Fair Value Measurements

The Company records its financial instruments, principally derivative instruments, at fair value in its Consolidated Balance Sheets. The Company estimates the fair value using quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use market-based parameters as inputs, including forward curves, discount rates, volatilities and nonperformance risk. Nonperformance risk considers the effect of the Company’s credit standing on the fair value of liabilities and the effect of the counterparty’s credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company’s or counterparty’s credit rating and the yield of a risk-free instrument and credit default swaps rates where available.

The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities in Level 2 primarily include the Company’s swap, collar and option agreements.

Exchange traded commodity swaps are included in Level 1. The fair value of the commodity swaps included in Level 2 is based on standard industry income approach models that use significant observable inputs, including but not limited to NYMEX natural gas forward curves, LIBOR-based discount rates, basis forward curves and natural gas liquids forward curves. The Company’s collars and options are valued using standard industry income approach option models. The significant observable inputs utilized by the option pricing models include NYMEX forward curves, natural gas volatilities and LIBOR-based discount rates. The NYMEX natural gas forward curves, LIBOR-based discount rates, natural gas volatilities, basis forward curves and NGLs forward curves are validated to external sources at least monthly.

The following assets and liabilities were measured at fair value on a recurring basis during the applicable period:



			Fair value measurements at reporting date using
Description	As of December 31, 2018		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Thousands)
Assets
Derivative instruments, at fair value	$	481,654	$	112,107	$	369,547	$	—
Liabilities
Derivative instruments, at fair value	$	336,051	$	126,582	$	209,469	$	—



			Fair value measurements at reporting date using
Description	As of December 31, 2017		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Thousands)
Assets
Derivative instruments, at fair value	$	241,952	$	—	$	241,952	$	—
Liabilities
Derivative instruments, at fair value	$	139,089	$	—	$	139,089	$	—

The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments. The carrying value of the Equitrans Midstream investment approximates fair value as it was based on the closing stock price of Equitrans Midstream common stock multiplied by the number of shares of common stock of Equitrans Midstream owned by the Company. The carrying values of borrowings under the Company's credit facility approximate fair value as the interest rates are based on prevailing market rates.

The Company also has an immaterial investment in a fund that invests in companies developing technology and operating solutions for exploration and production companies for which it recognized a cumulative effect of accounting change in the first quarter 2018. The investment is valued using the net asset value as a practical expedient as provided in the financial statements received from fund managers.

The Company estimates the fair value of its Senior Notes using its established fair value methodology. Because not all of the Company’s Senior Notes are actively traded, the fair value of the Senior Notes is a Level 2 fair value measurement. The estimated fair value of Senior Notes on the Consolidated Balance Sheets at December 31, 2018 and 2017 was approximately $4.4 billion and $4.7 billion, respectively. The carrying value of Senior Notes on the Consolidated Balance Sheets at December 31, 2018 and 2017 was approximately $4.6 billion for both periods. The fair value of the note payable to EQM is a Level 3 fair value measurement which is estimated using an income approach model utilizing a market-based discount rate. The estimated fair value of the note payable to EQM on the Consolidated Balance Sheets at December 31, 2018 and 2017 was approximately $121.8 million and $133.0 million, respectively. The carrying value of the note payable to EQM on the Consolidated Balance Sheets at December 31, 2018 and 2017 was approximately $114.7 million and $119.1 million, respectively. Refer to Note 10 for further information regarding the Company's debt as of December 31, 2018 and 2017.

The Company recognizes transfers between Levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 during the periods presented.

For information on the fair values of assets related to the impairments of proved and unproved oil and gas properties and of other long-lived assets, the assets acquired in the Rice Merger and the assets acquired in other acquisition transactions, see Notes 1, 3, and 7.