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FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Determining Fair Value - For our fair value measurements, we utilize market prices, third-party pricing services, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date. Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives based on the lowest level input that is significant to the fair value measurement in its entirety. Our valuation techniques and inputs are consistent with those discussed in Note A of the Notes to Consolidated Financial Statements in our Annual Report. Magellan Acquisition - Included in our commodity derivative contracts are exchange-traded, exchange cleared and over-the-counter derivative contracts related to Refined Products, certain NGLs and crude oil. The exchange-traded contracts are valued based on quoted prices in active markets and are classified within Level 1 of our fair value hierarchy. The exchange cleared and over-the-counter derivatives are valued based on significant observable pricing inputs including quoted prices for similar assets and liabilities in active markets and inputs from third-party pricing services supported with corroborative evidence and are classified within Level 2 of our fair value hierarchy. Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements as of the dates indicated:
| September 30, 2023 |
| Level 1 |  | Level 2 |  | Level 3 |  | Total - Gross |  | Netting (a) |  | Total - Net |
| (Millions of dollars) |
Derivative assets |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts | $ | 49 |  |  | $ | 67 |  |  | $ | — |  |  | $ | 116 |  |  | $ | (81) |  |  | $ | 35 |  |
Total derivative assets | $ | 49 |  |  | $ | 67 |  |  | $ | — |  |  | $ | 116 |  |  | $ | (81) |  |  | $ | 35 |  |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts | $ | (16) |  |  | $ | (68) |  |  | $ | — |  |  | $ | (84) |  |  | $ | 81 |  |  | $ | (3) |  |
Total derivative liabilities | $ | (16) |  |  | $ | (68) |  |  | $ | — |  |  | $ | (84) |  |  | $ | 81 |  |  | $ | (3) |  |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At September 30, 2023, we held no cash and posted cash of $43 million with various counterparties, which is included in other current assets in our Consolidated Balance Sheet.
| December 31, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total - Gross |  | Netting (a) |  | Total - Net
| (Millions of dollars)
Derivative assets |  |  |  |  |  |  |  |  |  |  |
Commodity contracts | $ | 15 |  |  | $ | 152 |  |  | $ | — |  |  | $ | 167 |  |  | $ | (125) |  |  | $ | 42 |
Interest-rate contracts | — |  |  | 11 |  |  | — |  |  | 11 |  |  | — |  |  | 11 |
Total derivative assets | $ | 15 |  |  | $ | 163 |  |  | $ | — |  |  | $ | 178 |  |  | $ | (125) |  |  | $ | 53 |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity contracts | $ | (38) |  |  | $ | (87) |  |  | $ | — |  |  | $ | (125) |  |  | $ | 125 |  |  | $ | — |
Total derivative liabilities | $ | (38) |  |  | $ | (87) |  |  | $ | — |  |  | $ | (125) |  |  | $ | 125 |  |  | $ | — |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2022, we held no cash and posted $9 million of cash with various counterparties, which is included in other current assets in our Consolidated Balance Sheet. The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
Derivative Assets (Liabilities) | 2023 |  | 2022 |  | 2023 |  | 2022
| (Millions of dollars)
Net liabilities at beginning of period | $ | — |  |  | $ | (110) |  |  | $ | — |  |  | $ | (114) |
Total changes in fair value: |  |  |  |  |  |  |
Settlements included in net income (a) | — |  |  | 39 |  |  | — |  |  | 79 |
New Level 3 derivatives included in other comprehensive income (b) | — |  |  | — |  |  | — |  |  | 73 |
Unrealized change included in other comprehensive income (b) | — |  |  | 122 |  |  | — |  |  | 13 |
Net assets at end of period | $ | — |  |  | $ | 51 |  |  | $ | — |  |  | $ | 51 |
(a) - Included in commodity sales revenues/cost of sales and fuel in our Consolidated Statements of Income. (b) - Included in change in fair value of derivatives in our Consolidated Statements of Comprehensive Income. During the year ended December 31, 2022, we transferred out of Level 3 commodity derivatives associated with certain locations for NGL basis swaps, principally due to improved transparency of market prices as a result of the volume and frequency of transactions in these markets. We consider the valuation of these commodity derivatives, which are transacted through a clearing broker and valued with an unadjusted published price from an exchange, as a Level 2 valuation. Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Our cash and cash equivalents are composed of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market. We have investments associated with our supplemental executive retirement plan and nonqualified deferred compensation plan that are carried at fair value and primarily are composed of mutual funds, municipal bonds and other fixed income securities classified as Level 1 and Level 2. The estimated fair value of our consolidated long-term debt, including current maturities, was $19.8 billion and $12.7 billion at September 30, 2023, and December 31, 2022, respectively. The book value of our consolidated long-term debt, including current maturities, was $22.0 billion and $13.6 billion at September 30, 2023, and December 31, 2022, respectively. The estimated fair value of the aggregate senior notes outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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