Financial Instruments

6 Months Ended

Mar. 31, 2021

Financial Instruments, Owned, at Fair Value [Abstract]

Long-Term Debt. The fair market value of the Company’s debt, as presented in the table below, was determined using a discounted cash flow model, which incorporates the Company’s credit ratings and current market conditions in determining the yield, and subsequently, the fair market value of the debt. Based on these criteria, the fair market value of long-term debt, including current portion, was as follows (in thousands):


	March 31, 2021				September 30, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt	$	2,627,033	$	2,869,081	$	2,629,576	$	2,778,556

The fair value amounts are not intended to reflect principal amounts that the Company will ultimately be required to pay. Carrying amounts for other financial instruments recorded on the Company’s Consolidated Balance Sheets approximate fair value. The fair value of long-term debt was calculated using observable inputs (U.S. Treasuries/LIBOR for the risk free component and company specific credit spread information – generally obtained from recent trade activity in the debt). As such, the Company considers the debt to be Level 2.

Any temporary cash investments, notes payable to banks and commercial paper are stated at cost. Temporary cash investments are considered Level 1, while notes payable to banks and commercial paper are considered to be Level 2. Given the short-term nature of the notes payable to banks and commercial paper, the Company believes cost is a reasonable approximation of fair value.

Other Investments. The components of the Company's Other Investments are as follows (in thousands):


	At March 31, 2021		At September 30, 2020

Life Insurance Contracts	$	43,307	$	41,992
Equity Mutual Fund	32,993		39,618
Fixed Income Mutual Fund	70,133		72,253
Marketable Equity Securities	988		639
	$	147,421	$	154,502

Investments in life insurance contracts are stated at their cash surrender values or net present value. Investments in an equity mutual fund, a fixed income mutual fund and the stock of an insurance company (marketable equity securities) are stated

at fair value based on quoted market prices with changes in fair value recognized in net income. The insurance contracts and marketable equity and fixed income securities are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees.

Derivative Financial Instruments. The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment. The Company enters into over-the-counter no cost collars and over-the-counter swap agreements for natural gas and crude oil to manage the price risk associated with forecasted sales of gas and oil. In addition, the Company also enters into foreign exchange forward contracts to manage the risk of currency fluctuations associated with transportation costs denominated in Canadian currency in the Exploration and Production segment. These instruments are accounted for as cash flow hedges. The duration of the Company’s cash flow hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed 10 years.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at March 31, 2021 and September 30, 2020. Substantially all of the derivative financial instruments reported on those line items relate to commodity contracts and a small portion relates to foreign currency forward contracts.

Cash Flow Hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.

As of March 31, 2021, the Company had the following commodity derivative contracts (swaps and no cost collars) outstanding:


Commodity	Units
Natural Gas	253.3	Bcf

Crude Oil	2,082,000	Bbls

As of March 31, 2021, the Company was hedging a total of $69.4 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of March 31, 2021, the Company had $17.1 million ($12.1 million after-tax) of net hedging losses included in the accumulated other comprehensive income (loss) balance. It is expected that $28.2 million ($19.9 million after-tax) of unrealized losses will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transactions are recorded in earnings.


The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the
Three Months Ended March 31, 2021 and 2020 (Thousands of Dollars)
Derivatives in Cash Flow Hedging Relationships	Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on the Consolidated Statement of Comprehensive Income (Loss) for the Three Months Ended March 31,				Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income	Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the Three Months Ended March 31,
	2021		2020			2021		2020
Commodity Contracts	$	(35,123)	$	81,108	Operating Revenue	$	(3,761)	$	23,396
Commodity Contracts	—		(134)		Purchased Gas	—		1,909
Foreign Currency Contracts	750		(4,670)		Operating Revenue	95		(271)
Total	$	(34,373)	$	76,304		$	(3,666)	$	25,034


The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the
Six Months Ended March 31, 2021 and 2020 (Thousands of Dollars)
Derivatives in Cash Flow Hedging Relationships	Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on the Consolidated Statement of Comprehensive Income (Loss) for the Six Months Ended March 31,				Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income	Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the Six Months Ended March 31,
	2021		2020			2021		2020
Commodity Contracts	$	10,472	$	79,553	Operating Revenue	$	(4,071)	$	30,937
Commodity Contracts	—		997		Purchased Gas	—		1,911
Foreign Currency Contracts	3,176		(3,751)		Operating Revenue	94		(462)
Total	$	13,648	$	76,799		$	(3,977)	$	32,386

Credit Risk

The Company may be exposed to credit risk on any of the derivative financial instruments that are in a gain position. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check, and then on a quarterly basis monitors counterparty credit exposure. The majority of the Company’s counterparties are financial institutions and energy traders. The Company has over-the-counter swap positions, no cost collars and applicable foreign currency forward contracts with fifteen counterparties of which five are in a net gain position. On average, the Company had $0.8 million of credit exposure per counterparty in a gain position at March 31, 2021. The maximum credit exposure per counterparty in a gain position at March 31, 2021 was $1.6 million. As of March 31, 2021, no collateral was received from the counterparties by the Company. The Company's gain position on such derivative financial instruments had not exceeded the established thresholds at which the counterparties would be required to post collateral, nor had the counterparties' credit ratings declined to levels at which the counterparties were required to post collateral.

As of March 31, 2021, thirteen of the fifteen counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps, over-the-counter no cost collars and applicable foreign currency forward contracts) had a common credit-risk related contingency feature. In the event the Company’s credit rating increases or falls below a certain threshold (applicable debt ratings), the available credit extended to the Company would either increase or decrease. A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments). If the Company’s outstanding derivative instrument contracts were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then additional hedging collateral deposits may be required. At March 31, 2021, the fair market value of the derivative financial instrument assets with a credit-risk related contingency feature was $1.5 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements). At March 31, 2021, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $21.2 million according to the Company's internal model. For its over-the-counter swap agreements and foreign currency forward contracts, no hedging collateral deposits were required to be posted by the Company at March 31, 2021.

The Company’s requirement to post hedging collateral deposits and the Company's right to receive hedging collateral deposits is based on the fair value determined by the Company’s counterparties, which may differ from the Company’s assessment of fair value.