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Derivatives and Risk Management Activities (Tables) | 6 Months Ended
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Jun. 30, 2012
Derivatives and Risk Management Activities |
Terms of forward starting interest rate swaps |
The following table summarizes the terms of our forward starting interest rate swaps as of June 30, 2012 (notional amounts in millions):
Hedged Transaction |  | Number and Types of Derivatives Employed |  | Notional Amount |  | Expected Termination Date |  | Average Rate Locked |  | Accounting Treatment
Anticipated debt offering |  | 6 forward starting swaps (30-year) |  | $ | 250 |  | 6/17/2013 |  | 4.24 | % | Cash flow hedge
Anticipated debt offering |  | 5 forward starting swaps (30-year) |  | $ | 125 |  | 6/16/2014 |  | 3.39 | % | Cash flow hedge
Anticipated debt offering |  | 10 forward starting swaps (30-year) |  | $ | 250 |  | 6/15/2015 |  | 3.60 | % | Cash flow hedge
Open foreign currency exchange contracts |
The following table summarizes our open forward exchange contracts that exchange CAD for USD on a net basis (in millions):
|  | CAD |  | USD |  | Average Exchange Rate |
2012 |  | $ | 64 |  | $ | 64 |  | CAD $1.01 to USD $1.00 |
2013 |  | $ | 41 |  | $ | 40 |  | CAD $1.02 to USD $1.00 |
Impact of derivative activities recognized in earnings |
A summary of the impact of our derivative activities recognized in earnings for the three and six months ended June 30, 2012 and 2011 is as follows (in millions):
|  | Three Months Ended June 30, 2012 |  | Three Months Ended June 30, 2011 |
|  |  |  | 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 |  | $ | (96 | ) | $ | 199 |  | $ | 103 |  | $ | (161 | ) | $ | 36 |  | $ | (125 | )
Facilities segment revenues |  | 1 |  | — |  | 1 |  | (6 | ) | 1 |  | (5 | )
Purchases and related costs |  | 37 |  | (1 | ) | 36 |  | — |  | (1 | ) | (1 | )
Field operating costs |  | — |  | (4 | ) | (4 | ) | — |  | — |  | — |
Foreign Currency Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | — |  | (1 | ) | (1 | ) | — |  | — |  | — |
Other income/(expense), net |  | 1 |  | — |  | 1 |  | 1 |  | — |  | 1 |
Total Gain/(Loss) on Derivatives Recognized in Net Income |  | $ | (57 | ) | $ | 193 |  | $ | 136 |  | $ | (166 | ) | $ | 36 |  | $ | (130 | )
|  | Six Months Ended June 30, 2012 |  | Six Months Ended June 30, 2011 |
|  |  |  | 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)(3) |  | as a Hedge (4) |  | Total |
Commodity Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | $ | (61 | ) | $ | 161 |  | $ | 100 |  | $ | (236 | ) | $ | 40 |  | $ | (196 | )
Facilities segment revenues |  | 13 |  | — |  | 13 |  | (7 | ) | 1 |  | (6 | )
Purchases and related costs |  | 41 |  | — |  | 41 |  | — |  | (1 | ) | (1 | )
Field operating costs |  | — |  | (2 | ) | (2 | ) | — |  | 1 |  | 1 |
Interest Rate Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  | (1 | ) | — |  | (1 | ) | 1 |  | — |  | 1 |
Foreign Currency Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |
Supply and Logistics segment revenues |  | — |  | — |  | — |  | — |  | 3 |  | 3 |
Other income/(expense), net |  | 2 |  | — |  | 2 |  | 2 |  | — |  | 2 |
Total Gain/(Loss) on Derivatives Recognized in Net Income |  | $ | (6 | ) | $ | 159 |  | $ | 153 |  | $ | (240 | ) | $ | 44 |  | $ | (196 | )
(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, 2012 and losses of approximately $2 million and $8 million for the six months ended June 30, 2012 and 2011, respectively. These amounts represent the ineffective portion of our commodity and interest rate derivatives that are designated as cash flow hedges. (3) Interest expense includes net gains of approximately $1 million for the three months ended June 30, 2012 and approximately $2 million and $1 million for the six months ended June 30, 2012 and 2011, respectively, 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 condensed consolidated balance sheet |
The following table summarizes the derivative assets and liabilities on our condensed consolidated balance sheet on a gross basis as of June 30, 2012 (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 |  | $ | (48 | )
|  | Other long-term assets |  | 15 |  | Other long-term assets |  | (6 | )
|  |  |  |  |  | Other current liabilities |  | (1 | )
Interest rate derivatives |  | Other current assets |  | 1 |  | Other current liabilities |  | (87 | )
|  |  |  |  |  | Other long-term liabilities |  | (56 | )
