Fair Value Measurements and Disclosures

12 Months Ended

Dec. 31, 2016

Note 13. 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 sheet. 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 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/enhanced swaps. We 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 8. Derivative Instruments and Hedging Activities.

Stock-Based Compensation Liability A portion of the value of the liability associated with our phantom unit plan is dependent upon the fair value of Noble Energy common stock as of the end of each reporting period. See Note 12. Stock-Based and Other Compensation Plans.

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
(millions)	Quoted Prices in Active Markets (Level 1) ⁽¹⁾			Significant Other Observable Inputs (Level 2) ⁽¹⁾			Significant Unobservable Inputs (Level 3) ⁽¹⁾		Adjustment ⁽²⁾				Fair Value Measurement
December 31, 2016
Financial Assets
Mutual Fund Investments	$	71		$	—		$	—	$	—			$	71
Commodity Derivative Instruments	—			5			—		(5		)		—
Financial Liabilities
Commodity Derivative Instruments	—			(121		)	—		5				(116		)
Portion of Deferred Compensation Liability Measured at Fair Value	(88		)	—			—		—				(88		)
Stock Based Compensation Liability Measured at Fair Value	(9		)	—			—		—			—	(9		)
December 31, 2015
Financial Assets
Mutual Fund Investments	$	90		$	—		$	—	$	—			$	90
Commodity Derivative Instruments	—			600					(8		)		592
Financial Liabilities
Commodity Derivative Instruments	—			(8		)	—		8				—
Portion of Deferred Compensation Liability Measured at Fair Value	(98		)	—			—		—				(98		)


⁽¹⁾	See Note 1. Summary of Significant Accounting Policies - Fair Value Measurements for a description of the fair value hierarchy.


⁽²⁾	Amount represents the impact of netting clauses 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 In 2016, 2015 and 2014, we determined that the carrying amounts of certain oil and gas assets were not recoverable from future cash flows and, therefore, were impaired. The assets were reduced to their estimated fair values as noted below.

Inventory Impairment In 2016 and 2015, we determined that the carrying amount of certain of our materials and supplies inventory was greater than its net realizable value or not recoverable from future cash flows. These assets were, therefore, adjusted as noted below.

Information about the impaired assets is as follows:



	Fair Value Measurements Using
Description	Quoted Prices in Active Markets (Level 1) ⁽¹⁾		Significant Other Observable Inputs (Level 2) ⁽¹⁾		Significant Unobservable Inputs (Level 3) ⁽¹⁾		Net Book Value ⁽²⁾		Total Pre-tax (Non-cash) Impairment Loss
(millions)
Year Ended December 31, 2016
Impaired Oil and Gas Properties	$	—	$	—	$	—	$	92	$	92
Impaired Materials and Supplies Inventory	—		—		91		105		14
Year Ended December 31, 2015
Impaired Oil and Gas Properties	—		—		752		1,285		533
Impaired Materials and Supplies Inventory	—		—		61		81		20
Year Ended December 31, 2014
Impaired Oil and Gas Properties	—		—		100		600		500


⁽¹⁾	See Note 1. Summary of Significant Accounting Policies - Fair Value Measurements for a description of the fair value hierarchy.


⁽²⁾	Amount represents net book value at the date of assessment.

The fair values of the properties held and used 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 crude oil and natural gas production, commodity prices based on sales contract terms or commodity price curves as of the date of the estimate, estimated operating and development costs, and a risk-adjusted discount rate of 10%. The fair values of assets held for sale were based on anticipated sales proceeds less costs to sell. See Note 5. 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.

Our Term Loan Facility is variable-rate, non-public debt. The carrying amount of floating-rate debt approximates fair value as the interest rates are variable and reflective of market rates. See Note 10. Long-Term Debt.

Fair value information regarding our debt is as follows:



	December 31, 2016				December 31, 2015
(millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt, Net ⁽¹⁾	$	6,699	$	7,112	$	7,626	$	7,105


⁽¹⁾	Net of unamortized discount, premium and debt issuance costs and excludes capital lease and other 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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