Fair Value Measurements

3 Months Ended

Mar. 31, 2024

(12) Fair Value Measurements

Derivative assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):


	Level 2
	March 31, 2024		December 31, 2023
Interest rate swap (1)	$	4.8	$	0.9
Commodity derivatives (2)	$	(12.5)	$	13.6

____________________________

(1)The fair values of the interest rate swaps are estimated based on the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows using observable benchmarks for the variable interest rates.

(2)The fair values of commodity derivatives represent the amount at which the instruments could be exchanged in a current arms-length transaction adjusted for our credit risk and/or the counterparty credit risk as required under ASC 820.

Fair Value of Financial Instruments

The estimated fair value of our financial instruments has been determined using available market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided below are not necessarily indicative of the amount we could realize upon the sale or refinancing of such financial instruments.

Long-term debt, including current maturities of long-term debt. The carrying value and estimated fair value of our outstanding debt balances are disclosed below (in millions):


	March 31, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities of long-term debt (1)	$	4,567.4	$	4,424.8	$	4,568.9	$	4,427.0

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(1)The carrying value of long-term debt, including current maturities of long-term debt, is reduced by debt issuance cost, net of accumulated amortization, of $30.8 million and $32.1 million as of March 31, 2024 and December 31, 2023, respectively. The respective fair values do not factor in debt issuance costs.

The fair values of all senior unsecured notes as of March 31, 2024 and December 31, 2023 were based on Level 2 inputs from third-party market quotations.

Contingent Consideration. The carrying value and estimated fair value of the Amarillo Rattler Acquisition and Central Oklahoma Acquisition contingent consideration liabilities are disclosed below (in millions):


	Three Months Ended March 31,
	2024		2023
Amarillo Rattler Acquisition contingent consideration (1)
Contingent consideration liability, beginning of period	$	4.8	$	4.2
Change in fair value	1.4		0.5
Earnout payments	(2.3)		—
Contingent consideration liability, end of period	$	3.9	$	4.7

Central Oklahoma Acquisition contingent consideration (2)
Contingent consideration liability, beginning of period	$	1.9	$	1.3
Change in fair value	0.3		0.2
Earnout payments	(0.2)		—
Contingent consideration liability, end of period	$	2.0	$	1.5

Total contingent consideration (1)(2)
Contingent consideration liability, beginning of period	$	6.7	$	5.5
Change in fair value	1.7		0.7
Earnout payments	(2.5)		—
Contingent consideration liability, end of period	$	5.9	$	6.2

____________________________

(1)Consideration for the Amarillo Rattler Acquisition included a contingent component capped at $15.0 million and payable between 2024 and 2026 based on Diamondback E&P LLC’s drilling activity exceeding historical levels. Estimated fair values were calculated using a discounted cash flow analysis that utilized Level 3 inputs. The carrying value of the contingent consideration is equal to its fair value.

(2)Consideration for the Central Oklahoma Acquisition included a contingent component, which is payable between 2024 and 2027 based on fee revenue earned on certain contractually specified volumes for the annual periods beginning January 1, 2023 through December 31, 2026. Estimated fair values were calculated using a discounted cash flow analysis that utilized Level 3 inputs. The carrying value of the contingent consideration is equal to its fair value.

The carrying amounts of our cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term maturities of these assets and liabilities.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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