Fair Value of Financial Instruments

At September 30, 2017, we held $105 million of investments in fixed income securities with maturities ranging from less than one year to September 2020, of which $66 million are classified as “Other current assets” and $39 million are classified as “Other assets” on our condensed consolidated balance sheets. At December 31, 2016, we also held $92 million of investments in fixed income securities. These securities consist primarily of corporate bonds and other debt instruments, are accounted for as available-for-sale and are recorded at fair value on quoted prices for identical assets in less active markets, which are categorized within level 2 on the fair value hierarchy.

At September 30, 2017 and December 31, 2016, we held an interest-bearing promissory note with our primary customer in Venezuela with a par value of $200 million. The initial fair value of the promissory note of $52 million was based on pricing data points for similar assets in an illiquid market and is categorized within level 3 on the fair value hierarchy. We are using an effective interest method to accrete the carrying amount to its par value as it matures. This accretion income is being recorded through “Interest expense, net of interest income” on our condensed consolidated statements of operations. As of September 30, 2017, the carrying amount of this promissory note was $116 million, consisting of a current portion of $92 million and non-current portion of $24 million, which are classified as “Receivables” and “Other assets,” respectively, on our condensed consolidated balance sheets. Although this customer has made all scheduled interest payments on the note, they did not make the first scheduled principal payment in the third quarter of 2017, which they informed us was due to banking complications. We continue to have discussions with this customer regarding the delay, and they have confirmed their intention to make the payment. As of September 30, 2017, the fair value of this note approximates its initial fair value, which is lower than its carrying amount. However, we continue to hold this note to maturity and account for it under an accretion model as we believe that our customer will make all required payments. Accordingly, we do not believe any write-downs of this note are appropriate at this time. We will continue to monitor conditions in Venezuela and assess the value of this note going forward. The carrying amount as of December 31, 2016 was $70 million, which approximated its fair value.

During the second quarter of 2017, we made a decision to exchange an additional $375 million of our accounts receivable with our primary customer in Venezuela for an additional interest-bearing promissory note with a par value of the same amount. We recognized a pre-tax loss of $262 million for a fair market value adjustment related to this exchange. We determined fair value based on pricing data points for similar notes in an illiquid market which is categorized within level 3 on the fair value hierarchy. While this exchange has not been finalized, we continue to pursue this transaction in accordance with applicable law. See Note 2 for further discussion.

We maintain an interest rate management strategy that is intended to mitigate the exposure to changes in interest rates in the aggregate for our debt portfolio. We use interest rate swaps to effectively convert a portion of our fixed rate debt to floating LIBOR-based rates. Our interest rate swaps, which expire when the underlying debt matures, are designated as fair value hedges of the underlying debt and are determined to be highly effective. These derivative instruments are marked to market with gains and losses recognized currently in interest expense to offset the respective gains and losses recognized on changes in the fair value of the hedged debt. During the first quarter of 2017, we terminated a series of our interest rate swaps with a notional amount of $1.4 billion in conjunction with our early redemption of senior notes. We included the gain from the swap termination in our calculation of early debt extinguishment costs. As of September 30, 2017, we had one remaining interest rate swap relating to one of our debt instruments with a total notional amount of $100 million. The fair value of our interest rate swaps as of September 30, 2017 and December 31, 2016 are included in “Other assets” in our condensed consolidated balance sheets and were immaterial. The fair value of our interest rate swaps are categorized within level 2 on the fair value hierarchy and were determined using an income approach model with inputs, such as the notional amount, LIBOR rate spread and settlement terms that are observable in the market or can be derived from or corroborated by observable data.

The carrying amount of cash and equivalents, receivables, and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities of these instruments.

The carrying amount and fair value of our total debt, including short-term borrowings and current maturities of long-term debt, is as follows:



	September 30, 2017								December 31, 2016
Millions of dollars	Level 1		Level 2		Total fair value		Carrying value		Level 1		Level 2		Total fair value		Carrying value
Total debt	$	345	$	11,906	$	12,251	$	10,938	$	753	$	12,812	$	13,565	$	12,384

Our debt categorized within level 1 on the fair value hierarchy is calculated using quoted prices in active markets for identical liabilities with transactions occurring on the last two days of period-end. Our debt categorized within level 2 on the fair value hierarchy is calculated using significant observable inputs for similar liabilities where estimated values are determined from observable data points on our other bonds and on other similarly rated corporate debt or from observable data points of transactions occurring prior to two days from period-end and adjusting for changes in market conditions. Our total fair value and carrying value of debt decreased during the nine months ended September 30, 2017 primarily due to the early extinguishment of $1.4 billion of senior notes. Additionally, differences between the periods presented in our level 1 and level 2 classification of our long-term debt relate to the timing of when transactions are executed. We have no debt categorized within level 3 on the fair value hierarchy based on unobservable inputs.