Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

(9) Fair Value Measurements

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. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.

The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy, while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:

•Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets 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 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

•Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimates of the assumptions market participants would use in determining fair value. Our Level 3 measurements consist of instruments using standard pricing models and other valuation methods that utilize unobservable pricing inputs that are significant to the overall value.

Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority 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 placement of assets and liabilities within the levels of the fair value hierarchy. When transfers between levels occur, it is our policy to assume the transfer occurred at the date of the event or change in circumstances that caused the transfer.

Fair Values-Recurring

We use a market approach for our recurring fair value measurements and endeavor to use the best information available. Accordingly, valuation techniques that maximize the use of observable impacts are favored. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):

		Fair Value Measurements at December 31, 2023 Using:
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Carrying Value as of December 31, 2023
Trading securities held in the deferred    compensation plans		$	71,989	$	—	$	—		$	71,989
Derivatives	–swaps		—		247,580		—			247,580
	–collars		—		152,540		—			152,540
	–three-way collars		—		25,406		—			25,406
	–basis swaps		—		18,277		—			18,277
	–swaptions		—		—		(1,161	)		(1,161	)

		Fair Value Measurements at December 31, 2022 Using:
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Carrying Value as of December 31, 2022
Trading securities held in the deferred    compensation plans		$	57,717	$	—		$	—	$	57,717
Derivatives	–swaps		—		(109,844	)		—		(109,844	)
	–collars		—		(16,837	)		—		(16,837	)
	–three-way collars		—		(11,917	)		—		(11,917	)
	–basis swaps		—		521			—		521
Divestiture contingent consideration			—		13,080			—		13,080

Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using December 31, 2023 market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. Derivatives in Level 3 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes but will also utilize unobservable pricing inputs that are significant to overall value. As of December 31, 2023, a portion of our natural gas instruments contain swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a pre-determined date. If exercised, the swaption contract becomes a swap treated consistently with our fixed-price swaps. At December 31, 2023, we used a weighted average implied volatility of 18% for our swaptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy (in thousands):

	Year Ended December 31, 2023
Balance at December 31, 2022	$	—
Additions		(1,161	)
Settlements		—
Transfers out of Level 3		—
Balance at December 31, 2023	$	(1,161	)

Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains or losses are included in deferred compensation plan expense in the accompanying consolidated statements of income. For the year ended December 31, 2023, interest and dividends were $1.6 million and mark-to-market was a gain of $7.8 million. For the year ended December 31, 2022, interest and dividends were $1.1 million and mark-to-market was a loss of $14.2 million. For the year ended December 31, 2021, interest and dividends were $951,000 and mark-to-market was a gain of $3.0 million.

Fair Values-Non-recurring

Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Our proved natural gas and oil properties are reviewed for impairment periodically as events or changes in circumstances indicate the carrying amount may not be recoverable. There were no proved property impairment charges for the three-year period ended December 31, 2023.

Fair Values-Reported

The following table presents the carrying amounts and the fair values of our financial instruments as of December 31, 2023 and 2022 (in thousands):

	December 31, 2023						December 31, 2022
	Carrying Value			Fair Value			Carrying Value			Fair Value
Assets:
Commodity swaps, collars and basis swaps	$	442,971		$	442,971		$	28,835		$	28,835
Divestiture contingent consideration		—			—			13,080			13,080
Marketable securities (a)		71,989			71,989			57,717			57,717
(Liabilities):
Commodity swaps, collars and basis swaps		(329	)		(329	)		(166,912	)		(166,912	)
Bank credit facility (b)		—			—			(19,000	)		(19,000	)
4.875% senior notes due 2025 (b)		(688,388	)		(679,363	)		(750,000	)		(714,870	)
8.25% senior notes due 2029 (b)		(600,000	)		(624,816	)		(600,000	)		(618,312	)
4.75% senior notes due 2030 (b)		(500,000	)		(463,085	)		(500,000	)		(442,350	)
Deferred compensation plan (c)		(117,125	)		(117,125	)		(189,241	)		(189,241	)

(a)	Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges and are updated based on end of period closing prices which is a Level 1 input.
(b)	The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes is based on end of period market quotes which are Level 2 inputs.
(c)	The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.

Our current assets and liabilities contain financial instruments, the most significant of which are trade accounts receivables and payables. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments and (2) our historical incurrence of and expected future insignificance of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations, operating lease liabilities and the divestiture contract obligation that we incurred in conjunction with the sale of our North Louisiana assets.