Financial Risk Management Activities

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

12. 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 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 September 30, 2023, these instruments 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:


	September 30, 2023		December 31, 2022

	(In millions)
Commodity - crude oil hedge contracts (millions of barrels)	12.0		—

Foreign exchange forwards / swaps	$	214	$	177
Interest rate swaps	$	100	$	100

In the first quarter of 2023, we hedged 80,000 barrels of oil per day (bopd) with WTI put options with an average monthly floor price of $70 per barrel, and 50,000 bopd with Brent put options with an average monthly floor price of $75 per barrel, for the remainder of 2023.

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


	Assets		Liabilities

	(In millions)
September 30, 2023
Derivative Contracts Designated as Hedging Instruments:
Crude oil put options	$	3	$	—
Interest rate swaps	—		(3)
Total derivative contracts designated as hedging instruments	3		(3)
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards and swaps	6		—
Total derivative contracts not designated as hedging instruments	6		—
Gross fair value of derivative contracts	9		(3)
Gross amounts offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	9	$	(3)
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 amounts offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	—	$	(6)

The fair value of our crude oil hedge contracts is presented within Other current assets in our Consolidated Balance Sheet. The fair value of our interest rate swaps is presented within Accrued liabilities and Other liabilities and deferred credits in our Consolidated Balance Sheet at September 30, 2023 and December 31, 2022, respectively. The fair value of our foreign exchange forwards and swaps is presented within Other current assets and Accrued liabilities in our Consolidated Balance Sheet at September 30, 2023 and December 31, 2022, 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 $52 million and $138 million in the three and nine months ended September 30, 2023, respectively. In the three and nine months ended September 30, 2022, crude oil hedging contracts decreased Sales and other operating revenues by $165 million and $420 million, respectively. At September 30, 2023, pre-tax deferred losses in Accumulated other comprehensive income (loss) related to outstanding crude oil hedging contracts were $49 million ($49 million after income taxes), all of which will be reclassified into earnings during the remainder of 2023 as the hedged crude oil sales are recognized in earnings.

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 in the three and nine months ended September 30, 2023, compared with losses of $2 million and $5 million in the three and nine months ended September 30, 2022, 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 $8 million and $6 million in the three and nine months ended September 30, 2023, respectively, compared with net gains of $12 million and $26 million in the three and nine months ended September 30, 2022, respectively.

Fair Value Measurement:

At September 30, 2023, our total long-term debt, which was substantially comprised of fixed-rate debt instruments, had a carrying value of $8,548 million and a fair value of $8,242 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, 2023 and December 31, 2022.