Financial and Derivative Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The company’s commodity derivative instruments principally include crude oil, natural gas, liquefied natural gas and refined product futures, swaps, options and forward contracts. The company applies cash flow hedge accounting to certain commodity transactions, where appropriate, to manage the market price risk associated with forecasted sales of crude oil. The company’s derivatives are not material to the company’s consolidated financial position, results of operations or liquidity. The company believes it has no material market or credit risks to its operations, financial position or liquidity as a result of its commodities and other derivatives activities.

The company uses commodity derivative instruments traded on the New York Mercantile Exchange and on electronic platforms of the Inter-Continental Exchange and Chicago Mercantile Exchange. In addition, the company enters into swap contracts and option contracts principally with major financial institutions and other oil and gas companies in the “over-the-counter” markets, which are governed by International Swaps and Derivatives Association agreements and other master netting arrangements.

Derivative instruments measured at fair value at September 30, 2023, and December 31, 2022, and their classification on the Consolidated Balance Sheet and Consolidated Statement of Income are as follows:


Consolidated Balance Sheet: Fair Value of Derivatives (Millions of dollars)
Type of Contract	Balance Sheet Classification	At September 30, 2023		At December 31, 2022
Commodity	Accounts and notes receivable, net	$	73	$	175
Commodity	Long-term receivables, net	4		9
Total Assets at Fair Value		$	77	$	184
Commodity	Accounts payable	$	315	$	46
Commodity	Deferred credits and other noncurrent obligations	32		12
Total Liabilities at Fair Value		$	347	$	58


Consolidated Statement of Income: The Effect of Derivatives (Millions of dollars)
Type of		Gain / (Loss) Three Months Ended September 30				Gain / (Loss) Nine Months Ended September 30
Contract	Statement of Income Classification	2023		2022		2023		2022
Commodity	Sales and other operating revenues	$	(420)	$	55	$	(439)	$	(892)
Commodity	Purchased crude oil and products	(202)		24		(183)		(210)
Commodity	Other income	(8)		(10)		(24)		(16)
		$	(630)	$	69	$	(646)	$	(1,118)

The amount reclassified from AOCL to “Sales and other operating revenues” from designated hedges for the first nine months of 2023 was a decrease of $17 million compared with an increase of $31 million in the same period of the prior year. At September 30, 2023, before-tax deferred losses in AOCL related to outstanding crude oil price hedging contracts were $16 million, of which all is expected to be reclassified into earnings during the next 12 months as the hedged crude oil sales are recognized in earnings.

The following table represents gross and net derivative assets and liabilities subject to netting agreements on the Consolidated Balance Sheet at September 30, 2023, and December 31, 2022.


Consolidated Balance Sheet: The Effect of Netting Derivative Assets and Liabilities (Millions of dollars)
	Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Presented		Gross Amounts Not Offset		Net Amount
At September 30, 2023
Derivative Assets - not designated	$	3,589	$	3,512	$	77	$	4	$	73
Derivative Assets - designated	$	13	$	13	$	—	$	—	$	—
Derivative Liabilities - not designated	$	3,843	$	3,512	$	331	$	15	$	316
Derivative Liabilities - designated	$	29	$	13	$	16	$	—	$	16
At December 31, 2022
Derivative Assets - not designated	$	2,591	$	2,407	$	184	$	5	$	179
Derivative Assets - designated	$	8	$	8	$	—	$	—	$	—
Derivative Liabilities - not designated	$	2,450	$	2,407	$	43	$	—	$	43
Derivative Liabilities - designated	$	23	$	8	$	15	$	—	$	15

Derivative assets and liabilities are classified on the Consolidated Balance Sheet as accounts and notes receivable, long-term receivables, accounts payable, and deferred credits and other noncurrent obligations. Amounts not offset on the Consolidated Balance Sheet represent positions that do not meet all the conditions for “a right of offset.”