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Derivative and Financial Instruments | 12 Months Ended
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Dec. 31, 2019
Derivative and Financial Instruments [Abstract] |
Derivative and Financial Instruments | Note 14—Derivative and Financial 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 NGLs. Our 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 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 2019 2018 Assets Prepaid expenses and other current assets $ 288 410 Other assets 34 40 Liabilities Other accruals 283 370 Other liabilities and deferred credits 28 30 The gains (losses) from commodity derivatives incurred, and the line items where they appear on our consolidated income statement were: Millions of Dollars 2019 2018 2017 Sales and other operating revenues $ 141 45 77 Other income 4 7 - Purchased commodities (118) (41) (61) The table below summarizes our material net exposures resulting from outstanding commodity derivative contracts: Open Position Long/(Short) 2019 2018 Commodity Natural gas and power (billions of cubic feet equivalent) Fixed price (5) (17) Basis (23) (1) 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. 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 2019 2018 Assets Prepaid expenses and other current assets $ 1 7 Liabilities Other accruals 20 6 Other liabilities and deferred credits 8 - The losses from foreign currency exchange derivatives incurred and the line item where they appear on our consolidated income statement were: Millions of Dollars 2019 2018 2017 Foreign currency transaction losses $ 16 1 13 We had the following net notional position of outstanding foreign currency exchange derivatives: In Millions Notional Currency 2019 2018 Foreign Currency Exchange Derivatives Sell U.S. dollar, buy British pound USD - 805 Sell British pound, buy other currencies* GBP - 21 Buy British pound, sell euro GBP 4 - Sell Canadian dollar, buy U.S. dollar CAD 1,337 1,242 *Primarily euro and Norwegian krone. 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 collar expired during the second quarter of 2019 and we entered into new foreign currency exchange forward contracts to sell $1.35 billion CAD at $0.748 CAD against the U.S. dollar. 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. ● 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. ● 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: Carrying Amount Cash and Cash Equivalents Short-Term Investments 2019 2018 2019 2018 Cash $ 759 876 Demand Deposits 1,483 - - - Time Deposits Remaining maturities from 1 to 90 days 2,030 3,509 1,395 - Remaining maturities from 91 to 180 days - - 465 - Commercial Paper Remaining maturities from 1 to 90 days 413 229 1,069 248 U.S. Government Obligations Remaining maturities from 1 to 90 days 394 1,301 - - $ 5,079 5,915 2,929 248 The following table reflects our investments in debt securities classified as available for sale at December 31, 2019 which are carried at fair value: Millions of Dollars Carrying Amount Cash and Cash Equivalents Short-Term Investments Investments and Long- Term Receivables Corporate Bonds Remaining maturities within one year $ 1 59 - Remaining maturities greater than one year through five years - - 99 Commercial Paper Remaining maturities within one year 8 30 - U.S. Government Obligations Remaining maturities within one year - 10 - Remaining maturities greater than one year through five years - - 15 Asset-backed Securities Remaining maturities greater than one year through five years - - 19 $ 9 99 133 The following table summarizes the amortized cost basis and fair value of investments in debt securities classified as available for sale at December 31, 2019: Millions of Dollars Amortized Cost Basis Fair Value Major Security Type Corporate bonds $ 159 159 Commercial paper 38 38 U.S. government obligations 25 25 Asset-backed securities 19 19 $ 241 241 Gross unrealized gains and gross unrealized losses included in other comprehensive income related to investments in debt securities classified as available for sale as of December 31, 2019, were negligible. There were no other-than-temporary impairments recognized in earnings or in other comprehensive income during the year ended December 31, 2019. Gross realized gains and gross realized losses included in earnings from sales and redemptions of investments in debt securities classified as available for sale during the year ended December 31, 2019, 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 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 primarily 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. 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 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 December 31, 2019 and December 31, 2018, was $ 79 million and $ 62 million, respectively. For these instruments, no collateral was posted as of December 31, 2019 or December 31, 2018 . If our credit rating had been downgraded below investment grade on December 31, 2019, we would be required to post $ 76 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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