Item 1. Financial Statements

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Item 1. Financial Statements

Financial Statements

Consolidated Income Statement

ConocoPhillips

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Revenues and Other Income

Sales and other operating revenues

11,326

4,386

30,708

13,293

Equity in earnings of affiliates

Gain (loss) on dispositions

(3)

Other income (loss)

(38)

(983)

Total

Revenues and Other Income

11,616

4,380

32,386

13,207

Costs and Expenses

Purchased commodities

4,179

1,839

11,660

5,630

Production and operating expenses

1,389

4,151

3,183

Selling, general and administrative

expenses

Exploration expenses

Depreciation, depletion and amortization

1,672

1,411

5,425

3,980

Impairments

(89)

(90)

Taxes

other than income taxes

1,154

Accretion on discounted liabilities

Interest and debt expense

Foreign currency transaction

(gain) loss

(10)

(5)

(88)

Other expenses

Total

Costs and Expenses

8,034

4,892

24,010

15,261

Income (loss) before income taxes

3,582

(512)

8,376

(2,054)

Income tax provision (benefit)

1,203

(62)

2,924

(171)

Net income (loss)

2,379

(450)

5,452

(1,883)

Less: net loss attributable to noncontrolling

interests

(46)

Net Income (Loss) Attributable

to ConocoPhillips

2,379

(450)

5,452

(1,929)

Net Income (Loss) Attributable

to ConocoPhillips Per Share

of Common Stock

(dollars)

Basic

1.78

(0.42)

4.10

(1.79)

Diluted

1.78

(0.42)

4.09

(1.79)

Average Common Shares

Outstanding

(in thousands)

Basic

1,332,286

1,077,377

1,327,216

1,079,525

Diluted

1,336,379

1,077,377

1,330,652

1,079,525

See Notes to Consolidated Financial Statements.

Financial Statements

ConocoPhillips

2021 Q3 10-Q

Consolidated Statement

of Comprehensive Income

ConocoPhillips

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Net Income (Loss)

2,379

(450)

5,452

(1,883)

Other comprehensive income (loss)

Defined benefit plans

Reclassification adjustment for

amortization of prior

service credit included in net income (loss)

(9)

(8)

(28)

(24)

Net actuarial gain (loss) arising during the period

(78)

(73)

Reclassification adjustment for

amortization of net actuarial

losses included in net income (loss)

Income taxes on defined benefit

plans

(9)

(49)

Defined benefit plans, net of tax

(31)

(13)

Unrealized holding gain (loss) on securities

(1)

Income taxes on unrealized

holding gain on securities

(1)

Unrealized holding gain (loss) on securities,

net of tax

(1)

Foreign currency translation

adjustments

(237)

(72)

(302)

Income taxes on foreign

currency translation adjustments

(1)

Foreign currency translation

adjustments, net of tax

(238)

(73)

(298)

Other Comprehensive Income (Loss), Net of Tax

(203)

(309)

Comprehensive Income (Loss)

2,176

(291)

5,547

(2,192)

Less: comprehensive income attributable

to noncontrolling interests

(46)

Comprehensive Income (Loss) Attributable

to ConocoPhillips

2,176

(291)

5,547

(2,238)

See Notes to Consolidated Financial Statements.

Financial Statements

ConocoPhillips

2021 Q3 10-Q

Consolidated Balance Sheet

ConocoPhillips

Millions of Dollars

September 30

December 31

2021

2020

Assets

Cash and cash equivalents

9,833

2,991

Short-term investments

3,609

Accounts and notes receivable (net of allowance

of $

and $

, respectively)

5,336

2,634

Accounts and notes receivable—related

parties

Investment in Cenovus Energy

1,416

1,256

Inventories

1,043

1,002

Prepaid expenses and other current

assets

1,746

Total

Current Assets

20,181

12,066

Investments and long-term receivables

8,058

8,017

Loans and advances—related parties

Net properties, plants and equipment

(net of accumulated DD&A of $

65,223

and $

62,213

, respectively)

56,689

39,893

Other assets

2,376

2,528

Total

Assets

87,304

62,618

Liabilities

Accounts payable

4,101

2,669

Accounts payable—related

parties

Short-term debt

Accrued income and other taxes

2,082

Employee benefit obligations

Other accruals

2,625

1,121

Total

Current Liabilities

10,449

5,366

Long-term debt

18,748

14,750

Asset retirement obligations

and accrued environmental costs

5,721

5,430

Deferred income taxes

5,630

3,747

Employee benefit obligations

1,162

1,697

Other liabilities and deferred credits

1,479

1,779

Total

Liabilities

43,189

32,769

Equity

Common stock (

2,500,000,000

shares authorized at $

0.01

par value)

Issued (2021—

2,089,046,718

shares; 2020—

1,798,844,267

shares)

Par value

Capital in excess of par

60,431

47,133

Treasury stock

(at cost: 2021—

770,099,851

shares; 2020—

730,802,089

shares)

(49,521)

(47,297)

Accumulated other comprehensive

loss

(5,123)

(5,218)

Retained earnings

38,307

35,213

Total

Equity

44,115

29,849

Total

Liabilities and Equity

87,304

62,618

See Notes to Consolidated Financial Statements.

