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Fair Value Measurement | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Note 11—Fair Value Measurement We carry a portion of our assets and liabilities at fair value that are measured at the 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 fair value hierarchy. 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 subsequently reported as Level 3 if corroborated market data is no longer available. There were no material transfers into or out of Level 3 during the nine-month period ended September 30, 2023, nor during the year ended December 31, 2022. Recurring Fair Value Measurement Financial assets and liabilities reported at fair value on a recurring basis include our investments in debt securities classified as available for sale 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 investments in U.S. government obligations classified as available for sale debt securities, which are valued using exchange prices. •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 2 also includes our investments in debt securities classified as available for sale, including investments in corporate bonds, commercial paper, asset-backed securities, U.S. government agency obligations and foreign government obligations that are valued using pricing provided by brokers or pricing service companies that are corroborated with market data. •Level 3 derivative assets 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 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 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 value on a recurring basis):
| Millions of Dollars
| September 30, 2023 |  | December 31, 2022
| Level 1 | Level 2 | Level 3 | Total |  | Level 1 | Level 2 | Level 3 | Total
Assets |  |  |  |  |  |  |  |  |
Investments in debt securities | $ | 276 |  | 1,078 |  | — |  | 1,354 |  |  | 178 |  | 1,044 |  | — |  | 1,222 |
Commodity derivatives | 361 |  | 231 |  | 70 |  | 662 |  |  | 958 |  | 951 |  | 128 |  | 2,037 |
Total assets | $ | 637 |  | 1,309 |  | 70 |  | 2,016 |  |  | 1,136 |  | 1,995 |  | 128 |  | 3,259 |
Liabilities |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 376 |  | 203 |  | 24 |  | 603 |  |  | 906 |  | 843 |  | 261 |  | 2,010 |
Total liabilities | $ | 376 |  | 203 |  | 24 |  | 603 |  |  | 906 |  | 843 |  | 261 |  | 2,010 |
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
|  |  | Amounts Subject to Right of Setoff
| Gross Amounts Recognized | Amounts Not Subject to Right of Setoff | Gross Amounts | Gross Amounts Offset | Net Amounts Presented | Cash Collateral | Net Amounts
September 30, 2023 |  |  |  |  |  |  |
Assets | $ | 662 |  | 30 |  | 632 |  | 418 |  | 214 |  | 1 |  | 213 |
Liabilities | 603 |  | 27 |  | 576 |  | 418 |  | 158 |  | 23 |  | 135 |
December 31, 2022 |  |  |  |  |  |  |
Assets | $ | 2,037 |  | 39 |  | 1,998 |  | 1,176 |  | 822 |  | 37 |  | 785 |
Liabilities | 2,010 |  | 20 |  | 1,990 |  | 1,176 |  | 814 |  | 52 |  | 762 |
At September 30, 2023 and December 31, 2022, we did not present any amounts gross on our consolidated balance sheet where we had the right of setoff. 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. For those investments classified as available for sale debt securities, the carrying amount reported on the balance sheet is fair value. •Accounts and notes receivable (including long-term and related parties): The carrying amount reported on the balance sheet approximates fair value. •Investments in debt securities classified as available for sale: The fair value of investments in debt securities categorized as Level 1 in the fair value hierarchy is measured using exchange prices. The fair value of investments in debt securities categorized as Level 2 in the fair value hierarchy is measured using pricing provided by brokers or pricing service companies that are corroborated with market data. See Note 10. •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. •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. •Commercial paper: The carrying amount of our commercial paper instruments approximates fair value and is reported on the balance sheet as short-term debt. 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 2023 | December 31 2022 |  | September 30 2023 | December 31 2022
Financial assets |  |  |  |  |
Commodity derivatives | 243 |  | 824 |  |  | 243 |  | 824 |
Investments in debt securities | 1,354 |  | 1,222 |  |  | 1,354 |  | 1,222 |
Financial liabilities |  |  |  |  |
Total debt, excluding finance leases | 17,906 |  | 15,323 |  |  | 17,375 |  | 15,545 |
Commodity derivatives | 162 |  | 782 |  |  | 162 |  | 782 |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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