Financial Risk Management and Trading Activities | 12 Months Ended |
Dec. 31, 2014 |
Derivative Instruments And Hedging Activities Disclosure [Abstract] | |
Financial Risk Management and Trading Activities | 21. Financial Risk Management and Trading Activities |
In the normal course of its business, the Corporation is 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. In the disclosures that follow, corporate risk management activities refer to the mitigation of these risks through hedging activities. The Corporation is also exposed to commodity price risks primarily related to crude oil, natural gas, refined petroleum products and electricity, as well as foreign currency values from a 50% voting interest in a consolidated energy trading joint venture. The energy trading joint venture was sold in February 2015. |
In conjunction with the sale of the energy marketing business in the fourth quarter of 2013, certain derivative contracts, including new transactions following the closing date, (the “delayed transfer derivative contracts”) were not transferred to the acquirer, Direct Energy, a North American subsidiary of Centrica plc (Centrica), as required customer or regulatory consents had not been obtained. However, the agreement entered into between Hess and Direct Energy on the closing date transferred all economic risks and rewards of the energy marketing business, including the ownership of the delayed transfer derivative contracts, to Direct Energy. The transfer of these remaining contracts was completed during 2014. |
The Corporation maintains a control environment for all of its financial risk management and trading activities under the direction of its chief risk officer and through its corporate risk policy, which the Corporation’s senior management has approved. Controls include volumetric, term and value at risk limits. The chief risk officer must approve the trading of new instruments and commodities. Risk limits are monitored and reported on a daily basis to business units and senior management. The Corporation’s financial risk management department also performs independent price verifications (IPV’s) of sources of fair values and validations of valuation models. The Corporation’s treasury department is responsible for administering foreign exchange rate and interest rate hedging programs using similar controls and processes, where applicable. |
The Corporation’s financial risk management department, in performing the IPV procedures, utilizes independent sources and valuation models that are specific to the individual contracts and pricing locations to identify positions that require adjustments to better reflect the market. This review is performed quarterly and the results are presented to the chief risk officer and senior management. The IPV process considers the reliability of the pricing services through assessing the number of available quotes, the frequency at which data is available and, where appropriate, the comparability between pricing sources. |
The following is a description of the Corporation’s activities that use derivatives as part of their operations and strategies. Derivatives include both financial instruments and forward purchase and sale contracts. Gross notional amounts of both long and short positions are presented in the volume tables beginning 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. |
Corporate Financial Risk Management Activities: Financial risk management activities include transactions designed to reduce risk in the selling prices of crude oil or natural gas produced by the Corporation or to reduce 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 the Corporation’s crude oil or natural gas production. Forward contracts may also be used to purchase certain currencies in which the Corporation does 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. |
The gross volumes of the financial risk management derivative contracts outstanding at December 31, were as follows: |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Commodity, primarily crude oil (millions of barrels) | | | — | | | | 9 | | | | | | | | | | | | | | | | | |
Foreign exchange (millions of USD*) | | $ | 1,189 | | | $ | 220 | | | | | | | | | | | | | | | | | |
Interest rate swaps (millions of USD) | | $ | 1,300 | | | $ | 865 | | | | | | | | | | | | | | | | | |
*Denominated in U.S. dollars (USD). |
