Fair Value Measurements and Disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Cash, Cash Equivalents, Accounts Receivable and Accounts Payable The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments.

Mutual Fund Investments Our mutual fund investments consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets.

Commodity Derivative Instruments Our commodity derivative instruments may include variable to fixed price commodity swaps, two-way collars, three-way collars, swaptions and enhanced swaps. We estimate the fair values of these instruments using published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 6. Derivative Instruments and Hedging Activities.

Deferred Compensation Liability The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust. See Mutual Fund Investments above.

Phantom Units The fair value of phantom unit awards is measured based on the fair market value of our common stock on the date of grant. We recognize the value of these awards utilizing the liability method whereby these liability awards are remeasured at each reporting date, based on the fair market value of a share of common stock of the Company as of the reporting date, through the settlement date with the change in fair value recognized as compensation expense over that period. See Note 2. Basis of Presentation.

Measurement information for assets and liabilities that are measured at fair value on a recurring basis was as follows:



	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1) ⁽¹⁾			Significant Other Observable Inputs (Level 2) ⁽²⁾			Significant Unobservable Inputs (Level 3) ⁽³⁾		Adjustment ⁽⁴⁾			Fair Value Measurement
(millions)
September 30, 2016
Financial Assets
Mutual Fund Investments	$	83		$	—		$	—	$	—		$	83
Commodity Derivative Instruments	—			133			—		(13		)	120
Financial Liabilities
Commodity Derivative Instruments	—			(48		)	—		13			(35		)
Portion of Deferred Compensation Liability Measured at Fair Value	(105		)	—			—		—			(105		)
Portion of Stock Based Compensation Liability Measured at Fair Value	(6		)	—			—		—			(6		)
December 31, 2015
Financial Assets
Mutual Fund Investments	$	90		$	—		$	—	$	—		$	90
Commodity Derivative Instruments	—			600			—		(8		)	592
Financial Liabilities
Commodity Derivative Instruments	—			(8		)	—		8			—
Portion of Deferred Compensation Liability Measured at Fair Value	(98		)	—			—		—			(98		)


⁽¹⁾	Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.


⁽²⁾	Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.


⁽³⁾	Level 3 measurements are fair value measurements which use unobservable inputs.


⁽⁴⁾	Amount represents the impact of netting provisions within our master agreements that allow us to net cash settle asset and liability positions with the same counterparty.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Inventory Adjustment Materials and supplies inventories are stated at the lower of cost or net realizable value. For the nine months ended September 30, 2016, we recorded a downward adjustment of $14 million to reduce inventory to its estimated net realizable value.

Asset Impairments We periodically evaluate our oil and gas properties for impairment whenever events or circumstances indicate that the recorded carrying values of the assets may not be recoverable. In line with accounting standards, we use an undiscounted cash flow model as an indicator of possible impairment. Where circumstances warrant, we use a discounted cash flow model based on management’s expectations of future production prior to abandonment date, commodity prices based on NYMEX WTI, NYMEX Henry Hub, and Brent futures price curves as of the date of the estimate, estimated operating and abandonment costs, and a risk-adjusted discount rate. For the nine months ended September 30, 2016, no impairment was indicated. Impairments for the nine months ended September 30, 2015 were due primarily to increases in asset carrying values associated with increases in estimated abandonment costs.

Assets Held for Sale In cases where assets meet the criteria to be classified as assets held for sale and a loss is expected, the underlying assets are written down to fair value less costs to sell. For the nine months ended September 30, 2016, we recorded a downward adjustment of $23 million to reflect the loss on divestiture of our Bowdoin property in northern Montana. See Note 4. Divestitures.

Information about impaired assets is as follows:



	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Book Value ⁽¹⁾		Total Pre-tax (Non-cash) Impairment Loss
(millions)
Nine Months Ended September 30, 2016
Material and Supplies Inventory Adjustment	$	—	$	—	$	91	$	105	$	14
Loss on Divestitures	—		—		42		65		23
Impaired Oil and Gas Properties	—		—		—		—		—
Nine Months Ended September 30, 2015
Impaired Oil and Gas Properties	—		—		—		43		43


⁽¹⁾	Amount represents net book value at the date of assessment.

Additional Fair Value Disclosures

Debt The fair value of fixed-rate, public debt is estimated based on the published market prices for the same or similar issues. As such, we consider the fair value of our public, fixed-rate debt to be a Level 1 measurement on the fair value hierarchy.

Our Term Loan Facility is variable-rate, non-public debt. The fair value is estimated based on significant other observable inputs. As such, we consider the fair value of our Term Loan Facility to be a Level 2 measurement on the fair value hierarchy. See Note 7. Debt.

Fair value information regarding our debt is as follows:



	September 30, 2016				December 31, 2015
(millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt, Net ⁽¹⁾	$	7,547	$	7,976	$	7,626	$	7,105


⁽¹⁾	Net of unamortized discount, premium and debt issuance costs and excludes capital lease and other obligations.