009 |
|
|
2008 |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
542 |
|
|
|
755 |
|
Accounts and notes receivable (net of allowance of $76 million in 2009
and $61 million in 2008) |
|
|
11,861 |
|
|
|
10,892 |
|
Accounts and notes receivablerelated parties |
|
|
1,354 |
|
|
|
1,103 |
|
Inventories |
|
|
4,940 |
|
|
|
5,095 |
|
Prepaid expenses and other current assets |
|
|
2,470 |
|
|
|
2,998 |
|
|
Total Current Assets |
|
|
21,167 |
|
|
|
20,843 |
|
Investments and long-term receivables |
|
|
36,192 |
|
|
|
30,926 |
|
Loans and advancesrelated parties |
|
|
2,352 |
|
|
|
1,973 |
|
Net properties, plants and equipment |
|
|
87,708 |
|
|
|
83,947 |
|
Goodwill |
|
|
3,638 |
|
|
|
3,778 |
|
Intangibles |
|
|
823 |
|
|
|
846 |
|
Other assets |
|
|
708 |
|
|
|
552 |
|
|
Total Assets |
|
$ |
152,588 |
|
|
|
142,865 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
14,168 |
|
|
|
12,852 |
|
Accounts payablerelated parties |
|
|
1,317 |
|
|
|
1,138 |
|
Short-term debt |
|
|
1,728 |
|
|
|
370 |
|
Accrued income and other taxes |
|
|
3,402 |
|
|
|
4,273 |
|
Employee benefit obligations |
|
|
846 |
|
|
|
939 |
|
Other accruals |
|
|
2,234 |
|
|
|
2,208 |
|
|
Total Current Liabilities |
|
|
23,695 |
|
|
|
21,780 |
|
Long-term debt |
|
|
26,925 |
|
|
|
27,085 |
|
Asset retirement obligations and accrued environmental costs |
|
|
8,713 |
|
|
|
7,163 |
|
Joint venture acquisition obligationrelated party |
|
|
5,009 |
|
|
|
5,669 |
|
Deferred income taxes |
|
|
17,962 |
|
|
|
18,167 |
|
Employee benefit obligations |
|
|
4,130 |
|
|
|
4,127 |
|
Other liabilities and deferred credits |
|
|
3,097 |
|
|
|
2,609 |
|
|
Total Liabilities |
|
|
89,531 |
|
|
|
86,600 |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Common stock (2,500,000,000 shares authorized at $.01 par value)
|
|
|
|
|
|
|
|
|
Issued (20091,733,345,558 shares; 20081,729,264,859 shares)
|
|
|
|
|
|
|
|
|
Par value |
|
|
17 |
|
|
|
17 |
|
Capital in excess of par |
|
|
43,681 |
|
|
|
43,396 |
|
Grantor trusts (at cost: 200938,742,261 shares; 200840,739,129 shares) |
|
|
(667 |
) |
|
|
(702 |
) |
Treasury stock (at cost: 2009 and 2008208,346,815 shares) |
|
|
(16,211 |
) |
|
|
(16,211 |
) |
Accumulated other comprehensive income (loss) |
|
|
3,065 |
|
|
|
(1,875 |
) |
Unearned employee compensation |
|
|
(76 |
) |
|
|
(102 |
) |
Retained earnings |
|
|
32,658 |
|
|
|
30,642 |
|
|
Total Common Stockholders Equity |
|
|
62,467 |
|
|
|
55,165 |
|
Noncontrolling interests |
|
|
590 |
|
|
|
1,100 |
|
|
Total Equity |
|
|
63,057 |
|
|
|
56,265 |
|
|
Total Liabilities and Equity |
|
$ |
152,588 |
|
|
|
142,865 |
|
|
See Notes to Consolidated Financial Statements.
75
|
|
|
|
|
|
Consolidated Statement of Cash Flows
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
Years Ended December 31 |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,936 |
|
|
|
(16,928 |
) |
|
|
11,978 |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
9,295 |
|
|
|
9,012 |
|
|
|
8,298 |
|
Impairments |
|
|
535 |
|
|
|
34,539 |
|
|
|
5,030 |
|
Dry hole costs and leasehold impairments |
|
|
606 |
|
|
|
698 |
|
|
|
463 |
|
Accretion on discounted liabilities |
|
|
422 |
|
|
|
418 |
|
|
|
341 |
|
Deferred taxes |
|
|
(1,109 |
) |
|
|
(428 |
) |
|
|
(33 |
) |
Undistributed equity earnings |
|
|
(1,704 |
) |
|
|
(1,609 |
) |
|
|
(1,823 |
) |
Gain on asset dispositions |
|
|
(160 |
) |
|
|
(891 |
) |
|
|
(1,348 |
) |
Other |
|
|
196 |
|
|
|
(1,134 |
) |
|
|
89 |
|
Working capital adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts and notes receivable |
|
|
(1,106 |
) |
|
|
4,225 |
|
|
|
(2,492 |
) |
Decrease (increase) in inventories |
|
|
320 |
|
|
|
(1,321 |
) |
|
|
767 |
|
Decrease (increase) in prepaid expenses and other current assets |
|
|
282 |
|
|
|
(724 |
) |
|
|
487 |
|
Increase (decrease) in accounts payable |
|
|
1,612 |
|
|
|
(3,874 |
) |
|
|
2,772 |
|
Increase (decrease) in taxes and other accruals |
|
|
(1,646 |
) |
|
|
675 |
|
|
|
21 |
|
|
Net Cash Provided by Operating Activities |
|
|
12,479 |
|
|
|
22,658 |
|
|
|
24,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and investments |
|
|
(10,861 |
) |
|
|
(19,099 |
) |
|
|
(11,791 |
) |
Proceeds from asset dispositions |
|
|
1,270 |
|
|
|
1,640 |
|
|
|
3,572 |
|
Long-term advances/loansrelated parties |
|
|
(525 |
) |
|
|
(163 |
) |
|
|
(682 |
) |
Collection of advances/loansrelated parties |
|
|
93 |
|
|
|
34 |
|
|
|
89 |
|
Other |
|
|
88 |
|
|
|
(28 |
) |
|
|
250 |
|
|
Net Cash Used in Investing Activities |
|
|
(9,935 |
) |
|
|
(17,616 |
) |
|
|
(8,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
9,087 |
|
|
|
7,657 |
|
|
|
935 |
|
Repayment of debt |
|
|
(7,858 |
) |
|
|
(1,897 |
) |
|
|
(6,454 |
) |
Issuance of company common stock |
|
|
13 |
|
|
|
198 |
|
|
|
285 |
|
Repurchase of company common stock |
|
|
|
|
|
|
(8,249 |
) |
|
|
(7,001 |
) |
Dividends paid on company common stock |
|
|
(2,832 |
) |
|
|
(2,854 |
) |
|
|
(2,661 |
) |
Other |
|
|
(1,265 |
) |
|
|
(619 |
) |
|
|
(444 |
) |
|
Net Cash Used in Financing Activities |
|
|
(2,855 |
) |
|
|
(5,764 |
) |
|
|
(15,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
98 |
|
|
|
21 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(213 |
) |
|
|
(701 |
) |
|
|
639 |
|
Cash and cash equivalents at beginning of year |
|
|
755 |
|
|
|
1,456 |
|
|
|
817 |
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
542 |
|
|
|
755 |
|
|
|
1,456 |
|
|
See Notes to Consolidated Financial Statements.
76
|
|
|
|
|
|
Consolidated Statement of Changes in Equity
|
|
ConocoPhillips |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
Attributable to ConocoPhillips |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Accum. Other |
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Capital in |
|
|
Treasury |
|
|
Grantor |
|
|
Comprehensive |
|
|
Employee |
|
|
Retained |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
|
|
|
|
Value |
|
|
Excess of Par |
|
|
Stock |
|
|
Trusts |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Interests |
|
|
Total |
|
|
|
|
December 31, 2006 |
|
$ |
17 |
|
|
|
41,926 |
|
|
|
(964 |
) |
|
|
(766 |
) |
|
|
1,289 |
|
|
|
(148 |
) |
|
|
41,292 |
|
|
|
|
|
|
|
1,202 |
|
|
|
83,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,891 |
|
|
|
11,891 |
|
|
|
87 |
|
|
|
11,978 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
Net actuarial gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
213 |
|
Nonsponsored plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
|
|
|
|
3,075 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,236 |
|
|
|
87 |
|
|
|
15,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial application of SFAS No. 158equity affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74 |
) |
Cash dividends paid on company common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,661 |
) |
|
|
|
|
|
|
|
|
|
|
(2,661 |
) |
Repurchase of company common stock |
|
|
|
|
|
|
|
|
|
|
(7,005 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,994 |
) |
Distributions to noncontrolling interests and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116 |
) |
|
|
(116 |
) |
Distributed under benefit plans |
|
|
|
|
|
|
798 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
829 |
|
Recognition of unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
December 31, 2007 |
|
|
17 |
|
|
|
42,724 |
|
|
|
(7,969 |
) |
|
|
(731 |
) |
|
|
4,560 |
|
|
|
(128 |
) |
|
|
50,510 |
|
|
|
|
|
|
|
1,173 |
|
|
|
90,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,998 |
) |
|
|
(16,998 |
) |
|
|
70 |
|
|
|
(16,928 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(950 |
) |
|
|
|
|
|
|
|
|
|
|
(950 |
) |
|
|
|
|
|
|
(950 |
) |
Nonsponsored plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
(41 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,464 |
) |
|
|
|
|
|
|
|
|
|
|
(5,464 |
) |
|
|
|
|
|
|
(5,464 |
) |
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,433 |
) |
|
|
70 |
|
|
|
(23,363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on company common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,854 |
) |
|
|
|
|
|
|
|
|
|
|
(2,854 |
) |
Repurchase of company common stock |
|
|
|
|
|
|
|
|
|
|
(8,242 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,241 |
) |
Distributions to noncontrolling interests and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(143 |
) |
|
|
(143 |
) |
Distributed under benefit plans |
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700 |
|
Recognition of unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
December 31, 2008 |
|
|
17 |
|
|
|
43,396 |
|
|
|
(16,211 |
) |
|
|
(702 |
) |
|
|
(1,875 |
) |
|
|
(102 |
) |
|
|
30,642 |
|
|
|
|
|
|
|
1,100 |
|
|
|
56,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,858 |
|
|
|
4,858 |
|
|
|
78 |
|
|
|
4,936 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
7 |
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
(99 |
) |
Nonsponsored plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,007 |
|
|
|
|
|
|
|
|
|
|
|
5,007 |
|
|
|
|
|
|
|
5,007 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,798 |
|
|
|
78 |
|
|
|
9,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on company common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,832 |
) |
|
|
|
|
|
|
|
|
|
|
(2,832 |
) |
Distributions to noncontrolling interests and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(588 |
) |
|
|
(588 |
) |
Distributed under benefit plans |
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320 |
|
Recognition of unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
December 31, 2009 |
|
$ |
17 |
|
|
|
43,681 |
|
|
|
(16,211 |
) |
|
|
(667 |
) |
|
|
3,065 |
|
|
|
(76 |
) |
|
|
32,658 |
|
|
|
|
|
|
|
590 |
|
|
|
63,057 |
|
= = = |
See Notes to Consolidated Financial Statements.
77
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
ConocoPhillips |
Note 1Accounting Policies
|
|
|
n
|
|
Consolidation Principles and
InvestmentsOur consolidated financial
statements include the accounts of
majority-owned, controlled subsidiaries
and variable interest entities where we
are the primary beneficiary. The equity
method is used to account for investments
in affiliates in which we have the
ability to exert significant influence
over the affiliates operating and
financial policies. The cost method is
used when we do not have the ability to
exert significant influence. Undivided
interests in oil and gas joint ventures,
pipelines, natural gas plants and
terminals are consolidated on a
proportionate basis. Other securities
and investments, excluding marketable
securities, are generally carried at
cost. |
|
|
|
n
|
|
Foreign Currency TranslationAdjustments
resulting from the process of translating
foreign functional currency financial
statements into U.S. dollars are included
in accumulated other comprehensive income
(loss) in common stockholders equity.
Foreign currency transaction gains and
losses are included in current earnings.