Crude oil price hedging contracts increased E&P Sales and other operating revenues by $193 million ($121 million after income taxes) and $39 million ($25 million after income taxes) in 2014 and 2013, respectively, and reduced E&P Sales and other operating revenues by $688 million ($431 million after income taxes) in 2012. The amount of ineffectiveness from crude oil hedges that was recognized immediately in Sales and other operating revenues was immaterial in 2014 and 2013, and a loss of $9 million in 2012. At December 31, 2014, the Corporation has no after‑tax deferred gains in Accumulated other comprehensive income (loss) related to Brent crude oil and West Texas Intermediate (WTI) crude oil hedges. |
At December 31, 2014 and 2013, the Corporation had interest rate swaps with gross notional amounts of $1,300 million and $865 million, respectively, which were designated as fair value hedges. 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. For the years ended December 31, 2014 and 2013, the Corporation recorded an increase of $1 million and a decrease of $35 million (excluding accrued interest) respectively, in the fair value of interest rate swaps and a corresponding adjustment in the carrying value of the hedged fixed‑rate debt. |
Gains or losses on foreign exchange contracts that are not designated as hedges are recognized immediately in Other, net in Revenues and non‑operating income in the Statement of Consolidated Income. |
Net realized and unrealized pre‑tax gains (losses) on derivative contracts used in Corporate Risk Management activities and not designated as hedges amounted to the following: |
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
| | (In millions) | | | | | | | | | | | | | |
Commodity | | $ | — | | | $ | — | | | $ | 1 | | | | | | | | | | | | | |
Foreign exchange | | | 117 | | | | (39 | ) | | | 43 | | | | | | | | | | | | | |
Total | | $ | 117 | | | $ | (39 | ) | | $ | 44 | | | | | | | | | | | | | |
Trading Activities: The energy trading joint venture generated earnings through various strategies primarily using energy-related commodities, securities and derivatives. The information that follows represents 100% of the energy trading joint venture as well as the Corporation’s proprietary trading activities, which ceased in 2013. |
The gross volumes of derivative contracts outstanding related to trading activities at December 31, were as follows: |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Commodity | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products (millions of barrels) | | | 1,396 | | | | 1,815 | | | | | | | | | | | | | | | | | |
Natural gas (millions of mcf) | | | 2,224 | | | | 2,735 | | | | | | | | | | | | | | | | | |
Electricity (millions of megawatt hours) | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | |
Foreign exchange (millions of USD) | | $ | 77 | | | $ | 52 | | | | | | | | | | | | | | | | | |
Interest rate (millions of USD) | | $ | 29 | | | $ | — | | | | | | | | | | | | | | | | | |
Equity securities (millions of shares) | | | 5 | | | | 11 | | | | | | | | | | | | | | | | | |
Pre‑tax unrealized and realized gains (losses) recorded in the Statement of Consolidated Income from trading activities amounted to the following: |
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
| | (In millions) | | | | | | | | | | | | | |
Commodity | | $ | 168 | | | $ | 78 | | | $ | 104 | | | | | | | | | | | | | |
Foreign exchange | | | 2 | | | | — | | | | 3 | | | | | | | | | | | | | |
Other | | | 32 | | | | 1 | | | | 10 | | | | | | | | | | | | | |
Total * | | $ | 202 | | | $ | 79 | | | $ | 117 | | | | | | | | | | | | | |
* | The unrealized pre‑tax gains and losses included in earnings were reflected in Income from discontinued operations in the Statement of Consolidated Income. | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Measurements: The Corporation generally enters into master netting arrangements to mitigate legal and counterparty credit risk. Master netting arrangements are generally accepted overarching master contracts that govern all individual transactions with the same counterparty entity as a single legally enforceable agreement. The U.S. Bankruptcy Code provides for the enforcement of certain termination and netting rights under certain types of contracts upon the bankruptcy filing of a counterparty, commonly known as the “safe harbor” provisions. If a master netting arrangement provides for termination and netting upon the counterparty’s bankruptcy, these rights are generally enforceable with respect to “safe harbor” transactions. If these arrangements provide the right of offset and the Corporation’s intent and practice is to offset amounts in the case of such a termination, the Corporation’s policy is to record the fair value of derivative assets and liabilities on a net basis. |
