XML 89 R13.htm IDEA: XBRL DOCUMENT v3.24.0.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
In accordance with the FASB’s authoritative guidance on fair value measurements, certain of the Company’s financial assets and liabilities are measured at fair value on a recurring basis. The Company’s financial instruments, including certain cash and cash equivalents, accounts receivable, accounts payable and other payables, are carried at cost, which approximates their respective fair market values due to their short-term maturities. The Company recognizes its non-financial assets and liabilities, such as ARO (see Note 14—Asset Retirement Obligations) and properties acquired in a business combination (see Note 9—Acquisitions) or upon impairment (see Note 8—Property, Plant and Equipment), at fair value on a non-recurring basis.
Financial Assets and Liabilities
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following tables present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:
 Fair value at December 31, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Commodity derivative contracts (see Note 7)
$— $11,312 $5,877 $17,189 
Contingent consideration (see Note 7)
— 42,706 — 42,706 
Investment in unconsolidated affiliate (see Note 12)
100,172 — — 100,172 
Total assets$100,172 $54,018 $5,877 $160,067 
Liabilities:
Commodity derivative contracts (see Note 7)
$— $14,926 $— $14,926 
Total liabilities$— $14,926 $— $14,926 

 Fair value at December 31, 2022
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Commodity derivative contracts (see Note 7)
$— $780 $— $780 
Contingent consideration (see Note 7)
— 60,920 — 60,920 
Investment in unconsolidated affiliate (see Note 12)
130,575 — — 130,575 
Total assets$130,575 $61,700 $— $192,275 
Liabilities:
Commodity derivative contracts (see Note 7)
$— $329,676 $14,694 $344,370 
Total liabilities$— $329,676 $14,694 $344,370 

Commodity derivative contracts. The Company enters into commodity derivative contracts to manage risks related to changes in crude oil, NGL and natural gas prices. The Company’s swaps, collars and basis swaps are valued by a third-party preparer based on an income approach. The significant inputs used are commodity prices, discount rate and the contract terms of the derivative instruments. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace and are therefore designated as Level 2 within the fair value hierarchy. The Company compares the valuation performed by the third-party preparer to counterparty valuation statements to assess the reasonableness of its valuation. The determination of the fair value also incorporates a credit adjustment for non-performance risk, as required by GAAP. The Company calculates the credit adjustment for derivatives in a net asset position using current credit default swap values for each counterparty. The credit adjustment for derivatives in a net liability position is based on the market credit spread of the Company or similarly rated public issuers. The Company recorded an adjustment to reduce the fair value of its net derivative liability for these contracts by $0.5 million at December 31, 2023 by $3.5 million at December 31, 2022. See Note 7—Derivative Instruments for additional information.
Transportation derivative contracts. The Company acquired two buy/sell transportation contracts in the Merger that are derivative contracts for which the Company has not elected the “normal purchase normal sale” exclusion under FASB ASC 815, Derivatives and Hedging. These transportation derivative contracts are valued by a third-party preparer based on an income approach. The significant inputs used are quoted forward prices for commodities, market differentials for crude oil and either the Company’s or the counterparty’s nonperformance risk, as appropriate. The assumptions used in the valuation of these contracts include certain market differential metrics that are unobservable during the term of the contracts. Such unobservable inputs are significant to the contract valuation methodology, and the contracts’ fair values are therefore designated as Level 3 within the fair value hierarchy. See Note 7—Derivative Instruments for additional information.
Contingent consideration. In June 2021, the Company completed the divestiture of oil and gas properties in the Texas region of the Permian Basin. In connection with the divestiture, the Company is entitled to receive up to three earn-out payments of $25.0 million per year for each of 2023, 2024 and 2025 if the average daily settlement price of NYMEX West Texas Intermediate crude oil price index (“NYMEX WTI”) exceeds $60 per barrel for such year (the “Permian Basin Sale Contingent
Consideration”). If NYMEX WTI for calendar year 2023 or 2024 is less than $45 per barrel, then each calendar year thereafter the buyer’s obligation to make any remaining earn-out payments is terminated. The fair value of the Permian Basin Sale Contingent Consideration is determined by a third-party preparer using a Monte Carlo simulation model and Ornstein-Uhlenbeck pricing process. The significant inputs include NYMEX WTI forward price curve, volatility, mean reversion rate and counterparty credit risk adjustment. The Company determined these were Level 2 fair value inputs that are substantially observable in active markets or can be derived from observable data. In January 2024, the Company received $25.0 million related to the 2023 earn-out payment. See Note 7—Derivative Instruments for additional information.
