Table of Contents

2015

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

[x]   

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended         December 31, 2015                                              

OR

 

[  ]   

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                 

Commission file number: 001-32395

ConocoPhillips

(Exact name of registrant as specified in its charter)

 

Delaware   01-0562944

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

600 North Dairy Ashford

Houston, TX 77079

(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

     

Name of each exchange

on which registered

    Common Stock, $.01 Par Value     New York Stock Exchange
    6.65% Debentures due July 15, 2018     New York Stock Exchange
    7% Debentures due 2029     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.

[x]  Yes    [  ]  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.

[  ]  Yes    [x]  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.

[x]  Yes    [  ]  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).

[x]  Yes    [  ]  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 registrant’s 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. [  ]

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

Large accelerated filer [x]    Accelerated filer [  ]    Non-accelerated filer [  ]    Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ]  Yes    [x]  No

The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $61.41, was $75.7 billion.

The registrant had 1,236,202,726 shares of common stock outstanding at January 31, 2016.

Documents incorporated by reference:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 10, 2016 (Part III)

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item

       Page  
    PART I       

1 and 2.

 

Business and Properties

     1   
 

Corporate Structure

     1   
 

Segment and Geographic Information

     2   
 

Alaska

     4   
 

Lower 48

     6   
 

Canada

     9   
 

Europe and North Africa

     11   
 

Asia Pacific and Middle East

     14   
 

Other International

     19   
 

Competition

     22   
 

General

     23   

1A.

 

Risk Factors

     24   

1B.

 

Unresolved Staff Comments

     28   

3.

 

Legal Proceedings

     28   

4.

 

Mine Safety Disclosures

     29   
 

Executive Officers of the Registrant

     30   
 

 

PART II

 

  

5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     32   

6.

 

Selected Financial Data

     33   

7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

     74   

8.

 

Financial Statements and Supplementary Data

     77   

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     173   

9A.

 

Controls and Procedures

     173   

9B.

 

Other Information

     173   
 

 

PART III

 

  

10.

 

Directors, Executive Officers and Corporate Governance

     174   

11.

 

Executive Compensation

     174   

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     174   

13.

 

Certain Relationships and Related Transactions, and Director Independence

     174   

14.

 

Principal Accounting Fees and Services

     174   
 

 

PART IV

 

  

15.

 

Exhibits, Financial Statement Schedules

     175   
 

Signatures

     184   


Table of Contents

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 2—Business 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 “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” 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 company’s disclosures under the heading “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 72.

Items 1 and 2. BUSINESS AND PROPERTIES

CORPORATE STRUCTURE

ConocoPhillips is the world’s largest independent exploration and production (E&P) company, based on proved reserves and production of liquids and natural gas. 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.

In April 2012, the ConocoPhillips Board of Directors approved the separation of our downstream business into an independent, publicly traded energy company, Phillips 66. Each ConocoPhillips stockholder received one share of Phillips 66 stock for every two shares of ConocoPhillips stock held at the close of business on the record date of April 16, 2012. The separation was completed on April 30, 2012, and activities related to Phillips 66 have been treated as discontinued operations for all periods prior to the separation.

In 2012, we agreed to sell our interest in the North Caspian Sea Production Sharing Agreement (Kashagan) and our Nigeria and Algeria businesses (collectively, the “Disposition Group”). We sold our Nigeria business in the third quarter of 2014, and we sold Kashagan and our Algeria business in the fourth quarter of 2013. Results for the Disposition Group have been reported as discontinued operations in all periods presented. For additional information on all discontinued operations, see Note 3—Discontinued Operations, in the Notes to Consolidated Financial Statements.

Headquartered in Houston, Texas, we have operations and activities in 21 countries. Our key focus areas include safely operating producing assets, executing major developments and exploring for new resources in promising areas. Our portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; several major international developments; and an inventory of global conventional and unconventional exploration prospects.

At December 31, 2015, ConocoPhillips employed approximately 15,900 people worldwide.

We are marketing certain non-core assets across all of our segments. For additional information on asset sales, see the “Outlook” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements .

 

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SEGMENT AND GEOGRAPHIC INFORMATION

Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Accordingly, results of operations for the Other International and Europe and North Africa segments have been revised in all periods presented. There was no impact on our consolidated financial statements, and the impact on our segment presentation is immaterial. For operating segment and geographic information, see Note 24—Segment Disclosures and Related Information, in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

We explore for, produce, transport and market crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis. At December 31, 2015, our continuing operations were producing in the United States, Norway, the United Kingdom, Canada, Australia, Timor-Leste, Indonesia, China, Malaysia, and Qatar.

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:

 

    Proved worldwide crude oil, natural gas liquids, natural gas and bitumen reserves.
    Net production of crude oil, natural gas liquids, natural gas and bitumen.
    Average sales prices of crude oil, natural gas liquids, natural gas and bitumen.
    Average production costs per barrel of oil equivalent (BOE).
    Net wells completed, wells in progress and productive wells.
    Developed and undeveloped acreage.

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 84 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 (MCF) of natural gas converts to one BOE. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of factors that will enhance the understanding of the following summary reserves table.

 

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     Millions of Barrels of Oil Equivalent  

Net Proved Reserves at December 31

                     2015                         2014                         2013   
  

 

 

 

Crude oil

        

Consolidated operations

     2,270         2,605         2,659    

Equity affiliates

     93         103         90    

 

 

Total Crude Oil

     2,363         2,708         2,749    

 

 

Natural gas liquids

        

Consolidated operations

     508         662         699    

Equity affiliates

     50         53         45    

 

 

Total Natural Gas Liquids

     558         715         744    

 

 

Natural gas

        

Consolidated operations

     1,988         2,543         2,710    

Equity affiliates

     878         874         688    

 

 

Total Natural Gas

     2,866         3,417         3,398    

 

 

Bitumen

        

Consolidated operations

     687         598         579    

Equity affiliates

     1,706         1,468         1,451    

 

 

Total Bitumen

     2,393         2,066         2,030    

 

 

Total consolidated operations

     5,453         6,408         6,647    

Total equity affiliates

     2,727         2,498         2,274    

 

 

Total company

     8,180         8,906         8,921    

 

 

Total production from continuing operations was 1,589 thousand barrels of oil equivalent per day (MBOED) in 2015, compared with 1,540 MBOED, including Libya, in 2014, an increase of 3 percent. The increase in total average production in 2015 primarily resulted from additional production from major developments, including tight oil plays in the Lower 48; Gumusut in Malaysia; APLNG in Australia; Greater Britannia projects and the J-Area in the U.K.; and the ramp-up of Foster Creek Phase F in Canada. Improved well performance, mostly in the Lower 48, western Canada and Norway, and lower turnaround activity also contributed to higher production in 2015. These increases were largely offset by normal field decline. Production from continuing operations was 1,589 MBOED in 2015, compared with 1,532 MBOED in 2014, excluding Libya, an increase of 57 MBOED, or 4 percent. Full-year production from assets sold or under agreement in 2015 was 64 MBOED.

Our total average realized price from continuing operations was $34.34 per BOE in 2015, a decrease of 47 percent compared with $64.59 per BOE in 2014, which reflected lower average realized prices across all commodities. Our worldwide annual average crude oil price from continuing operations decreased 48 percent in 2015, from $92.80 per barrel in 2014 to $48.26 per barrel in 2015. Additionally, our worldwide annual average natural gas liquids prices from continuing operations decreased 54 percent, from $38.99 per barrel in 2014 to $17.79 per barrel in 2015. Our worldwide annual average natural gas price from continuing operations decreased 40 percent, from $6.57 per MCF in 2014 to $3.96 per MCF in 2015. Average annual bitumen prices also decreased 66 percent, from $55.13 per barrel in 2014 to $18.72 per barrel in 2015.

 

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ALASKA

The Alaska segment primarily explores for, produces, transports and markets crude oil, natural gas liquids, natural gas and LNG. We are the largest crude oil and natural gas producer in Alaska and have major ownership interests in two of North America’s largest oil fields located on Alaska’s North Slope: Prudhoe Bay and Kuparuk. We also have a significant operating interest in the Alpine Field, located on the Western North Slope. Additionally, we are one of Alaska’s largest owners of state and federal exploration leases, with approximately 0.7 million net undeveloped acres at year-end 2015. Approximately 0.4 million of these acres are located in the National Petroleum Reserve—Alaska (NPRA) and the North Slope, and 0.3 million are located in the Chukchi Sea. In 2015, Alaska operations contributed 19 percent of our worldwide liquids production and 1 percent of our natural gas production.

 

       2015  
     Interest        Operator        
 
Liquids
MBD
  
   
 
Natural Gas
MMCFD
  
** 
   
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

           

Greater Prudhoe Area

     36.1     BP         90        10        92   

Greater Kuparuk Area

     52.2–55.5        ConocoPhillips         51        -        51   

Western North Slope

     78.0        ConocoPhillips         30        1        30   

Cook Inlet Area

     33.3–100.0        ConocoPhillips         -        31        5   

 

 

Total Alaska

          171        42        178   

 

 

*Thousands of barrels per day.

**Millions of cubic feet per day.

Greater Prudhoe Area

The Greater Prudhoe Area includes the Prudhoe Bay Field and five satellite fields, as well as the Greater Point McIntyre Area fields. Prudhoe Bay, the largest oil field on Alaska’s North Slope, is the site of a large waterflood and enhanced oil recovery operation, as well as a gas plant which processes natural gas to recover natural gas liquids before reinjection into the reservoir. Prudhoe Bay’s 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.

Greater Kuparuk Area

We operate the Greater Kuparuk Area, which consists of the Kuparuk Field and four satellite fields: Tarn, Tabasco, Meltwater and West Sak. Kuparuk is located 40 miles west of Prudhoe Bay. Field installations include three central production facilities which separate oil, natural gas and water, as well as a separate seawater treatment plant. Development drilling at Kuparuk consists of rotary-drilled wells and horizontal multi-laterals from existing well bores utilizing coiled-tubing drilling.

Drill Site 2S, in the southwestern area of the Kuparuk Field, was sanctioned in October 2014. First oil was achieved in October 2015 with net peak production estimated at 5 MBOED in 2016.

The 1H Northeast West Sak (NEWS) oil development targeting the West Sak reservoir in the Kuparuk River Unit, was sanctioned in March 2015. First production is anticipated in 2017.

Western North Slope

On the Western North Slope, we operate the Colville River Unit, which includes the Alpine Field and three satellite fields: Nanuq, Fiord and Qannik. Alpine is located 34 miles west of Kuparuk. In October 2015, first oil was achieved at Alpine West CD5, a new drill site which extends the Alpine reservoir west into the NPRA. Net peak production is estimated at 10 MBOED in 2016.

The Greater Mooses Tooth Unit, the first unit established entirely within the NPRA, was formed in 2008. In 2015, we received permit approvals and sanctioning from the regulatory agencies for the Greater Mooses Tooth #1 (GMT1) drill site. GMT1 is planned to be connected by road to the CD5 drill site, and production

 

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will be transported by pipeline to the existing Alpine facilities for processing. We are evaluating further exploration and development potential in the NPRA.

Cook Inlet Area

We operate the North Cook Inlet Unit, the Beluga River Unit, and the Kenai LNG Facility in the Cook Inlet Area. We have a 100 percent interest in the North Cook Inlet Unit and the Kenai LNG Facility, while we own 33.3 percent of the Beluga River Unit. Our share of production from the units is primarily sold to local utilities and is also used to supply feedstock to the Kenai LNG Plant.

The Kenai LNG Facility includes a 1.6 million-tons-per-year capacity plant, as well as docking and loading facilities for LNG tankers. LNG from the plant has historically been transported and sold to utility companies in Japan. The plant was idled in late-2012; however, due to a change in market conditions, including additional gas supplies, we were granted a two-year export license from the U.S. Department of Energy (DOE) in April 2014 to export up to 40 billion cubic feet of LNG from the facility. As a result, we shipped six cargoes of LNG from the Kenai Facility to Asia in 2015. In February 2016, our export license was renewed for an additional two years.

In the first quarter of 2016, we entered into an agreement to sell our interest in the Beluga River Unit natural gas field in the Cook Inlet Area. The transaction is expected to close in the second quarter of 2016.

Point Thomson

We own a 5 percent interest in the Point Thomson Unit, which is located approximately 60 miles east of Prudhoe Bay. An initial production system is anticipated to be online by second quarter 2016, which is estimated to send 400 net barrels of oil equivalent per day (BOED) of condensate through the Trans-Alaska Pipeline System (TAPS).

Alaska LNG (AKLNG)

During 2012, we, along with affiliates of Exxon Mobil Corporation, BP p.l.c. and TransCanada Corporation (collectively, the “AKLNG co-venturers”), began evaluating a potential LNG project which would liquefy and export natural gas from Alaska’s North Slope and deliver it to market. The AKLNG Project concept is an integrated LNG project consisting of a liquefaction plant, including marine terminal facilities and auxiliary marine vessels, located in south-central Alaska; a natural gas treatment plant, located on the North Slope; and an estimated 800-mile natural gas pipeline, which would connect the two plants.

The proposed AKLNG natural gas liquefaction plant and terminal would be located in the Nikiski area on the Kenai Peninsula, approximately 60 miles southwest of Anchorage, along the Cook Inlet. In January 2014, the AKLNG co-venturers, the Commissioners of the Alaska Departments of Revenue and Natural Resources, and the Alaska Gasline Development Corporation (AGDC), a state-owned corporation, signed a Heads of Agreement (HOA) for the AKLNG Project. The HOA provides a roadmap of how the parties intend to progress the project, including proposed terms for participation by the State of Alaska as an equity owner, proposed fiscal and regulatory terms, and proposed terms for expansion of project components. During 2014, general legislation was enacted by the State of Alaska, and a joint venture agreement for the preliminary front-end engineering and design phase of the project was executed. The AKLNG Project will require several major federal permits, and in July 2014, an application for an LNG export license was filed with the U.S. DOE to export up to 20 million metric tons a year of LNG for 30 years. In November 2014 and June 2015, the U.S. DOE authorized the export of LNG to free trade agreement (FTA) and non-FTA countries, respectively. In September 2014, the Federal Energy Regulatory Commission (FERC) accepted the project into pre-file status, which initiates the lengthy environmental and safety reviews required to design, permit, construct and operate the plants and pipeline. In March 2015, the FERC issued their Notice of Intent (NOI) to prepare the Environmental Impact Statement for AKLNG and begin the National Environmental Policy Act period to seek public comment. In October 2015, the Alaska Oil and Gas Conservation Commission (AOGCC) issued orders for gas offtake at Prudhoe Bay and Point Thomson. In December 2015, AGDC acquired the interest in the AKLNG Project previously held by TransCanada Corporation. On December 31, 2015 the HOA expired by its own terms. Commercial negotiations and planning for front-end engineering and design are ongoing.

 

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Significant engineering, technical, regulatory, fiscal, commercial and permitting issues would need to be resolved prior to a final investment decision on the potential $45 billion to $65 billion (gross) project.

Exploration

We plan to drill two to three exploration wells in 2016 in the NPRA.

Our plans to drill an exploration well in the Chukchi Sea have been cancelled due to the current market environment, regulatory uncertainty and expiry of the primary lease term in 2020. As a result, we recorded a $406 million after-tax charge for leasehold and capitalized interest impairment and dry hole expense in the fourth quarter of 2015.

Transportation

We transport the petroleum liquids produced on the North Slope to south central Alaska through an 800-mile pipeline that is part of TAPS. We have a 29.1 percent ownership interest in TAPS, and we also have ownership interests in the Alpine, Kuparuk and Oliktok pipelines on the North Slope.

Our wholly owned subsidiary, Polar Tankers, Inc., manages the marine transportation of our North Slope production, using five company-owned, double-hulled tankers, and charters third-party vessels as necessary. The tankers primarily deliver oil from Valdez, Alaska, to refineries on the west coast of the United States.

LOWER 48

The Lower 48 segment consists of operations located in the U.S. Lower 48 states and exploration activities in the Gulf of Mexico. The Lower 48 business is organized within three regions covering the Gulf Coast, Mid-Continent and Rockies. As a result of tight oil opportunities, we have directed our investments toward certain shorter cycle time, low cost-of-supply plays. In July 2015, we announced our plan to reduce future deepwater exploration spending and terminated our Gulf of Mexico deepwater drillship contract with Ensco. We hold 14.3 million net onshore and offshore acres in the Lower 48. In 2015, the Lower 48 contributed 33 percent of our worldwide liquids production and 36 percent of our natural gas production.

 

       2015  
             Interest                Operator        
 
        Liquids
MBD
  
  
    
 
        Natural Gas
MMCFD
  
  
    
 
Total 
        MBOED 
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Eagle Ford

     Various     Various         139         208         174    

Gulf of Mexico

     Various        Various         12         12         14    

Gulf Coast—Other

     Various        Various         8         182         38    

 

 

Total Gulf Coast

          159         402         226    

 

 

Permian

     Various        Various         42         122         62    

Barnett

     Various        Various         5         41         12    

Anadarko Basin

     Various        Various         6         109         24    

 

 

Total Mid-Continent

          53         272         98    

 

 

Bakken

     Various        Various         54         44         61    

Wyoming/Uinta

     Various        Various         -         95         16    

Niobrara

     Various        Various         5         2           

San Juan

     Various        Various         29         657         139    

 

 

Total Rockies

          88         798         221    

 

 

Total U.S. Lower 48

          300         1,472         545    

 

 

 

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Onshore

We hold 12.4 million net acres of onshore conventional and unconventional acreage in the Lower 48, the majority of which is either held by production or owned by the company. Our unconventional holdings total approximately 2.6 million net acres in the following areas:

 

    900,000 net acres in the San Juan Basin, located in northwestern New Mexico and southwestern Colorado.
    617,000 net acres in the Bakken, located in North Dakota and eastern Montana.
    216,000 net acres in the Eagle Ford, located in South Texas.
    109,000 net acres in the Niobrara, located in northeastern Colorado.
    102,000 net acres in the Permian, located in West Texas and southeastern New Mexico.
    61,000 net acres in the Barnett, located in north central Texas.
    553,000 net acres in other unconventional exploration plays.

The majority of our 2015 onshore production originated from the Eagle Ford, San Juan, Permian and Bakken. Onshore activities in 2015 were centered mostly on continued development of emerging and existing assets, with an emphasis on areas with low cost of supply, particularly in growing unconventional plays. The 2015 drilling activity levels declined relative to 2014 due to reduced capital spending in the low commodity price environment. Our major focus areas in 2015 included the following:

 

    Eagle Ford—The Eagle Ford continued full field development in 2015, with the majority of the development program being drilled on multi-well pads. We operated six rigs on average in 2015, resulting in 136 operated wells drilled and 150 operated wells brought online. In 2015, we also increased production by 12 percent compared with 2014 and achieved net peak production of 190 MBOED, compared with 179 MBOED in 2014.
    Bakken—We operated five rigs on average throughout the year in the Bakken. We continued our pad drilling efficiency, drilling 89 operated wells during the year and bringing 128 operated wells online. As a result, we achieved net peak production of 80 MBOED in 2015, compared with 63 MBOED in 2014.
    San Juan Basin—The San Juan Basin includes significant conventional gas production, which yields approximately 20 percent natural gas liquids, as well as the majority of our U.S. coalbed methane (CBM) production. We hold approximately 1.3 million net acres of oil and gas leases by production in San Juan, where we continue to pursue select conventional development opportunities. This also includes approximately 900,000 net unconventional acres of lease rights.
    Permian Basin—The Permian Basin is another area where we are leveraging our conventional legacy position by utilizing new technology to improve the ultimate recovery and value from these fields. This technology should also identify new, unconventional plays across the region. We hold approximately 1.0 million net acres in the Permian, which includes 102,000 net unconventional acres.

In the fourth quarter of 2015, we completed the sale of certain non-core assets in East Texas and North Louisiana and South Texas. Production from the assets sold was 33 MBOED, approximately 6 percent of the total Lower 48 segment production in 2015.

Gulf of Mexico

At year-end 2015, our portfolio of producing properties in the Gulf of Mexico primarily consisted of one operated field and three fields operated by co-venturers, including:

 

    75 percent operated working interest in the Magnolia Field in Garden Banks Blocks 783 and 784.
    15.9 percent nonoperated working interest in the unitized Ursa Field located in the Mississippi Canyon Area.
    15.9 percent nonoperated working interest in the Princess Field, a northern subsalt extension of the Ursa Field.
    12.4 percent nonoperated working interest in the unitized K2 Field, comprised of seven blocks in the Green Canyon Area.

 

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Exploration

 

    Conventional Exploration

In the third quarter of 2015, we decided not to conduct further activity on certain Gulf of Mexico leases. At December 31, 2015, we held approximately 1.8 million net acres in the deepwater Gulf of Mexico.

During 2015, we conducted appraisal drilling at Shenandoah, Tiber, and Gila. The nonoperated Gibson exploration and Tiber appraisal wells, and the ConocoPhillips operated Melmar exploration well are currently drilling.

We own a 30 percent nonoperated working interest in the Shenandoah discovery, which was announced in 2009. The third Shenandoah down dip appraisal well was spud in 2015, and planning is underway for the next appraisal well, which is expected to spud in the first half of 2016.

The operated Harrier and nonoperated Vernaccia wells were expensed as dry holes in 2015. The operator of the Gila prospect has elected to discontinue exploration and appraisal activity. Accordingly, we recorded $111 million in after-tax dry hole expense for a previously suspended well in the Gila prospect, and a $100 million charge for the impairment of undeveloped leasehold costs.

 

    Unconventional Exploration

Our onshore focus areas include the Niobrara in the Denver-Julesburg Basin and the Wolfcamp and Bone Springs in the Delaware Basin, as well as several emerging plays. In 2015, we drilled 21 unconventional wells in the Delaware Basin. We continue to assess and appraise this and other unconventional opportunities.

Facilities

Freeport LNG Terminal

In July 2013, we agreed with Freeport LNG Development, L.P. to terminate our long-term agreement to use 0.9 billion cubic feet per day of regasification capacity at Freeport’s 1.5 billion cubic-feet-per-day LNG receiving terminal in Quintana, Texas. The termination agreement conditions were satisfied in 2014. Our terminal regasification capacity has been reduced from 0.9 billion cubic feet per day to 0.4 billion cubic feet per day until July 1, 2016, at which time it will be reduced to zero. As a result of this transaction, we anticipate saving approximately $50 to $60 million per year in costs over the next 17 years. For additional information, see Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements.

Golden Pass LNG Terminal

We have a 12.4 percent ownership interest in the Golden Pass LNG Terminal and affiliated Golden Pass Pipeline, with a combined net book value of approximately $273 million at December 31, 2015. It is located adjacent to the Sabine-Neches Industrial Ship Channel northwest of Sabine Pass, Texas. The terminal became commercially operational in May 2011. We hold terminal and pipeline capacity for the receipt, storage and regasification of the LNG purchased from Qatar Liquefied Gas Company Limited (3) (QG3) and the transportation of regasified LNG to interconnect with major interstate natural gas pipelines. Utilization of the terminal has been and is expected to be limited, as market conditions currently favor the flow of LNG to European and Asian markets. As a result, we are evaluating opportunities to optimize the value of the terminal facilities.

Great Northern Iron Ore Properties Trust

We hold the interest in the Great Northern Iron Ore Properties trust (the Trust), a grantor trust that owns mineral and surface interests in the Mesabi Iron Range in northeastern Minnesota and certain other personal property. Pursuant to the terms of the Trust Agreement, the Trust terminated on April 6, 2015. At the end of the wind-down period, documents memorializing our ownership of certain Trust property, including all of the

 

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Trust’s mineral properties and active leases, will be delivered to us. The Trustees currently anticipate the wind-down process, final distribution and dissolution of the Trust will be completed by the end of 2016. At that time, we expect to recognize the fair value of the Trust’s net assets transferred to us.

Other

 

    San Juan Gas Plant—We operate and own a 50 percent interest in the San Juan Gas Plant, a 550 million cubic-feet-per-day capacity natural gas processing plant in Bloomfield, New Mexico.
    Lost Cabin Gas Plant—We operate and own a 46 percent interest in the Lost Cabin Gas Plant, a 313 million cubic-feet-per-day capacity natural gas processing facility in Lysite, Wyoming.
    Helena Condensate Processing Facility—We operate and own the Helena Condensate Processing Facility, a 90,000 barrel-per-day condensate processing plant located in Kenedy, Texas.
    Sugarloaf Condensate Processing Facility—We operate and own an 87.5 percent interest in the Sugarloaf Condensate Processing Facility, a 30,000 barrel-per-day condensate processing plant located near Pawnee, Texas.
    Bordovsky Condensate Processing Facility—We operate and own the Bordovsky Condensate Processing Facility, a 15,000 barrel-per-day condensate processing plant located in Kenedy, Texas.

CANADA

Our Canadian operations mainly consist of natural gas fields in western Canada and oil sands developments in the Athabasca Region of northeastern Alberta. In 2015, operations in Canada contributed 21 percent of our worldwide liquids production and 18 percent of our natural gas production.

 

       2015  
         Interest        Operator        
 
    Liquids
MBD
  
  
    
 
 
    Natural
Gas
MMCFD
  
  
  
    
 
    Bitumen
MBD
  
  
    
 
Total 
    MBOED 
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

                

Western Canada

     Various     Various         38         715         -         157    

Surmont

     50.0        ConocoPhillips         -         -         13         13    

Foster Creek

     50.0        Cenovus         -         -         65         65    

Christina Lake

     50.0        Cenovus         -         -         73         73    

 

 

Total Canada

          38         715         151         308    

 

 

Western Canada

Our operations in western Canada extend across Alberta and British Columbia. We operate or have ownership interests in approximately 50 natural gas processing plants in the region, and, as of December 31, 2015, held leasehold rights in 3.2 million net acres in western Canada. Our investments in 2015 were focused mainly on opportunities in the following three core development areas:

 

    Deep Basin—We hold leasehold rights in 1.4 million net acres in the Deep Basin, located in northwest Alberta and northeast British Columbia. In 2015, Deep Basin achieved average net production of 48 MBOED, and we drilled 13 horizontal wells.
    Kaybob-Edson—We hold leasehold rights in 0.8 million net acres in the Kaybob-Edson Area, located south of the Deep Basin in west central Alberta. Net production for Kaybob-Edson averaged 45 MBOED in 2015, and we drilled 15 horizontal wells.
    Clearwater—Located in west central Alberta, south of Kaybob-Edson, we hold 0.9 million net acres of leasehold rights. In 2015, average net production for Clearwater was 40 MBOED, and we drilled 11 horizontal wells.

 

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Assets located outside these development areas are focused on production optimization. In the fourth quarter of 2015, we finalized sales of certain non-core assets in British Columbia, Saskatchewan and Alberta. Production from the assets sold was 27 MBOED, approximately 9 percent of the total Canada segment production in 2015. At December 31, 2015, the company held 0.1 million net acres of leasehold rights in these areas.

Oil Sands

We hold approximately 0.9 million net acres of land in the Athabasca Region of northeastern Alberta. Our bitumen resources in Canada are produced via an enhanced thermal oil recovery method called steam-assisted gravity drainage (SAGD), whereby steam is injected into the reservoir, effectively liquefying the heavy bitumen, which is recovered and pumped to the surface for further processing.

 

    Surmont—The Surmont oil sands leases are located approximately 35 miles south of Fort McMurray, Alberta. Surmont is a 50/50 joint venture with Total S.A. Surmont 2 construction began in 2010, and achieved first production in the third quarter of 2015. Surmont’s gross production capacity is estimated to be 150 MBOED.
    FCCL— FCCL Partnership, a Canadian upstream general partnership, is a 50/50 heavy oil business venture with Cenovus Energy Inc. FCCL’s assets are operated by Cenovus and include the Foster Creek, Christina Lake and Narrows Lake SAGD bitumen developments. FCCL continues to progress development plans for each of these assets, including near-term completion of phase expansions as detailed below:

 

  ¡     Foster Creek

Foster Creek is located approximately 200 miles northeast of Edmonton, Alberta. There are six producing phases at Foster Creek, Phases A through F, with construction continuing on Phase G. Net production at Foster Creek increased approximately 12 MBOED, mainly as a result of a continued ramp up toward full capacity. In the fourth quarter of 2014, FCCL received regulatory approval for Phase J.

 

  ¡     Christina Lake

Christina Lake is located approximately 75 miles south of Fort McMurray, Alberta. There are five producing phases at Christina Lake, Phases A through E, with construction continuing on Phase F. In late 2015, an optimization project was completed at Christina Lake that increased gross production capacity to 160 MBOED, with incremental production expected to ramp up during 2016. In the fourth quarter of 2015, regulatory approval was received for Phase H development.

 

  ¡     Narrows Lake

Narrows Lake Phase A, was sanctioned in late 2012 and is expected to have 45 MBOED of production capacity; however, construction has been deferred.

Exploration

We hold exploration acreage in four areas of Canada: onshore western Canada, offshore eastern Canada, the Mackenzie Delta/Beaufort Sea Region and the Arctic Islands. Our primary exploration focus is on unconventional plays in western Canada and conventional exploration offshore eastern Canada.

 

    Conventional Exploration

During 2014, we entered into a farm-in agreement to acquire a 30 percent nonoperated interest in six exploration licenses covering approximately five million gross acres in the deepwater Shelburne Basin, offshore Nova Scotia. In the fourth quarter of 2015, we spudded the first of two exploration well commitments in offshore Nova Scotia. The second exploration well is anticipated to begin drilling in the second quarter of 2016. In December 2014, we participated in a successful bid for one

 

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exploration license covering 0.7 million gross acres located in the Flemish Pass Basin, offshore Newfoundland. In January 2015, we were awarded the license, in which we hold a 30 percent nonoperated interest. Seismic surveys of the subsurface were completed in 2015.

 

    Unconventional Exploration

We hold approximately 0.7 million net acres in the emerging Montney, Muskwa, Duvernay and Canol unconventional plays in Alberta, northeastern British Columbia and the Northwest Territories. During 2015, we completed a lease swap and continued to drill exploration and appraisal wells in the Montney play, which extends from British Columbia into Alberta.

In the fourth quarter of 2015, we recorded dry hole expense of $185 million after-tax associated with our Horn River, Northwest Territories, Thornbury and Saleski properties, and an impairment charge of $75 million after-tax for unproved properties in the Duvernay, Thornbury, Saleski and Crow Lake areas.

EUROPE AND NORTH AFRICA

The Europe and North Africa segment consists of operations and exploration activities in Norway, the United Kingdom and Libya. In 2015, operations in Europe and North Africa contributed 14 percent of our worldwide liquids production and 12 percent of natural gas production.

Norway

     2015   
       

 

 

 
             Interest                Operator        
 
        Liquids
MBD
  
  
    
 
Natural Gas
MMCFD
  
  
    
 
Total 
MBOED 
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Greater Ekofisk Area

     35.1     ConocoPhillips         57         51         66    

Alvheim

     20.0       
 
Det norske
oljeselskap
  
  
     9         9         11    

Heidrun

     24.0        Statoil         12         13         14    

Other

     Various        Statoil         15         80         28    

 

 

Total Norway

          93         153         119    

 

 

The Greater Ekofisk Area is located approximately 200 miles offshore Stavanger, Norway in the North Sea, and comprises three producing fields: Ekofisk, Eldfisk and Embla. Crude oil is exported to Teesside, England, and the natural gas is exported to Emden, Germany. Ekofisk South achieved first production in 2013, while Eldfisk II achieved startup in January 2015. Continued development drilling in the Greater Ekofisk Area will contribute additional production over the coming years, as additional wells come online.

The Alvheim development is located in the northern part of the North Sea and consists of a floating production, storage and offloading (FPSO) vessel and subsea installations. Produced crude oil is exported via shuttle tankers, and natural gas is transported to the Scottish Area Gas Evacuation (SAGE) terminal at St. Fergus, Scotland, through the SAGE pipeline.

The Heidrun Field is located in the Norwegian Sea. Produced crude oil is stored in a floating storage unit and exported via shuttle tankers. Part of the natural gas is currently injected into the reservoir for optimization of crude oil production, while the remainder is used as feedstock in a methanol plant in Norway, in which we own an 18 percent interest.

We also have varying ownership interests in five other producing fields in the Norway sector of the North Sea and in the Norwegian Sea, as well as the Aasta Hansteen development. The operator is targeting first gas for Aasta Hansteen by late 2018.

 

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Exploration

ConocoPhillips participated in four nonoperated exploration and appraisal wells in the Oseberg, Visund and Aasta Hansteen areas. Two wells in the Oseberg area were discoveries and were put on production; the others were discoveries currently undergoing evaluation. ConocoPhillips was awarded two new exploration licenses in early 2015, PL044C and PL782S with interests of 41.9 and 40.0 percent, respectively. Two more licenses were awarded in early 2016, PL845 and PL782SB, both with interests of 40.0 percent.

Transportation

We own a 35.1 percent interest in the Norpipe Oil Pipeline System, a 220-mile pipeline which carries crude oil from Ekofisk to a crude oil stabilization and natural gas liquids processing facility in Teesside, England. In November 2015, we sold our 1.9 percent interest in Norwegian Continental Shelf Gas Transportation (Gassled), which owns most of the Norwegian gas transportation infrastructure.

United Kingdom

 

     2015   
       

 

 

 
     Interest            Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Britannia

     58.7     ConocoPhillips         4         92         19   

Britannia Satellites

     50.0–83.5     ConocoPhillips         10         55         19   

J-Area

     32.5–36.5        ConocoPhillips         15         87         30   

Southern North Sea

     Various        Various         -         58         10   

East Irish Sea

     100.0        HRL         -         29         5   

Other

     Various        Various         5         1         5   

 

 

Total United Kingdom

          34         322         88   

 

 

* Does not include partner operated Alder project; first gas due 2016.

             

Britannia is one of the largest natural gas and condensate fields in the North Sea. We assumed operatorship of Britannia in August 2015, following the acquisition of third party equity in Britannia Operator Limited, which is now wholly owned by ConocoPhillips. Condensate is delivered through the Forties Pipeline to an oil stabilization and processing plant near the Grangemouth Refinery in Scotland, while natural gas is transported through Britannia’s line to St. Fergus, Scotland. The Britannia satellite fields, Callanish and Brodgar, produce via subsea manifolds and pipelines linked to the Britannia platform. Project startups for the Brodgar H3 susbsea tieback, and Enochdhu, a single well tie back to Callanish, were achieved in the first and second quarters of 2015, respectively. These projects increased Britannia’s production in 2015 by 13.8 MBOED net. We are continuing work to hook up the Alder module to the Britannia facilities and anticipate delivery of first gas in 2016. Alder is a high-pressure, high-temperature gas condensate reservoir located in the U.K. Continental Shelf, 17 miles west of the Britannia facilities.

The J-Area consists of the Judy/Joanne, Jade and Jasmine fields, located in the U.K. Central North Sea. The Jasmine Field is a high-pressure, high-temperature gas condensate reservoir located approximately six miles west of the Judy Platform. The development includes a 24-slot wellhead platform with a bridge-linked accommodation and utilities platform, a six-mile, 16-inch multi-phase pipeline bundle, and a riser and processing platform bridge-linked to the existing Judy Platform.

We have various ownership interests in several producing gas fields in the Rotliegendes and Carboniferous areas of the Southern North Sea. Decommissioning activity in the Southern North Sea is ongoing, with final production from the Viking transportation system and associated satellites achieved in early 2016. Our interests in the East Irish Sea include the Millom, Dalton and Calder fields, which are operated on our behalf by a third party.

 

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We own a 24 percent interest in the Clair Field, located in the Atlantic Margin. Clair Ridge is the second phase of development for the Clair Field and is comprised of a 36-slot drilling and production facility with a bridge-linked accommodation and utilities platform. The new facilities will tie into existing oil and gas export pipelines to the Shetland Islands. Initial production for Clair Ridge is targeted for 2018.

Exploration

During 2015, we participated in a nonoperated exploration/appraisal well in the Greater Clair area which was a discovery. The discovery is undergoing evaluations for future development. We also drilled one operated exploration well north of the Jasmine Field in the Central Graben which was a dry hole, and were awarded two new licenses in the East Irish Sea.

Transportation

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.

Greenland

Exploration

In 2015, we conducted field-based, metocean studies in Baffin Bay in Block 2011/11 of our operated Qamut license. Additionally, we participated in a 2-D seismic acquisition program and geological and geophysical studies as part of the work program obligation in the nonoperated Avinngaq license. In the fourth quarter of 2015, we initiated the process to assign our participating interest in the Avinngaq license. The process is pending Greenland government approval.

Libya

 

     2015   
       

 

 

 
     Interest                        Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Waha Concession

     16.3     Waha Oil Co.         -         1         -   

 

 

Total Libya

          -         1         -   

 

 

The Waha Concession consists of multiple concessions and encompasses nearly 13 million gross acres in the Sirte Basin. Our production operations in Libya and related oil exports were interrupted in mid-2013, as a result of the shutdown of the Es Sider crude oil export terminal at the end of July 2013. The Es Sider Terminal briefly reopened in the third quarter of 2014 and production and liftings resumed temporarily; however, further disruptions occurred in December 2014, and production was shut in again. The Es Sider Terminal remained shut in throughout 2015. The 2016 operating and drilling activity is uncertain as a result of the ongoing civil unrest.

 

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ASIA PACIFIC AND MIDDLE EAST

The Asia Pacific and Middle East segment has exploration and production operations in China, Indonesia, Malaysia and Australia; producing operations in Qatar and Timor-Leste; and exploration activities in Brunei. In 2015, operations in the Asia Pacific and Middle East segment contributed 13 percent of our worldwide liquids production and 33 percent of natural gas production.

Australia and Timor Sea

 

     2015   
  

 

 

 
     Interest        Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Australia Pacific LNG

     37.5    
 
ConocoPhillips/
Origin Energy
  
  
     -         267         45   

Bayu-Undan

     56.9        ConocoPhillips         15         253         57   

Athena/Perseus

     50.0        ExxonMobil         -         35         6   

 

 

Total Australia and Timor Sea

          15         555         108   

 

 

Australia Pacific LNG

Australia Pacific LNG Pty Ltd (APLNG), our joint venture with Origin Energy Limited and China Petrochemical Corporation (Sinopec), is focused on producing CBM from the Bowen and Surat basins in Queensland, Australia, and converting the CBM into LNG. Natural gas is sold to domestic customers, while LNG is exported. Origin operates APLNG’s upstream production and pipeline system, and we operate the downstream LNG facility, located on Curtis Island near Gladstone, Queensland, as well as the LNG export sales business.

Two fully subscribed 4.5 million tonnes-per-year LNG trains have been sanctioned. Approximately 3,900 net wells are ultimately envisioned to supply both the domestic gas market and the LNG sales contracts. The wells will be supported by gathering systems, central gas processing and compression stations, water treatment facilities, and a new export pipeline connecting the gas fields to the LNG facilities. APLNG Train 1 achieved first LNG in the fourth quarter of 2015 and the first cargo sailed in January 2016. Train 1 LNG is being sold to Sinopec under a 20-year sales agreement for up to 4.3 million metric tonnes of LNG per year. Start-up of the second LNG train is expected to occur in the second half of 2016. The resulting LNG exports from Train 2 will commence shortly thereafter. Sinopec has agreed to purchase an additional 3.3 million metric tonnes of LNG per year through 2035, and Japan-based Kansai Electric Power Co., Inc. has agreed to purchase approximately 1 million metric tonnes of LNG per year for 20 years.

APLNG has an $8.5 billion project finance facility, of which $8.4 billion had been drawn from the facility at December 31, 2015. In connection with the execution of the project financing, we provided a completion guarantee for our pro-rata share of the project finance facility until the project achieves financial completion. For additional information, see Note 4—Variable Interest Entities (VIEs), Note 7—Investments, Loans and Long-Term Receivables, and Note 12—Guarantees, in the Notes to Consolidated Financial Statements.

Bayu-Undan

The Bayu-Undan gas condensate field is located in the Timor Sea Joint Petroleum Development Area between Timor-Leste and Australia. We also operate and own a 56.9 percent interest in the associated Darwin LNG Facility, located at Wickham Point, Darwin.

The Bayu-Undan natural gas recycle facility processes wet gas; separates, stores and offloads condensate, propane and butane; and re-injects dry gas back into the reservoir. In addition, a 310-mile natural gas pipeline connects the facility to the 3.5 million tonnes-per-year capacity Darwin LNG Facility. Produced natural gas is

 

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piped to the Darwin LNG Plant, where it is converted into LNG before being transported to international markets. In 2015, we sold 174 billion gross cubic feet of LNG primarily to utility customers in Japan.

The Bayu-Undan Phase Three Development consists of two standalone, subsea horizontal wells tied back to the existing drilling, production and processing platform. The first subsea, horizontal well commenced production in the first quarter of 2015. The well was tied back to the existing drilling, production, and processing platform. A second subsea, horizontal well was drilled, completed, then suspended due to insufficient deliverability to the platform. There are no plans to remediate nor re-drill the well in the near

future. A continuation of Phase Three development is being evaluated, and is currently in the preliminary front-end engineering and design phase.

ConocoPhillips served a Notice of Arbitration on the Timor-Leste Minister of Finance in October 2012 for outstanding disputes related to a series of tax assessments. The arbitration hearing was conducted in June 2014. In January 2016, the Government of Timor-Leste and ConocoPhillips reached a settlement of several significant tax disputes. However, we await the Tribunal’s decision with respect to certain unresolved matters. For additional information, see Note 13—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.

Athena/Perseus

The Athena production license (WA-17-L) is located offshore Western Australia and contains part of the Perseus Field which straddles the boundary with WA-1-L, an adjoining license area. Natural gas is produced from these licenses.

Greater Sunrise

We have a 30 percent interest in the Greater Sunrise gas and condensate field located in the Timor Sea. In May 2013, the Timor-Leste Government referred a dispute with the Australian Government relating to the treaty on Certain Maritime Arrangements in the Timor Sea (CMATS) to international arbitration. The CMATS arbitration does not directly impact our underlying interests in Sunrise; however, we and the Sunrise co-venturers are unable to commit to further commercial and technical work activities due to the uncertainty created by the lack of government alignment. Accordingly, current activities are restricted to compliance and social investment, as well as maintaining relationships and development options for Sunrise.

Exploration

 

    Conventional Exploration

We operate two exploration permits in the Browse Basin, offshore northwest Australia, in which we own a 40 percent interest in permits WA-315-P and WA-398-P, of the Greater Poseidon Area. Phase I of the Browse Basin drilling campaign in 2009/2010 resulted in three discoveries in the Greater Poseidon Area: Poseidon-1, Poseidon-2 and Kronos-1. Phase II of the drilling campaign resulted in five additional discoveries: Boreas-1, Zephyros-1, Proteus-1 SD2, Poseidon-North-1 and Pharos-1. All wells have been completed, plugged and abandoned.

We operate two retention leases in the Bonaparte Basin, offshore northern Australia, where we own a 37.5 percent interest in leases NT/RL5 and NT/RL6, containing the Barossa and Caldita discoveries. Three appraisal wells have been drilled to further evaluate the Barossa Field’s potential. The first two wells encountered hydrocarbons and the third was not commercially viable.

 

    Unconventional Exploration

In 2015, regulatory approval was received to withdraw from the four exploration permits within the Canning Basin in Western Australia. Prior to withdrawal, we owned a 46 percent working interest in each of the four permits.

 

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Indonesia

 

     2015   
  

 

 

 
     Interest        Operator        

 

Liquids

MBD

  

  

    

 

 

Natural

Gas

MMCFD

  

  

  

    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

South Natuna Sea Block B

     40.0     ConocoPhillips         8         89         23   

South Sumatra

     45.0–54.0        ConocoPhillips         3         332         58   

 

 

Total Indonesia

          11         421         81   

 

 

We operate four production sharing contracts (PSCs) in Indonesia: the offshore South Natuna Sea Block B and three onshore PSCs, the Corridor Block and South Jambi “B”, both located in South Sumatra, and Kualakurun in Central Kalimantan. Currently there is production from two of these PSCs: the Corridor Block and South Natuna Sea Block B.

South Natuna Sea Block B

The offshore South Natuna Sea Block B PSC has 3 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, and liquefied petroleum gas is sold locally for domestic consumption.

South Sumatra

The Corridor PSC consists of five oil fields and seven 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. Production from the South Jambi “B” PSC has reached depletion and field development has been suspended.

Exploration

In 2015, we drilled and subsequently recorded dry hole expense for one exploration well in the Palangkaraya PSC. This PSC was relinquished in the third quarter of 2015. We are also in the process of relinquishing our 80 percent interest in the Warim Block PSC. We have a 60 percent working interest in the new Kualakurun PSC, located in Central Kalimantan, which was signed in May 2015. This block has an area of approximately 2 million gross acres.

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

 

     2015   
  

 

 

 
             Interest                Operator        

 

Liquids

MBD

  

  

    

 

 

Natural

Gas

MMCFD

  

  

  

    

 

Total

MBOED

  

  

  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Penglai

     49.0     CNOOC         34         2         34   

Panyu

     24.5        CNOOC         11         -         11   

 

 

Total China

          45         2         45   

 

 

The Penglai 19-3, 19-9 and 25-6 fields are located in Bohai Bay Block 11/05. Production from the Phase 1 development of the Penglai 19-3 Field began in 2002. Phase 2 included six additional wellhead platforms and an FPSO vessel, and was fully operational by 2009.

 

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Currently, a project to add a new wellhead platform and up to 62 wells for the development of Penglai 19-9 is progressing per schedule, with first oil expected in 2017.

We sanctioned the Penglai 19-3/19-9 Phase 3 Project in December 2015. This project will consist of three new wellhead platforms and a central processing platform. First oil from Phase 3 is expected in 2018.

The Panyu development, located in Block 15/34 in the South China Sea, is comprised of three oil fields: Panyu 4-2, Panyu 5-1 and Panyu 11-6. The PSC for the block is scheduled to expire in September 2018, at which time we will relinquish all working interest in the block.

Exploration

In 2015, we participated in two successful appraisal wells in the Penglai fields, which will be used to support future development plans.

Malaysia

 

     2015   
  

 

 

 
     Interest        Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Siakap North-Petai

     21.0     Murphy         4         2         4   

Gumusut

     29.0        Shell         25         -         25   

KBB

     30.0        KPOC         -         4         1   

 

 

Total Malaysia

          29         6         30   

 

 

We own interests in four deepwater PSCs in Malaysia. Three are located off the eastern Malaysian state of Sabah: Block G, Block J and the Kebabangan Cluster (KBBC). Our fourth PSC, deepwater Block 3E, is located off the Malaysian state of Sarawak.

Block G

We have a 21 percent interest in the unitized Siakap North-Petai oil field, which began producing in the first quarter of 2014 and reached its estimated net annual peak production of 5 MBOED in 2015. Development of the Malikai oil field is underway with first production anticipated in 2017. We own a 35 percent interest in the Malikai and Pisagan discoveries.

Block J

First production for Gumusut occurred from an early production system in 2012. Production from a permanent, semi-submersible floating production vessel was achieved in October 2014, with estimated net annual peak production of 32 MBOED anticipated in 2016. Unitization of the Gumusut Field with Brunei was recorded in 2014 and reduced our ownership interest from 33 percent to an initial 29 percent. A final ownership split is expected to be agreed in 2016.

We own a 40 percent interest in the Limbayong discovery. The Limbayong-2 appraisal well, located approximately seven miles from Gumusut, was drilled in 2013 and resulted in an oil discovery. Development options are being evaluated.

KBBC

We own a 30 percent interest in the KBBC PSC. Development of the KBB gas field commenced in 2011, and first production was achieved in November 2014. Gas sales are currently constrained due to repairs on a third party pipeline. Estimated net annual peak production of 26 MBOED is expected in 2018. Kamunsu East is being evaluated for development options.

 

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Exploration

We relinquished our 40 percent operating interest in SB-311, an exploration block encompassing 259,000 gross acres offshore Sabah, in December 2015. Both wells drilled in 2015 as part of our two-well commitment program were expensed as dry holes in the second and third quarters of 2015.

We own a 50 percent operating interest in deepwater Block 3E, which encompasses approximately 480,000 gross acres offshore Sarawak. Seismic processing was completed in 2015 and drilling is planned for 2016-2017.

Bangladesh

Exploration

In 2014, we relinquished our interest in two deepwater blocks in the Bay of Bengal, Blocks 10 and 11. In 2015, we also opted not to pursue our interest in three adjoining deepwater blocks and exited operations in Bangladesh.

Brunei

Exploration

We have a 6.25 percent working interest in the deepwater Block CA-2 PSC, which has an exploration period through December 2018. Exploration has been ongoing since September 2011, with natural gas discovered at the Kelidang NE-1 and Keratau-1 wells in 2013 and at the Keratau SW-1 well in 2015. Evaluation of the results is ongoing.

Myanmar

Exploration

In 2014, we were awarded deepwater Block AD-10 in the 2013 Myanmar offshore oil and gas bidding round. We signed the PSC in the second quarter of 2015, and in the third quarter we initiated the process to assign our participating interest to the operator, pending Myanmar government approval.

Qatar

 

     2015   
       

 

 

 
             Interest        Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             
       Qatargas Operating            

QG3

     30.0     Company Limited         21         371         83   

 

 

Total Qatar

          21         371         83   

 

 

QG3 is an integrated development jointly owned by Qatar Petroleum (68.5 percent), ConocoPhillips (30 percent) and Mitsui & Co., Ltd. (1.5 percent). QG3 consists of upstream natural gas production facilities, which produce approximately 1.4 billion gross cubic feet per day of natural gas from Qatar’s North Field over a 25 year life, in addition to a 7.8 million gross tonnes-per-year LNG facility. LNG is shipped in leased LNG carriers destined for sale globally.

QG3 executed the development of the onshore and offshore assets as a single integrated development with Qatargas 4 (QG4), a joint venture between Qatar Petroleum and Royal Dutch Shell plc. This included 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 QG3 and QG4 joint ventures. Production from the LNG trains and associated facilities is combined and shared.

 

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OTHER INTERNATIONAL

The Other International segment includes exploration activities in Colombia, Angola and Senegal. In the fourth quarter of 2015, we exited our operations in Russia. During 2015, operations in Other International contributed less than 1 percent of our worldwide liquids production.

Russia

 

     2015   
       

 

 

 
             Interest        Operator        
 
Liquids
MBD
  
  
    
 
 
Natural
Gas
MMCFD
  
  
  
    
 
Total
MBOED
  
  
  

 

 

   

 

 

    

 

 

 

Average Daily Net Production

             

Polar Lights

     50.0     Polar Lights Co.         4         -         4   

 

 

Total Russia

          4         -         4   

 

 

Polar Lights

In the fourth quarter of 2015, we completed the sale of our 50 percent interest in the Polar Lights Company, an entity which has developed several fields in the Timan-Pechora Basin in northern Russia.

Angola

Exploration

We have a 50 percent operating interest in Block 36 and a 30 percent operating interest in Block 37, both of which are located in Angola’s subsalt play trend. The two blocks total approximately 2.5 million gross acres and each block was awarded with a two-well work program commitment. We secured a rig for a four-well commitment program and commenced drilling in the second quarter of 2014. In November 2014, we plugged and abandoned the Kamoxi-1 exploration well, located in Block 36 offshore Angola, as a dry hole. We also subsequently plugged and abandoned the Omosi-1 and Vali-1 wells as dry holes in adjacent Block 37 in the first and second quarters of 2015, respectively, and recorded an after-tax impairment of $75 million associated with our Angola Block 37 leasehold in the second quarter of 2015. In the fourth quarter of 2015, we recorded $335 million in after-tax charges for the impairment, dry hole costs and future potential obligations associated with our Angola Block 36 leasehold. The Athena drilling rig, secured for our four-well commitment program, was mobilized to Senegal in October.

Senegal

Exploration

We have a 35 percent working interest in three exploration blocks offshore Senegal. In October 2014, we discovered a working petroleum system at the FAN-1 exploration well. In addition, in November 2014 we confirmed oil was discovered in the SNE-1 well, the second of the two-well program. We spud the SNE-2 and SNE-3 appraisal wells in the fourth quarter of 2015. We have the option to become operator of the project if it advances to development.

Azerbaijan

Transportation

The Baku-Tbilisi-Ceyhan (BTC) Pipeline transports crude oil from the Caspian Region through Azerbaijan, Georgia and Turkey for tanker loadings at the port of Ceyhan. In the fourth quarter of 2015, we finalized the sale of our 2.5 percent interest in BTC.

Poland

Exploration

In the second quarter of 2015, we decided not to conduct further activity on our three Baltic Basin concessions, which encompassed approximately 500,000 gross acres. As a result, we recorded an after-tax impairment of $32 million, net of other deductions.

 

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Colombia

Unconventional Exploration

We have an 80 percent operated interest in the Middle Magdalena Basin block VMM-3. The block extends over 66,649 net acres and contains the Picoplata-1, which completed drilling in 2015. Continued evaluation and testing of the well is planned in 2016.

We hold 70 percent nonoperated interests in the deep rights in the Santa Isabel Block in the Middle Magdalena Basin, which covers approximately 71,000 net acres. We also hold a 30 percent nonoperated interest in the VMM27 and VMM28 blocks, in the Middle Magdalena Basin, which are currently in the process of being relinquished.

Chile

Exploration

In the fourth quarter of 2015, we received approval from the Chilean government to become a 5 percent interest holder in the Coiron Block. Empresa Nacional del Petroleo holds the remaining 95 percent interest and is the operator of the block.

Venezuela

In October 2014, we filed for arbitration under the rules of the International Chamber of Commerce (ICC) against Petroleos de Venezuela (PDVSA), the Venezuela state oil company, for contractual compensation related to the Petrozuata and Hamaca heavy crude oil projects. The ICC arbitration is a separate and independent legal action from the investment treaty arbitration against the government of Venezuela, which is currently proceeding before an arbitral tribunal under the World Bank’s International Centre for Settlement for Investment Disputes (ICSID). The ICSID Tribunal is determining the damages owed to ConocoPhillips as a result of Venezuela’s unlawful expropriation of ConocoPhillips’ significant oil investments in the Petrozuata and Hamaca heavy crude oil projects and the offshore Corocoro development project in June 2007. For additional information, see Note 13—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.

Ecuador

In December 2012, an ICSID Tribunal issued a decision on liability in favor of Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, finding that Ecuador’s seizure of Blocks 7 and 21 was an unlawful expropriation in violation of the Ecuador-U.S. Bilateral Investment Treaty. An additional arbitration phase to determine the damages owed to ConocoPhillips for Ecuador’s actions and to address Ecuador’s counterclaims followed the decision on liability and we are now waiting for the Tribunal’s award. For additional information, see Note 13—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.

Discontinued Operations

See Note 3—Discontinued Operations, in the Notes to Consolidated Financial Statements, for information regarding our discontinued operations.

 

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OTHER

Marketing Activities

Our Commercial organization manages our worldwide commodity portfolio, which mainly includes natural gas, crude oil, bitumen, natural gas liquids and LNG. Marketing activities are performed through offices in the United States, Canada, Europe and Asia. In marketing our production, we attempt to minimize flow disruptions, maximize realized prices and manage credit-risk exposure. Commodity sales are generally made at prevailing market prices at the time of sale. We also purchase and sell third-party volumes to better position the company to satisfy customer demand while fully utilizing transportation and storage capacity.

Natural Gas

Our natural gas production, along with third-party purchased gas, is primarily marketed in the United States, Canada, Europe and Asia. Our natural gas is sold to a diverse client portfolio which includes local distribution companies; gas and power utilities; large industrials; independent, integrated or state-owned oil and gas companies; as well as marketing companies. To reduce our market exposure and credit risk, we also transport natural gas via firm and interruptible transportation agreements to major market hubs.

Crude Oil, Bitumen and Natural Gas Liquids

Our crude oil, bitumen and natural gas liquids revenues are derived from production in the United States, Canada, Australia, Asia, Africa and Europe. These commodities are primarily sold under contracts with prices based on market indices, adjusted for location, quality and transportation.

LNG

LNG marketing efforts are focused on equity LNG production facilities located in Alaska, Australia, and Qatar. LNG is primarily sold under long-term contracts with prices based on market indices.

Energy Partnerships

Marine Well Containment Company

We are a founding member of the Marine Well Containment Company (MWCC), a non-profit organization formed in 2010, which provides well containment equipment and technology in the deepwater U.S. Gulf of Mexico. In January 2015, MWCC announced acceptance of its expanded containment system (ECS). The ECS complements the capabilities and capacities put into place with its interim containment system, which the industry has been relying on since 2011. Equipment from both systems has been combined to form MWCC’s containment system, which meets the U.S. Bureau of Safety and Environmental Enforcement requirements for a subsea well containment system that can respond to a deepwater well control incident in the U.S. Gulf of Mexico.

Subsea Well Response Project

In 2011, we, along with several leading oil and gas companies, launched the Subsea Well Response Project (SWRP), a non-profit organization based in Stavanger, Norway, which was created to enhance the industry’s capability to respond to international subsea well control incidents. Through collaboration with Oil Spill Response Limited, a non-profit organization in the United Kingdom, subsea well intervention equipment is available for the industry to use in the event of a subsea well incident. This complements the work being undertaken in the United States by MWCC.

Oil Spill Response Removal Organizations (OSROs)

We maintain memberships in several OSROs across the globe as a key element of our preparedness program in addition to internal response resources. Many of the OSROs are not-for-profit cooperatives owned by the member companies wherein we may actively participate as a member of the board of directors, steering committee, work group or other supporting role. Globally, our primary OSRO is Oil Spill Response Ltd. based in the U.K., with facilities in several other countries and the ability to respond anywhere in the world. In North America, our primary OSROs include the Marine Spill Response Corporation for the continental U.S. and Alaska Clean Seas and Ship Escort/Response Vessel System for the Alaska North Slope and Prince

 

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William Sound, respectively. We are also a member of the Cook Inlet Spill Prevention and Response, Inc. Internationally, we maintain memberships in various regional OSROs including the Norwegian Clean Seas Association for Operating Companies, Australian Marine Oil Spill Center and Petroleum Industry of Malaysia Mutual Aid Group.

Technology

Our Technology organization has several technology programs, which focus on areas to support our business growth plans: developing unconventional reservoirs, producing oil sands and heavy oil economically with fewer emissions, improving the economic efficiency of our LNG and other gas solutions technologies, increasing recoveries from our legacy fields, and implementing sustainability measures.

Our Optimized Cascade ® LNG liquefaction technology business continues to be successful with the demand for new LNG plants. The technology has been licensed for use in 25 LNG trains around the world, with feasibility studies ongoing for additional trains.

RESERVES

We have not filed any information with any other federal authority or agency with respect to our estimated total proved reserves at December 31, 2015. No difference exists between our estimated total proved reserves for year-end 2014 and year-end 2013, which are shown in this filing, and estimates of these reserves shown in a filing with another federal agency in 2015.

DELIVERY COMMITMENTS

We sell crude oil and natural gas from our 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 2.5 trillion cubic feet of natural gas, including approximately 430 billion cubic feet related to the noncontrolling interests of consolidated subsidiaries, and 230 million barrels of crude oil in the future. These contracts have various expiration dates through the year 2028. 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 any remaining 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.

COMPETITION

We compete with private, public and state-owned companies in all facets of the E&P business. Some of our competitors are larger and have greater resources. Each of our segments is highly competitive, with no single competitor, or small group of competitors, dominating.

We compete with numerous other companies in the industry, including state-owned companies, to locate and obtain new sources of supply and to produce oil, bitumen, natural gas liquids and natural gas in an efficient, cost-effective manner. Based on statistics published in the September 7, 2015, issue of the Oil and Gas Journal , we were the third-largest U.S.-based oil and gas company in worldwide liquids and natural gas production and reserves in 2014. We deliver our production into the worldwide 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 safely operating oil and gas producing properties.

 

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GENERAL

At the end of 2015, we held a total of 1,012 active patents in 58 countries worldwide, including 387 active U.S. patents. During 2015, we received 46 patents in the United States and 85 foreign patents. Our products and processes generated licensing revenues of $271 million in 2015. 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 $222 million, $263 million and $258 million in 2015, 2014 and 2013, respectively.

Health, Safety and Environment

Our Health, Safety and Environment (HSE) organization provides tools and support to our business units and staff groups to help them ensure world class health, safety and environmental performance. The framework through which we safely manage our operations, the HSE Management System Standard, emphasizes process safety, risk management, emergency preparedness and environmental performance, with an intense focus on process and occupational safety. In support of the goal of zero incidents, HSE milestones and criteria are established annually to drive strong safety performance. Progress toward these milestones and criteria are measured and reported. HSE audits are conducted on business functions periodically, and improvement actions are established and tracked to completion. We also have detailed processes in place to address sustainable development in our economic, environmental and social performance. Our processes, related tools and requirements focus on water, biodiversity and climate change, as well as social and stakeholder issues.

The environmental information contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 62 through 66 under the captions “Environmental” and “Climate Change” is incorporated herein by reference. It includes information on expensed and capitalized environmental costs for 2015 and those expected for 2016 and 2017.

Website Access to SEC Reports

Our internet website address is www.conocophillips.com . Information contained on our internet website 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 website, 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 SEC’s website at www.sec.gov .

 

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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.

Prices for crude oil, bitumen, natural gas, natural gas liquids and LNG can fluctuate widely. Globally, prices for crude oil, bitumen, natural gas, natural gas liquids and LNG have recently experienced significant declines from their historic levels during 2013 and 2014, with continued global production increases that have outpaced demand growth, leading to a large observed rise in global inventory. Prices for Brent crude oil, WTI crude oil, Henry Hub natural gas and natural gas liquids in the fourth quarter of 2015 have all declined more than 40 percent when compared with prices in the fourth quarter of 2014, and there are no indications the price declines will reverse themselves in the immediate future.

Our revenues, operating results and future rate of growth are highly dependent on the prices we receive for our crude oil, bitumen, natural gas, natural gas liquids and LNG. The factors influencing these prices are beyond our control. Lower crude oil, bitumen, natural gas, natural gas liquids and LNG prices may have a material adverse effect on our revenues, operating income, cash flows and liquidity and on the amount of dividends we elect to declare and pay on our common stock. Lower prices may also limit the amount of reserves we can produce economically, adversely affecting our ability to maintain our reserve replacement ratio and accelerating the reduction in our existing reserve levels as we continue production from upstream fields.

Significant reductions in crude oil, bitumen, natural gas, natural gas liquids and LNG prices could also require us to reduce our capital expenditures or impair the carrying value of our assets. During 2015, we recognized several impairments, which are described in Note 9—Impairments, in the Notes to Consolidated Financial Statements. If commodity prices remain low relative to their historic levels, and as we continue to optimize our investments and exercise capital flexibility, it is reasonably likely we will incur future impairments to long-lived assets used in operations, investments in nonconsolidated entities accounted for under the equity method and unproved properties. Although it is not reasonably practicable to quantify the impact of any future impairments at this time, our results of operations could be adversely affected as a result.

Our ability to declare and pay dividends is subject to certain considerations.

Dividends are authorized and determined by our Board of Directors in its sole discretion and depend upon a number of factors, including:

 

    Cash available for distribution.
    Our results of operations and anticipated future results of operations.
    Our financial condition, especially in relation to the anticipated future capital needs of our properties.
    The level of reserves we establish for future capital expenditures.
    The level of distributions paid by comparable companies.
    Our operating expenses.
    Other factors our Board of Directors deems relevant.

We expect to continue to pay quarterly distributions to our stockholders; however, we bear all expenses incurred by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our stockholders. Any downward revision in our distribution could have a material adverse effect on the market price of our common stock.

 

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We may need additional capital in the future, and it may not be available on acceptable terms.

We have historically relied primarily upon cash generated by our operations to fund our operations and strategy, however we have also relied from time to time on access to the debt and equity capital markets for funding. There can be no assurance that additional debt or equity financing will be available in the future on acceptable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance, investor sentiment and our ability to incur additional debt in compliance with agreements governing our then-outstanding debt. If we are unable to generate sufficient funds from operations or raise additional capital, our growth could be impeded.

In addition, we are regularly evaluated by the major rating agencies based on a number of factors, including our financial strength and conditions affecting the oil and gas industry generally. Due to the significant recent decline in prices for crude oil, bitumen, natural gas, natural gas liquids and LNG, and the expectation that these prices could remain depressed in the near future, the major ratings agencies have indicated they will be conducting a review of the oil and gas industry and the debt ratings for some companies operating in the industry may be downgraded. The results of these actions, including any downgrade in our credit rating, could increase the cost associated with any additional indebtedness we incur.

Our business may be adversely affected by deterioration in the credit quality of, or defaults under our contracts with, third parties with whom we do business.

The operation of our business requires us to engage in transactions with numerous counterparties operating in a variety of industries, including other companies operating in the oil and gas industry. These counterparties may default on their obligations to us as a result of operational failures or a lack of liquidity, or for other reasons, including bankruptcy. Market speculation about the credit quality of these counterparties, or their ability to continue performing on their existing obligations, may also exacerbate any operational difficulties or liquidity issues they are experiencing, particularly as it relates to other companies in the oil and gas industry as a result of the recent significant declines in commodity prices. Any default by any of our counterparties may result in our inability to perform obligations under agreements we have made with third parties or may otherwise adversely affect our business or results of operations. In addition, our rights against any of our counterparties as a result of a default may not be adequate to compensate us for the resulting harm caused or may not be enforceable at all in some circumstances.

Unless we successfully add to our existing proved reserves, our future crude oil, bitumen, natural gas and natural gas liquids production will decline, resulting in an adverse impact to our business.

The rate of production from upstream fields generally declines as reserves are depleted. Except to the extent that we conduct successful exploration and development activities, or, through engineering studies, optimize production performance or identify additional or secondary recovery reserves, our proved reserves will decline materially as we produce crude oil, bitumen, natural gas and natural gas liquids. Accordingly, to the extent we are unsuccessful in replacing the crude oil, bitumen, natural gas and natural gas liquids we produce with good prospects for future production, our business will experience reduced cash flows and results of operations. Any cash conservation efforts we may undertake as a result of commodity price declines may further limit our ability to replace depleted reserves.

Any material change in the factors and assumptions underlying our estimates of crude oil, bitumen, natural gas and natural gas liquids reserves could impair the quantity and value of those reserves.

Our proved reserve information included in this annual report has been derived from engineering estimates prepared by our personnel. Reserve estimation is a process that involves estimating volumes to be recovered from underground accumulations of crude oil, bitumen, natural gas and natural gas liquids 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 significant future price changes could have a material effect on the quantity and present value of our proved reserves. Any material changes in the factors and assumptions

 

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underlying our estimates of these items could result in a material negative impact to the volume of reserves reported or could cause us to incur impairment expenses on property associated with the production of those reserves. Future reserve revisions could also result from changes in, among other things, governmental regulation. In addition to changes in the quantity and value of our proved reserves, the amount of crude oil, bitumen, natural gas and natural gas liquids that can be obtained from any proved reserve may ultimately be different from those estimated prior to extraction.

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, such as limitations on greenhouse gas emissions, 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, mercury and greenhouse gas emissions.
    Carbon taxes.
    The handling, use, storage, transportation, disposal and cleanup 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.
    Exploration and production activities in certain areas, such as offshore environments, arctic fields, oil sands reservoirs and tight oil plays.

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.

Although our business operations are designed and operated to accommodate expected climatic conditions, to the extent there are significant changes in the Earth’s 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. Demand for our products may also be adversely affected by conservation plans and efforts undertaken in response to global climate change, including plans developed in connection with the recent Paris climate conference in December 2015. Many governments also provide, or may in the future provide, tax advantages and other subsidies to support the use and development of alternative energy technologies. Our operations and the demand for our products could be materially impacted by the development and adoption of these technologies.

