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Derivative Instruments
 9 Months Ended
Sep. 30, 2013
Disclosure Text Block [Abstract]  
Derivative Instruments
7. Derivative Instruments

Objective and Strategy    The Company uses derivative instruments to manage its exposure to cash-flow variability from commodity-price and interest-rate risks. Futures, swaps, and options are used to manage exposure to commodity-price risk inherent in the Company’s oil and natural-gas production and natural-gas processing operations (Oil and Natural-Gas Production/Processing Derivative Activities). Futures contracts and commodity-price swap agreements are used to fix the price of expected future oil and natural-gas sales at major industry trading locations, such as Henry Hub, Louisiana for natural gas and Cushing, Oklahoma or Sullom Voe, Scotland for oil. Basis swaps are periodically used to fix or float the price differential between product prices at one market location versus another. Options are used to establish a floor price, a ceiling price, or a floor and a ceiling price (collar) for expected future oil and natural-gas sales. Derivative instruments are also used to manage commodity-price risk inherent in customer price requirements and to fix margins on the future sale of natural gas and NGLs from the Company’s leased storage facilities (Marketing and Trading Derivative Activities).
       Interest-rate swaps are used to fix or float interest rates on existing or anticipated indebtedness. The purpose of these instruments is to manage the Company’s existing or anticipated exposure to unfavorable interest-rate changes. The fair value of the Company’s interest-rate swap portfolio increases (decreases) when interest rates increase (decrease).
       The Company does not apply hedge accounting to any of its derivative instruments. As a result, both realized and unrealized gains and losses associated with derivative instruments are recognized in earnings. Net derivative losses attributable to interest-rate derivatives previously subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings. See Note 10—Accumulated Other Comprehensive Income (Loss).

7. Derivative Instruments (Continued)

Oil and Natural-Gas Production/Processing Derivative Activities    The natural-gas prices listed below are New York Mercantile Exchange (NYMEX) Henry Hub prices. The crude-oil prices listed below are a combination of NYMEX West Texas Intermediate (WTI) and IntercontinentalExchange, Inc. (ICE) Brent prices. The following is a summary of the Company’s derivative instruments related to its Oil and Natural-Gas Production/Processing Derivative Activities at September 30, 2013:
 
2013
Settlement
 
2014
Settlement
Natural Gas
 
 
 
Two-Way Collars (thousand MMBtu/d)
600

(1) 
—

Average price per MMBtu
 
 
 
Ceiling sold price (call)
$
4.00

 
$
—

Floor purchased price (put)
$
3.18

 
$
—

Three-Way Collars (thousand MMBtu/d)
—

(2) 
600

Average price per MMBtu
 
 
 
Ceiling sold price (call)
$
—

 
$
5.01

Floor purchased price (put)
$
—

 
$
3.75

Floor sold price (put)
$
—

 
$
2.75

Fixed-Price Contracts (thousand MMBtu/d)
1,185

 
600

Average price per MMBtu
$
4.00

 
$
4.26

Crude Oil
 
 
 
Three-Way Collars (MBbls/d)
26

 
—

Average price per barrel
 
 
 
Ceiling sold price (call)
$
125.15

 
$
—

Floor purchased price (put)
$
105.00

 
$
—

Floor sold price (put)
$
85.00

 
$
—

Fixed-Price Contracts (MBbls/d)
167

 
—

Average price per barrel
$
102.74

 
$
—

__________________________________________________________________
(1) 
The two-way collars have a contract term of April 2013 to October 2013.
(2) 
The Company entered into offsetting purchased and sold natural-gas three-way collars of 450,000 MMBtu/d for 2013 settlement.
MMBtu—million British thermal units
MMBtu/d—million British thermal units per day
MBbls/d—thousand barrels per day

       A two-way collar is a combination of two options: a sold call and a purchased put. The sold call establishes the maximum price that the Company will receive for the contracted commodity volumes. The purchased put establishes the minimum price that the Company will receive for the contracted volumes.
       A three-way collar is a combination of three options: a sold call, a purchased put, and a sold put. The sold call establishes the maximum price that the Company will receive for the contracted commodity volumes. The purchased put establishes the minimum price that the Company will receive for the contracted volumes unless the market price for the commodity falls below the sold put strike price, at which point the minimum price equals the reference price (e.g., NYMEX) plus the excess of the purchased put strike price over the sold put strike price.

