XML 36 R24.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

12 Months Ended

Dec. 31, 2023

14. FAIR VALUE MEASUREMENTS

Recurring Measurements

Our assets and liabilities measured at fair value on a recurring basis consist of the following:


	Fair Value Measurements Using
	Level 1		Level 2		Level 3
December 31, 2023:
Assets — Investment in BPC	$	—	$	—	$	23.4

Liabilities — Munger make-whole provision	$	—	$	—	$	7.5

December 31, 2022:
Assets — Investment in BPC	$	—	$	—	$	53.6

Liabilities:
REV earnout payment	$	—	$	—	$	6.6
Munger make-whole provision		—		—		0.4
Warrants		1.1		—		—
Total	$	1.1	$	—	$	7.0

Investment in BPC

We have elected the fair value option to account for our investment in Basin Production and Completion LLC ("BPC") due to the complexities of the terms of the equity investment. The significant unobservable inputs used in the fair value measurement, which was valued using the income approach and the market approach, are forecasted results and a weighted-average cost of capital. The fair value of this asset is classified as investments in our consolidated balance sheets.

REV Earnout Payment

The fair value of the earnout payment was estimated using a Black-Scholes model, adjusted for the capped amount of the earnout. The fair value was discounted using a company specific credit spread to account for the counterparty credit risk in making the payment. The significant unobservable inputs used in the fair value measurement are the risk-free rate, credit spread of the acquirer, discount rate, forecasted results and volatility. The performance targets were not met in 2023.

The fair value of the public warrants was determined using quoted market prices, as they were traded in active markets.

Munger Make-Whole Provision

In November 2021, we entered into an agreement (“Munger Right Agreement”) to acquire approximately 6,700 acres near Lamesa, Texas (“West Munger Property”) for a purchase price of $30.0 million (“West Munger Purchase”). Under the Munger Right Agreement, the sellers elected to receive their consideration in shares of our Class A common stock, which was valued at $38.1 million at our IPO date.

The Munger Right Agreement includes a ‘Make Whole’ provision. Under the Make Whole provision, as amended, if any seller liquidates 100% of their Class A Common Stock prior to the two-year anniversary of the IPO and the value of the shares sold does not equal such seller’s share of the $30.0 million cash purchase price, then we will pay the difference between their share of the cash purchase price and the amount they ultimately received upon the sale of their Class A shares. This Make Whole provision is accounted for as a written put option with a fair value of $7.5 million as of December 31, 2023 and is presented within other current liabilities in our consolidated balance sheet. The fair value of the Munger make-whole provision was estimated using a Black-Scholes model. The significant unobservable inputs used in the fair value measurement are the risk-free rate and volatility. The expiration date of the Munger make-whole provision is on May 17, 2024. The intrinsic value of the Munger Make-Whole provision was $7.7 million at December 31, 2023.

The following is a reconciliation of our recurring Level 3 fair value measurements:


	Year Ended December 31,
	2023			2022
Balance at beginning of period	$	46.6		$	—
Acquisition of Flotek convertible notes		—			20.0
Election of fair value option for Investment in BPC		—			51.4
Change in Flotek fair value up to acquisition date		—			10.2
Elimination of Flotek convertible notes at acquisition date		—			(30.2	)
Recognition of Munger make-whole provision		—			(4.6	)
Recognition of REV earnout liability		—			(6.6	)
Change in fair value of Level 3 fair value measurements		(30.7	)		6.4
Balance at end of period	$	15.9		$	46.6

All of the changes in fair value of Level 3 fair value instruments were charged to income and classified as other income (expense), net on our consolidated statements of operations.

The estimated fair value of the Flotek Convertible Notes prior to our consolidation of Flotek on May 17, 2022 was valued using a Monte Carlo simulation with inputs such as the market trading price of Flotek’s common stock, the expected volatility of the Flotek’s stock price based on historical trends, a risk-free rate of interest based on US Treasury note rates and the term of the debt, the time to liquidation based on the maturity date of the notes, and a discount rate adjusted based on the credit risk of Flotek.

The key inputs into the Monte Carlo simulation used to estimate the fair value the Flotek Convertible Notes were as follows:


	May 17, 2022
Risk-free interest rate		1.82	%
Expected volatility		90.0	%
Term until liquidation (years)		0.72
Stock price	$	1.29

Nonrecurring Measurements

We have certain assets and liabilities that are not measured at fair value on an ongoing basis but were subjected to fair value adjustments at the time of acquisition. These include long-lived assets and liabilities acquired through our business combination activities and purchase consideration in the form of seller-financed long-term notes payable, the fair values of which were determined using applicable valuation models based on significant unobservable inputs classified as Level 3 in the fair value hierarchy. See “Note 4 – Business Combinations” for additional information.

Financial Instruments

The estimated fair values of our financial instruments have been determined at discrete points in time based on relevant market information. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, certain investments, accounts payable, accrued expenses and long-term debt.

The carrying amounts of our financial instruments other than long-term debt approximate fair value because of the short-term nature of the items. The carrying amounts of our floating rate debt approximate fair value due to their variable interest rates. The fair value of our fixed rate debt, classified as Level 2 in the fair value hierarchy, was as follows:


	December 31,
	2023		2022
Carrying amount of fixed rate debt	$	74.7	$	142.7
Fair value of fixed rate debt	$	74.3	$	142.5

- 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.

+ References + Details