11. 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. Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas we produce 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. At June 30, 2017, these forward contracts relate to the British Pound. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates and, in the case of certain long-term debt relating to our Midstream operating segment, from floating to fixed rates.

Gross notional amounts of both long and short positions are presented in the table 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 notional amounts of financial risk management derivative contracts outstanding were as follows:

	June 30, 2017		December 31, 2016
	(In millions)
Commodity - crude oil (millions of barrels)		15		—
Foreign exchange	$	54	$	785
Interest rate swaps	$	995	$	350

At June 30, 2017, we have Brent crude oil price collars to hedge 20,000 barrels of oil per day (bopd) through December 31, 2017. These collars have a floor price of $55 per barrel and a ceiling price of $75 per barrel. We also have West Texas Intermediate (WTI) crude oil price collars covering 60,000 bopd through December 31, 2017 that have a floor price of $50 per barrel and a ceiling price of $70 per barrel. The crude oil price collars, which have been designated as cash flow hedges, reduce the price exposure to our crude oil production that is hedged.

During the second quarter of 2017, HIP entered into amortizing interest rate swaps to hedge its exposure to variable rate debt through June 2020. Under the terms of the swaps, HIP will receive 3-month LIBOR from counterparties and pay an average fixed rate of 1.60%. These instruments have been designated as cash flow hedges.

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)
June 30, 2017
Derivative Contracts Designated as Hedging Instruments
Commodity	$	75		$	—
Interest rate		1			(3	)
Total derivative contracts designated as hedging instruments		76			(3	)
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		1			—
Total derivative contracts not designated as hedging instruments		1			—
Gross fair value of derivative contracts		77			(3	)
Net Fair Value of Derivative Contracts	$	77		$	(3	)

December 31, 2016
Derivative Contracts Designated as Hedging Instruments
Interest rate	$	—		$	—
Total derivative contracts designated as hedging instruments		—			—
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		9			(1	)
Total derivative contracts not designated as hedging instruments		9			(1	)
Gross fair value of derivative contracts		9			(1	)
Master netting arrangements		(1	)		1
Net Fair Value of Derivative Contracts	$	8		$	—

Derivative contracts designated as hedging instruments:

Crude oil collars: Realized and unrealized losses from crude oil collars for the three and six months ended June 30, 2017 decreased Sales and other operating revenue by $12 million and $11 million, respectively of which gains of $20 million were reclassified from Other comprehensive income. At June 30, 2017, the after-tax deferred gains in Accumulated other comprehensive income (loss) related to crude oil collars were $56 million, which will be reclassified into earnings during 2017 as the hedged crude oil sales are recognized in earnings. There were no crude oil hedge contracts in 2016.

Interest rate swaps designated as fair value hedges: At June 30, 2017 and December 31, 2016, Hess Corporation had interest rate swaps with gross notional amounts totaling $450 million and $350 million, respectively, which were designated as fair value hedges and relate to debt where we have converted interest payments on certain long-term debt from fixed to floating rates. For the three and six months ended June 30, 2017, the change in fair value of interest rate swaps was an increase in the liability of $2 million and $3 million respectively, compared with an increase to assets of $4 million and $18 million in the second quarter and first six months of 2016, respectively. Changes in the fair value of the interest rate swaps and the hedged fixed‑rate debt are recorded in Interest expense in the Statement of Consolidated Income.

Interest rate swaps designated as cash flow hedges: At June 30, 2017, HIP had interest rate swaps with gross notional amounts totaling $545 million, which were designated as cash flow hedges and relates to debt in our Midstream operating segment where HIP has converted interest payments on certain long-term debt from floating to fixed rates. For the three and six months ended June 30, 2017, the change in fair value of interest rate swaps was an increase to assets of $1 million. At June 30, 2017, the after-tax deferred gains in Accumulated other comprehensive income (loss) related to interest rate swaps were $1 million before noncontrolling interests, which will be reclassified into earnings as the hedged interest payments are recognized in earnings. Of this amount, losses of less than $1 million will be reclassified into earnings during the next 12 months. There were no floating to fixed interest rate swap contracts in 2016.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses, which are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income amounted to gains of $10 million and $9 million in the three months and six months ended June 30, 2017, respectively, compared with gains of $15 million and $21 million in the second quarter and first six months of 2016, respectively. A component of foreign exchange gains or losses is the result of foreign exchange derivative contracts that are not designated as hedges which amounted to a gain of $2 million in both the second quarter and first six months of 2017, respectively, compared to gains of $33 million and $13 million in the second quarter and first six months of 2016, respectively.

The after‑tax foreign currency translation adjustments included in the Statement of Consolidated Comprehensive Income amounted to gains of $73 million and $87 million in the second quarter and first six months of 2017, respectively, compared to a loss of $27 million and a gain of $142 million in the second quarter and first six months of 2016, respectively. The cumulative currency translation adjustment at June 30, 2017, was a reduction to shareholders’ equity of $958 million compared with a reduction of $1,045 million at December 31, 2016.

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 June 30, 2017. Total long-term debt with a carrying value of $6,733 million at June 30, 2017, had a fair value of $7,100 million based on Level 2 inputs.