7. Derivative Instruments (Continued)

Marketing and Trading Derivative Activities    In addition to the positions in the previous table, the Company also engages in marketing and trading activities. These activities include physical product sales and related fixed-to-floating derivative transactions used to manage commodity-price risk. At September 30, 2013, and December 31, 2012, the Company had fixed-price physical transactions related to natural gas totaling 10 billion cubic feet (Bcf), offset by fixed-to-floating derivative transactions totaling 10 Bcf.

Interest-Rate Derivatives    Anadarko has outstanding interest-rate swap contracts as a fixed-rate payer to mitigate the interest-rate risk associated with anticipated debt issuances. The Company locked in a fixed interest rate in exchange for a floating interest rate indexed to the three-month London Interbank Offered Rate. The swap instruments include a provision that requires both the termination of the swaps and cash settlement in full at the start of the reference period.
       The Company had the following outstanding interest-rate swaps at September 30, 2013: 
millions except percentages
 
Reference Period
 
Weighted-Average
Notional Principal Amount
 
Start
 
End
 
Interest Rate
$
750

 
 
June 2014
 
June 2024
 
6.00%
$
1,100

 
 
June 2014
 
June 2044
 
5.57%
$
50

 
 
September 2016
 
September 2026
 
5.91%
$
750

 
 
September 2016
 
September 2046
 
5.86%

Effect of Derivative Instruments—Balance Sheet    The following summarizes the fair value of the Company’s derivative instruments:
 
 
Gross
Derivative Assets
 
Gross
Derivative Liabilities
millions
 
September 30,
 
December 31,
 
September 30,
 
December 31,
Balance Sheet Classification
 
2013
 
2012
 
2013
 
2012
Commodity derivatives
 
 
 
 
 
 
 
 
Other current assets
 
$
359

 
$
475

 
$
(170
)
 
$
(197
)
Other assets
 
50

 
24

 
(13
)
 
(7
)
Accrued expenses
 
48

 
6

 
(61
)
 
(14
)
Other liabilities
 
—

 
1

 
(2
)
 
(7
)
 
 
457

 
506

 
(246
)
 
(225
)
Interest-rate and other derivatives
 
 
 
 
 
 
 
 
Accrued expenses (1)
 
—

 
—

 
(550
)
 
—

Other liabilities (1)
 
—

 
—

 
(215
)
 
(1,194
)
 
 
—

 
—

 
(765
)
 
(1,194
)
Total derivatives
 
$
457

 
$
506

 
$
(1,011
)
 
$
(1,419
)
 __________________________________________________________________
(1)
Interest-rate swaps with June 2014 maturity dates were reclassified from other liabilities to accrued expenses during the second quarter of 2013.

7. Derivative Instruments (Continued)

Effect of Derivative Instruments—Statement of Income    The following summarizes realized and unrealized gains and losses related to derivative instruments:
millions
 
Three Months Ended 
 September 30, 2013
 
Nine Months Ended 
 September 30, 2013
Classification of (Gain) Loss Recognized
 
Realized
 
Unrealized
 
Total
 
Realized
 
Unrealized
 
Total
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Gathering, processing, and marketing sales (1)
$
2

 
$
(10
)
 
$
(8
)
 
$
9

 
$
(12
)
 
$
(3
)
(Gains) losses on derivatives, net
 
26

 
120

 
146

 
(46
)
 
81

 
35

Interest-rate and other derivatives
 
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses on derivatives, net
 
—

 
(74
)
 
(74
)
 
—

 
(428
)
 
(428
)
Total (gains) losses on derivatives, net
 
$
28

 
$
36

 
$
64

 
$
(37
)
 
$
(359
)
 
$
(396
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 September 30, 2012
 
Nine Months Ended 
 September 30, 2012
Classification of (Gain) Loss Recognized
 
Realized
 
Unrealized
 
Total
 
Realized
 
Unrealized
 
Total
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Gathering, processing, and marketing sales (1)
$
3

 
$
5

 
$
8

 
$
—

 
$
18

 
$
18

(Gains) losses on derivatives, net
 
(200
)
 
437

 
237

 
(600
)
 
369

 
(231
)
Interest-rate and other derivatives
 
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses on derivatives, net
 
—

 
14

 
14

 
2

 
152

 
154

Total (gains) losses on derivatives, net
 
$
(197
)
 
$
456

 
$
259

 
$
(598
)
 
$
539

 
$
(59
)
__________________________________________________________________
(1) 
Represents the effect of marketing and trading derivative activities.

