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, 2017 and December 31, 2016 by fair value hierarchy level.



	September 30, 2017
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity ^(a)	$	—	$	10	$	—	$	10
Interest rate	—		—		—		—
Derivative instruments, assets	$	—	$	10	$	—	$	10
Derivative instruments, liabilities
Commodity ^(a)	$	2	$	3	$	—	$	5
Derivative instruments, liabilities	$	2	$	3	$	—	$	5


^(a)	Derivative instruments are recorded on a net basis in our balance sheet. See Note 15.



	December 31, 2016
(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets
Commodity ^(a)	$	—	$	—	$	—	$	—
Interest rate	—		68		—		68
Derivative instruments, assets	$	—	$	68	$	—	$	68
Derivative instruments, liabilities
Commodity ^(a)	$	—	$	60	$	—	$	60
Derivative instruments, liabilities	$	—	$	60	$	—	$	60


^(a)	Derivative instruments are recorded on a net basis in our balance sheet. See Note 15.

Commodity derivatives include three-way collars, call options, swaps, swaptions, and basis swaps. These instruments are measured at fair value using either a Black-Scholes or a modified Black-Scholes Model. For swaps and basis swaps, inputs to the models include only commodity prices and are categorized as Level 1 because all assumptions and inputs are observable in active markets throughout the term of the instruments. For three-way collars, swaptions and call options, inputs to the models include commodity prices, and implied volatility and are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of the instruments.

Historically, both our interest rate swaps and forward starting interest rate swaps were measured at fair value with a market approach using actionable broker quotes, which are Level 2 inputs. See Note 15 for additional discussion of the types of derivative instruments we used.

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. As of September 30, 2017, we have $115 million of goodwill associated with our International E&P reporting unit. We estimate the fair value of our International E&P reporting unit using a combination of market and income approaches. The market approach referenced observable inputs specific to us and our industry, such as the price of our common equity, our enterprise value, and valuation multiples of us and our peers from the investor analyst community. The income approach utilized discounted cash flows, which were based on forecasted assumptions. Key assumptions to the income approach include future liquid hydrocarbon and natural gas pricing, estimated quantities of liquid hydrocarbons and natural gas proved and probable reserves, estimated timing of production, discount rates, future capital requirements, operating expenses and tax rates. The assumptions used in the income approach are consistent with those that management uses to make business decisions. These valuation methodologies represent Level 3 fair value measurements. We performed our annual impairment test in the second quarter of 2017 and concluded no impairment was required. As of the date of our last impairment assessment, the fair value of our International E&P reporting unit exceeded its book value by over 40%. While the fair value of our International E&P reporting unit exceeded the book value, subsequent variations in the above assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated.

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,
	2017				2016
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets	$	169	$	201	$	15	$	47



	Nine Months Ended September 30,
	2017				2016
(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets	$	169	$	205	$	15	$	48

Long-lived assets that were impaired are discussed below. The fair values of each, unless otherwise noted, 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 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.

United States E&P

In the third quarter of 2017, impairments of $65 million were recorded consisting of certain proved properties in the Gulf of Mexico as a result of lower forecasted long-term commodity prices, to an aggregate fair value of $66 million.

In the third quarter of 2016, impairments of $47 million were recorded primarily consisting of conventional non-core proved properties in Oklahoma as a result of lower forecasted long-term commodity prices, to an aggregate fair value of $15 million.

International E&P

In the third quarter of 2017, we recorded proved property impairments of $136 million, to an aggregate fair value of $103 million, on certain non-core properties in our International E&P segment primarily as a result of lower forecasted long-term commodity prices and as a result of the anticipated sales of certain non-core international assets. The fair values were measured using the market approach, based upon either anticipated sales proceeds less costs to sell or a market comparable sales price per boe. This resulted in a Level 2 classification. See Note 6 for further information about the divestment of certain non-core properties in our International E&P segment.

Canadian discontinued operations

As a result of our announced disposition of our Canadian business in the first quarter of 2017, we recorded a pre-tax non-cash impairment charge of $6.6 billion primarily related to property, plant and equipment. This impairment was recorded for excess net book value over anticipated sales proceeds less costs to sell. Fair values of assets held for sale were determined based upon the anticipated sales proceeds less costs to sell, which resulted in a Level 2 classification. See Note 6 for relevant detail regarding dispositions.

Fair Values – Financial Instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, long-term debt and payables. We believe the carrying values of our receivables 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 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, payables and derivative financial instruments, and their reported fair values by individual balance sheet line item at September 30, 2017 and December 31, 2016.



	September 30, 2017				December 31, 2016
	Fair		Carrying		Fair		Carrying
(In millions)	Value		Amount		Value		Amount
Financial assets
Current assets ^(a)	$	755	$	754	$	7	$	7
Other noncurrent assets	127		128		105		108
Total financial assets	$	882	$	882	$	112	$	115
Financial liabilities
Other current liabilities	$	44	$	55	$	68	$	75
Long-term debt, including current portion ^(b)	6,781		6,527		7,449		7,292
Deferred credits and other liabilities	112		105		114		107
Total financial liabilities	$	6,937	$	6,687	$	7,631	$	7,474

^(a) Includes our two notes receivable relating to the sale of our Canadian business as of September 30, 2017, see note 6 for further information.

^(b) Excludes capital leases, debt issuance costs and interest rate swap adjustments.

Fair values of our notes receivable and 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.