Risk Management (Notes)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

5. Risk Management

Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil. We also have exposure to interest rate and foreign currency risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to some of these risks.

During the three months ended March 31, 2020, we entered into a floating-to-fixed interest rate swap agreement with a notional principal amount of $2,500 million. During the three months ended September 30, 2020, we entered into an additional floating-to-fixed interest rate swap agreement with a notional principal amount of $1,000 million. These agreements were not designated as accounting hedges and effectively fixed our LIBOR exposure for a portion of our fixed to floating rate interest rate swaps through 2021.

Energy Commodity Price Risk Management

As of September 30, 2020, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales:

Net open position long/(short)

Derivatives designated as hedging contracts

Crude oil fixed price

(20.2)

MMBbl

Crude oil basis

(2.6)

MMBbl

Natural gas fixed price

(34.8)

Bcf

Natural gas basis

(34.8)

Bcf

NGL fixed price

(1.2)

MMBbl

Derivatives not designated as hedging contracts

Crude oil fixed price

(2.4)

MMBbl

Crude oil basis

(0.9)

MMBbl

Natural gas fixed price

(9.7)

Bcf

Natural gas basis

2.2

Bcf

NGL fixed price

(1.4)

MMBbl

As of September 30, 2020, the maximum length of time over which we have hedged, for accounting purposes, our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2024.

Interest Rate Risk Management

We utilize interest rate derivatives to hedge our exposure to both changes in the fair value of our fixed rate debt instruments and variability in expected future cash flows attributable to variable interest rate payments. The following table summarizes our outstanding interest rate contracts as of September 30, 2020:

Notional amount

Accounting treatment

Maximum term

(In millions)

Derivatives designated as hedging instruments

Fixed-to-variable interest rate contracts(a)

7,625

Fair value hedge

March 2035

Variable-to-fixed interest rate contracts

250

Cash flow hedge

January 2023

Derivatives not designated as hedging instruments

Variable-to-fixed interest rate contracts

3,500

Mark-to-Market

December 2021

_______

(a)The principal amount of hedged senior notes consisted of $900 million included in “Current portion of debt” and $6,725 million included in “Long-term debt” on our accompanying consolidated balance sheet.

Foreign Currency Risk Management

We utilize foreign currency derivatives to hedge our exposure to variability in foreign exchange rates. The following table summarizes our outstanding foreign currency contracts as of September 30, 2020:

Notional amount

Accounting treatment

Maximum term

(In millions)

Derivatives designated as hedging instruments

EUR-to-USD cross currency swap contracts(a)

1,358

Cash flow hedge

March 2027

_______

(a)These swaps eliminate the foreign currency risk associated with our Euro-denominated debt.

The following table summarizes the fair values of our derivative contracts included in our accompanying consolidated balance sheets:


Fair Value of Derivative Contracts
		Derivatives Asset						Derivatives Liability
		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	Location	Fair value						Fair value
		(In millions)
Derivatives designated as hedging instruments
Energy commodity derivative contracts	Fair value of derivative contracts/(Other current liabilities)	$	103	$	31	$	(25)	$	(43)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	59		17		(4)		(8)
Subtotal		162		48		(29)		(51)
Interest rate contracts	Fair value of derivative contracts/(Other current liabilities)	134		45		(3)		—
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	634		313		(8)		(1)
Subtotal		768		358		(11)		(1)
Foreign currency contracts	Fair value of derivative contracts/(Other current liabilities)	—		—		(14)		(6)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	70		46		—		—
Subtotal		70		46		(14)		(6)
Total		1,000		452		(54)		(58)

Derivatives not designated as hedging instruments
Energy commodity derivative contracts	Fair value of derivative contracts/(Other current liabilities)	19		8		(10)		(7)
	Deferred charges and other assets/(Other long-term liabilities and deferred credits)	6		—		(1)		—
Subtotal		25		8		(11)		(7)
Interest rate contracts	Fair value of derivative contracts/(Other current liabilities)	—		—		(3)		—

Subtotal		—		—		(3)		—



Total		25		8		(14)		(7)
Total derivatives		$	1,025	$	460	$	(68)	$	(65)

The following two tables summarize the fair value measurements of our derivative contracts based on the three levels established by the ASC. The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements.


	Balance sheet asset fair value measurements by level
	Level 1		Level 2		Level 3		Gross amount		Contracts available for netting		Cash collateral held(b)		Net amount
	(In millions)
As of September 30, 2020
Energy commodity derivative contracts(a)	$	3	$	184	$	—	$	187	$	(28)	$	—	$	159
Interest rate contracts	—		768		—		768		(2)		—		766
Foreign currency contracts	—		70		—		70		(14)		—		56
As of December 31, 2019
Energy commodity derivative contracts(a)	$	19	$	37	$	—	$	56	$	(19)	$	(21)	$	16
Interest rate contracts	—		358		—		358		—		—		358
Foreign currency contracts	—		46		—		46		(6)		—		40


	Balance sheet liability fair value measurements by level
	Level 1		Level 2		Level 3		Gross amount		Contracts available for netting		Cash collateral posted(b)		Net amount
	(In millions)
As of September 30, 2020
Energy commodity derivative contracts(a)	$	(29)	$	(11)	$	—	$	(40)	$	28	$	8	$	(4)
Interest rate contracts	—		(14)		—		(14)		2		—		(12)
Foreign currency contracts	—		(14)		—		(14)		14		—		—
As of December 31, 2019
Energy commodity derivative contracts(a)	$	(3)	$	(55)	$	—	$	(58)	$	19	$	—	$	(39)
Interest rate contracts	—		(1)		—		(1)		—		—		(1)
Foreign currency contracts	—		(6)		—		(6)		6		—		—

_______

(a)Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps, NGL swaps and crude oil basis swaps.

