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Fair Value Measurement
 9 Months Ended
Sep. 30, 2024
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, 2024, nor during the year ended December 31, 2023.
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, commodity derivatives and our contingent consideration arrangement related to the Surmont acquisition. See Note 3.
•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 financial assets also include 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 financial assets also include 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 commodity derivative activity was not material for all periods presented.
•Level 3 liabilities include the fair value of future quarterly contingent payments to TotalEnergies EP Canada Ltd. in connection with the acquisition of the remaining 50 percent working interest in Surmont completed in 2023. Contingent consideration consists of total payments up to approximately $0.4 billion CAD over a five-year term ending in the fourth quarter of 2028. The contingent payments represent $2 million for every dollar that the monthly WCS average pricing exceeds $52 per barrel. The terms include adjustments related to not achieving certain production targets. During the nine-month period ended September 30, 2024, we made payments of approximately $147 million USD to TotalEnergies EP Canada Ltd. under this arrangement. These payments are included in the "Other" line within the Financing Activities section of our Consolidated Statement of Cash Flows. The fair value of the remaining contingent consideration as of September 30, 2024, is calculated using the income approach and is largely based on the estimated commodity price outlook using a combination of external pricing service companies' and our internal price outlook (unobservable input) and a discount rate consistent with those used by principal market participants (observable input). The impact of other unobservable inputs on the fair value as of September 30, 2024, was not significant.
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, 2024December 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Investments in debt securities
$257 1,270 — 1,527 278 1,146 — 1,424 
Commodity derivatives
198 195 35 428 308 301 115 724 
Total assets
$455 1,465 35 1,955 586 1,447 115 2,148 
Liabilities
Commodity derivatives$251 117 14 382 350 283 14 647 
Contingent consideration— — 165 165 — — 312 312 
Total liabilities
$251 117 179 547 350 283 326 959 
The range and arithmetic average of the significant unobservable input used in the Level 3 fair value measurement was as follows:
Fair Value
(Millions of
Dollars)		Valuation
Technique		Unobservable
Input
Range
(Arithmetic Average)
Contingent consideration - Surmont as of:
September 30, 2024
$165 Discounted cash flowCommodity price outlook* ($/BOE)
$50.05 - $61.69 ($54.88)
December 31, 2023
312 
$45.48 - $63.04 ($57.45)
*Commodity price outlook based on a combination of external pricing service companies' outlooks and our internal outlook.

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, 2024
Assets$428 — 428 245 183 — 183 
Liabilities382 1 381 245 136 53 83 
December 31, 2023
Assets$724 39 685 375 310 4 306 
Liabilities647 34 613 375 238 47 191 
At September 30, 2024 and December 31, 2023, 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
2024		December 31
2023		September 30
2024		December 31
2023
Financial assets
Commodity derivatives
183 345 183 345 
Investments in debt securities
1,527 1,424 1,527 1,424 
Financial liabilities
Total debt, excluding finance leases
17,311 17,808 18,085 18,621 
Commodity derivatives
84 225 84 225