Financial Instruments and Derivatives

9 Months Ended

Sep. 30, 2020

Financial Instruments And Derivatives [Abstract]

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


		At September 30, 2020
		(millions of dollars)
		Fair Value
		Level 1	Level 2	Level 3	Total Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying Value
Assets
	Derivative assets (1)	637	121	—	758	(571)	(80)	—	107
	Advances to/receivables
	from equity companies (2)(7)	—	3,152	6,081	9,233	—	—	(193)	9,040
	Other long-term
	financial assets (3)	1,197	—	915	2,112	—	—	130	2,242
Liabilities
	Derivative liabilities (4)	817	91	—	908	(571)	(259)	—	78
	Long-term debt (5)	49,153	149	4	49,306	—	—	(4,031)	45,275
	Long-term obligations
	to equity companies (7)	—	—	3,685	3,685	—	—	(199)	3,486
	Other long-term
	financial liabilities (6)	—	—	1,073	1,073	—	—	11	1,084


		At December 31, 2019
		(millions of dollars)
		Fair Value
		Level 1	Level 2	Level 3	Total Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying 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 September 30, 2020, the Corporation had $462 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 September 30, 2020, is below:


Issuance Date	Description of Notes	Carrying 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)	1,310
	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	1,756
	0.524% Notes due 2028	1,171
	0.835% Notes due 2032	1,171
	1.408% Notes due 2039	1,171

	Total	23,421

(1) Includes premiums of $152 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 September 30, 2020, the Corporation has designated $5.3 billion of its Euro-denominated long-term debt and related accrued interest 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 $11.0 billion and an undrawn long-term committed line of credit of $0.2 billion as of third quarter 2020. In the third quarter, the Corporation increased its 364-day facility from $7.5 billion to $10.0 billion and terminated the supplemental $7.0 billion facility that was established in the first quarter of 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 September 30, 2020, and December 31, 2019, or results of operations for the periods ended September 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 September 30, 2020, and December 31, 2019, was as follows:


	September 30,	December 31,
	2020	2019
	(millions)
Crude oil (barrels)	50	57
Petroleum products (barrels)	(50)	(38)
Natural Gas (MMBTUs)	(438)	(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 September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(millions of dollars)		(millions of dollars)
Sales and other operating revenue	(297)	144	688	(98)
Crude oil and product purchases	134	60	(396)	75
Total	(163)	204	292	(23)