ConocoPhillips (NYSE:COP)

The income tax expense exhibited significant fluctuations over the five-year period. Total income tax provision, comprised of current and deferred components, increased substantially in 2022 before declining in subsequent years. A detailed examination of the current and deferred portions reveals distinct patterns.

Current Income Tax Expense

Current income tax expense increased notably from $3,287 million in 2021 to $7,462 million in 2022. Following this peak, current expense decreased to $4,187 million in 2023 and remained relatively stable at $4,060 million in 2024 and $4,119 million in 2025. This suggests a strong correlation between pre-tax income and current tax liabilities, with the 2022 increase likely driven by higher profitability. The subsequent stabilization indicates a more consistent earnings profile in the later years.

Deferred Income Tax Expense (Benefit)

Deferred income tax expense followed a different trajectory. It rose from $1,346 million in 2021 to $2,086 million in 2022, mirroring the trend in current expense. However, a substantial decrease was observed in 2023, falling to $1,144 million, and continuing downward to $367 million in 2024. A modest increase to $549 million occurred in 2025. This pattern could be attributed to changes in temporary differences between book and tax bases of assets and liabilities, or changes in tax rates. The significant decline in 2023 and 2024 suggests a reduction in these temporary differences or a shift in the utilization of deferred tax assets.

Total Income Tax Provision

The combined effect of current and deferred taxes resulted in a peak income tax provision of $9,548 million in 2022. This was a considerable increase from the $4,633 million reported in 2021. The provision then decreased to $5,331 million in 2023 and $4,427 million in 2024, before slightly increasing to $4,668 million in 2025. The overall trend indicates a reduction in the total tax burden after the high level experienced in 2022, potentially due to a combination of lower pre-tax income and changes in deferred tax items.

The fluctuations in both current and deferred tax components warrant further investigation to understand the underlying drivers. Specifically, analyzing the changes in temporary differences and the impact of any tax rate changes would provide a more comprehensive understanding of the observed trends.

The effective income tax rate exhibited fluctuations over the five-year period. While the U.S. federal statutory tax rate remained constant at 21.00%, the effective tax rate demonstrated variability, suggesting influences beyond the standard corporate rate.

Effective Tax Rate Trend

The effective tax rate began at 36.40% in 2021, then decreased to 33.80% in 2022 and further to 32.70% in 2023. A slight increase to 32.40% was observed in 2024, followed by a more substantial rise to 36.90% in 2025. This indicates a general trend of volatility, with a low point in 2023 and a return towards the initial rate by the end of the period.

The consistent difference between the effective tax rate and the statutory tax rate throughout the period suggests the presence of factors adjusting the company’s tax burden. These factors could include tax credits, deductions, differing tax rates in international jurisdictions where the company operates, or changes in the mix of taxable income.

Rate Differential

In 2021, the effective tax rate exceeded the statutory rate by 15.40 percentage points. This differential narrowed to 12.80 percentage points in 2022, 11.70 percentage points in 2023, and 11.40 percentage points in 2024. The differential then widened to 15.90 percentage points in 2025. The fluctuations in this difference highlight the dynamic nature of the company’s tax position.

The increase in the effective tax rate in 2025 warrants further investigation to determine the underlying causes. Potential explanations include shifts in geographic earnings mix, the expiration of tax benefits, or changes in applicable tax laws. The observed trends suggest that the company’s tax strategy and external tax environments are significant determinants of its overall tax expense.

The composition of deferred tax assets and liabilities exhibits notable shifts over the five-year period. A consistent pattern of increasing deferred tax liabilities is observed, while deferred tax assets demonstrate a more volatile trend, ultimately decreasing overall. The net effect is a growing net deferred tax liability position.

Deferred Tax Assets - Components

Benefit plan accruals fluctuate, increasing from US$321 million in 2021 to US$450 million in 2022, then decreasing to US$330 million in 2025. Asset retirement obligations and accrued environmental costs consistently increase throughout the period, rising from US$2,297 million to US$2,985 million. Investments in joint ventures also show a steady increase, moving from US$1,684 million to US$2,356 million. Other financial accruals and deferrals decrease initially, then show modest increases in later years. A significant decline is evident in loss and credit carryforwards, decreasing from US$7,402 million in 2021 to US$4,048 million in 2025. The ‘Other’ component is relatively small and volatile.