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, local and foreign governments, through tax and other legislation, executive order and commercial restrictions, could reduce our operating profitability both in the United States and abroad. In certain locations, governments have imposed or proposed restrictions on our operations; special taxes or tax assessments; and payment transparency regulations that could require us to disclose competitively sensitive information or might cause us to violate non-disclosure laws of other countries. U.S. federal, state and local legislative and regulatory agencies’ initiatives regarding the hydraulic fracturing process could result in operating restrictions or delays in the completion of our oil and gas wells.

 

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The U.S. government can also 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 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. Changes in domestic and international regulations may affect our ability to obtain or maintain permits, including those necessary for drilling and development of wells or for construction of LNG terminals or regasification facilities in various locations.

Local political and economic factors in international markets could have a material adverse effect on us. Approximately 54 percent of our hydrocarbon production from continuing operations was derived from production outside the United States in 2015, and 61 percent of our proved reserves, as of December 31, 2015, was 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, bitumen, natural gas liquids or LNG pricing and taxation, other political, economic or diplomatic developments, changing political conditions and international monetary fluctuations. In particular, some countries where we operate lack well-developed legal systems or have not adopted clear legal and regulatory frameworks for oil and gas exploration and production. This lack of legal certainty exposes our operations to increased risks, including increased difficulty in enforcing our agreements in those jurisdictions and increased risks of adverse actions by local government authorities, such as expropriations.

Changes in governmental regulations may impose price controls and limitations on production of crude oil, bitumen, natural gas and natural gas liquids.

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, bitumen, natural gas and natural gas liquids wells below actual production capacity. 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 partners. There is a risk 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 our joint venture partners 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.

We do not insure against all potential losses; therefore, we could be harmed by unexpected liabilities and increased costs.

We maintain insurance against many, but not all, potential losses or liabilities arising from operating risks. As such, our insurance coverage may not be sufficient to fully cover us against potential losses arising from such risks. Uninsured losses and liabilities arising from operating risks could reduce the funds available to us for capital, exploration and investment spending and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our operations present hazards and risks that require significant and continuous oversight.

The scope and nature of our operations present a variety of significant hazards and risks, including operational hazards and risks such as explosions, fires, crude oil spills, severe weather, geological events, labor disputes, terrorist attacks, sabotage, civil unrest or cyber attacks. Our operations may also be adversely affected by unavailability, interruptions or accidents involving services or infrastructure required to develop, produce, process or transport our production, such as contract labor, drilling rigs, pipelines, railcars, tankers, barges or other infrastructure. Our operations are subject to the additional hazards of pollution, releases of toxic gas and

 

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other environmental hazards and risks. Activities in deepwater areas may pose incrementally greater risks because of complex subsurface conditions such as higher reservoir pressures, water depths and metocean conditions. All such hazards could result in loss of human life, significant property and equipment damage, environmental pollution, impairment of operations, substantial losses to us and damage to our reputation. Further, our business and operations may be disrupted if we do not respond, or are perceived not to respond, in an appropriate manner to any of these hazards and risks or any other major crisis or if we are unable to efficiently restore or replace affected operational components and capacity.

Our technologies, systems and networks may be subject to cybersecurity breaches. Although we have experienced occasional, actual or attempted breaches of our cybersecurity, none of these breaches has had a material effect on our business, operations or reputation. If our systems for protecting against cybersecurity risks prove to be insufficient, we could be adversely affected by having our business systems compromised, our proprietary information altered, lost or stolen, or our business operations disrupted. As cyber attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information systems and related infrastructure security vulnerabilities.

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 2015, as well as matters previously reported in our 2014 Form 10-K and our first-, second- and third-quarter 2015 Form 10-Qs that were not resolved prior to the fourth quarter of 2015. 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 were to be decided adversely to ConocoPhillips, we expect there would be no material effect on our consolidated financial position. Nevertheless, such proceedings are reported pursuant to SEC regulations.

On April 30, 2012, the separation of our downstream business was completed, creating two independent energy companies: ConocoPhillips and Phillips 66. In connection with the separation, we entered into an Indemnification and Release Agreement, which provides for cross-indemnities between Phillips 66 and us and established procedures for handling claims subject to indemnification and related matters, such as legal proceedings. We have included matters where we remain a party to a proceeding relating to Phillips 66, in accordance with SEC regulations. We do not expect any of those matters to result in a net claim against us.

Matters Previously Reported—Phillips 66

In October 2007, ConocoPhillips received a Complaint from the U.S. Environmental Protection Agency (EPA) alleging violations of the Clean Water Act related to a 2006 oil spill at the Phillips 66 Bayway Refinery and proposing a penalty of $156,000.

On May 19, 2010, the Phillips 66 Lake Charles Refinery received a Consolidated Compliance Order and Notice of Potential Penalty from the Louisiana Department of Environmental Quality (LDEQ) alleging various violations of applicable air emission regulations, as well as certain provisions of the consent decree in Civil Action No. H-01-4430. In July 2014, Phillips 66 resolved the consent decree issues and in January 2016, an agreement was reached with LDEQ to resolve the remaining allegations.

 

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On October 15, 2012, the Bay Area Air Quality Management District (Bay Area AQMD) issued a $313,000 demand to settle 13 other Notice of Violation (NOV) issued in 2010 and 2011 with respect to alleged violations of regulatory and/or permit requirements at the Phillips 66 Rodeo Refinery.

In May 2012, the Illinois Attorney General’s office filed and notified ConocoPhillips of a complaint with respect to operations at the Phillips 66 WRB Wood River Refinery alleging violations of the Illinois groundwater standards and a third-party’s hazardous waste permit. The complaint seeks as relief remediation of area groundwater; compliance with the hazardous waste permit; enhanced pipeline and tank integrity measures; additional spill reporting; and yet-to-be specified amounts for fines and penalties.

On July 7, 2014, Phillips 66 received an NOV from the U.S. EPA alleging various flaring-related violations between 2009 and 2013 at the Phillips 66 Wood River Refinery. ConocoPhillips is not a named party in the NOV and we will therefore no longer report this matter.

On July 8, 2014, the Bay Area AQMD issued a $175,000 demand to settle 18 NOVs issued in 2010 with respect to alleged violations of regulatory and/or permit requirements at the Phillips 66 Rodeo Refinery.

On July 8, 2014, the Bay Area AQMD issued a $259,000 demand to settle 20 NOVs issued in 2011 with respect to alleged violations of regulatory and/or permit requirements at the Phillips 66 Rodeo Refinery.

 

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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EXECUTIVE OFFICERS OF THE REGISTRANT

 

Name

  

Position Held

   Age*  

Janet L. Carrig

   Senior Vice President, Legal, General Counsel and Corporate Secretary      58   

Ellen R. DeSanctis

   Vice President, Investor Relations and Communications      59   

Matt J. Fox

   Executive Vice President, Exploration and Production      55   

Alan J. Hirshberg

   Executive Vice President, Technology and Projects      54   

Ryan M. Lance

   Chairman of the Board of Directors and Chief Executive Officer      53   

Andrew D. Lundquist

   Senior Vice President, Government Affairs      55   

James D. McMorran

   Vice President, Human Resources, Real Estate and Facilities Services      58   

Glenda M. Schwarz

   Vice President and Controller      50   

Jeff W. Sheets

   Executive Vice President, Finance and Chief Financial Officer      58   

Don E. Wallette, Jr.

   Executive Vice President, Commercial, Business Development and Corporate Planning      57   

 

*On February 15, 2016.

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 the 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 10, 2016. Set forth below is information about the executive officers.

Janet L. Carrig was appointed Senior Vice President, Legal, General Counsel and Corporate Secretary in 2007.

Ellen R. DeSanctis was appointed Vice President, Investor Relations and Communications in May 2012. She was previously employed by Petrohawk Energy Corp. and served as Senior Vice President, Corporate Communications since 2010. Prior to that she was employed by Rosetta Resources Inc. and served as Executive Vice President of Strategy and Development from 2008 to 2010.

Matt J. Fox was appointed Executive Vice President, Exploration and Production in May 2012. Prior to that, he was employed by Nexen, Inc. and served as Executive Vice President, International since 2010. He was previously employed by ConocoPhillips and served as President, ConocoPhillips Canada from 2009 to 2010.

Alan J. Hirshberg was appointed Executive Vice President, Technology and Projects in May 2012. Prior to that, he served as Senior Vice President, Planning and Strategy since 2010.

Ryan M. Lance was appointed Chairman of the Board of Directors and Chief Executive Officer in May 2012, having previously served as Senior Vice President, Exploration and Production—International since May 2009.

Andrew D. Lundquist was appointed Senior Vice President, Government Affairs in 2013. Prior to that, he served as managing partner of BlueWater Strategies LLC, since 2002.

James D. McMorran was appointed Vice President, Human Resources, Real Estate and Facilities Services in August 2015. Prior to that, he served as Manager, Compensation and Benefits, since 2004.

Glenda M. Schwarz was appointed Vice President and Controller in 2009.

 

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Jeff W. Sheets was appointed Executive Vice President, Finance and Chief Financial Officer in May 2012, having previously served as Senior Vice President, Finance and Chief Financial Officer since 2010.

Don E. Wallette, Jr. was appointed Executive Vice President, Commercial, Business Development and Corporate Planning in May 2012. Prior to that, he served as President, Asia Pacific since 2010 and President, Russia/Caspian from 2006 to 2010.

On February 16, 2016, Jeff W. Sheets announced his decision to retire as Executive Vice President, Finance and Chief Financial Officer. Mr. Sheets will remain in his position as Executive Vice President, Finance and Chief Financial Officer until April 1, 2016, and following that will remain an employee through May 31, 2016, to provide support during the transition of his responsibilities.

In connection with Mr. Sheets’ retirement, at a meeting held on February 16 and 17, 2016, the Board of Directors approved the following changes to our executive leadership team to become effective April 1, 2016:

 

    Don E. Wallette, Jr. will become Executive Vice President, Finance, Commercial and Chief Financial Officer.
    Al J. Hirshberg will become Executive Vice President, Production, Drilling and Projects.
    Matt Fox will become Executive Vice President, Strategy, Exploration and Technology.

 

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PART II

 

Item 5. MARKET FOR REGISTRANT’S 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.”

 

     Stoc k Price         
     High                 Low             Dividends   
  

 

 

    

 

 

 

2015

        

First

   $             70.11         60.57         0.73   

Second

     69.72         60.86         0.73   

Third

     61.51         41.10         0.74   

Fourth

     57.24         44.56         0.74   

 

 

2014

        

First

   $ 70.99         62.74         0.69   

Second

     86.43         69.33         0.69   

Third

     87.09         75.92         0.73   

Fourth

     76.52         60.84         0.73   

 

 

Closing Stock Price at December 31, 2015

  

   $ 46.69   

Closing Stock Price at January 31, 2016

  

   $ 39.08   

Number of Stockholders of Record at January 31, 2016*

  

     52,394   

 

 

*In determining the number of stockholders, we consider clearing agencies and security position listings as one stockholder for each agency listing.

The declaration of dividends is subject to the discretion of our Board of Directors, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings and other considerations our Board of Directors deems relevant. Our Board of Directors has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the Board of Directors taking into account such factors as our business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio.

On February 4, 2016, we announced that our Board of Directors approved a reduction in the quarterly dividend to $0.25 per share, compared with the previous quarterly dividend of $0.74 per share. The dividend is payable on March 1, 2016 to stockholders of record at the close of business on February 16, 2016.

Issuer Purchases of Equity Securities

During 2015, there were no active share repurchase programs and no repurchases of common stock from employees in connection with the company’s broad-based employee incentive programs.

 

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Item 6.     SELECTED FINANCIAL DATA

 

     Millions of Dollars Except Per Share Amounts  
     2015     2014      2013      2012      2011  
  

 

 

 

Sales and other operating revenues

   $ 29,564        52,524         54,413         57,967         64,196   

Income (loss) from continuing operations

     (4,371     5,807         8,037         7,481         7,188   

Per common share

             

Basic

     (3.58     4.63         6.47         5.95         5.18   

Diluted

     (3.58     4.60         6.43         5.91         5.14   

Income from discontinued operations

     -        1,131         1,178         1,017         5,314   

Net income (loss)

     (4,371     6,938         9,215         8,498         12,502   

Net income (loss) attributable to ConocoPhillips

     (4,428     6,869         9,156         8,428         12,436   

Per common share

             

Basic

     (3.58     5.54         7.43         6.77         9.04   

Diluted

     (3.58     5.51         7.38         6.72         8.97   

Total assets

     97,484        116,539         118,057         117,144         153,230   

Long-term debt

     23,453        22,383         21,073         20,770         21,610   

Joint venture acquisition obligation—

             

long-term

     -        -         -         2,810         3,582   

Cash dividends declared per common share

     2.94        2.84         2.70         2.64         2.64   

 

 

Net income (loss) and Net income (loss) attributable to ConocoPhillips for all periods presented includes income from discontinued operations as a result of the separation of the downstream business, the sale of our interest in Kashagan, and the sales of our Algeria and Nigeria businesses. These factors impact the comparability of this information. For additional information, see Note 3—Discontinued Operations, in the Notes to Consolidated Financial Statements.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Consolidated Financial Statements for a discussion of factors that will enhance an understanding of this data.

 

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis is the company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the financial statements and notes, and supplemental oil and gas disclosures included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page 72.

Due to discontinued operations reporting, income (loss) from continuing operations is more representative of ConocoPhillips’ earnings. The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to income (loss) from continuing operations. For additional information, see Note 3 —Discontinued Operations, in the Notes to Consolidated Financial Statements.

BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

ConocoPhillips is the world’s largest independent exploration and production (E&P) company, based on proved reserves and production of liquids and natural gas. Headquartered in Houston, Texas, we have operations and activities in 21 countries. At December 31, 2015, we employed approximately 15,900 people worldwide and had total assets of $97.5 billion. Our stock is listed on the New York Stock Exchange under the symbol “COP.”

Basis of Presentation

Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Accordingly, results of operations for the Other International and Europe and North Africa segments have been revised in all periods presented. There was no impact on our consolidated financial statements, and the impact on our segment presentation is immaterial. For additional information, see Note 24—Segment Disclosures and Related Information, in the Notes to Consolidated Financial Statements.

Overview

We are an independent E&P company focused on exploring for, developing and producing crude oil and natural gas globally. Our diverse portfolio primarily includes resource-rich North American unconventional assets and oil sands assets in Canada; lower-risk legacy assets in North America, Europe, Asia and Australia; several major international developments; and an inventory of global conventional and unconventional exploration prospects.

The energy landscape changed dramatically in the past year. Increased supply caused commodity prices to decline substantially. In December 2015, we announced a 2016 operating plan based on $7.7 billion of capital expenditures. This represented a reduction of 24 percent, compared to 2015 actual expenditures, sourced from the completion of several major projects, as well as deferrals, deflation capture and efficiencies across the portfolio.

 

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In response to an outlook of lower prices in 2016 compared to 2015, as well as credit tightening across the industry, we revised our 2016 operating plan in February 2016, reducing our capital expenditures guidance by 17 percent, from $7.7 billion to $6.4 billion. We also reduced our quarterly dividend by 66 percent, to $0.25 per share. These actions, taken to maintain a strong balance sheet, will enable us to continue to deliver an investment offering of a competitive dividend, disciplined growth and financial strength. We also believe these actions position the company for success in a lower, more volatile price environment, with the flexibility to adjust to commodity price movements in the future.

Key Operating and Financial Summary

Significant items during 2015 included the following:

 

    Achieved full-year production of 1,589 MBOED; 5 percent production growth from continuing operations, adjusted for Libya, downtime and dispositions.
    Lowered operating costs year over year.
    Reduced 2015 capital by 41 percent compared with 2014.
    Achieved major project startups at APLNG and Surmont 2.
    Completed additional startups at Eldfisk II, CD5, Drill Site 2S, Enochdhu and the Brodgar H3 subsea tie-back.
    Announced phased exit from deepwater exploration.
    Completed approximately $2 billion of non-core asset dispositions across the portfolio.
    Ended the year with $2.4 billion of cash and cash equivalents.

We accomplished several strategic milestones in 2015. Excluding Libya, our production from continuing operations was 1,589 MBOED, compared with 1,532 MBOED in 2014, a 57 MBOED increase. The production increase was driven by growth from major projects and development programs, as well as improved well performance, partially offset by normal field decline. In 2015, we generated $2 billion from the disposition of certain non-core assets in our portfolio. The full-year 2015 production impact of completed dispositions was 64 MBOED.

In 2015, we reviewed our cost structure and took decisive actions to achieve sustainable operating cost reductions across the company. We targeted a $1 billion reduction in operating costs in 2016, compared with 2014. We reduced headcount, including management positions, to streamline decision-making, increased the autonomy in our business units, captured deflation and adjusted our activity levels, which resulted in achieving our stated target in 2015, a year ahead of schedule. Operating costs include production and operating expense; selling, general and administrative expense; and exploration expense excluding dry hole and leasehold impairment expense.

We generated $7.6 billion in cash from continuing operations in 2015, paid dividends on our common stock of $3.7 billion and ended the year with $2.4 billion in cash and cash equivalents.

Business Environment

In the first half of 2014, strong crude oil prices were supported by geopolitical tensions impacting supplies, as well as global oil demand growth. This was followed by an abrupt decline in prices during the fourth quarter of 2014, as surging production growth from U.S. tight oil and the decision by the Organization of Petroleum Exporting Countries (OPEC) to maintain production outweighed fears of supply disruptions. These developments, combined with slowing global oil demand growth, caused crude oil prices to plummet to near five-year lows at the end of 2014. Prices remained significantly lower throughout 2015, reaching a ten-year quarterly low of $43.67 for Brent crude oil, in the fourth quarter of 2015. Lower 2015 prices contributed to higher demand growth which was overwhelmed by continued production increase and supply surplus. Brent crude oil was $30.69 in January 2016, reflecting an ongoing decline in prices.

 

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The energy industry has periodically experienced this type of extreme volatility due to fluctuating supply-and-demand conditions. Commodity prices are the most significant factor impacting our profitability and related reinvestment of operating cash flows into our business. Among other dynamics that could influence world energy markets and commodity prices are global economic health, supply disruptions or fears thereof caused by civil unrest or military conflicts, actions taken by OPEC, environmental laws, tax regulations, governmental policies and weather-related disruptions. North America’s energy landscape has been transformed from resource scarcity to an abundance of supply, primarily due to advances in technology responsible for the rapid growth of tight oil production, successful exploration and rising production from the Canadian oil sands. Our strategy is to sustainably lower our cost structure and maintain a strong balance sheet and a diverse low cost-of-supply portfolio that can provide the financial flexibility to withstand challenging business cycles.

Operating and Financial Priorities

Other important factors we must continue to manage well in order to be successful include:

 

    Maintaining a relentless focus on safety and environmental stewardship. Safety and environmental stewardship, including the operating integrity of our assets, remain our highest priorities, 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. We strive to conduct our business with respect and care for both the local and global environment and systematically manage risk to drive sustainable business growth. Our sustainability efforts in 2015 focused on updating action plans for climate change, biodiversity, water and human rights, as well as revamping public reporting to be more informative, searchable and responsive to common questions. We are committed to building a learning organization using human performance principles as we relentlessly pursue improved Health, Safety and Environment (HSE) and operational performance.

We are a founding member of the Marine Well Containment Company LLC (MWCC), a non-profit organization formed in 2010 to improve industry spill response in the U.S. Gulf of Mexico. MWCC developed a containment system, which meets the U.S. Bureau of Safety and Environmental Enforcement requirements for a subsea well containment system that can respond to a deepwater well control incident in the U.S. Gulf of Mexico. To complement this work internationally, we and several leading oil and gas companies established the Subsea Well Response Project in Norway, which enhances the oil industry’s ability to respond to subsea well-control incidents in international waters.

 

    Exercising our capital flexibility. We participate in a commodity price-driven and capital-intensive industry, with varying lead times from when an investment decision is made to the time an asset is operational and generates cash flow. As a result, we must invest significant capital dollars to explore for new oil and gas fields, develop newly discovered fields, maintain existing fields, and construct pipelines and liquefied natural gas (LNG) facilities. Given our view of greater price volatility, we see benefit in having an inventory of value-preserving, shorter cycle time and low cost-of-supply opportunities in our resource base. In response to weakening commodity prices, we have slowed the pace of certain discretionary investments, including the Eagle Ford and the Bakken, as well as emerging unconventional plays in the Permian, Niobrara and Montney, and plan to fund additional cash calls in our equity affiliates. We retain the flexibility to increase or decrease investment activity without loss of opportunity, and will reassess our near-term investment decisions as necessary. We use a disciplined approach, focused on value maximization, to set our capital plans.

In February 2016, we announced a revised capital budget of $6.4 billion for 2016, a reduction of 37 percent compared with actual capital expenditures of $10.1 billion in 2015. The $3.7 billion reduction primarily reflects lower spending on major projects, deferral of activity primarily in the Lower 48, deflation capture and efficiencies across the portfolio.

 

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    Portfolio optimization. We continue to optimize our asset portfolio by focusing on low cost-of-supply assets which strategically fit our development plans. In the third quarter of 2015, we announced plans to reduce future capital spending in our deepwater exploration program. As a result, we terminated our Gulf of Mexico deepwater drillship contract with Ensco and impaired certain Gulf of Mexico leases where we decided not to conduct further activity. Additionally, in the fourth quarter of 2015, we recorded dry hole expense and impaired additional leases in the Canada segment due to streamlined capital plans.

In 2015, we generated approximately $2 billion in proceeds from non-core asset dispositions, including the sales of certain western Canadian properties, producing properties in East Texas and North Louisiana, producing properties in South Texas, a certain pipeline and gathering assets in South Texas, and our 50 percent equity method investment in the Russian joint venture, Polar Lights Company. We will continue to evaluate our assets to determine whether they fit our strategic direction and will optimize the portfolio as necessary, directing our capital investments to areas that align with our objectives.

 

    Controlling costs and expenses. Controlling operating and overhead costs, without compromising safety and environmental stewardship, is a high priority. 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. Managing operating and overhead costs is critical to maintaining a competitive position in our industry, particularly in a low commodity price environment.

 

    Adding to our proved reserve base. We primarily add to our proved reserve base in three ways:

 

  ¡     Successful exploration, exploitation and development of new and existing fields.
  ¡     Application of new technologies and processes to improve recovery from existing fields.
  ¡     Acquisition of existing fields.

Proved reserve estimates require economic production based on historical 12-month, first-of-month, average prices and current costs. Therefore, our proved reserves generally decrease as prices decline and increase as prices rise. Additionally, as we undertake cash conservation efforts, our reserve replacement efforts could be delayed thus limiting our ability to replace depleted reserves. Low commodity prices and reduced capital expenditures in 2015 adversely affected our reported year-end proved reserves. In 2015, our organic reserve replacement excluding the impact of sales and purchases was 10 percent. In the five years ended December 31, 2015, our organic reserve replacement was 117 percent, excluding the impact of sales and purchases.

Access to additional resources has become increasingly difficult as commodity prices can make projects uneconomic or unattractive. In addition, prohibition of direct investment in some nations, national fiscal terms, 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.

 

    Applying technical capability . We leverage our knowledge and technology to create value and safely deliver on our plans. Technical strength is part of our heritage, and we are evolving our technical approach to optimally apply best practices. Companywide, we continue to evaluate potential solutions to leverage knowledge of technological successes across all of our operations. Such innovations enable us to economically convert additional resources to reserves, achieve greater operating efficiencies and reduce our environmental impact.

 

   

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. To this end, we offer university internships across multiple disciplines to attract the

 

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best talent and, as needed, recruit experienced hires to maintain a broad range of skills and experience. We promote continued learning, development and technical training through structured development programs designed to enhance the technical and functional skills of our employees.

Other significant factors that can affect our profitability include:

 

    Commodity prices. Our earnings and operating cash flows generally correlate with industry price levels for crude oil and natural gas, the prices of which are subject to factors external to the company and over which we have no control. The following graph depicts the average benchmark prices for West Texas Intermediate (WTI) crude oil, Dated Brent crude oil and U.S. Henry Hub natural gas:

 

LOGO

Crude oil prices have remained under pressure throughout 2015 due to continued global production increase that has outpaced demand growth, leading to a large observed rise in global inventory. Brent crude oil prices averaged $43.67 per barrel in the fourth quarter of 2015, a decrease of 43 percent compared with $76.27 per barrel in the fourth quarter of 2014. Similarly, WTI crude oil prices declined 43 percent from $73.41 per barrel in the fourth quarter of 2014 to $42.10 per barrel in the same period of 2015.

Henry Hub natural gas prices averaged $2.27 per million British thermal units (MMBTU) in the fourth quarter of 2015, a decrease of 44 percent compared with $4.04 per MMBTU in the fourth quarter of 2014. Natural gas prices remained under pressure as production growth continued and U.S. underground gas storage inventories rose to the top of the five-year range in late 2015.

Natural gas liquids prices were also lower in 2015. Our realized natural gas liquids prices averaged $16.42 per barrel in the fourth quarter of 2015, a decrease of 47 percent compared with $31.07 per barrel in the same quarter of 2014. The expansion in tight oil production has also helped boost supplies of natural gas liquids, resulting in continued downward pressure on natural gas liquids prices in the United States.

Declining global crude oil prices have resulted in the Western Canada Select benchmark price experiencing a 52 percent decline, from $73.60 per barrel in 2014 to $35.21 per barrel in 2015. Consequently, our realized bitumen price experienced a decrease relative to 2014 price levels. Our realized bitumen price was $18.72 per barrel in 2015, a decrease of 66 percent compared with $55.13 in the same period of 2014.

 

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Our total average realized price from continuing operations was $34.34 per barrel of oil equivalent (BOE) in 2015, a decrease of 47 percent compared with $64.59 per BOE in 2014. Our total average realized price was $28.54 per BOE in the fourth quarter of 2015, a decrease of 46 percent compared with $52.88 per BOE in the fourth quarter of 2014. The reduction in the prices reflects lower average realized prices across all commodities.

In recent years, the use of hydraulic fracturing and horizontal drilling in tight oil formations has led to increased industry actual and forecasted crude oil and natural gas production in the United States. Although providing significant short- and long-term growth opportunities for our company, the increased abundance of crude oil and natural gas due to development of tight oil plays could also have adverse financial implications to us, including: an extended period of low commodity prices; production curtailments; delay of plans to develop areas such as unconventional fields or Alaska North Slope natural gas fields; and underutilization of LNG regasification facilities. Should one or more of these events occur, our revenues would be reduced and additional asset impairments might be possible.

Going forward, domestic crude prices should reach a market equilibrium with global crude prices due to the recent overturn of the U.S. crude export bans.

 

    Impairments. As mentioned above, we participate in capital-intensive industries. At times, our properties, plants and equipment and investments become impaired when, for example, commodity prices decline significantly for long periods of time, our reserve estimates are revised downward, or a decision to dispose of an asset leads to a write-down to its fair value. We may also invest large amounts of money in exploration which, if exploratory drilling proves unsuccessful, could lead to a material impairment of leasehold values. In 2015, we recorded pre-tax impairments of $2.2 billion for proved properties and an equity method investment and $1.9 billion for unproved properties, compared with $856 million and $562 million in 2014. For additional information on our impairments in 2015, 2014 and 2013, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

 

    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. Our operations can be affected by changing economic, regulatory and political environments in the various countries in which we operate, including the United States. Civil unrest or strained relationships with governments may impact our operations or investments. These changing environments have generally negatively impacted our results of operations, and further changes to government fiscal take could have a negative impact on future operations. Our production operations in Libya and related oil exports have been suspended or significantly curtailed since July 2013 due to the closure of the Es Sider crude oil export terminal, and they were also suspended in 2011 during Libya’s period of civil unrest. In 2015, the United Kingdom government enacted tax legislation which reduced our U.K. corporate tax rate by 12 percent, while the Alberta provincial government enacted legislation increasing our overall Canadian corporate tax rate by 2 percent. Our assets in Venezuela and Ecuador were expropriated in 2007 and 2009, respectively. Our management carefully considers these events when evaluating projects or determining the level of activity in such countries.

 

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Outlook

Consistent with our revised 2016 operating plan announced in February 2016, our full-year 2016 production from continuing operations is expected to be flat with 2015 production of 1,525 MBOED, which excludes 64 MBOED for the full-year impact of completed dispositions. First-quarter 2016 production from continuing operations is expected to be 1,540 MBOED to 1,580 MBOED.

Marketing Activities

In line with our objective to continuously optimize our portfolio, we are currently marketing certain non-core assets. We expect to generate up to $1 billion in proceeds annually from asset sales.

Impairments

As a result of lower commodity prices, and as we optimize our investments and exercise capital flexibility, it is reasonably likely we may incur future impairment charges to long-lived assets used in operations, investments in nonconsolidated entities accounted for under the equity method, and unproved properties. Although it is not reasonably practicable to quantify the impact of future impairment charges at this time, our results of operations could be materially adversely affected for the period in which impairment charges are incurred.

Operating Segments

We manage our operations through six operating segments, which are primarily defined by geographic region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International.

Corporate and Other represents costs not directly associated with an operating segment, such as most interest expense, corporate overhead, certain technology activities, as well as licensing revenues received.

Our key performance indicators, shown in the statistical tables provided at the beginning of the operating segment sections that follow, reflect results from our continuing operations, including commodity prices and production.

 

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RESULTS OF OPERATIONS

Consolidated Results

A summary of the company’s income (loss) from continuing operations by business segment follows:

 

                 Millions of Dollars               
Years Ended December 31                2015                 2014                 2013  
  

 

 

 

Alaska

   $ 4        2,041        2,274   

Lower 48

     (1,932     (22     754   

Canada

     (1,044     940        718   

Europe and North Africa

     409        814        1,297   

Asia Pacific and Middle East

     (406     3,008        3,591   

Other International

     (593     (100     223   

Corporate and Other

     (809     (874     (820

 

 

Income (loss) from continuing operations

   $ (4,371     5,807        8,037   

 

 

2015 vs. 2014

Earnings for ConocoPhillips decreased 175 percent in 2015. The decrease was mainly due to lower commodity prices.

In addition, earnings were negatively impacted by:

 

    Higher proved property and equity investment impairments, including a $1.5 billion before- and after-tax impairment of our equity investment in APLNG.
    Higher exploration expenses. Exploration expenses increased mainly as a result of higher unproved property impairments, dry hole costs and other exploration expenses. The increase included after-tax unproved property impairments of $368 million for our Alaska Chukchi Sea leasehold and capitalized interest, $310 million for our Angola Block 36 and 37 Production Sharing Contracts (PSCs), $154 million for multiple Gulf of Mexico leases, and $100 million for various Gila Prospect blocks. Additional after-tax dry hole costs and other expenses resulted from a $185 million charge for several properties in Canada, $137 million for two dry holes in Angola, $111 million for a dry hole in the Gila Prospect in deepwater Gulf of Mexico, and $246 million related to the termination of our drilling contract with Ensco.
    Higher depreciation, depletion and amortization (DD&A), mainly from increased production and commodity price-driven reserve revisions.
    Higher restructuring charges and pension settlement expense.

These reductions to earnings were partly offset by higher sales volumes, lower production taxes due to reduced commodity prices, lower operating expenses, a $555 million net deferred tax benefit resulting from a change in the U.K. tax rate in the first quarter of 2015, the absence of a $540 million after-tax loss resulting from the Freeport LNG termination agreement, gain on sale of assets, and higher licensing revenue.

2014 vs. 2013

Earnings for ConocoPhillips decreased 28 percent in 2014. The decrease was mainly due to:

 

    Lower crude oil prices.
    Lower gains from asset sales. Gains realized in 2014 were approximately $70 million after-tax, compared with gains realized in 2013 of $1,132 million after-tax.
    Higher operating expenses, which included the 2014 recognition of a $540 million after-tax loss resulting from the Freeport LNG termination agreement.

 

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    Higher impairments. Noncash impairments in 2014 totaled $662 million after-tax, compared with $289 million after-tax in 2013.
    Higher DD&A expenses, mainly due to higher volumes in the Lower 48 and the United Kingdom, partly offset by lower unit-of-production rates in Canada related to reserve bookings.
    Higher exploration expenses.

These reductions to earnings were partially offset by higher volumes; lower production taxes, which mainly resulted from higher capital spending, lower prices and lower production volumes in Alaska; and higher natural gas and LNG prices.

Income Statement Analysis

2015 vs. 2014

Sales and other operating revenues decreased 44 percent in 2015, mainly as a result of lower prices across all commodities. Lower prices were partly offset by higher crude oil and LNG sales volumes.

Equity in earnings of affiliates decreased 74 percent in 2015. The decrease was primarily due to lower earnings from FCCL Partnership and Qatar Liquefied Gas Company Limited (3) (QG3), given lower commodity prices, partly offset by higher volumes and lower operational costs.

Gain on dispositions increased by $493 million in 2015. The increase resulted from a $583 million gain from the sales of producing properties in East Texas and North Louisiana, South Texas, and a certain pipeline and gathering assets in South Texas. Gains realized were partly offset by a net loss from the disposition of non-core assets in western Canada. For additional information on gains on dispositions, see Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements.

Other income decreased 66 percent in 2015, mainly due to the absence of 2014 income related to the resolution of a contingent liability in the Other International segment and a legal arbitration settlement in Asia Pacific and Middle East, respectively.

Purchased commodities decreased 44 percent in 2015, largely as a result of lower natural gas prices and the absence of a $130 million loss in the Lower 48 related to transportation and storage capacity agreements recognized in 2014.

Production and operating expenses decreased 21 percent in 2015, largely due to lower operating expense activity, including reduced turnarounds at our Bayu-Undan Field and Darwin LNG facility, favorable foreign exchange-related impacts, and the absence of an $849 million charge resulting from the Freeport LNG termination agreement in 2014. The decrease in expense was partially offset by restructuring expenses of $206 million in 2015.

Selling, general and administrative (SG&A) expenses increased 30 percent in 2015, primarily due to $407 million in restructuring and pension settlement expenses in 2015, partially offset by lower staff and compensation plan costs.

Exploration expenses increased 105 percent in 2015, mainly as a result of higher unproved property impairments, primarily in Alaska, Angola and the Lower 48. Higher dry hole and other exploration costs, including a $253 million pre-tax expense for wells charged to dry hole in Canada, a $383 million expense related to the termination of our Gulf of Mexico deepwater drillship contract, and a $176 million charge for two wells charged to dry hole in the Gila prospect in the deepwater Gulf of Mexico, also contributed to the increase in exploration expenses. For additional information on leasehold impairments and other exploration expenses, see Note 8—Suspended Wells and Other Exploration Expenses, and Note 9—Impairments, in the Notes to Consolidated Financial Statements.

 

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DD&A increased 9 percent in 2015. The increase was mainly associated with higher production volumes in the Lower 48 and Asia Pacific and Middle East and commodity price-related reserve revisions. The increase was partly offset by reserve additions in the Lower 48.

Impairments increased 162 percent in 2015. For additional information, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

Taxes other than income taxes decreased 57 percent in 2015, mainly due to lower production taxes from reduced commodity prices in the Lower 48, Alaska and Asia Pacific and Middle East.

Interest and debt expense increased 42 percent in 2015, primarily due to lower capitalized interest on projects and increased average debt levels in 2015.

See Note 19—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision for income taxes and effective tax rate.

2014 vs. 2013

Sales and other operating revenues decreased 3 percent in 2014, mainly as a result of lower crude oil prices, partly offset by higher crude oil and bitumen volumes and higher natural gas prices.

Equity in earnings of affiliates increased 14 percent in 2014, primarily as a result of higher earnings from FCCL Partnership due to higher bitumen volumes and prices. This increase was partially offset by lower earnings from APLNG, mostly as a result of higher operating expenses and DD&A.

Gain on dispositions decreased $1,144 million in 2014. Gains realized in 2014 mostly resulted from the disposition of certain properties in western Canada. For additional information on gains realized in prior years, see Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements.

Production and operating expenses increased 23 percent in 2014, largely due to the $849 million charge resulting from the Freeport LNG termination agreement. Higher drilling and maintenance activity, mostly in the Lower 48, Australia, Alaska and Europe, in addition to the absence of the 2013 benefit of a $142 million accrual reduction related to the Federal Energy Regulatory Commission (FERC) approval of cost allocation (pooling) agreements with the remaining owners of the Trans-Alaska Pipeline System (TAPS), also contributed to the increase. These increases were partly offset by the absence of a $155 million charge in 2013 related to Bohai Bay. For additional information on the Freeport LNG transaction, see Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements.

SG&A expenses decreased 14 percent in 2014, mainly due to the absence of pension settlement expenses.

Exploration expenses increased 66 percent in 2014, mainly as a result of higher impairments of undeveloped leasehold costs, primarily in the Lower 48 and Canada, and higher dry hole costs, mostly associated with the Gulf of Mexico and Angola. For additional information on the leasehold impairments, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

DD&A increased 12 percent in 2014. This increase was mostly associated with higher production volumes in the United Kingdom and the Lower 48, partly offset by lower unit-of-production rates in Canada associated with year-end 2013 price-related reserve revisions and lower natural gas production volumes.

Impairments increased 62 percent in 2014. For additional information, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

 

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Taxes other than income taxes decreased 28 percent in 2014, mainly due to lower production taxes, which resulted from higher capital spending, lower crude oil prices and lower production volumes in Alaska.

Interest and debt expense increased 6 percent in 2014, primarily due to lower capitalized interest on projects, partly offset by lower interest expense from lower average debt levels and a $28 million benefit associated with interest on a favorable tax settlement.

See Note 19—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision for income taxes and effective tax rate.

 

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Summary Operating Statistics         
     2015         2014         2013   
  

 

 

 

Average Net Production

        

Crude oil (MBD)*

     605         595         581    

Natural gas liquids (MBD)

     156         159         156    

Bitumen (MBD)

     151         129         109    

Natural gas (MMCFD)**

     4,060         3,943         3,939    

 

 

Total Production (MBOED)***

     1,589         1,540         1,502    

 

 
     Dollars Per Unit   
  

 

 

 

Average Sales Prices

        

Crude oil (per barrel)

   $           48.26         92.80         103.32    

Natural gas liquids (per barrel)

     17.79         38.99         41.42    

Bitumen (per barrel)

     18.72         55.13         53.27    

Natural gas (per thousand cubic feet)

     3.96         6.57         6.11    

 

 
     Millions of Dollars   
  

 

 

 

Worldwide Exploration Expenses

        

General and administrative; geological and geophysical; and lease rentals

   $ 1,127         879         789    

Leasehold impairment

     1,924         562         175    

Dry holes

     1,141         604         268    

 

 
   $ 4,192         2,045         1,232    

 

 

Excludes discontinued operations.

         *Thousands of barrels per day.
     **Millions of cubic feet per day. Represents quantities available for sale and excludes gas equivalent of natural gas liquids included above .
***Thousands of barrels of oil equivalent per day.

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and natural gas liquids on a worldwide basis. At December 31, 2015, our continuing operations were producing in the United States, Norway, the United Kingdom, Canada, Australia, Timor-Leste, Indonesia, China, Malaysia and Qatar.

Total production from continuing operations, including Libya, increased 3 percent in 2015. The increase in total average production in 2015 primarily resulted from additional production from major developments, including tight oil plays in the Lower 48; Gumusut in Malaysia; APLNG in Australia; Greater Britannia projects and the J-Area in the U.K.; and the ramp-up of Foster Creek Phase F in Canada. Improved well performance, mostly in the Lower 48, western Canada and Norway, and lower turnaround activity also contributed to higher production in 2015. These increases were largely offset by normal field decline. Adjusted for downtime and dispositions of 13 MBOED, our production from continuing operations, excluding Libya, increased by 70 MBOED, or 5 percent, compared with 2014. Full-year 2015 production from assets sold or under agreement was 64 MBOED.

In 2014, average production from continuing operations increased 3 percent compared with 2013, while average liquids production increased 4 percent. The increase in total average production in 2014 primarily resulted from additional production from major developments, mainly from tight oil plays in the Lower 48 and the ramp up of production from Jasmine in the United Kingdom and Christina Lake in Canada, and increased drilling programs, mostly in the Lower 48, western Canada and Norway. These increases were largely offset by normal field decline, higher planned downtime, shut-in Libya production due to the closure of the Es Sider crude oil export terminal, and unfavorable market impacts. Adjusted for Libya, production from continuing operations increased by 60 MBOED, or 4 percent, compared with 2013.

 

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Alaska

 

     2015         2014         2013   
  

 

 

 

Income from Continuing Operations (millions of dollars)

   $ 4         2,041         2,274    

 

 

Average Net Production

        

Crude oil (MBD)

     158         162         178    

Natural gas liquids (MBD)

     13         13         15    

Natural gas (MMCFD)

     42         49         43    

 

 

Total Production (MBOED)

     178         183         200    

 

 

Average Sales Prices

        

Crude oil (per barrel)

   $           51.61         97.68         107.83    

Natural gas (per thousand cubic feet)

     4.33         5.42         4.35    

 

 

The Alaska segment primarily explores for, produces, transports and markets crude oil, natural gas liquids, natural gas and LNG. In 2015, Alaska contributed 19 percent of our worldwide liquids production and 1 percent of our natural gas production.

2015 vs. 2014

Alaska reported earnings of $4 million in 2015, compared with earnings of $2,041 million in 2014, mainly due to lower commodity prices and a $368 million after-tax charge in the fourth quarter of 2015 for the impairment of our Chukchi Sea leasehold and capitalized interest. The earnings decrease was partly offset by reduced production taxes resulting from lower commodity prices.

Average production decreased 3 percent in 2015 compared with 2014, primarily due to normal field decline, partly offset by lower planned downtime activity and new production from the Western North Slope, Greater Prudhoe and Greater Kuparuk areas.

2014 vs. 2013

Alaska earnings decreased 10 percent in 2014 compared with 2013 earnings. The decrease was largely due to lower crude oil prices and volumes; the absence of a $97 million after-tax benefit associated with a FERC ruling in 2013, more fully described below; higher operating expenses; and a $36 million after-tax impairment related to a cancelled project. These reductions to earnings were partly offset by lower production taxes, which resulted from higher 2014 capital spending and lower crude oil prices and volumes. Higher LNG sales volumes and prices also partially offset the decrease in 2014 earnings.

In 2012, the major owners of TAPS filed a proposed settlement with FERC to resolve pooling disputes prior to August 2012 and establish a voluntary pooling agreement to pool costs prospectively from August 2012. In July 2013, FERC approved the proposed settlement and pooling agreement without modification. As a result, we reduced a related accrual in the second quarter of 2013, which decreased our production and operating expenses by $97 million after-tax.

Average production decreased 9 percent in 2014 compared with 2013, mainly as a result of normal field decline and higher planned maintenance, partly offset by lower unplanned downtime.

 

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Lower 48

 

     2015           2014           2013   
  

 

 

 

Income (Loss) from Continuing Operations (millions of dollars)

   $ (1,932)           (22)           754    

 

 

Average Net Production

            

Crude oil (MBD)

     206           188           152    

Natural gas liquids (MBD)

     94           97           91    

Natural gas (MMCFD)

     1,472           1,491           1,490    

 

 

Total Production (MBOED)

     545           533           491    

 

 

Average Sales Prices

            

Crude oil (per barrel)

   $           42.62           84.18           93.79    

Natural gas liquids (per barrel)

     14.01           30.74           31.48    

Natural gas (per thousand cubic feet)

     2.43           4.29           3.50    

 

 

The Lower 48 segment consists of operations located in the U.S. Lower 48 states and exploration activities in the Gulf of Mexico. During 2015, the Lower 48 contributed 33 percent of our worldwide liquids production and 36 percent of our natural gas production.

2015 vs. 2014

Lower 48 reported a loss of $1,932 million after-tax in 2015, compared with a loss of $22 million after-tax in 2014. The decrease in earnings was primarily due to:

 

    Lower crude oil, natural gas and natural gas liquids prices.
    Higher DD&A, mostly due to increased crude oil production.
    Higher exploration expenses
  ¡     Increased impairment expense in 2015, including after-tax charges of $154 million for certain leases in the Gulf of Mexico and $100 million for various blocks in the Gila Prospect, where we ceased further activity.
  ¡     A $246 million charge to exploration expense related to the termination of our Gulf of Mexico deepwater drillship contract with Ensco.
  ¡     Higher dry hole costs, including $111 million associated with two wells in the Gila Prospect in the deepwater Gulf of Mexico.

These decreases were partly offset by the absence of a $545 million after-tax charge resulting from the Freeport LNG termination agreement in 2014; a $368 million after-tax gain from the disposition of certain properties in South Texas, East Texas and Northern Louisiana; higher volumes; lower production taxes; and the absence of a $151 million after-tax impairment charge resulting from reduced volume forecasts on proved properties and the associated undeveloped leasehold costs.

Our average realized prices in the Lower 48 have historically correlated with WTI prices; however, beginning in the second half of 2013, our Lower 48 crude differential versus WTI began to widen. Our 2015 average realized crude oil price of $42.62 per barrel was 13 percent less than WTI of $48.72 per barrel. The differential is driven primarily by local market dynamics in the Gulf Coast, Bakken and the Permian Basin, and may remain relatively wide in the near-term.

Total average production increased 2 percent in 2015 compared with 2014, while average crude oil production increased 10 percent across the same period. The increase was mainly attributable to new production, primarily from Eagle Ford, Bakken and the Permian Basin, partially offset by normal field decline.

 

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2014 vs. 2013

The Lower 48 reported a loss of $22 million after-tax in 2014, compared with earnings of $754 million after-tax in 2013. The decrease in earnings was primarily attributable to:

 

    Higher operating expenses, which included the $545 million after-tax charge to earnings due to the Freeport LNG termination agreement.
    Lower crude oil prices.
    Higher DD&A, mostly due to higher crude oil production.
    Higher impairments. Earnings in 2014 were impacted by impairments of approximately $290 million after-tax. Property impairments were not material in 2013. For additional information, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.
    Higher dry hole costs. Dry hole costs in 2014 were approximately $180 million after-tax, primarily for the nonoperated Coronado wildcat and appraisal wells, the Shenandoah appraisal well and the Deep Nansen wildcat well, all located in the Gulf of Mexico. Dry hole costs in 2013 were approximately $130 million after-tax and mainly consisted of the Ardennes and Thorn wells, also located in the Gulf of Mexico.
    An $83 million after-tax loss recognized upon the release of underutilized transportation and storage capacity at rates below our contractual rates.

These reductions to earnings were partially offset by higher crude oil and natural gas liquids volumes, higher natural gas prices and a benefit to earnings of approximately $150 million after-tax from marketing third-party natural gas volumes.

Total average production in the Lower 48 increased 9 percent in 2014, while average crude oil production increased 24 percent. The increase was mainly attributable to new production, primarily from the Eagle Ford and Bakken, and improved drilling and well performance, partially offset by normal field decline.

 

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Canada

 

     2015           2014           2013   
  

 

 

 

Income (Loss) from Continuing Operations (millions of dollars)

   $           (1,044)           940           718    

 

 

Average Net Production

            

Crude oil (MBD)

     12           13           13    

Natural gas liquids (MBD)

     26           23           25    

Bitumen (MBD)

     13           12           13    

Consolidated operations

            

Equity affiliates

     138           117           96    

 

 

Total bitumen

     151           129           109    

 

 

Natural gas (MMCFD)

     715           711           775    

 

 

Total Production (MBOED)

     308           284           276    

 

 

Average Sales Prices

            

Crude oil (per barrel)

   $ 39.52           77.87           79.73    

Natural gas liquids (per barrel)

     17.02           46.23           47.19    

Bitumen (dollars per barrel)

     20.13           60.03           55.25    

Consolidated operations

            

Equity affiliates

     18.58           54.62           53.00    

Total bitumen

     18.72           55.13           53.27    

Natural gas (per thousand cubic feet)

     1.91           4.13           2.92    

 

 

Our Canadian operations mainly consist of natural gas fields in western Canada and oil sands developments in the Athabasca Region of northeastern Alberta. In 2015, Canada contributed 21 percent of our worldwide liquids production and 18 percent of our worldwide natural gas production.

2015 vs. 2014

Canada operations reported a loss of $1,044 million in 2015, a reduction of $1,984 million compared with 2014. The decrease in earnings was primarily due to:

 

    Lower bitumen and natural gas prices.
    Higher exploration expenses
  ¡     Higher dry hole costs, including an after-tax charge of $185 million associated with our Horn River, Northwest Territories, Thornbury and Saleski properties.
  ¡     An after-tax impairment charge of $75 million for undeveloped leasehold in the Duvernay, Thornbury, Saleski and Crow Lake areas.
    A 2 percent increase in Alberta corporate tax rates on deferred taxes.
    A $103 million net after-tax loss realized on the disposition of non-core assets in western Canada.

The earnings decrease was partly offset by higher bitumen production volumes; lower operating expenses and DD&A, both primarily from favorable foreign currency impacts; and the absence of the $109 million after-tax impairment of undeveloped leasehold costs associated with the offshore Amauligak discovery, Arctic Islands and other Beaufort properties in 2014.

Total average production increased 8 percent in 2015 compared with 2014, while bitumen production increased 17 percent over the same periods. The increases in total production were mainly attributable to strong well performance in western Canada, lower royalty impacts, strong plant performance at Foster Creek

 

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and Christina Lake and the continued ramp-up of production from Foster Creek Phase F. These increases were partly offset by normal field decline and increased unplanned downtime, including the precautionary shut down of Foster Creek for nearby forest fires in the second quarter of 2015.

2014 vs. 2013

Canada earnings increased 31 percent in 2014 compared with 2013, primarily as a result of higher natural gas and bitumen prices, lower DD&A from western Canada and higher bitumen volumes. The lower DD&A mainly resulted from lower unit-of-production rates related to year-end 2013 price-related reserve revisions and lower natural gas production volumes. Earnings in 2014 also included a $47 million tax benefit resulting from a favorable tax settlement. These increases were partly offset by lower gains from asset sales, mainly as a result of the $461 million after-tax gain from the disposition of our Clyden undeveloped oil sands leasehold in 2013, as well as the 2013 recognition of a $224 million tax benefit, related to the favorable tax resolution associated with the sale of certain western Canada properties. Lower natural gas volumes also partially offset the increase in 2014 earnings.

In addition, earnings in 2014 benefitted from lower impairments. Impairments in 2014 were $138 million after-tax and consisted primarily of the $109 million after-tax impairment of unproved properties associated with the offshore Amauligak discovery, Arctic Islands and other Beaufort properties. Impairments in 2013 consisted of the $162 million after-tax impairment of mature natural gas assets in western Canada.

For additional information on asset sales, see Note 6—Assets Held for Sale or Sold, and for additional information on impairments, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

Total average production increased 3 percent in 2014 compared with 2013, while bitumen production increased 18 percent over the same period. The continued ramp-up of production from Christina Lake Phase E in FCCL and improved drilling and well performance were partly offset by normal field decline and higher royalty impacts.

Europe and North Africa

 

     2015         2014         2013   
  

 

 

 

I ncome from Continuing Operations (millions of dollars)

   $ 409         814         1,297   

 

 

Average Net Production

        

Crude oil (MBD)

     120         134         139   

Natural gas liquids (MBD)

     7         8         6   

Natural gas (MMCFD)

     476         464         441   

 

 

Total Production (MBOED)

     207         219         219   

 

 

Average Sales Prices

        

Crude oil (dollars per barrel)

   $         52.75                   98.98                   109.96   

Natural gas liquids (per barrel)

     27.56         52.65         58.36   

Natural gas (per thousand cubic feet)

     7.14         9.28         10.41   

 

 

The Europe and North Africa segment consists of producing and exploration operations principally located in the Norwegian and U.K. sectors of the North Sea, the Norwegian Sea, as well as in Libya. In 2015, our Europe and North Africa operations contributed 14 percent of our worldwide liquids production and 12 percent of our natural gas production.

 

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2015 vs. 2014

Earnings for Europe and North Africa operations decreased 50 percent in 2015. The decrease in earnings was primarily due to lower crude oil and natural gas prices. Earnings further decreased due to higher property impairments in the U.K., given lower natural gas prices and increases to asset retirement obligations. The earnings decrease was partly offset by a $555 million net deferred tax benefit as a result of a change in the U.K. tax rate, effective at the beginning of 2015, and an after-tax gain of $49 million realized on the sale of our 1.9 percent interest in Norwegian Continental Shelf Gas Transportation (Gassled).

For additional information on the impairments, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

Average production decreased 5 percent in 2015, compared with 2014. The decrease in production was mostly due to normal field decline and lower volumes from Libya, partly offset by the new production from the Greater Britannia Area, the J-Area and the Greater Ekofisk Area, as well as improved well performance in Norway.

The Es Sider Terminal in Libya remained shut in throughout 2015. The 2016 operating and drilling activity in Libya is uncertain as a result of the ongoing civil unrest.

2014 vs. 2013

Earnings for Europe and North Africa decreased 37 percent in 2014 compared with 2013. The reduction in earnings was primarily due to higher DD&A, which mainly resulted from increased production volumes from Jasmine, lower crude oil and natural gas prices, higher taxes, higher impairments, and lower volumes from Libya. Impairments in 2014 were $192 million after-tax, compared with impairments in 2013 of $118 million after-tax. Lower gains from asset dispositions, mostly due to the absence of the $83 million after-tax gain on the disposition of our interest in the Interconnector Pipeline in 2013, also contributed to the decrease in 2014 earnings. These decreases were partly offset by higher volumes, primarily in the U.K., and a $48 million after-tax benefit from a pension-related settlement.

For additional information on the impairments, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

Average production was flat in 2014 compared with 2013, as the continued ramp-up of production from Jasmine, the Rivers Acid Plant in the East Irish Sea and Ekofisk South, improved drilling and well performance in Norway and lower planned downtime, were equally offset by normal field decline and the shutdown of the Es Sider crude oil export terminal in Libya.

 

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Asia Pacific and Middle East

 

     2015         2014         2013   
  

 

 

 

Income (Loss) from Continuing Operations (millions of dollars)

   $ (406)         3,008         3,591   

 

 

Average Net Production

        

Crude oil (MBD)

        

Consolidated operations

     91         79         80   

Equity affiliates

     14         15         15   

 

 

Total crude oil

     105         94         95   

 

 

Natural gas liquids (MBD)

        

Consolidated operations

     9         10         12   

Equity affiliates

     7         8         7   

 

 

Total natural gas liquids

     16         18         19   

 

 

Natural gas (MMCFD)

        

Consolidated operations

     717         723         709   

Equity affiliates

     638         505         481   

 

 

Total natural gas

     1,355         1,228         1,190   

 

 

Total Production (MBOED)

     347         317         312   

 

 

Average Sales Prices

        

Crude oil (dollars per barrel)

        

Consolidated operations

   $         49.70                 95.32                 104.78   

Equity affiliates

     53.12         99.01         105.44   

Total crude oil

     50.16         95.92         104.88   

Natural gas liquids (dollars per barrel)

        

Consolidated operations

     37.78         69.36         73.82   

Equity affiliates

     35.79         67.20         73.31   

Total natural gas liquids

     36.88         68.46         73.63   

Natural gas (dollars per thousand cubic feet)

        

Consolidated operations

     6.23         9.80         10.61   

Equity affiliates

     4.83         9.79         8.98   

Total natural gas

     5.58         9.80         9.95   

 

 

The Asia Pacific and Middle East segment has operations in China, Indonesia, Malaysia, Australia, Timor-Leste and Qatar, as well as exploration activities in Brunei. During 2015, Asia Pacific and Middle East contributed 13 percent of our worldwide liquids production and 33 percent of our natural gas production.

2015 vs. 2014

Asia Pacific and Middle East reported a loss of $406 million in 2015, compared with income of $3,008 million in 2014. The decrease in earnings was mainly due to lower prices across all commodities. Earnings in 2015 were further decreased by a $1,502 million before- and after-tax charge for the impairment of our APLNG investment, higher DD&A expense from increased volumes, primarily in Malaysia, and a $41 million after-tax charge for the impairment of our relinquished Palangkaraya PSC. The earnings decrease was partially offset by lower production taxes, increased volumes, as well as lower feedstock costs and reduced turnarounds at our Bayu-Undan Field and Darwin LNG facility.

 

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See the “APLNG” section of Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for information on the impairment of our APLNG investment included within the Asia Pacific and Middle East segment.

Average production increased 9 percent in 2015, compared with 2014. The production increase was mainly attributable to new production from Gumusut, in Malaysia, which came online in the fourth quarter of 2014; the ramp-up of APLNG production due to additional gas processing facilities online; and infill drilling in China. Production increases were partly offset by normal field decline.

2014 vs. 2013

Asia Pacific and Middle East earnings decreased 16 percent in 2014 compared with 2013. The reduction in earnings was largely due to lower crude oil and natural gas prices; higher operating expenses, mostly as a result of major planned maintenance at our Bayu-Undan Field and Darwin LNG facility in Australia; lower equity earnings, mainly due to increased activity at APLNG in preparation for startup in 2015; and lower sales volumes, primarily crude oil and LNG. These decreases were partially offset by higher LNG prices, higher natural gas volumes and lower taxes. The 2014 benefits from the absence of the $116 million after-tax charge in 2013 related to Bohai Bay and a $30 million after-tax legal settlement in 2014 were offset by the absence of a $146 million after-tax insurance settlement received in 2013, also associated with the Bohai Bay seepage incidents.

Average production increased 2 percent in 2014 compared with 2013. Increased production, mainly from Indonesia, China and Malaysia, was largely offset by normal field decline and major planned maintenance at Bayu-Undan and Darwin LNG.

Other International

 

     2015           2014           2013   
  

 

 

 

Income (Loss) from Continuing Operations (millions of dollars)

   $         (593)           (100)           223    

 

 

Average Net Production

            

Crude oil (MBD)

            

Equity affiliates

     4           4             

 

 

Total Production (MBOED)

     4           4             

 

 

Average Sales Prices

            

Crude oil (dollars per barrel)

            

Equity affiliates

     37.21           64.14           72.43    

 

 

The Other International segment includes exploration activities in Colombia, Angola and Senegal. In 2015, Other International contributed less than 1 percent of our worldwide liquids production. In the fourth quarter of 2015, we completed the sale of our 50 percent interest in the Polar Lights Company.

2015 vs. 2014

Other International operations reported a loss of $593 million in 2015, compared with a loss of $100 million in 2014. The decrease in earnings was primarily due to after-tax charges of $235 million, $75 million and $32 million net for property impairments on our Angola Block 36, Angola Block 37 and Poland leasehold, respectively. Earnings were also reduced due to increased dry hole expenses for the Omosi-1 and Vali-1 wells in Angola and the absence of other income of $154 million after-tax associated with the favorable resolution of

 

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a contingent liability. The reduction in earnings was partly offset by the absence of the $136 million after-tax charge in 2014 for the Kamoxi-1 exploration well, located offshore Angola; and a $53 million after-tax gain from the disposition of our interest in the Polar Lights Company.

For additional information on the impairments, see Note 9—Impairments, in the Notes to Consolidated Financial Statements.

Average production was flat in 2015 compared with 2014.

2014 vs. 2013

Other International operations reported a loss of $100 million in 2014, compared with earnings of $223 million in 2013. The decrease was primarily due to the lower gains from asset dispositions, mainly from the absence of the $288 million after-tax gain recognized on the 2013 disposition of our equity investment in Phoenix Park Processors Limited, located in Trinidad and Tobago and higher dry hole expenses, mostly due to the $136 million after-tax charge for the Kamoxi-1 exploration well, located offshore Angola. These reductions were partially offset by the recognition of other income of $154 million after-tax associated with the favorable resolution of a contingent liability.

Average production was flat in 2014 compared with 2013.

Corporate and Other

 

     Millions of Dollars  
     2015                     2014                     2013   
  

 

 

 

Income (Loss) from Continuing Operations

        

Net interest

   $           (518)         (502)         (530)    

Corporate general and administrative expenses

     (246)         (194)         (213)    

Technology

     122          (93)         (6)    

Other

     (167)         (85)         (71)    

 

 
   $ (809)         (874)         (820)    

 

 

2015 vs. 2014

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 3 percent in 2015 compared with 2014, primarily as a result of lower capitalized interest on projects completed or sold and increased debt. The 2015 net interest expense increase was largely offset by a $148 million net tax benefit for electing the fair market value method of apportioning interest expense in the United States for prior years.

Corporate general and administrative expenses increased 27 percent in 2015, mainly due to $143 million in after-tax pension settlement expense, partially offset by lower staff and compensation plan costs.

Technology includes our investment in new technologies or businesses, as well as licensing revenues received. Activities are focused on heavy oil and oil sands, unconventional reservoirs, LNG, and subsurface, arctic and deepwater technologies, with an underlying commitment to environmental responsibility. Earnings from Technology were $122 million in 2015, compared with losses of $93 million in 2014. The increase in earnings primarily resulted from higher licensing revenues.

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. “Other” expenses increased by $82 million in 2015, mainly due to $142 million after-tax in restructuring charges and foreign currency translation impacts, partially offset by lower environmental expenses.

 

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2014 vs. 2013

Net interest decreased 5 percent in 2014 compared with 2013, primarily as a result of a $93 million tax benefit associated with the election of the fair market value method of apportioning interest expense in the United States, as well as a $28 million after-tax benefit associated with interest on a favorable tax settlement. These improvements were largely offset by lower capitalized interest on projects sold or completed.

Corporate general and administrative expenses decreased 9 percent in 2014, mainly due to lower pension settlement expense, partly offset by higher benefit-related expenses. Pension settlement expense incurred in 2013 was $41 million after-tax. We did not incur pension settlement expense in 2014.

Losses from Technology were $93 million in 2014, compared with losses of $6 million in 2013. The reduction in earnings primarily resulted from lower licensing revenues and higher research and development expenses.

 

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

 

    

Millions of Dollars

Except as Indicated

 
  

 

 

 
     2015           2014           2013   
  

 

 

 

Net cash provided by continuing operating activities

   $           7,572           16,412           15,856   

Net cash provided by discontinued operations

     -           157           285   

Cash and cash equivalents

     2,368           5,062           6,246   

Short-term debt

     1,427           182           589   

Total debt

     24,880           22,565           21,662   

Total equity

     40,082           52,273           52,492   

Percent of total debt to capital*

     38         30           29   

Percent of floating-rate debt to total debt**

            5           8   

 

 

    *Capital includes total debt and total equity.

  **Includes effect of interest rate swaps in 2013.

To meet our short- and long-term liquidity requirements, we look to a variety of funding sources. Cash generated from continuing operating activities is the primary source of funding. In addition, during 2015 we received $1,952 million in proceeds from asset sales and issued $2,498 million of new fixed and floating rate notes. The primary uses of our available cash were $10,050 million to support our ongoing capital expenditures and investments program; $3,664 million to pay dividends on our common stock; and $103 million to repay debt. During 2015, cash and cash equivalents decreased by $2,694 million, to $2,368 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. We believe current cash 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 and required debt payments.

Significant Sources of Capital

Operating Activities

During 2015, cash provided by continuing operating activities was $7,572 million, a 54 percent decrease from 2014. The decrease was primarily due to lower prices across all commodities and the absence of the $1.3 billion distribution from FCCL in the first quarter of 2014, partly offset by year-over-year production growth. The distribution from FCCL resulted from our $2.8 billion prepayment of the remaining joint venture acquisition obligation in 2013, which substantially increased the financial flexibility of our 50 percent owned FCCL Partnership. We do not expect this individually significant distribution to recur in the future under current economic conditions. During 2014, cash provided by continuing operations was $16,412 million, compared with $15,856 million in 2013.

While the stability of our cash flows from operating activities benefits from geographic diversity, our short- and long-term operating cash flows are highly dependent upon prices for crude oil, bitumen, natural gas, LNG and natural gas liquids. Prices and margins in our industry have historically been volatile and are driven by market conditions over which we have no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows.

The level of absolute production volumes, as well as product and location mix, impacts our cash flows. Our 2015 production averaged 1,589 MBOED. We expect 2016 production to be flat with 2015 production of 1,525 MBOED, which excludes 64 MBOED for the full-year impact of completed dispositions. Future production is subject to numerous uncertainties, including, among others, the volatile crude oil and natural gas

 

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price environment, which may impact investment decisions; the effects of price changes on production sharing and variable-royalty contracts; acquisition and disposition of fields; field production decline rates; new technologies; operating efficiencies; timing of startups and major turnarounds; political instability; weather-related disruptions; and the addition of proved reserves through exploratory success and their timely and cost-effective development. While we actively manage these factors, production levels can cause variability in cash flows, although generally this variability has not been as significant as that caused by commodity prices.

To maintain or grow our production volumes, we must continue to add to our proved reserve base. Our total reserve replacement in 2015 was negative 19 percent. Excluding the impact of sales and purchases, the organic reserve replacement was 10 percent of 2015 production. Over the five-year period ended December 31, 2015, our reserve replacement was 96 percent (including 54 percent from consolidated operations) reflecting the impact of asset dispositions. Excluding these items and purchases, our five-year organic reserve replacement was 117 percent. The total reserve replacement amount above is 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. In the event we undertake any cash conservation efforts, our reserve replacement efforts could be delayed thus limiting our ability to replace depleted reserves. For additional information about our 2016 capital budget, see the “2016 Capital Budget” section within “Capital Resources and Liquidity” and for additional information on proved reserves, including both developed and undeveloped reserves, see the “Oil and Gas Operations” section of this report.

As discussed in the “Critical Accounting Estimates” section, engineering estimates of proved reserves are imprecise; therefore, each year reserves may be revised upward or downward due to the impact of changes in commodity prices or as more technical data becomes available on reservoirs. In 2015, revisions decreased reserves, while in 2014 and 2013, revisions increased reserves. It is not possible to reliably predict how revisions will impact reserve quantities in the future.

Investing Activities

Proceeds from asset sales in 2015 were $2.0 billion, primarily from the sales of certain western Canadian properties; producing properties in East Texas and North Louisiana and in South Texas; a certain pipeline and gathering assets in South Texas; and our 50 percent equity method investment in the Russian joint venture, Polar Lights Company. This compares with proceeds of $1.6 billion in 2014, primarily from the sale of our Nigeria upstream affiliates for net proceeds of $1.4 billion, after customary adjustments, inclusive of deposits previously received. For additional information, see Note 3—Discontinued Operations, and Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements. We continue to optimize our asset portfolio by focusing on assets which offer the highest returns and growth potential, while selling non-core assets. For additional information regarding marketing activities, see the “Outlook” section within Management’s Discussion and Analysis.

In May 2015, we liquidated certain deferred compensation investments for proceeds of $267 million, which is included in the “Other” line within “Cash Flows From Investing Activities” on our consolidated statement of cash flows. We do not expect further material liquidations associated with deferred compensation investments. For additional information, see Note 15—Fair Value Measurement, in the Notes to Consolidated Financial Statements. Cash flows from investing activities in 2014 were impacted by the $454 million receipt of the Freeport LNG loan repayment.

Commercial Paper and Credit Facilities

During 2015, we had a revolving credit facility totaling $7.0 billion expiring in June 2019. Our revolving credit facility may be used for direct bank borrowings, for the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper programs. The revolving credit facility is broadly syndicated among financial institutions and does not contain any material adverse change provisions or any covenants requiring maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more by ConocoPhillips or any of its consolidated subsidiaries.

