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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
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
cplogo_red-black_4c.jpg
ConocoPhillips
(Exact name of registrant as specified in its charter)
Delaware01-0562944
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
925 N. Eldridge Parkway, Houston, TX 77079
(Address of principal executive offices) (Zip Code)
281-293-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $.01 Par Value
COP
New York Stock Exchange
7% Debentures due 2029
CUSIP—718507BK1
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer        Accelerated filer        Non-accelerated filer        Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The registrant had 1,187,407,942 shares of common stock, $.01 par value, outstanding at September 30, 2023.


Table of Contents


Commonly Used Abbreviations
Commonly Used Abbreviations
The following industry-specific, accounting and other terms, and abbreviations may be commonly used in this report.
Currencies
Accounting
$ or USD
U.S. dollar
ARO
asset retirement obligation
CAD
Canadian dollar
ASC
accounting standards codification
EUR
Euro
ASU
accounting standards update
GBP
NOK
British pound
Norwegian kroner
DD&A
depreciation, depletion and amortization
FASB
Financial Accounting Standards
Board
Units of Measurement
BBL
barrel
FIFO
first-in, first-out
BCF
billion cubic feet
G&A
general and administrative
BOE
barrel of oil equivalent
GAAP
generally accepted accounting principles
MBD
thousands of barrels per day
MCF
thousand cubic feet
LIFO
last-in, first-out
MM
million
NPNS
normal purchase normal sale
MMBOE
million barrels of oil equivalent
PP&E
properties, plants and equipment
MBOED
thousand barrels of oil equivalent per day
VIE
variable interest entity
MMBOED
million barrels of oil equivalent
per day
MMBTU
million British thermal units
Miscellaneous
MMCFD
MTPA
million cubic feet per day
million tonnes per annum
CERCLAFederal Comprehensive Environmental Response Compensation and Liability Act
DEI
diversity, equity and inclusion
Industry
EPA
Environmental Protection Agency
BLM
Bureau of Land Management
ESG
Environmental, Social and Corporate Governance
CBM
coalbed methane
CCS
carbon capture and storage
EU
European Union
E&P
exploration and production
FERC
Federal Energy Regulatory Commission
FEED
front-end engineering and design
FIDfinal investment decision
GHG
greenhouse gas
FPS
floating production system
HSE
health, safety and environment
FPSOfloating production, storage and
ICC
International Chamber of Commerce

offloading
ICSID
World Bank’s International
G&G
geological and geophysical
Centre for Settlement of
JOA
joint operating agreement
Investment Disputes
LNG
liquefied natural gas
IRS
Internal Revenue Service
NGLs
natural gas liquids
OTC
over-the-counter
OPEC
Organization of Petroleum
NYSE
New York Stock Exchange
Exporting Countries
SEC
U.S. Securities and Exchange
PSC
production sharing contract
Commission
PUDs
proved undeveloped reserves
TSR
total shareholder return
SAGD
steam-assisted gravity drainage
U.K.
United Kingdom
WCS
Western Canadian Select
U.S.
United States of America
WTI
West Texas Intermediate
VROCvariable return of cash
1
ConocoPhillips      2023 Q3 10-Q

Financial Statements
PART I. Financial Information
Item 1.    Financial Statements
Consolidated Income Statement
ConocoPhillips

Millions of Dollars

Three Months Ended
September 30
Nine Months Ended
September 30
2023202220232022
Revenues and Other Income
Sales and other operating revenues
$14,250 21,013 41,412 59,936 
Equity in earnings of affiliates
388 561 1,299 1,511 
Gain (loss) on dispositions
108 (40)200 1,039 
Other income
120 80 356 408 
Total Revenues and Other Income
14,866 21,614 43,267 62,894 
Costs and Expenses


Purchased commodities
5,543 9,251 16,297 25,236 
Production and operating expenses
1,995 1,799 5,660 5,121 
Selling, general and administrative expenses
169 148 533 431 
Exploration expenses
92 89 313 301 
Depreciation, depletion and amortization
2,095 1,872 6,047 5,505 
Impairments
11 2 12 6 
Taxes other than income taxes
536 843 1,624 2,677 
Accretion on discounted liabilities
68 60 204 182 
Interest and debt expense
194 199 561 627 
Foreign currency transaction (gain) loss
55 (93)(3)(139)
Other expenses
8 4 (5)(46)
Total Costs and Expenses
10,766 14,174 31,243 39,901 
Income before income taxes
4,100 7,440 12,024 22,993 
Income tax provision
1,302 2,913 4,074 7,562 
Net Income
$2,798 4,527 7,950 15,431 
Net Income Per Share of Common Stock (dollars)
Basic$2.33 3.56 6.56 11.96 
Diluted2.32 3.55 6.54 11.93 
Average Common Shares Outstanding (in thousands)
Basic1,196,641 1,265,893 1,208,018 1,285,739 
Diluted1,199,746 1,269,321 1,211,012 1,289,953 
See Notes to Consolidated Financial Statements.
ConocoPhillips      2023 Q3 10-Q
2

Financial Statements
Consolidated Statement of Comprehensive Income
ConocoPhillips
Millions of Dollars
Three Months Ended
September 30
Nine Months Ended
September 30
2023202220232022
Net Income
$2,798 4,527 7,950 15,431 
Other comprehensive income (loss)
Defined benefit plans
Reclassification adjustment for amortization of prior service credit included in net income
(9)(10)(28)(30)
Net change(9)(10)(28)(30)
Net actuarial loss arising during the period
 (23) (105)
Reclassification adjustment for amortization of net actuarial losses included in net income
20 17 62 58 
Net change20 (6)62 (47)
Income taxes on defined benefit plans
(2)4 (8)16 
Defined benefit plans, net of tax
9 (12)26 (61)
Unrealized holding gain (loss) on securities
 (7)3 (16)
Reclassification adjustment for gain included in net income(1)(1)(3)(1)
Income taxes on unrealized holding loss on securities
 2  4 
Unrealized holding loss on securities, net of tax
(1)(6)(13)
Foreign currency translation adjustments, net of tax
(80)(534)(23)(841)
Unrealized gain on hedging activities46  46  
Income taxes on unrealized gain on hedging activities(10) (10) 
Unrealized gain on hedging activities, net of tax36  36  
Other Comprehensive Income (Loss), Net of Tax
(36)(552)39 (915)
Comprehensive Income
$2,762 3,975 7,989 14,516 
See Notes to Consolidated Financial Statements.
3
ConocoPhillips      2023 Q3 10-Q

