Fair Value Measurements and Disclosures

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements and Disclosures

Fair Value Measurements and Disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Cash, Cash Equivalents, Accounts Receivable and Accounts Payable   The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments.

Mutual Fund Investments   Our mutual fund investments, which primarily include assets held in a rabbi trust, consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets.

Commodity Derivative Instruments   Our commodity derivative instruments consist of variable to fixed price commodity swaps, two-way and three-way collars, and basis swaps. We estimate the fair values of these instruments based on published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold (for three-way collars) and the contract floors and ceilings (for two-way and three-way collars) using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 6. Derivative Instruments and Hedging Activities.

Deferred Compensation Liability   The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust.See Mutual Fund Investments above.

Measurement information for assets and liabilities that are measured at fair value on a recurring basis was as follows: 

	Fair Value Measurements Using
	Quoted Prices in  Active Markets (Level 1) (1)			Significant Other Observable Inputs (Level 2) (2)			Significant Unobservable Inputs (Level 3) (3)		Adjustment (4)			Fair Value Measurement
(millions)
June 30, 2012
Financial Assets
Mutual Fund Investments	$	104		$	—		$	—	$	—		$	104
Commodity Derivative Instruments	—			193			—		(23		)	170
Financial Liabilities
Commodity Derivative Instruments	—			(25		)	—		23			(2		)
Portion of Deferred Compensation Liability Measured at Fair Value	(158		)	—			—		—			(158		)
December 31, 2011
Financial Assets
Mutual Fund Investments	$	99		$	—		$	—	$	—		$	99
Commodity Derivative Instruments	—			99			—		(52		)	47
Financial Liabilities
Commodity Derivative Instruments	—			(135		)	—		52			(83		)
Portion of Deferred Compensation Liability Measured at Fair Value	(162		)	—			—		—			(162		)

⁽¹⁾  Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.

⁽²⁾  Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.

⁽³⁾  Level 3 measurements are fair value measurements which use unobservable inputs.

⁽⁴⁾  Amount represents the impact of master netting agreements that allow us to net cash settle asset and liability positions with the same counterparty.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Asset Impairments We determined that the carrying amounts of certain assets were not recoverable from future cash flows and, therefore, were impaired. The assets were reduced to their estimated fair values. Information about the impaired assets is as follows:

	Fair Value Measurements Using
Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Book Value (1)		Total Pre-tax (Non-cash) Impairment Loss
millions
Three Months Ended June 30, 2012
Impaired Oil and Gas Properties	$	—	$	—	$	172	$	245	$	73
Three Months Ended June 30, 2011
Impaired Oil and Gas Properties	—		—		29		160		131
Six Months Ended June 30, 2012
Impaired Oil and Gas Properties	—		—		172		245		73
Six Months Ended June 30, 2011
Impaired Oil and Gas Properties	—		—		32		169		137

⁽¹⁾ Amount represents net book value at the date of assessment.

The fair values of the properties were determined as of the date of the assessment using discounted cash flow models. The discounted cash flows were based on management’s expectations for the future. Inputs included estimates of future oil and gas production, commodity prices based on NYMEX commodity price curves as of the date of the estimate, estimated operating and development costs, and a risk-adjusted discount rate of 10%. See Note 4. Asset Impairments.

Additional Fair Value Disclosures

Debt   The fair value of fixed-rate, public debt is estimated based on the published market prices for the same or similar issues. As such, we consider the fair value of our public fixed rate debt to be a Level 1 measurement on the fair value hierarchy. The carrying amounts of the CONSOL installment payments approximate fair value because they have been discounted at the prevailing market rates for similar debt instruments at the date of assessment, September 30, 2011. As such, we consider the fair value of our CONSOL installment payments to be Level 2 measurements on the fair value hierarchy. See Note 5. Debt. Fair value information regarding our debt is as follows: 

	June 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(millions)
Long-Term Debt, Net of Unamortized Discount (1)	$	4,121	$	4,712	$	4,114	$	4,733

⁽¹⁾  Excludes Aseng FPSO lease obligation. No floating rate debt was outstanding at June 30, 2012 or December 31, 2011. See Note 5. Debt.