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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2021
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 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 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. Significant uses of fair value measurements include:  impairment assessments of long-lived assets; and  recorded value of derivative instruments and trading securities. The need to test long-lived assets can be based on several indicators, including a significant reduction in prices of natural gas, oil and condensate, NGLs, unfavorable adjustments to reserves, significant changes in the expected timing of production, other changes to contracts or changes in the regulatory environment in which a property is located. 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 for assets and liabilities measured at fair value, on a recurring basis (in thousands):
|  |  | Fair Value Measurements at September 30, 2021 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, 2021 |
Trading securities held in the deferred compensation plans |  | $ | 66,833 |  |  | $ | — |  |  | $ | — |  |  | $ | 66,833 |
Commodity price derivatives | –swaps |  |  | — |  |  |  | (401,955 | ) |  |  | — |  |  |  | (401,955 | )
| –collars |  |  | — |  |  |  | (93,225 | ) |  |  | (10,312 | ) |  |  | (103,537 | )
| –three-way collars |  |  | — |  |  |  | (200,477 | ) |  |  | — |  |  |  | (200,477 | )
| –calls |  |  | — |  |  |  | (10,018 | ) |  |  |  |  |  | (10,018 | )
| –basis swaps |  |  | — |  |  |  | 8,867 |  |  |  | — |  |  |  | 8,867 |
| –swaptions |  |  | — |  |  |  | — |  |  |  | (60,132 | ) |  |  | (60,132 | )
Derivatives–freight swaps |  |  |  | — |  |  |  | (26 | ) |  |  | — |  |  |  | (26 | )
Divestiture contingent consideration |  |  | — |  |  |  | 50,220 |  |  |  | — |  |  |  | 50,220 |
|  |  | 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 |
Commodity price 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 |
Divesture contingent consideration |  |  | — |  |  |  | 15,960 |  |  |  | — |  |  |  | 15,960 |
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, 2021, a portion of our natural gas and oil derivative instruments contain swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a pre-determined date. If exercised, the swaption contract becomes a swap treated consistently with our fixed-price swaps. In addition to our swaptions in Level 3 at September 30, 2021, we have NGLs collars. Derivatives in Level 3 are also 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. However, the subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our derivatives in Level 3 and is considered a significant unobservable input. At September 30, 2021, for our swaptions, we used a weighted average implied volatility of 40% for natural gas. We also utilized a range of implied volatilities from 36% to 55% for our NGLs collars with a weighted average implied volatility of 42%. 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):
|  | As of September 30, 2021 |
Balance at December 31, 2020 |  | $ | (13,836 | )
Total losses: |  |  |
Included in earnings |  |  | (42,974 | )
Additions |  |  | (23,385 | )
Settlements |  |  | 5,177 |
Transfers out of Level 3 |  |  | 4,574 |
Balance at September 30, 2021 |  | $ | (70,444 | )
Divestiture Contingent Consideration. In August 2020, we completed the sale of our North Louisiana assets where we are entitled to receive contingent consideration based on future achievement 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. Trading securities. 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 consolidated statements of operations. For third quarter 2021, interest and dividends were $314,000 and the mark-to-market adjustment was a loss of $1.2 million compared to interest and dividends of $114,000 and a mark-to-market gain of $3.2 million in third quarter 2020. For first nine months 2021, interest and dividends were $541,000 and the mark-to-market adjustment was a gain of $3.1 million compared to interest and dividends of $385,000 and a mark-to-market adjustment of a gain of $234,000 in first nine months 2020. Fair Values – Non-recurring Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Our proved natural gas and oil properties are reviewed for impairment periodically as events or changes in circumstances indicate the carrying amount may not be recoverable. In first quarter 2020, we recognized impairment charges of $77.0 million that reduced the carrying value to the anticipated sales proceeds for our North Louisiana assets which is a market approach using Level 2 inputs. These assets were sold in third quarter 2020. In conjunction with the sale of our North Louisiana assets in third quarter 2020, we recorded impairment expense associated with our headquarters office lease of $2.0 million. There were no proved property impairment charges in third quarter or first nine months 2021. Fair Values – Reported The following presents the carrying amounts and the fair values of our financial instruments as of September 30, 2021 and December 31, 2020 (in thousands):
