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Ceiling Test
3 Months Ended
Mar. 31, 2013
Ceiling Test [Abstract]  
Ceiling Test
Ceiling Test
The Company uses the full cost method to account for its oil and gas properties. Accordingly, the costs to acquire, explore for and develop oil and gas properties are capitalized. Capitalized costs of oil and gas properties, net of accumulated DD&A and related deferred taxes, are limited to the estimated future net cash flows from estimated proved oil and gas reserves, including the effects of cash flow hedges in place, discounted at 10%, plus the lower of cost or fair value of unproved properties, as adjusted for related income tax effects (the full cost ceiling). If capitalized costs exceed the full cost ceiling, the excess is charged to ceiling test write-down of oil and gas properties in the quarter in which the excess occurs.
At March 31, 2012, the prices used in computing the estimated future net cash flows from the Company’s estimated proved reserves, including the effect of hedges in place at that date, averaged $2.97 per Mcf of natural gas, $107.99 per barrel of oil and $8.74 per Mcfe of Ngl. As a result of lower natural gas prices and their negative impact on certain of the Company’s longer-lived estimated proved reserves and estimated future net cash flows, the Company recognized a ceiling test write-down of $20.1 million during the three months ended March 31, 2012. The Company’s cash flow hedges in place at March 31, 2012 increased the ceiling test write-down by approximately $1.2 million.
The Company recognized no such ceiling test write-down during the three months ended March 31, 2013.