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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
(11) | 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 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. When transfers between levels occur, it is our policy to assume the transfer occurred at the date of the event or change in circumstances that caused the transfer. 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, 2020 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, 2020 |
Trading securities held in the deferred compensation plans | $ | 63,942 |  |  | $ | — |  |  | $ | — |  |  | $ | 63,942 |
Derivatives | –swaps |  | — |  |  |  | 6,642 |  |  |  | — |  |  |  | 6,642 |
| –calls |  | — |  |  |  | — |  |  |  | (546 | ) |  |  | (546 | )
| –collars |  | — |  |  |  | 7,016 |  |  |  | (3,487 | ) |  |  | 3,529 |
| –three-way collars |  | — |  |  |  | (17,818 | ) |  |  | — |  |  |  | (17,818 | )
| –basis swaps |  | — |  |  |  | 4,491 |  |  |  | — |  |  |  | 4,491 |
| –swaptions |  | — |  |  |  | — |  |  |  | (9,803 | ) |  |  | (9,803 | )
Derivatives–freight swaps |  | — |  |  |  | 1,104 |  |  |  | — |  |  |  | 1,104 |
Divestiture contingent consideration |  | — |  |  |  | 15,960 |  |  |  | — |  |  |  | 15,960 |
| Fair Value Measurements at December 31, 2019 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, 2019 |
Trading securities held in the deferred compensation plans | $ | 62,009 |  |  | $ | — |  |  | $ | — |  |  | $ | 62,009 |
Derivatives | –swaps |  | — |  |  |  | 131,886 |  |  |  | — |  |  |  | 131,886 |
| –calls |  | — |  |  |  | (349 | ) |  |  | — |  |  |  | (349 | )
| –basis swaps |  | — |  |  |  | (4,732 | ) |  |  | — |  |  |  | (4,732 | )
| –swaptions |  | — |  |  |  | — |  |  |  | (4,848 | ) |  |  | (4,848 | )
Derivatives | –freight swaps |  | — |  |  |  | 1,529 |  |  |  | — |  |  |  | 1,529 |
Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using December 31, 2020 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. 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. As of December 31, 2020, 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. In addition to our swaptions in Level 3, at December 31, 2020, we have propane and butane collars and natural gasoline calls. Subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our derivatives in Level 3. For our swaptions, we used a weighted average implied volatility of 24%. We utilized a range of implied volatilities from 34% to 66% for our butane and propane collars and natural gasoline calls with a weighted average implied volatility of approximately 44%. 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, 2020 |
Balance at December 31, 2019 | $ | (4,848 | )
Total gains (losses): |  |  |
Included in earnings |  | (13,836 | )
Settlements, net |  | 2,743 |
Transfers in and/or out of Level 3 |  | 2,105 |
Balance at December 31, 2020 | $ | (13,836 | )
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, 2020, interest and dividends were $713,000 and mark-to-market was a gain of $6.3 million. For the year ended December 31, 2019, interest and dividends were $1.1 million and mark-to-market was a gain of $8.5 million. For the year ended December 31, 2018, interest and dividends were $1.1 million and mark-to-market was a loss of $7.9 million. Divestiture Contingent Consideration. In August 2020, we completed the sale of our North Louisiana assets where we are entitled to receive contingent consideration of up to $90 million, based on future realization of natural gas and oil prices based on published indexes along with NGLs prices based on the realized NGLs prices of the buyer. We used an option pricing model to estimate the fair value of the contingent consideration using significant Level 2 inputs that include quoted future commodity prices based on active markets and implied volatility factors. See also Note 4 and Note 10 for additional information. 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 of our 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 is generally 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 these properties and comparable market value, if available. In fourth quarter 2019, there were indicators that the carrying value of our North Louisiana properties may be impaired due to a shift in business strategy employed by management and also the possibility of a divestiture of these assets. As a result of the impairment evaluation, where we used an income approach, also referred to as a discounted cash flow model, to assess fair value and we recorded an impairment of $1.1 billion. An additional guideline transaction market approach was also utilized to corroborate the estimated fair value. The expected future net cash flows used published future prices and were discounted using an annual rate of twelve percent to determine fair value. In first quarter 2020, we recognized an additional impairment charge of $77.0 million related to these North Louisiana properties that reduced the carrying value to the anticipated sales proceeds which is a market approach using Level 2 inputs. See also Note 4 for additional information. During 2018, we increased our interest in certain properties in our shallow legacy oil and natural gas assets in Northwest Pennsylvania for a minimal dollar amount for which the fair value was previously determined to be zero. As a result, in 2018 we recorded additional impairment of $15.3 million related to these properties. Also in early 2018, there were indicators that the carrying value of certain of our oil and gas properties in Oklahoma may be impaired and undiscounted future cash flows attributed to these assets indicated their carrying amounts were not expected to be recovered. We recorded non-cash impairment charges of $7.3 million related to these 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, |