Financial Statements

ConocoPhillips

2021 Q3 10-Q

Consolidated Statement

of Cash Flows

ConocoPhillips

Millions of Dollars

Nine Months Ended

September 30

2021

2020

Cash Flows From Operating Activities

Net income (loss)

5,452

(1,883)

Adjustments to reconcile net income

(loss) to net cash provided by operating

activities

Depreciation, depletion and amortization

5,425

3,980

Impairments

(90)

Dry hole costs and leasehold impairments

Accretion on discounted liabilities

Deferred taxes

(428)

Undistributed equity earnings

Gain on dispositions

(294)

(551)

(Gain) loss on investment in Cenovus

Energy

(743)

1,302

Other

(866)

(188)

Working capital adjustments

Decrease (increase) in accounts and notes

receivable

(1,619)

1,132

Increase in inventories

(13)

(74)

Increase in prepaid expenses and other current

assets

(800)

(49)

Increase (decrease) in accounts payable

(583)

Increase (decrease) in taxes

and other accruals

2,648

(808)

Net Cash Provided by Operating

Activities

11,128

3,130

Cash Flows From Investing Activities

Cash acquired from Concho

Capital expenditures and investments

(3,767)

(3,657)

Working capital changes

associated with investing activities

(229)

Proceeds from asset dispositions

1,312

Net sales (purchases) of investments

2,846

(1,089)

Collection of advances/loans—related parties

Other

(386)

(31)

Net Cash Provided by (Used in) Investing

Activities

(3,578)

Cash Flows From Financing Activities

Issuance of debt

Repayment of debt

(363)

(234)

Issuance of company common stock

(2)

Repurchase of company common

stock

(2,224)

(726)

Dividends paid

(1,750)

(1,367)

Other

(27)

Net Cash Used in Financing Activities

(4,304)

(2,056)

Effect of Exchange

Rate Changes on Cash, Cash Equivalents

and Restricted Cash

(3)

(62)

Net Change in Cash, Cash Equivalents and

Restricted Cash

6,872

(2,566)

Cash, cash equivalents and restricted

cash at beginning of period

3,315

5,362

Cash, Cash Equivalents and Restricted

Cash at End of Period

10,187

2,796

Restricted cash of $

million and $

million are included in the "Prepaid expenses and other current assets" and "Other

assets" lines,

respectively, of our Consolidated Balance Sheet as of September 30, 2021.

Restricted cash of $

million and $

million are included in the "Prepaid expenses and other current assets" and "Other assets"

lines,

respectively, of our Consolidated Balance Sheet as of December 31, 2020.

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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 2020 Annual Report on Form

10-K.

Note 2—Inventories

Millions of Dollars

September 30

December 31

2021

2020

Crude oil and natural gas

Materials and supplies

Total

Inventories

1,043

1,002

Inventories valued on

the LIFO basis

Note 3—Acquisitions and Dispositions

Announced Acquisition of Shell Permian Assets

In September 2021, we signed a definitive agreement

to acquire Shell Enterprises LLC’s

assets in the Delaware

Basin in an all-cash transaction for $

9.5

billion before customary

adjustments (Shell Permian Acquisition).

Assets

to be acquired include approximately

225,000

net acres and producing properties

located entirely in Texas,

as well

as over

miles of operated crude, gas and

water pipelines and infrastructure.

The acquisition is anticipated to

close in the fourth quarter of 2021, subject to regulatory

approval and other customary

closing conditions.

Under

the terms of the agreement, we paid a deposit of $

million which is presented within “Cash

Flows from

Investing Activities - Other” on our consolidated statement

of cash flows.

See Item 1A “Risk Factors” for further

discussion of risks related to the Shell Permian Acquisition.

Acquisition of

Concho Resources Inc.

(Concho)

We completed our acquisition

of Concho on

January 15, 2021

and as defined under the terms of the transaction

agreement, each share of Concho common stock

was exchanged for

1.46

shares of ConocoPhillips common stock,

for total consideration

of $

13.1

billion.

