Impairments

9 Months Ended

Sep. 30, 2020

Impairments During the first quarter of 2020, a global pandemic caused a substantial deterioration in the worldwide demand of hydrocarbons. The decreased demand, when coupled with an oversupplied market, caused a corresponding deterioration in hydrocarbon prices. We reviewed our long-lived assets for indicators of impairment during the first quarter by conducting a sensitivity analysis of the most impactful inputs to their undiscounted cash flows, including commodity prices, capital spend and reductions in production volumes to correspond with lower capital spending. Our review concluded that the carrying amounts of our long-lived assets are recoverable; however, further deterioration or a more sustained decline of commodity prices may result in impairment charges in future periods.

We also reviewed our equity method investments for indicators of impairment. Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred. When a loss in value occurs that is deemed other than temporary, the carrying value of the equity method investment is written down to fair value. Our first quarter review concluded that any potential losses in values of our equity method investments were temporary because the underlying declines in both commodity prices and demand did not materially manifest until early March. However, during the second and third quarters of 2020, we recognized impairments related to one of our equity method investees, as noted in the tables below.

The following table summarizes impairment charges of proved properties, goodwill and equity method investments and their corresponding fair values.


	Three Months Ended September 30,
	2020				2019
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	—	$	1	$	—	$	—
Equity method investment	$	23	$	18	N/A		$	—



	Nine Months Ended September 30,
	2020				2019
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	—	$	3	$	56	$	24
Goodwill	$	—	$	95	N/A		$	—
Equity method investment	$	119	$	170	N/A		$	—

•2020 – Impairments for the nine months ended September 30, 2020 include charges recognized for our equity method investments of $170 million. During the second quarter of 2020, the continuation of the depressed commodity prices caused us to perform a review of our equity method investments. Our review concluded that a loss of our investment value in one of our equity method investees was other than temporary and we recorded an impairment of $152 million based on the difference between our carrying value and the fair value of our investment. During the third quarter of 2020, we further reduced our long term price forecast of a gas index in which one of our equity method investees transacts, which resulted in an incremental reduction of our investment value. We recorded an impairment of $18 million during the third quarter, which we deemed other than temporary. Our remaining investments in equity method investees did not experience losses in value that caused the fair values to be below their carrying values.

We estimated the fair value of our equity method investment using an income approach, specifically utilizing a discounted cash flow analysis. The estimated fair value was based on significant inputs not observable in the market, such as the amount of gas processed by the plant, future commodity prices, forecasted operating expenses, discount rate, and estimated cash returned to shareholders. Collectively, these inputs represent Level 3 measurements.

The impairments of our equity method investments were recognized in income (loss) from equity method investments in our consolidated statements of income. The impairments caused us to incur a basis differential between the net book value of our investment and the amount of our underlying share of equity in the investee’s net assets. The amount of this basis differential is $140 million and will be accreted into income over the next 6.25 years, which is consistent with the remaining useful life of the investee’s primary assets.

Impairments for the nine months ended September 30, 2020 also included $95 million of goodwill impairment in the International reporting unit. See Note 14 for further information.

•2019 – During the nine months ended September 30, 2019, we recorded proved property impairments of $24 million, as a result of the anticipated sales proceeds for certain non-core proved properties in our United States segment and the sale of our non-operated interest in the Atrush block (Kurdistan) in our International segment. The related fair value was measured using the market approach, based upon anticipated sales proceeds less costs to sell which resulted in a Level 2 classification. See Note 4 for further information.