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Risk Management (Notes) | 6 Months Ended
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Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Risk Management | Risk Management Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil. We also have exposure to interest rate and foreign currency risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks. In addition, prior to May 2016, we had power forward and swap contracts related to legacy operations of acquired businesses. Energy Commodity Price Risk Management As of June 30, 2016, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales:
| Net open position long/(short)
Derivatives designated as hedging contracts |  |  |
Crude oil fixed price | (21.2 | ) |  | MMBbl
Crude oil basis | (4.1 | ) |  | MMBbl
Natural gas fixed price | (31.9 | ) |  | Bcf
Natural gas basis | (21.8 | ) |  | Bcf
Derivatives not designated as hedging contracts |  |  |  |
Crude oil fixed price | (0.3 | ) |  | MMBbl
Crude oil basis | (0.4 | ) |  | MMBbl
Natural gas fixed price | (12.8 | ) |  | Bcf
Natural gas basis | (2.6 | ) |  | Bcf
NGL and other fixed price | (3.4 | ) |  | MMBbl
As of June 30, 2016, the maximum length of time over which we have hedged, for accounting purposes, our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2020. Interest Rate Risk Management As of June 30, 2016, we had a combined notional principal amount of $9,775 million of fixed-to-variable interest rate swap agreements, of which $8,475 million were designated as fair value hedges. As of December 31, 2015, we had a combined notional principal amount of $11,000 million of fixed-to-variable interest rate swap agreements, of which $9,700 million were designated as fair value hedges. All of our swap agreements effectively convert the interest expense associated with certain series of senior notes from fixed rates to variable rates based on an interest rate of London Interbank Offered Rate plus a spread and have termination dates that correspond to the maturity dates of the related series of senior notes. As of June 30, 2016, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through March 15, 2035. Foreign Currency Risk Management In connection with the issuance of our Euro denominated senior notes in March 2015 (see Note 3), we entered into $1,358 million cross-currency swap agreements to manage the related foreign currency risk by effectively converting all of the fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity, to U.S. dollar denominated debt at fixed rates equivalent to approximately 3.79% and 4.67% for the 7-year and 12-year senior notes, respectively. These cross-currency swaps are accounted for as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged senior notes, and such agreements have the same maturities as the hedged senior notes. Fair Value of Derivative Contracts The following table summarizes the fair values of our derivative contracts included in our accompanying consolidated balance sheets (in millions):
Fair Value of Derivative Contracts
|  |  |  | Asset derivatives |  | Liability derivatives
|  |  |  | June 30, 2016 |  | December 31, 2015 |  | June 30, 2016 |  | December 31, 2015
|  | Location |  | Fair value |  | Fair value
Derivatives designated as hedging contracts |  |  |  |  |  |  |  |  |  |
Natural gas and crude derivative contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | $ | 177 |  |  | $ | 359 |  |  | $ | (38 | ) |  | $ | (13 | )
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 139 |  |  | 244 |  |  | (18 | ) |  | — |
Subtotal |  |  |  | 316 |  |  | 603 |  |  | (56 | ) |  | (13 | )
Interest rate swap agreements |  | Fair value of derivative contracts/(Other current liabilities) |  | 117 |  |  | 111 |  |  | — |  |  | — |
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 657 |  |  | 273 |  |  | — |  |  | (9 | )
Subtotal |  |  |  | 774 |  |  | 384 |  |  | — |  |  | (9 | )
Cross-currency swap agreements |  | Fair value of derivative contracts/(Other current liabilities) |  | — |  |  | — |  |  | (22 | ) |  | (6 | )
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 13 |  |  | — |  |  | (12 | ) |  | (46 | )
Subtotal |  |  |  | 13 |  |  | — |  |  | (34 | ) |  | (52 | )
Total |  |  |  | 1,103 |  |  | 987 |  |  | (90 | ) |  | (74 | )
