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Derivatives and Risk Management Activities (Tables)
 12 Months Ended
Dec. 31, 2012
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

 

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 as of December 31, 2012 (in millions):

 

 

 

 

 

USD

 

CAD

 

Average Exchange Rate
USD to CAD

 

Forward exchange contracts that exchange CAD for USD:

 

 

 

 

 

 

 

 

 

 

 

2013

 

$

9

 

$

9

 

$1.00 to $1.00

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts that exchange USD for CAD:

 

 

 

 

 

 

 

 

 

 

 

2013

 

$

345

 

$

346

 

$1.00 to $1.00

 

 

 

2014

 

2

 

2

 

$1.00 to $1.00

 

 

 

 

 

$

347

 

$

348

 

$1.00 to $1.00

 

 

 

 

 

 

 

 

 

 

 

Net position by currency:

 

 

 

 

 

 

 

 

 

 

 

2013

 

$

336

 

$

337

 

 

 

 

 

2014

 

2

 

2

 

 

 

 

 

 

 

$

338

 

$

339

 

 

 

 
Impact of derivative activities recognized in earnings

 

 

 

 

Year Ended December 31, 2012

 

 

 

Derivatives

 

Derivatives

 

 

 

 

 

in Hedging

 

Not Designated

 

 

 

Location of gain/(loss)

 

Relationships (1)(2)(3)

 

as a Hedge (4)

 

Total

 

Commodity Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

$

12

 

$

60

 

$

72

 

 

 

 

 

 

 

 

 

Facilities segment revenues

 

2

 

1

 

3

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

45

 

1

 

46

 

 

 

 

 

 

 

 

 

Field operating costs

 

—

 

1

 

1

 

 

 

 

 

 

 

 

 

Interest Rate Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(3

)

—

 

(3

)

 

 

 

 

 

 

 

 

Foreign Currency Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

—

 

(1

)

(1

)

 

 

 

 

 

 

 

 

Other income/(expense), net

 

6

 

—

 

6

 

 

 

 

 

 

 

 

 

Total Gain/(Loss) on Derivatives Recognized in Net Income

 

$

62

 

$

62

 

$

124

 

 

 

 

Year Ended December 31, 2011

 

 

 

Derivatives

 

Derivatives

 

 

 

 

 

in Hedging

 

Not Designated

 

 

 

Location of gain/(loss)

 

Relationships (1)(2)(3)

 

as a Hedge (4)

 

Total

 

Commodity Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

$

(161

)

$

99

 

$

(62

)

 

 

 

 

 

 

 

 

Facilities segment revenues

 

11

 

—

 

11

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

6

 

—

 

6

 

 

 

 

 

 

 

 

 

Field operating costs

 

—

 

1

 

1

 

 

 

 

 

 

 

 

 

Interest Rate Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

1

 

—

 

1

 

 

 

 

 

 

 

 

 

Foreign Currency Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

—

 

1

 

1

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

6

 

—

 

6

 

 

 

 

 

 

 

 

 

Total Gain/(Loss) on Derivatives Recognized in Net Income

 

$

(137

)

$

101

 

$

(36

)

 

 

 

Year Ended December 31, 2010

 

 

 

Derivatives

 

Derivatives

 

 

 

 

 

in Hedging

 

Not Designated

 

 

 

Location of gain/(loss)

 

Relationships (1)(2)(3)

 

as a Hedge (4)

 

Total

 

Commodity Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

$

14

 

$

2

 

$

16

 

 

 

 

 

 

 

 

 

Transportation segment revenues

 

2

 

—

 

2

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

8

 

(12

)

(4

)

 

 

 

 

 

 

 

 

Field operating costs

 

—

 

3

 

3

 

 

 

 

 

 

 

 

 

Interest Rate Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

1

 

2

 

3

 

 

 

 

 

 

 

 

 

Foreign Currency Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

—

 

2

 

2

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

—

 

2

 

2

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

—

 

(1

)

(1

)

 

 

 

 

 

 

 

 

Total Gain/(Loss) on Derivatives Recognized in Net Income

 

$

25

 

$

(2

)

$

23

 

 

(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 hedged transaction.

(2)                                     Amounts include losses of approximately $2 million, $8 million and $1 million for the years ended December 31, 2012, 2011 and 2010, 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 $2 million, $2 million and $1 million for the years ended December 31, 2012, 2011 and 2010, respectively, associated with interest rate swaps designated as a fair value hedge. These swaps terminated during September 2012.

(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 December 31, 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

 

$

45

 

Other current assets

 

$

(23

)

 

 

Other long-term assets

 

11

 

Other long-term assets

 

(1

)

Interest rate derivatives

 

 

 

 

 

Other long-term liabilities

 

(38

)

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

56

 

 

 

$

(62

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

Other current assets

 

$

128

 

Other current assets

 

$

(115

)

 

 

Other long-term assets

 

1

 

Other long-term assets

 

(3

)

 

 

Other current liabilities

 

4

 

Other current liabilities

 

(7

)

 

 

Other long-term liabilities

 

2

 

Other long-term liabilities

 

(2

)

Total derivatives not designated as hedging instruments

 

 

 

$

135

 

 

 

$

(127

)

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

 

 

$

191

 

 

 

$

(189

)

 

The following table summarizes the derivative assets and liabilities on our Consolidated Balance Sheet on a gross basis as of December 31, 2011 (in millions):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
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)

 

 

 

 

Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

Commodity derivatives, net

 

$

56

 

$

(18

)

$

(79

)

Foreign currency derivatives, net

 

—

 

—

 

(2

)

Interest rate derivatives, net

 

(12

)

(136

)

8

 

Total

 

$

44

 

$

(154

)

$

(73

)

 
Financial assets and liabilities within the fair value hierarchy accounted for at fair value on a recurring basis

 

 

 

 

Fair Value as of December 31, 2012

 

Fair Value as of December 31, 2011

 

Recurring Fair Value Measures (1)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Commodity derivatives

 

$

1

 

$

35

 

$

4

 

$

40

 

$

80

 

$

1

 

$

12

 

$

93

 

Interest rate derivatives

 

—

 

(38

)

—

 

(38

)

—

 

(137

)

—

 

(137

)

Foreign currency derivatives

 

—

 

—

 

—

 

—

 

—

 

1

 

—

 

1

 

Total

 

$

1

 

$

(3

)

$

4

 

$

2

 

$

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

 

 

 

 

Year Ended December 31,

 

 

 

2012

 

2011

 

Beginning Balance

 

$

12

 

$

(14

)

Unrealized gains/(losses):

 

 

 

 

 

Included in earnings (1)

 

(3

)

17

 

Included in other comprehensive income

 

3

 

2

 

Settlements

 

(22

)

21

 

Derivatives entered into during the period

 

23

 

3

 

Transfers out of level 3

 

(9

)

(17

)

Ending Balance

 

$

4

 

$

12

 

 

 

 

 

 

 

Change in unrealized gains/(losses) included in earnings relating to level 3  derivatives still held at the end of the periods

 

$

24

 

$

22

 

 

(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.