Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 17—Fair Value of Financial Instruments

We estimate the fair value of each class of financial instruments, for which estimating fair value is practicable, by applying the following methods and assumptions:

Cash and cash equivalents—The carrying amount of cash and cash equivalents, which are stated at cost plus accrued interest, approximates fair value because of the short maturities of those instruments.

Accounts receivable—The carrying amount, net of valuation allowance, approximates fair value because of the short maturities of those instruments.

Marketable security—The carrying amount of our investment in Aker Drilling represents fair value measured using unadjusted quoted prices for identical assets or liabilities in active markets.  At September 30, 2011, the carrying amount of our 13.7 percent investment in Aker Drilling was $185 million, recorded in other assets, including an unrealized loss of $14 million, recorded in accumulated other comprehensive income.

Notes receivable and working capital loan receivable—The aggregate carrying amount represents the amortized cost of our investment, which approximates the estimated fair value.  The initial investment was recognized at the estimated fair value, measured using unobservable inputs that require significant judgment, for which there is little or no market data, including the credit rating of the borrower.  At September 30, 2011, the aggregate carrying amount of our notes receivable and working capital loan receivable was $144 million, including $31 million and $113 million recorded in other current assets and other assets, respectively.  At December 31, 2010, the aggregate carrying amount of our notes receivable and working capital loan receivable was $115 million, including $4 million and $111 million recorded in other current assets and other assets, respectively.

Debt—The fair value of our fixed-rate debt is measured using direct or indirect observable inputs, including quoted prices or other market data, for similar assets or liabilities in active markets or identical assets or liabilities in less active markets. Our variable-rate debt is included in the fair values stated below at its carrying amount since the short-term interest rates cause the face value to approximate its fair value. The TPDI Notes and ODL Loan Facility are included in the fair values stated below at their aggregate carrying amount since there is no available market price for such related-party debt. The aggregate carrying amount of the TPDI Notes was $148 million and $158 million at September 30, 2011 and December 31, 2010, respectively. The carrying amounts and estimated fair values of our long-term debt, including debt due within one year, were as follows (in millions):

	September 30, 2011				December 31, 2010
	Carrying amount		Fair value		Carrying amount		Fair value
Long-term debt, including current maturities	$	10,232	$	10,772	$	10,271	$	10,562
Long-term debt of consolidated variable interest entities, including current maturities	868		868		950		964

Derivative instruments designated as hedging instruments—The carrying amounts of our derivative instruments designated as hedging instruments represent the estimated fair values, measured using direct or indirect observable inputs, including quoted prices or other market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets.  At September 30, 2011, the carrying amounts of our derivative instruments were $35 million and $19 million, recorded in other assets and other long-term liabilities, respectively.  At December 31, 2010, the carrying amounts of our derivative instruments were $17 million and $13 million, recorded in other assets and other long-term liabilities, respectively.