Financial Statements
Consolidated Balance Sheet
ConocoPhillips
Millions of Dollars

September 30
2023
December 31
2022
Assets


Cash and cash equivalents
$8,830 6,458 
Short-term investments
616 2,785 
Accounts and notes receivable (net of allowance of $3 and $2, respectively)
5,658 7,075 
Accounts and notes receivable—related parties
13 13 
Inventories
1,326 1,219 
Prepaid expenses and other current assets
738 1,199 
Total Current Assets
17,181 18,749 
Investments and long-term receivables
8,731 8,225 
Net properties, plants and equipment (net of accumulated DD&A of $71,630 and $66,630, respectively)
65,561 64,866 
Other assets
2,178 1,989 
Total Assets
$93,651 93,829 
Liabilities

Accounts payable
$5,119 6,113 
Accounts payable—related parties
24 50 
Short-term debt
881 417 
Accrued income and other taxes
1,919 3,193 
Employee benefit obligations
691 728 
Other accruals
1,704 2,346 
Total Current Liabilities
10,338 12,847 
Long-term debt
18,182 16,226 
Asset retirement obligations and accrued environmental costs
6,425 6,401 
Deferred income taxes
8,325 7,726 
Employee benefit obligations
956 1,074 
Other liabilities and deferred credits
1,680 1,552 
Total Liabilities
45,906 45,826 
Equity

Common stock (2,500,000,000 shares authorized at $0.01 par value)
Issued (2023—2,103,596,767 shares; 2022—2,100,885,134 shares)
Par value
21 21 
Capital in excess of par
61,262 61,142 
Treasury stock (at cost: 2023—916,188,825 shares; 2022—877,029,062 shares)
(64,529)(60,189)
Accumulated other comprehensive loss
(5,961)(6,000)
Retained earnings
56,952 53,029 
Total Equity
47,745 48,003 
Total Liabilities and Equity
$93,651 93,829 
See Notes to Consolidated Financial Statements.
ConocoPhillips      2023 Q3 10-Q
4

Financial Statements
Consolidated Statement of Cash Flows
ConocoPhillips

Millions of Dollars

Nine Months Ended
September 30

20232022
Cash Flows From Operating Activities
Net income
$7,950 15,431 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization
6,047 5,505 
Impairments
12 6 
Dry hole costs and leasehold impairments
151 136 
Accretion on discounted liabilities
204 182 
Deferred taxes
753 1,594 
Undistributed equity earnings
920 569 
Gain on dispositions
(200)(1,039)
Gain on investment in Cenovus Energy
 (251)
Other
16 (38)
Working capital adjustments

Decrease (increase) in accounts and notes receivable
1,147 (1,317)
Increase in inventories
(114)(64)
Decrease (increase) in prepaid expenses and other current assets
486 (469)
Increase (decrease) in accounts payable
(837)1,098 
Increase (decrease) in taxes and other accruals
(1,833)379 
Net Cash Provided by Operating Activities
14,702 21,722 
Cash Flows From Investing Activities

Capital expenditures and investments
(8,365)(7,626)
Working capital changes associated with investing activities
(175)542 
Acquisition of businesses, net of cash acquired
 37 
Proceeds from asset dispositions
613 3,354 
Net sales (purchases) of investments
1,860 (2,235)
Collection of advances/loans—related parties
 114 
Other
(81)7 
Net Cash Used in Investing Activities
(6,148)(5,807)
Cash Flows From Financing Activities
Issuance of debt
3,787 2,897 
Repayment of debt
(1,243)(5,874)
Issuance of company common stock
(57)345 
Repurchase of company common stock
(4,300)(6,524)
Dividends paid
(4,175)(3,336)
Other
(34)(53)
Net Cash Used in Financing Activities
(6,022)(12,545)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
(150)(452)
Net Change in Cash, Cash Equivalents and Restricted Cash
2,382 2,918 
Cash, cash equivalents and restricted cash at beginning of period
6,694 5,398 
Cash, Cash Equivalents and Restricted Cash at End of Period
$9,076 8,316 
Restricted cash of $246 million and $236 million is included in the "Other assets" line of our Consolidated Balance Sheet as of September 30, 2023 and December 31, 2022, respectively.
See Notes to Consolidated Financial Statements.
5
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements

Note 1—Basis of Presentation
The interim-period financial information presented in the financial statements included in this report is unaudited and, in the opinion of management, includes all known accruals and adjustments necessary for a fair presentation of the consolidated financial position of ConocoPhillips, its results of operations and cash flows for such periods. All such adjustments are of a normal and recurring nature unless otherwise disclosed. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2022 Annual Report on Form 10-K.
Note 2—Inventories
Millions of Dollars
September 30
2023
December 31
2022
Crude oil and natural gas
$664 641 
Materials and supplies
662 578 
Total inventories
$1,326 1,219 
Inventories valued on the LIFO basis
$374 396 

Note 3—Acquisitions and Dispositions
Acquisitions
Surmont
On October 4, 2023, we completed our acquisition of the remaining 50 percent working interest in Surmont from TotalEnergies EP Canada Ltd. Fair value of consideration for the transaction was approximately $3.0 billion after customary adjustments (CAD $4.1 billion):

Fair value of considerationBillions of Dollars
Cash paid$2.7 
Contingent consideration0.3 
Total Consideration$3.0 

The transaction will be accounted for as a business combination under FASB ASC 805 using the acquisition method, which requires assets acquired and liabilities assumed to be measured at their acquisition date fair values.

