Note Q – Assets and Liabilities Measured at Fair Value

Fair Values – Recurring

The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheet. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.

Note Q – Assets and Liabilities Measured at Fair Value (Contd.)

The fair value measurements for these assets and liabilities at December 31, 2018 and 2017 are presented in the following table.

December 31, 2018

December 31, 2017

(Thousands of dollars)

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Commodity derivative contracts

–

3,837

–

3,837

–

3,837

–

3,837

–

Liabilities:

Nonqualified employee
savings plans

13,845

–

13,845

16,158

–

16,158

Contingent consideration

–

47,730

–

Commodity derivative contracts

–

39,093

–

39,093

13,845

–

47,730

61,575

16,158

39,093

–

55,251

The nonqualified employee savings plan is an unfunded savings plan through which participants seek a return via phantom investments in equity securities and/or mutual funds. The fair value of this liability was based on quoted prices for these equity securities and mutual funds. The income effect of changes in the fair value of the nonqualified employee savings plan is recorded in Selling and general expenses in the Consolidated Statements of Operations.

The Company’s contingent consideration liability (as further described in Note D) is measured at fair value on a recurring basis and is categorized as Level 3 in the fair value hierarchy. The contingent consideration is valued using a Monte Carlo simulation model, which used the following assumptions as of December 31, 2018: (i) the remaining expected life of 7 years, (ii) West Texas Intermediate forward strip pricing with historical volatility of 30.0%, and (iii) a risk-free interest rate of 2.752%. The income effect of changes in the fair value of the contingent consideration is recorded in Other (income) expense in the Consolidated Statements of Operations.

The fair value of West Texas Intermediate (WTI) crude oil contracts in 2018 and 2017 was based on active market quotes for WTI crude oil. The income effect of changes in fair value of crude oil derivative contracts is recorded in Gain (loss) on crude contracts in the Consolidated Statements of Operations, while the effects of changes in fair value of foreign exchange derivative contracts is recorded in Interest and other income (loss).

The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. There were no offsetting positions recorded at December 31, 2018 and 2017.

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at December 31, 2018 and 2017. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes cash and cash equivalents, trade accounts receivable, trade accounts payable and accrued expenses, all of which had fair values approximating carrying amounts. The fair value of current and long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities. The Company has off-balance sheet exposures relating to certain letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, was nominal.


	December 31,
	2018			2017
(Thousands of dollars)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets (liabilities):
Current and long-term debt	$	(3,237,717)	(3,003,388)	(2,916,422)	(2,993,003)

Note Q – Assets and Liabilities Measured at Fair Value (Contd.)

Fair Values – Nonrecurring

In 2018, as a result of our assessment of market value and our expected recoverable value of select Midland properties in the U.S., the Company recognized a pretax noncash impairment charge of $20.0 million.

As a result of significantly lower commodity prices during 2016, the Company recognized $95.1 million, respectively, in pretax noncash impairment charges related primarily to producing properties.

The fair values were determined by internal discounted cash flow models using estimates of future production, prices from futures exchanges, costs and a discount rate believed to be consistent with those used by principal market participants in the applicable region.

The fair value information associated with these impaired properties is presented in the following table.




	Year Ended December 31,
						Total
					Net Book	Pretax
					Value	(Noncash)
	Fair Value				Prior to	Impairment
(Thousands of dollars)		Level 1	Level 2	Level 3	Impairment	Expense
2018
Assets:
Impaired proved properties
United States Midland	$	–	–	37,690	57,690	20,000
2016
Assets:
Impaired proved properties
Western Canada	$	–	–	71,967	167,055	95,088