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Fair Value Measurements
 9 Months Ended
Jun. 30, 2013
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 2 – Fair Value Measurements

 

The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s 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 table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of June 30, 2013 and September 30, 2012.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring Fair Value Measures

 

At fair value as of June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Netting

 

 

 

(Thousands of Dollars)   

 

Level 1

 

Level 2

 

Level 3

 

Adjustments(1)

 

Total(1)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents – Money Market Mutual Funds

 

$
122,024 

 

$

 -

 

$

 -

 

$

 -

 

$
122,024 

Derivative Financial Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts – Gas

 

 
2,252 

 

 

 -

 

 

 -

 

 
(1,806)

 

 
446 

Over the Counter Swaps – Gas

 

 

 -

 

 
63,255 

 

 

 -

 

 
(5,093)

 

 
58,162 

Over the Counter Swaps – Oil

 

 

 -

 

 
9,078 

 

 
17 

 

 
(3,260)

 

 
5,835 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balanced Equity Mutual Fund

 

 
30,125 

 

 

 -

 

 

 -

 

 

 -

 

 
30,125 

Common Stock – Financial Services Industry

 

 
6,331 

 

 

 -

 

 

 -

 

 

 -

 

 
6,331 

Other Common Stock

 

 
295 

 

 

 -

 

 

 -

 

 

 -

 

 
295 

Hedging Collateral Deposits

 

 
694 

 

 

 -

 

 

 -

 

 

 -

 

 
694 

Total                                           

 

$
161,721 

 

$
72,333 

 

$
17 

 

$
(10,159)

 

$
223,912 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts – Gas

 

$
1,806 

 

$

 -

 

$

 -

 

$
(1,806)

 

$

 -

Over the Counter Swaps – Gas

 

 

 -

 

 
2,626 

 

 

 -

 

 
(5,093)

 

 
(2,467)

Over the Counter Swaps – Oil

 

 

 -

 

 

 -

 

 
7,944 

 

 
(3,260)

 

 
4,684 

Total

 

$
1,806 

 

$
2,626 

 

$
7,944 

 

$
(10,159)

 

$
2,217 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Assets/(Liabilities)

 

$
159,915 

 

$
69,707 

 

$
(7,927)

 

$

 -

 

$
221,695 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring Fair Value Measures

 

At fair value as of September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

Netting

 

 

 

(Thousands of Dollars)   

 

Level 1

 

Level 2

 

Level 3

 

Adjustments(1)

 

Total(1)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents – Money Market Mutual Funds

 

$
46,113 

 

$

 -

 

$

 -

 

$

 -

 

$
46,113 

Derivative Financial Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts – Gas

 

 
4,348 

 

 

 -

 

 

 -

 

 
(2,760)

 

 
1,588 

Over the Counter Swaps – Gas

 

 

 -

 

 
41,751 

 

 

 -

 

 
(15,723)

 

 
26,028 

Over the Counter Swaps – Oil

 

 

 -

 

 

 -

 

 
559 

 

 
(559)

 

 

 -

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balanced Equity Mutual Fund

 

 
24,767 

 

 

 -

 

 

 -

 

 

 -

 

 
24,767 

Common Stock – Financial Services Industry

 

 
4,758 

 

 

 -

 

 

 -

 

 

 -

 

 
4,758 

Other Common Stock

 

 
272 

 

 

 -

 

 

 -

 

 

 -

 

 
272 

Hedging Collateral Deposits

 

 
364 

 

 

 -

 

 

 -

 

 

 -

 

 
364 

Total                                           

 

$
80,622 

 

$
41,751 

 

$
559 

 

$
(19,042)

 

$
103,890 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Futures Contracts – Gas

 

$
2,760 

 

$

 -

 

$

 -

 

$
(2,760)

 

$

 -

Over the Counter Swaps – Gas

 

 

 -

 

 
19,932 

 

 

 -

 

 
(15,723)

 

 
4,209 

Over the Counter Swaps – Oil

 

 

 -

 

 
654 

 

 
20,223 

 

 
(559)

 

 
20,318 

Total

 

$
2,760 

 

$
20,586 

 

$
20,223 

 

$
(19,042)

 

$
24,527 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Assets/(Liabilities)

 

$
77,862 

 

$
21,165 

 

$
(19,664)

 

$

 -

 

$
79,363 

 

(1)  Netting Adjustments represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties. The net asset or net liability for each counterparty is recorded as an asset or liability on the Company’s balance sheet.  In the tables above, presenting asset and liability information by gas and oil positions may result in negative assets or negative liabilities in Total column when a counterparty has issued both gas and oil swaps to the Company.

 

 

Derivative Financial Instruments

 

At June  30, 2013 and September 30, 2012, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX futures contracts used in the Company’s Energy Marketing segment. Hedging collateral deposits of $0.7 million (at June 30, 2013) and $0.4 million (at September 30, 2012), which are associated with these futures contracts, have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at June  30, 2013 and September 30, 2012 consist of natural gas price swap agreements used in the Company’s Exploration and Production and Energy Marketing segments and a portion of the crude oil price swap agreements used in the Company’s Exploration and Production segment. The fair value of the Level 2 price swap agreements is based on an internal, discounted cash flow model that uses observable inputs (i.e. LIBOR based discount rates and basis differential information, if applicable, at active natural gas and crude oil trading markets). The derivative financial instruments reported in Level 3 consist of a portion of the Company’s Exploration and Production segment’s crude oil price swap agreements at June  30, 2013 and September 30, 2012.  The fair value of the Level 3 crude oil price swap agreements is based on an internal, discounted cash flow model that uses both observable (i.e. LIBOR based discount rates) and unobservable inputs (i.e. basis differential information of crude oil trading markets with low trading volume). 

