Cenovus’s financial assets and financial liabilities consist of cash and cash equivalents, accounts receivable and accrued revenues, net investment in finance leases, accounts payable and accrued liabilities, risk management assets and liabilities, investments in the equity of private companies, long-term receivables, lease liabilities, contingent payment, short-term borrowings and long-term debt. Risk management assets and liabilities arise from the use of derivative financial instruments.

The fair values of cash and cash equivalents, accounts receivable and accrued revenues, accounts payable and accrued liabilities, and short-term borrowings approximate their carrying amount due to the short-term maturity of these instruments.

The fair values of long-term receivables and net investment in finance leases approximate their carrying amounts due to the specific non-tradeable nature of these instruments.

Long-term debt is carried at amortized cost. The estimated fair value of long-term debt has been determined based on the period-end trading prices on the secondary market (Level 2). As at December 31, 2020, the carrying value of Cenovus’s long-term debt was $7,441 million and the fair value was $8,608 million (2019 carrying value – $6,699 million; fair value – $7,610 million).

Equity investments classified at FVOCI comprise equity investments in private companies. The Company classifies certain private equity instruments at FVOCI as they are not held for trading and fair value changes are not reflective of the Company’s operations. These assets are carried at fair value on the Consolidated Balance Sheets in other assets. Fair value is determined based on recent private placement transactions (Level 3) when available.

The following table provides a reconciliation of changes in the fair value of private equity investments classified at FVOCI:

	2020		2019
Fair Value, Beginning of Year		52		38
Change in Fair Value⁽¹⁾		-		14
Fair Value, End of Year		52		52

(1)	Changes in fair value are recorded in OCI.

The Company’s risk management assets and liabilities consist of crude oil swaps, futures, natural gas futures, and if entered into, crude oil options, condensate futures and swaps, foreign exchange swaps, interest rate swaps and cross currency interest rate swaps. Crude oil, condensate and, if entered into, natural gas contracts are recorded at their estimated fair value based on the difference between the contracted price and the period-end forward price for the same commodity, using quoted market prices or the period-end forward price for the same commodity extrapolated to the end of the term of the contract (Level 2). The fair value of foreign exchange swaps are calculated using external valuation models which incorporate observable market data, including foreign exchange forward curves (Level 2) and the fair value of interest rate swaps are calculated using external valuation models which incorporate observable market data, including interest rate yield curves (Level 2). The fair value of cross currency interest rate swaps are calculated using external valuation models which incorporate observable market data, including foreign exchange forward curves (Level 2) and interest rate yield curves (Level 2).

	2020							2019
	Risk Management							Risk Management
As at December 31,	Asset		Liability		Net			Asset		Liability		Net
Crude Oil, Natural Gas and Condensate		5		58		(53	)		5		2		3

The following table presents the Company’s fair value hierarchy for risk management assets and liabilities carried at fair value:

Prices sourced from observable data or market corroboration refers to the fair value of contracts valued in part using active quotes and in part using observable, market-corroborated data.

The following table summarizes the changes in the fair value of Cenovus’s risk management assets and liabilities:

	2020			2019
Fair Value of Contracts, Beginning of Year		3			160
Fair Value of Contracts Realized During the Year		252			7
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered Into During the Year		(308	)		(156	)
Unrealized Foreign Exchange Gain (Loss) on U.S. Dollar Contracts		-			(8	)
Fair Value of Contracts, End of Year		(53	)		3

Financial assets and liabilities are offset only if Cenovus has the current legal right to offset and intends to settle on a net basis or settle the asset and liability simultaneously. Cenovus offsets risk management assets and liabilities when the counterparty, commodity, currency and timing of settlement are the same. No additional unrealized risk management positions are subject to an enforceable master netting arrangement or similar agreement that are not otherwise offset.

The following table provides a summary of the Company’s offsetting risk management positions:

	2020									2019
	Risk Management									Risk Management
As at December 31,	Asset			Liability			Net			Asset			Liability			Net
Recognized Risk Management Positions
Gross Amount		70			123			(53	)		13			10			3
Amount Offset		(65	)		(65	)		-			(8	)		(8	)		-
Net Amount per Consolidated Financial Statements		5			58			(53	)		5			2			3

The derivative liabilities do not have credit risk-related contingent features. Due to credit practices that limit transactions according to counterparties’ credit quality, the change in fair value through profit or loss attributable to changes in the credit risk of financial liabilities is immaterial.

Cenovus pledges cash collateral with respect to certain of these risk management contracts, which is not offset against the related financial liability. The amount of cash collateral required will vary daily over the life of these risk management contracts as commodity prices change. Additional cash collateral is required if, on a net basis, risk management payables exceed risk management receivables on a particular day. As at December 31, 2020, $59 million was pledged as cash collateral (2019 – $nil).

The contingent payment is carried at fair value on the Consolidated Balance Sheets. Fair value is estimated by calculating the present value of the expected future cash flows using an option pricing model (Level 3), which assumes the probability distribution for WCS is based on the volatility of WTI options, volatility of Canadian to U.S. foreign exchange rate options and both WTI and WCS futures pricing, and discounted at a credit-adjusted risk-free rate of 2.0 percent. Fair value of the contingent payment has been calculated by Cenovus’s internal valuation team which consists of individuals who are knowledgeable and have experience in fair value techniques. As at December 31, 2020, the fair value of the contingent payment was estimated to be $63 million (2019 – $143 million).

As at December 31, 2020, average WCS forward pricing for the remaining term of the contingent payment is $42.93 per barrel. The average implied volatility of WTI options and the Canadian to U.S. foreign exchange rate options used to value the contingent payment were 35.6 percent and 6.8 percent, respectively. Changes in the following inputs to the option pricing model, with fluctuations in all other variables held constant, could have resulted in an unrealized gain (loss) impacting earnings before income tax as follows:

As at December 31, 2020	Sensitivity Range	Increase			Decrease
WCS Forward Prices	± $5.00 per barrel		(41	)		32
WTI Option Volatility	± five percent		(18	)		17
Canadian to U.S. Dollar Foreign Exchange Rate Option Volatility	± five percent		7			(10	)

As at December 31, 2019	Sensitivity Range	Increase			Decrease
WCS Forward Prices	± $5.00 per barrel		(129	)		80
WTI Option Volatility	± five percent		(45	)		42
Canadian to U.S. Dollar Foreign Exchange Rate Option Volatility	± five percent		10			(19	)

For the years ended December 31,	2020	2019	2018
Realized (Gain) Loss ⁽¹⁾	252	7	1,554
Unrealized (Gain) Loss⁽²⁾	56	149	(1,249	)
(Gain) Loss on Risk Management From Continuing Operations	308	156	305

(1)	Realized gains and losses on risk management are recorded in the reportable segment to which the derivative instrument relates.

(2)	Unrealized gains and losses on risk management are recorded in the Corporate and Eliminations segment.