Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Fair Values - Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 by fair value hierarchy level.



	September 30, 2013
(In millions)	Level 1		Level 2		Level 3		Collateral		Total
Derivative instruments, assets
Commodity	$	—	$	5	$	—	$	—	$	5
Interest rate	—		11		—		—		11
Foreign currency	—		1		—		—		1
Derivative instruments, assets	$	—	$	17	$	—	$	—	$	17
Derivative instruments, liabilities
Commodity	$	—	$	14	$	—	$	—	$	14
Foreign currency	—		14		—		—		14
Derivative instruments, liabilities	$	—	$	28	$	—	$	—	$	28



	December 31, 2012
(In millions)	Level 1		Level 2		Level 3		Collateral		Total
Derivative instruments, assets
Commodity	$	—	$	52	$	—	$	1	$	53
Interest rate	—		21		—		—		21
Foreign currency	—		18		—		—		18
Derivative instruments, assets	$	—	$	91	$	—	$	1	$	92

Commodity swaps in Level 2 are measured at fair value with a market approach using prices obtained from exchanges or pricing services, which have been corroborated with data from active markets for similar assets or liabilities. Commodity options in Level 2 are valued using the Black-Scholes Model. Inputs to this model include prices as noted above, discount factors, and implied market volatility. The inputs to this fair value measurement are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of the instruments. Collateral deposits related to commodity derivatives are in broker accounts covered by master netting agreements.

Interest rate swaps are measured at fair value with a market approach using actionable broker quotes which are Level 2 inputs. Foreign currency forwards are measured at fair value with a market approach using third-party pricing services, such as Bloomberg L.P., which have been corroborated with data from active markets for similar assets or liabilities, and are Level 2 inputs.

Fair Values - Nonrecurring

The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.



	Three Months Ended September 30,
	2013				2012
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	5	$	11	$	2	$	8



	Nine Months Ended September 30,
	2013				2012
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	5	$	49	$	77	$	271

All long-lived assets held for use that were impaired in the first nine months of 2013 and 2012 were held by our North America E&P segment. The fair values of each discussed below were measured using an income approach based upon internal estimates of future production levels, prices and discount rate, all of which are Level 3 inputs. Inputs to the fair value measurement included reserve and production estimates made by our reservoir engineers, estimated commodity prices adjusted for quality and location differentials, and forecasted operating expenses for the remaining estimated life of the reservoir.

In the first quarter of 2013, as a result of our decision to wind down operations in the Powder River Basin due to poor economics, an impairment of $15 million was recorded.

In early 2012, production rates from the Ozona development in the Gulf of Mexico declined significantly. Accordingly, our reserve engineers prepared evaluations of our future production as well as our reserves and an impairment of $261 million was recorded in the first quarter of 2012. As the development produced towards abandonment pressures, further downward revisions of reserves were taken, resulting in an additional impairment recorded in the fourth quarter of 2012. Ozona production ceased in the first quarter of 2013 and an additional $21 million impairment was recorded.

Other impairments of long-lived assets held for use by our North America E&P segment in the first nine months of 2013 and 2012 were a result of reduced drilling expectations, reductions of estimated reserves or declining natural gas prices.

Fair Values – Financial Instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, commercial paper and payables. We believe the carrying values of our receivables, commercial paper and payables approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating, and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

The following table summarizes financial instruments, excluding receivables, commercial paper, payables and derivative financial instruments, and their reported fair value by individual balance sheet line item at September 30, 2013 and December 31, 2012.



	September 30, 2013				December 31, 2012
	Fair		Carrying		Fair		Carrying
(In millions)	Value		Amount		Value		Amount
Financial assets
Other noncurrent assets	$	168	$	165	$	189	$	186
Total financial assets	168		165		189		186
Financial liabilities
Other current liabilities	13		13		13		13
Long-term debt, including current portion^(a)	6,941		6,461		7,610		6,642
Deferred credits and other liabilities	164		161		94		94
Total financial liabilities	$	7,118	$	6,635	$	7,717	$	6,749

^(a) Excludes capital leases.

Fair values of our financial assets included in other noncurrent assets, and of our financial liabilities included in other current liabilities and deferred credits and other liabilities are measured using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value.

Most of our long-term debt instruments are publicly-traded. A market approach, based upon quotes from major financial institutions, is used to measure the fair value of such debt. Because these quotes cannot be independently verified to an active market they are considered Level 3 inputs. The fair value of our debt that is not publicly-traded is measured using an income approach. The future debt service payments are discounted using the rate at which we currently expect to borrow. All inputs to this calculation are Level 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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