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Financial and derivative instruments | 3 Months Ended
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Mar. 31, 2022
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, 2022 and December 31, 2021, 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 and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Consolidated statement of income on a net basis in the line “Revenues”. 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:
|  | As at Mar 31 |  |  | As at Dec 31 |
thousands of barrels |  | 2022 |  |  | 2021 |
Crude |  |  | (620 | ) |  |  | 7,390 |
Products |  |  | (70 | ) |  |  | (560 | )
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 |  | 2022 |  |  | 2021 |
Revenues |  |  | 37 |  |  |  | - |
Purchases of crude oil and products |  |  | - |  |  |  | (14 | )
Total |  |  | 37 |  |  |  | (14 | )
The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows:
At March 31, 2022
millions of Canadian dollars
|  | Fair value |  |  | Effect of |  |  | Effect of |  |  | Net |
|  |  |  |  |  |  |  |  |  |  |  |  |  | counterparty |  |  | collateral |  |  | carrying |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | netting |  |  | netting |  |  | value |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets (a) |  |  | 48 |  |  |  | 18 |  |  |  | - |  |  |  | 66 |  |  |  | (59 | ) |  |  | - |  |  |  | 7 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities (b) |  |  | 53 |  |  |  | 25 |  |  |  | - |  |  |  | 78 |  |  |  | (59 | ) |  |  | (4 | ) |  |  | 15 |
(a) | Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable—net” and “Other assets, including intangibles - net”.
(b) | Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.
At December 31, 2021 |
millions of Canadian dollars |
|  | Fair value |  |  | Effect of |  |  | Effect of |  |  | Net |
|  |  |  |  |  |  |  |  |  |  |  |  |  | counterparty |  |  | collateral |  |  | carrying |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | netting |  |  | netting |  |  | value |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets (a) |  |  | 24 |  |  |  | 17 |  |  |  | - |  |  |  | 41 |  |  |  | (31 | ) |  |  | - |  |  |  | 10 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities (b) |  |  | 31 |  |  |  | 12 |  |  |  | - |  |  |  | 43 |  |  |  | (31 | ) |  |  | (7 | ) |  |  | 5 |
(a) | Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable - net” and “Other assets, including intangibles - net”.
(b) | Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.
At March 31, 2022 and December 31, 2021, the company had $47 million and $6 million, respectively, 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.

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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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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