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RISK MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
RISK MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES | RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES Risk-management Activities - We are sensitive to changes in natural gas, NGLs and crude oil prices, principally as a result of contractual terms under which these commodities are processed, purchased and sold. As a result of the Magellan Acquisition, we are also sensitive to changes in Refined Product prices. We are also subject to the risk of interest-rate fluctuation in the normal course of business. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, NGLs, Refined Products, condensate and crude oil purchases and sales; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. We follow established policies and procedures to assess risk and approve, monitor and report our risk-management activities. We have not used these instruments for trading purposes. Commodity price risk - Commodity price risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs, Refined Products, condensate and crude oil. We may use commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of our forecasted purchases and sales of commodities. In our Refined Products and Crude segment, we implemented effective hedging strategies for a substantial portion of the segment’s commodity derivative financial instruments that qualify as cash flow hedges for accounting purposes. Changes in the fair value of commodity derivative instruments not designated as a hedge were immaterial for the period September 25, 2023, through September 30, 2023, and are recorded currently in earnings. Interest-rate risk - We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt, Treasury locks and interest-rate swaps. Treasury locks are agreements to pay the difference between the benchmark Treasury rate and the rate that is designated in the terms of the agreement. In the second quarter 2023, we entered into $1.1 billion of Treasury locks to hedge the variability of interest payments on a portion of our forecasted debt issuances. In the third quarter 2023, we settled all of our $1.1 billion Treasury locks related to our underwritten public offering of $5.25 billion senior unsecured notes associated with the Magellan Acquisition resulting in a gain of $43 million, which is included in accumulated other comprehensive loss and amortized into interest expense over the term of the related debt. All of our Treasury locks were designated as cash flow hedges. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts. In the third quarter 2023, we settled all of our $0.4 billion forward-starting interest-rate swaps related to our underwritten public offerings of $5.25 billion senior unsecured notes associated with the Magellan Acquisition resulting in a gain of $44 million, which is included in accumulated other comprehensive loss and amortized into interest expense over the term of the related debt. All of our interest-rate swaps were designated as cash flow hedges. Fair Values of Derivative Instruments - The following table sets forth the fair values of our derivative instruments presented on a gross basis as of the dates indicated:
|  |  | September 30, 2023 |  | December 31, 2022
| Location in our Consolidated Balance Sheets |  | Assets |  | (Liabilities) |  | Assets |  | (Liabilities)
Derivatives designated as hedging instruments |  | (Millions of dollars)
Commodity contracts (a) | Other current assets |  | $ | 104 |  |  | $ | (79) |  |  | $ | 160 |  |  | $ | (123) |
| Other assets |  | — |  |  | — |  |  | 6 |  |  | (1) |
Interest-rate contracts | Other current assets |  | — |  |  | — |  |  | 11 |  |  | — |
Total derivatives designated as hedging instruments |  | 104 |  |  | (79) |  |  | 177 |  |  | (124) |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
Commodity contracts (a) | Other current assets/liabilities |  | 12 |  |  | (5) |  |  | 1 |  |  | (1) |
Total derivatives not designated as hedging instruments |  | 12 |  |  | (5) |  |  | 1 |  |  | (1) |
Total derivatives |  |  | $ | 116 |  |  | $ | (84) |  |  | $ | 178 |  |  | $ | (125) |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. Notional Quantities for Derivative Instruments - The following table sets forth the notional quantities for derivative instruments held as of the dates indicated:
|  | September 30, 2023 |  | December 31, 2022
| Contract Type | Net Purchased/Payor (Sold/Receiver)
Derivatives designated as hedging instruments: |  |  |  |
Cash flow hedges |  |  |  |
Fixed price |  |  |  |
- Natural gas (Bcf) | Futures | (18.8) |  |  | (39.3) |
- Refined Products, crude oil and NGLs (MMBbl) | Futures | (13.8) |  |  | (8.4) |
Basis |  |  |  |
- Natural gas (Bcf) | Futures | (19.4) |  |  | (39.3) |
Interest-rate contracts (Billions of dollars) | Swaps | $ | — |  |  | $ | 0.4 |
Derivatives not designated as hedging instruments: |  |  |
Fixed price |  |  |  |
- Natural gas (Bcf) | Futures | — |  |  | (0.1) |
- Refined Products, crude oil and NGLs (MMBbl) | Futures and swaps | (1.9) |  |  | 0.1 |
Basis |  |  |  |
- Natural gas (Bcf) | Futures | — |  |  | (0.1) |
- Refined Products, crude oil and NGLs (MMBbl) | Futures and swaps | (0.1) |  |  | — |
Cash Flow Hedges - The following table sets forth the unrealized change in fair value of cash flow hedges in other comprehensive income for the periods indicated:
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
2023 |  | 2022 |  | 2023 |  | 2022
| (Millions of dollars)
Commodity contracts | $ | (37) |  |  | $ | 69 |  |  | $ | 57 |  |  | $ | (139) |
Interest-rate contracts | 52 |  |  | 69 |  |  | 54 |  |  | 213 |
Total unrealized change in fair value of cash flow hedges in other comprehensive income | $ | 15 |  |  | $ | 138 |  |  | $ | 111 |  |  | $ | 74 |
The following table sets forth the effect of cash flow hedges on net income for the periods indicated:
Derivatives in Cash Flow Hedging Relationships | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income | Three Months Ended |  | Nine Months Ended
September 30, |  | September 30,
2023 |  | 2022 |  | 2023 |  | 2022
|  | (Millions of dollars)
Commodity contracts | Commodity sales revenues | $ | 31 |  |  | $ | (78) |  |  | $ | 149 |  |  | $ | (546) |
| Cost of sales and fuel | (15) |  |  | 18 |  |  | (75) |  |  | 328 |
Interest-rate contracts | Interest expense | (5) |  |  | (10) |  |  | (16) |  |  | (29) |
Total change in fair value of cash flow hedges reclassified from accumulated other comprehensive loss into net income on derivatives | $ | 11 |  |  | $ | (70) |  |  | $ | 58 |  |  | $ | (247) |
Credit Risk - We monitor the creditworthiness of our counterparties and compliance with policies and limits established by our Risk Oversight and Strategy Committee. We maintain credit policies with regard to our counterparties that we believe minimize credit risk. Our policies and related credit risk are consistent with those discussed in our Annual Report.

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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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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