Fair Value Measurements

12 Months Ended

Dec. 31, 2020

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 maximizes its use of observable inputs and minimizes its use of unobservable inputs. 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.

QEP has determined that its commodity derivative instruments are Level 2. The Level 2 fair value of commodity derivative contracts (refer to Note 6 – Derivative Contracts for more information) is based on market prices posted for the respective commodity on the last trading day of the reporting period and industry standard discounted cash flow models. 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.

QEP offers a nonqualified, unfunded deferred compensation wrap plan (Wrap Plan) to certain individuals. The Company established a trust (Rabbi Trust) to hold the investments associated with the Wrap Plan (other than phantom QEP shares) and to pay Wrap Plan obligations as they arise. QEP has determined that the marketable securities held by the Rabbi Trust and the Wrap Plan obligations are Level 1. The fair value of the marketable securities in the Rabbi Trust is based on actively traded mutual funds. The Wrap Plan obligations, which represent the underlying liabilities to the participants in the Wrap Plan, are recorded at amounts due to participants, based on the fair value of the participants' selected investments, including both actively traded funds and phantom QEP shares. Refer to Note 12 – Employee Benefits for additional information.

The fair value of financial assets and liabilities at December 31, 2020 and 2019, 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 Sheets
	Level 1		Level 2		Level 3
	(in millions)
	December 31, 2020
Financial Assets
Fair value of derivative contracts – short-term	$	—	$	1.4	$	—	$	(1.4)	$	—
Fair value of derivative contracts – long-term	—		—		—		—		—
Fair value of Rabbi Trust marketable securities	23.4		—		—		—		23.4
Total financial assets	$	23.4	$	1.4	$	—	$	(1.4)	$	23.4

Financial Liabilities
Fair value of derivative contracts – short-term	$	—	$	77.8	$	—	$	(1.4)	$	76.4
Fair value of derivative contracts – long-term	—		0.3		—		—		0.3
Fair value of Wrap Plan obligations	25.5		—		—		—		25.5
Total financial liabilities	$	25.5	$	78.1	$	—	$	(1.4)	$	102.2

	December 31, 2019
Financial Assets
Fair value of derivative contracts – short-term	$	—	$	1.5	$	—	$	—	$	1.5
Fair value of derivative contracts – long-term	—		0.2		—		—		0.2
Fair value of Rabbi Trust marketable securities	23.1		—		—		—		23.1
Total financial assets	$	23.1	$	1.7	$	—	$	—	$	24.8

Financial Liabilities
Fair value of derivative contracts – short-term	$	—	$	18.7	$	—	$	—	$	18.7
Fair value of derivative contracts – long-term	—		0.5		—		—		0.5
Fair value of Wrap Plan obligations	26.8		—		—		—		26.8
Total financial liabilities	$	26.8	$	19.2	$	—	$	—	$	46.0

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(1)The Company nets its derivative contract assets and liabilities outstanding with the same counterparty on the balance sheets for the contracts that contain netting provisions. Refer to Note 6 – Derivative Contracts for more information regarding the Company's derivative contracts.

The following table discloses the fair value and related carrying amount of long-term debt not disclosed in other Notes to the Consolidated Financial Statements:


	Carrying Amount		Level 1 Fair Value		Carrying Amount		Level 1 Fair Value
	December 31, 2020				December 31, 2019
Financial Liabilities	(in millions)
Long-term debt	$	1,591.3	$	1,702.8	$	2,015.6	$	2,029.4

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable 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. At times when the Company has outstanding debt under the credit facility, the carrying amount of variable-rate long-term debt approximates fair value because the floating interest rate paid on such debt is set for periods of one month or less.

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 4 – 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 reviews its proved oil and gas properties and operating lease ROU assets for potential impairment when events and changes in circumstances indicate that the carrying amount of such property may not be recoverable. If the asset's carrying value exceeds the related undiscounted future net cash flows, the fair value of property is measured utilizing the income approach, and utilizing inputs that are primarily based upon internally developed cash flow models discounted at an appropriate weighted average cost of capital. In addition, the signing of merger or purchase and sale agreements could also trigger an impairment of proved properties. For assets subject to a merger or purchase and sale agreement, the evaluation of terms of the merger or purchase and sale agreement are used as an indicator of fair value. If a range is estimated for the amount of possible future cash flows, the fair value of property is measured utilizing a probability-weighted approach whereas the likelihood of possible outcomes is taken into consideration. Specific to the Terminated Williston Basin Divestiture, the Company obtained a Black-Scholes-Merton estimate of the value of the contractual rights to receive up to 5.8 million shares of the buyer's common stock at December 31, 2018. The estimated fair value of these contractual rights at December 31, 2018 was determined using a five-year contractual period, a 5% risk-free interest rate and a 49.3% weighted-average expected price volatility. Given the unobservable nature of the inputs, fair value calculations associated with proved oil and gas property impairments are considered Level 3 within the fair value hierarchy. During the year ended December 31, 2019, the Company recorded impairments of $5.0 million related to an office building lease. During the year ended December 31, 2018, the Company recorded impairments on certain proved oil and gas properties of $1,524.6 million resulting in a reduction of the associated carrying value to fair value. Refer to Note 1 – Summary of Significant Accounting Policies for more information on impairment of oil and gas properties.

- 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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