EX-99.4 6 tm2428935d2_ex99-4.htm EXHIBIT 99.4

 

Exhibit 99.4

 

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

On November 22, 2024, ConocoPhillips, a Delaware corporation (“ConocoPhillips”), completed its previously announced acquisition of Marathon Oil Corporation, a Delaware corporation (“Marathon Oil”). The acquisition was completed by way of the merger of Puma Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), with and into Marathon Oil (the “merger”), with Marathon Oil as the surviving corporation in the merger, pursuant to that certain Agreement and Plan of Merger, dated as of May 28, 2024 (the “Merger Agreement”), among ConocoPhillips, Merger Sub and Marathon Oil. As a result of the merger, each share of common stock of Marathon Oil outstanding immediately prior to the effective time of the merger (other than certain excluded shares) was converted into the right to receive 0.255 shares of common stock of ConocoPhillips and cash in lieu of fractional shares, as applicable (the “merger consideration”). Additionally, as a result of the merger, each outstanding equity award of Marathon Oil was treated in accordance with the terms of the Merger Agreement.

 

The following unaudited pro forma condensed combined financial information (the “pro forma financial statements”) combines the historical consolidated financial position and results of operations of ConocoPhillips and the historical consolidated financial position and results of operations of Marathon Oil after giving effect to the merger as further described in Note 1 — Description of the Transactions and Basis of Presentation and the pro forma effects of certain assumptions and adjustments described in “Notes to the Unaudited Pro Forma Combined Financial Statements” below. The pro forma financial statements have been prepared to give effect to the following (collectively, the “Transactions”):

 

·Application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”) where the assets acquired and liabilities assumed of Marathon Oil will be recorded by ConocoPhillips at their respective fair values as of the closing date;

 

·​Preliminary adjustments to conform the financial statement presentation of Marathon Oil to those of ConocoPhillips; and

 

·Adjustments to reflect estimated post-combination impacts, including transaction costs of the merger.

 

The following pro forma financial statements and related notes are based on and should be read in conjunction with:

 

·The historical audited consolidated financial statements of ConocoPhillips and the related notes included in ConocoPhillips’ Annual Report on Form 10-K as of and for the year ended December 31, 2023;

 

·The historical audited consolidated financial statements of Marathon Oil and the related notes included in Marathon Oil’s Annual Report on Form 10-K as of and for the year ended December 31, 2023;

 

·​The historical unaudited interim consolidated financial statements of ConocoPhillips and the related notes included in ConocoPhillips’ Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2024; and

 

·The historical unaudited interim consolidated financial statements of Marathon Oil and the related notes included in Marathon Oil’s Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2024.

 

The unaudited pro forma combined balance sheet as of September 30, 2024, gives pro forma effect to the Transactions as if they had occurred on September 30, 2024. The unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, give pro forma effect to the Transactions as if they had occurred on January 1, 2023.

 

The pro forma financial statements are provided for informational purposes only. The pro forma financial statements are not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the Transactions been completed as of the dates indicated or that may be achieved in the future. The pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using the assumptions set forth in the notes to the pro forma financial statements. While the pro forma financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities which might result from the merger, management’s estimates of certain cost savings to be realized following closing of the merger are illustrated in Note 6 to the pro forma financial statements. Further, there may be certain additional charges related to integration activities resulting from the merger, the timing, nature and amount of which management cannot identify as of the date of this Form 8-K, or the dates of the pro forma financial statements, as applicable, and thus, such charges are not reflected in the pro forma financial statements. See also the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the U.S. Securities and Exchange Commission (the “SEC”) on July 29, 2024.

 

 

 

The pro forma financial statements have been prepared using the acquisition method of accounting pursuant to the provisions of ASC 805, whereby ConocoPhillips is considered the accounting acquirer. The merger consideration will be allocated to the identifiable assets acquired and liabilities assumed based upon their estimated fair values as of the close date, and any excess value of the merger consideration over the acquired net assets will be recognized as goodwill, if applicable. The assets acquired and liabilities assumed of Marathon Oil have been measured based on various preliminary estimates using assumptions that ConocoPhillips believes are reasonable, based on information that is currently available. Due to the pro forma financial statements being prepared based on preliminary estimates of the net assets acquired and balances as of September 30, 2024, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. Accordingly, actual adjustments may differ from the amounts reflected in the pro forma financial statements and the differences may be material.

 

As of the date of this filing, the valuation of the identifiable assets acquired and liabilities assumed remains ongoing and adjustments may be made. ConocoPhillips expects to complete the final purchase price allocation during the 12-month period subsequent to the close date.

