Derivatives and Risk Management Activities (Tables)

3 Months Ended

Mar. 31, 2013

Derivatives and Risk Management Activities

Terms of forward starting interest rate swaps

The following table summarizes the terms of our forward starting interest rate swaps as of March 31, 2013 (notional amounts in millions):

Hedged Transaction	Number and Types of Derivatives Employed	Notional Amount		Expected Termination Date	Average Rate Locked		Accounting Treatment
Anticipated debt offering	5 forward starting swaps (30-year)	$	125	6/16/2014	3.39	%	Cash flow hedge
Anticipated debt offering	10 forward starting swaps (30-year)	$	250	6/15/2015	3.60	%	Cash flow hedge

Open foreign currency exchange contracts

The following table summarizes our open forward exchange contracts as of March 31, 2013 (in millions):

		USD		CAD		Average Exchange Rate USD to CAD
Forward exchange contracts that exchange CAD for USD:
	2013	$	7	$	7	$1.00 to $1.00
Forward exchange contracts that exchange USD for CAD:
	2013	$	151	$	152	$0.99 to $1.00
	2014	1		1		$1.00 to $1.00
		$	152	$	153	$0.99 to $1.00
Net position by currency:
	2013	$	144	$	145
	2014	1		1
		$	145	$	146

Impact of derivative activities recognized in earnings

A summary of the impact of our derivative activities recognized in earnings for the three months ended March 31, 2013 and 2012 is as follows (in millions):

	Three Months Ended March 31, 2013
	Derivatives in Hedging Relationships
	Gain/(loss)			Other gain/(loss)		Derivatives
	reclassified from			recognized in		Not Designated
Location of gain/(loss)	AOCI into income (1)			income		as a Hedge (2)		Total
Commodity Derivatives
Supply and Logistics segment revenues	$	10		$	—	$	35	$	45
Facilities segment revenues	(4		)	—		—		(4		)
Field operating costs	—			—		1		1
Interest Rate Derivatives
Interest expense	(2		)	—		—		(2		)
Foreign Currency Derivatives
Other income, net	1			—		—		1
Total Gain on Derivatives Recognized in Net Income	$	5		$	—	$	36	$	41

	Three Months Ended March 31, 2012
	Derivatives in Hedging Relationships
	Gain/(loss)			Other gain/(loss)			Derivatives
	reclassified from			recognized in			Not Designated
Location of gain/(loss)	AOCI into income (1)			income			as a Hedge (2)			Total
Commodity Derivatives
Supply and Logistics segment revenues	$	37		$	(3	)	$	(38	)	$	(4	)
Facilities segment revenues	12			—			—			12
Purchases and related costs	4			—			1			5
Field operating costs	—			—			2			2
Interest Rate Derivatives
Interest expense	(2		)	1			—			(1		)
Foreign Currency Derivatives
Supply and Logistics segment revenues	—			—			1			1
Other income, net	1			—			—			1
Total Gain/(Loss) on Derivatives Recognized in Net Income	$	52		$	(2	)	$	(34	)	$	16

(1) During the three months ended March 31, 2013, we reclassified a gain of approximately $2 million from AOCI to Supply and Logistics segment revenues as a result of anticipated hedged transactions that are probable of not occurring. All of our hedged transactions were deemed probable of occurring during the three months ended March 31, 2012.

(2) Includes realized and unrealized gains and losses for derivatives that did not qualify or were not designated for hedge accounting during the period.

Summary of derivative assets and liabilities on Consolidated Balance Sheet

The following table summarizes the derivative assets and liabilities on our condensed consolidated balance sheet on a gross basis as of March 31, 2013 (in millions):

	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments:
Commodity derivatives	Other current assets	$	55	Other current assets	$	(48	)
	Other long-term assets	10		Other long-term assets	(2		)
Interest rate derivatives	Other long-term assets	3		Other current liabilities	(1		)
				Other long-term liabilities	(23		)
Total derivatives designated as hedging instruments		$	68		$	(74	)
Derivatives not designated as hedging instruments:
Commodity derivatives	Other current assets	$	121	Other current assets	$	(88	)
	Other long-term assets	2		Other long-term assets	(4		)
				Other current liabilities	(1		)
				Other long-term liabilities	(1		)
Foreign currency derivatives				Other current liabilities	(1		)
Total derivatives not designated as hedging instruments		$	123		$	(95	)
Total derivatives		$	191		$	(169	)

