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Fair Value Measurement | 9 Months Ended
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Sep. 30, 2018
Fair Value Measurement [Abstract] |
Fair Value Measurement | Note 15—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 that are directly or indirectly obs ervable. 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 initially reported as Level 2 are sub sequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. At the end of the fourth quarter of 2017, our investment in Cenovus Energy transferred from Level 2 to Level 1 due to th e lapsing of trading restrictions. There were no other material transfers between levels during 2018 or 2017. Recurring Fair Value Measurement Financial assets and liabilities reported at fair value on a recurring basis primaril y include our investment in Cenovus Energy shares and commodity derivatives. 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 1 also includes our investment in common shares of Cenovus Energy, which is valued using quotes for shares on the New York Stock Exchange. Level 2 derivative assets and liab ilities 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 ass ets and liabilities consist of OTC swaps, options and forward purchase and sale contracts where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived value uses industry standard methodolo gies 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 for all periods presented. 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 va lue on a recurring basis):
|  | Millions of Dollars
|  | September 30, 2018 |  | December 31, 2017
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment in Cenovus Energy | $ | 2,086 |  | - |  | - |  | 2,086 |  | 1,899 |  | - |  | - |  | 1,899
Commodity derivatives |  | 186 |  | 97 |  | 18 |  | 301 |  | 175 |  | 106 |  | 30 |  | 311
Total assets | $ | 2,272 |  | 97 |  | 18 |  | 2,387 |  | 2,074 |  | 106 |  | 30 |  | 2,210
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 176 |  | 103 |  | 36 |  | 315 |  | 158 |  | 111 |  | 41 |  | 310
Total liabilities | $ | 176 |  | 103 |  | 36 |  | 315 |  | 158 |  | 111 |  | 41 |  | 310
The following table summarizes those commodity derivative balances subject to the right of setoff as
presented on our consolidated balance sheet. We have elected to offset the recognized fair value amounts for
multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of setoff exists.
| Millions of Dollars
| Gross |  | Gross |  | Net |  |  |  | Gross Amounts |  |
Amounts |  | Amounts | Amounts |  | Cash |  | without |  | Net
Recognized |  | Offset | Presented |  | Collateral |  | Right of Setoff |  | Amounts
September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Assets | $ | 301 |  | 206 |  | 95 |  | - |  | 7 |  | 88
Liabilities |  | 315 |  | 206 |  | 109 |  | 2 |  | 3 |  | 104
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |
Assets | $ | 311 |  | 186 |  | 125 |  | - |  | 4 |  | 121
Liabilities |  | 310 |  | 186 |  | 124 |  | 7 |  | 5 |  | 112
At September 30, 2018 and December 31, 2017, we did not present any amounts gross on our consolidated
balance sheet where we had the right of setoff.
Non-Recurring Fair Value Measurement |  |  |  |  |  |  |  |
The following table summarizes the fair value hierarchy by major category and date of remeasurement for assets accounted for at fair value on a non-recurring basis:
| Millions of Dollars
|  |  |  | Fair Value Measurements Using |  |
| Fair Value |  | Level 1 Inputs |  | Level 3 Inputs |  | Before-Tax Loss
Net PP&E (held for sale) |  |  |  |  |  |  |  |
March 31, 2018 | $ | 250 |  | - |  | 250 |  | 44
September 30, 2018 | $ | 201 |  | 201 |  | - |  | 43
During the first and third quarters of 2018, certain net PP&E held for sale was written down to fair value, less costs to sell. In the third quarter, fair value was determined by its negotiated selling price. In the first quarter, f air value was estimated using information gathered during marketing efforts. For additional information, see Note 5—Assets Held for Sale, Dispositions, Acquisitions and Other Planned Transactions. 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 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. Investment in Cenovus Energy shares: See Note 7—Investment in Cenovus Energy, for a discussion of the carrying value and fair value of our investment in C enovus Energy shares. 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 va lue hierarchy. See Note 6—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 ba lance sheet approximates fair value. 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 th e fair value hierarchy.
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
| September 30 |  | December 31 |  | September 30 |  | December 31
2018 | 2017 | 2018 |  | 2017
Financial assets |  |  |  |  |  |  |  |
Investment in Cenovus Energy | $ | 2,086 |  | 1,899 |  | 2,086 |  | 1,899
Commodity derivatives |  | 95 |  | 125 |  | 95 |  | 125
Total loans and advances—related parties |  | 464 |  | 586 |  | 464 |  | 586
Financial liabilities |  |  |  |  |  |  |  |
Total debt, excluding capital leases |  | 14,201 |  | 18,929 |  | 16,554 |  | 22,435
Commodity derivatives |  | 107 |  | 117 |  | 107 |  | 117

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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