v3.22.0.1
Derivative and Financial Instruments
 12 Months Ended
Dec. 31, 2021
Derivative and Financial Instruments [Abstract]  
Derivative and Financial Instruments
Note 12—Derivative and Financial Instruments
We use futures, forwards,
 
swaps and options in various markets
 
to meet our customer needs, capture
 
market
opportunities, and manage foreign exchange
 
currency risk.
 
Commodity Derivative Instruments
Our commodity business primarily consists of natural
 
gas, crude oil, bitumen, LNG and NGLs.
Commodity derivative instruments
 
are held at fair value on our consolidated
 
balance sheet.
 
Where these balances
have the right of setoff,
 
they are presented on a net basis.
 
Related cash flows are recorded
 
as operating activities
on our consolidated statement
 
of cash flows.
 
On our consolidated income statement,
 
gains and losses are
recognized either on a gross
 
basis if directly related to our physical
 
business or a net basis if held for trading.
 
Gains
and losses related to contracts
 
that meet and are designated with the NPNS exception
 
are recognized upon
settlement.
 
We generally apply this
 
exception to eligible crude contracts
 
and certain gas contracts.
 
We do not
apply hedge accounting for our commodity
 
derivatives.
The following table presents the gross
 
fair values of our commodity derivatives,
 
excluding collateral,
 
and the line
items where they appear on our consolidated
 
balance sheet:
Millions of Dollars
2021
2020
Assets
Prepaid expenses and other current
 
assets
$
1,168
229
Other assets
75
26
Liabilities
Other accruals
1,160
202
Other liabilities and deferred credits
63
18
The gains (losses) from commodity derivatives
 
incurred, and the line items where they appear on our
 
consolidated
income statement were:
Millions of Dollars
2021
2020
2019
Sales and other operating revenues
$
(228)
19
141
Other income (loss)
25
4
4
Purchased commodities
75
11
(118)
On January 15, 2021, we assumed financial derivative instruments
 
consisting of oil and natural gas
 
swaps in
connection with the acquisition of Concho.
 
At the acquisition date, the financial derivative
 
instruments acquired
were recognized at fair
 
value as a net liability of $
456
 
million with settlement dates under the contracts
 
through
December 31, 2022.
 
During 2021, we recognized a loss
 
on settlement of the contracts for
 
$
305
 
million.
 
This loss
associated with the acquired financial instruments
 
is recorded within the “Sales and other operating
 
revenues” line
on our consolidated income statement.
 
In connection with the settlement, we issued
 
a cash payment of $
761
million during 2021.
 
Cash settlements related to
 
the derivative contracts
 
are presented within “Cash Flows From
Operating Activities” on our consolidated
 
statement of cash flows.
The table below summarizes our material
 
net exposures resulting from
 
outstanding commodity derivative
contracts:
Open Position
Long/(Short)
2021
2020
Commodity
Natural gas and power (billions
 
of cubic feet equivalent)
Fixed price
4
(20)
Basis
(22)
(10)
Foreign Currency Exchange
 
Derivatives
We have foreign
 
currency exchange rate
 
risk resulting from international
 
operations.
 
Our foreign currency
exchange derivative activity
 
primarily relates to managing our cash
 
-related foreign currency
 
exchange rate
exposures, such as firm commitments for
 
capital programs or local currency
 
tax payments, dividends and
 
cash
returns from net investments
 
in foreign affiliates, and
 
investments in equity securities.
Our foreign currency exchange
 
derivative instruments are
 
held at fair value on our consolidated
 
balance sheet.
 
Related cash flows are included
 
within operating activities on our consolidated
 
statement of cash flows.
 