The following table summarizes the derivative assets and liabilities on our condensed consolidated balance sheet on a gross basis as of December 31, 2012 (in millions):

	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments:
Commodity derivatives	Other current assets	$	45	Other current assets	$	(23	)
	Other long-term assets	11		Other long-term assets	(1		)
Interest rate derivatives				Other long-term liabilities	(38		)
Total derivatives designated as hedging instruments		$	56		$	(62	)
Derivatives not designated as hedging instruments:
Commodity derivatives	Other current assets	$	128	Other current assets	$	(115	)
	Other long-term assets	1		Other long-term assets	(3		)
	Other current liabilities	4		Other current liabilities	(7		)
	Other long-term liabilities	2		Other long-term liabilities	(2		)
Total derivatives not designated as hedging instruments		$	135		$	(127	)
Total derivatives		$	191		$	(189	)

Schedule of derivatives assets and liabilities that are subject to offsetting, including enforceable master netting arrangements

	March 31, 2013						December 31, 2012
	Derivative			Derivative			Derivative			Derivative
	Asset Positions			Liability Positions			Asset Positions			Liability Positions
Netting Adjustments:
Gross Position - Asset/(Liability)	$	191		$	(169	)	$	191		$	(189	)
Netting Adjustment	(142		)	142			(148		)	148
Cash Collateral Paid/(Received)	82			—			41			—
Net Position - Asset/(Liability)	$	131		$	(27	)	$	84		$	(41	)
Balance Sheet Location After Netting Adjustments:
Other Current Assets	$	122		$	—		$	76		$	—
Other Long-Term Assets	9			—			8			—
Other Current Liabilities	—			(3		)	—			(3		)
Other Long-Term Liabilities	—			(24		)	—			(38		)
	$	131		$	(27	)	$	84		$	(41	)

Amounts of gain/(loss) recognized in AOCI on derivatives (effective portion)

The net deferred gain/(loss), including tax effects, recognized in AOCI for derivatives during the three months ended March 31, 2013 and 2012 are as follows (in millions):

	For the Three Months Ended
	March 31,
	2013		2012
Commodity derivatives, net	$	3	$	25
Interest rate derivatives, net	19		51
Total	$	22	$	76

Financial assets and liabilities within the fair value hierarchy accounted for at fair value on a recurring basis

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 (in millions):

	Fair Value as of March 31, 2013										Fair Value as of December 31, 2012
Recurring Fair Value Measures (1)	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Commodity derivatives	$	—	$	43		$	1	$	44		$	1	$	35		$	4	$	40
Interest rate derivatives	—		(21		)	—		(21		)	—		(38		)	—		(38		)
Foreign currency derivatives	—		(1		)	—		(1		)	—		—			—		—
Total	$	—	$	21		$	1	$	22		$	1	$	(3	)	$	4	$	2

(1) Derivative assets and liabilities are presented above on a net basis but do not include related cash margin deposits.

Reconciliation of changes in fair value of derivatives classified as level 3

The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our derivatives classified as level 3 (in millions):

	Three Months Ended
	March 31,
	2013			2012
Beginning Balance	$	4		$	12
Unrealized gains/(losses):
Included in earnings (1)	—			(4		)
Included in other comprehensive income	—			3
Settlements	(3		)	(12		)
Derivatives entered into during the period	—			3
Transfers out of level 3	—			—
Ending Balance	$	1		$	2
Change in unrealized gains/(losses) included in earnings relating to level 3 derivatives still held at the end of the periods	$	—		$	(1	)

(1) We reported unrealized gains and losses associated with level 3 commodity derivatives in our condensed consolidated statements of operations as Supply and Logistics segment revenues.