Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.3.1.900
Fair Value Measurement
12 Months Ended
Dec. 31, 2015
Fair Value Measurement  
Fair Value Measurement

(8) Fair Value Measurement

 

In connection with the Water Acquisition, we have agreed to pay Antero (a) $125 million in cash if the Partnership delivers 176,295,000 barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if the Partnership delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs.

 

The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis for the periods shown below (in thousands):

 

 

 

 

 

 

 

 

 

 

Contingent Consideration

 

 

December 31,

 

    

2014

    

2015

Beginning balance

 

$

 —

 

$

 —

Initial estimate upon acquisition

 

 

 —

 

 

174,716

Accretion

 

 

 —

 

 

3,333

Ending balance

 

$

 —

 

$

178,049

 

We account for contingent consideration in accordance with applicable accounting guidance pertaining to business combinations. We are contractually obligated to pay Antero contingent consideration in connection with the Water Acquisition, and therefore recorded this contingent consideration liability at the time of the Water Acquisition. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, until such consideration is satisfied through payment upon achievement of the specified objectives or it is eliminated upon failure to achieve the specified objectives.

 

As of December 31, 2015, expect to pay the entire amount of the contingent consideration amounts in 2019 and 2020. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was based on the risk adjusted present value of the contingent consideration payout.