FAIR VALUE MEASUREMENTS:

U.S. GAAP establishes a fair value hierarchy that has three levels based on the reliability of the inputs used to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2015 and 2014, we held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis, including our commodity derivative instruments and our investments in marketable securities. We utilize the services of an independent third party to assist us in valuing our derivative instruments. We used the income approach in determining the fair value of our derivative instruments utilizing a proprietary pricing model. The model accounts for our credit risk and the credit risk of our counterparties in the discount rate applied to estimated future cash inflows and outflows. Our swap contracts are included within the Level 2 fair value hierarchy, and our collar contracts are included within the Level 3 fair value hierarchy. Significant unobservable inputs used in establishing fair value for the collars were the volatility impacts in the pricing model as it relates to the call portion of the collar. For a more detailed description of our derivative instruments, see Note 7 – Derivative Instruments and Hedging Activities. We used the market approach in determining the fair value of our investments in marketable securities, which are included within the Level 1 fair value hierarchy.

We had no liabilities measured at fair value on a recurring basis at December 31, 2015 and 2014. The following tables present our assets that are measured at fair value on a recurring basis at December 31, 2015 and 2014:



	Fair Value Measurements at
	December 31, 2015
Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities (Other assets)	$	8,499	$	8,499	$	—	$	—
Derivative contracts	38,576		—		36,603		1,973
Total	$	47,075	$	8,499	$	36,603	$	1,973



	Fair Value Measurements at
	December 31, 2014
Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities (Other assets)	$	8,425	$	8,425	$	—	$	—
Derivative contracts	153,512		—		153,512		—
Total	$	161,937	$	8,425	$	153,512	$	—

The table below presents a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2015.



	Hedging Contracts, net
Balance as of January 1, 2015	$	—
Total gains/(losses) (realized or unrealized):
Included in earnings	63
Included in other comprehensive income	1,910
Purchases, sales, issuances and settlements	—
Transfers in and out of Level 3	—
Balance as of December 31, 2015	$	1,973
The amount of total gains/(losses) for the period included in earnings (derivative income) attributable to the change in unrealized gain/(losses) relating to derivatives still held at December 31, 2015	$	63

The fair value of cash and cash equivalents approximated book value at December 31, 2015 and 2014. As of December 31, 2015 and 2014, the fair value of the liability component of the 2017 Convertible Notes was approximately $217,117 and $252,587, respectively. As of December 31, 2015 and 2014, the fair value of the 7 1⁄2% Senior Notes due 2022 (the “2022 Notes”) was approximately $271,250 and $664,563, respectively.

The fair value of the 2022 Notes was determined based on quotes obtained from brokers, which represent Level 1 inputs. We applied fair value concepts in determining the liability component of the 2017 Convertible Notes (see Note 11 – Long-Term Debt) at inception and at December 31, 2015 and 2014. The fair value of the liability was estimated using an income approach. The significant inputs in these determinations were market interest rates based on quotes obtained from brokers and represent Level 2 inputs.