Derivatives not designated as hedging contracts |  |  |  |  |  |  |  |  |  |  |  |
Natural gas, crude, NGL and other derivative contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | 7 |  |  | 35 |  |  | (10 | ) |  | (1 | )
Subtotal |  |  |  | 7 |  |  | 35 |  |  | (10 | ) |  | (1 | )
Interest rate swap agreements |  | Fair value of derivative contracts/(Other current liabilities) |  | 12 |  |  | 1 |  |  | — |  |  | (11 | )
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 50 |  |  | — |  |  | — |  |  | (5 | )
Subtotal |  |  |  | 62 |  |  | 1 |  |  | — |  |  | (16 | )
Power derivative contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | — |  |  | 1 |  |  | — |  |  | (17 | )
Subtotal |  |  |  | — |  |  | 1 |  |  | — |  |  | (17 | )
Total |  |  |  | 69 |  |  | 37 |  |  | (10 | ) |  | (34 | )
Total derivatives |  |  |  | $ | 1,172 |  |  | $ | 1,024 |  |  | $ | (100 | ) |  | $ | (108 | )
Effect of Derivative Contracts on the Income Statement The following tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income (in millions):
Derivatives in fair value hedging relationships |  | Location |  | Gain/(loss) recognized in income on derivatives and related hedged item
|  |  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  |  | 2016 |  | 2015 |  | 2016 |  | 2015
Interest rate swap agreements |  | Interest, net |  | $ | 119 |  |  | $ | (233 | ) |  | $ | 399 |  |  | $ | (88 | )
Hedged fixed rate debt |  | Interest, net |  | $ | (120 | ) |  | $ | 256 |  |  | $ | (404 | ) |  | $ | 117 |
Derivatives in cash flow hedging relationships |  | Gain/(loss) recognized in OCI on derivative (effective portion)(a) |  | Location |  | Gain/(loss) reclassified from Accumulated OCI into income (effective portion)(b) |  | Location |  | Gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
|  | Three Months Ended June 30, |  |  |  | Three Months Ended June 30, |  |  |  | Three Months Ended June 30,
|  | 2016 |  | 2015 |  |  |  | 2016 |  | 2015 |  |  |  | 2016 |  | 2015
Energy commodity derivative contracts |  | $ | (111 | ) |  | $ | (82 | ) |  | Revenues—Natural gas sales |  | $ | 2 |  |  | $ | 1 |  |  | Revenues—Natural gas sales |  | $ | — |  |  | $ | — |
|  |  |  |  |  | Revenues—Product sales and other |  | 33 |  |  | 37 |  |  | Revenues—Product sales and other |  | (6 | ) |  | 3 |
|  |  |  |  |  |  | Costs of sales |  | (2 | ) |  | (14 | ) |  | Costs of sales |  | — |  |  | — |
Interest rate swap agreements(c) |  | (1 | ) |  | 1 |  |  | Interest, net |  | — |  |  | — |  |  | Interest, net |  | — |  |  | — |
Cross-currency swap |  | (30 | ) |  | 23 |  |  | Other, net |  | (22 | ) |  | 33 |  |  | Other, net |  | — |  |  | — |
Total |  | $ | (142 | ) |  | $ | (58 | ) |  | Total |  | $ | 11 |  |  | $ | 57 |  |  | Total |  | $ | (6 | ) |  | $ | 3 |
Derivatives in cash flow hedging relationships |  | Gain/(loss) recognized in OCI on derivative (effective portion)(a) |  | Location |  | Gain/(loss) reclassified from Accumulated OCI into income (effective portion)(b) |  | Location |  | Gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
|  | Six Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |  |  | Six Months Ended June 30,
|  | 2016 |  | 2015 |  |  |  | 2016 |  | 2015 |  |  |  | 2016 |  | 2015
Energy commodity derivative contracts |  | $ | (84 | ) |  | $ | (47 | ) |  | Revenues—Natural gas sales |  | $ | 23 |  |  | $ | 25 |  |  | Revenues—Natural gas sales |  | $ | — |  |  | $ | — |
|  |  |  |  |  | Revenues—Product sales and other |  | 90 |  |  | 101 |  |  | Revenues—Product sales and other |  | (5 | ) |  | 10 |
|  |  |  |  |  | Costs of sales |  | (12 | ) |  | (19 | ) |  | Costs of sales |  | — |  |  | — |
Interest rate swap agreements(c) |  | (5 | ) |  | (2 | ) |  | Interest, net |  | (1 | ) |  | (1 | ) |  | Interest, net |  | — |  |  | — |
Cross-currency swap |  | 20 |  |  | (11 | ) |  | Other, net |  | 19 |  |  | 23 |  |  | Other, net |  | — |  |  | — |
Total |  | $ | (69 | ) |  | $ | (60 | ) |  | Total |  | $ | 119 |  |  | $ | 129 |  |  | Total |  | $ | (5 | ) |  | $ | 10 |
_____
(a) | We expect to reclassify an approximate $46 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balances as of June 30, 2016 into earnings during the next twelve months (when the associated forecasted sales and purchases are also expected to occur), however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices.
