Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Values – Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 by hierarchy level.



	March 31, 2019
(In millions)	Level 1			Level 2		Level 3		Total
Derivative instruments, assets
Commodity^(a)	$	—		$	16	$	—	$	16
Derivative instruments, assets	$	—		$	16	$	—	$	16
Derivative instruments, liabilities
Commodity^(a)	$	(2	)	$	—	$	—	$	(2	)
Derivative instruments, liabilities	$	(2	)	$	—	$	—	$	(2	)


^(a)	Derivative instruments are recorded on a net basis in our consolidated balance sheet. See Note 13.



	December 31, 2018
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity^(a)	$	21	$	106	$	—	$	127
Derivative instruments, assets	$	21	$	106	$	—	$	127
Derivative instruments, liabilities
Derivative instruments, liabilities	$	—	$	—	$	—	$	—


^(a)	Derivative instruments are recorded on a net basis in our consolidated balance sheet. See Note 13.

Commodity derivatives include three-way collars, basis swaps and NYMEX roll basis swaps. These instruments are measured at fair value using either a Black-Scholes or a modified Black-Scholes Model. For basis swaps and NYMEX roll 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.

Fair Values – Nonrecurring

See Note 4 and Note 10 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 our 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 March 31, 2019 and December 31, 2018.



	March 31, 2019				December 31, 2018
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial assets
Current assets	$	4	$	3	$	3	$	3
Other noncurrent assets	25		32		76		81
Total financial assets	$	29	$	35	$	79	$	84
Financial liabilities
Other current liabilities	$	42	$	58	$	37	$	58
Long-term debt, including current portion^(a)	5,875		5,528		5,469		5,528
Deferred credits and other liabilities	86		111		93		88
Total financial liabilities	$	6,003	$	5,697	$	5,599	$	5,674


^(a)	Excludes capital leases and debt issuance costs.

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.

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.

- 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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