In the normal course of business the Corporation relies on legal and credit risk mitigation clauses providing for adequate credit assurance as well as close‑out netting, including two‑party netting and single counterparty multilateral netting. As applied to the Corporation, “two‑party netting” is the right to net amounts owing under safe harbor transactions between a single defaulting counterparty entity and a single Hess entity, and “single counterparty multilateral netting” is the right to net amounts owing under safe harbor transactions among a single defaulting counterparty entity and multiple Hess entities. The Corporation is reasonably assured that these netting rights would be upheld in a bankruptcy proceeding in the U.S. in which the defaulting counterparty is a debtor under the U.S. Bankruptcy Code. |
The following table provides information about the effect of netting arrangements on the presentation of the Corporation’s physical and financial derivative assets and (liabilities) that are measured at fair value, with the effect of single counterparty multilateral netting being included in column (v): |
| | | | | Gross Amounts Offset in the | | | | | | | | | | |
Consolidated Balance Sheet |
| | Gross Amounts | | | Physical | | | Cash Collateral (a) | | | Net Amounts | | | Gross Amounts | | | Net Amounts | |
Derivative and | Presented in the | Not Offset in the |
Financial | Consolidated | Consolidated |
Instruments | Balance Sheet | Balance Sheet |
| | (i) | | | (ii) | | | (iii) | | | (iv)=)+(ii)+(iii) | | | (v) | | | (vi)=v)+(v) | |
| | (In millions) | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | 7,465 | | | $ | (6,664 | ) | | $ | (36 | ) | | $ | 765 | | | $ | (3 | ) | | $ | 762 | |
Interest rate and other | | | 76 | | | | (7 | ) | | | (1 | ) | | | 68 | | | | (1 | ) | | | 67 | |
Counterparty netting | | | — | | | | (63 | ) | | | — | | | | (63 | ) | | | — | | | | (63 | ) |
Total derivative contracts | | $ | 7,541 | | | $ | (6,734 | ) | | $ | (37 | ) | | $ | 770 | | | $ | (4 | ) | | $ | 766 | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | (7,871 | ) | | $ | 6,664 | | | $ | 299 | | | $ | (908 | ) | | $ | 3 | | | $ | (905 | ) |
Interest rate and other | | | (13 | ) | | | 7 | | | | 3 | | | | (3 | ) | | | 1 | | | | (2 | ) |
Counterparty netting | | | — | | | | 63 | | | | — | | | | 63 | | | | — | | | | 63 | |
Total derivative contracts | | $ | (7,884 | ) | | $ | 6,734 | | | $ | 302 | | | $ | (848 | ) | | $ | 4 | | | $ | (844 | ) |
December 31, 2013 (b) | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | 3,086 | | | $ | (1,867 | ) | | $ | (79 | ) | | $ | 1,140 | | | $ | (41 | ) | | $ | 1,099 | |
Interest rate and other | | | 51 | | | | (10 | ) | | | — | | | | 41 | | | | (3 | ) | | | 38 | |
Counterparty netting | | | — | | | | (206 | ) | | | — | | | | (206 | ) | | | — | | | | (206 | ) |
Total derivative contracts | | $ | 3,137 | | | $ | (2,083 | ) | | $ | (79 | ) | | $ | 975 | | | $ | (44 | ) | | $ | 931 | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | (3,212 | ) | | $ | 1,867 | | | $ | 168 | | | $ | (1,177 | ) | | $ | 41 | | | $ | (1,136 | ) |
Other | | | (12 | ) | | | 10 | | | | — | | | | (2 | ) | | | 3 | | | | 1 | |
Counterparty netting | | | — | | | | 206 | | | | — | | | | 206 | | | | — | | | | 206 | |
Total derivative contracts | | $ | (3,224 | ) | | $ | 2,083 | | | $ | 168 | | | $ | (973 | ) | | $ | 44 | | | $ | (929 | ) |
|
(a) | All cash collateral was offset in the Consolidated Balance Sheet. | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Assets and liabilities in 2013 include amounts relating to the divested energy marketing business. | | | | | | | | | | | | | | | | | | | | | | | |
The net assets and liabilities that were offset in the Consolidated Balance Sheet as reflected in column (iv) of the table above were primarily included in Accounts receivable—Trade and Accounts payable, respectively. Included in these net amounts were the assets and liabilities related to the Corporation’s discontinued operations of approximately $701 million and $845 million, respectively, as of December 31, 2014, and $612 million and $620 million, respectively, as of December 31, 2013. |
