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Derivative financial instruments (Tables)
 12 Months Ended
Dec. 31, 2019
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

 
 
 
 
 
 
 
 
2019

 
 
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
 
63

6

2

—

2

1

74

Level 2
 
5,344

1,014

439

210

120

42

7,169

Level 3
 
779

501

485

540

452

2,708

5,465

 
 
6,186

1,521

926

750

574

2,751

12,708

Less: netting by counterparty
 
(2,041
)
(291
)
(80
)
(36
)
(29
)
(247
)
(2,724
)
 
 
4,145

1,230

846

714

545

2,504

9,984

Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Level 1
 
(49
)
(8
)
(4
)
(1
)
(2
)
(1
)
(65
)
Level 2
 
(4,522
)
(932
)
(458
)
(146
)
(113
)
(101
)
(6,272
)
Level 3
 
(506
)
(377
)
(383
)
(367
)
(352
)
(2,447
)
(4,432
)
 
 
(5,077
)
(1,317
)
(845
)
(514
)
(467
)
(2,549
)
(10,769
)
Less: netting by counterparty
 
2,041

291

80

36

29

247

2,724

 
 
(3,036
)
(1,026
)
(765
)
(478
)
(438
)
(2,302
)
(8,045
)
Net fair value
 
1,109

204

81

236

107

202

1,939

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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

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.
30. Derivative financial instruments – continued
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.
 
 
 
 
 
$ million

 
 
 
2019

 
2018

 
 
Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

Derivatives held for trading
 
 
 
 
 
Currency derivatives
 
81

(744
)
69

(898
)
Oil price derivatives
 
1,918

(1,478
)
2,361

(1,849
)
Natural gas price derivatives
 
6,569

(4,871
)
4,787

(3,888
)
Power price derivatives
 
1,306

(952
)
1,240

(943
)
Other derivatives
 
110

—

107

—

 
 
9,984

(8,045
)
8,564

(7,578
)
Embedded derivatives
 
 
 
 
 
Other embedded derivatives
 
—

(77
)
—

(107
)
 
 
—

(77
)
—

(107
)
Cash flow hedges
 
 
 
 
 
Currency forwards
 
1

(4
)
5

(14
)
Gas price futures
 
—

—

2

—

 
 
1

(4
)
7

(14
)
Fair value hedges
 
 
 
 
 
Currency swaps
 
344

(637
)
158

(789
)
Interest rate swaps
 
138

(35
)
262

(445
)
 
 
482

(672
)
420

(1,234
)
 
 
10,467

(8,798
)
8,991

(8,933
)
Of which – current
 
4,153

(3,261
)
3,846

(3,308
)
– non-current
 
6,314

(5,537
)
5,145

(5,625
)
Derivative assets held for trading fair value, and maturities
Derivative assets held for trading have the following fair values and maturities.
 
 
 
 
 
 
 
 
$ million

 
 
 
 
 
 
 
 
2019

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
48

23

9

1

—

—

81

Oil price derivatives
 
1,619

114

76

53

45

11

1,918

Natural gas price derivatives
 
1,889

824

615

489

433

2,319

6,569

Power price derivatives
 
556

269

146

94

67

174

1,306

Other derivatives
 
33

—

—

77

—

—

110

 
 
4,145

1,230

846

714

545

2,504

9,984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
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
 
2019

2018

Within one year
 
1,678

1,700

1 to 2 years
 
2,384

1,678

2 to 3 years
 
2,838

2,384

3 to 4 years
 
2,906

2,838

4 to 5 years
 
3,321

2,906

5 to 10 years
 
10,633

11,475

Over 10 years
 
2,224

724

 
 
25,984

23,705

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

 
 
 
 
 
 
 
 
2019

 
 
Less than
1 year

1-2 years

2-3 years

3-4 years

4-5 years

Over
5 years

Total

Currency derivatives
 
(166
)
(283
)
(201
)
(1
)
(23
)
(70
)
(744
)
Oil price derivatives
 
(1,405
)
(56
)
(14
)
(2
)
(1
)
—

(1,478
)
Natural gas price derivatives
 
(1,070
)
(522
)
(446
)
(399
)
(363
)
(2,071
)
(4,871
)
Power price derivatives
 
(395
)
(165
)
(104
)
(76
)
(51
)
(161
)
(952
)
 
 
(3,036
)
(1,026
)
(765
)
(478
)
(438
)
(2,302
)
(8,045
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
)
Disclosure of changes in fair value of derivative instruments

30. Derivative financial instruments – continued
Level 3 derivatives
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 2019
 
23

(13
)
(148
)
107

(31
)
Gains (losses) recognized in the income statement
 
128

82

244

2

456

Gains (losses) recognized in other comprehensive income
 
—

—

(18
)
—

(18
)
Settlements
 
(79
)
(21
)
(179
)
—

(279
)
Transfers out of level 3
 
(1
)
(20
)
(24
)
1

(44
)
Net fair value of contracts at 31 December 2019
 
71

28

(125
)
110

84

Deferred day-one gains (losses)
 
 
 
 
 
949

Derivative asset (liability)
 
 
 
 
 
1,033

 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
Disclosure of detailed information about hedging instruments and items
The tables below summarize 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 2019
 
 
 
 
Cash flow hedges
 
 
 
 
Foreign exchange risk
 
 
 
 
Highly probable forecast capital expenditure
 
(1
)
1

—

Commodity price risk
 
 
 
 
Highly probable forecast sales
 
(100
)
100

—

 
 
 
 
 
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 tables below summarize the carrying amount and nominal amount of the derivatives designated as hedging instruments in cash flow hedge relationships.
 
