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Derivatives and Risk Management Activities (Tables) | 6 Months Ended
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Jun. 30, 2011
Derivatives and Risk Management Activities |
Terms of forward starting interest rate swaps |
Hedged Transaction |  | Number and Types of Derivatives Employed |  | Notional Amount |  | Expected Termination Date |  | Average Rate Locked |  | Accounting Treatment |
Anticipated debt offering |  | 3 forward starting swaps (30-year) |  | $ | 150 |  | 6/17/2013 |  | 4.35 | % | Cash flow hedge |
Anticipated debt offering |  | 3 forward starting swaps (10-year) |  | $ | 150 |  | 6/15/2012 |  | 3.53 | % | Cash flow hedge |
Open foreign currency exchange derivatives |
|  | CAD |  | USD |  | Average Exchange Rate |
2011 (1) |  | $ | 58 |  | $ | 59 |  | CAD $0.97 to US $1.00 |
2012 |  | $ | 15 |  | $ | 15 |  | CAD $1.01 to US $1.00 |
2013 |  | $ | 9 |  | $ | 9 |  | CAD $1.00 to US $1.00 |
(1) Includes $50 million of forward exchange contracts that we entered into during July 2011.
Impact of derivative activities recognized in earnings |
|  | Three Months Ended June 30, 2011 |  |  | Three Months Ended June 30, 2010 |
|  |  |  | Derivatives |  |  |  |  |  |  | Derivatives |  |  |
|  | Derivatives in |  | Not |  |  |  |  | Derivatives in |  | Not |  |  |
|  | Hedging |  | Designated |  |  |  |  | Hedging |  | Designated |  |  |
Location of gain/(loss) |  | Relationships (1)(2) |  | as a Hedge (4) |  | Total |  |  | Relationships (1)(2) |  | as a Hedge (4) |  | Total |
Commodity Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | $ | (161 | ) | $ | 36 |  | $ | (125 | ) |  | $ | (6 | ) | $ | 28 |  | $ | 22 |
Facilities segment revenues |  | (6 | ) | 1 |  | (5 | ) |  | — |  | — |  | — |
Purchases and related costs |  | — |  | (1 | ) | (1 | ) |  | (8 | ) | 11 |  | 3 |
Interest Rate Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  | — |  | — |  | — |  |  | — |  | 1 |  | 1 |
Foreign Currency Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | — |  | — |  | — |  |  | — |  | (3 | ) | (3 | )
Other income, net |  | 1 |  | — |  | 1 |  |  | — |  | 1 |  | 1 |
Total Gain/(Loss) on Derivatives Recognized in Net Income |  | $ | (166 | ) | $ | 36 |  | $ | (130 | ) |  | $ | (14 | ) | $ | 38 |  | $ | 24 |
|  | Six Months Ended June 30, 2011 |  |  | Six Months Ended June 30, 2010 |
|  |  |  | Derivatives |  |  |  |  |  |  | Derivatives |  |  |
|  | Derivatives in |  | Not |  |  |  |  | Derivatives in |  | Not |  |  |
|  | Hedging |  | Designated |  |  |  |  | Hedging |  | Designated |  |  |
Location of gain/(loss) |  | Relationships (1)(2)(3) |  | as a Hedge (4) |  | Total |  |  | Relationships (1)(2) |  | as a Hedge (4) |  | Total |
Commodity Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | $ | (236 | ) | $ | 40 |  | $ | (196 | ) |  | $ | (26 | ) | $ | 55 |  | $ | 29 |
Transportation segment revenues |  | — |  | — |  | — |  |  | 1 |  | — |  | 1 |
Facilities segment revenues |  | (7 | ) | 1 |  | (6 | ) |  | (1 | ) | 1 |  | — |
Purchases and related costs |  | — |  | (1 | ) | (1 | ) |  | (3 | ) | (13 | ) | (16 | )
Field operating costs |  | — |  | 1 |  | 1 |  |  | — |  | — |  | — |
Interest Rate Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  | 1 |  | — |  | 1 |  |  | — |  | 2 |  | 2 |
Foreign Currency Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | — |  | 3 |  | 3 |  |  | — |  | (3 | ) | (3 | )
Purchases and related costs |  | — |  | — |  | — |  |  | — |  | 2 |  | 2 |
Other income, net |  | 2 |  | — |  | 2 |  |  | — |  | — |  | — |
Total Gain/(Loss) on Derivatives Recognized in Net Income |  | $ | (240 | ) | $ | 44 |  | $ | (196 | ) |  | $ | (29 | ) | $ | 44 |  | $ | 15 |
(1) Amounts represent derivative gains and losses that were reclassified from AOCI to earnings during the period to coincide with the earnings impact of the respective hedged transaction. (2) Amounts include gains of approximately $1 million for the three months ended June 30, 2010 and losses of approximately $8 million for the six months ended June 30, 2011 that represent the ineffective portion of our cash flow hedges. These amounts relate to commodity derivatives and are recognized in Supply and Logistics segment revenues during such periods. (3) Interest expense includes a net gain of approximately $1 million for the six months ended June 30, 2011 associated with outstanding interest rate swaps, which are designated as a fair value hedge. (4) Includes realized and unrealized gains or losses for derivatives not designated for hedge accounting during the period.