Investment in unconsolidated affiliate. In connection with the OMP Merger (defined in Note 10—Divestitures), the Company received common units in Crestwood which are accounted for using the fair value option under FASB ASC 825-10, Financial Instruments. On November 3, 2023, Energy Transfer completed their acquisition of Crestwood. The fair value of the Company’s investment was determined using Level 1 inputs based upon the quoted market price of Energy Transfer’s publicly traded common units at December 31, 2023 and Crestwood’s publicly traded common units at December 31, 2022. See Note 12—Investment in Unconsolidated Affiliate for additional information.
Non-Financial Assets and Liabilities
The fair value of the Company’s non-financial assets measured at fair value on a non-recurring basis is determined using valuation techniques that include Level 3 inputs.
Asset retirement obligations. The initial measurement of ARO at fair value is recorded in the period in which the liability is incurred. Fair value is determined by calculating the present value of estimated future cash flows related to the liability. Estimating the future ARO requires management to make estimates and judgments regarding the timing and existence of a liability, as well as what constitutes adequate restoration when considering current regulatory requirements. Inherent in the fair value calculation are numerous assumptions and judgments, including the ultimate costs, inflation factors, credit-adjusted discount rates, timing of settlement and changes in the legal, environmental and regulatory environments.
Oil and gas and other properties. The Company records its properties at fair value when acquired in a business combination or upon impairment for proved oil and gas properties and other properties. Fair value is determined using a discounted cash flow model. The inputs used are subject to management’s judgment and expertise and include, but are not limited to, future production volumes based upon estimates of proved reserves, future commodity prices (adjusted for basis differentials), estimates of future operating and development costs and a risk-adjusted discount rate. These inputs are classified as Level 3 inputs, except the underlying commodity price assumptions are based on NYMEX forward strip prices (Level 1) and adjusted for price differentials.
2023 Williston Basin Acquisition. On June 30, 2023, the Company completed the 2023 Williston Basin Acquisition (defined in Note 9—Acquisitions). The assets acquired and liabilities assumed were recorded at fair value as of June 30, 2023. The fair value of the oil and gas properties acquired was calculated using an income approach based on the net discounted future cash flows from the oil and gas properties. The inputs utilized in the valuation of the oil and gas properties acquired included mostly unobservable inputs which fall within Level 3 of the fair value hierarchy. Such inputs included estimates of future oil and gas production from the properties’ reserve reports, commodity prices based on forward strip price curves (adjusted for basis differentials), operating and development costs, expected future development plans for the properties and the utilization of a discount rate based on a market-based weighted-average cost of capital. The Company also recorded the ARO assumed from the 2023 Williston Basin Acquisition at fair value. The inputs utilized in valuing the ARO were mostly Level 3 unobservable inputs, including estimated economic lives of oil and natural gas wells as of June 30, 2023, anticipated future plugging and abandonment costs and an appropriate credit-adjusted risk-free rate to discount such costs. See Note 9—Acquisitions for additional information.
Whiting merger. On July 1, 2022, the Company completed the Merger with Whiting. The assets acquired and liabilities assumed were recorded at fair value as of July 1, 2022. The fair value of Whiting’s oil and gas properties was calculated using an income approach based on the net discounted future cash flows from the producing properties and related assets. The inputs utilized in the valuation of the oil and gas properties and related assets acquired included mostly unobservable inputs which fall within Level 3 of the fair value hierarchy. Such inputs included future production volumes based upon estimates of reserves prepared by the Company’s reserve engineers, future operating and development costs, future commodity prices (adjusted for basis differentials) and a market-based weighted average cost of capital discount rate. The Company also recorded the asset retirement obligations assumed from Whiting at fair value. The inputs utilized in valuing the asset retirement obligations were mostly Level 3 unobservable inputs, including estimated economic lives of oil and natural gas wells as of July 1, 2022, anticipated future plugging and abandonment costs and an appropriate credit-adjusted risk-free rate to discount such costs. See Note 9—Acquisitions for additional information.