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:

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


	September 30, 2011
	Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivatives	$	39,565	$	25,129	$	64,694


	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.

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.

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, NGLs 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.


	Net Derivatives
	For the Three Months Ended September 30, 2011					For the Nine Months Ended September 30, 2011
	Interest Rate Swaps		Commodity Swaps			Interest Rate Swaps			Commodity Swaps
	(In thousands)
Beginning of period	$	0	$	11,749		$	(1,614	)	$	10,868
Total gains or (losses) (realized and unrealized):
Included in earnings ⁽¹⁾		0		4,046			(1,734	)		11,923
Included in other comprehensive income		0		13,182			1,614			13,264
Settlements		0		(3,848	)		1,734			(10,926	)

End of period	$	0	$	25,129		$	0		$	25,129


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	$	198		$	0		$	997

(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 September 30, 2010						For the Nine Months Ended September 30, 2010
	Interest Rate Swaps			Commodity Swaps and Collars			Interest Rate Swaps			Commodity Swaps and Collars
	(In thousands)
Beginning of period	$	(1,971	)	$	33,313		$	(1,948	)	$	19,948
Total gains or (losses) (realized and unrealized):
Included in earnings ⁽¹⁾		(298	)		16,558			(907	)		44,322
Included in other comprehensive income (loss)		39			(1,266	)		16			10,646
Purchases, issuance and settlements		298			(16,809	)		907			(43,120	)

End of period	$	(1,932	)	$	31,796		$	(1,932	)	$	31,796

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains relating to assets still held at end of period	$	0		$	(251	)	$	0		$	1,202

(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 September 30, 2011, we determined that the non-performance risk with regard to our counterparties was immaterial.

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 September 30, 2011, the carrying values on the unaudited condensed 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.

Based on the borrowing rates currently available to us for credit agreement debt with similar terms and maturities and consideration of our non-performance risk, long-term debt associated with our credit agreement at September 30, 2011 approximates its fair value.

The carrying amount of long-term debt associated with the Notes reported in the consolidated balance sheet as of September 30, 2011 was $250.0 million. We estimate the fair value of these Notes using quoted marked prices at September 30, 2011 was $249.4 million.