Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 9

Fair Value Measurements

Accounting standards for fair value measurement (ASC 820) establish a framework for measuring fair value and stipulate disclosures about fair value measurements. The standards apply to recurring and nonrecurring fair value measurements of financial and nonfinancial assets and liabilities. Among the required disclosures is the fair value hierarchy of inputs the company uses to value an asset or a liability. The three levels of the fair value hierarchy 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 table below shows the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010.

Marketable Securities The company calculates fair value for its marketable securities based on quoted market prices for identical assets and liabilities. The fair values reflect the cash that would have been received if the instruments were sold at December 31, 2011.

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. For derivatives with identical or similar provisions as contracts that are publicly traded on a regular basis, the company uses the market values of the publicly traded instruments as an input for fair value calculations.

     The company’s derivative instruments principally include futures, swaps, options and forward contracts for crude oil, natural gas and refined products. Derivatives classified as Level 1 include futures, swaps and options contracts traded in active markets such as the New York Mercantile Exchange.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	At December 31, 2011								At December 31, 2010
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Marketable securities		249		249		–		–		155		155		–		–
Derivatives		208		104		104		–		122		11		111		–
Total Assets at Fair Value	$	457	$	353	$	104	$	–	$	277	$	166	$	111	$	–
Derivatives		102		101		1		–		171		75		96		–
Total Liabilities at Fair Value	$	102	$	101	$	1	$	–	$	171	$	75	$	96	$	–

     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. The company incorporates internal review, evaluation and assessment procedures, including a comparison of Level 2 fair values derived from the company’s internally developed forward curves (on a sample basis) with the pricing information to document reasonable, logical and supportable fair value determinations and proper level of classification.

Impairments of “Properties, plant and equipment” The company did not have any material long-lived assets measured at fair value on a nonrecurring basis to report in 2011 or 2010.

Impairments of “Investments and advances” The company did not have any material investments and advances measured at fair value on a nonrecurring basis to report in 2011 or 2010.

Assets and Liabilities Not Required to Be Measured at Fair Value The company holds cash equivalents and bank time deposits 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 $15,864 and $14,060 at December 31, 2011, and December 31, 2010, respectively. The instruments held in “Time deposits” are bank time deposits with maturities greater than 90 days, and had carrying/fair values of $3,958 and $2,855 at December 31, 2011, and December 31, 2010, respectively. The fair values of cash, cash equivalents and bank time deposits reflect the cash that would have been received if the instruments were settled at December 31, 2011.

     “Cash and cash equivalents” do not include investments with a carrying/fair value of $1,240 and $855 at December 31, 2011, and December 31, 2010, respectively. At December 31, 2011, these investments include restricted funds related to various capital-investment projects, acquisitions pending tax deferred exchanges, and Upstream abandonment activities which are reported in “Deferred charges and other assets” on the Consolidated Balance Sheet. Long-term debt of $4,101 and $5,636 at December 31, 2011, and December 31, 2010, had estimated fair values of $4,928 and $6,311, respectively.

     The carrying values of short-term financial assets and liabilities on the Consolidated Balance Sheet approximate their fair values. Fair value remeasurements of other financial instruments at December 31, 2011 and 2010 were not material.

     The fair value hierarchy for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2011, is as follows:

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

	At December 31										At December 31
									Before-Tax										Before-Tax
									Loss										Loss
	Total		Level 1		Level 2		Level 3		Year 2011		Total		Level 1		Level 2		Level 3		Year 2010
Properties, plant and equipment, net (held and used)	$	67	$	–	$	–	$	67	$	81	$	57	$	–	$	–	$	57	$	85
Properties, plant and equipment, net (held for sale)		167		–		167		–		54		13		–		–		13		36
Investments and advances		–		–		–		–		108		–		–		–		–		15
Total Nonrecurring Assets at Fair Value	$	234	$	–	$	167	$	67	$	243	$	70	$	–	$	–	$	70	$	136