 

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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 agreement calls for commitment fees on available, but unused, amounts. The agreement also contains 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 $6.1 billion commercial paper program. Commercial paper maturities are generally limited to 90 days. We also have the ConocoPhillips Qatar Funding Ltd. $900 million commercial paper program, which is used to fund commitments relating to QG3. At both December 31, 2015 and 2014, we had no direct borrowings or letters of credit issued under the revolving credit facility. Under the ConocoPhillips Qatar Funding Ltd. commercial paper programs, $803 million of commercial paper was outstanding at December 31, 2015, compared with $860 million at December 31, 2014. Since we had $803 million of commercial paper outstanding and had issued no letters of credit, we had access to $6.2 billion in borrowing capacity under our revolving credit facility at December 31, 2015.

In August 2015, Moody’s Investors Service downgraded our senior long-term debt ratings to “A2” from “A1”, with a stable outlook. In February 2016, Standard and Poor’s placed our long-term and short-term corporate credit ratings on CreditWatch with Negative Implications. Due to the recent significant decline in commodity prices and the expectation these prices could remain depressed in the near future, the major ratings agencies have indicated they will be conducting a review of the oil and gas industry. During the first quarter of 2016, the credit ratings for several companies in the oil and gas industry were downgraded, and we expect further downgrades may broadly impact the industry during the first half of 2016. 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 further 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 revolving credit facility.

Certain of our project-related contracts and derivative instruments contain provisions requiring us to post collateral. Many of these contracts and instruments permit us to post either cash or letters of credit as collateral. At December 31, 2015 and December 31, 2014, we had direct bank letters of credit of $340 million and $802 million, respectively, which secured performance obligations related to various purchase commitments incident to the ordinary conduct of business.

Shelf Registration

We have a universal shelf registration statement on file with the U.S. Securities and Exchange Commission 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.

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.

For information about guarantees, see Note 12—Guarantees, in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Capital Requirements

For information about our capital expenditures and investments, see the “Capital Expenditures” section.

Our debt balance at December 31, 2015, was $24.9 billion, an increase of $2.3 billion from the balance at December 31, 2014, primarily as a result of the May 2015 issuance of $2.5 billion in new fixed and floating rate notes. Our short-term debt balance at December 31, 2015, increased $1.2 billion compared with

 

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December 31, 2014, primarily as a result of the timing of scheduled maturities. We expect to pursue financing options in 2016 to provide additional capital to finance our operations and to partially refinance some of our long-term borrowings, which may include offerings of additional notes from time to time depending on market conditions. For more information, see Note 11—Debt, in the Notes to Consolidated Financial Statements.

We were obligated to contribute $7.5 billion, plus interest, over a 10-year period that began in 2007, to our 50 percent owned FCCL Partnership. In December 2013, we paid the remaining balance of the obligation, which totaled $2,810 million and is included in the “Other” line in the financing activities section of our consolidated statement of cash flows.

In October 2015, we announced a dividend of 74 cents per share. The dividend was paid December 1, 2015, to stockholders of record at the close of business on October 19, 2015. On February 4, 2016, we announced a reduction in the quarterly dividend to 25 cents per share, compared with the previous quarterly dividend of 74 cents per share. We believe this effort will allow us to preserve our balance sheet strength and provide financial flexibility through the current downturn. The dividend will be paid March 1, 2016, to stockholders of record at the close of business on February 16, 2016.

Contractual Obligations  

The following table summarizes our aggregate contractual fixed and variable obligations of our continuing

operations as of December 31, 2015:

 

     Millions of Dollars  
  

 

 

 
     Payments Due by Period   
  

 

 

 
     Total        
 
Up to 1
Year
  
  
    
 
Years
2–3
  
  
    
 
Years
4–5
  
  
    
 
After
5 Years
  
  
  

 

 

 

Debt obligations (a)

   $         24,062         1,365         2,841         4,484         15,372   

Capital lease obligations (b)

     818         62         99         106         551   

 

 

Total debt

     24,880         1,427         2,940         4,590         15,923   

 

 

Interest on debt and other obligations

     15,120         1,185         2,209         1,792         9,934   

Operating lease obligations (c)

     2,157         671         575         530         381   

Purchase obligations (d)

     12,359         5,043         2,040         1,324         3,952   

Other long-term liabilities

              

Pension and postretirement benefit contributions (e)

     1,999         414         892         693         -   

Asset retirement obligations (f)

     9,911         553         1,101         1,006         7,251   

Accrued environmental costs (g)

     258         39         51         35         133   

Unrecognized tax benefits (h)

     46         46         (h)         (h)         (h)   

 

 

Total

   $ 66,730         9,378         9,808         9,970         37,574   

 

 

 

(a) Includes $284 million of net unamortized premiums, discounts and debt issuance costs. See Note 11—Debt, in the Notes to Consolidated Financial Statements, for additional information.

 

(b) Capital lease obligations are presented on a discounted basis.

 

(c) Operating lease obligations are presented on an undiscounted basis.

 

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(d) Represents any agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms, presented on an undiscounted basis. 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 related to our commodity business. Product purchase commitments with third parties totaled $3,986 million.

Purchase obligations of $6,664 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 commodities. 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.

 

(e) Represents contributions to qualified and nonqualified pension and postretirement benefit plans for the years 2016 through 2020. For additional information related to expected benefit payments subsequent to 2020, see Note 18—Employee Benefit Plans, in the Notes to Consolidated Financial Statements.

 

(f) Represents estimated discounted costs to retire and remove long-lived assets at the end of their operations.

 

(g) Represents estimated costs for accrued environmental expenditures presented on a discounted basis for costs acquired in various business combinations and an undiscounted basis for all other accrued environmental costs.

 

(h) Excludes unrecognized tax benefits of $413 million because the ultimate disposition and timing of any payments to be made with regard to such amounts 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 Expenditures

 

     Millions of Dollars  
  

 

 

 
     2015         2014         2013   
  

 

 

 

Alaska

   $ 1,352         1,564         1,140   

Lower 48

     3,765         6,054         5,210   

Canada

     1,255         2,340         2,232   

Europe and North Africa

     1,573         2,540         3,126   

Asia Pacific and Middle East

     1,812         3,877         3,382   

Other International

     173         520         265   

Corporate and Other

     120         190         182   

 

 

Capital expenditures and investments from continuing operations

     10,050         17,085         15,537   

 

 

Discontinued operations in Kashagan, Nigeria and Algeria

     -         59         609   

Joint venture acquisition obligation (principal)—Canada*

     -         -         772   

 

 

Capital Program

   $         10,050                 17,144                 16,918   

 

 
*Excludes $2,810 million prepayment in the fourth quarter of 2013.

Working capital changes associated with investing activities increased cash used in investing activities by $968 million for the year ended December 31, 2015, compared with a decrease of $180 million for the corresponding period of 2014, and an increase of $55 million for the corresponding period of 2013. The increase in cash used in investing activities as of December 31, 2015, is attributable to reduced capital accruals, as compared with December 31, 2014, from lower activity levels in 2015, primarily in the Lower 48 and Canada.

 

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Our capital expenditures and investments from continuing operations for the three-year period ended December 31, 2015, totaled $42.7 billion. The 2015 expenditures supported key exploration and developments, primarily:

 

    Oil and natural gas development and exploration activities in the Lower 48, including Eagle Ford, Bakken, and the Permian Basin.
    Major project expenditures associated with the APLNG joint venture in Australia.
    Oil sands development, notably at Surmont 2, and ongoing liquids-rich plays in Canada.
    Alaska activities related to development in the Greater Kuparuk Area, Greater Prudhoe Area and the Western North Slope.
    In Europe, development activities in the Greater Ekofisk, Aasta Hansteen, Clair Ridge, Jasmine and Greater Britannia areas, and exploration and appraisal activities in the Jasmine and Greater Clair areas.
    Exploration and appraisal drilling in deepwater Gulf of Mexico.
    Continued development in Malaysia, Indonesia, China, Timor-Leste and offshore Australia, and exploration and appraisal activity in Malaysia, Indonesia, China and offshore Australia.
    Exploration activities in Angola and Senegal.

2016 CAPITAL BUDGET

In anticipation of ongoing weak commodity prices in 2016, our capital budget was reduced in February 2016 from the previously announced $7.7 billion to $6.4 billion, a decrease of 37 percent compared with 2015 capital expenditures of $10.1 billion. The reduction in capital relative to 2015 primarily reflects lower major project spending, deflation capture, deferral of activity and efficiency improvements.

We are planning to allocate approximately:

 

    34 percent of our 2016 capital expenditures budget to development drilling programs. These funds will focus predominantly on the Lower 48 unconventionals including the Eagle Ford and Bakken, as well as development drilling in Canada, Alaska, the Greater Ekofisk Area, and in legacy assets within Asia Pacific and Middle East.
    31 percent of our 2016 capital expenditures budget to major projects. These funds will focus on startup of APLNG Train 2, as well as major projects in Alaska, Europe, Malaysia and China.
    18 percent of our 2016 capital expenditures budget to exploration and appraisal activity. These funds will primarily target the Gulf of Mexico, Senegal, Nova Scotia, and Alaska.
    17 percent of our 2016 capital expenditures budget to maintain base production and corporate expenditures.

For information on proved undeveloped reserves and the associated costs to develop these reserves, see the “Oil and Gas Operations” section.

Contingencies

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been made against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the 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. With respect to income tax related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

 

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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. For information on other contingencies, see “Critical Accounting Estimates” and Note 13—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.

Legal and Tax Matters

We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty underpayments on certain federal, state and privately owned properties and claims of alleged environmental contamination from historic operations. We will continue to defend ourselves vigorously in these matters.

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. See Note 19—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information about income tax related contingencies.

Environmental

We are subject to the same numerous international, federal, state and local environmental laws and regulations as other companies in our industry. 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

 

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application process, which can be expensive and time consuming. In addition, there can be delays associated with notice and comment periods and the agency’s 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 and Canada.

An example is the use of hydraulic fracturing, an essential completion technique that facilitates production of oil and natural gas otherwise trapped in lower permeability rock formations. A range of local, state, federal or national laws and regulations currently govern hydraulic fracturing operations, with hydraulic fracturing currently prohibited in some jurisdictions. Although hydraulic fracturing has been conducted for many decades, a number of new laws, regulations and permitting requirements are under consideration by the U.S. Environmental Protection Agency (EPA), the U.S. Department of the Interior, and others which could result in increased costs, operating restrictions, operational delays and/or limit the ability to develop oil and natural gas resources. Governmental restrictions on hydraulic fracturing could impact the overall profitability or viability of certain of our oil and natural gas investments. We have adopted operating principles that incorporate established industry standards designed to meet or exceed government requirements. Our practices continually evolve as technology improves and regulations change.

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. Longer-term expenditures are subject to considerable uncertainty and may fluctuate significantly.

We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging 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, 2015, there were 14 sites around the United States in which we were identified as a potentially responsible party under CERCLA and comparable state laws.

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.

 

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Expensed environmental costs were $485 million in 2015 and are expected to be about $478 million per year in 2016 and 2017. Capitalized environmental costs were $303 million in 2015 and are expected to be about $250 million per year in 2016 and 2017.

Accrued liabilities for remediation activities are not reduced for potential recoveries from 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 or international 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 other agency 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.

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, 2015, our balance sheet included total accrued environmental costs of $258 million, compared with $344 million at December 31, 2014, for remediation activities in the U.S., Canada and the U.K. 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 concerns in our operations and products, and there can be no assurance that material costs and liabilities will not be incurred. However, we currently do not expect any material adverse effect upon our results of operations or financial position as a result of compliance with current environmental laws and regulations.

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. Our cost of compliance with the EU ETS in 2015 was approximately $0.4 million (net share pre-tax).
    In Canada during 2015, the Alberta government amended the regulations of the Climate Change and Emissions Act. The regulations now require any existing facility with emissions equal to or greater than 100,000 metric tonnes of carbon dioxide or equivalent per year to reduce its net emissions intensity from its baseline. The reduction is increasing from the current 12 percent in 2015, to 15 percent in 2016 and to 20 percent in 2017. We also incur a carbon tax for emissions from fossil fuel combustion in our British Columbia operations. The total cost of compliance with these regulations in 2015 was approximately $4.7 million.
    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.

 

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    The U.S. EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers regulation of GHGs under the Clean Air Act, may trigger more climate-based claims for damages, and may result in longer agency review time for development projects.
    The U.S. EPA’s announcement on January 14, 2015, outlining a series of steps it plans to take to address methane and smog-forming volatile organic compound emissions from the oil and gas industry. The current U.S. administration has established a goal of reducing the 2012 levels in methane emissions from the oil and gas industry by 40 to 45 percent by 2025.
    Carbon taxes in certain jurisdictions. Our cost of compliance with Norwegian carbon tax legislation in 2015 was approximately $31 million (net share pre-tax).
    The agreement reached in Paris in December 2015 at the 21st Conference of the Parties to the United Nations Framework on Climate Change, setting out a new process for achieving global emission reductions.

In the United States, some additional form of regulation may be forthcoming in the future at the federal and state levels with respect to GHG emissions. Such regulation could take any of several forms that may 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 or regulation is enacted.
    The timing of the introduction of such legislation or regulation.
    The nature of the legislation (such as a cap and trade system or a tax on emissions) or regulation.
    The price placed on GHG emissions (either by the market or through a tax).
    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.

 

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The company has responded by putting in place a corporate Climate Change Action Plan, together with individual business unit climate change management plans in order to undertake actions in four major areas:

 

    Equipping the company for a low emission world, for example by integrating GHG forecasting and reporting into company procedures; utilizing GHG pricing in planning economics; developing systems to handle GHG market transactions.
    Reducing GHG emissions—In 2014, the company reduced or avoided GHG emissions by approximately 900,000 metric tonnes by carrying out a range of programs across a number of business units.
    Evaluating business opportunities such as the creation of offsets and allowances; carbon capture and storage; the use of low carbon energy and the development of low carbon technologies.
    Engaging externally—The company is a sponsor of MIT’s Joint Program on the Science and Policy of Global Change; constructively engages in the development of climate change legislation and regulation; and discloses our progress and performance through the Carbon Disclosure Project and the Dow Jones Sustainability Index.

The company uses an estimated market cost of GHG emissions in the range of $8 to $35 per tonne depending on the timing and country or region to evaluate future opportunities.

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 the net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as offsets to the tax consequences of future taxable income.

 

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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 1—Accounting 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 there is a reasonable likelihood 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 relatively small individual leasehold acquisition costs, 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 with 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 2015, 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 $515 million and the accumulated impairment reserve was $191 million. The weighted-average judgmental percentage probability of ultimate failure was approximately 74 percent, and the weighted-average amortization period was approximately three years. If that judgmental percentage were to be raised by 5 percent across all calculations, pre-tax leasehold impairment expense in 2016 would increase by approximately $7 million. At year-end 2015, the remaining $4,501 million of net capitalized unproved property costs consisted primarily of individually significant leaseholds, mineral rights held in perpetuity by title ownership, exploratory wells currently being drilled, suspended exploratory wells, and capitalized interest. Of this amount, approximately $3 billion is concentrated in 12 major development areas, the majority of which are not expected to move to proved properties in 2016. Management periodically assesses individually significant leaseholds for impairment based on the results of exploration and drilling efforts and the outlook for commercialization.

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.

 

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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 expectation future market conditions will improve or new technologies will be found that would make the development economically profitable. Often, the ability to move 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 expected return on investment.

At year-end 2015, total suspended well costs were $1,260 million, compared with $1,299 million at year-end 2014. For additional information on suspended wells, including an aging analysis, see Note 8—Suspended Wells and Other Exploration Expenses, 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 approved operating 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 company’s operations. There are several authoritative guidelines regarding the engineering criteria that must be met before estimated reserves can be designated as “proved.” Our geosciences and 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 in the fourth quarter 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 an asset will be permanently shut down for economic reasons is based on 12-month average prices and current 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. Generally, our proved reserves decrease as prices decline and increase as prices rise.

 

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Our proved reserves include estimated quantities related to production sharing contracts, reported under the “economic interest” method, as well as variable-royalty regimes, and are subject to fluctuations in commodity prices; 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. We would expect reserves from these contracts to decrease when product prices rise and increase when prices decline.

The estimation of proved developed reserves also is important to the income statement because the proved developed reserve estimate for a field serves as the denominator in the unit-of-production calculation of the DD&A of the capitalized costs for that asset. At year-end 2015, the net book value of productive properties, plants and equipment (PP&E) subject to a unit-of-production calculation was approximately $58 billion and the DD&A recorded on these assets in 2015 was approximately $8.7 billion. The estimated proved developed reserves for our consolidated operations were 4.6 billion BOE at the end of 2014 and 4.0 billion BOE at the end of 2015. If the estimates of proved reserves used in the unit-of-production calculations had been lower by 10 percent across all calculations, pre-tax DD&A in 2015 would have increased by an estimated $960 million.

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 in the fourth quarter following updates to corporate planning assumptions. If there is an indication the carrying amount of an asset may not be recovered, the asset is monitored by management through an established process where changes to significant assumptions such as prices, volumes and future development plans are reviewed. If, upon review, the sum of the undiscounted pre-tax 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 assets—generally on a field-by-field basis for exploration and production 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. 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 and capital decisions, considering all available information at the date of review. Differing assumptions could affect the timing and the amount of an impairment in any period. See Note 9—Impairments, 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 investment’s 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 investment’s 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 investee’s 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. Since quoted market prices are usually not available, the fair value is typically 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.

 

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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 plugging and abandonment of wells, removal and disposal of offshore oil and gas platforms around the world, as well as oil and gas production facilities and pipelines in Alaska. The fair values of obligations for dismantling and removing these facilities are recorded as a liability and an increase to PP&E at the time of installation of the asset based on estimated discounted costs. Estimating future asset removal costs 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 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.

Normally, changes in asset removal obligations are reflected in the income statement as increases or decreases to DD&A over the remaining life of the assets. However, for assets at or nearing the end of their operations, as well as previously sold assets for which we retained the asset removal obligation, an increase in the asset removal obligation can result in an immediate charge to earnings, because any increase in PP&E due to the increased obligation would immediately be subject to impairment, due to the low fair value of these properties.

In addition to asset removal obligations, under the above or similar contracts, permits and regulations, we have certain environmental-related projects. These are primarily related to remediation activities required by Canada and various states within the United States 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. See Note 10—Asset Retirement Obligations and Accrued Environmental Costs, in the Notes to Consolidated Financial Statements, for additional information.

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 income statement. 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-governed 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 plans. 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 vested 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. Projected benefit obligations are particularly sensitive to the discount rate assumption. A 1 percent decrease in the discount rate assumption would increase projected benefit obligations by $1,100 million. 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 $100 million, while a 1 percent decrease in the return on plan assets assumption would increase annual benefit expense by $70 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. We are also exposed to the possibility that lump sum retirement benefits taken from pension plans during the year could exceed the total of service and interest components of annual pension expense and trigger accelerated recognition of a portion of

 

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unrecognized net actuarial losses and gains. These benefit payments are based on decisions by plan participants and are therefore difficult to predict. In the event there is a significant reduction in the expected years of future service of present employees or elimination for a significant number of employees the accrual of defined benefits for some or all of their future services, we could recognize a curtailment gain or loss. See Note 18—Employee Benefit Plans, in the Notes to Consolidated Financial Statements, for additional information.

Contingencies

A number of claims and lawsuits are made against the company arising in the ordinary course of business. Management exercises judgment related to accounting and disclosure of these claims which includes losses, damages, and underpayments associated with environmental remediation, tax, contracts, and other legal disputes. As we learn new facts concerning contingences, we reassess our position both with respect to amounts recognized and disclosed considering changes to the probability of additional losses and potential exposure. However, actual losses can and do vary from estimates for a variety of reasons including legal, arbitration, or other third party decisions; settlement discussions; evaluation of scope of damages; interpretation of regulatory or contractual terms; expected timing of future actions; and proportion of liability shared with other responsible parties. Estimated future costs related to contingencies are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes. For additional information on contingent liabilities, see the “Contingencies” section within “Capital Resources and Liquidity.”

 

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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. Examples of forward-looking statements contained in this report include our expected production growth in 2016 and outlook on the business environment generally, our expected capital budget and capital expenditures, and discussions concerning future dividends. You can often identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “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, but not limited to, the following:

 

    Fluctuations in crude oil, bitumen, natural gas, LNG and natural gas liquids prices, including a prolonged decline in these prices relative to historical or future expected levels.
    The impact of recent, significant declines in prices for crude oil, bitumen, natural gas, LNG and natural gas liquids, which may result in recognition of impairment costs on our long-lived assets, leaseholds and nonconsolidated equity investments.
    Potential failures or delays in achieving expected reserve or production levels from existing and future oil and gas developments due to operating hazards, drilling risks and the inherent uncertainties in predicting reserves and reservoir performance.
    Inability to maintain reserves replacement rates consistent with prior periods, whether as a result of the recent, significant declines in commodity prices or otherwise.
    Unsuccessful exploratory drilling activities or the inability to obtain access to exploratory acreage.
    Unexpected changes in costs or technical requirements for constructing, modifying or operating exploration and production facilities.
    Legislative and regulatory initiatives addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal.
    Lack of, or disruptions in, adequate and reliable transportation for our crude oil, bitumen, natural gas, LNG and natural gas liquids.
    Inability to timely obtain or maintain permits, including those necessary for drilling and/or development, construction of LNG terminals or regasification facilities; comply with government regulations; or make capital expenditures required to maintain compliance.
    Failure to complete definitive agreements and feasibility studies for, and to timely complete construction of, announced and future exploration and production and LNG development.
    Potential disruption or interruption of our operations due to accidents, extraordinary weather events, civil unrest, political events, terrorism, cyber attacks or infrastructure constraints or disruptions.
    International monetary conditions and exchange controls, and changes in foreign currency exchange rates.
    Substantial investment or reduced demand for products as a result of existing or future environmental rules and regulations, use of competing energy sources or the development of alternative energy sources.

 

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    Liability for remedial actions, including removal and reclamation obligations, under environmental regulations.
    Liability resulting from litigation.
    General domestic and international economic and political developments, including armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, bitumen, natural gas, LNG and natural gas liquids pricing, regulation or taxation; other political, economic or diplomatic developments; and international monetary fluctuations.
    Volatility in the commodity futures markets.
    Changes in tax and other laws, regulations (including alternative energy mandates), or royalty rules applicable to our business.
    Competition in the oil and gas exploration and production industry.
    Limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets.
    Delays in, or our inability to, execute asset dispositions.
    Inability to obtain economical financing for development, construction or modification of facilities and general corporate purposes.
    The operation and financing of our joint ventures.
    The ability of our customers and other contractual counterparties to satisfy their obligations to us.
    Our inability to realize anticipated cost savings and expenditure reductions.
    The factors generally described in Item 1A—Risk Factors in this report.

 

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Item 7A.  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 currency 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 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. 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 Executive Vice President of Commercial, Business Development and Corporate Planning monitors commodity price risk and also reports to the Chief Executive Officer. The Commercial organization manages our commercial marketing, optimizes our commodity flows and positions, and monitors risks.

Commodity Price Risk

Our Commercial organization uses futures, forwards, swaps and options in various markets to accomplish the following objectives:

 

    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 consumers, to floating market prices.
    Enable us to use market knowledge to capture opportunities such as moving physical commodities to more profitable locations and storing commodities to capture seasonal or time premiums. We may use derivatives to optimize these activities.

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 commodity instruments we hold or issue, including commodity purchases and sales contracts recorded on the balance sheet at December 31, 2015, 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, 2015 and 2014, was immaterial to our consolidated cash flows and net income attributable to ConocoPhillips. The VaR for instruments held for purposes other than trading at December 31, 2015 and 2014, was also immaterial to our consolidated 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 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 effective rates 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.

 

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     Millions of Dollars Except as Indicated  
  

 

 

 
     Debt   
  

 

 

 
     Fixed         Average        Floating         Average   
     Rate         Interest        Rate         Interest   

Expected Maturity Date

     Maturity         Rate        Maturity         Rate   
  

 

 

   

 

 

 

Year-End 2015

          

2016

   $ 1,250         5.63  %    $ 108         0.35  % 

2017

     1,024         1.03        -         -   

2018

     1,547         3.68        250         0.69   

2019

     2,250         5.75        695         0.35   

2020

     1,500         4.73        -         -   

Remaining years

     14,371         5.72        783         0.81   

 

 

Total

   $ 21,942         $ 1,836      

 

 

Fair value

   $ 22,949         $ 1,836      

 

 

 

Year-End 2014

          

2015

   $ -         -  %    $ 107         0.18  % 

2016

     1,273         5.52        -         -   

2017

     1,001         1.06        -         -   

2018

     797         5.74        -         -   

2019

     2,250         5.75        753         0.18   

Remaining years

     14,871         5.81        283         0.04   

 

 

Total

   $ 20,192         $ 1,143      

 

 

Fair value

   $ 24,048         $ 1,143      

 

 

Foreign Currency Exchange Risk

We have foreign currency exchange rate risk resulting from international operations. We do not comprehensively hedge the exposure to currency exchange 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.

At December 31, 2015 and 2014, we held foreign currency exchange forwards hedging cross-border commercial activity and foreign currency exchange swaps for purposes of mitigating our cash-related exposures. Although these forwards and swaps hedge exposures to fluctuations in exchange rates, we elected not to utilize hedge accounting. As a result, the change in the fair value of these foreign currency exchange derivatives is recorded directly in earnings. Since the gain or loss on the swaps is offset by the gain or loss from remeasuring the related cash balances, and since our aggregate position in the forwards was not material, there would be no material impact to our income from an adverse hypothetical 10 percent change in the December 31, 2015, or 2014, exchange rates. The notional and fair market values of these positions at December 31, 2015 and 2014, were as follows:

 

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     In Millions  
  

 

 

 

Foreign Currency Exchange Derivatives

     Notional*         Fair Market Value**   
  

 

 

    

 

 

 
        2015         2014         2015        2014   
  

 

 

    

 

 

 

Sell U.S. dollar, buy British pound

     USD         200         -         (3     -   

Sell U.S. dollar, buy Canadian dollar

     USD         -         7         -        (1

Sell U.S. dollar, buy Norwegian krone

     USD         147         -         (2     -   

Buy U.S. dollar, sell Norwegian krone

     USD         -         44         -        -   

Buy U.S. dollar, sell Canadian dollar

     USD         20         -         2        -   

Buy British pound, sell Canadian dollar

     GBP         564         -         44        -   

Buy British pound, sell euro

     GBP         3         20         (1     1   

 

 

  *Denominated in U.S. dollars (USD) and British pound (GBP).

**Denominated in U.S. dollars.

For additional information about our use of derivative instruments, see Note 14—Derivative and Financial Instruments, in the Notes to Consolidated Financial Statements.

 

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONOCOPHILLIPS

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Report of Management

     78   

Reports of Independent Registered Public Accounting Firm

     79   

Consolidated Income Statement for the years ended December 31, 2015, 2014 and 2013

     81   

Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013

     82   

Consolidated Balance Sheet at December 31, 2015 and 2014

     83   

Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014 and 2013

     84   

Consolidated Statement of Changes in Equity for the years ended December 31, 2015, 2014 and 2013

     85   

Notes to Consolidated Financial Statements

     86   

Supplementary Information

  

Oil and Gas Operations

     139   

Selected Quarterly Financial Data

     166   

Condensed Consolidating Financial Information

     167   

 

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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 company’s 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 company’s 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 company’s 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 company’s 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 company’s internal control over financial reporting as of December 31, 2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013) . Based on our assessment, we believe the company’s internal control over financial reporting was effective as of December 31, 2015.

Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of December 31, 2015, and their report is included herein.

 

/s/ Ryan M. Lance      /s/ Jeff W. Sheets
Ryan M. Lance      Jeff W. Sheets
Chairman and      Executive Vice President, Finance
Chief Executive Officer      and Chief Financial Officer

February 23, 2016

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

ConocoPhillips

We have audited the accompanying consolidated balance sheets of ConocoPhillips as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. 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 Company’s 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, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, 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.

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, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2016, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP                

Houston, Texas

February 23, 2016

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

ConocoPhillips

We have audited ConocoPhillips’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (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 Company’s 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 our audit provides a reasonable basis for our opinion.

A company’s 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 company’s 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 company’s 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, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 consolidated financial statements of ConocoPhillips and our report dated February 23, 2016, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP                

Houston, Texas

February 23, 2016

 

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Consolidated Income Statement    ConocoPhillips

Years Ended December 31

     Millions of Dollars  
  

 

 

 
                 2015                  2014                  2013  
  

 

 

 

Revenues and Other Income

        

Sales and other operating revenues

   $ 29,564         52,524         54,413   

Equity in earnings of affiliates

     655         2,529         2,219   

Gain on dispositions

     591         98         1,242   

Other income

     125         366         374   

 

 

Total Revenues and Other Income

     30,935         55,517         58,248   

 

 

Costs and Expenses

        

Purchased commodities

     12,426         22,099         22,643   

Production and operating expenses

     7,016         8,909         7,238   

Selling, general and administrative expenses

     953         735         854   

Exploration expenses

     4,192         2,045         1,232   

Depreciation, depletion and amortization

     9,113         8,329         7,434   

Impairments

     2,245         856         529   

Taxes other than income taxes

     901         2,088         2,884   

Accretion on discounted liabilities

     483         484         434   

Interest and debt expense

     920         648         612   

Foreign currency transaction gains

     (75)         (66)         (58)   

 

 

Total Costs and Expenses

     38,174         46,127         43,802   

 

 

Income (loss) from continuing operations before income taxes

     (7,239)         9,390         14,446   

Provision (benefit) for income taxes

     (2,868)         3,583         6,409   

 

 

Income (Loss) From Continuing Operations

     (4,371)         5,807         8,037   

Income from discontinued operations*

     -         1,131         1,178   

 

 

Net income (loss)

     (4,371)         6,938         9,215   

Less: net income attributable to noncontrolling interests

     (57)         (69)         (59)   

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ (4,428)         6,869         9,156   

 

 

Amounts Attributable to ConocoPhillips Common Shareholders:

        

Income (loss) from continuing operations

   $ (4,428)         5,738         7,978   

Income from discontinued operations*

     -         1,131         1,178   

 

 

Net Income (Loss)

   $ (4,428)         6,869         9,156   

 

 

Net Income (Loss) Attributable to ConocoPhillips Per Share of Common Stock (dollars)

        

Basic

        

Continuing operations

   $ (3.58)         4.63         6.47   

Discontinued operations

     -         0.91         0.96   

 

 

Net Income (Loss) Attributable to ConocoPhillips Per Share of Common Stock

   $ (3.58)         5.54         7.43   

 

 

Diluted

        

Continuing operations

   $ (3.58)         4.60         6.43   

Discontinued operations

     -         0.91         0.95   

 

 

Net Income (Loss) Attributable to ConocoPhillips Per Share of Common Stock

   $ (3.58)         5.51         7.38   

 

 

Dividends Paid Per Share of Common Stock (dollars)

   $ 2.94         2.84         2.70   

 

 

Average Common Shares Outstanding (in thousands)

        

Basic

     1,241,919         1,237,325         1,230,963   

Diluted

     1,241,919         1,245,863         1,239,803   

 

 

*Net of provision for income taxes on discontinued operations of:

   $ -         16         283   

See Notes to Consolidated Financial Statements.

        

 

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Consolidated Statement of Comprehensive Income    ConocoPhillips

Years Ended December 31

     Millions of Dollars  
  

 

 

 
     2015      2014      2013  
  

 

 

 

Net Income (Loss)

   $ (4,371)                 6,938                 9,215   

Other comprehensive income (loss)

        

Defined benefit plans

        

Prior service credit (cost) arising during the period

                 301         (3)         1   

Reclassification adjustment for amortization of prior service credit included in net income

     (19)         (6)         (5)   

 

 

Net change

     282         (9)         (4)   

 

 

Net actuarial gain (loss) arising during the period

     592         (840)         688   

Reclassification adjustment for amortization of net actuarial losses included in net income

     403         131         294   

 

 

Net change

     995         (709)         982   

Nonsponsored plans*

     1         -         10   

Income taxes on defined benefit plans

     (460)         281         (387)   

 

 

Defined benefit plans, net of tax

     818         (437)         601   

 

 

Foreign currency translation adjustments

     (5,199)         (3,539)         (2,705)   

Reclassification adjustment for gain included in net income

     -         -         (4)   

Income taxes on foreign currency translation adjustments

     36         72         23   

 

 

Foreign currency translation adjustments, net of tax

     (5,163)         (3,467)         (2,686)   

 

 

Other Comprehensive Income (Loss), Net of Tax

     (4,345)         (3,904)         (2,085)   

 

 

Comprehensive Income (Loss)

     (8,716)         3,034         7,130   

Less: comprehensive income attributable to noncontrolling interests

     (57)         (69)         (59)   

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

   $ (8,773)         2,965         7,071   

 

 

*Plans for which ConocoPhillips is not the primary obligor—primarily those administered by equity affiliates.

  

  

See Notes to Consolidated Financial Statements.

        

 

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Consolidated Balance Sheet    ConocoPhillips

 

At December 31    Millions of Dollars  
  

 

 

 
     2015        2014   
  

 

 

 

Assets

    

Cash and cash equivalents

   $           2,368                  5,062   

Accounts and notes receivable (net of allowance of $7 million in 2015 and $5 million in 2014)

     4,314        6,675   

Accounts and notes receivable—related parties

     200        132   

Inventories

     1,124        1,331   

Prepaid expenses and other current assets

     783        1,868   

 

 

Total Current Assets

     8,789        15,068   

Investments and long-term receivables

     20,490        24,335   

Loans and advances—related parties

     696        804   

Net properties, plants and equipment (net of accumulated depreciation, depletion and amortization of $70,413 million in 2015 and $70,786 million in 2014)

     66,446        75,444   

Other assets

     1,063        888   

 

 

Total Assets

   $ 97,484        116,539   

 

 

Liabilities

    

Accounts payable

   $ 4,895        7,982   

Accounts payable—related parties

     38        44   

Short-term debt

     1,427        182   

Accrued income and other taxes

     499        1,051   

Employee benefit obligations

     887        878   

Other accruals

     1,510        1,400   

 

 

Total Current Liabilities

     9,256        11,537   

Long-term debt

     23,453        22,383   

Asset retirement obligations and accrued environmental costs

     9,580        10,647   

Deferred income taxes

     10,999        15,070   

Employee benefit obligations

     2,286        2,964   

Other liabilities and deferred credits

     1,828        1,665   

 

 

Total Liabilities

     57,402        64,266   

 

 

Equity

    

Common stock (2,500,000,000 shares authorized at $.01 par value)

    

Issued (2015—1,778,226,388 shares; 2014—1,773,583,368) Par value

     18        18   

Capital in excess of par

     46,357        46,071   

Treasury stock (at cost: 2015—542,230,673; 2014—542,230,673)

     (36,780     (36,780

Accumulated other comprehensive loss

     (6,247     (1,902

Retained earnings

     36,414        44,504   

 

 

Total Common Stockholders’ Equity

     39,762        51,911   

Noncontrolling interests

     320        362   

 

 

Total Equity

     40,082        52,273   

 

 

Total Liabilities and Equity

   $ 97,484        116,539   

 

 

See Notes to Consolidated Financial Statements.

 

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Consolidated Statement of Cash Flows    ConocoPhillips

 

Years Ended December 31    Millions of Dollars  
  

 

 

 
     2015     2014*     2013*  
  

 

 

 

Cash Flows From Operating Activities

      

Net income (loss)

   $ (4,371     6,938        9,215   

Adjustments to reconcile net income (loss) to net cash provided by operating activities

      

Depreciation, depletion and amortization

             9,113                8,329                7,434   

Impairments

     2,245        856        529   

Dry hole costs and leasehold impairments

     3,065        1,166        443   

Accretion on discounted liabilities

     483        484        434   

Deferred taxes

     (2,772     709        1,311   

Undistributed equity earnings

     101        77        (822

Gain on dispositions

     (591     (98     (1,242

Income from discontinued operations

     -        (1,131     (1,178

Other

     321        (233     (371

Working capital adjustments

      

Decrease in accounts and notes receivable

     1,810        1,227        744   

Decrease (increase) in inventories

     166        (193     (278

Decrease (increase) in prepaid expenses and other current assets

     239        (190     (83

Increase (decrease) in accounts payable

     (1,647     (963     238   

Decrease in taxes and other accruals

     (590     (566     (518

 

 

Net cash provided by continuing operating activities

     7,572        16,412        15,856   

Net cash provided by discontinued operations

     -        157        285   

 

 

Net Cash Provided by Operating Activities

     7,572        16,569        16,141   

 

 

Cash Flows From Investing Activities

      

Capital expenditures and investments

     (10,050     (17,085     (15,537

Working capital changes associated with investing activities

     (968     180        (55

Proceeds from asset dispositions

     1,952        1,603        10,220   

Net sales (purchases) of short-term investments

     -        253        (263

Collection of advances/loans—related parties

     105        603        145   

Other

     306        (446     (212

 

 

Net cash used in continuing investing activities

     (8,655     (14,892     (5,702

Net cash used in discontinued operations

     -        (73     (603

 

 

Net Cash Used in Investing Activities

     (8,655     (14,965     (6,305

 

 

Cash Flows From Financing Activities

      

Issuance of debt

     2,498        2,994        -   

Repayment of debt

     (103     (2,014     (946

Change in restricted cash

     -        -        748   

Issuance of company common stock

     (82     35        20   

Dividends paid

     (3,664     (3,525     (3,334

Other

     (78     (64     (3,621

 

 

Net Cash Used in Financing Activities

     (1,429     (2,574     (7,133

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     (182     (214     (75

 

 

Net Change in Cash and Cash Equivalents

     (2,694     (1,184     2,628   

Cash and cash equivalents at beginning of period

     5,062        6,246        3,618   

 

 

Cash and Cash Equivalents at End of Period

   $ 2,368        5,062        6,246   

 

 

*Certain amounts have been reclassified to conform to current-period presentation. See Note 21 Cash Flow Information, in the Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

 

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Consolidated Statement of Changes in Equity    ConocoPhillips

 

     Millions of Dollars  
  

 

 

 
     Attributable to ConocoPhillips                
  

 

 

       
     Common Stock                              
  

 

 

             
    

Par

Value

     Capital in
Excess of
Par
    

Treasury

Stock

    

Accum. Other

Comprehensive

Income (Loss)

     Retained
Earnings
    

Non-

Controlling

Interests

     Total  
  

 

 

 

December 31, 2012

   $       18         45,324         (36,780)         4,087         35,338         440         48,427   

Net income

                 9,156         59         9,215   

Other comprehensive loss

              (2,085)               (2,085)   

Dividends paid

                 (3,334)            (3,334)   

Distributions to noncontrolling interests and other

                    (97)         (97)   

Distributed under benefit plans

        366                     366   

 

 

December 31, 2013

   $ 18         45,690         (36,780)         2,002         41,160         402         52,492   

Net income

                 6,869         69         6,938   

Other comprehensive loss

              (3,904)               (3,904)   

Dividends paid

                 (3,525)            (3,525)   

Distributions to noncontrolling interests and other

                    (109)         (109)   

Distributed under benefit plans

        381                     381   

 

 

December 31, 2014

   $ 18         46,071         (36,780)         (1,902)         44,504         362         52,273   

Net income (loss)

                 (4,428)         57         (4,371)   

Other comprehensive loss

              (4,345)               (4,345)   

Dividends paid

                 (3,664)            (3,664)   

Distributions to noncontrolling interests and other

                    (100)         (100)   

Distributed under benefit plans

        286                     286   

Other

                 2         1         3   

 

 

December 31, 2015

   $ 18         46,357         (36,780)         (6,247)         36,414         320         40,082   

 

 

See Notes to Consolidated Financial Statements.

 

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Notes to Consolidated Financial Statements    ConocoPhillips

Note 1—Accounting Policies

 

n Consolidation Principles and Investments— Our 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. When we do not have the ability to exert significant influence, the investment is either classified as available-for-sale if fair value is readily determinable, or the cost method is used if fair value is not readily determinable. Undivided interests in oil and gas joint ventures, pipelines, natural gas plants and terminals are consolidated on a proportionate basis. Other securities and investments are generally carried at cost.

We manage our operations through six operating segments, defined by geographic region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International. Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Certain financial information has been revised for all prior periods presented to reflect the change in the composition of our operating segments. For additional information, see Note 24—Segment Disclosures and Related Information. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our continuing operations.

 

n Foreign Currency Translation— Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are included in accumulated other comprehensive income 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 Estimates— The 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 Recognition— Revenues associated with sales of crude oil, bitumen, natural gas, liquefied natural gas (LNG), natural gas liquids 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 producing properties 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 Costs— We include shipping and handling costs in production and operating expenses for production activities. Transportation costs related to marketing activities are recorded in purchased commodities. Freight costs billed to customers are recorded as a component of revenue.

 

n Cash Equivalents— Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and have original maturities of 90 days or less from their date of purchase. They are carried at cost plus accrued interest, which approximates fair value.

 

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n Short-Term Investments —Investments in bank time deposits and marketable securities (commercial paper and government obligations) with original maturities of greater than 90 days but less than one year are classified as short-term investments.

 

n Inventories— We have several valuation methods for our various types of inventories and consistently use the following methods for each type of inventory. Commodity-related 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. Costs include both direct and indirect expenditures incurred in 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 using various methods, including the weighted-average-cost method, and the first-in, first-out (FIFO) method, consistent with industry practice.

 

n Fair Value Measurements— We 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 Instruments— Derivative instruments are recorded on the balance sheet at fair value. 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.

 

n Oil and Gas Exploration and Development— Oil and gas exploration and development costs are accounted for using the successful efforts method of accounting.

Property Acquisition Costs— Oil and gas leasehold acquisition costs are capitalized and included in the balance sheet caption properties, plants and equipment (PP&E). Leasehold impairment is recognized based on exploratory experience and management’s judgment. Upon achievement of all conditions necessary for reserves to be classified as proved, the associated leasehold costs are reclassified to proved properties.

Exploratory Costs— Geological 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

 

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potential oil and gas field or while we seek government or co-venturer approval of development plans 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 resources 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 8—Suspended Wells and Other Exploration Expenses, for additional information on suspended wells.

Development Costs— Costs incurred to drill and equip development wells, including unsuccessful development wells, are capitalized.

Depletion and Amortization— Leasehold 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 Interest— Interest 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 Depreciation and Amortization— Depreciation and amortization of PP&E 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 PP&E 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 Equipment— PP&E 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 in the fourth quarter following updates to corporate planning assumptions. If there is an indication the carrying amount of an asset may not be recovered, the asset is monitored by management through an established process where changes to significant assumptions such as prices, volumes and future development plans are reviewed. If, upon review, the sum of the undiscounted pre-tax 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 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 assets—generally on a field-by-field basis for exploration and production 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. The impairment review includes cash flows from proved developed and undeveloped reserves, including any development expenditures necessary to achieve that production. Additionally, when probable and possible reserves exist, an appropriate risk-adjusted amount of these reserves may be included in the impairment calculation.

 

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n Impairment of Investments in Nonconsolidated Entities— Investments 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 Repairs— Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred.

 

n Property Dispositions— When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Gain on dispositions” line of our consolidated income statement. 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 Costs— The fair 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 PP&E. If, in subsequent periods, our estimate of this liability changes, we will record an adjustment to both the liability and PP&E. Over time the liability is increased for the change in its present value, and the capitalized cost in PP&E is depreciated over the useful life of the related asset. For additional information, see Note 10—Asset Retirement Obligations and Accrued Environmental Costs.

Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no 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 are recorded as assets when their receipt is probable and estimable.

 

n Guarantees— The fair 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 indicating 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 income statement 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 Share-Based Compensation— We recognize share-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 have 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.

 

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n Income Taxes— Deferred 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 and temporary differences related to the cumulative translation adjustment 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 and debt expense, and penalties related to unrecognized tax benefits are reflected in production and operating expenses.

 

n Taxes Collected from Customers and Remitted to Governmental Authorities— Sales and value-added taxes are recorded net.

 

n Net Income (Loss) Per Share of Common Stock— Basic 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 yet been issued as common stock, along with an adjustment to net income (loss) for dividend equivalents paid on unvested unit awards that are considered participating securities. Diluted net income per share of common stock includes 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, primarily under the treasury-stock method. Diluted net loss per share, which is calculated the same as basic net loss per share, does not assume conversion or exercise of securities that would have an antidilutive effect. Treasury stock and shares held by grantor trusts are excluded from the daily weighted-average number of common shares outstanding in both calculations. The earnings per share impact of the participating securities is immaterial.

Note 2—Changes in Accounting Principles

We adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” on a prospective basis, beginning January 1, 2015. The ASU amends the criteria for reporting discontinued operations to include only disposals representing a strategic shift in operations that have or will have a major effect on an entity’s operations and financial results. The ASU also requires entities to provide additional disclosures about discontinued operations as well as certain other significant disposal transactions that do not meet the revised discontinued operations reporting criteria. The adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures. See Note 3—Discontinued Operations, and Note 6—Assets Held for Sale or Sold, for additional information on our dispositions.

Effective December 31, 2015, we early adopted, on a prospective basis, FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” The ASU requires all deferred tax assets and liabilities, along with any related valuation allowances, to be offset and presented as a single noncurrent amount in a classified balance sheet for each tax-paying component within a tax jurisdiction. See Note 19—Income Taxes, for additional information.

Note 3—Discontinued Operations

In 2012, we agreed to sell our interest in the North Caspian Sea Production Sharing Agreement (Kashagan) and our Nigeria and Algeria businesses (collectively, the “Disposition Group”). The Disposition Group was previously part of the Other International operating segment. We completed the sales of Kashagan and our Algeria business in the fourth quarter of 2013. We sold our Nigeria business in the third quarter of 2014.

On November 26, 2012, we notified government authorities in Kazakhstan and co-venturers of our intent to sell the company’s 8.4 percent interest in Kashagan to ONGC Videsh Limited (OVL). On July 2, 2013, we received notification from the government of Kazakhstan indicating it was exercising its right to pre-empt the

 

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proposed sale to OVL and designating KazMunayGas (KMG) as the entity to acquire the interest. On October 31, 2013, we completed the transaction with KMG for total proceeds of $5,392 million and recognized a pre-tax gain of $22 million, which is included in the “Income from discontinued operations” line on our consolidated income statement. At the time of disposition, the carrying value of the net assets related to our interest in Kashagan was $5,370 million, which included $212 million of other current assets, $239 million of long-term receivables, $5,149 million of PP&E, $144 million of other current liabilities, and $86 million of asset retirement obligations (ARO).

On December 18, 2012, we entered into an agreement with Pertamina to sell our wholly owned subsidiary, ConocoPhillips Algeria Ltd. On November 27, 2013, we completed the transaction with Pertamina, resulting in proceeds of $1,652 million. We recognized a pre-tax gain of $938 million, which is included in the “Income from discontinued operations” line on our consolidated income statement. At the time of disposition, the net carrying value of our Algerian assets was $714 million, which included $48 million of other current assets, $883 million of PP&E, $41 million of other current liabilities, $37 million of ARO, and $139 million of deferred taxes.

On December 20, 2012, we entered into agreements with affiliates of Oando PLC to sell our Nigeria business and on July 30, 2014, we completed the sale for $1,359 million, inclusive of $550 million deposits previously received. The deposits had been included in the “Other accruals” line on our consolidated balance sheet and in the “Other” line of cash flows from investing activities on our consolidated statement of cash flows. The deposits received included $435 million in 2012, $15 million in 2013, and $100 million in 2014. We recognized a before-tax gain of $1,052 million, which is included in the “Income from discontinued operations” line on our consolidated income statement. At the time of disposition, the net carrying value of the upstream assets was $307 million, which included $233 million of other current assets, $1,211 million of PP&E, $298 million of other current liabilities, $14 million of ARO, and $825 million of deferred taxes.

Sales and other operating revenues and income from discontinued operations related to the Disposition Group during 2014 and 2013 were as follows:

     Millions of Dollars         
  

 

 

 
     2014         2013   
  

 

 

 

Sales and other operating revenues from discontinued operations

   $ 480         1,185   

 

 

Income from discontinued operations before-tax

   $ 1,147         1,461   

Income tax expense

     16         283   

 

 

Income from discontinued operations

   $ 1,131         1,178   

 

 

Note 4—Variable Interest Entities (VIEs)

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

Australia Pacific LNG Pty Ltd (APLNG)

APLNG is considered a VIE, as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. We are not the primary beneficiary of APLNG because we share with Origin Energy and China Petrochemical Corporation (Sinopec) the power to direct the key activities of APLNG that most significantly impact its economic performance, which involve activities related to the production and commercialization of coalbed methane, as well as LNG processing and export marketing. As a result, we do not consolidate APLNG, and it is accounted for as an equity method investment.

 

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As of December 31, 2015, we have not provided any financial support to APLNG other than amounts previously contractually required. Unless we elect otherwise, we have no requirement to provide liquidity or purchase the assets of APLNG. See Note 7—Investments, Loans and Long-Term Receivables, and Note 12—Guarantees, for additional information.

Note 5—Inventories

Inventories at December 31 were:

 

     Millions of Dollars           
  

 

 

 
     2015         2014   
  

 

 

 

Crude oil and natural gas

   $ 406         538   

Materials and supplies

     718         793   

 

 
   $ 1,124         1,331   

 

 

As a result of further declining commodity prices in the fourth quarter of 2015, we recorded a lower of cost or market adjustment of $44 million to our commodity inventories, which is included in the “Purchased commodities” line on our consolidated income statement. Inventories valued on the LIFO basis totaled $317 million and $440 million at December 31, 2015 and 2014, respectively. The estimated excess of current replacement cost over LIFO cost of inventories was approximately $6 million at both December 31, 2015 and December 31, 2014. In 2015, liquidation of LIFO inventory values increased the net loss from continuing operations by $25 million.

Note 6—Assets Held for Sale or Sold

Assets Held for Sale

On February 4, 2016, we entered into a definitive agreement to sell our interest in the Alaska Beluga River Unit natural gas field in the Cook Inlet. The transaction is expected to close in the second quarter of 2016.

Assets Sold

All gains or losses are reported before-tax and are included net in the “Gain on dispositions” line on our consolidated income statement.

2015

In November 2015, we sold a portion of our western Canadian properties located in British Columbia, Alberta, and Saskatchewan for $198 million and recognized a gain on disposition of $66 million. At the time of the disposition, the carrying value of our interest, which was included in the Canada segment, was $132 million, which included primarily $379 million of PP&E and $248 million of ARO.

In December 2015, we sold a portion of our western Canadian properties located in central Alberta for $130 million and recognized a loss on disposition of $235 million. At the time of the disposition, the carrying value of our interest, which was included in the Canada segment, was approximately $365 million, which included primarily $488 million of PP&E and $126 million of ARO.

Additionally, other December 2015 disposition transactions are summarized below.

We sold producing properties in East Texas and Northern Louisiana for $412 million and recognized a gain on disposition of $189 million. At the time of the disposition, the carrying value of our interest, which was included in the Lower 48 segment, was $223 million, which included $351 million of PP&E and $128 million of ARO.

 

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We sold certain gas producing properties in South Texas for $358 million and recognized a gain on disposition of $201 million. At the time of the disposition, the carrying value of our interest, which was included in the Lower 48 segment, was $157 million, which included $369 million of PP&E and $212 million of ARO.

We sold certain pipeline and gathering assets in South Texas for $201 million and recognized a gain on disposition of $193 million. At the time of the disposition, the carrying value of our interest, which was included in the Lower 48 segment, was $8 million, which primarily included $24 million of PP&E and $18 million of ARO.

We also sold our 50 percent interest in the Russian joint venture, Polar Lights Company, for $98 million and recognized a gain on disposition of $58 million. At the time of the disposition, the carrying value of our equity method investment in Polar Lights Company, which was included in our Other International segment, was approximately $40 million.

2014

For information on the sale of our Nigeria business, which is included in the “Income from discontinued operations” line on our consolidated income statement, see Note 3—Discontinued Operations.

2013

In March 2013, we sold the majority of our producing zones in the Cedar Creek Anticline for $994 million and recognized a loss on disposition of $43 million. At the time of the disposition, the carrying value of our interest, which was included in the Lower 48 segment, was $1,037 million, which included primarily $1,066 million of PP&E and $28 million of ARO.

In June 2013, we sold a portion of our working interests in the Browse and Canning basins for $402 million. Because we retain a working interest in the unproved properties, proceeds were treated as a reduction of the carrying value of PP&E with no gain or loss on disposition recognized. Prior to the partial disposition, the carrying value of the PP&E associated with our interests, included in our Asia Pacific and Middle East segment, was $486 million.

In August 2013, we sold our interest in the Clyden undeveloped oil sands leasehold for $724 million and recognized a gain on disposition of $614 million. At the time of the disposition, the carrying value of our interest in Clyden, which was included in the Canada segment, was $110 million and was primarily classified as PP&E.

In August 2013, we also sold our 39 percent interest in Phoenix Park Gas Processors Limited for $593 million and recognized a gain on disposition of $417 million. At the time of the disposition, the carrying value of our equity investment in Phoenix Park, which was included in our Other International segment, was $176 million.

For information on the Kashagan and Algeria sales, which are included in the “Income from discontinued operations” line on our consolidated income statement, see Note 3—Discontinued Operations.

 

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Note 7—Investments, Loans and Long-Term Receivables

Components of investments, loans and long-term receivables at December 31 were:

 

     Millions of Dollars         
  

 

 

 
     2015         2014   
  

 

 

 

Equity investments

   $         19,850         23,426   

Loans and advances—related parties

     696         804   

Long-term receivables

     519         444   

Other investments

     121         465   

 

 
   $ 21,186                 25,139   

 

 

Equity Investments

Affiliated companies in which we had a significant equity investment at December 31, 2015, included:

 

    APLNG—37.5 percent owned joint venture with Origin Energy (37.5 percent) and Sinopec (25 percent)—to develop coalbed methane production from the Bowen and Surat basins in Queensland, Australia, as well as process and export LNG.
    FCCL Partnership—50 percent owned business venture with Cenovus Energy Inc.—produces bitumen in the Athabasca oil sands in northeastern Alberta and sells the bitumen blend.
    Qatar Liquefied Gas Company Limited (3) (QG3)—30 percent owned joint venture with affiliates of Qatar Petroleum (68.5 percent) and Mitsui & Co., Ltd. (1.5 percent)—produces and liquefies natural gas from Qatar’s North Field, as well as exports LNG.

Summarized 100 percent earnings information for equity method investments in affiliated companies, combined, was as follows:

 

     Millions of Dollars   
  

 

 

 
     2015         2014         2013   
  

 

 

 

Revenues

   $         11,003                 19,243                 18,035   

Income before income taxes

     1,866         6,746         6,384   

Net income

     1,801         6,630         6,125   

 

 

Summarized 100 percent balance sheet information for equity method investments in affiliated companies, combined, was as follows:

 

     Millions of Dollars   
  

 

 

 
     2015         2014   
  

 

 

 

Current assets

   $ 2,504         4,512   

Noncurrent assets

             58,431         58,570   

Current liabilities

     1,863         3,346   

Noncurrent liabilities

     24,820                 20,210   

 

 

Our share of income taxes incurred directly by an equity company 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, 2015, retained earnings included $1,323 million related to the undistributed earnings of affiliated companies. Dividends received from affiliates were $876 million, $2,648 million and $1,425 million in 2015, 2014 and 2013, respectively.

 

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APLNG

APLNG is focused on coalbed methane production from the Bowen and Surat basins in Queensland, Australia, and LNG processing and export sales. Our investment in APLNG gives us access to coalbed methane resources in Australia and enhances our LNG position. The majority of APLNG LNG is sold under two long term sales and purchase agreements, supplemented with sales of additional LNG spot cargoes targeting the Asia Pacific markets. Origin Energy, an integrated Australian energy company, is the operator of APLNG’s production and pipeline system, while we operate the LNG facility.

APLNG executed project financing agreements for an $8.5 billion project finance facility during the third quarter of 2012. The $8.5 billion project finance facility is composed of financing agreements executed by APLNG with the Export-Import Bank of the United States for approximately $2.9 billion, the Export-Import Bank of China for approximately $2.7 billion, and a syndicate of Australian and international commercial banks for approximately $2.9 billion. At December 31, 2015, $8.4 billion had been drawn from the facility. In connection with the execution of the project financing, we provided a completion guarantee for our pro-rata share of the project finance facility which will be released upon meeting certain completion milestones. See Note 12—Guarantees, for additional information.

APLNG is considered a VIE, as it has entered into certain contractual arrangements that provide it with additional forms of subordinated financial support. See Note 4—Variable Interest Entities (VIEs) for additional information.

During 2015, the outlook for crude oil and natural gas prices sharply deteriorated, and as a result of these significantly reduced price outlooks, the estimated fair value of our investment in APLNG declined to an amount below book value during the fourth quarter of 2015.

Based on a review of the facts and circumstances surrounding this decline in fair value, we concluded that the impairment was other than temporary under the guidance of FASB Accounting Standards Codification (ASC) Topic 323, “Investments – Equity Method and Joint Ventures,” and the recognition of an impairment of our investment to fair value was necessary. In reaching this conclusion, we primarily considered the severity of the current decline of commodity prices as well as the market outlook. Fair value has been estimated based on an internal discounted cash flow model using estimates of future production, prices from futures exchanges and pricing service companies, costs, foreign currency rates and a discount factor that is believed to be consistent with those used by principal market participants.

Accordingly, we recorded a noncash $1,502 million, before- and after-tax impairment, in our fourth-quarter 2015 results. The impairment, which is included in the “Impairments” line on our consolidated income statement, had the effect of reducing our book value to $10,185 million, based on the present value of discounted expected future cash flows as of December 31, 2015.

At December 31, 2015, the book value of our equity method investment in APLNG was $10,185 million, net of a $1,522 million reduction due to cumulative foreign currency translation effects. Effective October 1, 2015, in conjunction with APLNG Train 1 achieving first LNG during the fourth quarter, we changed the functional currency of our investment in APLNG from Australian dollar to U.S. dollar. Accordingly, we expect the currency translation adjustment associated with our investment balance to remain unchanged going forward. The historical cost basis of our 37.5 percent share of net assets on the books of APLNG under U.S. generally accepted accounting principles was $7,470 million, resulting in a basis difference of $2,715 million on our books. The basis difference, which is substantially all associated with PP&E and subject to amortization, has been allocated on a relative fair value basis to individual exploration and production license areas owned by APLNG, some 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 produces natural gas from each license, we amortize the basis difference allocated to that license using the unit-of-production method. Included in net income (loss) attributable to ConocoPhillips for 2015, 2014 and 2013 was after-tax expense of $21 million, $24 million and $16 million, respectively, representing the amortization of this basis difference on currently producing licenses.

 

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FCCL

FCCL Partnership, a Canadian upstream 50/50 general partnership with Cenovus Energy Inc., produces bitumen in the Athabasca oil sands in northeastern Alberta and sells the bitumen blend. We account for our investment in FCCL under the equity method of accounting, with the operating results of our investment in FCCL converted to reflect the use of the successful efforts method of accounting for oil and gas exploration and development activities.

At December 31, 2015, the book value of our investment in FCCL was $8,165 million, net of a $1,955 million reduction due to cumulative foreign currency translation effects. FCCL’s 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 were obligated to contribute $7.5 billion, plus accrued interest, to FCCL over a 10-year period that began in 2007. In December 2013, we repaid the remaining balance of the obligation, which totaled $2,810 million and is included in the “Other” line in the financing activities section of our consolidated statement of cash flows. Interest accrued 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. In the first quarter of 2014, we received a $1.3 billion distribution from FCCL, which is included in the “Undistributed equity earnings” line on our consolidated statement of cash flows.

QG3

QG3 is a joint venture that owns an integrated large-scale LNG project located in Qatar. We provided project financing, with a current outstanding balance of $804 million as described below under “Loans and Long-Term Receivables.” At December 31, 2015, the book value of our equity method investment in QG3, excluding the project financing, was $808 million. We have terminal and pipeline use agreements with Golden Pass LNG Terminal and affiliated Golden Pass Pipeline near Sabine Pass, Texas, in which we have a 12.4 percent interest, intended to provide us with terminal and pipeline capacity for the receipt, storage and regasification of LNG purchased from QG3. However, currently the LNG from QG3 is being sold to markets outside of the United States.

Loans and Long-Term Receivables

As part of our normal ongoing business operations and consistent with industry practice, we enter into numerous agreements with other parties to pursue business opportunities. Included in such activity are loans and long-term receivables to certain affiliated and non-affiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or non-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 agreement’s stated interest rate. Loans and long-term receivables are assessed for impairment when events indicate the loan balance may not be fully recovered.

Through November 2014, we had an agreement with Freeport LNG Development, L.P. (Freeport LNG) to participate in an LNG receiving terminal in Quintana, Texas. We had no ownership in Freeport LNG; however, we had a 50 percent interest in Freeport LNG GP, Inc. (Freeport GP), which serves as the general partner managing the venture. We had 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, which would have expired in 2033. When the terminal became operational in June 2008, we began making payments under the terminal use agreement. Freeport LNG began making loan repayments in September 2008.

In July 2013, we reached an agreement with Freeport LNG to terminate our long-term agreement at the Freeport LNG Terminal, subject to Freeport LNG obtaining regulatory approval and project financing for an LNG liquefaction and export facility in Texas, in which we are not a participant. These conditions were satisfied in 2014, and we paid Freeport LNG a termination fee of $522 million. Freeport LNG repaid the outstanding $454 million ConocoPhillips loan used by Freeport LNG to partially fund the original construction

 

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of the terminal. The payment made to Freeport LNG to terminate our long-term agreement is included in the cash flows from operating activities section on our consolidated statement of cash flows, while the receipt of the funds from Freeport LNG to repay the outstanding loan is included in the cash flows from investing activities section. These transactions, plus miscellaneous items, including the disposal of our 50 percent interest in Freeport GP, resulted in a one-time net cash outflow of $63 million for us. In addition, we recognized an after-tax charge to earnings of $540 million in 2014, and our terminal regasification capacity has been reduced from 0.9 billion cubic feet per day to 0.4 billion cubic feet per day, until July 1, 2016, at which time it will be reduced to zero.

At December 31, 2015, significant loans to affiliated companies include $804 million in project financing to QG3. We own a 30 percent interest in QG3, for which we use the equity method of accounting. The other participants in the project are affiliates of Qatar Petroleum and Mitsui. QG3 secured project financing of $4.0 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. On December 15, 2011, QG3 achieved financial completion and all project loan facilities became nonrecourse to the project participants. Semi-annual repayments began in January 2011 and will extend through July 2022.

The long-term portion of these loans is included in the “Loans and advances—related parties” line on our consolidated balance sheet, while the short-term portion is in “Accounts and notes receivable—related parties.”

Note 8—Suspended Wells and Other Exploration Expenses

The following table reflects the net changes in suspended exploratory well costs during 2015, 2014 and 2013:

 

     Millions of Dollars   
  

 

 

 
     2015         2014         2013   
  

 

 

 

Beginning balance at January 1

   $ 1,299         994         1,038   

Additions pending the determination of proved reserves

     331         478         466   

Reclassifications to proved properties

     (28)         (9)         (29)   

Sales of suspended well investment

             (57)         (481)   

Charged to dry hole expense

     (342)         (107)           

 

 

Ending balance at December 31

   $         1,260                 1,299                   994

 

 

*Includes $57 million of assets that were held for sale in Nigeria.

The following table provides an aging of suspended well balances at December 31:

 

     Millions of Dollars   
  

 

 

 
     2015         2014         2013   
  

 

 

 

Exploratory well costs capitalized for a period of one year or less

   $ 235         466         437   

Exploratory well costs capitalized for a period greater than one year

     1,025         833         557   

 

 

Ending balance

   $         1,260                 1,299                   994  * 

 

 

Number of projects with exploratory well costs capitalized for a period greater than one year

     28         30         29   

 

 

*Includes $57 million of assets that were held for sale in Nigeria.

 

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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, 2015:

 

     Millions of Dollars   
  

 

 

 
        Suspended Since   
     

 

 

 
     Total         2012–2014         2009–2011         2002–2008   
  

 

 

 

Greater Poseidon—Australia (2)

     177         165         12         -   

Caldita/Barossa—Australia (1)

     77         -         -         77   

FAN—Senegal (1)

     117         117         -         -   

Fiord West—Alaska (2)

     16         -         -         16   

Greater Clair—UK (2)

     127         113         14         -   

Kamunsu East—Malaysia (2)

     19         19         -         -   

Limbayong—Malaysia (1)

     23         23         -         -   

NC 98—Libya (2)

     15         11         -         4   

NPRA—Alaska (1)

     93         70         17         6   

Shenandoah—Lower 48 (1)

     94         51         43         -   

SNE—Senegal (1)

     23         23         -         -   

Sunrise—Australia (2)

     13         -         -         13   

Surmont 3 and beyond—Canada (1)

     89         58         14         17   

Tiber—Lower 48 (1)

     100         60         40         -   

Other of $10 million or less each (1)(2)

     42         24         2         16   

 

 

Total

   $         1,025         734         142         149   

 

 

(1)Additional appraisal wells planned.

(2)Appraisal drilling complete; costs being incurred to assess development.

In line with our July 2015 announcement of plans to reduce future deepwater exploration spending, we recognized before-tax cancellation costs of $335 million and wrote off $48 million of before-tax capitalized rig costs in relation to the termination of our Gulf of Mexico deepwater drillship contract with Ensco in the Lower 48 segment in the third quarter of 2015.

In the fourth quarter of 2015, we impaired our leasehold cost associated with Block 36 in Angola due to the lack of commerciality of future prospects. We drilled one of our two-well commitment under the Angola Block 36 Production Sharing Contract (PSC) and recorded a before-tax charge of $93 million for potential future obligations.

These charges are included in the “Exploration expenses” line on our consolidated income statement.

 

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Note 9—Impairments

During 2015, 2014 and 2013, we recognized the following before-tax impairment charges:

 

             Millions of Dollars           
  

 

 

 
     2015        2014         2013   
  

 

 

 

Alaska

   $ 10        59         3   

Lower 48

     (2     208         2   

Canada

     4        38         216   

Europe and North Africa

     724        541         301   

Asia Pacific and Middle East

     1,508        7         3   

Corporate

     1        3         4   

 

 
   $ 2,245        856         529   

 

 

2015

See the “APLNG” section of Note 7—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment included within the Asia Pacific and Middle East segment.

In Europe, we recorded impairments of $724 million, primarily in the United Kingdom as a result of lower natural gas prices and increases to asset retirement obligations.

The charges discussed below, within this section, are included in the “Exploration expenses” line on our consolidated income statement and are not reflected in the table above.

In the second and fourth quarters of 2015, we decided not to pursue further evaluation of our Block 37 and Block 36 leases in Angola, respectively, due to lack of commerciality of wells. Accordingly, we recorded impairments of $116 million in the second quarter of 2015 and $377 million in the fourth quarter of 2015 for the associated carrying values of capitalized undeveloped leasehold costs.

In the third quarter of 2015, we decided not to conduct further activity on certain Gulf of Mexico leases, given our strategic plans to reduce deepwater exploration spending, and to relinquish our Palangkaraya PSC in Indonesia. Accordingly, we recorded impairments of $240 million and $105 million, respectively, for the associated carrying values of capitalized undeveloped leasehold cost.

In the fourth quarter of 2015, we recorded impairments of $575 million, $159 million and $102 million for the associated carrying value of capitalized undeveloped leasehold cost in the Chukchi Sea in Alaska; the Gila prospect in deepwater Gulf of Mexico; and the Duvernay, Thornbury, Saleski and Crow Lake areas in Canada, respectively. These impairments were driven by the lack of commerciality of wells, regulatory uncertainty and the expiration of our leases.

