Climate-related risks and opportunities that have the potential to impact our company are integrated into and addressed through key processes including: business and operational planning, strategic planning and financial planning. Our SD risk management process, risk register and Climate Change Action Plan identify those risks and assess the potential size, scope and prioritization of each.

We have aligned a description of these impacts with the categories included in the International Financial Reporting Standard (IFRS) S2: Climate-related Disclosures.

Business model and value chain

Climate-related risks and opportunities may affect our business planning through impacts to demand for our product, product costs, supply chain, daily operating and mitigation activities, project design and emissions reduction projects, among others.

Products 

Compliance with policy changes that create a carbon tax, fee, emissions trading scheme or greenhouse gas (GHG) reductions could significantly increase product costs for consumers and reduce demand for natural gas and oil-derived products. Demand could also be eroded by conservation plans and efforts undertaken in response to global climate- related risk. Many governments also provide, or may in the future provide, tax advantages and other subsidies to support the use and development of alternative energy technologies that could impact demand for our products. However, there are also opportunities associated with increased demand for lower-carbon energy sources such as LNG to displace coal in power generation as well as the potential for low carbon technologies like hydrogen and CCS. Read more in the Business Opportunities section. 

Supply chain 

We collaborate and innovate with industry groups, peers and suppliers to integrate sustainability into our supply chain strategies.

We engage with suppliers on the environmental and social aspects of their operations throughout the procurement process. This includes communicating our expectations and priorities and identifying opportunities for improvement and collaboration related to climate issues, including GHG management and environmental supply chain risks.

Supplier Scope 1 and Scope 2 emissions are a category of Scope 3 emissions. We have ongoing engagements with major suppliers to seek alignment of their GHG emissions goals with our climate risk strategy.

In 2024, we advanced our Scope 3 Supplier Emissions Strategy¹ which is intended to help us effectively manage climate risks and influence opportunities within our value chain. Our strategy focuses on:

• Identifying suppliers with high relative impact on Scope 3 supplier emissions.
• Enhancing a governance framework for supplier sustainability to include Scope 3 supplier emissions.
• Annually reviewing our Supplier Expectations and updating when applicable to add to expectations associated with climate, nature, responsible use of resources and human rights.
• Collaborating with suppliers in conjunction with industry partners like Ipieca to align on disclosure frameworks and systems for collecting and reporting supplier emissions.

In support of our strategy, key 2024 achievements include:

• Implementing a third-party risk management tool to evaluate and monitor supplier risks.
• Continuing to highlight climate and sustainability expectations for our suppliers through our annual supplier engagements.

We continue to monitor climate-related risks and actively collaborate with suppliers with the ultimate aim of addressing and reducing emissions across the supply chain. Read more about our supply chain sustainability efforts.

Commercial

Our Commercial organization supports ConocoPhillips sustainability initiatives by supporting emissions reduction and other environmental initiatives and working with commercial partners to understand opportunities to reduce GHG emissions along the value chain.

Near-term initiatives include:

• Evaluating the potential to deliver differentiated products. This includes:
  • Focusing on methane emissions reduction, measurement and verification.
  • Engaging key certifiers to understand gaps between company plans and evolving certification requirements.
  • Evaluating participation in the differentiated gas market.
  • Monitoring regulatory and voluntary initiatives for requirements related to natural gas and LNG markets.
• Identifying potential partners for electrification efforts, low carbon projects, midstream projects and emissions protocols.
• Finding allies in advocacy efforts.
• Engaging processing and transport vendors to understand value chain emissions and improve environmental performance.â€�  

Strategy and decision making

Cost of supply and capital allocation

The cost of supply of our resource base is important because we believe that resources with the lowest cost of supply are most likely to be developed in scenarios with lower demand, such as the IEA’s Net Zero Emissions Scenario.

Cost of supply is the West Texas Intermediate (WTI) equivalent price that would generate a 10% after-tax return on a point-forward and fully burdened basis. In our definition, cost of supply is fully burdened with capital investment, foreign exchange, price-related inflation, G&A and carbon tax (if currently assessed). If no carbon tax exists for the asset, carbon pricing aligned with internal energy scenarios is applied. Cost of supply is the primary metric that we use for capital allocation and it has the advantage of being independent of price forecasts. Providing low cost of supply also addresses a key component of future energy demand — reliable and affordable energy supply.

To assist our capital allocation decisions, we test our current portfolio of assets and investment opportunities against future possibilities and identify strengths and weaknesses that may exist. As a result of our strategy and scenario work, we have focused capital on resources with low cost of supply, exiting deep water and high emissions intensity gas fields while increasing our investments in unconventional oil projects.

In recent years we have high-graded our portfolio and applied stringent capital allocation criteria that direct investments to resources that will best match future energy demand. We are equally focused on developing assets that have a low cost of supply and low GHG intensity, as these are most likely to compete in any future energy transition pathway with each asset type contributing to its unique market (e.g., unconventionals, LNG, oil sands). Based on our current forecasts, assets with less than 10 kg CO₂e/BOE are projected to represent a larger portion of our portfolio by 2030. In addition, the cost of supply of our portfolio performs competitively against expected commodity prices across a range of future scenarios.

