We are currently exposed to market risk in three major areas: commodity prices, interest rates and foreign currency exchange rates. Our risk management activities involve the use of derivative financial instruments to hedge the impact of market risk exposures primarily related to our oil and gas production, variable interest rates and foreign exchange currency fluctuations. All derivatives are reflected in the accompanying condensed consolidated balance sheets at fair value unless otherwise noted.

We engage solely in cash flow hedges. Hedges of cash flow exposure are entered into to hedge a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability. Changes in the derivative fair values that are designated as cash flow hedges are deferred to the extent that they are effective and are recorded as a component of accumulated other comprehensive income (loss), a component of shareholders' equity, until the hedged transactions occur and are recognized in earnings. The ineffective portion of a cash flow hedge's change in fair value is recognized immediately in earnings. In addition, any change in the fair value of a derivative that does not qualify for hedge accounting is recorded in earnings in the period in which the change occurs.

We currently manage commodity price risk through various financial costless collars and swap instruments covering a portion of our anticipated oil and natural gas production through 2013. All of our current commodity derivative contracts qualify for hedge accounting. In June 2010, oil contracts for 480 MBbl, representing a portion of our anticipated production during the third quarter of 2010, ceased to qualify for hedge accounting as a result of our decision to contract the HP I to assist in the Gulf oil spill response and containment efforts rather than commencing production from our Phoenix field. In September 2010, we separately concluded that oil contracts covering an additional 480 MBbls of the fourth quarter 2010 anticipated production ceased to qualify for hedge accounting because of uncertainty as to when the Phoenix field would be ready to commence initial production following extensions of the HP I contract to assist in the Gulf oil spill response and containment efforts. The HP I returned to the Phoenix field in October and initial production from the field commenced on October 19, 2010.


Production Period	Instrument Type	Average Monthly Volumes	Weighted Average Price
Crude Oil:			(per barrel)
October 2011 — December 2011	Swap	163.3 MBbl	$	82.62
October 2011 — December 2011	Collar	35.3 MBbl	$	95.00— $124.59
October 2011 — December 2011	Collar	50.0 MBbl	$	100.00— $122.80	a
January 2012 — December 2012	Collar	75.0 MBbl	$	96.67— $118.57
January 2012 — December 2012	Collar	139.0 MBbl	$	99.42— $117.59	a
January 2012 — December 2012	Swap	16.0 MBbl	$	103.20	a
January 2013 — December 2013	Swap	41.7 MBbl	$	99.15	a
January 2013 — December 2013	Collar	41.7 MBbl	$	95.00— $102.60	a

Natural Gas:			(per Mcf)
October 2011 — December 2011	Swap	703.3 Mmcf	$	4.93
January 2012 — December 2012	Swap	333.3 Mmcf	$	4.70
January 2012 — December 2012	Collar	166.7 Mmcf	$	4.75— $5.09

a.	The prices quoted in the table above are primarily NYMEX Henry Hub for natural gas and NYMEX West Texas Intermediate for crude oil. As footnoted above these costless collar contracts are priced as Brent crude oil.

As some of our long-term debt has variable interest rates and is subject to market influences, in January 2010 we entered into various interest rate swaps to stabilize cash flows relating to interest payments for $200 million of our Term Loan debt under our Credit Agreement (Note 7). These monthly contracts will mature in January 2012. In August 2011, we entered into additional interest rate swap contracts to fix the interest rate on $200 million of our Term Loan debt. These monthly contracts begin in January 2012 and extend through January 2014. Changes in the interest rate swap fair value are deferred to the extent the swap is effective and are recorded as a component of accumulated other comprehensive income (loss) until the anticipated interest payments occur and are recognized in interest expense. The ineffective portion of the interest rate swap, if any, will be recognized immediately in earnings within the line titled net interest expense. The amount of ineffectiveness associated with our interest swap contracts was immaterial for all periods presented in this Quarterly Report on Form 10-Q.

Because we operate in various regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar. We entered into various foreign currency forwards to stabilize expected cash outflows relating to certain vessel charters denominated in British pounds. The last of our existing monthly foreign currency swap contracts will settle in June 2012.

The following tables present the fair value and balance sheet classification of our derivative instruments as of September 30, 2011 and December 31, 2010. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements.


	As of September 30, 2011			As of December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)
Asset Derivatives:
Oil contracts	Other current assets	$	28,020	Other current assets	$	—
Natural gas contracts	Other current assets		5,074	Other current assets		5,324
Natural gas contracts	Other assets, net		322	Other assets, net		—
Oil contracts	Other assets, net		8,868	Other assets, net		—
Interest rate swaps	Other assets, net		238	Other assets, net		—
		$	42,522		$	5,324


	As of September 30, 2011			As of December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)
Liability Derivatives:
Oil contracts	Accrued liabilities	$	—	Accrued liabilities	$	28,855
Interest rate swaps	Accrued liabilities		692	Accrued liabilities		1,751
Natural gas contracts	Other long-term liabilities		—	Other long-term liabilities		913
Interest rate swaps	Other long-term liabilities		—	Other long-term liabilities		115
		$	692		$	31,634


	As of September 30, 2011			As of December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)
Asset Derivatives:
Foreign exchange forwards	Other current assets	$	109	Other current assets	$	148
Foreign exchange forwards	Other assets, net		—	Other assets, net		42
		$	109		$	190

Liability Derivatives:
Foreign exchange forwards	Accrued liabilities		264	Accrued liabilities		—
		$	264		$	—

The following tables present the impact that derivative instruments designated as cash flow hedges had on our accumulated comprehensive loss and our condensed consolidated statements of operations for the three and nine month periods ended September 30, 2011 and 2010.


		Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)
		Three Months Ended September 30,					Nine Months Ended September 30,
		2011(1)		2010(1)			2011(1)		2010(1)
		(in thousands)
Oil and natural gas commodity contracts	$	33,432	$	(3,405	)	$	43,373	$	13,799
Interest rate swaps		456		(390	)		918		(1,491	)
	$	33,888	$	(3,795	)	$	44,291	$	12,308

(1)

All unrealized gains (losses) related to our oil and natural gas commodity contracts are expected to be reclassified into earnings by no later than December 31, 2013. The last of our interest swaps will mature in January 2014 and we have foreign exchange forwards that have maturities through June 2012.


	Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
			Three Months Ended September 30,						Nine Months Ended September 30,
			2011			2010			2011			2010

Oil and natural gas commodity contracts	Oil and gas revenue	$	(1,287	)	$	7,428		$	(19,473	)	$	17,892
Interest rate swaps	Net interest expense		(522	)		(468	)		(1,513	)		(1,355	)
		$	(1,809	)	$	6,960		$	(20,986	)	$	16,537

The following table presents the impact of derivative instruments that no longer qualify for hedge accounting or were not designated as hedges in our condensed consolidated statements of operations for the three and nine month periods ended September 30, 2011 and 2010:


	Location of Gain (Loss) Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives
			Three Months Ended September 30,					Nine Months Ended September 30,
			2011			2010		2011			2010
			(in thousands)
Natural gas contracts	Gain on oil and gas derivative contracts	$	—		$	161	$	—		$	2,643
Foreign exchange forwards	Other income (expense)		(381	)		1,106		(234	)		(2,398	)
		$	(381	)	$	1,267	$	(234	)	$	245