Deferred Tax Liabilities - Components

PP&E and intangibles represent the largest component of deferred tax liabilities, and consistently increase substantially, from negative US$10,170 million to negative US$16,244 million. Inventory shows a minor decrease initially, followed by a more pronounced decrease in 2024, and a slight recovery in 2025. The ‘Other’ component remains relatively stable, with a slight downward trend.

Valuation Allowance

The valuation allowance against deferred tax assets decreases each year, from negative US$8,342 million in 2021 to negative US$5,926 million in 2025. This reduction in the valuation allowance contributes to an increase in deferred tax assets net of the allowance, although this increase is offset by the overall decline in gross deferred tax assets.

Net Deferred Tax Position

The net deferred tax position, calculated as deferred tax assets net of valuation allowance less deferred tax liabilities, moves from negative US$5,839 million in 2021 to negative US$12,016 million in 2025. This indicates a growing net deferred tax liability. The increasing liabilities, coupled with the decreasing loss carryforwards, are primary drivers of this trend.

The increasing deferred tax liabilities, particularly those related to PP&E and intangibles, suggest a growing expectation of future taxable income against which these liabilities can be realized. The reduction in the valuation allowance indicates increased confidence in the realizability of the remaining deferred tax assets, but this is not sufficient to offset the overall increase in the net deferred tax liability.

The deferred tax asset balance experienced a decline from 2021 to 2025. Conversely, the deferred tax liability balance demonstrated a consistent increase throughout the same period. This suggests a growing divergence between temporary differences giving rise to future taxable amounts and those resulting in future deductible amounts.

Deferred Tax Assets

The deferred tax asset balance decreased from US$340 million in 2021 to US$221 million in 2025. The most significant decrease occurred between 2021 and 2022, falling to US$241 million. Subsequent years show a more gradual decline, indicating a potential stabilization, albeit at a lower level. This reduction could be attributable to the utilization of existing deferred tax assets, changes in temporary differences, or adjustments to valuation allowances.

Deferred Tax Liabilities

The deferred tax liability balance increased substantially from US$6,179 million in 2021 to US$12,237 million in 2025. Growth was consistent year-over-year, with accelerating increases observed between 2023 and 2025. The increase from 2024 to 2025 was particularly notable, reaching US$811 million. This growth suggests an expansion of taxable temporary differences, potentially stemming from increased profitability or changes in accounting methods.

Net Deferred Tax Position

The difference between deferred tax liabilities and deferred tax assets widened considerably from 2021 to 2025. In 2021, net deferred tax liabilities were US$5,839 million (US$6,179 - US$340). By 2025, this had grown to US$12,016 million (US$12,237 - US$221). This increasing net liability position indicates a greater future tax obligation relative to future tax benefits.

The trends suggest a shift in the composition of temporary differences, with a growing proportion expected to result in future taxable amounts. Continued monitoring of these balances is warranted to assess the potential impact on future tax expense and cash flows.

The financial information reveals a consistent pattern of adjustments related to income taxes, specifically through the removal of deferred tax assets and liabilities. These adjustments significantly impact reported financial positions and performance metrics over the observed period, from 2021 to 2025.

Total Assets

Reported total assets demonstrate an increasing trend overall, rising from 90,661 US$ millions in 2021 to 122,780 US$ millions in 2024, before decreasing slightly to 121,939 US$ millions in 2025. However, the adjusted total assets show a smaller increase, indicating that a portion of the reported asset growth is attributable to deferred tax items. The difference between reported and adjusted assets remains relatively stable as a percentage of reported assets throughout the period.

Total Liabilities

Reported total liabilities also exhibit an upward trend, increasing from 45,255 US$ millions in 2021 to 57,984 US$ millions in 2024, with a slight decrease to 57,452 US$ millions in 2025. The adjustments to total liabilities are substantial and consistently reduce the reported figure. The adjusted liabilities show a more moderate increase, suggesting a significant portion of the reported liability growth is related to deferred taxes. The gap between reported and adjusted liabilities widens between 2021 and 2024, then narrows slightly in 2025.

