9. 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 table 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 were as follows:

	March 31, 2017		December 31, 2016
	(In millions)
Commodity - crude oil (millions of barrels)		4		—
Foreign exchange	$	69	$	785
Interest rate swaps	$	350	$	350

During the first quarter of 2017, we entered into Brent crude oil price collars to hedge 15,000 barrels of oil per day (bopd) through December 31, 2017. These collars have a floor price of $55 per barrel and a ceiling price of $75 per barrel. In April, 2017, we entered into additional Brent crude oil price collars covering 5,000 bopd through December 31, 2017, that have a floor price of $55 per barrel and a ceiling price of $75 per barrel, and West Texas Intermediate (WTI) crude oil price collars covering 60,000 bopd through December 31, 2017 that have a floor price of $50 per barrel and a ceiling price of $70 per barrel. The crude oil price collars, which have been designated as cash flow hedges, reduce the price exposure to our net production that is hedged.

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, 2017
Derivative Contracts Designated as Hedging Instruments
Commodity	$	17		$	—
Interest rate		—			(1	)
Total derivative contracts designated as hedging instruments		17			(1	)
Derivative Contracts Not Designated as Hedging Instruments
Foreign exchange		—			—
Total derivative contracts not designated as hedging instruments		—			—
Gross fair value of derivative contracts		17			(1	)
Net Fair Value of Derivative Contracts	$	17		$	(1	)

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		$	—

Derivative contracts designated as hedging instruments:

Crude oil collars: Realized and unrealized gains from crude oil collars for the first quarter of 2017 increased E&P Sales and other operating revenue by $1 million ($1 million after income taxes). At March 31, 2017, the after-tax deferred gains in Accumulated other comprehensive income (loss) related to crude oil collars were $2 million, which will be reclassified into earnings during 2017 as the hedged crude oil sales are recognized in earnings. There were no crude oil hedge contracts in 2016.

Interest rate swaps: At March 31, 2017, and December 31, 2016, we had interest rate swaps with gross notional amounts totaling $350 million, which were designated as fair value hedges. In the first quarter of 2017, the change in fair value of interest rate swaps was a decrease of $1 million (2016 Q1: an increase of $14 million). Changes in the fair value of the interest rate swaps and the hedged fixed‑rate debt are recorded in Interest expense in the Statement of Consolidated Income.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Total foreign exchange gains and losses, which are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income amounted to a loss of $1 million in the first quarter of 2017 (2016 Q1: gain of $6 million). 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 loss of less than $1 million (2016 Q1: loss of $20 million). The after‑tax foreign currency translation adjustments included in the Statement of Consolidated Comprehensive Income amounted to a gain of $14 million in the first quarter of 2017 (2016 Q1: gain of $169 million). The cumulative currency translation adjustment at March 31, 2017, was a reduction to shareholders’ equity of $1,031 million compared with a reduction of $1,045 million at December 31, 2016.

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, 2017. Total long-term debt with a carrying value of $6,785 million at March 31, 2017, had a fair value of $7,222 million based on Level 2 inputs.