Fair Value Measurements

9 Months Ended

Sep. 30, 2016

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, 2016, the carrying values of all of these financial instruments approximated fair value.

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



	Successor				Predecessor
	September 30, 2016				December 31, 2015
	Fair Value		Carrying Value		Fair Value		Carrying Value
Senior Notes due 2019 ¹	$	—	$	—	$	40,830	$	300,000
Senior Notes due 2020 ¹	—		—		125,473		775,000
	$	—	$	—	$	166,303	$	1,075,000

______________________

¹The Senior Notes were canceled upon our emergence from bankruptcy.

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:



	Successor As of September 30, 2016
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1		Level 2			Level 3
Assets:
Commodity derivative assets – current	$	446		$	—	$	446		$	—
Assets of SERP ¹	4,292			4,292		—			—
Liabilities:
Commodity derivative liabilities – current	(3,888		)	—		(3,888		)	—
Commodity derivative liabilities – noncurrent	(11,291		)	—		(11,291		)	—

______________________

¹ In connection with our emergence from bankruptcy, the assets of the SERP reverted to us upon the release of claims by our employees attributable to certain deferred compensation arrangements in September 2016. The SERP assets were liquidated by the plan trustee in October 2016 and the cash value, which was included in accounts receivable as of September 30, 2016, was transferred to us for general corporate purposes.



	Predecessor As of December 31, 2015
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1			Level 2		Level 3
Assets:
Commodity derivative assets – current	$	97,956		$	—		$	97,956	$	—
Assets of SERP	4,123			4,123			—		—
Liabilities:
Deferred compensation – SERP obligations	(4,125		)	(4,125		)	—		—

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, 2016 and 2015.

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 held various publicly traded equity securities in a Rabbi Trust as assets for funding certain deferred compensation obligations. The fair values were based on quoted market prices, which are level 1 inputs.


•	Deferred compensation – SERP obligations: Certain of our deferred compensation obligations were 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 were 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 the Successor's net assets with respect to the application of Fresh Start Accounting. Those measurements are more fully described in Note 4. In addition, we utilize non-recurring fair value measurements with respect to the recognition and measurement of asset impairments, particularly during our Predecessor periods during which time we applied the successful efforts method to our oil and gas properties, as well as the initial determination of AROs associated with the ongoing development of new oil and gas properties.

The factors used to determine fair value for purposes of recognizing and measuring asset impairments while we applied the successful efforts method to our oil and gas properties during our Predecessor periods included, but were not limited to, estimates of proved and risk-adjusted 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. Under the full cost method, we apply a ceiling test determination utilizing prescribed procedures as described in Note 7. The full cost method is substantially different from the successful efforts method which relies upon fair value measurements. Because these significant fair value inputs were 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.

- 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