Total Consideration

Number of shares of Concho common stock issued

and outstanding (in thousands)*

194,243

Number of shares of Concho stock awards

outstanding (in thousands)*

1,599

Number of shares exchanged

195,842

Exchange ratio

1.46

Additional shares of ConocoPhillips common stock

issued as consideration (in thousands)

285,929

Average price per share of ConocoPhillips

common stock**

45.9025

Total Consideration

(Millions)

13,125

*Outstanding as of January 15, 2021.

**Based on the ConocoPhillips average stock

price on January 15, 2021.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

The transaction was 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.

Fair

value measurements were made

for acquired assets and liabilities, and

adjustments to those measurements

may

be made in subsequent periods, up to one year

from the acquisition date as we identify new information

about

facts and circumstances that

existed as of the acquisition date to

consider.

Oil and gas properties were valued

using a discounted cash flow approach

incorporating market participant

and internally generated price

assumptions; production profiles; and, operating

and development cost assumptions.

Debt assumed in the

acquisition was valued based on observable

market prices.

The fair values determined for

accounts receivables,

accounts payable, and most

other current assets and current liabilities were

equivalent to the carrying value

due to

their short-term nature.

The total consideration

of $

13.1

billion was allocated to the identifiable

assets and

liabilities based on their fair values as of January 15, 2021.

Assets Acquired

Millions of Dollars

Cash and cash equivalents

Accounts receivable, net

Inventories

Prepaid expenses and other current

assets

Investments and long-term receivables

Net properties, plants and equipment

18,968

Other assets

Total assets

acquired

20,572

Liabilities Assumed

Accounts payable

Accrued income and other taxes

Employee benefit obligations

Other accruals

Long-term debt

4,696

Asset retirement obligations

and accrued environmental costs

Deferred income taxes

1,123

Other liabilities and deferred credits

Total liabilities

assumed

7,447

Net assets acquired

13,125

With the completion of the Concho transaction,

we acquired proved and unproved

properties of approximately

11.8

billion and $

6.9

billion, respectively.

We recognized approximately

million of transaction-related costs,

all of which were expensed in the first

quarter of 2021.

These non-recurring costs related

primarily to fees paid to advisors

and the settlement of share-

based awards for certain Concho

employees based on the terms of the Merger Agreement.

In the first quarter of 2021, we commenced

a company-wide restructuring program,

the scope of which included

combining the operations of the two companies

as well as other global restructuring activities.

For the three-

and

nine-month periods ending September 30, 2021, we recognized

non-recurring restructuring costs

of approximately

million and $

million, respectively,

mainly for employee severance

and related incremental

pension benefit

costs.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

The impact from these transaction and restructuring

costs to the lines of our consolidated income statement

for

the nine-month period ending September 30, 2021, are

below:

Millions of Dollars

Transaction

Cost

Restructuring Cost

Total

Cost

Production and operating expenses

Selling, general and administration

expenses

Exploration expenses

Taxes

other than income taxes

Other expenses

On February 8, 2021, we completed a debt

exchange offer

related to the debt assumed from Concho.

As a result

of the debt exchange, we recognized

an additional income tax related

restructuring charge of $

million.

See

Note 19.

From the acquisition date through

September 30, 2021, “Total Revenues

and Other Income” and “Net Income

(Loss) Attributable to ConocoPhillips”

associated with the acquired Concho business

were approximately $

4,499

million and $

1,600

million, respectively.

The results associated with the Concho business

for the same period

include a before- and after-tax

loss of $

million and $

million, respectively,

on the acquired derivative

contracts.

The before-tax loss is recorded

within “Total Revenues

and Other Income” on our consolidated

income

statement.

See Note 11.

The following summarizes the unaudited

supplemental pro forma financial information

as if we had completed the

acquisition of Concho on January 1, 2020:

Millions of Dollars

Supplemental Pro Forma (unaudited)

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

Total

revenues and other income

5,019

16,384

Net loss

(565)

(1,184)

Net loss attributable to ConocoPhillips

(565)

(1,230)

$ per share

Earnings per share:

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

Basic net loss

(0.41)

(0.90)

Diluted net loss

(0.41)

(0.90)

The unaudited supplemental pro forma

financial information is presented

for illustration purposes

only and is not

necessarily indicative of the operating

results that would have occurred

had the transaction been completed on

January 1, 2020, nor is it necessarily indicative of future

operating results of the combined entity.

The unaudited

pro forma financial information

for the three-

and nine-month periods ending September 30, 2020 is

a result of

combining the consolidated income statement

of ConocoPhillips with the results of Concho.

The pro forma results

do not include transaction-related

costs, nor any cost savings

anticipated as a result of the transaction.

