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 some of these risks. In addition, prior to May 2016, we had legacy power forward and swap contracts related to operations of acquired businesses.

Energy Commodity Price Risk Management

As of December 31, 2017, 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	(21.0	)	MMBbl
Crude oil basis	(7.2	)	MMBbl
Natural gas fixed price	(46.4	)	Bcf
Natural gas basis	(21.7	)	Bcf
Derivatives not designated as hedging contracts
Crude oil fixed price	(1.9	)	MMBbl
Crude oil basis	(1.2	)	MMBbl
Natural gas fixed price	(9.0	)	Bcf
Natural gas basis	(23.1	)	Bcf
NGL fixed price	(4.1	)	MMBbl

As of December 31, 2017, 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 2021.

Interest Rate Risk Management

As of December 31, 2017 and December 31, 2016, we had a combined notional principal amount of $9,575 million and $9,775 million, respectively, of fixed-to-variable interest rate swap agreements, all of which 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 LIBOR plus a spread and have termination dates that correspond to the maturity dates of the related series of senior notes. As of December 31, 2017, 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

As of both December 31, 2017 and 2016, we had a notional principal amount of $1,358 million of cross-currency swap agreements to manage the foreign currency risk related to our Euro denominated senior notes 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
		December 31,				December 31,
		2017		2016		2017			2016
	Location	Fair value				Fair value
Derivatives designated as hedging contracts
Energy commodity derivative contracts	Fair value of derivative contracts/(Other current liabilities)	$	65	$	101	$	(53	)	$	(57	)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	14		70		(24		)	(24		)
Subtotal		79		171		(77		)	(81		)
Interest rate swap agreements	Fair value of derivative contracts/(Other current liabilities)	41		94		(3		)	—
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	164		206		(62		)	(57		)
Subtotal		205		300		(65		)	(57		)
Cross-currency swap agreements	Fair value of derivative contracts/(Other current liabilities)	—		—		(6		)	(7		)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	166		—		—			(24		)
Subtotal		166		—		(6		)	(31		)
Total		450		471		(148		)	(169		)
Derivatives not designated as hedging contracts
Energy commodity derivative contracts	Fair value of derivative contracts/(Other current liabilities)	8		3		(22		)	(29		)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	—		—		(2		)	(1		)
Total		8		3		(24		)	(30		)
Total derivatives		$	458	$	474	$	(172	)	$	(199	)

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
		Year Ended December 31,
		2017			2016			2015
Interest rate swap agreements	Interest, net	$	(103	)	$	(180	)	$	25

Hedged fixed rate debt	Interest, net	$	105		$	160		$	(33	)



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)
	Year Ended									Year Ended										Year Ended
	December 31,									December 31,										December 31,
	2017		2016			2015				2017			2016			2015				2017		2016			2015
Energy commodity derivative contracts	$	24	$	(115	)	$	201		Revenues—Natural gas sales	$	12		$	15		$	54		Revenues—Natural gas sales	$	—	$	—		$	—
									Revenues—Product sales and other	35			148			236			Revenues—Product sales and other	11		(12		)	2
									Costs of sales	9			(17		)	(15		)	Costs of sales	—		—			—
Interest rate swap agreements(c)	—		(2		)	(4		)	Interest, net	(3		)	(3		)	(3		)	Interest, net	—		—			—
Cross-currency swap	121		13			(33		)	Other, net	118			(27		)	—			Other, net	—		—			—
Total	$	145	$	(104	)	$	164		Total	$	171		$	116		$	272		Total	$	11	$	(12	)	$	2

_______

(a)

We expect to reclassify an approximate $1 million loss associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balances as of December 31, 2017 into earnings during the next twelve months (when the associated forecasted transactions 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
		Year Ended December 31,
		2017			2016			2015
Energy commodity derivative contracts	Revenues—Natural gas sales	$	20		$	(10	)	$	17
	Revenues—Product sales and other	(16		)	(26		)	176
	Costs of sales	—			3			(2		)
Interest rate swap agreements	Interest, net	—			63			(15		)
Total(a)		$	4		$	30		$	176

________

(a) For the years ended December 31, 2017, 2016 and 2015 includes approximate gains of $57 million, $73 million and $31 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 December 31, 2017 and 2016, we had no outstanding letters of credit supporting our commodity price risk management program. As of December 31, 2017 and December 31, 2016, we had cash margins of $1 million and $37 million, respectively, posted by us with our counterparties as collateral and reported within “Restricted deposits” on our accompanying consolidated balance sheets. The balance at December 31, 2017, consisted of initial margin requirements of $13 million, offset by variation margin requirements of $12 million. 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 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 December 31, 2017, based on our current mark to market positions and posted collateral, we estimate that if our credit rating were downgraded one notch we would be required to post $31 million of additional collateral and no additional collateral beyond this $31 million if we were downgraded two notches.

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, 2014	$	327		$	(108	)	$	(236	)	$	(17	)
Other comprehensive gain (loss) before reclassifications	164			(214		)	(122		)	(172		)
Gains reclassified from accumulated other comprehensive loss	(272		)	—			—			(272		)
Net current-period other comprehensive loss	(108		)	(214		)	(122		)	(444		)
Balance as of December 31, 2015	219			(322		)	(358		)	(461		)
Other comprehensive (loss) gain before reclassifications	(104		)	34			(14		)	(84		)
Gains reclassified from accumulated other comprehensive loss	(116		)	—			—			(116		)
Net current-period other comprehensive (loss) income	(220		)	34			(14		)	(200		)
Balance as of December 31, 2016	(1		)	(288		)	(372		)	(661		)
Other comprehensive gain before reclassifications	145			55			40			240
Gains reclassified from accumulated other comprehensive loss	(171		)	—			—			(171		)
KML IPO	—			44			7			51
Net current-period other comprehensive (loss) income	(26		)	99			47			120
Balance as of December 31, 2017	$	(27	)	$	(189	)	$	(325	)	$	(541	)