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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2016
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair Values of Financial Instruments We used the following methods and assumptions to estimate the fair value of financial instruments:
• | Cash and cash equivalents: The carrying amount reported on the consolidated balance sheet approximates fair value.
• | Accounts and notes receivable: The carrying amount reported on the consolidated balance sheet approximates fair value.
• | Debt: The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on quoted market prices.
• | Commodity swaps and forward purchases and sales: Fair value is estimated based on forward market prices and approximates the exit price at period end. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location.
• | Futures: Fair values are based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange, or other traded exchanges.
• | Forward-exchange contracts: Fair value is estimated by comparing the contract rate to the forward rate in effect at the end of the reporting period, which approximates the exit price at that date.
We carry certain assets and liabilities at fair value, which we measure 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 disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:
• | Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
• | Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.
• | Level 3: Fair value measured with unobservable inputs that are significant to the measurement.
We classify the fair value of an asset or liability based on the lowest level of input significant to its measurement; however, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable. For the six-month period ended June 30, 2016, derivative assets with an aggregate value of $151 million and derivative liabilities with an aggregate value of $117 million were transferred into Level 1 from Level 2, as measured from the beginning of the reporting period. The measurements were reclassified within the fair value hierarchy due to the availability of unadjusted quoted prices from an active market. Recurring Fair Value Measurements Financial assets and liabilities recorded at fair value on a recurring basis consist primarily of investments to support nonqualified deferred compensation plans and derivative instruments. 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. We value our exchange-traded commodity derivatives using closing prices provided by the exchange as of the balance sheet date, and these are also classified as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity or are valued using either adjusted exchange-provided prices or non-exchange quotes, we classify those contracts as Level 2. OTC financial swaps and physical commodity forward purchase and sales contracts are generally valued using quotes provided by brokers and price index developers such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, OTC swaps and physical commodity purchase and sales contracts are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. Financial OTC and physical commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a mid-market pricing convention (the mid-point between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence. The following tables display the fair value hierarchy for our material financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown gross (i.e., without the effect of netting where the legal right of setoff exists) in the hierarchy sections of these tables. These tables also show that our Level 3 activity was not material. We have master netting agreements for all of our exchange-cleared derivative instruments, the majority of our OTC derivative instruments, and certain physical commodity forward contracts (primarily pipeline crude oil deliveries). The following tables show the fair value of these contracts on a net basis in the column “Effect of Counterparty Netting,” which is how these also appear on the consolidated balance sheet. The carrying values and fair values by hierarchy of our material financial instruments and commodity forward contracts, either carried or disclosed at fair value, including any effects of netting derivative assets with liabilities and netting collateral due to right of setoff or master netting agreements, were:
| Millions of Dollars
| June 30, 2016
| Fair Value Hierarchy |  | Total Fair Value of Gross Assets & Liabilities |  | Effect of Counterparty Netting |  | Effect of Collateral Netting |  | Difference in Carrying Value and Fair Value |  | Net Carrying Value Presented on the Balance Sheet |  | Cash Collateral Received or Paid, Not Offset on Balance Sheet |
| Level 1 |  |  | Level 2 |  |  | Level 3 |
Commodity Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |
Exchange-cleared instruments | $ | 258 |  |  | 316 |  |  | — |  |  | 574 |  | (568 | ) | — |  | — |  | 6 |  | — |
OTC instruments | — |  |  | 7 |  |  | — |  |  | 7 |  | (2 | ) | — |  | — |  | 5 |  | — |
Physical forward contracts* | — |  |  | 50 |  |  | 1 |  |  | 51 |  | — |  | — |  | — |  | 51 |  | — |
Rabbi trust assets | 94 |  |  | — |  |  | — |  |  | 94 |  | N/A |  | N/A |  | — |  | 94 |  | N/A |
| $ | 352 |  |  | 373 |  |  | 1 |  |  | 726 |  | (570 | ) | — |  | — |  | 156 |  |
Commodity Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Exchange-cleared instruments | $ | 277 |  |  | 359 |  |  | — |  |  | 636 |  | (568 | ) | (68 | ) | — |  | — |  | — |
OTC instruments | — |  |  | 4 |  |  | — |  |  | 4 |  | (2 | ) | — |  | — |  | 2 |  | — |
Physical forward contracts* | — |  |  | 13 |  |  | 1 |  |  | 14 |  | — |  | — |  | — |  | 14 |  | — |
Interest-rate derivatives | — |  |  | 16 |  |  | — |  |  | 16 |  | — |  | — |  | — |  | 16 |  | — |
Floating-rate debt | 90 |  |  | — |  |  | — |  |  | 90 |  | N/A |  | N/A |  | — |  | 90 |  | N/A |
Fixed-rate debt, excluding capital leases** | — |  |  | 9,493 |  |  | — |  |  | 9,493 |  | N/A |  | N/A |  | (909 | ) | 8,584 |  | N/A |
| $ | 367 |  |  | 9,885 |  |  | 1 |  |  | 10,253 |  | (570 | ) | (68 | ) | (909 | ) | 8,706 |  |
* Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa. ** We carry fixed-rate debt on the balance sheet at amortized cost.
| Millions of Dollars
| December 31, 2015
| Fair Value Hierarchy |  | Total Fair Value of Gross Assets & Liabilities |  | Effect of Counterparty Netting |  | Effect of Collateral Netting |  | Difference in Carrying Value and Fair Value |  | Net Carrying Value Presented on the Balance Sheet |  | Cash Collateral Received or Paid, Not Offset on Balance Sheet |
| Level 1 |  |  | Level 2 |  |  | Level 3 |  |
Commodity Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |
Exchange-cleared instruments | $ | 1,851 |  |  | 703 |  |  | — |  |  | 2,554 |  | (2,389 | ) | (100 | ) | — |  | 65 |  | — |
OTC instruments | — |  |  | 13 |  |  | — |  |  | 13 |  | (12 | ) | — |  | — |  | 1 |  | — |
Physical forward contracts* | 3 |  |  | 40 |  |  | 2 |  |  | 45 |  | — |  | — |  | — |  | 45 |  | — |
Rabbi trust assets | 83 |  |  | — |  |  | — |  |  | 83 |  | N/A |  | N/A |  | — |  | 83 |  | N/A |
| $ | 1,937 |  |  | 756 |  |  | 2 |  |  | 2,695 |  | (2,401 | ) | (100 | ) | — |  | 194 |  |  |
Commodity Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Exchange-cleared instruments | $ | 1,745 |  |  | 646 |  |  | — |  |  | 2,391 |  | (2,389 | ) | — |  | — |  | 2 |  | — |
OTC instruments | — |  |  | 17 |  |  | — |  |  | 17 |  | (12 | ) | — |  | — |  | 5 |  | — |
Physical forward contracts* | — |  |  | 22 |  |  | — |  |  | 22 |  | — |  | — |  | — |  | 22 |  | — |
Floating-rate debt | 50 |  |  | — |  |  | — |  |  | 50 |  | N/A |  | N/A |  | — |  | 50 |  | N/A |
Fixed-rate debt, excluding capital leases** | — |  |  | 8,434 |  |  | — |  |  | 8,434 |  | N/A |  | N/A |  | 195 |  | 8,629 |  | N/A |
| $ | 1,795 |  |  | 9,119 |  |  | — |  |  | 10,914 |  | (2,401 | ) | — |  | 195 |  | 8,708 |  |
* Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa. ** We carry fixed-rate debt on the balance sheet at amortized cost. The rabbi trust assets appear on our consolidated balance sheet in the “Investments and long-term receivables” line, while the floating-rate and fixed-rate debt appear in the “Short-term debt” and “Long-term debt” lines. For information regarding where our commodity derivative assets and liabilities appear on the balance sheet, see the first table in Note 12—Derivatives and Financial Instruments.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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