Equity

Reported equity increases from 45,406 US$ millions in 2021 to 64,796 US$ millions in 2024, followed by a minor decrease to 64,487 US$ millions in 2025. The adjustments to equity consistently *increase* the reported value, indicating the removal of deferred tax liabilities boosts the equity position. The adjusted equity demonstrates a stronger growth trajectory than the reported equity, particularly in the earlier years of the period.

Net Income

Reported net income fluctuates over the period, peaking at 18,680 US$ millions in 2022 before declining to 7,988 US$ millions in 2025. The adjustments to net income consistently increase the reported figure, suggesting the removal of deferred tax assets positively impacts reported profitability. The adjusted net income follows a similar pattern to the reported net income, but at a higher level, indicating a material impact from the deferred tax adjustments.

In summary, the adjustments consistently reduce reported assets and liabilities while increasing reported equity and net income. This pattern suggests a systematic removal of deferred tax items, likely due to changes in tax laws, utilization of tax loss carryforwards, or reassessment of the realizability of deferred tax assets. The magnitude of these adjustments is significant and warrants further investigation to understand the underlying drivers and their implications for the company’s financial position and performance.

The financial performance metrics demonstrate a consistent pattern when adjusted for the removal of deferred tax impacts. Generally, the adjusted ratios are higher than their reported counterparts, indicating that deferred taxes reduce the reported profitability and returns. A review of the period between 2021 and 2025 reveals specific trends in these adjusted metrics.

Profitability

The adjusted net profit margin exhibits a peak in 2022 at 26.46%, followed by a steady decline through 2025, reaching 14.48%. This suggests a decreasing ability to generate profit from each dollar of revenue when deferred tax effects are excluded. The reported net profit margin mirrors this trend, though at lower levels.

Asset Turnover

Both the reported and adjusted total asset turnover ratios remain constant across all years. This indicates that the efficiency with which assets are used to generate revenue is unchanged, even after adjusting for deferred taxes. The ratio fluctuates between 0.45 and 0.84, suggesting moderate asset utilization.

Financial Leverage

Adjusted financial leverage consistently decreases from 1.76 in 2021 to 1.59 in 2025. This implies a reduction in the proportion of assets financed by debt when deferred tax liabilities are not considered. The reported financial leverage shows a similar, albeit less pronounced, downward trend.

Return on Equity (ROE)

Adjusted ROE follows a similar pattern to the adjusted net profit margin, peaking at 37.42% in 2022 and declining to 11.16% in 2025. This indicates a diminishing return generated for each dollar of shareholder equity when deferred taxes are excluded. The reported ROE also declines, but remains lower than the adjusted figures.

Return on Assets (ROA)

The adjusted ROA demonstrates a peak in 2022 at 22.19%, followed by a decline to 7.01% in 2025. This suggests a decreasing ability to generate profit from assets when deferred tax effects are removed. The reported ROA exhibits a similar downward trend, but at lower values. The difference between reported and adjusted ROA is consistently around 2 percentage points, highlighting the impact of deferred taxes on asset profitability.

In summary, the adjustments for deferred taxes consistently present a more favorable financial picture than the reported figures. However, a clear downward trend is observed in the adjusted profitability and return ratios between 2022 and 2025, suggesting a potential weakening in underlying performance despite the positive impact of excluding deferred tax effects.

The period under review demonstrates fluctuations in both reported and adjusted net income, consequently impacting associated profit margins. A general observation is that while adjusted net income consistently exceeds reported net income each year, the margins for both metrics exhibit a declining trend from 2022 through 2025.

Reported Net Profit Margin

The reported net profit margin increased from 17.63% in 2021 to a peak of 23.80% in 2022. Following this high, a consistent decline is observed, reaching 13.55% by 2025. This represents a decrease of approximately 10.25 percentage points over the four-year period from 2022 to 2025.

Adjusted Net Profit Margin

The adjusted net profit margin mirrors the trend of the reported margin, rising from 20.57% in 2021 to 26.46% in 2022. Subsequently, it decreased each year, concluding at 14.48% in 2025. The decline from the 2022 peak is approximately 11.98 percentage points. The adjusted margin consistently remains higher than the reported margin throughout the observed period.

