Ceiling Test

6 Months Ended

Jun. 30, 2011

Ceiling Test [Abstract]

Ceiling Test

Note 7 — Ceiling Test

The Company uses the full cost method to account for its oil and gas operations. 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 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 June 30, 2011, 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 June 30, 2011, averaged $3.56 per Mcfe and $94.00 per barrel. As a result of higher estimated future development costs and low 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 $13.0 million during the three months ended June 30, 2011. The Company’s cash flow hedges in place at June 30, 2011 reduced the ceiling test write-down by approximately $3.9 million.

At March 31, 2011, the prices used in computing the estimated future net cash flows from the Company’s proved reserves, including the effect of hedges in place at March 31, 2011, averaged $3.45 per Mcfe and $85.38 per barrel. 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 $5.9 million during the three months ended March 31, 2011. The Company’s cash flow hedges in place at March 31, 2011 reduced the ceiling test write-down by approximately $1.6 million.