The table below reflects the gross and net fair values of the risk management and trading derivative instruments and, at December 31, 2013 also includes energy marketing risk management derivative instruments: |
| | Accounts | | | Accounts | | | | | | | | | | | | | | | | | |
| | Receivable | | | Payable | | | | | | | | | | | | | | | | | |
| | (In millions) | | | | | | | | | | | | | | | | | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | |
Interest rate and other | | | 39 | | | | (2 | ) | | | | | | | | | | | | | | | | |
Total derivative contracts designated as hedging instruments | | | 39 | | | | (2 | ) | | | | | | | | | | | | | | | | |
Derivative contracts not designated as hedging instruments (a) | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | | 7,465 | | | | (7,871 | ) | | | | | | | | | | | | | | | | |
Foreign exchange | | | 31 | | | | — | | | | | | | | | | | | | | | | | |
Other | | | 6 | | | | (11 | ) | | | | | | | | | | | | | | | | |
Total derivative contracts not designated as hedging instruments | | | 7,502 | | | | (7,882 | ) | | | | | | | | | | | | | | | | |
Gross fair value of derivative contracts | | | 7,541 | | | | (7,884 | ) | | | | | | | | | | | | | | | | |
Master netting arrangements | | | (6,734 | ) | | | 6,734 | | | | | | | | | | | | | | | | | |
Cash collateral (received) posted | | | (37 | ) | | | 302 | | | | | | | | | | | | | | | | | |
Net fair value of derivative contracts | | $ | 770 | | | $ | (848 | ) | | | | | | | | | | | | | | | | |
December 31, 2013 (b) | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | 11 | | | $ | (3 | ) | | | | | | | | | | | | | | | | |
Interest rate and other | | | 36 | | | | (1 | ) | | | | | | | | | | | | | | | | |
Total derivative contracts designated as hedging instruments | | | 47 | | | | (4 | ) | | | | | | | | | | | | | | | | |
Derivative contracts not designated as hedging instruments (a) | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | | 3,075 | | | | (3,209 | ) | | | | | | | | | | | | | | | | |
Foreign exchange | | | 2 | | | | (3 | ) | | | | | | | | | | | | | | | | |
Other | | | 13 | | | | (8 | ) | | | | | | | | | | | | | | | | |
Total derivative contracts not designated as hedging instruments | | | 3,090 | | | | (3,220 | ) | | | | | | | | | | | | | | | | |
Gross fair value of derivative contracts | | | 3,137 | | | | (3,224 | ) | | | | | | | | | | | | | | | | |
Master netting arrangements | | | (2,083 | ) | | | 2,083 | | | | | | | | | | | | | | | | | |
Cash collateral (received) posted | | | (79 | ) | | | 168 | | | | | | | | | | | | | | | | | |
Net fair value of derivative contracts | | $ | 975 | | | $ | (973 | ) | | | | | | | | | | | | | | | | |
(a) | Includes trading derivatives and derivatives used for risk management | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Assets and liabilities in 2013 include amounts relating to the divested energy marketing business | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Measurements: |
The following table provides the Corporation’s net physical derivative and financial assets and (liabilities) that are measured at fair value based on this hierarchy: |
| | Level 1 | | | Level 2 | | | Level 3 | | | Counterparty | | | Collateral | | | Balance | |
netting |
| | (In millions) | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | 755 | | | $ | 390 | | | $ | 114 | | | $ | (458 | ) | | $ | (36 | ) | | $ | 765 | |
Interest rate and other | | | (1 | ) | | | 70 | | | | — | | | | — | | | | (1 | ) | | | 68 | |
Collateral and counterparty netting | | | (43 | ) | | | (20 | ) | | | — | | | | — | | | | — | | | | (63 | ) |
Total derivative contracts | | | 711 | | | | 440 | | | | 114 | | | | (458 | ) | | | (37 | ) | | | 770 | |
Other assets measured at fair value on a recurring basis | | | 27 | | | | — | | | | — | | | | — | | | | — | | | | 27 | |
Total assets measured at fair value on a recurring basis | | $ | 738 | | | $ | 440 | | | $ | 114 | | | $ | (458 | ) | | $ | (37 | ) | | $ | 797 | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | (338 | ) | | $ | (1,265 | ) | | $ | (62 | ) | | $ | 458 | | | $ | 299 | | | $ | (908 | ) |
Other | | | (3 | ) | | | (1 | ) | | | (2 | ) | | | — | | | | 3 | | | | (3 | ) |
Collateral and counterparty netting | | | 43 | | | | 20 | | | | — | | | | — | | | | — | | | | 63 | |
Total derivative contracts | | | (298 | ) | | | (1,246 | ) | | | (64 | ) | | | 458 | | | | 302 | | | | (848 | ) |
