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, 2015 and December 31, 2014 by fair value hierarchy level.



	September 30, 2015
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity^(a)	$	—	$	61	$	—	$	61
Interest rate	—		15		—		15
Derivative instruments, assets	$	—	$	76	$	—	$	76
Derivative instruments, liabilities
Commodity^(a)	$	—	$	3	$	—	$	3
Derivative instruments, liabilities	$	—	$	3	$	—	$	3


^(a)	Derivative instruments are recorded on a net basis in the company's balance sheet (see Note 16).



	December 31, 2014
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Interest rate	$	—	$	8	$	—	$	8
Derivative instruments, assets	$	—	$	8	$	—	$	8

Commodity derivatives include three-way collars, swaptions, extendable three-way collars and call options. These instruments are measured at fair value using either the Black-Scholes Model or Black Model. Inputs to both models include prices, interest rates, and implied volatility. The inputs to these models are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of the instruments.

Interest rate swaps are measured at fair value with a market approach using actionable broker quotes, which are Level 2 inputs. See Note 16 for additional discussion of the types of derivative instruments we use.

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,
	2015				2014
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	41	$	337	$	43	$	109



	Nine Months Ended September 30,
	2015				2014
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	$	58	$	381	$	43	$	130

Commodity prices began declining in the second half of 2014 and remain substantially lower through 2015. The prolonged decline in commodity prices, and the resulting change in management's future commodity price assumptions, was a triggering event which required us to reassess long-lived assets related to oil and gas producing properties for impairment as of September 30, 2015. Further changes in management's forecast assumptions may cause us to reassess our long-lived assets for impairment, and could result in non-cash impairment charges in the future. Long-lived assets held for use that were impaired are discussed below. The fair values of each 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, unless otherwise noted. Inputs to the fair value measurement include reserve and production estimates made by our reservoir engineers, estimated future commodity prices adjusted for quality and location differentials, and forecasted operating expenses for the remaining estimated life of the reservoir.

2015 - North America E&P

In the third quarter of 2015, impairments of $333 million were recorded primarily related to certain producing assets in Colorado and the Gulf of Mexico as a result of lower forecasted commodity prices, to an aggregate fair value of $41 million.

During the second quarter of 2015, we recorded a non-cash impairment charge of $44 million related to our East Texas, North Louisiana and Wilburton, Oklahoma natural gas assets as a result of the anticipated sale (see Note 6). The fair values were measured using a probability weighted income approach based on both the anticipated sales price and a held-for-use model.

2015 - International E&P

In the third quarter of 2015, a partial impairment of $12 million was recorded to an investment in an equity method investee as a result of lower forecasted commodity prices, to a fair value of $604 million. This impairment was reflected in income from equity method investments in our consolidated statements of income.

2014 - North America E&P

The Ozona development in the Gulf of Mexico ceased producing in 2013, at which time those long-lived assets were fully impaired. In the first nine months of 2014, we recorded additional impairments of $30 million as a result of estimated abandonment cost revisions.

In the third quarter of 2014, impairments of $53 million were recorded to certain other Gulf of Mexico properties as a result of estimated abandonment cost and other revisions, to an aggregate fair value of $19 million. In addition, two additional on-shore fields were impaired a total of $47 million to an aggregate fair value of $24 million primarily due to lower forecasted commodity prices.

Fair Values – Goodwill

Unlike long-lived assets, goodwill must be tested for impairment at least annually, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level. After we performed our annual goodwill impairment test in April 2015, a triggering event (downward revision of forecasted commodity price assumptions) required us to reassess our goodwill for impairment as of September 30, 2015. Based on the results of this assessment, we concluded no impairment was required. The fair value of the North America E&P and International E&P reporting units exceeded their respective book values by a significant margin. Changes in management's forecast commodity price assumptions may cause us to reassess our goodwill for impairment, and could result in non-cash impairment charges in the future.

Fair Values – Financial Instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, short-term investments, long-term debt due within one year, and payables. We believe the carrying values of our receivables, short-term investments 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 insignificant bad debt expense, which includes an evaluation of counterparty credit risk.

The following table summarizes financial instruments, excluding receivables, short-term investments, payables and derivative financial instruments, and their reported fair value by individual balance sheet line item at September 30, 2015 and December 31, 2014.



	September 30, 2015				December 31, 2014
	Fair		Carrying		Fair		Carrying
(In millions)	Value		Amount		Value		Amount
Financial assets
Other noncurrent assets	$	109	$	116	$	132	$	129
Total financial assets	109		116		132		129
Financial liabilities
Other current liabilities	15		14		13		13
Long-term debt, including current portion^(a)	8,302		8,324		6,887		6,360
Deferred credits and other liabilities	69		64		69		68
Total financial liabilities	$	8,386	$	8,402	$	6,969	$	6,441

^(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, which are Level 2 inputs, is used to measure the fair value of such debt. 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.