Hess 2014 Annual Report Download - page 99

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84
HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
84
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.
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.