| 2020 |  |  | 2019 |  |  | 2018 |
| Fair Value |  | Impairment |  | Fair Value |  |  | Impairment |  |  | Fair Value |  |  | Impairment |
Natural gas and oil properties | $ | 290,500 |  |  | $ | 77,000 |  |  | $ | 370,500 |  |  | $ | 1,093,531 |  |  | $ | 32,516 |  |  | $ | 22,614 |
North Louisiana Divestiture. We have recorded a divestiture contract obligation in conjunction with the sale of our North Louisiana assets. The fair value of this obligation was determined as of the closing date using Level 3 inputs based on a probability-weighted forecast that considers historical results, market conditions and various potential development plans of the buyer to arrive at the estimated present value of the future payments. Inherent in this fair value calculation are numerous other assumptions and judgements including the credit-adjusted discount rate as well as the development plans of the buyer and our probability weighted forecast of those drilling plans, market conditions and the ultimate usage by the buyer of each facility included in the agreement, all of which are inherently uncertain and can alter the amount and timing of future payments. A significant portion of this obligation is a gas processing agreement that includes a deficiency payment if the minimum volume commitment is not met. The agreement also includes additional transportation agreements that are based on contractual rates applied to a minimum volume usage. The present value of future cash payments was determined using a 12 percent discount rate. Our probability-weighted forecast of drilling plans includes probable development scenarios by the buyer ranging from no incremental future drilling up to a two rig development plan. If development does not occur as we have assumed, the carrying value of the liability could increase by approximately $29.0 million. Additionally, o ur probability weighted forecast contemplated a percentage of estimated production volumes flowing to processing facilit ies based on our historical experience as well as contractual terms and assumptions regarding future market conditions. The percentage allocated to these facilities ranged from 34% in 2020 and increasing to 100% in 2026. If the flow of production volumes remained at 34% through 2030, the carrying value of the liability could increase by approximately $17.9 million. See also Note 4 and Note 1 6 for additional information. Leases. As part of our ongoing effort to reduce general and administrative expense due to both the lower commodity price environment and in conjunction with the sale of our North Louisiana assets, we have vacated one floor in our Fort Worth headquarters. We have recorded an impairment related to this lease of $2.0 million which is included in impairment of proved property and other assets in our consolidated statement of operations for 2020. In fourth quarter 2019, we announced the closing of our Houston office. We recorded an impairment related to our Houston office lease ROU asset of $2.1 million which is also included in impairment of proved property and other assets for the year ended December 31, 2019. Fair Values-Reported The following table presents the carrying amounts and the fair values of our financial instruments as of December 31, 2020 and 2019 (in thousands):
|  | December 31, 2020 |  |  | December 31, 2019 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collar, options and basis swaps |  | $ | 24,052 |  |  | $ | 24,052 |  |  | $ | 137,554 |  |  | $ | 137,554 |
Divestiture contingent consideration |  |  | 15,960 |  |  |  | 15,960 |  |  |  | — |  |  |  | — |
Marketable securities (a) |  |  | 63,942 |  |  |  | 63,942 |  |  |  | 62,009 |  |  |  | 62,009 |
(Liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collar, options and basis swaps |  |  | (36,453 | ) |  |  | (36,453 | ) |  |  | (14,068 | ) |  |  | (14,068 | )
Bank credit facility (b) |  |  | (702,000 | ) |  |  | (702,000 | ) |  |  | (477,000 | ) |  |  | (477,000 | )
5.75% senior notes due 2021 (b) |  |  | (25,496 | ) |  |  | (25,474 | ) |  |  | (374,139 | ) |  |  | (375,909 | )
5.00% senior notes due 2022 (b) |  |  | (169,589 | ) |  |  | (170,128 | ) |  |  | (511,886 | ) |  |  | (501,582 | )
5.875% senior notes due 2022 (b) |  |  | (48,528 | ) |  |  | (48,471 | ) |  |  | (297,617 | ) |  |  | (294,757 | )
Other senior notes due 2022 (b) |  |  | (490 | ) |  |  | (490 | ) |  |  | (590 | ) |  |  | (592 | )
5.00% senior notes due 2023 (b) |  |  | (532,335 | ) |  |  | (521,699 | ) |  |  | (741,531 | ) |  |  | (683,291 | )
4.875% senior notes due 2025 (b) |  |  | (750,000 | ) |  |  | (707,918 | ) |  |  | (750,000 | ) |  |  | (645,098 | )
9.25% senior notes due 2026 (b) |  |  | (850,000 | ) |  |  | (888,208 | ) |  |  | — |  |  |  | — |
5.75% senior subordinated notes due 2021 (b) |  |  | (19,896 | ) |  |  | (19,589 | ) |  |  | (22,214 | ) |  |  | (21,539 | )
5.00% senior subordinated notes due 2022 (b) |  |  | (9,730 | ) |  |  | (9,247 | ) |  |  | (19,054 | ) |  |  | (17,011 | )
5.00% senior subordinated notes due 2023 (b) |  |  | (7,712 | ) |  |  | (6,604 | ) |  |  | (7,712 | ) |  |  | (7,654 | )
Deferred compensation plan (c) |  |  | (96,563 | ) |  |  | (96,563 | ) |  |  | (74,472 | ) |  |  | (74,472 | )
(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. Non-financial liabilities initially measured at fair value include asset retirement obligations, operating lease liabilities and the divestiture contract obligation.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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