Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair values – Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis by hierarchy level.



	December 31, 2016
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity ^(a)	$	—	$	—	$	—	$	—
Interest rate	—		68		—		68
Derivative instruments, assets	$	—	$	68	$	—	$	68
Derivative instruments, liabilities
Commodity	$	—	$	60	$	—	$	60
Derivative instruments, liabilities	$	—	$	60	$	—	$	60

	December 31, 2015
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity ^(a)	$	—	$	51	$	—	$	51
Interest rate	$	—	$	8	$	—	$	8
Derivative instruments, assets	$	—	$	59	$	—	$	59
Derivative instruments, liabilities
Commodity ^(a)	$	—	$	1	$	—	$	1
Derivative instruments, liabilities	$	—	$	1	$	—	$	1

^(a) Derivative instruments are recorded on a net basis in our balance sheet (see Note 16).

Commodity derivatives include three-way collars, call options and swaps. These instruments are measured at fair value using either a Black-Scholes or a modified Black-Scholes Model. Inputs to the models include commodity prices, interest rates, and implied volatility and are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of the instruments.

Both our interest rate swaps and forward starting interest rate swaps are measured at fair value with a market approach using actionable broker quotes, which are Level 2 inputs. See Note 16 for additional discussion of the types of derivative instruments we use.

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.



	2016				2015				2014
(In millions)	Fair Value		Impairment		Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	15	$	67	$	56	$	412	$	43	$	132

Long-lived assets held for use that were impaired are discussed below. The fair values of each were 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.

North America E&P

In the third quarter of 2016, impairments of $47 million were recorded consisting primarily of conventional non-core proved properties in Oklahoma as a result of lower forecasted long-term commodity prices, to an aggregate fair value of $15 million. During the fourth quarter of 2016, we recorded an impairment of $17 million as a result of abandonment cost revisions related to the Ozona development in the Gulf of Mexico which ceased production in 2013.

In the third quarter of 2015, impairments of $333 million were recorded primarily related to certain producing assets in Colorado and the Gulf of Mexico as a result of lower forecasted commodity prices, to an aggregate fair value of $41 million.

During the second quarter of 2015, we recorded an impairment charge of $44 million related to East Texas, North Louisiana and Wilburton, Oklahoma natural gas assets as a result of the anticipated sale. The fair values were measured using a probability weighted income approach based on both the anticipated sale price and held-for-use model.

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.

During 2014, we recorded impairments of $30 million as a result of abandonment cost revisions relating to the Ozona development in the Gulf of Mexico which ceased production in 2013.

Other impairments of long-lived assets held for use in 2016, 2015, and 2014 were a result of reduced drilling expectations, reductions of estimated reserves or lower forecasted commodity prices.

International E&P

In the third quarter of 2015, a partial impairment of $12 million was recorded to an investment in an equity method investee as a result of lower forecasted commodity prices, to a fair value of $604 million. The impairment was reflected in income from equity method investments in our consolidated statement of income.

Oil Sands Mining

In the fourth quarter of 2015, impairments of $26 million were recorded related to long-lived assets used in debottlenecking projects. Based on an evaluation by the operator, it was determined that the projects would not continue due to a need to reduce capital intensity and improve efficiency.

Fair values – Financial instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, long-term debt and payables. We believe the carrying values of our receivables 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 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, payables and derivative financial instruments, and their reported fair value by individual balance sheet line item at December 31, 2016 and 2015.



	December 31,
	2016				2015
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial assets
Other current assets	$	7	$	7	$	—	$	—
Other noncurrent assets	119		121		104		118
Total financial assets	$	126	$	128	$	104	$	118
Financial liabilities
Other current liabilities	$	68	$	75	$	34	$	33
Long-term debt, including current portion^(a)	7,449		7,292		6,723		7,291
Deferred credits and other liabilities	114		107		97		95
Total financial liabilities	$	7,631	$	7,474	$	6,854	$	7,419


^(a)	Excludes capital leases, debt issuance costs and interest rate swap adjustments.

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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