Fair Value Measurements Fair Value Measurements (Policies)

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value Measurements

Fair Value on a Recurring Basis. Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, bank borrowings, and senior notes. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the highly liquid or short-term nature of these instruments.

The carrying value of our revolving Credit Facility approximates fair value because the Company's current borrowing base rate does not materially differ from market rates for similar bank borrowings. The carrying value of our Second Lien Notes included in long-term debt approximates fair value because market conditions have not changed significantly since the Second Lien Notes were issued on December 15, 2017. These are considered Level 3 valuations (defined below).

The fair values of our derivatives are computed using commonly accepted industry-standard models and are periodically verified against quotes from brokers.

The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value (table below in millions):

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.