We do
not elect hedge accounting on our foreign
 
currency exchange derivatives.
The following table presents the gross
 
fair values of our foreign currency
 
exchange derivatives,
 
excluding
collateral, and the line items where
 
they appear on our consolidated balance
 
sheet:
Millions of Dollars
2021
2020
Assets
Prepaid expenses and other current
 
assets
$
28
2
Liabilities
Other accruals
9
16
The (gains) losses from foreign
 
currency exchange derivatives
 
incurred and the line item where they appear
 
on our consolidated income statement
 
were:
Millions of Dollars
2021
2020
2019
Foreign currency transaction
 
(gains) losses
 
$
(5)
(40)
16
We had the following net notional
 
position of outstanding foreign currency
 
exchange derivatives:
In Millions
Notional Currency
 
2021
2020
Foreign Currency Exchange
 
Derivatives
Buy British pound, sell euro
GBP
155
-
Sell British pound, buy euro
GBP
-
5
Sell Canadian dollar,
 
buy U.S. dollar
CAD
-
370
Buy Canadian dollar,
 
sell U.S. dollar
CAD
77
-
Buy Australian dollar,
 
sell U.S. dollar
AUD
1,850
-
At December 31, 2021, we had outstanding foreign currency exchange forward contracts to buy $1.9 billion AUD at
$0.715 AUD against the U.S. dollar in anticipation of our future acquisition of an additional interest in APLNG. At
December 31, 2020, we had outstanding foreign currency exchange forward contracts to sell $0.45 billion CAD at
$0.748 CAD against the U.S. dollar
.
Financial Instruments
We invest in financial
 
instruments with maturities based on our cash
 
forecasts for the various
 
accounts and
currency pools we manage.
 
The types of financial instruments in which we currently
 
invest include:
●
Time deposits: Interest bearing deposits
 
placed with financial institutions for a predetermined
 
amount of
time.
●
Demand deposits:
 
Interest bearing deposits placed with financial
 
institutions.
 
Deposited funds can be
withdrawn without notice.
●
Commercial paper: Unsecured promissory
 
notes issued by a corporation, commercial
 
bank or government
agency purchased at a discount to
 
mature at par.
 
●
U.S. government or government
 
agency obligations: Securities issued by the U.S.
 
government or U.S.
government agencies.
●
Foreign government obligations:
 
Securities issued by foreign governments.
●
Corporate bonds:
 
Unsecured debt securities issued by corporations.
●
Asset-backed securities: Collateralized
 
debt securities.
The following investments
 
are carried on our consolidated
 
balance sheet at cost, plus accrued interest
 
and the
table reflects remaining maturities
 
at December 31, 2021 and 2020:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
Investments
Investments and Long-
Term Receivables
2021
2020
2021
2020
2021
2020
Cash
$
670
597
Demand Deposits
1,554
1,133
Time Deposits
1 to 90 days
2,363
1,225
217
2,859
91 to 180 days
4
448
Within one year
4
13
One year through five years
-
1
U.S. Government Obligations
1 to 90 days
431
23
-
-
$
5,018
2,978
225
3,320
-
1
The following investments
 
in debt securities classified as available for
 
sale are carried at fair value on
 
our
consolidated balance sheet at December 31, 2021 and
 
2020:
Millions of Dollars
Carrying Amount
Cash and Cash
Equivalents
Short-Term
Investments
Investments and Long-
Term Receivables
2021
2020
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
3
-
128
130
173
143
Commercial Paper
7
13
82
155
U.S. Government Obligations
-
-
-
4
2
13
U.S. Government Agency
 
 
Obligations
2
-
8
17
Foreign Government Obligations
7
-
2
2
Asset-backed Securities
2
-
63
41
$
10
13
221
289
248
216
Cash and Cash Equivalents and Short-Term
 
Investments have
 
remaining maturities within one year.
Investments and Long-Term
 
Receivables have remaining
 
maturities that vary from greater
 
than one year through
eight years.
The following table summarizes the
 
amortized cost basis and fair value
 
of investments in debt securities classified
as available for sale at December 31:
Millions of Dollars
Amortized Cost Basis
Fair Value
2021
2020
2021
2020
Major Security Type
Corporate Bonds
$
305
271
304
273
Commercial Paper
88
168
89
168
U.S. Government Obligations
2
17
2
17
U.S. Government Agency Obligations
10
17
10
17
Foreign Government Obligations
9
2
9
2
Asset-Backed Securities
65
41
65
41
$
479
516
479
518
As of December 31, 2021 and 2020, total unrealized
 
losses for debt securities classified as available
 
for sale with
net losses were negligible.
 