(b)Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amount associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts or those that are determined solely on their volumetric notional amounts are excluded from this table.

The following tables summarize the pre-tax impact of our derivative contracts in our accompanying consolidated statements of operations and comprehensive income (loss):


Derivatives in fair value hedging relationships	Location	Gain/(loss) recognized in income on derivative and related hedged item
		Three Months Ended September 30,						Nine Months Ended September 30,
		2020		2019		2020		2019
		(In millions)
Interest rate contracts	Interest, net	$	(50)	$	117	$	409	$	453

Hedged fixed rate debt(a)	Interest, net	$	50	$	(119)	$	(418)	$	(468)

_______

(a)As of September 30, 2020, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was an increase of $777 million included in “Debt fair value adjustments” on our accompanying consolidated balance sheet.


Derivatives in cash flow hedging relationships	Gain/(loss) recognized in OCI on derivative(a)					Location		Gain/(loss) reclassified from Accumulated OCI into income(b)
	Three Months Ended September 30,							Three Months Ended September 30,
	2020		2019			2020		2019
	(In millions)							(In millions)
Energy commodity derivative contracts	$	(143)	$	96	Revenues—Commodity sales	$	(47)	$	9


					Costs of sales	(7)		(3)
Interest rate contracts	—		(1)		Earnings from equity investments(c)	(1)		—
Foreign currency contracts	70		(69)		Other, net	61		(59)
Total	$	(73)	$	26	Total	$	6	$	(53)


Derivatives in cash flow hedging relationships	Gain/(loss) recognized in OCI on derivative(a)					Location		Gain/(loss) reclassified from Accumulated OCI into income(b)
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2020		2019			2020		2019
	(In millions)							(In millions)
Energy commodity derivative contracts	$	(29)	$	(74)	Revenues—Commodity sales	$	(145)	$	15


					Costs of sales	(12)		8
Interest rate contracts	(9)		(2)		Earnings from equity investments(c)	(1)		2
Foreign currency contracts	17		(95)		Other, net	64		(71)
Total	$	(21)	$	(171)	Total	$	(94)	$	(46)

_______

(a)We expect to reclassify an approximate $68 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of September 30, 2020 into earnings during the next twelve months (when the associated forecasted transactions are also expected to impact earnings); however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices.

(b)During the nine months ended September 30, 2019, we recognized a $12 million gain associated with a write-down of hedged inventory. All other amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred).

(c)Amounts represent our share of an equity investee’s accumulated other comprehensive income (loss).


Derivatives in net investment hedging relationships	Gain/(loss) recognized in OCI on derivative
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions)
Foreign currency contracts	$	—	$	—	$	—	$	(8)
Total	$	—	$	—	$	—	$	(8)


Derivatives not designated as hedging instruments	Location	Gain/(loss) recognized in income on derivatives
		Three Months Ended September 30,						Nine Months Ended September 30,
		2020		2019		2020		2019
		(In millions)
Energy commodity derivative contracts	Revenues—Commodity sales	$	87	$	12	$	353	$	36
	Costs of sales	12		—		18		(3)
	Earnings from equity investments(b)	—		—		—		2
Total(a)		$	99	$	12	$	371	$	35

_______

(a)The three and nine months ended September 30, 2020 include approximate gains of $96 million and $349 million, respectively, and the three and nine months ended September 30, 2019 include an approximate loss of $4 million and $2 million, respectively. These gains and losses were associated with natural gas, crude and NGL derivative contract settlements.

(b)Amounts represent our share of an equity investee’s income (loss).

Credit Risks

In conjunction with certain derivative contracts, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of September 30, 2020 and December 31, 2019, we had no outstanding letters of credit supporting our commodity price risk management program. As of September 30, 2020, we had cash margins of $32 million posted by us with our counterparties as collateral and reported within “Restricted deposits” on our accompanying consolidated balance sheets. As of December 31, 2019, we had cash margins of $15 million posted by our counterparties with us as collateral and reported within “Other current liabilities” on our accompanying consolidated balance sheets. The balance at September 30, 2020 represents the net of our initial margin requirements of $24 million and counterparty variation margin requirements of $8 million. We also use industry standard commercial agreements that allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we generally utilize master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty.

We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in our credit rating. As of September 30, 2020, based on our current mark-to-market positions and posted collateral, we estimate that if our credit rating were downgraded one or two notches we would not be required to post additional collateral.