Financial Instruments and Derivatives | Financial Instruments and Derivatives The estimated fair value of financial instruments and derivatives at March 31, 2023 and December 31, 2022, and the related hierarchy level for the fair value measurement was as follows: March 31, 2023 Fair Value (millions of dollars) Level 1 Level 2 Level 3 Total Gross Assets Effect of Effect of Difference in Carrying Value and Fair Value Net Assets Derivative assets (1) 5,122 2,372 — 7,494 (5,761) (943) — 790 Advances to/receivables from equity companies (2)(6) — 2,440 5,165 7,605 — — 614 8,219 Other long-term financial assets (3) 1,243 — 1,506 2,749 — — 313 3,062 Liabilities Derivative liabilities (4) 4,233 2,720 — 6,953 (5,761) (60) — 1,132 Long-term debt (5) 32,905 1,036 6 33,947 — — 3,415 37,362 Long-term obligations to equity companies (6) — — 2,502 2,502 — — (126) 2,376 Other long-term financial liabilities (7) — — 713 713 — — 40 753 December 31, 2022 Fair Value (millions of dollars) Level 1 Level 2 Level 3 Total Gross Assets Effect of Effect of Difference in Carrying Value and Fair Value Net Assets Derivative assets (1) 4,309 3,455 — 7,764 (5,778) (969) — 1,017 Advances to/receivables from equity companies (2)(6) — 2,406 4,958 7,364 — — 685 8,049 Other long-term financial assets (3) 1,208 — 1,413 2,621 — — 346 2,967 Liabilities Derivative liabilities (4) 3,417 3,264 — 6,681 (5,778) (79) — 824 Long-term debt (5) 33,112 1,880 6 34,998 — — 4,173 39,171 Long-term obligations to equity companies (6) — — 2,467 2,467 — — (129) 2,338 Other long-term financial liabilities (7) — — 679 679 — — 38 717 (1) Included in the Balance Sheet lines: Notes and accounts receivable - net and Other assets, including intangibles - net (2) Included in the Balance Sheet line: Investments, advances and long-term receivables (3) Included in the Balance Sheet lines: Investments, advances and long-term receivables and Other assets, including intangibles - net (4) Included in the Balance Sheet lines: Accounts payable and accrued liabilities and Other long-term obligations (5) Excluding finance lease obligations (6) Advances to/receivables from equity companies and long-term obligations to equity companies are mainly designated as hierarchy level 3 inputs. The fair value is calculated by discounting the remaining obligations by a rate consistent with the credit quality and industry of the company. (7) Included in the Balance Sheet line: Other long-term obligations. Includes contingent consideration related to a prior year acquisition where fair value is based on expected drilling activities and discount rates. At March 31, 2023 and December 31, 2022, respectively, the Corporation had $884 million and $1,494 million of collateral under master netting arrangements not offset against the derivatives on the Consolidated Balance Sheet, primarily related to initial margin requirements. The Corporation may use non-derivative financial instruments, such as its foreign currency-denominated debt, as hedges of its net investments in certain foreign subsidiaries. Under this method, the change in the carrying value of the financial instruments due to foreign exchange fluctuations is reported in accumulated other comprehensive income. As of March 31, 2023, the Corporation has designated $4.9 billion of its Euro-denominated long-term debt and related accrued interest as a net investment hedge of its European business. The net investment hedge is deemed to be perfectly effective. The Corporation had undrawn short-term committed lines of credit of $363 million and undrawn long-term committed lines of credit of $1,281 million as of first quarter 2023. Derivative Instruments The Corporation’s size, strong capital structure, geographic diversity, and the complementary nature of its business segments reduce the Corporation’s enterprise-wide risk from changes in commodity prices, currency rates and interest rates. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Condensed Consolidated Statement of Income on a net basis in the line “Sales and other operating revenue". The Corporation’s commodity derivatives are not accounted for under hedge accounting. At times, the Corporation also enters into currency and interest rate derivatives, none of which are material to the Corporation’s financial position as of March 31, 2023 and December 31, 2022, or results of operations for the periods ended March 31, 2023 and 2022. Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation maintains a system of controls that includes the authorization, reporting, and monitoring of derivative activity. The net notional long/(short) position of derivative instruments at March 31, 2023 and December 31, 2022, was as follows: (millions) March 31, 2023 December 31, 2022 Crude oil (barrels) 15 4 Petroleum products (barrels) (48) (52) Natural gas (MMBTUs) (29) (64) Realized and unrealized gains/(losses) on derivative instruments that were recognized in the Condensed Consolidated Statement of Income are included in the following lines on a before-tax basis: (millions of dollars) Three Months Ended 2023 2022 Sales and other operating revenue 651 (2,535) Crude oil and product purchases (25) (26) Total 626 (2,561) |