The pro

forma results include adjustments

to reverse impairment expense

of $

10.5

billion and $

1.9

billion related to oil and

gas properties and goodwill, respectively,

recorded by Concho in the nine-month

period ending September 30,

Other adjustments made relate

primarily to DD&A, which is based on the unit-of-production

method,

resulting from the purchase price allocated

to properties, plants and equipment.

We believe the estimates

and

assumptions are reasonable, and the relative

effects of the transaction

are properly reflected.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Assets Sold

In 2020, we completed the sale of our Australia

-West asset and operations.

The sales agreement entitled us to a

million payment upon a final investment

decision (FID) of the Barossa development project.

On March 30,

2021, FID was announced and as such, we recognized

a $

million gain on disposition in the first

quarter of 2021.

The purchaser failed to pay the

FID bonus when due.

We have commenced an arbitration

proceeding against the

purchaser to enforce our contractual

right to the $

million, plus interest accruing from the

due date.

Results of

operations related to

this transaction are reflected

in our Asia Pacific segment.

See Note 10.

In the third quarter of 2021, we sold our interests

in certain noncore assets in our Lower 48 segment

for

approximately $

million after customary adjustments,

recognizing a before-tax gain

on sale of approximately

million.

Production from these noncore Lower

48 properties averaged

approximately

MBOED in the nine-

months ended September 30, 2021.

We also completed the sale of our

noncore exploration interests

in Argentina,

recognizing a before-tax

loss on disposition of $

million. Results of operations

for Argentina were reported

our Other International segment.

For the three- and nine-months ended September

30, 2021, we recorded contingent

payments of $

million and

million, respectively,

relating to previous dispositions.

The contingent payments are

recorded as gain on

disposition on our consolidated income statement

and are reflected within our Canada

and Lower 48 segments.

contingent payments were

recorded in 2020.

Note 4—Investments,

Loans and Long-Term

Receivables

Australia Pacific LNG Pty Ltd

(APLNG)

APLNG executed project financing

agreements for an $

8.5

billion project finance facility in 2012.

All amounts were

drawn from the facility.

The project financing facility has been restructured

over time and at September 30, 2021,

this facility was composed of a financing agreement

with the Export-Import Bank of the United States,

commercial bank facility and

two

United States Private

Placement note facilities.

APLNG made its first principal

and interest repayme

nt in March 2017 and is scheduled to make

bi-annual payments until September

September 30, 2021, a balance of $

5.7

billion was outstanding on these

facilities.

See Note 9.

During the fourth quarter of 2020, the estimated

fair value of our investment

in APLNG declined to an amount

below carrying value, primarily due to the weakening

of the U.S. dollar relative to the Australian

dollar.

Based on a

review of the facts and circumstances

surrounding this decline in fair value, we concluded

the impairment was not

other than temporary under the guidance of FASB

ASC Topic

323, “Investments – Equity

Method and Joint

Ventures.”

Due primarily to improved outlooks for

commodity prices and the strengthening

of the U.S. dollar

relative to the Australian

dollar during the first nine months of 2021, the estimated

fair value of our investment

increased and is above carrying value at

September 30, 2021.

On October 25, 2021, Origin Energy Limited agreed

to the sale of

percent of their interest

in APLNG for

approximately $

1.6

billion which is expected to close in the fourth

quarter of 2021.

The transaction is subject to

preemption rights in favor

of ConocoPhillips and Sinopec among other considerations.

We will continue to

monitor and evaluate the relationship

between the carrying value and fair value

of APLNG, including any impact

from this announced transaction.

At September 30, 2021, the carrying value

of our equity method investment

in APLNG was $

6.4

billion.

The

balance is included in the “Investments and

long-term receivables” line on our consolidated

balance sheet.

Loans

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 made to

certain affiliated and non-affiliated

companies.

At September 30, 2021, significant loans

to affiliated companies

included $

million in project financing to Qatar Liquefied

Gas Company Limited (3), which is recorded

within

the “Accounts

and notes receivable—related

parties” line on our consolidated balance sheet

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 5—Investment in Cenovus

Energy

Our investment in Cenovus Energy

(CVE) shares is carried on our consolidated

balance sheet at fair value of $

1.4

billion based on the closing price of $

10.06

per share on the NYSE on the last trading

day of the quarter.

September 30, 2021 and December 31, 2020, we held

million and

million shares of CVE common stock,

respectively.

At September 30, 2021, our investment

approximated

percent of the issued and outstanding

CVE

common stock.

During the third quarter,

we sold

million shares of our CVE common stock, recognizing

proceeds of $

million.

Since we began disposing of our CVE shares

in May 2021, we have sold

million shares for total proceeds

of $

million, of which $

million was received by the end of the third

quarter.

Subject to market conditions, we

intend to continue to decrease

our investment over time.