The contingent payment arrangement requires additional consideration to be paid to TotalEnergies EP Canada Ltd. up to $0.4 billion CAD ($0.3 billion) over a five-year term. The contingent payments represent $2.0 million for every dollar that WCS pricing exceeds $52 per barrel during the month, subject to certain production targets being achieved. The range of the undiscounted amounts we could pay under the contingent consideration arrangement is between $0 and $0.3 billion. The fair value of the contingent consideration on the acquisition date was $0.3 billion and estimated by applying the income approach.

We are currently in the process of finalizing the initial accounting for the transaction and provisional fair value measurements will be made in the fourth quarter of 2023. We may adjust the measurements in subsequent periods, up to one year from the acquisition date as we identify additional information to complete the necessary analysis.

ConocoPhillips      2023 Q3 10-Q
6

Notes to Consolidated Financial Statements
QatarEnergy LNG NFS(3) (NFS3), formerly Qatar Liquefied Gas Company Limited (12) (QG12)
During 2022, we were awarded a 25 percent interest in NFS3, a new joint venture with QatarEnergy, to participate in the North Field South (NFS) LNG project. Formation of the NFS joint venture, NFS3, closed in June 2023. NFS3 has a 25 percent interest in the NFS project and is reported as an equity method investment in our Europe, Middle East and North Africa segment. See Note 4.

Port Arthur Liquefaction Holdings, LLC (PALNG)
In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility for the first phase of the Port Arthur LNG project ("Phase 1"). Sempra PALNG Holdings, LLC owns the remaining 70 percent interest in the joint venture. PALNG is reported as an equity method investment in our Corporate and Other segment. See Note 4.

Planned Acquisition
Australia Pacific LNG Pty Ltd (APLNG)
In March 2023, we announced that, subject to the closing of EIG's transaction with Origin Energy, we intend to purchase up to an additional 2.49 percent shareholding interest in APLNG for $0.5 billion, subject to customary adjustments. Upon closing we will own up to 49.99 percent interest in APLNG. The transaction is expected to close in late 2023 or early 2024, with an effective date of July 1, 2022. Both EIG's transaction with Origin Energy and our shareholder acquisition are subject to regulatory approvals and other customary closing conditions.
Note 4—Investments and Long-Term Receivables
APLNG
In 2012, APLNG executed an $8.5 billion project finance facility that became non-recourse following financial completion in 2017. The facility is currently composed of a financing agreement with the Export-Import Bank of the United States, a commercial bank facility and two United States Private Placement note facilities. APLNG principal and interest payments commenced in March 2017 and are scheduled to occur bi-annually until September 2030. At September 30, 2023, a balance of $4.7 billion was outstanding on these facilities. See Note 8.
At September 30, 2023, the carrying value of our equity method investment in APLNG was approximately $5.4 billion.
PALNG
In March 2023, we acquired a 30 percent direct equity investment in PALNG, a joint venture for the development of a large-scale LNG facility. At September 30, 2023, the carrying value of our equity method investment in PALNG was approximately $0.9 billion. See Note 3.
QatarEnergy LNG
In the third quarter of 2023, the names of all the Qatar Liquefied Gas Company Limited joint ventures were changed to QatarEnergy LNG.

Our equity method investments in Qatar include the following:
QatarEnergy LNG N(3) (N3), formerly Qatar Liquefied Gas Company Limited (3) (QG3)—30 percent owned joint venture with affiliates of QatarEnergy (68.5 percent) and Mitsui (1.5 percent)—produces and liquefies natural gas from Qatar’s North Field, as well as exports LNG.
QatarEnergy LNG NFE(4) (NFE4), formerly Qatar Liquefied Gas Company Limited (8) (QG8)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the North Field East project.
QatarEnergy LNG NFS(3) (NFS3), formerly Qatar Liquefied Gas Company Limited (12) (QG12)—25 percent owned joint venture with an affiliate of QatarEnergy (75 percent)—participant in the North Field South project. See Note 3.

At September 30, 2023, the carrying value of our Qatar equity method investments was approximately $1.1 billion.

Note 5—Investment in Cenovus Energy
During the first quarter of 2022, we sold our remaining 91 million common shares of Cenovus Energy (CVE), recognizing proceeds of $1.4 billion and a net gain of $251 million. The gain was recognized within "Other income” on our consolidated income statement. Proceeds related to the sale of our CVE shares were included within "Cash Flows From Investing Activities" on our consolidated statement of cash flows.
7
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Note 6—Debt
In the third quarter of 2023, we issued $2.7 billion in new Notes through our universal shelf registration statement and prospectus supplement. The net proceeds were used to fund the acquisition of the remaining 50 percent working interest in Surmont, which was completed on October 4, 2023. See Note 3. The following Notes were issued:

5.05% Notes due 2033 with principal of $1.0 billion
5.55% Notes due 2054 with principal of $1.0 billion
5.70% Notes due 2063 with principal of $0.7 billion

In the second quarter of 2023, as described further below, we initiated and completed two concurrent transactions as part of our debt refinancing strategy. We issued $1.1 billion in new Notes through our universal shelf registration statement and prospectus supplement and used the proceeds to repurchase $1.1 billion of existing debt.
New Debt Issuance
On May 23, 2023, we issued 5.3% Notes due 2053 with principal of $1.1 billion.
Tender Offers
On May 25, 2023, we repurchased a total of $1,133 million aggregate principal amount of debt as listed below. We paid $33 million below face value to repurchase these debt instruments and recognized a gain on debt extinguishment of $27 million which is included in the "Other expenses" line on our consolidated income statement.

