Fair Value Measurements

6 Months Ended

Jun. 30, 2016

(8) Fair Value Measurements

Fair Value on a Recurring Basis. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, bank borrowings, and senior notes. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the highly liquid or short-term nature of these instruments. In connection with fresh start accounting, the Company incurred various other non-recurring fair value adjustments to our oil and gas properties, asset retirement obligation, other long-term liabilities and stockholder's equity of approximately $227 million as of April 22, 2016. See Note 1B of these condensed consolidated financial statements for more information.

Based upon quoted market prices as of December 31, 2015, the fair value and carrying value of our senior notes was as follows (in millions):



	Predecessor As of December 31, 2015
	Fair Value		Carrying Value
7.125% senior notes due 2017	$	23.0	$	250.0
8.875% senior notes due 2020 ⁽¹⁾	$	21.4	$	225.0
7.875% senior notes due 2022 ⁽¹⁾	$	34.5	$	400.0
(1) Includes write-off of discount associated with the 2020 notes and premium associated with the 2022 notes due to the Company's bankruptcy proceedings.

Our senior notes due in 2017, 2020 and 2022 were stated at carrying value on our accompanying condensed consolidated balance sheets until they were canceled as part of the Company's plan of reorganization and emergence from bankruptcy. If we had recorded these notes at fair value they would have been Level 1 in our fair value hierarchy as they were traded in an active market with quoted prices for identical instruments until they were canceled.

The carrying amount of the revolving long-term debt approximates fair value because the Company's current borrowing base rate does not materially differ from market rates for similar bank borrowings.

The following table presents our assets and liabilities that are measured on a recurring basis at fair value as of June 30, 2016, and are categorized using the fair value hierarchy. As of December 31, 2015 all of the Company's hedging agreements had settled. For additional discussion related to the fair value of the Company's derivatives, refer to Note 7 of these condensed consolidated financial statements. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value (in millions):



	Fair Value Measurements at
	Total		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2016
Assets
Natural Gas Basis Derivatives	$	0.2	$	—	$	0.2	$	—
Liabilities
Natural Gas Derivatives	7.5		—		7.5		—
Natural Gas Basis Derivatives	0.2		—		0.2		—
Oil Derivatives	$	2.0	$	—	$	2.0	$	—

Our current and long-term unsettled derivative assets and liabilities in the table above are measured at gross fair value and are shown on the accompanying condensed consolidated balance sheets in “Other current assets”, "Other long-term assets", "Accounts payable and accrued liabilities" and "Other long-term liabilities", respectively.

Level 1 – Uses quoted prices in active markets for identical, unrestricted assets or liabilities. Instruments in this category have comparable fair values for identical instruments in active markets.

Level 2 – Uses quoted prices for similar assets or liabilities in active markets or observable inputs for assets or liabilities in non-active markets. Instruments in this category are periodically verified against quotes from brokers and include our commodity derivatives that we value using commonly accepted industry-standard models which contain inputs such as contract prices, risk-free rates, volatility measurements and other observable market data that are obtained from independent third-party sources.

Level 3 – Uses unobservable inputs for assets or liabilities that are in non-active markets.

Fair Value on a Non-Recurring Basis. The Company discloses or recognizes its nonfinancial assets and liabilities, such as the fresh start valuation of oil and natural gas properties and the initial recognition of asset retirement obligations, at fair value on a non-recurring basis. The fresh start valuation of oil and natural gas properties is described further in Note 1B and includes significant unobservable inputs and therefore the Company has designated these assets as Level 3.

Estimates for the initial recognition of asset retirement obligations are derived from historical costs as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3. A reconciliation of the beginning and ending balances of the Company’s asset retirement obligation is presented in Note 9 of these condensed consolidated financial statements.

- 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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