2014

In Alaska, we recorded impairments of $59 million, primarily due to a cancelled project.

In our Lower 48 segment, we recorded impairments of $208 million, primarily as a result of reduced volume forecasts for an onshore field, as well as an LNG-related pipeline.

We recorded impairments of $38 million in our Canada segment, primarily due to reduced volume forecasts and lower natural gas prices.

In Europe, we recorded impairments of $541 million, mainly due to reduced volume forecasts, increases in the ARO and lower natural gas prices for properties in the United Kingdom which are nearing the end of their useful lives.

 

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The charges discussed below, within this section, are included in the “Exploration expenses” line on our consolidated income statement and are not reflected in the table above.

In our Lower 48 segment, we recorded unproved property impairments of $239 million, primarily due to decisions to discontinue further testing of the undeveloped leaseholds.

Additionally, we decided not to pursue future development of the Amauligak discovery. Accordingly, we recorded a $145 million property impairment for the carrying value of capitalized undeveloped leasehold costs associated with our Amauligak, Arctic Islands and other Beaufort properties located offshore Canada.

2013

We recorded property impairments of $216 million in our Canada segment, mainly as a result of lower natural gas price assumptions, reduced volume forecasts and higher costs.

In Europe, we recorded impairments of $301 million, primarily due to ARO revisions for properties in the United Kingdom which are nearing the end of their useful lives or have ceased production.

Note 10—Asset Retirement Obligations and Accrued Environmental Costs

Asset retirement obligations and accrued environmental costs at December 31 were:

     Millions of Dollars       
  

 

 

 
     2015        2014   
  

 

 

 

Asset retirement obligations

   $ 9,911        10,939   

Accrued environmental costs

     258        344   

 

 

Total asset retirement obligations and accrued environmental costs

     10,169        11,283   

Asset retirement obligations and accrued environmental costs due within one year*

     (589     (636

 

 

Long-term asset retirement obligations and accrued environmental costs

   $ 9,580        10,647   

 

 

*Classified as a current liability on the balance sheet under “Other accruals.”

Asset Retirement Obligations

We 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, we capitalize the associated asset retirement cost by increasing the carrying amount of the related PP&E. If, in subsequent periods, our estimate of this liability changes, we will record an adjustment to both the liability and PP&E. 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 retirement obligations 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 plugging and abandonment of wells and removal and disposal of offshore oil and gas platforms around the world, as well as oil and gas production facilities and pipelines in Alaska.

 

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During 2015 and 2014, our overall asset retirement obligation changed as follows:

 

     Millions of Dollars         
  

 

 

 
     2015        2014   
  

 

 

 

Balance at January 1

   $ 10,939        10,076   

Accretion of discount

     480        479   

New obligations

     135        368   

Changes in estimates of existing obligations

     267        1,175   

Spending on existing obligations

     (437     (365

Property dispositions

     (726     (20

Foreign currency translation

     (747     (774

 

 

Balance at December 31

   $ 9,911        10,939   

 

 

Accrued Environmental Costs

Total accrued environmental costs at December 31, 2015 and 2014, were $258 million and $344 million, respectively.

We had accrued environmental costs of $184 million and $250 million at December 31, 2015 and 2014, respectively, related to remediation activities in the United States and Canada. We had also accrued in Corporate and Other $57 million and $79 million of environmental costs associated with sites no longer in operation at December 31, 2015 and 2014, respectively. In addition, $17 million and $15 million were included at both December 31, 2015 and 2014, respectively, 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 are expected to be paid over periods extending up to 30 years.

Expected expenditures for environmental obligations acquired in various business combinations are discounted using a weighted-average 5 percent discount factor, resulting in an accrued balance for acquired environmental liabilities of $105 million at December 31, 2015. The expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are: $12 million in 2016, $13 million in 2017, $9 million in 2018, $6 million in 2019, $4 million in 2020, and $117 million for all future years after 2020.

 

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Note 11—Debt

Long-term debt at December 31 was:

 

     Millions of Dollars         
  

 

 

 
     2015        2014   
  

 

 

 

9.125% Debentures due 2021

   $ 150        150   

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   

7.65% Debentures due 2023

     88        88   

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   

6.65% Debentures due 2018

     297        297   

6.50% Notes due 2039

     2,250        2,250   

6.50% Notes due 2039

     500        500   

6.00% Notes due 2020

     1,000        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        2,250   

5.625% Notes due 2016

     1,250        1,250   

5.20% Notes due 2018

     500        500   

4.30% Notes due 2044

     750        750   

4.15% Notes due 2034

     500        500   

3.35% Notes due 2024

     1,000        1,000   

3.35% Notes due 2025

     500        -   

2.875% Notes due 2021

     750        750   

2.4% Notes due 2022

     1,000        1,000   

2.2% Notes due 2020

     500        -   

1.5% Notes due 2018

     750        -   

1.05% Notes due 2017

     1,000        1,000   

Floating rate notes due 2018 at 0.61% – 0.69% during 2015

     250        -   

Floating rate notes due 2022 at 1.18% – 1.26% during 2015

     500        -   

Commercial paper at 0.16% – 0.80% during 2015 and 0.14% – 0.21% during 2014

     803        860   

Industrial Development Bonds due 2015 through 2038 at 0.01% – 0.13% during 2015 and 0.02% – 0.13% during 2014

     18        18   

Marine Terminal Revenue Refunding Bonds due 2031 at 0.01% – 0.14% during 2015 and 0.02% – 0.15% during 2014

     265        265   

Other

     24        24   

 

 

Debt at face value

     23,778        21,335   

Capitalized leases

     818        858   

Net unamortized premiums, discounts and debt issuance costs

     284        372   

 

 

Total debt

     24,880        22,565   

Short-term debt

     (1,427     (182

 

 

Long-term debt

   $ 23,453        22,383   

 

 

 

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Maturities of long-term borrowings, inclusive of net unamortized premiums and discounts, in 2016 through 2020 are: $1,427 million, $1,081 million, $1,859 million, $3,014 million and $1,576 million, respectively. At December 31, 2015, we classified $695 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 facility.

In May 2015, we issued notes consisting of:

 

    The $750 million of 1.50% Notes due 2018.
    The $250 million of Floating Rate Notes due 2018 bearing interest at three-month LIBOR, plus 0.33%.
    The $500 million of 2.20% Notes due 2020.
    The $500 million of Floating Rate Notes due 2022 bearing interest at three-month LIBOR, plus 0.90%.
    The $500 million of 3.35% Notes due 2025.

The net proceeds were used for general corporate purposes.

At December 31, 2015, we had a revolving credit facility totaling $7.0 billion expiring in June 2019. Our revolving credit facility may be used for direct bank borrowings, for the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper programs. The revolving credit facility is broadly syndicated among financial institutions and does not contain any material adverse change provisions or any covenants requiring maintenance of specified financial ratios or credit ratings. The facility agreement contains a cross-default provision relating to the failure to pay principal or interest on other debt obligations of $200 million or more by ConocoPhillips, or 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 agreement calls for commitment fees on available, but unused, amounts. The agreement also contains 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 supported by our $7.0 billion revolving credit facility: the ConocoPhillips $6.1 billion program, primarily a funding source for short-term working capital needs, and the ConocoPhillips Qatar Funding Ltd. $900 million program, which is used to fund commitments relating to QG3. Commercial paper maturities are generally limited to 90 days.

At both December 31, 2015 and 2014, we had no direct outstanding borrowings under the revolving credit facility, with no letters of credit as of December 31, 2015 and 2014. In addition, under the ConocoPhillips Qatar Funding Ltd. commercial paper program, there was $803 million of commercial paper outstanding at December 31, 2015, compared with $860 million at December 31, 2014. Since we had $803 million of commercial paper outstanding and had issued no letters of credit, we had access to $6.2 billion in borrowing capacity under our revolving credit facility at December 31, 2015.

During 2013, a lease of a semi-submersible floating production system (FPS) commenced for the Gumusut development, located in Malaysia, in which we are a co-venturer. The FPS lease provides for an initial noncancelable term of 15 years, a subsequent 5-year cancelable term with no required lease payments, and an additional 5-year term with terms and conditions to be agreed at a later date. The lease has no ongoing purchase options or escalation clauses. Adjustments to provisional contingent rental payments may occur due to the finalization of actual commissioning costs. The lease does not impose any significant restrictions concerning dividends, debt or further leasing activities.

A capital lease asset and capital lease obligation were recognized for our proportionate interest in the FPS of $906 million, based on the present value of the future minimum lease payments using our pre-tax incremental borrowing rate of 3.58 percent for debt with similar terms. Unitization of the Gumusut development with

 

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Brunei was recorded during the fourth quarter of 2014 and reduced our proportionate interest in the FPS from 33 percent to 29 percent. The net carrying value of the capital lease asset was approximately $707 million and $802 million as of December 31, 2015 and December 31, 2014, respectively. The capital lease asset is being depreciated over a period consistent with the estimated proved reserves of Gumusut using the unit-of-production method with the associated depreciation included in the “Depreciation, depletion and amortization” line on our consolidated income statement. As of December 31, 2015 and December 31, 2014, accumulated depreciation of the capital lease asset amounted to approximately $122 million and $20 million, respectively.

At December 31, 2015, future minimum payments due under capital leases were:

 

    
 
Millions
of Dollars
  
  
  

 

 

 

2016

   $ 91   

2017

     76   

2018

     76   

2019

     76   

2020

     76   

Remaining years

     648   

 

 

Total

     1,043   

Less: portion representing imputed interest

     (225

 

 

Capital lease obligations

   $ 818   

 

 

Note 12—Guarantees

At December 31, 2015, 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 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.

APLNG Guarantees

At December 31, 2015, we had outstanding multiple guarantees in connection with our 37.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing December 2015 exchange rates:

 

    We have guaranteed APLNG’s performance with regard to a construction contract executed in connection with APLNG’s issuance of the Train 1 and Train 2 Notices to Proceed. We estimate the remaining term of this guarantee is one year. Our maximum potential amount of future payments related to this guarantee is approximately $110 million and would become payable if APLNG cancels the applicable construction contract and does not perform with respect to the amounts owed to the contractor.

 

    We have issued a construction completion guarantee related to the third-party project financing secured by APLNG. Our maximum potential amount of future payments under the guarantee is estimated to be $3.2 billion, which could be payable if the full debt financing capacity is utilized and completion of the project is not achieved. Our guarantee of the project financing will be released upon meeting certain completion tests with milestones, which we estimate should occur beginning in 2016. Our maximum exposure at December 31, 2015, is $3.2 billion based upon our pro-rata share of the facility used at that date. At December 31, 2015, the carrying value of this guarantee is approximately $114 million.

 

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    In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy in October 2008, we agreed to reimburse Origin Energy for our share of the existing contingent liability arising under guarantees of an existing obligation of APLNG to deliver natural gas under several sales agreements with remaining terms of 1 to 26 years. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $1 billion ($1.8 billion in the event of intentional or reckless breach) and would become payable if APLNG fails to meet its obligations under these agreements and the obligations cannot otherwise be mitigated. Future payments are considered unlikely, as the payments, or cost of volume delivery, would only be triggered if APLNG does not have enough natural gas to meet these sales commitments and if the co-venturers do not make necessary equity contributions into APLNG.

 

    We have guaranteed the performance of APLNG with regard to certain other contracts executed in connection with the project’s continued development. The guarantees have remaining terms of up to 30 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $160 million and would become payable if APLNG does not perform.

Other Guarantees

We have other guarantees with maximum future potential payment amounts totaling approximately $590 million, which consist primarily of guarantees of the residual value of a leased office building, the residual value of leased corporate aircraft, a guarantee for our portion of a joint venture’s project finance reserve accounts, a guarantee to fund the short-term cash liquidity deficit of a joint venture, and a guarantee of minimum charter revenue for an LNG vessel. These guarantees have remaining terms of up to eight years or the life of the venture and would become payable if, upon sale, certain asset values are lower than guaranteed amounts, business conditions decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties.

Indemnifications

Over the years, we have entered into agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to qualifying indemnifications. These agreements include indemnifications for taxes, environmental liabilities, employee claims 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, 2015, was approximately $90 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 at December 31, 2015, were approximately $40 million of environmental accruals for known contamination that are included in the “Asset retirement obligations and accrued environmental costs” line on our consolidated balance sheet. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments.

On April 30, 2012, the separation of our Downstream businesses was completed, creating two independent energy companies: ConocoPhillips and Phillips 66. In connection with the separation, we entered into an Indemnification and Release Agreement, which provides for cross-indemnities between Phillips 66 and us and established procedures for handling claims subject to indemnification and related matters. We evaluated the impact of the indemnifications given and the Phillips 66 indemnifications received as of the separation date and concluded those fair values were immaterial.

On March 1, 2015, a supplier to one of the refineries that was included in Phillips 66 as part of the separation of our Downstream businesses formally registered Phillips 66 as a party to the supply agreement, thereby triggering a guarantee we provided at the time of separation. Our maximum potential liability for future

 

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payments under this guarantee, which would become payable if Phillips 66 does not perform its contractual obligations under the supply agreement, is approximately $1.6 billion. At December 31, 2015, the carrying value of this guarantee is approximately $98 million and the remaining term is nine years. Because Phillips 66 has indemnified us for losses incurred under this guarantee, we have recorded an indemnification asset from Phillips 66 of approximately $98 million. The recorded indemnification asset amount represents the estimated fair value of the guarantee; however, if we are required to perform under the guarantee, we would expect to recover from Phillips 66 any amounts in excess of that value, provided Phillips 66 is a going concern.

Note 13—Contingencies and Commitments

A number of lawsuits involving a variety of claims arising in the ordinary course of business have been made against ConocoPhillips. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the 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. With respect to income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. See Note 19—Income 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 international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for federal sites and frequently so for other 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. 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 agency 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

 

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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 are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state and international 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 10—Asset Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.

Legal Proceedings

We are subject to various lawsuits and claims including but not limited to matters involving oil and gas royalty and severance tax payments, gas measurement and valuation methods, contract disputes, environmental damages, personal injury, and property damage. Our primary exposures for such matters relate to alleged royalty and tax underpayments on certain federal, state and privately owned properties and claims of alleged environmental contamination from historic operations. We will continue to defend ourselves vigorously in these matters.

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.

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, 2015, we had performance obligations secured by letters of credit of $340 million (issued as direct bank letters of credit) related to various purchase commitments for materials, supplies, commercial activities and services incident to the ordinary conduct of business.

In 2007, we announced we had been unable to reach agreement with respect to our migration to an empresa mixta structure mandated by the Venezuelan government’s Nationalization Decree. As a result, Venezuela’s national oil company, Petróleos de Venezuela S.A. (PDVSA), or its affiliates, directly assumed control over ConocoPhillips’ interests in the Petrozuata and Hamaca heavy oil ventures and the offshore Corocoro development project. In response to this expropriation, we filed a request for international arbitration on November 2, 2007, with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). An arbitration hearing was held before an ICSID tribunal during the summer of 2010. On September 3, 2013, an ICSID arbitration tribunal held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. A separate arbitration phase is currently proceeding to determine the damages owed to ConocoPhillips for Venezuela’s actions. On October 10, 2014, we filed a separate arbitration under the rules of the International Chamber of Commerce against PDVSA for contractual compensation related to the Petrozuata and Hamaca heavy crude oil projects.

In 2008, Burlington Resources, Inc., a wholly owned subsidiary of ConocoPhillips, initiated arbitration before ICSID against The Republic of Ecuador, 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

 

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the ICSID tribunal, Ecuador confiscated the crude oil production of Burlington and its co-venturer and sold the seized crude oil. In 2009, Ecuador took over operations in Blocks 7 and 21, fully expropriating our assets. In June 2010, the ICSID tribunal concluded it has jurisdiction to hear the expropriation claim. On April 24, 2012, Ecuador filed supplemental counterclaims asserting environmental damages, which we believe are not material. The ICSID tribunal issued a decision on liability on December 14, 2012, in favor of Burlington, finding that Ecuador’s seizure of Blocks 7 and 21 was an unlawful expropriation in violation of the Ecuador-U.S. Bilateral Investment Treaty. An additional arbitration phase is now proceeding to determine the damages owed to ConocoPhillips for Ecuador’s actions and to address Ecuador’s counterclaims.

ConocoPhillips served a Notice of Arbitration on the Timor-Leste Minister of Finance in October 2012 for outstanding disputes related to a series of tax assessments. The arbitration hearing was conducted in Singapore in June 2014 under the United Nations Commission on International Trade Laws (UNCITRAL) arbitration rules, pursuant to the terms of the Tax Stability Agreement with the Timor-Leste government. Post-hearing briefs from both parties were filed in August 2014. In January 2016, the Government of Timor-Leste and ConocoPhillips reached a settlement of several significant tax disputes. However, we await the Tribunal’s decision with respect to certain unresolved matters.

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 company’s business. The aggregate amounts of estimated payments under these various agreements are: 2016—$27 million; 2017—$27 million; 2018—$22 million; 2019—$7 million; 2020—$7 million; and 2021 and after—$80 million. Total payments under the agreements were $27 million in 2015 and $127 million in each of 2014 and 2013.

Note 14—Derivative and Financial Instruments

We use futures, forwards, swaps and options in various markets to meet our customer needs and capture market opportunities. Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and natural gas liquids.

Our derivative instruments are held at fair value on our consolidated balance sheet. Where these balances have the right of setoff, they are presented on a net basis. Related cash flows are recorded as operating activities on our consolidated statement of cash flows. On our consolidated income statement, realized and unrealized gains and losses are recognized either on a gross basis if directly related to our physical business or a net basis if held for trading. Gains and losses related to contracts that meet and are designated with the normal purchase normal sale exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use hedge accounting for our commodity derivatives.

The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:

 

     Millions of Dollars  
  

 

 

 
     2015      2014  
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $             768                     4,500   

Other assets

     60         157   

Liabilities

     

Other accruals

     754         4,426   

Other liabilities and deferred credits

     46         144   

 

 

 

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

 

     Millions of Dollars  
  

 

 

 
     2015      2014      2013  
  

 

 

 

Sales and other operating revenues

   $ 231          523          (160)   

Other income

                       

Purchased commodities

             (201)                 (458)                 139    

 

 

The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts:

 

    

Open Position

Long/(Short)

 
  

 

 

 
     2015      2014  
  

 

 

 

Commodity

     

Natural gas and power (billions of cubic feet equivalent)

     

Fixed price

     (14)         (11

Basis

                 (17)                   18   

 

 

Foreign Currency Exchange Derivatives

We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily relates to managing our cash-related and foreign currency exchange rate exposures, such as firm commitments for capital programs or local currency tax payments, dividends, and cash returns from net investments in foreign affiliates. We do not elect hedge accounting on our foreign currency exchange derivatives.

The following table presents the gross fair values of our foreign currency exchange derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:

 

     Millions of Dollars  
  

 

 

 
     2015         2014   
  

 

 

 

Assets

     

Prepaid expenses and other current assets

   $         47                     1   

Liabilities

     

Other accruals

     8         1   

 

 

The (gains) losses from foreign currency exchange derivatives incurred, and the line item where they appear on our consolidated income statement were:

 

     Millions of Dollars  
  

 

 

 
     2015      2014      2013  
  

 

 

 

Foreign currency transaction (gains) losses

   $             (33)                     3                     4   

 

 

 

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

 

     In Millions
Notional Currency
 
     2015      2014  
  

 

 

 

Foreign Currency Exchange Derivatives

     

Sell U.S. dollar, buy other currencies*

     USD                       347         7   

Buy U.S. dollar, sell other currencies**

     USD                         20         44   

Buy British pound, sell other currencies***

     GBP                       567                         20   

 

 

    *Primarily Canadian dollar, Norwegian krone and British pound.

  **Primarily Canadian dollar and Norwegian krone.

***Primarily Canadian dollar and euro.

Financial Instruments

We have certain financial instruments with maturities based on our cash forecasts for the various currency pools we manage. The maturities of these investments may from time to time extend beyond 90 days. The types of financial instruments include:

 

    Time deposits: Interest bearing deposits placed with approved financial institutions.
    Money market funds: Short-term securities representing high-quality liquid debt and monetary instruments.
    Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank, or government agency purchased at a discount, maturing at par.

These financial instruments appear in the “Cash and cash equivalents” line of our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less. At December 31, we held the following financial instruments:

 

     Millions of Dollars  
     Carrying Amount  
     Cash and Cash Equivalents  
     2015      2014  
  

 

 

 

Cash

   $                         528                                 946   

Money market funds

     -         50   

Time deposits

     

Remaining maturities from 1 to 90 days

     1,840         3,726   

Commercial paper

     

Remaining maturities from 1 to 90 days

     -         340   

 

 
   $ 2,368         5,062   

 

 

Credit Risk

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

The credit risk from our OTC derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because

 

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these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements until settled; however, we are exposed to the credit risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements.

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

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

The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position on December 31, 2015 and December 31, 2014, was $158 million and $150 million, respectively. For these instruments, $2 million of collateral was posted as of December 31, 2015, and no collateral was posted as of December 31, 2014. If our credit rating had been lowered one level from its “A” rating (per Standard and Poor’s) on December 31, 2015, we would be required to post no additional collateral to our counterparties. If we had been downgraded below investment grade, we would be required to post $156 million of additional collateral, either with cash or letters of credit.

Note 15—Fair Value Measurement

We carry a portion of our assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to the quality of valuation inputs under the following hierarchy:

 

    Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
    Level 2: Inputs other than quoted prices that are directly or indirectly observable.
    Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1 during 2015 and 2014.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include commodity derivatives and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 2 derivative assets and liabilities primarily represent OTC swaps, options and forward purchase and sale contracts that are valued using adjusted exchange prices, prices

 

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provided by brokers or pricing service companies that are all corroborated by market data. Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value. Level 3 activity was not material for all periods presented.

The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):

 

     Millions of Dollars  
     December 31, 2015      December 31, 2014  
         Level 1      Level 2      Level 3      Total        Level 1      Level 2      Level 3      Total  
  

 

 

    

 

 

 

Assets

                       

Deferred compensation investments

   $ 21         -         -         21         297         -         -         297   

Commodity derivatives

     516         242         70         828         4,221         361         75         4,657   

 

 

Total assets

   $     537             242             70             849             4,518             361             75             4,954   

 

 

Liabilities

                       

Commodity derivatives

   $ 515         273         12         800         4,200         354         16         4,570   

 

 

Total liabilities

   $ 515         273         12         800         4,200         354         16         4,570   

 

 

The following table summarizes those commodity derivative balances subject to the right of setoff as presented on our consolidated balance sheet. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists.

 

     Millions of Dollars  
     Gross
Amounts
Recognized
     Gross
Amounts
Offset
     Net
Amounts
Presented
     Cash
Collateral
     Gross Amounts
without
Right of Setoff
     Net
Amounts
 
  

 

 

 

December 31, 2015

                 

Assets

   $ 828         600         228         -         8         220   

Liabilities

     800         600         200         1         11         188   

 

 

December 31, 2014

                 

Assets

   $ 4,657         4,352         305         8         28         269   

Liabilities

     4,570         4,352         218         4         22         192   

 

 

At December 31, 2015 and December 31, 2014, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.

 

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Non-Recurring Fair Value Measurement

The following table summarizes the fair value hierarchy by major category for assets accounted for at fair value on a non-recurring basis:

 

     Millions of Dollars  
            Fair Value
Measurements Using
 
         Fair Value*      Level 3
Inputs
     Before-Tax
Loss
 
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2015

        

Net PP&E (held for use)

   $ 440         440         681   

Net PP&E (unproved property)

     104         104         240   

Equity method investments

         10,210                 10,210             1,507   

 

 

Year ended December 31, 2014

        

Net PP&E (held for use)

   $ 87         87         756   

Net PP&E (unproved property)

     39         39         158   

 

 

*Represents the fair value at the time of the impairment.

Net PP&E (held for use)

Net PP&E held for use is comprised of various producing properties impaired to their individual fair values less costs to sell. The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges and pricing service companies, costs, and a discount rate believed to be consistent with those used by principal market participants.

Net PP&E (unproved property)

Net PP&E unproved property is comprised of unproved leaseholds impaired to our best estimate of sales value less costs to sell.

Equity Method Investments

Certain equity method investments, primarily our investment in APLNG, were determined to have fair values below their carrying amounts, and the impairments were considered to be other than temporary. For additional information, see Note 7—Investments, Loans and Long-Term Receivables.

Reported Fair Values of Financial Instruments

We used the following methods and assumptions to estimate the fair value of financial instruments:

 

    Cash and cash equivalents: The carrying amount reported on the balance sheet approximates fair value.
    Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans and advances—related parties.
    Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair value. The fair value of fixed-rate loan activity is measured using market observable data and is categorized as Level 2 in the fair value hierarchy. See Note 7—Investments, Loans and Long-Term Receivables, for additional information.
    Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value.
    Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level 2 in the fair value hierarchy.

 

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The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of setoff exists for commodity derivatives):

 

     Millions of Dollars  
     Carrying Amount      Fair Value  
             2015                 2014                 2015                 2014   
  

 

 

    

 

 

 

Financial assets

           

Deferred compensation investments

   $ 21         297         21         297   

Commodity derivatives

     228         297         228         297   

Total loans and advances—related parties

     808         913         808         913   

Financial liabilities

           

Total debt, excluding capital leases

     24,062         21,707         24,785         25,191   

Commodity derivatives

     199         214         199         214   

 

 

Deferred compensation investments

In May 2015, we liquidated certain deferred compensation investments for proceeds of $267 million, which is included in the “Other” line within “Cash Flows From Investing Activities” on our consolidated statement of cash flows.

Commodity derivatives

At December 31, 2015, commodity derivative assets and liabilities appear net with no obligations to return cash collateral and $1 million of rights to reclaim cash collateral, respectively. At December 31, 2014, commodity derivative assets and liabilities appear net of $8 million of obligations to return cash collateral and $4 million of rights to reclaim cash collateral, respectively.

Note 16—Equity

Common Stock

The changes in our shares of common stock, as categorized in the equity section of the balance sheet, were:

 

     Shares  
     2015         2014         2013   
  

 

 

 

Issued

        

Beginning of year

     1,773,583,368         1,768,169,906         1,762,247,949   

Distributed under benefit plans

     4,643,020         5,413,462         5,921,957   

 

 

End of year

     1,778,226,388         1,773,583,368         1,768,169,906   

 

 

Preferred Stock

We have authorized 500 million shares of preferred stock, par value $.01 per share, none of which was issued or outstanding at December 31, 2015 or 2014.

Noncontrolling Interests

At December 31, 2015 and 2014, we had $320 million and $362 million outstanding, respectively, of equity in less-than-wholly owned consolidated subsidiaries held by noncontrolling interest owners. For both periods, the amounts were related to the Darwin LNG and Bayu-Darwin Pipeline operating joint ventures we control.

 

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Note 17—Non-Mineral Leases

The company primarily leases drilling equipment and office buildings, as well as ocean transport vessels, tugboats, barges, corporate aircraft, computers and other facilities and equipment. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property for the fair market value at the end of the lease term. There are no significant restrictions imposed on us by the leasing agreements with regard to dividends, asset dispositions or borrowing ability. For additional information on leased assets under capital leases, see Note 11—Debt.

At December 31, 2015, future minimum rental payments due under noncancelable leases were:

 

     Millions
of Dollars
 

2016

   $ 671    

2017

     360    

2018

     215    

2019

     156    

2020

     374    

Remaining years

     381    

 

 

Total

     2,157    

Less: income from subleases

     (9)   

 

 

Net minimum operating lease payments

   $         2,148    

 

 

Operating lease rental expense for the years ended December 31 was:

 

     Millions of Dollars  
     2015         2014         2013   
  

 

 

 

Total rentals

   $         432                  474                  317    

Less: sublease rentals

     (9)         (10)         (12)   

 

 
   $ 423          464          305    

 

 

 

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Note 18—Employee Benefit Plans

Pension and Postretirement Plans

An analysis of the projected benefit obligations for our pension plans and accumulated benefit obligations for our postretirement health and life insurance plans follows:

 

     Millions of Dollars  
     Pension Benefits      Other Benefits  
     2015      2014      2015      2014  
  

 

 

    

 

 

    

 

 

 
     U.S.      Int’l.      U.S.      Int’l.                
  

 

 

    

 

 

       

Change in Benefit Obligation

                 

Benefit obligation at January 1

   $ 4,387          3,984          3,954          3,583              716              682    

Service cost

     138          124          124          109                    

Interest cost

     161          135          165          166          22          29    

Plan participant contributions

                                     21          21    

Plan amendments

                                     (303)           

Actuarial (gain) loss

     (212)         (442)         477          598          (49)         53    

Benefits paid

     (729)         (162)         (333)         (122)         (63)         (70)   

Curtailment

     27          (43)                 -         8         -   

Recognition of termination benefits

             68                                    

Foreign currency exchange rate change

             (348)                 (356)         (4)         (2)   

 

 

Benefit obligation at December 31*

   $ 3,772          3,321          4,387          3,984          352          716    

 

 

*Accumulated benefit obligation portion of above at December 31:

   $ 3,573          2,953          3,957           3,111          

Change in Fair Value of Plan Assets

                 

Fair value of plan assets at January 1

   $ 3,266          3,278          3,092          3,132                    

Actual return on plan assets

     (4)         96          234          410                    

Company contributions

     73          120          273          203          42          49    

Plan participant contributions

                                     21          21    

Benefits paid

     (729)         (162)         (333)         (122)         (63)         (70)   

Foreign currency exchange rate change

             (274)                 (351)                   

 

 

Fair value of plan assets at December 31

   $     2,606              3,063              3,266              3,278                    

 

 

Funded Status

   $ (1,166)         (258)         (1,121)         (706)         (352)         (716)   

 

 

 

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     Millions of Dollars  
     Pension Benefits      Other Benefits  
     2015      2014      2015      2014  
  

 

 

    

 

 

    

 

 

 
     U.S.      Int’l.      U.S.      Int’l.                
  

 

 

    

 

 

       

Amounts Recognized in the Consolidated Balance Sheet at December 31

                 

Noncurrent assets

   $ -                175                      -                  13                      -                      -    

Current liabilities

     (99)           (34)         (26)         (9)         (45)         (49)   

Noncurrent liabilities

     (1,067)           (399)         (1,095)         (710)         (307)         (667)   

 

 

Total recognized

   $     (1,166)           (258)         (1,121)         (706)         (352)         (716)   

 

 

Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31

                 

Discount rate

     4.50%         3.95          3.80          3.55          3.90          4.15    

Rate of compensation increase

     4.00             4.05          4.75          4.35                    

 

 

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31

                 

Discount rate

     4.00%         3.55          4.40          4.75          4.05          4.45    

Expected return on plan assets

     7.00             5.40          7.00          5.75           -            

Rate of compensation increase

     4.75             4.35          4.75          4.60                    

 

 

For both U.S. and international pensions, the overall expected long-term rate of return is developed from the expected future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.

Included in accumulated other comprehensive income (loss) at December 31 were the following before-tax amounts that had not been recognized in net periodic benefit cost:

 

     Millions of Dollars  
     Pension Benefits      Other Benefits  
     2015      2014      2015      2014  
  

 

 

    

 

 

    

 

 

 
     U.S.      Int’l.      U.S.      Int’l.                
  

 

 

    

 

 

       

Unrecognized net actuarial (gain) loss

   $         773              273              1,146              852              (18)             25    

Unrecognized prior service cost (credit)

             (30)         16          (43)         (292)         (4)   

 

 

 

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     Millions of Dollars  
     Pension Benefits      Other Benefits  
     2015      2014      2015      2014  
  

 

 

    

 

 

    

 

 

 
     U.S.      Int’l.      U.S.      Int’l.                
  

 

 

    

 

 

       

Sources of Change in Other Comprehensive Income (Loss)

                 

Net gain (loss) arising during the period

   $ 61          490          (456)         (331)         41          (53)   

Amortization of (gain) loss included in income (loss)*

     312          89                  77                  57                  2          (3)   

 

 

Net change during the period

   $     373              579          (379)         (274)         43          (56)   

 

 

Prior service credit (cost) arising during the period

   $         (2)                 (3)         303            

Amortization of prior service cost (credit) included in income (loss)

             (11)                 (8)         (15)         (4)   

 

 

Net change during the period

   $         (13)                 (11)         288          (4)   

 

 

*Includes settlement losses recognized in 2015.

During the year ended December 31, 2015, there were amendments to the U.S. other postretirement benefit plan. The benefit obligation decreased by $303 million for changes in the plan made to retiree medical benefits. The $303 million decrease consists of $149 million related to the discontinuation of all company premium cost-sharing contributions to the post-65 retiree medical plan after December 31, 2025, $91 million related to updated cost sharing assumption changes for retirees, $49 million associated with excluding employees and retirees of Phillips 66 who were not enrolled in a ConocoPhillips retiree medical plan as of July 1, 2015, and $14 million associated with new participants in the post-65 retiree medical plan after December 31, 2015 no longer being eligible for any company premium cost-sharing contributions. The $303 million decrease in the benefit obligation resulted in a corresponding decrease in other comprehensive loss.

Included in accumulated other comprehensive income (loss) at December 31, 2015, were the following before-tax tax amounts that are expected to be amortized into net periodic benefit cost during 2016:

 

     Millions of Dollars  
     Pension
Benefits
     Other
Benefits
 
             U.S.              Int’l.         
  

 

 

    

Unrecognized net actuarial (gain) loss

   $         78                  30          (2)   

Unrecognized prior service cost (credit)

             (6)         (34)   

 

 

For our tax-qualified pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets were $5,720 million, $5,314 million, and $4,759 million, respectively, at December 31, 2015, and $7,584 million, $6,503 million, and $6,446 million, respectively, at December 31, 2014.

For our unfunded nonqualified key employee supplemental pension plans, the projected benefit obligation and the accumulated benefit obligation were $639 million and $564 million, respectively, at December 31, 2015, and were $703 million and $482 million, respectively, at December 31, 2014.

 

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The components of net periodic benefit cost of all defined benefit plans are presented in the following table:

 

     Millions of Dollars  
     Pension Benefits      Other Benefits  
     2015      2014      2013      2015      2014      2013  
  

 

 

    

 

 

    

 

 

    

 

 

 
     U.S.      Int’l.      U.S.      Int’l.      U.S.      Int’l.                       
  

 

 

    

 

 

    

 

 

          

Components of Net Periodic Benefit Cost

                          

Service cost

   $     138              124              124              109              138              102                  4                  3                  3    

Interest cost

     161          135          165          166          143          145          22          29          26    

Expected return on plan assets

     (201)         (164)         (213)         (181)         (186)         (160)                           

Amortization of prior service cost (credit)

             (7)                 (8)                 (7)         (17)         (4)         (4)   

Recognized net actuarial loss (gain)

     115          82          77          57          151          73                  (3)           

Settlements

     197                                  67                                    

Curtailment (gain) loss

     35          (4)                                                           

 

 

Net periodic benefit cost

   $ 451          173          159          143          319          153          13          25          28    

 

 

We recognized pension settlement losses of $204 million in 2015 and $67 million in 2013 as lump-sum benefit payments from certain U.S. and international pension plans exceeded the sum of service and interest costs for those plans and led to recognition of settlement losses.

As part of the 2015 restructuring program, we concluded that actions taken during the year ended December 31, 2015, resulted in a significant reduction of future services of active employees in the U.S. qualified pension plan, a U.S. nonqualified supplemental retirement plan, certain international qualified and nonqualified pension plans, and the U.S. other postretirement benefit plan. As a result, we recognized an increase in the benefit obligation and a proportionate share of prior service cost from other comprehensive income (loss) as curtailment losses of $33 million during the year ended December 31, 2015.

Also as part of the 2015 restructuring program in the U.S. and Europe, we recognized expense for special termination benefits of $124 million during the year ended December 31, 2015, consisting of $46 million in the U.S. and $78 million in Europe (including related social security tax). Approximately 62 percent of the Europe amount is recoverable from joint venture partners.

In determining net pension and other postretirement benefit costs, we amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we amortize 10 percent of the unamortized balance each year.

We have multiple nonpension postretirement benefit plans for health and life insurance. The health care plans are contributory and subject to various cost sharing features, with participant and company contributions adjusted annually; the life insurance plans are noncontributory. The measurement of the U.S. pre-65 retiree medical accumulated postretirement benefit obligation assumes a health care cost trend rate of 6.75 percent in 2016 that declines to 5 percent by 2023. The measurement of the U.S. post-65 retiree medical accumulated postretirement benefit obligation assumes a health care cost trend rate of 3 percent in 2016 that increases to 5 percent by 2018. A one-percentage-point change in the assumed health care cost trend rate would be immaterial to ConocoPhillips.

 

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Plan Assets —We follow a policy of broadly diversifying pension plan assets across asset classes, investment managers and individual holdings. As a result, our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include U.S. equities, non-U.S. equities, U.S. fixed income, non-U.S. fixed income, real estate and private equity investments. Plan fiduciaries may consider and add other asset classes to the investment program from time to time. The target allocations for plan assets are 58 percent equity securities, 36 percent debt securities and 6 percent real estate. Generally, the plan investments are publicly traded, therefore minimizing liquidity risk in the portfolio.

The following is a description of the valuation methodologies used for the pension plan assets. There have been no changes in the methodologies used at December 31, 2015 and 2014.

 

    Fair values of equity securities and government debt securities categorized in Level 1 are primarily based on quoted market prices in active markets for identical assets and liabilities.
    Fair values of corporate debt securities, agency and mortgage-backed securities and government debt securities categorized in Level 2 are estimated using recently executed transactions and quoted market prices for similar assets and liabilities in active markets and for identical assets and liabilities in markets that are not active. If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the security against other securities with actual market prices. When observable quoted market prices are not available, fair value is based on pricing models that use something other than actual market prices (e.g., observable inputs such as benchmark yields, reported trades and issuer spreads for similar securities), and these securities are categorized in Level 3 of the fair value hierarchy.
    Fair values of investments in common/collective trusts are determined by the issuer of each fund based on the fair value of the underlying assets.
    Fair values of mutual funds are based on quoted market prices, which represent the net asset value of shares held.
    Cash is valued at cost, which approximates fair value. Fair values of international cash equivalents categorized in Level 2 are valued using observable yield curves, discounting and interest rates. U.S. cash balances held in the form of short-term fund units that are redeemable at the measurement date are categorized as Level 2.
    Fair values of exchange-traded derivatives classified in Level 1 are based on quoted market prices. For other derivatives classified in Level 2, the values are generally calculated from pricing models with market input parameters from third-party sources.
    Private equity funds are valued at net asset value as determined by the issuer based on the fair value of the underlying assets.
    Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.
    Fair values of real estate investments are valued using real estate valuation techniques and other methods that include reference to third-party sources and sales comparables where available.
    A portion of U.S. pension plan assets is held as a participating interest in an insurance annuity contract, which is calculated as the market value of investments held under this contract, less the accumulated benefit obligation covered by the contract. The participating interest is classified as Level 3 in the fair value hierarchy as the fair value is determined via a combination of quoted market prices, recently executed transactions, and an actuarial present value computation for contract obligations. At December 31, 2015, the participating interest in the annuity contract was valued at $125 million and consisted of $305 million in debt securities, less $180 million for the accumulated benefit obligation covered by the contract. At December 31, 2014, the participating interest in the annuity contract was valued at $116 million and consisted of $328 million in debt securities, less $212 million for the accumulated benefit obligation covered by the contract. The net change from 2014 to 2015 is due to a decrease in the fair value of the underlying investments of $23 million and a decrease in the present value of the contract obligation of $32 million. The participating interest is not available for meeting general pension benefit obligations in the near term. No future company contributions are required and no new benefits are being accrued under this insurance annuity contract.

 

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The fair values of our pension plan assets at December 31, by asset class were as follows:

 

     Millions of Dollars  
  

 

 

 
     U.S.          International  
  

 

 

 
     Level 1      Level 2     Level 3      Total          Level 1     Level 2      Level 3      Total  
  

 

 

 

2015

                       

Equity Securities

                       

U.S.

   $ 777         3        2         782           609        -         -         609   

International

     485         -        -         485           450        -         -         450   

Common/collective trusts

     -         569        -         569           -        214         -         214   

Mutual funds

     -         -        -         -           234        106         -         340   

Debt Securities

                       

Government

     85         56        -         141           493        -         -         493   

Corporate

     -         331        17         348           -        172         -         172   

Agency and mortgage-backed securities

     -         80        -         80           -        36         -         36   

Common/collective trusts

     -         -        -         -           -        406         -         406   

Mutual funds

     -         -        -         -           136        -         -         136   

Cash and cash equivalents

     -         60        -         60           46        10         -         56   

Derivatives

     -         (7     -         (7        (26     -         -         (26

Real estate

     -         -        63         63           -        -         169         169   

 

 

Total*

   $ 1,347         1,092        82         2,521           1,942        944         169         3,055   

 

 
*Excludes the participating interest in the insurance annuity contract with a net asset value of $125 million and net payables related to security transactions of $32 million.     

2014

                       

Equity Securities

                       

U.S.

   $ 1,039         2        8         1,049           628        -         -         628   

International

     671         -        -         671           445        -         -         445   

Common/collective trusts

     -         542        -         542           -        227         -         227   

Mutual funds

     -         -        -         -           241        97         -         338   

Debt Securities

                       

Government

     132         75        -         207           624        -         -         624   

Corporate

     -         426        4         430           -        166         -         166   

Agency and mortgage-backed securities

     -         115        -         115           -        46         1         47   

Common/collective trusts

     -         -        -         -           -        396         -         396   

Mutual funds

     -         -        -         -           167        -         -         167   

Cash and cash equivalents

     -         67        -         67           50        18         -         68   

Private equity funds

     -         -        -         -           -        -         1         1   

Derivatives

     5         (3     -         2           (4     -         -         (4

Real estate

     -         -        55         55           -        -         166         166   

 

 

Total*

   $ 1,847         1,224        67         3,138           2,151        950         168         3,269   

 

 

*Excludes the participating interest in the insurance annuity contract with a net asset value of $116 million and net receivables related to security transactions of $21 million.

Level 3 activity was not material for all periods.

Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to foreign

 

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plans are dependent upon local laws and tax regulations. In 2016, we expect to contribute approximately $220 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $190 million to our international qualified and nonqualified pension and postretirement benefit plans.

The following benefit payments, which are exclusive of amounts to be paid from the insurance annuity contract and which reflect expected future service, as appropriate, are expected to be paid:

 

     Millions of Dollars  
  

 

 

 
    

Pension

Benefits

         Other
Benefits
 
  

 

 

   

 

 
         U.S.              Int’l.                 
  

 

 

      

2016

     $    414         150           45   

2017

     347         144           43   

2018

     335         140           41   

2019

     335         143           39   

2020

     338         149           38   

2021–2025

     1,544         858           158   

 

 

Severance Accrual

As a result of the current business environment’s impact on our operating and capital plans, a reduction in our overall employee workforce occurred during 2015. Severance accruals of $306 million were recorded in 2015. The following table summarizes our severance accrual activity for the year ended December 31, 2015:

 

     Millions of Dollars  

Balance at December 31, 2014

   $ 61    

Accruals

     306    

Accrual reversals

     (3)   

Benefit payments

     (200)   

Foreign currency translation adjustments

     (8)   

 

 

Balance at December 31, 2015

   $ 156    

 

 

Of the remaining balance at December 31, 2015, $121 million is classified as short-term.

Defined Contribution Plans

Most U.S. employees are eligible to participate in the ConocoPhillips Savings Plan (CPSP). Employees can deposit up to 75 percent of their eligible pay, subject to statutory limits, in the CPSP to a choice of approximately 35 investment funds. In 2015, employees who participate in the CPSP and contribute 1 percent of their eligible pay receive a 9 percent company cash match, subject to certain limitations. Starting in 2016, employees who participate in the CPSP and contribute 1 percent of their eligible pay receive a 6 percent company cash match with a potential company discretionary cash contribution of up to 6 percent. Company contributions charged to expense related to continuing and discontinued operations for the CPSP and predecessor plans were $103 million in 2015, $116 million in 2014, and $101 million in 2013.

In 1990, the Long-Term Stock Savings Plan of Phillips Petroleum Company (subsequently the stock savings feature of the CPSP) borrowed funds that were used to purchase previously unissued shares of company common stock. Since the company guaranteed the CPSP’s borrowings, the unpaid balance was reported as a liability of the company and unearned compensation was shown as a reduction of common stockholders’ equity. Dividends on all shares were charged against retained earnings. The debt was serviced by the CPSP from company contributions and dividends received on certain shares of common stock held by the plan, including all unallocated shares. The shares held by the stock savings feature of the CPSP were released for

 

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allocation to participant accounts based on debt service payments on CPSP borrowings. In 2012, the final debt service payment was made and all remaining unallocated shares were released for allocation to participant accounts. The total number of allocated CPSP stock savings feature shares as of December 31, 2015 and 2014, were 7,243,832 and 8,198,873, respectively.

We have several defined contribution plans for our international employees, each with its own terms and eligibility depending on location. Total compensation expense related to continuing and discontinued operations recognized for these international plans was approximately $55 million in 2015, $66 million in 2014 and $60 million in 2013.

Share-Based Compensation Plans

The 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (the Plan) was approved by shareholders in May 2014. Over its 10-year life, the Plan allows the issuance of up to 79 million shares of our common stock for compensation to our employees and directors; however, as of the effective date of the Plan, (i) any shares of common stock available for future awards under the prior plans and (ii) any shares of common stock represented by awards granted under the prior plans that are forfeited, expire or are cancelled without delivery of shares of common stock or which result in the forfeiture of shares of common stock back to the company shall be available for awards under the Plan, and no new awards shall be granted under the prior plans. Of the 79 million shares available for issuance under the Plan, no more than 40 million shares of common stock are available for incentive stock options. The Human Resources and Compensation Committee of our Board of Directors is authorized to determine the types, terms, conditions, and limitations of awards granted. Awards may be granted in the form of, but not limited to, stock options, restricted stock units, and performance share units to employees and nonemployee directors who contribute to the company’s continued success and profitability.

Total share-based compensation expense is measured using the grant date fair value for our equity-classified awards and the settlement date fair value for our liability-classified awards. We recognize share-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, but not less than six months, as this is the minimum period of time required for an award to not be subject to forfeiture. Our share-based compensation programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time of their retirement. Some of our share-based awards vest ratably (i.e., portions of the award vest at different times) while some of our awards cliff vest (i.e., all of the award vests at the same time). We 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.

Stock Options —Stock options granted under the provisions of the Plan and prior plans permit purchase of our common stock at exercise prices equivalent to the average market price of ConocoPhillips common stock on the date the options were granted. The options have terms of 10 years and generally vest ratably, with one-third of the options awarded vesting and becoming exercisable on each anniversary date following the date of grant. Options awarded to certain employees already eligible for retirement vest within six months of the grant date, but those options do not become exercisable until the end of the normal vesting period.

Compensation Expense— Total share-based compensation expense recognized in income (loss) related to continuing and discontinued operations and the associated tax benefit for the years ended December 31 were as follows:

 

                     Millions of Dollars                   
  

 

 

 
     2015      2014      2013  
  

 

 

 

Compensation cost

     $ 362         358         308   

Tax benefit

     123         125         109   

 

 

 

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The fair market values of the options granted over the past three years were measured on the date of grant using the Black-Scholes-Merton option-pricing model. The weighted-average assumptions used were as follows:

 

     2015     2014      2013  
  

 

 

 

Assumptions used

       

Risk-free interest rate

     1.79      1.86         1.09   

Dividend yield

     4.00      4.00         4.00   

Volatility factor

     23.32      25.31         28.95   

Expected life (years)

     5.79         6.12         5.95   

 

 

There were no ranges in the assumptions used to determine the fair market values of our options granted over the past three years.

Due to the separation of our Downstream businesses in 2012, expected volatility for grants of options in 2014 and 2013 was based on a three-year average historical stock price volatility of a group of peer companies. We believe our historical volatility for periods prior to the separation of our Downstream businesses is no longer relevant in estimating expected volatility. For 2015, expected volatility was based on the weighted average blend of the company’s historical stock price volatility from May 1, 2012 (the date of separation of our Downstream businesses) through the stock option grant date and the average historical stock price volatility of a group of peer companies for the expected term of the options.

The following summarizes our stock option activity for the year ended December 31, 2015:

 

     Options     Weighted-
Average
    Exercise Price
     Weighted-
Average
     Millions of Dollars  
          Grant Date
    Fair Value
     Aggregate
Intrinsic Value
 

Outstanding at December 31, 2014

     17,117,871       $ 52.61              $ 284    

Granted

     3,873,700         69.25           $ 9.54      

Exercised

     (548,707)        42.11            10    

Forfeited

     (258,010)        69.20         

Expired or cancelled

     (44)        23.37         

 

   

 

 

 

Outstanding at December 31, 2015

     20,184,810       $ 55.88              $ 42    

 

   

 

 

 

Vested at December 31, 2015

     16,650,347       $ 53.66              $ 42    

 

   

 

 

 

Exercisable at December 31, 2015

     13,192,751       $ 50.34              $ 42    

 

   

 

 

 

The weighted-average remaining contractual term of outstanding options, vested options and exercisable options at December 31, 2015, was 5.84 years, 5.27 years and 4.43 years, respectively. The weighted-average grant date fair value of stock option awards granted during 2014 and 2013 was $10.17 and $9.90, respectively. The aggregate intrinsic value of options exercised during 2014 and 2013 was $89 million and $95 million, respectively.

During 2015, we received $23 million in cash and realized a tax benefit related to both continuing and discontinued operations of $16 million from the exercise of options. At December 31, 2015, the remaining unrecognized compensation expense from unvested options was $16 million, which will be recognized over a weighted-average period of 1.22 years, the longest period being 2.13 years.

 

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Stock Unit Program— Generally, restricted stock units are granted annually under the provisions of the Plan. Restricted stock units granted prior to 2013 generally vest ratably in three equal annual installments beginning on the third anniversary of the grant date. Beginning in 2013, restricted stock units granted will vest in an aggregate installment on the third anniversary of the grant date. In addition, beginning in 2012, restricted stock units granted under the Plan for a variable long-term incentive program vest ratably in three equal annual installments beginning on the first anniversary of the grant date. Restricted stock units are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these restricted stock units vest vary by award. Upon vesting, the restricted stock units are settled by issuing one share of ConocoPhillips common stock per unit. Units awarded to retirement eligible employees vest six months from the grant date; however, those units are not issued as common stock until the earlier of separation from the company or the end of the regularly scheduled vesting period. Until issued as stock, most recipients of the restricted stock units receive a quarterly cash payment of a dividend equivalent that is charged to retained earnings. The grant date fair market value of these restricted stock units is deemed equal to the average ConocoPhillips stock price on the grant date. The grant date fair market value of units that do not receive a dividend equivalent while unvested is deemed equal to the average ConocoPhillips stock price on the grant date, less the net present value of the dividends that will not be received.

The following summarizes our stock unit activity for the year ended December 31, 2015:

 

    

    Stock Units

    Weighted-Average          Millions of Dollars  
       

 

 

 
           Grant Date Fair Value      Total Fair Value  
  

 

 

   

 

 

    

 

 

 

Outstanding at December 31, 2014

     11,782,856        $        55.75      

Granted

     3,455,150        65.40      

Forfeited

     (660,298     63.11      

Issued

     (5,399,543        $        316   

 

   

 

 

 

Outstanding at December 31, 2015

     9,178,165        $        59.80      

 

   

 

 

    

Not Vested at December 31, 2015

     6,289,931        $        59.87      

 

   

 

 

    

At December 31, 2015, the remaining unrecognized compensation cost from the unvested units was $155 million, which will be recognized over a weighted-average period of 1.53 years, the longest period being 2.67 years. The weighted-average grant date fair value of stock unit awards granted during 2014 and 2013 was $62.72 and $57.99, respectively. The total fair value of stock units issued during 2014 and 2013 was $256 million and $245 million, respectively.

Performance Share Program —Under the Plan, we also annually grant restricted performance share units (PSUs) to senior management. These PSUs are authorized three years prior to their effective grant date (the performance period). Compensation expense is initially measured using the average fair market value of ConocoPhillips common stock and is subsequently adjusted, based on changes in the ConocoPhillips stock price through the end of each subsequent reporting period, through the grant date for stock-settled awards and the settlement date for cash-settled awards.

Stock-Settled

For performance periods beginning before 2009, PSUs do not vest until the employee becomes eligible for retirement by reaching age 55 with five years of service, and restrictions do not lapse until the employee separates from the company. With respect to awards for performance periods beginning in 2009 through 2012, PSUs do not vest until the earlier of the date the employee becomes eligible for retirement by reaching age 55 with five years of service or five years after the grant date of the award, and restrictions do not lapse until the earlier of the employee’s separation from the company or five years after the grant date (although recipients can elect to defer the lapsing of restrictions until separation). We recognize compensation expense for these awards beginning on the grant date and ending on the date the PSUs are scheduled to vest. Since these awards are authorized three years prior to the grant date, for employees eligible for retirement by or shortly after the grant date, we recognize compensation expense over the period beginning on the date of

 

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authorization and ending on the date of grant. Until issued as stock, recipients of the PSUs receive a quarterly cash payment of a dividend equivalent that is charged to retained earnings. Beginning in 2013, PSUs authorized for future grants will vest, absent employee election to defer, upon settlement following the conclusion of the three-year performance period. We recognize compensation expense over the period beginning on the date of authorization and ending on the conclusion of the performance period. PSUs are settled by issuing one share of ConocoPhillips common stock per unit.

The following summarizes our stock-settled Performance Share Program activity for the year ended December 31, 2015:

 

  

 

 

 

    Stock Units

 

  

    Weighted-Average             Millions of Dollars   
           Grant Date Fair Value             Total Fair Value   

Outstanding at December 31, 2014

     4,651,244        $        51.75      

Granted

     59,807        69.25      

Issued

     (440,829        $        25   

 

   

 

 

 

Outstanding at December 31, 2015

     4,270,222        $        51.95      

 

   

 

 

    

Not Vested at December 31, 2015

     702,623        $        53.90      

 

   

 

 

    

At December 31, 2015, the remaining unrecognized compensation cost from unvested stock-settled performance share awards was $9 million, which includes $2 million related to unvested stock-settled performance share awards tied to Phillips 66 stock held by ConocoPhillips employees, which will be recognized over a weighted-average period of 1.76 years, the longest period being 4.99 years. The weighted-average grant date fair value of stock-settled PSUs granted during 2014 and 2013 was $65.46 and $60.00, respectively. The total fair value of stock-settled PSUs issued during both 2014 and 2013 was $18 million.

Cash-Settled

In connection with and immediately following the separation of our Downstream businesses in 2012, grants of new PSUs, subject to a shortened performance period, were authorized. Once granted, these PSUs vest, absent employee election to defer, on the earlier of five years after the grant date of the award or the date the employee becomes eligible for retirement. For employees eligible for retirement by or shortly after the grant date, we recognize compensation expense over the period beginning on the date of authorization and ending on the date of grant. Otherwise, we recognize compensation expense beginning on the grant date and ending on the date the PSUs are scheduled to vest. These PSUs are settled in cash equal to the fair market value of a share of ConocoPhillips common stock per unit on the settlement date and thus are classified as liabilities on the balance sheet. Until settlement occurs, recipients of the PSUs receive a quarterly cash payment of a dividend equivalent that is charged to compensation expense.

Beginning in 2013, PSUs authorized for future grants will vest upon settlement following the conclusion of the three-year performance period. We recognize compensation expense over the period beginning on the date of authorization and ending on the conclusion of the performance period. These PSUs will be settled in cash equal to the fair market value of a share of ConocoPhillips common stock per unit on the settlement date and are classified as liabilities on the balance sheet.

 

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The following summarizes our cash-settled Performance Share Program activity for the year ended December 31, 2015:

 

           Weighted-Average          Millions of Dollars  
       

 

 

 
     Stock Units     Grant Date Fair Value          Total Fair Value  
  

 

 

   

 

 

    

 

 

 

Outstanding at December 31, 2014

     675,587        $        69.23      

Granted

     903,398        46.54      

Settled

     (119,749        $        6    

 

   

 

 

 

Outstanding at December 31, 2015

     1,459,236        $        46.54      

 

   

 

 

    

Not Vested at December 31, 2015

     873,853        $        46.54      

 

   

 

 

    

At December 31, 2015, the remaining unrecognized compensation cost from unvested cash-settled performance share awards was $18 million, which will be recognized over a weighted-average period of 2.10 years, the longest period being 4.13 years. The weighted-average grant date fair value of cash-settled PSUs granted during 2014 and 2013 was $69.23 and $58.08, respectively. The total fair value of cash-settled performance share awards settled during 2014 and 2013 was zero.

From inception of the Performance Share Program through 2013, approved PSU awards were granted after the conclusion of performance periods. Beginning in February 2014, initial target PSU awards are issued near the beginning of new performance periods. These initial target PSU awards will terminate at the end of the performance periods and will be settled after the performance periods have ended. Also in 2014, initial target PSU awards were issued for open performance periods that began in prior years. For the open performance period beginning in 2012, the initial target PSU awards will terminate at the end of the three-year performance period and will be replaced with approved PSU awards. For the open performance period beginning in 2013, the initial target PSU awards will terminate at the end of the three-year performance period and will be settled after the performance period has ended. There is no effect on recognition of compensation expense.

Other —In addition to the above active programs, we have outstanding shares of restricted stock and restricted stock units that were either issued to replace awards held by employees of companies we acquired or issued as part of a compensation program that has been discontinued. Generally, the recipients of the restricted shares or units receive a quarterly dividend or dividend equivalent.

The following summarizes the aggregate activity of these restricted shares and units for the year ended December 31, 2015:

 

           Weighted-Average          Millions of Dollars  
       

 

 

 
         Stock Units         Grant Date Fair Value          Total Fair Value  
  

 

 

   

 

 

    

 

 

 

Outstanding at December 31, 2014

     1,207,035        $        31.48      

Granted

     108,306        58.66      

Cancelled

     (6,969     22.62      

Issued

     (36,236        $            3   

 

   

 

 

 

Outstanding at December 31, 2015

     1,272,136        $        33.25      

 

   

 

 

    

Not Vested at December 31, 2015

     -        

 

      

At December 31, 2015, all outstanding restricted stock and restricted stock units were fully vested and there was no remaining compensation cost to be recorded. The weighted-average grant date fair value of awards granted during 2014 and 2013 was $71.23 and $62.52, respectively. The total fair value of awards issued during 2014 and 2013 was $3 million and $2 million, respectively.

 

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Note 19—Income Taxes

Income taxes charged to income (loss) from continuing operations were:

 

     Millions of Dollars  
  

 

 

 
             2015             2014     2013  
  

 

 

 

Income Taxes

      

Federal

      

Current

   $ (718     188        724   

Deferred

     (1,443     365        811   

Foreign

      

Current

     745        2,846        4,249   

Deferred

     (1,315     252        504   

State and local

      

Current

     8        46        220   

Deferred

     (145     (114     (99

 

 
   $ (2,868     3,583        6,409   

 

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:

 

             Millions of Dollars          
  

 

 

 
             2015     2014  
  

 

 

 

Deferred Tax Liabilities

    

PP&E and intangibles

   $ 16,378        20,054   

Investment in joint ventures

     866        1,013   

Inventory

     25        51   

Deferred state income tax

     128        63   

Partnership income deferral

     44        155   

Other

     453        509   

 

 

Total deferred tax liabilities

     17,894        21,845   

 

 

Deferred Tax Assets

    

Benefit plan accruals

     1,160        1,552   

Asset retirement obligations and accrued environmental costs

     4,426        4,971   

Deferred state income tax

     -        -   

Other financial accruals and deferrals

     616        552   

Loss and credit carryforwards

     1,579        1,568   

Other

     134        329   

 

 

Total deferred tax assets

     7,915        8,972   

Less: valuation allowance

     (734     (970

 

 

Net deferred tax assets

     7,181        8,002   

 

 

Net deferred tax liabilities

   $ 10,713        13,843   

 

 

Effective December 31, 2015, we early adopted, on a prospective basis, FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This ASU requires all deferred tax assets and liabilities to be reported as noncurrent. Noncurrent assets and liabilities include deferred taxes of $286 million and $10,999 million, respectively, at December 31, 2015. Current assets, noncurrent assets, current liabilities and noncurrent

 

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liabilities included deferred taxes of $865 million, $370 million, $8 million and $15,070 million, respectively, at December 31, 2014. The adoption of this ASU was not reflected on our consolidated statement of cash flows.

We have loss and credit carryovers in multiple taxing jurisdictions. These attributes generally expire between 2016 and 2036 with some carryovers having indefinite carryforward periods.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2015, valuation allowances decreased a total of $236 million. This decrease primarily relates to the relinquishment of certain assets. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as offsets to the tax consequences of future taxable income.

At December 31, 2015, unremitted income considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures totaled approximately $3,300 million. Deferred income taxes have not been provided on this amount, as we do not plan to initiate any action that would require the payment of income taxes. Due to the nature of our structures within the jurisdictions in which we operate, as well as the complex nature of the relevant tax laws, it is not practicable to estimate the amount of additional tax, if any, that might be payable on this income if distributed.

The following table shows a reconciliation of the beginning and ending unrecognized tax benefits for 2015, 2014 and 2013:

 

             Millions of Dollars          
  

 

 

 
             2015     2014     2013  
  

 

 

 

Balance at January 1

   $ 442        655        872   

Additions based on tax positions related to the current year

     54        46        52   

Additions for tax positions of prior years

     4        7        30   

Reductions for tax positions of prior years

     (37     (228     (251

Settlements

     (4     (28     (48

Lapse of statute

     -        (10     -   

 

 

Balance at December 31

   $ 459        442        655   

 

 

Included in the balance of unrecognized tax benefits for 2015, 2014 and 2013 were $354 million, $348 million and $440 million, respectively, which, if recognized, would impact our effective tax rate.

At December 31, 2015, 2014 and 2013, accrued liabilities for interest and penalties totaled $79 million, $65 million and $120 million, respectively, net of accrued income taxes. Interest and penalties resulted in a reduction to earnings of $11 million in 2015, and a benefit to earnings of $43 million and $9 million in 2014 and 2013, respectively.

We and our subsidiaries file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in major jurisdictions are generally complete as follows: United Kingdom (2012), Canada (2009), United States (2010) and Norway (2014). Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion in the many jurisdictions in which we operate around the world. As a consequence, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, but the amount of change is not estimable.

 

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The amounts of U.S. and foreign income (loss) from continuing operations before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes, were:

 

             Millions of Dollars            

Percent of

        Pre-Tax Income (Loss)         

 
  

 

 

   

 

 

 
             2015     2014     2013             2015     2014     2013  
  

 

 

   

 

 

 

Income (loss) before income taxes from continuing operations

            

United States

   $ (4,150     2,310        5,046        57.3     24.6        34.9   

Foreign

     (3,089     7,080        9,400        42.7        75.4        65.1   

 

 
   $ (7,239     9,390        14,446        100.0     100.0        100.0   

 

 

Federal statutory income tax

   $ (2,534     3,287        5,056        35.0     35.0        35.0   

Foreign taxes in excess of federal statutory rate

     381        376        1,389        (5.3     4.0        9.6   

Foreign tax law change

     (426     -        -        5.9        -        -   

U.S. fair value election

     (185     -        -        2.6        -        -   

Capital loss benefit

     -        -        (79     -        -        (0.5

Federal manufacturing deduction

     -        (15     (35     -        (0.2     (0.2

State income tax

     (89     (44     79        1.2        (0.5     0.5   

Other

     (15     (21     (1     0.2        (0.2     -   

 

 
   $ (2,868     3,583        6,409        39.6     38.1        44.4   

 

 

The increase in the effective tax rate for 2015 was primarily due to the U.K. tax law change and electing the fair market value method of apportioning interest expense for prior years, discussed below; partially offset by lower income in high tax jurisdictions and the Canadian tax law change, discussed below.

The change in the effective tax rate from 2013 to 2014, was primarily due to lower income in high tax jurisdictions.

In the United Kingdom, legislation was enacted on March 26, 2015, to decrease the overall U.K. upstream corporation tax rate from 62 percent to 50 percent effective January 1, 2015. As a result, a $555 million net tax benefit for revaluing the U.K. deferred tax liability is reflected in the “Provision (benefit) for income taxes” line on our consolidated income statement.

In Canada, legislation was enacted on June 29, 2015, to increase the overall Canadian corporation tax rate from 25 percent to 27 percent effective July 1, 2015. As a result, a $129 million net tax expense for revaluing the Canadian deferred tax liability is reflected in the “Provision (benefit) for income taxes” line on our consolidated income statement.

In December 2015, we filed refund claims for prior years electing the fair market value method of apportioning interest in the United States. As a result, a $185 million tax benefit was recorded in the fourth quarter of 2015.

Certain operating losses in jurisdictions outside of the U.S. only yield a tax benefit in the U.S. as a worthless security deduction. For 2015, 2014 and 2013 the amount of the benefit was $491 million, $122 million and $19 million, respectively.

 

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Note 20—Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss) in the equity section of the balance sheet included:

 

     Millions of Dollars  
  

 

 

 
     Defined
    Benefit Plans
     Foreign
Currency
Translation
     Accumulated
Other
Comprehensive
Income (Loss)
 
  

 

 

 

December 31, 2012

   $ (1,425)         5,512         4,087   

Other comprehensive income (loss)

     601         (2,686)         (2,085)   

 

 

December 31, 2013

     (824)         2,826         2,002   

Other comprehensive loss

     (437)         (3,467)         (3,904)   

 

 

December 31, 2014

     (1,261)         (641)         (1,902)   

Other comprehensive income (loss)

     818         (5,163)         (4,345)   

 

 

December 31, 2015

   $ (443)         (5,804)         (6,247)   

 

 

The following table summarizes reclassifications out of accumulated other comprehensive loss during the years ended December 31:

 

             Millions of Dollars          
  

 

 

 
     2015      2014  
  

 

 

 

Defined Benefit Plans

   $ 251         81   

 

 
Above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of:    $ 133         44   

See Note 18—Employee Benefit Plans, for additional information.

There were no items within accumulated other comprehensive income (loss) related to noncontrolling interests.

 

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Note 21—Cash Flow Information

Amounts included in continuing operations for the years ended December 31 were:

 

     Millions of Dollars  
  

 

 

 
             2015      2014     2013  
  

 

 

 

Noncash Investing and Financing Activities

       

Increase in PP&E related to an increase in asset retirement obligations*

   $ 402         1,611        1,329   

Increase (decrease) in PP&E and debt related to a capital lease asset and obligation

     7         (84     906   

 

 

Cash Payments

       

Interest

   $ 920         669        566   

Income taxes**

     523         4,203        4,910   

 

 

Net Sales (Purchases) of Short-Term Investments

       

Short-term investments purchased

   $ -         (876     (361

Short-term investments sold

     -         1,129        98   

 

 
   $ -         253        (263

 

 

*Includes $68 million and $212 million in 2014 and 2013, respectively, primarily related to the impact of U.K. tax law changes on the deductibility of decommissioning costs.

**Net of $642 million in 2015 related to a refund received from the Internal Revenue Service for 2014 overpaid taxes.

In relation to certain working capital changes associated with investing activities, we reclassified $180 million and $55 million of the “Increase (decrease) in accounts payable” line within “Cash Flows From Operating Activities” to the “Working capital changes associated with investing activities” line within “Cash Flows From Investing Activities” for December 31, 2014 and December 31, 2013, respectively. There was no impact to “Cash and Cash Equivalents at End of Period.”

