FAIR VALUE MEASUREMENTS AND DISCLOSURES

9 Months Ended

Sep. 30, 2011

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

FAIR VALUE MEASUREMENTS AND DISCLOSURES

Derivative Financial Instruments

Determination of fair value. Fair value accounting standards have established a fair value hierarchy that prioritizes the inputs used in applying a valuation methodology. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability, and their placement within the fair value hierarchy levels. The three levels of inputs that may be used to measure fair value are defined as:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2– Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability and (iv) inputs that are derived from observable market data by correlation or other means.

Level 3– Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability.

Derivative Financial Instruments. We measure the fair value of our derivative instruments based on a pricing model that utilizes market-based inputs, including but not limited to the contractual price of the underlying position, current market prices, natural gas and crude oil forward curves, discount rates such as the LIBOR curve for a similar duration of each outstanding position, volatility factors and nonperformance risk. Nonperformance risk considers the effect of our credit standing on the fair value of derivative liabilities and the effect of our counterparties' credit standings on the fair value of derivative assets. Both inputs to the model are based on published credit default swap rates and the duration of each outstanding derivative position. The counterparties to our derivative instruments are primarily financial institutions who are also major lenders in our credit facility agreement. We validate our fair value measurement through (1) the review of counterparty statements and other supporting documentation, (2) the determination that the source of the inputs are valid, (3) the corroboration of the original source of inputs through access to multiple quotes, if available, or other information and (4) monitoring changes in valuation methods and assumptions. While we use common industry practices to develop our valuation techniques, changes in our pricing methodologies or the underlying assumptions could result in significantly different fair values. While we believe our valuation method is appropriate and consistent with those used by other market participants, the use of a different methodology, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value.

The following table presents, for each hierarchy level, our derivative assets and liabilities, both current and non-current portions, including the derivative assets and liabilities designated to our affiliated partnerships and our proportionate share of PDCM's derivative assets and liabilities, measured at fair value on a recurring basis.

	September 30, 2011						December 31, 2010 (a)
	Level 2 (b)		Level 3 (c)		Total		Level 2 (b)		Level 3 (c)		Total
	(in thousands)
Assets:
Commodity based derivatives contracts	$	72,405	$	23,553	$	95,958	$	72,880	$	14,426	$	87,306
Basis protection derivative contracts	3		52		55		10		101		111
Total assets	72,408		23,605		96,013		72,890		14,527		87,417
Liabilities:
Commodity based derivatives contracts	2,051		142		2,193		16,304		3,758		20,062
Basis protection derivative contracts	39,461		—		39,461		46,573		7		46,580
Total liabilities	41,512		142		41,654		62,877		3,765		66,642
Net asset	$	30,896	$	23,463	$	54,359	$	10,013	$	10,762	$	20,775

__________

(a) We reclassified our NYMEX-based natural gas fixed-price swaps from Level 1 to Level 2 (decreasing the previously reported net asset in Level 1 by $64.1 million, with a corresponding increase in Level 2), Panhandle Eastern Pipeline ("PEPL") and Colorado Interstate Gas ("CIG") -based natural gas fixed-price swaps, crude oil fixed-price swaps, basis swaps and natural gas physical purchases from Level 3 to Level 2 (decreasing the previously reported net liability in Level 3 by $54.1 million, with a corresponding increase in Level 2). The amounts presented reflect these reclassifications and conform to current period presentation.

(b) Includes our fixed-price swaps, basis swaps and physical purchases.

(c) Includes our natural gas and crude oil collars, crude oil puts and physical sales.

The following table presents a reconciliation of our Level 3 fair value measurements.

	Nine Months Ended September 30,
	2011			2010 (1)
	(in thousands)
Fair value, net asset, beginning of period	$	10,762		$	15,048
Changes in fair value included in statement of operations line item:
Commodity price risk management gain, net	15,285			15,655
Sales from natural gas marketing	51			493
Cost of natural gas marketing	—			24
Changes in fair value included in balance sheet line item (2):
Accounts receivable affiliates	49			10
Accounts payable affiliates	(568		)	(677		)
Settlements included in statement of operations line items:
Commodity price risk management gain, net	(2,022		)	(11,583		)
Sales from natural gas marketing	(94		)	(289		)
Cost of natural gas marketing	—			(23		)
Fair value, net asset, end of period	$	23,463		$	18,658
Changes in unrealized gains (losses) relating to assets (liabilities) still held
as of period end, included in statement of operations line item:
Commodity price risk management gain, net	$	9,974		15,469
Sales from natural gas marketing	(4		)	187
	$	9,970		$	15,656

__________

(1) We reclassified our PEPL and CIG-based natural gas fixed-price swaps, crude oil fixed-price swaps, basis swaps and natural gas physical purchases from Level 3 to Level 2 (decreasing the previously reported net liability at the beginning of the period by $44 million). The amounts presented reflect these reclassifications and conform to current period presentation.

(2) Represents the change in fair value related to derivative instruments entered into by us and designated to our affiliated partnerships.

See Note 4 for additional disclosure related to our derivative financial instruments.

Non-Derivative Financial Assets and Liabilities

The carrying values of the financial instruments comprising current assets and current liabilities approximate fair value due to the short-term maturities of these instruments.

The liability associated with our non-qualified deferred compensation plan for non-employee directors may be settled in cash or shares of our common stock. The carrying value of this obligation is based on the quoted market price of our common stock, which is a Level 1 input. As of September 30, 2011, and December 31, 2010, the liability related to this plan was immaterial.

The portion of our long-term debt related to our corporate credit facility, as well as our proportionate share of PDCM's credit facility, approximates fair value due to the variable nature of its related interest rate. We have not elected to account for the portion of our long-term debt related to our senior notes under the fair value option; however, as of September 30, 2011, we estimate the fair value of our 3.25% convertible senior notes due 2016 to be $92 million and the fair value of our 12% senior notes due 2018 to be $217.7 million. We determined these valuations based upon measurements of broker/dealer quotes and trading activity, respectively.