Assets and Liabilities Measured at Fair Value

12 Months Ended

Dec. 31, 2020

Assets and Liabilities Measured at Fair Value

Note Q – Assets and Liabilities Measured at Fair Value

Fair Values – Recurring

The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheet. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.

The fair value measurements for these assets and liabilities at December 31, 2020 and 2019 are presented in the following table


	December 31, 2020					December 31, 2019
(Thousands of dollars)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets:
Commodity derivative contracts	$	—	13,050	—	13,050	—	—	—	—
	$	—	13,050	—	13,050	—	—	—	—

Liabilities:
Nonqualified employee savings plans	$	14,988	—	—	14,988	17,035	—	—	17,035
Commodity derivative contracts	—		102,675	—	102,675	—	33,364	—	33,364
Contingent consideration	—		—	133,004	133,004	—	—	146,787	146,787
	$	14,988	102,675	133,004	250,667	17,035	33,364	146,787	197,186

The nonqualified employee savings plan is an unfunded savings plan through which participants seek a return via phantom investments in equity securities and/or mutual funds. The fair value of this liability was based on quoted prices for these equity securities and mutual funds. The income effect of changes in the fair value of the nonqualified employee savings plan is recorded in Selling and general expenses in the Consolidated Statements of Operations.

The fair value of West Texas Intermediate (WTI) crude oil contracts in 2020 and 2019 was based on active market quotes for WTI crude oil. The income effect of changes in fair value of crude oil derivative contracts is recorded in Gain (loss) on crude contracts in the Consolidated Statements of Operations, while the effects of changes in fair value of foreign exchange derivative contracts is recorded in Interest and other income (loss).

The Company’s contingent consideration liabilities (with PAI and LLOG, as further described in Note G) are measured at fair value on a recurring basis and are categorized as Level 3 in the fair value hierarchy. The contingent consideration liabilities are valued using a Monte Carlo simulation model, which used the following assumptions as of December 31, 2020: (i) the remaining expected life of 2 years for LLOG and 5 years for PAI, (ii) West Texas Intermediate forward strip pricing with historical volatility of 9.9%, and (iii) a risk-free interest rate of 0.68%. The income effect of changes in the fair value of the contingent consideration is recorded in Other (income) expense in the Consolidated Statements of Operations.

The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. There were no offsetting positions recorded at December 31, 2020 and 2019.

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at December 31, 2020 and 2019. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes cash and cash equivalents, trade accounts receivable, trade accounts payable and accrued expenses, all of which had fair values approximating carrying amounts. The fair value of current and long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities. The Company has off-balance sheet exposures relating to certain letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, was nominal.


	December 31,
	2020			2019
(Thousands of dollars)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets (liabilities):
Current and long-term debt	$	(2,988,067)	(2,948,171)	(2,803,381)	(3,074,929)

Fair Values – Nonrecurring

In 2020, declines in future oil and natural gas prices (principally driven by reduced demand in response to the COVID-19 pandemic and increased supply in the first quarter of 2020 from foreign oil producers and - see Risk Factors) led to impairments in certain of the Company’s U.S. Offshore and Other Foreign properties. The Company recorded pretax noncash impairment charges of $1,206.3 million to reduce the carrying values to their estimated fair values at select properties.

The fair values were determined by internal discounted cash flow models using estimates of future production, prices, costs and discount rates believed to be consistent with those used by principal market participants in the applicable region.

The fair value information associated with these impaired properties is presented in the following table


	Years Ended December 31, 2020
					Net Book Value Prior to Impairment	Total Pretax Impairment
	Fair Value
(Thousands of dollars)	Level 1		Level 2	Level 3

Assets:
Impaired proved properties
U.S. Offshore	$	—	—	2,618,001	3,770,516	1,152,515
Other Foreign	—		—	42,980	82,689	39,709
Corporate	—		—	58,199	72,259	14,060