 

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Note 22—Other Financial Information

Amounts included in continuing operations for the years ended December 31 were:

 

             Millions of Dollars          
  

 

 

 
             2015              2014              2013  
  

 

 

 

Interest and Debt Expense

        

Incurred

        

Debt

   $ 1,130         1,063         1,087   

Other

     84         73         192   

 

 
     1,214         1,136         1,279   

Capitalized

     (294)         (488)         (667)   

 

 

Expensed

   $ 920         648         612   

 

 

Other Income

        

Interest income

   $ 45         83         113   

Other, net

     80         283         261   

 

 
   $ 125         366         374   

 

 

Research and Development Expenditures —expensed

   $ 222         263         258   

 

 

Shipping and Handling Costs*

   $ 1,181         1,360         1,137   

 

 
*Amounts included in production and operating expenses.         

Foreign Currency Transaction (Gains) Losses —after-tax

        

Alaska

   $ -         -         -   

Lower 48

     -         -         -   

Canada

     -         (4)         (6)   

Europe and North Africa*

     (22)         (56)         (29)   

Asia Pacific and Middle East

     (78)         -         (29)   

Other International*

     (9)         -         -   

Corporate and Other

     45         16         31   

 

 
   $ (64)         (44)         (33)   

 

 

*2014 and 2013 restated to conform to current period presentation.

 

     Millions of Dollars  
  

 

 

 
             2015      2014  
  

 

 

 

Properties, Plants and Equipment

     

Proved properties

   $ 122,796         130,448   

Unproved properties

     7,410         8,951   

Other

     6,653         6,831   

 

 

Gross properties, plants and equipment

     136,859         146,230   

Less: Accumulated depreciation, depletion and amortization

     (70,413)         (70,786)   

 

 

Net properties, plants and equipment

   $ 66,446         75,444   

 

 

 

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Note 23—Related Party Transactions

Our related parties primarily include equity method investments and certain trusts for the benefit of employees.

Significant transactions with our equity affiliates were:

 

                 Millions of Dollars               
     2015        2014        2013   
  

 

 

 

Operating revenues and other income

   $ 118        119        102   

Purchases

     97        190        184   

Operating expenses and selling, general and administrative expenses

     62        70        35   

Net interest (income) expense*

     (9     (44     31   

 

 

*We paid interest to, or received interest from, various affiliates. See Note 7—Investments, Loans and Long-Term Receivables, for additional information on loans to affiliated companies.

The table above includes transactions with Freeport LNG through the date of the termination agreement and excludes the termination fee. See Note 7—Investments, Loans and Long-Term Receivables, for additional information.

Note 24—Segment Disclosures and Related Information

We explore for, produce, transport and market crude oil, bitumen, natural gas, LNG and natural gas liquids on a worldwide basis. We manage our operations through six operating segments, which are primarily defined by geographic region: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International.

After agreeing to sell our Nigeria business in 2012, we completed the sale in the third quarter of 2014. Results for these operations have been reported as discontinued operations in all periods presented. For additional information, see Note 3—Discontinued Operations.

Effective November 1, 2015, the Other International and historically presented Europe segments were restructured to align with changes to our internal organization structure. The Libya business was moved from the Other International segment to the historically presented Europe segment, which is now renamed Europe and North Africa. Accordingly, results of operations for the Other International and Europe and North Africa segments have been revised in all periods presented. There was no impact on our consolidated financial statements, and the impact on our segment presentation is immaterial.

Corporate and Other represents costs not directly associated with an operating segment, such as most interest expense, corporate overhead and certain technology activities, including licensing revenues. Corporate assets include all cash and cash equivalents.

We evaluate performance and allocate resources based on net income (loss) attributable to ConocoPhillips. Segment accounting policies are the same as those in Note 1—Accounting Policies. Intersegment sales are at prices that approximate market.

 

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Analysis of Results by Operating Segment

 

             Millions of Dollars           
  

 

 

 
     2015        2014        2013    
  

 

 

 

Sales and Other Operating Revenues

      

Alaska

   $ 4,351        8,382        8,553    

 

 

Lower 48

     11,976        21,721        19,480    

Intersegment eliminations

     (63     (107     (104)   

 

 

Lower 48

     11,913        21,614        19,376    

 

 

Canada

     2,454        5,162        5,254    

Intersegment eliminations

     (318     (753     (607)   

 

 

Canada

     2,136        4,409        4,647    

 

 

Europe and North Africa

     6,110        10,665        13,248    

Intersegment eliminations

     (4     (49       

 

 

Europe and North Africa

     6,106        10,616        13,248    

 

 

Asia Pacific and Middle East

     4,746        7,425        8,426    

Intersegment eliminations

     (1     (1       

 

 

Asia Pacific and Middle East

     4,745        7,424        8,426    

 

 

Other International

     1        -          

Corporate and Other

     312        79        163    

 

 

Consolidated sales and other operating revenues

   $ 29,564        52,524        54,413    

 

 

Depreciation, Depletion, Amortization and Impairments

      

Alaska

   $ 690        584        533    

Lower 48

     4,227        3,911        3,247    

Canada

     788        962        1,531    

Europe and North Africa

     2,565        2,345        1,363    

Asia Pacific and Middle East

     2,981        1,275        1,188    

Other International

     -        1          

Corporate and Other

     107        107        100    

 

 

Consolidated depreciation, depletion, amortization and impairments

   $ 11,358        9,185        7,963    

 

 

 

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     Millions of Dollars       
  

 

 

 
             2015        2014        2013   
  

 

 

 

Equity in Earnings of Affiliates

      

Alaska

   $ 4        9        7   

Lower 48

     (5     1        (2

Canada

     78        1,385        984   

Europe and North Africa

     23        37        27   

Asia Pacific and Middle East

     550        1,089        1,162   

Other International

     8        9        43   

Corporate and Other

     (3     (1     (2

 

 

Consolidated equity in earnings of affiliates

   $ 655        2,529        2,219   

 

 

Income Taxes

      

Alaska

   $ (71     1,081        1,275   

Lower 48

     (1,119     (92     398   

Canada

     (223     236        (44

Europe and North Africa

     (854     1,590        3,258   

Asia Pacific and Middle East

     467        1,194        1,512   

Other International

     (456     (102     134   

Corporate and Other

     (612     (324     (124

 

 

Consolidated income taxes

   $ (2,868     3,583        6,409   

 

 

Net Income (Loss) Attributable to ConocoPhillips

      

Alaska

   $ 4        2,041        2,274   

Lower 48

     (1,932     (22     754   

Canada

     (1,044     940        718   

Europe and North Africa

     409        814        1,297   

Asia Pacific and Middle East

     (463     2,939        3,532   

Other International

     (593     (100     223   

Corporate and Other

     (809     (874     (820

Discontinued operations

     -        1,131        1,178   

 

 

Consolidated net income (loss) attributable to ConocoPhillips

   $ (4,428     6,869        9,156   

 

 

Investments In and Advances To Affiliates

      

Alaska

   $ 61        53        53   

Lower 48

     455        471        905   

Canada

     8,165        9,484        10,273   

Europe and North Africa

     70        126        143   

Asia Pacific and Middle East

     11,780        14,022        12,806   

Other International

     -        59        141   

Corporate and Other

     15        15        16   

 

 

Consolidated investments in and advances to affiliates

   $ 20,546        24,230        24,337   

 

 

 

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     Millions of Dollars   
  

 

 

 
     2015         2014         2013   
  

 

 

 

Total Assets

        

Alaska

   $ 12,555         12,655         11,662   

Lower 48

     26,932         30,185         29,552   

Canada

     17,221         21,764         22,394   

Europe and North Africa

     13,703         16,970         18,109   

Asia Pacific and Middle East

     22,318         25,976         25,473   

Other International

     282         1,116         819   

Corporate and Other

     4,473         7,815         8,367   

Discontinued operations

     -         58         1,681   

 

 

Consolidated total assets

   $ 97,484         116,539         118,057   

 

 

Capital Expenditures and Investments

        

Alaska

   $ 1,352         1,564         1,140   

Lower 48

     3,765         6,054         5,210   

Canada

     1,255         2,340         2,232   

Europe and North Africa

     1,573         2,540         3,126   

Asia Pacific and Middle East

     1,812         3,877         3,382   

Other International

     173         520         265   

Corporate and Other

     120         190         182   

 

 

Consolidated capital expenditures and investments

   $ 10,050         17,085         15,537   

 

 

Interest Income and Expense

        

Interest income

        

Corporate

   $ 36         40         60   

Lower 48

     -         35         43   

Europe and North Africa

     2         2         1   

Asia Pacific and Middle East

     6         6         8   

Other International

     1         -         1   

 

 

Interest and debt expense

        

Corporate

   $ 920         648         532   

Canada

     -         -         80   

 

 

Sales and Other Operating Revenues by Product

        

Crude oil

   $ 12,830         23,784         24,899   

Natural gas

     11,888         20,717         22,539   

Natural gas liquids

     952         2,245         2,111   

Other*

     3,894         5,778         4,864   

 

 

Consolidated sales and other operating revenues by product

   $     29,564         52,524         54,413   

 

 
*Includes LNG and bitumen.         

 

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Geographic Information

 

         Millions of Dollars   
  

 

 

 
     Sales and Other Operating Revenues (1)                Long-Lived Assets (2)        
  

 

 

  

 

 

 
     2015         2014         2013            2015         2014         2013   
  

 

 

  

 

 

 

United States

   $ 16,284         30,019         27,954            37,445         39,641         37,593   

Australia (3)

     2,127         3,258         3,571            12,788         14,969         13,450   

Canada

     2,136         4,409         4,647            16,766         20,874         21,380   

China

     782         1,701         2,120            1,647         1,913         2,143   

Indonesia

     1,165         1,963         2,083            1,191         1,526         1,780   

Malaysia

     598         403         281            3,599         3,811         3,406   

Norway

     2,107         3,794         4,323            6,933         8,142         8,089   

United Kingdom

     4,005         6,594         7,717            4,154         5,327         5,959   

Other foreign countries

     360         383         1,717            2,469         3,471         3,364   

 

 

Worldwide consolidated

   $ 29,564         52,524         54,413                86,992         99,674         97,164   

 

 

(1)Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.

(2)Defined as net PP&E plus investments in and advances to affiliated companies.

(3)Includes amounts related to the joint petroleum development area with shared ownership held by Australia and Timor-Leste.

Note 25—New Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU No. 2014-09), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.

In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date,” which defers the effective date of ASU No. 2014-09. The ASU is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for interim and annual periods beginning after December 15, 2016. Entities may choose to adopt the standard using either a full retrospective approach or a modified retrospective approach. We are currently evaluating the impact of the adoption of ASU No. 2014-09 and continue to monitor proposals issued by the FASB to clarify the ASU.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which amends existing requirements applicable to reporting entities that are required to evaluate whether certain legal entities should be consolidated. The ASU is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may choose to adopt the standard using either a full retrospective approach or a modified retrospective approach. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements and disclosures.

 

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Oil and Gas Operations (Unaudited)

In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 932, “Extractive Activities—Oil and Gas,” and regulations of the U.S. Securities and Exchange Commission (SEC), we are making certain supplemental disclosures about our oil and gas exploration and production operations.

These disclosures include information about our consolidated oil and gas activities and our proportionate share of our equity affiliates’ oil and gas activities in our operating segments. As a result, amounts reported as equity affiliates in Oil and Gas Operations may differ from those shown in the individual segment disclosures reported elsewhere in this report.

As required by current authoritative guidelines, the estimated future date when an asset will be permanently shut down for economic reasons is based on historical 12-month first-of-month average prices and current 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. Generally, our proved reserves decrease as prices decline and increase as prices rise.

Our proved reserves include estimated quantities related to production sharing contracts (PSCs), which are reported under the “economic interest” method, as well as variable-royalty regimes, and are subject to fluctuations in commodity prices, 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. At December 31, 2015, approximately 6 percent of our total proved reserves were under PSCs, located in our Asia Pacific/Middle East geographic reporting area, and 32 percent of our total proved reserves were under a variable-royalty regime, located in our Canada geographic reporting area.

Our reserves disclosures by geographic area include the United States, Canada, Europe (Norway and the United Kingdom), Asia Pacific/Middle East, Africa and Other Areas. Other Areas primarily consists of the Russia and Caspian regions, which we exited in 2015.

As part of our asset disposition program, we sold our interest in Kashagan, and the Algeria and Nigeria businesses. These businesses were considered held for sale since the fourth quarter of 2012 and have been reported as discontinued operations for all periods presented. Accordingly, the Results of Operations, Average Sales Prices and Net Production tables included within the supplemental oil and gas disclosures reflect the associated earnings and production as discontinued operations.

Kashagan and Algeria were both sold in the fourth quarter of 2013. In July 2014, we sold our Nigeria business. See Note 3—Discontinued Operations, for additional information.

Reserves Governance

The recording and reporting of proved reserves are governed by criteria established by regulations of the SEC and FASB. Proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain it will commence the project within a reasonable time.

 

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Proved reserves are further classified as either developed or undeveloped. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods, or in which the cost of the required equipment is relatively minor compared with the cost of a new well, and through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well. Proved undeveloped reserves are proved reserves expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

We have a companywide, comprehensive, SEC-compliant internal policy that governs the determination and reporting of proved reserves. This policy is applied by the geologists and reservoir engineers in our business units around the world. As part of our internal control process, each business unit’s reserve processes and controls are reviewed annually by an internal team which is headed by the company’s Manager of Reserves Compliance and Reporting. This team, composed of internal reservoir engineers, geologists, finance personnel and a senior representative from DeGolyer and MacNaughton (D&M), a third-party petroleum engineering consulting firm, reviews the business units’ reserves for adherence to SEC guidelines and company policy through on-site visits, teleconferences and review of documentation. In addition to providing independent reviews, this internal team also ensures reserves are calculated using consistent and appropriate standards and procedures. This team is independent of business unit line management and is responsible for reporting its findings to senior management. The team is responsible for communicating our reserves policy and procedures and is available for internal peer reviews and consultation on major projects or technical issues throughout the year. All of our proved reserves held by consolidated companies and our share of equity affiliates have been estimated by ConocoPhillips.

During 2015, our processes and controls used to assess over 90 percent of proved reserves as of December 31, 2015, were reviewed by D&M. The purpose of their review was to assess whether the adequacy and effectiveness of our internal processes and controls used to determine estimates of proved reserves are in accordance with SEC regulations. In such review, ConocoPhillips’ technical staff presented D&M with an overview of the reserves data, as well as the methods and assumptions used in estimating reserves. The data presented included pertinent seismic information, geologic maps, well logs, production tests, material balance calculations, reservoir simulation models, well performance data, operating procedures and relevant economic criteria. Management’s intent in retaining D&M to review its processes and controls was to provide objective third-party input on these processes and controls. D&M’s opinion was the general processes and controls employed by ConocoPhillips in estimating its December 31, 2015, proved reserves for the properties reviewed are in accordance with the SEC reserves definitions. D&M’s report is included as Exhibit 99 of this Annual Report on Form 10-K.

The technical person primarily responsible for overseeing the processes and internal controls used in the preparation of the company’s reserve estimates is the Manager of Reserves Compliance and Reporting. This individual holds a master’s degree in petroleum engineering. He is a member of the Society of Petroleum Engineers with over 25 years of oil and gas industry experience and has held positions of increasing responsibility in reservoir engineering, subsurface and asset management in the United States and several international field locations.

Engineering estimates of the quantities of proved reserves are inherently imprecise. See the “Critical Accounting Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional discussion of the sensitivities surrounding these estimates.

 

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Proved Reserves

 

Years Ended

     Crude Oil   

December 31

     Millions of Barrels   
     Alaska       
 
Lower
48
  
  
   
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa       
 
Other
Areas
  
  
    Total   

Developed and Undeveloped

                  

Consolidated operations

                  

End of 2012

     1,148        447        1,595        24        487        241        229        108        2,684   

Revisions

     (7     20        13        1        (5     11        23        -        43   

Improved recovery

     20        -        20        1        -        -        -        -        21   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     9        235        244        1        19        9        22        -        295   

Production

     (64     (56     (120     (5     (42     (29     (16     -        (212

Sales

     -        (40     (40     -        (3     -        (21     (108     (172
          

End of 2013

     1,106        606        1,712        22        456        232        237        -        2,659   

Revisions

     (6     25        19        3        (1     5        -        -        26   

Improved recovery

     8        -        8        2        -        3        -        -        13   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     16        116        132        2        -        16        -        -        150   

Production

     (61     (71     (132     (5     (44     (29     (5     -        (215

Sales

     -        -        -        -        -        -        (28     -        (28
          

End of 2014

     1,063        676        1,739        24        411        227        204        -        2,605   

Revisions

     (115     (69     (184     -        (21     (29     -        -        (234

Improved recovery

     4        4        8        1        -        31        -        -        40   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     20        57        77        1        -        7        -        -        85   

Production

     (57     (78     (135     (4     (44     (33     -        -        (216

Sales

     -        (2     (2     (8     -        -        -        -        (10
          

End of 2015

     915        588        1,503        14        346        203        204        -        2,270   
          

Equity affiliates

                  

End of 2012

     -        -        -        -        -        91        -        4        95   

Revisions

     -        -        -        -        -        -        -        1        1   

Improved recovery

     -        -        -        -        -        -        -        -        -   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     -        -        -        -        -        -        -        -        -   

Production

     -        -        -        -        -        (5     -        (1     (6

Sales

     -        -        -        -        -        -        -        -        -   
          

End of 2013

     -        -        -        -        -        86        -        4        90   

Revisions

     -        -        -        -        -        17        -        3        20   

Improved recovery

     -        -        -        -        -        -        -        -        -   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     -        -        -        -        -        -        -        -        -   

Production

     -        -        -        -        -        (5     -        (2     (7

Sales

     -        -        -        -        -        -        -        -        -   
          

End of 2014

     -        -        -        -        -        98        -        5        103   

Revisions

     -        -        -        -        -        -        -        -        -   

Improved recovery

     -        -        -        -        -        -        -        -        -   

Purchases

     -        -        -        -        -        -        -        -        -   

Extensions and discoveries

     -        -        -        -        -        -        -        -        -   

Production

     -        -        -        -        -        (5     -        (1     (6

Sales

     -        -        -        -        -        -        -        (4     (4
          

End of 2015

     -        -        -        -        -        93        -        -        93   
          

Total company

                  

End of 2012

     1,148        447        1,595        24        487        332        229        112        2,779   

End of 2013

     1,106        606        1,712        22        456        318        237        4        2,749   

End of 2014

     1,063        676        1,739        24        411        325        204        5        2,708   

End of 2015

     915        588        1,503        14        346        296        204        -        2,363   
          

 

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Years Ended

     Crude Oil   

December 31

     Millions of Barrels   
     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   

Developed

                          

Consolidated operations

                          

End of 2012

     1,017         271         1,288         23         267         136         217         -         1,931   

End of 2013

     1,003         268         1,271         22         247         126         230         -         1,896   

End of 2014

     950         313         1,263         23         237         142         199         -         1,864   

End of 2015

     819         283         1,102         13         200         139         204         -         1,658   
          

Equity affiliates

                          

End of 2012

     -         -         -         -         -         91         -         4         95   

End of 2013

     -         -         -         -         -         86         -         4         90   

End of 2014

     -         -         -         -         -         98         -         5         103   

End of 2015

     -         -         -         -         -         93         -         -         93   
          

Undeveloped

                          

Consolidated operations

                          

End of 2012

     131         176         307         1         220         105         12         108         753   

End of 2013

     103         338         441         -         209         106         7         -         763   

End of 2014

     113         363         476         1         174         85         5         -         741   

End of 2015

     96         305         401         1         146         64         -         -         612   
          

Equity affiliates

                          

End of 2012

     -         -         -         -         -         -         -         -         -   

End of 2013

     -         -         -         -         -         -         -         -         -   

End of 2014

     -         -         -         -         -         -         -         -         -   

End of 2015

     -         -         -         -         -         -         -         -         -   
          

Notable changes in proved crude oil reserves in the three years ended December 31, 2015, included:

 

    Revisions : In 2015, revisions in Alaska, Lower 48 and Asia Pacific/Middle East were primarily due to lower prices.

 

    Extensions and discoveries : In 2014 and 2013, extensions and discoveries in Lower 48 were primarily due to continued drilling success in Eagle Ford and Bakken.

 

    Sales : In 2014, sales in Africa reflect the sale of the Nigeria business. In 2013, sales in Lower 48 primarily reflect the majority of our producing zones in the Cedar Creek Anticline, sales in Africa reflect the sale of the Algeria business and sales in Other Areas reflect the sale of our interest in Kashagan.

 

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Years Ended

     Natural Gas Liquids   

December 31

     Millions of Barrels   
     Alaska       
 
Lower
48
  
  
   
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa       
 
Other
Areas
  
  
     Total   

Developed and Undeveloped

                   

Consolidated operations

                   

End of 2012

     122        403        525        52        30        22        17        -         646   

Revisions

     9        36        45        10        -        (5     -        -         50   

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        58        58        2        -        2        -        -         62   

Production

     (6     (34     (40     (8     (2     (5     (1     -         (56

Sales

     -        (1     (1     -        -        -        (2     -         (3
          

End of 2013

     125        462        587        56        28        14        14        -         699   

Revisions

     -        (13     (13     15        (1     2        -        -         3   

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        26        26        3        -        -        -        -         29   

Production

     (5     (35     (40     (8     (3     (3     (1     -         (55

Sales

     -        -        -        (1     -        -        (13     -         (14
          

End of 2014

     120        440        560        65        24        13        -        -         662   

Revisions

     (1     (84     (85     (10     (1     (2     -        -         (98

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        10        10        2        -        -        -        -         12   

Production

     (5     (36     (41     (9     (3     (3     -        -         (56

Sales

     -        (9     (9     (3     -        -        -        -         (12
          

End of 2015

     114        321        435        45        20        8        -        -         508   
          

Equity affiliates

                   

End of 2012

     -        -        -        -        -        48        -        -         48   

Revisions

     -        -        -        -        -        -        -        -         -   

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        -        -        -        -        -        -        -         -   

Production

     -        -        -        -        -        (3     -        -         (3

Sales

     -        -        -        -        -        -        -        -         -   
          

End of 2013

     -        -        -        -        -        45        -        -         45   

Revisions

     -        -        -        -        -        10        -        -         10   

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        -        -        -        -        -        -        -         -   

Production

     -        -        -        -        -        (2     -        -         (2

Sales

     -        -        -        -        -        -        -        -         -   
          

End of 2014

     -        -        -        -        -        53        -        -         53   

Revisions

     -        -        -        -        -        -        -        -         -   

Improved recovery

     -        -        -        -        -        -        -        -         -   

Purchases

     -        -        -        -        -        -        -        -         -   

Extensions and discoveries

     -        -        -        -        -        -        -        -         -   

Production

     -        -        -        -        -        (3     -        -         (3

Sales

     -        -        -        -        -        -        -        -         -   
          

End of 2015

     -        -        -        -        -        50        -        -         50   
          

Total company

                   

End of 2012

     122        403        525        52        30        70        17        -         694   

End of 2013

     125        462        587        56        28        59        14        -         744   

End of 2014

     120        440        560        65        24        66        -        -         715   

End of 2015

     114        321        435        45        20        58        -        -         558   
          

 

143


Table of Contents
Years Ended    Natural Gas Liquids  
December 31    Millions of Barrels  
     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   

Developed

                          

Consolidated operations

                          

End of 2012

     121         335         456         49         17         22         15         -         559   

End of 2013

     125         362         487         50         19         13         14         -         583   

End of 2014

     120         337         457         57         18         11         -         -         543   

End of 2015

     114         235         349         45         16         8         -         -         418   

Equity affiliates

                          

End of 2012

     -         -         -         -         -         48         -         -         48   

End of 2013

     -         -         -         -         -         45         -         -         45   

End of 2014

     -         -         -         -         -         53         -         -         53   

End of 2015

     -         -         -         -         -         50         -         -         50   

Undeveloped

                          

Consolidated operations

                          

End of 2012

     1         68         69         3         13         -         2         -         87   

End of 2013

     -         100         100         6         9         1         -         -         116   

End of 2014

     -         103         103         8         6         2         -         -         119   

End of 2015

     -         86         86         -         4         -         -         -         90   

Equity affiliates

                          

End of 2012

     -         -         -         -         -         -         -         -         -   

End of 2013

     -         -         -         -         -         -         -         -         -   

End of 2014

     -         -         -         -         -         -         -         -         -   

End of 2015

     -         -         -         -         -         -         -         -         -   

Notable changes in proved natural gas liquids reserves in the three years ended December 31, 2015, included:

 

    Revisions : In 2015, revisions in Lower 48 and Canada were primarily due to lower prices. In 2013, revisions in Lower 48 were due to higher prices in 2013 versus 2012, as well as improved well performance.

 

    Extensions and discoveries : In 2014, extensions and discoveries in Lower 48 were primarily due to continued drilling success in Eagle Ford and Bakken. In 2013, extensions and discoveries in Lower 48 were primarily due to continued drilling success in Eagle Ford, Barnett and Bakken.

 

144


Table of Contents
Years Ended    Natural Gas  
  

 

 

 
December 31    Billions of Cubic Feet  
  

 

 

 
     Alaska       
 
Lower
48
  
  
   
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa        
 
Other
Areas
  
  
     Total   
  

 

 

 

Developed and Undeveloped

                    

Consolidated operations

                    

End of 2012

     2,870        6,597        9,467        1,764        1,806        2,348        913         58         16,356    

Revisions

     73        214        287        344        16        (53     94         -         688    

Improved recovery

     6        -        6        -        -        -        -         -           

Purchases

     -        -        -        1        -        -        -         -           

Extensions and discoveries

     2        508        510        55        159        35        6         -         765    

Production

     (86     (592     (678     (283     (171     (284     (63)         -         (1,479)   

Sales

     -        (16     (16     (3     (1     -        -         (58)         (78)   

 

 

End of 2013

     2,865        6,711        9,576        1,878        1,809        2,046        950         -         16,259    

Revisions

     (75     581        506        225        (54)        115        -         -         792    

Improved recovery

     -        -        -        -        -        3        -         -           

Purchases

     -        -        -        -        -        -        -         -           

Extensions and discoveries

     7        256        263        85        -        3        -         -         351    

Production

     (78     (601)        (679     (259     (182     (289     (34)         -         (1,443)   

Sales

     -        (2     (2     (13     -        -        (689)         -         (704)   

 

 

End of 2014

     2,719        6,945        9,664        1,916        1,573        1,878        227         -         15,258    

Revisions

     (293     (884     (1,177     (111     (27     110        -         -         (1,205)   

Improved recovery

     -        -        -        1        -        8        -         -           

Purchases

     -        -        -        -        -        -        -         -           

Extensions and discoveries

     4        103        107        44        -        2        -         -         153    

Production

     (83     (588     (671     (261     (187     (285     -         -         (1,404)   

Sales

     -        (405     (405     (482     -        -        -         -         (887)   

 

 

End of 2015

     2,347        5,171        7,518        1,107        1,359        1,713        227         -         11,924    

 

 

Equity affiliates

                    

End of 2012

     -        -        -        -        -        3,258        -         -         3,258    

Revisions

     -        -        -        -        -        65        -         -         65    

Improved recovery

     -        -        -        -        -        -        -         -           

Purchases

     -        -        -        -        -        -        -         -           

Extensions and discoveries

     -        -        -        -        -        982        -         -         982    

Production

     -        -        -        -        -        (176     -         -         (176)   

Sales

     -        -        -        -        -        -        -         -           

 

 

End of 2013

     -        -        -        -        -        4,129        -         -         4,129    

Revisions

     -        -        -        -        -        768        -         -         768    

Improved recovery

     -        -        -        -        -        -        -         -           

Purchases

     -        -        -        -        -        -        -         -           

Extensions and discoveries

     -        -        -        -        -        531        -         -         531    

Production

     -        -        -        -        -        (186     -         -         (186)   

Sales

     -        -        -        -        -        -        -         -           

 

 

End of 2014

     -        -        -        -        -        5,242        -         -         5,242    

Revisions

     -        -        -        -        -        (2     -         -         (2)   

Improved recovery

     -        -        -        -        -        -        -         -           

Purchases

     -        -        -        -        -        -        -         -           

Extensions and discoveries

     -        -        -        -        -        268        -         -         268    

Production

     -        -        -        -        -        (239     -         -         (239)   

Sales

     -        -        -        -        -        -        -         -           

 

 

End of 2015

     -        -        -        -        -        5,269        -         -         5,269    

 

 

Total company

                    

End of 2012

     2,870        6,597        9,467        1,764        1,806        5,606        913         58         19,614    

End of 2013

     2,865        6,711        9,576        1,878        1,809        6,175        950         -         20,388    

End of 2014

     2,719        6,945        9,664        1,916        1,573        7,120        227         -         20,500    

End of 2015

     2,347        5,171        7,518        1,107        1,359        6,982        227         -         17,193    

 

 

 

145


Table of Contents
Years Ended    Natural Gas  
December 31    Billions of Cubic Feet  
     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   

Developed

                          

Consolidated operations

                          

End of 2012

     2,805         5,737         8,542         1,684         1,290         1,696         846         -         14,058   

End of 2013

     2,815         5,822         8,637         1,786         1,276         1,593         881         -         14,173   

End of 2014

     2,663         5,922         8,585         1,801         1,182         1,553         226         -         13,347   

End of 2015

     2,313         4,458         6,771         1,101         1,088         1,421         227         -         10,608   

Equity affiliates

                          

End of 2012

     -         -         -         -         -         2,723         -         -         2,723   

End of 2013

     -         -         -         -         -         2,606         -         -         2,606   

End of 2014

     -         -         -         -         -         3,954         -         -         3,954   

End of 2015

     -         -         -         -         -         4,482         -         -         4,482   

Undeveloped

                          

Consolidated operations

                          

End of 2012

     65         860         925         80         516         652         67         58         2,298   

End of 2013

     50         889         939         92         533         453         69         -         2,086   

End of 2014

     56         1,023         1,079         115         391         325         1         -         1,911   

End of 2015

     34         713         747         6         271         292         -         -         1,316   

Equity affiliates

                          

End of 2012

     -         -         -         -         -         535         -         -         535   

End of 2013

     -         -         -         -         -         1,523         -         -         1,523   

End of 2014

     -         -         -         -         -         1,288         -         -         1,288   

End of 2015

     -         -         -         -         -         787         -         -         787   

Natural gas production in the reserves table may differ from gas production (delivered for sale) in our statistics disclosure, primarily because the quantities above include gas consumed in production operations.

Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit.

Notable changes in proved natural gas reserves in the three years ended December 31, 2015, included:

 

    Revisions : In 2015, revisions in Lower 48, Alaska and Canada were primarily due to lower prices, partially offset by positive revisions in Asia Pacific/Middle East from Indonesia. In 2014, revisions were primarily due to higher prices, increased development activity and strong well performance in Lower 48 and higher prices and improved well performance in Canada and our consolidated operations in Asia Pacific/Middle East. This was partially offset by lower prices and higher costs in Alaska. For our equity affiliates in Asia Pacific/Middle East, 2014 revisions were primarily due to strong field performance. In 2013, revisions were primarily due to higher prices in 2013 versus 2012, and improved well performance in Lower 48 and Canada.

 

    Extensions and discoveries : In 2014, extensions and discoveries in Lower 48 and Canada were primarily due to continued drilling success in Eagle Ford and Bakken and ongoing development activity in western Canada. In 2013, extensions and discoveries in Lower 48 were primarily due to continued drilling success in Eagle Ford, Bakken and Barnett. In 2015, 2014 and 2013, for our equity affiliates in Asia Pacific/Middle East, extensions and discoveries were due to APLNG’s ongoing development drilling onshore Australia.

 

    Sales : In 2015, Lower 48 sales were due to the disposition of non-core assets in South Texas, East Texas and North Louisiana and sales of assets in British Columbia, Saskatchewan and Alberta impacted Canada. In 2014, for our consolidated operations in Africa, sales were due to the sale of the Nigeria business.

 

146


Table of Contents
Years Ended    Bitumen  
December 31        Millions of Barrels       
     Canada  

Developed and Undeveloped

  

Consolidated operations

  

End of 2012

     506    

Revisions

     56    

Improved recovery

       

Purchases

       

Extensions and discoveries

     22    

Production

     (5)   

Sales

       

 

 

End of 2013

     579    

Revisions

     (8)   

Improved recovery

       

Purchases

       

Extensions and discoveries

     31    

Production

     (4)   

Sales

       

 

 

End of 2014

     598    

Revisions

     94    

Improved recovery

       

Purchases

       

Extensions and discoveries

       

Production

     (5)   

Sales

       

 

 

End of 2015

     687    

 

 

Equity affiliates

  

End of 2012

     1,394    

Revisions

     46    

Improved recovery

       

Purchases

       

Extensions and discoveries

     46    

Production

     (35)   

Sales

       

 

 

End of 2013

     1,451    

Revisions

     (14)   

Improved recovery

       

Purchases

       

Extensions and discoveries

     74    

Production

     (43)   

Sales

       

 

 

End of 2014

     1,468    

Revisions

     190    

Improved recovery

       

Purchases

       

Extensions and discoveries

     99    

Production

     (51)   

Sales

       

 

 

End of 2015

     1,706    

 

 

Total company

  

End of 2012

     1,900    

End of 2013

     2,030    

End of 2014

     2,066    

End of 2015

     2,393    

 

 

 

147


Table of Contents
Years Ended    Bitumen  
December 31        Millions of Barrels       
     Canada  

Developed

  

Consolidated operations

  

End of 2012

     25   

End of 2013

     16   

End of 2014

     13   

End of 2015

     111   

 

 

Equity affiliates

  

End of 2012

     170   

End of 2013

     181   

End of 2014

     187   

End of 2015

     311   

 

 

Undeveloped

  

Consolidated operations

  

End of 2012

     481   

End of 2013

     563   

End of 2014

     585   

End of 2015

     576   

 

 

Equity affiliates

  

End of 2012

     1,224   

End of 2013

     1,270   

End of 2014

     1,281   

End of 2015

     1,395   

 

 

Notable changes in proved bitumen reserves in the three years ended December 31, 2015, included:

 

    Revisions : In 2015, for both our consolidated operations and equity affiliates revisions were primarily related to reduced royalties from lower prices at Surmont, Foster Creek, Christina Lake and Narrows Lake. In 2013, for our consolidated operations revisions were primarily related to ongoing project development at Surmont and improved well performance.

 

    Extensions and discoveries : In 2015, for our equity affiliates extensions and discoveries were related to approval of development at Christina Lake. In 2014, for our consolidated operations extensions and discoveries were primarily related to delineation activity at Surmont. In 2014, for our equity affiliates extensions and discoveries were primarily related to delineation activity at Foster Creek and Christina Lake, as well as regulatory approval of a development area at Foster Creek.

 

148


Table of Contents
Years Ended    Total Proved Reserves  
  

 

 

 
December 31    Millions of Barrels of Oil Equivalent  
  

 

 

 
     Alaska       
 
Lower
48
  
  
   
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa       
 
Other
Areas
  
  
    Total   
  

 

 

 

Developed and Undeveloped

                  

Consolidated operations

                  

End of 2012

     1,748        1,950        3,698        876        818        655        398        117        6,562    

Revisions

     14        92        106        124        (3     (2     38        -        263    

Improved recovery

     21        -        21        1        -        -        -        -        22    

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     9        378        387        35        46        16        23        -        507    

Production

     (84     (189     (273     (65     (73     (81     (27     -        (519)   

Sales

     -        (44     (44     (1     (3     -        (23     (117     (188)   

 

 

End of 2013

     1,708        2,187        3,895        970        785        588        409        -        6,647    

Revisions

     (19     109        90        48        (10     26        -        -        154    

Improved recovery

     8        -        8        2        -        3        -        -        13    

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     17        184        201        50        -        17        -        -        268    

Production

     (78     (206     (284     (61     (78     (81     (11     -        (515)   

Sales

     -        -        -        (3     -        -        (156     -        (159)   

 

 

End of 2014

     1,636        2,274        3,910        1,006        697        553        242        -        6,408    

Revisions

     (165     (301     (466     66        (26     (12     -        -        (438)   

Improved recovery

     4        4        8        2        -        32        -        -        42    

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     20        84        104        10        -        8        -        -        122    

Production

     (75     (211     (286     (62     (78     (84     -        -        (510)   

Sales

     -        (79     (79     (92     -        -        -        -        (171)   

 

 

End of 2015

     1,420        1,771        3,191        930        593        497        242        -        5,453    

 

 

Equity affiliates

                  

End of 2012

     -        -        -        1,394        -        682        -        4        2,080    

Revisions

     -        -        -        46        -        11        -        1        58    

Improved recovery

     -        -        -        -        -        -        -        -          

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     -        -        -        46        -        164        -        -        210    

Production

     -        -        -        (35     -        (38     -        (1     (74)   

Sales

     -        -        -        -        -        -        -        -          

 

 

End of 2013

     -        -        -        1,451        -        819        -        4        2,274    

Revisions

     -        -        -        (14     -        155        -        3        144    

Improved recovery

     -        -        -        -        -        -        -        -          

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     -        -        -        74        -        89        -        -        163    

Production

     -        -        -        (43     -        (38     -        (2     (83)   

Sales

     -        -        -        -        -        -        -        -          

 

 

End of 2014

     -        -        -        1,468        -        1,025        -        5        2,498    

Revisions

     -        -        -        190        -        (1     -        -        189    

Improved recovery

     -        -        -        -        -        -        -        -          

Purchases

     -        -        -        -        -        -        -        -          

Extensions and discoveries

     -        -        -        99        -        45        -        -        144    

Production

     -        -        -        (51     -        (48     -        (1     (100)   

Sales

     -        -        -        -        -        -        -        (4     (4)   

 

 

End of 2015

     -        -        -        1,706        -        1,021        -        -        2,727    

 

 

Total company

                  

End of 2012

     1,748        1,950        3,698        2,270        818        1,337        398        121        8,642    

End of 2013

     1,708        2,187        3,895        2,421        785        1,407        409        4        8,921    

End of 2014

     1,636        2,274        3,910        2,474        697        1,578        242        5        8,906    

End of 2015

     1,420        1,771        3,191        2,636        593        1,518        242        -        8,180    

 

 

 

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Years Ended    Total Proved Reserves  
December 31    Millions of Barrels of Oil Equivalent  
     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   

Developed

                          

Consolidated operations

                          

End of 2012

     1,606         1,562         3,168         377         499         441         373         -         4,858   

End of 2013

     1,597         1,600         3,197         386         478         405         391         -         4,857   

End of 2014

     1,514         1,637         3,151         393         452         412         237         -         4,645   

End of 2015

     1,318         1,261         2,579         352         398         384         242         -         3,955   

Equity affiliates

                          

End of 2012

     -         -         -         170         -         593         -         4         767   

End of 2013

     -         -         -         181         -         565         -         4         750   

End of 2014

     -         -         -         187         -         810         -         5         1,002   

End of 2015

     -         -         -         311         -         890         -         -         1,201   

Undeveloped

                          

Consolidated operations

                          

End of 2012

     142         388         530         499         319         214         25         117         1,704   

End of 2013

     111         587         698         584         307         183         18         -         1,790   

End of 2014

     122         637         759         613         245         141         5         -         1,763   

End of 2015

     102         510         612         578         195         113         -         -         1,498   

Equity affiliates

                          

End of 2012

     -         -         -         1,224         -         89         -         -         1,313   

End of 2013

     -         -         -         1,270         -         254         -         -         1,524   

End of 2014

     -         -         -         1,281         -         215         -         -         1,496   

End of 2015

     -         -         -         1,395         -         131         -         -         1,526   

Natural gas reserves are converted to barrels of oil equivalent (BOE) based on a 6:1 ratio: six thousand cubic feet of natural gas converts to one BOE.

Proved Undeveloped Reserves

We had 3,024 million BOE of proved undeveloped reserves at year-end 2015, compared with 3,259 million BOE at year-end 2014. During 2015, we converted 595 million BOE of undeveloped reserves to developed, primarily through ongoing development activities, as well as from the startup of major development projects. In addition, we added 360 million BOE of undeveloped reserves in 2015, mainly through extensions and discoveries from ongoing development progress. As a result, at December 31, 2015, our proved undeveloped reserves represented 37 percent of total proved reserves, which was unchanged from December 31, 2014. Costs incurred for the year ended December 31, 2015, relating to the development of proved undeveloped reserves were $6.8 billion. A portion of our costs incurred each year relate to development projects where the proved undeveloped reserves will be converted to proved developed reserves in future years.

Approximately 77 percent of our proved undeveloped reserves at year-end 2015 were associated with five major development areas. Four of the major development areas are currently producing and are expected to have proved undeveloped reserves convert to proved developed over time, as development activities continue and/or production facilities are expanded or upgraded, and include:

 

    The Surmont oil sands project in Canada.

 

    FCCL oil sands—Foster Creek and Christina Lake in Canada.

 

    The Eagle Ford area in the Lower 48.

The remaining major development area, Narrows Lake in our FCCL oil sands in Canada, was sanctioned for development in 2012.

 

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Table of Contents

At the end of 2015, approximately 26 percent of our total proved undeveloped reserves, located in the Athabasca oil sands in Canada, have remained undeveloped for five years or more. The oil sands in Canada consist of the FCCL and Surmont steam-assisted gravity drainage (SAGD) projects. The majority of our remaining proved undeveloped reserves in this area were recorded beginning in 2007. Our SAGD projects are large, multi-year projects with steady, long-term production at consistent levels. The associated undeveloped reserves are expected to be developed over the life of the project, as additional well pairs are drilled to maintain throughput at the central processing facilities.

Results of Operations

The company’s results of operations from oil and gas activities for the years 2015, 2014 and 2013 are shown in the following tables. Non-oil and gas activities, such as pipeline and marine operations, liquefied natural gas operations, crude oil and gas marketing activities, and the profit element of transportation operations in which we have an ownership interest are excluded. Additional information about selected line items within the results of operations tables is shown below:

 

    Sales include sales to unaffiliated entities attributable primarily to the company’s net working interests and royalty interests. Sales are net of fees to transport our produced hydrocarbons beyond the production function to a final delivery point using transportation operations which are not consolidated.

 

    Transportation costs reflect fees to transport our produced hydrocarbons beyond the production function to a final delivery point using transportation operations which are consolidated.

 

    Other revenues include gains and losses from asset sales, certain amounts resulting from the purchase and sale of hydrocarbons, and other miscellaneous income.

 

    Production costs include costs incurred to operate and maintain wells, related equipment and facilities used in the production of petroleum liquids and natural gas.

 

    Taxes other than income taxes include production, property and other non-income taxes.

 

    Depreciation of support equipment is reclassified as applicable.

 

    Other related expenses include inventory fluctuations, foreign currency transaction gains and losses and other miscellaneous expenses.

 

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Table of Contents

Results of Operations

 

 
Year Ended    Millions of Dollars  
  

 

 

 

December 31, 2015

     Alaska       
 
Lower
48
  
  
   
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa       
 
Other
Areas
  
  
    Total   
  

 

 

 

Consolidated operations

                  

Sales

   $ 3,206        4,992        8,198        930        3,637        2,741        -        -        15,506   

Transfers

     15        -        15        -        -        629        -        -        644   

Transportation costs

     (599     -        (599     -        -        (40     -        -        (639

Other revenues

     (5     452        447        (19     (28     6        13        2        421   

 

 

Total revenues

     2,617        5,444        8,061        911        3,609        3,336        13        2        15,932   

Production costs excluding taxes

     1,242        2,420        3,662        923        1,137        815        42        1        6,580   

Taxes other than income taxes

     281        358        639        62        35        33        3        1        773   

Exploration expenses

     682        1,583        2,265        457        170        268        990        43        4,193   

Depreciation, depletion and amortization

     548        4,192        4,740        777        1,813        1,321        -        -        8,651   

Impairments

     8        (2     6        3        724        3        -        -        736   

Other related expenses

     (30     78        48        8        9        (2     (8     5        60   

Accretion

     52        83        135        49        240        34        -        -        458   

 

 
     (166     (3,268     (3,434     (1,368     (519     864        (1,014     (48     (5,519

Provision for income taxes

     (89     (1,193     (1,282     (244     (816     430        (406     (27     (2,345

 

 

Results of operations

   $ (77     (2,075     (2,152     (1,124     297        434        (608     (21     (3,174

 

 

Equity affiliates

                  

Sales

   $ -        -        -        917        -        536        -        50        1,503   

Transfers

     -        -        -        -        -        950        -        -        950   

Transportation costs

     -        -        -        -        -        -        -        -        -   

Other revenues

     -        -        -        34        -        4        -        58        96   

 

 

Total revenues

     -        -        -        951        -        1,490        -        108        2,549   

Production costs excluding taxes

     -        -        -        474        -        248        -        13        735   

Taxes other than income taxes

     -        -        -        15        -        723        -        13        751   

Exploration expenses

     -        -        -        12        -        190        -        -        202   

Depreciation, depletion and amortization

     -        -        -        367        -        197        -        5        569   

Impairments

     -        -        -        -        -        1,396        -        3        1,399   

Other related expenses

     -        -        -        (2     -        (13     -        23        8   

Accretion

     -        -        -        7        -        10        -        1        18   

 

 
     -        -        -        78        -        (1,261     -        50        (1,133

Provision for income taxes

     -        -        -        20        -        (155     -        10        (125

 

 

Results of operations

   $ -        -        -        58        -        (1,106     -        40        (1,008

 

 

 

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Table of Contents
Year Ended    Millions of Dollars  
  

 

 

 

December 31, 2014

     Alaska       
 
Lower
48
  
  
    
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa       
 
Other
Areas
  
  
   
 
Disc
Ops
  
  
    Total   
  

 

 

 

Consolidated operations

                     

Sales

   $ 6,202        9,098         15,300        2,091        6,160        4,550        185        -        278        28,564   

Transfers

     47        94         141        -        -        938        -        -        -        1,079   

Transportation costs

     (659     -         (659     -        -        (43     -        -        -        (702

Other revenues

     13        29         42        185        (25     46        26        154        1,052        1,480   

 

 

Total revenues

     5,603        9,221         14,824        2,276        6,135        5,491        211        154        1,330        30,421   

Production costs excluding taxes

     1,205        2,482         3,687        1,106        1,410        994        83        1        128        7,409   

Taxes other than income taxes

     842        700         1,542        62        44        299        5        1        8        1,961   

Exploration expenses

     46        1,042         1,088        317        148        123        303        40        4        2,023   

Depreciation, depletion and amortization

     423        3,662         4,085        919        1,777        1,125        6        -        -        7,912   

Impairments

     56        107         163        38        529        7        -        -        -        737   

Other related expenses

     2        96         98        7        (233     (6     (1     9        (9     (135

Accretion

     52        80         132        57        245        26        -        -        -        460   

 

 
     2,977        1,052         4,029        (230     2,215        2,923        (185     103        1,199        10,054   

Provision for income taxes

     1,043        322         1,365        (101     1,452        1,216        4        (13     79        4,002   

 

 

Results of operations

   $ 1,934        730         2,664        (129     763        1,707        (189     116        1,120        6,052   

 

 

Equity affiliates

                     

Sales

   $ -        -         -        2,307        -        851        -        96        -        3,254   

Transfers

     -        -         -        -        -        1,663        -        -        -        1,663   

Transportation costs

     -        -         -        -        -        -        -        -        -        -   

Other revenues

     -        -         -        33        -        3        -        -        -        36   

 

 

Total revenues

     -        -         -        2,340        -        2,517        -        96        -        4,953   

Production costs excluding taxes

     -        -         -        651        -        221        -        18        -        890   

Taxes other than income taxes

     -        -         -        14        -        1,214        -        51        -        1,279   

Exploration expenses

     -        -         -        13        7        8        -        -        -        28   

Depreciation, depletion and amortization

     -        -         -        337        -        171        -        7        -        515   

Impairments

     -        -         -        -        -        27        -        -        -        27   

Other related expenses

     -        -         -        (65     1        (2     -        27        -        (39

Accretion

     -        -         -        6        -        8        -        1        -        15   

 

 
     -        -         -        1,384        (8     870        -        (8     -        2,238   

Provision for income taxes

     -        -         -        331        -        (62     -        2        -        271   

 

 

Results of operations

   $ -        -         -        1,053        (8     932        -        (10     -        1,967   

 

 

 

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Table of Contents
Year Ended    Millions of Dollars  
  

 

 

 

December 31, 2013

     Alaska       
 
Lower
48
  
  
    
 
Total
U.S.
  
  
    Canada        Europe       
 
Asia Pacific/
Middle East
  
  
    Africa        
 
Other
Areas
  
  
   
 
Disc
Ops
  
  
     Total   
  

 

 

 

Consolidated operations

                       

Sales

   $ 7,235        7,954         15,189        1,890        6,319        5,261        1,001         -        855         30,515    

Transfers

     15        183         198        -        -        981        -         -        -         1,179    

Transportation costs

     (703     -         (703     -        -        (39     -         -        -         (742)   

Other revenues

     (5     57         52        775        (21     149        141         29        960         2,085    

 

 

Total revenues

     6,542        8,194         14,736        2,665        6,298        6,352        1,142         29        1,815         33,037    

Production costs excluding taxes

     1,162        2,203         3,365        1,049        1,334        845        88         2        266         6,949    

Taxes other than income taxes

     1,681        580         2,261        54        41        386        4         2        5         2,753    

Exploration expenses

     62        614         676        172        128        107        77         46        10         1,216    

Depreciation, depletion and amortization

     428        3,200         3,628        1,312        1,006        1,051        29         1        -         7,027    

Impairments

     -        2         2        216        301        3        -         -        43         565    

Other related expenses

     (121     72         (49     41        (83     209        7         20        76         221    

Accretion

     54        74         128        59        200        24        -         -        5         416    

 

 
     3,276        1,449         4,725        (238     3,371        3,727        937         (42     1,410         13,890    

Provision for income taxes

     1,168        491         1,659        (270     2,262        1,509        924         13        251         6,348    

 

 

Results of operations

   $ 2,108        958         3,066        32        1,109        2,218        13         (55     1,159         7,542    

 

 

Equity affiliates

                       

Sales

   $ -        -         -        1,848        -        903        -         117        -         2,868    

Transfers

     -        -         -        -        -        1,443        -         -        -         1,443    

Transportation costs

     -        -         -        -        -        -        -         -        -           

Other revenues

     -        -         -        6        -        22        -         -        -         28    

 

 

Total revenues

     -        -         -        1,854        -        2,368        -         117        -         4,339    

Production costs excluding taxes

     -        -         -        593        -        150        -         21        -         764    

Taxes other than income taxes

     -        -         -        12        -        1,169        -         59        -         1,240    

Exploration expenses

     -        -         -        22        30        8        -         -        -         60    

Depreciation, depletion and amortization

     -        -         -        231        -        137        -         11        -         379    

Impairments

     -        -         -        -        -        -        -         -        -           

Other related expenses

     -        -         -        7        -        (3     -         14        -         18    

Accretion

     -        -         -        5        -        4        -         1        -         10    

 

 
     -        -         -        984        (30     903        -         11        -         1,868    

Provision for income taxes

     -        -         -        248        -        (17     -         1        -         232    

 

 

Results of operations

   $ -        -         -        736        (30     920        -         10        -         1,636    

 

 

 

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Statistics

 

Net Production

     2015         2014         2013   
  

 

 

 
     Thousands of Barrels Daily   
  

 

 

 

Crude Oil

        

Consolidated operations

        

Alaska

     158         162         178   

Lower 48

     206         188         152   

 

 

United States

     364         350         330   

Canada

     12         13         13   

Europe

     120         126         113   

Asia Pacific/Middle East

     91         79         80   

Africa

     -         8         26   

 

 

Total consolidated operations

     587         576         562   

 

 

Equity affiliates

        

Asia Pacific/Middle East

     14         15         15   

Other areas

     4         4         4   

 

 

Total equity affiliates

     18         19         19   

 

 

Total continuing operations

     605         595         581   

Discontinued operations

     -         5         18   

 

 

Total company

     605         600         599   

 

 

Natural Gas Liquids

        

Consolidated operations

        

Alaska

     13         13         15   

Lower 48

     94         97         91   

 

 

United States

     107         110         106   

Canada

     26         23         25   

Europe

     7         8         6   

Asia Pacific/Middle East

     9         10         12   

 

 

Total consolidated operations

     149         151         149   

 

 

Equity affiliates— Asia Pacific/Middle East

     7         8         7   

 

 

Total continuing operations

     156         159         156   

Discontinued operations

     -         1         3   

 

 

Total company

     156         160         159   

 

 

Bitumen

        

Consolidated operations— Canada

     13         12         13   

Equity affiliates— Canada

     138         117         96   

 

 

Total company

     151         129         109   

 

 

Natural Gas

     Millions of Cubic Feet Daily   
  

 

 

 

Consolidated operations

        

Alaska

     42         49         43   

Lower 48

     1,472         1,491         1,490   

 

 

United States

     1,514         1,540         1,533   

Canada

     715         711         775   

Europe

     475         461         416   

Asia Pacific/Middle East

     717         723         709   

Africa

     1         3         25   

 

 

Total consolidated operations

     3,422         3,438         3,458   

 

 

Equity affiliates— Asia Pacific/Middle East

     638         505         481   

 

 

Total continuing operations

     4,060         3,943         3,939   

Discontinued operations

     -         88         129   

 

 

Total company

     4,060         4,031         4,068   

 

 

 

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Table of Contents

Average Sales Prices

     2015         2014         2013   

Crude Oil Per Barrel

        

Consolidated operations

        

Alaska

   $         41.84         87.21         97.27   

Lower 48

     42.62         84.18         93.79   

United States

     42.27         85.63         95.69   

Canada

     39.52         77.87         79.73   

Europe

     52.75         99.56         110.56   

Asia Pacific/Middle East

     49.70         95.32         104.78   

Africa

     60.79         86.71         107.21   

Total international

     50.79         96.48         106.43   

Total consolidated operations

     45.48         89.72         100.11   

Equity affiliates

        

Asia Pacific/Middle East

     53.12         99.01         105.44   

Other areas

     37.21         64.14         72.43   

Total equity affiliates

     49.92         91.48         97.92   

Total continuing operations

     45.61         89.77         100.04   

Discontinued operations

     -         110.61         109.72   

Natural Gas Liquids Per Barrel

        

Consolidated operations

        

Lower 48

   $ 14.01         30.74         31.48   

United States

     14.01         30.74         31.48   

Canada

     17.02         46.23         47.19   

Europe

     27.56         52.65         58.36   

Asia Pacific/Middle East

     37.78         69.36         73.82   

Total international

     23.21         53.26         56.52   

Total consolidated operations

     16.83         37.45         39.60   

Equity affiliates —Asia Pacific/Middle East

     35.79         67.20         73.31   

Total continuing operations

     17.79         38.99         41.42   

Discontinued operations

     -         13.41         14.58   

Bitumen Per Barrel

        

Consolidated operations— Canada

   $ 20.13         60.03         55.25   

Equity affiliates— Canada

     18.58         54.62         53.00   

Natural Gas Per Thousand Cubic Feet

        

Consolidated operations

        

Alaska

   $ 4.33         5.42         4.35   

Lower 48

     2.43         4.29         3.50   

United States

     2.47         4.32         3.52   

Canada

     1.91         4.13         2.92   

Europe

     7.14         9.29         10.68   

Asia Pacific/Middle East

     6.08         9.64         10.46   

Africa

     -         3.40         5.38   

Total international

     4.78         7.48         7.40   

Total consolidated operations

     3.77         6.07         5.68   

Equity affiliates —Asia Pacific/Middle East

     4.83         9.79         8.98   

Total continuing operations

     3.93         6.54         6.09   

Discontinued operations

     -         2.53         2.60   

Average sales prices for Alaska crude oil and Asia Pacific/Middle East natural gas above reflect a reduction for transportation costs in which we have an ownership interest that are incurred subsequent to the terminal point of the production function. Accordingly, the average sales prices differ from those discussed in Item 7 of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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     2015         2014         2013   

Average Production Costs Per Barrel of Oil Equivalent (1)

        

Consolidated operations

        

Alaska

   $         19.12         18.04         15.92   

Lower 48

     12.17         12.76         12.29   

United States

     13.88         14.11         13.34   

Canada

     14.88         18.14         15.97   

Europe

     15.05         18.31         19.34   

Asia Pacific/Middle East

     10.20         12.97         11.02   

Africa

     -         28.42         8.04   

Total international

     13.41         16.52         14.93   

Total consolidated continuing operations

     13.67         15.20         14.08   

Equity affiliates

        

Canada

     9.41         15.24         16.92   

Asia Pacific/Middle East

     5.31         5.66         4.03   

Other areas

     8.90         12.33         14.38   

Total equity affiliates

     7.46         10.69         10.36   

Discontinued operations

     -         16.70         16.95   

Average Production Costs Per Barrel—Bitumen

        

Consolidated operations— Canada

   $ 37.30         66.89         43.84   

Equity affiliates— Canada

     9.41         15.24         16.92   

Taxes Other Than Income Taxes Per Barrel of Oil Equivalent

        

Consolidated operations

        

Alaska

   $ 4.33         12.61         23.03   

Lower 48

     1.80         3.60         3.24   

United States

     2.42         5.90         8.96   

Canada

     1.00         1.02         0.82   

Europe

     0.46         0.57         0.59   

Asia Pacific/Middle East

     0.41         3.90         5.04   

Africa

     -         1.71         0.37   

Total international

     0.62         1.89         2.19   

Total consolidated continuing operations

     1.61         4.08         5.79   

Equity affiliates

        

Canada

     0.30         0.33         0.34   

Asia Pacific/Middle East

     15.48         31.08         31.40   

Other areas

     8.90         34.93         40.41   

Total equity affiliates

     7.62         15.37         16.82   

Discontinued operations

     -         1.04         0.32   

Depreciation, Depletion and Amortization Per Barrel of Oil Equivalent

        

Consolidated operations

        

Alaska

   $ 8.43         6.33         5.86   

Lower 48

     21.07         18.82         17.86   

United States

     17.96         15.63         14.38   

Canada

     12.52         15.08         19.97   

Europe

     24.00         23.07         14.58   

Asia Pacific/Middle East

     16.53         14.68         13.71   

Africa

     -         2.05         2.65   

Total international

     17.98         17.59         15.29   

Total consolidated continuing operations

     17.97         16.52         14.81   

Equity affiliates

        

Canada

     7.29         7.89         6.59   

Asia Pacific/Middle East

     4.22         4.38         3.68   

Other areas

     3.42         4.79         7.53   

Total equity affiliates

     5.77         6.19         5.14   

Discontinued operations

     -         -         -   

(1)Includes bitumen.

 

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Development and Exploration Activities

The following two tables summarize our net interest in productive and dry exploratory and development wells in the years ended December 31, 2015, 2014 and 2013. A “development well” is a well drilled within the proved area of a reservoir to the depth of a stratigraphic horizon known to be productive. An “exploratory well” is a well drilled to find and produce crude oil or natural gas in an unknown field or a new reservoir within a proven field. Excluded from the exploratory well count are stratigraphic-type exploratory wells, primarily relating to oil sands delineation wells located in Canada and coalbed methane test wells located in Asia Pacific/Middle East.

 

Net Wells Completed

     Productive            Dry   
  

 

 

       

 

 

 
         2015             2014             2013                2015             2014             2013   
  

 

 

       

 

 

 

Exploratory (1) (2)

                    

Consolidated operations

                    

Alaska

     -         *         2            -         *         -   

Lower 48

     47         30         67            4         3         4   

 

 

United States

     47         30         69            4         3         4   

Canada

     16         9         5            3         *         -   

Europe

     *         1         *            *         1         *   

Asia Pacific/Middle East

     1         2         3            2         *         *   

Africa

     *         *         -            *         *         *   

Other areas

     -         -         -            -         -         *   

 

 

Total consolidated operations

     64         42         77            9         4         4   

 

 

Equity affiliates

                    

Asia Pacific/Middle East

     19         36         2            *         2         -   

 

 

Total equity affiliates

     19         36         2            -         2         -   

 

 

Development

                    

Consolidated operations

                    

Alaska

     18         8         6            -         -         -   

Lower 48

     347         450         441            -         1         -   

 

 

United States

     365         458         447            -         1         -   

Canada

     47         98         61            -         -         -   

Europe

     10         7         5            -         -         *   

Asia Pacific/Middle East

     3         14         29            *         -         -   

Africa

     -         1         4            -         -         -   

Other areas

     -         -         *            -         -         -   

 

 

Total consolidated operations

     425         578         546            -         1         -   

 

 

Equity affiliates

                    

Canada (3)

     22         38         25            -         -         -   

Asia Pacific/Middle East

     166         294         24            2         1         *   

Other areas

     *         1         -            -         -         -   

 

 

Total equity affiliates (3)

     188         333         49            2         1         -   

 

 
(1) Excludes net stratigraphic-type exploratory wells of 46, 90 and 149 for the years ended December 31, 2015, 2014 and 2013, respectively.
(2) This also includes net extension wells of 22, 49 and 55 for the years ended December 31, 2015, 2014 and 2013, respectively. Extension wells are wells drilled in areas near or offsetting current production, or in areas where well density or production history have not achieved statistical certainty of results, primarily located in Asia Pacific/Middle East and the United States.
(3) Prior periods revised to conform to current period presentation.
* Our total proportionate interest was less than one.

 

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The table below represents the status of our wells drilling at December 31, 2015, and includes wells in the process of drilling or in active completion. It also represents gross and net productive wells, including producing wells and wells capable of production at December 31, 2015.

 

Wells at December 31, 2015    Productive *  
           

 

 

 
             In Progress                   Oil           Gas  
  

 

 

       

 

 

       

 

 

 
             Gross              Net                     Gross              Net                     Gross              Net    
  

 

 

       

 

 

       

 

 

 

Consolidated operations

                       

Alaska

     2         1              1,740         777              29         17     

Lower 48

     247         105              9,906         5,026              20,089         13,084     

 

 

United States

     249         106              11,646         5,803              20,118         13,101     

Canada

     122         65              1,010         549              4,788         3,278     

Europe

     22         3              461         82              189         71     

Asia Pacific/Middle East

     21         8              435         179              132         58     

Africa

     11         2              825         134              9         2     

 

 

Total consolidated operations

     425         184              14,377         6,747              25,236         16,510     

 

 

Equity affiliates

                       

Canada

     181         91              409         205              -         -     

Asia Pacific/Middle East

     466         115              -         -              3,089         705     

 

 

Total equity affiliates

     647         206              409         205              3,089         705     

 

 

*Includes 131 gross and 113 net multiple completion wells.

 

Acreage at December 31, 2015                        Thousands of Acres                      
  

 

 

 
     Developed           Undeveloped  
  

 

 

       

 

 

 
             Gross              Net                     Gross              Net    
  

 

 

       

 

 

 

Consolidated operations

              

Alaska

     632         320              1,016         694     

Lower 48

     4,814         3,903              12,436         10,334     

 

 

United States

     5,446         4,223              13,452         11,028     

Canada

     3,195         2,201              10,216         4,425     

Europe

     861         274              2,078         641     

Asia Pacific/Middle East

     4,258         1,811              11,702         5,906     

Africa

     358         59              16,834         3,666     

Other areas

     -         -              3,539         2,409     

 

 

Total consolidated operations

     14,118         8,568              57,821         28,075     

 

 

Equity affiliates

              

Canada

     51         21              658         277     

Asia Pacific/Middle East

     731         162              6,450         1,815     

 

 

Total equity affiliates

     782         183              7,108         2,092     

 

 

 

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Table of Contents

Costs Incurred

 

Year Ended    Millions of Dollars  
  

 

 

 

December 31

     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   
  

 

 

 

2015

                          

Consolidated operations

                          

Unproved property acquisition

   $ -         168         168         52         -         -         -         -         220   

Proved property acquisition

     -         5         5         1         -         -         -         -         6   

 

 
     -         173         173         53         -         -         -         -         226   

Exploration

     87         1,369         1,456         298         107         118         394         47         2,420   

Development

     1,217         2,875         4,092         827         1,742         587         4         -         7,252   

 

 
   $ 1,304         4,417         5,721         1,178         1,849         705         398         47         9,898   

 

 

Equity affiliates

                          

Unproved property acquisition

   $ -         -         -         -         -         -         -         -         -   

Proved property acquisition

     -         -         -         -         -         -         -         -         -   

 

 
     -         -         -         -         -         -         -         -         -   

Exploration

     -         -         -         17         -         57         -         -         74   

Development

     -         -         -         847         -         1,212         -         3         2,062   

 

 
   $ -         -         -         864         -         1,269         -         3         2,136   

 

 

2014

                          

Consolidated operations

                          

Unproved property acquisition

   $ -         159         159         61         90         -         6         -         316   

Proved property acquisition

     -         10         10         -         -         -         -         -         10   

 

 
     -         169         169         61         90         -         6         -         326   

Exploration

     130         1,347         1,477         332         243         166         556         58         2,832   

Development

     1,263         4,881         6,144         2,185         3,618         1,353         71         -         13,371   

 

 
   $ 1,393         6,397         7,790         2,578         3,951         1,519         633         58         16,529   

 

 

Equity affiliates

                          

Unproved property acquisition

   $ -         -         -         -         -         2         -         -         2   

Proved property acquisition

     -         -         -         -         -         -         -         -         -   

 

 
     -         -         -         -         -         2         -         -         2   

Exploration

     -         -         -         23         36         89         -         -         148   

Development

     -         -         -         1,627         -         2,258         -         9         3,894   

 

 
   $ -         -         -         1,650         36         2,349         -         9         4,044   

 

 

2013

                          

Consolidated operations

                          

Unproved property acquisition

   $ 3         311         314         90         -         111         177         15         707   

Proved property acquisition

     -         4         4         10         -         -         -         -         14   

 

 
     3         315         318         100         -         111         177         15         721   

Exploration

     159         1,156         1,315         294         240         321         136         49         2,355   

Development

     925         4,067         4,992         1,952         3,999         2,256         216         409         13,824   

 

 
   $ 1,087         5,538         6,625         2,346         4,239         2,688         529         473         16,900   

 

 

Equity affiliates

                          

Unproved property acquisition

   $ -         -         -         1         -         51         -         -         52   

Proved property acquisition

     -         -         -         -         -         -         -         -         -   

 

 
     -         -         -         1         -         51         -         -         52   

Exploration

     -         -         -         59         31         101         -         -         191   

Development

     -         -         -         1,532         -         2,141         -         3         3,676   

 

 
   $ -         -         -         1,592         31         2,293         -         3         3,919   

 

 

 

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Table of Contents

Capitalized Costs

 

At December 31    Millions of Dollars  
  

 

 

 
     Alaska        
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa        
 
Other
Areas
  
  
     Total   
  

 

 

 

2015

                          

Consolidated operations

                          

Proved property

   $ 17,007         45,256         62,263         16,552         26,851         16,254         873         3         122,796   

Unproved property

     1,609         2,414         4,023         1,418         330         781         823         35         7,410   

 

 
     18,616         47,670         66,286         17,970         27,181         17,035         1,696         38         130,206   

Accumulated depreciation, depletion and amortization

     8,688         22,993         31,681         9,371         16,166         8,853         788         4         66,863   

 

 
   $ 9,928         24,677         34,605         8,599         11,015         8,182         908         34         63,343   

 

 

Equity affiliates

                          

Proved property

   $ -         -         -         8,763         -         8,693         -         -         17,456   

Unproved property

     -         -         -         906         -         3,178         -         -         4,084   

 

 
     -         -         -         9,669         -         11,871         -         -         21,540   

Accumulated depreciation, depletion and amortization

     -         -         -         1,537         -         996         -         -         2,533   

 

 
   $ -         -         -         8,132         -         10,875         -         -         19,007   

 

 

2014

                          

Consolidated operations

                          

Proved property

   $ 15,686         47,390         63,076         22,831         27,933         15,730         870         8         130,448   

Unproved property

     1,724         2,938         4,662         1,975         432         927         923         32         8,951   

 

 
     17,410         50,328         67,738         24,806         28,365         16,657         1,793         40         139,399   

Accumulated depreciation, depletion and amortization

     7,545         23,484         31,029         13,419         15,134         7,594         294         9         67,479   

 

 
   $ 9,865         26,844         36,709         11,387         13,231         9,063         1,499         31         71,920   

 

 

Equity affiliates

                          

Proved property

   $ -         -         -         9,506         -         8,855         -         220         18,581   

Unproved property

     -         -         -         1,150         -         3,474         -         -         4,624   

 

 
     -         -         -         10,656         -         12,329         -         220         23,205   

Accumulated depreciation, depletion and amortization

     -         -         -         1,422         -         566         -         198         2,186   

 

 
   $ -         -         -         9,234         -         11,763         -         22         21,019   

 

 

 

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Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities

In accordance with SEC and FASB requirements, amounts were computed using 12-month average prices (adjusted only for existing contractual terms) and end-of-year costs, appropriate statutory tax rates and a prescribed 10 percent discount factor. Twelve-month average prices are calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. For all years, continuation of year-end economic conditions was assumed. The calculations were based on estimates of proved reserves, which are revised over time as new data becomes available. Probable or possible reserves, which may become proved in the future, were not considered. The calculations also require assumptions as to the timing of future production of proved reserves and the timing and amount of future development costs, including dismantlement, and future production costs, including taxes other than income taxes.

