v3.21.1
Acquisitions and Dispositions
3 Months Ended
Mar. 31, 2021
Acquisitions and Dispositions [Abstract]  
Acquisitions and Dispositions
Note 3—Acquisitions and Dispositions
 
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 at a fixed ratio of
1.46
 
for 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.
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
$
382
Accounts receivable, net
742
Inventories
45
Prepaid expenses and other current assets
37
Investments and long-term receivables
333
Net properties, plants and equipment
18,998
Other assets
62
Total assets acquired
$
20,599
Liabilities Assumed
Accounts payable
$
638
Accrued income and other taxes
76
Employee benefit obligations
4
Other accruals
510
Long-term debt
4,696
Asset retirement obligations and accrued environmental
 
costs
310
Deferred income taxes
1,123
Other liabilities and deferred credits
117
Total liabilities assumed
$
7,474
Net assets acquired
$
13,125
With the completion of the Concho transaction, we acquired proved
 
and unproved properties of approximately
$
11.9
 
billion and $
6.9
 
billion, respectively.
 
 
We recognized approximately $
157
 
million of transaction-related costs that
 
were expensed in the current
period.
 
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 restructuring program, the scope of which included combining
the operations of the two companies. For the three-month period ending March 31, 2021, we recognized non-
recurring restructuring costs mainly for employee severance and related incremental pension benefit costs of
approximately $134 million.
Millions of Dollars
Transaction Cost
Restructuring Cost
Total Cost
Production and operating expenses
$
56
56
Selling, general and administration expenses
135
45
180
Exploration expenses
18
4
22
Taxes other than income taxes
4
4
Other expenses
29
29
$
157
134
291
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 $
75
million.
 
See Note 18—Income Taxes, for additional information.
 
 
“Total Revenues and Other Income” and “Net Income (Loss) Attributable to
 
ConocoPhillips” associated with
the acquired Concho business were approximately
 
$
1,040
 
million and $
190
 
million, respectively, for the three-
month period ending March 31, 2021.
 
The results associated with the Concho business
 
include a before- and
after-tax loss of $
173
 
million and $
132
 
million, respectively, on the acquired derivative contracts with
settlement dates on or before March 31, 2021, and
 
an additional before- and after-tax loss of $
132
 
million and
$
101
 
million, respectively, for contracts with settlement dates subsequent
 
to March 31, 2021.
 
The before-tax
loss is recorded within “Total Revenues and Other Income” on our consolidated income
 
statement.
 
For
additional information about the financial derivative
 
instruments acquired, see Note 10—Derivative
 
and
Financial Instruments.
 
 
The following summarizes the unaudited supplemental
 
pro forma financial information for the three-month
period ending March 31, 2020, as if we had completed
 
the acquisition of Concho on January 1, 2020:
Millions of Dollars
Supplemental Pro Forma (unaudited)
Three Months Ended
March 31, 2020
Total revenues and other income
$
7,300
Net loss
(390)
Net loss attributable to ConocoPhillips
(418)
$ per share
Earnings per share:
Three Months Ended
March 31, 2020
Basic net loss
$
(0.31)
Diluted net loss
(0.31)
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-month period ending March 31, 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
recorded by Concho in the three-month period ending
 
March 31, 2020, related to oil and gas properties
 
and
goodwill, respectively.
 
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.
Assets Sold
In 2020, we completed the sale of our Australian-West asset and operations.
 
The sales agreement entitles us to
a $
200
 
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 $
200
 
million gain on disposition in the first
 
quarter
of 2021.
 
The purchaser failed to pay the FID bonus when
 
due.
 
We intend to take all action required to enforce
our contractual right to the $
200
 
million, plus interest accruing from the due
 
date.
 
Results of operations related
to this transaction are reflected in our Asia Pacific
 
segment.
 
 
In 2017, we completed the sale of our
50
 
percent nonoperated interest in the Foster Creek
 
Christina Lake
(FCCL) Partnership, as well as the majority of
 
our western Canada gas assets to Cenovus Energy.
Consideration for the transaction included a five-year, uncapped
 
contingent payment.
The contingent payment,
calculated on a quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average
crude price exceeds $52 CAD per barrel. Contingent payments during the five-year period are recorded as gain
on dispositions on our consolidated income statement and reflected in our Canada segment.
 
We recorded a
gain on disposition for these contingent payments
 
of $
26
 
million for the three-month period of March 31,
2021.
 
No
 
contingent payments were recorded in 2020.