Fair Value Measurements

Fair Values - Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 by fair value hierarchy level.



	June 30, 2018
(In millions)	Level 1		Level 2			Level 3		Total
Derivative instruments, assets
Commodity ^(a)	$	48	$	—		$	—	$	48
Derivative instruments, assets	$	48	$	—		$	—	$	48
Derivative instruments, liabilities
Commodity ^(a)	$	—	$	(276	)	$	—	$	(276	)
Derivative instruments, liabilities	$	—	$	(276	)	$	—	$	(276	)


^(a)	Derivative instruments are recorded on a net basis in our balance sheet. See Note 12.



	December 31, 2017
(In millions)	Level 1			Level 2			Level 3		Total
Derivative instruments, assets
Derivative instruments, assets	$	—		$	—		$	—	$	—
Derivative instruments, liabilities
Commodity ^(a)	$	(20	)	$	(120	)	$	—	$	(140	)
Derivative instruments, liabilities	$	(20	)	$	(120	)	$	—	$	(140	)


^(a)	Derivative instruments are recorded on a net basis in our balance sheet. See Note 12.

Commodity derivatives include three-way collars and basis swaps. These instruments are measured at fair value using either a Black-Scholes or a modified Black-Scholes Model. For basis swaps, inputs to the models include only commodity prices and interest rates and are categorized as Level 1 because all assumptions and inputs are observable in active markets throughout the term of the instruments. For three-way collars, inputs to the models include commodity prices, 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.

Historically, both our interest rate swaps and forward starting interest rate swaps were measured at fair value with a market approach using actionable broker quotes, which are Level 2 inputs. See Note 12 for additional discussion of the types of derivative instruments we used.

Fair Values - Goodwill

As of June 30, 2018, our consolidated balance sheet included goodwill of $98 million. Goodwill is tested for impairment on an annual basis, or between annual tests when events or changes in circumstances indicate the fair value may have been reduced below its carrying value. Goodwill is tested for impairment at the reporting unit level. Our reporting units are the same as our reporting segments, of which only International E&P includes goodwill. Our policy is to first assess the qualitative factors in order to determine whether the fair value of our International E&P reporting unit is more likely than not less than its carrying amount. Certain qualitative factors used in our evaluation include, among other things, the results of the most recent quantitative assessment of the goodwill impairment test, macroeconomic conditions; industry and market conditions (including commodity prices and cost factors); overall financial performance; and other relevant entity-specific events. If, after considering these events and circumstances we determined that it is more likely than not the fair value of the International E&P reporting unit is less than its carrying amount, a quantitative goodwill test is performed.

During the second quarter of 2018, we performed our annual impairment test of goodwill using the qualitative assessment. Our qualitative assessment considered the significant excess fair value over carrying value in our most recent step one test (second quarter 2017) and noted a general improvement in the qualitative factors described above which could have a positive or negative impact on goodwill. After assessing the totality of the qualitative factors, our assessment did not indicate that it is more likely than not that the fair value is less than its carrying value. As a result, we concluded that no impairment to goodwill was required for our International E&P reporting unit.

Fair Values – Nonrecurring

See Note 5 and Note 11 for detail on our fair values for nonrecurring items, such as impairments.

Fair Values – Financial Instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, the current portion of 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 insignificant 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 values by individual balance sheet line item at June 30, 2018 and December 31, 2017.



	June 30, 2018				December 31, 2017
	Fair		Carrying		Fair		Carrying
(In millions)	Value		Amount		Value		Amount
Financial assets
Current assets ^(a)	$	48	$	48	$	762	$	761
Other noncurrent assets	85		89		135		137
Total financial assets	$	133	$	137	$	897	$	898
Financial liabilities
Other current liabilities	$	32	$	44	$	32	$	43
Long-term debt, including current portion ^(b)	5,791		5,528		5,976		5,526
Deferred credits and other liabilities	100		97		110		103
Total financial liabilities	$	5,923	$	5,669	$	6,118	$	5,672


^(a)	December 31, 2017 fair value and carrying amounts included our two notes receivable relating to the sale of our Canadian business; both were paid during the first quarter of 2018, see Note 5 for further information.

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

Fair values of our notes receivable and 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.

All 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 our debt.