 

 

 

Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2024
(in millions)

 

    ConocoPhillips
Historical		   Marathon Oil
Historical		   Reclassification
Adjustments		   Notes     Acquisition
Transaction
Accounting
Adjustments		   Notes   Pro Forma
Combined		  
Assets                                        
Cash and cash equivalents   $ 5,221   $ 134   $ -       $ (450 ) 4(a)   $ 4,905  
Short-term investments     1,571     -     -         -         1,571  
Accounts and notes receivable, net     4,791     -     1,102   2(a)     -         5,893  
Accounts and notes receivable—related parties     24     -     34   2(a)     -         58  
Receivables, net     -     1,136     (1,136 ) 2(a)     -         -  
Inventories     1,496     166     -         -         1,662  
Prepaid expenses and other current assets     881     -     48   2(b)     -         929  
Other current assets     -     48     (48 ) 2(b)     -         -  
Total Current Assets     13,984     1,484     -         (450 )       15,018  
Equity method investments     -     432     (432 ) 2(c)     -         -  
Investments and long-term receivables     9,192     -     432   2(c)     -         9,624  
Net properties, plants and equipment     70,725     17,220     19   2(d)     7,208   4(b)     95,172  
Other assets     2,798     286     (19 ) 2(d)     -         3,065  
Total Assets   $ 96,699   $ 19,422   $ -       $ 6,758       $ 122,879  
                                         
Liabilities                                        
Accounts payable   $ 5,161   $ 1,390   $ (15 ) 2(e)   $ -       $ 6,536  
Accounts payable—related parties     29     -     15   2(e)     -         44  
Commercial paper     -     180     (180 ) 2(f)     -         -  
Short-term debt     1,314     -     187   2(d)(f)     (187 ) 4(c)     1,314  
Accrued income and other taxes     2,473     -     179   2(g)     (424 ) 4(d)     2,228  
Employee benefit obligations     627     -     -         -         627  
Payroll and benefits payable     -     96     (96 ) 2(h)     -         -  
Accrued taxes     -     179     (179 ) 2(g)     -         -  
Other current liabilities     -     321     (321 ) 2(d)(i)     -         -  
Other accruals     1,161     -     410   2(h)(i)     463   4(e)     2,034  
Total Current Liabilities     10,765     2,166     -         (148 )       12,783  
Long-term debt     16,990     4,573     12   2(d)     240   4(c)     21,815  
Asset retirement obligations and accrued environmental costs     7,337     -     341   2(j)     -         7,678  
Asset retirement obligations     -     341     (341 ) 2(j)     -         -  
Deferred income taxes     8,986     603     -         1,949   4(f)     11,538  
Defined benefit postretirement plan obligations     -     86     (86 ) 2(k)     -         -  
Employee benefit obligations     945     -     86   2(k)     -         1,031  
Other liabilities and deferred credits     1,795     218     (12 ) 2(d)     83   4(g)     2,084  
Total Liabilities     46,818     7,987     -         2,124         56,929  
                                         
Equity                                        
Preferred stock           -     -         -         -  
Common stock                                        
Issued           937     -         (937 ) 4(h)     -  
Par value     21     -     -         1   4(h)     22  
Capital in excess of par     61,430     -     7,151   2(l)     8,938   4(h)     77,519  
Treasury stock     (69,184 )   -     (9,432 ) 2(m)     9,432   4(h)     (69,184 )
Held in treasury, at cost     -     (9,432 )   9,432   2(m)     -         -  
Additional paid-in capital     -     7,151     (7,151 ) 2(l)     -         -  
Accumulated other comprehensive income (loss)     (5,845 )   68     -         (68 ) 4(h)     (5,845 )
Retained earnings     63,459     12,711     -         (12,732 ) 4(h)     63,438  
Total Equity     49,881     11,435     -         4,634         65,950  
Total Liabilities and Equity   $ 96,699   $ 19,422   $ -       $ 6,758       $ 122,879  

 

See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.

 

 

 

Unaudited Pro Forma Combined Income Statement
For the Nine Months Ended September 30, 2024
(in millions, except for per share amounts)

 

    ConocoPhillips
Historical		     Marathon Oil
Historical		     Reclassification
Adjustments		     Notes     Acquisition
Transaction
Accounting
Adjustments		     Notes     Pro Forma
Combined		  
Revenues and Other Income                                                
Sales and other operating revenues   $ 40,509     $ -     $ 4,931       2(n)(o)   $ -         $ 45,440  
Revenues from contracts with customers     -       4,945       (4,945 )     2(n)     -           -  
Gain (loss) on dispositions     86       10       -           -           96  
Equity in earnings of affiliates     1,265       104       -           -           1,369  
Net gain (loss) on commodity derivatives     -       (14 )     14       2(o)     -           -  
Other income     356       4       -           -           360  
Total Revenues and Other Income     42,216       5,049       -           -           47,265  
Costs and Expenses                                                
Purchased commodities     14,939       -       -           -           14,939  
Production and operating expenses     6,440       -       1,208       2(p)(q)     -           7,648  
Production     -       660       (660 )     2(p)     -           -  
Selling, general and administrative expenses     528       -       273       2(r)     -           801  
Shipping, handling and other operating, including related party     -       548       (548 )     2(q)     -           -  
Exploration expenses     284       30       -           -           314  
Depreciation, depletion and amortization     6,935       1,728       -           (257 )     5(a)     8,406  
Impairments     34       1       -           -           35  
Taxes other than income taxes     1,567       298       -           -           1,865  
General and administrative     -       273       (273 )     2(r)     -           -  
Accretion on discounted liabilities     240       -       -           -           240  
Interest and debt expense     592       -       226       2(s)     (16 )     5(c)     802  
Foreign currency transaction (gain) loss     (37 )     -       -           -           (37 )
Other expenses     (8 )     -       (8 )     2(t)     -           (16 )
Total Costs and Expenses     31,514       3,538       218           (273 )         34,997  
Income (loss) from operations     10,702       1,511       (218 )         273           12,268  
Net interest and other     -       226       (226 )     2(s)     -           -  
Other net periodic benefit credits     -       (8 )     8       2(t)     -           -  
Income (loss) before income taxes     10,702       1,293       -           273           12,268  
Income tax provision (benefit)     3,763       360       -           68       5(d)     4,191  
Net Income (Loss)   $ 6,939     $ 933     $ -         $ 205         $ 8,077  
                                                 
