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Derivative financial instruments (Tables)
 12 Months Ended
Dec. 31, 2018
Financial Instruments [Abstract]  
Disclosure of fair value of derivative instruments
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

 
 
 
 
 
 
 
 
2018

 
 
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 1
 
111

14

3

—

—

—

128

Level 2
 
5,000

1,362

504

262

120

72

7,320

Level 3
 
491

385

353

331

427

1,640

3,627

 
 
5,602

1,761

860

593

547

1,712

11,075

Less: netting by counterparty
 
(1,765
)
(402
)
(98
)
(37
)
(29
)
(180
)
(2,511
)
 
 
3,837

1,359

762

556

518

1,532

8,564

Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Level 1
 
(156
)
(11
)
(2
)
(2
)
—

—

(171
)
Level 2
 
(4,562
)
(1,161
)
(576
)
(308
)
(67
)
(163
)
(6,837
)
Level 3
 
(337
)
(303
)
(305
)
(302
)
(299
)
(1,535
)
(3,081
)
 
 
(5,055
)
(1,475
)
(883
)
(612
)
(366
)
(1,698
)
(10,089
)
Less: netting by counterparty
 
1,765

402

98

37

29

180

2,511

 
 
(3,290
)
(1,073
)
(785
)
(575
)
(337
)
(1,518
)
(7,578
)
Net fair value
 
547

286

(23
)
(19
)
181

14

986

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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

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. Exchange traded derivatives are typically considered settled through the (normally daily) payment or receipt of variation margin.
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.
30. Derivative financial instruments – continued
 
 
 
 
 
$ million

 
 
 
2018

 
2017

 
 
Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

Derivatives held for trading
 
 
 
 
 
Currency derivatives
 
69

(898
)
237

(756
)
Oil price derivatives
 
2,361

(1,849
)
1,637

(1,281
)
Natural gas price derivatives
 
4,787

(3,888
)
3,580

(2,844
)
Power price derivatives
 
1,240

(943
)
885

(693
)
Other derivatives
 
107

—

115

—

 
 
8,564

(7,578
)
6,454

(5,574
)
Embedded derivatives
 
 
 
 
 
Commodity price contracts
 
—

—

—

(16
)
Other embedded derivatives
 
—

(107
)
—

(115
)
 
 
—

(107
)
—

(131
)
Cash flow hedges
 
 
 
 
 
Currency forwards, futures and cylinders
 
5

(14
)
35

(35
)
Gas price futures
 
2

—

—

—

 
 
7

(14
)
35

(35
)
Fair value hedges
 
 
 
 
 
Currency forwards, futures and swaps
 
158

(789
)
460

(523
)
Interest rate swaps
 
262

(445
)
193

(306
)
 
 
420

(1,234
)
653

(829
)
 
 
8,991

(8,933
)
7,142

(6,569
)
Of which – current
 
3,846

(3,308
)
3,032

(2,808
)
– non-current
 
5,145

(5,625
)
4,110

(3,761
)
Derivative assets held for trading fair value, and maturities
Derivative assets held for trading have the following fair values and maturities.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2018

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
48

12

9

—

—

—

69

Oil price derivatives
 
1,916

363

53

25

4

—

2,361

Natural gas price derivatives
 
1,333

708

542

452

352

1,400

4,787

Power price derivatives
 
540

276

158

79

55

132

1,240

Other derivatives
 
—

—

—

—

107

—

107

 
 
3,837

1,359

762

556

518

1,532

8,564

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
Derivative liabilities held for trading, fair value and maturities
For further information on our derivative financial instruments, see Note 30.
 
 
 
$ million

Cash outflows for derivative financial instruments at 31 December
 
2018

2017

Within one year
 
1,700

1,505

1 to 2 years
 
1,678

1,700

2 to 3 years
 
2,384

1,678

3 to 4 years
 
2,838

2,384

4 to 5 years
 
2,906

2,838

5 to 10 years
 
11,475

11,238

Over 10 years
 
724

724

 
 
23,705

22,067


30. Derivative financial instruments – continued
Derivative liabilities held for trading have the following fair values and maturities.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2018

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
(299
)
(71
)
(256
)
(171
)
(3
)
(98
)
(898
)
Oil price derivatives
 
(1,560
)
(232
)
(43
)
(12
)
(2
)
—

(1,849
)
Natural gas price derivatives
 
(1,030
)
(557
)
(391
)
(338
)
(285
)
(1,287
)
(3,888
)
Power price derivatives
 
(401
)
(213
)
(95
)
(54
)
(47
)
(133
)
(943
)
 
 
(3,290
)
(1,073
)
(785
)
(575
)
(337
)
(1,518
)
(7,578
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
)
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 2018
 
67

65

(226
)
115

21

Gains (losses) recognized in the income statement
 
58

(26
)
209

(8
)
233

Settlements
 
(107
)
(32
)
(97
)
—

(236
)
Transfers out of level 3
 
5

(20
)
(34
)
—

(49
)
Net fair value of contracts at 31 December 2018
 
23

(13
)
(148
)
107

(31
)
Deferred day-one gains (losses)
 
 
 
 
 
577

Derivative asset (liability)
 
 
 
 
 
546

 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
Disclosure of detailed information about hedging instruments and items
The table below summarizes the change in the fair value of hedging instruments and the hedged item used to calculate ineffectiveness in the period.
 
 
 
 
$ million

 
 
Change in fair value of hedging instrument used to calculate ineffectiveness

Change in fair value of hedged item used to calculate ineffectiveness

Hedge ineffectiveness recognized in profit or (loss)

At 31 December 2018
 
Cash flow hedges
 
 
 
 
Foreign exchange risk
 
 
 
 
Highly probable forecast capital expenditure
 
(5
)
5

—

Commodity price risk
 
 
 
 
Highly probable forecast sales
 
(126
)
126

—


The table below summarizes the carrying amount and nominal amount of the derivatives designated as hedging instruments in cash flow hedge relationships at 31 December 2018.
 
