Derivatives and Risk Management Activities (Tables)

9 Months Ended

Sep. 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 September 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 as of September 30, 2012 (in millions):

		USD		CAD		Average Exchange Rate USD to CAD
Forward exchange contracts that exchange CAD for USD:
	2012	$	94	$	92	$1.02 to $1.00
	2013	9		9		$1.00 to $1.00
		$	103	$	101	$1.01 to $1.00
Forward exchange contracts that exchange USD for CAD:
	2012	$	123	$	124	$0.99 to $1.00
	2013	149		150		$0.99 to $1.00
		$	272	$	274	$0.99 to $1.00
Net position by currency:
	2012	$	29	$	32
	2013	140		141
		$	169	$	173

Impact of derivative activities recognized in earnings

A summary of the impact of our derivative activities recognized in earnings for the three and nine months ended September 30, 2012 and 2011 is as follows (in millions):

	Three Months Ended September 30, 2012									Three Months Ended September 30, 2011
				Derivatives									Derivatives
	Derivatives in			Not						Derivatives in			Not
	Hedging			Designated						Hedging			Designated
Location of gain/(loss)	Relationships (1)			as a Hedge (4)			Total			Relationships (1)(2)			as a Hedge (4)			Total
Commodity Derivatives
Supply and Logistics segment revenues	$	123		$	(102	)	$	21		$	(1	)	$	50		$	49
Facilities segment revenues	—			—			—			3			—			3
Field operating costs	—			4			4			—			(1		)	(1		)
Interest Rate Derivatives
Interest expense	(1		)	—			(1		)	—			—			—
Foreign Currency Derivatives
Supply and Logistics segment revenues	—			4			4			—			(6		)	(6		)
Other income/(expense), net	1			—			1			3			—			3
Total Gain/(Loss) on Derivatives Recognized in Net Income	$	123		$	(94	)	$	29		$	5		$	43		$	48

	Nine Months Ended September 30, 2012								Nine Months Ended September 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)(3)			as a Hedge (4)			Total
Commodity Derivatives
Supply and Logistics segment revenues	$	62		$	59	$	121		$	(237	)	$	90		$	(147	)
Facilities segment revenues	13			—		13			(3		)	1			(2		)
Purchases and related costs	41			—		41			—			(1		)	(1		)
Field operating costs	—			2		2			—			—			—
Interest Rate Derivatives
Interest expense	(2		)	—		(2		)	1			—			1
Foreign Currency Derivatives
Supply and Logistics segment revenues	—			4		4			—			(3		)	(3		)
Other income/(expense), net	4			—		4			5			—			5
Total Gain/(Loss) on Derivatives Recognized in Net Income	$	118		$	65	$	183		$	(234	)	$	87		$	(147	)

(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 and gains of approximately $8 million for the nine months ended September 30, 2012 and the three months ended September 30, 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 $2 million and $1 million for the nine months ended September 30, 2012 and 2011, 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 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 September 30, 2012 (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	$	32	Other current assets	$	(30	)
	Other long-term assets	11		Other long-term assets	(3		)
				Other current liabilities	(4		)
Interest rate derivatives				Other current liabilities	(84		)
				Other long-term liabilities	(49		)
Foreign currency derivatives	Other current assets	3		Other current liabilities	(1		)
Total derivatives designated as hedging instruments		$	46		$	(171	)
Derivatives not designated as hedging instruments:
Commodity derivatives	Other current assets	$	161	Other current assets	$	(91	)
	Other long-term assets	15		Other long-term assets	(5		)
				Other current liabilities	(1		)
Foreign currency derivatives	Other current assets	4
Total derivatives not designated as hedging instruments		$	180		$	(97	)
Total derivatives		$	226		$	(268	)

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 nine months ended September 30, 2012 and 2011 are as follows (in millions):

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2012		2011			2012			2011
Commodity derivatives, net	$	88	$	(15	)	$	88		$	(112	)
Foreign currency derivatives, net	—		5			—			4
Interest rate derivatives, net	9		(123		)	(19		)	(117		)
Total	$	97	$	(133	)	$	69		$	(225	)

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

	Fair Value as of September 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	$	30	$	45		$	10	$	85		$	80	$	1		$	12	$	93
Interest rate derivatives	—		(133		)	—		(133		)	—		(137		)	—		(137		)
Foreign currency derivatives	—		6			—		6			—		1			—		1
Total	$	30	$	(82	)	$	10	$	(42	)	$	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						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Beginning Balance	$	36		$	10		$	12		$	(14	)
Unrealized gains/(losses):
Included in earnings (1)	(9		)	17			(1		)	30
Included in other comprehensive income	—			3			3			2
Settlements	(4		)	(2		)	(18		)	31
Derivatives entered into during the period	1			8			23			4
Transfers out of level 3	(14		)	—			(9		)	(17		)
Ending Balance	$	10		$	36		$	10		$	36
Change in unrealized gains/(losses) included in earnings relating to level 3 derivatives still held at the end of the periods	$	(8	)	$	26		$	25		$	35

(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.