Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.23.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Recurring Measurements

Our assets and liabilities measured at fair value on a recurring basis consist of the following:

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

As of June 30, 2023:

 

 

 

 

 

 

 

 

 

Assets - investment in BPC

 

$

—

 

 

$

—

 

 

$

43.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Munger make-whole provision

 

$

—

 

 

$

—

 

 

$

8.9

 

Warrants

 

 

0.1

 

 

 

—

 

 

 

—

 

Total

 

$

0.1

 

 

$

—

 

 

$

8.9

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022:

 

 

 

 

 

 

 

 

 

Assets - investment in BPC

 

$

—

 

 

$

—

 

 

$

53.6

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Earnout payment

 

$

—

 

 

$

—

 

 

$

6.6

 

Munger make-whole provision

 

 

—

 

 

 

—

 

 

 

0.4

 

Warrants

 

 

1.1

 

 

 

—

 

 

 

—

 

Total

 

$

1.1

 

 

$

—

 

 

$

7.0

 

We have elected the fair value option to account for our investment in Basin Production and Completion LLC ("BPC"). The significant unobservable inputs used in the fair value measurement, which was valued using the income approach and the market approach, are forecasted results and a weighted average cost of capital.

 

The fair value of the earnout payment was estimated using a Black-Scholes model, adjusted for the capped amount of the earnout. The fair value was discounted using a company specific credit spread to account for the counterparty credit risk in making the payment. The significant unobservable inputs used in the fair value measurement are the risk-free rate, credit spread of the acquirer, discount rate, forecasted results and volatility.

The fair value of the Munger make-whole provision was estimated using a Black-Scholes model. The significant unobservable inputs used in the fair value measurement are the risk-free rate and volatility. In May 2023, the expiration date of the Munger make-whole provision was extended until May 17, 2024.

The following is a reconciliation of our recurring Level 3 fair value measurements:

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Balance at beginning of period

 

$

40.3

 

 

$

78.3

 

 

$

46.6

 

 

$

—

 

Acquisition of Flotek convertible notes

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20.0

 

Acquisition of investment in BPC

 

 

—

 

 

 

—

 

 

 

—

 

 

 

46.0

 

Transfer of Investment in BPC to Level 3 fair value measurement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4.2

 

Change in fair value of Level 3 fair value measurements

 

 

(5.8

)

 

 

—

 

 

 

(12.1

)

 

 

8.1

 

Balance at end of period

 

$

34.5

 

 

$

78.3

 

 

$

34.5

 

 

$

78.3

 

Nonrecurring Measurements

We have certain assets and liabilities that are not measured at fair value on an ongoing basis but were subjected to fair value adjustments at the time of acquisition. These include long-lived assets and liabilities acquired through our business combination activities, the fair values of which were determined using applicable valuation models based on significant unobservable inputs classified as level 3 in the fair value hierarchy. See Note 2 for additional information.

Financial Instruments

The estimated fair values of our financial instruments have been determined at discrete points in time based on relevant market information. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, certain investments, accounts payable, accrued expenses and long-term debt. The carrying amounts of our financial instruments other than long-term debt approximate fair value because of the short-term nature of the items.

The carrying amounts of our term loan facility and ABL credit facility approximate fair value due to the variable interest rate. The fair value of our fixed rate debt, which includes the Monarch note, the REV note and the Equify note was as follows:

 

 

June 30,
2023

 

 

December 31,
2022

 

Carrying amount of fixed rate debt

 

$

104.9

 

 

$

132.6

 

Fair value of fixed rate debt

 

$

112.3

 

 

$

142.5