Credit-Risk Considerations    The financial integrity of exchange-traded contracts, which are subject to nominal credit risk, is assured by NYMEX or ICE through systems of financial safeguards and transaction guarantees. Over-the-counter traded swaps, options, and futures contracts expose the Company to counterparty credit risk. The Company monitors the creditworthiness of its counterparties, establishes credit limits according to the Company’s credit policies and guidelines, and assesses the impact on fair value of its counterparties’ creditworthiness. The Company has the ability to require cash collateral or letters of credit to mitigate its credit-risk exposure. The Company has netting agreements with financial institutions that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities, and routinely exercises its contractual right to offset realized gains against realized losses when settling with derivative counterparties.
       In addition, the Company has setoff agreements with certain financial institutions that may be exercised in the event of default and provide for contract termination and net settlement across derivative types. At September 30, 2013, $305 million of the Company’s $1.0 billion gross derivative liability balance, and at December 31, 2012, $339 million of the Company’s $1.4 billion gross derivative liability balance, would have been eligible for setoff against the Company’s gross derivative asset balance in the event of default. Other than in the event of default, the Company does not net settle across derivative types.
       Some of the Company’s derivative instruments are subject to provisions that can require full or partial collateralization or immediate settlement of the Company’s obligations if certain credit-risk-related provisions are triggered. However, most of the Company’s derivative counterparties maintain secured positions with respect to the Company’s derivative liabilities under the Company’s $5.0 billion senior secured revolving credit facility ($5.0 billion Facility), the available capacity of which is sufficient to secure potential obligations to such counterparties.

7. Derivative Instruments (Continued)

       Unsecured derivative obligations may require immediate settlement or full collateralization if certain credit-risk-related provisions are triggered, such as the Company’s credit rating from major credit rating agencies declining to a level below investment grade. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed was $52 million (net of collateral) at September 30, 2013, and $94 million (net of collateral) at December 31, 2012. The current portion of these amounts was included in accrued expenses and the long-term portion of these amounts was included in other long-term liabilities—other on the Company’s Consolidated Balance Sheets.
 
Fair Value    Fair value of futures contracts is based on quoted prices in active markets for identical assets or liabilities, which represent Level 1 inputs. Valuations of physical-delivery purchase and sale agreements, over-the-counter financial swaps, and commodity option collars are based on similar transactions observable in active markets and industry-standard models that primarily rely on market-observable inputs. Inputs used to estimate the fair value of swaps and options include market-price curves; contract terms and prices; credit-risk adjustments; and, for Black-Scholes option valuations, implied market volatility and discount factors. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs because substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments.
       The following summarizes the fair value of the Company’s derivative assets and liabilities, by input level within the fair-value hierarchy:
millions
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
Level 1
 
Level 2
 
Level 3
 
Netting (1)
 
Collateral
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
Financial institutions
$
4

 
$
379

 
$
—

 
$
(226
)
 
$
(1
)
 
$
156

Other counterparties
—

 
74

 
—

 
(6
)
 
—

 
68

Total derivative assets
$
4

 
$
453

 
$
—

 
$
(232
)
 
$
(1
)
 
$
224

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
Financial institutions
$
(4
)
 
$
(232
)
 
$
—

 
$
226

 
$
1

 
$
(9
)
Other counterparties
—

 
(10
)
 
—

 
6

 
—

 
(4
)
Interest-rate and other derivatives
—

 
(765
)
 
—

 
—

 
—

 
(765
)
Total derivative liabilities
$
(4
)
 
$
(1,007
)
 
$
—

 
$
232

 
$
1

 
$
(778
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
Financial institutions
$
6

 
$
453

 
$
—

 
$
(206
)
 
$
—

 
$
253

Other counterparties
—

 
47

 
—

 
(5
)
 
—

 
42

Total derivative assets
$
6

 
$
500

 
$
—

 
$
(211
)
 
$
—

 
$
295

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
 
 
 
 
 
 
 
 
 
 
Financial institutions
$
(6
)
 
$
(202
)
 
$
—

 
$
206

 
$
1

 
$
(1
)
Other counterparties
—

 
(17
)
 
—

 
5

 
—

 
(12
)
Interest-rate and other derivatives
—

 
(1,194
)
 
—

 
—

 
—

 
(1,194
)
Total derivative liabilities
$
(6
)
 
$
(1,413
)
 
$
—

 
$
211

 
$
1

 
$
(1,207
)
 __________________________________________________________________
(1) 
Represents the impact of netting commodity derivative assets and liabilities with counterparties where the Company has the contractual right and intends to net settle.