2.125% Notes due 2024 with principal of $900 million (partial repurchase of $439 million)
3.350% Notes due 2024 with principal of $426 million (partial repurchase of $160 million)
2.400% Notes due 2025 with principal of $900 million (partial repurchase of $534 million)

Our debt balance at September 30, 2023 was $19.1 billion, compared with $16.6 billion at December 31, 2022.

Our revolving credit facility provides a total borrowing capacity of $5.5 billion with an expiration date of February 2027. Our revolving credit facility may be used for direct bank borrowings, the issuance of letters of credit totaling up to $500 million, or as support for our commercial paper program. 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. The amount of the facility is not subject to redetermination prior to its expiration date.
Credit facility borrowings may bear interest at a margin above the Secured Overnight Financing Rate (SOFR). The facility agreement calls for commitment fees on available, but unused, amounts. The facility agreement also contains early termination rights if our current directors or their approved successors cease to be a majority of the Board of Directors.
The revolving credit facility supports our ability to issue up to $5.5 billion of commercial paper. Commercial paper is generally limited to maturities of 90 days and is included in short-term debt on our consolidated balance sheet. With no commercial paper outstanding and no direct borrowings or letters of credit, we had access to $5.5 billion in available borrowing capacity under our revolving credit facility at September 30, 2023. At December 31, 2022, we had no commercial paper outstanding and no direct borrowings or letters of credit issued.

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 upon downgrade of our credit ratings. If our credit ratings are downgraded from their current levels, it could increase the cost of corporate debt available to us and restrict our access to the commercial paper markets. If our credit ratings 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.
At September 30, 2023, we had $283 million of certain variable rate demand bonds (VRDBs) outstanding with maturities ranging through 2035. The VRDBs are redeemable at the option of the bondholders on any business day. If they are ever redeemed, we have the ability and intent to refinance on a long-term basis; therefore, the VRDBs are included in the “Long-term debt” line on our consolidated balance sheet.
ConocoPhillips      2023 Q3 10-Q
8

Notes to Consolidated Financial Statements
Note 7—Changes in Equity
Millions of Dollars
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
For the three months ended September 30, 2023
Balances at June 30, 2023$21 61,169 (63,217)(5,925)55,483 47,531 
Net income2,798 2,798 
Other comprehensive loss(36)(36)
Dividends declared
Ordinary ($0.51 per common share)
(613)(613)
Variable return of cash ($0.60 per common share)
(717)(717)
Repurchase of company common stock(1,300)(1,300)
Excise tax on share repurchases(12)(12)
Distributed under benefit plans92 92 
Other1 1 2 
Balances at September 30, 2023$21 61,262 (64,529)(5,961)56,952 47,745 
For the nine months ended September 30, 2023
Balances at December 31, 2022
$21 61,142 (60,189)(6,000)53,029 48,003 
Net income
7,950 7,950 
Other comprehensive income
39 39 
Dividends declared
Ordinary ($1.53 per common share)
(1,858)(1,858)
Variable return of cash ($1.80 per common share)
(2,171)(2,171)
Repurchase of company common stock
(4,300)(4,300)
Excise tax on share repurchases(40)(40)
Distributed under benefit plans
119 119 
Other
1 2 3 
Balances at September 30, 2023
$21 61,262 (64,529)(5,961)56,952 47,745 
Millions of Dollars
Common Stock
Par
Value
Capital in
Excess of
Par
Treasury
Stock
Accum. Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
For the three months ended September 30, 2022
Balances at June 30, 2022$21 61,045 (54,644)(5,313)49,093 50,202 
Net income4,527 4,527 
Other comprehensive loss(552)(552)
Dividends declared
Ordinary ($0.46 per common share)
(588)(588)
Variable return of cash ($1.40 per common share)
(1,754)(1,754)
Repurchase of company common stock(2,799)(2,799)
Distributed under benefit plans
44 44 
Other(1)(1)
Balances at September 30, 2022
$21 61,089 (57,444)(5,865)51,278 49,079 
For the nine months ended September 30, 2022
Balances at December 31, 2021
$21 60,581 (50,920)(4,950)40,674 45,406 
Net income
15,431 15,431 
Other comprehensive loss
(915)(915)
Dividends declared
Ordinary ($1.38 per common share)
(1,789)(1,789)
Variable return of cash ($2.40 per common share)
(3,040)(3,040)
Repurchase of company common stock
(6,524)(6,524)
Distributed under benefit plans
508 508 
Other
2 2 
Balances at September 30, 2022
$21 61,089 (57,444)(5,865)51,278 49,079 
9
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Note 8—Guarantees
At September 30, 2023, 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 September 30, 2023, we had outstanding multiple guarantees in connection with our 47.5 percent ownership interest in APLNG. The following is a description of the guarantees with values calculated utilizing September 2023 exchange rates:
During the third quarter of 2016, we issued a guarantee to facilitate the withdrawal of our pro-rata portion of the funds in a project finance reserve account. We estimate the remaining term of this guarantee to be seven years. Our maximum exposure under this guarantee is approximately $210 million and may become payable if an enforcement action is commenced by the project finance lenders against APLNG. At September 30, 2023, the carrying value of this guarantee was approximately $14 million.

In conjunction with our original purchase of an ownership interest in APLNG from Origin Energy Limited in October 2008, we agreed to reimburse Origin Energy Limited 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. The final guarantee expires in the fourth quarter of 2041. Our maximum potential liability for future payments, or cost of volume delivery, under these guarantees is estimated to be $710 million ($1.2 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 13 to 22 years or the life of the venture. Our maximum potential amount of future payments related to these guarantees is approximately $380 million and would become payable if APLNG does not perform. At September 30, 2023, the carrying value of these guarantees was approximately $29 million.

