Fair Value Measurements

3 Months Ended

Mar. 31, 2020

The accounting standard for fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

•

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and US government treasury securities.

•

Level 2—Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over the counter (OTC) forwards, options and physical exchanges.


•	Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Cash, Accounts Receivable and Accounts Payable

As of March 31, 2020 and December 31, 2019, the carrying amounts of cash, accounts receivable and accounts payable approximate fair value based on the short-term nature of these instruments.

Credit Facility

The fair value of the amounts outstanding under our Crestwood Midstream credit facility approximates the carrying amounts as of March 31, 2020 and December 31, 2019, due primarily to the variable nature of the interest rate of the instrument, which is considered a Level 2 fair value measurement.

Senior Notes

We estimate the fair value of our senior notes primarily based on quoted market prices for the same or similar issuances (representing a Level 2 fair value measurement). The following table represents the carrying amount (reduced for deferred financing costs associated with the respective notes) and fair value of our senior notes (in millions):



	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
2023 Senior Notes	$	695.5	$	392.1	$	695.1	$	714.0
2025 Senior Notes	$	494.7	$	293.9	$	494.4	$	514.4
2027 Senior Notes	$	592.4	$	329.8	$	592.1	$	610.1

Financial Assets and Liabilities

As of March 31, 2020 and December 31, 2019, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis, which include our derivative instruments related to heating oil, crude oil, NGLs and natural gas. Our derivative instruments consist of forwards, swaps, futures, physical exchanges and options.

Our derivative instruments that are traded on the NYMEX have been categorized as Level 1.

Our derivative instruments also include OTC contracts, which are not traded on a public exchange. The fair values of these derivative instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. These instruments have been categorized as Level 2.

Our OTC options are valued based on the Black Scholes option pricing model that considers time value and volatility of the underlying commodity. The inputs utilized in the model are based on publicly available information as well as broker quotes. These options have been categorized as Level 2.

Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following tables set forth by level within the fair value hierarchy, our financial instruments that were accounted for at fair value on a recurring basis at March 31, 2020 and December 31, 2019 (in millions):



	March 31, 2020
	Level 1		Level 2		Level 3		Gross Fair Value		Contract Netting⁽¹⁾			Collateral/Margin Received or Paid			Fair Value
Assets
Assets from price risk management	$	35.3	$	255.0	$	—	$	290.3	$	(235.0	)	$	(2.6	)	$	52.7
Suburban Propane Partners, L.P. units⁽²⁾	2.0		—		—		2.0		—			—			2.0
Total assets at fair value	$	37.3	$	255.0	$	—	$	292.3	$	(235.0	)	$	(2.6	)	$	54.7

Liabilities
Liabilities from price risk management	$	31.6	$	237.7	$	—	$	269.3	$	(235.0	)	$	(28.7	)	$	5.6
Total liabilities at fair value	$	31.6	$	237.7	$	—	$	269.3	$	(235.0	)	$	(28.7	)	$	5.6



	December 31, 2019
	Level 1		Level 2		Level 3		Gross Fair Value		Contract Netting⁽¹⁾			Collateral/Margin Received or Paid			Fair Value
Assets
Assets from price risk management	$	3.7	$	164.0	$	—	$	167.7	$	(122.3	)	$	(2.2	)	$	43.2
Suburban Propane Partners, L.P. units⁽²⁾	3.1		—		—		3.1		—			—			3.1
Total assets at fair value	$	6.8	$	164.0	$	—	$	170.8	$	(122.3	)	$	(2.2	)	$	46.3

Liabilities
Liabilities from price risk management	$	2.8	$	151.9	$	—	$	154.7	$	(122.3	)	$	(25.7	)	$	6.7
Total liabilities at fair value	$	2.8	$	151.9	$	—	$	154.7	$	(122.3	)	$	(25.7	)	$	6.7


(1)	Amounts represent the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions.

(2)

Amount is reflected in other assets on CEQP’s consolidated balance sheets.