Other liabilities measured at fair value on a recurring basis | | | (40 | ) | | | — | | | | — | | | | — | | | | — | | | | (40 | ) |
Total liabilities measured at fair value on a recurring basis | | $ | (338 | ) | | $ | (1,246 | ) | | $ | (64 | ) | | $ | 458 | | | $ | 302 | | | $ | (888 | ) |
Other fair value measurement disclosures Long-term debt (a) | | $ | — | | | $ | (7,003 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (7,003 | ) |
December 31, 2013 (b) | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | 254 | | | $ | 579 | | | $ | 494 | | | $ | (108 | ) | | $ | (79 | ) | | $ | 1,140 | |
Interest rate and other | | | 2 | | | | 37 | | | | 3 | | | | (1 | ) | | | — | | | | 41 | |
Collateral and counterparty netting | | | (15 | ) | | | (191 | ) | | | — | | | | — | | | | — | | | | (206 | ) |
Total derivative contracts | | | 241 | | | | 425 | | | | 497 | | | | (109 | ) | | | (79 | ) | | | 975 | |
Other assets measured at fair value on a recurring basis | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total assets measured at fair value on a recurring basis | | $ | 241 | | | $ | 425 | | | $ | 497 | | | $ | (109 | ) | | $ | (79 | ) | | $ | 975 | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | $ | (97 | ) | | $ | (1,071 | ) | | $ | (285 | ) | | $ | 108 | | | $ | 168 | | | $ | (1,177 | ) |
Other | | | — | | | | (3 | ) | | | — | | | | 1 | | | | — | | | | (2 | ) |
Collateral and counterparty netting | | | 15 | | | | 191 | | | | — | | | | — | | | | — | | | | 206 | |
Total derivative contracts | | | (82 | ) | | | (883 | ) | | | (285 | ) | | | 109 | | | | 168 | | | | (973 | ) |
Other liabilities measured at fair value on a recurring basis | | | (31 | ) | | | — | | | | — | | | | — | | | | — | | | | (31 | ) |
Total liabilities measured at fair value on a recurring basis | | $ | (113 | ) | | $ | (883 | ) | | $ | (285 | ) | | $ | 109 | | | $ | 168 | | | $ | (1,004 | ) |
Other fair value measurement disclosures Long-term debt (a) | | $ | — | | | $ | (6,641 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (6,641 | ) |
(a) | Long-term debt, including current maturities, had a carrying value of $5,987 million and $5,798 million at December 31, 2014 and 2013, respectively. | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Assets and liabilities in 2013 include amounts relating to the divested energy marketing business. | | | | | | | | | | | | | | | | | | | | | | | |
In addition to the financial assets and (liabilities) disclosed in the tables above, the Corporation had other short‑term financial instruments, primarily cash equivalents and accounts receivable and payable, for which the carrying value approximated their fair value at December 31, 2014 and 2013. |
The following table provides total net transfers into and out of each level of the fair value hierarchy: |
|
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
| | (In millions) | | | | | | | | | | | | | | | | | |
Transfers into Level 1 | | $ | 25 | | | $ | 3 | | | | | | | | | | | | | | | | | |
Transfers out of Level 1 | | | (47 | ) | | | 76 | | | | | | | | | | | | | | | | | |
| | $ | (22 | ) | | $ | 79 | | | | | | | | | | | | | | | | | |
Transfers into Level 2 | | $ | 25 | | | $ | (113 | ) | | | | | | | | | | | | | | | | |
Transfers out of Level 2 | | | (128 | ) | | | 88 | | | | | | | | | | | | | | | | | |
| | $ | (103 | ) | | $ | (25 | ) | | | | | | | | | | | | | | | | |
Transfers into Level 3 | | $ | 105 | | | $ | (85 | ) | | | | | | | | | | | | | | | | |
Transfers out of Level 3 | | | 20 | | | | 31 | | | | | | | | | | | | | | | | | |
| | $ | 125 | | | $ | (54 | ) | | | | | | | | | | | | | | | | |
The Corporation’s policy is to recognize transfers in and transfers out as of the end of the reporting period. Transfers between levels result from the passage of time as contracts move closer to their maturities, fluctuations in the market liquidity for certain contracts and/or changes in the level of significance of fair value measurement inputs. |
The following table provides changes in physical derivatives and financial assets and (liabilities) primarily related to commodities that are measured at fair value based on Level 3 inputs: |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
| | (In millions) | | | | | | | | | | | | | | | | | |
Balance at January 1 | | $ | 212 | | | $ | 141 | | | | | | | | | | | | | | | | | |
Unrealized pre-tax gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | |
Included in earnings (a) | | | (298 | ) | | | 175 | | | | | | | | | | | | | | | | | |
Purchases (b) | | | 31 | | | | 45 | | | | | | | | | | | | | | | | | |
Sales (b) | | | (24 | ) | | | (34 | ) | | | | | | | | | | | | | | | | |
Settlements (c) | | | 4 | | | | (61 | ) | | | | | | | | | | | | | | | | |
Transfers into Level 3 | | | 105 | | | | (85 | ) | | | | | | | | | | | | | | | | |
Transfers out of Level 3 | | | 20 | | | | 31 | | | | | | | | | | | | | | | | | |
Balance at December 31 | | $ | 50 | | | $ | 212 | | | | | | | | | | | | | | | | | |
(a) | The unrealized pre‑tax gains and losses included in earnings were reflected in Income from discontinued operations in the Statement of Consolidated Income. | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Purchases and sales primarily represent option premiums paid or received, respectively, during the reporting period and were reflected in Income from discontinued operations in the Statement of Consolidated Income. | | | | | | | | | | | | | | | | | | | | | | | |
(c) | Settlements represent realized gains (losses) on derivatives settled during the reporting period and were reflected in Income from discontinued operations in the Statement of Consolidated Income. | | | | | | | | | | | | | | | | | | | | | | | |
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The significant unobservable inputs used in Level 3 fair value measurements for the Corporation’s physical commodity contracts and derivative instruments primarily include less liquid delivered locations for physical commodity contracts or volatility assumptions for out‑of‑the‑money options. The following table provides information about the Corporation's significant recurring unobservable inputs used in the Level 3 fair value measurements. Natural gas contracts are usually quoted and transacted using basis pricing relative to an active pricing location (e.g. Henry Hub), for which price inputs represent the approximate value of differences in geography and local market conditions. All other price inputs in the table below represent full contract prices. Significant changes in any of the inputs, independently or correlated, may result in a different fair value. |
| | Unit of | | | Range / | | | | | | | | | | | | | | | | | |
| | Measurement | | | Weighted Average | | | | | | | | | | | | | | | | | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity contracts with a fair value of $114 million | | | | | | | | | | | | | | | | | | | | | | | | |
Contract prices | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | $ / bbl (a) | | | $ | 36.27 - 122.66 / 65.63 | | | | | | | | | | | | | | | | | |
Electricity | | | $ / MWH (b) | | | $ | 38.80 - 71.69 / 57.22 | | | | | | | | | | | | | | | | | |
Basis prices | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas | | | $ / MMBTU (c) | | | $ | (0.61) - 13.50 / 6.19 | | | | | | | | | | | | | | | | | |
Contract volatilities | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | % | | | | 32.00 - 45.00 / 43.00 | | | | | | | | | | | | | | | | | |
Natural gas | | | % | | | | 19.00 - 53.00 / 40.00 | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity contracts with a fair value of $62 million | | | | | | | | | | | | | | | | | | | | | | | | |
Contract prices | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | $ / bbl (a) | | | $ | 36.27 - 85.40 / 69.54 | | | | | | | | | | | | | | | | | |
Basis prices | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas | | | $ / MMBTU (c) | | | $ | 2.84 - 4.45 / 2.94 | | | | | | | | | | | | | | | | | |
Contract volatilities | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | % | | | | 32.00 - 45.00 / 41.00 | | | | | | | | | | | | | | | | | |
Natural gas | | | % | | | | 23.00 - 53.00 / 41.00 | | | | | | | | | | | | | | | | | |
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| | Unit of | | | Range / | | | | | | | | | | | | | | | | | |
| | Measurement | | | Weighted Average | | | | | | | | | | | | | | | | | |
December 31, 2013 (b) | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity contracts with a fair value of $494 million | | | | | | | | | | | | | | | | | | | | | | | | |
Contract prices | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | $ / bbl (a) | | | $ | 78.45 - 228.86 / 118.68 | | | | | | | | | | | | | | | | | |
Electricity | | | $ / MWH (b) | | | $ | 19.52 -165.75 / 45.76 | | | | | | | | | | | | | | | | | |
Basis prices | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas | | | $ / MMBTU (c) | | | $ | (4.99) - 18.10 / 0.23 | | | | | | | | | | | | | | | | | |