QatarEnergy LNG Guarantees
We have guaranteed our portion of certain fiscal and other joint venture obligations as a shareholder in NFE4 and NFS3. These guarantees have an approximate 30-year term with no maximum limit. At September 30, 2023, the carrying value of these guarantees was approximately $14 million.

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 leased office buildings and guarantees of the residual value of corporate aircraft. These guarantees have remaining terms of two to four years and would become payable if certain asset values are lower than guaranteed amounts at the end of the lease or contract term, business conditions decline at guaranteed entities, or as a result of nonperformance of contractual terms by guaranteed parties. At September 30, 2023, there was no carrying value associated with these guarantees.
Indemnifications
Over the years, we have entered into agreements to sell ownership interests in certain legal entities, joint ventures and assets that gave rise to qualifying indemnifications. These agreements include indemnifications for taxes and environmental liabilities. The carrying amount recorded for these indemnification obligations at September 30, 2023, was approximately $20 million. Those related to environmental issues have terms that are generally indefinite, and the maximum amounts of future payments are generally unlimited. 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. See Note 9 for additional information about environmental liabilities.
ConocoPhillips      2023 Q3 10-Q
10

Notes to Consolidated Financial Statements
Note 9—Contingencies and Commitments
A number of lawsuits involving a variety of claims arising in the ordinary course of business have been filed 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 low end of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. We accrue receivables for insurance or other third-party recoveries when applicable. 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.
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 and record accruals for environmental liabilities based on management’s best estimates. These estimates are based 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. 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 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 CERCLA and other 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.
For remediation activities in the U.S. and Canada, our consolidated balance sheet included a total environmental accrual of $187 million at September 30, 2023, compared with $182 million at December 31, 2022. We expect to incur a substantial amount of these expenditures within the next 30 years. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.
11
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Litigation and Other Contingencies
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, climate change, 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, claims of alleged environmental contamination and damages from historic operations, and climate change. 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.
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized. In addition, at September 30, 2023, we had performance obligations secured by letters of credit of $398 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, ConocoPhillips was unable to reach agreement with respect to the 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, ConocoPhillips initiated international arbitration on November 2, 2007, with the ICSID. On September 3, 2013, an ICSID arbitration tribunal ("Tribunal") held that Venezuela unlawfully expropriated ConocoPhillips’ significant oil investments in June 2007. On January 17, 2017, the Tribunal reconfirmed the decision that the expropriation was unlawful. In March 2019, the Tribunal unanimously ordered the government of Venezuela to pay ConocoPhillips approximately $8.7 billion in compensation for the government’s unlawful expropriation of the company’s investments in Venezuela in 2007. On August 29, 2019, the Tribunal issued a decision rectifying the award and reducing it by approximately $227 million. The award now stands at $8.5 billion plus interest. The government of Venezuela sought annulment of the award, which automatically stayed enforcement of the award. On September 29, 2021, the ICSID annulment committee lifted the stay of enforcement of the award. The annulment proceedings are underway.
In 2014, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Petrozuata and Hamaca projects. The ICC Tribunal issued an award in April 2018, finding that PDVSA owed ConocoPhillips approximately $2 billion under their agreements in connection with the expropriation of the projects and other pre-expropriation fiscal measures. In August 2018, ConocoPhillips entered into a settlement with PDVSA to recover the full amount of this ICC award, plus interest through the payment period, including initial payments totaling approximately $500 million within a period of 90 days from the time of signing the settlement agreement. The balance of the settlement was to be paid quarterly over a period of four and a half years. Per the settlement, PDVSA recognized the ICC award as a judgment in various jurisdictions, and ConocoPhillips agreed to suspend its legal enforcement actions. ConocoPhillips sent notices of default to PDVSA on October 14 and November 12, 2019, and to date PDVSA has failed to cure its breach. As a result, ConocoPhillips has resumed legal enforcement actions. To date, ConocoPhillips has received approximately $777 million in connection with the ICC award. ConocoPhillips has ensured that the settlement and any actions taken in enforcement thereof meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.
In 2016, ConocoPhillips filed a separate and independent arbitration under the rules of the ICC against PDVSA under the contracts that had established the Corocoro Project. On August 2, 2019, the ICC Tribunal awarded ConocoPhillips approximately $33 million plus interest under the Corocoro contracts. ConocoPhillips is seeking recognition and enforcement of the award in various jurisdictions. ConocoPhillips has ensured that all the actions related to the award meet all appropriate U.S. regulatory requirements, including those related to any applicable sanctions imposed by the U.S. against Venezuela.

ConocoPhillips      2023 Q3 10-Q
12

Notes to Consolidated Financial Statements
Beginning in 2017, governmental and other entities in several states/territories in the U.S. have filed lawsuits against oil and gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to abate alleged climate change impacts. Additional lawsuits with similar allegations are expected to be filed. The legal and factual issues are unprecedented, therefore, there is significant uncertainty about the scope of the claims and alleged damages and any potential impact on the Company’s financial condition. ConocoPhillips believes these lawsuits are factually and legally meritless and are an inappropriate vehicle to address the challenges associated with climate change and will vigorously defend against such lawsuits.

