v3.25.1
Derivatives and Risk Management Activities
 3 Months Ended
Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Risk Management Activities Derivatives and Risk Management Activities
 
We identify the risks that underlie our core business activities and use risk management strategies to mitigate those risks when we determine that there is value in doing so. We use various derivative instruments to manage our exposure to commodity price risk and interest rate risk. Our commodity price risk management policies and procedures are designed to help ensure that our hedging activities address our risks by monitoring our derivative positions, as well as physical volumes, grades, locations, delivery schedules and storage capacity. Our interest rate risk management policies and procedures are designed to monitor our derivative positions and ensure that those positions are consistent with our objectives and approved strategies. Our policy is to use derivative instruments for risk management purposes and not for the purpose of speculating on changes in commodity prices or interest rates. When we apply hedge accounting, our policy is to formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. At the inception of the hedging relationship, we assess whether the derivatives employed are highly effective in offsetting changes in cash flows of anticipated hedged transactions. Throughout the hedging relationship, retrospective and prospective hedge effectiveness is assessed on a qualitative basis.
 
We record all open derivatives on the balance sheet as either assets or liabilities measured at fair value. Changes in the fair value of derivatives are recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives designated as cash flow hedges, changes in fair value are deferred in AOCI and recognized in earnings in the periods during which the underlying hedged transactions are recognized in earnings. Derivatives that are not designated in a hedging relationship for accounting purposes are recognized in earnings each period. Cash settlements associated with our derivative activities are classified within the same category as the related hedged item in our Condensed Consolidated Statements of Cash Flows.

Our financial derivatives, used for hedging risk, are governed through ISDA master agreements and clearing brokerage agreements. These agreements include stipulations regarding the right of set off in the event that we or our counterparty default on performance obligations. If a default were to occur, both parties have the right to net amounts payable and receivable into a single net settlement between parties.

At March 31, 2025 and December 31, 2024, none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings. Although we may be required to post margin on our exchange-traded derivatives transacted through a clearing brokerage account, as described below, we do not require our non-cleared derivative counterparties to post collateral with us.

Commodity Price Risk Hedging
 
Our core business activities involve certain commodity price-related risks that we manage in various ways, including through the use of derivative instruments. Our policy is to (i) only purchase inventory for which we have a sales market, (ii) structure our sales contracts so that price fluctuations do not materially affect our operating income and (iii) not acquire and hold material physical inventory or derivatives for the purpose of speculating on commodity price changes. The material commodity-related risks inherent in our business activities are described below.

In the normal course of our operations, we purchase and sell commodities. We use derivatives to manage the associated risks and, in certain circumstances, to optimize profits. As of March 31, 2025, net derivative positions related to these activities included:
 
•A net long position of 8.5 million barrels associated with our crude oil purchases, which was unwound ratably during April 2025 to match monthly average pricing.
•A net short time spread position of 2.2 million barrels, which hedges a portion of our anticipated crude oil lease gathering purchases through February 2026.
•A net crude oil basis spread position of 0.2 million barrels at multiple locations through December 2025. These derivatives allow us to lock in grade and location basis differentials.
•A net short position of 8.2 million barrels through December 2029 related to anticipated net sales of crude oil and NGL inventory.
We purchase natural gas for processing and operational needs. Additionally, we purchase NGL mix for fractionation and sell the resulting individual specification products (including ethane, propane, butane and condensate). In conjunction with these activities, we hedge the price risk associated with the purchase of the natural gas and the subsequent sale of the individual specification products. The following table summarizes our open derivative positions utilized to hedge the price risk associated with anticipated purchases and sales related to our natural gas processing and NGL fractionation activities as of March 31, 2025:

Notional Volume
(Short)/LongRemaining Tenor
Natural gas purchases
41.6 Bcf
March 2026
Propane sales
(7.8) MMbls
March 2026
Butane sales
(0.9) MMbls
December 2025
Condensate sales
(1.8) MMbls
December 2025
Fuel gas requirements (1)
1.6 Bcf
December 2025
Power supply requirements (1)
1.9 TWh
December 2030
(1)Positions to hedge a portion of our power supply and fuel gas requirements at our Canadian natural gas processing and fractionation plants.

Physical commodity contracts that meet the definition of a derivative but are ineligible, or not designated, for the normal purchases and normal sales scope exception are recorded on the balance sheet at fair value, with changes in fair value recognized in earnings. We have determined that substantially all of our physical commodity contracts qualify for the normal purchases and normal sales scope exception.