Most of our foreign operations use their
local currency as the functional
currency. |
|
|
|
n
|
|
Use of EstimatesThe preparation of
financial statements in conformity with
accounting principles generally accepted
in the United States requires management
to make estimates and assumptions that
affect the reported amounts of assets,
liabilities, revenues and expenses, and
the disclosures of contingent assets and
liabilities. Actual results could differ
from these estimates. |
|
|
|
n
|
|
Revenue RecognitionRevenues associated
with sales of crude oil, natural gas,
natural gas liquids, petroleum and
chemical products, and other items are
recognized when title passes to the
customer, which is when the risk of
ownership passes to the purchaser and
physical delivery of goods occurs, either
immediately or within a fixed delivery
schedule that is reasonable and customary
in the industry. |
|
|
|
|
|
Revenues associated with properties producing natural gas and crude oil, in which we have an
interest with other producers, are recognized based on the actual volumes we sold during the
period. Any differences between volumes sold and entitlement volumes, based on our net working
interest, which are deemed to be nonrecoverable through remaining production, are recognized as
accounts receivable or accounts payable, as appropriate. Cumulative differences between
volumes sold and entitlement volumes are generally not significant. |
|
|
|
|
|
Revenues associated with transactions commonly called buy/sell contracts, in which the purchase
and sale of inventory with the same counterparty are entered into in contemplation of one
another, are combined and reported net (i.e., on the same income statement line). |
|
|
|
n
|
|
Shipping and Handling CostsOur Exploration and Production (E&P)
segment includes shipping and handling costs in production and
operating expenses for production activities. Transportation
costs related to E&P marketing activities are recorded in
purchased crude oil, natural gas and products. The Refining and
Marketing (R&M) segment records shipping and handling costs in
purchased crude oil, natural gas and products. Freight costs
billed to customers are recorded as a component of revenue. |
|
|
|
n
|
|
Cash EquivalentsCash equivalents are highly liquid, short-term
investments that are readily convertible to known amounts of cash
and have original maturities of three months or less from their
date of purchase. They are carried at cost plus accrued interest,
which approximates fair value. |
|
|
|
n
|
|
InventoriesWe have several valuation methods for our various
types of inventories and consistently use the following methods
for each type of inventory. Crude oil and petroleum products
inventories are valued at the lower of cost or market in the
aggregate, primarily on the last-in, first-out (LIFO) basis. Any
necessary lower-of-cost-or-market write-downs at year end are
recorded as permanent adjustments to the LIFO cost basis. LIFO is
used to better match current inventory costs with current revenues
and to meet tax-conformity requirements. Costs include both
direct and indirect expenditures incurred in |
78
|
|
|
|
|
bringing an item or product to its existing condition and location, but not
unusual/nonrecurring costs or research and development costs. Materials, supplies and other
miscellaneous inventories, such as tubular goods and well equipment, are valued under various
methods, including the weighted-average-cost method, and the first-in, first-out (FIFO) method,
consistent with industry practice. |
|
|
|
n
|
|
Fair Value MeasurementsWe categorize assets and liabilities
measured at fair value into one of three different levels
depending on the observability of the inputs employed in the
measurement. Level 1 inputs are quoted prices in active markets
for identical assets or liabilities. Level 2 inputs are
observable inputs other than quoted prices included within Level 1
for the asset or liability, either directly or indirectly through
market-corroborated inputs. Level 3 inputs are unobservable
inputs for the asset or liability reflecting significant
modifications to observable related market data or our assumptions
about pricing by market participants. |
|
|
|
n
|
|
Derivative InstrumentsAll derivative instruments are recorded on
the balance sheet at fair value in either prepaid expenses and
other current assets, other assets, other accruals, or other
liabilities and deferred credits. If the right of offset exists
and certain other criteria are met, derivative assets and
liabilities with the same counterparty are netted on the balance
sheet and the collateral payable or receivable is netted against
derivative assets and derivative liabilities, respectively. |
|
|
|
|
|
Recognition and classification of the gain or loss that results from recording and adjusting a
derivative to fair value depends on the purpose for issuing or holding the derivative. Gains
and losses from derivatives not accounted for as hedges are recognized immediately in earnings.
For derivative instruments that are designated and qualify as a fair value hedge, the gains or
losses from adjusting the derivative to its fair value will be immediately recognized in
earnings and, to the extent the hedge is effective, offset the concurrent recognition of
changes in the fair value of the hedged item. Gains or losses from derivative instruments that
are designated and qualify as a cash flow hedge or hedge of a net investment in a foreign
entity will be recorded on the balance sheet in accumulated other comprehensive income (loss)
until the hedged transaction is recognized in earnings; however, to the extent the change in
the value of the derivative exceeds the change in the anticipated cash flows of the hedged
transaction, the excess gains or losses will be recognized immediately in earnings. |
|
|
|
|
|
In the consolidated statement of operations, gains and losses from derivatives that are held
for trading and not directly related to our physical business are recorded in other income.
Gains and losses from derivatives used for other purposes are recorded in sales and
other operating revenues; other income; purchased crude oil, natural gas and products; interest
and debt expense; or foreign currency transaction (gains) losses, depending on the purpose for
issuing or holding the derivatives. |
|
|
|
n
|
|
Oil and Gas Exploration and DevelopmentOil and gas exploration and development costs are
accounted for using the successful efforts method of accounting. |
|
|
|
Property Acquisition CostsOil and gas leasehold acquisition costs are capitalized and
included in the balance sheet caption properties, plants and equipment. Leasehold
impairment is recognized based on exploratory experience and managements judgment. Upon
achievement of all conditions necessary for reserves to be classified as proved, the
associated leasehold costs are reclassified to proved properties. |
|
|
|
|
Exploratory CostsGeological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Exploratory well costs are capitalized, or
suspended, on the balance sheet pending further evaluation of whether economically
recoverable reserves have been found. If economically recoverable reserves are not found,
exploratory well costs are expensed as dry holes. If exploratory wells encounter
potentially economic quantities of oil and gas, the well costs remain capitalized on the
balance sheet as long as sufficient progress assessing the reserves and the economic and
operating viability of the project is being made. For complex exploratory discoveries, it
is not unusual to have exploratory wells remain suspended on the balance sheet for several
years while we perform additional appraisal drilling and seismic work on the potential oil
and gas field or while we seek government or co-venturer approval of development plans |
79
|
|
|
or seek environmental permitting. Once all required approvals and permits have been
obtained, the projects are moved into the development phase, and the oil and gas reserves
are designated as proved reserves. |
|
|
|
|
Management reviews suspended well balances quarterly, continuously monitors the results of
the additional appraisal drilling and seismic work, and expenses the suspended well costs as
dry holes when it judges the potential field does not warrant further investment in the near
term. See Note 8Suspended Wells for additional information on suspended wells. |
|
|
|
|
Development CostsCosts incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized. |
|
|
|
|
Depletion and AmortizationLeasehold costs of producing properties are depleted using the
unit-of-production method based on estimated proved oil and gas reserves. Amortization of
intangible development costs is based on the unit-of-production method using estimated
proved developed oil and gas reserves. |
|
|
|
n
|
|
Capitalized InterestInterest from external borrowings is
capitalized on major projects with an expected construction period
of one year or longer. Capitalized interest is added to the cost
of the underlying asset and is amortized over the useful lives of
the assets in the same manner as the underlying assets. |
|
|
|
n
|
|
Intangible Assets Other Than GoodwillIntangible assets that have
finite useful lives are amortized by the straight-line method over
their useful lives. Intangible assets that have indefinite useful
lives are not amortized but are tested at least annually for
impairment. Each reporting period, we evaluate the remaining
useful lives of intangible assets not being amortized to determine
whether events and circumstances continue to support indefinite
useful lives. These indefinite lived intangibles are considered
impaired if the fair value of the intangible asset is lower than
net book value. The fair value of intangible assets is determined
based on quoted market prices in active markets, if available. If
quoted market prices are not available, fair value of intangible
assets is determined based upon the present values of expected
future cash flows using discount rates believed to be consistent
with those used by principal market participants, or upon
estimated replacement cost, if expected future cash flows from the
intangible asset are not determinable. |
|
|
|
n
|
|
GoodwillGoodwill resulting from a business combination is not
amortized but is tested at least annually for impairment. If the
fair value of a reporting unit is less than the recorded book
value of the reporting units assets (including goodwill), less
liabilities, then a hypothetical purchase price allocation is
performed on the reporting units assets and liabilities using the
fair value of the reporting unit as the purchase price in the
calculation. If the amount of goodwill resulting from this
hypothetical purchase price allocation is less than the recorded
amount of goodwill, the recorded goodwill is written down to the
new amount. For purposes of goodwill impairment calculations, two
reporting units have been determined: Worldwide Exploration and
Production and Worldwide Refining and Marketing. |
|
|
|
n
|
|
Depreciation and AmortizationDepreciation and amortization of
properties, plants and equipment on producing hydrocarbon
properties and certain pipeline assets (those which are expected
to have a declining utilization pattern), are determined by the
unit-of-production method. Depreciation and amortization of all
other properties, plants and equipment are determined by either
the individual-unit-straight-line method or the
group-straight-line method (for those individual units that are
highly integrated with other units). |
|
|
|
n
|
|
Impairment of Properties, Plants and EquipmentProperties, plants
and equipment used in operations are assessed for impairment
whenever changes in facts and circumstances indicate a possible
significant deterioration in the future cash flows expected to be
generated by an asset group and annually following updates to
corporate planning assumptions. If, upon review, the sum of the
undiscounted pretax cash flows is less than the carrying value of
the asset group, the carrying value is written down to estimated
fair value through additional amortization or depreciation
provisions and reported as |
80
|
|
|
|
|
impairments in the periods in which the determination of the impairment is made. Individual
assets are grouped for impairment purposes at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of other groups of assetsgenerally
on a field-by-field basis for exploration and production assets, or at an entire complex level
for refining assets. Because there usually is a lack of quoted market prices for long-lived
assets, the fair value of impaired assets is typically determined based on the present values
of expected future cash flows using discount rates believed to be consistent with those used by
principal market participants or based on a multiple of operating cash flow validated with
historical market transactions of similar assets where possible. Long-lived assets committed
by management for disposal within one year are accounted for at the lower of amortized cost or
fair value, less cost to sell, with fair value determined using a binding negotiated price, if
available, or present value of expected future cash flows as previously described. |
|
|
|
|
|
The expected future cash flows used for impairment reviews and related fair value calculations
are based on estimated future production volumes, prices and costs, considering all available
evidence at the date of review. If the future production price risk has been hedged, the
hedged price is used in the calculations for the period and quantities hedged. The impairment
review includes cash flows from proved developed and undeveloped reserves, including any
development expenditures necessary to achieve that production. Additionally, when probable
reserves exist, an appropriate risk-adjusted amount of these reserves may be included in the
impairment calculation. |
|
|
|
n
|
|
Impairment of Investments in Nonconsolidated EntitiesInvestments
in nonconsolidated entities are assessed for impairment whenever
changes in the facts and circumstances indicate a loss in value
has occurred and annually following updates to corporate planning
assumptions. When such a condition is judgmentally determined to
be other than temporary, the carrying value of the investment is
written down to fair value. The fair value of the impaired
investment is based on quoted market prices, if available, or upon
the present value of expected future cash flows using discount
rates believed to be consistent with those used by principal
market participants, plus market analysis of comparable assets
owned by the investee, if appropriate. |
|
|
|
n
|
|
Maintenance and RepairsCosts of maintenance and repairs, which
are not significant improvements, are expensed when incurred. |
|
|
|
n
|
|
Advertising CostsProduction costs of media advertising are
deferred until the first public showing of the advertisement.
Advances to secure advertising slots at specific sporting or other
events are deferred until the event occurs. All other advertising
costs are expensed as incurred, unless the cost has benefits that
clearly extend beyond the interim period in which the expenditure
is made, in which case the advertising cost is deferred and
amortized ratably over the interim periods that clearly benefit
from the expenditure. |
|
|
|
n
|
|
Property DispositionsWhen complete units of depreciable property
are sold, the asset cost and related accumulated depreciation are
eliminated, with any gain or loss reflected in other income. When
less than complete units of depreciable property are disposed of
or retired, the difference between asset cost and salvage value is
charged or credited to accumulated depreciation. |
|
|
|
n
|
|
Asset Retirement Obligations and Environmental CostsFair value
of legal obligations to retire and remove long-lived assets are
recorded in the period in which the obligation is incurred
(typically when the asset is installed at the production
location). When the liability is initially recorded, we
capitalize this cost by increasing the carrying amount of the
related properties, plants and equipment. Over time the liability
is increased for the change in its present value, and the
capitalized cost in properties, plants and equipment is
depreciated over the useful life of the related asset. See Note
11Asset Retirement Obligations and Accrued Environmental Costs,
for additional information. |
81
|
|
|
|
|
Environmental expenditures are expensed or capitalized, depending upon their future economic
benefit. Expenditures that relate to an existing condition caused by past operations, and that
do not have a future economic benefit, are expensed. Liabilities for environmental
expenditures are recorded on an undiscounted basis (unless acquired in a purchase business
combination) when environmental assessments or cleanups are probable and the costs can be
reasonably estimated. Recoveries of environmental remediation costs from other parties, such
as state reimbursement funds, are recorded as assets when their receipt is probable and
estimable. |
|
|
|
n
|
|
GuaranteesFair value of a guarantee is determined and recorded
as a liability at the time the guarantee is given. The initial
liability is subsequently reduced as we are released from exposure
under the guarantee. We amortize the guarantee liability over the
relevant time period, if one exists, based on the facts and
circumstances surrounding each type of guarantee. In cases where
the guarantee term is indefinite, we reverse the liability when we
have information that the liability is essentially relieved or
amortize it over an appropriate time period as the fair value of
our guarantee exposure declines over time. We amortize the
guarantee liability to the related statement of operations line
item based on the nature of the guarantee. When it becomes
probable that we will have to perform on a guarantee, we accrue a
separate liability if it is reasonably estimable, based on the
facts and circumstances at that time. We reverse the fair value
liability only when there is no further exposure under the
guarantee. |
|
|
|
n
|
|
Stock-Based CompensationWe recognize stock-based compensation
expense over the shorter of the service period (i.e., the stated
period of time required to earn the award); or the period
beginning at the start of the service period and ending when an
employee first becomes eligible for retirement. We elected to
recognize expense on a straight-line basis over the service period
for the entire award, whether the award was granted with ratable
or cliff vesting. |
|
|
|
n
|
|
Income TaxesDeferred income taxes are computed using the
liability method and are provided on all temporary differences
between the financial reporting basis and the tax basis of our
assets and liabilities, except for deferred taxes on income
considered to be permanently reinvested in certain foreign
subsidiaries and foreign corporate joint ventures. Allowable tax
credits are applied currently as reductions of the provision for
income taxes. Interest related to unrecognized tax benefits is
reflected in interest expense, and penalties in production and
operating expenses. |
|
|
|
n
|
|
Taxes Collected from Customers and Remitted to Governmental
AuthoritiesExcise taxes are reported gross within sales and
other operating revenues and taxes other than income taxes, while
other sales and value-added taxes are recorded net in taxes other
than income taxes. |
|
|
|
n
|
|
Net Income (Loss) Per Share of Common StockBasic net income
(loss) per share of common stock is calculated based upon the
daily weighted-average number of common shares outstanding during
the year, including unallocated shares held by the stock savings
feature of the ConocoPhillips Savings Plan. Also, this
calculation includes fully vested stock and unit awards that have
not been issued. Diluted net income per share of common stock
includes the above, plus unvested stock, unit or option awards
granted under our compensation plans and vested but unexercised
stock options, but only to the extent these instruments dilute net
income per share. Diluted net loss per share in 2008 is
calculated the same as basic net loss per sharethat is, it does
not assume conversion or exercise of securities, totaling
17,354,959 shares in 2008 that would have an anti-dilutive effect.
