Fair Value Measurements

12 Months Ended

Dec. 31, 2019

The Company records its financial instruments, principally derivative instruments, at fair value in its Consolidated Balance Sheets. The Company estimates the fair value of its financial instruments using quoted market prices, where available. If quoted market prices are not available, fair value is based on models that use market-based parameters as inputs, including forward curves, discount rates, volatilities and nonperformance risk. Nonperformance risk considers the effect of the Company's credit standing on the fair value of liabilities and the effect of the counterparty's credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company's or counterparty's credit rating and the yield on a risk-free instrument.

The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities in Level 2 primarily include the Company's swap, collar and option agreements.

Exchange traded commodity swaps are included in Level 1. The fair value of the commodity swaps included in Level 2 is based on standard industry income approach models that use significant observable inputs, including but not limited to NYMEX natural gas forward curves, LIBOR-based discount rates, basis forward curves and natural gas liquids forward curves. The Company's collars and options are valued using standard industry income approach option models. The significant observable inputs used by the option pricing models include NYMEX forward curves, natural gas volatilities and LIBOR-based discount rates.

The table below summarizes assets and liabilities measured at fair value on a recurring basis.



			Fair value measurements at reporting date using
	Gross derivative instruments recorded in the Consolidated Balance Sheets		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2019	(Thousands)
Asset derivative instruments at fair value	$	812,664	$	95,041	$	717,623	$	—
Liability derivative instruments at fair value	312,696		71,107		241,589		—

December 31, 2018
Asset derivative instruments at fair value	$	481,654	$	112,107	$	369,547	$	—
Liability derivative instruments at fair value	336,051		126,582		209,469		—

The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term maturities. The carrying value of the Company's investment in Equitrans Midstream approximates fair value as Equitrans Midstream is a publicly traded company. The carrying values of borrowings under the Company's credit facility and Term Loan Facility approximate fair value as the interest rates are based on prevailing market rates. The Company considered all of these fair values to be Level 1 fair value measurements.

The Company has an immaterial investment in a fund that invests in companies developing technology and operating solutions for exploration and production companies for which the Company recognized a cumulative effect of accounting change in the

first quarter of 2018. The investment is valued using, as a practical expedient, the net asset value provided in the financial statements received from fund managers.

The Company estimates the fair value of its senior notes using established fair value methodology. Because not all of the Company's senior notes are actively traded, the fair value of the senior notes is a Level 2 fair value measurement. As of December 31, 2019 and 2018, the Company's senior notes had a fair value of approximately $3.9 billion and $4.4 billion, respectively, and a carrying value, as presented in the Consolidated Balance Sheets, of approximately $3.9 billion and $4.6 billion, respectively, inclusive of any current portion. The fair value of the Company's note payable to EQM is estimated using an income approach model with a market-based discount rate and is a Level 3 fair value measurement. As of December 31, 2019 and 2018, the Company's note payable to EQM had a fair value of $128.2 million and $121.8 million, respectively, and a carrying value, as presented in the Consolidated Balance Sheets of $110.1 million and $114.7 million, respectively, inclusive of any current portion. See Note 10 for further discussion of the Company's debt.

The Company recognizes transfers between Levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 for the periods presented.

For information on the fair values, and impairments thereof, of proved and unproved oil and gas properties and other long-lived assets, see Note 1. For information on the fair values related to the Asset Exchange Transaction (defined in Note 6), see Note 6. For information on the fair values of assets acquired in the Rice Merger (defined in Note 8) and in other acquisition transactions, see Note 8.

- 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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