Our commodity derivatives are not designated in a hedging relationship for accounting purposes; as such, changes in the fair value are reported in earnings. The following table summarizes the impact of our commodity derivatives recognized in earnings (in millions):

 Three Months Ended
March 31,
 20252024
Product sales revenues$(34)$(173)
Field operating costs(12)(16)
   Net loss from commodity derivative activity
$(46)$(189)

Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master netting arrangement exists. Accordingly, we also offset derivative assets and liabilities with amounts associated with cash margin. Our exchange-traded derivatives are transacted through clearing brokerage accounts and are subject to margin requirements as established by the respective exchange. On a daily basis, our account equity (consisting of the sum of our cash balance and the fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation margin. The following table provides the components of our net broker receivable (in millions):

March 31,
2025		December 31,
2024
Initial margin$66 $53 
Variation margin posted
59 49 
Letters of credit
(29)(30)
   Net broker receivable
$96 $72 
The following table reflects the Condensed Consolidated Balance Sheet line items that include the fair values of our commodity derivative assets and liabilities and the effect of the collateral netting. Such amounts are presented on a gross basis, before the effects of counterparty netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our Condensed Consolidated Balance Sheet when the legal right of offset exists. Amounts in the table below are presented in millions.

March 31, 2025December 31, 2024
Effect of Collateral NettingNet Carrying Value Presented on the Balance SheetEffect of Collateral NettingNet Carrying Value Presented on the Balance Sheet
Commodity DerivativesCommodity Derivatives
AssetsLiabilitiesAssetsLiabilities
Derivative Assets
Other current assets$38 $(25)$66 $79 $36 $(74)$72 $34 
Other long-term assets, net1 — — 1 — — — — 
Derivative Liabilities
Other current liabilities10 (44)30 (4)4 (28)— (24)
Other long-term liabilities and deferred credits3 (26)— (23)2 (16)— (14)
Total$52 $(95)$96 $53 $42 $(118)$72 $(4)

Interest Rate Risk Hedging
 
We use interest rate derivatives to hedge the benchmark interest rate associated with interest payments occurring as a result of debt issuances. The derivative instruments we use to manage this risk consist of forward starting interest rate swaps and treasury locks. These derivatives are designated as cash flow hedges. As such, changes in fair value are deferred in AOCI and are reclassified to interest expense as we incur the interest expense associated with the underlying debt.

The following table summarizes the terms of our outstanding interest rate derivatives as of March 31, 2025 (notional amounts in millions):

Hedged TransactionNumber and Types of
Derivatives Employed		Notional
Amount		Expected
Termination Date		Average Rate
Locked		Accounting
Treatment
Anticipated interest payments
8 forward starting swaps
(30-year)
$200 6/15/20263.09%Cash flow hedge
Anticipated interest payments
4 forward starting swaps
(30-year)
$100 10/15/20253.76%Cash flow hedge
 
As of March 31, 2025, there was a net loss of $44 million deferred in AOCI. The deferred net loss recorded in AOCI is expected to be reclassified to future earnings contemporaneously with interest expense accruals associated with underlying debt instruments. We estimate that substantially all of the remaining deferred loss will be reclassified to earnings through 2056 as the underlying hedged transactions impact earnings. A portion of these amounts is based on market prices as of March 31, 2025; thus, actual amounts to be reclassified will differ and could vary materially as a result of changes in market conditions.

The following table summarizes the net unrealized gain/(loss) recognized in AOCI for derivatives (in millions):

Three Months Ended
March 31,
 20252024
Interest rate derivatives, net$(1)$13 

At March 31, 2025, the net fair value of our interest rate hedges, which was included in “Other current assets” and “Other long-term assets, net” on our Condensed Consolidated Balance Sheet, totaled $1 million and $24 million, respectively. At December 31, 2024, the net fair value of our interest rate hedges, which was included in “Other long-term assets, net” on our Condensed Consolidated Balance Sheet, totaled $27 million.
 
Recurring Fair Value Measurements
 
Derivative Financial Assets and Liabilities
 
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis (in millions):

 Fair Value as of March 31, 2025Fair Value as of December 31, 2024
Recurring Fair Value Measures (1)
Level 1Level 2TotalLevel 1Level 2Total
Commodity derivatives$21 $(64)$(43)$14 $(90)$(76)
Interest rate derivatives— 25 25 — 27 27 
Total net derivative asset/(liability)$21 $(39)$(18)$14 $(63)$(49)
(1)Derivative assets and liabilities are presented above on a net basis but do not include related cash margin deposits.

Level 1
 
Level 1 of the fair value hierarchy includes exchange-traded commodity derivatives and over-the-counter commodity contracts such as futures and swaps. The fair value of exchange-traded commodity derivatives and over-the-counter commodity contracts is based on unadjusted quoted prices in active markets.
 
Level 2
 
Level 2 of the fair value hierarchy includes exchange-cleared commodity derivatives and over-the-counter commodity and interest rate derivatives that are traded in observable markets with less volume and transaction frequency than active markets. In addition, it includes certain physical commodity contracts. The fair values of these derivatives are corroborated with market observable inputs.