Treasury stock and shares held by the grantor trusts are excluded
from the daily weighted-average number of common shares
outstanding in both calculations. |
82
Note 2Changes in Accounting Principles
Reserve Estimation and Disclosures
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2010-03, Oil and Gas Reserve Estimation and Disclosures. This ASU amends the FASBs
Accounting Standards Codification (ASC) Topic 932, Extractive ActivitiesOil and Gas to align
the accounting requirements of Topic 932 with the Securities and Exchange Commissions final rule,
Modernization of the Oil and Gas Reporting Requirements issued on December 31, 2008. In summary,
the revisions in ASU 2010-3 modernize the disclosure rules to better align with current industry
practices and expand the disclosure requirements for equity method investments so that more useful
information is provided. More specifically, the main provisions include the following:
|
|
|
An expanded definition of oil and gas producing activities to include nontraditional
resources such as bitumen extracted from oil sands. |
|
|
|
|
The use of an average of the first-day-of-the-month price for the 12-month period,
rather than a year-end price for determining whether reserves can be produced
economically. |
|
|
|
|
Amended definitions of key terms such as reliable technology and reasonable
certainty which are used in estimating proved oil and gas reserve quantities. |
|
|
|
|
A requirement for disclosing separate information about reserve quantities and
financial statement amounts for geographical areas representing 15 percent or more of
proved reserves. |
|
|
|
|
Clarification that an entitys equity investments must be considered in determining
whether it has significant oil and gas activities and a requirement to disclose equity
method investments in the same level of detail as is required for consolidated
investments. |
This ASU is effective for annual reporting periods ended on or after December 31, 2009, and it
requires (1) the effect of the adoption to be included within each of the dollar amounts and
quantities disclosed, (2) qualitative and quantitative disclosure of the estimated effect of
adoption on each of the dollar amounts and quantities disclosed, if significant and practical to
estimate and (3) the effect of adoption on the financial statements, if significant and practical
to estimate. Adoption of these requirements did not significantly impact our reported reserves or
our consolidated financial statements.
Codification
The FASB issued ASU No. 2009-01 in June 2009. This Update, also issued as FASB Statement of
Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, is effective for financial statements
issued after September 15, 2009. Update 2009-01 requires that the FASBs ASC become the sole
source of authoritative U.S. generally accepted accounting principles recognized by the FASB for
nongovernmental entities. We adopted this Update effective July 1, 2009.
Subsequent Events
Effective April 1, 2009, we adopted FASB SFAS No. 165, Subsequent Events. This Statement was
codified into FASB ASC Topic 855, Subsequent Events. Topic 855 establishes the accounting for,
and disclosure of, material events that occur after the balance sheet date, but before the
financial statements are issued. In general, these events will be recognized if the condition
existed at the date of the balance sheet, and will not be recognized if the condition did not exist
at the balance sheet date. Disclosure is required for nonrecognized events if required to keep the
financial statements from being misleading. The guidance in this Topic is very similar to previous
guidance provided in auditing literature and, therefore, did not result in significant changes in
practice.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations (SFAS No.
141(R)), which was subsequently amended by FASB Staff Position (FSP) FAS 141(R)-1 in April 2009.
This Statement was codified into FASB ASC Topic 805, Business Combinations. Topic 805 applies
prospectively to all transactions in which an entity obtains control of one or more other
businesses on or after January 1, 2009. In general, Topic 805 requires the acquiring entity in a
business combination to recognize the fair value of all
83
assets acquired and liabilities assumed in the transaction; establishes the acquisition date as the
fair value measurement point; and modifies disclosure requirements. It also modifies the
accounting treatment for transaction costs, in-process research and development, restructuring
costs, changes in deferred tax asset valuation allowances as a result of a business combination,
and changes in income tax uncertainties after the acquisition date. Additionally, effective
January 1, 2009, accounting for changes in valuation allowances for acquired deferred tax assets
and the resolution of uncertain tax positions for prior business combinations impact tax expense
instead of goodwill.
Noncontrolling Interests
Effective January 1, 2009, we implemented SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51. This Statement was codified into FASB ASC Topic
810, Consolidation. Topic 810 requires noncontrolling interests, previously called minority
interests, to be presented as a separate item in the equity section of the consolidated balance
sheet. It also requires the amount of consolidated net income attributable to noncontrolling
interests to be clearly presented on the face of the consolidated income statement. Additionally,
Topic 810 clarifies that changes in a parents ownership interest in a subsidiary that do not
result in deconsolidation are equity transactions, and that deconsolidation of a subsidiary
requires gain or loss recognition in net income based on the fair value on the deconsolidation
date. Topic 810 was applied prospectively with the exception of presentation and disclosure
requirements, which were applied retrospectively for all periods presented, and did not
significantly change the presentation of our consolidated financial statements. FASB ASU No.
2010-02, Accounting and Reporting for Decreases in Ownership of a Subsidiarya Scope
Clarification, clarified the decrease in ownership provision of Topic 810 applies to a group of
assets or a subsidiary that is a business, but was not applicable to sales of in-substance real
estate, or conveyances of oil and gas mineral rights.
Derivatives
Effective January 1, 2009, we implemented SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activitiesan amendment of FASB No. 133. This Statement was codified into FASB ASC
Topic 815, Derivatives and Hedging. The amendments to Topic 815 expanded disclosure requirements
to provide greater transparency for derivative instruments. In addition, we now must include an
indication of the volume of derivative activity by category (e.g., interest rate, commodity and
foreign currency); derivative gains and losses, by category, for the periods presented in the
financial statements; and expanded disclosures about credit-risk-related contingent features. See
Note 16Financial Instruments and Derivative Contracts, for additional information.
Fair Value Measurement
Effective January 1, 2008, we implemented SFAS No. 157, Fair Value Measurements. This Statement
was codified primarily into FASB ASC Topic 820, Fair Value Measurements and Disclosures. This
Topic defines fair value, establishes a framework for its measurement and expands disclosures about
fair value measurements. We elected to implement this guidance with the one-year deferral
permitted for nonfinancial assets and nonfinancial liabilities measured at fair value, except those
that are recognized or disclosed on a recurring basis (at least annually). Following the allowed
one-year deferral, effective January 1, 2009, we implemented Topic 820 for nonfinancial assets and
nonfinancial liabilities measured at fair value on a nonrecurring basis. The implementation covers
assets and liabilities measured at fair value in a business combination; impaired properties,
plants and equipment, intangible assets and goodwill; initial recognition of asset retirement
obligations; and restructuring costs for which we use fair value. There was no impact to our
consolidated financial statements from the implementation of this Topic for nonfinancial assets and
liabilities, other than additional disclosures.
Financial Instruments
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 was
codified into FASB ASC Topic 825, Financial Instruments. Topic 825 permits the election to carry
financial instruments and certain other items similar to financial instruments at fair value on the
balance sheet, with all changes in fair value reported in earnings. By electing the fair value
option in conjunction with a derivative, an entity can achieve an accounting result similar to a
fair value hedge without having to comply with complex hedge accounting rules. We adopted this
Statement effective January 1, 2008, but did not make a fair value election at that time or during
the remaining period of 2008 through the year 2009 for any financial instruments not
84
already carried at fair value in accordance with other accounting standards. Accordingly, the
adoption of SFAS No. 159 did not impact our consolidated financial statements.
CompensationRetirement Benefits
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R). This
Statement was codified into FASB ASC Topic 715, CompensationRetirement Benefits. Topic 715
requires an employer that sponsors one or more single-employer defined benefit plans to:
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Recognize the funded status of the benefit in its statement of financial position. |
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Recognize as a component of other comprehensive income, net of tax, the gains or losses
and prior service costs or credits that arise during the period, but are not recognized as
components of net periodic benefit cost. |
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Measure defined benefit plan assets and obligations as of the date of the employers
fiscal year-end statement of financial position. |
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Disclose in the notes to financial statements additional information about certain
effects on net periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and the transition
asset or obligation. |
We adopted the provisions of this Statement effective December 31, 2006, except for the requirement
to measure plan assets and benefit obligations as of the date of the employers fiscal year end,
which we adopted effective December 31, 2008. For information on the impact of the adoption of
this Statement, see Note 19Employee Benefit Plans.
Equity Method Accounting
In November 2008, the FASB reached a consensus on Emerging Issues Task Force (EITF) Issue No. 08-6,
Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 was codified into FASB
ASC Topic 323, InvestmentsEquity Method and Joint Ventures. EITF 08-6 was issued to clarify
how the application of equity method accounting is affected by SFAS No. 141(R) and SFAS No. 160.
Topic 323 clarifies that an entity shall continue to use the cost accumulation model for its equity
method investments. It also confirms past accounting practices related to the treatment of
contingent consideration and the use of the impairment model under Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Additionally,
it requires an equity method investor to account for a share issuance by an investee as if the
investor had sold a proportionate share of the investment. This Topic was effective January 1,
2009, and applies prospectively. The adoption did not impact our consolidated financial
statements.
Financial Assets and Variable Interest Entities
In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of
Financial Assets and Interest in Variable Interest Entities. This FSP was codified into FASB ASC
Topic 810, Consolidation. Topic 810 requires additional disclosures about an entitys
involvement with a variable interest entity (VIE) and certain transfers of financial assets to
special-purpose entities and VIEs. This FSP was effective December 31, 2008, and the additional
disclosures related to VIEs have been incorporated into Note 3Variable Interest Entities (VIEs),
including the methodology for determining whether we are the primary beneficiary of a VIE, whether
we have provided financial or other support we were not contractually required to provide, and
other qualitative and quantitative information. We did not have any transfers of financial assets
within the scope of Topic 810.
Postretirement Benefit Plan Assets
In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement
Benefit Plan Assets, to improve the transparency associated with disclosures about the plan assets
of a defined benefit pension or other postretirement plan. This Statement was codified into FASB
ASC Topic 715, CompensationRetirement Benefits. Topic 715 requires the disclosure of each
major asset class at fair value using the fair value hierarchy in SFAS No. 157, Fair Value
Measurements. This Topic is effective
85
for annual financial statements beginning with the 2009 fiscal year, but did not impact our
consolidated financial statements, other than requiring additional disclosures. For more
information on this disclosure, see Note 19Employee Benefit Plans.
Note 3Variable Interest Entities (VIEs)
We hold significant variable interests in VIEs that have not been consolidated because we are not
considered the primary beneficiary. Information on these VIEs follows. See Note 26New
Accounting Standards, for information affecting the accounting for VIEs effective January 1, 2010.
We have a 30 percent ownership interest with a 50 percent governance interest in the OOO
Naryanmarneftegaz (NMNG) joint venture to develop resources in the Timan-Pechora province of
Russia. The NMNG joint venture is a VIE because we and a related party, OAO LUKOIL, have
disproportionate interests. When related parties are involved in a VIE, reasonable judgment should
take into account the relevant facts and circumstances for the determination of the primary
beneficiary. The activities of NMNG are more closely aligned with LUKOIL because they share Russia
as a home country, and LUKOIL conducts extensive exploration activities in the same province.
Additionally, there are no financial guarantees given by LUKOIL or us, and LUKOIL owns 70 percent,
versus our 30 percent direct interest. As a result, we have determined we are not the primary
beneficiary of NMNG, and we use the equity method of accounting for this investment. The funding of
NMNG has been provided with equity contributions, primarily for the development of the Yuzhno
Khylchuyu (YK) Field. Initial production from YK was achieved in June 2008. At December 31, 2009,
the book value of our investment in the venture was $1,647 million.
Production from the NMNG joint venture fields is transported via pipeline to LUKOILs terminal at
Varandey Bay on the Barents Sea and then shipped via tanker to international markets. LUKOIL
completed an expansion of the terminals gross oil-throughput capacity from 30,000 barrels per day
to 240,000 barrels per day, and we participated in the design and financing of the expansion. The
terminal entity, Varandey Terminal Company, is a VIE because we and LUKOIL have disproportionate
interests. We had an obligation to fund, through loans, 30 percent of the terminals expansion
costs, but have no governance or direct ownership interest in the terminal. Similar to NMNG, we
determined we are not the primary beneficiary for Varandey because of LUKOILs ownership, the
activities are in LUKOILs home country, and LUKOIL is the operator of Varandey. We account for
our loan to Varandey as a financial asset. Terminal expansion was completed in June 2008.
Principal repayments began in April 2009. The loan balance outstanding as of December 31, 2009, at
current exchange rates, was $278 million.
