Financial Risk Management Activities

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

20. 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 activities under the direction of our Chief Risk Officer. Our Treasury department is responsible for administering foreign exchange rate and interest rate hedging programs using similar controls and processes, where applicable. Hedging strategies are reviewed annually by the Audit Committee of the Board of Directors.

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 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 contracts may also be used to purchase certain currencies in which we conduct business with the intent of reducing exposure to foreign currency fluctuations. At December 31, 2021, these forward contracts 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:


	December 31, 2021		December 31, 2020

	(In millions)
Commodity - crude oil hedge contracts (millions of barrels)	54.8		27.4
Foreign exchange forwards	$	145	$	163
Interest rate swaps	$	100	$	100

For calendar year 2022, we have hedged 90,000 bopd with WTI collars with an average monthly floor price of $60 per barrel and an average monthly ceiling price of $100 per barrel, and 60,000 bopd with Brent collars with an average monthly floor price of $65 per barrel and an average monthly ceiling price of $105 per barrel.

The table below reflects the gross and net fair values of risk management derivative instruments:


	Assets		Liabilities

	(In millions)
December 31, 2021
Derivative Contracts Designated as Hedging Instruments:
Crude oil collars	$	155	$	—
Interest rate swaps	2		—
Total derivative contracts designated as hedging instruments	157		—
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards	—		(1)
Total derivative contracts not designated as hedging instruments	—		(1)
Gross fair value of derivative contracts	157		(1)
Gross amount offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	157	$	(1)

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	—		(1)
Total derivative contracts not designated as hedging instruments	—		(1)
Gross fair value of derivative contracts	69		(55)
Gross amount offset in the Consolidated Balance Sheet	(13)		13
Net Amounts Presented in the Consolidated Balance Sheet	$	56	$	(42)

At December 31, 2021, the fair value of our crude oil collars is presented within Other current assets in our Consolidated Balance Sheet. At December 31, 2020, the fair value of our crude oil put options and crude oil swaps is presented within Other current assets and Accrued liabilities, respectively, 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 is presented within Accrued liabilities in our Consolidated Balance Sheet. All fair values in the table above are based on Level 2 inputs.

Derivative contracts designated as hedging instruments:

Crude oil hedge contracts: In 2021, crude oil price hedging contracts decreased Sales and other operating revenues by $243 million (2020: increase of $547 million; 2019: increase of $1 million). At December 31, 2021, pre-tax deferred losses in Accumulated other comprehensive income (loss) related to outstanding crude oil price hedging contracts were $68 million ($68 million after income taxes), all of which will be reclassified into earnings during the next 12 months as the hedged crude oil sales are recognized in earnings.

Interest rate swaps designated as fair value hedges: At December 31, 2021, we had interest rate swaps with gross notional amounts of $100 million (2020: $100 million), which were designated as fair value hedges and relate to long-term debt where we have converted 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. In 2021, the change in fair value of interest rate swaps was a decrease of $3 million (2020: $4 million increase; 2019: $3 million increase) with a corresponding adjustment in the carrying value of the hedged fixed‑rate debt.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses were losses of $2 million in 2021 (2020: loss of $6 million; 2019: gain of $3 million) and are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income. 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 net gain of $1 million in 2021 (2020: net gain of $2 million; 2019: net loss of $2 million).

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. At December 31, 2021, our Accounts receivable were concentrated with the following counterparty industry segments: Integrated companies — 50%, Independent E&P companies — 31%, Refining and marketing companies — 9%, National oil companies — 3%,

Storage and transportation companies — 3%, and Others — 4%. 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, 2021, we had outstanding letters of credit totaling $259 million (2020: $269 million).

Fair Value Measurement: At December 31, 2021, our total long-term debt, which was substantially comprised of fixed rate debt instruments, had a carrying value of $8,458 million and a fair value of $9,897 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 December 31, 2021 and December 31, 2020.