b'KOSMOS ENERGY LTD.Notes to Consolidated Financial Statements (Continued)9. Derivative Financial Instruments (Continued)Offsetting of Derivative Assets and Derivative LiabilitiesOur derivative instruments which are subject to master netting arrangements with ourcounterparties only have the right of offset when there is an event of default. As of December 31, 2018and 2017, there was not an event of default and, therefore, the associated gross asset or gross liabilityamounts related to these arrangements are presented on the consolidated balance sheets.10. Fair Value MeasurementsIn accordance with ASC 820Fair Value Measurements and Disclosures, fair value measurementsare based upon inputs that market participants use in pricing an asset or liability, which are classifiedinto two categories: observable inputs and unobservable inputs. Observable inputs represent marketdata obtained from independent sources, whereas unobservable inputs reflect a companys own marketassumptions, which are used if observable inputs are not reasonably available without undue cost andeffort. We prioritize the inputs used in measuring fair value into the following fair value hierarchy:\x7f Level 1quoted prices for identical assets or liabilities in active markets.\x7f Level 2quoted prices for similar assets or liabilities in active markets, quoted prices foridentical or similar assets or liabilities in markets that are not active, inputs other than quotedprices that are observable for the asset or liability and inputs derived principally from orcorroborated by observable market data by correlation or other means.\x7f Level 3unobservable inputs for the asset or liability. The fair value input hierarchy level towhich an asset or liability measurement in its entirety falls is determined based on the lowestlevel input that is significant to the measurement in its entirety.135'