24. 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. In the disclosures that follow, corporate financial risk management activities refer to the mitigation of these risks through hedging activities. We maintain a control environment for all of our financial risk management under the direction of our Chief Risk Officer. Our Treasury department is responsible for administering foreign exchange rate and interest rate hedging programs using similar controls and processes, where applicable. Hedging strategies are reviewed annually by the Audit Committee of the Board of Directors.

Corporate Financial Risk Management Activities: Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas we produced 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 beginning 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 notional amounts of financial risk management derivative contracts outstanding at December 31, were as follows:

	2016		2015
	(In millions of USD)
Foreign exchange	$	785	$	967
Interest rate swaps		350		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)
December 31, 2016
Derivative Contracts Designated as Hedging Instruments
Interest rate	$	—		$	—
Total derivative contracts designated as hedging instruments		—			—
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		9			(1	)
Total derivative contracts not designated as hedging instruments		9			(1	)
Gross fair value of derivative contracts		9			(1	)
Master netting arrangements		(1	)		1
Net Fair Value of Derivative Contracts	$	8		$	—

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:

Commodity: In 2015, crude oil price hedging contracts increased E&P Sales and other operating revenues by $126 million, including losses of $48 million associated with changes in the time value of crude oil collars. In 2014, crude oil price hedging contracts increased E&P Sales and other operating revenues by $193 million. There were no crude oil hedge contracts in 2016.

Interest rate swaps: At December 31, 2016, we had interest rate swaps with gross notional amounts of $350 million (2015: $1,300 million), which were designated as fair value hedges. During 2016, we settled existing interest rate swaps and received cash proceeds of $5 million (2015: $41 million). Changes in the fair value of interest rate swaps and the hedged fixed‑rate debt are recorded in Interest expense in the Statement of Consolidated Income. In 2016, we recorded an increase of $6 million, excluding accrued interest, in the fair value of interest rate swaps and a corresponding adjustment in the carrying value of the hedged fixed‑rate debt (2015: $4 million increase; 2014: $1 million increase).

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses were a gain of $26 million in 2016 (2015: loss of $21 million; 2014: loss of $43 million) and are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income. A component of foreign exchange gains or losses is the result of foreign exchange derivative contracts that are not designated as hedges which amounted to a gain of $62 million in 2016 (2015: gain of $98 million; 2014: gain of $117 million).

The after‑tax foreign currency translation adjustments included in the Statement of Consolidated Comprehensive Income amounted to a gain of $56 million for the year-ended December 31, 2016 (2015: loss of $344 million; 2014: loss of $756 million). Cumulative currency translation adjustments reduced stockholders’ equity by $1,045 million at December 31, 2016 and $1,101 million at December 31, 2015.

Credit Risk: We are exposed to credit risks that may at times be concentrated with certain counterparties, groups of counterparties or customers. Accounts receivable are generated from a diverse domestic and international customer base. As of December 31, 2016, our Accounts receivable—Trade were concentrated with the following counterparty industry segments: Integrated companies — 37%, Independent E&P companies — 19%, National oil companies — 16%, Storage and transportation companies — 10%, Refining and marketing companies — 7% and Others — 11%. We reduce risk related to certain counterparties, where applicable, by using master netting arrangements and requiring collateral, generally cash or letters of credit.

At December 31, 2016, we had outstanding letters of credit totaling $188 million (2015: $113 million).

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 December 31, 2016 and December 31, 2015. In addition, the disclosure for fair value of long-term debt in Note 12, Debt was based on Level 2 inputs.