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Derivatives | 3 Months Ended
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Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives |
NOTE 5 - DERIVATIVES
OBJECTIVE AND STRATEGY Occidental uses a variety of derivative financial instruments and physical contracts to manage its exposure to commodity price fluctuations, interest rate risks and transportation commitments and to fix margins on the future sale of stored commodity volumes. Occidental also enters into derivative financial instruments for trading purposes. Occidental may elect normal purchases and normal sales exclusions when physically delivered commodities are purchased or sold to a customer. Occidental occasionally 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, such as to lock in rates on forecasted debt issuances. The value of cash flow hedges was insignificant at March 31, 2021 and December 31, 2020. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS As of March 31, 2021, Occidental’s derivatives not designated as hedges consist of oil call options, natural gas collars, interest rate swaps and marketing derivatives. Derivative instruments that are not designated as hedging instruments are required to be recorded on the balance sheet at fair value. Changes in fair value will impact Occidental’s earnings through mark-to-market adjustments until the physical commodity is delivered or the financial instrument is settled. The fair value does not reflect the ultimate realized cash value of the instrument at settlement. COLLARS AND OIL CALL OPTIONS Occidental's natural gas two-way collar derivative instruments settle in 2021 and were entered into to manage its near-term exposure to cash flow variability from natural gas price risk. Occidental's Brent-priced call options were entered into to enhance the upside of three-way collars that expired in 2020. Net gains and losses associated with collars and calls are recognized in net sales. Occidental had the following collars and calls outstanding at March 31, 2021:
Collars and Calls, not designated as hedges |
2021 Settlement - oil |
Call options sold (MMbbl) | 96.3 |
| Average price per barrel (Brent oil pricing) |
|  | Ceiling sold price (call) | $ | 74.16 |
2021 Settlement - natural gas |
Natural Gas Collars (millions of MMbtu) | 154.4 |
| Volume weighted-average price per MMbtu (NYMEX) |
|  | Ceiling sold price (call) | $ | 3.61 |
|  | Floor purchased price (put) | $ | 2.50 |
INTEREST RATE SWAPS Occidental's interest rate swap contracts lock in a fixed interest rate in exchange for a floating interest rate indexed to the three-month London InterBank Offered Rate (LIBOR) throughout the reference period. Net gains and losses associated with interest rate swaps are recognized currently in gains (losses) on interest rate swaps and warrants, net. Occidental had the following outstanding interest rate swaps at March 31, 2021:
millions, except percentages |  |  |  | Mandatory |  | Weighted-Average
Notional Principal Amount |  | Reference Period |  | Termination Date |  | Interest Rate
$ | 400 |  |  |  | September 2016 - 2046 |  | September 2021 |  | 6.348 | %
$ | 350 |  |  |  | September 2017 - 2047 |  | September 2021 |  | 6.662 | %
$ | 275 |  |  |  | September 2016 - 2046 |  | September 2022 |  | 6.709 | %
$ | 450 |  |  |  | September 2017 - 2047 |  | September 2023 |  | 6.445 | %
Depending on market conditions, liability management actions or other factors, Occidental may enter into offsetting interest rate swap positions or settle or amend certain or all of the currently outstanding interest rate swaps. Derivative settlements and collateralization are classified as cash flow from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. In the first quarter of 2021, net cash payments related to settlements of interest rate swap agreements were $47 million. Additionally, $92 million of collateral was returned. MARKETING DERIVATIVES Occidental's marketing derivative instruments not designated as hedges are short-duration physical and financial forward contracts. Marketing derivative instruments do not include the collars and call options discussed above. A substantial majority of Occidental's physically settled derivative contracts are index-based and carry no mark-to-market valuation in earnings. As of March 31, 2021, the weighted-average settlement price of these forward contracts was $58.84 per barrel and $2.51 per thousand cubic feet (Mcf) for crude oil and natural gas, respectively. The weighted-average settlement price was $46.05 per barrel and $2.58 per Mcf for crude oil and natural gas, respectively, at December 31, 2020. Net gains and losses associated with marketing derivative instruments not designated as hedging instruments are recognized currently in net sales. The following table summarizes net short volumes associated with the outstanding marketing commodity derivatives not designated as hedging instruments.
