Fair Value Measurements

12 Months Ended

Dec. 31, 2018

The Company measures and reports certain assets and liabilities on a fair value basis and has classified and disclosed its fair value measurements using the levels of the fair value hierarchy noted below. The carrying values of cash, restricted cash, accounts receivable, prepaid expenses, certain other current and non-current assets, accounts payable and accrued expenses and other current liabilities included in the consolidated balance sheets approximated fair value at December 31, 2018, and December 31, 2017. As a result, these financial assets and liabilities are not discussed below. The fair values of property, plant and equipment and related impairments, which are calculated using Level 3 inputs, are discussed in Note 7.


Level 1						Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2						Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3						Measurement based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable for objective sources (i.e., supported by little or no market activity).

Assets and liabilities that are measured at fair value are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of these inputs requires judgment, which may affect the valuation and placement of these assets and liabilities within the fair value hierarchy levels. The market for the Company’s financial assets and liabilities, any associated credit risk and other factors are considered in calculating the fair values. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company has assets and liabilities classified in Level 2 of the hierarchy as of December 31, 2018, and Level 1 and Level 2 as of December 31, 2017, as described below.

Level 1 Fair Value Measurements

Investments. The fair value of investments, which consisted of assets held in the Company’s non-qualified deferred compensation plan, was based on quoted market prices. See Note 2 and Note 16 for additional information.

Level 2 Fair Value Measurements

Commodity Derivative Contracts. The fair values of the Company’s oil and natural gas fixed price swaps are based upon inputs that are either readily available in the public market, such as oil and natural gas futures prices, volatility factors and discount rates, or can be corroborated from active markets. Fair value is determined through the use of a discounted cash flow model or option pricing model using the applicable inputs discussed above. The Company applies a weighted average credit default risk rating factor for its counterparties or gives effect to its credit default risk rating, as applicable, in determining the fair value of these derivative contracts. Credit default risk ratings are based on current published credit default swap rates.

Fair Value - Recurring Measurement Basis

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands):

December 31, 2018


	Fair Value Measurements										Netting(1)	Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3
Assets
Commodity derivative contracts	$	—	$	5,286	$	—	$	—	$	5,286

	$	—	$	5,286	$	—	$	—	$	5,286

December 31, 2017


	Fair Value Measurements										Netting(1)	Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3
Assets
Commodity derivative contracts	$	—	$	5,582	$	—	(4,272)		$	1,310
Investments	5,072		—		—		—		5,072
	$	5,072	$	5,582	$	—	$	(4,272)	$	6,382
Liabilities
Commodity derivative contracts	$	—	$	18,467	$	—	$	(4,272)	$	14,195
	$	—	$	18,467	$	—	$	(4,272)	$	14,195

____________________

1.Represents the impact of netting assets and liabilities with counterparties where the right of offset exists.

Transfers. During the years ended December 31, 2018 and 2017, the Successor 2016 Period and Predecessor 2016 Period, the Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements.

Fair Value of Financial Instruments - Long-Term Debt

The fair value of the Building Note was measured using a discounted cash flow analysis, which is classified as a Level 2 input in the fair value hierarchy. The Building Note was paid in full during the first quarter of 2018. The estimated fair values and carrying values of the Company’s long-term debt are as follows (in thousands):


	December 31, 2018						December 31, 2017
	Fair Value		Carrying Value		Fair Value		Carrying Value
Building Note	$	—	$	—	$	42,526	$	37,502

See Note 10 for discussion of the Company’s long-term debt.

Fair Value of Non-Financial Assets and Liabilities

See Note 8 for discussion of the Company’s impairment valuations.

- 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.

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