Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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 Executive Vice President and Chief Financial

Officer, who

reports to the Chief Executive

Officer, monitors

commodity price risk and risks resulting from

foreign currency

exchange rates and

interest rates.

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, 2021, 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 or held for purposes

other than trading at December 31, 2021 and 2020, was

immaterial to our consolidated

cash flows and net income

attributable to ConocoPhillips.

Interest Rate Risk

The following table provides information

about our debt instruments that are

sensitive to changes in U.S. interest

rates.

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.

A hypothetical 10 percent change in

prevailing interest rates

would not have a material impact

on interest expense associated

with our floating-rate debt.

The fair value of the

fixed-rate debt is measured

using prices available from a pricing service that

is corroborated by

market data.

Changes to prevailing interest

rates would not impact our cash

flows associated with fixed rate

debt, unless we

elect to repurchase or retire such

debt prior to maturity.

ConocoPhillips

2021 10-K

Millions of Dollars Except as Indicated

Debt

Fixed

Average

Floating

Average

Rate

Interest

Rate

Interest

Expected Maturity Date

Maturity

Rate

Maturity

Rate

Year-End 2021

2022

$

2.53

%

$

1.03

%

2023

6.64

-

-

2024

3.51

-

-

2025

5.32

-

-

2026

1,355

5.06

-

-

Remaining years

14,338

5.80

0.11

Total

$

16,983

$

Fair value

$

21,668

$

Year-End 2020

2021

$

8.47

%

$

0.22

%

2022

2.53

1.12

2023

7.03

-

-

2024

3.51

-

-

2025

5.33

-

-

Remaining years

11,793

6.28

0.11

Total

$

13,209

$

1,083

Fair value

$

18,023

$

1,083

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,

and investments in equity securities.

At December 31, 2021 and 2020, 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.

At December 31, 2021, we had outstanding

foreign currency exchange

forward contracts

to buy $1.9 billion AUD at

$0.715 AUD against the U.S. dollar.

At December 31, 2020, we had outstanding

foreign currency exchange

forward

contracts to sell $0.45 billion CAD at $0.748

CAD against the U.S. dollar.

Based on the assumed volatility in the fair

value calculation, the net fair value

of these foreign currency contracts

at December 31, 2021 and December 31,

2020, were a before-tax

gain of $21 million and before

-tax loss of $16 million, respectively.

Based on an adverse

hypothetical 10 percent change

in the December 2021 and December 2020 exchange

rate, this would result

in an

additional before-tax loss

of $134 million and $39 million, respectively.

The sensitivity analysis is based on

changing one assumption while holding all other assumptions constant,

which in practice may be unlikely

to occur,

as changes in some of the assumptions may be correlated.

ConocoPhillips

2021 10-K

The gross notional and fair value of these positions

at December 31, 2021 and 2020, were as follows

:

Foreign Currency Exchange

Derivatives

In Millions

Notional

Fair Value*

2021

2020

2021

2020

Sell Canadian dollar,

buy U.S. dollar

CAD

-

-

(16)

Buy Canadian dollar,

sell U.S. dollar

CAD

(1)

Buy Australian dollar,

sell U.S. dollar

AUD

1,850

-

-

Sell British pound, buy euro

GBP

(8)

-

Buy British pound, sell euro

GBP

-

*Denominated in USD.

For additional information about

our use of derivative instruments,

see Note 12

.

ConocoPhillips

2021 10-K