v3.21.1
Contingencies and Commitments
 3 Months Ended
Mar. 31, 2021
Contingencies and Commitments [Abstract]  
Contingencies and Commitments
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.
 
When we prepare
our consolidated financial statements, we record
 
accruals for environmental liabilities based on management’s
best estimates, using all information that is
 
available at the time.
 
We measure estimates and base liabilities on
currently available facts, existing technology, and presently enacted laws
 
and regulations, taking into account
stakeholder and business considerations.
 
When measuring environmental liabilities,
 
we also consider our prior
experience in remediation of contaminated sites,
 
other companies’ cleanup experience, and data released
 
by
the U.S. 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
 
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 March 31, 2021, our consolidated balance sheet
 
included a total environmental accrual of $
188
 
million,
compared with $
180
 
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
 
and
claims of alleged environmental contamination
 
from historic operations.
 
We will continue to defend ourselves
vigorously in these matters.
 
Our legal organization applies its knowledge, experience
 
and professional judgment to the specific
characteristics of our cases, employing a litigation
 
management process to manage and monitor the
 
legal
proceedings against us.
 
Our process facilitates the early evaluation and
 
quantification of potential exposures in
individual cases.
 
This process also enables us to track those cases that
 
have been scheduled for trial and/or
mediation.
 
Based on professional judgment and experience
 
in using these litigation management tools and
available information about current developments
 
in all our cases, our legal organization regularly assesses
 
the
adequacy of current accruals and determines if
 
adjustment of existing accruals, or establishment
 
of new
accruals, is required.
 
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 March 31, 2021, we had performance
 
obligations secured by letters of credit
 
of $
309
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
 
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.
 
ConocoPhillips has
filed a request for recognition of the award in several
 
jurisdictions.
 
On August 29, 2019, the ICSID 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.
 
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 of the settlement agreement. The balance of the
settlement is to be paid quarterly over a period of four and a half years. To date, ConocoPhillips has received
approximately $754 million. 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 failed to cure its breach.
 
As
a result, ConocoPhillips has resumed legal enforcement
 
actions.
 
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.
 
The Office of Natural Resources Revenue (ONRR) has
 
conducted audits of ConocoPhillips’
 
payment of
royalties on 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, governmental 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
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.
 
Because Plaintiffs’ SLCRMA theories are unprecedented,
 
there is uncertainty
about these claims (both as to scope and damages)
 
and any potential financial impact on the company.
 
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
 
lease facilities, but
sold its interest approximately
30 years
 
ago.
 
ConocoPhillips has not had any connection
 
to the operation or
production on this lease since that time.
 
ConocoPhillips is challenging this order.