Financial Risk Management Activities

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

13. 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. Financial risk management activities include transactions designed to reduce risk in the selling prices of the 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, or establish a floor price or a range banded with a floor and ceiling price, for a portion of our crude oil or natural gas production. Forward or swap strategies may be used to reduce exposure to foreign currency fluctuations for currencies in which we conduct business. At September 30, 2021, these forward and swap strategies relate to the British Pound, Canadian Dollar and Malaysian Ringgit. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.

The notional amounts of outstanding financial risk management derivative contracts were as follows:


	September 30, 2021		December 31, 2020

	(In millions)
Commodity - crude oil put options / collars (millions of barrels)	54.0		27.4

Foreign exchange forwards	$	135	$	163
Interest rate swaps	$	100	$	100

As of September 30, 2021, we have West Texas Intermediate (WTI) put options for 120,000 barrels of oil per day (bopd) with an average monthly floor price of $55 per barrel and Brent put options for 30,000 bopd with an average monthly floor price of $60 per barrel for the remainder of 2021. For calendar 2022, we have WTI collars with an average monthly floor price of $60 per barrel and an average monthly ceiling price of $90 per barrel for 80,000 bopd and Brent collars with an average monthly floor price of $65 per barrel and an average monthly ceiling price of $95 per barrel for 30,000 bopd. See Note 14, Subsequent Events.

The table below reflects the fair values of risk management derivative instruments.


	Assets		Liabilities

	(In millions)
September 30, 2021
Derivative Contracts Designated as Hedging Instruments:
Crude oil put options / collars	$	106	$	—
Interest rate swaps	4		—
Total derivative contracts designated as hedging instruments	110		—
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards / swaps	1		—
Total derivative contracts not designated as hedging instruments	1		—
Gross fair value of derivative contracts	111		—
Gross amounts offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	111	$	—
December 31, 2020
Derivative Contracts Designated as Hedging Instruments:
Crude oil put options	$	64	$	—
Crude oil swaps	—		(54)
Interest rate swaps	5		—
Total derivative contracts designated as hedging instruments	69		(54)
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards / swaps	—		(1)
Total derivative contracts not designated as hedging instruments	—		(1)
Gross fair value of derivative contracts	69		(55)
Gross amounts offset in the Consolidated Balance Sheet	(13)		13
Net Amounts Presented in the Consolidated Balance Sheet	$	56	$	(42)

Of the total fair value of our crude oil hedging contracts at September 30, 2021, $65 million is presented within Other current assets and $41 million is presented within Other assets in our Consolidated Balance Sheet. The fair value of our crude oil put options at December 31, 2020 is presented in Other current assets in our Consolidated Balance Sheet. The fair value of our interest rate swaps is presented within Other assets in our Consolidated Balance Sheet. The fair value of our foreign exchange forwards and swaps is presented within Accounts receivable - Joint venture and other and Accrued liabilities in our Consolidated Balance Sheet at September 30, 2021 and December 31, 2020, respectively. All fair values in the table above are based on Level 2 inputs.

Derivative contracts designated as hedging instruments:

Crude oil derivatives designated as cash flow hedges: Crude oil hedging contracts decreased Sales and other operating revenues by $64 million and $179 million in the three and nine months ended September 30, 2021, respectively, and increased Sales and other operating revenues by $143 million and $435 million, respectively, in the three and nine months ended September 30, 2020. The pre-tax deferred losses in Accumulated other comprehensive income (loss) related to outstanding crude oil hedging contracts were $88 million at September 30, 2021, $82 million of which will be reclassified into earnings during the next twelve months as the hedged crude oil sales are recognized in earnings.

During the first quarter of 2021, we completed the sale of 4.2 million barrels of Bakken crude oil transported and stored on two VLCCs during 2020 for sale in Asian markets. We recognized net losses of $4 million from crude oil hedging contracts associated with the VLCC volumes in the first quarter of 2021.

Interest rate swaps designated as fair value hedges: We had interest rate swaps with gross notional amounts totaling $100 million at September 30, 2021 and December 31, 2020, that convert interest payments from fixed to floating rates. 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. The change in fair value of interest rate swaps was nil and a decrease of $1 million in the three and nine months ended September 30, 2021, respectively, compared with a change in fair value of nil and an increase of $6 million in the three and nine months ended September 30, 2020, respectively, with a corresponding adjustment in the carrying value of the hedged fixed-rate debt.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Foreign exchange gains and losses, which are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income, were nil and losses of $2 million in the three and nine months ended September 30, 2021, respectively, compared with losses of $1 million and $4 million in the three and nine months ended September 30, 2020,

respectively. A component of foreign exchange gains and losses is the result of foreign exchange derivative contracts that are not designated as hedges, which amounted to net gains of $1 million and $1 million in the three and nine months ended September 30, 2021, respectively, compared with net gains of $1 million and $4 million in the three and nine months ended September 30, 2020, respectively.

Fair Value Measurement:

At September 30, 2021, consolidated long-term debt, which was substantially comprised of fixed-rate debt instruments, had a carrying value of $8,507 million and a fair value of $10,052 million based on Level 2 inputs in the fair value measurement hierarchy. We also have short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at September 30, 2021 and December 31, 2020.