All gains and losses are recognized

within “Other income (loss)” on our consolidated

income statement.

Proceeds

related to the sale of our CVE shares are

presented within “Cash Flows from Investing

Activities” on our

consolidated statement

of cash flows.

See Note 12

for information related

to fair value measurement

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Total

Net gain (loss) on equity securities

(162)

(1,302)

Less: Net gain (loss) on equity securities sold during

the period

(50)

Unrealized gain (loss) on equity securities

still held at

the reporting date

(162)

(1,302)

Note 6—Impairments

During the three-

and nine-month periods ended September 30, 2021 and

2020, we recognized before

-tax

impairment charges within the following

segments:

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Alaska

Lower 48

(89)

(93)

Europe, Middle East and North Africa

(89)

(90)

In the three-month period ended September 30, 2021,

we recorded a credit to impairment

of $

million in our

Lower 48 segment due to a decreased ARO

estimate for a previously

sold asset, in which we retained the ARO

liability.

In the first quarter of 2020, we recorded

impairments of $

million related to certain noncore

natural gas assets

in the Lower 48 segment which were written

down to fair value.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 7—Debt

Our debt balance at September 30, 2021, was

19.7

billion compared with $

15.4

billion at December 31, 2020.

On January 15, 2021, we completed the acquisition of Concho

in an all-stock transaction.

In the acquisition, we

assumed Concho’s publicly

traded debt, with an outstanding principal balance

of $

3.9

billion, which was recorded

at fair value of $

4.7

billion on the acquisition date.

Debt assumed consisted of the following:

●

3.75

% Notes due

2027

with principal of $

1,000

million

●

4.3

% Notes due

2028

with principal of $

1,000

million

●

2.4

% Notes due

2031

with principal of $

million

●

4.875

% Notes due

2047

with principal of $

million

●

4.85

% Notes due

2048

with principal of $

million

The adjustment to fair value of the senior

notes of approximately $

0.8

billion on the acquisition date will be

amortized as an adjustment to interest

expense over the remaining contractual

terms of the senior notes.

In the first quarter of 2021, we completed

a debt exchange offer

related to the debt assumed from

Concho.

Of the

approximately $

3.9

billion in aggregate principal amount

of Concho’s senior notes

offered in the exchange,

percent, or approximately

3.8

billion, were tendered and accepted.

The new debt issued by ConocoPhillips had

the same interest rates

and maturity dates as the Concho senior notes.

The portion not exchanged, approximately

million, remained outstanding across

five series of senior notes issued by Concho.

The debt exchange was

treated as a debt modification for

accounting purposes resulting in a portion

of the unamortized fair value

adjustment of the Concho senior notes allocated

to the new debt issued by ConocoPhillips on the settlement

date

of the exchange.

The new debt issued in the exchange is

fully and unconditionally guaranteed by

ConocoPhillips

Company.

See Note 3

We have a revolving

credit facility totaling $

6.0

billion with an expiration date

May 2023

Our revolving credit

facility may be used for direct

bank borrowings, the issuance of letters

of credit totaling up to $

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 $

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

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 U.S.

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 $

6.0

billion of commercial paper.

Commercial paper

is generally limited to

maturities of 90 days

and is included in the short-term debt on our consolidated

balance

sheet. With no commercial paper outstanding

and

direct borrowings or letters

of credit, we had access to $

6.0

billion in available borrowing capacity

under our revolving credit facility at

September 30, 2021.

At December 31,

2020, we had $

million of commercial paper outstanding

and

direct borrowings or letters of credit

issued.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Following our September 20, 2021, announcement

regarding the Shell Permian

Acquisition,

the three rating

agencies reviewed their pre-announcement

ratings on our debt resulting in the

following:

●

Fitch affirmed its rating of our long-term debt as “A” with a “stable” outlook.

●

S&P affirmed its rating of our long-term debt of “A-” with a “stable” outlook.

●

Moody’s affirmed its rating of our senior long-term debt of “A3” and upgraded the outlook to “positive”

from “stable.”

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 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.

