Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The three input levels of the fair value hierarchy are as follows:


•	Level 1 – quoted prices for identical assets or liabilities in active markets.


•	Level 2 – quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3 – unobservable inputs for the asset or liability.

Assets and liabilities measured at fair value on a recurring basis. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 for each of the fair value hierarchy levels:



	Fair Value Measurement as of March 31, 2018 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Fair Value as of March 31, 2018
	(in millions)
Assets:
Commodity derivatives	$	—	$	7		$	—	$	7
Deferred compensation plan assets	92		—			—		92
Total assets	92		7			—		99
Liabilities:
Commodity derivatives	—		387			—		387
Total liabilities	—		387			—		387
Total recurring fair value measurements	$	92	$	(380	)	$	—	$	(288	)



	Fair Value Measurement as of December 31, 2017 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Fair value as of December 31, 2017
	(in millions)
Assets:
Commodity derivatives	$	—	$	11		$	—	$	11
Deferred compensation plan assets	95		—			—		95
Total assets	95		11			—		106
Liabilities:
Commodity derivatives	—		255			—		255
Total liabilities	—		255			—		255
Total recurring fair value measurements	$	95	$	(244	)	$	—	$	(149	)

Commodity derivatives. The Company's commodity derivatives represent oil, NGL and gas swap contracts, collar contracts and collar contracts with short puts. The asset and liability measurements for the Company's commodity derivative contracts represent Level 2 inputs in the hierarchy. The Company utilizes discounted cash flow and option-pricing models for valuing its commodity derivatives.

The asset and liability values attributable to the Company's commodity derivatives were determined based on inputs that include (i) the contracted notional volumes, (ii) independent active market price quotes, (iii) the applicable estimated credit-adjusted risk-free rate yield curve and (iv) the implied rate of volatility inherent in the collar contracts and collar contracts with short puts, which is based on active and independent market-quoted volatility factors.

Deferred compensation plan assets. The Company's deferred compensation plan assets represent investments in equity and mutual fund securities that are actively traded on major exchanges. These investments are measured based on observable prices on major exchanges. As of March 31, 2018 and December 31, 2017, the significant inputs to these asset exchange values represented Level 1 independent active exchange market price inputs.

Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. These assets and liabilities can include inventory, proved and unproved oil and gas properties and other long-lived assets that are written down to fair value when they are impaired or held for sale.

Proved oil and gas properties. As a result of the Company's proved property impairment assessments, the Company recognized a noncash impairment charge of $285 million to reduce the carrying value of the Raton field during the three months ended March 31, 2017 to its estimated fair value of $186 million.

The Company calculated the fair value of the Raton field as of March 31, 2017 using a discounted future cash flow model. Significant Level 3 assumptions associated with the calculation of the Raton field's discounted future cash flows as of March 31, 2017 included management's longer-term commodity price outlook ("Management's Price Outlook") for oil of $53.65 per barrel ("Bbl") and gas of $3.00 per million British thermal units ("MMBtu") and management's outlook for (i) production, (ii) capital expenditures, (iii) production costs and (iv) estimated proved reserves and risk-adjusted probable reserves. Management's Price Outlooks are developed based on third-party longer-term commodity futures price outlooks as of each measurement date. The expected future net cash flows were discounted using an annual rate of 10 percent to determine fair value.

It is reasonably possible that the Company's estimate of undiscounted future net cash flows attributable to these or other properties may change in the future resulting in the need to impair their carrying values. The primary factors that may affect estimates of future cash flows are (i) future adjustments, both positive and negative, to proved and risk-adjusted probable and possible oil and gas reserves, (ii) results of future drilling activities, (iii) Management's Price Outlooks and (iv) increases or decreases in production and capital costs associated with these reserves.

Financial instruments not carried at fair value. Carrying values and fair values of financial instruments that are not carried at fair value in the accompanying consolidated balance sheets as of March 31, 2018 and December 31, 2017 are as follows:



	March 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Commercial paper, corporate bonds and time deposits	$	815	$	817	$	1,279	$	1,277
Current portion of long-term debt	$	449	$	451	$	449	$	457
Long-term debt	$	2,284	$	2,423	$	2,283	$	2,479

Commercial paper, corporate bonds and time deposits. Periodically, the Company invests in commercial paper and corporate bonds with investment grade rated entities. The Company also periodically enters into time deposits with financial institutions. The investments are carried at amortized cost and classified as held-to-maturity as the Company has the intent and ability to hold them until they mature. The carrying values of held-to-maturity investments are adjusted for amortization of premiums and accretion of discounts over the remaining life of the investment. Income related to these investments is recorded in interest and other income in the Company's consolidated statements of operations. The Company's investments in corporate bonds represent Level 1 inputs in the hierarchy, while other investments represent Level 2 inputs in the hierarchy. Commercial paper and time deposits are included in cash and cash equivalents if they have maturity dates that are less than 90 days at the date of purchase; otherwise, investments are reflected in short-term investments or long-term investments in the accompanying consolidated balance sheets based on their maturity dates.

The following tables provide the components of the Company's cash and cash equivalents and investments as of March 31, 2018 and December 31, 2017:



	March 31, 2018
Consolidated Balance Sheet Location	Cash		Commercial Paper		Corporate Bonds		Time Deposits		Total
	(in millions)
Cash and cash equivalents	$	931	$	20	$	—	$	50	$	1,001
Short-term investments	—		125		398		199		722
Long-term investments	—		—		93		—		93
	$	931	$	145	$	491	$	249	$	1,816



	December 31, 2017
Consolidated Balance Sheet Location	Cash		Commercial Paper		Corporate Bonds		Time Deposits		Total
	(in millions)
Cash and cash equivalents	$	846	$	—	$	—	$	50	$	896
Short-term investments	—		124		642		447		1,213
Long-term investments	—		—		66		—		66
	$	846	$	124	$	708	$	497	$	2,175

Debt obligations. The Company's debt obligations are composed of its senior notes whose fair value is determined utilizing inputs that are Level 2 measurements in the fair value hierarchy. The Company's senior notes represent debt securities that are quoted but not actively traded on major exchanges; therefore, fair values of the Company's senior notes are based on their periodic values as quoted on the major exchanges.

The Company has other financial instruments consisting primarily of receivables, payables and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities. Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in a business combination, goodwill and asset retirement obligations.