On November 22, 2024, we completed the acquisition of Marathon Oil, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position.

Carbon price

We use assumptions of carbon pricing to navigate GHG regulations, drive culture shift, encourage energy efficiency and low-carbon investment, and stress test investments. In 2024, the company used a range of estimated future costs of GHG emissions for internal planning purposes, including an estimate of $60 per tonne CO₂e as a sensitivity to evaluate certain future projects and opportunities. The base case for project approval economics and planning includes either the forecast of existing carbon pricing regulations or our current probability-weighted energy transition scenario for that jurisdiction, depending on which is higher. Where there is no carbon price regulation, we use the current transition scenario for that jurisdiction. We also run two sensitivities:

• With only existing carbon pricing regulations, to reflect near-term cash more accurately.
• With a sensitivity of $60 per tonne CO₂e to act as a stress test to reduce the risk of stranded assets should climate regulation accelerate.

This ensures that both existing and emerging regulatory requirements are considered in our planning and decision making. 

Cost of compliance with carbon legislation 

Climate Legislation	2024 cost of compliance, net share before tax ($USD approx)	Operations Subject to Legislation	Percent of 2024 Production1
Emissions trading
European Emissions Trading Scheme (EUETS)	$20 million	Norway	6%
U.K. Emissions Trading Scheme (U.K. ETS)	$0.8 million	U.K.	0%
Carbon fees and taxes
Norwegian Carbon Fee	$37 million	Norway	6%
British Columbia and Alberta Carbon Tax	$1.7 million	Canada	8%
GHG regulations for emissions reductions
Alberta Technology Innovation and Emissions  Reduction (TIER)	$4.5 million	Canada	6%
British Columbia Output Based Pricing System (BC OBPS)	$1.5 million	Canada	2%

In addition to the use of carbon pricing in planning and project economics, we use it in impairment testing, cost of supply calculations, and reserve calculations.

• Impairment testing: BU LRP submissions are the basis for the assumptions used in our impairment testing model for both operated and non-operated assets aligned with the higher of existing regulations or the carbon pricing assumptions used in the current energy scenario.
• Cost of supply: On appraised resource volumes in our cost of supply model and LRP, we assume the higher of the carbon prices from existing regulations or those implied by the current scenario where applicable.

Reserve calculations: In accordance with SEC guidelines, the company does not use an estimated market cost of GHG emissions when assessing reserves in jurisdictions without existing GHG regulations. In jurisdictions where GHG regulations exist we base carbon prices on market actuals. In cases where existing carbon prices are not based on the market but are preset by a regulatory body, we use the prepublished prices (e.g., Alberta).

Research and development

Technology will play a major role in addressing GHG emissions, whether through reducing emissions or lowering the energy intensity of our operations or value chain. As discussed in our Collaboration and Engagement section, we participate in a number of research and industry initiatives, including the Pathways Alliance Inc, the MIT Energy Initiative, and the Colorado School of Mines Global Energy Future Initiative (GEFI).

In 2021, ConocoPhillips joined the Pathways Alliance Inc., which represents six of Canada’s largest oil sands producers. Its other members are Canadian Natural Resources, Cenovus Energy, Imperial, MEG Energy and Suncor Energy. The ambition of the alliance is to progress toward reducing Scope 1 and Scope 2 GHG emissions from oil sands operations to help Canada meet its climate goals with the use of carbon capture and storage. ConocoPhillips is partnering with the members of the Alliance and governments to accelerate emissions reduction efforts. Financial support, regulatory approvals and advances in technology are critical to advancing this ambition.

Another way we support technology development is through our annual marginal abatement cost curve (MACC) process which identifies and prioritizes our emissions reduction opportunities from operations based on the project’s breakeven cost of carbon ($ per tonne CO₂e reduced). This data helps identify projects that might become viable in the future through further research, development and deployment. As a result of this work, we have focused our near-term technology investments on reducing both costs and emissions where feasible. 

Investments to reduce GHG emissions

Technology area	Stage of development	Cumulative investment 2022-2024
Energy efficiency	Applied research and development	$5 million
	Pilot demonstration	$27 million
	Small-scale commercial	$15 million
	Large-scale commercial	$110 million
Methane detection and reduction	Applied research and development	$3 million
	Pilot demonstration	$11 million
	Small-scale commercial	$17 million
	Large-scale commercial	$86 million
Other emission reductions	Applied research and development	$18 million
	Pilot demonstration	$2 million
	Small-scale commercial	$50 million
	Large-scale commercial	$193 million

Financial planning

We take climate-related issues into account in our financial planning in several ways. We focus on the fundamental characteristics that drive competitive advantage in a commodity business — a low sustaining price, low cost of supply and low capital intensity that drive free cash flow, capital flexibility and a strong balance sheet. 

Commodity prices 

In the short-to-medium term, we use a range of commodity prices derived from our scenario work. In the longer term our scenarios provide insight into the possibilities for future supply, demand and price of key commodities. This helps us understand a range of risks around commodity prices, and the potential price risk associated with various GHG reduction scenarios. History has shown an interdependency between commodity prices and operating and capital costs. In the past, lower commodity prices have driven down operating and capital costs, whereas the opposite has been true when commodity prices have risen. 