|  | September 30, 2021 |  |  | December 31, 2020 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collars and basis swaps |  | $ | 3,443 |  |  | $ | 3,443 |  |  | $ | 24,052 |  |  | $ | 24,052 |
Divestiture contingent consideration |  |  | 50,220 |  |  |  | 50,220 |  |  |  | 15,960 |  |  |  | 15,960 |
Marketable securities (a) |  |  | 66,833 |  |  |  | 66,833 |  |  |  | 63,942 |  |  |  | 63,942 |
(Liabilities): |  |  |  |  |  |  |  |  |  |  |  |
Commodity swaps, collars and basis swaps |  |  | (770,721 | ) |  |  | (770,721 | ) |  |  | (36,453 | ) |  |  | (36,453 | )
Bank credit facility (b) |  |  | (30,000 | ) |  |  | (30,000 | ) |  |  | (702,000 | ) |  |  | (702,000 | )
5.75% senior notes due 2021 (b) |  |  | — |  |  |  | — |  |  |  | (25,496 | ) |  |  | (25,474 | )
5.00% senior notes due 2022 (b) |  |  | (169,589 | ) |  |  | (172,667 | ) |  |  | (169,589 | ) |  |  | (170,128 | )
5.875% senior notes due 2022 (b) |  |  | (48,528 | ) |  |  | (49,383 | ) |  |  | (48,528 | ) |  |  | (48,471 | )
Other senior notes due 2022 (b) |  |  | — |  |  |  | — |  |  |  | (490 | ) |  |  | (490 | )
5.00% senior notes due 2023 (b) |  |  | (532,335 | ) |  |  | (552,463 | ) |  |  | (532,335 | ) |  |  | (521,699 | )
4.875% senior notes due 2025 (b) |  |  | (750,000 | ) |  |  | (791,715 | ) |  |  | (750,000 | ) |  |  | (707,918 | )
9.25% senior notes due 2026 (b) |  |  | (850,000 | ) |  |  | (926,832 | ) |  |  | (850,000 | ) |  |  | (888,208 | )
8.25% senior notes due 2029 (b) |  |  | (600,000 | ) |  |  | (674,994 | ) |  |  | — |  |  |  | — |
5.75% senior subordinated notes due 2021 (b) |  |  | — |  |  |  | — |  |  |  | (19,896 | ) |  |  | (19,589 | )
5.00% senior subordinated notes due 2022 (b) |  |  | — |  |  |  | — |  |  |  | (9,730 | ) |  |  | (9,247 | )
5.00% senior subordinated notes due 2023 (b) |  |  | — |  |  |  | — |  |  |  | (7,712 | ) |  |  | (6,604 | )
Deferred compensation plan (c) |  |  | (184,882 | ) |  |  | (184,882 | ) |  |  | (96,563 | ) |  |  | (96,563 | )
(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 to the closing price on the balance sheet date which is a Level 1 input.
Our current assets and liabilities include 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, operating lease liabilities and the divestiture contract obligation that we incurred in conjunction with the sale of our North Louisiana assets. Concentrations of Credit Risk As of September 30, 2021, our primary concentrations of credit risk are the risks of not collecting accounts receivable and the risk of a counterparty’s 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 assurances are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectable receivables was $373,000 at September 30, 2021 compared to $3.0 million at December 31, 2020. Our derivative exposure to credit risk is diversified primarily 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, 2021, our derivative counterparties include nineteen financial institutions, of which all but five are secured lenders in our bank credit facility. At September 30, 2021, our net derivative liability includes a net receivable of $2.4 million from four of these counterparties that are not participants in our bank credit facility and an aggregate net payable of $9.2 million to one of these counterparties. Allowance for Expected Credit Losses. Each reporting period, we assess the recoverability of material receivables using historical data, current market conditions and reasonable and supported forecasts of future economic conditions to determine their expected collectability. The loss given default method is used when, based on management’s judgment, an allowance for expected credit losses should be accrued on a material receivable to reflect the net amount to be collected.

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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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