22. Financial Risk Management Activities

In the normal course of our business, we are exposed to commodity risks related to changes in the prices of crude oil and natural gas as well as changes in interest rates and foreign currency values. In the disclosures that follow, corporate financial risk management activities refer to the mitigation of these risks through hedging activities. We maintain a control environment for all of our financial risk management under the direction of our Chief Risk Officer. Hedging strategies are reviewed annually by the Audit Committee of the Board of Directors. Our treasury department is responsible for administering foreign exchange rate and interest rate hedging programs using similar controls and processes, where applicable. Derivatives include both financial instruments and forward purchase and sale contracts.

Corporate Financial Risk Management Activities: Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas we produced or by reducing our exposure to foreign currency or interest rate movements. Generally, futures, swaps or option strategies may be used to fix the forward selling price of a portion of our crude oil or natural gas production. Forward contracts may also be used to purchase certain currencies in which we conduct the business with the intent of reducing exposure to foreign currency fluctuations. These forward contracts comprise various currencies, primarily the British Pound and Danish Krone. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.

Gross notional amounts of both long and short positions are presented in the volume tables beginning below. These amounts include long and short positions that offset in closed positions and have not reached contractual maturity. Gross notional amounts do not quantify risk or represent assets or liabilities of the Corporation, but are used in the calculation of cash settlements under the contracts.

The gross volumes of the financial risk management derivative contracts outstanding at December 31, were as follows:

	2015		2014
Foreign exchange (millions of USD)	$	967	$	1,189
Interest rate swaps (millions of USD)	$	1,300	$	1,300

The table below reflects the gross and net fair values of the risk management derivative instruments, all of which are based on Level 2 inputs:

	Accounts Receivable			Accounts Payable
	(In millions)
December 31, 2015
Derivative contracts designated as hedging instruments
Interest rate	$	3		$	—
Total derivative contracts designated as hedging instruments		3			—
Derivative contracts not designated as hedging instruments
Foreign exchange		19			(3	)
Total derivative contracts not designated as hedging instruments		19			(3	)
Gross fair value of derivative contracts		22			(3	)
Master netting arrangements		(3	)		3
Net fair value of derivative contracts	$	19		$	—

December 31, 2014
Derivative contracts designated as hedging instruments
Interest rate	$	39		$	—
Total derivative contracts designated as hedging instruments		39			—
Derivative contracts not designated as hedging instruments
Foreign exchange		29			—
Total derivative contracts not designated as hedging instruments		29			—
Gross fair value of derivative contracts		68			—
Net fair value of derivative contracts	$	68		$	—

Derivative contracts designated as hedging instruments:

Commodity: In 2015, crude oil price hedging contracts increased E&P Sales and other operating revenues by $126 million, including losses of $48 million associated with changes in the time value of crude oil collars. In 2014 and 2013, crude oil price hedging contracts increased E&P Sales and other operating revenues by $193 million and $39 million, respectively.

Interest rate swaps: At December 31, 2015, we had interest rate swaps with gross notional amounts of $1,300 million (2014: $1,300 million), which were designated as fair value hedges. During 2015, we settled existing interest rate swaps and received cash proceeds of $41 million. Changes in the fair value of interest rate swaps and the hedged fixed‑rate debt are recorded in Interest expense in the Statement of Consolidated Income. In 2015, we recorded an increase of $4 million, excluding accrued interest, in the fair value of interest rate swaps and a corresponding adjustment in the carrying value of the hedged fixed‑rate debt (2014: $1 million increase; 2013: $35 million decrease).

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income and amounted to a loss of $21 million in 2015 (2014: loss of $43 million; 2013: loss of $54 million) and includes gains or losses on foreign exchange contracts that are not designated as hedges amounting to a gain of $98 million in 2015 (2014: gain of $117 million; 2013: loss of $39 million). The after‑tax foreign currency translation adjustments included in the Statement of Consolidated Comprehensive Income amounted to a loss of $344 million for the year-ended December 31, 2015 (2014: loss of $756 million; 2013: loss of $164 million). Cumulative currency translation adjustments reduced shareholders’ equity by $1,101 million at December 31, 2015 and $757 million at December 31, 2014.

Trading Activities: In February 2015, we sold our interest in our energy trading joint venture, HETCO, which was subsequently, renamed Hartree Partners, LP (Hartree). Pursuant to the terms of the sale, Hartree was permitted to utilize our guarantees issued in favor of Hartree's existing counterparties until November 12, 2015, provided that new trades were for a period of one year or less, complied with certain credit requirements, and net exposures remained within value at risk limits previously applied by us. The guarantees remain in effect until the qualifying trades outstanding at November 12, 2015 mature. We have the right to seek reimbursement from Hartree and a separate Hartree credit support facility upon any counterparty draw on the applicable guarantee from us. No draws on the guaranteed trades have occurred through December 31, 2015. A liability of $10 million associated with the guarantee is included in Other accrued liabilities at December 31, 2015.

Credit Risk: We are exposed to credit risks that may at times be concentrated with certain counterparties, groups of counterparties or customers. Accounts receivable are generated from a diverse domestic and international customer base. As of December 31, 2015, our Accounts receivable—Trade related to continuing operations were concentrated with the following counterparty industry segments: Integrated Oil Companies — 58%, Governments — 18%, Financial Institutions — 10% and Other — 14%. We reduce risk related to certain counterparties, where applicable, by using master netting arrangements and requiring collateral, generally cash or letters of credit.

At December 31, 2015, we had outstanding letters of credit totaling $113 million (2014: $397 million, of which $240 million related to discontinued operations).

Fair Value Measurement: We have other short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at December 31, 2015 and December 31, 2014. In addition, the disclosure for fair value of long-term debt in Note 8, Debt was based on Level 2 inputs.