Fair Value

The fair values of our financial instruments are separated into three broad levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.

The three broad levels of inputs defined by the fair value hierarchy are as follows:


▪	Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;


▪	Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and


▪	Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

Fair Value of Derivative Contracts

The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts; and (ii) interest rate swap agreements as of June 30, 2014 and December 31, 2013, based on the three levels established by the Codification. Also, certain of our derivative contracts are subject to master netting agreements. The following tables present our derivative contracts subject to such netting agreements as of June 30, 2014 and December 31, 2013 (in millions):



	Balance Sheet asset fair value measurements using								Amounts not offset in the Balance Sheet					Net Amount
	Level 1		Level 2		Level 3		Gross Amount		Financial Instruments			Cash Collateral Held(b)		Net Amount
As of June 30, 2014
Energy commodity derivative contracts(a)	$	3	$	7	$	4	$	14	$	(12	)	$	—	$	2
Interest rate swap agreements	$	—	$	271	$	—	$	271	$	(22	)	$	—	$	249
As of December 31, 2013
Energy commodity derivative contracts(a)	$	4	$	46	$	30	$	80	$	(44	)	$	—	$	36
Interest rate swap agreements	$	—	$	217	$	—	$	217	$	(28	)	$	—	$	189



	Balance Sheet liability fair value measurements using												Amounts not offset in the Balance Sheet				Net Amount
	Level 1			Level 2			Level 3			Gross Amount			Financial Instruments		Cash Collateral Posted(c)		Net Amount
As of June 30, 2014
Energy commodity derivative contracts(a)	$	(10	)	$	(134	)	$	(35	)	$	(179	)	$	12	$	17	$	(150	)
Interest rate swap agreements	$	—		$	(46	)	$	—		$	(46	)	$	22	$	—	$	(24	)
As of December 31, 2013
Energy commodity derivative contracts(a)	$	(6	)	$	(31	)	$	(31	)	$	(68	)	$	44	$	17	$	(7	)
Interest rate swap agreements	$	—		$	(116	)	$	—		$	(116	)	$	28	$	—	$	(88	)

______________


(a)	Level 1 consists primarily of New York Mercantile Exchange natural gas futures. Level 2 consists primarily of OTC WTI swaps. Level 3 consists primarily of WTI options and NGL options.


(b)	Cash margin deposits held by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current liabilities” on our accompanying consolidated balance sheets.


(c)	Cash margin deposits posted by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current assets” on our accompanying consolidated balance sheets.

The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts for each of the three and six months ended June 30, 2014 and 2013 (in millions):

Significant unobservable inputs (Level 3)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Derivatives-net asset (liability)
Beginning of Period	$	(3	)	$	3		$	(1	)	$	3
Total gains or (losses):
Included in earnings	(19		)	—			(18		)	6
Included in other comprehensive income (loss)	(9		)	1			(10		)	—
Purchases(a)	—			18			—			18
Settlements	—			(4		)	(2		)	(9		)
End of Period	$	(31	)	$	18		$	(31	)	$	18
The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets held at the reporting date	$	(14	)	$	1		$	(16	)	$	5

______________


(a)	Three and six month 2013 amounts represent the purchase of Level 3 energy commodity derivative contracts associated with our May 1, 2013 Copano acquisition.

As of June 30, 2014, our Level 3 derivative assets and liabilities consisted primarily of WTI options and NGL options, where a significant portion of fair value is calculated from underlying market data that is not readily observable. The derived values use industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results is our management’s best estimate of fair value.

Fair Value of Financial Instruments

The estimated fair value of our outstanding debt balance as of June 30, 2014 and December 31, 2013 (both short-term and long-term and including debt fair value adjustments), is disclosed below (in millions):



	June 30, 2014				December 31, 2013
	Carrying Value		Estimated Fair value		Carrying Value		Estimated Fair value
Total debt	$	22,214	$	23,450	$	21,128	$	21,550

We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both June 30, 2014 and December 31, 2013.