|  | March 31, 2021 |  | December 31, 2020
Oil Commodity Contracts |  |  |  |
Volume (MMbbl) |  | (28) |  |  | (31) |
Natural gas commodity contracts |  |  |  |
Volume (Bcf) |  | (130) |  |  | (117) |
FAIR VALUE OF DERIVATIVES The following tables present the fair values of Occidental’s outstanding derivatives. Fair values are presented at gross amounts below, including when the derivatives are subject to master netting arrangements, and are presented on a net basis in the consolidated condensed balance sheets.
millions | Fair Value Measurements Using |  | Netting (a) |  | Total Fair Value
Balance Sheet Classifications | Level 1 |  | Level 2 |  | Level 3 |  |
March 31, 2021 |  |  |  |  |  |  |  |  |
Collars and Call Options |  |  |  |  |  |  |  |  |
Other current assets | $ | — |  |  | $ | 8 |  |  | $ | — |  |  | $ | — |  |  | $ | 8 |
Accrued liabilities | — |  |  | (98) |  |  | — |  |  | — |  |  | (98) |
Marketing Derivatives |  |  |  |  |  |  |  |  |
Other current assets | 1,649 |  |  | 136 |  |  | — |  |  | (1,732) |  |  | 53 |
Long-term receivables and other assets, net | 38 |  |  | 2 |  |  | — |  |  | (38) |  |  | 2 |
Accrued liabilities | (1,861) |  |  | (94) |  |  | — |  |  | 1,732 |  |  | (223) |
Deferred credits and other liabilities - other | (38) |  |  | — |  |  | — |  |  | 38 |  |  | — |
Interest Rate Swaps |  |  |  |  |  |  |  |  |
Accrued liabilities | — |  |  | (708) |  |  | — |  |  | — |  |  | (708) |
Deferred credits and other liabilities - other | — |  |  | (604) |  |  | — |  |  | — |  |  | (604) |
December 31, 2020 |  |  |  |  |  |  |  |  |
Collars and Call Options |  |  |  |  |  |  |  |  |
Other current assets | $ | — |  |  | $ | 25 |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |
Accrued liabilities | — |  |  | (42) |  |  | — |  |  | — |  |  | (42) |
Marketing Derivatives |  |  |  |  |  |  |  |  |
Other current assets | 1,155 |  |  | 80 |  |  | — |  |  | (1,204) |  |  | 31 |
Long-term receivables and other assets, net | 7 |  |  | 2 |  |  | — |  |  | (7) |  |  | 2 |
Accrued liabilities | (1,252) |  |  | (81) |  |  | — |  |  | 1,204 |  |  | (129) |
Deferred credits and other liabilities - other | (7) |  |  | — |  |  | — |  |  | 7 |  |  | — |
Interest Rate Swaps |  |  |  |  |  |  |  |  |
Accrued liabilities | — |  |  | (936) |  |  | — |  |  | — |  |  | (936) |
Deferred credits and other liabilities - other | — |  |  | (822) |  |  | — |  |  | — |  |  | (822) |
(a)These amounts do not include collateral. As of March 31, 2021 and December 31, 2020, $282 million and $374 million of collateral related to interest rate swaps had been netted against derivative liabilities, respectively. Occidental had $202 million and $85 million of initial margin related to marketing derivatives deposited with brokers as of March 31, 2021 and December 31, 2020, respectively. GAINS AND LOSSES ON DERIVATIVES The following table presents the effect of Occidental's derivative instruments on the consolidated condensed statements of operations:
millions |  | Three months ended March 31,
Income Statement Classification |  | 2021 |  | 2020
Collars and Calls |  |  |  |
Net sales |  | $ | (72) |  |  | $ | 952 |
Marketing Derivatives |  |  |  |
Net sales (a) |  | 180 |  |  | 410 |
Interest Rate Swaps |  |  |  |
Gains (losses) on interest rate swaps and warrants, net |  | 399 |  |  | (669) |
Other (b) |  |  |  |
Gains (losses) on interest rate swaps and warrants, net |  | $ | — |  |  | $ | 84 |
(a) Includes derivative and non-derivative marketing activity. (b) Includes gains on warrants which were reclassified to equity on May 29, 2020. 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 over-the-counter 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 party would need to post. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed at March 31, 2021, was $210 million (net of $282 million of collateral), primarily related to interest rate swaps. The aggregate fair value of derivative instruments with credit-risk-contingent features for which a net liability position existed at December 31, 2020, was $104 million (net of $374 million of collateral)

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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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