The divergence between reported and adjusted net income, as reflected in the margins, suggests the presence of items impacting reported earnings that are being adjusted for in the calculation of adjusted net income. The consistent downward trend in both margins from 2022 to 2025 warrants further investigation to determine the underlying drivers, such as changes in revenue, cost of goods sold, or the nature of the adjustments being made to net income.

Overall Trend

The period began with increasing profitability in 2022, but experienced a sustained decline in profitability through 2025. This decline is evident in both reported and adjusted net profit margins, indicating a broad-based impact on earnings performance.

The reported and adjusted total asset turnover ratios exhibit similar patterns over the five-year period. A notable increase is observed from 2021 to 2022, followed by a decline in subsequent years. The ratios remain relatively stable between 2024 and 2025.

Reported Total Asset Turnover

The reported total asset turnover ratio increased from 0.51 in 2021 to 0.84 in 2022, indicating improved efficiency in generating sales from assets. However, this was followed by a decrease to 0.59 in 2023 and further to 0.45 in 2024. The ratio stabilizes at 0.48 in 2025. This suggests a weakening ability to generate sales per dollar of assets after the initial improvement.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio mirrors the trend of the reported ratio. It rose from 0.51 in 2021 to 0.84 in 2022, then decreased to 0.59 in 2023 and 0.45 in 2024, before holding steady at 0.48 in 2025. The consistency between the reported and adjusted ratios suggests that adjustments to total assets do not materially impact the turnover calculation.

Asset Base

Reported total assets increased from US$90,661 million in 2021 to US$122,780 million in 2024, before decreasing slightly to US$121,939 million in 2025. Adjusted total assets follow a similar pattern, rising from US$90,321 million in 2021 to US$122,550 million in 2024, and then decreasing to US$121,718 million in 2025. The increase in the asset base, coupled with the declining turnover ratio after 2022, indicates that the growth in assets did not translate into a proportional increase in sales.

Overall Trend

The initial improvement in asset turnover in 2022 was not sustained. The subsequent decline in the ratio, alongside the increasing asset base, suggests potential inefficiencies in asset utilization or a shift in business strategy that prioritizes asset accumulation over sales generation. The stabilization in 2025 may indicate a leveling off of these trends, but further monitoring is warranted.

An examination of the financial information reveals trends in both reported and adjusted financial leverage over a five-year period. Both metrics demonstrate a decreasing trend, though the adjusted figures consistently present a lower leverage ratio than those reported.

Total Assets

Reported total assets increased from US$90,661 million in 2021 to US$122,780 million in 2024, before decreasing slightly to US$121,939 million in 2025. Adjusted total assets followed a similar pattern, beginning at US$90,321 million in 2021, peaking at US$122,550 million in 2024, and concluding at US$121,718 million in 2025. The difference between reported and adjusted total assets remains relatively consistent across the observed period.

Equity

Reported equity exhibited growth from US$45,406 million in 2021 to US$64,796 million in 2024, with a marginal decline to US$64,487 million in 2025. Adjusted equity also increased over the period, starting at US$51,245 million in 2021 and reaching US$76,503 million in 2025. The disparity between reported and adjusted equity widened over the five years, indicating a growing difference in how equity is calculated.

Reported Financial Leverage

Reported financial leverage began at 2.00 in 2021 and decreased to 1.89 in both 2024 and 2025. This indicates a gradual reduction in the proportion of assets financed by equity, or conversely, an increasing proportion financed by debt or other liabilities, although at a slowing rate. The decline is modest, suggesting a relatively stable capital structure from a reported perspective.

Adjusted Financial Leverage

Adjusted financial leverage demonstrated a more pronounced downward trend, moving from 1.76 in 2021 to 1.59 in 2025. This suggests that when adjustments are made to the asset and equity figures, the company appears less reliant on financial leverage. The consistent difference between reported and adjusted leverage highlights the impact of these adjustments on the overall assessment of the company’s financial risk. The rate of decline in adjusted leverage also slowed over time, similar to the reported leverage.

The consistent difference between reported and adjusted figures suggests the adjustments relate to specific accounting treatments or valuations that impact the reported asset and equity values. Further investigation into the nature of these adjustments would be necessary to fully understand their implications.