Net Income (Loss) Per Share of Common Stock                                                
Basic   $ 5.92                                   5(f)   $ 6.14  
Diluted   $ 5.91                                   5(f)   $ 6.13  
Weighted-Average Common Shares Outstanding (in thousands)                                                
Basic     1,169,350                           143,041       5(f)     1,312,391  
Diluted     1,171,424                           143,041       5(f)     1,314,465  

 

See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.

 

 

 

Unaudited Pro Forma Combined Income Statement
For the Year Ended December 31, 2023
(in millions, except for per share amounts)

 

    ConocoPhillips
Historical		     Marathon Oil
Historical		     Reclassification
Adjustments		     Notes     Acquisition
Transaction
Accounting
Adjustments		     Notes     Pro Forma
Combined		  
Revenues and Other Income                                                
Sales and other operating revenues   $ 56,141     $ -     $ 6,449       2(n)(o)   $ -         $ 62,590  
Revenues from contracts with customers     -       6,407       (6,407 )     2(n)     -           -  
Gain (loss) on dispositions     228       17       -           -           245  
Equity in earnings of affiliates     1,720       185       -       -       -           1,905  
Net gain (loss) on commodity derivatives     -       42       (42 )     2(o)     -           -  
Other income     485       46       8       2(s)(t)     -           539  
Total Revenues and Other Income     58,574       6,697       8           -           65,279  
Costs and Expenses                                                
Purchased commodities     21,975       -       -           -           21,975  
Production and operating expenses     7,693       -       1,517       2(p)(q)     -           9,210  
Production     -       828       (828 )     2(p)     -           -  
Selling, general and administrative expenses     705       -       297       2(r)     445       5(b)     1,447  
Shipping, handling and other operating, including related party     -       689       (689 )     2(q)     -           -  
Exploration expenses     398       59       -           -           457  
Depreciation, depletion and amortization     8,270       2,211       -           (231 )     5(a)     10,250  
Impairments     14       2       -           -           16  
Taxes other than income taxes     2,074       363       -           -           2,437  
General and administrative     -       297       (297 )     2(r)     -           -  
Accretion on discounted liabilities     283       -       -           -           283  
Interest and debt expense     780       -       343       2(s)     (21 )     5(c)     1,102  
Foreign currency transaction (gain) loss     92       -       -           -           92  
Other expenses     2       -       2       2(t)(s)     -           4  
Total Costs and Expenses     42,286       4,449       345           193           47,273  
Income (loss) from operations     16,288       2,248       (337 )         (193 )         18,006  
Net interest and other     -       352       (352 )     2(s)     -           -  
Other net periodic benefit credits     -       (15 )     15       2(t)     -           -  
Income (loss) before income taxes     16,288       1,911       -           (193 )         18,006  
Income tax provision (benefit)     5,331       357       -           (458 )     5(e)     5,230  
Net Income (Loss)   $ 10,957     $ 1,554     $ -         $ 265         $ 12,776  
                                                 
Net Income (Loss) Per Share of Common Stock                                                
Basic   $ 9.08                                   5(f)   $ 9.47  
Diluted   $ 9.06                                   5(f)   $ 9.45  
Weighted-Average Common Shares Outstanding (in thousands)                                                
Basic     1,202,757                           143,041       5(f)     1,345,798  
Diluted     1,205,675                           143,041       5(f)     1,348,716  

 

See the accompanying Notes to the Unaudited Pro Forma Combined Financial Statements.

 

 

 

NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

Note 1. Description of the Transactions and Basis of Presentation

 

Acquisition of Marathon Oil

 

On November 22, 2024, ConocoPhillips completed its previously announced acquisition of Marathon Oil. The acquisition was completed by way of the merger of Merger Sub, with and into Marathon Oil, with Marathon Oil as the surviving corporation in the merger, pursuant to the Merger Agreement. As a result of the merger, each share of common stock of Marathon Oil outstanding immediately prior to the effective time of the merger (other than certain excluded shares) was converted into the right to receive 0.255 shares of common stock of ConocoPhillips and cash in lieu of fractional shares, as applicable. Additionally, as a result of the merger, each outstanding equity award of Marathon Oil was treated in accordance with the terms of the Merger Agreement.

 

Basis of Presentation

 

The accompanying pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” using the assumptions set forth in these notes to the pro forma financial statements.

 

The unaudited pro forma combined balance sheet as of September 30, 2024, combines the historical consolidated balance sheets of ConocoPhillips and Marathon Oil, giving effect to the Transactions as if they had occurred on September 30, 2024. The unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, combines the historical consolidated income statements of ConocoPhillips and Marathon Oil, giving effect to the Transactions as if they had occurred on January 1, 2023.