While due care was taken in its preparation, we do not represent that this data is the fair value of our oil and gas properties, or a fair estimate of the present value of cash flows to be obtained from their development and production.

Discounted Future Net Cash Flows  

 

     Millions of Dollars  
  

 

 

 
     Alaska       
 
Lower
48
  
  
    
 
Total
U.S.
  
  
     Canada         Europe        
 
Asia Pacific/
Middle East
  
  
     Africa         Total   
  

 

 

 

2015

                      

Consolidated operations

                      

Future cash inflows

   $ 44,054        42,575         86,629         22,317         27,782         19,368         13,875         169,971   

Less:

                      

Future production costs

     32,732        21,638         54,370         13,103         10,574         7,529         1,422         86,998   

Future development costs

     9,885        12,967         22,852         6,471         12,793         2,884         437         45,437   

Future income tax provisions

     -        844         844         -         1,506         2,708         10,998         16,056   

 

 

Future net cash flows

     1,437        7,126         8,563         2,743         2,909         6,247         1,018         21,480   

10 percent annual discount

     (502     1,573         1,071         1,265         733         1,349         500         4,918   

 

 

Discounted future net cash flows

   $ 1,939        5,553         7,492         1,478         2,176         4,898         518         16,562   

 

 

Equity affiliates

                      

Future cash inflows

   $ -        -         -         36,211         -         34,257         -         70,468   

Less:

                      

Future production costs

     -        -         -         16,417         -         17,874         -         34,291   

Future development costs

     -        -         -         11,869         -         2,391         -         14,260   

Future income tax provisions

     -        -         -         1,648         -         3,117         -         4,765   

 

 

Future net cash flows

     -        -         -         6,277         -         10,875         -         17,152   

10 percent annual discount

     -        -         -         3,827         -         4,298         -         8,125   

 

 

Discounted future net cash flows

   $ -        -         -         2,450         -         6,577         -         9,027   

 

 

Total company

                      

Discounted future net cash flows

   $ 1,939        5,553         7,492         3,928         2,176         11,475         518         25,589   

 

 

 

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Table of Contents
     Millions of Dollars  
  

 

 

 
     Alaska      Lower
48
     Total
U.S.
     Canada      Europe      Asia Pacific/
Middle East
     Africa      Other
Areas
     Total  
  

 

 

 

2014

                          

Consolidated operations

                          

Future cash inflows

   $ 106,506         100,322         206,828         50,209         55,878         39,492         25,997         -         378,404   

Less:

                          

Future production costs

     57,924         37,872         95,796         21,342         16,372         12,555         1,338         -         147,403   

Future development costs

     10,815         19,666         30,481         10,400         14,194         2,985         437         -         58,497   

Future income tax provisions

     12,483         14,800         27,283         3,159         15,757         7,728         22,526         -         76,453   

 

 

Future net cash flows

     25,284         27,984         53,268         15,308         9,555         16,224         1,696         -         96,051   

10 percent annual discount

     12,499         10,150         22,649         8,915         2,741         4,607         791         -         39,703   

 

 

Discounted future net cash flows

   $ 12,785         17,834         30,619         6,393         6,814         11,617         905         -         56,348   

 

 

Equity affiliates

                          

Future cash inflows

   $ -         -         -         88,716         -         61,480         -         357         150,553   

Less:

                          

Future production costs

     -         -         -         25,455         -         27,274         -         276         53,005   

Future development costs

     -         -         -         11,595         -         3,007         -         16         14,618   

Future income tax provisions

     -         -         -         12,322         -         7,225         -         10         19,557   

 

 

Future net cash flows

     -         -         -         39,344         -         23,974         -         55         63,373   

10 percent annual discount

     -         -         -         25,601         -         10,897         -         6         36,504   

 

 

Discounted future net cash flows

   $ -         -         -         13,743         -         13,077         -         49         26,869   

 

 

Total company

                          

Discounted future net cash flows

   $ 12,785         17,834         30,619         20,136         6,814         24,694         905         49         83,217   

 

 

 

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Table of Contents
     Millions of Dollars  
  

 

 

 
     Alaska      Lower
48
     Total
U.S.
     Canada      Europe      Asia Pacific/
Middle East
     Africa      Other
Areas
     Total  
  

 

 

 

2013

                          

Consolidated operations

                          

Future cash inflows

   $   120,384         93,276         213,660         39,695         69,654         43,827         33,055         -         399,891   

Less:

                          

Future production costs

     61,636         34,344         95,980         22,435         16,902         14,567         4,148         -         154,032   

Future development costs

     12,282         15,833         28,115         12,228         14,821         3,250         695         -         59,109   

Future income tax provisions

     16,356         14,810         31,166         401         24,706         8,388         25,371         -         90,032   

 

 

Future net cash flows

     30,110         28,289         58,399         4,631         13,225         17,622         2,841         -         96,718   

10 percent annual discount

     16,187         11,217         27,404         2,881         4,298         5,046         1,086         -         40,715   

 

 

Discounted future net cash flows

   $ 13,923         17,072         30,995         1,750         8,927         12,576         1,755         -         56,003   

 

 

Equity affiliates

                          

Future cash inflows

   $ -         -         -         72,327         -         55,327         -         296         127,950   

Less:

                          

Future production costs

     -         -         -         24,953         -         26,356         -         233         51,542   

Future development costs

     -         -         -         10,673         -         2,616         -         13         13,302   

Future income tax provisions

     -         -         -         8,776         -         5,471         -         6         14,253   

 

 

Future net cash flows

     -         -         -         27,925         -         20,884         -         44         48,853   

10 percent annual discount

     -         -         -         17,643         -         9,697         -         4         27,344   

 

 

Discounted future net cash flows

   $ -         -         -         10,282         -         11,187         -         40         21,509   

 

 

Total company

                          

Discounted future net cash flows

   $ 13,923         17,072         30,995         12,032         8,927         23,763         1,755         40         77,512   

 

 

 

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Sources of Change in Discounted Future Net Cash Flows  

 

     Millions of Dollars  
  

 

 

 
     Consolidated Operations          Equity Affiliates          Total Company  
  

 

 

      

 

 

      

 

 

 
     2015        2014        2013           2015        2014        2013           2015        2014        2013   
  

 

 

 

Discounted future net cash flows at the beginning of the year

   $ 56,348        56,003        53,949           26,869        21,509        19,244           83,217        77,512        73,193   

 

 

Changes during the year

                        

Revenues less production costs for the year

     (8,158     (19,571     (21,250        (966     (2,748     (2,307        (9,124     (22,319     (23,557

Net change in prices and production costs

     (82,923     (9,243     (611        (27,670     4,517        (1,645        (110,593     (4,726     (2,256

Extensions, discoveries and improved recovery, less estimated future costs

     1,791        7,033        15,796           319        1,822        1,804           2,110        8,855        17,600   

Development costs for the year

     6,854        11,785        11,640           2,050        3,669        3,675           8,904        15,454        15,315   

Changes in estimated future development costs

     2,073        (7,771     (9,760        (784     (1,829     (3,167        1,289        (9,600     (12,927

Purchases of reserves in place, less estimated future costs

     -        -        2           -        5        -           -        5        2   

Sales of reserves in place, less estimated future costs

     (424     (1,280     (5,997        (38     -        -           (462     (1,280     (5,997

Revisions of previous quantity estimates

     (1,790     1,348        4,317           938        (1,166     2,357           (852     182        6,674   

Accretion of discount

     9,342        10,045        9,732           3,297        2,648        2,331           12,639        12,693        12,063   

Net change in income taxes

     33,449        7,999        (1,815        5,012        (1,558     (783        38,461        6,441        (2,598

 

 

Total changes

     (39,786     345        2,054           (17,842     5,360        2,265           (57,628     5,705        4,319   

 

 

Discounted future net cash flows at year end

   $ 16,562        56,348        56,003           9,027        26,869        21,509           25,589        83,217        77,512   

 

 

 

    The net change in prices and production costs is the beginning-of-year reserve-production forecast multiplied by the net annual change in the per-unit sales price and production cost, discounted at 10 percent.

 

    Purchases and sales of reserves in place, along with extensions, discoveries and improved recovery, are calculated using production forecasts of the applicable reserve quantities for the year multiplied by the 12-month average sales prices, less future estimated costs, discounted at 10 percent.

 

    Revisions of previous quantity estimates are calculated using production forecast changes for the year, including changes in the timing of production, multiplied by the 12-month average sales prices, less future estimated costs, discounted at 10 percent.

 

    The accretion of discount is 10 percent of the prior year’s discounted future cash inflows, less future production and development costs.

 

    The net change in income taxes is the annual change in the discounted future income tax provisions.

 

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Table of Contents

 

Selected Quarterly Financial Data (Unaudited)

 

     Millions of Dollars        Per Share of Common Stock  
    
 
 
 
Sales and
Other
Operating
Revenues
  
  
  
  
    
 

 
 

Income (Loss)
From Continuing

Operations Before
Income Taxes

  
  

  
  

      
 
 
Net
Income
(Loss)
  
  
  
    
 
 
 
Net Income
(Loss)
Attributable to
ConocoPhillips
  
  
  
  
      
 

 

Net Income (Loss)
Attributable

to ConocoPhillips

  
  

  

                     Basic           Diluted   
  

 

 

      

 

 

 

2015

                       

First

   $ 7,716         (356)           286          272            0.22            0.22    

Second

     8,293         (91)           (164)         (179)           (0.15)           (0.15)   

Third

     7,262         (1,741)           (1,056)         (1,071)           (0.87)           (0.87)   

Fourth

     6,293         (5,051)           (3,437)         (3,450)           (2.78)           (2.78)   

 

 

2014

                       

First

   $ 15,415         3,698            2,137          2,123            1.72            1.71    

Second

     13,821         3,460            2,098          2,081            1.68            1.67    

Third

     12,080         2,553            2,727          2,704            2.18            2.17    

Fourth

     11,208         (321)           (24)         (39)           (0.03)           (0.03)   

 

 

For additional information on the commodity price environment, see the Business Environment and Executive Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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Table of Contents

 

Supplementary Information—Condensed Consolidating Financial Information

We have various cross guarantees among ConocoPhillips, ConocoPhillips Company and ConocoPhillips Canada Funding Company I, with respect to publicly held debt securities. ConocoPhillips Company is 100 percent owned by ConocoPhillips. ConocoPhillips Australia Funding Company and ConocoPhillips Canada Funding Company I are indirect, 100 percent owned subsidiaries of ConocoPhillips Company. ConocoPhillips and ConocoPhillips Company have fully and unconditionally guaranteed the payment obligations of ConocoPhillips Australia Funding Company and ConocoPhillips Canada Funding Company I, with respect to their publicly held debt securities. Similarly, ConocoPhillips has fully and unconditionally guaranteed the payment obligations of ConocoPhillips Company with respect to its publicly held debt securities. In addition, ConocoPhillips Company has fully and unconditionally guaranteed the payment obligations of ConocoPhillips with respect to its publicly held debt securities. All guarantees are joint and several. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:

 

    ConocoPhillips, ConocoPhillips Company and ConocoPhillips Canada Funding Company I (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).
    All other nonguarantor subsidiaries of ConocoPhillips.
    The consolidating adjustments necessary to present ConocoPhillips’ results on a consolidated basis.

In May 2014, we filed a universal shelf registration statement with the SEC under which ConocoPhillips, as a well-known seasoned issuer, has the ability to issue and sell an indeterminate amount of various types of debt and equity securities, with certain debt securities guaranteed by ConocoPhillips Company. Also as part of that registration statement, ConocoPhillips Trust I and ConocoPhillips Trust II have the ability to issue and sell preferred trust securities, guaranteed by ConocoPhillips. ConocoPhillips Trust I and ConocoPhillips Trust II have not issued any trust-preferred securities under this registration statement, and thus have no assets or liabilities. Accordingly, columns for these two trusts are not included in the condensed consolidating financial information.

During 2013, ConocoPhillips Australia Funding Company’s guaranteed, publicly held debt was repaid. Beginning in 2014, financial information for ConocoPhillips Australia Funding Company is presented in the “All Other Subsidiaries” column of our condensed consolidating financial information.

In 2014, ConocoPhillips received $34.5 billion in dividends from ConocoPhillips Company to settle certain accumulated intercompany balances. This consisted of a $17.5 billion distribution of earnings and a $17 billion return of capital. These transactions had no impact on our consolidated financial statements.

In 2015, ConocoPhillips received a $3.5 billion return of capital from ConocoPhillips Company to settle certain accumulated intercompany balances. The transaction had no impact on our consolidated financial statements.

In February 2016, ConocoPhillips received a $2.3 billion return of capital from ConocoPhillips Company to settle certain accumulated intercompany balances. The transaction will be reflected in the first quarter 2016 Condensed Consolidating Financial Information for ConocoPhillips and ConocoPhillips Company and is expected to have no impact on our consolidated financial statements.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.

 

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Table of Contents
     Millions of Dollars  
  

 

 

 
     Year Ended December 31, 2015   
  

 

 

 

Income Statement

     ConocoPhillips        
 
ConocoPhillips
Company
  
  
    
 
 
ConocoPhillips
Canada Funding
Company I
  
  
  
    
 
All Other
Subsidiaries
  
  
    
 
Consolidating
Adjustments
  
  
    
 
Total
Consolidated
  
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenues and Other Income

                 

Sales and other operating revenues

   $ -         11,473         -         18,091         -         29,564   

Equity in earnings of affiliates

     (4,081)         (1,950)         -         1,364         5,322         655   

Gain on dispositions

     -         332         -         259         -         591   

Other income

     -         12         -         113         -         125   

Intercompany revenues

     74         341         246         3,365         (4,026)         -   

 

 

Total Revenues and Other Income

     (4,007)         10,208         246         23,192         1,296         30,935   

 

 

Costs and Expenses

                 

Purchased commodities

     -         9,905         -         5,838         (3,317)         12,426   

Production and operating expenses

     -         1,469         -         5,585         (38)         7,016   

Selling, general and administrative expenses

     9         744         1         209         (10)         953   

Exploration expenses

     -         2,093         -         2,099         -         4,192   

Depreciation, depletion and amortization

     -         1,201         -         7,912         -         9,113   

Impairments

     -         15         -         2,230         -         2,245   

Taxes other than income taxes

     -         173         -         728         -         901   

Accretion on discounted liabilities

     -         58         -         425         -         483   

Interest and debt expense

     485         423         226         447         (661)         920   

Foreign currency transaction (gains) losses

     114         1         (708)         518         -         (75)   

 

 

Total Costs and Expenses

     608         16,082         (481)         25,991         (4,026)         38,174   

 

 

Income (loss) from continuing operations before income taxes

     (4,615)         (5,874)         727         (2,799)         5,322         (7,239)   

Provision (benefit) for income taxes

     (187)         (1,793)         21         (909)         -         (2,868)   

 

 

Net income (loss)

     (4,428)         (4,081)         706         (1,890)         5,322         (4,371)   

Less: net income attributable to noncontrolling interests

     -         -         -         (57)         -         (57)   

 

 

Net Income (Loss) Attributable to ConocoPhillips

   $ (4,428)         (4,081)         706         (1,947)         5,322         (4,428)   

 

 

Comprehensive Income (Loss) Attributable to ConocoPhillips

   $ (8,773)         (8,426)         71         (6,705)         15,060         (8,773)   

 

 

Income Statement

     Year Ended December 31, 2014   
  

 

 

 

Revenues and Other Income

                 

Sales and other operating revenues

   $ -         20,083         -         32,441         -         52,524   

Equity in earnings of affiliates

     6,108         8,090         -         2,932         (14,601)         2,529   

Gain on dispositions

     -         9         -         89         -         98   

Other income (loss)

     (6)         67         -         305         -         366   

Intercompany revenues

     79         465         283         5,883         (6,710)         -   

 

 

Total Revenues and Other Income

     6,181         28,714         283         41,650         (21,311)         55,517   

 

 

Costs and Expenses

                 

Purchased commodities

     -         17,591         -         10,415         (5,907)         22,099   

Production and operating expenses

     -         2,600         -         6,368         (59)         8,909   

Selling, general and administrative expenses

     9         575         1         166         (16)         735   

Exploration expenses

     -         1,036         -         1,009         -         2,045   

Depreciation, depletion and amortization

     -         1,059         -         7,270         -         8,329   

Impairments

     -         127         -         729         -         856   

Taxes other than income taxes

     -         285         -         1,803         -         2,088   

Accretion on discounted liabilities

     -         58         -         426         -         484   

Interest and debt expense

     571         299         231         275         (728)         648   

Foreign currency transaction (gains) losses

     62         10         (372)         234         -         (66)   

 

 

Total Costs and Expenses

     642         23,640         (140)         28,695         (6,710)         46,127   

 

 

Income from continuing operations before income taxes

     5,539         5,074         423         12,955         (14,601)         9,390   

Provision (benefit) for income taxes

     (199)         (1,034)         19         4,797         -         3,583   

 

 

Income From Continuing Operations

     5,738         6,108         404         8,158         (14,601)         5,807   

Income from discontinued operations

     1,131         1,131         -         113         (1,244)         1,131   

 

 

Net income

     6,869         7,239         404         8,271         (15,845)         6,938   

Less: net income attributable to noncontrolling interests

     -         -         -         (69)         -         (69)   

 

 

Net Income Attributable to ConocoPhillips

   $ 6,869         7,239         404         8,202         (15,845)         6,869   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 2,965         3,335         58         4,589         (7,982)         2,965   

 

 

 

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Table of Contents
     Millions of Dollars  
  

 

 

 
     Year Ended December 31, 2013   
  

 

 

 

Income Statement

     ConocoPhillips       
 
ConocoPhillips
Company
  
  
    
 
 
ConocoPhillips
Australia Funding
Company
  
  
  
    
 
 
ConocoPhillips
Canada Funding
Company I
  
  
  
   
 
All Other
Subsidiaries
  
  
   
 
Consolidating
Adjustments
  
  
   
 
Total
Consolidated
  
  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Revenues and Other Income

                

Sales and other operating revenues

   $ -        18,186         -         -        36,227        -        54,413   

Equity in earnings of affiliates

     8,374        9,200         -         -        2,611        (17,966     2,219   

Gain on dispositions

     -        364         -         -        878        -        1,242   

Other income

     2        271         -         -        101        -        374   

Intercompany revenues

     82        458         13         305        4,948        (5,806     -   

 

 

Total Revenues and Other Income

     8,458        28,479         13         305        44,765        (23,772     58,248   

 

 

Costs and Expenses

                

Purchased commodities

     -        15,779         -         -        11,812        (4,948     22,643   

Production and operating expenses

     -        1,492         -         -        5,756        (10     7,238   

Selling, general and administrative expenses

     11        623         -         1        238        (19     854   

Exploration expenses

     -        659         -         -        573        -        1,232   

Depreciation, depletion and amortization

     -        907         -         -        6,527        -        7,434   

Impairments

     -        4         -         -        525        -        529   

Taxes other than income taxes

     -        236         -         -        2,648        -        2,884   

Accretion on discounted liabilities

     -        56         -         -        378        -        434   

Interest and debt expense

     630        327         12         235        237        (829     612   

Foreign currency transaction (gains) losses

     52        3         -         (349     236        -        (58

 

 

Total Costs and Expenses

     693        20,086         12         (113     28,930        (5,806     43,802   

 

 

Income from continuing operations before income taxes

     7,765        8,393         1         418        15,835        (17,966     14,446   

Provision (benefit) for income taxes

     (213     19         -         31        6,572        -        6,409   

 

 

Income From Continuing Operations

     7,978        8,374         1         387        9,263        (17,966     8,037   

Income from discontinued operations

     1,178        1,178         -         -        1,178        (2,356     1,178   

 

 

Net income

     9,156        9,552         1         387        10,441        (20,322     9,215   

Less: net income attributable to noncontrolling interests

     -        -         -         -        (59     -        (59

 

 

Net Income Attributable to ConocoPhillips

   $ 9,156        9,552         1         387        10,382        (20,322     9,156   

 

 

Comprehensive Income Attributable to ConocoPhillips

   $ 7,071        7,467         1         99        7,782        (15,349     7,071   

 

 

 

169


Table of Contents
     Millions of Dollars  
  

 

 

 
     At December 31, 2015   
  

 

 

 

Balance Sheet

     ConocoPhillips       
 
ConocoPhillips
Company
  
  
    
 
 
ConocoPhillips
Canada Funding
Company I
  
  
  
   
 
All Other
Subsidiaries
  
  
    
 
Consolidating
Adjustments
  
  
   
 
Total
Consolidated
  
  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Assets

              

Cash and cash equivalents

   $ -        4         15        2,349         -        2,368   

Accounts and notes receivable

     21        2,905         21        7,228         (5,661     4,514   

Inventories

     -        142         -        982         -        1,124   

Prepaid expenses and other current assets

     2        206         252        589         (266     783   

 

 

Total Current Assets

     23        3,257         288        11,148         (5,927     8,789   

Investments, loans and long-term receivables*

     43,532        64,015         3,264        27,839         (117,464     21,186   

Net properties, plants and equipment

     -        8,110         -        58,336         -        66,446   

Other assets

     7        950         233        1,158         (1,285     1,063   

 

 

Total Assets

   $ 43,562        76,332         3,785        98,481         (124,676     97,484   

 

 

Liabilities and Stockholders’ Equity

              

Accounts payable

   $ -        5,684         13        4,897         (5,661     4,933   

Short-term debt

     (9     1         1,255        180         -        1,427   

Accrued income and other taxes

     -        62         -        437         -        499   

Employee benefit obligations

     -        629         -        258         -        887   

Other accruals

     170        465         52        1,087         (264     1,510   

 

 

Total Current Liabilities

     161        6,841         1,320        6,859         (5,925     9,256   

Long-term debt

     7,518        10,660         1,716        3,559         -        23,453   

Asset retirement obligations and accrued environmental costs

     -        1,107         -        8,473         -        9,580   

Deferred income taxes

     -        -         -        11,814         (815     10,999   

Employee benefit obligations

     -        1,760         -        526         -        2,286   

Other liabilities and deferred credits*

     2,681        7,291         667        15,181         (23,992     1,828   

 

 

Total Liabilities

     10,360        27,659         3,703        46,412         (30,732     57,402   

Retained earnings

     29,892        17,366         (389     15,177         (25,632     36,414   

Other common stockholders’ equity

     3,310        31,307         471        36,572         (68,312     3,348   

Noncontrolling interests

     -        -         -        320         -        320   

 

 

Total Liabilities and Stockholders’ Equity

   $ 43,562        76,332         3,785        98,481         (124,676     97,484   

 

 

Balance Sheet

     At December 31, 2014   
  

 

 

 

Assets

              

Cash and cash equivalents

   $ -        770         7        4,285         -        5,062   

Accounts and notes receivable

     20        2,813         22        6,671         (2,719     6,807   

Inventories

     -        281         -        1,050         -        1,331   

Prepaid expenses and other current assets

     6        754         15        1,138         (45     1,868   

 

 

Total Current Assets

     26        4,618         44        13,144         (2,764     15,068   

Investments, loans and long-term receivables*

     55,568        70,732         3,965        32,467         (137,593     25,139   

Net properties, plants and equipment

     -        9,730         -        65,714         -        75,444   

Other assets

     40        67         208        1,338         (765     888   

 

 

Total Assets

   $ 55,634        85,147         4,217        112,663         (141,122     116,539   

 

 

Liabilities and Stockholders’ Equity

              

Accounts payable

   $ 1        4,149         14        6,581         (2,719     8,026   

Short-term debt

     (5     6         5        176         -        182   

Accrued income and other taxes

     -        117         -        934         -        1,051   

Employee benefit obligations

     -        595         -        283         -        878   

Other accruals

     170        337         71        868         (46     1,400   

 

 

Total Current Liabilities

     166        5,204         90        8,842         (2,765     11,537   

Long-term debt

     7,541        8,197         2,974        3,671         -        22,383   

Asset retirement obligations and accrued environmental costs

     -        1,328         -        9,319         -        10,647   

Deferred income taxes

     -        265         -        14,811         (6     15,070   

Employee benefit obligations

     -        2,162         -        802         -        2,964   

Other liabilities and deferred credits*

     2,577        7,391         1,142        17,218         (26,663     1,665   

 

 

Total Liabilities

     10,284        24,547         4,206        54,663         (29,434     64,266   

Retained earnings

     37,983        21,448         (1,096     17,355         (31,186     44,504   

Other common stockholders’ equity

     7,367        39,152         1,107        40,283         (80,502     7,407   

Noncontrolling interests

     -        -         -        362         -        362   

 

 

Total Liabilities and Stockholders’ Equity

   $ 55,634        85,147         4,217        112,663         (141,122     116,539   

 

 

*Includes intercompany loans.

 

170


Table of Contents
     Millions of Dollars  
  

 

 

 
Statement of Cash Flows    Year Ended December 31, 2015  
  

 

 

 
     ConocoPhillips        
 
ConocoPhillips
Company
  
  
    
 
 
ConocoPhillips
Canada Funding
Company I
  
  
  
    
 
All Other
Subsidiaries
  
  
    
 
Consolidating
Adjustments
  
  
    
 
Total
Consolidated
  
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows From Operating Activities

                 

Net Cash Provided by (Used in) Operating Activities

     (225)         245         9         7,519         24         7,572   

 

 

Cash Flows From Investing Activities

                 

Capital expenditures and investments

     -         (3,064)         -         (8,386)         1,400         (10,050)   

Working capital changes associated with investing activities

     -         (4)         -         (964)         -         (968)   

Proceeds from asset dispositions

     3,500         826         -         1,225         (3,599)         1,952   

Long-term advances/loans—related parties

     -         (278)         -         (2,245)         2,523         -   

Collection of advances/loans—related parties

     -         -         -         205         (100)         105   

Intercompany cash management

     102         46         -         (148)         -         -   

Other

     -         304         -         1         1         306   

 

 

Net Cash Provided by (Used in) Investing Activities

     3,602         (2,170)         -         (10,312)         225         (8,655)   

 

 

Cash Flows From Financing Activities

                 

Issuance of debt

     -         4,743         -         278         (2,523)         2,498   

Repayment of debt

     -         (100)         -         (103)         100         (103)   

Issuance of company common stock

     283         -         -         (2)         (363)         (82)   

Dividends paid

     (3,664)         -         -         (339)         339         (3,664)   

Other

     4         (3,484)         -         1,204         2,198         (78)   

 

 

Net Cash Provided by (Used in) Financing Activities

     (3,377)         1,159         -         1,038         (249)         (1,429)   

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     -         -         (1)         (181)         -         (182)   

 

 

Net Change in Cash and Cash Equivalents

     -         (766)         8         (1,936)         -         (2,694)   

Cash and cash equivalents at beginning of period

     -         770         7         4,285         -         5,062   

 

 

Cash and Cash Equivalents at End of Period

   $ -         4         15         2,349         -         2,368   

 

 

Statement of Cash Flows

     Year Ended December 31, 2014*   
  

 

 

 

Cash Flows From Operating Activities

                 

Net cash provided by continuing operating activities

   $ 17,259         2,948         27         16,941         (20,763)         16,412   

Net cash provided by discontinued operations

     -         202         -         408         (453)         157   

 

 

Net Cash Provided by Operating Activities

     17,259         3,150         27         17,349         (21,216)         16,569   

 

 

Cash Flows From Investing Activities

                 

Capital expenditures and investments

     -         (6,507)         -         (14,840)         4,262         (17,085)   

Working capital changes associated with investing activities

     -         17         -         163         -         180   

Proceeds from asset dispositions

     16,912         1,588         -         253         (17,150)         1,603   

Net sales of short-term investments

     -         -         -         253         -         253   

Long-term advances/loans—related parties

     -         (736)         (241)         (7)         984         -   

Collection of advances/loans—related parties

     -         593         -         112         (102)         603   

Intercompany cash management

     (29,113)         31,993         -         (2,880)         -         -   

Other

     -         (415)         -         (31)         -         (446)   

 

 

Net cash provided by (used in) continuing investing activities

     (12,201)         26,533         (241)         (16,977)         (12,006)         (14,892)   

Net cash provided by (used in) discontinued operations

     -         133         -         (73)         (133)         (73)   

 

 

Net Cash Provided by (Used in) Investing Activities

     (12,201)         26,666         (241)         (17,050)         (12,139)         (14,965)   

 

 

Cash Flows From Financing Activities

                 

Issuance of debt

     -         2,994         -         984         (984)         2,994   

Repayment of debt

     (1,909)         (16)         -         (191)         102         (2,014)   

Issuance of company common stock

     377         -         -         -         (342)         35   

Dividends paid

     (3,525)         (17,588)         -         (3,768)         21,356         (3,525)   

Other

     (1)         (16,870)         -         3,919         12,888         (64)   

 

 

Net cash provided by (used in) continuing financing activities

     (5,058)         (31,480)         -         944         33,020         (2,574)   

Net cash used in discontinued operations

     -         -         -         (335)         335         -   

 

 

Net Cash Provided by (Used in) Financing Activities

     (5,058)         (31,480)         -         609         33,355         (2,574)   

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     -         -         (8)         (206)         -         (214)   

 

 

Net Change in Cash and Cash Equivalents

     -         (1,664)         (222)         702         -         (1,184)   

Cash and cash equivalents at beginning of period

     -         2,434         229         3,583         -         6,246   

 

 

Cash and Cash Equivalents at End of Period

   $ -         770         7         4,285         -         5,062   

 

 

*Certain amounts have been reclassified to conform to current-period presentation. See Note 21—Cash Flow Information, in the Notes to the Consolidated Financial Statements.

 

171


Table of Contents
     Millions of Dollars  
  

 

 

 
Statement of Cash Flows    Year Ended December 31, 2013*  
  

 

 

 
     ConocoPhillips        
 
ConocoPhillips
Company
  
  
    
 
 
ConocoPhillips
Australia Funding
Company
  
  
  
    
 
 
ConocoPhillips
Canada Funding
Company I
  
  
  
    
 
All Other
Subsidiaries
  
  
    
 
Consolidating
Adjustments
  
  
    
 
Total
Consolidated
  
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows From Operating Activities

                    

Net cash provided by (used in) continuing operating activities

   $ (295)         22,928         (2)         1         14,510         (21,286)         15,856   

Net cash provided by discontinued operations

     -         91         -         -         642         (448)         285   

 

 

Net Cash Provided by (Used in) Operating Activities

     (295)         23,019         (2)         1         15,152         (21,734)         16,141   

 

 

Cash Flows From Investing Activities

                    

Capital expenditures and investments

     -         (4,821)         -         -         (13,566)         2,850         (15,537)   

Working capital changes associated with investing activities

     -         68         -         -         (123)         -         (55)   

Proceeds from asset dispositions

     -         2,633         -         -         9,745         (2,158)         10,220   

Net purchases of short-term investments

     -         -         -         -         (263)         -         (263)   

Long-term advances/loans—related parties

     -         (342)         -         -         (545)         887         -   

Collection of advances/loans—related parties

     -         174         750         169         3,010         (3,958)         145   

Intercompany cash management

     2,511         (15,919)         -         -         13,408         -         -   

Other

     -         21         -         -         (233)         -         (212)   

 

 

Net cash provided by (used in) continuing investing activities

     2,511         (18,186)         750         169         11,433         (2,379)         (5,702)   

Net cash used in discontinued operations

     -         (52)         -         -         (603)         52         (603)   

 

 

Net Cash Provided by (Used in) Investing Activities

     2,511         (18,238)         750         169         10,830         (2,327)         (6,305)   

 

 

Cash Flows From Financing Activities

                    

Issuance of debt

     -         522         -         -         365         (887)         -   

Repayment of debt

     -         (2,924)         (750)         -         (1,230)         3,958         (946)   

Change in restricted cash

     748         -         -         -         -         -         748   

Issuance of company common stock

     365         -         -         -         -         (345)         20   

Dividends paid

     (3,334)         -         (4)         -         (21,984)         21,988         (3,334)   

Other

     3         52         -         -         (2,984)         (692)         (3,621)   

 

 

Net cash used in continuing financing activities

     (2,218)         (2,350)         (754)         -         (25,833)         24,022         (7,133)   

Net cash used in discontinued operations

     -         -         -         -         (39)         39         -   

 

 

Net Cash Used in Financing Activities

     (2,218)         (2,350)         (754)         -         (25,872)         24,061         (7,133)   

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     -         (9)         -         -         (66)         -         (75)   

 

 

Net Change in Cash and Cash Equivalents

     (2)         2,422         (6)         170         44         -         2,628   

Cash and cash equivalents at beginning of period

     2         12         6         59         3,539         -         3,618   

 

 

Cash and Cash Equivalents at End of Period

   $ -         2,434         -         229         3,583         -         6,246   

 

 

*Certain amounts have been reclassified to conform to current-period presentation. See Note 21—Cash Flow Information, in the Notes to the Consolidated Financial Statements.

 

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Table of Contents
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

Item 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2015, with the participation of our management, our Chairman and Chief Executive Officer (principal executive officer) and our Executive Vice President, Finance and Chief Financial Officer (principal financial officer) carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of ConocoPhillips’ disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer concluded our disclosure controls and procedures were operating effectively as of December 31, 2015.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

This report is included in Item 8 on page 78 and is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

This report is included in Item 8 on page 79 and is incorporated herein by reference.

 

Item 9B. OTHER INFORMATION

None.

 

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Table of Contents

PART III

 

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our executive officers appears in Part I of this report on pages 30 and 31.

Code of Business Ethics and Conduct for Directors and Employees

We have a Code of Business Ethics and Conduct for Directors and Employees (Code of Ethics), including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. We have posted a copy of our Code of Ethics on the “Corporate Governance” section of our internet website at www.conocophillips.com (within the Investors>Corporate Governance section) . Any waivers of the Code of Ethics must be approved, in advance, by our full Board of Directors. Any amendments to, or waivers from, the Code of Ethics that apply to our executive officers and directors will be posted on the “Corporate Governance” section of our internet website.

All other information required by Item 10 of Part III will be included in our Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, and is incorporated herein by reference.*

 

Item 11. EXECUTIVE COMPENSATION

Information required by Item 11 of Part III will be included in our Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, and is incorporated herein by reference.*

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by Item 12 of Part III will be included in our Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, and is incorporated herein by reference.*

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by Item 13 of Part III will be included in our Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, and is incorporated herein by reference.*

 

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by Item 14 of Part III will be included in our Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, and is incorporated herein by reference.*

 

*Except for information or data specifically incorporated herein by reference under Items 10 through 14, other information and data appearing in our 2016 Proxy Statement are not deemed to be a part of this Annual Report on Form 10-K or deemed to be filed with the Commission as a part of this report.

 

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Table of Contents

PART IV

 

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)    1.     Financial Statements and Supplementary Data

The financial statements and supplementary information listed in the Index to Financial Statements, which appears on page 77, are filed as part of this annual report.

 

  2. Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts, appears below. All other schedules are omitted because they are not required, not significant, not applicable or the information is shown in another schedule, the financial statements or the notes to consolidated financial statements.

 

  3. Exhibits

The exhibits listed in the Index to Exhibits, which appears on pages 176 through 183, are filed as part of this annual report.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (Consolidated)

ConocoPhillips

 

     Millions of Dollars  

Description

    

 

Balance at

January 1

  

  

    
 
Charged to
Expense
  
  
     Other (a)      Deductions       
 
Balance at
December 31
  
  

 

 

2015

            

Deducted from asset accounts:

            

Allowance for doubtful accounts and notes receivable

   $ 5         4         (2)        (b)      7   

Deferred tax asset valuation allowance

     970         6         (21)        (221)        734   

Included in other liabilities:

            

Restructuring accruals

     61         303         (8)        (200) (c)      156   

 

 

2014

            

Deducted from asset accounts:

            

Allowance for doubtful accounts and notes receivable

   $ 8         -         (2)        (1 )(b)      5   

Deferred tax asset valuation allowance

     969         127         (26)        (100)        970   

Included in other liabilities:

            

Restructuring accruals

     19         71         (6)        (23) (c)      61   

 

 

2013

            

Deducted from asset accounts:

            

Allowance for doubtful accounts and notes receivable

   $ 10         -         -        (2 )(b)      8   

Deferred tax asset valuation allowance

     1,345         (357)         3        (22)        969   

Included in other liabilities:

            

Restructuring accruals

     17         10         (1)        (7) (c)      19   

 

 

(a)Represents acquisitions/dispositions/revisions and the effect of translating foreign financial statements.

(b)Amounts charged off less recoveries of amounts previously charged off.

(c)Benefit payments.

 

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Table of Contents

 

CONOCOPHILLIPS

INDEX TO EXHIBITS

 

Exhibit

Number

   Description
2.1    Separation and Distribution Agreement Between ConocoPhillips and Phillips 66, dated April 26, 2012 (incorporated by reference to Exhibit 2.1 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).
3.1    Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarterly period ended June 30, 2008; File No. 001-32395).
3.2    Certificate of Designations of Series A Junior Participating Preferred Stock of ConocoPhillips (incorporated by reference to Exhibit 3.2 to the Current Report of ConocoPhillips on Form 8-K filed on August 30, 2002; File No. 000-49987).
3.3    Amended and Restated By-Laws of ConocoPhillips, as amended and restated as of December 6, 2013 (incorporated by reference to Exhibit 3.1 to the Current Report of ConocoPhillips on Form 8-K filed December 10, 2013; File No. 001-32395).
3.4    Amended and Restated By-Laws of ConocoPhillips, as amended and restated as of October 9, 2015 (incorporated by reference to Exhibit 3.1 to the Current Report of ConocoPhillips on Form 8-K filed on October 13, 2015; File No. 001-32395).
   ConocoPhillips and its subsidiaries are parties to several debt instruments under which the total amount of securities authorized does not exceed 10 percent of the total assets of ConocoPhillips and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, ConocoPhillips agrees to furnish a copy of such instruments to the SEC upon request.
10.1    1986 Stock Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.11 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.2    1990 Stock Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.12 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.3    Annual Incentive Compensation Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.13 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.4    Incentive Compensation Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(g) to the Annual Report of ConocoPhillips Company on Form 10-K for the year ended December 31, 1999; File No. 001-00720).
10.5    Amendment and Restatement of ConocoPhillips Supplemental Executive Retirement Plan, dated April 19, 2012 (incorporated by reference to Exhibit 10.14 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).

 

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Table of Contents
Exhibit

Number

   Description
10.6    Non-Employee Director Retirement Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.18 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.7    Omnibus Securities Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.19 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.8    Key Employee Missed Credited Service Retirement Plan of ConocoPhillips (incorporated by reference to Exhibit 10.10 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2005; File No. 001-32395).
10.9    Phillips Petroleum Company Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.22 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.10.1    Amendment and Restatement of ConocoPhillips Key Employee Supplemental Retirement Plan, dated April 19, 2012 (incorporated by reference to Exhibit 10.13 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.10.2*    First Amendment to the ConocoPhillips Key Employee Supplemental Retirement Plan, dated July 20, 2015.
10.11.1    Amendment and Restatement of Defined Contribution Make-Up Plan of ConocoPhillips—Title I, dated April 19, 2012 (incorporated by reference to Exhibit 10.11.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.11.2    Amendment and Restatement of Defined Contribution Make-Up Plan of ConocoPhillips—Title II, dated April 19, 2012 (incorporated by reference to Exhibit 10.11.2 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.11.3    First Amendment to the Defined Contribution Make-Up Plan of ConocoPhillips—Title II, dated October 11, 2012 (incorporated by reference to Exhibit 10.2 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended September 30, 2012; File No. 001-32395).
10.11.4*    Second Amendment to the Defined Contribution Make-Up Plan of ConocoPhillips—Title II, dated December 17, 2015.
10.12    2002 Omnibus Securities Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10.26 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.13    Amendment and Restatement of 1998 Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Exhibit 10.27 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.14    Amendment and Restatement of 1998 Key Employee Stock Performance Plan of ConocoPhillips (incorporated by reference to Exhibit 10.28 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.15    Deferred Compensation Plan for Non-Employee Directors of ConocoPhillips (incorporated by reference to Exhibit 10.17 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2005; File No. 001-32395).

 

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Table of Contents
Exhibit

Number

   Description
10.16    ConocoPhillips Form Indemnity Agreement with Directors (incorporated by reference to Exhibit 10.34 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.17.1    Rabbi Trust Agreement dated December 17, 1999 (incorporated by reference to Exhibit 10.11 of the Annual Report of ConocoPhillips Holding Company on Form 10-K for the year ended December 31, 1999; File No. 001-14521).
10.17.2    Amendment to Rabbi Trust Agreement dated February 25, 2002 (incorporated by reference to Exhibit 10.39.1 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2002; File No. 000-49987).
10.17.3*    Phillips Petroleum Company Grantor Trust Agreement, dated June 1, 1998.
10.17.4*    First Amendment to the Trust Agreement under the Phillips Petroleum Company Grantor Trust Agreement, dated May 3, 1999.
10.17.5*    Second Amendment to the Trust Agreement under the Phillips Petroleum Company Grantor Trust Agreement, dated January 15, 2002.
10.17.6*    Third Amendment to the Trust Agreement under the Phillips Petroleum Company Grantor Trust Agreement, dated October 5, 2006.
10.17.7*    Fourth Amendment to the Trust Agreement under the ConocoPhillips Company Grantor Trust Agreement, dated May 1, 2012.
10.17.8*    Fifth Amendment to the Trust Agreement under the ConocoPhillips Company Grantor Trust Agreement, dated May 20, 2015.
10.18.1    ConocoPhillips Directors’ Charitable Gift Program (incorporated by reference to Exhibit 10.40 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2003; File No. 000-49987).
10.18.2    First and Second Amendments to the ConocoPhillips Directors’ Charitable Gift Program (incorporated by reference to Exhibit 10 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarterly period ended June 30, 2008; File No. 001-32395).
10.19    ConocoPhillips Matching Gift Plan for Directors and Executives (incorporated by reference to Exhibit 10.41 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2003; File No. 000-49987).
10.20.1    Amendment and Restatement of Key Employee Deferred Compensation Plan of ConocoPhillips—Title I, dated April 19, 2012 (incorporated by reference to Exhibit 10.12.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.20.2    Amendment and Restatement of Key Employee Deferred Compensation Plan of ConocoPhillips—Title II, dated April 19, 2012 (incorporated by reference to Exhibit 10.12.2 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.20.3    First Amendment to the Key Employee Deferred Compensation Plan of ConocoPhillips—Title II (incorporated by reference to Exhibit 10.20.3 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2010; File No. 001-32395).
10.20.4    Second Amendment to the Key Employee Deferred Compensation Plan of ConocoPhillips—Title II (incorporated by reference to Exhibit 10.20.4 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2010; File No. 001-32395).

 

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Table of Contents
Exhibit

Number

   Description
10.20.5    Amendment and Restatement of Key Employee Deferred Compensation Plan of ConocoPhillips—Title II, 2013 Restatement dated November 17, 2014 (Amended and Restated effective as of January 1, 2013) (incorporated by reference to Exhibit 10.20.5 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2014; File No. 001-32395).
10.21    Amendment and Restatement of ConocoPhillips Key Employee Change in Control Severance Plan, effective January 1, 2014 (incorporated by reference to Exhibit 10.21 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2013; File No. 001-32395).
10.22    ConocoPhillips Executive Severance Plan (incorporated by reference to Exhibit 10.23 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2008; File No. 001-32395).
10.23.1    2004 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Appendix C of ConocoPhillips’ Proxy Statement on Schedule 14A relating to the 2004 Annual Meeting of Shareholders; File No. 000-49987).
10.23.2    Form of Stock Option Award Agreement under the Stock Option and Stock Appreciation Rights Program under the 2004 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Exhibit 10.26 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2008; File No. 001-32395).
10.23.3    Form of Performance Share Unit Award Agreement under the Performance Share Program under the 2004 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Exhibit 10.27 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2008; File No. 001-32395).
10.24    Omnibus Amendments to certain ConocoPhillips employee benefit plans, adopted December 7, 2007 (incorporated by reference to Exhibit 10.30 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2007; File No. 001-32395).
10.25    2009 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Appendix A of ConocoPhillips’ Proxy Statement on Schedule 14A relating to the 2009 Annual Meeting of Shareholders; File No. 001-32395).
10.26.1    2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Appendix A of ConocoPhillips’ Proxy Statement on Schedule 14A relating to the 2011 Annual Meeting of Shareholders; File No. 001-32395).
10.26.2    Form of Stock Option Award Agreement under the Stock Option and Stock Appreciation Rights Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, effective February 9, 2012 (incorporated by reference to Exhibit 10 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2012; File No. 001-32395).
10.26.3    Form of Restricted Stock Units Agreement under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, effective April 4, 2012 (incorporated by reference to Exhibit 10.6 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.26.4    Form of Restricted Stock Award Agreement under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, effective May 8, 2012 (incorporated by reference to Exhibit 10.7 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
  

 

179


Table of Contents
Exhibit

Number

   Description
10.26.5    Form of Restricted Stock Award Agreement under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated September 18, 2012 (incorporated by reference to Exhibit 10.26.5 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2012; File No. 001-32395).
10.26.6    Form of Performance Share Unit Agreement under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 5, 2013 (incorporated by reference to Exhibit 10.26.6 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2012; File No. 001-32395).
10.26.7    Form of Performance Share Unit Agreement—Canada under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 5, 2013 (incorporated by reference to Exhibit 10.26.7 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2012; File No. 001-32395).
10.26.8    Form of Restricted Stock Award Agreement under the Restricted Stock Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 5, 2013 (incorporated by reference to Exhibit 10.26.8 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2012; File No. 001-32395).
10.26.9    Form of Stock Option Award Agreement under the Stock Option and Stock Appreciation Rights Program under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 5, 2013 (incorporated by reference to Exhibit 10.26.9 to the Annual Report of ConocoPhillips on Form 10-K for the year ended December 31, 2012; File No. 001-32395).
10.26.10    Form of Make-up Grant Award Agreement under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated January 1, 2012 (incorporated by reference to Exhibit 10.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2013; File No. 001-32395).
10.26.11    Form of Key Employee Award Agreement, as part of the ConocoPhillips Stock Option Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.12*    Form of Key Employee Award Agreement, as part of the ConocoPhillips Stock Option Program granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 16, 2016.
10.26.13    Form of Key Employee Award Agreement, as part of the ConocoPhillips Restricted Stock Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.2 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.14*    Form of Key Employee Award Agreement, as part of the ConocoPhillips Restricted Stock Program granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 16, 2016.
10.26.15    Form of Performance Period IX Award Agreement, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.3 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).

 

180


Table of Contents
Exhibit

Number

   Description
10.26.16    Form of Performance Period IX Award Agreement—Canada, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.4 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.17    Form of Performance Period X Award Agreement, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.5 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.18    Form of Performance Period X Award Agreement—Canada, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.6 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.19    Form of Performance Period XI Award Agreement, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.7 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.20    Form of Performance Period XI Award Agreement—Canada, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.8 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.21    Form of Performance Period XII Award Agreement, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.9 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.22    Form of Performance Period XII Award Agreement—Canada, as part of the ConocoPhillips Performance Share Program granted under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 18, 2014 (incorporated by reference to Exhibit 10.10 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.26.23*    Form of Performance Period XIV Award Agreement, as part of the ConocoPhillips Performance Share Program granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 16, 2016.
10.26.24*    Form of Performance Period XIV Award Agreement—Canada, as part of the ConocoPhillips Performance Share Program granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated February 16, 2016.

 

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Table of Contents
Exhibit

Number

   Description
10.26.25    Form of Inducement Grant Award Agreement under the 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated March 31, 2014 (incorporated by reference to Exhibit 10.11 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2014; File No. 001-32395).
10.27.1    2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Exhibit 10.1 to the Current Report of ConocoPhillips on Form 8-K filed on May 14, 2014; File No. 001-32395).
10.27.2    Form of Key Employee Award Terms and Conditions, as part of the ConocoPhillips Targeted Variable Long Term Incentive Program of ConocoPhillips, granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated September 15, 2014 (incorporated by reference to Exhibit 10.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended September 30, 2014; File No. 001-32395).
10.27.3    Form of Key Employee Award Terms and Conditions, as part of the ConocoPhillips Targeted Variable Long Term Incentive Program, granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips, dated September 3, 2015 (incorporated by reference to Exhibit 10.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended September 30, 2015; File No. 001-32395).
10.27.4    Form of Retention Award Terms and Conditions, as part of the Restricted Stock Unit Award, granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (incorporated by reference to Exhibit 10.1 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended March 31, 2015; File No. 001-32395).
10.28    Amendment and Restatement of Annex to Nonqualified Deferred Compensation Arrangements of ConocoPhillips, dated April 19, 2012 (incorporated by reference to Exhibit 10.8 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.29    Amendment, Change of Sponsorship, and Restatement of Certain Nonqualified Deferred Compensation Plans of ConocoPhillips, dated April 19, 2012 (incorporated by reference to Exhibit 10.10 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.30    Amendment and Restatement of the Burlington Resources Inc. Management Supplemental Benefits Plan, dated April 19, 2012 (incorporated by reference to Exhibit 10.9 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended June 30, 2012; File No. 001-32395).
10.31    Indemnification and Release Agreement between ConocoPhillips and Phillips 66, dated April 26, 2012 (incorporated by reference to Exhibit 10.1 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).
10.32    Intellectual Property Assignment and License Agreement between ConocoPhillips and Phillips 66, dated April 26, 2012 (incorporated by reference to Exhibit 10.2 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).
10.33    Tax Sharing Agreement between ConocoPhillips and Phillips 66, dated April 26, 2012 (incorporated by reference to Exhibit 10.3 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).

 

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Table of Contents
Exhibit

Number

   Description
10.34    Employee Matters Agreement between ConocoPhillips and Phillips 66, dated April 12, 2012 (incorporated by reference to Exhibit 10.4 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).
10.35    Transition Services Agreement between ConocoPhillips and Phillips 66, dated April 26, 2012 (incorporated by reference to Exhibit 10.5 to the Current Report of ConocoPhillips on Form 8-K filed on May 1, 2012; File No. 001-32395).
10.36    ConocoPhillips Clawback Policy dated October 3, 2012 (incorporated by reference to Exhibit 10.3 to the Quarterly Report of ConocoPhillips on Form 10-Q for the quarter ended September 30, 2012; File No. 001-32395).
12*    Computation of Ratio of Earnings to Fixed Charges.
21*    List of Subsidiaries of ConocoPhillips.
23.1*    Consent of Ernst & Young LLP.
23.2*    Consent of DeGolyer and MacNaughton.
31.1*    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32*    Certifications pursuant to 18 U.S.C. Section 1350.
99*    Report of DeGolyer and MacNaughton.
101.INS*      XBRL Instance Document.
101.SCH*      XBRL Schema Document.
101.CAL*      XBRL Calculation Linkbase Document.
101.DEF*      XBRL Definition Linkbase Document.
101.LAB*      XBRL Labels Linkbase Document.
101.PRE*      XBRL Presentation Linkbase Document.

* Filed herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    CONOCOPHILLIPS
February 23, 2016  

/s/ Ryan M. Lance

 

Ryan M. Lance

Chairman of the Board of Directors

and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of February 23, 2016, on behalf of the registrant by the following officers in the capacity indicated and by a majority of directors.

 

Signature    Title

/s/ Ryan M. Lance

Ryan M. Lance

   Chairman of the Board of Directors
and Chief Executive Officer
(Principal executive officer)

/s/ Jeff W. Sheets

Jeff W. Sheets

   Executive Vice President, Finance
and Chief Financial Officer
(Principal financial officer)

/s/ Glenda M. Schwarz

Glenda M. Schwarz

   Vice President and Controller
(Principal accounting officer)

 

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Table of Contents

/s/ Richard L. Armitage

Richard L. Armitage

   Director

/s/ Richard H. Auchinleck

Richard H. Auchinleck

   Director

/s/ Charles E. Bunch

Charles E. Bunch

   Director

/s/ James E. Copeland, Jr.

James E. Copeland, Jr.

   Director

/s/ Gay Huey Evans

Gay Huey Evans

   Director

/s/ John V. Faraci

John V. Faraci

   Director

/s/ Jody Freeman

Jody Freeman

   Director

/s/ Arjun N. Murti

Arjun N. Murti

   Director

/s/ Robert A. Niblock

Robert A. Niblock

   Director

/s/ Harald J. Norvik

Harald J. Norvik

   Director

 

185

Exhibit 10.10.2

FIRST AMENDMENT TO

CONOCOPHILLIPS

KEY EMPLOYEE SUPPLEMENTAL RETIREMENT PLAN

On April 19, 2012, effective as of the “Effective Time” defined in the Employee Matters Agreement by and between ConocoPhillips and Phillips 66 (the “Effective Time”), ConocoPhillips Company (the “Company”) amended and restated the Key Employee Supplemental Retirement Plan (“KESRP”) for the benefit of certain employees of the Company and its affiliates.

The Company desires to amend the KESRP by amending certain provisions as set forth below and adding Schedules B and C, effective September 1, 2015.

Pursuant to the foregoing, the KESRP is hereby amended as follows, effective September 1, 2015:

 

1.

After Subsection (k) of Section I, add the following new Subsection (l), renumbering the existing subsequent Subsections thereafter accordingly:

“(l) “MSBP” shall mean the Burlington Resources Inc. Management Supplemental Benefits Plan (or any successor plan thereto).”

 

2.

After Subsection (u) of Section I (as renumbered, previously Subsection (t)), add the following new Subsection (v) renumbering the existing subsequent Subsections thereafter accordingly:

“(v) “Schedule B Employee” shall mean an Employee whose name appears in Schedule B attached to and made a part of this Plan.”

 

3.

After new Subsection (v) of Section I, add the following new Subsection (w), renumbering the existing subsequent Subsections thereafter accordingly:

“(w) “Schedule C Employee” shall mean an Employee whose name appears in Schedule C attached to and made a part of this Plan.”

 

4.

After Subsection (b)(i)(gg) of Section II, add the following new Subsection (b)(i)(hh):

“(hh) With regard to a Schedule B Employee, determine service credited for purposes of benefit accrual as if time served while on a Canada payroll were time served on a United States payroll; provided, however, that, if benefit accrual is at any time frozen under Title I, no further service shall be credited from the time such freeze shall become effective.”

 

5.

After Subsection (e)(v) of Section II, add the following new Subsection (e)(vi):

“(vi) With regard to a Schedule B Employee, determine service credited for purposes of benefit accrual as if time served while on a Canada payroll were time served on a United States

 

1


payroll; provided, however, that, if benefit accrual is at any time frozen under Title IV, no further service shall be credited from the time such freeze shall become effective.”

 

6.

Section IV shall be replaced in its entirety to read as follows:

“SECTION IV. Special Provisions for Certain Heritage Employees

 

  (a)

Special Provision for Former ARCO Alaska Employees.

 

   

Notwithstanding any provisions to the contrary, in order to comply with the terms of the Board approved Master Purchase and Sale Agreement (“Sale Agreement”) by which the Company acquired certain Alaskan assets of Atlantic Richfield Company, Inc. (“ARCO”), the following supplemental payments will be made:

  (i)

The payments which would have been received under Article XXIV – ARCO Flight Crew of Title I of the Retirement Plan for those who were classified as an Aviation Manager, Chief Pilot, Assistant Chief Pilot, Captain or Reserve Captain as of July 31, 2000 if they had been eligible for those benefits under Title I of the Retirement Plan, except that if they receive a limited social security makeup benefit from Title I of the Retirement Plan it will be offset from the benefit payable from the Plan.

  (ii)

A final ARCO Supplemental Executive Retirement Plan (SERP) benefit will be calculated at the earlier of the time an Employee who had an ARCO SERP benefit terminates employment or, 2 years following the ARCO/BP Amoco p.l.c. merger, April 17, 2002 (“calculation date”). The SERP benefit attributable to service through July 31, 2000 shall be paid by BP Amoco p.l.c. and the difference shall be paid by this Plan. The SERP calculation will be done as if the Employee had continued to participate in the Atlantic Richfield Retirement Plan and SERP up to the calculation date. The ARCO Annual Incentive Plan (AIP) amount used will be:

  (A)

If the Employee terminates employment involuntarily prior to April 17, 2002, the highest of the actual AIP in the last 3 years including the AIP target payment amount for years after 1999 or the payment received under Phillips Annual Incentive Compensation Plan.

  (B)

If the Employee terminates employment voluntarily prior to April 17, 2002, or if the calculation is made as of April 17, 2002, then the AIP will include the highest 3 year average using the highest of the actual AIP, the AIP target payment amount for years after 1999, or the payment received under Phillips Annual Incentive Compensation Plan. Any benefit paid by this Plan under this Section IV(b)(ii) and the SERP benefit paid by BP Amoco p.l.c. shall offset the benefit payable from this Plan.

 

  (b)

Special Provision for Select Heritage Burlington Resources Employees in Canada.

 

   

With regard to the employees listed on Schedule C, the following shall apply:

 

  (i)

The Schedule C Employee will become a Participant in the Plan, solely for the purpose of providing a further benefit (the “Additional Benefit”), calculated in accordance with the provisions of this subsection IV(b). Payment of the Additional Benefit shall be made at the same time and in the same form as the

 

2


 

benefits paid, or payable, under the MSBP with regard to Non-Grandfathered Benefits, as that term is used in the MSBP.

  (ii)

Additional Benefit shall mean the difference between the Putative MSBP Benefit and the Offsetting Benefits, both as described below. The Putative MSBP Benefit shall mean the difference between the Schedule C Employee’s total accrued benefit under Title VI of the CPRP and his actual accrued benefit under Title VI. For this purpose, a Schedule C Employee’s “total accrued benefit under Title VI” is the accrued benefit he would have if his accrued benefit under Title VI were determined under the terms of Title VI but with the following modifications:

  (A)

Include in Annual Earnings any compensation included under the MSBP, including it in the calendar year to which it would have been credited under the MSBP.

  (B)

Disregard the limitations on compensation related to Code section 401(a)(17).

  (C)

Disregard the limitation on benefits related to Code section 415.

  (D)

Determine service credited for purposes of benefit accrual by taking into account any service granted to the Schedule C Employee and any benefit formula adjustments required by an employment contract with the Employer; provided, further, that with regard to a Schedule C Employee, determine service credited for purposes of benefit accrual as if time served while on a Canada payroll were time served on a United States payroll; provided, however, that, if benefit accrual is at any time frozen under Title VI, no further service shall be credited from the time such freeze shall become effective.

   

Furthermore, in determining the Additional Benefit, paragraphs (f) and (g) of Section II of the Plan shall apply; provided, that, such paragraph (f) shall be construed as if the Title VI related benefit described in this paragraph were among the CPRP Titles listed in such paragraph (f).

  (iii)

The Offsetting Benefits shall mean any benefit, other than the Additional Benefit, provided to the Schedule C Employee under a defined benefit plan of ConocoPhillips, including but not limited to the ConocoPhillips Retirement Plan (and any successor plan), the ConocoPhillips Key Employee Supplemental Retirement Plan (and any successor plan), and the Burlington Resources Inc. Management Supplemental Benefits Plan (and any successor plan); provided, however, that a benefit plan shall not be considered unless it is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) and is a “defined benefit plan” (as defined in section 3(35) of ERISA), including any such plan regardless of whether it might also be considered an “excess benefit plan” as defined in section 3(36) of ERISA.

  (iv)

Nothing in this subsection IV(b) is intended to affect the other operations or provisions of the Plan. If the Schedule C Employee is, under the provisions of the Plan, otherwise eligible to participate in the Plan, the Schedule C Employee will do so in accordance with those provisions.”

 

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Executed July 20, 2015

For ConocoPhillips Company

 

/s/ James D. McMorran

James D. McMorran

Vice President, Human Resources and Real Estate & Facilities Services

 

4

Exhibit 10.11.4

SECOND AMENDMENT TO

TITLE II OF THE

DEFINED CONTRIBUTION MAKE-UP PLAN

OF CONOCOPHILLIPS

(2012 RESTATEMENT)

  Effective as of the “Effective Time” defined in the Employee Matters Agreement by and between ConocoPhillips and Phillips 66 (the “Effective Time”), ConocoPhillips Company (the “Company”) amended and restated the Defined Contribution Make-Up Plan (“DCMP”) for the benefit of certain employees of the Company and its affiliates. Effective January 1, 2013, the Company further amended the DCMP through the First Amendment to Title II of the Defined Contribution Make-Up Plan of ConocoPhillips (2012 Restatement).

  The Company desires to amend the DCMP by the revisions set forth below, effective January 1, 2016:

1.   Section 1 is hereby amended to add the following provisions to the end thereof:

“(ll)           “Employer Discretionary Account” shall have the same meaning as set forth in the CPSP.

(mm)         “Employer Discretionary Contribution Account” shall have the same meaning as set forth in the CPSP.

(nn)           “Employer Matching Account” shall have the same meaning as set forth in the CPSP.

(oo)           “Employer Matching Contribution Account” shall have the same meaning as set forth in the CPSP.”

2.   Section 4 is amended to read as follows:

“For any period in which a Highly Compensated Employee’s DCMP Pay exceeds his or her CPSP Pay, a Benefit amount shall be credited to a Highly Compensated Employee’s Supplemental Thrift Feature Account for the Ongoing Plan no later than the end of the month following the Valuation Date that Company contributions are made either to the Highly Compensated Employee’s Employer Matching Contribution Account or to the Highly Compensated Employee’s Employer Discretionary Contribution Account, or would have been made to either such account if the Highly Compensated Employee had received Company contributions under the CPSP. The Benefit amount so credited shall equal the percentage set by the CPSP with regard to an Employer Matching Contribution or by the Company with regard to an Employer Discretionary Contribution, as the case may be, multiplied by the amount by which the Highly Compensated Employee’s DCMP Pay for the period for


which the Employer Matching Contribution or the Employer Discretionary Contribution, as the case may be, exceeds his or her CPSP Pay for that period.”

Executed December 17, 2015.

For ConocoPhillips Company

 

/s/ James D. McMorran

James D. McMorran

Vice President, Human Resources

Exhibit 10.17.3

PHILLIPS PETROLEUM COMPANY

GRANTOR TRUST AGREEMENT

This Grantor Trust Agreement (the “Trust Agreement”) is made as of this 1st day of June, 1998 by and between PHILLIPS PETROLEUM COMPANY (“the Company”) and WACHOVIA BANK, N.A . (“the Trustee”).

Recitals

 

(a)

WHEREAS, the Company has adopted the nonqualified deferred compensation Plans and Agreements (the “Arrangements”) as listed in Attachment I;

 

(b)

WHEREAS, the Company has incurred or expects to incur liability under the terms of such Arrangements with respect to the individuals participating in such Arrangements (the “Participants and Beneficiaries”);

 

(c)

WHEREAS, The Chase Manhattan Bank, N.A. (“Chase”) currently serves as trustee for the Arrangements;

 

(d)

WHEREAS, the Company has determined that Chase shall no longer serve as trustee for the Arrangements and that Wachovia Bank, N.A. shall serve as successor trustee for the Arrangements effective as of June 1, 1998;

 

(e)

WHEREAS, the Trustee wishes to serve as trustee for the Arrangements;

 

(f)

WHEREAS, the Company and the Trustee deem it necessary and desirable to enter into this written agreement of Trust for the Arrangements (the “Trust Agreement”) to amend and restate the terms and conditions of the Trust for the Arrangements (the “Trust”);

 

(g)

WHEREAS, the Trust has been and is intended to be a “grantor trust” with the corpus and income of the Trust treated as assets and income of the Company for federal income tax purposes pursuant to Sections 671 through 679 of the Internal Revenue Code of 1986, as amended;

 

(h)

WHEREAS, the Company desires that the terms of the Trust continue to permit the particular identification of portions of the funds deposited in trust to particular Arrangements and to permit the Trustee to receive and act upon specific directions from the Company and others with respect to the investment and reinvestment of such particularly identified portions of the funds prior to a Change of Control;

 

(i)

WHEREAS, the Company hereby contributes to the Trust assets that shall be held therein, subject to the claims of the Company’s creditors in the event of the Company’s Insolvency,


 

as herein defined, until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Arrangements and in this Trust Agreement;

 

(j)

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Arrangements as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

 

(k)

WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds (the “Fund”) to assist it in satisfying its liabilities under the Arrangements.

NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

Section 1.         Establishment of The Trust

 

(a)

The Trust is intended to be a Grantor Trust, of which the Company is the Grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

 

(b)

The Company shall be considered a Grantor for the purposes of the Trust.

 

(c)

Subject to Section 5(b), the Trust hereby established is irrevocable by the Company.

 

(d)

The Company hereby agrees that the assets held in the Trust by Chase for the Arrangements shall be transferred to the Trustee in the Trust and shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement.

 

(e)

The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Participants and general creditors as herein set forth. Participants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Arrangements and this Trust Agreement shall be unsecured contractual rights of Participants and their Beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the general creditors of the Company under federal and state law in the event the Company is Insolvent, as defined in Section 3(a) herein.

