Fair Value Measurements

The Company follows a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:


•	Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.


•	Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.


•	Level 3: Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the hierarchy. As Level 1 inputs generally provide the most reliable evidence of fair value, the Company uses Level 1 inputs when available. The Company’s policy is to recognize transfers between the hierarchy levels as of the beginning of the reporting period in which the event or change in circumstances caused the transfer.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company's derivative instruments are reported at fair value on a recurring basis. In determining the fair values of swap contracts, a discounted cash flow method is used due to the unavailability of relevant comparable market data for the Company’s exact contracts. The discounted cash flow method estimates future cash flows based on quoted market prices for forward commodity prices and a risk-adjusted discount rate. The fair values of swap contracts are calculated mainly using significant observable inputs (Level 2). Calculation of the fair values of collars and written call options requires the use of an industry-standard option pricing model that considers various inputs including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. These assumptions are observable in the marketplace or can be corroborated by active markets or broker quotes and are therefore designated as Level 2 within the valuation hierarchy. The Company’s calculation of fair value for each of its derivative positions is compared to the counterparty valuation for reasonableness.

The following tables summarize the valuation of financial instruments by pricing levels that were accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015.



	Fair value measurements at September 30, 2016 using:
In thousands	Level 1		Level 2			Level 3		Total
Derivative assets (liabilities):
Swaps	$	—	$	13,418		$	—	$	13,418
Collars	—		(17,234		)	—		(17,234		)
Written call options	—		—			—		—
Total	$	—	$	(3,816	)	$	—	$	(3,816	)

	Fair value measurements at December 31, 2015 using:
In thousands	Level 1		Level 2			Level 3		Total
Derivative assets (liabilities):
Swaps	$	—	$	104,426		$	—	$	104,426
Collars	—		(3,195		)	—		(3,195		)
Written call options	—		(38		)	—		(38		)
Total	$	—	$	101,193		$	—	$	101,193

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets are reported at fair value on a nonrecurring basis in the condensed consolidated financial statements. The following methods and assumptions were used to estimate the fair values for those assets.

Asset Impairments – Proved crude oil and natural gas properties are reviewed for impairment on a field-by-field basis each quarter. The estimated future cash flows expected in connection with the field are compared to the carrying amount of the field to determine if the carrying amount is recoverable. If the carrying amount of the field exceeds its estimated undiscounted future cash flows, the carrying amount of the field is reduced to its estimated fair value. Due to the unavailability of relevant comparable market data, a discounted cash flow method is used to determine the fair value of proved properties. The discounted cash flow method estimates future cash flows based on the Company's estimates of future crude oil and natural gas production, commodity prices based on commodity futures price strips adjusted for differentials, operating costs, and a risk-adjusted discount rate. The fair value of proved crude oil and natural gas properties is calculated using significant unobservable inputs (Level 3). The following table sets forth quantitative information about the significant unobservable inputs used by the Company to calculate the fair value of proved crude oil and natural gas properties using a discounted cash flow method.



Unobservable Input		Assumption
Future production		Future production estimates for each property
Forward commodity prices		Forward NYMEX strip prices through 2020 (adjusted for differentials), escalating 3% per year thereafter
Operating costs		Estimated costs for the current year, escalating 3% per year thereafter
Productive life of field		Ranging from 0 to 33 years
Discount rate		10%

Unobservable inputs to the fair value assessment are reviewed quarterly and are revised as warranted based on a number of factors, including reservoir performance, new drilling, crude oil and natural gas prices, changes in costs, technological advances, new geological or geophysical data, or other economic factors. Fair value measurements of proved properties are reviewed and approved by certain members of the Company’s management.

For the three and nine months ended September 30, 2016 and 2015, the Company determined the carrying amounts of certain proved properties were not recoverable from future cash flows, and therefore, were impaired. Impairments of proved properties totaled $2.9 million for year to date 2016, all of which were recognized in the third quarter primarily for properties in a non-core area of the North region. The impaired properties were written down to their estimated fair value of approximately $0.7 million as of September 30, 2016.