We have an agreement with Freeport LNG Development, L.P. (Freeport LNG) to participate in a
liquefied natural gas (LNG) receiving terminal in Quintana, Texas. We have no ownership in
Freeport LNG; however, we own a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which
serves as the general partner managing the venture. We entered into a credit agreement with
Freeport LNG, whereby we agreed to provide loan financing for the construction of the terminal. We
also entered into a long-term agreement with Freeport LNG to use 0.9 billion cubic feet per day of
regasification capacity. The terminal became operational in June 2008, and we began making
payments under the terminal use agreement. Freeport LNG began making loan repayments in September
2008, and the loan balance outstanding as of December 31, 2009, was $707 million. Freeport LNG is
a VIE because Freeport GP holds no equity in Freeport LNG, and the limited partners of Freeport LNG
do not have any substantive decision making ability. We performed an analysis of the expected
losses and determined we are not the primary beneficiary. This expected loss analysis took into
account that the credit support arrangement requires Freeport LNG to maintain sufficient commercial
insurance to mitigate any loan losses. The loan to Freeport LNG is accounted for as a financial
asset, and our investment in Freeport GP is accounted for as an equity investment.
In the third quarter of 2009, Ashford Energy Capital S.A. redeemed for $500 million, plus accrued
dividends, the investment in Ashford held by Cold Spring Finance S.a.r.l. Accordingly, we wholly
own Ashford, and it is no longer a VIE.
86
Our ownership in Rockies Express Pipeline LLC, was previously reported as a VIE because a third
party with no ownership interest had a 49 percent voting interest through the end of the
construction phase of the pipeline. With completion of construction in November 2009, our
ownership increased from 24 to 25 percent and is now aligned with our voting interest. Rockies
Express Pipeline is no longer considered a VIE.
Note 4Inventories
Inventories at December 31 were:
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Millions of Dollars |
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2009 |
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2008 |
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Crude oil and petroleum products |
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$ |
3,955 |
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4,232 |
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Materials, supplies and other |
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985 |
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863 |
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$ |
4,940 |
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5,095 |
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|
Inventories valued on the LIFO basis totaled $3,747 million and $3,939 million at December 31, 2009
and 2008, respectively. The excess of current replacement cost over LIFO cost of inventories
amounted to $5,627 million and $1,959 million at December 31, 2009 and 2008, respectively. In
2007, a liquidation of LIFO inventory values increased net income attributable to ConocoPhillips
$280 million, of which $260 million was attributable to our R&M segment.
Note 5Assets Held for Sale
At December 31, 2008, we classified $594 million of noncurrent assets, primarily properties, plants
and equipment, and $92 million of noncurrent liabilities, primarily deferred taxes, as held for
sale on the consolidated balance sheet. During 2009, we closed on the sale of a large part of our
U.S. retail marketing assets, which included seller financing in the form of a $370 million
five-year note and letters of credit totaling $54 million. In addition, we had other dispositions
during the year and some assets were classified back into held for use. Also during 2009, we
classified additional marketing assets as held for sale. Accordingly, at December 31, 2009, we
classified $323 million of noncurrent assets, primarily investments in equity affiliates, as held
for sale and most of this amount is included in Prepaid expenses and other current assets. We
also classified $75 million of noncurrent deferred tax liabilities as current, based on their held
for sale status.
Note 6Investments, Loans and Long-Term Receivables
Components of investments, loans and long-term receivables at December 31 were:
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Millions of Dollars |
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2009 |
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2008 |
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Equity investments |
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$ |
34,730 |
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29,914 |
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Loans and advancesrelated parties |
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2,352 |
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1,973 |
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Long-term receivables |
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1,009 |
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597 |
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Other investments |
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453 |
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|
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415 |
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$ |
38,544 |
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32,899 |
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87
Equity Investments
Affiliated companies in which we have a significant equity investment include:
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Australia Pacific LNG50 percent owned joint venture with Origin Energyto develop
coalbed methane production from the Bowen and Surat Basins in Queensland, Australia, as
well as process and export LNG. |
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FCCL Partnership50 percent owned business venture with Cenovus Energy Inc.produces
bitumen in the Athabasca oil sands in northeastern Alberta and sells the bitumen blend. |
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WRB Refining LLC50 percent owned business venture with Cenovusowns the Wood River
and Borger Refineries, which process crude oil into refined products. |
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OAO LUKOIL20 percent ownership interestexplores for and produces crude oil, natural
gas and natural gas liquids; refines, markets and transports crude oil and petroleum
products; and is headquartered in Russia. |
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OOO Naryanmarneftegaz (NMNG)30 percent ownership interest and a 50 percent governance
interesta joint venture with LUKOIL to explore for, develop and produce oil and gas
resources in the northern part of Russias Timan-Pechora province. |
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DCP Midstream, LLC50 percent owned joint venture with Spectra Energyowns and
operates gas plants, gathering systems, storage facilities and fractionation plants. |
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Chevron Phillips Chemical Company LLC (CPChem)50 percent owned joint venture with
Chevron Corporationmanufactures and markets petrochemicals and plastics. |
Summarized 100 percent financial information for equity method investments in affiliated companies,
combined, was as follows (information included for LUKOIL is based on estimates):
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Millions of Dollars |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Revenues |
|
$ |
128,881 |
|
|
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180,070 |
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|
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143,686 |
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Income before income taxes |
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12,121 |
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22,356 |
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|
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19,807 |
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Net income |
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9,145 |
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17,976 |
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15,229 |
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Current assets |
|
|
36,139 |
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|
|
34,838 |
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|
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29,451 |
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Noncurrent assets |
|
|
126,163 |
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|
|
114,294 |
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|
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90,939 |
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Current liabilities |
|
|
22,483 |
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|
21,150 |
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16,882 |
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Noncurrent liabilities |
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30,960 |
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29,845 |
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26,656 |
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Our share of income taxes incurred directly by the equity companies is reported in equity in
earnings of affiliates, and as such is not included in income taxes in our consolidated financial
statements.
At December 31, 2009, retained earnings included $1,504 million related to the undistributed
earnings of affiliated companies. Distributions received from affiliates were $2,882 million,
$3,259 million and $3,326 million in 2009, 2008 and 2007, respectively.
Australia Pacific LNG
In October 2008, we closed on a transaction with Origin Energy, an integrated Australian energy
company, to further enhance our long-term Australasian natural gas business. The 50/50 joint
venture, Australia Pacific LNG (APLNG) is focused on coalbed methane production from the Bowen and
Surat Basins in Queensland, Australia, and LNG processing and export sales. This transaction gives
us access to coalbed methane resources in Australia and enhances our LNG position with the expected
creation of an additional LNG hub targeting the Asia Pacific markets.
Under the terms of the transaction, we paid $5 billion at closing, which after the effect of
hedging gains, resulted in an initial cash acquisition cost of $4.7 billion. In addition, we are
responsible for AU$1.15 billion related to Origins initial share of joint venture funding
requirements, as incurred. We have committed to
88
make up to four additional payments of $500 million each, expected within the next decade,
conditional on up to four LNG trains being approved by the joint venture for development.
At December 31, 2009, the book value of our equity method investment in APLNG was $7,344 million,
which includes $2,196 million of cumulative translation effects due to a strengthening Australian
dollar. Our 50 percent share of the historical cost basis net assets of APLNG on its books under
U.S. generally accepted accounting principles (GAAP) was $659 million, resulting in a basis
difference of $6,698 million on our books. The amortizable portion of the basis difference, $4,692
million associated with properties, plants and equipment, has been allocated on a relative fair
value basis to individual exploration and production license areas owned by APLNG, most of which
are not currently in production. Any future additional payments are expected to be allocated in a
similar manner. Each exploration license area will periodically be reviewed for any indicators of
potential impairment, which, if required, would result in acceleration of basis difference
amortization. As the joint venture begins producing natural gas from each license, we amortize the
basis difference allocated to that license using the unit-of-production method. Included in net
income attributable to ConocoPhillips for 2009 and 2008 was after-tax expense of $4 million and $7
million, respectively, representing the amortization of this basis difference on currently
producing licenses.
FCCL and WRB
In January 2007, we closed on a business venture with EnCana Corporation (now Cenovus) to create an
integrated North American heavy oil business. The transaction consists of two 50/50 business
ventures, a Canadian upstream general partnership, FCCL Partnership, and a U.S. downstream limited
liability company, WRB Refining LLC. 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.
At December 31, 2009, the book value of our investment in FCCL was $8,318 million. 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 northeastern
Alberta. Cenovus 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 that began in 2007. For
additional information on this obligation, see Note 13Joint Venture Acquisition Obligation.
At December 31, 2009, the book value of our investment in WRB was $2,975 million. 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 was created due to the fair value of the contributed assets recorded by WRB exceeding
their historical book value. The difference is primarily 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 December 31, 2009, was $4,344 million. Equity earnings
in 2009, 2008 and 2007 were increased by $209 million, $246 million and $202 million, respectively,
due to amortization of the basis difference. We are the operator and managing partner of WRB.
Cenovus is obligated to contribute $7.5 billion, plus accrued interest, to WRB over a 10-year
period that began in 2007. For the Wood River Refinery, operating results are shared 50/50
starting upon formation. For the Borger Refinery, we were entitled to 85 percent of the operating
results in 2007, with our share decreasing to 65 percent in 2008, and 50 percent in all years
thereafter.
LUKOIL
LUKOIL is an integrated energy company headquartered in Russia, with operations worldwide. Our
ownership interest was 20 percent at December 31, 2009, 2008 and 2007, based on 851 million shares
authorized and issued. For financial reporting under U.S. GAAP, 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 at December 31, 2009, 2008 and 2007, was
20.09 percent, 20.06 percent and 20.6 percent, respectively.
Because LUKOILs accounting cycle close and preparation of U.S. GAAP financial statements occur
subsequent to our reporting deadline, our equity earnings for our LUKOIL investment are estimated,
based on current market indicators, publicly available LUKOIL information, and other objective
data. Once the
89
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.
Since the inception of our investment and through June 30, 2008, the market value of our investment
in LUKOIL exceeded book value, based on the price of LUKOIL American Depositary Receipts (ADRs) on
the London Stock Exchange. However, the price of LUKOIL ADRs experienced significant decline
during the second half of 2008, and traded for most of the fourth quarter and into early 2009 in
the general range of $25 to $40 per share. The ADR price ended the year at $32.05 per share, or 67
percent lower than the June 30, 2008, price. This resulted in a December 31, 2008, market value of
our investment of $5,452 million, or 58 percent lower than our book value. Based on a review of
the facts and circumstances surrounding this decline in the market value of our investment during
the second half of 2008, we concluded that an impairment of our investment was necessary. In
reaching this conclusion, we considered the length of time market value has been below book value
and the severity of the decline in market value to be important factors. In combination, these two
items caused us to conclude that the decline was other than temporary.
Accordingly, we recorded a noncash $7,410 million, before- and after-tax impairment, in our
fourth-quarter 2008 results. This impairment had the effect of reducing our book value to $5,452
million, based on the market value of LUKOIL ADRs on December 31, 2008.
At December 31, 2009, the book value of our investment in LUKOIL was $6,861 million. Our 20
percent share of the net assets of LUKOIL was estimated to be $11,314 million. This negative basis
difference of $4,453 million is primarily being amortized on a straight-line basis over a 22-year
useful life as an increase to equity earnings. Equity earnings in 2009 were increased $209
million, while equity earnings in 2008 and 2007 were reduced $88 million and $77 million,
respectively, due to amortization of the positive basis difference that existed prior to the 2008
year-end investment impairment. On December 31, 2009, the closing price of LUKOIL shares on the
London Stock Exchange was $57.30 per share, making the aggregate total market value of our LUKOIL
investment $9,747 million.
NMNG
NMNG is a joint venture with LUKOIL, created in June 2005, to develop resources in the northern
part of Russias Timan-Pechora province. We have a 30 percent direct ownership interest with a 50
percent governance interest. At December 31, 2009, the book value of our equity method investment
in NMNG was $1,647 million. NMNG is nearing completion of the development of the YK Field, which
achieved initial production in June 2008. Production from the NMNG joint venture fields is
transported via pipeline to LUKOILs existing terminal at Varandey Bay on the Barents Sea and then
shipped via tanker to international markets. During 2009, we reduced the carrying value of our
NMNG investment, reflecting an other-than-temporary decline in fair value primarily attributable to
lower probable resources in the YK area.
DCP Midstream
DCP Midstream owns and operates gas plants, gathering systems, storage facilities and fractionation
plants. At December 31, 2009, the book value of our equity method investment in DCP Midstream was
$1,003 million. DCP Midstream markets a portion of its natural gas liquids to us and CPChem under
a supply agreement that continues until December 31, 2014. Beginning in 2015, the volume
commitment is reduced by 20 percent each year until the volume commitment is zero. This purchase
commitment is on an if-produced, will-purchase basis and so has no fixed production schedule, but
has had, and is expected over the remaining term of the contract to have, a relatively stable
purchase pattern. Natural gas liquids are purchased under this agreement at various published
market index prices, less transportation and fractionation fees.
CPChem
CPChem manufactures and markets petrochemicals and plastics. At December 31, 2009, the book value
of our equity method investment in CPChem was $2,445 million. We have multiple supply and purchase
agreements in place with CPChem, ranging in initial terms from one to 99 years, with extension
options. These agreements cover sales and purchases of refined products, solvents, and
petrochemical and natural gas liquids feedstocks, as well as fuel oils and gases. Delivery
quantities vary by product, and are generally on an if-produced, will-purchase basis. All
products are purchased and sold under specified pricing formulas based on various published pricing
indices, consistent with terms extended to third-party customers.
