Fair Value Measurements and Disclosures

12 Months Ended

Dec. 31, 2011

Fair Value Measurements and Disclosures [Abstract]

Note 16. 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 using a discounted cash flow method 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 10. Derivative Instruments and Hedging Activities.

Interest Rate Derivative Instrument We estimate the fair values of forward starting swaps using a discounted cash flow method based on published interest rate yield curves as of the date of the estimate. The fair values of interest rate derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of interest rate derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. As of December 31, 2011 there were no outstanding interest rate derivative instruments. See Note 10. 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) (1)			Significant Unobservable Inputs (Level 3) (1)		Adjustment (2)			Fair Value Measurement
(millions)
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	)
December 31, 2010
Financial Assets
Mutual Fund Investments	$	112		$	-		$	-	$	-		$	112
Commodity Derivative Instruments		-			106			-		(44	)		62
Financial Liabilities
Commodity Derivative Instruments		-			(119	)		-		44			(75	)
Interest Rate Derivative Instrument		-			(63	)		-		-			(63	)
Portion of Deferred Compensation
Liability Measured at Fair Value		(178	)		-			-		-			(178	)

(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 master netting agreements that allow us to 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.

See Note 3. Acquisitions and Divestitures for a discussion of the methods and assumptions used to estimate the fair values of the acquired assets.

Asset Impairments Information about impaired assets as of the date of the assessment 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, 2011
Impaired Oil and Gas Properties	$	-	$	-	$	213	$	972	$	759
Year Ended December 31, 2010
Impaired US Oil and Gas Properties		-		-		30		174		144
Year Ended December 31, 2009
Impaired US Oil and Gas Properties		-		-		363		867		504
Impaired Investment in Ecuador		-		-		72		172		100

(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 date of assessment.

See Note 4. Asset Impairments for a discussion of the methods and assumptions used to estimate the fair values of the impaired assets.

Additional Fair Value Disclosures

Debt The fair value of fixed-rate debt is estimated based on the published market prices for the same or similar issues. The carrying amount of floating-rate debt approximates fair value because the interest rates paid on such debt are set for periods of three months or less. The carrying amounts of the CONSOL installment payments approximate fair value because they have been discounted at the prevailing market rates for similar instruments. See Note 12. Long-Term Debt.

Fair value information regarding our debt is as follows:

	December 31,
	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(millions)
Debt, Net of Unamortized Discount (1)	$	4,114	$	4,733	$	1,977	$	2,302

(1)	Excludes Aseng FPSO lease obligation.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, 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 Company 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 risk is 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.

+ References+ Details