 
 
 
 
 
 
 
Carrying amount of hedging instrument
 
Nominal amounts of hedging instruments
 
 
 
Assets

Liabilities

At 31 December 2019
 
$ million

$ million

$ million

mmBtu

Cash flow hedges
 
 
 
 
 
Foreign exchange risk
 
 
 
 
 
Highly probable forecast capital expenditure
 
1

(4
)
150



 
 
 
 
 
 
At 31 December 2018
 
 
 
 
 
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 at 31 December relating to highly probably forecast capital expenditure $150 million (2018 $304 million) matures within 12 months and $nil (2018 $82 million) within one to two years. All of the hedging instruments relating to highly probable forecast sales at 31 December 2018 matured in 2019.

30. Derivative financial instruments – continued
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.
 
 
Weighted average price/rate
 
 
2019

 
2018

At 31 December
 
Forecast capital expenditure

Forecast capital expenditure

Forecast sales

Sterling/US dollar
 
1.35

1.34



Euro/US dollar
 
1.11

1.14



Australian dollar/US dollar
 
—

0.72



Norwegian krone/US dollar
 
—

8.67



Korean won/US dollar
 
1,115.66

1,107.90



Henry Hub $/mmBtu
 
 
 
2.86

The tables below summarize the change in the fair value of hedging instruments and the hedged item used to calculate ineffectiveness in the period. The signage convention for changes in fair value presented in this table is consistent with that presented in Note 27.
 
 
 
 
$ 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 2019
 
Fair value hedges
 
 
 
 
Interest rate risk on finance debt
 
(764
)
737

27

Interest rate and foreign currency risk on finance debt
 
(336
)
286

50

 
 
 
 
 
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




30. Derivative financial instruments – continued
The tables below summarize the carrying amount of the derivatives designated as hedging instruments in fair value hedge relationships at 31 December.
 
 
 
 
$ million

 
 
Carrying amount of hedging instrument
 
Nominal amounts of hedging instruments

At 31 December 2019
 
Assets

Liabilities

Fair value hedges
 
 
 
 
Interest rate risk on finance debt
 
138

(35
)
13,442

Interest rate and foreign currency risk on finance debt
 
344

(637
)
21,296

 
 
 
 
 
At 31 December 2018
 
 
 
 
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 tables below summarize the profile by tenor of the nominal amount of the derivatives designated as hedging instruments in fair value hedge relationships at 31 December. The weighted average floating interest rate of these interest rate swaps and cross-currency interest rate swaps was 2.36% (2018 3.04%) and 3.27% (2018 4.07%) respectively.
 
 
 
 
 
 
 
 
 
$ million

At 31 December 2019
 
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
 
3,000

2,576

4,039

1,200

206

2,421

—

13,442

Interest rate and foreign currency risk on finance debt
 
882

672

1,400

2,777

3,109

10,216

2,240

21,296

 
 
 
 
 
 
 
 
 
 
At 31 December 2018
 
 
 
 
 
 
 
 
 
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


The tables below summarize 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.
 
 
 
 
 
 
$ million

 
 
Carrying amount of hedged item
 
Accumulated fair value adjustment included in the carrying amount of hedged items
 
At 31 December 2019
 
Assets

Liabilities

Assets

Liabilities

Discontinued hedges

Fair value hedges
 
 
 
 
 
 
Interest rate risk on finance debt
 
—

(13,441
)
—

(100
)
(714
)
Interest rate and foreign currency risk on finance debt
 
—

(21,240
)
—

(525
)
—

 
 
 
 
 
 
 
At 31 December 2018
 
 
 
 
 
 
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.
30. Derivative financial instruments – continued
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 1 January 2019
 
(21
)
(6
)
(651
)
(223
)
(901
)
Recognized in other comprehensive income
 
 
 
 
 
 
Cash flow hedges marked to market
 
(3
)
(100
)
—

—

(103
)
Cash flow hedges reclassified to the income statement - hedged item affected profit or loss
 
—

106

—

—

106

Costs of hedging marked to market
 
—

—

—

(4
)
(4
)
Costs of hedging reclassified to the income statement
 
—

—

—

57

57

 
 
(3
)
6

—

53

56

Cash flow hedges transferred to the balance sheet
 
23

—

—

—

23

At 31 December 2019
 
(1
)
—

(651
)
(170
)
(822
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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