 

The pro forma financial statements and explanatory notes have been prepared to illustrate the effects of the merger of ConocoPhillips and Marathon Oil under the acquisition method of accounting whereby ConocoPhillips is considered the accounting acquirer. The pro forma financial statements are presented for informational purposes only and do not necessarily indicate the financial results of the combined company had the companies been combined at the beginning of the periods presented, nor do they necessarily indicate the results of operations in future periods or the future financial position of the combined company. The results of operations of the combined company will be reported prospectively after closing following completion of the merger. Under the acquisition method of accounting, the assets and liabilities of Marathon Oil, as of closing, will be recorded by ConocoPhillips at their estimated fair values and any excess of the merger consideration over the fair value of Marathon Oil’s net assets will be allocated to goodwill, if applicable. The pro forma allocation of the merger consideration reflected in the pro forma financial statements is subject to adjustment and may vary materially from the actual allocation that will be recorded as of the close date.

 

The pro forma financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities which might result from the merger. Management’s estimates of certain cost savings to be realized following closing of the merger are illustrated in Note 6 to the pro forma financial statements.

 

Note 2. Significant Accounting Policies and Reclassification Adjustments

 

During the preparation of the pro forma financial statements, ConocoPhillips performed a preliminary analysis of Marathon Oil’s historical financial information to identify differences in accounting policies and financial statement presentation as compared to those of ConocoPhillips. Accordingly, certain reclassification adjustments have been made to conform Marathon Oil’s historical financial statements to presentation used by ConocoPhillips in the preparation of the pro forma financial statements.

 

The following reclassification adjustments were made to conform the presentation of Marathon Oil’s historical consolidated balance sheet as of September 30, 2024, to ConocoPhillips’ presentation:

 

(a)Represents a reclassification of “Receivables, net” to “Accounts and notes receivable, net” and “Accounts and notes receivable — related parties”.

 

(b)Represents a reclassification of “Other current assets” to “Prepaid expenses and other current assets”.

 

(c)Represents a reclassification of “Equity method investments” to “Investments and long-term receivables”

 

(d)Represents a reclassification of finance lease balances and related right-of-use assets from “Other assets” to “Net properties, plants and equipment”, from “Other current liabilities” to “Short-term debt” and from “Other liabilities and deferred credits” to “Long-term debt”.

 

 

 

(e)Represents a reclassification of “Accounts payable” to “Accounts payable — related parties”.

 

(f)Represents a reclassification of “Commercial paper” to “Short-term debt”.

 

(g)Represents a reclassification of “Accrued taxes” to “Accrued income and other taxes”.

 

(h)Represents a reclassification of “Payroll and benefits payable” to “Other accruals”.

 

(i)Represents a reclassification of “Other current liabilities” to “Other accruals”.

 

(j)Represents a reclassification of “Asset retirement obligations” to “Asset retirement obligations and accrued environmental costs”.

 

(k)Represents a reclassification of “Defined benefit postretirement plan obligations” to “Employee benefit obligations”.

 

(l)Represents a reclassification of “Additional paid-in capital” to “Capital in excess of par”.

 

(m)Represents a reclassification of “Held in treasury, at cost” to “Treasury stock”.

 

The following reclassification adjustments were made to conform the presentation of Marathon Oil’s historical consolidated income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, to ConocoPhillips’ presentation:

 

(n)Represents a reclassification of revenue amounts from “Revenues from contracts with customers” to “Sales and other operating revenues”.

 

(o)Represents a reclassification of results from commodity derivatives from “Net gain (loss) on commodity derivatives” to “Sales and other operating revenues”.

 

(p)Represents a reclassification of production expenses from “Production” to “Production and operating expenses”.

 

(q)Represents a reclassification of shipping, handling and other operating expenses from “Shipping, handling and other operating, including related party” to “Production and operating expenses”.

 

(r)Represents a reclassification of general and administrative expenses from “General and administrative” to “Selling, general and administrative expenses”.

 

(s)Represents a reclassification of interest, other expenses and other income from “Net interest and other” to “Interest and debt expense”, “Other expenses” and “Other income”.

 

(t)Represents a reclassification of pension activity from “Other net periodic benefit credits” to “Other expenses”.

 

Note 3. Preliminary Purchase Price Allocation

 

Preliminary Merger Consideration

 

The total preliminary merger consideration is calculated as follows:

 

(Amounts in millions)  As of September 30, 2024 
Preliminary estimated fair value of ConocoPhillips common stock issued (1)  $16,028 
Other cash consideration (2)   450 
Other merger consideration attributable to Marathon Oil stock-based awards   52 
Obligation to cash settle shares underlying certain Marathon Oil stock-based awards   28 
Total preliminary merger consideration  $16,558 

 

(1)​Represents the estimated fair value of approximately 143 million shares of ConocoPhillips common stock issued to Marathon Oil stockholders pursuant to the Merger Agreement. This estimate is based on the number of eligible shares of Marathon Oil common stock at a 0.255 Exchange Ratio and ConocoPhillips’ closing stock price on November 21, 2024, which was the last full day of trading prior to the close date. ConocoPhillips’ stock price on the day of the merger completion, November 22, 2024, did not significantly change from the price reflected in the preliminary merger consideration.

 

(2)Other cash consideration represents funds contributed to Marathon Oil for repayment of Marathon Oil’s estimated Commercial Paper liabilities as of the closing date.

