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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

The three levels of the fair value hierarchy of inputs the company uses to measure the fair value of an asset or liability are described as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the company, Level 1 inputs include exchange-traded futures contracts for which the parties are willing to transact at the exchange-quoted price and marketable securities that are actively traded.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly. For the company, Level 2 inputs include quoted prices for similar assets or liabilities, prices obtained through third-party broker quotes and prices that can be corroborated with other observable inputs for substantially the complete term of a contract.

Level 3: Unobservable inputs. The company does not use Level 3 inputs for any of its recurring fair value measurements. Level 3 inputs may be required for the determination of fair value associated with certain nonrecurring measurements of nonfinancial assets and liabilities.

The fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 2020, and December 31, 2019, is as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

(Millions of dollars)


	At September 30, 2020								At December 31, 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Marketable Securities	$	28	$	28	$	—	$	—	$	63	$	63	$	—	$	—
Derivatives	104		55		49		—		11		1		10		—
Total Assets at Fair Value	$	132	$	83	$	49	$	—	$	74	$	64	$	10	$	—
Derivatives	8		5		3		—		74		26		48		—
Total Liabilities at Fair Value	$	8	$	5	$	3	$	—	$	74	$	26	$	48	$	—

Marketable Securities The company calculates fair value for its marketable securities based on quoted market prices for identical assets. The fair values reflect the cash that would have been received if the instruments were sold at September 30, 2020.

Derivatives The company records its derivative instruments — other than any commodity derivative contracts that are designated as normal purchase and normal sale — on the Consolidated Balance Sheet at fair value, with the offsetting amount to the Consolidated Statement of Income. Derivatives classified as Level 1 include

futures, swaps and options contracts traded in active markets such as the New York Mercantile Exchange. Derivatives classified as Level 2 include swaps, options and forward contracts principally with financial institutions and other oil and gas companies, the fair values of which are obtained from third-party broker quotes, industry pricing services and exchanges. The company obtains multiple sources of pricing information for the Level 2 instruments. Since this pricing information is generated from observable market data, it has historically been very consistent. The company does not materially adjust this information.

Assets carried at fair value at September 30, 2020, and December 31, 2019, are as follows:

Cash and Cash Equivalents The company holds cash equivalents in U.S. and non-U.S. portfolios. The instruments classified as cash equivalents are primarily bank time deposits with maturities of 90 days or less, and money market funds. “Cash and cash equivalents” had carrying/fair values of $6.9 billion and $5.7 billion at September 30, 2020, and December 31, 2019, respectively. The fair values of cash and cash equivalents are classified as Level 1 and reflect the cash that would have been received if the instruments were settled at September 30, 2020.

Restricted Cash had a carrying/fair value of $925 million and $1.2 billion at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020, restricted cash is classified as Level 1 and includes restricted funds related to certain upstream decommissioning activities, other corporate and tax items, which are reported in “Prepaid expenses and other current assets” and “Deferred charges and other assets” on the Consolidated Balance Sheet.

Long-Term Debt had a net carrying value, excluding amounts reclassified from short-term debt and finance lease obligations, of $24.2 billion and $13.7 billion at September 30, 2020, and December 31, 2019, respectively. The fair value of long-term debt for the company was $25.7 billion and $14.3 billion at September 30, 2020 and December 31, 2019, respectively. Long-term debt primarily includes corporate issued bonds, classified as Level 1 and are $24.6 billion for the period. The fair value of other long-term debt classified as Level 2 is $1.1 billion.

The carrying values of other short-term financial assets and liabilities on the Consolidated Balance Sheet approximate their fair values. Fair value remeasurements of other financial instruments at September 30, 2020, and December 31, 2019, were not material.

The fair value hierarchy for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2020, is as follows:

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

(Millions of dollars)


	At September 30, 2020
									Before-Tax Loss
									Three Months Ended		Nine Months Ended
	Total		Level 1		Level 2		Level 3
Properties, plant and equipment, net (held and used)	$	—	$	—	$	—	$	—	$	—	$	2,551
Properties, plant and equipment, net (held for sale)	22		—		22		—		17		183
Investments and advances	—		—		—		—		—		2,550
Total Assets at Fair Value	$	22	$	—	$	22	$	—	$	17	$	5,284

Properties, plant and equipment Through September 2020, the company reported impairments for certain upstream properties primarily due to downward revisions to its oil and gas price outlook. The impact of these impairments is included in “Depreciation, depletion, and amortization” on the Consolidated Statement of Income. The company did not have any individually material impairments of long-lived assets measured at fair value on a nonrecurring basis to report in third quarter 2020.

Investments and advances Through September 2020, the company fully impaired its investments in the Petropiar and Petroboscan affiliates in Venezuela. The impact of these impairments is included in “Income (loss) from equity affiliates” on the Consolidated Statement of Income. The company did not have any

material impairments of investments and advances measured at fair value on a nonrecurring basis to report in third quarter 2020.

- 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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