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Financial and derivative instruments
 3 Months Ended
Mar. 31, 2021
Financial and derivative instruments
8.  Financial and derivative instruments
Financial instruments
The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At March 31, 2021 and December 31, 2020, the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.
Derivative instruments
The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivative instruments to manage commodity price risk. The company does not designate derivative instruments as a hedge for hedge accounting purposes.
Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.
The net notional long/(short) position of derivative instruments was:
 
(thousands of barrels)
    As at
March 31
2021
     As at
Dec 31
2020		  
Crude
   
 
220
 
     (800 ) 
Products
   
 
(560
) 
     (390 ) 
Realized and unrealized gain or (loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a
before-tax
basis:
 
    
    Three Months
    to March 31
  
millions of Canadian dollars
   
2021
     2020  
Revenues
   
 
-
 
     1  
Purchases of crude oil and products
   
 
(14
) 
     34  
Total
   
 
(14
) 
     35  
The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows:
 
millions of Canadian dollars
At March 31, 2021
  
     Fair value     
Effect of
counterparty
netting
    
Effect of
collateral
netting
    
Net
carrying
value
  
      Level 1      Level 2      Level 3      Total  
Assets
                                                             
Derivative assets
(a)
   
 
7
 
   
 
-
 
   
 
-
 
   
 
7
 
     
(2
)
 		    
(5
)
 		  
 
-
 
               
Liabilities
                                                             
Derivative liabilities
(b)
   
 
2
 
   
 
-
 
   
 
-
 
   
 
2
 
     
(2
)
 		  
 
-
 
  
 
-
 
(a)  Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”.
(b)  Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”.
 
 
 
 
millions of Canadian dollars
At December 31, 2020
  
     Fair value     
Effect of
counterparty
netting
    
Effect of
collateral
netting
    
Net
carrying
value
  
      Level 1      Level 2      Level 3      Total  
Assets
                                                             
Derivative assets
(a)
      2        -        -        2        (2 )      -       -  
               
Liabilities
                                                             
Derivative liabilities
(b)
      12        -        -        12        (2 )      (10 )      -  
(a)  Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”.
(b)  Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”.
 
 
 
At March 31, 2021 and December 31, 2020, respectively, the company had $14 million and $5 million of collateral under a master netting arrangement not offset against the
 
derivatives
 
on the Consolidated balance sheet in “Accounts receivable - net”, primarily related to initial margin requirements.