 

(f)

On before September 15 of each year (the “Funding Date”), the Company shall make an irrevocable contribution to the Trust in an amount determined by the Company, provided, however, that such contribution must be sufficient, when aggregated with the other assets of the Trust, to cause the value of the Trust Fund following such contribution to be no less than

 

Page 2


 

the amount required to fully fund one-hundred percent (100 %), of the amount necessary to fund all benefits to which Participants and their Beneficiaries are entitled pursuant to the terms of the Arrangements (the “Required Funding Amount”), but no more than one-hundred and twenty percent (120%) of such amount as determined by the Trustee. The Trustee, in its sole discretion, shall make the determination of the Required Funding Amount, and in making this determination the Trustee shall determine the amount of defined benefit obligations under the Arrangements as of January 1 of the prior calendar year, and as to all defined contribution and deferred compensation obligations, the amount shall be determined as of the end of the month immediately preceding the Funding Date Such contributed amounts to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. At any time during the calendar year that the Company supplies the Trustee with updated benefit data the Trustee shall determine whether additional contributions are required to fully satisfy all Company benefit obligations under the Arrangements in respect of such updated information. In making the determinations of required Company contributions in this paragraph (f) prior to a Change of Control, the Trustee shall rely on the determinations of the Company or any third parties engaged by the Company to make such funding determinations, subject to the following:

 

  (1)

for individual deferred compensation account balances and defined contribution obligations, the third party recordkeeper’s data shall be presumed correct unless demonstrated by clear and convincing evidence to be in error;

 

  (2)

for defined benefit obligations, the actuarial assumptions used by such third party to calculate the funding required shall be the same as those used the actuary for the Retirement Income Plan of Phillips Petroleum Company (the “RIP Assumptions”) to determine the funding required under ERISA for such plan, and if the third party uses different actuarial assumptions, then the Trustee shall engage an actuary to determine such amounts using the RIP Assumptions; provided, however that if in the Trustee’s sole and absolute discretion, it determines that the RIP Assumptions are unreasonable in any manner for the proper determination of such funding obligations, then the Trustee may, upon written notice to the Company, have such funding amount determined by an actuary of its own choosing using actuarial assumptions determined by the Trustee, in its sole and absolute discretion, to be reasonable; and

 

  (3)

for any additional funding required by a determination of the Trustee of additional benefits due to a Participant or Beneficiary pursuant to an appeal to the Trustee under Section 2(a) of this Trust Agreement, the Trustee’s determination of any required additional funding shall control.

The Company shall contribute (or cause to be contributed) to the Trust such Required Funding Amount contributions as determined by the Trustee on or before the later of the Funding Date or the date which is thirty (30) days following receipt of written request for such amount by the Trustee.

 

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(g)

Upon a Change of Control, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Change of Control, as defined herein, make an irrevocable contribution to the Trust in an amount that is sufficient to fund the Trust in an amount equal to no less than one-hundred percent (100 %) but no more than one-hundred and twenty (120%) of the Required Funding Amount, together with the amount of the Expense Account as established by the Trustee pursuant to Section 1(h). The determination of such Required Funding Amount and the Expense Account to be contributed after a Change of Control shall be determined by the Trustee in the same manner as the determination of such amount required under paragraph (f) of this Section 1, and such amounts shall be communicated to the Company by the Trustee in writing.

 

(h)

The Trustee may from time to time earmark funds in the Fund to be held in an Expense Account and used to pay the Trustee’s fees and Trust expenses, provided that the aggregate of all amounts credited to the Expense Account prior to a Change of Control shall not be more than $250,000, and after a Change of Control shall not be less than $250,000 nor more than two percent (2%) of the value of the Fund. To the extent that there is a balance in the Expense Account, the Trustee shall utilize such Expense Account for payment of its fees and expenses, and in the absence of such a balance, the Trustee shall seek payment from the Company. In the event that the Company shall fail or refuse to make such payment within sixty (60) days of demand, the Trustee may satisfy such obligations out of the assets of the Trust. If after a Change of Control the Trustee satisfies obligations out of the assets of the Trust, the Company shall immediately upon demand by the Trustee deposit into the Trust Fund a sum equal to the amount demanded by the Trustee to reimburse the Fund for such expenses. If such funds are not deposited with sixty (60) days of such demand, the Trustee may, in its discretion, commence legal action against the Company for recovery of the amount paid out of the Trust and demanded by the Trustee.

 

(i)

In its discretion, the Trustee may institute an action to collect a contribution due the Trust following a Change of Control or in the event that the Trust should ever experience a short-fall in the amount of assets necessary to make payments pursuant to the terms of the Arrangements, or if the Company should ever fail to contribute the amounts requested by the Trustee pursuant to Sections 1(f) or 1(g).

Section 2.          Payments to Participants and Their Beneficiaries

 

(a)

Prior to a Change of Control, distributions from the Trust shall be made by the Trustee to Participants and Beneficiaries at the direction of the Company except as may otherwise be provided by this Trust. The entitlement of a Participant or his or her Beneficiaries to benefits under the Arrangements shall be determined by the Company or such party or professional administrator as it shall designate under the Arrangements as the Company’s agent, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Arrangements except as may otherwise be provided by this Trust.

 

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(b)

Notwithstanding Section 2(a), a Participant or Beneficiary who believes that he is entitled to a distribution pursuant to one or more of the Arrangements may make application to the Trustee for an independent determination by the Trustee concerning his entitlement after he has exhausted his administrative remedies under the Arrangement at issue. In making its independent determination, the Trustee may consider information provided it by the Participant or Beneficiary or the Company. The Trustee shall, in such case, reach its own independent determination as to the Participant’s or Beneficiary’s entitlement to such benefits under the Arrangement, even if the Trustee has been informed by the Company that the individual is not entitled to the benefit. Such determination shall be made within sixty (60) days of the Trustee’s receipt of the Participant’s or Beneficiary’s application for determination. If the Trustee so desires, it may, in its sole discretion, make additional inquiries and take such additional measures as it deems necessary in order to enable it to determine whether such benefits claimed are due and payable, including but not limited to, interviewing or requesting affidavits from appropriate persons. The Trustee may engage an actuary, independent of the Company, to assist it in determining whether benefits are due and payable. In addition, the Trustee may engage its own counsel or other experts it deems necessary. The cost of such actuary, counsel, and other expert, and any other costs reasonably incurred by the Trustee in making its determination shall be borne by the Company. If the Company fails to pay any such costs when due, the Trustee may use the assets of the Trust to pay them as provided in Section 1(h). The determination of the Trustee shall be final and binding on all parties. Upon determining that an individual is entitled to receive payment of a benefit, the Trustee shall notify such individual and the Company of the amount payable and the data upon which such determination is based. The Company waives any right to contest any amount paid over by the Trustee hereunder pursuant to a good faith determination made by the Trustee notwithstanding any claim by or on behalf of the Company (absent a manifest abuse of discretion by the Trustee) that such payments should not be made.

 

(c)

The Company may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Arrangements. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their Beneficiaries. The Trustee may reimburse the Company for such payments upon presentation of proof satisfactory to the Trustee, in its discretion, that such payments have in fact been made. In the event the Company makes such payments directly, the Company may request the Trustee within thirty (30) days of the making of the payment to reimburse the Company for such payment from the Trust, and upon receipt of evidence satisfactory to the Trustee that such payment has been made, the Trustee shall pay such reimbursement to the Company. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Arrangements, the Company shall make the balance of each such payment as it falls due in accordance with the Arrangements. The Trustee shall notify the Company where principal and earnings are not sufficient. Nothing in this Agreement shall relieve the Company of its liabilities to pay benefits due under the Arrangements except to the extent such liabilities are met by application of assets of the Trust.

 

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(d)

The Company shall provide the Trustee with a copy of each Arrangement and shall provide the Trustee with a copy of any amendment to any Arrangement within thirty (30) days of the adoption of the amendment. The Trustee shall be entitled to rely on the terms of each Arrangement as in effect prior to its amendment until the Trustee receives a copy of such amendment.

 

(e)

On or before each Funding Date, the Company shall deliver to the Trustee a schedule of benefits due under the Arrangements. Such information shall, for defined benefit obligations, consist of information of the same type as is furnished by the Company to the actuary for its tax qualified defined benefit plan for those Participants actively employed, recognizing that individual benefit amounts cannot be finalized until commencement of benefits and application of certain federal tax limitations to the Participant’s qualified plan benefits. Such information for individual deferred compensation account balances and defined contribution obligations shall consist of such information as determined by the third party recordkeeper. The Company agrees to cooperate at all times with the Trustee to furnish updated data as is necessary to determine final benefits due to each Participant and Beneficiary. Subsequent to a Change of Control, the Trustee shall pay benefits due in accordance with such schedule. After a Change of Control, the Company shall continue to make the determination of benefits due to Participants or their Beneficiaries and shall provide the Trustee with an updated schedule of benefits due; provided however, a Participant or their Beneficiaries may make application to the Trustee for an independent decision as to the amount or form of their benefits due under the Arrangements as provided by Section 2(b).

 

(f)

The Trustee agrees that it will not itself institute any action at law or at equity, whether in the nature of an accounting, interpleading action, request for a declaratory judgment or otherwise, requesting a court or administrative or quasi-judicial body to make the determination required to be made by the Trustee under this Section 2 in the place and stead of the Trustee.

Section 3.         Trustee Responsibility Regarding Payments To The Trust Beneficiary When

The Company Is Insolvent

 

(a)

The Trustee shall cease payment of benefits to Participants and their Beneficiaries if the Company is Insolvent. The Company shall be considered “Insolvent” for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

 

(b)

At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below.

 

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  (1)

The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing that the Company is Insolvent. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Participants or their Beneficiaries.

 

  (2)

Unless the Trustee has actual knowledge that the Company is Insolvent, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company’s solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company’s solvency.

 

  (3)

If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Participants or their Beneficiaries and shall hold the assets of the Trust for the benefit of the Company’s general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Arrangements or otherwise.

 

  (4)

The Trustee shall resume the payment of benefits to Participants or their Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent).

 

(c)

Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Arrangements for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance.

Section 4.         Payments When a Short-Fall of The Trust Assets Occurs

 

(a)

If there are not sufficient assets for the payment of benefits pursuant to Section 2 or Section 3(c) hereof and the Company does not otherwise make such payments within a reasonable time after demand from the Trustee, the Trustee shall make payment of benefits from the Trust to the Participants or their Beneficiaries as payments become due to those individuals. If at any time the assets of the Trust are insufficient to pay all Participants and Beneficiaries

 

Page 7


 

to whom a payment is then owed, such payments shall be reduced pro rata based on the amounts then due and payable.

 

(b)

Upon receipt of a contribution from the Company necessary to make up for a shortfall in the payments due, the Trustee shall resume payments to all the Participants and Beneficiaries under the Arrangements. The Trustee shall have the right to compel a contribution to the Trust from the Company to make-up for any shortfall at any time.

Section 5.         Payments to the Company

 

(a)

Except as provided in Sections 2(c), 3, 5(b) and 8(a), the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Participants and their Beneficiaries pursuant to the terms of the Arrangements.

 

(b)

If this Trust is determined to not constitute: (i) a grantor trust as set forth in paragraph (g) of the Recitals, or (ii) an unfunded arrangement under ERISA as set forth in paragraph (j) of the Recitals, by a federal court and appeals from that holding are no longer timely or have been exhausted, this Trust shall terminate. The Board of Directors of the Company may also terminate this Trust if it determines, based upon an opinion of legal counsel which is satisfactory to the Trustee, that either (i) judicial authority or the opinion of the U.S. Department of Labor, Treasury Department or Internal Revenue Service (as expressed in proposed or final regulations, advisory opinions or rulings, or similar administrative announcements) creates a significant risk that the Trust will be funding for a pension benefit plan within the meaning of ERISA (“ERISA Funding”) or the Internal Revenue Code (“Tax Funding”), or (ii) ERISA or the Internal Revenue Code requires the Trust to be amended in a way that creates a significant risk that the Trust will be held to be ERISA Funding or Tax Funding, and failure to so amend the Trust could subject the Company to significant penalties. Upon any such termination, the assets of the terminated Trust remaining after payment of the Trustee’s fees and expenses shall be distributed, in accordance with the written directions of the Company, as follows:

 

  (1)

Prior to a Change of Control, such assets of the Trust shall be transferred to a new trust established by the Company which is not deemed to be ERISA Funding or Tax Funding, but which is substantially similar in all other respects to this Trust, as determined by the Trustee in its sole discretion, if the Company determines that it is possible to establish such a trust;

 

  (2)

Following a Change of Control or if the Company determines that it is not possible or practical to establish the trust pursuant to (I) above, then upon the written consent of a seventy-five percent (75%) majority of the Participants and Beneficiaries, the assets of the Trust may be distributed to the Company; or

 

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  (3)

If the Company determines that it is not possible or practical to esta1’iish the trust pursuant to (1) above and the Company either (i) fails to receive the consent of a seventy-five percent (75%) majority of the Participants and Beneficiaries within thirty (30) days of such termination, or (ii) upon the direction of the Company, then the assets shall be distributed to Participants and Beneficiaries, as the case may be, pro rata based on the then present value of the benefits to which they would have otherwise been entitled; provided, however that in the event any portion of the Trust Fund has been identified with a particular Arrangement, the portion of the Fund so identified with that Arrangement shall be first so distributed to provide benefits of that Arrangement, and the excess, if any, shall be so distributed pro rata to the extent necessary to provide benefits of other Arrangements. If a surplus remains in the Trust after such distributions, it shall be returned to the Company.

Section 6.         Investment Authority

 

(a)

The Trustee shall not be liable in discharging its duties hereunder, including without limitation its duty to invest and reinvest the Fund, if it acts for the exclusive benefit of the Participants and their Beneficiaries, in good faith and as a prudent person would act in accomplishing a similar task and in accordance with the terms of this Trust Agreement and any applicable federal or state laws, rules or regulations.

 

(b)

Subject to investment guidelines agreed to in writing from time to time by the Company and the Trustee prior to a Change of Control, the Trustee shall have the power in investing and reinvesting the Fund in its sole discretion:

 

  (1)

To invest and reinvest in any readily marketable common and preferred stocks, bonds, notes, debentures (including convertible stocks and securities but not including any stock or security of Phillips Petroleum Company other than a de minimus amount held in a collective or mutual fund), certificates of deposit or demand or time deposits (including any such deposits with the Trustee) and shares of investment companies and mutual funds, without being limited to the classes or property in which the Trustees are authorized to invest by any law or any rule of court of any state and without regard to the proportion any such property may bear to the entire amount of the Fund;

 

  (2)

To commingle for investment purposes all or any portion of the Fund with assets of any other similar trust or trusts established by the Company with the Trustee for the purpose of safeguarding deferred compensation or retirement income benefits of its employees;

 

  (3)

To retain any property at any time received by the Trustee;

 

Page 9


  (4)

To sell or exchange any property held by it at public or private sale, for cash or on credit, to grant and exercise options for the purchase or exchange thereof, to exercise all conversion or subscription rights pertaining to any such property and to enter into any covenant or agreement to purchase any property in the future;

 

  (5)

To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by it and to consent to or oppose any such plan or any action thereunder or any contract, lease, mortgage, purchase, sale or other action by any person;

 

  (6)

To deposit any property held by it with any protective, reorganization or similar committee, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof any assessments levied with respect to any such property to deposit;

 

  (7)

To extend the time of payment of any obligation held by it;

 

  (8)

To hold uninvested any moneys received by it, without liability for interest thereon, but only in anticipation of payments due for investments, reinvestments, expenses or disbursements;

 

  (9)

To exercise all voting or other rights with respect to any property held by it and to grant proxies, discretionary or otherwise, which shall be at the direction of the Financial Administrator prior to a Change of Control;

 

  (10)

For the purposes of the Trust, to borrow money from others, to issue its promissory note or notes therefor, and to secure the repayment thereof by pledging any property held by it;

 

  (11)

To employ suitable contractors and counsel, who may be counsel to the Company or to the Trustee, and to pay their reasonable expenses and compensation from the Fund to the extent not paid by the Company;

 

  (12)

To register investments in its own name or in the name of a nominee; to hold any investment in bearer form; and to combine certificates representing securities with certificates of the same issue held by it in other fiduciary capacities or to deposit or to arrange for the deposit of such securities with any depository, even though, when so deposited, such securities may be held in the name of the nominee of such depository with other securities deposited therewith by other persons, or to deposit or to arrange for the deposit of any securities issued or guaranteed by the United States government, or any agency or instrumentality thereof, including securities evidenced by book entries rather than by certificates, with the United States Department of the Treasury or a Federal Reserve Bank, even though, when

 

Page 10


 

so deposited, such securities may not be held separate from securities deposited therein by other persons; provided, however, that no securities held in the Fund shall be deposited with the United States Department of the Treasury or a Federal Reserve Bank or other depository in the same account as any individual property of the Trustee, and provided, further, that the books and records of the Trustee shall at all times show that all such securities are part of the Trust Fund;

 

  (13)

To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, respectively, to commence or defend suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustee shall not be required to take any such action unless it shall have been indemnified by the Company to its reasonable satisfaction against liability or expenses it might incur therefrom;

 

  (14)

To hold and retain policies of life insurance or interests therein, annuity contracts, and other property of any kind which policies are contributed to the Trust by the Company or any subsidiary of the Company or are purchased by the Trustee;

 

  (15)

To hold any other class of assets which may be contributed by the Company and that is deemed reasonable by the Trustee, unless expressly prohibited herein;

 

  (16)

Generally, to do all acts, whether or not expressly authorized, that the Trustee may deem necessary or desirable for the protection of the Fund.

 

(c)

Prior to a Change of Control, the Company shall have the right, subject to this Section to direct the Trustee with respect to investments, including the right to identify portions of the funds in Trust to particular Arrangements.

 

  (1)

The Company may at any time direct the Trustee to segregate all or a portion of the Fund in a separate investment account or accounts and may appoint one or more investment managers and/or an investment committee established by the Company to direct the investment and reinvestment of each such investment account or accounts. In such event, the Company shall notify the Trustee of the appointment of each such investment manager and/or investment committee. No such investment manager shall be related, directly or indirectly, to the Company, but members of the investment committee may be employees of the Company.

 

  (2)

Thereafter, the Trustee shall make every sale or investment with respect to such investment account as directed in writing by the investment manager or investment committee. It shall be the duty of the Trustee to act strictly in accordance with each direction. The Trustee shall be under no duty to question any such direction of the investment manager or investment committee, to review any securities or other property held in such investment account or accounts

 

Page 11


 

acquired by it pursuant to such directions or to make any recommendations to the investment managers or investment committee with respect to such securities or other property.

 

  (3)

Prior to a Change of Control, the Company may particularly identify a portion of the Trust Fund with a particular Arrangement, and the portion thus identified shall prior to a Change of Control be invested as instructed by the Company and shall be restricted in application to provide benefits or to reimburse the Company pursuant to Section 2(c) for benefits paid under such Arrangement as to which the particularly identified portion has been identified.

 

  (4)

Notwithstanding the foregoing, the Trustee, without obtaining prior approval or direction from an investment manager or investment committee, shall invest cash balances held by it from time to time in short term cash equivalents including, but not limited to, through the medium of any short term mutual fund established and maintained by the Trustee subject to the instrument establishing such trust fund, U.S. Treasury Bills, commercial paper (including such forms of commercial paper as may be available through the Trustee’s Trust Department), certificates of deposit (including certificates issued by the Trustee in its separate corporate capacity), and similar type securities, with a maturity not to exceed one year; and, furthermore, sell such short term investments as may be necessary to carry out the instructions of an investment manager or investment committee regarding more permanent type investment and directed distributions.

 

  (5)

The Trustee shall neither be liable nor responsible for any loss resulting to the Fund by reason of any sale or purchase of an investment directed by an investment manager or investment committee nor by reason of the failure to take any action with respect to any investment which was acquired pursuant to any such direction in the absence of further directions of such investment manager or investment committee.

 

  (6)

Notwithstanding anything in this Agreement to the contrary, the Trustee shall be indemnified and saved harmless by the Company from and against any and all personal liability to which the Trustee may be subjected by carrying out any directions of an investment manager or investment committee issued pursuant hereto or for failure to act in the absence of directions of the investment manager or investment committee including all expenses reasonably incurred in its defense in the event the Company fails to provide such defense; provided, however, the Trustee shall not be so indemnified if it participates knowingly in, or knowingly undertakes to conceal, an act or omission of an investment manager or investment committee, having actual knowledge that such act or omission is a breach of a fiduciary duty; provided further, however, that the Trustee shall not be deemed to have knowingly participated in or knowingly undertaken to conceal an act or omission of an investment manager or investment committee with knowledge that

 

Page 12


 

such act or omission was a breach of fiduciary duty by merely complying with directions of an investment manager or investment committee or for failure to act in the absence of directions of an investment manager or investment committee. The Trustee may rely upon any order, certificate, notice, direction or other documentary confirmation purporting to have been issued by the investment manager or investment committee which the Trustee believes to be genuine and to have been issued by the investment manager or investment committee. The Trustee shall not be charged with knowledge of the termination of the appointment of any investment manager or investment committee until it receives written notice thereof from the Company.

 

(d)

Following a Change of Control, the Trustee shall have the sole and absolute discretion in the management of the Trust assets and shall have all the powers set forth under Section 6(b). In investing the Trust assets, the Trustee shall consider:

 

  (1)

the needs of the Arrangements;

 

  (2)

the need for matching of the Trust assets with the liabilities of the Arrangements; and

 

  (3)

the duty of the Trustee to act solely in the best interests of the Participants and their Beneficiaries.

 

(e)

The Trustee shall have the right, in its sole discretion, to delegate its investment responsibility to an investment manager who may be an affiliate of the Trustee. In the event the Trustee shall exercise this right, the Trustee shall remain, at all times responsible for the acts of an investment manager.

 

(f)

The Company shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity; provided, however, that such assets and asset values must be confirmed and agreed by the Trustee prior to any such substitution as provided by this Section 6(g).

 

(g)

Except for insurance contracts, the value of any assets reacquired under Section 6(f) shall be determined as provided in this paragraph. The value of any insurance contract reacquired under Section 6(f) shall be the present value of future projected cash flow or benefits payable under the Contract, but not less than the cash surrender value. The projection shall include death benefits based on reasonable mortality assumptions, including known facts specifically relating to the health of the insured and the terms of the Contract to be reacquired. Values shall be reasonably determined by the Trustee and may be based on the determination of agents or experts selected by the Trustee. The Trustee shall have the right, but shall be under

 

Page 13


 

no duty or obligation, to secure confirmation of value by an agent or expert for all property to be substituted for other property.

Section 7.         Insurance Contracts

 

(a)

To the extent that the Trustee is directed by the Company prior to a Change of Control to invest part or all of the Trust Fund in insurance contracts, the type and amount thereof shall be specified by the Company. The Trustee shall be under no duty to make inquiry as to the propriety of the type or amount so specified.

 

(b)

Each insurance contract issued shall provide that the Trustee shall be the owner thereof with the power to exercise all rights, privileges, options and elections granted by or permitted under such contract or under the rules of the insurer. The exercise by the Trustee of any incidents of ownership under any contract shall, prior to a Change of Control, be subject to the direction of the Company. After a Change of Control, the Trustee shall have all such rights.

 

(c)

The Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against an insurance policy held in the Trust Fund.

No insurer shall be deemed to be a party to the Trust and an insurer’s obligations shall be measured and determined solely by the terms of contracts and other agreements executed by the insurer.

Section 8.     Disposition of Income

 

(a)

Subject to Sections 2(c) and3, no income received by the Trust may be returned to the Company, but shall be accumulated and reinvested within the Trust, except for that portion of the assets of the Trust which is determined by the Trustee to be in excess of one-hundred and twenty percent (120%) of the Required Funding Amount. Following a Change of Control, any return of assets pursuant to this Section 8 (and subject to Sections 2(c) and 3) shall be limited to that portion of the assets which exceeds 120% of the sum of the Required Funding Amount and the Expense Fund as determined by the Trustee in its discretion.

Section 9.     Accounting by The Trustee

 

(a)

The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee and shall deliver an accounting of such accounts and transactions to the Company within forty-five (45) days following the close of each calendar year and within forty-five (45) days after the removal or resignation of the Trustee. The Trustee shall deliver to the Company reports of its

 

Page 14


 

receipts and disbursements a Trustee hereunder on a quarterly basis. The Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. The Company may approve such account by an instrument in writing delivered to the Trustee. In the absence of the Company’s filing with the Trustee objections to any such account within ninety (90) days after its receipt, the Company shall be deemed to have so approved such account. In such case, or upon the written approval by the Company of any such account, the Trustee shall, to the extent permitted by law, be discharged from all liability to the Company for its acts or failures to act described by such account. The foregoing, however, shall not preclude the Trustee from having its accounting settled by a court of competent jurisdiction. The Trustee shall be entitled to hold and to commingle the assets of the Trust in one Fund for investment purposes but at the direction of the Company prior to a Change of Control, the Trustee shall create one or more sub-accounts.

 

(b)

The Trustee shall from time to time permit public accountant(s) selected by the Company (who may be employees of the Company) to have access during ordinary business hours to such records as may be necessary to audit the Trustee’s accounts.

Section 10.         Responsibility of The Trustee

 

(a)

The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Arrangements or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute , subject, however to Section 2(e) hereof.

 

(b)

The Company hereby indemnifies the Trustee against losses, liabilities, claims, costs and expenses in connection with the administration of the Trust, unless resulting from the gross negligence or misconduct of Trustee. To the extent the Company fails to make any payment on account of an indemnity provided in this paragraph 10(b), in a reasonably timely manner, the Trustee may obtain payment from the Trust. If the Trustee undertakes or defends any litigation arising in connection with this Trust or to protect a Participant’s or Beneficiary’s rights under the Arrangements, the Company agrees to indemnify the Trustee against the Trustee’s costs, reasonable expenses and liabilities (including, without limitation, attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments. If the

 

Page 15


 

Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.

 

(c)

Prior to a Change of Control, the Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. Following a Change of Control the Trustee shall select independent legal counsel and may consult with counsel or other persons with respect to its duties and with respect to the rights of Participants or their Beneficiaries under the Arrangements.

 

(d)

The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder and may rely on any determinations made by such agents and information provided to it by the Company.

 

(e)

The Trustee shall have, without exclusion, all powers conferred on the Trustee by applicable law, unless expressly provided otherwise herein.

 

(f)

Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

Section 11.         Taxes, Compensation and Expenses of The Trustee

 

(a) The Company shall from time to time pay taxes of any and all kinds whatsoever that at any time are lawfully levied or assessed upon the Company or become payable by the Company in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. All references in this Trust Agreement to the payment of taxes shall include interest and applicable penalties. The Trustee shall comply with all Federal and State tax filing requirements of the Trust and shall furnish to the Company for its review and comment a draft copy of Form 1041 (U.S. Fiduciary Income Tax Return) or any other tax filings for the Trust together with supporting schedules a minimum of two weeks prior to the tax return filing due date. To enable the Company to make monthly tax accrual and to compute its estimated income tax obligations, the Trustee will furnish, on or prior to the eighth business day of the succeeding month, a monthly report identifying the type and amount of income by source of investment (interest, dividends, etc.).

 

(b)

The Trustee’s compensation shall be as agreed in writing from time to time by the Company and the Trustee. The Company shall pay all administrative expenses and the Trustee’s fees and shall promptly reimburse the Trustee for any fees and expenses of its agents. If not so

 

Page 16


 

paid, the fees and expenses shall be paid from the Trust.

Section 12.         Resignation and Removal of The Trustee

 

(a)

Prior to a Change of Control, the Trustee may resign at any time by written notice to the Company, which shall be effective sixty (60) days after receipt of such notice unless the Company and the Trustee agree otherwise. Following a Change of Control, the Trustee may resign only after the appointment of a successor Trustee.

 

(b)

The Trustee may be removed by the Company on sixty days (60) days notice or upon shorter notice accepted by the Trustee prior to a Change of Control. Subsequent to a Change of Control, the Trustee may only be removed by the Company with the written consent of a seventy-five percent (75%) majority of the Participants and Beneficiaries.

(c)

If the Trustee resigns within two years after a Change of Control, as defined herein, the Company , or if the Company fails to act within a reasonable period of time following such resignation, the Trustee shall apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions.

 

(d)

Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit.

 

(e)

If the Trustee resigns or is removed, a successor shall be appointed by the Company, in accordance with Section 13 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

Section 13.         Appointment of Successor

 

(a)

If the Trustee resigns or is removed in accordance with Section 12 hereof, the Company may appoint, subject to Section 12, any third party national banking association with a market capitalization exceeding $100,000,000 to replace the Trustee upon resignation or removal. The successor Trustee shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer.

 

(b)

The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Section 8 and 9 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any

 

Page 17


 

prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

Section 14.         Amendment or Termination

 

(a)

This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company.    Prior to a Change of Control, the Company may amend Attachment I to add new Arrangements or to delete Arrangements which have been paid in full, and at any time and from time to time may amend Attachment II, the list of individuals authorized to act on behalf of the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Arrangements or shall make the Trust revocable other than is provided in Section 5(b).

 

(b)

The Trust shall not terminate until the date on which Participants and their Beneficiaries have received all of the benefits due to them under the terms and conditions of the Arrangements.

 

(c)

Upon written approval of a 75% of the majority of the Participants or Beneficiaries entitled to payment of benefits pursuant to the terms of the Arrangements, the Company may terminate this Trust prior to the time all benefit payments under the Arrangements have been made. All assets in the Trust at termination shall be returned to the Company.

 

(d)

This Trust Agreement may not be amended or terminated by the Company for two (2) years following a Change of Control without the written consent of a seventy-five percent (75%) majority of the Participants and Beneficiaries, and no such amendment shall adversely affect any benefits of a Participant or Beneficiary without the written consent of the affected person..

Section 15.         Definitions of a Change of Control

 

(a)

Change of Control shall mean:

 

  (i)

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 as amended (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of twenty percent (20%) or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation

 

Page 18


 

controlled by the Company or (D) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 15(a); or

 

  (ii)

Individuals who, as of January 12, 1998, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 12, 1998, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

  (iii)

Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transactions owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or

 

Page 19


  (iv)

Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

For purposes of this Section 15(a), the Incumbent Board, by a majority vote, shall have the power to determine on the basis of information known to them (a) the number of shares beneficially owned by any person, entity or group; (b) whether there exists an agreement, arrangement or understanding with another as to matters referred to in this Section 15(a); and (c) such other matters with respect to which a determination is necessary under this Section 15(a).

 

(b)

The General Counsel of the Company shall have the specific authority to determine whether a Change of Control has transpired under the guidance of Section 15(a) and shall be required to give the Trustee notice of a Change of Control. The Trustee shall be entitled to rely upon such notice, but if the Trustee receives notice of a Change of Control from another source, the Trustee shall make its own independent determination.

Section 16.         Miscellaneous

 

(a)

Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

 

(b)

The Company hereby represents and warrants that all of the Arrangements have been established, maintained and administered in accordance with all applicable laws, including without limitation, ERISA. The Company hereby indemnifies and agrees to hold the Trustee harmless from all liabilities, including attorney’s fees, relating to or arising out of the establishment, maintenance and administration of the Arrangements. To the extent the Company does not pay any of such liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.

 

(c)

Benefits payable to Participants and their Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

 

(d)

The persons authorized to act for the Company are identified on Attachment II and such list may be amended by the Company from time to time without the consent of the Trustee. The individual identified as the Financial Administrator shall have the power to act for the Company with respect to all matters herein regarding the investment of Trust assets, the authority to request reimbursements to be paid to the Company and is the individual designated to receive requests for contributions from the Trustee. The Senior Vice President and Chief Financial Officer, or his successor, of the Company shall be the Financial Administrator. The individual identified as the Benefits Administrator shall have the power to act for the Company with respect to all matters herein regarding the determination of benefits owed under the Arrangements and the Payment of such benefits. The Executive Vice President, Planning, Corporate Relations and Services of the

 

Page 20


 

Company, or his successor, shall be the Benefits Administrator. Both the Financial Administrator and the Benefits Administrator may, from time to time, seek advice and guidance, or delegate functions assigned under this Trust Agreement to them, to other individuals who shall be identified on Attachment II as authorized to act for such Administrator, and each Administrator shall have the authority to amend the list of individuals who are authorized to so act on his or her behalf in Attachment II and to communicate the amended list to the Trustee. . Further, both the Benefits and Financial Administrator may delegate administrative functions to other specified individuals who are identified in writing to the Trustee. The Trustee shall be entitled to rely upon the latest list of authorized individuals received.

 

(e) This Trust Agreement shall be governed by and construed in accordance with the laws of North Carolina.

 

Page 21


IN WITNESS WHEREOF , this Grantor Trust Agreement has been executed on behalf of the parties hereto on the day and year first above written.

 

PHILLIPS PETROLEUM COMPANY     WACHOVIA BANK, N.A.
By:   /s/ T.C. Morris     By:   /s/ Peter D. Quinn

Its: Senior Vice President and

Chief Financial Officer

    Its: Vice President
ATTEST:     ATTEST:
By:   /s/ Dale J. Billam     By:   /s/ Ronald W. Darby
Its: Secretary     Its: Vice President & Assistant Secretary

 

Page 22


ATTACHMENT I

List of Arrangements

Key Employee Deferred Compensation Plan of Phillips Petroleum Company:

Amended May 11, 1998

Phillips Petroleum Company Supplemental Executive Retirement Plan:

Amended May 11, 1998

Key Employee Supplemental Retirement Plan of Phillips Petroleum Company:

Amended May 11, 1998

Defined Contribution Makeup Plan of Phillips Petroleum Company:

Amended May 11, 1998

Key Employee Missed Credited Service Retirement Plan of Phillips Petroleum Company

Amended May 11, 1998

Principal Corporate Officers Supplemental Retirement Plan of Phillips Petroleum Company:

Annuity payments all in payout status

Amended February 12, 1990

Supplemental Retirement:

Annuity payments all in payout status accrued as a result of participation in the Phillips Petroleum Company Key Employee Death Protection Plan and the individual contracts for deferred compensation

Phillips Oil Company Excess Benefit Plan:

One remaining participant in annuity payout

Approved June 7, 1983

Aminoil Retirement Contracts:

Contracts with [redacted] and [redacted] – both in annuity payout

 

Page 23

Exhibit 10.17.4

EXHIBIT A

AMENDMENT TO TRUST AGREEMENT

Effective May 3, 1999, Attachment I, List of Arrangements to the Trust Agreement between Phillips Petroleum Company and Wachovia Bank, N.A., as Trustee dated as of June l, 1998 (the “Trust Agreement”), is hereby amended to read as set forth below:

ATTACHMENT I

List of Arrangements

Key Employee Deferred Compensation Plan of Phillips Petroleum Company

Phillips Petroleum Company Supplemental Executive Retirement Plan

Key Employee Supplemental Retirement Plan of Phillips Petroleum Company

Defined Contribution Makeup Plan of Phillips Petroleum Company

Kev Employee Missed Credited Service Retirement Plan of Phillips Petroleum Company

Principal Corporate Officers Supplemental Retirement Plan of Phillips Petroleum Company

Annuity payments all in payout status

Supplemental Retirement

Annuity payments all in payout status accrued as a result of participation in the Phillips Petroleum Company Key Employee Death Protection Plan and the individual contracts for deferred compensation

Phillips Oil Company Excess Benefit Plan

One remaining participant in annuity payout

Aminoil Retirement Contracts

Contracts with [redacted] and [redacted]—both in annuity payout status    

Phillips Petroleum Company Executive Severance Plan”

The Trust Agreement is in all other respects ratified and confirmed without amendment. Each of the parties to the Trust Agreement has caused this Amendment to be executed on its behalf by its duly authorized officer, as of May 3, 1999.

 

Phillips Petroleum Company    Wachovia Bank, N.A.
By:    /s/ T.C. Morris    By:    /s/ Joe O. Long
Title:    Sr. Vice President & Chief Financial Officer    Title:    Sr. Vice President
        

Exhibit 10.17.5

S ECOND A MENDMENT TO THE

P HILLIPS P ETROLEUM C OMPANY G RANTOR T RUST A GREEMENT

WHEREAS, Phillips Petroleum Company (the “Company”) and Wachovia Bank, N.A. (the “Trustee”) entered into the Phillips Petroleum Company Grantor Trust Agreement dated June 1, 1998 and amended on May 3, 1999 (“the Trust”); and

WHEREAS, the Company wishes to amend the Trust; and

WHEREAS, the Company has the right to amend the Trust.

NOW, THEREFORE, the Company amends the Trust as follows:

In the RECITALS, paragraph (i) shall be replaced in its entirety with :

 

(i) WHEREAS , subject to the claims of the creditors of the Company or its Participating Subsidiaries, as defined herein, in the event of the Insolvency (as herein defined) of the Company or its subsidiaries who employ Participants, the Company hereby contributes to the Trust assets that should be held therein until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Arrangements and in this Trust Agreement;

Section 1(f) shall be replaced in its entirety with:

 

(f) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property acceptable to the Trustee in the Trust to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Prior to a Change of Control, neither the Trustee nor any Participant or Beneficiary shall have any right to compel additional deposits.

Section 15(a) shall be replaced in its entirety with:

 

(a)

Change of Control shall mean:

 

  (i)

                The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 as amended (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of twenty percent (20%) or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not


 

constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 15(a); or

 

  (ii)

                Individuals who, as of January 12, 1998, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 12, 1998, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

  (iii)

                Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transactions owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or


  (iv)

                Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

For purposes of this Section 15(a), the Incumbent Board, by a majority vote, shall have the power to determine on the basis of information known to them (a) the number of shares beneficially owned by any person, entity or group; (b) whether there exists an agreement, arrangement or understanding with another as to matters referred to in this Section 15(a); and (c) such other matters with respect to which a determination is necessary under this Section 15(a).

Notwithstanding anything to the contrary in Section 15(a)(i) or Section 15(a)(ii) or Section 15(a)(iii) or any other provision of this Agreement, a Change of Control shall not have occurred (or be deemed to have occurred) as a result of the consummation of the transactions contemplated under the Agreement and Plan of Merger dated as of November 18, 2001 by and among Phillips Petroleum Company, CorvettePorsche Corp., Porsche Merger Corp., Corvette Merger Corp., and Conoco Inc. (“Merger Agreement”).

Section 3 shall be amended to add the following subsection (d):

(d)        For purposes of this Section 3, Company shall include its Participating Subsidiaries, where “Participating Subsidiary” is defined as a subsidiary of the Company, of which the Company beneficially owns, directly or indirectly, more than 50% of the aggregate voting power of all outstanding classes and series of stock, where such subsidiary has adopted one or more of the Arrangements and has employed one or more Participants.

The currently existing Attachment II, Individuals Authorized to Act on Behalf of the Company shall be replaced with the accompanying revised Attachment II.

The Trust Agreement is in all other respects ratified and confirmed without amendment. Each of the parties to the Trust Agreement has caused this Amendment to be executed on its behalf by its duly authorized officer, as of this 15 th day of January, 2002.

 

Phillips Petroleum Company     Wachovia Bank, N.A.
By:   /s/ John A. Carrig     By:   /s/ Peter D. Quinn
Title: Senior Vice President &     Title: Senior Vice President
Chief Financial Officer      

Exhibit 10.17.6

THIRD AMENDMENT TO THE TRUST AGREEMENT UNDER THE

PHILLIPS PETROLEUM COMPANY

GRANTOR TRUST AGREEMENT

WHEREAS , Phillips Petroleum Company (hereinafter “Company”) and Wachovia Bank, National Association (the “Trustee”) entered into an amended and restated trust agreement as of June 1, 1998, subsequently amended as of May 3, 1999 and as of January 15, 2002 (the “Trust Agreement”) establishing a trust (the “Trust”) for the purpose of holding monies and other property in connection with certain nonqualified deferred compensation plans maintained by the Employer (the “Plans”); and

WHEREAS , pursuant to Section 14(a) of the Trust Agreement, the Trust Agreement may be amended by a written instrument executed by the Trustee and the Company;

NOW, THEREFORE, the Trust Agreement is amended, effective October 5, 2006, as follows :

 

1.

The “Company”, as defined in the Trust Agreement, is ConocoPhillips Company, formerly known as Phillips Petroleum Company and the name of the Trust shall be the “ConocoPhillips Grantor Trust”.

 

2.

Section 1 (g) of the Trust Agreement is hereby deleted in its entirety and replaced with the following:

(g) Upon a Change in Control, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Change in Control, as defined herein, make an irrevocable contribution to the Trust in an amount that is sufficient to fund the Trust in an amount equal to no less than one hundred percent (100%) but no more than one-hundred and twenty percent (120%) of the Required Funding Amount, together with the amount of the Expense Account as established by the Trustee pursuant to Section 1(h). The determination of such Required Funding Amount to be contributed after a Change in Control shall be determined by the Trustee in the manner described below, and such amounts shall be communicated to the Company by the Trustee in writing. The “Required Funding Amount” shall mean an amount that is sufficient, when aggregated with the other assets of the Trust, to cause the value of the Trust Fund following such contribution to be no less than the amount required to fully fund one hundred percent (100%) of the amount necessary to fund all benefit to which Participants and their Beneficiaries are entitled pursuant to the terms of the Agreements. The Trustee, in its sole discretion, shall make the determination of the Required Funding Amount, and in making this determination the Trustee shall determine the amount of defined benefit obligations under the Arrangements as of January 1 of the prior calendar year, and as to all defined contribution and deferred compensation obligations, the amount shall be determined as of


the end of the month immediately preceding the Change in Control. Such contributed amounts shall be held, administered and disposed of by the Trustee as provided in this Trust Agreement. At any time during the calendar year that the Company supplies the Trustee with updated benefit data the Trustee shall determine whether additional contributions are required to fully satisfy all Company benefit obligations under the Arrangements in respect of such updated information. In making its independent determination of the Required Funding Amount following a Change in Control, the Trustee may consider information provided by the Company or any third parties engaged by the Company to make such funding determinations, but must nonetheless make an independent determination of the Required Funding Amount subject to the following:

 

  (1)

for individual deferred compensation account balances and defined contribution obligations, the third party recordkeeper’s data shall be presumed correct unless demonstrated by clear and convincing evidence to be in error;

 

  (2)

for defined benefit obligations, the actuarial assumptions used by such third party to calculate the funding required shall be the same as those used the actuary for the ConocoPhillips Retirement Plan, formerly known as the Retirement Income Plan of Phillips Petroleum Company, (the “CPRP Assumptions”) to determine the funding required under ERISA for such plan, and if the third party uses different actuarial assumptions, then the Trustee shall engage an actuary to determine such amounts using the CPRP Assumptions; provided, however that if in the Trustee’s sole and absolute discretion, it determines that the CPRP Assumptions are unreasonable in any manner for the proper determination of such funding obligations, then the Trustee may, upon written notice to the Company, have such funding amount determined by an actuary of its own choosing using actuarial assumptions determined by the Trustee, in its sole and absolute discretion, to be reasonable; and

 

  (3)

for any additional funding required by a determination of the Trustee of additional benefits due to a Participant or Beneficiary pursuant to an appeal to the Trustee under Section 2(b) of this Trust Agreement, the Trustee’s determination of any required additional funding shall control.

 

3.

Section 1(i) of the Trust Agreement is hereby deleted in its entirety and the following substituted with the following:

(i) In its discretion, the Trustee may institute an action to collect a contribution due the Trust following a Change in Control or in the event that the Trust should, following a Change in Control, ever experience a short-fall in the amount of assets necessary to make payments pursuant to


the terms of the Arrangements, or if the Company should ever fail to contribute the amounts requested by the Trustee pursuant to Section 1(g).

 

4.

Section 3 (d) of the Trust Agreement is hereby amended in its entirety to read as follows:

(d) For purposes of this Section 3, Company shall include its Participating Subsidiaries, where “Participating Subsidiary” is defined as ConocoPhillips and a subsidiary of ConocoPhillips, of which ConocoPhillips beneficially owns, directly or indirectly, more than 50% of the aggregate voting power of all outstanding classes and series of stock, where such subsidiary has adopted one or more of the Arrangements and has employed one or more Participants.

 

5. Section 6(b) of the Trust Agreement is hereby amended to delete the opening phrases, “Subject to investment guidelines agreed to in writing from time to time by the Company and the Trustee prior to a Change in Control, the Trustee shall have the power in investing and reinvesting the Fund in its sole discretion” and to replace those phrases with the following:

Prior to a Change in Control, and subject to the Company’s exercise of its rights under Section 6(c) of the Trust, the Trustee shall have the following powers in investing and reinvesting the Fund in its sole discretion, subject to investment guidelines provided in writing from time to time by the Company:

 

6.

The following section (e) is added to Section 14 of the Trust Agreement:

(e) The Company may merge other grantor trusts covering similar benefit plans into the Trust, by Amendment to this Trust agreed to in writing by the Company and the Trustee.

 

7.

Section 15 of the Trust Agreement shall be replaced in its entirety with the following:

Section   15 Definition of a Change in Control

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the effective date of this Agreement.

“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial


beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Beneficial Owner” shall mean, with reference to any securities, any Person if:

(a)       such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect on October 5, 2006, such securities or otherwise has the right to vote or dispose of such securities, including pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subsection (a) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (i) arises solely from a revocable proxy or consent given in response to a public ( i.e. , not including a solicitation exempted by Rule 14a-2(b)(2) of the General Rules and Regulations under the Exchange Act) proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act and (ii) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report);

(b)       such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or

(c)       such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a


shareholder list, to call a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of Section 14(a) of the Exchange Act) in respect of such security.

The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”

“Board” shall mean the Board of Directors of ConocoPhillips for purposes of this Section 15 only.

“Change in Control” shall mean any of the following occurring on or after October 5, 2006:

(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change in Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock or 20% or more of the combined voting power of the Voting Stock of the Company solely as a result of (i) an Exempt Transaction or (ii) an acquisition by a Person pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this definition are satisfied;

(b) individuals who, as of October 5, 2006, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to October 5, 2006, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened Election Contest that is subject to the provisions of Rule 14a-11 of the General Rules and Regulations under the Exchange Act;

(c) the Company shall consummate a reorganization, merger, or consolidation, in each case, unless, following such reorganization, merger, or consolidation, (i) 50% or more of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and the combined voting power of the then outstanding Voting Stock of such corporation are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, or consolidation, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns,


directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation or the combined voting power of the then outstanding Voting Stock of such corporation, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such reorganization, merger, or consolidation; or

(d) (i) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a plan of liquidation and dissolution involving a sale or disposition of all or substantially all of the assets of the Company to a corporation with respect to which, following such sale or other disposition, all of the requirements of clauses (ii)(A), (B), and (C) of this subsection (d) are satisfied, or (ii) the Company shall consummate the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which, following such sale or other disposition, (A) 50% or more of the then outstanding shares of common stock of such corporation and the combined voting power of the Voting Stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the outstanding Common Stock, (B) no Person (excluding any Exempt Person and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding Voting Stock of such corporation, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the initial agreement or initial action of the Board providing for such sale or other disposition of assets of the Company.

“Common Stock” shall mean common stock, par value $.01, of ConocoPhillips.

“Company” shall, for the purpose of this Section 15 only, mean ConocoPhillips.

“Election Contest” shall mean a solicitation of proxies of the kind described in Rule 14a-12(c) under the Exchange Act.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exempt Person” shall mean any of the Company, any subsidiary of the Company, any employee benefit plan of the Company or any subsidiary of the Company, and any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan.

“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such


rights are not separable from such Common Stock or other Voting Stock ( i.e. , are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of the effective date of this Agreement or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.

“Exempt Transaction” shall mean an increase in the percentage of the outstanding shares of Common Stock or the percentage of the combined voting power of the outstanding Voting Stock of the Company beneficially owned by any Person solely as a result of a reduction in the number of shares of Common Stock then outstanding due to the repurchase of Common Stock or Voting Stock by the Company, unless and until such time as (a) such Person or any Affiliate or Associate of such Person shall purchase or otherwise become the Beneficial Owner of additional shares of Common Stock constituting 1% or more of the then outstanding shares of Common Stock or additional Voting Stock representing 1% or more of the combined voting power of the then outstanding Voting Stock, or (b) any other Person (or Persons) who is (or collectively are) the Beneficial Owner of shares of Common Stock constituting 1% or more of the then outstanding shares of Common Stock or Voting Stock representing 1% or more of the combined voting power of the then outstanding Voting Stock shall become an Affiliate or Associate of such Person.

“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization or other entity.

“Voting Stock” shall mean, with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred).

 

8. Section 16 “Miscellaneous” subsection (d) of the Trust Agreement is hereby amended to delete the words “The Senior Vice President and Chief Financial Officer, or his successor,” and the words “The Executive Vice President, Planning, Corporate Relations and Services, or his successor,” and replace them, respectively with the words “The highest officer of the Company with the role of Chief Financial Officer, or his successor,” and “The highest officer of the Company with primary responsibility for Human Resources or his successor”.

 

9. The Trust Agreement is hereby amended to delete the phrase “Change of Control” wherever it appears and to replace that phrase wherever it appears with “Change in Control”.

 

10. Attachment I to the Trust Agreement is hereby replaced in its entirety with the revised Attachment I attached to and included in this Third Amendment.

 

11. Attachment II to the Trust Agreement is hereby replaced in its entirety with the revised Attachment II attached to and included in this Third Amendment.


The Trust Agreement is in all other respects ratified and confirmed without amendment.

IN WITNESS WHEREOF , ConocoPhillips Company and Wachovia have caused this Amendment to the Trust Agreement to be executed and each of their seals affixed hereto on the dates indicated below.

 

ConocoPhillips Company    

Wachovia Bank National

Association, as Trustee

By:    /s/ Jeff Sheets     By:    /s/ Frederick N. Williams
Date:    10/05/06     Date:    10/10/06
Name:    J W. Sheets     Name:    Frederick N. Williams
Title:    Vice President and Treasurer     Title:    Vice President

Exhibit 10.17.7

FOURTH AMENDMENT TO THE TRUST AGREEMENT UNDER THE

CONOCOPHILLIPS COMPANY

GRANTOR TRUST AGREEMENT

        WHEREAS, Phillips Petroleum Company (now ConocoPhillips Company) (hereinafter “Company”) and Wachovia Bank, National Association (now Wells Fargo Bank, N.A.) (the “Trustee”) entered into an amended and restated trust agreement as of June 1, 1998, subsequently amended as of May 3, 1999, as of January 15, 2002, and as of October 5, 2006 (the “Trust Agreement”) establishing a trust (the “Trust”) for the purpose of holding monies and other property in connection with certain nonqualified deferred compensation plans maintained by the Company (the “Plans”); and

        WHEREAS, pursuant to Section 14(a) of the Trust Agreement, the Trust Agreement may be amended by a written instrument executed by the Trustee and the Company;

NOW, THEREFORE, the Trust Agreement is amended, effective May 1, 2012 as follow:

 

  1. Section 5(a) of the Trust Agreement is amended and restated in its entirety to provide as follows:

 

  “(a) Except as provided in Sections 2(c), 3, 5(b), 8(a) and 14(f), the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to the Participants and Beneficiaries pursuant to the terms of the Arrangements.”

 

  2. A new Subsection 14(f) is added to the Trust Agreement to provide as follows:

 

  “(f) In connection with the April 30, 2012 corporate spinoff of Phillips 66 from ConocoPhillips, the Company shall have the right and power to direct the Trustee to transfer Trust assets to trusts established by Phillips 66 or its subsidiaries for the benefit of Plan Participants and Beneficiaries whose employment and Plan liabilities are transferred to Phillips 66 or its subsidiaries.”

The Trust Agreement is in all other respects ratified and confirmed without amendment.

        IN WITNESS WHEREOF, this amendment to the Trust Agreement has been executed on behalf of the parties hereto on the day and year first above written.

 

CONOCOPHILLIPS COMPANY

    WELLS FARGO BANK, N.A.
By:   /s/ Frances M. Vallejo     By:   /s/ Alan C. Frazier
Its:   Vice President and Treasurer     Its:   Senior Vice President

 

ATTEST

    ATTEST
By:   /s/ Leisa C. Munoz     By:   /s/ Tracy C. Hartsell
Its:   Assistant Secretary     Its:   Vice President

Exhibit 10.17.8

FIFTH AMENDMENT TO THE TRUST AGREEMENT UNDER THE

CONOCOPHILLIPS COMPANY

GRANTOR TRUST AGREEMENT

WHEREAS, Phillips Petroleum Company (now ConocoPhillips Company, hereinafter “Company”) and Wachovia Bank, National Association (now Wells Fargo Bank, N.A., hereinafter the “Trustee”) entered into an amended and restated trust agreement as of June 1, 1998, subsequently amended as of May 3, 1999, as of January 15, 2002, as of October 5, 2006, and as of May 1, 2012 (the “Trust Agreement”), establishing a trust (the “Trust”) for the purpose of holding monies and other property in connection with certain nonqualified deferred compensation plans maintained by the Company (the “Plans”); and

WHEREAS, pursuant to Section 14(a) of the Trust Agreement, the Trust Agreement may be amended by a written instrument executed by the Trustee and the Company;

NOW, THEREFORE, the Trust Agreement is amended, effective May 1, 2015, as follow:

 

  1. The fourth sentence of Section 2(c) of the Trust Agreement is amended and restated in its entirety to provide as follows:

 

    “In the event the Company makes such payments directly, the Company may request the Trustee within sixty (60) months of the making of the payment to reimburse the Company for such payment from the Trust, and upon receipt of evidence satisfactory to the Trustee that such payment has been made, the Trustee shall pay such reimbursement to the Company.”

The Trust Agreement is in all other respects ratified and confirmed without amendment.

IN WITNESS WHEREOF, this amendment to the Trust Agreement has been executed on behalf of the parties hereto on the 20 day of May, 2015.

 

CONOCOPHILLIPS COMPANY

    WELLS FARGO BANK, N.A.
By:       /s/ Jeff W. Sheets     By:       /s/ Andy Franck
  Jeff W. Sheets      
Its:       Executive Vice President, Finance,     Its:       Vice President
  And Chief Financial Officer      

ATTEST

    ATTEST
By:       /s/ Leisa C. Munoz     By:       /s/ Tonya M. Inscore
  Leisa C. Munoz      
Its:       Assistant Secretary     Its:       Senior Vice President

Exhibit 10.26.12

 

LOGO

STOCK OPTION PROGRAM

FEBRUARY 16, 2016

KEY EMPLOYEE AWARD

TERMS AND CONDITIONS

This Key Employee Award Terms and Conditions describes terms and conditions of Stock Option (or Stock Appreciation Rights) Awards, as part of the ConocoPhillips Stock Option Program (Program), granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (referred to as the Plan) by ConocoPhillips (Company) to certain eligible Employees (Employees). These Terms and Conditions, together with the Award Summary given to each Employee receiving an Award, form the Award Agreement (the Agreement) relating to the Awards described. The Agreement covers both Stock Options and Stock Appreciation Rights, and the term Employee covers recipients of Awards made either in Stock Options or Stock Appreciation Rights.

 

1.

Type and Size of Grant . Subject to the Plan and this Agreement, the Company grants to certain eligible Employees a Nonqualified Stock Option to purchase all or any part of an aggregate number of shares of Common Stock of the Company. In certain countries, grants will be in the form of Stock Appreciation Rights (SARs). Individual awards will be as set forth in the Award Summary given to each Employee to whom an Award is granted. The Award Summary for each Employee is made a part of this Agreement with regard to such Employee.

 

2.

Grant Date, Price, and Plan . The grant date is February 16, 2016 and the Grant Price is set forth on the Award Summary given to each Employee to whom an Award is granted. Awards are made under the 2014 Omnibus Stock and Performance Incentive Plan.

 

3.

Term of Awards, Exercise Installments, and Last Date to Exercise . Except as otherwise noted in this Agreement, the following summary table describes term of awards, exercise installments, and last date to exercise, subject to the more detailed provisions set forth below:

 

- 1 -


Summary Table

 

 

Summary of Exercise Rules

Status   Condition    Last Date to Exercise

Active Employee

       10 years from grant date

Retirement (age 55 and 5

years of service)

 

Prior to 6

months from

grant date

   Canceled upon Termination
 

6 months from

grant date &

after

   10 years from grant date

Layoff

 

Prior to 6

months from

grant date

   Canceled upon Termination
 

6 months to 1

year from grant

date

   10 years from grant date (award is prorated)
 

1 year from

grant date &

after

   10 years from grant date

Disability

 

Any date after

grant date

   10 years from grant date

Death

 

    Any date after    

grant date

   10 years from grant date

Divestitures, outsourcing, and

moves to joint ventures

 

Any date after

grant date

   Canceled upon Termination, unless approval otherwise

All other Terminations

       Canceled upon Termination

 

(a)

Exercise Installments and Expiration . Stock Options/SAR’s granted under this Agreement will become exercisable to the extent that one third of the number of shares of Stock subject to the Stock Option/SAR (rounded down to nearest whole share) shall be exercisable on the first anniversary date of the Stock Option/SAR grant. On the second anniversary date of the Stock Option/SAR grant, an additional one third of the number of shares of Stock (rounded down to nearest whole share) shall become exercisable. On the third anniversary date of the Stock Option/SAR grant, the remaining shares shall become exercisable. To the extent that an installment is not exercised when it becomes first exercisable, it will remain exercisable at any time thereafter until the Award shall be canceled, expire, or be surrendered. A Stock Option or SAR expires on the tenth anniversary of the date on which it was granted.

 

(b)

Last Date to Exercise (Terminations) .

  (i)

General Rule for Termination . If, prior to the exercise of Stock Options/SAR grants, the Optionee’s employment with a Participating Company shall be terminated for any reason except death, Disability, Retirement, or Layoff, such Award shall be canceled and all rights thereunder shall cease; provided that the Authorized Party may, in its or his sole discretion, determine that all or any portion of any other Award shall not be canceled due to Termination of Employment.

 

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  (ii)

Layoff Within Six Months . If, prior to a date six months from the date an Award is granted, the Optionee’s employment with a Participating Company shall be terminated by reason of Layoff, such Award shall be canceled and all rights thereunder shall cease.

 

  (iii)

Layoff After Six Months but Within One Year . If, on or after a date six months from the date an Award is granted but prior to a date one year from the date an Award is granted, the Optionee’s employment with a Participating Company shall be terminated by reason of Layoff, the Optionee shall retain a prorated number of the Award shares granted. The number of Award shares retained will be computed by multiplying the original number of Award shares granted by a fraction, the numerator of which is the number of full months of employment from the first day of the month in which the Award was granted until the date the employee is terminated and the denominator of which is 12. Such calculation shall be rounded down to the nearest whole share.

 

  (iv)

Layoff After One Year . If, on or after a date one year from the date an Award is granted, the Optionee’s employment with a Participating Company shall be terminated by reason of Layoff, the Optionee shall retain all rights provided by the Award at the time of such Termination of Employment.

 

  (v)

Retirement After Six Months . If, on or after a date six months from the Grant Date of an Award, the Optionee’s employment with a Participating Company shall be terminated by reason of Retirement, the Optionee shall retain all rights provided by the Award at the time of such Termination of Employment.

 

  (vi)

Disability . If, after the date the Award is granted, an Optionee shall terminate employment following Disability of the Optionee, the Optionee shall retain all rights provided by the Award at the time of such Termination of Employment.

 

  (vii)

Death . If, after the date an Award is granted, an Optionee shall die while in the employ of a Participating Company , or after Termination of Employment by reason of Retirement, Disability, or Layoff (and prior to the cancellation of the Award), the executor or administrator of the estate of the Optionee or the person or persons to whom the Award shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent and distribution shall have the right to exercise the Award to the same extent the Optionee could have, had the Optionee not died. No transfer of an Award by the Optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of such Award.

 

  (viii)

Transfers and Leaves . Transfer of employment between Participating Companies shall not constitute Termination of Employment for the purpose of any Award granted under the Program. Whether any leave of absence shall constitute Termination of Employment for the purposes of any Award granted under the Program shall be determined in each case in accordance with applicable law and by application of the policies and procedures adopted by the Company in relation to such leave of absence.

 

  (ix)

Divestiture, Outsourcing, or Move to Joint Venture . If, after the date the Award is granted, an Optionee ceases to be employed by a Participating Company as a result of (a) the outsourcing of a function, (b) the sale or transfer of all or a portion of the equity

 

- 3 -


 

interest of such Participating Company (removing it from the controlled group of companies of which the Company is a part), (c) the sale of all or substantially all of the assets of such Participating Company to another employer outside of the controlled group of corporations (whether the Optionee is offered employment or accepts employment with the other employer), (d) the Termination of the Optionee by Participating Company followed by employment within a reasonable time with a company or other entity in which the Company owns, directly or indirectly, at least a 50% interest, prior to exercise of an Award, or (e) any other sale of assets determined by the Authorized Party to be considered a divestiture under this program, the Authorized Party may, in its or his sole discretion, determine that all or a portion of any such Award shall not be canceled.

 

  (x)

Change of Control . Upon a Change of Control, the following shall apply to any Stock Option (or SAR):

  (1)

Each Employee shall immediately become fully vested in such Stock Option (or SAR) that is not assumed, or substituted for, by the an acquirer in connection with the Change of Control, and such Stock Option or (SAR) shall not thereafter be forfeitable for any reason.

  (2)

With regard to any other Stock Option (or SAR), each Employee shall become fully vested in such Stock Option (or SAR) upon incurring a Severance following such Change of Control, and such Stock Option (or SAR) shall not thereafter be forfeitable for any reason.

  (3)

Any Stock Option (or SAR) granted to the Employee shall be exercisable at the times set forth herein. Each such Stock Option (or SAR) shall remain outstanding until ten years from the date of grant, notwithstanding any provision of the Award Agreement or the Plan to the contrary.

 

(c)

Detrimental Activities and Suspension of Exercises .

  (i)

If the Authorized Party determines that, subsequent to the grant of any Award but prior to any Change of Control, the Employee has engaged or is engaging in any activity which, in the sole judgment of the Authorized Party, is or may be detrimental to the Company or a subsidiary, the Authorized Party may suspend the right of the Employee to exercise, refuse to honor the exercise of the Employee’s Awards already requested, or cancel all or part of the Award granted to the Employee. Upon any Change of Control, the Authorized Party may suspend the right of the Employee to exercise, refuse to honor the exercise of the Employee’s Awards already requested, or cancel all or part of the Award granted to the Employee only upon a determination by the Authorized Party that the Employee has given the Company Cause for such cancellation.

 

  (ii)

If the Authorized Party, in its or his sole discretion, determines that the exercise of any Award has the possibility of violating any law, regulation, or decree pertaining to the Company, any of its subsidiaries, or the Employee, the Authorized Party may freeze or suspend the Employee’s right to exercise until such time as the exercise of the Award would no longer, in the sole discretion of the Authorized Party, have the possibility of violating such law, regulation, or decree.

 

  (iii)

Notwithstanding anything herein to the contrary, any Award is subject to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

 

- 4 -


4.

Exercising the Stock Option . The Company has retained outside firms to administer Stock Options (and SARs) granted under the Plans (the “third party administrators”). The Option (or SAR) must be exercised in accordance with methods and at times set by the third party administrator and by the Employee’s delivering to the third party administrators such authorization as may be required.

 

5.

Payment for Shares . The Grant Price for all shares of Stock purchased upon the exercise of a Stock Option, or a portion thereof, shall be paid in full at the time of such exercise. Such payment may be made in cash or by tendering shares of Stock having a value on the date of exercise equal to the Grant Price. Such value shall be the average of the high and low trading prices of the stock on the day of exercise. If the Optionee makes payment of the Grant Price by tendering shares of Stock, such Stock must be registered in the sole name of the Optionee on the exercise date or an appropriate Stock Power acceptable to the Company to transfer such stock to the sole name of the Optionee must be provided at the time of exercise. In the case of an Optionee who makes payment of the Grant Price by tendering shares of Stock, if the Company deems it appropriate, and if allowed by the applicable laws, regulations, and rulings, the Company may accept an attestation from the Optionee in lieu of actual physical delivery to the Company of the shares to be tendered. The attestation must indicate the number of shares held, and if deemed necessary by the Company, the certificate numbers if the Stock is held in certificate form, or the broker and brokerage account number if the shares are held in a brokerage account, and any other information necessary to confirm ownership of the shares. The Company may not accept an attestation in lieu of physical delivery of the shares unless the shares are held in the sole name of the Optionee either in certificate form, or in a single brokerage account, or in such other form as the Company may deem appropriate. Depending on its source, Stock tendered in the exercise of a Stock Option must have met the appropriate holding period required by current tax, accounting, legal, or other applicable rules and regulations. At the election of the Optionee (but subject to any administrative limitations on exercise of Stock Options or permissible methods of option exercise imposed), the Stock Option may also be exercised by a “net-share settlement” method for exercising outstanding nonqualified stock options. The Committee, in its sole discretion and judgment, limit the extent to which shares of Stock may be used in exercising Stock Options or limit the use of any method or time of option exercise.

 

6.

Assignment of Option and Exercises After Death . Rights under the Plans and this Agreement cannot be assigned or transferred other than by (i) will, (ii) beneficiary designation, or (iii) the laws of descent and distribution. In the event that a beneficiary designation conflicts with an assignment by will or under the laws of descent and distribution, the beneficiary designation will prevail. Upon the death of an Employee, exercise of the grant will be permitted only by the Employee’s designated beneficiary, executor, or personal representative of the Employee’s estate.

 

7.

Tax Withholding . In the U.S. and many countries, the difference between the Grant Price and the value of the stock at the time of an Option exercise multiplied by the number of shares purchased is compensation subject to tax withholding. The Option exercise will not be completed until all federal, state, local, and other governmental withholding tax requirements have been met. Should a withholding tax obligation arise upon the exercise of a Stock Option, the withholding tax may be satisfied by withholding shares of Stock or by payment of cash. This withholding obligation includes, but is not limited to, federal, state, and local taxes, including applicable non-U.S. taxes, such as U.K. PAYE. The plan administrator will take such steps, as it deems necessary or desirable for the withholding of any taxes that are required by laws or regulations of any governmental authority in connection with any exercise. For SARs, the SAR Gain will be paid through the local payroll and is subject to applicable withholding taxes.

 

- 5 -


8.

Shareholder Rights . The Employee shall not have the rights of a shareholder until the Option (or SAR) has been exercised and ownership of shares of Common Stock has been transferred to the Employee.

 

9.

Certain Adjustments . In the event certain corporate transactions, recapitalizations, or stock splits occur while a Stock Option (or SAR) is outstanding, the Grant Price and the number of Stock Option Shares (or SARs) shall be correspondingly adjusted.

 

10.

Relationship to the Plan .   In addition to the terms and conditions described in this Agreement, Awards are subject to all other applicable provisions of the Plan. The decisions of the Committee with respect to questions arising as to the interpretation of the Plan or this Agreement or as to findings of fact shall be final, conclusive, and binding.

 

11.

No Employment Guarantee . No provision of this Agreement shall confer any right upon the Employee to continued employment with any Participating Company.

 

12.

Governing Law . This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware.

 

13.

Amendment . Without the consent of the Employee, this Agreement may be amended or supplemented (i) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or (ii) to add to the covenants and agreements of the Company for the benefit of an Employee or to add to the rights of an Employee or to surrender any right or power reserved to or conferred upon the Company in this Agreement, provided, in each case, that such changes or corrections shall not adversely affect the rights of the Employee with respect to the grant of an Option (or SAR) evidenced hereby without the Employee’s consent, or (iii) to make such other changes as the Company, upon advice of counsel, determines are necessary or advisable because of the adoption or promulgation of, or change in or of the interpretation of, any law or governmental rule or regulation, including any applicable federal or state securities or tax laws.

 

- 6 -


DEFINITIONS

Capitalized terms not defined below shall have the meanings set forth in the Plan under which the Award is granted.

“Authorized Party” means the person who is authorized to approve an Award, exercise discretion or take action under the Administrative Procedure for the Stock Option (and Stock Appreciation Rights) Program and pursuant to the Program. With regard to Senior Officers, the Committee is the Authorized Party. With regard to other Employees, the Chief Executive Officer, acting as the Special Equity Award Committee of the Board of Directors of the Company, is the Authorized Party, although the Committee may act concurrently as the Authorized Party.

“Award” means any Stock Option or SAR granted to an Employee pursuant to such applicable terms, conditions, and limitations as the Authorized Party may establish in order to fulfill the objectives of the Program.

“Cause” means “Cause” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan .

