XML 38 R22.htm IDEA: XBRL DOCUMENT

Risk Management (Notes)

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

14. 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.

Energy Commodity Price Risk Management

As of December 31, 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	(20.4)	MMBbl
Crude oil basis	(2.2)	MMBbl
Natural gas fixed price	(30.1)	Bcf
Natural gas basis	(20.0)	Bcf
NGL fixed price	(1.1)	MMBbl
Derivatives not designated as hedging contracts
Crude oil fixed price	(5.6)	MMBbl
Crude oil basis	(6.8)	MMBbl
Natural gas fixed price	(6.7)	Bcf
Natural gas basis	(5.5)	Bcf
NGL fixed price	(1.0)	MMBbl

As of December 31, 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 December 31, 2020:

Notional amount

Accounting treatment

Maximum term

(In millions)

Derivatives designated as hedging instruments

Fixed-to-variable interest rate contracts(a)

7,625

Fair value hedge

March 2035

Variable-to-fixed interest rate contracts

250

Cash flow hedge

January 2023

Derivatives not designated as hedging instruments

Variable-to-fixed interest rate contracts

2,500

Mark-to-Market

December 2021

(a)The principal amount of hedged senior notes consisted of $900 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 December 31, 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 all of our Euro-denominated debt.

Impact of Derivative Contracts on Our Consolidated Financial Statements

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
		December 31,				December 31,
		2020		2019		2020		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)	$	42	$	31	$	(33)	$	(43)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	33		17		(8)		(8)
Subtotal		75		48		(41)		(51)
Interest rate contracts	Fair value of derivative contracts/(Other current liabilities)	119		45		(3)		—
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	575		313		(7)		(1)
Subtotal		694		358		(10)		(1)
Foreign currency contracts	Fair value of derivative contracts/(Other current liabilities)	—		—		(6)		(6)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	138		46		—		—
Subtotal		138		46		(6)		(6)
Total		907		452		(57)		(58)
Derivatives not designated as hedging instruments
Energy commodity derivative contracts	Fair value of derivative contracts/(Other current liabilities)	24		8		(21)		(7)









Total derivatives		$	931	$	460	$	(78)	$	(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 December 31, 2020
Energy commodity derivative contracts(a)	$	6	$	93	$	—	$	99	$	(35)	$	—	$	64
Interest rate contracts	—		694		—		694		(2)		—		692
Foreign currency contracts	—		138		—		138		(6)		—		132
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 December 31, 2020
Energy commodity derivative contracts(a)	$	(7)	$	(56)	$	—	$	(63)	$	35	$	(8)	$	(36)
Interest rate contracts	—		(10)		—		(10)		2		—		(8)
Foreign currency contracts	—		(6)		—		(6)		6		—		—
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 income and comprehensive income:


Derivatives in fair value hedging relationships	Location	Gain/(loss) recognized in income on derivatives and related hedged item
		Year Ended December 31,
		2020		2019		2018
		(In millions)
Interest rate contracts	Interest, net	$	335	$	340	$	(122)

Hedged fixed rate debt(a)	Interest, net	$	(343)	$	(353)	$	113

(a)As of December 31, 2020, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was an increase of $702 million included in “Debt fair value adjustments” on our accompanying consolidated balance sheets.


Derivatives in cash flow hedging relationships	Gain/(loss) recognized in OCI on derivative(a)						Location	Gain/(loss) reclassified from Accumulated OCI into income(b)
	Year Ended							Year Ended
	December 31,							December 31,
	2020		2019		2018			2020		2019		2018
	(In millions)							(In millions)
Energy commodity derivative contracts	$	240	$	(168)	$	201	Revenues—Commodity sales	$	222	$	16	$	(59)

							Costs of sales	(14)		5		21
Interest rate contracts(c)	(8)		(1)		3		Earnings from equity investments(c)	—		2		(4)
Foreign currency contracts	92		(60)		(59)		Other, net	125		(31)		(67)
Total	$	324	$	(229)	$	145	Total	$	333	$	(8)	$	(109)

(a)We expect to reclassify an approximate $9 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of December 31, 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 year ended December 31, 2019, we recognized a $12 million gain associated with a write-down of hedged inventory. 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						Location	Gain/(loss) reclassified from Accumulated OCI into income(a)
	Year Ended							Year Ended
	December 31,							December 31,
	2020		2019		2018			2020		2019		2018
	(In millions)							(In millions)
Foreign currency contracts	$	—	$	(8)	$	91	Loss (gain) on impairments and divestitures, net	$	—	$	83	$	26
Total	$	—	$	(8)	$	91	Total	$	—	$	83	$	26

(a)During the year ended December 31, 2019, we recognized an $83 million gain related to the KML and U.S. Cochin Sale. During the year ended December 31, 2018, we recognized a $26 million gain related to the TMPL Sale. See Note 4.


Derivatives not designated as accounting hedges	Location	Gain/(Loss) recognized in income on derivatives
		Year Ended December 31,
		2020		2019		2018
		(In millions)
Energy commodity derivative contracts	Revenues—Commodity sales	$	(1)	$	33	$	(9)

	Costs of sales	25		(7)		2
	Earnings from equity investments(b)	—		3		—

Total(a)		$	24	$	29	$	(7)

(a) The years ended December 31, 2020, 2019 and 2018 include approximate gains of $11 million and losses of $8 million and $4 million, respectively, 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 December 31, 2020 and 2019, we had no outstanding letters of credit supporting our commodity price risk management program. As of December 31, 2020 and 2019, we had cash margins of $3 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 December 31, 2020 represents the net of our initial margin requirements of $11 million, offset by counterparty variation margin requirements of $8 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, 2020, based on our current mark-to- market positions and posted collateral, we estimate that if our credit rating were downgraded one notch, we would not be required to post additional collateral. If we were downgraded two notches, we estimate that we would be required to post $6 million of additional collateral.