Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We apply the authoritative accounting provisions for measuring fair value of both our financial and nonfinancial assets and liabilities. Fair value is an exit price representing the expected amount we would receive upon the sale of an asset or that we would expect to pay to transfer a liability in an orderly transaction with market participants at the measurement date.

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives and long-term debt. As of September 30, 2014, the carrying values of all of these financial instruments, except the portion of long-term debt with fixed interest rates, approximated fair value.

The following table summarizes the fair value of our long-term debt with fixed interest rates, which is estimated based on the published market prices for these debt obligations, as of the dates presented:

	As of
	September 30, 2014				December 31, 2013
	Fair Value		Carrying Value		Fair Value		Carrying Value
Senior Notes due 2019	$	300,750	$	300,000	$	307,500	$	300,000
Senior Notes due 2020	821,500		775,000		837,969		775,000
	$	1,122,250	$	1,075,000	$	1,145,469	$	1,075,000

Recurring Fair Value Measurements

Certain financial assets and liabilities are measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheets. The following tables summarize the valuation of those assets and liabilities as of the dates presented:

	As of September 30, 2014
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1			Level 2			Level 3
Assets:
Commodity derivative assets – current	$	13,680		$	—		$	13,680		$	—
Commodity derivative assets – noncurrent	8,572			—			8,572			—
Assets of SERP	4,021			4,021			—			—
Liabilities:
Commodity derivative liabilities – current	(1,045		)	—			(1,045		)	—
Commodity derivative liabilities – noncurrent	—			—			—			—
Deferred compensation – SERP obligations	(4,125		)	(4,125		)	—			—

	As of December 31, 2013
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1			Level 2			Level 3
Assets:
Commodity derivative assets – current	$	3,830		$	—		$	3,830		$	—
Commodity derivative assets – noncurrent	1,552			—			1,552			—
Assets of SERP	3,734			3,734			—			—
Liabilities:
Commodity derivative liabilities – noncurrent	(10,141		)	—			(10,141		)	—
Deferred compensation – SERP obligations	(3,879		)	(3,879		)	—			—

Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one level of the fair value hierarchy to another level. In such instances, the transfer is deemed to have occurred at the beginning of the quarterly period in which the event or change in circumstances that caused the transfer occurred. There were no transfers during the nine months ended September 30, 2014 and 2013.

We used the following methods and assumptions to estimate fair values for the financial assets and liabilities described below:

• Commodity derivatives: We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for West Texas Intermediate crude oil and NYMEX Henry Hub gas closing prices as of the end of the reporting periods. We generally use the income approach, using valuation techniques that convert future cash flows to a single discounted value. Each of these is a level 2 input.

• Assets of SERP: We hold various publicly traded equity securities in a Rabbi Trust as assets for funding certain deferred compensation obligations. The fair values are based on quoted market prices, which are level 1 inputs.

• Deferred compensation – SERP obligations: Certain of our deferred compensation obligations are ultimately to be settled in cash based on the underlying fair value of certain assets, including those held in the Rabbi Trust. The fair values are based on quoted market prices, which are level 1 inputs.

Non-Recurring Fair Value Measurements

The most significant non-recurring fair value measurements utilized in the preparation of our Condensed Consolidated Financial Statements are those attributable to the recognition and measurement of net assets acquired, the recognition and measurement of asset impairments and the initial determination of AROs. The factors used to determine fair value for purposes of recognizing and measuring net assets acquired and asset impairments include, but are not limited to, estimates of proved and probable reserves, future commodity prices, indicative sales prices for properties, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Because these significant fair value inputs are typically not observable, we have categorized the amounts as level 3 inputs.

The determination of the fair value of AROs is based upon regional market and facility specific information. The amount of an ARO and the costs capitalized represent the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor after discounting the future cost back to the date that the abandonment obligation was incurred using a rate commensurate with the risk, which approximates our cost of funds. Because these significant fair value inputs are typically not observable, we have categorized the initial estimates as level 3 inputs.