Total derivatives designated as hedging instruments |  |  |  | $ | 113 |  |  |  | $ | (198 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 264 |  | Other current assets |  | $ | (102 | )
|  | Other long-term assets |  | 7 |  | Other long-term assets |  | (5 | )
|  |  |  |  |  | Other current liabilities |  | (1 | )
Total derivatives not designated as hedging instruments |  |  |  | $ | 271 |  |  |  | $ | (108 | )
Total derivatives |  |  |  | $ | 384 |  |  |  | $ | (306 | )
The following table summarizes the derivative assets and liabilities on our condensed consolidated balance sheet on a gross basis as of December 31, 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 |  | $ | 72 |  | Other current assets |  | $ | (47 | )
|  | Other long-term assets |  | 20 |  | Other long-term assets |  | (2 | )
Interest rate derivatives |  | Other current assets |  | 1 |  | Other current liabilities |  | (24 | )
|  |  |  |  |  | Other long-term liabilities |  | (114 | )
Foreign currency derivatives |  | Other current assets |  | 1 |  |  |  |  |
Total derivatives designated as hedging instruments |  |  |  | $ | 94 |  |  |  | $ | (187 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity derivatives |  | Other current assets |  | $ | 87 |  | Other current assets |  | $ | (39 | )
|  | Other long-term assets |  | 6 |  | Other long-term assets |  | (3 | )
|  |  |  |  |  | Other current liabilities |  | (1 | )
Total derivatives not designated as hedging instruments |  |  |  | $ | 93 |  |  |  | $ | (43 | )
Total derivatives |  |  |  | $ | 187 |  |  |  | $ | (230 | )
Amounts of gain/(loss) recognized in AOCI on derivatives (effective portion) |
The net deferred gain/(loss), including tax effects, recognized in AOCI for derivatives during the three and six months ended June 30, 2012 and 2011 are as follows (in millions):
|  | For the Three Months Ended |  | For the Six Months Ended |
|  | June 30, |  | June 30, |
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Commodity derivatives, net |  | $ | (25 | ) | $ | 48 |  | $ | — |  | $ | (97 | )
Foreign currency derivatives, net |  | — |  | — |  | — |  | (1 | )
Interest rate derivatives, net |  | (79 | ) | 4 |  | (28 | ) | 6 |
Total |  | $ | (104 | ) | $ | 52 |  | $ | (28 | ) | $ | (92 | )
Financial assets and liabilities within the fair value hierarchy accounted for at fair value on a recurring basis |
|  | Fair Value as of June 30, 2012 (in millions) |  | Fair Value as of December 31, 2011 (in millions) |
Recurring Fair Value Measures (1) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Commodity derivatives |  | $ | 98 |  | $ | 86 |  | $ | 36 |  | $ | 220 |  | $ | 80 |  | $ | 1 |  | $ | 12 |  | $ | 93 |
Interest rate derivatives |  | — |  | (142 | ) | — |  | (142 | ) | — |  | (137 | ) | — |  | (137 | )
Foreign currency derivatives |  | — |  | — |  | — |  | — |  | — |  | 1 |  | — |  | 1 |
Total |  | $ | 98 |  | $ | (56 | ) | $ | 36 |  | $ | 78 |  | $ | 80 |  | $ | (135 | ) | $ | 12 |  | $ | (43 | )
(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 |
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our derivatives classified as level 3 (in millions):
|  | Three Months Ended |  | Six Months Ended |
|  | June 30, |  | June 30, |
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Beginning Balance |  | $ | 2 |  | $ | (5 | ) | $ | 12 |  | $ | (14 | )
Unrealized gains/(losses): |  |  |  |  |  |  |  |  |
Included in earnings (1) |  | 12 |  | 7 |  | 8 |  | 13 |
Included in other comprehensive income |  | — |  | 1 |  | 3 |  | (1 | )
Settlements |  | (2 | ) | 1 |  | (14 | ) | 33 |
Derivatives entered into during the period |  | 19 |  | 6 |  | 22 |  | (4 | )
Transfers out of level 3 |  | 5 |  | — |  | 5 |  | (17 | )
Ending Balance |  | $ | 36 |  | $ | 10 |  | $ | 36 |  | $ | 10 |
Change in unrealized gains/(losses) included in earnings relating to level 3 derivatives still held at the end of the periods |  | $ | 31 |  | $ | 13 |  | $ | 33 |  | $ | 11 |
(1) We reported unrealized gains and losses associated with level 3 commodity derivatives in our condensed consolidated statements of operations as Supply and Logistics segment revenues.

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- Definition Tabular disclosure of the fair value measurement of assets and liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of asset and liability. + References No definition available. + Details
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