Financial Risk Management Activities

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

12. 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, or establish a floor price or a range banded with a floor and ceiling price, for a portion of our crude oil or natural gas production. Forward contracts or swaps may also be used to purchase certain currencies in which we conduct business with the intent of reducing exposure to foreign currency fluctuations. At March 31, 2022, these instruments relate to the British Pound and Malaysian Ringgit. Interest rate swaps may be used to convert interest payments on certain long-term debt from fixed to floating rates.

The notional amounts of outstanding financial risk management derivative contracts were as follows:


	March 31, 2022		December 31, 2021

	(In millions)
Commodity - crude oil hedge contracts (millions of barrels)	41.3		54.8

Foreign exchange forwards	$	156	$	145
Interest rate swaps	$	100	$	100

At December 31, 2021, we had hedged 90,000 barrels of oil per day (bopd) with WTI collars with an average monthly floor price of $60 per barrel and an average monthly ceiling price of $100 per barrel and 60,000 bopd with Brent collars with an average monthly floor price of $65 per barrel and an average monthly ceiling price of $105 per barrel for calendar 2022. In the first quarter of 2022, we purchased WTI and Brent call options to remove the ceiling price on our price collars for the period April 1, 2022 through December 31, 2022 for $325 million. As a result, during this period, we are able to realize average monthly WTI and Brent selling prices above $100 per barrel and $105 per barrel, respectively, to the extent that market prices at the time exceed these thresholds. The WTI $60 per barrel put options and the Brent $65 per barrel put options that established the floor price in our collars remain outstanding for 90,000 bopd and 60,000 bopd, respectively, through December 31, 2022.

The table below reflects the fair values of risk management derivative instruments.


	Assets		Liabilities

	(In millions)
March 31, 2022
Derivative Contracts Designated as Hedging Instruments:
Crude oil put options	$	64	$	—
Interest rate swaps	—		(2)
Total derivative contracts designated as hedging instruments	64		(2)
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards and swaps	—		—
Total derivative contracts not designated as hedging instruments	—		—
Gross fair value of derivative contracts	64		(2)
Gross amounts offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	64	$	(2)
December 31, 2021
Derivative Contracts Designated as Hedging Instruments:
Crude oil collars	$	155	$	—
Interest rate swaps	2		—
Total derivative contracts designated as hedging instruments	157		—
Derivative Contracts Not Designated as Hedging Instruments:
Foreign exchange forwards and swaps	—		(1)
Total derivative contracts not designated as hedging instruments	—		(1)
Gross fair value of derivative contracts	157		(1)
Gross amounts offset in the Consolidated Balance Sheet	—		—
Net Amounts Presented in the Consolidated Balance Sheet	$	157	$	(1)

At March 31, 2022 and December 31, 2021, the fair value of our crude oil hedge contracts is presented within Other current assets and the fair value of our foreign exchange forwards and swaps is presented within Accrued liabilities in our Consolidated

Balance Sheet. The fair value of our interest rate swaps is presented within Other liabilities and deferred credits at March 31, 2022 and within Other assets at December 31, 2021 in our Consolidated Balance Sheet. All fair values in the table above are based on Level 2 inputs.

Derivative contracts designated as hedging instruments:

Crude oil derivatives designated as cash flow hedges: Crude oil hedging contracts decreased Sales and other operating revenues by $92 million in the three months ended March 31, 2022 (2021 Q1: decreased by $51 million). At March 31, 2022, pre-tax deferred losses in Accumulated other comprehensive income (loss) related to outstanding crude oil hedging contracts were $433 million ($433 million after income taxes), all of which will be reclassified into earnings during the remainder of 2022 as the hedged crude oil sales are recognized in earnings.

Interest rate swaps designated as fair value hedges: We had interest rate swaps with gross notional amounts totaling $100 million at March 31, 2022 and December 31, 2021, that convert interest payments from fixed to floating rates. 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 the three months ended March 31, 2022, the change in fair value of interest rate swaps was a decrease of $4 million (2021 Q1: decrease of $1 million) with a corresponding adjustment in the carrying value of the hedged fixed-rate debt.

Derivative contracts not designated as hedging instruments:

Foreign exchange: Foreign exchange gains and losses, which are reported in Other, net in Revenues and non-operating income in the Statement of Consolidated Income, were nil in the three months ended March 31, 2022 (2021 Q1: losses of $1 million). A component of foreign exchange gains and losses is the result of foreign exchange derivative contracts that are not designated as hedges, which amounted to net gains of $4 million in the three months ended March 31, 2022 (2021 Q1: losses of $1 million).

Fair Value Measurement:

At March 31, 2022, our total long-term debt, which was substantially comprised of fixed-rate debt instruments, had a carrying value of $7,956 million and a fair value of $8,801 million based on Level 2 inputs in the fair value measurement hierarchy. We also have short-term financial instruments, primarily cash equivalents, accounts receivable and accounts payable, for which the carrying value approximated fair value at March 31, 2022 and December 31, 2021.