Conocophillips (COP) Risk Analysis

As we produce crude oil and natural gas from our existing portfolio, the amount of our remaining reserves declines. If we are not successful in replacing the crude oil and natural gas we produce with good prospects for future organic opportunities or through acquisitions, our business will decline. In addition, our ability to successfully develop our reserves is dependent on a number of factors, including our ability to obtain and renew rights to develop and produce hydrocarbons; our success at reservoir optimization; our ability to bring long-lead time, capital intensive projects to completion on budget and on schedule; and our ability to efficiently and profitably operate mature properties. If we are not successful in developing the resources in our portfolio, our financial condition and results of operations may be adversely affected.

Our business, like others within the oil and gas industry, has become increasingly dependent on digital technologies, some of which are managed by third-party service providers on whom we rely to help us collect, host or process information. Among other activities, we rely on digital technology to estimate oil and gas reserves, process and record ?nancial and operating data, analyze seismic and drilling information and communicate with employees and third-parties. As a result, we face various cybersecurity threats such as attempts to gain unauthorized access to, or control of, sensitive information about our operations and our employees, attempts to render our data or systems (or those of third-parties with whom we do business, including third-party cloud and IT service providers) corrupted or unusable, threats to the security of our facilities and infrastructure as well as those of third-parties with whom we do business, including third-party cloud and IT service providers, and attempted cyber terrorism. In addition, computers control oil and gas production, processing equipment and distribution systems globally and are necessary to deliver our production to market. A disruption, failure, or a cyberattack of these operating systems, or of the networks, soGware and infrastructure on which they rely, many of which are not owned or operated by us, could damage critical production, distribution or storage assets, delay or prevent delivery to markets, make it di?cult or impossible to accurately account for production and settle transactions, or negatively impact public health or safety, economic security, or national security. Although we have experienced occasional cybersecurity incidents, none have had a material e?ect on our business, operations or reputation. As cyberattacks have continued to evolve, we have become subject to new government-imposed security requirements to implement speci?c mitigation measures to protect against ransomware attacks and other known threats to information and operations technology. In response, we must continually expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerabilities detected. Our implementation of reasonable security procedures and controls to monitor and mitigate security threats and to increase security for our information, facilities and infrastructure may result in increased costs. Despite our ongoing investments in security resources, talent and business practices, we are unable to assure that any security measures will be completely e?ective. If our systems and infrastructure were to be breached, damaged or disrupted, we could be subject to serious negative consequences, including disruption of our operations, damage to our reputation, a loss of counterparty trust, reimbursement or other costs, increased compliance costs, litigation exposure and legal liability or regulatory ?nes, penalties or intervention. In addition, we have exposure to cybersecurity incidents and the negative impacts of such incidents related to our data and proprietary information housed on third-party IT systems, including the cloud. Any of these could materially and adversel y a?ect our business, results of operations or ?nancial condition, and any of the foregoing can be exacerbated by a delay or failure to detect a cybersecurity incident or the full extent of such incident notwithstanding reasonable security procedures and controls. The prevalence of remote working during the pandemic has introduced additional cybersecurity risk. Although we have business continuity plans in place, our operations may be adversely a?ected by signi?cant and widespread disruption to our systems and infrastructure that support our business. While we continue to evolve and modify our business continuity plans, there can be no assurance that they will be completely e?ective in avoiding disruption and business impacts. Further, our insurance may not be adequate to compensate us for all resulting losses, and the cost to obtain adequate coverage may increase for us in the future.

The scope and nature of our operations present a variety of signi?cant hazards and risks, including operational hazards and risks such as explosions, ?res, product spills, severe weather, geological events, labor disputes, geopolitical tensions, armed hostilities, terrorist or piracy attacks, sabotage, civil unrest or cyberattacks. Our operations are subject to the additional hazards of pollution, toxic substances and other environmental hazards and risks. O?shore activities may pose incrementally greater risks because of complex subsurface conditions such as higher reservoir pressures, water depths and metocean conditions. All such hazards could result in loss of human life, signi?cant property and equipment damage, environmental pollution, impairment of operations, substantial losses to us and damage to our reputation. Our business and operations may be disrupted if we do not respond, or are perceived not to respond, in an appropriate manner to any of these hazards and risks or any other major crisis or if we are unable to e?ciently restore or replace a?ected operational components and capacity. Further, our insurance may not be adequate to compensate us for all resulting losses, and the cost to obtain adequate coverage may increase for us in the future.

