Fair Value Measurements and Disclosures

9 Months Ended

Sep. 30, 2015

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 may include variable to fixed price commodity swaps, two-way collars, three-way collars, swaptions and extendable swaps. Commodity derivative contracts were valued by a third party provider to estimate the fair values of these instruments using 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 and the contract floors and ceilings 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)
September 30, 2015
Financial Assets
Mutual Fund Investments	$	106		$	—		$	—	$	—		$	106
Commodity Derivative Instruments	—			759			—		(5		)	754
Financial Liabilities
Commodity Derivative Instruments	—			(11		)	—		5			(6		)
Portion of Deferred Compensation Liability Measured at Fair Value	(111		)	—			—		—			(111		)
December 31, 2014
Financial Assets
Mutual Fund Investments	$	111		$	—		$	—	$	—		$	111
Commodity Derivative Instruments	—			890					—			890
Financial Liabilities
Commodity Derivative Instruments	—			—			—		—			—
Portion of Deferred Compensation Liability Measured at Fair Value	(134		)	—			—		—			(134		)


⁽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 netting provisions within our master 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 Information about 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 September 30, 2015
Impaired Oil and Gas Properties	$	—	$	—	$	—	$	—	$	—
Three Months Ended September 30, 2014
Impaired Oil and Gas Properties	—		—		9		42		33
Nine Months Ended September 30, 2015
Impaired Oil and Gas Properties	$	—	$	—	$	—	$	43	$	43
Nine Months Ended September 30, 2014
Impaired Oil and Gas Properties	—		—		23		187		164

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

The fair value of impaired oil and gas properties was determined as of the date of the assessment using a discounted cash flow model based on management’s expectations of future crude oil and natural gas production prior to abandonment date, commodity prices based on NYMEX WTI, NYMEX Henry Hub, and Brent future price curves as of the date of the estimate, estimated operating and abandonment costs, and a risk-adjusted discount rate. Impairments for the first nine months of 2015 were due primarily to increases in asset carrying values associated with increases in estimated field abandonment costs. See Note 5. Asset Impairments.

Goodwill As of September 30, 2015, we had allocated $945 million of goodwill to our US reporting unit, including goodwill associated with the Rosetta Merger, which may be revised as we complete our purchase price allocation for that transaction. We assess goodwill for impairment annually during the fourth quarter, or more frequently as circumstances require, at the reporting unit level. At September 30, 2015, we performed a qualitative assessment by examining relevant events and circumstances that could have a negative impact on our goodwill, such as: macroeconomic conditions; industry and market conditions, including current commodity prices; earnings and cash flows; overall financial performance; segment dispositions and acquisitions; and other relevant entity-specific events. Based upon our qualitative assessment of these circumstances, we concluded that a full impairment test was warranted. Accordingly, we estimated the fair value of our US reporting unit using a combination of the income approach and the market approach. We then estimated the implied fair value of goodwill based upon this valuation analysis. These procedures indicated no impairment at September 30, 2015.

Additional Fair Value Disclosures

Debt The fair value of public, fixed-rate 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.

Fair value information regarding our debt is as follows:



	September 30, 2015				December 31, 2014
(millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Total Debt, Net of Unamortized Discount and Premium ⁽¹⁾	$	7,666	$	7,497	$	5,758	$	6,179


⁽¹⁾	Excludes capital lease obligations.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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