“Change of Control” has the meaning set forth in Attachment A to these Terms and Conditions.

“Committee” means the Human Resources and Compensation Committee of the Board of Directors of the Company, or any successor committee to it.

“Common Stock” means common stock, par value $.01 per share, of the Company.

“Company” means ConocoPhillips a Delaware corporation.

“Disability” means a disability for which the employee in question has been determined to be entitled to either (i) benefits under the applicable plan of long-term disability of the Company or its subsidiaries or (ii) disability benefits under the Social Security Act. In the absence of any such determination, the Authorized Party may make a determination that the employee has a Disability.

“Fair Market Value” means, as of a particular date, the mean between the highest and lowest sales price per share of such Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the next succeeding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise.

“Good Reason” means “Good Reason” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.

“Grant Price” means the price at which an Employee may exercise his or her right to receive cash or Common Stock, as applicable, under the terms of an Award.

“Key Employee Change in Control Severance Plan of ConocoPhillips” means the plan of that name (or a successor plan to the plan of that name) in effect on an applicable Change of Control. If no plan of that name (or successor plan to the plan of that name) is in effect on an applicable Change of Control, it shall mean instead the plan of that name in effect on the date of the Award.

 

- 7 -


Layoff” means an applicable Termination of Employment due to layoff under the ConocoPhillips Severance Pay Plan, the ConocoPhillips Executive Severance Plan, or the ConocoPhillips Key Employee Change in Control Severance Plan, or layoff or redundancy under any similar layoff or redundancy plan which the Company or its subsidiaries may adopt from time to time. If all or any portion of the benefits under the redundancy or layoff plan are contingent on the employee’s signing a general release of liability, such Termination shall not be considered as a “Layoff” for purposes of this Award unless the employee executes and does not revoke a general release of liability, acceptable to the Company, under the terms of such layoff or redundancy plan.

“Nonqualified Stock Option” means a Stock Option that is not an Incentive Stock Option.

“Optionee” means an individual holding a Stock Option or SAR.

“Option Shares” means the shares of Common Stock issuable upon exercise of a Stock Option covered by this Agreement.

“Participating Company” includes ConocoPhillips and its 100% owned subsidiaries, including both those directly owned and those owned through subsidiaries, whose participation has been approved by the Authorized Party.

“Retirement” means Termination at age 55 or older with a minimum of 5 years service with a Participating Company; provided, however, that with regard to an Employee not on the United States payroll, the CEO may approve the use of a different definition. Service is defined by the policies of the Participating Company.

“Senior Officer” means the Chairman of the Board, the CEO, all other executive officers of the Company (determined in accordance with the Company’s custom and practice pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended), all other employees of the Company who report directly to the CEO and whose salary grade is 23 or higher, and all other employees of the Company whose salary grade is 26 or higher.

“Severance” means “Severance” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan, and shall also incorporate the meaning of the terms “Cause” and “Good Reason” contained in the definition of “Severance” in such plan.

“Stock” means shares of common stock of the Company, par value $.01.

“Stock Appreciation Right” or “SAR” means a right to receive a payment, in cash equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the right is exercised over a specified Grant Price, in each case, as determined by the Authorized Party.

“Stock Option” means the right to purchase a specified number of shares of Common Stock at a specified Grant Price pursuant to such applicable terms, conditions, and limitations established by the Authorized Party.

“SAR Gain” means the difference between the Grant Price and the Fair Market Value (or other specified valuation) of a share of Common Stock at the time of an SAR exercise, multiplied by the number of shares that are exercised.

 

- 8 -


“Termination” or “Termination of Employment” means cessation of employment with the Participating Companies, determined in accordance with the policies and practices of the Participating Company for whom the Employee was last performing services.

 

- 9 -


Attachment “A”

“Change of Control”

The following definitions apply to the Change of Control provision in Section 10 of the Plan.

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination.

“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Beneficial Owner” shall mean, with reference to any securities, any Person if:

(a) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities;

(b) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or

(c) such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a shareholder list, to call a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of section 14(a) of the Exchange Act) in respect of such security.

 

- 10 -


The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”

“Board” shall have the meaning set forth in the Plan.

“Change of Control” shall mean any of the following occurring on or after January 1, 2016:

(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding solely as a result of (i) any acquisition directly from the Company or (ii) any acquisition by a Person pursuant to a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition;

(b) individuals who, as of January 1, 2016, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 1, 2016 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c) the Company shall consummate a reorganization, merger, statutory share exchange, consolidation, or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such Business Combination were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such Business Combination; or

 

- 11 -


(d) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition.

“Common Stock” shall have the meaning set forth in the Plan.

“Company” shall have the meaning set forth in the Plan.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exempt Person” shall mean any of the Company, any entity controlled by the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, and any Person organized, appointed, or established by the Company for or pursuant to the terms of any such employee benefit plan.

“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock (i.e., are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of January 1, 2016 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.

“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization, or other entity.

“Voting Stock” shall mean, (1) with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of, or to appoint by contract, directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (ii) with respect to an entity which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.

 

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Exhibit 10.26.14

 

LOGO

RESTRICTED STOCK PROGRAM

FEBRUARY 16, 2016

KEY EMPLOYEE AWARD

TERMS AND CONDITIONS

This Key Employee Award Terms and Conditions describes terms and conditions of Restricted Stock or Restricted Stock Unit Awards, as part of the ConocoPhillips Restricted Stock Program (Program), granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (referred to as the Plan) by ConocoPhillips (Company) to certain eligible Employees (Employees). These Terms and Conditions, together with the Award Summary given to each Employee receiving an Award, form the Award Agreement (the Agreement) relating to the Awards described. The Agreement covers both Restricted Stock and Restricted Stock Units, and the term Employee covers recipients of Awards made either in Restricted Stock or Restricted Stock Units.

 

1.

Type and Size of Grant . Subject to the Plan and this Agreement, the Company grants to certain eligible Employees Restricted Stock or Restricted Stock Units. Individual awards will be as set forth in the Award Summary given to each Employee to whom an Award is granted. The Award Summary for each Employee is made a part of this Agreement with regard to such Employee.

 

2.

Grant Date, Price, and Plan . The Grant Date is February 16, 2016 . The Grant Price is set forth on the Award Summary given to each Employee to whom an Award is granted. Awards are made under the 2014 Omnibus Stock and Performance Incentive Plan.

 

3.

Restrictions, Forfeiture, and Lapse of Restrictions . The Restricted Stock or Restricted Stock Units subject hereto may be canceled or forfeited as set forth herein. Except as otherwise noted in this Agreement, the following summary table describes restrictions and terms, forfeiture, and lapse of restrictions, subject to the more detailed provisions set forth below:

 

Page 1 of 11


Summary Table

 

 

 

Summary of Termination Rules

Status  

Termination

Date

   Forfeiture or Lapsing of Restrictions
Retirement (age 55 and 5 years of service)  

Prior to 6

months from

grant date

   Canceled upon Termination
 

6 months from

grant date &

after

   Restrictions lapse on Termination date
Layoff  

Prior to 6

months from

grant date

   Canceled upon Termination
 

6 months to 1

year from grant

date

   Award is prorated and restrictions on remaining stock/units lapse on Termination date
 

1 year from

grant date &

after

   Restrictions lapse on Termination date
Disability  

Any date after

grant date

   Restrictions lapse on Termination date
Death  

Any date after

grant date

   Restrictions lapse on Termination date
Divestitures, outsourcing, and moves to joint ventures  

Any date after

grant date

   Canceled upon Termination, unless approval otherwise
All other Terminations        Canceled upon Termination

 

(a)

Restrictions and Terms .

  (i)

The Award shall be held in escrow by the Company until the lapsing of restrictions placed upon the Award. The Employee shall not have the right to sell, transfer, assign, or otherwise dispose of Restricted Stock or Restricted Stock Units granted in an Award until the escrow is terminated. Except as set forth below, the Award shall be forfeited and the related Restricted Stock or Restricted Stock Units canceled upon the Employee’s Termination of Employment with the Company prior to the lapsing of restrictions. Restrictions shall lapse on the Restricted Stock or Restricted Stock Units granted in an Award on the third anniversary of the Grant Date. Upon the lapsing of restrictions, the number of shares of unrestricted Stock equal to the number of shares of Restricted Stock or Restricted Stock Units for which the restrictions have so lapsed shall be registered in the Employee’s name, and the related shares of Restricted Stock or Restricted Stock Units shall be canceled; provided, however, that the Administrator may choose instead to issue any Restricted Stock with the restrictions removed, rather than cancel such Restricted Stock and issue unrestricted Stock; and further provided, however, that in places where it is determined by the Administrator that payout in the form of unrestricted Stock is prohibited by law, regulation, or decree, or where the cost of legal compliance to issue the unrestricted Stock would be unreasonably expensive, the Fair Market Value of such unrestricted Stock shall be paid in cash instead of settlement of the Award in unrestricted Stock. Cash payouts are only permitted where such legal restrictions exist. Settlement of the Award in unrestricted Stock or cash payout, if any, shall be made upon the lapsing of restrictions on the Award, but, in any event, shall be made no later than March 15 of the year following the year in which such restrictions lapse.

 

Page 2 of 11


  (ii)

Restricted Stock Units do not have any voting rights or other rights generally associated with Stock, and are merely an obligation of the Company to make settlement in accordance with the terms and conditions applicable to such Restricted Stock Units. Restricted Stock Units granted to Employees who are resident in the United States or the United Kingdom on the Grant Date shall accrue a dividend equivalent at such times as an ordinary quarterly cash dividend is paid on the Stock of the Company, which dividend equivalent shall be paid in cash to the Employee to whom the Award was made. Restricted Stock Units granted to Employees other than those described in the previous sentence shall not accrue a dividend equivalent. Payment of a dividend equivalent, if any, shall be made on the first day of the third month of each calendar quarter (or, if the New York Stock Exchange is not open on such day, the first day that the New York Stock Exchange is open thereafter), and, in any event, shall be made no later than March 15 of the year following the year in which the ordinary quarterly cash dividend is paid.

  (iii)

When an Award is made of Restricted Stock, such Restricted Stock will be held in escrow for the Employee to whom the Award is made. The Employee to whom the Award is made will have all rights of ownership to such stock including, but not limited to, voting rights and the right to receive dividends, except that the Employee to whom the Award is made shall not have the right to sell, transfer, assign, or otherwise dispose of such shares until the escrow is terminated. The escrow shall end upon, and to the extent of, the lapsing of restrictions.

 

(b)

Termination of Employment .

 

  (i)

General Rule for Termination . If, prior to the date on which restrictions lapse in accordance with the schedule set forth in the Award, the Employee’s employment with a Participating Company shall be terminated for any reason except death, Disability, Retirement, or Layoff, any Restricted Stock or Restricted Stock Units remaining in escrow pursuant to such Award shall be canceled and all rights thereunder shall cease; provided, however, that the Authorized Party may, in its or his sole discretion, determine that all or any portion of an Award shall not be canceled due to Termination of Employment.

 

  (ii)

Layoff Within Six Months . If, prior to a date six months from the date an Award is granted, the Employee’s employment with a Participating Company shall be terminated by reason of Layoff, such Award shall be canceled and all rights thereunder shall cease.

 

  (iii)

Layoff Within One Year . If, on or after a date six months from the date an Award is granted but prior to a date one year from the date an Award is granted, the Employee’s employment with a Participating Company shall be terminated by reason of Layoff, the Employee shall retain a prorated number of the Award shares or units granted. The number of Award shares or units retained will be computed by multiplying the original number of Award shares or units granted by a fraction, the numerator of which is the number of full months of employment from the first day of the month in which the Award was granted until the date the employee is terminated and the denominator of which is 12. Such calculation shall be rounded down to the nearest whole share. In such case, the restrictions on the prorated Award shall lapse on the date of Termination of the Employee from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions above.

 

  (iv)

Layoff After One Year . If, on or after a date one year from the date an Award is granted, the Employee’s employment with a Participating Company shall be terminated by reason of Layoff, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment. In such case, the restrictions on the Award shall lapse on the date of Termination of the Employee from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions above.

 

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  (v)

Retirement After Six Months . If, on or after a date six months after the Grant Date of an Award, the Employee’s employment with a Participating Company shall be terminated by reason of Retirement, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment. In such case, the restrictions on the Award shall lapse on the date of Termination of the Employee from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions above.

 

  (vi)

Disability . If, after the date the Award is granted, an Employee shall terminate employment following Disability of the Employee, the Employee shall retain all rights provided by the Award at the time of such Termination of Employment. In such case, the restrictions on the Award shall lapse on the date of Termination of Employment from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions above.

 

  (vii)

Death . If, after the date an Award is granted, a Employee shall die while in the employ of a Participating Company , or after Termination of Employment by reason of Retirement, Disability, or Layoff (and prior to the cancellation of the Award), the executor or administrator of the estate of the Employee or the person or persons to whom the Award shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent and distribution shall have the right to settlement of the Award to the same extent the Employee would have, had the Employee not died. In such case, the restrictions on the Award shall lapse upon the determination of death by the Administrator, and settlement shall be made in accordance with the settlement provisions above. No transfer of an Award, or of the unrestricted Stock or other proceeds of an Award, by the Employee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Administrator shall have been furnished with written notice thereof and a copy of the will and such other evidence as the Administrator may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of such Award.

 

  (viii)

Transfers and Leaves . Transfer of employment between Participating Companies shall not constitute Termination of Employment for the purpose of any Award granted under the Program. Whether any leave of absence shall constitute Termination of Employment for the purposes of any Award granted under the Program shall be determined by the Administrator, in each case in accordance with applicable law and by application of the policies and procedures adopted by the Company in relation to such leave of absence.

 

  (ix)

Divestiture, Outsourcing, or Move to Joint Venture . If, after the date the Award is granted, a Employee ceases to be employed by Participating Company as a result of (a) the outsourcing of a function, (b) the sale or transfer of all or a portion of the equity interest of such Participating Company (removing it from the controlled group of companies of which the Company is a part), (c) the sale of all or substantially all of the assets of such Participating Company to another employer outside of the controlled group of corporations (whether the Employee is offered employment or accepts employment with the other employer), (d) the Termination of the Employee by a Participating Company followed by employment within a reasonable time with a company or other entity in which the Company owns, directly or indirectly, at least a 50% interest, prior to exercise of an Award, or (e) any other sale of assets determined by the Authorized Party to be considered a divestiture under this program, the Authorized Party may, in its or his sole discretion, determine that all or a portion of any such Award shall not be canceled. In such cases, the restrictions on the Award shall lapse on the date of Termination of the Employee from the employ of the Company and its subsidiaries, and settlement shall be made in accordance with the settlement provisions above.

 

  (x)

Change of Control . Upon a Change of Control, the following shall apply to any Award:

 

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  (1)

Each Employee shall immediately become fully vested in such Award that is not assumed, or substituted for, by the an acquirer in connection with the Change of Control, and such Award shall not thereafter be forfeitable for any reason, except as set forth in Section 3(c).

 

  (2)

With regard to any other Award, each Employee shall become fully vested in such Award upon incurring a Severance following such Change of Control, and such Award shall not thereafter be forfeitable for any reason, except as set forth in Section 3(c).

 

  (3)

In the event of vesting of an Award pursuant to either Section 3(x)(1) or Section 3(x)(2), all restrictions and other limitations applicable to any Restricted Stock granted in any Award shall lapse. With regard to such Restricted Stock, it shall become free of all restrictions and become transferable. With regard to such Restricted Stock Units, all restrictions and other limitations applicable to the Restricted Stock Units shall lapse and the Restricted Stock Units shall be settled in unrestricted Stock or cash at the same times and upon the same events as it would otherwise have been made in accordance with the settlement provisions above.

 

  (xi)

Notwithstanding anything herein to the contrary, in the event that this Award or the dividend equivalents associated with this Award are includible in income pursuant to section 409A of the Internal Revenue Code, settlement of the Award or any other distribution hereunder due to Separation from Service with the Company and its subsidiaries shall not be made to a “specified employee” (as that term is defined in section 409A(a)(2)(B)(i)) prior to six months after the specified employee’s Separation from Service from the Company and its subsidiaries (or, if earlier, the date of death of the specified employee).

 

(c)

Detrimental Activities and Suspension of Award .

 

  (i)

If the Authorized Party determines that, subsequent to the grant of any Award but prior to any Change of Control, the Employee has engaged or is engaging in any activity which, in the sole judgment of the Authorized Party, is or may be detrimental to the Company or a subsidiary, the Authorized Party may cancel all or part of the Restricted Stock or Restricted Stock Units held in escrow pursuant to the Award or Awards granted to that Employee. Upon any Change of Control, the Authorized Party may cancel all or part of the Restricted Stock or Restricted Stock Units held in escrow pursuant to the Award granted to the Employee only upon a determination by the Authorized Party that the Employee has given the Company Cause for such cancellation.

 

  (ii)

If the Authorized Party, in its or his sole discretion, determines that the lapsing of restrictions on Restricted Stock or Restricted Stock Units held in escrow pursuant to any Award has the possibility of violating any law, regulation, or decree pertaining to the Company, any of its subsidiaries, or the Employee, the Authorized Party may freeze or suspend the Employee’s right to settlement or payout of the Award until such time as the lapse of restrictions would no longer, in the sole discretion of the Authorized Party, have the possibility of violating such law, regulation, or decree.

 

  (iii)

Notwithstanding anything herein to the contrary, any Award is subject to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

 

4.

Assignment of Award Upon Death . Rights under the Plans and this Agreement cannot be assigned or transferred other than by (i) will or (ii) the laws of descent and distribution.

 

Page 5 of 11


5.

Tax Withholding . In all cases the Employee will be responsible to pay all required withholding taxes applicable to an Award. Should a withholding tax obligation arise with regard to an Award or the lapsing of restrictions on Restricted Stock or Restricted Stock Units granted in an Award, the withholding tax may be satisfied by withholding shares of Stock. The value of the shares of Stock withheld for this purpose shall be an amount consistent with applicable laws and regulations. In cases where a withholding tax obligation arises prior to the lapse of restrictions on Restricted Stock or Restricted Stock Units granted in an Award, the withholding tax may be satisfied instead by payment of cash by the Employee. Payment of cash shall not be allowed unless the Employee has elected to make such payment by payroll withholding over a period of six months following the date the obligation shall arise, which election must be made within thirty days of the Grant Date of the relevant Award. If any interest is required under local laws, regulations, or decrees to be charged on or imputed against the payroll withholding, the Employee shall be responsible for paying such interest, which shall be withheld from pay over the same six-month period. In cases where payment by payroll withholding cannot be made due to circumstances arising after the election or where the Administrator has determined that such withholding would violate any applicable law, regulation, or decree, shares of Stock shall be withheld instead. When necessary, lapsing of restrictions may be accelerated by the Authorized Party to the extent necessary to provide shares of Stock to satisfy any withholding tax obligation. This withholding tax obligation includes, but is not limited to, federal, state, and local taxes, including applicable non-U.S. taxes such as U.K. PAYE. If Australian tax law applies to the Employee, then an Award is a scheme to which Subdivision 83A-C of the Income Tax Assessment Act 1997 of Australia applies (subject to the conditions in that Act).

 

6.

Shareholder Rights for Restricted Stock Units . The Employee shall not have the rights of a shareholder until the Restricted Stock Unit has been canceled and ownership of shares of Stock has been transferred to the Employee. As described above, the Company may pay dividend equivalents with regard to Restricted Stock Units in certain circumstances.

 

7.

Certain Adjustments . In the event certain corporate transactions, recapitalizations, or stock splits occur while Restricted Stock or Restricted Stock Units are outstanding, the Grant Price and the number of shares of Restricted Stock or Restricted Stock Units shall be correspondingly adjusted.

 

8.

Relationship to the Plan . In addition to the terms and conditions described in this Agreement, Awards are subject to all other applicable provisions of the Plan. The decisions of the Committee with respect to questions arising as to the interpretation of the Plan or this Agreement or as to findings of fact shall be final, conclusive, and binding.

 

9.

No Employment Guarantee . No provision of this Agreement shall confer any right upon the Employee to continued employment with any Participating Company.

 

10.

Governing Law . This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware.

 

11.

Amendment . Without the consent of the Employee, this Agreement may be amended or supplemented (i) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or (ii) to add to the covenants and agreements of the Company for the benefit of an Employee or to add to the rights of an Employee or to surrender any right or power reserved to or conferred upon the Company in this Agreement, provided, in each case, that such changes or corrections shall not adversely affect the rights of the Employee with respect to the grant of an Award evidenced hereby without the Employee’s consent, or (iii) to make such other changes as the Company, upon advice of counsel, determines are necessary or advisable because of the adoption or promulgation of, or change in or of the interpretation of, any law or governmental rule or regulation, including any applicable federal or state securities or tax laws.

 

Page 6 of 11


DEFINITIONS

Capitalized terms not defined below shall have the meanings set forth in the Plan.

“Authorized Party” means the person who is authorized to approve an Award, exercise discretion, or take action under the Administrative Procedure for the Restricted Stock Program and pursuant to the Program. With regard to Senior Officers, the Committee is the Authorized Party. With regard to other Employees, the Chief Executive Officer, acting as the Special Equity Award Committee of the Board of Directors of the Company, is the Authorized Party, although the Committee may act concurrently as the Authorized Party.

“Award” means any Restricted Stock or Restricted Stock Units granted to an Employee pursuant to such applicable terms, conditions, and limitations as the Authorized Party may establish in order to fulfill the objectives of the Program.

“Cause” means “Cause” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan .

“Change of Control” has the meaning set forth in Attachment A to these Terms and Conditions.

“Committee” means the Human Resources and Compensation Committee of the Board of Directors of the Company, or any successor committee to it.

“Company” means ConocoPhillips, a Delaware corporation.

“Disability” means a disability for which the employee in question has been determined to be entitled to either (i) benefits under the applicable plan of long-term disability of the Company or its subsidiaries or (ii) disability benefits under the Social Security Act. In the absence of any such determination, the Authorized Party may make a determination that the employee has a Disability.

“Fair Market Value” means, as of a particular date, the mean between the highest and lowest sales price per share of such Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the next preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at a designated time.

“Good Reason” means “Good Reason” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.

“Grant Price” means the Fair Market Value for one share of Stock as of the date of the grant of an Award. Grant price is not adjusted for any restrictions applicable to the Award.

“Key Employee Change in Control Severance Plan of ConocoPhillips” means the plan of that name (or a successor plan to the plan of that name) in effect on an applicable Change of Control. If no plan of that name (or successor plan to the plan of that name) is in effect on an applicable Change of Control, it shall mean instead the plan of that name in effect on the date of the Award.

“Layoff” means an applicable Termination of Employment due to layoff under the ConocoPhillips Severance Pay Plan, the ConocoPhillips Executive Severance Plan, or the ConocoPhillips Key Employee Change in Control Severance Plan, or layoff or redundancy under any similar layoff or redundancy plan which the Company or its subsidiaries may adopt from time to time. If all or any portion of the benefits under the redundancy or layoff plan are contingent on the employee’s signing a general release of liability, such Termination shall not be considered as a “Layoff” for purposes of this Award unless the employee executes and does not revoke a general release of liability, acceptable to the Company, under

 

Page 7 of 11


the terms of such layoff or redundancy plan. In order to be considered a layoff for purposes of this Award, the Termination of Employment must also be considered a Separation from Service.

“Participating Company” includes ConocoPhillips and its 100% owned subsidiaries, including both those directly owned and those owned through subsidiaries, whose participation has been approved by the Authorized Party.

“Restricted Stock” means shares of Stock that have certain restrictions attached to the ownership thereof.

“Restricted Stock Unit” means a unit equal to one share of Stock (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.

“Retirement” means Termination at age 55 or older with a minimum of 5 years service with a Participating Company; provided, however, that with regard to an Employee not on the United States payroll, the CEO may approve the use of a different definition. Service is defined by the policies of the Participating Company.

“Senior Officer” means the Chairman of the Board, the CEO, all other executive officers of the Company (determined in accordance with the Company’s custom and practice pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended), all other employees of the Company who report directly to the CEO and whose salary grade is 23 or higher, and all other employees of the Company whose salary grade is 26 or higher.

“Separation from Service” means “separation from service” as that term is used in section 409A of the Internal Revenue Code.

“Severance” means “Severance” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan, and shall also incorporate the meaning of the terms “Cause” and “Good Reason” contained in the definition of “Severance” in such plan.

“Stock” means shares of common stock of the Company, par value $.01. Stock may also be referred to as “Common Stock.”

“Termination” or “Termination of Employment” means cessation of employment with the Participating Companies, determined in accordance with the policies and practices of the Participating Company for whom the Employee was last performing services.

 

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Attachment “A”

“Change of Control”

The following definitions apply to the Change of Control provision in Section 10 of the Plan.

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination.

“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Beneficial Owner” shall mean, with reference to any securities, any Person if:

(a) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities;

(b) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or

(c) such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand

 

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relating to corporate action (including, without limitation, a demand for a shareholder list, to call a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of section 14(a) of the Exchange Act) in respect of such security.

The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”

“Board” shall have the meaning set forth in the Plan.

“Change of Control” shall mean any of the following occurring on or after January 1, 2016:

(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding solely as a result of (i) any acquisition directly from the Company or (ii) any acquisition by a Person pursuant to a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition;

(b) individuals who, as of January 1, 2016, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 1, 2016 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c) the Company shall consummate a reorganization, merger, statutory share exchange, consolidation, or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of

 

Page 10 of 11


the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such Business Combination were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such Business Combination; or

(d) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition.

“Common Stock” shall have the meaning set forth in the Plan.

“Company” shall have the meaning set forth in the Plan.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exempt Person” shall mean any of the Company, any entity controlled by the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, and any Person organized, appointed, or established by the Company for or pursuant to the terms of any such employee benefit plan.

“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock ( i.e. , are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of January 1, 2016 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.

“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization, or other entity.

“Voting Stock” shall mean, (1) with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of, or to appoint by contract, directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (ii) with respect to an entity which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.

 

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Exhibit 10.26.23

LOGO

PERFORMANCE SHARE PROGRAM

FEBRUARY 16, 2016

TARGET AWARD FOR PERFORMANCE PERIOD XIV

PERFORMANCE SHARE UNIT

AWARD TERMS AND CONDITIONS

These Performance Share Unit Award Terms and Conditions describe terms and conditions of Performance Share Unit Awards, as part of the ConocoPhillips Performance Share Program (Program), granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (referred to as the Plan) by ConocoPhillips (Company) to you as an eligible employee (Employee). These Terms and Conditions, together with the Award Summary given to each Employee receiving an Award, form the Award Agreement (the Agreement) relating to the Awards described. Subject to the Plan and this Agreement, the Company grants to the Employee Performance Share Units. Individual awards will be as set forth in the Award Summary given to each Employee to whom an Award is granted. The Award Summary for each Employee is made a part of this Agreement with regard to such Employee. The Award Summary may be modified at any time to reflect increased or decreased amounts of the Award due to promotion or demotion of the Employee and due to decisions made with regard to this Performance Period XIV of the Program, including adjustments related to the performance of the Company and adjustments related to the performance of the Employee; provided, however, that after a Change of Control occurs, there shall be no decrease in the number of PSUs granted, except pursuant to the section titled “Detrimental Activities” below. Multiple book entry accounts may be used to reflect the total shares awarded under these Terms and Conditions. This and any other administrative activities shall not be construed to alter these Terms and Conditions.

AWARD :         Performance Share Unit (PSU) Award granted by the Authorized Party under the provisions of the Plan. The PSUs will be noted in a book entry account created for the Employee.

PSU :                 A unit evidencing the right to receive either one share of ConocoPhillips Stock, $0.01 par value, or the Fair Market Value thereof under the circumstances described in these Terms and Conditions.

VOTING RIGHTS :   The named owner of the PSUs has no voting rights for the units, but is considered the beneficial owner for all purposes including ownership and control reports such as the annual proxy statement.

DIVIDEND EQUIVALENTS :   Dividend equivalent payment, equal to the regular dividend payment as declared by the Board of Directors on an equivalent number of common stock from time to time, will be made to the named owner of the units beginning after 2018. No such dividend equivalent payments shall be made prior to 2019, nor shall such dividend equivalent payments accrue or be owed with regard to any time prior to 2019. Under

 

- 1 -


current U.S. tax law, these payments are taxable as compensation ( i.e. , ordinary income) in the year distributed.

RETIREMENT PLAN EARNINGS :   The issuance of these PSUs does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. The value of the units at the time restrictions lapse also does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. Neither the issuance of nor lapsing of restrictions on PSUs will have any impact on any retirement plans or any other compensation plan sponsored by a ConocoPhillips company.

TAX INFORMATION :   For an Employee subject to U.S. tax laws, this matter is more thoroughly covered in the document entitled “Tax Aspects of Performance Share Units.” However, in general terms, under current U.S. tax law, the value of these units is not considered taxable income until the restrictions lapse.

BENEFICIARY :   In the event of the death of the named owner of these units prior to the lapsing of restrictions for other reasons, such restrictions will lapse and shares of unrestricted common stock equal in number to the PSUs will be issued to the beneficiary designated by the named owner of the units.

CHANGE OF CONTROL :   Upon a Change of Control, the following shall apply to the PSUs:

  1.

Each Employee shall immediately become fully vested in such PSUs that are not assumed, or substituted for, by the an acquirer in connection with the Change of Control, and such PSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.

  2.

With regard to any other PSUs, each Employee shall become fully vested in such PSUs upon incurring a Severance following such Change of Control, and such PSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.

  3.

In the event of vesting of PSUs pursuant to either paragraph 1 or 2 above, all restrictions and other limitations applicable to the PSUs shall lapse and the PSUs shall be settled in unrestricted Stock or cash at the same times and upon the same events as it would otherwise have been made in accordance with the settlement provisions below.

RESTRICTIONS :   The following restrictions relate to the PSUs:

The PSUs will be held in escrow for the Employee. As provided herein, the Employee will have all rights of economic ownership to such unit including the right to receive dividend equivalents, except that the Employee shall not have the right to sell, transfer, assign, or otherwise dispose of such units until the escrow is terminated (such restrictions being known as the “Transfer Restrictions”).

Unless postponed pursuant to an effective election, as described in the section titled “Initial Election” below, the escrow shall end on the earliest of any of the following occurrences, with Transfer Restrictions to lapse and settlement be made as set forth in the section titled “Settlement” below:

 

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  1.

The Termination of the Employee’s employment as a result of Layoff of the Employee;

  2.

The Termination of the Employee’s employment after attainment of age 55 and completion of 5 years of service with the Company or its subsidiaries;

  3.

The Termination of the Employee’s employment due to death;

  4.

The Termination of the Employee’s employment following Disability of the Employee;

  5.

The Termination of the Employee’s employment following a Change of Control; or

  6.

February 19, 2019.

In the absence of an effective election, as described in the section titled “Initial Election” below, the Transfer Restrictions shall lapse and the PSUs (including any such that are awarded after the Separation from Service of the Employee) shall be settled in cash on the date that is the later of (a) the end of the escrow period and (b) the earliest of the Employee’s death, February 19, 2019, or six months after the date of the Employee’s Separation from Service for a reason other than death; provided, however, that settlement shall not be made before February 19, 2019.

INITIAL ELECTION :   If the Employee is eligible for participation in the Key Employee Deferred Compensation Plan of ConocoPhillips (KEDCP), the Employee may elect on an election form delivered to the Plan Administrator at a time set by the Plan Administrator (which shall be on or before December 31, 2015) to have the settlement in cash replaced with an account in lieu thereof to be created in KEDCP, with distribution from KEDCP to be made in accordance with the election of the Employee and any subsequent elections allowed under the provisions of KEDCP. Upon creation of such an account, the related PSUs shall be canceled.

In the absence of such an election, the escrow will end and settlement shall be made in one lump sum payment in cash at the time set forth in the section titled “Restrictions” above.

SETTLEMENT :   Unless deferred as described in the section titled “Initial Election” above, the Company shall, at the time stated above, deliver to each Employee an amount equal to the Fair Market Value of the PSUs, and the related PSUs shall be canceled. In all cases the Employee will be responsible to pay all required withholding taxes associated with the Award. The Employee must pay any required withholding taxes by having shares equal in value to the applicable withholding taxes withheld by the Company (or such other method as the Company, in its sole discretion, allows). The value of the shares withheld for this purpose shall be an amount consistent with the applicable laws and regulations. If Australian tax law applies to the Employee, then an Award is a scheme to which Subdivision 83A-C of the Income Tax Assessment Act 1997 of Australia applies (subject to the conditions in that Act).

The Fair Market Value of the Award received by the Employee shall be determined in accordance with the definition and principles set forth in the Plan.

 

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FORFEITURE : An Employee’s right, title, and interest in Performance Share Units awarded under the PSP or derived from such Performance Share Units, or the ownership thereof, shall be forfeited if the Employee terminates employment prior to termination of the escrow period; provided, however, any transfer between the Company and any Subsidiary, or between Subsidiaries at the request of the Company or such Subsidiaries, shall not result in forfeiture.

DETRIMENTAL ACTIVITIES :   If the Authorized Party determines that, subsequent to the grant of any Award but prior to any Change of Control, the Employee has engaged or is engaging in any activity which, in the sole judgment of the Authorized Party, is or may be detrimental to the Company or a subsidiary, the Authorized Party may cancel all or part of the PSUs held in escrow pursuant to the Award granted to that Employee. Upon any Change of Control, the Authorized Party may cancel all or part of the PSUs held in escrow pursuant to the Award granted to that Employee only upon a determination by the Authorized Party that the Employee has given the Company Cause for such cancellation.

If the Authorized Party, in its or his sole discretion, determines that the lapsing of restrictions on PSUs held in escrow pursuant to any Award has the possibility of violating any law, regulation, or decree pertaining to the Company, any of its subsidiaries, or the Employee, the Authorized Party may freeze or suspend the Employee’s right to settlement or payout of the Award until such time as the lapse of restrictions would no longer, in the sole discretion of the Authorized Party, have the possibility of violating such law, regulation, or decree.

Notwithstanding anything herein to the contrary, this Award is subject to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

RECAPITALIZATION :   Upon any change in the outstanding stock of the Company by reason of any stock dividend, stock split, reverse stock split, recapitalization, reclassification, or other similar change, the Committee shall make corresponding adjustments to the PSUs.

 

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DEFINITIONS:

Capitalized terms not defined below shall have the meanings set forth in the Plan under which the Award is granted.

“Authorized Party” means the person who is authorized to approve an Award, exercise discretion, or take action under the Administrative Procedure for the Performance Share Program and pursuant to the Program. With regard to Senior Officers, the Committee is the Authorized Party. With regard to other Employees, the Chief Executive Officer, acting as the Special Equity Award Committee of the Board of Directors of the Company, is the Authorized Party, although the Committee may act concurrently as the Authorized Party.

“Award” means any Performance Share Units granted to an Employee pursuant to such applicable terms, conditions, and limitations as the Authorized Party may establish in order to fulfill the objectives of the Program.

“Cause” means “Cause” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan .

“Change of Control” has the meaning set forth in Annex A to these Terms and Conditions.

“Committee” means the Human Resources and Compensation Committee of the Board of Directors of the Company, or any successor committee to it.

“Company” means ConocoPhillips, a Delaware corporation.

“Disability” means a disability for which the employee in question has been determined to be entitled to either (i) benefits under the applicable plan of long-term disability of the Company or its subsidiaries or (ii) disability benefits under the Social Security Act. In the absence of any such determination, the Authorized Party may make a determination that the employee has a Disability.

“Fair Market Value” means, as of a particular date, the mean between the highest and lowest sales price per share of such Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the next preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at a designated time.

“Good Reason” means “Good Reason” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.

“Grant Price” means the Fair Market Value for one share of Stock as of the date of the grant of an Award. Grant price is not adjusted for any restrictions applicable to the Award.

“Key Employee Change in Control Severance Plan of ConocoPhillips” means the plan of that name (or a successor plan to the plan of that name) in effect on an applicable Change of Control. If no plan of that name (or successor plan to the plan of that name) is in effect on an applicable Change of Control, it shall mean instead the plan of that name in effect on the date of the Award.

 

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“Layoff” means an applicable Termination of Employment due to layoff under the ConocoPhillips Severance Pay Plan, the ConocoPhillips Executive Severance Plan, or the ConocoPhillips Key Employee Change in Control Severance Plan, or layoff or redundancy under any similar layoff or redundancy plan which the Company or its subsidiaries may adopt from time to time. If all or any portion of the benefits under the redundancy or layoff plan are contingent on the employee’s signing a general release of liability, such Termination shall not be considered as a “Layoff” for purposes of this Award unless the employee executes and does not revoke a general release of liability, acceptable to the Company, under the terms of such layoff or redundancy plan. In order to be considered a layoff for purposes of this Award, the Termination of Employment must also be considered a Separation from Service.

“Participating Company” includes ConocoPhillips and its 100% owned subsidiaries, including both those directly owned and those owned through subsidiaries, whose participation has been approved by the Authorized Party.

“Performance Share Unit” or “PSU” means the type of restricted stock unit issued under the Performance Share Program (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.

“Restricted Stock Unit” means a unit equal to one share of Stock (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.

“Retirement” means Termination at age 55 or older with a minimum of 5 years of service with a Participating Company; provided, however, that with regard to an Employee not on the United States payroll, the CEO may approve the use of a different definition. Service is defined by the policies of the Participating Company.

“Senior Officer” means the Chairman of the Board, the CEO, all other executive officers of the Company (determined in accordance with the Company’s custom and practice pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended), all other employees of the Company who report directly to the CEO and whose salary grade is 23 or higher, and all other employees of the Company whose salary grade is 26 or higher.

“Severance” means “Severance” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan, and shall also incorporate the meaning of the terms “Cause” and “Good Reason” contained in the definition of “Severance” in such plan.

“Stock” means shares of common stock of the Company, par value $.01. Stock may also be referred to as “Common Stock.”

“Termination,” “Termination of Employment,” and “Separation from Service” each mean “separation from service” as that term is used in section 409A of the Internal Revenue Code.

 

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Attachment “A”

“Change of Control”

The following definitions apply to the Change of Control provision in Section 10 of the Plan.

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination.

“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Beneficial Owner” shall mean, with reference to any securities, any Person if:

(a) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities;

(b) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or

(c) such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a shareholder list, to call

 

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a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of section 14(a) of the Exchange Act) in respect of such security.

The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”

“Board” shall have the meaning set forth in the Plan.

“Change of Control” shall mean any of the following occurring on or after January 1, 2016:

(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding solely as a result of (i) any acquisition directly from the Company or (ii) any acquisition by a Person pursuant to a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition;

(b) individuals who, as of January 1, 2016, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 1, 2016 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c) the Company shall consummate a reorganization, merger, statutory share exchange, consolidation, or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the

 

- 8 -


corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such Business Combination were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such Business Combination; or

(d) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition.

“Common Stock” shall have the meaning set forth in the Plan.

“Company” shall have the meaning set forth in the Plan.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exempt Person” shall mean any of the Company, any entity controlled by the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, and any Person organized, appointed, or established by the Company for or pursuant to the terms of any such employee benefit plan.

“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock ( i.e. , are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of January 1, 2016 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.

“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization, or other entity.

“Voting Stock” shall mean, (1) with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of, or to appoint by contract, directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (ii) with respect to an entity which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.

 

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Exhibit 10.26.24

LOGO

PERFORMANCE SHARE PROGRAM

FEBRUARY 16, 2016

TARGET AWARD FOR PERFORMANCE PERIOD XIV

PERFORMANCE SHARE UNIT

AWARD TERMS AND CONDITIONS

FOR ELIGIBLE EMPLOYEES ON THE CANADA PAYROLL

These Performance Share Unit Award Terms and Conditions describe terms and conditions of Performance Share Unit Awards, as part of the ConocoPhillips Performance Share Program (Program), granted under the 2014 Omnibus Stock and Performance Incentive Plan of ConocoPhillips (referred to as the Plan) by ConocoPhillips (Company) to you as an eligible employee (Employee). These Terms and Conditions, together with the Award Summary given to each Employee receiving an Award, form the Award Agreement (the Agreement) relating to the Awards described. Subject to the Plan and this Agreement, the Company grants to the Employee Performance Share Units. Individual awards will be as set forth in the Award Summary given to each Employee to whom an Award is granted. The Award Summary for each Employee is made a part of this Agreement with regard to such Employee. The Award Summary may be modified at any time to reflect increased or decreased amounts of the Award due to promotion or demotion of the Employee and due to decisions made with regard to this Performance Period XIV of the Program, including adjustments related to the performance of the Company and adjustments related to the performance of the Employee; provided, however, that after a Change of Control occurs, there shall be no decrease in the number of PSUs granted, except pursuant to the section titled “Detrimental Activities” below. Multiple book entry accounts may be used to reflect the total shares awarded under these Terms and Conditions. This and any other administrative activities shall not be construed to alter these Terms and Conditions.

 

AWARD :

Performance Share Unit (PSU) Award granted by the Authorized Party under the provisions of the Plan. The PSUs will be noted in a book entry account created for the Employee.

 

PSU :

A unit evidencing the right to receive either one share of ConocoPhillips Stock, $0.01 par value, or the Fair Market Value thereof under the circumstances described in these Terms and Conditions.

VOTING RIGHTS : The named owner of the PSUs has no voting rights for the units, but is considered the beneficial owner for all purposes including ownership and control reports such as the annual proxy statement.

DIVIDEND EQUIVALENTS : Dividend equivalent payment, equal to the regular dividend payment as declared by the Board of Directors on an equivalent number of common stock from time to time, will be made to the named owner of the units beginning after 2018. No such dividend equivalent payments shall be made prior to 2019, nor shall such dividend

 

- 1 -


equivalent payments accrue or be owed with regard to any time prior to 2019. Under current tax law, these payments are taxable as compensation in the year distributed.

RETIREMENT PLAN EARNINGS : The issuance of these PSUs does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. The value of the units at the time restrictions lapse also does not constitute earnings under any retirement plan sponsored by a ConocoPhillips company. Neither the issuance of nor lapsing of restrictions on PSUs will have any impact on any retirement plans or any other compensation plan sponsored by a ConocoPhillips company.

TAX INFORMATION : For an Employee subject to U.S. tax laws, this matter is more thoroughly covered in the document entitled “Tax Aspects of Performance Share Units.” Other Employees should consult their tax advisors. However, in general terms, under current tax law, the value of these units is not considered taxable income until the restrictions lapse.

BENEFICIARY : In the event of the death of the named owner of these units prior to the lapsing of restrictions for other reasons, such restrictions will lapse and shares of unrestricted common stock equal in number to the PSUs will be issued to the beneficiary designated by the named owner of the units.

CHANGE OF CONTROL : Upon a Change of Control, the following shall apply to the PSUs:

  1.

Each Employee shall immediately become fully vested in such PSUs that are not assumed, or substituted for, by the an acquirer in connection with the Change of Control, and such PSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.

  2.

With regard to any other PSUs, each Employee shall become fully vested in such PSUs upon incurring a Severance following such Change of Control, and such PSUs shall not thereafter be forfeitable for any reason, except as set forth in the section titled “Detrimental Activities” below.

  3.

In the event of vesting of PSUs pursuant to either paragraph 1 or 2 above, all restrictions and other limitations applicable to the PSUs shall lapse and the PSUs shall be settled in unrestricted Stock or cash at the same times and upon the same events as it would otherwise have been made in accordance with the settlement provisions below.

RESTRICTIONS : The following restrictions relate to the PSUs:

The PSUs will be held in escrow for the Employee. As provided herein, the Employee will have all rights of economic ownership to such unit including the right to receive dividend equivalents, except that the Employee shall not have the right to sell, transfer, assign, or otherwise dispose of such units until the escrow is terminated (such restrictions being known as the “Transfer Restrictions”).

Unless postponed pursuant to an effective election, as described in the sections titled “Initial Election” and “Subsequent Election” below, the escrow shall end on the earliest of any of the following occurrences, with Transfer Restrictions to lapse and settlement be made as set forth in the section titled “Settlement” below:

 

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  1.

The Termination of the Employee’s employment as a result of Layoff of the Employee;

  2.

The Termination of the Employee’s employment after attainment of age 55 and completion of 5 years of service with the Company or its subsidiaries;

  3.

The Termination of the Employee’s employment due to death;

  4.

The Termination of the Employee’s employment following Disability of the Employee;

  5.

The Termination of the Employee’s employment following a Change of Control; or

  6.

February 19, 2019.

In the absence of an effective election, as described in the sections titled “Initial Election” and “Subsequent Election” below, the Transfer Restrictions shall lapse and the PSUs (including any such that are awarded after the Separation from Service of the Employee) shall be settled in unrestricted Stock on the date that is the later of (a) the end of the escrow period and (b) the earliest of the Employee’s death, February 19, 2019, or six months after the date of the Employee’s Separation from Service for a reason other than death; provided, however, that settlement shall not be made before February 19, 2019.

INITIAL ELECTION : The Employee may elect on an election form delivered to the Plan Administrator at a time set by the Plan Administrator (which shall be on or before December 31, 2015) to have the escrow for the PSUs continue and the Transfer Restrictions applicable to these PSUs continue and settlement in unrestricted Stock postponed and made in either:

 

  1.

one lump sum payment settled six months after Separation from Service with the Company and its subsidiaries, or

  2.

in a series of annual installments, using a declining balance method, over a period of three, five, ten, or fifteen years after Separation from Service with the Company and its subsidiaries.

In the absence of such an election, the escrow will end and settlement shall be made in one lump sum payment in unrestricted Stock at the time set forth in the section titled “Restrictions” above.

SUBSEQUENT ELECTION : The Employee may make an election to change the time or form of payment elected under the Initial Election section above or the payment to be made under the Restrictions section above, but only if the following rules are satisfied:

  1.

The election to change the time or form of payment may not take effect until at least twelve months after the date on which such election is made;

  2.

Payment under such election may not be made earlier than at least five years from the date the payment would have otherwise been made or commenced;

  3.

An election may provide for either a lump sum payment or installment payments;

  4.

An election to receive payments in installments shall be treated as a single payment for purposes of these rules;

  5.

Installment payments may be made only annually, over a period of from one to fifteen years as elected;

 

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  6.

The election may not result in an impermissible acceleration of payment prohibited under section 409A of the Internal Revenue Code;

  7.

No more than four such elections shall be permitted with respect to the PSUs subject to this Award; and

  8.

No payment may be made after the date that is twenty (20) years after the date of the Employee’s Separation from Service.

If an election under this section becomes effective, the escrow and the Transfer Restrictions applicable to the PSUs shall continue until the time set in the election for the settlement of the PSUs in as unrestricted Stock.

SETTLEMENT : The Company shall, at the time stated above, register in the name of the Employee shares of Stock, free of any restriction, equal to the number of the PSUs, and the related PSUs shall be canceled. In all cases the Employee will be responsible to pay all required withholding taxes associated with the Award. The Employee must pay any required withholding taxes by having shares equal in value to the applicable withholding taxes withheld by the Company (or such other method as the Company, in its sole discretion, allows). The value of the shares withheld for this purpose shall be an amount consistent with the applicable laws and regulations. With regard to any fractional shares of Stock that might arise, the Company may deliver to the Employee cash equal to the Fair Market Value of such fractional shares. If Australian tax law applies to the Employee, then an Award is a scheme to which Subdivision 83A-C of the Income Tax Assessment Act 1997 of Australia applies (subject to the conditions in that Act).

The Fair Market Value of the Award received by the Employee shall be determined in accordance with the definition and principles set forth in the Plan.

FORFEITURE : An Employee’s right, title, and interest in Performance Share Units awarded under the PSP or derived from such Performance Share Units, or the ownership thereof, shall be forfeited if the Employee terminates employment prior to termination of the escrow period; provided, however, any transfer between the Company and any Subsidiary, or between Subsidiaries at the request of the Company or such Subsidiaries, shall not result in forfeiture.

DETRIMENTAL ACTIVITIES : If the Authorized Party determines that, subsequent to the grant of any Award but prior to any Change of Control, the Employee has engaged or is engaging in any activity which, in the sole judgment of the Authorized Party, is or may be detrimental to the Company or a subsidiary, the Authorized Party may cancel all or part of the PSUs held in escrow pursuant to the Award granted to that Employee. Upon any Change of Control, the Authorized Party may cancel all or part of the PSUs held in escrow pursuant to the Award granted to that Employee only upon a determination by the Authorized Party that the Employee has given the Company Cause for such cancellation.

If the Authorized Party, in its or his sole discretion, determines that the lapsing of restrictions on PSUs held in escrow pursuant to any Award has the possibility of violating any law, regulation, or decree pertaining to the Company, any of its subsidiaries, or the Employee, the Authorized Party may freeze or suspend the Employee’s right to settlement or payout of the Award until such time as the lapse of restrictions would no

 

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longer, in the sole discretion of the Authorized Party, have the possibility of violating such law, regulation, or decree.

Notwithstanding anything herein to the contrary, this Award is subject to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

RECAPITALIZATION : Upon any change in the outstanding stock of the Company by reason of any stock dividend, stock split, reverse stock split, recapitalization, reclassification, or other similar change, the Committee shall make corresponding adjustments to the PSUs.

 

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DEFINITIONS :

Capitalized terms not defined below shall have the meanings set forth in the Plan under which the Award is granted.

“Authorized Party” means the person who is authorized to approve an Award, exercise discretion, or take action under the Administrative Procedure for the Performance Share Program and pursuant to the Program. With regard to Senior Officers, the Committee is the Authorized Party. With regard to other Employees, the Chief Executive Officer, acting as the Special Equity Award Committee of the Board of Directors of the Company, is the Authorized Party, although the Committee may act concurrently as the Authorized Party.

“Award” means any Performance Share Units granted to an Employee pursuant to such applicable terms, conditions, and limitations as the Authorized Party may establish in order to fulfill the objectives of the Program.

“Cause” means “Cause” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan .

“Change of Control” has the meaning set forth in Annex A to these Terms and Conditions.

“Committee” means the Human Resources and Compensation Committee of the Board of Directors of the Company, or any successor committee to it.

“Company” means ConocoPhillips, a Delaware corporation.

“Disability” means a disability for which the employee in question has been determined to be entitled to either (i) benefits under the applicable plan of long-term disability of the Company or its subsidiaries or (ii) disability benefits under the Social Security Act. In the absence of any such determination, the Authorized Party may make a determination that the employee has a Disability.

“Fair Market Value” means, as of a particular date, the mean between the highest and lowest sales price per share of such Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the next preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at a designated time.

“Good Reason” means “Good Reason” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan.

“Grant Price” means the Fair Market Value for one share of Stock as of the date of the grant of an Award. Grant price is not adjusted for any restrictions applicable to the Award.

“Key Employee Change in Control Severance Plan of ConocoPhillips” means the plan of that name (or a successor plan to the plan of that name) in effect on an applicable Change of Control. If no plan of that name (or successor plan to the plan of that name) is in effect on an applicable Change of Control, it shall mean instead the plan of that name in effect on the date of the Award.

 

- 6 -


Layoff means an applicable Termination of Employment due to layoff under the ConocoPhillips Severance Pay Plan, the ConocoPhillips Executive Severance Plan, or the ConocoPhillips Key Employee Change in Control Severance Plan, or layoff or redundancy under any similar layoff or redundancy plan which the Company or its subsidiaries may adopt from time to time. If all or any portion of the benefits under the redundancy or layoff plan are contingent on the employee’s signing a general release of liability, such Termination shall not be considered as a “Layoff” for purposes of this Award unless the employee executes and does not revoke a general release of liability, acceptable to the Company, under the terms of such layoff or redundancy plan. In order to be considered a layoff for purposes of this Award, the Termination of Employment must also be considered a Separation from Service.

“Participating Company” includes ConocoPhillips and its 100% owned subsidiaries, including both those directly owned and those owned through subsidiaries, whose participation has been approved by the Authorized Party.

“Performance Share Unit” or “PSU” means the type of restricted stock unit issued under the Performance Share Program (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.

“Restricted Stock Unit” means a unit equal to one share of Stock (as determined by the Authorized Party) that is subject to forfeiture provisions or that has certain restrictions attached to the ownership thereof.

“Retirement” means Termination at age 55 or older with a minimum of 5 years of service with a Participating Company; provided, however, that with regard to an Employee not on the United States payroll, the CEO may approve the use of a different definition. Service is defined by the policies of the Participating Company.

“Senior Officer” means the Chairman of the Board, the CEO, all other executive officers of the Company (determined in accordance with the Company’s custom and practice pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended), all other employees of the Company who report directly to the CEO and whose salary grade is 23 or higher, and all other employees of the Company whose salary grade is 26 or higher.

“Severance” means “Severance” as that term is defined in the Key Employee Change in Control Severance Plan of ConocoPhillips applied as if an Employee were a participant under such plan, and shall also incorporate the meaning of the terms “Cause” and “Good Reason” contained in the definition of “Severance” in such plan.

“Stock” means shares of common stock of the Company, par value $.01. Stock may also be referred to as “Common Stock.”

“Termination,” “Termination of Employment,” and “Separation from Service” each mean “separation from service” as that term is used in section 409A of the Internal Revenue Code.

 

- 7 -


Attachment “A”

“Change of Control”

The following definitions apply to the Change of Control provision in Section 10 of the Plan.

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination.

“Associate” shall mean, with reference to any Person, (a) any corporation, firm, partnership, association, unincorporated organization or other entity (other than the Company or a subsidiary of the Company) of which such Person is an officer or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Beneficial Owner” shall mean, with reference to any securities, any Person if:

(a) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities;

(b) such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or

(c) such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii) is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a shareholder list, to call

 

- 8 -


a shareholder meeting or to inspect corporate books and records) or otherwise giving an authorization (within the meaning of section 14(a) of the Exchange Act) in respect of such security.

The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the term “Beneficial Owner.”

“Board” shall have the meaning set forth in the Plan.

“Change of Control” shall mean any of the following occurring on or after January 1, 2016:

(a) any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding solely as a result of (i) any acquisition directly from the Company or (ii) any acquisition by a Person pursuant to a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition;

(b) individuals who, as of January 1, 2016, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 1, 2016 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c) the Company shall consummate a reorganization, merger, statutory share exchange, consolidation, or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the

 

- 9 -


corporation, or common equity securities of an entity other than a corporation, resulting from such Business Combination or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such Business Combination were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such Business Combination; or

(d) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a transaction that complies with clauses (i), (ii), and (iii) of subsection (c) of this definition.

“Common Stock” shall have the meaning set forth in the Plan.

“Company” shall have the meaning set forth in the Plan.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exempt Person” shall mean any of the Company, any entity controlled by the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, and any Person organized, appointed, or established by the Company for or pursuant to the terms of any such employee benefit plan.

“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock ( i.e. , are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of January 1, 2016 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.

“Person” shall mean any individual, firm, corporation, partnership, association, trust, unincorporated organization, or other entity.

“Voting Stock” shall mean, (1) with respect to a corporation, all securities of such corporation of any class or series that are entitled to vote generally in the election of, or to appoint by contract, directors of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (ii) with respect to an entity which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.

 

- 10 -

Exhibit 12

CONOCOPHILLIPS AND CONSOLIDATED SUBSIDIARIES

TOTAL ENTERPRISE

Computation of Ratio of Earnings to Fixed Charges

 

     Millions of Dollars  
     Years Ended December 31  
     2015     2014     2013     2012     2011  

Earnings Available for Fixed Charges

          

Income (loss) from continuing operations before income taxes and noncontrolling interests that have not incurred fixed charges

   $ (7,296     9,321        14,387        15,356        15,334   

Distributions less than equity in earnings of affiliates

     101        77      (822     (596     (131

Fixed charges, excluding capitalized interest**

     1,192        901        787        1,127        1,160   

 

 
   $ (6,003     10,299        14,352        15,887        16,363   

 

 

Fixed Charges

          

Interest and expense on indebtedness, excluding capitalized interest

   $ 920        648        612        749        972   

Capitalized interest

     294        488        667        615        489   

Interest portion of rental expense

     70        114        75        67        53   

 

 
   $     1,284        1,250        1,354        1,431        1,514   

 

 

Ratio of Earnings to Fixed Charges***

     —          8.2        10.6        11.1        10.8   

 

 
* Includes a significant distribution from a Canadian joint venture.
** Includes amortization of capitalized interest totaling approximately $202 million in 2015, $139 million in 2014, $101 million in 2013, $311 million in 2012, and $135 million in 2011.
*** Earnings for the year ended December 31, 2015, were inadequate to cover fixed charges by $7,287 million.

Exhibit 21

SUBSIDIARY LISTING OF CONOCOPHILLIPS

Listed below are subsidiaries of the registrant at December 31, 2015. Certain subsidiaries are omitted since such companies considered in the aggregate do not constitute a significant subsidiary.

 

Company Name   

Incorporation

Location

Ashford Energy Capital S.A.

   Luxembourg

BR (Global) Holdings B.V.

   Netherlands

BROG LP LLC

   Delaware

Burlington Resources (Irish Sea) Limited

   England

Burlington Resources (UK) Holdings Limited

   England

Burlington Resources Canada (Hunter) Ltd.

   Alberta

Burlington Resources Inc.

   Delaware

Burlington Resources International Inc.

   Delaware

Burlington Resources Oil & Gas Company LP

   Delaware

Burlington Resources Trading LLC

   Delaware

Canadian Hunter Resources

   Alberta

Conoco Funding Company

   Nova Scotia

Conoco Petroleum Operations Inc.

   Delaware

ConocoPhillips (03-12) Pty Ltd

   Victoria

ConocoPhillips (Grissik) Ltd.

   Bermuda

ConocoPhillips (Timor Sea) Pty Ltd

   Western Australia

ConocoPhillips (U.K.) Eta Limited

   England

ConocoPhillips (U.K.) Limited

   England

ConocoPhillips (U.K.) Sigma Limited

   England

ConocoPhillips (U.K.) Theta Limited

   England

ConocoPhillips (U.K.) Zeta Limited

   England

ConocoPhillips Alaska, Inc.

   Delaware

ConocoPhillips Angola 36 Ltd.

   Cayman Islands

ConocoPhillips Angola 37 Ltd.

   Cayman Islands

ConocoPhillips ANS Marketing Company

   Delaware

ConocoPhillips Asia Ventures Pte. Ltd.

   Singapore

ConocoPhillips Australia Exploration Pty Ltd

   Western Australia

ConocoPhillips Australia Gas Holdings Pty Ltd

   Western Australia

ConocoPhillips Australia Holdings Pty Ltd

   Australia

ConocoPhillips Australia Pacific LNG Pty Ltd.

   Western Australia

ConocoPhillips Australia Pty Ltd

   Western Australia

ConocoPhillips Bohai Limited

   Bahamas

ConocoPhillips Canada (BRC) Partnership

   Alberta

ConocoPhillips Canada (North) Limited

   Canada

ConocoPhillips Canada Energy Partnership

   Alberta

ConocoPhillips Canada Funding Company I

   Nova Scotia

ConocoPhillips Canada Marketing & Trading ULC

   Alberta


Exhibit 21

 

Company Name   

Incorporation

Location

ConocoPhillips Canada Resources Corp.

   Alberta

ConocoPhillips China Inc.

   Liberia

ConocoPhillips Company

   Delaware

ConocoPhillips Enterprises Inc.

   Delaware

ConocoPhillips Funding Ltd.

   Bermuda

ConocoPhillips Hamaca B.V.

   Netherlands

ConocoPhillips Holdings Limited

   England

ConocoPhillips Indonesia Holding Ltd.

   British Virgin Islands

ConocoPhillips Indonesia Inc. Ltd.

   Bermuda

ConocoPhillips JPDA Pty Ltd

   Western Australia

ConocoPhillips Libya Waha Ltd.

   Cayman Islands

ConocoPhillips Norge

   Delaware

ConocoPhillips Northern Partnership

   Alberta

ConocoPhillips Norway Funding Ltd.

   Bermuda

ConocoPhillips Petroleum Company U.K. Limited

   England

ConocoPhillips Petroleum Holdings B.V.

   Netherlands

ConocoPhillips Pipeline Australia Pty Ltd

   Western Australia

ConocoPhillips Qatar Funding Ltd.

   Cayman Islands

ConocoPhillips Qatar Ltd.

   Cayman Islands

ConocoPhillips Sabah Gas Ltd.

   Cayman Islands

ConocoPhillips Sabah Ltd.

   Bermuda

ConocoPhillips Skandinavia AS

   Norway

ConocoPhillips Surmont Partnership

   Alberta

ConocoPhillips Transportation Alaska, Inc.

   Delaware

ConocoPhillips WA-248 Pty Ltd

   Western Australia

ConocoPhillips Western Canada Partnership

   Alberta

COP Holdings Limited

   England

Darwin LNG Pty Ltd

   Western Australia

Inexco Oil Company

   Delaware

Lane Energy Poland Sp. z o.o.

   Poland

Phillips Coal Company

   Nevada

Phillips International Investments, Inc.

   Delaware

Phillips Investment Company LLC

   Nevada

Phillips Petroleum International Corporation LLC

   Delaware

Phillips Petroleum International Investment Company LLC

   Delaware

Polar Tankers, Inc.

   Delaware

Sooner Insurance Company

   Vermont

The Louisiana Land and Exploration Company LLC

   Maryland

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference of our reports dated February 23, 2016, with respect to the consolidated financial statements, condensed consolidating financial information, and financial statement schedule of ConocoPhillips, and the effectiveness of internal control over financial reporting of ConocoPhillips, included in this Annual Report (Form 10-K) for the year ended December 31, 2015, in the following registration statements and related prospectuses.

 

ConocoPhillips

   Form S-3    File No. 333-204107   
        

ConocoPhillips

   Form S-3    File No. 333-196348   
        

ConocoPhillips

   Form S-4    File No. 333-130967   
        

ConocoPhillips

   Form S-8    File No. 333-98681   
        

ConocoPhillips

   Form S-8    File No. 333-116216   
        

ConocoPhillips

   Form S-8    File No. 333-133101   
        

ConocoPhillips

   Form S-8    File No. 333-159318   
        

ConocoPhillips

   Form S-8    File No. 333-171047   
        

ConocoPhillips

   Form S-8    File No. 333-174479   
        

ConocoPhillips

   Form S-8    File No. 333-196349   

/s/ Ernst & Young LLP                    

Houston, Texas

February 23, 2016

Exhibit 23.2

DeGolyer and MacNaughton

5001 Spring Valley Road

Suite 800 East

Dallas, Texas 75244

February 23, 2016

ConocoPhillips

600 North Dairy Ashford

Houston, Texas 77079

Ladies and Gentlemen:

We hereby consent to the use of the name DeGolyer and MacNaughton, to references to DeGolyer and MacNaughton as an independent petroleum engineering consulting firm under “Part II” under the heading “Item 8. Financial Statements and Supplementary Data,” under the subheading “Reserves Governance” and under “Part IV” under the heading “Item 15. Exhibits, Financial Statement Schedules” under the subheading “Index to Exhibits” in ConocoPhillips’ Annual Report on Form 10-K for the year ended December 31, 2015, and to the inclusion of our process review letter report dated February 23, 2016, (our Report) as an exhibit to ConocoPhillips’ Annual Report on Form 10-K for the year ended December 31, 2015. We also consent to the incorporation by reference of our Report in the Registration Statements filed by ConocoPhillips on Form S-3 (No. 333-204107 and No. 333-196348), Form S-4 (No. 333-130967) and Form S-8 (No. 333-98681, No. 333-116216, No. 333-133101, No. 333-159318, No. 333-171047, No. 333-174479, and No. 333-196349).

Very truly yours,

/s/ DeGolyer and MacNaughton

DeGOLYER and MacNAUGHTON

Texas Registered Engineering Firm F-716

Exhibit 31.1

CERTIFICATION

I, Ryan M. Lance, certify that:

 

1. I have reviewed this annual report on Form 10-K of ConocoPhillips;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 23, 2016

 

/s/ Ryan M. Lance
Ryan M. Lance

Chairman and

Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Jeff W. Sheets, certify that:

 

1. I have reviewed this annual report on Form 10-K of ConocoPhillips;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 23, 2016

 

/s/ Jeff W. Sheets

Jeff W. Sheets

Executive Vice President, Finance and

Chief Financial Officer

Exhibit 32

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of ConocoPhillips (the Company) on Form 10-K for the period ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:

 

  (1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 23, 2016

 

/s/ Ryan M. Lance

Ryan M. Lance

Chairman and

Chief Executive Officer

/s/ Jeff W. Sheets

Jeff W. Sheets

Executive Vice President, Finance and

Chief Financial Officer

Exhibit 99

DeGolyer and MacNaughton

5001 Spring Valley Road

Suite 800 East

Dallas, Texas 75244

February 23, 2016

ConocoPhillips

600 North Dairy Ashford

Houston, Texas 77079

Re: SEC Process Review

Ladies and Gentlemen:

    Pursuant to your request, DeGolyer and MacNaughton has performed a process review of the processes and controls used within ConocoPhillips in preparing its internal estimates of proved reserves, as of December 31, 2015. The process review, which is contemplated by Item 1202 (a) (8) of Regulation S-K of the Securities and Exchange Commission (SEC), has been performed specifically to address the adequacy and effectiveness of ConocoPhillips’ internal processes and controls relative to its estimation of proved reserves in compliance with Rules 4–10(a) (1)–(32) of Regulation S–X of the SEC.

    DeGolyer and MacNaughton has participated as an independent member of the internal ConocoPhillips Reserves Compliance Assessment Team in reviews and discussions with each of the relevant ConocoPhillips business units relative to SEC proved reserves estimation. DeGolyer and MacNaughton participated in the review of all major fields in all countries where ConocoPhillips has proved reserves worldwide, which ConocoPhillips has indicated represents over 90 percent of its estimated total proved reserves as of December 31, 2015.

    The reviews with ConocoPhillips’ technical staff involved presentations and discussions of a) basic reservoir data, including seismic data, well log data, pressure and production tests, core analysis, pressure-volume-temperature data, and production history, b) technical methods employed in SEC proved reserves estimation, including performance analysis, geology, mapping, and volumetric estimates, c) economic analysis, and d) commercial assessment, including the legal basis for the interest in the reserves, primarily related to lease agreements and other petroleum license agreements, such as concession and production sharing agreements.


ConocoPhillips

February 23, 2016

Page 2 of 2

    A field examination of the properties was not considered necessary for the purposes of this review of ConocoPhillips’ processes and controls.

    It is our opinion that ConocoPhillips’ estimates of proved reserves for the properties reviewed were prepared by the use of recognized geologic and engineering methods generally accepted by the petroleum industry. The method or combination of methods used in the analysis of each reservoir was tempered by ConocoPhillips’ experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history. It is our opinion that the general processes and controls employed by ConocoPhillips in estimating its December 31, 2015, proved reserves for the properties reviewed are in accordance with the SEC reserves definitions.

    This process review of ConocoPhillips’ procedures and methods does not constitute a review, study, or independent audit of ConocoPhillips’ estimated proved reserves and corresponding future net revenues. This report is not intended to indicate that DeGolyer and MacNaughton is offering any opinion as to the reasonableness of reserves estimates reported by ConocoPhillips.

    DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world since 1936. Neither DeGolyer and MacNaughton nor any employee who participated in this project has any financial interest, including stock ownership, in ConocoPhillips. Our fees were not contingent on the results of our evaluation.

Very truly yours,

/s/ DeGolyer and MacNaughton

DeGOLYER and MacNAUGHTON

Texas Registered Engineering Firm F-716

/s/ Charles F. Boyette, P.E.

Charles F. Boyette, P.E.

President

DeGolyer and MacNaughton