Fair Value Measurements

6 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 2 – Fair Value Measurements

The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement 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 sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of March 31, 2012 and September 30, 2011.Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Recurring Fair Value Measures	At fair value as of March 31, 2012
(Thousands of Dollars)	Level 1	Level 2	Level 3	Total
Assets:
Cash Equivalents – Money Market Mutual Funds	$ 162,382	$-	$-	$162,382
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	576	-	-	576
Over the Counter Swaps – Gas	-	121,184	-	121,184
Other Investments:
Balanced Equity Mutual Fund	24,234	-	-	24,234
Common Stock – Financial Services Industry	5,355	-	-	5,355
Other Common Stock	293	-	-	293
Hedging Collateral Deposits	18,872	-	-	18,872
Total	$211,712	$121,184	$-	$ 332,896
Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$6,690	$-	$-	$6,690
Over the Counter Swaps – Oil	-	-	68,754	68,754
Over the Counter Swaps – Gas	-	(8,557)	-	(8,557)
Total	$6,690	$(8,557)	$68,754	$66,887
Total Net Assets/(Liabilities)	$205,022	$129,741	$(68,754)	$266,009

Recurring Fair Value Measures		At fair value as of September 30, 2011
(Thousands of Dollars)	Level 1		Level 2	Level 3	Total
Assets:
Cash Equivalents – Money Market Mutual Funds	$ 32,444		$-	$-	$32,444
Derivative Financial Instruments:
Over the Counter Swaps – Gas	-		75,113	-	75,113
Over the Counter Swaps – Oil	-		-	972	972
Other Investments:
Balanced Equity Mutual Fund	19,882		-	-	19,882
Common Stock – Financial Services Industry	4,478		-	-	4,478
Other Common Stock	226		-	-	226
Hedging Collateral Deposits	19,701		-	-	19,701
Total	$76,731		$75,113	$972	$ 152,816
Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$3,292		$-	$-	$3,292
Over the Counter Swaps – Oil	-		-	6,382	6,382
Total	$3,292		$-	$ 6,382	$9,674
Total Net Assets/(Liabilities)	$73,439		$75,113	$(5,410)	$143,142

Derivative Financial Instruments

At March 31, 2012, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX futures contracts used in the Company’s Energy Marketing and Pipeline and Storage segments (at September 30, 2011, the derivative financial instruments reported in Level 1 consist of NYMEX futures used in the Company’s Energy Marketing segment). Hedging collateral deposits of $10.1 million (at March 31, 2012) and $5.5 million (at September 30, 2011), which are associated with these futures contracts have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at March 31, 2012 and September 30, 2011 consist of natural gas price swap agreements used in the Company’s Exploration and Production and Energy Marketing segments. The fair value of the Level 2 price swap agreements is based on an internal, discounted cash flow model that uses observable inputs (i.e. LIBOR based discount rates and basis differential information, if applicable, at active natural gas and crude oil trading markets). The derivative financial instruments reported in Level 3 consist of all of the Company’s Exploration and Production segment’s crude oil price swap agreements at March 31, 2012 and September 30, 2011.Hedging collateral deposits of $8.8 million and $14.2 million associated with these crude oil price swap agreements have been reported in Level 1 at March 31, 2012 and September 30, 2011, respectively. The fair value of the Level 3 crude oil price swap agreements is based on an internal, discounted cash flow model that uses both observable (i.e. LIBOR based discount rates) and unobservable inputs (i.e. basis differential information of crude oil trading markets with low trading volume).The significant unobservable input used in the fair value measurement of the over-the-counter crude oil swaps is the basis differential between Midway Sunset oil and NYMEX contracts.Significant changes in the assumed basis differential could result in a significant change in value of the derivative financial instrument.At March 31, 2012, it was assumed that Midway Sunset oil was 110.3% of NYMEX.This is based on a historical twelve month average of Midway Sunset oil sales verses NYMEX settlements.During this twelve month period, the price of Midway Sunset oil ranged from 104.5% to 125.0% of NYMEX.If the basis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement calculation at March 31, 2012 had been 10 percentage points lower, the fair value of the Level 3 crude oil price swap agreements liability would have been approximately $25.6 million lower.If the basis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement at March 31, 2012 had been 10 percentage points higher, the fair value measurement of the Level 3 crude oil price swap agreements liability would have been approximately $25.8 million higher.These calculated amounts are based solely on basis differential changes and do not take into account any other changes to the fair value measurement calculation.

Based on an assessment of the counterparties’ credit risk, the fair market value of the price swap agreements reported as Level 2 assets has been reduced by $0.9 million at March 31, 2012 and the fair market value of the price swap agreements reported as Level 2 and Level 3 assets has been reduced by $2.0 million at September 30, 2011. Based on an assessment of the Company’s credit risk, the fair market value of the price swap agreements reported as Level 2 and Level 3 liabilities at March 31, 2012 has been reduced by $0.1 million and the fair market value of the price swap agreements reported as Level 3 liabilities has not been reduced at September 30, 2011. These credit reserves were determined by applying default probabilities to the anticipated cash flows that the Company is either expecting from its counterparties or expecting to pay to its counterparties.

The tables listed below provide reconciliations of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 for the quarters and six months ended March 31, 2012 and 2011, respectively. For the quarters and six months ended March 31, 2012 and March 31, 2011, no transfers in or out of Level 1 or Level 2 occurred.There were no purchases or sales of derivative financial instruments during the periods presented in the tables below.All settlements of the derivative financial instruments are reflected in the Gains/Losses Realized and Included in Earnings column of the tables below.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	January 1, 2012	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	March 31, 2012
Derivative Financial Instruments(2)	$(54,773)	$13,523(1)	$(27,504)	$-	$(68,754)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended March 31, 2012.

⁽²⁾Derivative Financial Instruments are shown on a net basis.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	October 1, 2011	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	March 31, 2012
Derivative Financial Instruments(2)	$(5,410)	$26,135(1)	$(89,479)	$-	$(68,754)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the six months ended March 31, 2012.

⁽²⁾Derivative Financial Instruments are shown on a net basis.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	January 1, 2011	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	March 31, 2011
Derivative Financial Instruments(2)	$(37,407)	$9,566(1)	$(44,072)	$-	$(71,913)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended March 31, 2011.

⁽²⁾Derivative Financial Instruments are shown on a net basis.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	October 1, 2010	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	March 31, 2011
Derivative Financial Instruments(2)	$(16,483)	$13,168(1)	$(68,598)	$-	$(71,913)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the six months ended March 31, 2011.

⁽²⁾Derivative Financial Instruments are shown on a net basis.