At September 30, 2021, we had $

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.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 8—Changes in Equity

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

For the three months ended September 30, 2021

Balances at June 30, 2021

60,337

(48,278)

(4,920)

37,116

44,276

Net income

2,379

Other comprehensive income

(203)

Dividends paid ($

0.43

per common share)

(579)

Dividends payable ($

0.46

per common share)

(609)

Repurchase of company common stock

(1,243)

Distributed under benefit plans

Balances at September 30, 2021

60,431

(49,521)

(5,123)

38,307

44,115

For the nine months ended September 30, 2021

Balances at December 31, 2020

47,133

(47,297)

(5,218)

35,213

29,849

Net income

5,452

Other comprehensive income

Dividends paid ($

1.29

per common share)

(1,750)

Dividends payable ($

0.46

per common share)

(609)

Acquisition of Concho

13,122

13,125

Repurchase of company common stock

(2,224)

Distributed under benefit plans

Other

Balances at September 30, 2021

60,431

(49,521)

(5,123)

38,307

44,115

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

For the three months ended September 30, 2020

Balances at June 30, 2020

47,079

(47,130)

(5,825)

37,351

31,493

Net income

(450)

Other comprehensive income

Dividends paid ($

0.42

per common share)

(454)

Distributed under benefit plans

Other

Balances at September 30, 2020

47,113

(47,130)

(5,666)

36,448

30,783

For the nine months ended September 30, 2020

Balances at December 31, 2019

46,983

(46,405)

(5,357)

39,742

35,050

Net income

(1,929)

(1,883)

Other comprehensive loss

(309)

Dividends paid ($

1.26

per common share)

(1,367)

Repurchase of company common stock

(726)

Distributions to noncontrolling interests and other

(32)

Dispositions

(84)

Distributed under benefit plans

Other

Balances at September 30, 2020

47,113

(47,130)

(5,666)

36,448

30,783

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 9—Guarantees

At September 30, 2021, 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, 2021, 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 September

2021

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

years

Our maximum exposure under this guarantee

is approximately $

million and may become payable

if an enforcement action is commenced by

the project finance lenders against

APLNG.

At September 30,

2021, the carrying value of this guarantee

was $

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 with remaining terms of

1 to 21 years

Our maximum potential liability for future

payments, or

cost of volume delivery,

under these guarantees is estimated

to be $

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,

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

connection with the project’s continued

development.

The guarantees have

remaining terms of

15 to 24

years

or the life of the venture.

Our maximum potential amount of future payments

related to these

guarantees is approximately

million and would become payable

if APLNG does not perform.

September 30, 2021, the carrying value of these guarantees

was $

million.

Other Guarantees

We have other guarantees

with maximum future potential payment

amounts totaling approximately

million,

which consist primarily of guarantees

of the residual value of leased office buildings, guarantees

of the residual

value of corporate aircrafts,

and a guarantee for our portion

of a joint venture’s

project finance reserve accounts.

These guarantees have remaining

terms of

one to five 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, 2021, the carrying value of these guarantees

was $

million.

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,

lease commitments and environmental

liabilities.

Those related to environmental

issues have terms that are

generally indefinite and the maximum

amounts of future payments are

generally unlimited.

The carrying amount

recorded for these indemnification

obligations at September 30, 2021, was $

million.

We amortize the

indemnification liability over the relevant

time period the indemnity is in effect, 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

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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.

See Note 10

for

additional information about environmental

liabilities

Note 10—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

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.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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

At September 30, 2021, our balance sheet included

a total environmental

accrual of $

million, compared with

million at December 31, 2020, for remediation

activities in the U.S. and Canada.

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.

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

from historic operations,

and other contract disputes.

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, 2021, we had performance

obligations secured by letters

of credit of

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

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 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.

March 2019, the Tribunal unan

imously 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 ICSID Tribunal

issued a decision rectifying the award and

reducing it

by approximately $

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 have

been suspended as a result of Venezuela’s

non-payment of advances

to cover the costs of these proceedings.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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 $

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 of the settlement agreement. The balance of the settlement is 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

million in connection with the ICC award.

ConocoPhillips has ensured that

the settlement and any actions taken

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

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.

The Office of Natural Resources

Revenue (ONRR) has conducted audits

of ConocoPhillips’ payment of royalties

federal lands and has issued multiple orders

to pay additional royalties

to the federal government.

ConocoPhillips

and the ONRR entered into a settlement

agreement on March 23, 2021, to resolve

the dispute.

All orders and

associated appeals have been withdrawn

with prejudice.

Beginning in 2017, cities, counties, governments

and other entities in several states

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

amounts claimed by plaintiffs are

unspecified and the legal and factual issues

involved in these cases are

unprecedented.

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

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

of the lawsuits and will vigorously defend

against

them.

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.

ConocoPhillips is challenging this order.

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

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 $

million bonus due

upon FID of the Barossa development project

under the sale and purchase agreement.

Santos KOTN

Pty Ltd. and

Santos Limited have filed a counterclaim,

and the arbitration is underway.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 11—Derivative and Financial Instruments

We use futures, forwards,

swaps and options in various markets

to meet our customer needs, capture

market

opportunities and manage foreign exchange

currency risk.

Commodity Derivative Instruments

Our commodity business primarily consists of natural

gas, crude oil, bitumen, LNG and NGLs.

