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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2017
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 do 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 for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimates of the assumptions market participants would use in determining fair value. Our Level 3 measurements consist of instruments using standard pricing models and other valuation methods that utilize unobservable pricing inputs that are significant to the overall 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. Accordingly, valuation techniques that maximize the use of observable impacts are favored. 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 December 31, 2017 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, 2017 |
Trading securities held in the deferred compensation plans | $ | 67,117 |  |  | $ | — |  |  | $ | — |  |  | $ | 67,117 |
Derivatives | –swaps |  | — |  |  |  | 3,910 |  |  |  | — |  |  |  | 3,910 |
| –collars |  | — |  |  |  | 3,039 |  |  |  | 85 |  |  |  | 3,124 |
| –basis swaps |  | — |  |  |  | (9,025 | ) |  |  | 39 |  |  |  | (8,986 | )
| –freight swaps |  | — |  |  |  | 276 |  |  |  | — |  |  |  | 276 |
| –swaptions |  | — |  |  |  | — |  |  |  | 6,534 |  |  |  | 6,534 |
| Fair Value Measurements at December 31, 2016 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, 2016 |
Trading securities held in the deferred compensation plans | $ | 61,717 |  |  | $ | — |  |  | $ | — |  |  | $ | 61,717 |
Derivatives | –swaps |  | — |  |  |  | (207,979 | ) |  |  | — |  |  |  | (207,979 | )
| –collars |  | — |  |  |  | 3,673 |  |  |  | — |  |  |  | 3,673 |
| –puts |  | — |  |  |  | 18,159 |  |  |  | — |  |  |  | 18,159 |
| –calls |  | — |  |  |  | (1,041 | ) |  |  | — |  |  |  | (1,041 | )
| –basis swaps |  | — |  |  |  | 11,106 |  |  |  | — |  |  |  | 11,106 |
| –freight swaps |  | — |  |  |  | 65 |  |  |  | — |  |  |  | 65 |
Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using December 31, 2017 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 December 31, 2017, a portion of our natural gas derivative instruments contain swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a predetermined date. Derivatives in Level 3 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. Subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our swaptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy (in thousands):
|  | Year Ended December 31, 2017 |
Balance at the beginning of period | $ | — |
Total gains (losses): |  |  |
Included in earnings |  | 6,658 |
Settlements received |  | — |
Transfers in and/or out of Level 3 |  | — |
Balance at end of period | $ | 6,658 |
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/losses are included in deferred compensation plan expense in the accompanying consolidated statements of operations. For the year ended December 31, 2017, interest and dividends were $4.1 million and mark-to-market was a gain of $4.2 million. For the year ended December 31, 2016, interest and dividends were $972,000 and mark-to-market was a gain of $3.1 million. For the year ended December 31, 2015, interest and dividends were $908,000 and mark-to-market was a loss of $5.9 million. Fair Values-Non recurring Due to declines in commodity prices and estimated reserves over the last three years, there were indications that the carrying values of certain natural gas and oil 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. In some cases, we also considered the potential sale of certain of these properties. We recorded non-cash charges during the year ended 2017 of $63.7 million related to certain of our oil and gas properties in Oklahoma and the Texas Panhandle. We recorded non-cash charges during the year ended 2016 of $43.0 million related to certain of our natural gas and oil properties in Western Oklahoma. We recorded non-cash charges of $306.6 million during the year ended 2015 related to natural gas and oil properties in Northern Oklahoma, $195.6 million related to our shallow legacy oil and natural gas assets in Northwest Pennsylvania, $86.9 million related to our assets in the Texas Panhandle and $1.1 million related to our onshore Gulf Coast properties. The following table presents the value of these assets measured at fair value on a nonrecurring basis at the time impairment was recorded (in thousands):
| Year Ended December 31, |
| 2017 |  |  | 2016 |  |  | 2015 |
| Fair Value |  | Impairment |  | Fair Value |  |  | Impairment |  |  | Fair Value |  |  | Impairment |
Natural gas and oil properties | $ | 85,597 |  |  | $ | 63,679 |  |  | $ | 90,150 |  |  | $ | 43,040 |  |  | $ | 152,230 |  |  | $ | 590,174 |
Fair Values - Reported The following table presents the carrying amounts and the fair values of our financial instruments as of December 31, 2017 and 2016 (in thousands):
|  | December 31, 2017 |  |  | December 31, 2016 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, options and basis swaps |  | $ | 58,880 |  |  | $ | 58,880 |  |  | $ | 13,483 |  |  | $ | 13,483 |
Marketable securities (a) |  |  | 67,117 |  |  |  | 67,117 |  |  |  | 61,717 |  |  |  | 61,717 |
(Liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, options and basis swaps |  |  | (54,022 | ) |  |  | (54,022 | ) |  |  | (189,500 | ) |  |  | (189,500 | )
Bank credit facility (b) |  |  | (1,211,000 | ) |  |  | (1,211,000 | ) |  |  | (882,000 | ) |  |  | (882,000 | )
5.75% senior notes due 2021 (b) |  |  | (475,952 | ) |  |  | (493,872 | ) |  |  | (475,952 | ) |  |  | (496,180 | )
5.00% senior notes due 2022 (b) |  |  | (580,032 | ) |  |  | (578,727 | ) |  |  | (580,032 | ) |  |  | (577,132 | )
5.875% senior notes due 2022 (b) |  |  | (329,244 | ) |  |  | (339,200 | ) |  |  | (329,244 | ) |  |  | (343,648 | )
Other senior notes due 2022 (b) |  |  | (590 | ) |  |  | (591 | ) |  |  | (1,090 | ) |  |  | (1,104 | )
5.00% senior notes due 2023 (b) |  |  | (741,531 | ) |  |  | (735,614 | ) |  |  | (741,531 | ) |  |  | (735,043 | )
4.875% senior notes due 2025 (b) |  |  | (750,000 | ) |  |  | (733,755 | ) |  |  | (750,000 | ) |  |  | (724,688 | )
5.75% senior subordinated notes due 2021 (b) |  |  | (22,214 | ) |  |  | (22,192 | ) |  |  | (22,214 | ) |  |  | (22,325 | )
5.00% senior subordinated notes due 2022 (b) |  |  | (19,054 | ) |  |  | (18,741 | ) |  |  | (19,054 | ) |  |  | (18,387 | )
5.00% senior subordinated notes due 2023 (b) |  |  | (7,712 | ) |  |  | (7,614 | ) |  |  | (7,712 | ) |  |  | (7,645 | )
Deferred compensation plan (c) |  |  | (114,414 | ) |  |  | (114,414 | ) |  |  | (139,580 | ) |  |  | (139,580 | )
(a) | Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges.
(b) | The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes and our senior subordinated notes is based on end of period market quotes which are Level 2 inputs.
(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 receivables and payables. 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 incurrence of and expected future insignificance of bad debt expense.

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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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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