Financial Instruments and Derivatives

6 Months Ended

Jun. 30, 2020

Financial Instruments And Derivatives [Abstract]

Financial Instruments and Derivatives

7.Financial Instruments and Derivatives

Financial Instruments. The estimated fair value of financial instruments at June 30, 2020, and December 31, 2019, and the related hierarchy level for the fair value measurement is as follows:

			At June 30, 2020
			(millions of dollars)
			Fair Value
									Difference
						Total Gross	Effect of	Effect of	in Carrying	Net
						Assets	Counterparty	Collateral	Value and	Carrying
			Level 1	Level 2	Level 3	& Liabilities	Netting	Netting	Fair Value	Value
Assets
	Derivative assets (1)		1,488	165	-	1,653	(1,423)	(65)	-	165
	Advances to/receivables
		from equity companies (2)(7)	-	1,916	6,795	8,711	-	-	48	8,759
	Other long-term
		financial assets (3)	1,157	-	889	2,046	-	-	137	2,183
Liabilities
	Derivative liabilities (4)		1,748	88	-	1,836	(1,423)	(325)	-	88
	Long-term debt (5)		49,106	166	4	49,276	-	-	(3,962)	45,314
	Long-term obligations
		to equity companies (7)	-	-	3,766	3,766	-	-	65	3,831
	Other long-term
		financial liabilities (6)	-	-	1,066	1,066	-	-	6	1,072

			At December 31, 2019
			(millions of dollars)
			Fair Value
									Difference
						Total Gross	Effect of	Effect of	in Carrying	Net
						Assets	Counterparty	Collateral	Value and	Carrying
			Level 1	Level 2	Level 3	& Liabilities	Netting	Netting	Fair Value	Value
Assets
	Derivative assets (1)		533	102	-	635	(463)	(70)	-	102
	Advances to/receivables
		from equity companies (2)(7)	-	1,941	6,729	8,670	-	-	(128)	8,542
	Other long-term
		financial assets (3)	1,145	-	974	2,119	-	-	44	2,163
Liabilities
	Derivative liabilities (4)		568	70	-	638	(463)	(105)	-	70
	Long-term debt (5)		25,652	134	3	25,789	-	-	(1,117)	24,672
	Long-term obligations
		to equity companies (7)	-	-	4,245	4,245	-	-	(257)	3,988
	Other long-term
		financial liabilities (6)	-	-	1,042	1,042	-	-	16	1,058
(1)	Included in the Balance Sheet lines: Notes and accounts receivable - net and Other assets, including intangibles, net
(2)	Included in the Balance Sheet line: Investments, advances and long-term receivables
(3)	Included in the Balance Sheet lines: Investments, advances and long-term receivables and Other assets, including intangibles, net
(4)	Included in the Balance Sheet lines: Accounts payable and accrued liabilities and Other long-term obligations
(5)	Excluding finance lease obligations
(6)	Included in the Balance Sheet line: Other long-term obligations
(7)	Advances to/receivables from equity companies and long-term obligations to equity companies are mainly designated as hierarchy level 3 inputs. The fair value is calculated by discounting the remaining obligations by a rate consistent with the credit quality and industry of the company.

At June 30, 2020, the Corporation had $496 million of collateral under master netting arrangements not offset against the derivatives on the Consolidated Balance Sheet, primarily related to initial margin requirements.Long-term debt. The increase in the estimated fair value and book value of long-term debt reflects the Corporation’s issuance of new debt securities during 2020. The carrying value of these debt securities as of June 30, 2020, is below:

		Carrying
Issuance Date	Description of Notes	Value
(millions of dollars)
March 2020
	2.992% notes due 2025	1,500
	3.294% notes due 2027	1,000
	3.482% notes due 2030	2,000
	4.227% notes due 2040	1,250
	4.327% notes due 2050	2,750
April 2020
	1.571% notes due 2023	2,750
	2.992% notes due 2025 (1)	1,314
	2.610% notes due 2030	2,000
	4.227% notes due 2040 (1)	842
	3.452% notes due 2051	2,750
June 2020 (2)
	0.142% notes due 2024	1,680
	0.524% notes due 2028	1,120
	0.835% notes due 2032	1,120
	1.408% notes due 2039	1,120
	Total	23,196

(1) Includes premiums of $156 million.(2) Euro-denominated.

The Corporation may use non-derivative financial instruments, such as its foreign currency-denominated debt, as hedges of its net investments in certain foreign subsidiaries. Under this method, the change in the carrying value of the financial instruments due to foreign exchange fluctuations is reported in accumulated other comprehensive income. As of June 30, 2020, the Corporation has designated $1.9 billion of its Euro-denominated long-term debt as a net investment hedge of its European business. The net investment hedge is deemed to be perfectly effective.

The Corporation had undrawn short-term committed lines of credit of $15.4 billion and an undrawn long-term committed line of credit of $0.2 billion as of second quarter 2020.

Derivative Instruments. The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in commodity prices, currency rates and interest rates. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. Commodity contracts held for trading purposes are presented in the Consolidated Statement of Income on a net basis in the line “Sales and other operating revenue.” The Corporation’s commodity derivatives are not accounted for under hedge accounting. At times, the Corporation also enters into currency and interest rate derivatives, none of which are material to the Corporation’s financial position as of June 30, 2020, and December 31, 2019, or results of operations for the periods ended June 30, 2020, and 2019.

Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.

The net notional long/(short) position of derivative instruments at June 30, 2020, and December 31, 2019, was as follows:

	June 30,	Dec. 31,
	2020	2019
Crude oil (millions of barrels)	(32)	57
Petroleum products (millions of barrels)	(53)	(38)
Natural Gas (MMBTUs)	(351)	(165)

Realized and unrealized gains/(losses) on derivative instruments that were recognized in the Consolidated Statement of Income are included in the following lines on a before-tax basis:

		Three Months Ended		Six Months Ended
		June 30,		June 30,
		2020	2019	2020	2019
		(millions of dollars)
Sales and other operating revenue		(251)	33	985	(242)
Crude oil and product purchases		(178)	33	(530)	15
	Total	(429)	66	455	(227)