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,

and the line

items where they appear on our consolidated

balance sheet:

Millions of Dollars

September 30

December 31

2021

2020

Assets

Prepaid expenses and other current

assets

1,601

Other assets

Liabilities

Other accruals

1,681

Other liabilities and deferred credits

The gains (losses) from commodity derivatives

incurred, and the line items where they appear on

our consolidated

income statement were:

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Sales and other operating revenues

(483)

(862)

Other income (loss)

(2)

Purchased commodities

(27)

(29)

On January 15, 2021, we assumed financial derivative instruments

consisting of oil and natural gas

swaps in

connection with the acquisition of Concho.

At the acquisition date, the financial derivative

instruments acquired

were recognized at fair

value as a net liability of $

million with settlement dates under the contracts

through

December 31, 2022.

During the first quarter of 2021, we recognized

a loss of $

million on Concho derivative

contracts with settlement dates

on or before March 31, 2021, and an

additional $

million loss related to all

remaining Concho derivative contracts

with settlement dates subsequent

to March 31, 2021, for a total loss of

million.

This loss associated with the acquired financial

instruments is recorded within the

“Sales and other

operating revenues” line on our

consolidated income statement.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

By the end of March 2021, all oil and natural

gas derivative financial instruments

acquired from Concho were

contractually settled.

In connection with the settlement, we issued

a cash payment of $

million in the first

quarter of 2021 and $

million in the second quarter of 2021.

Cash settlements related

to the Concho derivative

contracts are presented

within “Cash Flows From Operating Activities”

on our consolidated statement

of cash

flows.

The table below summarizes our material

net exposures resulting from

outstanding commodity derivative

contracts:

Open Position

Long/(Short)

September 30

December 31

2021

2020

Commodity

Natural gas and power (billions

of cubic feet equivalent)

Fixed price

(20)

Basis

(19)

(10)

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 to

mature at par.

●

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.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

The following investments are

carried on our consolidated balance sheet at cost, plus accrued

interest and the table

reflects remaining maturities at September 30, 2021 and

December 31, 2020:

Millions of Dollars

Carrying Amount

Cash and Cash Equivalents

Short-Term

Investments

Investments and Long-Term

Receivables

September 30

December 31

September 30

December 31

September 30

December 31

2021

2020

2021

2020

2021

2020

Cash

Demand Deposits

1,847

1,133

Time Deposits

1 to 90 days

7,226

1,225

2,859

91 to 180 days

Within one year

One year through five years

U.S. Government

Obligations

1 to 90 days

9,723

2,978

3,320

The following investments in debt securities

classified as available for sale are carried at

fair value on our consolidated

balance sheet at September 30, 2021 and December 31, 2020:

Millions of Dollars

Carrying Amount

Cash and Cash Equivalents

Short-Term

Investments

Investments and Long-Term

Receivables

September 30

December 31

September 30

December 31

September 30

December 31

2021

2020

2021

2020

2021

2020

Major Security Type

Corporate Bonds

Commercial Paper

U.S. Government

Obligations

U.S. Government

Agency Obligations

Foreign Government

Obligations

Asset-backed

Securities

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 eight years.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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

December 31

September 30

December 31

2021

2020

2021

2020

Major Security Type

Corporate bonds

Commercial paper

U.S. government obligations

U.S. government agency obligations

Foreign government obligations

Asset-backed securities

At September 30, 2021 and December 31, 2020, total

unrealized losses for debt

securities classified as available for

sale with net losses were negligible.

Additionally, at

September 30, 2021 and December 31, 2020, investment

these debt securities in an unrealized loss position

for which an allowance for

credit losses has not been recorded

were negligible.

For the three-

and nine-month periods ended September 30, 2021, proceeds

from sales and redemptions of

investments in debt securities classified

as available for sale were $

million and $

million, respectively.

For

the three-

and nine-month periods ended September 30, 2020,

proceeds from sales and redemptions of

investments in debt securities classified

as available for sale were $

million and $

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, foreign

government obligations, and

time

deposits with major international banks

and financial institutions.

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.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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 at September 30, 2021 and December 31,

2020, was $

million and $

million, respectively.

For these instruments,

collateral was posted at

September 30, 2021 or December 31, 2020.

If our credit rating

had been downgraded below investment

grade at September 30, 2021, we

would have been required to post

million of additional collateral, either with cash

or letters of credit.

Note 12—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 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 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 three-

and nine-month periods ended

September 30, 2021, nor during the year ended December

31, 2020.

