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Derivative financial instruments (Tables)
 12 Months Ended
Dec. 31, 2017
Financial Instruments [Abstract]  
Disclosure of fair value of derivative instruments
The fair values of derivative financial instruments at 31 December are set out below.
Exchange traded derivatives are valued using closing prices provided by the exchange as at the balance sheet date. These derivatives are categorized within level 1 of the fair value hierarchy.
Over-the-counter (OTC) financial swaps and physical commodity sale and purchase contracts are generally valued using readily available information in the public markets and quotations provided by brokers and price index developers. These quotes are corroborated with market data and are categorized within level 2 of the fair value hierarchy.
In certain less liquid markets, or for longer-term contracts, forward prices are not as readily available. In these circumstances, OTC financial swaps and physical commodity sale and purchase contracts are valued using internally developed methodologies that consider historical relationships between various commodities, and that result in management’s best estimate of fair value. These contracts are categorized within level 3 of the fair value hierarchy.
Financial OTC and physical commodity options are valued using industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic factors. The degree to which these inputs are observable in the forward markets determines whether the option is categorized within level 2 or level 3 of the fair value hierarchy.
28. Derivative financial instruments – continued
 
 
 
 
 
$ million

 
 
 
2017

 
2016

 
 
Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

Derivatives held for trading
 
 
 
 
 
Currency derivatives
 
237

(756
)
167

(2,000
)
Oil price derivatives
 
1,637

(1,281
)
1,543

(952
)
Natural gas price derivatives
 
3,580

(2,844
)
3,780

(2,845
)
Power price derivatives
 
885

(693
)
768

(560
)
Other derivatives
 
115

—

232

—

 
 
6,454

(5,574
)
6,490

(6,357
)
Embedded derivatives
 
 
 
 
 
Commodity price contracts
 
—

(16
)
—

(50
)
Other embedded derivatives
 
—

(115
)
—

(100
)
 
 
—

(131
)
—

(150
)
Cash flow hedges
 
 
 
 
 
Currency forwards, futures and cylinders
 
35

(35
)
32

(451
)
Cross-currency interest rate swaps
 
—

—

—

(154
)
 
 
35

(35
)
32

(605
)
Fair value hedges
 
 
 
 
 
Currency forwards, futures and swaps
 
460

(523
)
22

(1,159
)
Interest rate swaps
 
193

(306
)
831

(233
)
 
 
653

(829
)
853

(1,392
)
 
 
7,142

(6,569
)
7,375

(8,504
)
Of which – current
 
3,032

(2,808
)
3,016

(2,991
)
– non-current
 
4,110

(3,761
)
4,359

(5,513
)
The following table shows the fair value of derivative assets and derivative liabilities held for trading, analysed by maturity period and by methodology of fair value estimation. This information is presented on a gross basis, that is, before netting by counterparty.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2017

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Fair value of derivative assets
 
 
 
 
 
 
 
 
Level 2
 
3,663

1,003

438

244

140

135

5,623

Level 3
 
386

258

231

226

211

899

2,211

 
 
4,049

1,261

669

470

351

1,034

7,834

Less: netting by counterparty
 
(1,041
)
(256
)
(53
)
(11
)
(8
)
(11
)
(1,380
)
 
 
3,008

1,005

616

459

343

1,023

6,454

Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Level 2
 
(3,338
)
(953
)
(358
)
(289
)
(163
)
(166
)
(5,267
)
Level 3
 
(225
)
(197
)
(191
)
(177
)
(173
)
(724
)
(1,687
)
 
 
(3,563
)
(1,150
)
(549
)
(466
)
(336
)
(890
)
(6,954
)
Less: netting by counterparty
 
1,041

256

53

11

8

11

1,380

 
 
(2,522
)
(894
)
(496
)
(455
)
(328
)
(879
)
(5,574
)
Net fair value
 
486

111

120

4

15

144

880

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2016

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Fair value of derivative assets
 
 
 
 
 
 
 
 
Level 2
 
3,962

1,035

509

208

117

189

6,020

Level 3
 
448

265

249

243

241

906

2,352

 
 
4,410

1,300

758

451

358

1,095

8,372

Less: netting by counterparty
 
(1,455
)
(254
)
(109
)
(29
)
(9
)
(26
)
(1,882
)
 
 
2,955

1,046

649

422

349

1,069

6,490

Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Level 2
 
(3,610
)
(778
)
(701
)
(249
)
(401
)
(872
)
(6,611
)
Level 3
 
(159
)
(164
)
(188
)
(189
)
(177
)
(751
)
(1,628
)
 
