Fair value is defined as the amount that would be received from the sale of an asset or paid for transferring a liability in an orderly transaction between market participants (in either case, an exit price). To estimate an exit price, a three-level 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 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 developed based on the best information available and may include our own internal data.

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


	Successor
	September 30, 2020
	Level 2		Level 3		Effect of Netting		Net Amounts Presented
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	3,929	$	—	$	(1,562)	$	2,367
Liabilities	(4,425)		—		1,562		(2,863)
Total commodity derivatives	$	(496)	$	—	$	—	$	(496)


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

All 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 cash collateral with our counterparties and no collateral has been posted as of September 30, 2020.

We used the following methods and assumptions 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 and collars 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 three-way 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
	Successor		Predecessor
	One Month Ended		Two Months Ended		Three Months Ended
	September 30, 2020		August 31, 2020		September 30, 2019
	(In thousands)
Beginning of period	$	—	$	843	$	3,945
Total gains or losses (realized and unrealized):
Included in earnings (1)	—		(405)		2,393
Settlements	—		(437)		(3,627)
End of period	$	—	$	—	$	2,711
Total losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to assets still held at end of period	$	—	$	(843)	$	(1,234)

1.Commodity derivatives are reported in the Unaudited Condensed Consolidated Statements of Operations in gain (loss) on derivatives.


	Net Derivatives
	Successor		Predecessor
	One Month Ended		Eight Months Ended		Nine Months Ended
	September 30, 2020		August 31, 2020		September 30, 2019
	(In thousands)
Beginning of period	$	—	$	1,204	$	10,630
Total gains or losses (realized and unrealized):
Included in earnings (1)	—		872		(980)
Settlements	—		(2,075)		(6,939)
End of period	—		—		$	2,711
Total losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to assets still held at end of period	$	—	$	(1,204)	$	(7,919)

1.Commodity derivatives are reported in the Unaudited Condensed Consolidated Statements of Operations in gain (loss) on derivatives..

This disclosure of the estimated fair value of financial instruments is made under accounting guidance for financial instruments. We have determined the estimated fair values by using market information and certain valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Using different market assumptions or valuation methodologies may have a material effect on our estimated fair value amounts.

At September 30, 2020, the carrying values on the Unaudited Condensed Consolidated Balance Sheets for cash and cash equivalents (composed of bank and money market accounts - classified as Level 1), accounts receivable, accounts payable, other current assets, and current liabilities approximate their fair value because of their short-term nature.

The carrying amounts of long-term debt associated with the Notes, net of unamortized discount and debt issuance costs, reported in the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2019 were $646.7 million. On the Effective Date, our obligations with respect to the Notes were cancelled and holders of the Notes received their agreed on pro-rata share of New Common Stock. For further information, please see Note 2 – Emergence From Voluntary Reorganization

Under Chapter 11. The estimated fair value of the Notes using quoted market prices at December 31, 2019 was $357.5 million. The Notes were 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 our AROs is presented in Note 10 – Asset Retirement Obligations.