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Risk Management (Notes) | 12 Months Ended
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Dec. 31, 2018
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 and net investments in foreign operations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to some of these risks. During the year ended December 31, 2018, due to volatility in certain basis differentials, we discontinued hedge accounting on certain of our crude oil derivative contracts as we did not expect them to be highly effective, for accounting purposes, in offsetting the variability in cash flows. As of December 31, 2018, these hedging relationships had been re-designated as the effectiveness improved to required levels. As the forecasted transactions were still probable, accumulated gains and losses prior to the discontinuance remained in “Accumulated other comprehensive loss” unless earnings were impacted by the forecasted transactions; however, changes in the derivative contracts’ fair value subsequent to the discontinuance of hedge accounting and prior to the re-designation were reported in earnings. Upon re-designation, we resumed reporting changes in the derivative contracts’ fair value in “Accumulated other comprehensive income.” Energy Commodity Price Risk Management As of December 31, 2018, 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 | (21.6 | ) | MMBbl
Crude oil basis | (13.7 | ) | MMBbl
Natural gas fixed price | (33.3 | ) | Bcf
Natural gas basis | (26.1 | ) | Bcf
Derivatives not designated as hedging contracts |  |  |
Crude oil fixed price | (0.5 | ) | MMBbl
Crude oil basis | (4.5 | ) | MMBbl
Natural gas fixed price | (4.5 | ) | Bcf
Natural gas basis | (26.9 | ) | Bcf
NGL fixed price | (3.2 | ) | MMBbl
As of December 31, 2018, 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 2022. Interest Rate Risk Management As of December 31, 2018 and 2017, we had a combined notional principal amount of $10,575 million and $9,575 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, 2018, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of debt due to interest rate risk is through March 15, 2035. Foreign Currency Risk Management As of both December 31, 2018 and 2017, 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. During the year ended December 31, 2018, we entered into foreign currency swap agreements with a combined notional principal amount of C$2,450 million (U.S.$1,888 million). These swaps result in our selling fixed C$ and receiving fixed U.S.$, effectively hedging the foreign currency risk associated with a substantial portion of our share of the TMPL Sale proceeds which KML distributed on January 3, 2019, at which time the foreign currency swaps expired. These foreign currency swaps were accounted for as net investment hedges as the foreign currency risk was related to our investment in Canadian dollar denominated foreign operations, and the critical risks of the forward contracts coincided with those of the net investment. As a result, the change in fair value of the foreign currency swaps while outstanding were reflected in the CTA section of OCI. 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,
|  |  | 2018 |  | 2017 |  | 2018 |  | 2017
| Location |  | Fair value |  | Fair value
Derivatives designated as hedging contracts |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts | Fair value of derivative contracts/(Other current liabilities) |  | $ | 135 |  |  | $ | 65 |  |  | $ | (45 | ) |  | $ | (53 | )
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 64 |  |  | 14 |  |  | — |  |  | (24 | )
Subtotal |  |  | 199 |  |  | 79 |  |  | (45 | ) |  | (77 | )
Interest rate contracts | Fair value of derivative contracts/(Other current liabilities) |  | 12 |  |  | 41 |  |  | (37 | ) |  | (3 | )
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 121 |  |  | 164 |  |  | (78 | ) |  | (62 | )
Subtotal |  |  | 133 |  |  | 205 |  |  | (115 | ) |  | (65 | )
Foreign currency contracts | Fair value of derivative contracts/(Other current liabilities) |  | 91 |  |  | — |  |  | (6 | ) |  | (6 | )
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 106 |  |  | 166 |  |  | — |  |  | — |
Subtotal |  |  | 197 |  |  | 166 |  |  | (6 | ) |  | (6 | )
Total |  |  | 529 |  |  | 450 |  |  | (166 | ) |  | (148 | )
Derivatives not designated as hedging contracts |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts | Fair value of derivative contracts/(Other current liabilities) |  | 22 |  |  | 8 |  |  | (5 | ) |  | (22 | )
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | — |  |  | — |  |  | — |  |  | (2 | )
Total |  |  | 22 |  |  | 8 |  |  | (5 | ) |  | (24 | )
Total derivatives |  |  | $ | 551 |  |  | $ | 458 |  |  | $ | (171 | ) |  | $ | (172 | )
Effect of Derivative Contracts on the Income Statement The following tables summarize the pre-tax impact of our derivative contracts in 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,
|  |  |  | 2018 |  | 2017 |  | 2016
Interest rate contracts |  | Interest, net |  | $ | (122 | ) |  | $ | (103 | ) |  | $ | (180 | )
Hedged fixed rate debt |  | Interest, net |  | $ | 113 |  |  | $ | 105 |  |  | $ | 160 |
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,
