Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair values – Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2014 and 2013 by fair value hierarchy level.



	December 31, 2014
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Interest rate	$	—	$	8	$	—	$	8
Derivative instruments, assets	$	—	$	8	$	—	$	8

	December 31, 2013
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Interest rate	$	—	$	8	$	—	$	8
Foreign currency	—		2		—		2
Derivative instruments, assets	$	—	$	10	$	—	$	10
Derivative instruments, liabilities
Foreign currency	$	—	$	4	$	—	$	4
Derivative instruments, liabilities	$	—	$	4	$	—	$	4

Interest rate swaps are measured at fair value with a market approach using actionable broker quotes which are Level 2 inputs. Foreign currency forwards are measured at fair value with a market approach using third-party pricing services, such as Bloomberg L.P., which have been corroborated with data from active markets for similar assets or liabilities, and are Level 2 inputs.

Fair values – Nonrecurring

The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.



	2014				2013				2012
(In millions)	Fair Value		Impairment		Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	43	$	132	$	5	$	96	$	16	$	371

The substantial decline in commodity prices during the second half of 2014, and the resulting change in future commodity price assumptions, was a triggering event which required us to reassess long-lived assets related to oil and gas producing properties for impairment as of December 31, 2014. We estimated the fair values using an income approach and concluded that no material impairments were required. A period of sustained reduced commodity prices could result in non-cash impairment charges related to long-lived assets in future periods.

North America E&P

Long-lived assets held for use – Fair values are measured using an income approach based upon internal estimates of future production levels, prices and discount rate, all of which are Level 3 inputs. Inputs to the fair value measurement include reserve and production estimates made by our reservoir engineers, estimated future commodity prices adjusted for quality and location differentials, and forecasted operating expenses for the remaining estimated life of the reservoir.

In the third quarter of 2014, impairments of $53 million were recorded to Gulf of Mexico properties as a result of estimated abandonment cost and other revisions, to an aggregate fair value of $19 million. In addition, two fields were impaired a total of $47 million to an aggregate fair value of $24 million primarily due to lower forecasted commodity prices.

In the fourth quarter of 2012, declining natural gas prices related to our Powder River Basin asset prompted lower production expectations and reductions in estimated reserves which resulted in an impairment of $73 million. Subsequently, in the first quarter of 2013, as a result of our decision to wind down operations in the Powder River Basin due to poor economics, an additional impairment of $15 million was recorded to write down the assets' remaining value.

During 2012, the Ozona development, offshore Gulf of Mexico, produced toward abandonment pressures, and downward revisions of reserves were taken for an aggregate impairment of $289 million. Ozona production ceased in the first quarter of 2013 and an additional $21 million impairment was recorded. During 2014, we recorded additional impairments of $30 million at Ozona as a result of estimated abandonment cost revisions.

Other impairments of long-lived assets held for use in 2014, 2013 and 2012 were a result of reduced drilling expectations, reductions of estimated reserves or decreased commodity prices.

International E&P

Long-lived assets held for use – In the fourth quarter of 2013, as a result of E.G.’s natural gas policy related to the country’s resources, we elected to cease our efforts to develop a second LNG production train on Bioko Island and recorded a $40 million impairment of all capitalized costs associated with engineering and feasibility studies. In addition, our share of income from EGHoldings included a $4 million impairment related to the same project, reflected in income from equity method investments in the 2013 consolidated statement of income.

Fair values – Financial instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, commercial paper and payables. We believe the carrying values of our receivables, commercial paper and payables approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating, and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

The following table summarizes financial instruments, excluding receivables, commercial paper, payables and derivative financial instruments, and their reported fair value by individual balance sheet line item at December 31, 2014 and 2013.



	December 31,
	2014				2013
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial assets
Other noncurrent assets	$	132	$	129	$	154	$	147
Total financial assets	$	132	$	129	$	154	$	147
Financial liabilities
Other current liabilities	$	13	$	13	$	13	$	13
Long-term debt, including current portion^(a)	6,887		6,360		6,922		6,427
Deferred credits and other liabilities	69		68		149		147
Total financial liabilities	$	6,969	$	6,441	$	7,084	$	6,587


^(a)	Excludes capital leases.

Fair values of our financial assets included in other noncurrent assets, and of our financial liabilities included in other current liabilities and deferred credits and other liabilities, are measured using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value.

Most of our long-term debt instruments are publicly-traded. A market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value of such debt. The fair value of our debt that is not publicly-traded is measured using an income approach. The future debt service payments are discounted using the rate at which we currently expect to borrow. All inputs to this calculation are Level 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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