Fair Value Measurements

The Company determines fair value based on the price that would be received from selling an asset or 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 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 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, typically reflecting management's estimate of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore, determined using model-based techniques, including discounted cash flow models.

Assets and liabilities measured at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows:



	Fair Value Measurement as of March 31, 2019 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, 2019
	(in millions)
Assets:
Commodity derivatives	$	—	$	30	$	—	$	30
Deferred compensation plan assets	89		—		—		89
Investment in affiliate	—		347		—		347
Total assets	89		377		—		466
Liabilities:
Commodity derivatives	—		22		—		22
Total liabilities	—		22		—		22
	$	89	$	355	$	—	$	444



	Fair Value Measurement as of December 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 December 31, 2018
	(in millions)
Assets:
Commodity derivatives	$	—	$	52	$	—	$	52
Deferred compensation plan assets	82		—		—		82
Investment in affiliate	—		172		—		172
Total assets	82		224		—		306
Liabilities:
Commodity derivatives	—		27		—		27
Total liabilities	—		27		—		27
	$	82	$	197	$	—	$	279

Commodity derivatives. The Company's commodity derivatives represent oil, NGL and gas swap contracts, collar contracts, collar contracts with short puts and basis swap contracts. 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, 2019 and December 31, 2018, the significant inputs to these asset exchange values represented Level 1 independent active exchange market price inputs.

Investment in affiliate. The Company elected the fair value option for measuring its equity method investment in ProPetro. The fair value of its investment in ProPetro is determined using Level 2 inputs, including the quoted market price for the stock as adjusted to reflect a value discount due to the shares not being able to be sold until mid-2019. See Note 12 and Note 14 for additional information.

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.

During the three months ended March 31, 2019, the Company impaired the remaining $16 million of inventory and other property and equipment related to the decommissioning of the Company's Brady, Texas sand mine, as these assets had no remaining future economic value. In addition, the Company recognized a $15 million impairment charge related to pressure pumping assets excluded from the December 2018 sale of the Company's pumping services assets. See Note 15 for additional information.

Financial instruments not carried at fair value. Carrying values and fair values of financial instruments that are not carried at fair value in the consolidated balance sheets are as follows:



	As of March 31, 2019				As of December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Assets:
Cash and cash equivalents:
Cash (a)	$	461	461		$	775	$	775
Time deposits (a)	50		50		50		50
Total	$	511	$	511	$	825	$	825
Short-term investments:
Commercial paper (b)	$	21	21		$	53	53
Corporate bonds (c)	374		374		290		288
Time deposits (b)	50		50		100		100
Total	$	445	$	445	$	443	$	441
Long-term investments:
Corporate bonds (c)	$	11	$	11	$	125	$	125

Liabilities:
Current portion of long-term debt (d)	$	449	$	466	$	—	$	—
Long-term debt (d)	$	1,836	$	1,948	$	2,284	$	2,374

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(a)	Fair value approximates carrying value due to the short-term nature of the instruments.


(b)	Fair value is determined using Level 2 inputs.


(c)	Fair value is determined using Level 1 inputs.


(d)	Fair value is determined using Level 2 inputs. The Company's senior notes are quoted but not actively traded on major exchanges; therefore, fair value is based on periodic values as quoted on major exchanges.

The Company has other financial instruments consisting primarily of receivables, payables, operating leases 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.