QEP measures and discloses fair values in accordance with the provisions of ASC 820, Fair Value Measurements and Disclosures. This guidance defines fair value in applying GAAP, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 also establishes a fair value hierarchy. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

QEP has determined that its commodity derivative instruments are Level 2. The Level 2 fair value of commodity derivative contracts (see Note 7 – Derivative Contracts) is based on market prices posted on the respective commodity exchange on the last trading day of the reporting period and industry standard discounted cash flow models. QEP primarily applies the market approach for recurring fair value measurements and maximizes its use of observable inputs and minimizes its use of unobservable inputs. QEP considers bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value. In addition to using market data, QEP makes assumptions in valuing its assets and liabilities, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company's policy is to recognize significant transfers between levels at the end of the reporting period.

Certain of the Company's commodity derivative instruments are valued using industry standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace. The determination of fair value for derivative assets and liabilities also incorporates nonperformance risk for counterparties and for QEP. Derivative contract fair values are reported on a net basis to the extent a legal right of offset with the counterparty exists.

The fair value of financial assets and liabilities at December 31, 2016 and 2015, is shown in the table below:



	Fair Value Measurements
	Gross Amounts of Assets and Liabilities						Netting Adjustments⁽¹⁾			Net Amounts Presented on the Consolidated Balance Sheet
	Level 1		Level 2		Level 3		Netting Adjustments⁽¹⁾			Net Amounts Presented on the Consolidated Balance Sheet
	(in millions)
	December 31, 2016
Financial Assets
Fair value of derivative contracts – short-term	$	—	$	—	$	—	$	—		$	—
Fair value of derivative contracts – long-term	—		—		—		—			—
Total financial assets	$	—	$	—	$	—	$	—		$	—

Financial Liabilities
Fair value of derivative contracts – short-term	$	—	$	169.8	$	—	$	—		$	169.8
Fair value of derivative contracts – long-term	—		32.0		—		—			32.0
Total financial liabilities	$	—	$	201.8	$	—	$	—		$	201.8

	December 31, 2015
Financial Assets
Fair value of derivative contracts – short-term	$	—	$	147.8	$	—	$	(1.0	)	$	146.8
Fair value of derivative contracts – long-term	—		23.2		—		—			23.2
Total financial assets	$	—	$	171.0	$	—	$	(1.0	)	$	170.0

Financial Liabilities
Fair value of derivative contracts – short-term	$	—	$	1.8	$	—	$	(1.0	)	$	0.8
Fair value of derivative contracts – long-term	—		4.0		—		—			4.0
Total financial liabilities	$	—	$	5.8	$	—	$	(1.0	)	$	4.8

____________________________


⁽¹⁾	The Company nets its derivative contract assets and liabilities outstanding with the same counterparty on the Consolidated Balance Sheets for the contracts that contain netting provisions. See Note 7 – Derivative Contracts for additional information regarding the Company's derivative contracts.

The following table discloses the fair value and related carrying amount of certain financial instruments not disclosed in other Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K:



	Carrying Amount		Level 1 Fair Value		Carrying Amount		Level 1 Fair Value
	December 31, 2016				December 31, 2015
Financial Assets	(in millions)
Cash and cash equivalents	$	443.8	$	443.8	$	376.1	$	376.1
Financial Liabilities
Checks outstanding in excess of cash balances	$	12.3	$	12.3	$	29.8	$	29.8
Long-term debt	$	2,020.9	$	2,104.3	$	2,191.5	$	1,784.6

The carrying amounts of cash and cash equivalents and checks outstanding in excess of cash balances approximate fair value. The fair value of fixed-rate long-term debt is based on the trading levels and dollar prices for the Company's debt at the end of the year. The carrying amount of variable-rate long-term debt approximates fair value because the floating interest rate paid on such debt was set for periods of one month.

The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO include plugging costs and reserve lives. A reconciliation of the Company's ARO is presented in Note 5 – Asset Retirement Obligations.

Nonrecurring Fair Value Measurements

The provisions of the fair value measurement standard are also applied to the Company's nonrecurring measurements. The Company utilizes fair value on a nonrecurring basis to review its proved oil and gas properties for potential impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such property. During the years ended December 31, 2016 and 2015, the Company recorded impairments of certain proved oil and gas properties of $1,172.7 million and $39.3 million, respectively, resulting in a reduction of the associated carrying value to fair value. The fair value of the property was measured utilizing the income approach and utilizing inputs which are primarily based upon internally developed cash flow models discounted at an appropriate weighted average cost of capital. Given the unobservable nature of the inputs, proved oil and gas property impairments are considered Level 3 within the fair value hierarchy. See Note 1 – Summary of Significant Accounting Policies for additional information on impairment of oil and gas properties.

Acquisitions of proved and unproved properties are also measured at fair value on a nonrecurring basis. The Company utilizes a discounted cash flow model to estimate the fair value of acquired property as of the acquisition date which utilizes the following inputs to estimate future net cash flows: estimated quantities of oil, gas and NGL reserves; estimates of future commodity prices; and estimated production rates, future operating and development costs, which are based on the Company's historic experience with similar properties. In some instances, market comparable information of recent transactions is used to estimate fair value of unproved acreage. Due to the unobservable characteristics of the inputs, the fair value of the acquired properties is considered Level 3 within the fair value hierarchy. See Note 2 – Acquisitions and Divestitures for additional information on the fair value of acquired properties.