Fair value is 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. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.

The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy, while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:

Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. When transfers between levels occur, it is our policy to assume the transfer occurred at the date of the event or change in circumstances that caused the transfer.

We use a market approach for our recurring fair value measurements and endeavor to use the best information available. Accordingly, valuation techniques that maximize the use of observable impacts are favored. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):


		Fair Value Measurements at December 31, 2021 Using:
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Carrying Value as of December 31, 2021
Trading securities held in the deferred compensation plans		$	69,606	$	—		$	—		$	69,606
Derivatives	–swaps		—		(127,934	)		—			(127,934	)
	–calls		—		(61	)		—			(61	)
	–collars		—		(4,201	)		(1,272	)		(5,473	)
	–three-way collars		—		(24,932	)		—			(24,932	)
	–basis swaps		—		16,151			—			16,151
	–swaptions		—		—			(11,149	)		(11,149	)
Derivatives	–freight swaps		—		114			—			114
Divestiture contingent consideration			—		26,640			—			26,640


		Fair Value Measurements at December 31, 2020 Using:
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Carrying Value as of December 31, 2020
Trading securities held in the deferred compensation plans		$	63,942	$	—		$	—		$	63,942
Derivatives	–swaps		—		6,642			—			6,642
	–calls		—		—			(546	)		(546	)
	–collars		—		7,016			(3,487	)		3,529
	–three-way collars		—		(17,818	)		—			(17,818	)
	–basis swaps		—		4,491			—			4,491
	–swaptions		—		—			(9,803	)		(9,803	)
Derivatives	–freight swaps		—		1,104			—			1,104
Divestiture contingent consideration			—		15,960			—			15,960

Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using December 31, 2021 market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. Derivatives in Level 3 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. As of December 31, 2021, a portion of our natural gas derivative instruments contain swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a predetermined date. In addition to our swaptions in Level 3, at December 31, 2021, we have NGLs collars. Subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our derivatives in Level 3. For our natural gas swaptions, we used a weighted average implied volatility of 25%. We utilized a range of implied volatilities from 37% to 61% for our NGLs collars with a weighted average implied volatility of approximately 45%. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy (in thousands):

Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains/losses are included in deferred compensation plan expense in the accompanying consolidated statements of operations. For the year ended December 31, 2021, interest and dividends were $951,000 and mark-to-market was a gain of $3.0 million. For the year ended December 31, 2020, interest and dividends were $713,000 and mark-to-market was a gain of $6.3 million. For the year ended December 31, 2019, interest and dividends were $1.1 million and mark-to-market was a gain of $8.5 million.

Divestiture Contingent Consideration. In August 2020, we completed the sale of our North Louisiana assets where we are entitled to receive contingent consideration, based on future realization of natural gas and oil prices based on published indexes along with NGLs prices based on the realized NGLs prices of the buyer. We used an option pricing model to estimate the fair value of the contingent consideration using significant Level 2 inputs that include quoted future commodity prices based on active markets. See also Note 3 and Note 9 for additional information.

In fourth quarter 2019, there were indicators that the carrying value of our North Louisiana properties may be impaired due to a shift in business strategy employed by management and also the possibility of a divestiture of these assets. As a result of the impairment evaluation, where we used an income approach, also referred to as a discounted cash flow model, to assess fair value, we recorded an impairment of $1.1 billion. An additional guideline transaction market approach was also utilized to corroborate the estimated fair value. In first quarter 2020, we recognized an additional impairment charge of $77.0 million related to these North Louisiana properties that reduced the carrying value to the anticipated sales proceeds which is a market approach using Level 2 inputs.

See also Note 3 for additional information. The following table presents the value of these assets measured at fair value on a nonrecurring basis at the time impairment was recorded (in thousands):

North Louisiana Divestiture Contract Obligation. In 2020, we recorded a divestiture contract obligation in conjunction with the sale of our North Louisiana assets. The fair value of this obligation was determined as of the closing date using Level 3 inputs based on a probability-weighted forecast that considers historical results, market conditions and various potential development plans of the buyer to arrive at the estimated present value of the future payments. Inherent in this fair value calculation were numerous other assumptions and judgements including the credit-adjusted discount rate as well as the development plans of the buyer and our probability weighted forecast of those drilling plans, market conditions and the ultimate usage by the buyer of each facility included in the agreement, all of which are inherently uncertain and can alter the amount and timing of future payments. A significant portion of this obligation is a gas processing agreement that includes a deficiency payment if the minimum volume commitment is not met. The present value of future cash payments was determined using a 12 percent discount rate. See also Note 15 for additional information.

Leases. As part of our ongoing effort to reduce general and administrative expense due to both the lower commodity price environment and in conjunction with the sale of our North Louisiana assets, we vacated one floor in our Fort Worth headquarters. We recorded an impairment related to this lease of $2.0 million which is included in impairment of proved property and other assets in our consolidated statement of operations for the year ended December 31, 2020. In fourth quarter 2019, we announced the closing of our Houston office. We recorded an impairment related to our Houston office lease ROU asset of $2.1 million which is also included in impairment of proved property and other assets for the year ended December 31, 2019.

The following table presents the carrying amounts and the fair values of our financial instruments as of December 31, 2021 and 2020 (in thousands):


	December 31, 2021						December 31, 2020
	Carrying Value			Fair Value			Carrying Value			Fair Value
Assets:
Commodity swaps, collars, calls and basis swaps	$	17,699		$	17,699		$	24,052		$	24,052
Divestiture contingent consideration		26,640			26,640			15,960			15,960
Marketable securities (a)		69,606			69,606			63,942			63,942
(Liabilities):
Commodity swaps, collars, calls and basis swaps		(170,983	)		(170,983	)		(36,453	)		(36,453	)
Bank credit facility (b)		—			—			(702,000	)		(702,000	)
5.75% senior notes due 2021 (b)		—			—			(25,496	)		(25,474	)
5.00% senior notes due 2022 (b)		(169,589	)		(171,488	)		(169,589	)		(170,128	)
5.875% senior notes due 2022 (b)		(48,528	)		(48,955	)		(48,528	)		(48,471	)
Other senior notes due 2022 (b)		—			—			(490	)		(490	)
5.00% senior notes due 2023 (b)		(532,335	)		(543,471	)		(532,335	)		(521,699	)
4.875% senior notes due 2025 (b)		(750,000	)		(776,153	)		(750,000	)		(707,918	)
9.25% senior notes due 2026 (b)		(850,000	)		(916,929	)		(850,000	)		(888,208	)
8.25% senior notes due 2029 (b)		(600,000	)		(669,648	)		—			—
5.75% senior subordinated notes due 2021 (b)		—			—			(19,896	)		(19,589	)
5.00% senior subordinated notes due 2022 (b)		—			—			(9,730	)		(9,247	)
5.00% senior subordinated notes due 2023 (b)		—			—			(7,712	)		(6,604	)
Deferred compensation plan (c)		(165,395	)		(165,395	)		(96,563	)		(96,563	)


(a)	Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges and is updated based on end of period closing prices which is a Level 1 input.
(b)	The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes and our senior subordinated notes is based on end of period market quotes which are Level 2 inputs.
(c)	The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.

Our current assets and liabilities contain financial instruments, the most significant of which are trade accounts receivables and payables. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments and (2) our historical incurrence of and expected future insignificance of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations, operating lease liabilities and the divestiture contract obligation that we incurred in conjunction with the sale of our North Louisiana assets.