Impairments of proved properties for the three and nine months ended September 30, 2015 totaled $36.3 million and $111.3 million, respectively, and were primarily concentrated in an emerging area with minimal production and costly reserve additions ($42.5 million, including $1.3 million in the 2015 third quarter), the Buffalo Red River units ($26.3 million, all in the 2015 third quarter), the Medicine Pole Hills units ($22.9 million, including $8.2 million in the 2015 third quarter), various legacy areas in the South region ($11.4 million, including $0.4 million in the 2015 third quarter), and non-Bakken areas of North Dakota and Montana ($8.2 million, including $0.1 million in the 2015 third quarter). The impaired properties were written down to their estimated fair value totaling approximately $48.5 million as of September 30, 2015.

Certain unproved crude oil and natural gas properties were impaired during the three and nine months ended September 30, 2016 and 2015, reflecting recurring amortization of undeveloped leasehold costs on properties the Company expects will not be transferred to proved properties over the lives of the leases based on drilling plans, experience of successful drilling, and the average holding period.

The following table sets forth the non-cash impairments of both proved and unproved properties for the indicated periods. Proved and unproved property impairments are recorded under the caption “Property impairments” in the unaudited condensed consolidated statements of comprehensive loss.



	Three months ended September 30,				Nine months ended September 30,
In thousands	2016		2015		2016		2015
Proved property impairments	$	2,895	$	36,302	$	2,895	$	111,346
Unproved property impairments	54,794		60,395		199,833		209,784
Total	$	57,689	$	96,697	$	202,728	$	321,130

Financial Instruments Not Recorded at Fair Value

The following table sets forth the estimated fair values of financial instruments that are not recorded at fair value in the condensed consolidated financial statements.



	September 30, 2016				December 31, 2015
In thousands	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt:
Revolving credit facility	$	565,000	$	565,000	$	853,000	$	853,000
Term loan	498,710		500,000		498,274		500,000
Note payable	12,716		11,400		14,309		12,500
7.375% Senior Notes due 2020 (1)	197,036		205,200		196,574		179,200
7.125% Senior Notes due 2021 (1)	395,923		413,700		395,365		388,300
5% Senior Notes due 2022	1,997,095		1,970,100		1,996,831		1,480,400
4.5% Senior Notes due 2023	1,483,994		1,455,000		1,482,451		1,061,000
3.8% Senior Notes due 2024	990,702		920,000		989,932		700,300
4.9% Senior Notes due 2044	691,162		588,900		691,052		430,500
Total debt	$	6,832,338	$	6,629,300	$	7,117,788	$	5,605,200

(1) As discussed in Note 11. Subsequent Events, on October 4, 2016 the Company announced it will redeem the 7.375% Senior Notes due 2020 and the 7.125% Senior Notes due 2021 on November 10, 2016.

The fair values of revolving credit facility borrowings and the term loan approximate face value based on borrowing rates available to the Company for bank loans with similar terms and maturities and are classified as Level 2 in the fair value hierarchy.

The fair value of the note payable is determined using a discounted cash flow approach based on the interest rate and payment terms of the note payable and an assumed discount rate. The fair value of the note payable is significantly influenced by the discount rate assumption, which is derived by the Company and is unobservable. Accordingly, the fair value of the note payable is classified as Level 3 in the fair value hierarchy.

The fair values of the 7.375% Senior Notes due 2020 (“2020 Notes”), the 7.125% Senior Notes due 2021 (“2021 Notes”), the 5% Senior Notes due 2022 (“2022 Notes”), the 4.5% Senior Notes due 2023 (“2023 Notes”), the 3.8% Senior Notes due 2024 (“2024 Notes”), and the 4.9% Senior Notes due 2044 (“2044 Notes”) are based on quoted market prices and, accordingly, are classified as Level 1 in the fair value hierarchy.

The carrying values of all classes of cash and cash equivalents, trade receivables, and trade payables are considered to be representative of their respective fair values due to the short term maturities of those instruments.