Fair Value Measurements

3 Months Ended

Mar. 31, 2019

As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:


•	Level 1: valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;


•	Level 2: valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;


•	Level 3: valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

The fair value of the Company's cash and cash equivalents approximated book value at March 31, 2019 and December 31, 2018. The fair value of the Multidraw Term Loan Agreement was determined using Level 2 inputs and approximated face value as of December 31, 2018. The fair value of the 2021 Notes and 2021 PIK Notes was determined based upon market quotes provided by an independent broker, which represent a Level 2 input. The 2021 Notes and 2021 PIK Notes carrying values are included in liabilities subject to compromise at December 31, 2018. The fair value of the Exit Facility and the 2024 PIK Notes was estimated via a discounted cash flow analysis by discounting scheduled debt service payments at a credit spread of 10.1% and 11.9%, respectively. The credit spread was determined by performing a synthetic credit rating analysis, considering yields on similarly-rated, energy corporate issues, and adjusting based on recovery rates for first and second lien debt. This method represents a Level 3 input. The following table summarizes the fair value, carrying value and face value of the 2021 Notes and 2021 PIK Notes as of March 31, 2019 and December 31, 2018 (in thousands):



	March 31, 2019						December 31, 2018
	Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value
2021 Notes	$	—	$	—	$	—	$	2,828	$	9,427	$	9,427
2021 PIK Notes	—		—		—		82,514		275,046		275,046
Multidraw Term Loan	—		—		—		50,000		50,000		49,738
Exit Facility	45,269		50,000		45,434		—		—		—
2024 PIK Notes	65,025		80,000		66,340		—		—		—
	$	110,294	$	130,000	$	111,774	$	135,342	$	334,473	$	334,211

See Note 3 - Fresh Start Accounting for a detailed discussion of the fair value approaches used by the Company. The inputs utilized in the valuation of our most significant asset, our oil and gas properties, included mostly unobservable inputs, which fall within Level 3 of the fair value hierarchy.

- 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