90
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. Loans are recorded when cash is
transferred to the affiliated company pursuant to a loan agreement. The loan balance will increase
as interest is earned on the outstanding loan balance and will decrease as interest and principal
payments are received. Interest is earned at the loan agreements stated interest rate. Loans are
assessed for impairment when events indicate the loan balance may not be fully recovered.
Significant loans to affiliated companies include the following:
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|
|
$707 million in loan financing to Freeport LNG Development, L.P. for the construction of
an LNG receiving terminal that became operational in June 2008. Freeport began making
repayments in September 2008. |
|
|
|
|
$278 million in loan financing at December 2009 exchange rates to Varandey Terminal
Company associated with the costs of the terminal expansion. The terminal expansion was
completed in June 2008, and principal repayments began in April 2009. |
|
|
|
|
$1,000 million of project financing and an additional $88 million of accrued interest to
Qatargas 3, which is an integrated project to produce and liquefy natural gas from Qatars
North Field. We own a 30 percent interest in the project. The other participants in the
project are affiliates of Qatar Petroleum (68.5 percent) and Mitsui & Co., Ltd. (1.5
percent). Our interest is held through a jointly owned company, Qatar Liquefied Gas
Company Limited (3), for which we use the equity method of accounting. Qatargas 3 secured
project financing of $4 billion in December 2005, consisting of $1.3 billion of loans from
export credit agencies (ECA), $1.5 billion from commercial banks, and $1.2 billion from
ConocoPhillips. The ConocoPhillips loan facilities have substantially the same terms as
the ECA and commercial bank facilities. Prior to project completion certification, all
loans, including the ConocoPhillips loan facilities, are guaranteed by the participants
based on their respective ownership interests. Accordingly, our maximum exposure to this
financing structure is $1.2 billion. Upon completion certification, which is expected in
2011, all project loan facilities, including the ConocoPhillips loan facilities, will
become nonrecourse to the project participants. At December 31, 2009, Qatargas 3 had
approximately $3.6 billion outstanding under all the loan facilities. |
|
|
|
|
$350 million of loan financing to WRB Refining LLC to assist it in meeting its
operating and capital spending requirements. |
The long-term portion of these loans are included in the Loans and advancesrelated parties line
on the consolidated balance sheet, while the short-term portion is in Accounts and notes
receivablerelated parties.
Other Investments
We have investments remeasured at fair value on a recurring basis to support certain nonqualified
deferred compensation plans. The fair value of these assets at December 31, 2009, was $338
million, and substantially the entire value is categorized in Level 1 of the fair value hierarchy.
These investments are measured at fair value using a market approach based on quotations from
national securities exchanges.
Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a 70,000 barrel-per-day delayed coker
and related facilities at the Sweeny Refinery used to produce fuel-grade petroleum coke. Prior to
August 28, 2009, MSLP was owned 50/50 by us and Petróleos de Venezuela S.A. (PDVSA). Under the agreements that govern the
relationships between the partners, certain defaults by PDVSA with respect to supply of crude oil
to the Sweeny Refinery gave us the right to acquire PDVSAs 50 percent ownership interest in MSLP.
On August 28, 2009, we exercised that right. In public statements, PDVSA has challenged our
actions. We continue to use the equity method of accounting for our investment in MSLP.
91
Note 7Properties, Plants and Equipment
Properties, plants and equipment (PP&E) are recorded at cost. Within the E&P segment, depreciation
is mainly on a unit-of-production basis, so depreciable life will vary by field. In the R&M
segment, investments in refining manufacturing facilities are generally depreciated on a
straight-line basis over a 25-year life, and pipeline assets over a 45-year life. The companys
investment in PP&E, with accumulated depreciation, depletion and amortization (Accum. DD&A), at
December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
|
Gross |
|
Accum. |
|
Net |
|
Gross |
|
Accum. |
|
Net |
|
|
PP&E |
|
DD&A |
|
PP&E |
|
PP&E |
|
DD&A |
|
PP&E |
|
|
|
|
|
E&P |
|
$ |
115,224 |
|
|
|
45,577 |
|
|
|
69,647 |
|
|
|
102,591 |
|
|
|
35,375 |
|
|
|
67,216 |
|
Midstream |
|
|
123 |
|
|
|
74 |
|
|
|
49 |
|
|
|
120 |
|
|
|
70 |
|
|
|
50 |
|
R&M |
|
|
23,047 |
|
|
|
6,714 |
|
|
|
16,333 |
|
|
|
21,116 |
|
|
|
5,962 |
|
|
|
15,154 |
|
LUKOIL Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Businesses |
|
|
1,198 |
|
|
|
300 |
|
|
|
898 |
|
|
|
1,056 |
|
|
|
293 |
|
|
|
763 |
|
Corporate and Other |
|
|
1,650 |
|
|
|
869 |
|
|
|
781 |
|
|
|
1,561 |
|
|
|
797 |
|
|
|
764 |
|
|
|
|
$ |
141,242 |
|
|
|
53,534 |
|
|
|
87,708 |
|
|
|
126,444 |
|
|
|
42,497 |
|
|
|
83,947 |
|
|
Note 8Suspended Wells
The following table reflects the net changes in suspended exploratory well costs during 2009, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
2007 |
|
|
|
Beginning balance at January 1
|
|
$ |
660 |
|
|
|
589 |
|
|
|
537 |
|
Additions pending the determination of proved reserves
|
|
|
342 |
|
|
|
160 |
|
|
|
157 |
|
Reclassifications to proved properties
|
|
|
(39 |
) |
|
|
(37 |
) |
|
|
(58 |
) |
Sales of suspended well investment
|
|
|
(21 |
) |
|
|
(10 |
) |
|
|
(22 |
) |
Charged to dry hole expense
|
|
|
(34 |
) |
|
|
(42 |
) |
|
|
(25 |
) |
|
Ending balance at December 31
|
|
$ |
908 |
|
|
|
660 |
|
|
|
589 |
* |
|
|
|
|
* |
|
Includes $7 million related to assets held for sale in 2007. |
The following table provides an aging of suspended well balances at December 31, 2009, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
2007 |
|
|
|
Exploratory well costs capitalized for a period of one year or less
|
|
$ |
319 |
|
|
|
182 |
|
|
|
153 |
|
Exploratory well costs capitalized for a period greater than one year
|
|
|
589 |
|
|
|
478 |
|
|
|
436 |
|
|
Ending balance
|
|
$ |
908 |
|
|
|
660 |
|
|
|
589 |
|
|
Number of projects that have exploratory well costs that have been
capitalized for a period greater than one year
|
|
|
34 |
|
|
|
31 |
|
|
|
35 |
|
|
92
The following table provides a further aging of those exploratory well costs that have been
capitalized for more than one year since the completion of drilling as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
|
|
|
Suspended Since |
Project |
|
Total |
|
2007-2008 |
|
2004-2006 |
|
2001-2003 |
|
AktoteKazakhstan (2) |
|
$ |
17 |
|
|
|
|
|
|
|
7 |
|
|
|
10 |
|
Alpine satelliteAlaska (2) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Caldita/BarossaAustralia (1) |
|
|
77 |
|
|
|
|
|
|
|
77 |
|
|
|
|
|
ClairU.K. (2) |
|
|
48 |
|
|
|
31 |
|
|
|
17 |
|
|
|
|
|
Fiord WestAlaska (1) |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
HarrisonU.K. (2) |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
JasmineU.K. (2) |
|
|
72 |
|
|
|
47 |
|
|
|
25 |
|
|
|
|
|
KairanKazakhstan (2) |
|
|
26 |
|
|
|
13 |
|
|
|
13 |
|
|
|
|
|
KashaganKazakhstan (1) |
|
|
34 |
|
|
|
25 |
|
|
|
|
|
|
|
9 |
|
MalikaiMalaysia (2) |
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
Petai/PisagonMalaysia (1) |
|
|
19 |
|
|
|
10 |
|
|
|
9 |
|
|
|
|
|
SaleskiCanada (1) |
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
Sunrise 3Australia (2) |
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
SurmontCanada (1) |
|
|
23 |
|
|
|
15 |
|
|
|
8 |
|
|
|
|
|
ThornburyCanada (1) |
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
UbahMalaysia (1) |
|
|
22 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
UgeNigeria (2) |
|
|
30 |
|
|
|
16 |
|
|
|
14 |
|
|
|
|
|
Seventeen projects of less
than $10 million each (1)(2) |
|
|
73 |
|
|
|
37 |
|
|
|
30 |
|
|
|
6 |
|
|
Total of 34 projects |
|
$ |
589 |
|
|
|
293 |
|
|
|
248 |
|
|
|
48 |
|
|
|
|
|
(1) |
|
Additional appraisal wells planned. |
|
(2) |
|
Appraisal drilling complete; costs being incurred to assess development. |
Note 9Goodwill and Intangibles
Goodwill
Changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
|
E&P |
|
|
R&M |
|
|
Total |
|
|
E&P |
|
|
R&M |
|
|
Total |
|
|
|
|
|
|
Balance as of January 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
25,443 |
|
|
|
3,778 |
|
|
|
29,221 |
|
|
|
25,569 |
|
|
|
3,767 |
|
|
|
29,336 |
|
Accumulated impairment
losses |
|
|
(25,443 |
) |
|
|
|
|
|
|
(25,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,778 |
|
|
|
3,778 |
|
|
|
25,569 |
|
|
|
3,767 |
|
|
|
29,336 |
|
Goodwill allocated to
assets held for sale or
sold |
|
|
|
|
|
|
(135 |
) |
|
|
(135 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
(148 |
) |
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,443 |
) |
|
|
|
|
|
|
(25,443 |
) |
Tax and other adjustments |
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
22 |
|
|
|
11 |
|
|
|
33 |
|
|
Balance as of December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
25,443 |
|
|
|
3,638 |
|
|
|
29,081 |
|
|
|
25,443 |
|
|
|
3,778 |
|
|
|
29,221 |
|
Accumulated impairment
losses |
|
|
(25,443 |
) |
|
|
|
|
|
|
(25,443 |
) |
|
|
(25,443 |
) |
|
|
|
|
|
|
(25,443 |
) |
|
|
|
$ |
|
|
|
|
3,638 |
|
|
|
3,638 |
|
|
|
|
|
|
|
3,778 |
|
|
|
3,778 |
|
|
Goodwill Impairment
We perform our annual goodwill impairment review in the fourth quarter of each year. During the
fourth quarter of 2008, there were severe disruptions in the credit markets and reductions in
global economic activity which had significant adverse impacts on stock markets and
oil-and-gas-related commodity prices, both of which contributed to a significant decline in our
companys stock price and corresponding market
93
capitalization. For most of the fourth quarter, our market capitalization value was significantly
below the recorded net book value of our balance sheet, including goodwill.
Because quoted market prices for our reporting units are not available, management must apply
judgment in determining the estimated fair value of these reporting units for purposes of
performing the annual goodwill impairment test. Management uses all available information to make
these fair value determinations, including the present values of expected future cash flows using
discount rates commensurate with the risks involved in the assets. A key component of these fair
value determinations is a reconciliation of the sum of these net present value calculations to our
market capitalization. We use an average of our market capitalization over the 30 calendar days
preceding the impairment testing date as being more reflective of our stock price trend than a
single day, point-in-time market price. Because, in our judgment, Worldwide E&P is considered to
have a higher valuation volatility than Worldwide R&M, the long-term free cash flow growth rate
implied from this reconciliation to our recent average market capitalization is applied to the
Worldwide E&P net present value calculation.
The accounting principles regarding goodwill acknowledge that the observed market prices of
individual trades of a companys stock (and thus its computed market capitalization) may not be
representative of the fair value of the company as a whole. Substantial value may arise from the
ability to take advantage of synergies and other benefits that flow from control over another
entity. Consequently, measuring the fair value of a collection of assets and liabilities that
operate together in a controlled entity is different from measuring the fair value of that entitys
individual common stock. In most industries, including ours, an acquiring entity typically is
willing to pay more for equity securities that give it a controlling interest than an investor
would pay for a number of equity securities representing less than a controlling interest.
Therefore, once the above net present value calculations have been determined, we also add a
control premium to the calculations. This control premium is judgmental and is based on observed
acquisitions in our industry. The resultant fair values calculated for the reporting units are
then compared to observable metrics on large mergers and acquisitions in our industry to determine
whether those valuations, in our judgment, appear reasonable.
After determining the fair values of our various reporting units as of December 31, 2008, it was
determined that our Worldwide R&M reporting unit passed the first step of the goodwill impairment
test, while our Worldwide E&P reporting unit did not pass the first step. As described above, the
second step of the goodwill impairment test uses the estimated fair value of Worldwide E&P from the
first step as the purchase price in a hypothetical acquisition of the reporting unit. The
significant hypothetical purchase price allocation adjustments made to the assets and liabilities
of Worldwide E&P in this second step calculation were in the areas of:
|
|
|
Adjusting the carrying value of major equity method investments to their estimated fair
values. |
|
|
|
|
Adjusting the carrying value of properties, plants and equipment (PP&E) to the estimated
aggregate fair value of all oil and gas property interests. |
|
|
|
|
Recalculating deferred income taxes under FASB ASC Topic 740, Income Taxes, after considering the likely tax basis a hypothetical buyer would have in the
assets and liabilities. |
When determining the above adjustment for the estimated aggregate fair value of PP&E, it was noted
that in order for any residual purchase price to be allocated to goodwill, the purchase price
assigned to PP&E would have to be well below the value of the PP&E implied by recently-observed
metrics from other sales of major oil and gas properties.
Based on the above analysis, we concluded that a $25.4 billion before- and after-tax noncash
impairment of the entire amount of recorded goodwill for the Worldwide E&P reporting unit was
required. This impairment was recorded in the fourth quarter of 2008.
