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DERIVATIVES | 12 Months Ended
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Dec. 31, 2017
DERIVATIVES |
DERIVATIVES |
NOTE 7 DERIVATIVES
Objective & Strategy Occidental uses a variety of derivative financial instruments and physical contracts, including those designated as cash flow hedges, to manage its exposure to commodity price fluctuations, transportation commitments and to fix margins on the future sale of stored volumes of oil and natural gas. Where Occidental buys product for its own consumption or sells its production to a defined customer, Occidental may elect normal purchases and normal sales exclusions. Occidental usually applies cash flow hedge accounting treatment to derivative financial instruments to lock in margins on the forecasted sales of its natural gas storage volumes, and at times for other strategies to lock in margins. Occidental also enters into derivative financial instruments for speculative or trading purposes; however, the results of any transactions are immaterial to the marketing portfolio. Refer to Note 1 for Occidental’s accounting policy on derivatives. The financial instruments, not designated as hedges, will impact Occidental’s earnings through mark-to-market until the offsetting future physical commodity is delivered. Physical inventory is carried at lower of cost or market on the balance sheet. A substantial majority of Occidental’s physical derivative contracts are index-based and carry no mark-to-market value in earnings. Net gains and losses associated with derivative instruments not designated as hedging instruments are recognized currently in net sales. Net gains and losses attributable to derivatives instruments subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings. Cash-Flow Hedges Occidental’s marketing operations store natural gas purchased from third parties at Occidental’s leased storage facilities. Derivative instruments are used to fix margins on the future sales of the stored volumes. These agreements continue through 2017. As of December 31, 2017, and 2016, Occidental had approximately 7 billion cubic feet (Bcf) of natural gas held in storage, and had cash-flow hedges for the forecasted sales, to be settled by physical delivery, of approximately 7 Bcf of stored natural gas. The amount of cash-flow hedges, including the ineffective portion, was immaterial for the years ended December 31, 2017 and 2016. Derivatives Not Designated as Hedging Instruments The following table summarizes the amounts reported in net sales related to the outstanding commodity derivative instruments not designated as hedging instruments as of December 31, 2017, and 2016:
As of December 31, (in millions, except Long/(Short) volumes) |  | 2017 |  | 2016
Unrealized gain (loss) on derivatives not designated as hedges |  |  |  |
Oil commodity contracts |  | $ | (47) |  | $ | (5)
Natural gas commodity contracts |  | $ | 1 |  | $ | 1
Outstanding net volumes on derivatives not designated as hedges |  |  |  |
Oil Commodity Contracts |  |  |  |
Volume (MMBOE) |  | 61 |  | 67
Price Per Bbl |  | $ | 57.38 |  | $ | 53.86
Natural gas commodity contracts |  |  |  |
Volume (Bcf) |  | (47) |  | (12)
Price Per MMBTU |  | $ | 2.73 |  | $ | 3.19
Fair Value of Derivatives Occidental has categorized its assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 - using quoted prices in active markets for the assets or liabilities; Level 2 - using observable inputs other than quoted prices for the assets or liabilities; and Level 3 - using unobservable inputs. Transfers between levels, if any, are reported at the end of each reporting period. The following summarizes the fair value of the Company’s derivative assets and liabilities by input level within the fair-value hierarchy:
As of December 31, 2017 |  |  |  | Fair Value Measurements Using |  | Netting (b) |  | Total Fair Value
(in millions) |  | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3 |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash-flow hedges (a) |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | — |  | 3 |  | — |  | — |  | 3
Derivatives not designated as hedging instruments (a) |  |  |  |  |  |  |  |  |  |
|  | Other current assets |  | 485 |  | 227 |  | — |  | (517) |  | 195
Commodity contracts |  | Long-term receivables and other assets, net |  | 1 |  | 2 |  | — |  | (1) |  | 2
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments (a) |  |  |  |  |  |  |  |  |  |
|  | Accrued liabilities |  | 535 |  | 222 |  | — |  | (517) |  | 240
Commodity contracts |  | Deferred credits and liabilities |  | 1 |  | 3 |  | — |  | (1) |  | 3
| (a) |  | Fair values are presented at gross amounts, including when the derivatives are subject to netting arrangements and presented on a net basis in the consolidated balance sheets.
| (b) |  | These amounts do not include collateral. As of December 31, 2017, no collateral received has been netted against derivative assets and collateral paid of $54 million has been netted against derivative liabilities. Select clearinghouses and brokers require Occidental to post an initial margin deposit. Collateral, mainly for initial margin, of $53 million as of December 31, 2017, deposited by Occidental, has not been reflected in these derivative fair value tables. This collateral is included in other current assets in the consolidated balance sheets.
As of December 31, 2016 |  |  |  | Fair Value Measurements Using |  | Netting (b) |  | Total Fair Value
(in millions) |  | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3 |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash-flow hedges (a) |  |  |  |  |  |  |  |  |  |  |  |
|  | Other current assets |  | — |  | 1 |  | — |  | — |  | 1
Commodity contracts |  | Long-term receivables and other assets, net |  | — |  | — |  | — |  | — |  | —
Derivatives not designated as hedging instruments (a) |  |  |  |  |  |  |  |  |  |
|  | Other current assets |  | 166 |  | 57 |  | — |  | (196) |  | 27
Commodity contracts |  | Long-term receivables and other assets, net |  | 2 |  | 3 |  | — |  | (2) |  | 3
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Cash-flow hedges (a) |  |  |  |  |  |  |  |  |  |  |  |
|  | Accrued liabilities |  | — |  | 6 |  | — |  | — |  | 6
Commodity contracts |  | Deferred credits and liabilities |  | — |  | — |  | — |  | — |  | —
Derivatives not designated as hedging instruments (a) |  |  |  |  |  |  |  |  |  |
|  | Accrued liabilities |  | 172 |  | 51 |  | — |  | (196) |  | 27
Commodity contracts |  | Deferred credits and liabilities |  | 1 |  | 6 |  | — |  | (2) |  | 5
| (a) |  | Fair values are presented at gross amounts, including when the derivatives are subject to netting arrangements and presented on a net basis in the consolidated balance sheets.
| (b) |  | These amounts do not include collateral. As of December 31, 2016, collateral received of $4 million has been netted against derivative assets and collateral paid of $13 million has been netted against derivative liabilities. Select clearinghouses and brokers require Occidental to post an initial margin deposit. Collateral, mainly for initial margin, of $25 million as of December 31, 2016, deposited by Occidental, has not been reflected in these derivative fair value tables. This collateral is included in other current assets in the consolidated balance sheets.
Credit Risk The majority of Occidental’s counterparty credit risk is related to the physical delivery of energy commodities to its customers and their inability to meet their settlement commitments. Occidental manages credit risk by selecting counterparties that it believes to be financially strong, by entering into netting arrangements with counterparties and by requiring collateral or other credit risk mitigants, as appropriate. Occidental actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits, and monitors credit exposures against those assigned limits. Occidental also enters into future contracts through regulated exchanges with select clearinghouses and brokers, which are subject to minimal credit risk as a significant portion of these transactions settle on a daily margin basis. Certain of Occidental’s OTC derivative instruments contain credit-risk-contingent features, primarily tied to credit ratings for Occidental or its counterparties, which may affect the amount of collateral that each would need to post. Occidental believes that if it had received a one-notch reduction in its credit ratings, it would not have resulted in a material change in its collateral-posting requirements as of December 31, 2017, and 2016. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed was immaterial for both December 31, 2017, and December 31, 2016.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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