Additionally,
 
as of December 31, 2021 and 2020, investments in these
 
debt securities in
an unrealized loss position for which an
 
allowance for credit losses has not been
 
recorded were negligible.
For the years
 
ended December 31, 2021 and 2020, proceeds from sales and
 
redemptions of investments
 
in debt
securities classified as available for sale were
 
$
594
 
million and $
422
 
million, respectively.
 
Gross realized gains and
losses included in earnings from those sales and redemptions
 
were negligible.
 
The cost of securities sold and
redeemed is determined using the specific identification
 
method.
Credit Risk
Financial instruments potentially exposed
 
to concentrations of credit
 
risk consist primarily of cash equivalents,
short-term investments, long-term
 
investments in debt securities,
 
OTC derivative contracts
 
and trade receivables.
 
Our cash equivalents and short-term
 
investments are placed
 
in high-quality commercial paper,
 
government money
market funds, U.S. government
 
and government agency obligations,
 
time deposits with major international banks
and financial institutions, high-quality corporate
 
bonds, foreign government obligations
 
and asset-backed
securities.
 
Our long-term investments in debt
 
securities are placed in high-quality corporate
 
bonds, asset-backed
securities, U.S. government and government
 
agency obligations, foreign
 
government obligations, and
 
time
deposits with major international banks
 
and financial institutions.
 
 
The credit risk from our OTC derivative
 
contracts, such as forwards,
 
swaps and options, derives from the
counterparty to the transaction.
 
Individual counterparty exposure is
 
managed within predetermined credit limits
and includes the use of cash-call margins when appropriate,
 
thereby reducing the risk of significant
nonperformance.
 
We also use futures, swaps
 
and option contracts that have
 
a negligible credit risk because these
trades are cleared primarily with an
 
exchange clearinghouse and subject to
 
mandatory margin requirements until
settled; however,
 
we are exposed to the credit risk
 
of those exchange brokers
 
for receivables arising from
 
daily
margin cash calls, as well as for cash
 
deposited to meet initial margin requirements.
 
Our trade receivables result primarily
 
from our petroleum operations
 
and reflect a broad national and
international customer base, which limits
 
our exposure to concentrations
 
of credit risk.
 
The majority of these
receivables have payment
 
terms of
30 days or less
, and we continually monitor this exposure
 
and the
creditworthiness of the counterparties.
 
We may require collateral
 
to limit the exposure to loss including,
 
letters of
credit, prepayments and surety
 
bonds, as well as master netting arrangements
 
to mitigate credit risk with
counterparties that both buy from and
 
sell to us, as these agreements permit the amounts
 
owed by us or owed to
others to be offset against
 
amounts due to us.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure
exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable
threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for
lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if we fall below
investment grade. Cash is the primary collateral in all contracts; however, many also permit us to post letters of
credit as collateral, such as transactions administered through the New York Mercantile Exchange.
The aggregate fair value
 
of all derivative instruments with such credit
 
risk-related contingent
 
features that were in
a liability position on December 31, 2021 and December 31, 2020, was $
281
 
million and $
25
 
million, respectively.
 
For these instruments,
no
 
collateral was posted as
 
of December 31, 2021 or December 31, 2020.
 
If our credit
rating had been downgraded below investment
 
grade on December 31, 2021, we would
 
have been required to
post $
252
 
million of additional collateral, either with cash
 
or letters of credit.