94
Intangible Assets
Information on the carrying value of intangible assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
|
|
Amount |
|
Amortization |
|
Amount |
|
|
|
Amortized Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Technology related |
|
$ |
126 |
|
|
|
(74 |
) |
|
|
52 |
|
Refinery air permits |
|
|
14 |
|
|
|
(13 |
) |
|
|
1 |
|
Contract based |
|
|
87 |
|
|
|
(65 |
) |
|
|
22 |
|
Other |
|
|
37 |
|
|
|
(29 |
) |
|
|
8 |
|
|
|
|
$ |
264 |
|
|
|
(181 |
) |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Technology related |
|
$ |
120 |
|
|
|
(60 |
) |
|
|
60 |
|
Refinery air permits |
|
|
14 |
|
|
|
(10 |
) |
|
|
4 |
|
Contract based |
|
|
116 |
|
|
|
(81 |
) |
|
|
35 |
|
Other |
|
|
36 |
|
|
|
(27 |
) |
|
|
9 |
|
|
|
|
$ |
286 |
|
|
|
(178 |
) |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
$ |
494 |
|
Refinery air and operating permits |
|
|
|
|
|
|
|
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
$ |
494 |
|
Refinery air and operating permits |
|
|
|
|
|
|
|
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
738 |
|
|
Amortization expense related to the intangible assets above for the years ended December 31, 2009
and 2008, was $30 million and $35 million, respectively. Estimated 2010 amortization expense is
$25 million. Amortization expense is expected to be approximately $20 million and $10 million per
year during 2011 and 2012, respectively, and approximately $5 million per year during 2013 and
2014.
Note 10Impairments
Goodwill
See the Goodwill Impairment section of Note 9Goodwill and Intangibles, for information on the
complete impairment of our E&P segment goodwill.
LUKOIL
See the LUKOIL section of Note 6Investments, Loans and Long-Term Receivables, for information
on the impairment of our LUKOIL investment.
Expropriated Assets
Ecuador
In April 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated
arbitration before the World Banks International Centre for Settlement of Investment Disputes
(ICSID) against The Republic of Ecuador and PetroEcuador as a result of the newly-enacted Windfall
Profits Tax Law and government-mandated renegotiation of our production sharing contracts. Despite
a restraining order issued by the ICSID, Ecuador confiscated the crude oil production of Burlington
and its co-venturer and sold the illegally
95
seized crude oil. As a result, our assets in Ecuador were effectively expropriated. Accordingly,
in the second quarter of 2009, we recorded a noncash charge of $51 million before- and after-tax
related to the full impairment of our exploration and production investments in Ecuador. In the
third quarter of 2009, Ecuador took over operations in Block 7 and 21, formalizing the complete
expropriation of our assets. A jurisdictional hearing before the ICSID was held in January 2010,
with the outcome still pending.
Venezuela
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 noncash impairment, including allocable goodwill, of $4,588 million
before-tax ($4,512 million after-tax) in the second quarter of 2007.
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 E&P
reporting unit and required an allocation of goodwill to the expropriation event. The amount of
goodwill impaired as a result of this allocation was $1,925 million.
We filed a request for international arbitration on November 2, 2007, with the ICSID, an arm of the
World Bank. The request was registered by the ICSID on December 13, 2007. The tribunal of three
arbitrators is constituted, and the arbitration proceeding is under way.
We believe the value of our expropriated Venezuelan oil operations substantially exceeds the
historical cost-based carrying value plus goodwill allocable to those operations. However, U.S.
generally accepted accounting principles require a claim that is the subject of litigation be
presumed to not be probable of realization. In addition, the timing of any negotiated or
arbitrated settlement is not known at this time, but we
anticipate it could take years. 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.
96
Other Impairments
During 2009, 2008 and 2007, we recognized the following before-tax impairment charges, excluding
the goodwill, LUKOIL investment and expropriated assets impairments noted above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
2007 |
|
|
|
E&P |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
5 |
|
|
|
620 |
|
|
|
73 |
|
International |
|
|
412 |
|
|
|
173 |
|
|
|
398 |
|
R&M |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
63 |
|
|
|
534 |
|
|
|
66 |
|
International |
|
|
3 |
|
|
|
181 |
|
|
|
25 |
|
Increase in fair value of previously impaired assets |
|
|
|
|
|
|
|
|
|
|
(128 |
) |
Emerging Businesses |
|
|
|
|
|
|
130 |
|
|
|
|
|
Corporate |
|
|
1 |
|
|
|
48 |
|
|
|
8 |
|
|
|
|
$ |
484 |
|
|
|
1,686 |
|
|
|
442 |
|
|
2009
During 2009, we recorded property impairments of $417 million in our E&P segment, primarily as a
result of lower natural gas price assumptions, reduced volume forecasts, and higher royalty,
operating cost and capital expenditure assumptions. We also recorded property impairments of $66
million in our R&M segment, primarily associated with planned asset dispositions.
The following table shows the values of assets at December 31, 2009, by major category, measured at
fair value on a nonrecurring basis in periods subsequent to their initial recognition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
|
|
|
Fair Value Measurements Using |
|
2009 |
|
|
Fair Value |
|
Level 1 Inputs |
|
Level 3 Inputs |
|
Before-Tax Loss |
Net properties, plants
and equipment (held for
use) |
|
$ |
210 |
|
|
|
|
|
|
|
210 |
|
|
|
385 |
|
Net properties, plants
and equipment (held for
sale) |
|
|
91 |
|
|
|
35 |
|
|
|
56 |
|
|
|
62 |
|
Equity method investments |
|
|
1,784 |
|
|
|
|
|
|
|
1,784 |
|
|
|
286 |
|
|
Net properties, plants and equipment held for use with a carrying amount of $610 million were
written down to a fair value of $210 million, resulting in a before-tax loss of $385 million
(including impact of exchange rates). The fair values were determined by the application of an
internal discounted cash flow model using estimates of future production, prices and a discount
rate believed to be consistent with those used by principal market participants.
During the year, net properties, plants and equipment held for sale with a carrying amount of $178
million were written down to a fair value of $121 million ($91 million still unsold at year end),
less cost to sell of $5 million for a net $116 million, resulting in a before-tax loss of $62
million. The fair values were largely based on binding negotiated prices with third parties, with
some adjusted for the fair value of certain liabilities retained.
At December 31, 2009 certain equity method investments associated with our E&P segment were
determined to have a fair value below carrying amount and the impairment was considered to be other
than temporary. As a result, those investments with a book value of $2,070 million were written
down to a fair value of $1,784 million resulting in a charge of $286 million before-tax, which is
included in the Equity in earnings of affiliates line of the consolidated statement of
operations. The fair values were determined by the application
97
of an internal discounted cash flow model using estimates of future production, prices and a
discount rate believed to be consistent with those used by principal market participants, as well
as reference to market analysis of certain similar undeveloped properties owned by one of the
investees.
2008
As a result of the economic downturn in the fourth quarter of 2008, the outlook for crude oil and
natural gas prices, refining margins, and power spreads sharply deteriorated. In addition, current
project economics in our E&P segment resulted in revised capital spending plans. Because of these
factors, certain E&P, R&M and Emerging Businesses properties no longer passed the undiscounted cash
flow tests and had to be written down to fair value. Consequently, we recorded property
impairments of approximately $1,480 million, primarily consisting of various producing fields in
the U.S. Lower 48 and Canada, one U.S. and one European refinery and a U.S. power generation
facility. In addition, we recorded property impairments for increased asset retirement
obligations, vacant office buildings in the United States and canceled R&M capital projects.
2007
During 2007, we recorded property impairments of $257 million associated with planned asset
dispositions in our E&P and R&M segments. E&P also recorded additional property impairments in
2007 resulting from increased asset retirement obligations, downward reserve revisions and higher
projected operating costs for certain fields in North America and the United Kingdom and an
abandoned project in Alaska. R&M recorded additional property impairments associated with various
terminals and pipelines, primarily in the United States. Also, we reported a $128 million benefit
in 2007 for the subsequent increase in the fair value of certain assets impaired in the prior year,
primarily to reflect finalized sales agreements. This gain was included in the
ImpairmentsOther line of the consolidated statement of operations.
Note 11Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
2008 |
|
|
|
Asset retirement obligations
|
|
$ |
8,295 |
|
|
|
6,615 |
|
Accrued environmental costs
|
|
|
1,017 |
|
|
|
979 |
|
|
Total asset retirement obligations and accrued environmental costs
|
|
|
9,312 |
|
|
|
7,594 |
|
Asset retirement obligations and accrued environmental costs due
within one year*
|
|
|
(599 |
) |
|
|
(431 |
) |
|
Long-term asset retirement obligations and accrued environmental costs
|
|
$ |
8,713 |
|
|
|
7,163 |
|
|
|
|
|
* |
|
Classified as a current liability on the balance sheet, under the caption Other accruals. Includes $14 million related to assets held for sale in 2008. |
Asset Retirement Obligations
We are required to record the fair value of a liability for an asset retirement obligation when it
is incurred (typically when the asset is installed at the production location). When the liability
is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the
related properties, plants and equipment. Over time, the liability increases for the change in its
present value, while the capitalized cost depreciates over the useful life of the related asset.
We have numerous asset removal obligations that we are required to perform under law or contract
once an asset is permanently taken out of service. Most of these obligations are not expected to
be paid until several years, or decades, in the future and will be funded from general company
resources at the time of removal. Our largest individual obligations involve removal and disposal
of offshore oil and gas platforms around the world, oil and gas production facilities and pipelines
in Alaska, and asbestos abatement at refineries.
98
During 2009 and 2008, our overall asset retirement obligation changed as follows:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
|
|
Balance at January 1
|
|
$ |
6,615 |
|
|
|
6,613 |
|
Accretion of discount
|
|
|
394 |
|
|
|
389 |
|
New obligations
|
|
|
113 |
|
|
|
123 |
|
Changes in estimates of existing obligations
|
|
|
905 |
|
|
|
994 |
|
Spending on existing obligations
|
|
|
(322 |
) |
|
|
(217 |
) |
Property dispositions
|
|
|
(82 |
) |
|
|
(115 |
) |
Foreign currency translation
|
|
|
672 |
|
|
|
(1,172 |
) |
|
Balance at December 31
|
|
$ |
8,295 |
|
|
|
6,615 |
|
|
Accrued Environmental Costs
Total environmental accruals at December 31, 2009 and 2008, were $1,017 million and $979 million,
respectively. The 2009 increase in total accrued environmental costs is due to new accruals,
accrual adjustments and accretion exceeding payments during the year on accrued environmental
costs.
We had accrued environmental costs of $632 million and $652 million at December 31, 2009 and 2008,
respectively, primarily related to cleanup at domestic refineries and underground storage tanks at
U.S. service stations, and remediation activities required by Canada and the state of Alaska at
exploration and production sites. We had also accrued in Corporate and Other $292 million and $234
million of environmental costs associated with nonoperator sites at December 31, 2009 and 2008,
respectively. In addition, $93 million was included at both December 31, 2009 and 2008, where the
company has been named a potentially responsible
party under the Federal Comprehensive Environmental Response, Compensation and Liability Act, or
similar state laws. Accrued environmental liabilities will be paid over periods extending up to 30
years.
Because a large portion of the accrued environmental costs were acquired in various business
combinations, they are discounted obligations. Expected expenditures for acquired environmental
obligations are discounted using a weighted-average 5 percent discount factor, resulting in an
accrued balance for acquired environmental liabilities of $627 million at December 31, 2009. The
expected future undiscounted payments related to the portion of the accrued environmental costs
that have been discounted are: $90 million in 2010, $87 million in 2011, $67 million in 2012, $48
million in 2013, $39 million in 2014, and $358 million for all future years after 2014.