As discussed herein, our operations are subject to extensive governmental regulations. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of ?ow of crude oil, bitumen, natural gas and NGL wells below actual production capacity. Similarly, in response to increased domestic energy costs, circumstances determined to be in the economic interest of the country, or a declared national emergency, the U.S. government could restrict the export of our products which would adversely impact our domestic business. Because legal requirements are frequently changed and subject to interpretation, we cannot predict whether future restrictions on our business may be enacted or become applicable to us. Our ability to sell and deliver the crude oil, bitumen, natural gas, NGLs and LNG that we produce also depends on the availability, proximity, and capacity of gathering, processing, compression, transportation and pipeline facilities and equipment, as well as any necessary diluents to prepare our crude oil, bitumen, natural gas, NGLs and LNG for transport. Furthermore, we rely on there being su?cient facilities and takeaway capacity to support our ambitions to reduce routine ?aring. The facilities, equipment and diluents we rely on may be temporarily unavailable to us due to market conditions, extreme weather events, regulatory reasons, mechanical reasons or other factors or conditions, many of which are beyond our control. In addition, in certain newer plays, the capacity of necessary facilities, equipment and diluents may not be su?cient to accommodate production from existing and new wells, and construction and permitting delays, permitting costs and regulatory or other constraints could limit or delay the construction, manufacture or other acquisition of new facilities and equipment. If any facilities, equipment or diluents, or any of the transportation methods and channels that we rely on become unavailable for any period of time, we may incur increased costs to transport our crude oil, bitumen, natural gas, NGLs and LNG for sale or we may be forced to curtail our production of crude oil, bitumen, natural gas or NGLs.

Actions of the U.S., state, local and foreign governments, through sanctions, tax and other legislation, executive order and commercial restrictions, could reduce our operating pro?tability both in the U.S. and abroad. In certain locations, restrictions on our operations; leasing restrictions; special taxes or tax assessments; and payment transparency regulations that could require us to disclose competitively sensitive information or might cause us to violate non-disclosure laws of other countries have been imposed or proposed by governments or certain interest groups. For example, in 2020 a ballot initiative known as the Fair Share Act was proposed in the state of Alaska, which, if enacted would have increased the state’s share of production revenues and required producers to publicly disclose additional ?nancial information. Although ultimately defeated, similar initiatives may be proposed and may be successful in the future. In addition, we may face regulatory changes in the U.S. including, but not limited to, the enactment of tax law changes that adversely a?ect the fossil fuel industry, new methane emissions standards, restrictive ?aring requirements, and more stringent environmental impact studies and reviews. We also cannot rule out the possibility of similar regulatory shiGs and attendant cost and market access implications in other international jurisdictions. One area subject to signi?cant political and regulatory activity is the use of hydraulic fracturing, an essential completion technique that facilitates production of oil and natural gas otherwise trapped in lower permeability rock formations. A range of local, state, federal and national laws and regulations currently govern or, in some hydraulic fracturing operations, prohibit hydraulic fracturing in some jurisdictions. Although hydraulic fracturing has been conducted safely for many decades, a number of new laws, regulations and permitting requirements are under consideration which could result in increased costs, operating restrictions, operational delays or could limit the ability to develop oil and natural gas resources. Certain jurisdictions in which we operate have adopted or are considering regulations that could impose new or more stringent permitting, disclosure or other regulatory requirements on hydraulic fracturing or other oil and natural gas operations, including subsurface water disposal. In addition, certain interest groups have also proposed ballot initiatives and constitutional amendments designed to restrict oil and natural gas development generally and hydraulic fracturing in particular. In the event that ballot initiatives, local, state, or national restrictions or prohibitions are adopted and result in more stringent limitations on the production and development of oil and natural gas in areas where we conduct operations, we may incur signi?cant costs to comply with such requirements or may experience delays or curtailment in the permitting or pursuit of exploration, development or production activities. Such compliance costs and delays, curtailments, limitations or prohibitions could have a material adverse e?ect on our business, prospects, results of operations, ?nancial condition and liquidity. The U.S. government can also prevent or restrict us from doing business in foreign countries. These restrictions and those of foreign governments have in the past limited our ability to operate in, or gain access to, opportunities in various countries. Actions by host governments, such as the expropriation of our oil assets by the Venezuelan government, have a?ected operations signi?cantly in the past and may continue to do so in the future. Changes in domestic and international policies and regulations may a?ect our ability to collect payments such as those pertaining to the settlement with Petróleos de Venezuela, S.A. (PDVSA ) or the ICSID Award against the Government of Venezuela; or to obtain or maintain licenses or permits, including those necessary for drilling and development of wells in various locations. Similarly, the declaration of a “climate emergency” could result in actions to limit exports of our products and other restrictions. Local political and economic factors in international markets could have a material adverse e?ect on us. Approximately 38 percent of our hydrocarbon production was derived from production outside the U.S. in 2021, and 29 percent of our proved reserves, as of December 31, 2021, were located outside the U.S. We are subject to risks associated with operations in both domestic and international markets, including changes in foreign governmental policies relating to crude oil, natural gas, bitumen, NGLs or LNG pricing and taxation, other political, economic or diplomatic developments (including the macro e?ects of international trade policies and disputes), potentially disruptive geopolitical conditions, and international monetary and currency rate ?uctuations. Restrictions on production of oil and gas could increase to the extent governments view such measures as a viable approach for pursuing national and global energy and climate policies. In addition, some countries where we operate lack a fully independent judiciary system. This, coupled with changes in foreign law or policy, results in a lack of legal certainty that exposes our operations to increased risks, including increased di?culty in enforcing our agreements in those jurisdictions and increased risks of adverse actions by local government authorities, such as expropriations.