 

The significant unobservable input used in the fair value measurement of a portion of the Company’s over-the-counter crude oil swaps is the basis differential between Midway Sunset oil and NYMEX contracts.  Significant changes in the assumed basis differential could result in a significant change in value of the derivative financial instruments.  At June  30, 2013, it was assumed that Midway Sunset oil was valued at 109.3% of the value of oil priced at NYMEX.  This is based on a historical twelve month average of Midway Sunset oil sales verses NYMEX settlements.  During this twelve-month period, the price of Midway Sunset oil ranged from 102.3% to 112.4% of NYMEX.  If the basis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement calculation at June  30, 2013 had been 10 percentage points lower, the fair value of the Level 3 crude oil price swap agreements would have changed from a net liability of $7.9 million to a net asset of $1.3 million.  If the basis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement at June  30, 2013 had been 10 percentage points higher, the fair value measurement of the Level 3 crude oil price swap agreements liability would have been approximately $9.5 million higher.  These calculated amounts are based solely on basis differential changes and do not take into account any other changes to the fair value measurement calculation. 

 

The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.  At June 30, 2013, the Company determined that nonperformance risk would have no material impact on its financial position or results of operation.  To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty (for an asset) or the Company’s (for a liability) credit default swaps rates.

 

The tables listed below provide reconciliations of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 for the quarters and nine months ended June  30, 2013 and 2012, respectively. For the quarters and nine months ended June  30, 2013 and June  30, 2012, no transfers in or out of Level 1 or Level 2 occurred.  There were no purchases or sales of derivative financial instruments during the periods presented in the tables below.  All settlements of the derivative financial instruments are reflected in the Gains/Losses Realized and Included in Earnings column of the tables below. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Unobservable Inputs (Level 3)

(Thousands of Dollars)   

 

 

 

 

Total Gains/Losses 

 

 

 

 

 

 

 

 

 

 

 

(Gains)/

 

 

Gains/(Losses)

 

 

 

 

 

 

 

 

 

 

 

Losses Realized

 

 

Unrealized and Included

 

Transfer

 

 

 

 

 

April 1,

 

and Included

 

 

in Other Comprehensive

 

In/Out of

 

June 30,

 

 

2013

 

in Earnings

 

 

Income (Loss)

 

Level 3

 

2013

Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments(2)

 

$
(16,606)

 

$
2,471 
(1)

 

$
6,208 

 

$

 -

 

$
(7,927)

 

(1) Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended June  30, 2013. 

(2) Derivative Financial Instruments are shown on a net basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Unobservable Inputs (Level 3)

(Thousands of Dollars)   

 

 

 

 

Total Gains/Losses 

 

 

 

 

 

 

 

 

 

 

 

(Gains)/

 

 

Gains/(Losses)

 

 

 

 

 

 

 

 

 

 

 

Losses Realized

 

 

Unrealized and Included

 

Transfer

 

 

 

 

 

October 1,

 

and Included

 

 

in Other Comprehensive

 

In/Out of

 

June 30,

 

 

2012

 

in Earnings

 

 

Income (Loss)

 

Level 3

 

2013

Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments(2)

 

$
(19,664)

 

$
9,271 
(1)

 

$
2,466 

 

$

 -

 

$
(7,927)

 

(1) Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the nine months ended June  30, 2013. 

(2) Derivative Financial Instruments are shown on a net basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Unobservable Inputs (Level 3)

(Thousands of Dollars)

 

 

 

 

Total Gains/Losses

 

 

 

 

 

 

 

 

 

 

 

(Gains)/

 

 

Gains/(Losses)

 

 

 

 

 

 

 

 

 

 

 

Losses Realized

 

 

Unrealized and Included

 

Transfer

 

 

 

 

 

April 1,

 

and Included

 

 

In Other Comprehensive

 

In/Out of

 

June 30,

 

 

2012

 

in Earnings

 

 

Income (Loss)

 

Level 3

 

2012

Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments(2)

 

$
(68,754)

 

$
10,392 
(1)

 

$
41,814 

 

$

 -

 

$
(16,548)

 

(1) Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended June  30, 2012.    

(2) Derivative Financial Instruments are shown on a net basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Unobservable Inputs (Level 3)

(Thousands of Dollars)

 

 

 

 

Total Gains/Losses

 

 

 

 

 

 

 

 

 

 

 

(Gains)/

 

 

Gains/(Losses)

 

 

 

 

 

 

 

 

 

 

 

Losses Realized

 

 

Unrealized and Included

 

Transfer

 

 

 

 

 

October 1,

 

and Included

 

 

In Other Comprehensive

 

In/Out of

 

June 30,

 

 

2011

 

in Earnings

 

 

Income (Loss)

 

Level 3

 

2012

Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments(2)

 

$
(5,410)

 

$
36,526 
(1)

 

$
(47,664)

 

$

 -

 

$
(16,548)

 

(1) Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the nine months ended June  30, 2012.    

(2) Derivative Financial Instruments are shown on a net basis.