Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 6. Fair Value Measurements

Derivative Instruments

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 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 derivative instruments by pricing levels that were accounted for at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

	Fair value measurements at June 30, 2024 using:
In thousands	Level 1		Level 2			Level 3		Total
Derivative assets (liabilities):
Crude oil fixed price swaps	$	—	$	(21,235	)	$	—	$	(21,235	)
Crude oil NYMEX roll swaps		—		(1,789	)		—		(1,789	)
Natural gas WAHA swaps		—		8,348			—		8,348
Natural gas fixed price swaps		—		231,485			—		231,485
Natural gas collars		—		—			—		—
Total	$	—	$	216,809		$	—	$	216,809

	Fair value measurements at December 31, 2023 using:
In thousands	Level 1		Level 2		Level 3		Total
Derivative assets (liabilities):
Crude oil fixed price swaps	$	—	$	146,243	$	—	$	146,243
Crude oil NYMEX roll swaps		—		6,888		—		6,888
Natural gas WAHA swaps		—		21,523		—		21,523
Natural gas fixed price swaps		—		321,350		—		321,350
Natural gas collars		—		11,923		—		11,923
Total	$	—	$	507,927	$	—	$	507,927

Stock Redemption Option

In conjunction with estate planning for Harold G. Hamm, in June 2024 Continental entered into a Redemption Agreement with Mr. Hamm and certain members of his family whereby, following Mr. Hamm’s passing, his estate may, but is not obligated to, elect from

time-to-time to require Continental to redeem sufficient shares to enable the estate to fund the payment of estate taxes and interest as they become due. Mr. Hamm’s potential estate tax liability is expected to be primarily based on the fair market value his estate assigns to his Continental stock at the time of passing. Mr. Hamm currently owns approximately 52% of Continental’s outstanding common stock. The future value of Continental and resulting estate tax liability are subject to numerous uncertainties and cannot be reasonably quantified at present. The agreement contemplates that Mr. Hamm’s estate will defer and pay the potential estate taxes and related interest in installments over a period of up to 14 years as permitted by the Internal Revenue Code, with the first five years being comprised of interest-only payments and the remaining nine years being comprised of principal and interest payments. Assuming the estate elects to exercise its redemption rights, Continental’s potential obligations are expected to occur over the same 14 year period in conjunction with the estate’s installment payments. The redemption agreement has no specified number of shares to be redeemed, no specified share repurchase price, no fixed duration of time, and no determinable cash flows, all of which are unknown and subject to change based on the tax laws in effect and the value of Continental to be determined after Mr. Hamm’s passing. Although the timing and amount of Continental’s potential obligations under the agreement cannot be reasonably quantified, in the second quarter of 2024 the Company recognized a $388 million liability on its balance sheet within the caption “Other noncurrent liabilities” with a corresponding charge to “Other" of "Other income (expense)” on the statements of income to reflect the intrinsic value of the redemption optionality features contained in the arrangement pursuant to ASC Topic 820, Fair Value Measurement. Such value was determined using simulation models that consider various unobservable inputs and thus represents a Level 3 measurement under the ASC 820 valuation hierarchy.