Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We apply the authoritative accounting provisions included in GAAP for measuring the 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 our Credit Facility and Second Lien Facility borrowings. As of March 31, 2019, the carrying values of all of these financial instruments approximated fair value.

Recurring Fair Value Measurements

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

	March 31, 2019
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1		Level 2			Level 3
Assets:
Commodity derivative assets – current	$	2,658		$	—	$	2,658		$	—
Commodity derivative assets – noncurrent	229			—		229			—
Liabilities:
Commodity derivative liabilities – current	$	(25,107	)	$	—	$	(25,107	)	$	—
Commodity derivative liabilities – noncurrent	(6,150		)	—		(6,150		)	—

	December 31, 2018
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1		Level 2			Level 3
Assets:
Commodity derivative assets – current	$	34,932		$	—	$	34,932		$	—
Commodity derivative assets - noncurrent	10,100			—		10,100			—
Liabilities:
Commodity derivative liabilities – current	$	(991	)	$	—	$	(991	)	$	—
Commodity derivative liabilities – noncurrent	—			—		—			—

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 three months ended March 31, 2019 and 2018.

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 WTI, LLS and MEH crude oil 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.

Non-Recurring Fair Value Measurements

In addition to the fair value measurements applied with respect to the Hunt Acquisition, as described in Note 3, the most significant non-recurring fair value measurements utilized in the preparation of our Condensed Consolidated Financial Statements are those attributable to the initial determination of AROs associated with the ongoing development of new oil and gas properties. 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.