hierarchy is used prioritizing the valuation techniques used to measure fair value into three levels with the highest priority given to Level 1 and the lowest priority given to Level 3. The levels are summarized as follows:

•Level 2—significant observable pricing inputs other than quoted prices included within level 1 that are either directly or indirectly observable as of the reporting date. Essentially, inputs (variables used in the pricing models) that are derived principally from or corroborated by observable market data.

•Level 3—generally unobservable inputs which are developed based on the best information available and may include our own internal data.

The inputs available determine the valuation technique we use to measure the fair values of our financial instruments.


	December 31, 2019
	Level 2		Level 3		Effect of Netting		Total
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	177	$	1,204	$	(748)	$	633
Liabilities	(775)		—		748		(27)
	$	(598)	$	1,204	$	—	$	606


	December 31, 2018
	Level 2		Level 3		Effect of Netting		Total
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	3,225	$	10,964	$	(1,319)	$	12,870
Liabilities	(1,278)		(334)		1,319		(293)
	$	1,947	$	10,630	$	—	$	12,577

All of our counterparties are subject to master netting arrangements. If a legal right of set-off exists, we net the value of the derivative transactions we have with the same counterparty. We are not required to post any cash collateral with our counterparties and no collateral has been posted as of December 31, 2019.

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above. There were no transfers between Level 2 and Level 3 financial assets (liabilities).

Commodity Derivatives. We measure the fair values of our crude oil and natural gas swaps using estimated internal discounted cash flow calculations based on the NYMEX futures index.

Commodity Derivatives. The fair values of our natural gas and crude oil collars are estimated using internal discounted cash flow calculations based on forward price curves, quotes obtained from brokers for contracts with similar terms, or quotes obtained from counterparties to the agreements.


	Net Derivatives
	For the Year Ended,
	December 31, 2019		December 31, 2018
	(In thousands)
Beginning of period	$	10,630	$	(206)
Total gains or losses:
Included in earnings	(1,494)		4,159
Settlements	(7,932)		6,677
End of period	$	1,204	$	10,630
Total gains (losses) for the period included in earnings attributable to the change in unrealized loss relating to assets still held at end of period	$	(9,426)	$	10,836

The following table provides quantitative information about our Level 3 unobservable inputs at December 31, 2019:

Commodity ⁽¹⁾

Fair Value

Valuation Technique

Unobservable Input

Range

(In thousands)

Natural gas three-way collar

1,204

Discounted cash flow

Forward commodity price curve

$0.00 - $0.39

1.The commodity contracts detailed in this category include non-exchange-traded natural gas three-way collars that are valued based on NYMEX. The forward pricing range represents the low and high price expected to be received within the settlement period.

Based on our valuation at December 31, 2019, we determined that the non-performance risk with regard to our counterparties was immaterial.

The following disclosure of the estimated fair value of financial instruments is made in accordance with accounting guidance for financial instruments. We have determined the estimated fair values by using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

At December 31, 2019, the carrying values on the consolidated balance sheets for cash and cash equivalents (classified as Level 1), accounts receivable, accounts payable, other current assets, and current liabilities approximate their fair value because of their short term nature.

Based on the borrowing rates currently available to us for credit agreement debt with similar terms and maturities and also considering the risk of our non-performance, long-term debt under our credit agreements at December 31, 2019 would approximate its fair value. This debt would be classified as Level 2.

The carrying amounts of long-term debt, net of unamortized discount and debt issuance costs, associated with the Notes reported in the Consolidated Balance Sheets at December 31, 2019 and December 31, 2018 were $646.7 million and $644.5 million, respectively. We estimate the fair value of these Notes using quoted marked prices at December 31, 2019 and December 31, 2018 were $357.5 million and $600.5 million, respectively. These Notes would be classified as Level 2.

The initial measurement of AROs at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property, plant, and equipment. Significant Level 3 inputs used in the calculation of AROs include plugging costs and remaining reserve lives. A reconciliation of the company’s AROs is presented in Note 9 – Asset Retirement Obligations.

Non-recurring fair value measurements are also applied, when applicable, to determine the fair value of our long-lived assets and goodwill. During 2018 and 2019, we recorded non-cash impairment charges discussed further in Note 3 – Summary