Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

NOTE 11 – FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants (in either case, an exit price). To estimate an exit price, a three-level hierarchy is used prioritizing the valuation techniques used to measure fair value into three levels with the highest priority given to Level 1 and the lowest priority given to Level 3. The levels are summarized as follows:

• Level 1 - unadjusted quoted prices in active markets for identical assets and liabilities.

• Level 2 - significant observable pricing inputs other than quoted prices included within level 1 that are either directly or indirectly observable as of the reporting date. Essentially, inputs (variables used in the pricing models) that are derived principally from or corroborated by observable market data.

• Level 3 - generally unobservable inputs which are developed based on the best information available and may include our own internal data.

The inputs available to us determine the valuation technique we use to measure the fair values of our financial instruments.

The following tables set forth our recurring fair value measurements:

	June 30, 2011
	Level 2			Level 3		Total
	(In thousands)
Financial assets (liabilities):
Commodity derivatives	$	(15,351	)	$	11,749	$	(3,602	)

	December 31, 2010
	Level 2			Level 3			Total
	(In thousands)
Financial assets (liabilities):
Interest rate swaps	$	0		$	(1,614	)	$	(1,614	)
Commodity derivatives	$	(19,954	)	$	10,868		$	(9,086	)

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.

Level 2 Fair Value Measurements

Commodity Derivatives. We measure the fair values of our crude oil swaps using estimated internal discounted cash flow calculations based on the NYMEX futures index.

Level 3 Fair Value Measurements

Interest Rate Swaps. The fair values of our interest rate swaps are based on estimates provided by our respective counterparties and reviewed internally against established index prices and other sources.

Commodity Derivatives. The fair values of our natural gas, natural gas liquids and basis swaps are estimated using internal discounted cash flow calculations based on forward price curves, quotes obtained from brokers for contracts with similar terms, or quotes obtained from counterparties to the agreements.

The following tables reconcile our level 3 fair value measurements:

	Net Derivatives
	For the Three Months Ended June 30, 2011						For the Six Months Ended June 30, 2011
	Interest Rate Swaps			Commodity Swaps			Interest Rate Swaps			Commodity Swaps
	(In thousands)
Beginning of period	$	(1,361	)	$	9,368		$	(1,614	)	$	10,868
Total gains or (losses) (realized and unrealized):
Included in earnings (1)		(1,431	)		3,572			(1,734	)		7,877
Included in other comprehensive income		1,361			1,847			1,614			82
Settlements		1,431			(3,038	)		1,734			(7,078	)
End of period	$	0		$	11,749		$	0		$	11,749
Total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held at end of period	$	0		$	534		$	0		$	799

(1) Interest rate swaps and commodity swaps are reported in the unaudited condensed consolidated statements of income in interest, net and revenues, respectively.

	Net Derivatives
	For the Three Months Ended June 30, 2010						For the Six Months Ended June 30, 2010
	Interest Rate Swaps			Commodity Swaps and Collars			Interest Rate Swaps			Commodity Swaps and Collars
	(In thousands)
Beginning of period	$	(2,019	)	$	51,439		$	(1,948	)	$	19,948
Total gains or (losses) (realized and unrealized):
Included in earnings (1)		(302	)		18,690			(609	)		27,764
Included in other comprehensive income (loss)		48			(18,431	)		(23	)		11,912
Purchases, issuance and settlements		302			(18,385	)		609			(26,311	)
End of period	$	(1,971	)	$	33,313		$	(1,971	)	$	33,313
Total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held at end of period	$	0		$	305		$	0		$	1,453

(1) Interest rate swaps and commodity swaps and collars are reported in the unaudited condensed consolidated statements of income in interest, net and revenues, respectively.

Based on our valuation at June 30, 2011, we determined that the non-performance risk with regard to our counterparties was immaterial.

Fair Value of Other Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with accounting guidance for financial instruments. We have determined the estimated fair values by using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

At June 30, 2011, the carrying values on the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, other current assets and current liabilities approximate their fair value because of their short term nature.

Historically, based on the borrowing rates currently available to us for credit facility debt with similar terms and maturities and consideration of our non-performance risk, long-term debt associated with our credit facility has approximated its fair value. At June 30, 2011, we did not have any outstanding borrowings under our credit facility.

The carrying amount of long-term debt associated with the Notes reported in the consolidated balance sheet as of June 30, 2011 was $250.0 million. We estimate the fair value of these Notes using quoted marked prices at June 30, 2011 was $251.3 million.