Several Louisiana parishes and the State of Louisiana have filed 43 lawsuits under Louisiana’s State and Local Coastal Resources Management Act (SLCRMA) against oil and gas companies, including ConocoPhillips, seeking compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil and gas operations. ConocoPhillips entities are defendants in 22 of the lawsuits and will vigorously defend against them. On October 17, 2022, the Fifth Circuit affirmed remand of the lead case to state court and the subsequent request for rehearing was denied. On February 27, 2023, the Supreme Court denied a certiorari petition from the defendants regarding the Fifth Circuit ruling. Accordingly, the federal district courts have issued remands to state court. Because Plaintiffs’ SLCRMA theories are unprecedented, there is uncertainty about these claims (both as to scope and damages) and we continue to evaluate our exposure in these lawsuits.
In October 2020, the Bureau of Safety and Environmental Enforcement (BSEE) ordered the prior owners of Outer Continental Shelf (OCS) Lease P-0166, including ConocoPhillips, to decommission the lease facilities, including two offshore platforms located near Carpinteria, California. This order was sent after the current owner of OCS Lease P-0166 relinquished the lease and abandoned the lease platforms and facilities. BSEE’s order to ConocoPhillips is premised on its connection to Phillips Petroleum Company, a legacy company of ConocoPhillips, which held a historical 25 percent interest in this lease and operated these facilities but sold its interest approximately 30 years ago. ConocoPhillips continues to evaluate its exposure in this matter.

On May 10, 2021, ConocoPhillips filed arbitration under the rules of the Singapore International Arbitration Centre (SIAC) against Santos KOTN Pty Ltd. and Santos Limited for their failure to timely pay the $200 million bonus due upon final investment decision of the Barossa development project under the sale and purchase agreement for the sale of our Australia-West asset and operations. The matter was resolved in April 2023 to our satisfaction.

In July 2021, a federal securities class action was filed against Concho, certain of Concho’s officers, and ConocoPhillips as Concho’s successor in the United States District Court for the Southern District of Texas. On October 21, 2021, the court issued an order appointing Utah Retirement Systems and the Construction Laborers Pension Trust for Southern California as lead plaintiffs (Lead Plaintiffs). On January 7, 2022, the Lead Plaintiffs filed their consolidated complaint alleging that Concho made materially false and misleading statements regarding its business and operations in violation of the federal securities laws and seeking unspecified damages, attorneys’ fees, costs, equitable/injunctive relief, and such other relief that may be deemed appropriate. The defendants filed a motion to dismiss the consolidated complaint on March 8, 2022. On June 23, 2023, the court denied defendants’ motion as to most defendants including Concho/ConocoPhillips. We believe the allegations in the action are without merit and are vigorously defending this litigation.

ConocoPhillips is involved in pending disputes with commercial counterparties relating to the propriety of its force majeure notices following Winter Storm Uri in 2021. We believe these claims are without merit and are vigorously defending them.

Long-Term Unconditional Purchase Obligations and Commitments, Including Throughput 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 transport and LNG purchase commitments. The fixed and determinable portion of the remaining estimated payments under these various agreements as of September 30, 2023 are: 2023—$2 million; 2024—$7 million; 2025—$7 million; 2026—$7 million; 2027—$7 million; and 2028 and after—$11 billion. Generally, variable components of these obligations include commodity futures prices and inflation rates. Purchases of LNG under these commitments are expected to be offset in the same or approximately same periods by cash received from the related sales transactions.
13
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Note 10—Derivative and Financial Instruments
We use futures, forwards, swaps and options in various markets to meet our customers' needs, capture market opportunities and manage foreign exchange currency risk. Certain of our equity method investments use swaps to manage interest rate risk.
Commodity Derivative Instruments
Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG, NGLs and power.
Commodity 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, 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 NPNS exception are recognized upon settlement. We generally apply this exception to eligible crude contracts and certain gas contracts. We do not apply hedge accounting for our commodity derivatives.
The following table presents the gross fair values of our commodity derivatives, excluding collateral, on our consolidated balance sheet:
Millions of Dollars
September 30
2023
December 31
2022
Assets
Prepaid expenses and other current assets
$535 1,795 
Other assets
127 242 
Liabilities
Other accruals
506 1,800 
Other liabilities and deferred credits
97 210 
The gains (losses) from commodity derivatives included in our consolidated income statement are presented in the following table:
Millions of Dollars
Three Months Ended
September 30
Nine Months Ended
September 30
2023202220232022
Sales and other operating revenues
$(11)(129)1 (549)
Other income
(5)(4)(6)(2)
Purchased commodities
7 6 (49)352 
The table below summarizes our net exposures resulting from outstanding commodity derivative contracts:
Open Position
Long (Short)
September 30
2023
December 31
2022
Commodity
Natural gas and power (billions of cubic feet equivalent)
Fixed price(23)(14)
Basis(4)(8)

ConocoPhillips      2023 Q3 10-Q
14

Notes to Consolidated Financial Statements
Foreign Currency Exchange Derivatives
In the second quarter of 2023, we entered into foreign exchange forward contracts to buy $5.2 billion CAD at $0.751 against the USD for settlement in September 2023, in anticipation of our planned acquisition of the additional interest in Surmont. For both the three- and nine-month periods ended September 30, 2023, we recorded a realized loss of $76 million in the "Foreign currency transaction (gain) loss" line on our consolidated income statement. The related cash flows associated with the loss on derivatives are included in the "Other" line within investing activities on our consolidated statement of cash flows. We subsequently entered into additional foreign exchange forward contracts to buy $4.3 billion CAD at $0.736 against the USD. At September 30, 2023, the forward contracts had a net fair value of $36 million. The derivative asset of $47 million and the derivative liability of $11 million are reported within the "Prepaid expenses and other current assets" and "Other accruals" lines, respectively, on our consolidated balance sheet. For the three- and nine-month periods ended September 30, 2023, we recorded an unrealized gain of $17 million and $36 million, respectively, in the "Foreign currency transaction (gain) loss" line on our consolidated income statement related to these contracts, which settled in the fourth quarter.


