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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2014
Fair Value Disclosures [Abstract] |
Fair Value Measurements | (12) FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence. The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:
— | Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
— | Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
— | Level 3 – Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.
Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. Fair Values – Recurring We use a market approach for our recurring fair value measurements and endeavor to use the best information available. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):
|  | Fair Value Measurements at September 30, 2014 using: |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Carrying Value as of September 30, 2014 |
Trading securities held in the deferred compensation plans |  | $ | 66,874 |  |  | $ | — |  |  | $ | — |  |  | $ | 66,874 |
Derivatives –swaps |  |  | — |  |  |  | 49,305 |  |  |  | — |  |  |  | 49,305 |
–collars |  |  | — |  |  |  | 13,972 |  |  |  | — |  |  |  | 13,972 |
–basis swaps |  |  | — |  |  |  | (2,461 | ) |  |  | 992 |  |  |  | (1,469 | )
|  | Fair Value Measurements at December 31, 2013 using: |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Carrying Value as of December 31, 2013 |
Trading securities held in the deferred compensation plans |  | $ | 67,766 |  |  | $ | — |  |  | $ | — |  |  | $ | 67,766 |
Derivatives –swaps |  |  | — |  |  |  | (18,812 | ) |  |  | — |  |  |  | (18,812 | )
–collars |  |  | — |  |  |  | 2,314 |  |  |  | — |  |  |  | 2,314 |
–basis swaps |  |  | — |  |  |  | 3,381 |  |  |  | 548 |  |  |  | 3,929 |
Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using end of period market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. As of September 30, 2014, we have four natural gas basis swaps categorized as Level 3 due to the forward price curve being unavailable for the regional sales point. We based the fair value on the most similar regional forward natural gas basis curve received from a third party pricing service along with assumed basis differentials based on historical trends. Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains or losses are included in deferred compensation plan expense in the accompanying statement of operations. For third quarter 2014, interest and dividends were $151,000 and the mark-to-market adjustment was a loss of $1.2 million compared to interest and dividends of $111,000 and mark-to-market gain of $3.2 million in the same period of the prior year. For the nine months ended September 30, 2014, interest and dividends were $322,000 and the mark-to-market adjustment was a gain of $1.3 million compared to interest and dividends of $779,000 and mark-to-market adjustment of a gain of $3.8 million in the same period of 2013. Fair Values—Non-recurring In the nine months ended September 30, 2014, due to declines in estimated reserves, there were indications that the carrying values of certain of our oil and gas properties may be impaired and undiscounted future cash flows attributed to these assets indicated their carrying amounts were not expected to be recovered. Their fair value was measured using an income approach based upon internal estimates of future production levels, prices, drilling and operating costs and discount rates, which are Level 3 inputs. We recorded non-cash charges during the nine months ended September 30, 2014 of $25.0 million related to natural gas and oil properties in Mississippi, West Texas and North Texas. In third quarter 2013, we recognized an impairment expense of $7.0 million on certain of our oil and gas properties in South Texas due to a reduction in reserves from a failed well recompletion. Also, in the nine months ended September 30, 2013 we evaluated certain surface property we owned which included a consideration for the potential sale of these assets and we recognized an impairment charge of $741,000. The following table presents the value of these assets measured at fair value on a non-recurring basis at the time impairment was recorded (in thousands):
| Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
|  | Fair Value |  |  |  | Impairment |  |  |  | Fair Value |  |  |  | Impairment |  |  |  | Fair Value |  |  |  | Impairment |  |  |  | Fair Value |  |  |  | Impairment |
Natural gas and oil properties | $ | ¾ |  |  | $ | ¾ |  |  | $ | 500 |  |  | $ | 7,012 |  |  | $ | 18,086 |  |  | $ | 24,991 |  |  | $ | 500 |  |  | $ | 7,012 |
Surface property | $ | ¾ |  |  | $ | ¾ |  |  | $ | ¾ |  |  | $ | ¾ |  |  | $ | ¾ |  |  | $ | ¾ |  |  | $ | 5,550 |  |  | $ | 741 |
Fair Values—Reported The following table presents the carrying amounts and the fair values of our financial instruments as of September 30, 2014 and December 31, 2013 (in thousands):
|  | September 30, 2014 |  |  | December 31, 2013 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collars and basis swaps |  | $ | 61,808 |  |  | $ | 61,808 |  |  | $ | 13,654 |  |  | $ | 13,654 |
Marketable securities(a) |  |  | 66,874 |  |  |  | 66,874 |  |  |  | 67,766 |  |  |  | 67,766 |
(Liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collars and basis swaps |  |  | — |  |  |  | — |  |  |  | (26,223 | ) |  |  | (26,223 | )
Bank credit facility(b) |  |  | (649,000 | ) |  |  | (649,000 | ) |  |  | (500,000 | ) |  |  | (500,000 | )
Deferred compensation plan(c) |  |  | (232,120 | ) |  |  | (232,120 | ) |  |  | (271,738 | ) |  |  | (271,738 | )
8.00% senior subordinated notes due 2019(b) |  |  | ¾ |  |  |  | ¾ |  |  |  | (290,516 | ) |  |  | (319,500 | )
6.75% senior subordinated notes due 2020(b) |  |  | (500,000 | ) |  |  | (525,000 | ) |  |  | (500,000 | ) |  |  | (541,250 | )
5.75% senior subordinated notes due 2021(b) |  |  | (500,000 | ) |  |  | (523,125 | ) |  |  | (500,000 | ) |  |  | (530,625 | )
5.00% senior subordinated notes due 2022(b) |  |  | (600,000 | ) |  |  | (613,500 | ) |  |  | (600,000 | ) |  |  | (588,750 | )
5.00% senior subordinated notes due 2023(b) |  |  | (750,000 | ) |  |  | (770,625 | ) |  |  | (750,000 | ) |  |  | (732,188 | )
(a) | Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges. Refer to Note 13 for additional information.
(b) | The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior subordinated notes is based on end of period market quotes which are Level 2 inputs. Refer to Note 8 for additional information.
(c) | The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.
Our current assets and liabilities contain financial instruments, the most significant of which are trade accounts receivable and payable. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations including (1) the short-term duration of the instruments and (2) our historical and expected incurrence of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations. For additional information, see Note 9. Concentrations of Credit Risk As of September 30, 2014, our primary concentrations of credit risk are the risks of collecting accounts receivable and the risk of a counterparties’ failure to perform under derivative obligations. Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate security are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectible receivables was $2.7 million at September 30, 2014 and $2.5 million at December 31, 2013. As of September 30, 2014, our derivative contracts consist of swaps and collars. Our exposure to credit risk is diversified among major investment grade financial institutions, where we have master netting agreements which provide for offsetting payables against receivables from separate derivative contracts. To manage counterparty risk associated with our derivatives, we select and monitor our counterparties based on our assessment of their financial strength and/or credit ratings. We may also limit the level of exposure with any single counterparty. At September 30, 2014, our derivative counterparties include fifteen financial institutions, of which all but two are secured lenders in our bank credit facility. At September 30, 2014, our net derivative assets include a net receivable from these two counterparties that are not included in our bank credit facility of $5.5 million.

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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 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: 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=35750535&loc=d3e13433-108611 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 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: 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 6: 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=35750535&loc=d3e13504-108611 + Details
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