Granite Ridge Resources, Inc.GRNT
Granite Ridge Resources, Inc. Fair Value Disclosure
Fair Value Measurements
The Company has adopted and follows ASC 820, Fair Value Measurements and Disclosures, for measurement and disclosures about fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified 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.
As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following table presents the carrying amounts and fair values of the Company’s financial instruments as of December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivative instruments - commodity derivatives | $ | 537 | $ | 537 | $ | 12,306 | $ | 12,306 | |||||||||||||||
| Equity investments | $ | 31,783 | $ | 31,783 | $ | 50,427 | $ | 50,427 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Revolving credit facilities | $ | 205,000 | $ | 205,000 | $ | 110,000 | $ | 110,000 | |||||||||||||||
| Derivative instruments - commodity derivatives | $ | 5,501 | $ | 5,501 | $ | — | $ | — | |||||||||||||||
Revolving credit facilities — The carrying amounts of the revolving credit facilities approximate their fair values, as the applicable interest rates are variable and reflective of market rates.
Other financial assets and liabilities — The carrying amounts of the Company’s other financial assets and liabilities, such as revenue receivable and accrued expenses due to sellers, approximate their fair values because of the short maturity of these instruments.
Derivative instruments - commodity derivatives — The fair value of the Company’s derivative instruments is estimated by management considering various factors, including closing exchange and over-the-counter quotations and the time value of the underlying commitments. The fair value of the Company’s commodity derivative instruments is considered to be a Level 2 measurement. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. The Company’s valuation models are primarily industry-standard models that consider various inputs including: (i) quoted forward prices for commodities, (ii) current market and contractual prices for the underlying instruments, (iii) applicable credit-adjusted risk-free rate curves, as well as other relevant economic measures.
Equity investments — The fair value of the Company’s investment in Vital Energy's common stock was valued using the instrument's publicly listed trading price, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market. The fair value of the Company's investment in Vital Energy's preferred stock was estimated by management considering various factors, including the publicly listed trading price of Vital Energy's common shares and the present value of expected dividends. The fair value of the investment in preferred stock was considered to be a Level 2 measurement. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.
On June 4, 2024, the 2.0% cumulative mandatorily convertible preferred securities of Vital Energy were converted into 541,155 shares of common stock of Vital Energy. Prior to this conversion, the common shares of Vital Energy owned by the Company were not entitled to vote and bore a restricted legend to that effect. As of December 31, 2024, the Company held 1,027,907 shares of Vital Energy’s common stock, for which the fair value is a Level 1 measurement.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The following tables summarize (i) the valuation of each of the Company’s financial instruments by required fair value hierarchy levels and (ii) the gross fair value by the appropriate balance sheet classification, even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the Company’s
consolidated balance sheets as of December 31, 2024 and 2023. The Company nets the fair value of commodity derivative instruments by counterparty in the Company’s consolidated balance sheets.
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total Fair Value | Gross Amounts Offset in the Consolidated Balance Sheet | Net Fair Value Presented in the Consolidated Balance Sheet | |||||||||||||||||||||||||||||
| Equity investments - common stock | $ | 31,783 | $ | — | $ | — | $ | 31,783 | $ | — | $ | 31,783 | |||||||||||||||||||||||
| Assets (at fair value): | |||||||||||||||||||||||||||||||||||
| Commodity derivatives – current portion | $ | — | $ | 2,053 | $ | — | $ | 2,053 | $ | (1,516) | $ | 537 | |||||||||||||||||||||||
| Liabilities (at fair value): | |||||||||||||||||||||||||||||||||||
| Commodity derivatives – current portion | — | (3,338) | — | (3,338) | 1,516 | (1,822) | |||||||||||||||||||||||||||||
| Commodity derivatives – noncurrent portion | — | (3,679) | — | (3,679) | — | (3,679) | |||||||||||||||||||||||||||||
| Net derivative instruments | $ | — | $ | (4,964) | $ | — | $ | (4,964) | $ | — | $ | (4,964) | |||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total Fair Value | Gross Amounts Offset in the Consolidated Balance Sheet | Net Fair Value Presented in the Consolidated Balance Sheet | |||||||||||||||||||||||||||||
| Equity investments - common stock | $ | 25,554 | $ | — | $ | — | $ | 25,554 | $ | — | $ | 25,554 | |||||||||||||||||||||||
| Equity investments - preferred stock | — | 24,873 | — | 24,873 | — | 24,873 | |||||||||||||||||||||||||||||