Capital expenditures and operating costs 

New or changing climate-related policy can impact our costs, demand for fossil fuels, the cost and availability of capital and exposure to litigation. The long-term impact on our financial performance, either positive or negative, will depend on several factors, including:

• Extent and timing of policy.
• Implementation details such as cap-and-trade or an emissions tax or fee system.
• Supply and demand-side renewable fuels or energy efficiency mandates.
• GHG reductions required.
• Level of carbon price.
• Price, availability and allowability of offsets.
• Amount and allocation of allowances.
• Technological and scientific developments leading to new products or services.
• Potential physical climate effects, such as increased severe weather events, changes in sea levels and changes in temperature.
• Extent to which increased compliance costs are reflected in the prices of our products and services.

The long-term financial impact from GHG regulations is impossible to predict accurately, but we expect the geographical reach of regulations and their associated costs to increase over time. We model such increases and test our portfolio in our long-term transition scenarios.

Our strategy is also made more robust by discipline in capital and average production costs per BOE. When oil prices fluctuate, we are able to respond with changes to short and long-term planning, as well as more cost-effective and efficient operations.

Reputation and access to capital 

In addition to considering cost of supply, portfolio resilience and cost of carbon, we also strive to compete more effectively by earning the confidence and trust of the communities in which we operate, as well as our equity and debt holders. We consider how our relative environmental, social and governance performance could affect our standing with investors and the financial sector, including banks and credit-rating agencies. An important priority in our corporate strategy has been remaining committed to our strong balance sheet that is resilient through commodity prices.  

Financial position 

Material information related to our financial position, including material climate-related matters, is disclosed in our most recently filed periodic report on Form 10-K and subsequent filings on Form 10-Q. Discussion of material climate-related factors includes, but is not limited to, the and sections.

Climate resilience

While our business operations are designed and operated to accommodate a range of potential climate conditions, significant changes, such as more frequent severe weather in the markets we serve or the areas where our assets are located, could cause increased expenses and impact to our operations. The costs associated with interrupted operations will depend on the duration and severity of any physical event and the damage and remedial work to be carried out.

Financial implications could include business interruption, damage or loss of production uptime and delayed access to resources and markets. For example, a three-day shutdown of all U.S. Gulf Coast production would result in approximately 730 MBOE of lost production and approximately $40 million in lost revenue.² It is unlikely all our Gulf Coast area production would be affected, as our operations are located across a wide span of the coast.

Business resiliency planning is a process that helps us prepare to mitigate potential physical risks of a changing climate in a cost-effective manner.

Canada

The Montney development team has made a concerted effort to situate pads within existing cut blocks where timber has been cleared to minimize the risk from increased wildfire activity. In response to increased wildfire activity in previous years, our Montney team completed a Fire Smart hazard assessment and implemented additional corrective actions to further reduce risks to critical infrastructure. At a landscape level, we completed an integrated land management plan at Surmont with a local forest company to strategically reduce forest fuel loading in areas of future infrastructure development. We have an automated active wildfire early warning system around both assets to identify active fires as a forewarning measure to keep people and infrastructure safe.

In addition to mitigating fire risk, the Canada BU has addressed increased surface water flow from high-frequency and short-duration storm events in Surmont with increased onsite training for managing the movement of water from well pads and central processing facilities.

We have also implemented recommendations from an industry study on bioengineering techniques, such as live willow silt fences to mitigate erosion and sedimentation issues during intense rainfall events. This proactive surface water management is critical in preventing onsite erosion from damaging critical infrastructure. In the Montney region, we monitor streamflow at the Halfway River, which acts as a signal for potential upcoming low-flow conditions in winter, so appropriate mitigation measures can be enacted. Seasonal learnings like this inform streamflow prediction exercises and future development. We have also proactively assessed infrastructure design risks to account for a potential increase in high-frequency, short-duration storm events and are piloting the same bioengineering sediment control techniques used at Surmont.

Australia

The Australia BU conducts water supply catchment-level climate modeling to inform a drought risk assessment and determine future impacts to the APLNG facility water supply. Results showed that long-term evaporation and long-term and severe drought duration are projected to increase over the next 30 years in the local area. To mitigate this potential risk, both ConocoPhillips and the local water authority have investigated supplementary methods to provide water supply. We continue to review and update our risk assessments to plan for water availability and adapt our practices to a changing climate.

Alaska

Climate change is also considered during new project design. In 2020, our Alaska BU updated foundational design specification to increase the embedment depths for vertical support members and piles to align with predicted soil temperature trends. This revision updated the specification based on permafrost temperature trends and geothermal modeling predictions from 2020 through 2070. Use of the foundational design specification continues to date and will be revised as needed in the future. Additionally, long-term permafrost thermistors were installed in the Willow project area in 2024. Data will be used to evaluate permafrost temperatures near the surface, and data will be incorporated into engineering models and construction best practices.