Fair Value Measurement

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurement

The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.

A financial instrument's categorization within the fair value hierarchy is based upon 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 classification of assets and liabilities within the fair value hierarchy. The fair value of all derivative instruments is estimated with industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. The fair value of all derivative instruments is estimated using a combined income and market valuation methodology based upon forward commodity price and volatility curves. The curves are obtained from independent pricing services, and the Company has made no adjustments to the obtained prices. The independent pricing services publish observable market information from multiple brokers and exchanges. All valuations were compared against counterparty valuations to verify the reasonableness of prices. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds. The Company recognizes transfers between levels at the end of the reporting period for which the transfer has occurred.

Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth by level within the fair value hierarchy the Company's net derivative liabilities that were measured at fair value on a recurring basis as of December 31, 2011 and 2010:

(in millions)	Total		Level 1		Level 2		Level 3
Commodity derivatives liability, net
December 31, 2011	$	22.7	$	—	$	22.7	$	—
December 31, 2010	$	113.6	$	—	$	11.8	$	101.8

Changes in Level 3 Fair Value Measurements

The table below includes a rollforward of amounts included in the Company's Balance Sheet (including the change in fair value) for financial instruments classified by the Company within Level 3 of the fair value hierarchy. When a determination is made to classify a financial instrument within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources).

	Year Ended December 31,
(in millions)	2011			2010		2009
Fair value liability (asset), beginning of period	$	101.8		$	26.0	$	(172.5	)
Transfer out of Level 3(1)	(101.8		)	—		(3.4		)
Realized and unrealized (gain) loss included in earnings	—			37.4		(71.0		)
Unrealized loss included in accumulated other comprehensive loss	—			—		201.9
Settlements	—			38.4		71.0
Fair value liability, end of period	$	—		$	101.8	$	26.0
Total unrealized (gain) loss included in earnings related to financial assets and liabilities still on the Balance Sheets	$	—		$	75.8	$	(0.4	)

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(1) During the first quarter of 2011, the inputs used to value oil collars, natural gas collars and natural gas basis swaps were directly or indirectly observable, and these instruments were transferred to level 2.

The $3.4 million of transfers out of Level 3 for the year ended December 31, 2009 represent crude oil collars that were converted to crude oil swaps during the first quarter of 2009.

For further discussion related to the Company's derivatives, see Note 8 to the Financial Statements.

Fair Market Value of Financial Instruments

The Company uses various assumptions and methods in estimating the fair values of its financial instruments. The carrying amounts of cash and cash equivalents and accounts receivable approximated their fair value due to the short-term maturity of these instruments. The carrying amount of the Company's credit facility and line of credit approximated fair value because the interest rates are variable and could be at similar rates today. The fair values of the 2016 Notes, the 2014 Notes, and the 2020 Notes were estimated based on quoted market prices. The fair values of the Company's derivative instruments are discussed above.

	December 31, 2011				December 31, 2010
(in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Line of credit	$	—	$	—	$	5	$	5
Senior secured revolving credit facility	532		532		170		170
8.25% Senior subordinated notes due 2016	200		209		200		210
10.25% Senior notes due 2014, net of unamortized discount of $6,564 and $11,035, respectively	349		402		439		518
6.75% Senior notes due 2020	300		302		300		303
	$	1,381	$	1,445	$	1,114	$	1,206

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations, oil and natural gas property impairments and other long-lived asset impairments. These items are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances.

In 2011, the Company recognized impairment losses of $625.0 million and $4.3 million related to natural gas properties and other long-lived assets (drilling rigs), respectively. In 2009, the Company recognized an impairment loss of $4.2 million related to other long-lived assets. The following tables present information about the Company's non-financial assets measured at fair value on a non-recurring basis as of December 31, 2011 and 2009 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:

			Fair Value Measurements (in millions) Using
Description	Carrying Value at 12/31/2011		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Losses Recognized in 2011
Natural Gas Properties	$	114.3	—	—	114.3	$	625.0
Other Long-Lived Assets	1.4		—	—	1.4	4.3
						$	629.3

			Fair Value Measurements (in millions) Using
Description	Carrying Value at 12/31/2009		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Losses Recognized in 2009
Other Long-Lived Assets	$	3.3	—	—	3.3	$	4.2

See Notes 2 and 11 to the Financial Statements for additional information on the methods and assumptions used to estimate the fair values of the Company's assets measured at fair value on a nonrecurring basis.