DERIVATIVES

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

NOTE 9    DERIVATIVES

We use a variety of derivative instruments to protect our cash flow, operating margin and capital program from the cyclical nature of commodity prices and interest-rate movements. These derivatives are intended to help us maintain adequate liquidity and improve our ability to comply with the covenants of our Credit Facilities in case of commodity-price deterioration.

Commodity-Price Risk

We did not have any commodity derivatives designated as accounting hedges as of and during the years ended December 31, 2019, 2018 and 2017. As part of our hedging program, we held the following Brent-based crude oil contracts as of December 31, 2019:

	Q1 2020		Q2 2020		Q3 2020		Q4 2020
Purchased Puts:
Barrels per day	30,000		20,000		13,000		8,000
Weighted-average price per barrel	$	70.83	$	67.50	$	65.00	$	65.00
Sold Puts:
Barrels per day	30,000		20,000		18,000		13,000
Weighted-average price per barrel	$	56.67	$	53.75	$	54.31	$	53.81
Swaps:
Barrels per day	—		5,000		5,000		5,000
Weighted-average price per barrel	$	—	$	70.05	$	65.00	$	65.00

Our counterparties have an option to increase volumes by up to 5,000 barrels per day for the second quarter of 2020 at a weighted-average Brent price of $70.05. A counterparty has an option to increase volumes by up to 5,000 barrels per day for the second half of 2020 at a weighted-average Brent price of $65.00.

The BSP JV entered into crude oil derivatives that are included in our consolidated results but not in the above table. The hedges entered into by the BSP JV could affect the timing of the reversion of BSP's preferred interest. The BSP JV sold call options for approximately 500 barrels per day at a weighted-average price per barrel of $60.00 per barrel for 2020. The BSP JV purchased put options for approximately 2,000 barrels per day at a weighted-average price per barrel of approximately $50.00 for 2020. The BSP JV also purchased put options for approximately 1,000 barrels per day at a weighted-average price per barrel of approximately $45.00 for 2021. The BSP JV also entered into natural gas swaps for insignificant volumes for periods through May 2021.

The outcomes of the derivative positions are as follows:

• Sold call options – we make settlement payments for prices above the indicated weighted-average price per barrel.

• Purchased put options – we receive settlement payments for prices below the indicated weighted-average price per barrel.

• Sold put options – we make settlement payments for prices below the indicated weighted-average price per barrel.

From time to time, we may use combinations of these positions to increase the efficacy of our hedging program.

For the years ended December 31, 2019, 2018 and 2017, we recorded a non-cash derivative (loss) gain of approximately $(170) million, $229 million, and $(83) million, respectively, from marking these contracts to market, which were included in net derivative (loss) gain from commodity contracts on our consolidated statements of operations. For the year ended December 31, 2019, we received settlement payments of $111 million. For the years ended December 31, 2018 and 2017, we made settlement payments of $228 million and $7 million, respectively.

Interest-Rate Risk

In May 2018, we entered into derivative contracts that limit our interest rate exposure with respect to $1.3 billion of our variable-rate indebtedness. These interest-rate contracts reset monthly and require the counterparties to pay any excess interest owed on such amount in the event the one-month LIBOR exceeds 2.75% for any monthly period prior to May 4, 2021.

For the years ended December 31, 2019 and 2018, we reported losses on these contracts in other non-operating expenses on our consolidated statements of operations of $4 million and $6 million, respectively. No payments were received in either 2019 or 2018.

Fair Value of Derivatives

Our derivative contracts are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are classified as Level 2 in the required fair value hierarchy for the periods presented.

Commodity Contracts

The following table presents the fair values (at gross and net) of our outstanding derivatives as of December 31, 2019 and 2018:

December 31, 2019
Balance Sheet Classification	Gross Amounts Recognized at Fair Value			Gross Amounts Offset in the Balance Sheet			Net Fair Value Presented in the Balance Sheet
Assets:	(in millions)
Other current assets	$	49		$	(10	)	$	39
Other assets	1			—			1
Liabilities:
Accrued liabilities	(15		)	10			(5		)
Other long-term liabilities	—			—			—
	$	35		$	—		$	35

December 31, 2018
Balance Sheet Classification	Gross Amounts Recognized at Fair Value			Gross Amounts Offset in the Balance Sheet			Net Fair Value Presented in the Balance Sheet
Assets:	(in millions)
Other current assets	$	252		$	(84	)	$	168
Other assets	23			(9		)	14
Liabilities:
Accrued liabilities	(87		)	84			(3		)
Other long-term liabilities	(10		)	9			(1		)
	$	178		$	—		$	178

Interest-Rate Contracts

As of December 31, 2019, and 2018, we reported the fair value of our interest-rate derivatives of zero and $4 million, respectively, in other assets on our consolidated balance sheets.

Counterparty Credit Risk

Our credit risk relates primarily to trade receivables, joint interest receivables and derivative financial instruments. Credit exposure for each customer is monitored for outstanding balances and current activity. We actively manage this credit risk by selecting counterparties that we believe to be financially strong and continuing to monitor their financial health. Concentration of credit risk is regularly reviewed to ensure that counterparty credit risk is adequately diversified.

As of December 31, 2019, the substantial majority of the credit exposures related to our derivative financial instruments was with investment-grade counterparties. We believe exposure to credit-related losses at December 31, 2019 was not material and losses associated with credit risk have been insignificant for all years presented.

All of our derivative instruments are covered by International Swap Dealers Association Master Agreements

with counterparties. At December 31, 2019, and 2018, we had insignificant collateral posted.