 

 

 

Preliminary Purchase Price Allocation

 

The preliminary merger consideration as shown in the table above is allocated to the identifiable assets acquired and liabilities assumed of Marathon Oil based on their preliminary estimated fair values. The fair value assessments are preliminary and are based on available information and certain assumptions, which ConocoPhillips believes are reasonable. The following table sets forth a preliminary allocation of the preliminary merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of Marathon Oil using Marathon Oil’s balance sheet as of September 30, 2024, adjusted for reclassifications and presentational alignment to that of ConocoPhillips’ historical financial information:

 

(Amounts in millions)  As of September 30, 2024 
Assets     
Cash and cash equivalents  $134 
Accounts and notes receivable, net   1,102 
Accounts and notes receivable—related parties   34 
Inventories   166 
Prepaid expenses and other current assets   48 
Investments and long-term receivables   432 
Net properties, plants and equipment   24,447 
Other assets   267 
Total assets acquired  $26,630 
Liabilities     
Accounts payable  $1,375 
Accounts payable—related parties   15 
Accrued income and other taxes   179 
Other accruals   410 
Long-term debt   4,825 
Asset retirement obligations and accrued environmental costs   341 
Deferred income taxes   2,552 
Employee benefit obligations   86 
Other liabilities and deferred credits   289 
Total liabilities assumed  $10,072 
Net assets acquired  $16,558 

 

Note 4. Adjustments to the Unaudited Pro Forma Combined Balance Sheet

 

Transaction accounting adjustments include the following adjustments related to the unaudited pro forma combined balance sheet as of September 30, 2024, as follows:

 

(a)Represents an adjustment of $450 million to reflect cash portion of the consideration transferred.

 

(b)Represents an adjustment of $7,208 million to the carrying value of Marathon Oil’s acquired properties, plants and equipment (PP&E) from their recorded net book values to their preliminary estimated fair values.

 

 

 

(c)Represents an adjustment of $187 million to “Short-term debt” to reflect expected balance of cancelled commercial paper and short-term portion of cancelled finance lease as of the close date and $240 million related to “Long-term debt” to reflect the preliminary estimated fair value of long-term debt and long-term portion of cancelled finance lease.

 

(d)Reflects a transaction adjustment of $424 million decrease associated with the utilization of foreign tax credit carryforwards.

 

(e)Represents an adjustment to “Other accruals” to record estimated post-combination expenses (including transaction costs) of $435 million and merger consideration related accrual to cash settle shares underlying certain Marathon Oil stock-based awards of $28 million.

 

(f)Reflects a purchase price adjustment of $1,949 million increase to “Deferred income taxes” based on the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea, multiplied by the fair value adjustments related to the assets acquired and liabilities assumed plus a valuation allowance recorded on Marathon Oil’s foreign tax credits.

 

(g)Reflects a purchase price adjustment of $83 million increase associated with an increased reserve on research and development credits.

 

(h)The following table summarized the transaction accounting adjustments impacting the historical equity balances of Marathon Oil:

 

(Amounts in millions)  Elimination of
  Marathon Oil's
Historical Equity		   Merger
Consideration		   Transaction
Adjustments		   Total Transaction
Accounting
Adjustments		 
Preferred stock                    
Common stock                    
Issued  $(937)  $-   $-   $(937)
Par value   -    1    -    1 
Capital in excess of par   (7,151)   16,079    10    8,938 
Treasury stock   9,432    -    -    9,432 
Accumulated other comprehensive income (loss)   (68)   -    -    (68)
Retained earnings   (12,711)   -    (21)   (12,732)
Pro forma net adjustment to equity  $(11,435)  $16,080   $(11)  $4,634 

 

Elimination of Marathon Oil’s Historical Equity:   Represents the elimination of Marathon Oil’s historical equity balances as of September 30, 2024.

 

Merger Consideration:   Represents the fair value of ConocoPhillips common stock issued and other merger consideration attributable to Marathon Oil stock-based awards. Does not include amount related to awards described in Note 4(e), which will be settled in cash after closing, nor cash consideration described in Note 4(a).

 

Transaction Adjustments:  Adjustments to retained earnings reflect $445 million of post-combination expenses (including transaction costs) (see below Note 5(b)) and $424 million of post-combination tax benefit (see above Note 4(d)). Adjustment to capital in excess of par reflects post-combination accounting adjustment related to accelerated vesting of certain equity awards.

 

Note 5. Adjustments to the Unaudited Pro Forma Combined Income Statements

 

Transaction accounting adjustments include the following adjustments related to the unaudited pro forma combined income statements for the nine months ended September 30, 2024, and for the year ended December 31, 2023, as follows:

 

(a)Represents an adjustment to reflect a decrease in “Depreciation, depletion and amortization” expense of $257 million and $231 million for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively. This adjustment was calculated in accordance with the successful efforts method of accounting for oil and gas properties, which were based on the preliminary purchase price allocation of the estimated fair value of the net properties, plants and equipment.

 

 

 

(b)Represents $445 million of estimated post-combination expense expected to be incurred by ConocoPhillips in connection with the Transactions (exclusive of amounts incurred in the Historical Nine Months Ended September 30, 2024 Statement of Income for ConocoPhillips) and primarily consists of estimated transaction costs of $30 million fees to be paid to financial, legal and accounting advisors, and filing fees and $415 million of severance, retention and related compensation expenses, including post-combination accounting adjustment related to accelerated vesting of certain equity awards. These costs are non-recurring, are not expected to have a continuing impact on the combined company’s operating results in future periods, and are expected to be incurred within 12 months from the closing date.