The period between 2021 and 2025 demonstrates fluctuating financial performance as reflected in both reported and adjusted return on equity (ROE). Reported net income increased significantly from 2021 to 2022, then decreased through 2025, while adjusted net income followed a similar pattern. Equity, both reported and adjusted, generally increased over the period, with a more substantial rise between 2022 and 2024. Consequently, both reported and adjusted ROE exhibit volatility, peaking in 2022 and declining through 2025.

Reported ROE

Reported ROE increased substantially from 17.79% in 2021 to 38.91% in 2022, coinciding with the largest increase in reported net income. A subsequent decline is observed, falling to 22.23% in 2023, 14.27% in 2024, and further to 12.39% in 2025. This decrease occurred despite a general increase in reported equity, indicating that the decline in net income had a more significant impact on the ratio.

Adjusted ROE

Adjusted ROE mirrored the trend of reported ROE, rising from 18.39% in 2021 to 37.42% in 2022, then decreasing to 20.92% in 2023, 12.65% in 2024, and 11.16% in 2025. The adjusted ROE consistently remained slightly above the reported ROE throughout the period. The decline from 2022 to 2025 is attributable to both decreasing adjusted net income and, to a lesser extent, a slowing rate of growth in adjusted equity.

Net Income and Equity Relationship

The substantial increase in both reported and adjusted ROE in 2022 was primarily driven by a significant increase in net income. While equity also increased, the proportional change in net income was greater. Conversely, the declines in ROE from 2022 through 2025 were primarily driven by decreasing net income, despite continued growth in equity. The larger increase in equity between 2023 and 2024 did not prevent a decline in ROE, suggesting that net income is the dominant factor influencing the ratio.

Adjustments Impact

The difference between reported and adjusted ROE remained relatively consistent throughout the period, typically around 0.5% to 1%. This suggests that the adjustments made to net income and equity have a consistent, though modest, impact on the overall ROE calculation. The adjustments consistently resulted in a slightly higher ROE compared to the reported figures.

The period between 2021 and 2025 demonstrates fluctuating financial performance as measured by return on assets. Both reported and adjusted net income, and consequently return on assets, experienced significant volatility over the five-year span. A notable divergence exists between reported and adjusted figures, suggesting the impact of certain accounting adjustments on overall profitability metrics.

Reported Net Income & ROA

Reported net income increased substantially from US$8,079 million in 2021 to US$18,680 million in 2022, driving a corresponding increase in reported ROA from 8.91% to 19.91%. However, reported net income then decreased to US$10,957 million in 2023, followed by further declines to US$9,245 million and US$7,988 million in 2024 and 2025 respectively. This resulted in a consistent downward trend in reported ROA, falling from 19.91% in 2022 to 6.55% in 2025.

Adjusted Net Income & ROA

Adjusted net income mirrored the trend of reported net income, increasing from US$9,425 million in 2021 to US$20,766 million in 2022, and then declining to US$12,101 million, US$9,612 million, and US$8,537 million in 2023, 2024, and 2025 respectively. The adjusted ROA followed a similar pattern, peaking at 22.19% in 2022 before decreasing to 7.01% in 2025. The adjusted ROA consistently remained higher than the reported ROA throughout the period, indicating that the adjustments increased the calculated return.

Total Assets

Reported total assets exhibited a generally increasing trend, rising from US$90,661 million in 2021 to US$122,780 million in 2024, before decreasing slightly to US$121,939 million in 2025. Adjusted total assets followed a similar trajectory, increasing from US$90,321 million in 2021 to US$122,550 million in 2024, and then decreasing to US$121,718 million in 2025. The relatively stable asset base during the period of declining net income contributed to the observed decrease in both reported and adjusted ROA.

ROA Discrepancy

The difference between reported and adjusted ROA remained relatively consistent across the observed period, typically ranging between 1.5% and 2% in favor of the adjusted figure. This suggests that the adjustments applied to net income and/or total assets have a predictable and material impact on the calculated return on assets. Further investigation into the nature of these adjustments would be necessary to fully understand their implications.

In summary, the period was characterized by high volatility in profitability, coupled with a generally increasing asset base. The declining trend in both reported and adjusted ROA from 2022 to 2025 suggests a weakening in the efficiency with which assets are being utilized to generate profits.