Interest Rate Derivative Instruments
During 2023, PALNG executed interest rate swaps that had the effect of converting 60 percent of the projected term loans outstanding to finance the cost of development and construction of Phase 1 from floating to fixed rate. These swaps were designated and qualify for hedge accounting under ASC Topic 815, "Derivatives and Hedging", as a cash flow hedge with changes in the fair value of the designated hedging instrument reported as a component of other comprehensive income and reclassified into earnings in the same periods that the hedged transactions will affect earnings. We recognize our proportionate share of PALNG’s adjustments for other comprehensive income as a change to our equity method investment with corresponding adjustments in equity. For the three- and nine-month periods ended September 30, 2023, we recognized an unrealized gain of $46 million in other comprehensive income related to these swaps.

Financial Instruments
We invest in financial instruments with maturities based on our cash forecasts for the various accounts and currency pools we manage. The types of financial instruments in which we currently invest include:
Time deposits: Interest bearing deposits placed with financial institutions for a predetermined amount of time.
Demand deposits: Interest bearing deposits placed with financial institutions. Deposited funds can be withdrawn without notice.
Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or government agency purchased at a discount, reaching par value at maturity.
U.S. government or government agency obligations: Securities issued by the U.S. government or U.S. government agencies.
Foreign government obligations: Securities issued by foreign governments.
Corporate bonds: Unsecured debt securities issued by corporations.
Asset-backed securities: Collateralized debt securities.
15
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
The following investments are carried on our consolidated balance sheet at cost, plus accrued interest, and the table reflects remaining maturities at September 30, 2023, and December 31, 2022:
Millions of Dollars
Carrying Amount
Cash and Cash Equivalents
Short-Term Investments
September 30
2023
December 31
2022
September 30
2023
December 31
2022
Cash$500 593 
Demand Deposits
2,459 1,638 
Time Deposits
1 to 90 days
3,895 4,116 86 1,288 
91 to 180 days
11 883 
Within one year
15 11 
U.S. Government Obligations
1 to 90 days
1,965 14   
$8,819 6,361 112 2,182 
The following investments in debt securities classified as available for sale are carried at fair value on our consolidated balance sheet at September 30, 2023, and December 31, 2022:
Millions of Dollars
Carrying Amount
Cash and Cash EquivalentsShort-Term InvestmentsInvestments and Long-Term
Receivables
September 30
2023
December 31
2022
September 30
2023
December 31
2022
September 30
2023
December 31
2022
Major Security Type
Corporate Bonds
$1  220 323 517 309 
Commercial Paper
10 97 150 156 
U.S. Government Obligations  118 115 158 63 
U.S. Government Agency Obligations
12 8 6 5 
Foreign Government Obligations
3  8 7 
Asset-Backed Securities
1 1 150 138 
$11 97 504 603 839 522 
Cash and Cash Equivalents and Short-Term Investments have remaining maturities within one year.
Investments and Long-Term Receivables have remaining maturities greater than one year through five years.
ConocoPhillips      2023 Q3 10-Q
16

Notes to Consolidated Financial Statements
The following table summarizes the amortized cost basis and fair value of investments in debt securities classified as available for sale:
Millions of Dollars
Amortized Cost Basis
Fair Value
September 30
2023
December 31
2022
September 30
2023
December 31
2022
Major Security Type
Corporate Bonds
$747 641 738 632 
Commercial Paper
160 253 160 253 
U.S. Government Obligations
280 181 276 178 
U.S. Government Agency Obligations
18 13 18 13 
Foreign Government Obligations
11 7 11 7 
Asset-Backed Securities
152 139 151 139 
$1,368 1,234 1,354 1,222 
As of September 30, 2023, and December 31, 2022, total unrealized losses for debt securities classified as available for sale with net losses were $14 million and $12 million, respectively. No allowance for credit losses has been recorded on investments in debt securities which are in an unrealized loss position.
For the three- and nine-month periods ended September 30, 2023, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $258 million and $809 million, respectively. For the three- and nine-month periods ended September 30, 2022, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $198 million and $399 million, respectively. Gross realized gains and losses included in earnings from those sales and redemptions were negligible. The cost of securities sold and redeemed is determined using the specific identification method.
Credit Risk
Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, long-term investments in debt securities, OTC derivative contracts and trade receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper, government money market funds, U.S. government and government agency obligations, time deposits with major international banks and financial institutions, high-quality corporate bonds, foreign government obligations and asset-backed securities. Our long-term investments in debt securities are placed in high-quality corporate bonds, asset-backed securities, U.S. government and government agency obligations, and foreign government obligations.
The credit risk from our OTC derivative contracts, such as forwards, swaps and options, 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 these trades are cleared primarily 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 oil and gas 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 may require collateral to limit the exposure to loss including letters of credit, prepayments and surety bonds, as well as 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 to 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.
17
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position at September 30, 2023, and December 31, 2022, was $108 million and $333 million, respectively. For these instruments, no collateral was posted at September 30, 2023, and $42 million of collateral was posted at December 31, 2022. If our credit rating had been downgraded below investment grade at September 30, 2023, we would have been required to post $89 million of additional collateral, either with cash or letters of credit.

