Fair Value Measurements

3 Months Ended

Dec. 31, 2019

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 December 31, 2019 and September 30, 2019. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value presentation for over the counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company.



Recurring Fair Value Measures	At fair value as of December 31, 2019
(Thousands of Dollars)	Level 1		Level 2		Level 3		Netting Adjustments⁽¹⁾			Total⁽¹⁾
Assets:
Cash Equivalents – Money Market Mutual Funds	$	20,924	$	—	$	—	$	—		$	20,924
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	2,096		—		—		(2,096		)	—
Over the Counter Swaps – Gas and Oil	—		46,686		—		(5,031		)	41,655
Foreign Currency Contracts	—		118		—		(1,204		)	(1,086		)
Other Investments:
Balanced Equity Mutual Fund	36,740		—		—		—			36,740
Fixed Income Mutual Fund	62,220		—		—		—			62,220
Common Stock – Financial Services Industry	933		—		—		—			933
Hedging Collateral Deposits	9,666		—		—		—			9,666
Total	$	132,579	$	46,804	$	—	$	(8,331	)	$	171,052

Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$	7,741	$	—	$	—	$	(2,096	)	$	5,645
Over the Counter Swaps – Gas and Oil	—		5,524		—		(5,031		)	493
Foreign Currency Contracts	—		1,348		—		(1,204		)	144
Total	$	7,741	$	6,872	$	—	$	(8,331	)	$	6,282
Total Net Assets/(Liabilities)	$	124,838	$	39,932	$	—	$	—		$	164,770



Recurring Fair Value Measures	At fair value as of September 30, 2019
(Thousands of Dollars)	Level 1		Level 2		Level 3		Netting Adjustments⁽¹⁾			Total⁽¹⁾
Assets:
Cash Equivalents – Money Market Mutual Funds	$	10,521	$	—	$	—	$	—		$	10,521
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	2,055		—		—		(2,055		)	—
Over the Counter Swaps – Gas and Oil	—		52,076		—		(1,483		)	50,593
Foreign Currency Contracts	—		5		—		(2,052		)	(2,047		)
Other Investments:
Balanced Equity Mutual Fund	40,660		—		—		—			40,660
Fixed Income Mutual Fund	62,339		—		—		—			62,339
Common Stock – Financial Services Industry	844		—		—		—			844
Hedging Collateral Deposits	6,832		—		—		—			6,832
Total	$	123,251	$	52,081	$	—	$	(5,590	)	$	169,742

Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$	7,149	$	—	$	—	$	(2,055	)	$	5,094
Over the Counter Swaps – Gas and Oil	—		1,671		—		(1,483		)	188
Foreign Currency Contracts	—		2,344		—		(2,052		)	292
Total	$	7,149	$	4,015	$	—	$	(5,590	)	$	5,574
Total Net Assets/(Liabilities)	$	116,102	$	48,066	$	—	$	—		$	164,168


⁽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.

Derivative Financial Instruments

At December 31, 2019 and September 30, 2019, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX and ICE futures contracts used by NFR (included in the All Other category). Hedging collateral deposits of $9.7 million (at December 31, 2019) and $6.8 million (at September 30, 2019), which were associated with these futures contracts, have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at December 31, 2019 and September 30, 2019 consist of natural gas price swap agreements used in the Company’s Exploration and Production segment and in its NFR operations, crude oil price swap agreements used in the Company’s Exploration and Production segment, basis hedge swap agreements used by NFR and foreign currency contracts 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 fair value of the Level 2 foreign currency contracts is determined using the market approach based on observable market transactions of forward Canadian currency rates.

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 December 31, 2019, 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's (assuming the derivative is in a gain position) or the Company’s (assuming the derivative is in a loss position) credit default swaps rates.

For the quarters ended December 31, 2019 and December 31, 2018, there were no assets or liabilities measured at fair value and classified as Level 3. For the quarters ended December 31, 2019 and December 31, 2018, no transfers in or out of Level 1 or Level 2 occurred.

- 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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