Fair value is defined as the amount that would be received from the sale of an asset or paid for transferring a liability in an orderly transaction between market participants (in either case, an exit price). To estimate an exit price, a three-level hierarchy is used prioritizing the valuation techniques used to measure fair value into three levels with the highest priority given to Level 1 and the lowest priority given to Level 3. The levels are summarized as follows:

•Level 2—significant observable pricing inputs other than quoted prices included within level 1 either directly or indirectly observable as of the reporting date. Essentially, inputs (variables used in the pricing models) that are derived principally from or corroborated by observable market data.

•Level 3—generally unobservable inputs developed based on the best information available and may include our own internal data.

The inputs available to us determine the valuation technique we use to measure the fair values of our financial instruments.


	September 30, 2019
	Level 1		Level 2		Level 3		Effect of Netting		Net Amounts Presented
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	—	$	3,770	$	2,711	$	(394)	$	6,087
Liabilities	—		(501)		—		394		(107)
Total commodity derivatives	—		3,269		2,711		—		5,980
Equity securities	—		—		—		—		—
	$	—	$	3,269	$	2,711	$	—	$	5,980


	December 31, 2018
	Level 1		Level 2		Level 3		Effect of Netting		Net Amounts Presented
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	—	$	3,225	$	10,964	$	(1,319)	$	12,870
Liabilities	—		(1,278)		(334)		1,319		(293)
Total commodity derivatives	—		1,947		10,630		—		12,577
Equity securities	194		—		—		—		194
	$	194	$	1,947	$	10,630	$	—	$	12,771

All our counterparties are subject to master netting arrangements. If a legal right of set-off exists, we net the value of the derivative transactions we have with the same counterparty. We are not required to post cash collateral with our counterparties and no collateral has been posted as of September 30, 2019.

We used the following methods and assumptions to estimate the fair values of the assets and liabilities in the table above. There were no transfers between Level 2 and Level 3 financial assets (liabilities).

Commodity Derivatives. We measure the fair values of our crude oil and natural gas swaps using estimated internal discounted cash flow calculations based on the NYMEX futures index.

Commodity Derivatives. The fair values of our natural gas and crude oil collars and three-way collars are estimated using internal discounted cash flow calculations based on forward price curves, quotes obtained from brokers for contracts with similar terms, or quotes obtained from counterparties to the agreements.


	Net Derivatives
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019		2018		2019		2018
	(In thousands)
Beginning of period	$	3,945	$	(6,135)	$	10,630	$	(206)
Total gains or losses (realized and unrealized):
Included in earnings ⁽¹⁾	2,393		(3,700)		(980)		(12,324)
Settlements	(3,627)		2,316		(6,939)		5,011
End of period	$	2,711	$	(7,519)	$	2,711	$	(7,519)
Total losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to assets still held at end of period	$	(1,234)	$	(1,384)	$	(7,919)	$	(7,313)

1.Commodity derivatives are reported in the Unaudited Condensed Consolidated Statements of Operations in gain (loss) on derivatives.

The following table provides quantitative information about our Level 3 unobservable inputs at September 30, 2019:

Commodity ⁽¹⁾

Fair Value

Valuation Technique

Unobservable Input

Range

(In thousands)

Oil three-way collars

2,270

Discounted cash flow

Forward commodity price curve

$0 - $11.80

Natural gas collars

441

Discounted cash flow

Forward commodity price curve

$0 - $2.43

1.The commodity contracts detailed in this category include non-exchange-traded crude oil three-way collars and natural gas collars that are valued based on NYMEX. The forward pricing range represents the low and high price expected to be paid or received within the settlement period.

This disclosure of the estimated fair value of financial instruments is made under accounting guidance for financial instruments. We have determined the estimated fair values by using market information and certain valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Using different market assumptions or valuation methodologies may have a material effect on our estimated fair value amounts.

At September 30, 2019, the carrying values on the Unaudited Condensed Consolidated Balance Sheets for cash and cash equivalents (composed of bank and money market accounts - classified as Level 1), accounts receivable, accounts payable, other current assets, and current liabilities approximate their fair value because of their short-term nature.

Based on the borrowing rates available to us for credit agreement debt with similar terms and maturities and considering the risk of our non-performance, long-term debt under the Unit and Superior credit agreements approximate its fair value and at September 30, 2019 we had $134.1 million of outstanding borrowings under the Unit and $4.1 million under the Superior credit agreements. We had no borrowing under either the Unit or Superior Credit agreements at December 31, 2018. Borrowings under these agreements are classified as Level 2.

The carrying amounts of long-term debt associated with the 2021 Notes, net of unamortized discount and debt issuance costs, reported in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 were $646.2 million and $644.5 million, respectively. The estimated fair value of the Notes using quoted market prices at September 30, 2019 and December 31, 2018 was $492.3 million and $600.5 million, respectively. The Notes would be classified as Level 2.

The initial measurement of AROs at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property, plant, and equipment. Significant Level 3 inputs used in the