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Derivative and Financial Instruments | 9 Months Ended
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Sep. 30, 2018
Derivative and Financial Instruments [Abstract] |
Derivative and Financial Instruments | Note 14—Derivative and Financial Instruments Derivative Instruments We use futures, forwards, swaps and options in various markets to meet our customer needs and capture market opportunities. Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and natural gas liquids. Our derivative instru ments are held at fair value on our consolidated balance sheet. Where these balances have the right of setoff, they are presented on a net basis. Related cash flows are recorded as operating activities on our consolidated statement of cash flows. On our consolidated income statement, realized and unrealized gains and losses are recognized either on a gross basis if directly related to our physical business or a net basis if held for trading. Gains and losses related to contracts that meet and are design ated with the normal purchase normal sale (NPNS) exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not use hedge accounting for our commodity derivatives.
The following table presents the gross fair values of our commodity derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:
| Millions of Dollars
| September 30 |  | December 31
| 2018 |  | 2017
Assets |  |  |  |
Prepaid expenses and other current assets | $ | 259 |  | 275
Other assets |  | 42 |  | 36
Liabilities |  |  |  |
Other accruals |  | 278 |  | 282
Other liabilities and deferred credits |  | 37 |  | 28
The gains (losses) from commodity derivatives incurred, and the line items where they appear on our consolidated income statement were: |
|  | Millions of Dollars |
|  | Three Months Ended |  | Nine Months Ended |
September 30 | September 30 |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Sales and other operating revenues |  | $ | (29) |  | 17 |  | (6) |  | 120 |
Other income |  |  | 3 |  | (1) |  | 12 |  | (1) |
Purchased commodities |  |  | 18 |  | (19) |  | 15 |  | (88) |
The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts:
| Open Position
Long/(Short)
| September 30 |  | December 31
| 2018 |  | 2017
Commodity |  |  |  |
Natural gas and power (billions of cubic feet equivalent) |  |  |  |
Fixed price |  | (19) |  | (29)
Basis |  | 5 |  | 12
Foreign Currency Exchange Derivatives We have foreign currency exchange rate risk resulting from international operations. Our foreign currency exchange derivative activity primarily relates to managing our cash-related and foreign currency exchange rate exposures, such as firm commitments for capital programs or local currency tax payments, dividends and cash returns from net investments in foreign affiliates, and investments in equity securities. We do not elect hedge accounting on our foreign currency exchange derivatives.
The following table presents the gross fair values of our foreign currency exchange derivatives, excluding collateral, and the line items where they appear on our consolidated balance sheet:
| Millions of Dollars
| September 30 |  | December 31
| 2018 |  | 2017
Assets |  |  |  |
Prepaid expenses and other current assets | $ | 18 |  | 1
Other assets |  | - |  | 6
Liabilities |  |  |  |
Other accruals |  | 7 |  | -
Other liabilities and deferred credits |  | - |  | 15
In December 2017, we entered into foreign exchange zero cost collars buying the right to sell $1.25 billion CAD at $0.707 CAD and selling the right to buy $1.25 billion CAD at $0.842 CAD against the U.S. dollar.
The (gains) losses from foreign currency exchange derivatives incurred, and the line item where they appear on our consolidated income statement were:
|  | Millions of Dollars
|  | Three Months Ended |  | Nine Months Ended
September 30 | September 30
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Foreign currency transaction (gains) losses |  | $ | (2) |  | (1) |  | (5) |  | 2
We had the following net notional position of outstanding foreign currency exchange derivatives:
| In Millions
Notional Currency
|  | September 30 |  | December 31
| 2018 |  | 2017
Foreign Currency Exchange Derivatives |  |  |  |
Sell U.S. dollar, buy other currencies* | USD | 1,258 |  | -
Sell British pound, buy euro | GBP | 23 |  | 1
Sell Canadian dollar, buy U.S. dollar | CAD | 1,230 |  | 1,225
*Primarily British pound. |  |  |  |
Financial Instruments We invest excess cash in financial instruments with maturities based on our cash forecasts for the various currency pools we manage. The maturities of these investments may from time to time extend beyond 90 days. The types of financial instruments we currently invest in include: Time deposits: Interest bearing deposits placed with approved financial institutions. Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or government agency purchased at a discount to mature at par. These financial instruments appear in the “Cash and cash equivalents” line of our consolidated balance sheet if the maturities at the time we made the investments were 90 days or less; otherwise, these financial instruments are included in the “Short-term investments” line on our consolidated balance sheet.
| Millions of Dollars
| Carrying Amount
| Cash and Cash Equivalents |  | Short-Term Investments
| September 30 |  | December 31 |  | September 30 |  | December 31
| 2018 | 2017 |  | 2018 |  | 2017
Cash | $ | 511 |  | 948 |  |  |  |
Time deposits |  |  |  |  |  |  |  |
Remaining maturities from 1 to 90 days |  | 2,966 |  | 5,004 |  | 104 |  | 821
Commercial paper |  |  |  |  |  |  |  |
Remaining maturities from 1 to 90 days |  | 239 |  | 373 |  | 771 |  | 978
Remaining maturities from 91 to 180 days |  | - |  | - |  | - |  | 74
| $ | 3,716 |  | 6,325 |  | 875 |  | 1,873
Credit Risk Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, over-the-counter (OTC) derivative contracts and trade receivables. Our cash equivalents and short-term investments are placed in high-quality commercial paper, government money market funds, government debt securities and time deposits with major international banks and financial institutions. The credit risk from our OTC derivative contracts, such as fo rwards, swaps and options, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significan t nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements until settled; however, we are exposed to the credit risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements. Our trade receivables result primarily from our petroleum operations and reflect a broad natio nal and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less, and we continually monitor this exposure and the creditworthiness of the counterparti es. We do not generally require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments and master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due to us. Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold am ounts typically revert to zero if we fall below investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of credit as collateral, such as transactions administered through the New York Mercantile Exch ange. The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position on September 30, 2018 and December 31, 2017, was $44 million and $55 mill ion, respectively. For these instruments, no collateral was posted as of September 30, 2018 or December 31, 2017. If our credit rating had been downgraded below investment grade on September 30, 2018, we would be required to post $44 million of additional collateral, either with cash or letters of credit.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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