Recurring Fair Value

Measurement

Financial assets and liabilities reported at fair

value on a recurring basis primarily include our investment

in CVE

common shares, 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

investment in common shares

of CVE, which is valued using quotes for shares

on the NYSE, and 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.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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, 2021

December 31, 2020

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets

Investment in CVE shares

1,416

1,256

Investments in debt securities

Commodity derivatives

1,710

Total

assets

2,304

1,348

3,692

1,415

2,029

Liabilities

Commodity derivatives

1,775

Total

liabilities

1,775

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 Not

Gross

Net

Amounts

Subject to

Gross

Amounts

Cash

Net

Recognized

Right of Setoff

Amounts

Offset

Presented

Collateral

Amounts

September 30, 2021

Assets

1,710

1,597

Liabilities

1,775

1,646

December 31, 2020

Assets

Liabilities

At September 30, 2021 and December 31, 2020, we

did not present any amounts

gross on our consolidated

balance sheet where we had the right of setoff.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

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.

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.

●

Investment in CVE:

See Note 5

for a discussion of the carrying value and fair

value of our investment in

CVE common shares.

●

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 11.

●

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

Level 2 in the fair value hierarchy.

See Note 4.

●

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

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

December 31

September 30

December 31

2021

2020

2021

2020

Financial assets

Investment in CVE shares

1,416

1,256

1,416

1,256

Commodity derivatives

Investments in debt securities

Loans and advances—related parties

Financial liabilities

Total

debt, excluding finance leases

18,815

14,478

22,797

19,106

Commodity derivatives

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 13—Accumulated Other Comprehensive

Loss

Accumulated other comprehensive

loss in the equity section of our consolidated balance sheet included:

Millions of Dollars

Defined Benefit

Plans

Net Unrealized

Gain (Loss) on

Securities

Foreign

Currency

Translation

Accumulated

Other

Comprehensive

Loss

December 31, 2020

(425)

(4,795)

(5,218)

Other comprehensive income (loss)

(1)

(73)

September 30, 2021

(256)

(4,868)

(5,123)

The following table summarizes reclassifications

out of accumulated other comprehensive

loss and into net

income (loss):

Millions of Dollars

Three Months Ended

Nine Months Ended

September 30

2021

2020

2021

2020

Defined benefit plans

The above amounts are included in the computation of net periodic benefit cost and are presented net of tax expense of $

million and $

million for the three-month periods ended September 30, 2021 and September 30, 2020, respectively, and $

million and $

million for the

nine-month periods ended September 30, 2021 and September 30, 2020, respectively

See Note 15.

Note 14—Cash Flow Information

Millions of Dollars

Nine Months Ended

September 30

Cash Payments

2021

2020

Interest

Income taxes

Net Sales (Purchases) of Investments

Short-term investments

purchased

(5,487)

(9,662)

Short-term investments

sold

8,478

8,776

Long-term investments purchased

(228)

(271)

Long-term investments sold

2,846

(1,089)

We paid a deposit of $

million under the terms of the agreement of the Shell Permian

Acquisition.

This deposit

is included within the “Cash Flows from Investing

Activities - Other” on our consolidated statement of cash

flows.

See Note 3

for additional information on cash

and non-cash changes to our consolidated

balance sheet associated

with our Concho acquisition and information on

the announced Shell transaction.

Notes to Consolidated Financial Statements

ConocoPhillips

2021 Q3 10-Q

Note 15—Employee Benefit Plans

Pension and Postretirement

Plans

Millions of Dollars

Pension Benefits

Other Benefits

2021

2020

2021

2020

U.S.

Int'l.

U.S.

Int'l.

Components of Net Periodic Benefit Cost

Three Months Ended September 30

Service cost

Interest cost

Expected return on plan assets

(22)

(30)

(21)

(37)

Amortization of prior service credit

(1)

(9)

(7)

Recognized net actuarial loss

Settlements

Net periodic benefit cost

(8)

(3)

Nine Months Ended September 30

Service cost

Interest cost

Expected return on plan assets

(66)

(90)

(63)

(108)

Amortization of prior service credit

(1)

(28)

(23)

Recognized net actuarial loss

Settlements

(1)

Curtailments

Special Termination

Benefits

Net periodic benefit cost

(23)

(15)

The components of net periodic benefit cost,

other than the service cost component, are included

in the “Other

expenses” line item on our consolidated

income statement.

We recognized a proportionate

share of prior actuarial losses from other comprehensive

income as pension

settlement expense of $

million and $

million during the three- and nine-month periods

ended September 30,

2021, respectively.

As part of our company-wide restructuring

program, we concluded that

actions taken during

the first quarter of 2021, would result

in a significant reduction of future service of active employees

in the U.S.

qualified pension plan, a U.S. nonqualified supplemental

retirement plan and the U.S.