Oil And Natural Gas Properties

3 Months Ended

Mar. 31, 2013

Extractive Industries [Abstract]

Oil And Natural Gas Properties

OIL AND NATURAL GAS PROPERTIES

Full cost accounting rules require us to review the carrying value of our oil and natural gas properties at the end of each quarter. Under those rules, the maximum amount allowed as the carrying value is referred to as the ceiling. The ceiling is the sum of the present value (using a 10% discount rate) of the estimated future net revenues from our proved reserves (using the unescalated 12-month average price of our oil, NGLs, and natural gas adjusted for any cash flow hedges), plus the cost of properties not being amortized, plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, less related income taxes. In the event the unamortized cost of the amortized oil, NGLs, and natural gas properties exceeds the full cost ceiling, the excess amount is charged to expense in the period during which the excess occurs, even if prices are depressed for only a short period of time. Once incurred, a write-down of oil and natural gas properties is not reversible.

At March 31, 2013, the 12-month average commodity prices, including the discounted value of our cash flow hedges, were at levels that did not require us to take a write-down of our oil and natural gas properties. If there are declines in the 12-month average prices, including the discounted value of our cash flow hedges, we may be required to record a write-down in future periods.

Our qualifying cash flow hedges used in the ceiling test determination as of March 31, 2013, consisted of swaps and collars covering 6.9 MMBoe in 2013. The effect of those hedges on the March 31, 2013 ceiling test was a $21.7 million pre-tax increase in the discounted net cash flows of our oil and natural gas properties. Without the impact of those hedges, we would have been required to take a non-cash ceiling write down of $17.7 million ($11.0 million, net of tax). Our oil, NGLs, and natural gas hedging is discussed in Note 9 of the Notes to our Unaudited Condensed Consolidated Financial Statements.