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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2024

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

8. FAIR VALUE MEASUREMENTS

The Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. Fair value as 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 (exit price). The Company separates the fair value of its financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

A financial instrument’s level within the fair value hierarchy is 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 to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented.

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities associated with commodity-based derivative contracts that were accounted for at fair value as of December 31, 2024 and 2023 (in thousands):



		December 31, 2024
		Level 1			Level 2			Level 3			Total
Assets
Assets from derivative contracts		$	—		$	11,021		$	—		$	11,021

Liabilities
Liabilities from derivative contracts		$	—		$	19,284		$	—		$	19,284


		December 31, 2023
		Level 1			Level 2			Level 3			Total
Assets
Assets from derivative contracts		$	—		$	13,869		$	—		$	13,869

Liabilities
Liabilities from derivative contracts		$	—		$	33,249		$	—		$	33,249

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, puts, calls, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net gain (loss) on derivative contracts” in the Company’s consolidated statements of operations. The Level 2 observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 9, “Derivative and Hedging Activities,” for additional discussion of derivatives.

The Company’s derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

As discussed in Note 16, “Additional Financial Statement Information,” the Company had recorded a contract asset in the amount of $18.5 million for capital contributions advanced to its joint venture partner. The Company assessed the fair value of the contract on a quarterly basis for possible impairment. During the fourth quarter of 2024, the Company identified indicators that the carrying value of the contract asset may not be recoverable and as a result, recognized $18.5 million of impairment charges to reduce the carrying value of the contract asset to zero at December 31, 2024. On January 14, 2025, the Company and its joint venture partner exchanged demand letters related to disputes around contract terms. Subsequently, both parties agreed to extend the tolling agreement that continues to allow the parties to retain rights as outlined in the joint venture agreement while the parties seek a mutual resolution to the ongoing disputes.

As discussed in Note 7, “Debt,” the Company evaluated the 2024 Amended Term Loan Agreement and identified the Exit Fee to be an embedded derivative not clearly and closely related to the host debt instrument. The fair value analysis for such derivative was performed and the fair value was deemed to be zero at commencement and at December 31, 2024. The fair value of the Exit Fee derivative will be subsequently remeasured each reporting period with fair value changes recorded in “Interest expense and other” on the consolidated statement of operations. The valuation of the Exit Fee derivative included significant inputs such as the timing of potential exit scenarios, forward NYMEX strip pricing,

forecasted capital and other expenditures and discount rates. The fair value of the Exit Fee derivative is classified as Level 3 in the fair value hierarchy.

As discussed in Note 7, “Debt,” the Company recorded the fair value of the Change of Control Call Option related to the 2021 Term Loan Agreement separately on the consolidated balance sheets in “Other noncurrent liabilities.” The fair value of the Change of Control Call Option was subsequently remeasured each reporting period with fair value changes recorded in “Interest expense and other” on the consolidated statement of operations. The valuation of the Change of Control Call Option included significant inputs such as the timing and probability of discrete potential exit scenarios, forward interest rate curves, and discount rates based on implied and market yields. The fair value of the Change of Control Call Option was reduced to $0 upon repayment of the 2021 Amended Term Loan Agreement on December 26, 2024. The following table sets forth a reconciliation of the changes in fair value of the Change of Control Call Option classified as Level 3 in the fair value hierarchy (in thousands):


		Change of Control
		Call Option
Balance at December 31, 2023		$	2,084
Change in fair value			(2,084)
Balance at December 31, 2024		$	—

Estimated fair value amounts have been determined at discrete points in time based on relevant market information. The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of borrowings under the Company’s Amended Term Loan Agreement approximate carrying value because the interest rates approximate current market rates.

The Company follows the provisions of the FASB’s ASC Topic 820, Fair Value Measurement for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of AROs for which fair value is used. The ARO estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 10, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s AROs.

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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