| Total equity investments | $ | 25,554 | $ | 24,873 | $ | — | $ | 50,427 | $ | — | $ | 50,427 | |||||||||||||||||||||||
| Assets (at fair value): | |||||||||||||||||||||||||||||||||||
| Commodity derivatives – current portion | $ | — | $ | 14,202 | $ | — | $ | 14,202 | $ | (3,085) | $ | 11,117 | |||||||||||||||||||||||
| Commodity derivatives – noncurrent portion | — | 2,534 | — | 2,534 | (1,345) | 1,189 | |||||||||||||||||||||||||||||
| Liabilities (at fair value): | |||||||||||||||||||||||||||||||||||
| Commodity derivatives – current portion | — | (3,085) | — | (3,085) | 3,085 | — | |||||||||||||||||||||||||||||
| Commodity derivatives – noncurrent portion | — | (1,345) | — | (1,345) | 1,345 | — | |||||||||||||||||||||||||||||
| Net derivative instruments | $ | — | $ | 12,306 | $ | — | $ | 12,306 | $ | — | $ | 12,306 | |||||||||||||||||||||||
Fair Values – Nonrecurring
Impairments of long-lived assets — The Company periodically reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable; for instance, when there are declines in commodity prices or well performance. The Company reviews its oil and natural gas properties by depletion base. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If the estimated undiscounted future net cash flows are less than the carrying amount of the Company’s assets, it recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
The Company calculates the estimated fair values of its long-lived assets using the market and income valuation approaches. The income approach is calculated using a discounted future cash flow model. Fair value assumptions associated with the calculation of discounted future net cash flows include (i) market estimates of commodity prices, which are based on the NYMEX strip, (ii) pricing adjustments for differentials, (iii) production costs, (iv) capital expenditures, (v) production volumes, (vi) estimated proved and unproved reserves and (vii) discount rate. The expected future net cash flows are generally discounted using a discount rate which has approximated 10 percent for proved developed producing reserves and an appropriate market discount rate based on risk for other reserve categories. The Company uses the market approach by identifying market comparisons of recent transactions of oil and gas properties that share geographical and reserve characteristics to assess the fair value of the Company's assets. These are classified as Level 3 fair value assumptions.
As of December 31, 2024, the Company’s estimates of commodity prices for purposes of determining discounted future cash flows, which are based on the NYMEX strip, ranged from a 2025 price of $69.87 per barrel of oil decreasing to a 2029 price of $63.07 per barrel of oil. Natural gas prices ranged from a 2025 price of $3.53 per Mcf of natural gas increasing to a 2029 price of $3.58 per Mcf. Both oil and natural gas commodity prices for this purpose were held flat after 2029.
As of December 31, 2023, the Company’s estimates of commodity prices for purposes of determining discounted future cash flows, which are based on the NYMEX strip, ranged from a 2024 price of $71.68 per barrel of oil decreasing to a 2028 price of $62.02 per barrel of oil. Natural gas prices ranged from a 2024 price of $2.67 per Mcf of natural gas increasing to a 2028 price of $3.80 per Mcf. Both oil and natural gas commodity prices for this purpose were held flat after 2028.
Bakken Impairment
In the fourth quarter of 2024, there were indicators that the carrying value of the Company's Bakken proved oil and gas properties may be impaired due to widening differentials and higher production cost assumptions. As a result of the impairment evaluation, where the market and income approach were utilized to assess fair value, the Company recorded impairment of $35.6 million, which is included in impairment of long-lived assets within the consolidated statements of operations.
Haynesville Impairment
In the fourth quarter of 2023, there were indicators that the carrying value of the Company's Haynesville proved oil and gas properties may be impaired due to a decline in natural gas prices and negative reserve revisions for certain wells that had recently begun production as well as certain proved undeveloped wells. As a result of the impairment evaluation, where the income approach was utilized to assess fair value, the Company recorded impairment of $26.5 million, which is included in impairment of long-lived assets within the consolidated statements of operations.
Asset retirement obligations — The fair value measurements of asset retirement obligations are measured on a nonrecurring basis when a well is drilled or acquired or when production equipment and facilities are installed or acquired using a discounted cash flow model based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the fair value measurement of asset retirement obligations include estimates of the costs of plugging and abandoning oil and natural gas wells, removing production equipment and facilities and restoring the surface of the land as well as estimates of the economic lives of the oil and natural gas wells and future inflation rates.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.