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Derivative and Financial Instruments | 9 Months Ended
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Sep. 30, 2020
Derivative and Financial Instruments [Abstract] |
Derivative and Financial Instruments | Note 13—Derivative and Financial Instruments We use futures, forwards, swaps and options in various markets to meet our customer needs, capture market opportunities and manage foreign exchange currency risk. Commodity Derivative Instruments Our commodity business primarily consists of natural gas, crude oil, bitumen, LNG and NGLs. Commodity derivative instruments 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 designated with the NPNS exception are recognized upon settlement. We generally apply this exception to eligible crude contracts. We do not elect 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 2020 2019 Assets Prepaid expenses and other current assets $ 273 288 Other assets 28 34 Liabilities Other accruals 258 283 Other liabilities and deferred credits 19 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 2020 2019 2020 2019 Sales and other operating revenues $ 33 4 30 68 Other income (loss) (2) 3 3 4 Purchased commodities (27) (9) (29) (60) The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts: Open Position Long/(Short) September 30 December 31 2020 2019 Commodity Natural gas and power (billions of cubic feet equivalent) Fixed price (9) (5) Basis (50) (23) 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 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. Our foreign currency exchange derivative instruments are held at fair value on our consolidated balance sheet. Related cash flows are recorded as operating activities on our consolidated statement of cash flows. 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 2020 2019 Assets Prepaid expenses and other current assets $ 16 1 Liabilities Other accruals - 20 Other liabilities and deferred credits - 8 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 2020 2019 2020 2019 Foreign currency transaction (gain) loss $ 7 (24) (55) (3) We had the following net notional position of outstanding foreign currency exchange derivatives: In Millions Notional Currency September 30 December 31 2020 2019 Foreign Currency Exchange Derivatives Buy GBP, sell EUR GBP 3 4 Sell CAD, buy USD CAD 416 1,337 In the second quarter of 2019, we entered into foreign currency exchange contracts to sell CAD 1.35 billion at CAD 0.748 against the USD. In the first quarter of 2020, we entered into forward currency exchange contracts to buy CAD 0.9 billion at CAD 0.718 against the USD Financial Instruments We invest in financial instruments with maturities based on our cash forecasts for the various accounts and currency pools we manage. The types of financial instruments in which we currently invest include: ● Time deposits: Interest bearing deposits placed with financial institutions for a predetermined amount of time. ● Demand deposits: Interest bearing deposits placed with financial institutions. Deposited funds can be withdrawn without notice. ● Commercial paper: Unsecured promissory notes issued by a corporation, commercial bank or government agency purchased at a discount to mature at par. ● U.S. government or government agency obligations: Securities issued by the U.S. government or U.S. government agencies. ● Foreign government obligations: Securities issued by foreign governments. ● Corporate bonds: Unsecured debt securities issued by corporations. ● Asset-backed securities: Collateralized debt securities. The following investments are carried on our consolidated balance sheet at cost, plus accrued interest: Millions of Dollars Carrying Amount Cash and Cash Equivalents Short-Term Investments September 30 December 31 September 30 December 31 2020 2019 2020 2019 Cash $ 545 759 Demand Deposits 1,182 1,483 Time Deposits Remaining maturities from 1 to 90 days 755 2,030 2,961 1,395 Remaining maturities from 91 to 180 days - - 741 465 Remaining maturities within one year - - 7 - Commercial Paper Remaining maturities from 1 to 90 days - 413 50 1,069 U.S. Government Obligations Remaining maturities from 1 to 90 days 5 394 - - $ 2,487 5,079 3,759 2,929 The following investments in debt securities classified as available for sale are carried on our consolidated balance sheet at fair value: Millions of Dollars Carrying Amount Cash and Cash Equivalents Short-Term Investments Investments and Long-Term Receivables September 30 2020 December 31 2019 September 30 2020 December 31 2019 September 30 2020 December 31 2019 Corporate Bonds Maturities within one year $ - 1 157 59 - - Maturities greater than one year through five years - - - - 128 99 Commercial Paper Maturities within one year 3 8 108 30 - - U.S. Government Obligations Maturities within one year - - 8 10 - - Maturities greater than one year through five years - - - - 13 15 U.S. Government Agency Obligations Maturities greater than one year through five years - - - - 17 - Foreign Government Obligations Maturities greater than one year through five years - - - - 2 - Asset-backed Securities Maturities greater than one year through five years - - - - 46 19 $ 3 9 273 99 206 133 The following table summarizes the amortized cost basis and fair value of investments in debt securities classified as available for sale: Millions of Dollars September 30, 2020 December 31, 2019 Amortized Cost Basis Fair Value Amortized Cost Basis Fair Value Major Security Type Corporate bonds $ 283 285 159 159 Commercial paper 111 111 38 38 U.S. government obligations 21 21 25 25 U.S. government agency obligations 17 17 - - Foreign government obligations 2 2 - - Asset-backed securities 46 46 19 19 $ 480 482 241 241 As of September 30, 2020 and December 31, 2019, total unrealized losses for debt securities classified as available for sale with net losses were negligible. Additionally, as of September 30, 2020 and December 31, 2019, investments in these debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded were negligible. For the three- and nine-month periods ended September 30, 2020, proceeds from sales and redemptions of investments in debt securities classified as available for sale were $ 109 million and $ 298 million, respectively. Gross realized gains and losses included in earnings from those sales and redemptions were negligible. The cost of securities sold and redeemed is determined using the specific identification method. Credit Risk Financial instruments potentially exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, long-term investments in debt securities, 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, time deposits with major international banks and financial institutions, and high-quality corporate bonds. Our long-term investments in debt securities are placed in high-quality corporate bonds, U.S. government and government agency obligations, foreign government obligations, and asset-backed securities. The credit risk from our OTC derivative contracts, such as forwards, 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 significant 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 national 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 counterparties. Our collateral requirements will depend on the creditworthiness of our counterparties. At our option, we may require collateral to limit the exposure to loss including, letters of credit, prepayments and surety bonds, as well as 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 amounts 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 Exchange. The aggregate fair value of all derivative instruments with such credit risk-related contingent features that were in a liability position on September 30, 2020 and December 31, 2019, was $ 20 million and $ 79 million, respectively. For these instruments, no collateral was posted as of September 30, 2020 or December 31, 2019. If our credit rating had been downgraded below investment grade on September 30, 2020, we would have been required to post $ 16 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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