The COVID-19 pandemic and the measures put in place to address it have negatively impacted the global economy, disrupted global supply chains, reduced global demand for oil and gas and created significant volatility and disruption of financial and commodity markets. Over the course of the pandemic, public health officials have recommended or mandated certain precautions to mitigate the spread of COVID-19, including limiting non-essential gatherings of people, ceasing all non-essential travel and issuing “social or physical distancing” guidelines, “shelter-in-place” orders and mandatory closures or reductions in capacity for non-essential businesses. Although some of these limitations and mandates have been relaxed in certain jurisdictions, others have been reinstated in areas that have experienced a resurgence of COVID-19 cases and there is no guarantee restrictions will not be reimposed in the future. Despite the increased availability of vaccines in certain jurisdictions, the COVID -19 pandemic may continue or worsen during the upcoming months, including as a result of the emergence of more infectious variants of the virus, vaccine hesitancy or increased business and social activities, which may cause governmental authorities to reinstate restrictions. As a result, the ongoing impact of the COVID-19 pandemic remains uncertain and will depend on the severity, location and duration of the effects and spread of the disease, the effectiveness and duration of actions taken by authorities to contain the virus or treat its effect, the availability and effectiveness of vaccines or other treatments, and how quickly and to what extent economic conditions improve. Our business is likely to continue to be further negatively impacted by the COVID -19 pandemic. These impacts could include but are not limited to: ?Reduced demand for our products as a result of reductions in travel and commerce, whether related to mandated restrictions or otherwise; ?Disruptions in our supply chain due in part to scrutiny or embargoing of shipments from infected areas or invocation of force majeure clauses in commercial contracts due to restrictions imposed as a result of the global response to the pandemic; ?Failure of third-parties on which we rely, including our suppliers, contract manufacturers, contractors, joint venture partners and external business partners, to meet their obligations to the company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties or restrictions imposed in response to the disease outbreak; ?Reduced workforce productivity caused by, but not limited to, illness, travel restrictions, quarantine, or government mandates; ?Increased challenges in retention of personnel caused by vaccine hesitancy and the resistance of some in our workforce to comply with workplace protocols necessary to ensure the health and safety of our workforce and minimize disruptions to the business, such as vaccine and testing requirements, or the use of personal protective equipment; and ?Voluntary or involuntary curtailments to support oil prices or alleviate storage shortages for our products. Any of these factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage our financial condition, results of operations, cash flows and liquidity position. Despite the rollout of vaccines, the pandemic continues to progress and evolve, and the full extent and duration of any such impacts cannot be predicted at this time because of the sweeping impact of the COVID-19 pandemic on daily life around the world and a lack of certainty as to if or when conditions will return to pre-COVID levels.