 
(3,769
)
(942
)
(889
)
(438
)
(578
)
(1,623
)
(8,239
)
Less: netting by counterparty
 
1,455

254

109

29

9

26

1,882

 
 
(2,314
)
(688
)
(780
)
(409
)
(569
)
(1,597
)
(6,357
)
Net fair value
 
641

358

(131
)
13

(220
)
(528
)
133
Derivative assets held for trading fair value, and maturities
Derivative assets held for trading have the following fair values and maturities.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2017

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
186

31

8

5

3

4

237

Oil price derivatives
 
1,280

177

99

66

14

1

1,637

Natural gas price derivatives
 
1,122

609

428

328

288

805

3,580

Power price derivatives
 
420

188

81

60

38

98

885

Other derivatives
 
—

—

—

—

—

115

115

 
 
3,008

1,005

616

459

343

1,023

6,454

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2016

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
102

34

20

2

7

2

167

Oil price derivatives
 
1,178

201

91

49

22

2

1,543

Natural gas price derivatives
 
1,238

647

424

313

267

891

3,780

Power price derivatives
 
305

164

114

58

53

74

768

Other derivatives
 
132

—

—

—

—

100

232

 
 
2,955

1,046

649

422

349

1,069

6,490
Derivative liabilities held for trading, fair value and maturities
For further information on our derivative financial instruments, see Note 28.
 
 
 
$ million

Cash outflows for derivative financial instruments at 31 December
 
2017

2016

Within one year
 
1,505

2,677

1 to 2 years
 
1,700

1,505

2 to 3 years
 
1,678

1,700

3 to 4 years
 
2,384

1,678

4 to 5 years
 
2,838

2,384

5 to 10 years
 
11,238

9,985

Over 10 years
 
724

1,413

 
 
22,067

21,342

Derivative liabilities held for trading have the following fair values and maturities.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2017

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
(92
)
(232
)
(66
)
(188
)
(99
)
(79
)
(756
)
Oil price derivatives
 
(1,120
)
(118
)
(33
)
(4
)
(6
)
—

(1,281
)
Natural gas price derivatives
 
(973
)
(410
)
(334
)
(224
)
(194
)
(709
)
(2,844
)
Power price derivatives
 
(337
)
(134
)
(63
)
(39
)
(29
)
(91
)
(693
)
 
 
(2,522
)
(894
)
(496
)
(455
)
(328
)
(879
)
(5,574
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2016

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
(379
)
(36
)
(402
)
(101
)
(338
)
(744
)
(2,000
)
Oil price derivatives
 
(787
)
(105
)
(40
)
(11
)
(3
)
(6
)
(952
)
Natural gas price derivatives
 
(947
)
(421
)
(257
)
(258
)
(197
)
(765
)
(2,845
)
Power price derivatives
 
(201
)
(126
)
(81
)
(39
)
(31
)
(82
)
(560
)
 
 
(2,314
)
(688
)
(780
)
(409
)
(569
)
(1,597
)
(6,357
)
Disclosure of changes in fair value of derivative instruments
The following table shows the changes during the year in the net fair value of derivatives held for trading purposes within level 3 of the fair value hierarchy.
 
 
 
 
 
 
$ million

 
 
Oil
price

Natural gas
price

Power
price

Other

Total

Fair value contracts at 1 January 2017
 
68

145

(147
)
231

297

Gains (losses) recognized in the income statement
 
76

161

61

15

313

Settlements
 
(68
)
(35
)
(113
)
(131
)
(347
)
Transfers out of level 3
 
(9
)
(206
)
(27
)
—

(242
)
Net fair value of contracts at 31 December 2017
 
67

65

(226
)
115

21

Deferred day-one gains (losses)
 
 
 
 
 
503

Derivative asset (liability)
 
 
 
 
 
524

 
 
 
 
 
 
 
 
 
 
 
 
 
$ million

 
 
Oil
price

Natural gas
price

Power
price

Other

Total

Fair value contracts at 1 January 2016
 
169

214

91

292

766

Gains (losses) recognized in the income statement
 
(37
)
1

(82
)
139

21

Settlements
 
(63
)
(51
)
(145
)
(200
)
(459
)
Transfers out of level 3
 
(1
)
(19
)
(11
)
—

(31
)
Net fair value of contracts at 31 December 2016
 
68

145

(147
)
231

297

Deferred day-one gains (losses)
 
 
 
 
 
427

Derivative asset (liability)
 
 
 
 
 
724