99
Note 12Debt
Long-term debt at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
9.875% Debentures due 2010 |
|
$ |
150 |
|
|
|
150 |
|
9.375% Notes due 2011 |
|
|
328 |
|
|
|
328 |
|
9.125% Debentures due 2021 |
|
|
150 |
|
|
|
150 |
|
8.75% Notes due 2010 |
|
|
1,264 |
|
|
|
1,264 |
|
8.20% Debentures due 2025 |
|
|
150 |
|
|
|
150 |
|
8.125% Notes due 2030 |
|
|
600 |
|
|
|
600 |
|
7.9% Debentures due 2047 |
|
|
100 |
|
|
|
100 |
|
7.8% Debentures due 2027 |
|
|
300 |
|
|
|
300 |
|
7.68% Notes due 2012 |
|
|
23 |
|
|
|
30 |
|
7.65% Debentures due 2023 |
|
|
88 |
|
|
|
88 |
|
7.625% Debentures due 2013 |
|
|
100 |
|
|
|
100 |
|
7.40% Notes due 2031 |
|
|
500 |
|
|
|
500 |
|
7.375% Debentures due 2029 |
|
|
92 |
|
|
|
92 |
|
7.25% Notes due 2031 |
|
|
500 |
|
|
|
500 |
|
7.20% Notes due 2031 |
|
|
575 |
|
|
|
575 |
|
7% Debentures due 2029 |
|
|
200 |
|
|
|
200 |
|
6.95% Notes due 2029 |
|
|
1,549 |
|
|
|
1,549 |
|
6.875% Debentures due 2026 |
|
|
67 |
|
|
|
67 |
|
6.68% Notes due 2011 |
|
|
400 |
|
|
|
400 |
|
6.65% Debentures due 2018 |
|
|
297 |
|
|
|
297 |
|
6.50% Notes due 2011 |
|
|
500 |
|
|
|
500 |
|
6.50% Notes due 2039 |
|
|
2,250 |
|
|
|
|
|
6.50% Notes due 2039 |
|
|
500 |
|
|
|
|
|
6.40% Notes due 2011 |
|
|
178 |
|
|
|
178 |
|
6.375% Notes due 2009 |
|
|
|
|
|
|
284 |
|
6.35% Notes due 2011 |
|
|
1,750 |
|
|
|
1,750 |
|
6.00% Notes due 2020 |
|
|
1,000 |
|
|
|
|
|
5.951% Notes due 2037 |
|
|
645 |
|
|
|
645 |
|
5.95% Notes due 2036 |
|
|
500 |
|
|
|
500 |
|
5.90% Notes due 2032 |
|
|
505 |
|
|
|
505 |
|
5.90% Notes due 2038 |
|
|
600 |
|
|
|
600 |
|
5.75% Notes due 2019 |
|
|
2,250 |
|
|
|
|
|
5.625% Notes due 2016 |
|
|
1,250 |
|
|
|
1,250 |
|
5.50% Notes due 2013 |
|
|
750 |
|
|
|
750 |
|
5.30% Notes due 2012 |
|
|
350 |
|
|
|
350 |
|
5.20% Notes due 2018 |
|
|
500 |
|
|
|
500 |
|
4.75% Notes due 2012 |
|
|
897 |
|
|
|
897 |
|
4.75% Notes due 2014 |
|
|
1,500 |
|
|
|
|
|
4.60% Notes due 2015 |
|
|
1,500 |
|
|
|
|
|
4.40% Notes due 2013 |
|
|
400 |
|
|
|
400 |
|
Commercial paper at 0.06% 0.29% at year-end 2009 and 1.05%
1.76% at year-end 2008 |
|
|
1,300 |
|
|
|
6,933 |
|
Floating Rate Five-Year Term Note due 2011 at 0.45% at year-end
2009 and 1.638% at year-end 2008 |
|
|
750 |
|
|
|
1,500 |
|
Floating Rate Notes due 2009 at 4.42% at year-end 2008 |
|
|
|
|
|
|
950 |
|
Industrial Development Bonds due 2012 through 2038 at 0.24%
5.75% at year-end 2009 and 0.93% 5.75% at year-end 2008 |
|
|
252 |
|
|
|
252 |
|
Guarantee of savings plan bank loan payable due 2015 at 2.01% at
year-end 2009 and 2.46% at year-end 2008 |
|
|
103 |
|
|
|
140 |
|
Note payable to Merey Sweeny, L.P. due 2020 at 7% (related party) |
|
|
154 |
|
|
|
163 |
|
Marine Terminal Revenue Refunding Bonds due 2031 at 0.26%
0.40% at year-end 2009 and 0.40% 1.00% at year-end 2008 |
|
|
265 |
|
|
|
265 |
|
Other |
|
|
38 |
|
|
|
36 |
|
|
Debt at face value |
|
|
28,120 |
|
|
|
26,788 |
|
Capitalized leases |
|
|
31 |
|
|
|
28 |
|
Net unamortized premiums and discounts |
|
|
502 |
|
|
|
639 |
|
|
Total debt |
|
|
28,653 |
|
|
|
27,455 |
|
Short-term debt |
|
|
(1,728 |
) |
|
|
(370 |
) |
|
Long-term debt |
|
$ |
26,925 |
|
|
|
27,085 |
|
|
100
Maturities of long-term borrowings, inclusive of net unamortized premiums and discounts, in
2010 through 2014 are: $1,728 million, $3,972 million, $2,345 million, $1,277 million and $1,532
million, respectively. At December 31, 2009, we had classified $1,060 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.
In February 2009, we issued $1.5 billion of 4.75% Notes due 2014, $2.25 billion of 5.75% Notes due
2019, and $2.25 billion of 6.50% Notes due 2039, and in May 2009, we issued $1.5 billion of 4.60%
Notes due 2015, $1.0 billion of 6.00% Notes due 2020 and an additional $500 million of 6.50% Notes
due 2039. The proceeds from the notes were primarily used to reduce outstanding commercial paper
balances and for general corporate purposes.
During 2009, we used proceeds from the issuance of commercial paper to redeem $284 million of
6.375% Notes and $950 million of Floating Rate Notes upon their maturity, and prepaid $750 million
of Floating Rate Five-Year Term Notes.
At December 31, 2009, we had two revolving credit facilities totaling $7.85 billion, consisting of
a $7.35 billion facility expiring in September 2012 and a $500 million facility expiring in July
2012. Our revolving credit facilities may be used as direct bank borrowings, as support for
issuances of letters of credit totaling up to $750 million, or as support for our commercial paper
programs. The revolving credit facilities are broadly syndicated among financial institutions and
do not contain any material adverse change provisions or any covenants requiring maintenance of
specified financial ratios or ratings. The facility agreements contain a cross-default provision
relating to the failure to pay principal or interest on other debt obligations of $200 million or
more by ConocoPhillips, or by any of its consolidated subsidiaries.
Credit facility borrowings may bear interest at a margin above rates offered by certain designated
banks in the London interbank market or at a margin above the overnight federal funds rate or prime
rates offered by certain designated banks in the United States. The agreements call for commitment
fees on available, but unused, amounts. The agreements also contain early termination rights if
our current directors or their approved successors cease to be a majority of the Board of
Directors.
We have two commercial paper programs: the ConocoPhillips $6.35 billion program, primarily a
funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $1.5
billion commercial paper program, which is used to fund commitments relating to the Qatargas 3
Project. Commercial paper maturities are generally limited to 90 days. At both December 31, 2009
and 2008, we had no direct outstanding borrowings under the revolving credit facilities, but $40
million in letters of credit had been issued. In addition, under the two commercial paper
programs, there was $1,300 million of commercial paper outstanding at December 31, 2009, compared
with $6,933 million at December 31, 2008. Since we had $1,300 million of commercial paper
outstanding and had issued $40 million of letters of credit, we had access to $6.5 billion in
borrowing capacity under our revolving credit facilities at December 31, 2009.
Note 13Joint Venture Acquisition Obligation
On January 3, 2007, we closed on a business venture with EnCana Corporation (now Cenovus). As a
part of the transaction, we are obligated to contribute $7.5 billion, plus interest, over a 10-year
period that began in 2007, to the upstream business venture, FCCL Partnership, formed as a result
of the transaction. An initial cash contribution of $188 million was made upon closing in January
of 2007, and was included in the Capital expenditures and investments line on our consolidated
statement of cash flows.
Quarterly principal and interest payments of $237 million began in the second quarter of 2007, and
will continue until the balance is paid. Of the principal obligation amount, approximately $660
million was short-term and was included in the Accounts payablerelated parties line on our
December 31, 2009, consolidated balance sheet. The principal portion of these payments, which
totaled $625 million in 2009, is included in the Other line in the financing activities section
of our consolidated statement of cash flows. Interest accrues at a fixed annual rate of 5.3
percent on the unpaid principal balance. Fifty percent of the quarterly interest payment is
reflected as a capital contribution and is included in the Capital expenditures and investments
line on our consolidated statement of cash flows.
101
Note 14Guarantees
At December 31, 2009, we were liable for certain contingent obligations under various contractual
arrangements as described below. We recognize a liability, at inception, for the fair value of our
obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of
the liability is noted below, we have not recognized a liability either because the guarantees were
issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In
addition, unless otherwise stated we are not currently performing with any significance under the
guarantee and expect future performance to be either immaterial or have only a remote chance of
occurrence.
Construction Completion Guarantees
|
|
|
In December 2005, we issued a construction completion guarantee for 30 percent of the $4
billion in loan facilities of Qatargas 3, which are being used to finance the construction of
an LNG train in Qatar. Of the $4 billion in loan facilities, we committed to provide $1.2
billion. The maximum potential amount of future payments to third-party lenders under the
guarantee is estimated to be $850 million, which could become payable if the full debt
financing is utilized and completion of the Qatargas 3 Project is not achieved. The project
financing will be nonrecourse to ConocoPhillips upon certified completion, expected in 2011.
At December 31, 2009, the carrying value of the guarantee to third-party lenders was $11
million. |
Guarantees of Joint Venture Debt
|
|
|
In June 2006, we issued a guarantee for our ownership percentage of $2 billion in credit
facilities of Rockies Express Pipeline LLC, operated by Kinder Morgan Energy Partners, L.P.
At December 31, 2009, Rockies Express had $1,673 million outstanding under the credit
facilities, with our 25 percent guarantee equaling $418 million. The maximum potential
amount of future payments to third-party lenders under the guarantee is estimated to be $500
million, which could become payable if the credit facilities are fully utilized and Rockies
Express fails to meet its obligations under the credit agreement. The guarantee expires in
April 2011. At December 31, 2009, the total carrying value of this guarantee to third-party
lenders was $11 million. |
|
|
|
At December 31, 2009, we had guarantees outstanding for our portion of joint venture debt
obligations, which have terms of up to 16 years. The maximum potential amount of future
payments under the guarantees is approximately $80 million. Payment would be required if a
joint venture defaults on its debt obligations. |
Other Guarantees
|
|
|
In conjunction with our purchase of a 50 percent ownership interest in APLNG from Origin
Energy in October 2008, we agreed to participate, if and when requested, in any parent
company guarantees that were outstanding at the time we purchased our interest in APLNG.
These parent company guarantees cover the obligation of APLNG to deliver natural gas under
several sales agreements with remaining terms of 7 to 22 years. Our maximum potential
amount of future payments, or cost of volume delivery, under these guarantees is estimated to
be $1,450 million ($3,140 million in the event of intentional or reckless breach) at December
2009 exchange rates based on our 50 percent share of the remaining contracted volumes, which
could become payable if APLNG fails to meet its obligations under these agreements and the
obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the
payments, or cost of volume delivery, would only be triggered if APLNG does not have enough
natural gas to meet these sales commitments and if the partners do not make necessary equity
contributions into APLNG. |
|
|
|
We have other guarantees with maximum future potential payment amounts totaling $506
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, a guarantee of minimum charter revenue for two LNG vessels, one small
construction completion guarantee, guarantees relating to the startup of a refining joint
venture, guarantees of the lease payment obligations of a joint venture, and guarantees of
the residual value of leased corporate aircraft. At December 31, |
102
|
|
|
2009, the carrying value of these guarantees to third-party lenders was $1 million. These
guarantees generally extend up to 15 years or life of the venture. |
In the third quarter of 2009, we sold our remaining ownership interest in four Keystone Pipeline
entities to TransCanada Corporation. As a result, we no longer have any financial guarantees
related to Keystone.
Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain
corporations, joint ventures and assets that gave rise to qualifying indemnifications. Agreements
associated with these sales include indemnifications for taxes, environmental liabilities, permits
and licenses, employee claims, real estate indemnity against tenant defaults, and litigation. The
terms of these indemnifications vary greatly. The majority of these indemnifications are related
to environmental issues, the term is generally indefinite and the maximum amount of future payments
is generally unlimited. The carrying amount recorded for these indemnifications at December 31,
2009, was $412 million. We amortize the indemnification liability over the relevant time period,
if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases
where the indemnification term is indefinite, we will reverse the liability when we have
information the liability is essentially relieved or amortize the liability over an appropriate
time period as the fair value of our indemnification exposure declines. Although it is reasonably
possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it
is not possible to make a reasonable estimate of the maximum potential amount of future payments.
Included in the recorded carrying amount were $258 million of environmental accruals for known
contamination that are included in asset retirement obligations and accrued environmental costs at
December 31, 2009. For additional information about environmental liabilities, see Note
15Contingencies and Commitments.
Note 15Contingencies and Commitments
In the case of all known contingencies (other than those related to income taxes), we accrue a
liability when the loss is probable and the amount is reasonably estimable. If a range of amounts
can be reasonably estimated and no amount within the range is a better estimate than any other
amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential
insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance
or other third-party recoveries. In the case of income-tax-related contingencies, we use a
cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than
certain. See Note 20Income 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 consolidated financial statements. As we learn new facts concerning
contingencies, we reassess our position both with respect to accrued liabilities and other
potential exposures. Estimates particularly sensitive to future changes include contingent
liabilities recorded for environmental remediation, tax and legal matters. Estimated future
environmental remediation costs are subject to change due to such factors as the uncertain
magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be
required, and the determination of our liability in proportion to that of other responsible
parties. Estimated future costs related to tax and legal matters are subject to change as events
evolve and as additional information becomes available during the administrative and litigation
processes.
Environmental
We are subject to federal, state and local environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical, mineral and petroleum substances at various sites. When
we prepare our consolidated financial statements, we record accruals for environmental liabilities
based on managements best estimates, using all information that is available at the time. We
measure estimates and base liabilities on currently available facts, existing technology, and
presently enacted laws and regulations, taking into account stakeholder and business
considerations. When measuring environmental liabilities, we also consider our prior experience in
103
remediation of contaminated sites, other companies cleanup experience, and data released by the
U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims
in our determination of environmental liabilities, and we accrue them in the period they are both
probable and reasonably estimable.
Although liability of those potentially responsible for environmental remediation costs is
generally joint and several for federal sites and frequently so for state sites, we are usually
only one of many companies cited at a particular site. Due to the joint and several liabilities,
we could be responsible for all cleanup costs related to any site at which we have been designated
as a potentially responsible party. If we were solely responsible, the costs, in some cases, could
be material to our results of operations, capital resources or liquidity, or to those of one of our
segments. However, settlements and costs incurred in matters that previously have been resolved
have not been material to our results of operations or financial condition. We have been
successful to date in sharing cleanup costs with other financially sound companies. Many of the
sites at which we are potentially responsible are still under investigation by the EPA or the state
agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the
site conditions, apportion responsibility and determine the appropriate remediation. In some
instances, we may have no liability or may attain a settlement of liability. Where it appears that
other potentially responsible parties may be financially unable to bear their proportional share,
we consider this inability in estimating our potential liability, and we adjust our accruals
accordingly.
