v2.4.0.8
Fair Value Measurement
 6 Months Ended
Jun. 30, 2013
Fair Value Measurement [Abstract]  
Fair Value Measurement

Note 16—Fair Value Measurement

 

We carry a portion of our assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to the quality of valuation inputs under the following hierarchy:

 

  • Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
  • Level 2: Inputs other than quoted prices which are directly or indirectly observable.
  • Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.

 

The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no material transfers in or out of Level 1.

Recurring Fair Value Measurement

Financial assets and liabilities reported at fair value on a recurring basis primarily include commodity derivatives and certain investments to support nonqualified deferred compensation plans. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. Level 1 derivative assets and liabilities primarily represent exchange-traded futures and options that are valued using unadjusted prices available from the underlying exchange. Level 2 derivative assets and liabilities primarily represent OTC swaps, options and forward purchase and sale contracts that are valued using adjusted exchange prices, prices provided by brokers or pricing service companies that are all corroborated by market data. Level 3 derivative assets and liabilities consist of OTC swaps, options and forward purchase and sale contracts that are long term in nature and where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses 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 in management's best estimate of fair value. Level 3 activity was not material.

 

The following table summarizes the fair value hierarchy for gross financial assets and liabilities (i.e., unadjusted where the right of setoff exists for commodity derivatives accounted for at fair value on a recurring basis):

  Millions of Dollars
  June 30, 2013 December 31, 2012
  Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets                
Deferred compensation                
 investments$ 299  -  -  299  305  -  -  305
Commodity derivatives  903  316  15  1,234  1,052  567  18  1,637
Total assets$ 1,202  316  15  1,533  1,357  567  18  1,942
                  
Liabilities                
Commodity derivatives$ 928  334  2  1,264  1,031  567  4  1,602
Total liabilities$ 928  334  2  1,264  1,031  567  4  1,602

The following table summarizes those commodity derivative balances subject to the right of setoff as presented
on our consolidated balance sheet:
           
 Millions of Dollars
 Gross Gross  Net Amounts   Net Amounts
AmountsAmountsExcluding Cash Subject
RecognizedOffsetCollateral Collateral to Setoff
June 30, 2013          
Assets$ 1,200  1,064  136  20  116
Liabilities  1,241  1,064  177  48  129
           
December 31, 2012          
Assets$ 1,621  1,403  218  29  189
Liabilities  1,588  1,403  185  16  169
           
           
At June 30, 2013, and December 31, 2012, we did not present any amounts gross on our consolidated
balance sheet where we had the right of setoff.

Non-Recurring Fair Value Measurement

 

 

There is nothing to report for 2Q 2013, so this object has been set to Not Printable.

Reported Fair Values of Financial Instruments

We used the following methods and assumptions to estimate the fair value of financial instruments:

 

  • Cash and cash equivalents, restricted cash and short-term investments: The carrying amount reported on the balance sheet approximates fair value.
  • Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of fixed-rate related party loans is consistent with Loans and advances—related parties.
  • Loans and advances—related parties: The carrying amount of floating-rate loans approximates fair value. The fair value of fixed-rate loan activity is measured using market observable data and is categorized as Level 2 in the fair value hierarchy. See Note 7—Investments, Loans and Long-Term Receivables, for additional information.
  • Accounts payable (including related parties) and floating-rate debt: The carrying amount of accounts payable and floating-rate debt reported on the balance sheet approximates fair value. The valuation technique and methods used to estimate the fair value of the current portion of the joint venture acquisition obligation is consistent with the methodology below.
  • Fixed-rate debt: The estimated fair value of fixed-rate debt is measured using prices available from a pricing service that is corroborated by market data; therefore, these liabilities are categorized as Level 2 in the fair value hierarchy.
  • Joint venture acquisition obligation—related party: Fair value is estimated based on the net present value of the future cash flows as a Level 2 fair value. At June 30, 2013, and December 31, 2012, effective yield rates were 0.81 percent and 0.7 percent, respectively, based on yields of U.S. Treasury securities of similar average duration adjusted for our average credit risk spread and the amortizing nature of the obligation principal. See Note 11—Joint Venture Acquisition Obligation, for additional information.

The following table summarizes the net fair value of financial instruments (i.e., adjusted where the right of setoff exists for commodity derivatives):
         
 Millions of Dollars
 Carrying Amount Fair Value
 June 30 December 31 June 30 December 31
201320122013 2012
Financial assets        
Deferred compensation investments$ 299  305  299  305
Commodity derivatives  159  221  159  221
Total loans and advances—related parties  1,613  1,697  1,760  1,916
Financial liabilities        
Total debt, excluding capital leases  20,799  21,709  23,778  26,349
Total joint venture acquisition obligation  3,201  3,582  3,501  3,968
Commodity derivatives  161  199  161  199