Fair Value Measurements

U.S. Generally Accepted Accounting Principles establish 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 September 30, 2016 and December 31, 2015, we held certain financial assets 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 4 – 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 September 30, 2016 and December 31, 2015. The following tables present our assets that are measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015.



	Fair Value Measurements at
	September 30, 2016
Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In millions)
Marketable securities (Other assets)	$	8.8	$	8.8	$	—	$	—
Derivative contracts	6.3		—		6.3		—
Total	$	15.1	$	8.8	$	6.3	$	—



	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)
	(In millions)
Marketable securities (Other assets)	$	8.5	$	8.5	$	—	$	—
Derivative contracts	38.6		—		36.6		2.0
Total	$	47.1	$	8.5	$	36.6	$	2.0

The table below presents a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2016.



	Hedging Contracts, net
	(In millions)
Balance as of January 1, 2016	$	2.0
Total gains/(losses) (realized or unrealized):
Included in earnings	1.1
Included in other comprehensive income	(1.9		)
Purchases, sales, issuances and settlements	(1.2		)
Transfers in and out of Level 3	—
Balance as of September 30, 2016	$	—
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 September 30, 2016	$	—

The fair value of cash and cash equivalents approximated book value at September 30, 2016 and December 31, 2015. As of September 30, 2016 and December 31, 2015, the fair value of the liability component of the 2017 Convertible Notes was approximately $278.6 million and $217.1 million, respectively. As of September 30, 2016 and December 31, 2015, the fair value of the 2022 Notes was approximately $441.8 million and $271.3 million, 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 5 – Debt) at inception, September 30, 2016 and December 31, 2015. 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.