Continuing political and social attention to the issue of global climate change has resulted in both existing and pending international agreements and national, regional or local legislation and regulatory measures to limit GHG emissions, such as cap and trade regimes, speci?c emission standards, carbon taxes, restrictive permitting, increased fuel e?ciency standards and incentives or mandates for renewable energy. Although we may support many of these legislative and regulatory measures, how and when they are enacted could result in a material adverse e?ect to our business, ?nancial condition, results of operations and cash ?ows in future periods. For example, in November 2021, the U.S. Environmental Protection Agency published a Proposed Rule that would revise the regulations governing the emission of GHG and volatile organic compounds from new oil and gas production facilities, and emission guidelines for states to use when revising Clean Air Act implementation plans to limit GHG emissions from existing oil and gas facilities. Although the company supports the direct federal regulation of methane from new and existing sources, the ?nal form and substance of any regulations are not currently known and could result in additional capital expenditures and compliance, operating and maintenance costs, any of which may have an adverse e?ect on our business and results of operations. Additionally, in 2021, the U.S. joined the international community at the 26th Conference of the Parties (COP26). At the conclusion of COP26, the U.S. and nearly 200 other counties agreed to the Glasgow Climate Pact, committing to revisiting and strengthening their current emissions targets to 2030 in 2022 and ?nalizing the outstanding elements of the Paris Agreement. In addition, our operations continue in countries around the world which are party to the Paris Agreement. The implementation of current agreements and regulatory measures, as well as any future agreements or measures addressing climate change and GHG emissions, may adversely impact the demand for our products, impose taxes on our products or operations or require us to purchase emission credits or reduce emission of GHGs from our operations. As a result, we may experience declines in commodity prices or incur substantial capital expenditures and compliance, operating, maintenance and remediation costs, any of which may have an adverse e?ect on our business and results of operations. In September 2021, we announced an improvement to our Paris-aligned climate risk framework, whereby we committed to an improvement to our targets for reduc ing our scope 1 and 2 emissions intensity on both a gross operated and net equity basis and rea?rmed our commitment to advocate for the reduction of scope 3 emissions through our support for a U.S. carbon price. Compliance with, and achievement of, climate change-related internal initiatives such as the foregoing may increase costs, require us to purchase emission credits, or limit or impact our business plans. If we are not successful in select internal initiatives, we may be adversely a?ected and potentially need to reduce economic end-of-?eld life of certain assets and impair associated net book value. Increasing attention to global climate change has also resulted in pressure from and upon stockholders, ?nancial institutions and/or ?nancial markets to modify their relationships with oil and gas companies and to limit investments and/or funding to such companies. For example, Harvard University announced in September 2021 that it will stop investing its $42 billion endowment in fossil fuels and will let its current investments expire without renewal. As public pressure continues to mount, our access to capital on terms we ?nd favorable (if it is available at all) may be limited and our costs may increase, our reputation could be damaged or our business and results of operations may be otherwise adversely a?ected. Furthermore, increasing attention to global climate change has resulted in an increased likelihood of governmental investigations and private litigation, which could increase our costs or otherwise adversely a?ect our business. Beginning in 2017, cities, counties, governments and other entities in several states in the U.S. have ?led 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 ?led. The amounts claimed by plainti?s are unspeci?ed 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. The ultimate outcome and impact to us cannot be predicted with certainty, and we could incur substantial legal costs associated with defending these and similar lawsuits in the future. We could also receive lawsuits alleging a failure or lack of diligence to meet our publicly stated ESG goals, so called “greenwashing” cases. In addition, although we design and operate our business operations to accommodate expected climatic conditions, to the extent there are signi?cant changes in the earth’s climate, such as more severe or frequent weather conditions in the markets where we operate or the areas where our assets reside, we could incur increased expenses, our operations and supply chain could be adversely impacted, and demand for our products could fall. For more information on legislation or precursors for possible regulation relating to global climate change that a?ect or could a?ect our operations and a description of the company’s response, see the “Contingencies—Climate Change” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations .

The exploration and production of crude oil, bitumen, natural gas and NGLs is a highly competitive business. We compete with private, public and state-owned companies in all facets of the exploration and production business, including to locate and obtain new sources of supply and to produce crude oil, bitumen, natural gas and NGLs in an e?cient, cost-e?ective manner. We must compete for the materials, equipment, services, employees and other personnel (including geologists, geophysicists, engineers and other specialists) necessary to conduct our business. Some of our competitors are larger and have greater resources than we do, or may have established strategic long-term positions or strong governmental or other relationships in countries or areas in which we operate, or may be willing to incur a higher level of risk than we are willing to incur to obtain potential sources of supply. As a consequence, we may be at a competitive disadvantage in certain respects, such as in accessing the necessary materials, equipment, services, resources and personnel. In addition, we may be at a competitive disadvantage when competing with state-owned companies if they are motivated by political or other factors in making their business decisions, with less emphasis on ?nancial returns. If we are not successful in our competition for new reserves, our ?nancial condition and results of operations may be adversely a?ected.