Fair-Value Measurements

12 Months Ended

Dec. 31, 2021

We classify financial assets and liabilities into the following three levels based on the inputs used to measure fair value:

(1) Level 1 fair values are based on observable inputs such as quoted prices in active markets for identical assets and liabilities;

(2) Level 2 fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and

(3) Level 3 fair values are based on unobservable inputs in which little or no market data exists.

As required by fair value accounting guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2023 and 2022.


	December 31, 2023						December 31, 2022
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Commodity derivatives:
Assets	$	1,951	$	3,710	$	—	$	1,238	$	36,844	$	—
Liabilities	$	(12,504)	$	(5,536)	$	—	$	(11,061)	$	(4,692)	$	—

Rollforward of Level 3 Fair Value Measurements

The following table provides a reconciliation of changes in fair value at the beginning and ending balances for our derivatives classified as level 3:


Balance as of December 31, 2020	$	(52,372)
Net loss for the period including earnings	(30,838)
Balance as of December 31, 2021	(83,210)
Net loss for the period including earnings	(18,584)
Reclassification to Mezzanine Equity	101,794
Balance as of December 31, 2022	$	—

Our commodity derivatives include exchange-traded futures and exchange-traded options contracts. The fair value of these exchange-traded derivative contracts is based on unadjusted quoted prices in active markets and is, therefore, included in Level 1 of the fair value hierarchy. The fair value of the swaps contracts was determined using market price quotations and a pricing model. The swap contracts were considered a level 2 input in the fair value hierarchy at December 31, 2023 and 2022.

The fair value of the embedded derivative feature was based on a valuation model that estimates the fair value of the convertible preferred units with and without a Rate Reset Election. This model contained inputs, including our common unit price relative to the issuance price, the current dividend yield, the discount yield (which is adjusted periodically for changes associated with the industry’s credit markets), default probabilities, equity volatility, U.S. Treasury yields and timing estimates which involved management judgment. Our equity volatility rate used to value our embedded derivative feature was 50% at September 29, 2022, which represented the final valuation date of the embedded derivative due to the Rate Reset Election. Due primarily to the election of the rate reset increasing the distribution rate from 8.75% to 11.24%, we recorded an unrealized loss of $18.6 million for the year ended December 31, 2022. Due primarily to a decrease in our discount yield compared to December 31, 2020 as a result of significant fluctuations in the energy industry credit markets and volatility in our common unit price during the period, we recorded an unrealized loss of $30.8 million for the year ended December 31, 2021. We report unrealized gains and losses associated with this embedded derivative in our Consolidated Statements of Operations as “Other expense, net.”

See Note 1 9 for additional information on our derivative instruments.

Nonfinancial Assets and Liabilities

We utilize fair value on a non-recurring basis to perform impairment tests as required on our property, plant and equipment, goodwill and intangible assets. Assets and liabilities acquired in business combinations are recorded at their fair value as of the date of acquisition. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and would generally be classified in Level 3. See Note 4 for more information regarding the assets and liabilities acquired during 2023. Additionally, we use fair value to determine the inception value of our asset retirement obligations. The inputs used to determine such fair value are primarily based upon costs incurred historically for similar work, as well as estimates from independent third parties for costs that would be incurred to restore leased property to the contractually stipulated condition, and would generally be classified in Level 3.

Other Fair Value Measurements

We believe the debt outstanding under our senior secured credit facility approximates fair value as the stated rate of interest approximates current market rates of interest for similar instruments with comparable maturities. At December 31, 2023 our senior unsecured notes had a carrying value of $3.1 billion and fair value of $3.2 billion, compared to a carrying value of $2.9 billion and fair value of $2.7 billion at December 31, 2022. The fair value of the senior unsecured notes is determined based on trade information in the financial markets of our public debt and is considered a Level 2 fair value measurement. At December 31, 2023, our Alkali senior secured notes had a carrying value and fair value of $0.4 billion. The fair value of the Alkali senior secured notes is determined based on trade information in the financial market of securities with similar features and is considered a Level 2 fair value measurement.

- 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.

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