Note 11—Fair Value Measurement
We carry a portion of our assets and liabilities at fair value that are measured at the 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 fair value hierarchy.
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 initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. There were no material transfers into or out of Level 3 during the nine-month period ended September 30, 2023, nor during the year ended December 31, 2022.
Recurring Fair Value Measurement
Financial assets and liabilities reported at fair value on a recurring basis include our investments in debt securities classified as available for sale and commodity derivatives.
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 1 also includes our investments in U.S. government obligations classified as available for sale debt securities, which are valued using exchange prices.
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 provided by brokers or pricing service companies that are all corroborated by market data. Level 2 also includes our investments in debt securities classified as available for sale, including investments in corporate bonds, commercial paper, asset-backed securities, U.S. government agency obligations and foreign government obligations that are valued using pricing provided by brokers or pricing service companies that are corroborated with 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
September 30, 2023December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investments in debt securities
$276 1,078  1,354 178 1,044  1,222 
Commodity derivatives
361 231 70 662 958 951 128 2,037 
Total assets
$637 1,309 70 2,016 1,136 1,995 128 3,259 
Liabilities
Commodity derivatives$376 203 24 603 906 843 261 2,010 
Total liabilities
$376 203 24 603 906 843 261 2,010 
ConocoPhillips      2023 Q3 10-Q
18

Notes to Consolidated Financial Statements
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 setoff exists.
Millions of Dollars
Amounts Subject to Right of Setoff
Gross
Amounts
Recognized
Amounts Not
Subject to
Right of Setoff
Gross
Amounts
Gross
Amounts
Offset
Net
Amounts
Presented
Cash
Collateral
Net
Amounts
September 30, 2023
Assets$662 30 632 418 214 1 213 
Liabilities603 27 576 418 158 23 135 
December 31, 2022
Assets$2,037 39 1,998 1,176 822 37 785 
Liabilities2,010 20 1,990 1,176 814 52 762 
At September 30, 2023 and December 31, 2022, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff.

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 and short-term investments: The carrying amount reported on the balance sheet approximates fair value. For those investments classified as available for sale debt securities, the carrying amount reported on the balance sheet is fair value.
Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value.
Investments in debt securities classified as available for sale: The fair value of investments in debt securities categorized as Level 1 in the fair value hierarchy is measured using exchange prices. The fair value of investments in debt securities categorized as Level 2 in the fair value hierarchy is measured using pricing provided by brokers or pricing service companies that are corroborated with market data. See Note 10.
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.
Commercial paper: The carrying amount of our commercial paper instruments approximates fair value and is reported on the balance sheet as short-term debt.
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
September 30
2023
December 31
2022
September 30
2023
December 31
2022
Financial assets
Commodity derivatives
243 824 243 824 
Investments in debt securities
1,354 1,222 1,354 1,222 
Financial liabilities
Total debt, excluding finance leases
17,906 15,323 17,375 15,545 
Commodity derivatives
162 782 162 782 
19
ConocoPhillips      2023 Q3 10-Q

Notes to Consolidated Financial Statements
Note 12—Suspended Wells
The capitalized cost of suspended wells at September 30, 2023 was $459 million, a decrease of $68 million from December 31, 2022. In the third quarter of 2023, after further evaluation we recognized dry hole expense of $37 million for the suspended Warka discovery well on license PL 1009 in the Norwegian Sea.

Note 13—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of our consolidated balance sheet includes:

Millions of Dollars

Defined Benefit
Plans
Unrealized Holding
Loss on
Securities
Foreign
Currency
Translation
 Unrealized Gain on Hedging Activities
Accumulated
Other
Comprehensive
Loss
December 31, 2022$(448)(11)(5,541) (6,000)
Other comprehensive income (loss)
26  (23)36 39 
September 30, 2023$(422)(11)(5,564)36 (5,961)
The following table summarizes reclassifications out of accumulated other comprehensive loss and into net income:

Millions of Dollars

Three Months Ended
September 30
Nine Months Ended
September 30

2023202220232022
Defined benefit plans
$9 6 26 22 
The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $2 million and $1 million for the three-month periods ended September 30, 2023 and September 30, 2022, respectively, and $8 million and $6 million for the nine-month periods ended
September 30, 2023 and September 30, 2022, respectively. See Note 15.

Note 14—Cash Flow Information

Millions of Dollars

Nine Months Ended
September 30
20232022
Cash Payments
Interest
$533 706 
Income taxes
4,141 5,602 
Net Sales (Purchases) of Investments
Short-term investments purchased
$(917)(2,960)
Short-term investments sold
3,350 1,297 
Long-term investments purchased
(676)(640)
Long-term investments sold
103 68 

$1,860 (2,235)

ConocoPhillips      2023 Q3 10-Q
20

Notes to Consolidated Financial Statements
Note 15—Employee Benefit Plans
Pension and Postretirement Plans
Millions of Dollars
Pension Benefits
Other Benefits
2023202220232022
U.S.
Int'l.
U.S.
Int'l.
Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost
$12 10 13 13   
Interest cost
19 28 18 19 1 1 
Expected return on plan assets
(15)(38)(10)(31)  
Amortization of prior service credit
   (1)(9)(9)
Recognized net actuarial loss (gain)
3 16 6 2 (1) 
Settlements
2  9    
Net periodic benefit cost
$21 16 36 2 (9)(8)
Nine Months Ended September 30
Service cost$38 29 45 39  1 
Interest cost
58 85 42 61 4 3 
Expected return on plan assets
(44)(112)(36)(99)  
Amortization of prior service credit
   (1)(28)(29)
Recognized net actuarial loss (gain)
9 50 17 6 (3) 
Settlements
6  31    
Net periodic benefit cost$67 52 99 6 (27)(25)
The components of net periodic benefit cost, other than the service cost component, are included in the "Other expenses" line of our consolidated income statement.
During the first nine months of 2023, we contributed $126 million to our domestic benefit plans and $51 million to our international benefit plans. We expect our total contributions in 2023 to be approximately $135 million to our domestic qualified and nonqualified pension and postretirement benefit plans and $60 million to our international qualified and nonqualified pension and postretirement benefit plans.

Note 16—Related Party Transactions
Our related parties primarily include equity method investments and certain trusts for the benefit of employees.

Millions of Dollars

Three Months Ended
September 30
Nine Months Ended
September 30
2023202220232022
Significant Transactions with Equity Affiliates
Operating revenues and other income
$23 21 67 64 
Purchases
   1 
Operating expenses and selling, general and administrative expenses
73 55 224 145 
Net interest income