 

(c)Represents an adjustment to decrease “Interest and debt expense”, to amortize Marathon Oil’s debt fair value adjustment by $16 million and $21 million for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively.

 

(d)Reflects tax effect of the adjustments above at the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea, and a $6 million expense adjustment for the impact of the merger on foreign tax credit for the nine months ended September 30, 2024.

 

(e)Reflects tax effect of the adjustments above at the blended federal and state statutory rates of approximately 23.5% for the United States and blended rate of approximately 25.9% for Equatorial Guinea, and a $15 million expense adjustment for the impact of the merger on foreign tax credit. Additionally, as the result of the acquisition, ConocoPhillips has determined that it will be able to utilize approximately $424 million of foreign tax credits previously offset with a full valuation allowance. Accordingly, an estimated $424 million non-recurring deferred tax benefit adjustment has been made related to the reduction in the valuation allowance for the year ended December 31, 2023.

 

(f)The unaudited pro forma combined basic and diluted earnings per share calculations are based on the weighted average basic and diluted shares of ConocoPhillips. The following table summarizes the computation of the unaudited pro forma basic and diluted net income per share:

 

(Amounts in millions and share counts in thousands)  Nine Months Ended
September 30, 2024		   Year Ended
December 31, 2023		 
Numerator          
Pro forma net income (loss)  $8,077   $12,776 
Less: Dividends and undistributed earnings allocated to participating securities   (21)   (35)
Basic and diluted pro forma net income (loss) available to ConocoPhillips
common stockholders		  $8,056   $12,741 
Denominator          
Basic:          
Historical basic weighted average ConocoPhillips shares outstanding   1,169,350    1,202,757 
Shares of ConocoPhillips common stock issued   143,041    143,041 
Pro forma basic weighted average ConocoPhillips shares outstanding   1,312,391    1,345,798 
Pro forma basic net income (loss) per share  $6.14   $9.47 
Diluted:          
Historical diluted weighted average ConocoPhillips shares outstanding   1,171,424    1,205,675 
Shares of ConocoPhillips common stock issued   143,041    143,041 
Pro forma diluted weighted average ConocoPhillips shares outstanding   1,314,465    1,348,716 
Pro forma diluted net income (loss) per share  $6.13   $9.45 

 

Note 6. Management Adjustments to the Unaudited Pro Forma Combined Income Statements

 

Management expects that, the post-acquisition company will realize certain cost and capital synergies of over $1 billion on a run rate basis in the twelve months following the close as compared to the historical combined costs of ConocoPhillips and Marathon Oil operating independently. Such synergies, which result from the elimination of duplicate costs and the manner in which the post-acquisition company will be integrated and managed prospectively, are expected to be realized within the first year and continuing into future periods. Management’s adjustments are based on estimated synergies as a result of the integration of personnel and related reduction in payroll and other costs of the combined company and are not reflected in the pro forma income statements.

 

Material limitations of these adjustments include not fully realizing the anticipated benefits, taking longer to realize these synergies, or other adverse effects that ConocoPhillips does not currently foresee. Further, there may be additional charges incurred in achieving these synergies, such as additional severance and benefit costs, for which management cannot determine the nature and amount as of the date of this Form 8-K, and thus, such charges are not reflected in the pro forma income statements. These adjustments reflect all Management’s Adjustments that are, in the opinion of management, necessary to fairly state the pro forma financial information presented. Future results may vary significantly from the pro forma financial information presented because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.

 

 

 

Had the merger been completed as of January 1, 2023, management estimates that the following production and operating expenses and selling, general and administrative expenses would not have been incurred, on a pre-tax basis:

 

·For the nine months ended September 30, 2024, $113 million related to lower production and operating expenses and $188 million related to reduced selling, general and administrative expenses.

 

·​For the year ended December 31, 2023, $150 million related to lower production and operating expenses and $250 million related to reduced selling, general and administrative expenses.

 

The tax effect on the above adjustments has been calculated based on the blended federal and state statutory rates of approximately 23.5% for the United States and a blended rate of approximately 25.9% for Equatorial Guinea.

 

These annual synergies primarily relate to optimizing overlapping costs and consolidating field operations, and do not reflect the expected impact of annual capital savings related to capital optimization and improved efficiencies.

 

The following tables present the estimated effects on the pro forma combined income statements from elimination of the identified expenses:

 

Management’s Adjustments

 

   For the Nine Months Ended September 30, 2024 
(Millions of Dollars, Except Per Share Amounts)  Combined
Pro Forma Total		   Management
Adjustments		   As Adjusted 
Production and operating expenses  $7,648   $(113)  $7,535 
Selling, general and administrative expenses   801    (188)   613 
Income (loss) before income taxes   12,268    301    12,569 
Net income (loss)   8,077    230    8,307 
Per common share               
Basic  $6.14   $0.17   $6.31 
Diluted  $6.13   $0.17   $6.30 

 

   For the Year Ended December 31, 2023 
(Millions of Dollars, Except Per Share Amounts)  Combined
Pro Forma Total		   Management Adjustments   As Adjusted 
Production and operating expenses  $9,210   $(150)  $9,060 
Selling, general and administrative expenses   1,447    (250)   1,197 
Income (loss) before income taxes   18,006    400    18,406 
Net income (loss)   12,776    306    13,082 
Per common share               
Basic  $9.47   $0.22   $9.69 
Diluted  $9.45   $0.22   $9.67 

 

Note 7. Supplemental Pro Forma Oil and Gas Reserves Information

 

The following tables present the estimated pro forma combined net proved developed and undeveloped oil and gas reserves information as of December 31, 2023, along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2023.

