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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Objectives and Strategies
The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production, as well as fluctuations in exchange rates in connection with transactions denominated in foreign currencies. The Company manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production and foreign currency transactions. The Company utilizes various types of derivative financial instruments, including forward contracts, futures contracts, swaps, and options, to manage fluctuations in cash flows resulting from changes in commodity prices or foreign currency values.
Counterparty Risk
The use of derivative instruments exposes the Company to credit loss in the event of nonperformance by the counterparty. To reduce the concentration of exposure to any individual counterparty, the Company utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of June 30, 2022, the Company had derivative positions with 12 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments resulting from lower commodity prices or changes in currency exchange rates.
Derivative Instruments
Commodity Derivative Instruments
As of June 30, 2022, the Company had the following open natural gas financial basis swap contracts:
Basis Swap PurchasedBasis Swap Sold
Production PeriodSettlement IndexMMBtu
(in 000’s)		Weighted Average Price DifferentialMMBtu
(in 000’s)		Weighted Average Price Differential
July—December 2022NYMEX Henry Hub/IF Waha42,320 $(0.70)— —
July—December 2022NYMEX Henry Hub/IF HSC— —42,320 $(0.12)
October—December 2022NYMEX Henry Hub/IF Waha920 $(1.19)— —
October—December 2022NYMEX Henry Hub/IF HSC— —920 $(0.19)
January—March 2023NYMEX Henry Hub/IF Waha3,150 $(1.06)— —
January—March 2023NYMEX Henry Hub/IF HSC— —3,150 $(0.03)
January—June 2023NYMEX Henry Hub/IF Waha4,525 $(1.54)— —
January—June 2023NYMEX Henry Hub/IF HSC— —4,525 $(0.11)
July—September 2023NYMEX Henry Hub/IF Waha1,840 $(1.62)— —
July—September 2023NYMEX Henry Hub/IF HSC— —1,840 $(0.19)
January—December 2023NYMEX Henry Hub/IF Waha73,000 $(1.15)— —
January—December 2023NYMEX Henry Hub/IF HSC— —73,000 $(0.08)
January—June 2024NYMEX Henry Hub/IF Waha3,640 $(1.25)— —
January—June 2024NYMEX Henry Hub/IF HSC— —3,640 $(0.10)
Foreign Currency Derivative Instruments
The Company has open foreign currency costless collar contracts in GBP/USD for £15 million per month for the calendar year 2022 with a weighted average floor and ceiling price of $1.29 and $1.39, respectively.
Embedded Derivatives
Altus Preferred Units Embedded Derivative
The Altus Preferred Units embedded derivative was deconsolidated as of March 31, 2022 as part of the BCP Business Combination. Refer to Note 3—Acquisitions and Divestitures for discussion of the BCP Business Combination and Note 13—Redeemable Noncontrolling Interest - Altus for a description of the Altus Preferred Units and associated embedded derivative.
Pipeline Capacity Embedded Derivatives
During the fourth quarter of 2019 and first quarter of 2020, the Company entered into agreements to assign a portion of its contracted capacity under an existing transportation agreement to third parties. Embedded in these agreements were arrangements under which the Company received payments calculated based on pricing differentials between Houston Ship Channel and Waha during the calendar years 2020 and 2021. This feature required bifurcation and measurement of the change in market value throughout 2020 and 2021. Unrealized gains and losses in the fair value of this feature were recorded as “Derivative instrument gains (losses), net” under “Revenues and Other” in the statement of consolidated operations, and the balance at the end of December 31, 2021 will be amortized into income over the original tenure of the host contract.
Fair Value Measurements
The following table presents the Company’s derivative assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements Using
Quoted Price in Active Markets
(Level 1)		Significant Other Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
Fair Value
Netting(1)
Carrying Amount
(In millions)
June 30, 2022
Assets:
Commodity derivative instruments$— $— $— $— $1 $1 
Liabilities:
Commodity derivative instruments— 54 — 54 1 55 
Foreign currency derivative instruments— 7 — 7 — 7 
December 31, 2021
Liabilities:
Commodity derivative instruments$— $10 $— $10 $— $10 
Pipeline capacity embedded derivative— 46 — 46 — 46 
Preferred Units embedded derivative— — 57 57 — 57 
(1)    The derivative fair values are based on analysis of each contract on a gross basis, excluding the impact of netting agreements with counterparties.
The fair values of the Company’s derivative instruments are not actively quoted in the open market. The Company primarily uses a market approach to estimate the fair values of these derivatives on a recurring basis, utilizing futures pricing for the underlying positions provided by a reputable third party, a Level 2 fair value measurement.
Derivative Activity Recorded in the Consolidated Balance Sheet
All derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:
June 30,
2022
December 31,
2021
(In millions)
Current Assets: Other current assets$— $— 
Other Assets: Deferred charges and other1 — 
Total derivative assets$1 $— 
Current Liabilities: Other current liabilities$41 $4 
Deferred Credits and Other Noncurrent Liabilities: Other21 109 
Total derivative liabilities$62 $113 
Derivative Activity Recorded in the Statement of Consolidated Operations
The following table summarizes the effect of derivative instruments on the Company’s statement of consolidated operations:
 
For the Quarter Ended
June 30,
For the Six Months Ended
June 30,
2022202120222021
 (In millions)
Realized:
Commodity derivative instruments$(4)$(48)$(9)$100 
Foreign currency derivative instruments(2)— (2)— 
Realized gain (loss), net(6)(48)(11)100 
Unrealized:
Commodity derivative instruments(20)(98)(44)(72)
Pipeline capacity embedded derivatives— 2 — 3 
Foreign currency derivative instruments(6)— (8)— 
Preferred Units embedded derivative— 31 (31)14 
Unrealized loss, net(26)(65)(83)(55)
Derivative instrument gains (losses), net$(32)$(113)$(94)$45 
Derivative instrument gains and losses are recorded in “Derivative instrument gains (losses), net” under “Revenues and Other” in the Company’s statement of consolidated operations. Unrealized gains (losses) for derivative activity recorded in the statement of consolidated operations are reflected in the statement of consolidated cash flows separately as “Unrealized derivative instrument losses (gains), net” in “Adjustments to reconcile net income (loss) to net cash provided by operating activities.”
The Company seeks to maintain a balance between “first of month” and “gas daily pricing” for its U.S. natural gas portfolio and sales activities in a given month as part of its ordinary course of business. This is typically implemented through a combination of physical and financial contracts that settle monthly. In January 2021, the Company entered into financial contracts that increased its exposure to “gas daily pricing” and reduced its exposure to “first of month” pricing for February 2021. The Company realized a gain of $147 million in connection with these contracts in the first quarter of 2021 as a result of extreme daily gas price volatility across Texas in February resulting from Winter Storm Uri.