4.3.20Derivative Financial Instruments
Further information about the financial risk management objectives and policies, the fair value measurement and hedge accounting of financial derivative instruments is included in note 4.3.27 Financial Instruments − Fair Values and Risk Management.
In the ordinary course of business and in accordance with its hedging policies as of December 31, 2023, the Company held multiple forward exchange contracts designated as hedges of expected future transactions for which the Company has firm commitments or forecasts. Furthermore, the Company held several interest rate swap contracts designated as hedges of interest rate financing exposure. The most important floating rate is the US$ 3-month SOFR (2022: US$ 3-month LIBOR). Details of interest percentages of the long-term debt are included in note 4.3.23 Borrowings and Lease Liabilities. Lastly, the Company held commodity contracts in order to hedge against the fluctuation of operating cash flows and future earnings resulting from movement in commodity prices.
The fair value of the derivative financial instruments included in the statement of financial position is summarized as follows:
Derivative financial instruments
31 December 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
Assets | Liabilities | Net | Assets | Liabilities | Net | |
Interest rate swaps cash flow hedge | 279 | 31 | 248 | 490 | 28 | 463 |
Forward currency contracts cash flow hedge | 86 | 17 | 68 | 50 | 103 | (53) |
Forward currency contracts fair value through profit and loss | 48 | 44 | 4 | 69 | 85 | (15) |
Commodity contracts cash flow hedge | 3 | 4 | (1) | - | 2 | (2) |
Total | 416 | 97 | 319 | 610 | 217 | 393 |
Non-current portion | 258 | 8 | 250 | 465 | 25 | 440 |
Current portion | 158 | 89 | 69 | 145 | 192 | (47) |
The movement in the net balance of derivative assets and liabilities of US$(74) million over the period is mostly related to (i) the settlements of interest rate swaps related to the financing of FPSO Almirante Tamandaré and FPSO Alexandre de Gusmão of US$154 million, (ii) the increase in marked-to-market value of forward currency contracts, which is mainly driven by the depreciation of the US$ exchange rate versus the hedged currencies (especially EUR and BRL) and (iii) the decrease in marked-to-market value of interest rate swaps, which mainly arises from decreasing US$ market interest rates.
No ineffective portion arising from cash-flow hedges was recognized in the income statement in 2023 (2022: US$1 million). The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the statement of financial position.
No ineffectiveness was recognized due to the IBOR transition, refer to note 4.3.27 Financial Instruments − Fair Values and Risk Management.