Financial Instruments and Derivatives

3 Months Ended

Mar. 31, 2021

Financial Instruments And Derivatives [Abstract]

Financial Instruments and Derivatives

Financial Instruments and Derivatives

Financial Instruments. The estimated fair value of financial instruments at March 31, 2021, and December 31, 2020, and the related hierarchy level for the fair value measurement is as follows:

		At March 31, 2021
		(millions of dollars)
		Fair Value
		Level 1	Level 2	Level 3	Total Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying Value
Assets
	Derivative assets (1)	1,338	264	—	1,602	(1,332)	(62)	—	208
	Advances to/receivables
	from equity companies (2)(6)	—	3,115	6,083	9,198	—	—	(233)	8,965
	Other long-term
	financial assets (3)	1,157	—	1,046	2,203	—	—	120	2,323
Liabilities
	Derivative liabilities (4)	1,389	329	—	1,718	(1,332)	(113)	—	273
	Long-term debt (5)	45,594	111	4	45,709	—	—	(2,236)	43,473
	Long-term obligations
	to equity companies (6)	—	—	3,567	3,567	—	—	(288)	3,279
	Other long-term
	financial liabilities (7)	—	—	979	979	—	—	55	1,034

		At December 31, 2020
		(millions of dollars)
		Fair Value
		Level 1	Level 2	Level 3	Total Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying Value
Assets
	Derivative assets (1)	1,247	194	—	1,441	(1,282)	(6)	—	153
	Advances to/receivables
	from equity companies (2)(6)	—	3,275	5,904	9,179	—	—	(367)	8,812
	Other long-term
	financial assets (3)	1,235	—	944	2,179	—	—	125	2,304
Liabilities
	Derivative liabilities (4)	1,443	254	—	1,697	(1,282)	(202)	—	213
	Long-term debt (5)	50,263	125	4	50,392	—	—	(4,890)	45,502
	Long-term obligations
	to equity companies (6)	—	—	3,530	3,530	—	—	(277)	3,253
	Other long-term
	financial liabilities (7)	—	—	964	964	—	—	44	1,008

(1)Included in the Balance Sheet lines: Notes and accounts receivable - net and Other assets, including intangibles - net

(2)Included in the Balance Sheet line: Investments, advances and long-term receivables

(3)Included in the Balance Sheet lines: Investments, advances and long-term receivables and Other assets, including intangibles - net

(4)Included in the Balance Sheet lines: Accounts payable and accrued liabilities and Other long-term obligations

(5)Excluding finance lease obligations

(6)Advances to/receivables from equity companies and long-term obligations to equity companies are mainly designated as hierarchy level 3 inputs. The fair value is calculated by discounting the remaining obligations by a rate consistent with the credit quality and industry of the company.

(7)Included in the Balance Sheet line: Other long-term obligations. Includes contingent consideration related to a prior year acquisition where fair value is based on expected drilling activities and discount rates.

At March 31, 2021, and December 31, 2020, respectively, the Corporation had $447 million and $504 million of collateral under master netting arrangements not offset against the derivatives on the Consolidated Balance Sheet, primarily related to initial margin requirements.

The Corporation may use non-derivative financial instruments, such as its foreign currency-denominated debt, as hedges of its net investments in certain foreign subsidiaries. Under this method, the change in the carrying value of the financial instruments due to foreign exchange fluctuations is reported in accumulated other comprehensive income. As of March 31, 2021, the Corporation has designated $5.3 billion of its Euro-denominated long-term debt and related accrued interest as a net investment hedge of its European business. The net investment hedge is deemed to be perfectly effective.

Derivative Instruments. The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in commodity prices, currency rates and interest rates. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. Commodity contracts held for trading purposes are presented in the Consolidated Statement of Income on a net basis in the line “Sales and other operating revenue.” The Corporation’s commodity derivatives are not accounted for under hedge accounting. At times, the Corporation also enters into currency and interest rate derivatives, none of which are material to the Corporation’s financial position as of March 31, 2021, and December 31, 2020, or results of operations for the periods ended March 31, 2021, and 2020.

Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.

The net notional long/(short) position of derivative instruments at March 31, 2021, and December 31, 2020, was as follows:

	March 31,	December 31,
	2021	2020
	(millions)
Crude oil (barrels)	71	40
Petroleum products (barrels)	(53)	(46)
Natural Gas (MMBTUs)	(532)	(500)

Realized and unrealized gains/(losses) on derivative instruments that were recognized in the Consolidated Statement of Income are included in the following lines on a before-tax basis:

	Three Months Ended March 31,
	2021	2020
	(millions of dollars)
Sales and other operating revenue	(512)	1,236
Crude oil and product purchases	1	(352)
Total	(511)	884