 
 
 
 
 
 
 
Carrying amount of hedging instrument
 
Nominal amounts of hedging instruments
 
 
 
Assets

Liabilities

At 31 December 2018
 
$ million

$ million

$ million

mmBtu

Cash flow hedges
 
 
 
 
 
Foreign exchange risk
 
 
 
 
 
Highly probable forecast capital expenditure
 
5

(14
)
386



Commodity price risk
 
 
 
 
 
Highly probable forecast sales
 
2

—

 
145


All hedging instruments are presented within derivative financial instruments on the group balance sheet.
Of the nominal amount of hedging instruments relating to highly probable forecast capital expenditure $304 million matures in 2019 and $82 million matures in 2020. All of the hedging instruments relating to highly probable forecast sales mature in 2019.
The table below summarizes the weighted average exchange rates and the weighted average sales price in relation to the derivatives designated as hedging instruments in cash flow hedge relationships at 31 December 2018.
 
 
Weighted average price/rate
 
At 31 December 2018
 
Forecast capital expenditure

Forecast sales

Sterling/US dollar
 
1.34



Euro/US dollar
 
1.14



Australian dollar/US dollar
 
0.72



Norwegian krone/US dollar
 
8.67



Korean won/US dollar
 
1,107.90



Henry Hub $/mmBtu
 
 
2.86

The table below summarizes the change in the fair value of hedging instruments and the hedged item used to calculate ineffectiveness in the period.
 
 
 
 
$ million

 
 
Change in fair value of hedging instrument used to calculate ineffectiveness

Change in fair value of hedged item used to calculate ineffectiveness

Hedge ineffectiveness recognized in profit or (loss)

At 31 December 2018
 
Fair value hedges
 
 
 
 
Interest rate risk on finance debt
 
(70
)
69

(1
)
Interest rate and foreign currency risk on finance debt
 
812

(809
)
3


The table below summarizes the carrying amount of the derivatives designated as hedging instruments in fair value hedge relationships at 31 December 2018.
 
 
 
 
$ million

 
 
Carrying amount of hedging instrument
 
Nominal amounts of hedging instruments

At 31 December 2018
 
Assets

Liabilities

Fair value hedges
 
 
 
 
Interest rate risk on finance debt
 
262

(445
)
24,513

Interest rate and foreign currency risk on finance debt
 
158

(789
)
16,580

All hedging instruments are presented within derivative financial instruments on the group balance sheet. Ineffectiveness arising on fair value hedges is included within the production and manufacturing expenses section of the income statement.
The table below summarizes the profile by tenor of the nominal amount of the derivatives designated as hedging instruments in fair value hedge relationships at 31 December 2018. The weighted average floating interest rate of these interest rate swaps and cross-currency interest rate swaps was 3.04% and 4.07% respectively.
 
 
 
 
 
 
 
 
 
$ million

At 31 December 2018
 
Less than 1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 years

Over 10 years

Total

Fair value hedges
 
 
 
 
 
 
 
 
 
Interest rate risk on finance debt
 
2,694

2,324

2,597

4,923

1,700

10,275

—

24,513

Interest rate and foreign currency risk on finance debt
 
—

1,245

1,167

707

2,921

10,254

286

16,580





30. Derivative financial instruments – continued
The table below summarizes the carrying amount, and the accumulated fair value adjustments included within the carrying amount, of the hedged items designated in fair value hedge relationships at 31 December 2018.
 
 
 
 
 
 
$ million

 
 
Carrying amount of hedged item
 
Accumulated fair value adjustment included in the carrying amount of hedged items
 
At 31 December 2018
 
Assets

Liabilities

Assets

Liabilities

Discontinued hedges

Fair value hedges
 
 
 
 
 
 
Interest rate risk on finance debt
 
—

(24,747
)
175

—

(360
)
Interest rate and foreign currency risk on finance debt
 
—

(16,883
)
—

(62
)
—

The hedged item for all fair value hedges is presented within finance debt on the group balance sheet.
Movement in reserves related to hedge accounting
The table below provides a reconciliation of the cash flow hedge and costs of hedging reserves on a pre-tax basis by risk category. The signage convention of this table is consistent with that presented in Note 32.
 
 
 
 
 
 
$ million

 
 
Cash flow hedge reserve
 
Costs of hedging reserve

 
 
 
Highly probable forecast capital expenditure

Highly probable forecast sales

Purchase of equitya

Interest rate and foreign currency risk on finance debt

Total

At 31 December 2017
 
(10
)
—

(651
)
—

(661
)
Adjustment on adoption of IFRS 9
 
—

—

—

(37
)
(37
)
At 1 January 2018
 
(10
)
—

(651
)
(37
)
(698
)
Recognized in other comprehensive income
 
 
 
 
 
 
Cash flow hedges marked to market
 
(37
)
(126
)
—

—

(163
)
Cash flow hedges reclassified to the income statement - hedged item affected profit or loss
 
—

120

—

—

120

Costs of hedging marked to market
 
—

—

—

(244
)
(244
)
Costs of hedging reclassified to the income statement
 
—

—

—

58

58

 
 
(37
)
(6
)
—

(186
)
(229
)
Cash flow hedges transferred to the balance sheet
 
26

—

—

—

26

At 31 December 2018
 
(21
)
(6
)
(651
)
(223
)
(901
)
a See Note 32 for further information on the cash flow hedge reserve relating to the purchase of equity