10. 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 by reducing our exposure to foreign currency or interest rate movements. Generally, futures, swaps or option strategies may be used to fix the forward selling price of a portion of our crude oil or natural gas production. Forward contracts may also be used to purchase certain currencies in which we conduct the business with the intent of reducing exposure to foreign currency fluctuations. These forward contracts comprise various currencies, primarily the British Pound and Danish Krone. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.

Gross notional amounts of both long and short positions are presented in the volume tables below. These amounts include long and short positions that offset in closed positions and have not reached contractual maturity. Gross notional amounts do not quantify risk or represent assets or liabilities of the Corporation, but are used in the calculation of cash settlements under the contracts.

The gross volumes of the financial risk management derivative contracts outstanding were as follows:

	March 31, 2016		December 31, 2015
	(In millions of USD)
Foreign exchange	$	837	$	967
Interest rate swaps	$	1,300	$	1,300

The table below reflects the gross and net fair values of the risk management derivative instruments, all of which are based on Level 2 inputs:

	Accounts Receivable			Accounts Payable
	(In millions)
March 31, 2016
Derivative Contracts Designated as Hedging Instruments
Interest rate	$	15		$	—
Total derivative contracts designated as hedging instruments		15			—
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		—			(21	)
Total derivative contracts not designated as hedging instruments		—			(21	)
Gross fair value of derivative contracts		15			(21	)
Net Fair Value of Derivative Contracts	$	15		$	(21	)

December 31, 2015
Derivative Contracts Designated as Hedging Instruments
Interest rate	$	3		$	—
Total derivative contracts designated as hedging instruments		3			—
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		19			(3	)
Total derivative contracts not designated as hedging instruments		19			(3	)
Gross fair value of derivative contracts		22			(3	)
Master netting arrangements		(3	)		3
Net Fair Value of Derivative Contracts	$	19		$	—

Derivative contracts designated as hedging instruments:

Interest rate swaps: At March 31, 2016, and December 31, 2015, we had interest rate swaps with gross notional amounts totaling $1,300 million, which were designated as fair value hedges. In the first quarter of 2016, the unrealized change in fair value of interest rate swaps was an increase of $14 million (2015 Q1: $10 million increase) with a corresponding adjustment to the carrying value of the hedged fixed‑rate debt.

Crude oil collars - 2015: Total gains from Brent and West Texas Intermediate crude oil collars for the first quarter of 2015 increased Sales and other operating revenues by $17 million.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income and amounted to a gain of $6 million in the first quarter of 2016 (2015 Q1: gain of $15 million), which includes gains or losses on foreign exchange contracts that are not designated as hedges amounting to a loss of $20 million (2015 Q1: gain of $98 million). The after‑tax foreign currency translation adjustments included in the Statement of Consolidated Comprehensive Income amounted to a gain of $169 million for the three months ended March 31, 2016 (2015 Q1: loss of $120 million). The cumulative currency translation adjustment at March 31, 2016 was a reduction to shareholders’ equity of $932 million compared with a reduction of $1,101 million at December 31, 2015.

Fair Value Measurement: We have other short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at March 31, 2016. Total Long-term debt with a carrying value of $6,592 million at March 31, 2016, had a fair value of $6,634 million based on Level 2 inputs.