Summary of derivative assets and liabilities on consolidated balance sheet |
The following table summarizes the derivative assets and liabilities on our consolidated balance sheet on a gross basis as of June 30, 2011 (in millions):
|  | Asset Derivatives |  | Liability Derivatives |
|  | Balance Sheet |  |  |  | Balance Sheet |  |  |
|  | Location |  | Fair Value |  | Location |  | Fair Value |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 97 |  |  | Other current assets |  | $ | (90 | )
|  | Other long-term assets |  | 7 |  |  | Other long-term assets |  | (1 | )
Interest rate derivatives |  | Other current assets |  | 5 |  |  |  |  |  |
|  | Other long-term assets |  | 2 |  |  |  |  |  |
Foreign currency derivatives |  |  |  |  |  |  | Other current liabilities |  | (1 | )
Total derivatives designated as hedging instruments |  |  |  | $ | 111 |  |  |  |  | $ | (92 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 128 |  |  | Other current assets |  | $ | (114 | )
|  | Other long-term assets |  | 8 |  |  | Other long-term assets |  | (9 | )
|  |  |  |  |  |  | Other current liabilities |  | (4 | )
Foreign currency derivatives |  | Other current assets |  | 1 |  |  |  |  |  |
Total derivatives not designated as hedging instruments |  |  |  | $ | 137 |  |  |  |  | $ | (127 | )
Total derivatives |  |  |  | $ | 248 |  |  |  |  | $ | (219 | )
The following table summarizes the derivative assets and liabilities on our consolidated balance sheet on a gross basis as of December 31, 2010 (in millions):
|  | Asset Derivatives |  |  | Liability Derivatives |
|  | Balance Sheet |  |  |  |  | Balance Sheet |  |  |
|  | Location |  | Fair Value |  |  | Location |  | Fair Value |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 71 |  |  | Other current assets |  | $ | (70 | )
|  |  |  |  |  |  | Other long-term assets |  | (1 | )
|  |  |  |  |  |  | Other current liabilities |  | (1 | )
Interest rate derivatives |  | Other current assets |  | 10 |  |  |  |  |  |
Total derivatives designated as hedging instruments |  |  |  | $ | 81 |  |  |  |  | $ | (72 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 11 |  |  | Other current assets |  | $ | (68 | )
|  | Other long-term assets |  | 20 |  |  |  |  |  |
|  | Other current liabilities |  | 2 |  |  | Other current liabilities |  | (10 | )
Interest rate derivatives |  | Other current assets |  | 4 |  |  |  |  |  |
|  | Other long-term assets |  | 1 |  |  |  |  |  |
Foreign currency derivatives |  | Other current assets |  | 1 |  |  |  |  |  |
Total derivatives not designated as hedging instruments |  |  |  | $ | 39 |  |  |  |  | $ | (78 | )
Total derivatives |  |  |  | $ | 120 |  |  |  |  | $ | (150 | )
Amounts of gain/(loss) recognized in AOCI on derivatives (effective portion) |
|  | For the Three Months Ended |  | For the Six Months Ended |
|  | June 30, |  | June 30, |
|  | 2011 |  | 2010 |  | 2011 |  | 2010 |
Commodity derivatives |  | $ | 48 |  | $ | 18 |  | $ | (97 | ) | $ | 14 |
Foreign currency derivatives |  | — |  | — |  | (1 | ) | (1 | )
Interest rate derivatives |  | 4 |  | 1 |  | 6 |  | 1 |
Total |  | $ | 52 |  | $ | 19 |  | $ | (92 | ) | $ | 14 |
Financial assets and liabilities within the fair value hierarchy accounted for at fair value on a recurring basis |
|  | Fair Value as of June 30, 2011 |  |  | Fair Value as of December 31, 2010 |
|  | (in millions) |  |  | (in millions) |
Recurring Fair Value Measures (1) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Commodity derivatives |  | $ | 12 |  | $ | — |  | $ | 10 |  | $ | 22 |  |  | $ | (16 | ) | $ | — |  | $ | (30 | ) | $ | (46 | )
Interest rate derivatives |  | — |  | 7 |  | — |  | 7 |  |  | — |  | — |  | 15 |  | 15 |
Foreign currency derivatives |  | — |  | — |  | — |  | — |  |  | — |  | — |  | 1 |  | 1 |
Total |  | $ | 12 |  | $ | 7 |  | $ | 10 |  | $ | 29 |  |  | $ | (16 | ) | $ | — |  | $ | (14 | ) | $ | (30 | )
(1) Derivative assets and liabilities are presented above on a net basis but do not include related cash margin deposits.
Reconciliation of changes in fair value of derivatives classified as level 3 |
|  | Three Months Ended |  | Six Months Ended |
|  | June 30, |  | June 30, |
|  | 2011 |  | 2010 |  | 2011 |  | 2010 |
Beginning Balance |  | $ | (5 | ) | $ | (5 | ) | $ | (14 | ) | $ | (28 | )
Unrealized gains/(losses): |  |  |  |  |  |  |  |  |
Included in earnings (1) |  | 7 |  | 5 |  | 13 |  | 12 |
Included in other comprehensive income |  | 1 |  | 1 |  | (1 | ) | 1 |
Settlements |  | 1 |  | 6 |  | 33 |  | 27 |
Derivatives entered into during the period |  | 6 |  | 1 |  | (4 | ) | (4 | )
Transfers out of level 3 |  | — |  | — |  | (17 | ) | — |
Ending Balance |  | $ | 10 |  | $ | 8 |  | $ | 10 |  | $ | 8 |
Change in unrealized gains/(losses) included in earnings relating to level 3 derivatives still held at the end of the period |  | $ | 13 |  | $ | 10 |  | $ | 11 |  | $ | 9 |
(1) We reported unrealized gains and losses associated with level 3 commodity derivatives in our consolidated statements of operations as Supply and Logistics segment revenues. Gains and losses associated with interest rate derivatives are reported in our consolidated statements of operations as Interest expense. Gains and losses associated with foreign currency derivatives are reported in our consolidated statements of operations as either Supply and Logistics segment revenues, Purchases and related costs, or Other income, net.

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