Contract volatilities | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | % | | | | 16.00 - 18.00 / 17.00 | | | | | | | | | | | | | | | | | |
Natural gas | | | % | | | | 17.00 - 35.00 / 22.00 | | | | | | | | | | | | | | | | | |
Electricity | | | % | | | | 16.00 - 36.00 / 23.00 | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity contracts with a fair value of $285 million | | | | | | | | | | | | | | | | | | | | | | | | |
Contract prices | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | $ / bbl (a) | | | $ | 57.45 - 183.89 / 122.54 | | | | | | | | | | | | | | | | | |
Electricity | | | $ / MWH (b) | | | $ | 26.48 - 155.33 / 43.12 | | | | | | | | | | | | | | | | | |
Basis prices | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas | | | $ / MMBTU (c) | | | $ | (1.90) - 18.00 / (0.62) | | | | | | | | | | | | | | | | | |
Contract volatilities | | | | | | | | | | | | | | | | | | | | | | | | |
Crude oil and refined petroleum products | | | % | | | | 16.00 - 17.00 / 17.00 | | | | | | | | | | | | | | | | | |
Natural gas | | | % | | | | 34.00 - 35.00 / 35.00 | | | | | | | | | | | | | | | | | |
Electricity | | | % | | | | 16.00 – 36.00 / 22.00 | | | | | | | | | | | | | | | | | |
(a) | Price per barrel. | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Price per megawatt hour. | | | | | | | | | | | | | | | | | | | | | | | |
(c) | Price per million British thermal unit | | | | | | | | | | | | | | | | | | | | | | | |
(d | Assets and liabilities in 2013 include amounts relating to the divested energy marketing business. | | | | | | | | | | | | | | | | | | | | | | | |
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Credit Risk: The Corporation is exposed to credit risks that may at times be concentrated with certain counterparties, groups of counterparties or customers. Accounts receivable are generated from a diverse domestic and international customer base. As of December 31, 2014, the Corporation’s net Accounts receivable—Trade related to continuing operations were concentrated with the following counterparty industry segments: Integrated Oil Companies — 23%, Financial Institutions — 22%, Government Entities —18%, Refiners — 14%, and Trading Companies — 13%. As of December 31, 2013, the Corporation’s net Accounts receivable —Trade, which included the receivables for the downstream businesses, were concentrated as follows: Integrated Oil Companies — 45%, Refiners — 18%, Financial Institutions — 14% Government Entities — 8%, and Trading Companies — 7%. The Corporation reduces its risk related to certain counterparties by using master netting arrangements and requiring collateral, generally cash or letters of credit. The Corporation records the cash collateral received or posted as an offset to the fair value of derivatives executed with the same counterparty. At December 31, 2014 and December 31, 2013, the Corporation held cash from counterparties of $37 million and $79 million, respectively. The Corporation posted cash to counterparties at December 31, 2014 and December 31, 2013, of $302 million and $168 million, respectively. |
The Corporation had outstanding letters of credit totaling $397 million and $410 million at December 31, 2014 and December 31, 2013, respectively, primarily issued to satisfy margin requirements (approximately $240 million and $302 million related to discontinued operations at December 31, 2014 and December 31, 2013, respectively). Certain of the Corporation’s agreements also contain contingent collateral provisions that could require the Corporation to post additional collateral if the Corporation’s credit rating declines. As of December 31, 2014 and 2013, the net liability related to both realized and unrealized derivative contracts with contingent collateral provisions was $130 million and approximately $281 million, respectively. As of December 31, 2014, the cash collateral posted on those derivatives was $17 million compared to $31 million at December 31, 2013. At December 31, 2014 and 2013, all three major credit rating agencies that rate the Corporation’s debt had assigned an investment grade rating. If one of the three agencies were to downgrade the Corporation’s rating below investment grade, the Corporation would be required to post additional collateral of approximately $55 million at December 31, 2014 and approximately $134 million at December 31, 2013. |