Note 11 - Fair Value Measurements

The Company follows fair value measurement accounting guidance for all assets and liabilities measured at fair value. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:


•	Level 1 – quoted prices in active markets for identical assets or liabilities


•	Level 2 – quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable


•	Level 3 – significant inputs to the valuation model are unobservable

The following table is a listing of the Company’s assets and liabilities that are measured at fair value in the accompanying balance sheets and where they are classified within the fair value hierarchy as of September 30, 2018:



	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Derivatives ⁽¹⁾	$	—	$	90,016	$	—
Liabilities:
Derivatives ⁽¹⁾	$	—	$	376,764	$	—

__________________________________________


⁽¹⁾	This represents a financial asset or liability that is measured at fair value on a recurring basis.

The following table is a listing of the Company’s assets and liabilities that are measured at fair value in the accompanying balance sheets and where they were classified within the fair value hierarchy as of December 31, 2017:



	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Derivatives ⁽¹⁾	$	—	$	104,628	$	—
Liabilities:
Derivatives⁽¹⁾	$	—	$	243,984	$	—

____________________________________________


⁽¹⁾	This represents a financial asset or liability that is measured at fair value on a recurring basis.

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy.

Derivatives

The Company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity derivatives. Fair values are based upon interpolated data. The Company derives internal valuation estimates taking into consideration forward commodity price curves, counterparties’ credit ratings, the Company’s credit rating, and the time value of money. These valuations are then compared to the respective counterparties’ mark-to-market statements. The considered factors result in an estimated exit price that management believes provides a reasonable and consistent methodology for valuing derivative instruments. The commodity derivative instruments utilized by the Company are not considered by management to be complex, structured, or illiquid. The oil, gas, and NGL commodity derivative markets are highly active.

Please refer to Note 10 - Derivative Financial Instruments and to Note 11 - Fair Value Measurements in the 2017 Form 10-K for more information regarding the Company’s derivative instruments.

Proved and Unproved Oil and Gas Properties and Other Property and Equipment

Proved oil and gas properties. Proved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication the carrying costs may not be recoverable. The Company uses Level 3 inputs and the income valuation technique, which converts future cash flows to a single present value amount, to measure the fair value of proved properties through an application of discount rates and price forecasts representative of the current operating environment, as selected by the Company’s management. There were no material impairments of proved properties during the three and nine months ended September 30, 2018, or 2017.

Unproved oil and gas properties. Unproved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. Lease acquisition costs that are not individually significant are aggregated by prospect and the portion of such costs estimated to be nonproductive prior to lease expiration are amortized over the appropriate period. The estimate of what could be nonproductive is based on historical trends or other information, including current drilling plans and the Company’s intent to renew leases. To measure the fair value of unproved properties, the Company uses a market approach, which takes into account the following significant assumptions: remaining lease terms, future development plans, risk-weighted potential resource recovery, estimated reserve values, and estimated acreage value based on price(s) received for similar, recent acreage transactions by the Company or other market participants. During the three and nine months ended September 30, 2018, the Company recorded $9.1 million and $26.6 million, respectively, in abandonment and impairment of unproved properties expense related to lease expirations. There were no material abandonments or impairments of unproved properties expenses for the three and nine months ended September 30, 2017.

Properties held for sale. Properties classified as held for sale, including any corresponding asset retirement obligation liability, are valued using a market approach, based on an estimated net selling price, as evidenced by the most current bid prices received from third parties, if available. If an estimated selling price is not available, the Company utilizes the various valuation techniques discussed above. Any initial write-down and subsequent changes to the fair value less estimated cost to sell is included within the net gain (loss) on divestiture activity line item in the accompanying statements of operations.

There were no material assets held for sale that were recorded at fair value as of September 30, 2018. The Company had $111.7 million of assets classified as held for sale as of December 31, 2017; however, none of these properties were recorded at fair value as the carrying value of these assets was below their estimated fair value less selling costs. For the nine months ended September 30, 2017, the Company recorded a $526.5 million write-down on assets previously held for sale. Please refer to Note 3 - Divestitures, Assets Held for Sale, and Acquisitions above and in the 2017 Form 10-K for more information regarding the Company’s oil and gas properties held for sale.

Please refer to Note 11 - Fair Value Measurements in the 2017 Form 10-K for more information regarding the Company’s approach in determining fair value of its properties, including assets held for sale.

Long-Term Debt

The following table reflects the fair value of the Company’s unsecured senior note obligations measured using Level 1 inputs based on quoted secondary market trading prices. These notes were not presented at fair value on the accompanying balance sheets as of September 30, 2018, or December 31, 2017, as they were recorded at carrying value, net of any unamortized discounts and deferred financing costs. Please refer to Note 5 - Long-Term Debt for additional discussion.



	As of September 30, 2018				As of December 31, 2017
	Principal Amount		Fair Value		Principal Amount		Fair Value
	(in thousands)
6.50% Senior Notes due 2021	$	—	$	—	$	344,611	$	351,682
6.125% Senior Notes due 2022	$	476,796	$	491,076	$	561,796	$	571,627
6.50% Senior Notes due 2023	$	—	$	—	$	394,985	$	403,434
5.0% Senior Notes due 2024	$	500,000	$	491,000	$	500,000	$	483,440
5.625% Senior Notes due 2025	$	500,000	$	498,125	$	500,000	$	494,355
6.75% Senior Notes due 2026	$	500,000	$	522,150	$	500,000	$	516,350
6.625% Senior Notes due 2027	$	500,000	$	517,250	$	—	$	—
1.50% Senior Convertible Notes due 2021	$	172,500	$	191,044	$	172,500	$	168,291