Derivatives

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]


NOTE 6 - 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 debt issuances. 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, 2022, Occidental’s derivatives not designated as hedges consisted of 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 realized or cash value of the instrument.

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 throughout the reference period. Net gains and losses associated with interest rate swaps are recognized currently in gains on interest rate swaps, net in the Consolidated Condensed Statements of Operations.

Occidental had the following outstanding interest rate swaps as of March 31, 2022:


millions, except percentages			Mandatory	Weighted-Average
Notional Principal Amount		Reference Period	Termination Date	Interest Rate
$	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 as well as amend or settle 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 2022, net cash payments related to settlements of interest rate swap agreements were $23 million. Additionally, $102 million of collateral was returned.

MARKETING DERIVATIVES

Occidental's marketing derivative instruments not designated as hedges are short-duration physical and financial forward contracts. 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, 2022, the weighted-average settlement price of these forward contracts was $96.63 per barrel and $5.15 per Mcf for crude oil and natural gas, respectively. The weighted-average settlement price was $74.85 per barrel and $4.61 per Mcf for crude oil and natural gas, respectively, as of December 31, 2021. 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, 2022	December 31, 2021
Oil commodity contracts
Volume (MMbbl)	(23)	(28)
Natural gas commodity contracts
Volume (Bcf)	(111)	(136)

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 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, 2022
Marketing Derivatives
Other current assets	$	3,486	$	323	$	—	$	(3,708)	$	101
Long-term receivables and other assets, net	71		1		—		(71)		1
Accrued liabilities	(3,796)		(264)		—		3,708		(352)
Deferred credits and other liabilities - other	(73)		—		—		71		(2)
Interest Rate Swaps


Accrued liabilities	—		(250)		—		—		(250)
Deferred credits and other liabilities - other	—		(343)		—		—		(343)

December 31, 2021
Marketing Derivatives
Other current assets	$	1,516	$	173	$	—	$	(1,645)	$	44
Long-term receivables and other assets, net	4		1		—		(4)		1
Accrued liabilities	(1,608)		(196)		—		1,645		(159)
Deferred credits and other liabilities - other	(4)		—		—		4		—
Interest Rate Swaps


Accrued liabilities	—		(315)		—		—		(315)
Deferred credits and other liabilities - other	—		(436)		—		—		(436)

(a)These amounts do not include collateral. As of March 31, 2022 and December 31, 2021, $221 million and $323 million of collateral related to interest rate swaps had been netted against derivative liabilities, respectively. Occidental netted $296 million and $110 million of collateral deposited with brokers against derivative liabilities related to marketing derivatives as of March 31, 2022 and December 31, 2021, respectively.

GAINS AND LOSSES ON DERIVATIVES

The following table presents gains and (losses) related to Occidental's derivative instruments on the Consolidated Condensed Statements of Operations:


millions	Three months ended March 31,
Income Statement Classification	2022		2021

Collars and Calls
Net sales (a)	$	—	$	(72)
Marketing Derivatives
Net sales (b)	$	135	$	180
Interest Rate Swaps
Gains on interest rate swaps, net	$	135	$	399

(a) All of Occidental's calls and collars expired on or before December 31, 2021.

(b) Includes derivative and non-derivative marketing activity.

CREDIT RISK

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 as of March 31, 2022, was $34 million (net of $221 million of collateral), which was 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 as of December 31, 2021, was $107 million (net of $323 million of collateral), which was primarily related to interest rate swaps.