 

The following estimated pro forma oil and gas reserves information is not necessarily indicative of the results that might have occurred had the merger been completed on January 1, 2023, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.

 

 

 

   Crude Oil 
   Millions of Barrels 
    ConocoPhillips Historical            
Years Ended December 31   Consolidated
Operations		    Equity
Affiliates		    Total
Company		    Marathon Oil
Historical 		    Pro Forma Combined
ConocoPhillips		 
Developed and Undeveloped                    
End of 2022   2,975    93    3,068    645    3,713 
Revisions   87    1    88    (30)   58 
Improved recovery   -    -    -    -    - 
Purchases   2    -    2    1    3 
Extensions and discoveries   310    -    310    97    407 
Production   (331)   (5)   (336)   (69)   (405)
Sales   (11)   -    (11)   -    (11)
End of 2023   3,032    89    3,121    644    3,765 
                          
Developed                         
End of 2022   2,117    58    2,175    384    2,559 
End of 2023   1,971    54    2,025    366    2,391 
                          
Undeveloped                         
End of 2022   858    35    893    261    1,154 
End of 2023   1,061    35    1,096    278    1,374 

 

ConocoPhillips anticipates 340 million barrels of proved developed reserves and 278 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 2,095 million barrels of oil for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 26 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 229 million barrels of oil for the Africa geographic area as of December 31, 2023.

 

   Natural Gas Liquids 
   Millions of Barrels 
   ConocoPhillips Historical         
Years Ended December 31  Consolidated
Operations		   Equity
Affiliates		   Total
Company		   Marathon Oil
Historical		   Pro Forma Combined
ConocoPhillips		 
Developed and Undeveloped                         
End of 2022   845    50    895    310    1,205 
Revisions   120    1    121    (11)   110 
Improved recovery   -    -    -    -    - 
Purchases   1    -    1    3    4 
Extensions and discoveries   26    -    26    53    79 
Production   (98)   (3)   (101)   (34)   (135)
Sales   (2)   -    (2)   -    (2)
End of 2023   892    48    940    321    1,261 
                          
Developed                         
End of 2022   500    31    531    201    732 
End of 2023   511    28    539    209    748 
                          
Undeveloped                         
End of 2022   345    19    364    109    473 
End of 2023   381    20    401    112    513 

 

ConocoPhillips anticipates 193 million barrels of proved developed reserves and 112 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 1,102 million barrels of natural gas liquids for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 16 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 16 million barrels of natural gas liquids for the Africa geographic area as of December 31, 2023.

 

 

 

   Natural Gas 
   Billions of Cubic Feet 
    ConocoPhillips Historical            
Years Ended December 31   Consolidated
Operations		    Equity
Affiliates		    Total
Company		    Marathon Oil
Historical 		    Pro Forma Combined
ConocoPhillips		 
Developed and Undeveloped                         
End of 2022   8,767    5,753    14,520    2,295    16,815 
Revisions   327    (90)   237    (266)   (29)
Improved recovery   -    -    -    -    - 
Purchases   4    -    4    38    42 
Extensions and discoveries   270    58    328    330    658 
Production   (828)   (446)   (1,274)   (268)   (1,542)
Sales   (97)   -    (97)   (1)   (98)
End of 2023   8,443    5,275    13,718    2,128    15,846 
                          
Developed                         
End of 2022   6,370    3,974    10,344    1,659    12,003 
End of 2023   5,841    3,558    9,399    1,484    10,883 
                          
Undeveloped                         
End of 2022   2,397    1,779    4,176    636    4,812 
End of 2023   2,602    1,717    4,319    644    4,963 

 

ConocoPhillips anticipates 1150 bcfs of proved developed reserves and 644 bcfs of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 6,515 bcfs of gas for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 334 bcfs of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 506 bcfs of gas for the Africa geographic area as of December 31, 2023.

