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Derivatives and Risk Management Activities (Tables)

6 Months Ended

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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Disclosure of notional amounts of outstanding foreign currency forward exchange contracts.

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