As a result of various acquisitions in the past, we assumed certain environmental obligations.
Some of these environmental obligations are mitigated by indemnifications made by others for our
benefit and some of the indemnifications are subject to dollar limits and time limits. We have not
recorded accruals for any potential contingent liabilities that we expect to be funded by the prior
owners under these indemnifications.
We are currently participating in environmental assessments and cleanups at numerous federal
Superfund and comparable state sites. After an assessment of environmental exposures for cleanup
and other costs, we make accruals on an undiscounted basis (except those acquired in a purchase
business combination, which we record on a discounted basis) for planned investigation and
remediation activities for sites where it is probable future costs will be incurred and these costs
can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries.
In the future, we may be involved in additional environmental assessments, cleanups and
proceedings. See Note 11Asset Retirement Obligations and Accrued Environmental Costs, for a
summary of our accrued environmental liabilities.
Legal Proceedings
Our legal organization applies its knowledge, experience and professional judgment to the specific
characteristics of our cases, employing a litigation management process to manage and monitor the
legal proceedings against us. Our process facilitates the early evaluation and quantification of
potential exposures in individual cases. This process also enables us to track those cases that
have been scheduled for trial, as well as the pace of settlement discussions in individual matters.
Based on professional judgment and experience in using these litigation management tools and
available information about current developments in all our cases, our legal organization believes
there is a remote likelihood future costs related to known contingent liability exposures will
exceed current accruals by an amount that would have a material adverse impact on our consolidated
financial statements.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing
companies not associated with financing arrangements. Under these agreements, we may be required
to provide any such company with additional funds through advances and penalties for fees related
to throughput capacity not utilized. In addition, at December 31, 2009, we had performance
obligations secured by letters of credit of $1,624 million (of which $40 million was issued under
the provisions of our revolving credit facility, and the remainder was issued as direct bank
letters of credit) related to various purchase commitments for materials, supplies, services and
items of permanent investment incident to the ordinary conduct of business. See Note
10Impairments, for additional information about expropriated assets in Ecuador and Venezuela and
the contingencies related to receiving adequate compensation for our oil interests related to these
assets.
104
Long-Term Throughput Agreements and Take-or-Pay Agreements
We have certain throughput agreements and take-or-pay agreements in support of financing
arrangements. The agreements typically provide for natural gas or crude oil transportation to be
used in the ordinary course of the companys business. The aggregate amounts of estimated payments
under these various agreements are: 2010$88 million; 2011$88 million; 2012$84 million;
2013$83 million; 2014$84 million; and 2015 and after$273 million. Total payments under the
agreements were $77 million in 2009, $75 million in 2008 and $67 million in 2007.
Note 16Financial Instruments and Derivative Contracts
Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in
foreign currency exchange rates, commodity prices, and interest rates, or to capture market
opportunities. Since we are not currently using hedge accounting, all gains and losses, realized
or unrealized, from derivative contracts have been recognized in the consolidated statement of
operations. Gains and losses from derivative contracts held for trading not directly related to
our physical business, whether realized or unrealized, have been reported net in other income.
Purchase and sales contracts for commodities that are readily convertible to cash (e.g., crude oil,
natural gas and gasoline) are recorded on the balance sheet as derivatives unless the contracts are
for quantities we expect to use or sell over a reasonable period in the normal course of business
(i.e., contracts eligible for the normal purchases and normal sales exception). We record most of
our contracts to buy or sell natural gas and the majority of our contracts to sell power as
derivatives, but we do apply the normal purchases and normal sales exception to certain long-term
contracts to sell our natural gas production. We generally apply this normal purchases and normal
sales exception to eligible crude oil and refined product commodity purchase and sales contracts;
however, we may elect not to apply this exception (e.g., when another derivative instrument will be
used to mitigate the risk of the purchase or sale contract but hedge accounting will not be
applied, in which case both the purchase or sales contract and the derivative contract mitigating
the resulting risk will be recorded on the balance sheet at fair value).
We value our exchange-cleared derivatives using closing prices provided by the exchange as of the
balance sheet date, and these are classified as Level 1 in the fair value hierarchy.
Over-the-counter (OTC) financial swaps and physical commodity forward purchase and sale contracts
are generally valued using quotations provided by brokers and price index developers such as Platts
and Oil Price Information Service. These quotes are corroborated with market data and are
classified as Level 2. In certain less liquid markets or for longer-term contracts, forward prices
are not as readily available. In these circumstances, OTC swaps and physical commodity purchase
and sale contracts are valued using internally developed methodologies that consider historical
relationships among various commodities that result in managements best estimate of fair value.
These contracts are classified as Level 3.
Exchange-cleared financial options are valued using exchange closing prices and are classified as
Level 1. Financial OTC and physical commodity options are valued using industry-standard models
that consider various assumptions, including quoted forward prices for commodities, time value,
volatility factors, and contractual prices for the underlying instruments, as well as other
relevant economic measures. The degree to which these inputs are observable in the forward markets
determines whether the options are classified as Level 2 or 3.
We use a mid-market pricing convention (the mid-point between bid and ask prices). When
appropriate, valuations are adjusted to reflect credit considerations, generally based on available
market evidence.
105
The fair value hierarchy for our derivative assets and liabilities accounted for at fair
value on a recurring basis was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
December 31, 2009 |
|
December 31, 2008 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
1,710 |
|
|
|
1,659 |
|
|
|
61 |
|
|
|
3,430 |
|
|
|
4,994 |
|
|
|
2,874 |
|
|
|
112 |
|
|
|
7,980 |
|
Foreign exchange derivatives |
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
97 |
|
|
Total assets |
|
|
1,710 |
|
|
|
1,704 |
|
|
|
61 |
|
|
|
3,475 |
|
|
|
4,994 |
|
|
|
2,971 |
|
|
|
112 |
|
|
|
8,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
|
(1,797 |
) |
|
|
(1,496 |
) |
|
|
(24 |
) |
|
|
(3,317 |
) |
|
|
(5,221 |
) |
|
|
(2,497 |
) |
|
|
(72 |
) |
|
|
(7,790 |
) |
Foreign exchange
derivatives |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
(93 |
) |
|
Total liabilities |
|
|
(1,797 |
) |
|
|
(1,543 |
) |
|
|
(24 |
) |
|
|
(3,364 |
) |
|
|
(5,221 |
) |
|
|
(2,590 |
) |
|
|
(72 |
) |
|
|
(7,883 |
) |
|
Net assets (liabilities) |
|
$ |
(87 |
) |
|
|
161 |
|
|
|
37 |
|
|
|
111 |
|
|
|
(227 |
) |
|
|
381 |
|
|
|
40 |
|
|
|
194 |
|
|
The derivative values above are based on analysis of each contract as the fundamental unit of
account; therefore, derivative assets and liabilities with the same counterparty are not reflected
net where the legal right of offset exists. Gains or losses from contracts in one level may be
offset by gains or losses on contracts in another level or by changes in values of physical
contracts or positions that are not reflected in the table above.
The fair value of net commodity derivatives classified as Level 3 in the fair value hierarchy
changed as follows during 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
|
2008 |
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
40 |
|
|
|
(34 |
) |
Total gains (losses), realized and unrealized |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
17 |
|
|
|
6 |
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
Purchases, issuances and settlements |
|
|
(60 |
) |
|
|
37 |
|
Transfers in and/or out of Level 3 |
|
|
40 |
|
|
|
31 |
|
|
Ending balance |
|
$ |
37 |
|
|
|
40 |
|
|
106
The amounts of Level 3 gains (losses) included in earnings were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
Other |
|
|
Crude Oil, |
|
|
|
|
|
|
Other |
|
|
Crude Oil, |
|
|
|
|
|
|
Operating |
|
|
Natural Gas |
|
|
|
|
|
|
Operating |
|
|
Natural Gas |
|
|
|
|
|
|
Revenues |
|
|
and Products |
|
|
Total |
|
|
Revenues |
|
|
and Products |
|
|
Total |
|
|
|
|
|
|
Total gains
(losses) included
in earnings |
|
$ |
17 |
|
|
|
|
|
|
|
17 |
|
|
|
11 |
|
|
|
(5 |
) |
|
|
6 |
|
|
|
Change in
unrealized gains
(losses) relating
to assets held at
December 31 |
|
$ |
13 |
|
|
|
|
|
|
|
13 |
|
|
|
20 |
|
|
|
63 |
|
|
|
83 |
|
|
|
Change in
unrealized gains
(losses) relating
to liabilities held
at December 31 |
|
$ |
(14 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
(8 |
) |
|
|
(64 |
) |
|
|
(72 |
) |
|
Commodity Derivative ContractsWe operate in the worldwide crude oil, refined product, natural
gas, natural gas liquids and electric power markets and are exposed to fluctuations in the prices
for these commodities. These fluctuations can affect our revenues, as well as the cost of
operating, investing and financing activities. Generally, our policy is to remain exposed to the
market prices of commodities. However, we use futures, forwards, swaps and options in various
markets to balance physical systems, meet customer needs, manage price exposures on specific
transactions, and do a limited, immaterial amount of trading not directly related to our physical
business. These activities may move our risk profile away from market average prices.
The fair value of commodity derivative assets and liabilities at December 31, 2009, and the line
items where they appear on our consolidated balance sheet were:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Assets |
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
3,084 |
|
Other assets |
|
|
359 |
|
Liabilities |
|
|
|
|
Other accruals |
|
|
3,006 |
|
Other liabilities and deferred credits |
|
|
324 |
|
|
|
|
|
Hedge accounting has not been used for any items in
the table unless specified otherwise. The amounts shown
are presented gross (i.e., without netting assets and
liabilities with the same counterparty where the right
of offset and intent to net exist). |
The gains (losses) from commodity derivatives incurred during 2009, and the line items where
they appear on our consolidated statement of operations were:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Sales and other operating revenues |
|
$ |
1,964 |
|
Other income |
|
|
19 |
|
Purchased crude oil, natural gas and products |
|
|
(2,624 |
) |
|
|
|
|
Hedge accounting has not been used for any items in the table unless specified otherwise. |
107
The table below summarizes our material net exposures as of December 31, 2009, resulting
from outstanding commodity derivative contracts. These financial and physical derivative contracts
are primarily used to manage price exposure on our underlying operations. The underlying exposures
may be from non-derivative positions such as inventory volumes or firm natural gas transport
contracts. Financial derivative contracts may also offset physical derivative contracts, such as
forward sales contracts.
|
|
|
|
|
|
|
Open Position |
|
|
|
Long / (Short) |
|
Commodity |
|
|
|
|
Crude oil, refined products and natural gas liquids (millions of barrels) |
|
|
(16 |
) |
Natural gas and power (billions of cubic feet) |
|
|
|
|
Fixed price |
|
|
(60 |
) |
Basis |
|
|
154 |
|
|
Currency Exchange Rate Derivative ContractsWe have foreign currency exchange rate risk resulting
from international operations. We do not comprehensively hedge the exposure to movements in
currency exchange rates, although we may choose to selectively hedge certain foreign currency
exchange rate exposures, such as firm commitments for capital projects or local currency tax
payments, dividends, and cash returns from net investments in foreign affiliates to be remitted
within the coming year.
The fair value of foreign currency derivative assets and liabilities open at December 31, 2009, and
the line items where they appear on our consolidated balance sheet were:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Assets |
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
38 |
|
Other assets |
|
|
7 |
|
Liabilities |
|
|
|
|
Other accruals |
|
|
40 |
|
Other liabilities and deferred credits |
|
|
7 |
|
|
|
|
|
Hedge accounting has not been used for any items in the table unless specified otherwise. The amounts shown are presented gross. |
Gains and losses from foreign currency derivatives at December 31, 2009, and the line item
where they appear on our consolidated statement of operations were:
|
|
|
|
|
|
|
Millions |
|
|
|
of Dollars |
|
Foreign currency transaction (gains) losses |
|
$ |
(121 |
) |
|
|
|
|
Hedge accounting has not been used for any items in the table unless specified otherwise. |
As of December 31, 2009, we had the following net position of outstanding foreign currency
swap contracts, entered into primarily to hedge price exposure in our international operations.
|
|
|
|
|
|
|
|
|
|
|
In Millions |
|
|
|
Notional* |
|
Foreign Currency Swaps |
|
|
|
|
|
|
|
|
Sell U.S. dollar, buy other currencies** |
|
USD |
|
|
3,211 |
|
Buy British pound, sell euro |
|
EUR |
|
|
267 |
|
|
|
|
|
* |
|
Denominated in U.S. dollars (USD) and euros (EUR). |
|
** |
|
Primarily euro, Canadian dollar, Norwegian krone and British pound. |
108
Credit Risk
Financial instruments potentially exposed to concentrations of credit risk consist primarily of
cash equivalents, over-the-counter derivative contracts and trade receivables. Our cash
equivalents are placed in high-quality commercial paper, money market funds and time deposits with
major international banks and financial institutions.
The credit risk from our over-the-counter derivative contracts, such as forwards and swaps, derives
from the counterparty to the transaction, typically a major bank or financial institution.
Individual counterparty exposure is managed within predetermined credit limits and includes the use
of cash-call margins when appropriate, th