 

   Bitumen 
   Millions of Barrels 
   ConocoPhillips Historical        
Years Ended December 31  Consolidated
Operations		   Equity
Affiliates		   Total
Company		   Marathon Oil
Historical		   Pro Forma Combined
ConocoPhillips		 
Developed and Undeveloped                       
End of 2022   216   -    216   -    216 
Revisions   15   -    15   -    15 
Improved recovery   -   -    -   -    - 
Purchases   209   -    209   -    209 
Extensions and discoveries   -   -    -   -    - 
Production   (30)  -    (30)  -    (30)
Sales   -   -    -   -    - 
End of 2023   410   -    410   -    410 
                        
Developed                       
End of 2022   127   -    127   -    127 
End of 2023   293   -    293   -    293 
                        
Undeveloped                       
End of 2022   89   -    89   -    89 
End of 2023   117   -    117   -    117 

 

 

 

   Total Proved Reserves 
   Millions of Barrels of Oil Equivalent 
    ConocoPhillips Historical            
Years Ended December 31   Consolidated
Operations		    Equity
Affiliates		    Total
Company		    Marathon Oil
Historical 		     Pro Forma Combined
ConocoPhillips		 
Developed and Undeveloped                         
End of 2022   5,497    1,102    6,599    1,338    7,937 
Revisions   276    (14)   262    (86)   176 
Improved recovery   -    -    -    -    - 
Purchases   213    -    213    11    224 
Extensions and discoveries   381    10    391    205    596 
Production   (596)   (82)   (678)   (148)   (826)
Sales   (29)   -    (29)   -    (29)
End of 2023   5,742    1,016    6,758    1,320    8,078 
                          
Developed                         
End of 2022   3,806    751    4,557    862    5,419 
End of 2023   3,749    675    4,424    823    5,247 
                          
Undeveloped                         
End of 2022   1,691    351    2,042    476    2,518 
End of 2023   1,993    341    2,334    497    2,831 

 

ConocoPhillips anticipates 726 million barrels of proved developed reserves and 497 million barrels of proved undeveloped reserves acquired as part of the merger to be reflected in the Lower 48 geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 4,285 million barrels of reserves for the Lower 48 geographic area as of December 31, 2023. ConocoPhillips anticipates 97 million barrels of proved developed reserves acquired as part of the merger to be reflected in the Africa geographic area in our supplemental oil and gas disclosures, with a pro forma combined total of 329 million barrels of reserves for the Africa geographic area as of December 31, 2023.

 

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities

 

The following tables present the estimated pro forma discounted future net cash flows at December 31, 2023. The pro forma standardized measure information set forth below gives effect to the merger as if the merger had been completed on January 1, 2023. The disclosures below were determined by referencing the “Standardized Measure of Discounted Future Net Cash Flows” reported in ConocoPhillips’ and Marathon Oil’s respective Annual Reports on Form 10-K for the year ended December 31, 2023; an explanation of the underlying methodology applied, as required by SEC regulations, can be found within the respective Annual Report on Form 10-K. The calculations assume the continuation of existing economic, operating and contractual conditions at December 31, 2023.

 

Therefore, the following estimated pro forma standardized measure is not necessarily indicative of the results that might have occurred had the merger been completed on January 1, 2023, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 26 of the proxy statement/prospectus relating to the merger dated July 29, 2024, filed by ConocoPhillips with the SEC on July 29, 2024.

 

Discounted Future Net Cash Flows

 

   Millions of Dollars 
   ConocoPhillips Historical        
2023  Consolidated
Operations		   Equity
Affiliates		   Total
Company		   Marathon Oil
Historical		   Pro Forma
Combined
ConocoPhillips		 
Future cash inflows  $301,144   $51,887   $353,031   $61,296   $414,327 
Less:                         
Future production costs   110,695    28,579    139,274    24,341    163,615 
Future development costs   42,794    2,299    45,093    8,463    53,556 
Future income tax provisions   51,572    5,647    57,219    3,476    60,695 
Future net cash flows   96,083    15,362    111,445    25,016    136,461 
10 percent annual discount   35,833    5,543    41,376    11,930    53,306 
Discounted future net cash flows  $60,250   $9,819   $70,069   $13,086   $83,155 

 

 

 

Sources of Change in Discounted Future Net Cash Flows

 

The changes in the pro forma standardized measure of discounted future net cash flows relating to proved reserves for the year ended December 31, 2023 are as follows:

   Millions of Dollars 
   ConocoPhillips Historical         
2023  Consolidated
Operations		   Equity
Affiliates		   Total Company   Marathon Oil
Historical		   Pro Forma
Combined
ConocoPhillips		 
Discounted future net cash flows at the beginning of the year  $85,720   $13,272   $98,992   $22,223   $121,215 
Changes during the year             -           
Revenues less production costs for the year   (23,706)   (2,550)   (26,256)   (4,512)   (30,768)
Net changes in prices and production costs   (48,717)   (4,519)   (53,236)   (9,605)   (62,841)
Extensions, discoveries and improved recovery, less estimated future costs   1,864    118    1,982    1,607    3,589 
Development costs for the year   9,129    326    9,455    1,868    11,323 
Changes in estimated future development costs   (6,754)   (150)   (6,904)   (762)   (7,666)
Purchases of reserves in place, less estimated future costs   3,029    -    3,029    149    3,178 
Sales of reserves in place, less estimated future costs   (472)   -    (472)        (472)
Revisions of previous quantity estimates   9,503    492    9,995    (2,262)   7,733 
Accretion of discount   12,414    1,635    14,049    2,579    16,628 
Net changes in income taxes   18,240    1,195    19,435    1,801    21,236 
Total changes   (25,470)   (3,453)   (28,923)   (9,137)   (38,060)
Discounted future net cash flows at year end  $60,250   $9,819   $70,069   $13,086   $83,155 

 

For purposes of pro forma presentation to conform with ConocoPhillips presentation, Marathon Oil’s historical Changes in timing and other of $993 million has been reclassed to Revisions of previous quantity estimates.