Derivative Instruments

3 Months Ended

Mar. 31, 2013

Disclosure Text Block [Abstract]

Derivative Instruments

7.  Derivative Instruments

Objective and StrategyThe 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, Oklahomaor SullomVoe, Scotlandfor oil. Basis swaps are 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).

Oil and Natural-Gas Production/Processing Derivative ActivitiesThe 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 March 31, 2013:

				2013			2014
				Settlement			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)		200
		Average price per MMBtu
			Ceiling sold price (call)	$	—		$	5.00
			Floor purchased price (put)	$	—		$	3.75
			Floor sold price (put)	$	—		$	2.75
	Fixed-Price Contracts (thousand MMBtu/d)				1,185			—
		Average price per MMBtu		$	4.00		$	—
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)				108			—
		Average price per barrel		$	102.50		$	—

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(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/dfor 2013settlement.

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.

Marketing and Trading Derivative Activities   In addition to the positions in the above table, the Company also engages in marketing and trading activities. These activities include physical product sales and related derivative transactions used to manage commodity-price risk. At March 31, 2013,the Company had fixed-price physical transactions related to natural gas totaling 4 billion cubic feet (Bcf), offset by derivative transactions totaling 4 Bcf.At December 31, 2012, the Company had fixed-price physical transactions related to natural gas totaling 10Bcf, offset by derivative transactions totaling 10Bcf.

Interest-Rate DerivativesAnadarko 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 March 31, 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 SheetThe following summarizes the fair value of the Company's derivative instruments:

		Gross				Gross
		Derivative Assets				Derivative Liabilities
millions		March 31,		December 31,		March 31,		December 31,
Balance Sheet Classification		2013		2012		2013		2012
Commodity derivatives
	Other current assets	$	43	$	475	$	(20)	$	(197)
	Other assets		22		24		(7)		(7)
	Accrued expenses		153		6		(245)		(14)
	Other liabilities		—		1		(4)		(7)
			218		506		(276)		(225)
Interest-rate and other derivatives
	Other liabilities		—		—		(1,101)		(1,194)
Total derivatives		$	218	$	506	$	(1,377)	$	(1,419)

Effect of Derivative Instruments—Statement of IncomeThe following summarizes realized and unrealized gains or lossesrelated to derivative instruments:

millions
Classification of (Gain) Loss Recognized		Realized		Unrealized		Total
Three Months Ended March 31, 2013
Commodity derivatives
	Gathering, processing, and marketing sales (1)	$	4	$	4	$	8
	(Gains) losses on derivatives, net		(51)		334		283
Interest-rate and other derivatives
	(Gains) losses on derivatives, net		—		(92)		(92)
Total (gains) losses on derivatives, net		$	(47)	$	246	$	199

Three Months Ended March 31, 2012
Commodity derivatives
	Gathering, processing, and marketing sales (1)	$	(2)	$	5	$	3
	(Gains) losses on derivatives, net		(137)		89		(48)
Interest-rate and other derivatives
	(Gains) losses on derivatives, net		—		(236)		(236)
Total (gains) losses on derivatives, net		$	(139)	$	(142)	$	(281)

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(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 March 31, 2013, $186million of the Company's $1.4 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.

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 $92 million (net of collateral) at March 31, 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 financial assets and liabilities, by input level within the fair-value hierarchy:

millions
March 31, 2013			Level 1		Level 2		Level 3		Netting (1)		Collateral		Total
Assets
	Commodity derivatives
		Financial institutions	$	3	$	189	$	—	$	(178)	$	(1)	$	13
		Other counterparties		—		26		—		(2)		—		24
Total derivative assets			$	3	$	215	$	—	$	(180)	$	(1)	$	37
Liabilities
	Commodity derivatives
		Financial institutions	$	(3)	$	(250)	$	—	$	178	$	4	$	(71)
		Other counterparties		—		(23)		—		2		—		(21)
	Interest-rate and other derivatives			—		(1,101)		—		—		—		(1,101)
Total derivative liabilities			$	(3)	$	(1,374)	$	—	$	180	$	4	$	(1,193)

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)

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(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.