Financial Risk Management Activities

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

19. 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 reduce 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 or swaps 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, 2022, these forward contracts relate to the British Pound 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, 2022		December 31, 2021

	(In millions)
Commodity – crude oil hedge contracts (millions of barrels)	—		54.8
Foreign exchange forwards and swaps	$	177	$	145
Interest rate swaps	$	100	$	100

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


	Assets		Liabilities

	(In millions)
December 31, 2022
Derivative Contracts Designated as Hedging Instruments:
Interest rate swaps	$	—	$	(4)
Total derivative contracts designated as hedging instruments	—		(4)
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards and swaps	—		(2)
Total derivative contracts not designated as hedging instruments	—		(2)
Gross fair value of derivative contracts	—		(6)
Gross amount offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	—	$	(6)

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 and swaps	—		(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)

At December 31, 2022 and 2021, the fair value of our interest rate swaps is presented within Other liabilities and deferred credits and non-current Other assets, respectively, in our Consolidated Balance Sheet. The fair value of our foreign exchange forwards and swaps is presented within Accrued liabilities in our Consolidated Balance Sheet. The fair value of our crude oil hedge contracts is presented within Other current assets in our Consolidated Balance Sheet. All fair values in the table above are based on Level 2 inputs.

Crude oil price hedging contracts decreased Sales and other operating revenues by $585 million in 2022 (2021: decrease of $243 million; 2020: increase of $547 million). The change in fair value of interest rate swaps was a decrease of $6 million in 2022 (2021: $3 million decrease; 2020: $4 million increase) with a corresponding adjustment in the carrying value of the hedged fixed‑rate debt. We recognized net foreign exchange losses of $16 million in 2022 (2021: $3 million; 2020: $8 million). Offsetting these net foreign exchange losses were net gains from our foreign exchange derivative contracts, that are not designated as hedges, of $14 million in 2022 (2021: $1 million; 2020: $2 million). Foreign exchange gains and losses, and the gains and losses on our foreign exchange derivative contracts, are recorded in Other, net in the Statement of Consolidated Income.

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, 2022, our accounts receivable were concentrated with the following counterparty industry segments: Integrated companies 49%, Independent E&P companies 31%, Refining and marketing companies 10%, Storage and transportation companies 4%, National oil companies 2%, 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, 2022, we had outstanding letters of credit totaling $83 million (2021: $259 million).

Fair Value Measurement: At December 31, 2022, our total long-term debt, which was substantially comprised of fixed rate debt instruments, had a carrying value of $8,281 million and a fair value of $8,192 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, 2022 and December 31, 2021.