(b) | Amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred).
(c) | Amounts represent our share of an equity investee’s accumulated other comprehensive loss.
Derivatives not designated as accounting hedges |  | Location |  | Gain/(loss) recognized in income on derivatives
|  |  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  |  | 2016 |  | 2015 |  | 2016 |  | 2015
Energy commodity derivative contracts |  | Revenues—Natural gas sales |  | $ | (11 | ) |  | $ | (2 | ) |  | $ | (5 | ) |  | $ | 3 |
|  | Revenues—Product sales and other |  | (12 | ) |  | (40 | ) |  | (14 | ) |  | 4 |
|  | Costs of sales |  | 3 |  |  | 3 |  |  | (2 | ) |  | — |
Interest rate swap agreements |  | Interest, net |  | 24 |  |  | — |  |  | 77 |  |  | — |
Total(a) |  |  |  | $ | 4 |  |  | $ | (39 | ) |  | $ | 56 |  |  | $ | 7 |
_______ (a) Three and six months ended June 30, 2016 includes an approximate gain of $20 million and $39 million, respectively, associated with natural gas, crude and NGL derivative contract settlements. Three and six months ended June 30, 2015 includes an approximate gain of $7 million and $2 million, respectively, associated with natural gas, crude and NGL derivative contract settlements. Credit Risks In conjunction with certain derivative contracts, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of June 30, 2016 and December 31, 2015, we had no and $2 million of outstanding letters of credit supporting our commodity price risk management program. As of June 30, 2016, we had cash margins of $18 million posted by us as collateral and no amounts posted by our counterparties as collateral. As of December 31, 2015, we had no cash margins posted by us as collateral and cash margins of $37 million posted by our counterparties as collateral. We also use industry standard commercial agreements which allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we generally utilize master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty. We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in our credit rating. As of June 30, 2016, based on our current mark to market positions and posted collateral, we estimate that if our credit rating were downgraded one or two notches, we would not be required to post additional collateral. Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Loss Cumulative revenues, expenses, gains and losses that under GAAP are included within our comprehensive income but excluded from our earnings are reported as “Accumulated other comprehensive loss” within “Stockholders’ Equity” in our consolidated balance sheets. Changes in the components of our “Accumulated other comprehensive loss” not including non-controlling interests are summarized as follows (in millions):
| Net unrealized gains/(losses) on cash flow hedge derivatives |  | Foreign currency translation adjustments |  | Pension and other postretirement liability adjustments |  | Total accumulated other comprehensive loss
Balance as of December 31, 2015 | $ | 219 |  |  | $ | (322 | ) |  | $ | (358 | ) |  | $ | (461 | )
Other comprehensive (loss) gain before reclassifications | (69 | ) |  | 85 |  |  | 10 |  |  | 26 |
Gains reclassified from accumulated other comprehensive income (loss) | (119 | ) |  | — |  |  | — |  |  | (119 | )
Net current-period other comprehensive (loss) income | (188 | ) |  | 85 |  |  | 10 |  |  | (93 | )
Balance as of June 30, 2016 | $ | 31 |  |  | $ | (237 | ) |  | $ | (348 | ) |  | $ | (554 | )
| Net unrealized gains/(losses) on cash flow hedge derivatives |  | Foreign currency translation adjustments |  | Pension and other postretirement liability adjustments |  | Total accumulated other comprehensive loss
Balance as of December 31, 2014 | $ | 327 |  |  | $ | (108 | ) |  | $ | (236 | ) |  | $ | (17 | )
Other comprehensive (loss) gain before reclassifications | (60 | ) |  | (91 | ) |  | 6 |  |  | (145 | )
Gains reclassified from accumulated other comprehensive income (loss) | (129 | ) |  | — |  |  | — |  |  | (129 | )
Net current-period other comprehensive (loss) income | (189 | ) |  | (91 | ) |  | 6 |  |  | (274 | )
Balance as of June 30, 2015 | $ | 138 |  |  | $ | (199 | ) |  | $ | (230 | ) |  | $ | (291 | )

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