California Resources Corp Fair Value Disclosure
NOTE 9FAIR VALUE MEASUREMENTS
Fair Values - Recurring
The following tables present assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2015 and 2014 (in millions):
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December 31, 2015 |
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Level 1 |
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Level 2 |
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Level 3 |
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Collateral |
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Total |
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Assets: |
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Commodity derivative instruments, other current assets |
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$ |
— |
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$ |
87 |
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$ |
— |
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$ |
— |
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$ |
87 |
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Liabilities: |
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Commodity derivative instruments, accrued liabilities |
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$ |
— |
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$ |
(1) |
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$ |
— |
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$ |
— |
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$ |
(1) |
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December 31, 2014 |
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Level 1 |
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Level 2 |
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Level 3 |
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Collateral |
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Total |
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Assets: |
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Commodity derivative instruments, other current assets |
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$ |
— |
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$ |
24 |
|
$ |
— |
|
$ |
— |
|
$ |
24 |
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Fair Values - Nonrecurring
At year end 2015, we performed impairment tests with respect to our proved and unproved properties triggered by the sharp drop in oil prices in the fourth quarter of 2015. As a result, in the fourth quarter of 2015, we recorded pre-tax asset impairment charges of $4.9 billion on certain proved and unproved properties throughout our asset base. Approximately $100 million of the charge was related to unproved acreage. We evaluate our properties, in part, based on year-end forward price curves, as well as assessing projects we determined we would not pursue in the foreseeable future given the current environment.
As a result of impairment testing in the fourth quarter of 2014, we recorded pre-tax charges of $3.4 billion, of which $2.7 billion was for certain proved properties throughout our asset base to reduce these assets to their estimated fair values.
The fair values of the proved properties held and used were determined as of the date of the assessment using discounted cash flow models based on management’s expectations for the future. Inputs included estimates of future oil and natural gas production, prices based on recent commodity forward price curves as of the date of the estimate, estimated operating and development costs, and a risk-adjusted discount rate.
Financial Instruments Fair Value
The carrying amounts of cash and other on-balance sheet financial instruments, other than fixed-rate debt, approximate fair value.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.