|  | 2018 |  | 2017 |  | 2016 |  |  |  | 2018 |  | 2017 |  | 2016 |  |  |  | 2018 |  | 2017 |  | 2016
Energy commodity derivative contracts |  | $ | 201 |  |  | $ | 37 |  |  | $ | (182 | ) |  | Revenues—Natural gas sales |  | $ | (29 | ) |  | $ | 18 |  |  | $ | 23 |  |  | Revenues—Natural gas sales |  | $ | — |  |  | $ | — |  |  | $ | — |
|  |  |  |  |  |  |  |  |  | Revenues—Product sales and other |  | (30 | ) |  | 55 |  |  | 233 |  |  | Revenues—Product sales and other |  | (65 | ) |  | 11 |  |  | (12 | )
|  |  |  |  |  |  |  |  |  | Costs of sales |  | 21 |  |  | 14 |  |  | (26 | ) |  | Costs of sales |  | — |  |  | — |  |  | — |
Interest rate contracts(c) |  | 3 |  |  | — |  |  | (3 | ) |  | Interest, net |  | (4 | ) |  | (5 | ) |  | (4 | ) |  | Interest, net |  | — |  |  | — |  |  | — |
Foreign currency contracts |  | (59 | ) |  | 190 |  |  | 21 |  |  | Other, net |  | (67 | ) |  | 186 |  |  | (43 | ) |  | Other, net |  | — |  |  | — |  |  | — |
Total |  | $ | 145 |  |  | $ | 227 |  |  | $ | (164 | ) |  | Total |  | $ | (109 | ) |  | $ | 268 |  |  | $ | 183 |  |  | Total |  | $ | (65 | ) |  | $ | 11 |  |  | $ | (12 | )
_______
(a) | We expect to reclassify an approximate $165 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of December 31, 2018 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) | During the year ended December 31, 2018, we recognized a $3 million loss as a result of our equity investment’s forecasted transactions being probable of not occurring and a $21 million gain associated with a write-down of hedged inventory. All other 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 income (loss).
Derivatives in net investment hedging relationships |  | Gain/(loss) recognized in OCI on derivative (effective portion) |  | Location |  | Gain/(loss) reclassified from Accumulated OCI into income (effective portion)(a) |  | 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,
|  | 2018 |  | 2017 |  | 2016 |  |  |  | 2018 |  | 2017 |  | 2016 |  |  |  | 2018 |  | 2017 |  | 2016
Foreign currency contracts |  | $ | 91 |  |  | $ | — |  |  | $ | — |  |  | Loss on impairments and divestitures, net |  | $ | 26 |  |  | $ | — |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |  |  | $ | — |
Total |  | $ | 91 |  |  | $ | — |  |  | $ | — |  |  | Total |  | $ | 26 |  |  | $ | — |  |  | $ | — |  |  | Total |  | $ | — |  |  | $ | — |  |  | $ | — |
_______
(a) | During the year ended December 31, 2018, we recognized a $26 million gain from our accumulated other comprehensive loss balance related to the TMPL Sale. See Note 3.
Derivatives not designated as accounting hedges |  | Location |  | Gain/(loss) recognized in income on derivatives
|  |  |  | Year Ended December 31,
|  |  |  | 2018 |  | 2017 |  | 2016
Energy commodity derivative contracts |  | Revenues—Natural gas sales |  | $ | 3 |  |  | $ | 20 |  |  | $ | (10 | )
|  | Revenues—Product sales and other |  | (12 | ) |  | (16 | ) |  | (26 | )
|  | Costs of sales |  | 2 |  |  | — |  |  | 3 |
Interest rate contracts |  | Interest, net |  | — |  |  | — |  |  | 63 |
Total(a) |  |  |  | $ | (7 | ) |  | $ | 4 |  |  | $ | 30 |
________ (a) For the years ended December 31, 2018, 2017 and 2016 includes approximate losses of $4 million and gains of $57 million and $73 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, 2018 and 2017, we had no outstanding letters of credit supporting our commodity price risk management program. As of December 31, 2018, we had cash margins of $16 million posted by our counterparties with us as collateral and reported within “Other Current Liabilities” on our accompanying consolidated balance sheet. As of December 31, 2017, we had cash margins of $1 million posted by us with our counterparties as collateral and reported within “Restricted deposits” on our accompanying consolidated balance sheet. The balance at December 31, 2018 consisted of initial margin requirements of $9 million offset by variation margin requirements of $25 million. We also use industry standard commercial agreements that 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 December 31, 2018, 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 at 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 at 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 at December 31, 2017 | (27 | ) |  | (189 | ) |  | (325 | ) |  | (541 | )
Other comprehensive gain (loss) before reclassifications | 111 |  |  | (89 | ) |  | (31 | ) |  | (9 | )
Losses reclassified from accumulated other comprehensive loss(a) | 84 |  |  | 223 |  |  | 22 |  |  | 329 |
Impact of adoption of ASU 2018-02 (Note 1) | (4 | ) |  | (36 | ) |  | (69 | ) |  | (109 | )
Net current-period other comprehensive income (loss) | 191 |  |  | 98 |  |  | (78 | ) |  | 211 |
Balance at December 31, 2018 | $ | 164 |  |  | $ | (91 | ) |  | $ | (403 | ) |  | $ | (330 | )
_______
(a) | Amounts for foreign currency translation adjustments and pension and other postretirement liability adjustments reflect the deferred losses recognized in income during the year ended December 31, 2018 related to the TMPL Sale.

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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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