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Risk Management (Notes) | 6 Months Ended
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Jun. 30, 2020
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 some of these risks. During the three months ended March 31, 2020, we entered into a floating-to-fixed interest rate swap agreement with a notional principal amount of $2,500 million, which was not designated as an accounting hedge. These agreements effectively fixed our LIBOR exposure for a portion of our fixed to floating rate interest rate swaps through 2020. Energy Commodity Price Risk Management As of June 30, 2020, 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 | (21.5) |  |  | MMBbl
Crude oil basis | (4.1) |  |  | MMBbl
Natural gas fixed price | (42.9) |  |  | Bcf
Natural gas basis | (43.0) |  |  | Bcf
NGL fixed price | (1.1) |  |  | MMBbl
Derivatives not designated as hedging contracts |  |  |
Crude oil fixed price | (3.0) |  |  | MMBbl
Crude oil basis | (1.7) |  |  | MMBbl
Natural gas fixed price | (10.7) |  |  | Bcf
Natural gas basis | 16.1 |  |  | Bcf
NGL fixed price | (1.7) |  |  | MMBbl
As of June 30, 2020, 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 2024. Interest Rate Risk Management We utilize interest rate derivatives to hedge our exposure to both changes in the fair value of our fixed rate debt instruments and variability in expected future cash flows attributable to variable interest rate payments. The following table summarizes our outstanding interest rate contracts as of June 30, 2020:
|  | Notional amount |  |  | Accounting treatment |  |  | Maximum term |  |
|  | (In millions) |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Fixed-to-variable interest rate contracts(a) |  | $ | 8,025 |  |  |  | Fair value hedge |  |  | March 2035 |  |
Variable-to-fixed interest rate contracts |  | 250 |  |  |  | Cash flow hedge |  |  | January 2023 |  |
Variable-to-fixed interest rate contracts |  | 2,500 |  |  |  | Mark-to-Market |  |  | December 2020 |  |
_______ (a)The principal amount of hedged senior notes consisted of $1,300 million included in “Current portion of debt” and $6,725 million included in “Long-term debt” on our accompanying consolidated balance sheet. Foreign Currency Risk Management We utilize foreign currency derivatives to hedge our exposure to variability in foreign exchange rates. The following table summarizes our outstanding foreign currency contracts as of June 30, 2020:
|  | Notional amount |  |  | Accounting treatment |  |  | Maximum term |  |
|  | (In millions) |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
EUR-to-USD cross currency swap contracts(a) |  | $ | 1,358 |  |  |  | Cash flow hedge |  |  | March 2027 |  |
_______ (a)These swaps eliminate the foreign currency risk associated with our Euro-denominated debt. The following table summarizes the fair values of our derivative contracts included in our accompanying consolidated balance sheets:
Fair Value of Derivative Contracts |  |  |  |  |  |  |  |  |  |
|  |  |  | Derivatives Asset |  |  |  | Derivatives Liability |  |
|  |  |  | June 30, 2020 |  | December 31, 2019 |  | June 30, 2020 |  | December 31, 2019
|  | Location |  | Fair value |  |  |  | Fair value |  |
|  |  |  | (In millions) |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | $ | 150 |  |  | $ | 31 |  |  | $ | (17) |  |  | $ | (43) |
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 92 |  |  | 17 |  |  | (2) |  |  | (8) |
Subtotal |  |  |  | 242 |  |  | 48 |  |  | (19) |  |  | (51) |
Interest rate contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | 128 |  |  | 45 |  |  | (3) |  |  | — |
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 690 |  |  | 313 |  |  | (9) |  |  | (1) |
Subtotal |  |  |  | 818 |  |  | 358 |  |  | (12) |  |  | (1) |
Foreign currency contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | — |  |  | — |  |  | (22) |  |  | (6) |
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 22 |  |  | 46 |  |  | (14) |  |  | — |
Subtotal |  |  |  | 22 |  |  | 46 |  |  | (36) |  |  | (6) |
Total |  |  |  | 1,082 |  |  | 452 |  |  | (67) |  |  | (58) |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | 16 |  |  | 8 |  |  | (5) |  |  | (7) |
|  | Deferred charges and other assets/(Other long-term liabilities and deferred credits) |  | 4 |  |  | — |  |  | (1) |  |  | — |
Subtotal |  |  |  | 20 |  |  | 8 |  |  | (6) |  |  | (7) |
Interest rate contracts |  | Fair value of derivative contracts/(Other current liabilities) |  | — |  |  | — |  |  | (6) |  |  | — |
Subtotal |  |  |  | — |  |  | — |  |  | (6) |  |  | — |
Total |  |  |  | 20 |  |  | 8 |  |  | (12) |  |  | (7) |
Total derivatives |  |  |  | $ | 1,102 |  |  | $ | 460 |  |  | $ | (79) |  |  | $ | (65) |
The following two tables summarize the fair value measurements of our derivative contracts based on the three levels established by the ASC. The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements.
