Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

9.    Fair Value Measurements

We apply the authoritative accounting provisions for measuring fair value of both our financial and nonfinancial assets and liabilities.  Fair value is an exit price representing the expected amount we would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date.  We have followed consistent methods and assumptions to estimate the fair values as more fully described in our Annual Report on Form 10-K for the year ended December 31, 2010.

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives and long-term debt. As of June 30, 2011, the carrying values of all of these financial instruments, except the portion of long-term debt with fixed interest rates, approximated fair value. The following tables summarize the fair value of our long-term debt with fixed interest rates, which is estimated based on the published market prices for the same or similar issues as of the periods presented:

	June 30, 2011				December 31, 2010
	Fair		Carrying		Fair		Carrying
	Value		Value		Value		Value
10.375% Senior Notes due 2016	$	330,000	$	293,009	$	335,712	$	292,487
7.25% Senior Notes due 2019		289,500		300,000		-		-
4.50% Convertible Notes due 2012		5,047		4,659		225,975		214,049
	$	624,547	$	597,668	$	561,687	$	506,536

Recurring Fair Value Measurements

Certain financial assets and liabilities are measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheets. The following tables summarize the valuation of those assets and liabilities as of the periods presented:

	June 30, 2011
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1			Level 2			Level 3
Assets:
Publicly traded equity securities	$	5,363		$	5,363		$	-		$	-
Interest rate swap assets - current		1,765			-			1,765			-
Interest rate swap assets - noncurrent		950			-			950			-
Commodity derivative assets - current		12,675			-			12,675			-
Commodity derivative assets - noncurrent		1,597			-			1,597			-
Liabilities:
Deferred compensation - noncurrent liability		(5,685	)		(5,685	)		-			-
Commodity derivative liabilities - current		(115	)		-			(115	)		-
Totals	$	16,550		$	(322	)	$	16,872		$	-

	December 31, 2010
	Fair Value			Fair Value Measurement Classification
Description	Measurement			Level 1			Level 2			Level 3
Assets:
Publicly traded equity securities	$	6,440		$	6,440		$	-		$	-
Interest rate swap assets - current		1,743			-			1,743			-
Interest rate swap assets - noncurrent		847			-			847			-
Commodity derivative assets - current		15,075			-			15,075			-
Commodity derivative assets - noncurrent		3,042			-			3,042			-
Liabilities:
Deferred compensation - noncurrent liability		(6,948	)		(6,948	)		-			-
Commodity derivative liabilities - current		(388	)		-			(388	)		-
Totals	$	19,811		$	(508	)	$	20,319		$	-

We used the following methods and assumptions to estimate fair values:

• Publicly traded equity securities: We hold various publicly traded equity securities as assets for funding certain deferred compensation obligations. The fair values are based on quoted market prices, which are level 1 inputs.

• Commodity derivatives: We determine the fair values of our oil and gas derivative instruments based on discounted cash flows derived from third-party quoted forward prices for NYMEX Henry Hub natural gas and West Texas Intermediate crude oil closing prices as of the end of the reporting periods.  We generally use the income approach, using valuation techniques that convert future cash flows to a single discounted value. Each of these is a level 2 input.

• Interest rate swaps: We determine the fair values of our interest rate swaps using an income approach valuation technique that connects future cash flows to a single discounted value. We estimate the fair value of the swaps based on published interest rate yield curves as of the date of the estimate. Each of these is a level 2 input.

• Deferred compensation: Certain of our deferred compensation obligations are ultimately to be settled in cash based on the underlying fair value of certain publicly traded equity securities. The fair values of these obligations are based on quoted market prices, which are level 1 inputs.

Non-Recurring Fair Value Measurements

The most significant non-recurring fair value measurements include the fair value of proved properties and tubular inventory and well materials for purposes of impairment testing and the initial determination of asset retirement obligations (“AROs”). The factors used to determine fair value for purposes of impairment testing include, but are not limited to, estimates of proved and probable reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Because these significant fair value inputs are typically not observable, we have categorized the amounts as level 3 inputs.

The determination of the fair value of AROs is based upon regional market and facility specific information. The amount of an ARO and the costs capitalized represent the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor after discounting the future cost back to the date that the abandonment obligation was incurred using a rate commensurate with the risk, which approximates our cost of funds. Because these significant fair value inputs are typically not observable, we have categorized the initial fair value estimates as level 3 inputs.

In addition to these non-recurring fair value measurements, we utilized fair value measurements in the determination of the loss on the extinguishment of approximately 98% our Convertible Notes. In connection with that determination, we were required to allocate the cash paid to repurchase the Convertible Notes to its liability and equity components. Furthermore, the allocation to the liability component was based on the fair value of a comparable debt instrument that has no conversion feature. The residual amount of cash paid to repurchase the Convertible Notes was allocated to the equity component.