Fair Value Measurement

12 Months Ended

Dec. 31, 2013

Fair Value Measurement [Abstract]

Fair Value Measurement

Note 16—Fair Value Measurement

We carry a portion of our assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to the quality of valuation inputs under the following hierarchy:

• Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are directly or indirectly observable.
• Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1 during 2013 and 2012.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include commodity derivatives and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 2 derivative assets and liabilities primarily represent OTC swaps, options and forward purchase and sale contracts that are valued using adjusted exchange prices, prices provided by brokers or pricing service companies that are all corroborated by market data. Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts that are long-term in nature and where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management's best estimate of fair value. Level 3 activity was not material for all periods presented.

The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):

		Millions of Dollars
		December 31, 2013					December 31, 2012
		Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Deferred compensation
	investments	$	306	-	-	306	305	-	-	305
Commodity derivatives			744	177	10	931	1,052	567	18	1,637
Total assets		$	1,050	177	10	1,237	1,357	567	18	1,942
Liabilities
Commodity derivatives		$	765	172	7	944	1,031	567	4	1,602
Total liabilities		$	765	172	7	944	1,031	567	4	1,602

The following table summarizes those commodity derivative balances subject to the right of setoff as presented
on our consolidated balance sheet:
	Millions of Dollars
	Gross		Gross	Net Amounts		Net Amounts
	Amounts		Amounts	Excluding	Cash	Subject
	Recognized		Offset	Collateral	Collateral	to Setoff
December 31, 2013
Assets	$	919	827	92	6	86
Liabilities		935	827	108	26	82
December 31, 2012
Assets	$	1,621	1,403	218	29	189
Liabilities		1,588	1,403	185	16	169
At December 31, 2013 and December 31, 2012, we did not present any amounts gross on our consolidated
balance sheet where we had the right of setoff.

Non-Recurring Fair Value Measurement
The following table summarizes the fair value hierarchy by major category for assets accounted for at fair value on a non-recurring basis:
	Millions of Dollars
				Fair Value Measurements Using
	Fair Value		*	Level 1 Inputs	Level 3 Inputs	Before-Tax Loss
Year ended December 31, 2013
Net PP&E (held for use)		117		-	117	488
Year ended December 31, 2012
Net PP&E (held for sale)	$	6,116		6,116	-	798
Net PP&E (held for use)		95		-	95	134
*Represents the fair value at the time of the impairment.

Net PP&E (held for use)

Net PP&E held for use is comprised of various producing properties impaired to their individual fair values. The fair values were determined by the use of internal discounted cash flow models using estimates of future production, prices from futures exchanges and pricing service companies, costs and a discount rate believed to be consistent with those used by principal market participants.

Net PP&E (held for sale)

In 2012, net PP&E held for sale was written down to fair value, less costs to sell. The fair value of each asset was determined by its binding negotiated selling price.

Reported Fair Values of Financial Instruments

We used the following methods and assumptions to estimate the fair value of financial instruments:

• Cash and cash equivalents, restricted cash and short-term investments: The carrying amount reported on the balance sheet approximates fair value.
• Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans and advances—related parties.
• Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair value. The fair value of fixed-rate loan activity is measured using market observable data and is categorized as Level 2 in the fair value hierarchy. See Note 7—Investments, Loans and Long-Term Receivables, for additional information.
• Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of the joint venture acquisition obligation is consistent with the methodology below.
• Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level 2 in the fair value hierarchy.
• Joint venture acquisition obligation—related party: Fair value at December 31, 2012,was estimated based on the net present value of the future cash flows as a Level 2 fair value with an effective yield rate of 0.7 percent, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 12—Joint Venture Acquisition Obligation, for additional information.

The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of setoff exists for commodity derivatives):
	Millions of Dollars
	Carrying Amount			Fair Value
	2013		2012	2013	2012
Financial assets
Deferred compensation investments	$	306	305	306	305
Commodity derivatives		99	221	99	221
Total loans and advances—related parties		1,528	1,697	1,680	1,916
Financial liabilities
Total debt, excluding capital leases		20,740	21,709	23,553	26,349
Total joint venture acquisition obligation		-	3,582	-	3,968
Commodity derivatives		92	199	92	199

At December 31, 2013, commodity derivative assets and liabilities appear net of $6million of obligations to return cash collateral and $26million of rights to reclaim cash collateral, respectively. At December 31, 2012, commodity derivative assets and liabilities appear net of $29million of obligations to return cash collateral and $16million of rights to reclaim cash collateral.