| Balance sheet asset fair value measurements by level |  |  |  |  |  |  |  |  |  |  |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Gross amount |  | Contracts available for netting |  | Cash collateral held(b) |  | Net amount
| (In millions) |  |  |  |  |  |  |  |  |  |  |  |
As of June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts(a) | $ | 12 |  |  | $ | 250 |  |  | $ | — |  |  | $ | 262 |  |  | $ | (22) |  |  | $ | (7) |  |  | $ | 233 |
Interest rate contracts | — |  |  | 818 |  |  | — |  |  | 818 |  |  | (2) |  |  | — |  |  | 816 |
Foreign currency contracts | — |  |  | 22 |  |  | — |  |  | 22 |  |  | (14) |  |  | — |  |  | 8 |
As of December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts(a) | $ | 19 |  |  | $ | 37 |  |  | $ | — |  |  | $ | 56 |  |  | $ | (19) |  |  | $ | (21) |  |  | $ | 16 |
Interest rate contracts | — |  |  | 358 |  |  | — |  |  | 358 |  |  | — |  |  | — |  |  | 358 |
Foreign currency contracts | — |  |  | 46 |  |  | — |  |  | 46 |  |  | (6) |  |  | — |  |  | 40 |
| Balance sheet liability fair value measurements by level |  |  |  |  |  |  |  |  |  |  |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Gross amount |  | Contracts available for netting |  | Cash collateral posted(b) |  | Net amount
| (In millions) |  |  |  |  |  |  |  |  |  |  |  |
As of June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts(a) | $ | (16) |  |  | $ | (9) |  |  | $ | — |  |  | $ | (25) |  |  | $ | 22 |  |  | $ | — |  |  | $ | (3) |
Interest rate contracts | — |  |  | (18) |  |  | — |  |  | (18) |  |  | 2 |  |  | — |  |  | (16) |
Foreign currency contracts | — |  |  | (36) |  |  | — |  |  | (36) |  |  | 14 |  |  | — |  |  | (22) |
As of December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |
Energy commodity derivative contracts(a) | $ | (3) |  |  | $ | (55) |  |  | $ | — |  |  | $ | (58) |  |  | $ | 19 |  |  | $ | — |  |  | $ | (39) |
Interest rate contracts | — |  |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Foreign currency contracts | — |  |  | (6) |  |  | — |  |  | (6) |  |  | 6 |  |  | — |  |  | — |
_______ (a)Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps, NGL swaps and crude oil basis swaps. (b)Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amount associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts or those that are determined solely on their volumetric notional amounts are excluded from this table. The following tables summarize the pre-tax impact of our derivative contracts in our accompanying consolidated statements of operations and comprehensive (loss) income:
Derivatives in fair value hedging relationships |  | Location |  | Gain/(loss) recognized in income on derivative and related hedged item |  |  |  |  |  |
|  |  |  | Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
|  |  |  | 2020 |  | 2019 |  | 2020 |  | 2019
|  |  |  | (In millions) |  |  |  |  |  |
Interest rate contracts |  | Interest, net |  | $ | 26 |  |  | $ | 208 |  |  | $ | 459 |  |  | $ | 336 |
Hedged fixed rate debt(a) |  | Interest, net |  | $ | (28) |  |  | $ | (211) |  |  | $ | (468) |  |  | $ | (349) |
_______ (a)As of June 30, 2020, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was an increase of $827 million included in “Debt fair value adjustments” on our accompanying consolidated balance sheet.
Derivatives in cash flow hedging relationships |  | Gain/(loss) recognized in OCI on derivative(a) |  |  |  | Location |  | Gain/(loss) reclassified from Accumulated OCI into income(b) |  |
|  | Three Months Ended June 30, |  |  |  |  |  | Three Months Ended June 30, |  |
|  | 2020 |  | 2019 |  |  |  | 2020 |  | 2019
|  | (In millions) |  |  |  |  |  |  |  |
Energy commodity derivative contracts |  | $ | (273) |  |  | $ | 75 |  |  | Revenues—Commodity sales |  | $ | (84) |  |  | $ | (7) |
|  |  |  |  |  | Costs of sales |  | (2) |  |  | 10 |
Interest rate contracts |  | (1) |  |  | (1) |  |  | Earnings from equity investments(c) |  | — |  |  | 2 |
Foreign currency contracts |  | 28 |  |  | 8 |  |  | Other, net |  | 25 |  |  | 19 |
Total |  | $ | (246) |  |  | $ | 82 |  |  | Total |  | $ | (61) |  |  | $ | 24 |
Derivatives in cash flow hedging relationships |  | Gain/(loss) recognized in OCI on derivative(a) |  |  |  | Location |  | Gain/(loss) reclassified from Accumulated OCI into income(b) |  |
|  | Six Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |
|  | 2020 |  | 2019 |  |  |  | 2020 |  | 2019
|  | (In millions) |  |  |  |  |  |  |  |
Energy commodity derivative contracts |  | $ | 114 |  |  | $ | (170) |  |  | Revenues—Commodity sales |  | $ | (98) |  |  | $ | 6 |
|  |  |  |  |  | Costs of sales |  | (5) |  |  | 11 |
Interest rate contracts |  | (9) |  |  | (1) |  |  | Earnings from equity investments(c) |  | — |  |  | 2 |
Foreign currency contracts |  | (53) |  |  | (26) |  |  | Other, net |  | 3 |  |  | (12) |
Total |  | $ | 52 |  |  | $ | (197) |  |  | Total |  | $ | (100) |  |  | $ | 7 |
_______ (a)We expect to reclassify an approximate $116 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of June 30, 2020 into earnings during the next twelve months (when the associated forecasted transactions are also expected to impact earnings); however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices. (b)During the three months ended June 30, 2019, we recognized a $12 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 |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |  |  |  |  |  |  |
|  | 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |  |  |
|  | (In millions) |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | — |  |  | $ | (8) |  |  | $ | — |  |  | $ | (8) |  |  |  |  |  |  |
Total |  | $ | — |  |  | $ | (8) |  |  | $ | — |  |  | $ | (8) |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  | Location |  | Gain/(loss) recognized in income on derivatives |  |  |  |  |  |
|  |  |  | Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
|  |  |  | 2020 |  | 2019 |  | 2020 |  | 2019
|  |  |  | (In millions) |  |  |  |  |  |
Energy commodity derivative contracts |  | Revenues—Commodity sales |  | $ | 149 |  |  | $ | 14 |  |  | $ | 266 |  |  | $ | 24 |
|  | Costs of sales |  | 2 |  |  | (1) |  |  | 6 |  |  | (3) |
|  | Earnings from equity investments(b) |  | — |  |  | 2 |  |  | — |  |  | 2 |
Total(a) |  |  |  | $ | 151 |  |  | $ | 15 |  |  | $ | 272 |  |  | $ | 23 |
_______ (a)The three and six months ended June 30, 2020 include approximate gains of $179 million and $253 million, respectively, and the three and six months ended June 30, 2019 include an approximate loss of $6 million and gain of $2 million, respectively. These gains and losses were associated with natural gas, crude and NGL derivative contract settlements. (b)Amounts represent our share of an equity investee’s income (loss). 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, 2020 and December 31, 2019, we had no outstanding letters of credit supporting our commodity price risk management program. As of June 30, 2020 and December 31, 2019, we had cash margins of $8 million and $15 million, respectively, posted by our counterparties with us as collateral and reported within “Other current liabilities” on our accompanying consolidated balance sheets. The balance at June 30, 2020 represents the net of our initial margin requirements of $15 million, offset by counterparty variation margin requirements of $7 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 June 30, 2020, 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.

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