Derivatives And Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Derivatives And Fair Value Measurements [Abstract]

Derivatives And Fair Value Measurements

3.  DERIVATIVES AND FAIR VALUE MEASUREMENTS

          The following table categorizes our commodity derivative instruments based upon the use of input levels:

	Asset Derivatives				Liability Derivatives
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
	(In thousands)				(In thousands)
Level 2 inputs	$	140,740	$	146,762	$	1,677	$	-
Level 3 inputs		67,110		-		-		-
Total	$	207,850	$	146,762	$	1,677	$	-

          The fair value of "Level 2" derivative instruments included in these disclosures was estimated using prices quoted in active markets for the periods covered by the derivatives and the value reported by counterparties.  The fair value of derivative instruments designated "Level 3" was estimated using prices quoted in markets where there is insufficient market activity for consideration as "Level 2" instruments.  Currently, only our 10-year natural gas hedges utilize Level 3 inputs, primarily related to comparatively less market data available for their later term compared with our other shorter term hedges.  Estimates were determined by applying the net differential between the prices in each derivative and market prices for future periods to the amounts stipulated in each contract to arrive at an estimated future value.  This estimated future value was discounted on each contract at rates commensurate with federal treasury instruments with similar contractual lives.  

          The following table identifies the changes in Level 3 fair values for the three and nine months ended September 30, 2011:

	For the Three		For the Nine
	Months Ended		Months Ended
	September 30, 2011		September 30, 2011
	(In thousands)
Balance at beginning of period	$	19,115	$	-
Total gains for the period:
Included in OCI		18,258		18,258
Included in earnings		29,737		48,852
Balance at end of period	$	67,110	$	67,110
Total gains for the period included in earnings attributable to the change in unrealized gains related to assets held at September 30, 2011	$	29,737	$	48,852

Commodity Price Derivatives

          As of September 30, 2011, we had price collars and swaps covering our anticipated natural gas and NGL production as follows:

Production	Daily Production
Year	Gas		NGL
	MMcfd		MBbld
2011		190		10.5
2012		165		6.0
2013		105		-
2014—2015		65		-
2016—2021		35		-

          On August 31, 2011, we designated our 10-year natural gas swaps as hedges.  Unrealized gains of $48.9 million were recognized from the date we entered into them through that date and have been reported in "other revenue." After the designation date, additional unrealized gains and losses, net of hedge ineffectiveness, have been deferred in OCI until the associated sale of natural gas production occurs.  

Interest Rate Derivatives

          In 2010, we executed early settlements of our interest rate swaps that were designated as fair value hedges of our senior notes due 2015 and our senior subordinated notes.  We received cash of $41.5 million in the settlements, including $10.7 million for interest previously accrued and earned.  At the time of the early settlements, we recorded the resulting gain as a fair value adjustment to our debt and began to recognize the deferred gain of $30.8 million as a reduction of interest expense over the lives of our senior notes due 2015 and our senior subordinated notes.  The remaining $23.1 million deferral of the 2010 early settlements from all interest rate swaps will continue to be recognized as a reduction of interest expense over the life of the associated underlying debt instruments.  

Additional Fair Value Disclosures:

	Asset Derivatives				Liability Derivatives
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
	(In thousands)				(In thousands)
Derivatives designated as hedges(1) (2):
Commodity contracts reported in:
Current derivative assets	$	112,749	$	97,863	$	11,743	$	8,658
Noncurrent derivative assets		106,844		63,419		-		5,862
Current derivative liabilities		-		-		1,677		-
Total derivatives designated as hedges	$	219,593	$	161,282	$	13,420	$	14,520
Total derivatives	$	219,593	$	161,282	$	13,420	$	14,520

(1)	The fair value of our hedge derivatives is determined using Level 2 and Level 3 inputs.
(2)	The 10-year swap derivatives entered into during the second quarter of 2011 were designated as hedges on August 31, 2011.

     The changes in the carrying value of our derivatives for the three and nine months ended September 30, 2011 and 2010 are presented below:

	For the Three Months Ended September 30,
	2011			2010
	Commodity			Gas Purchase			Fair Value			Commodity
	Derivatives			Commitment			Derivatives			Derivatives			Total
	(In thousands)
Derivative fair value at beginning of period	$	116,349		$	(6,161	)	$	13,240		$	193,394		$	200,473
Change in net amounts receivable and payable		(576	)		-			(4,392	)		(234	)		(4,626	)
Net settlements reported in revenue		(16,815	)		-			-			(54,716	)		(54,716	)
Cash settlements reported in long-term debt		-			-			(12,134	)		-			(12,134	)
Unrealized change in fair value of Gas Purchase Commitment reported in costs of purchased gas		-			5,496			-			-			5,496
Change in fair value of effective interest swaps		-			-			3,286			-			3,286
Ineffectiveness reported in other revenue		880			-			-			(812	)		(812	)
Unrealized gains reported in other revenue		29,737			-			-			-			-
Unrealized gains reported in OCI		76,598			-			-			89,627			89,627
Derivative fair value at end of period	$	206,173		$	(665	)	$	-		$	227,259		$	226,594

	For the Nine Months Ended September 30,
	2011			2010
	Commodity			Gas Purchase			Fair Value			Commodity
	Derivatives			Commitment			Derivatives			Derivatives			Total
	(In thousands)
Derivative fair value at beginning of period	$	146,762		$	(6,625	)	$	4,108		$	107,881		$	105,364
Change in net amounts receivable and payable		(960	)		-			(9,180	)		(1,096	)		(10,276	)
Net settlements reported in revenue		(56,143	)		-			-			(136,349	)		(136,349	)
Net settlements reported in interest expense		-			-			(10,848	)		-			(10,848	)
Cash settlements reported in long-term debt		-			-			(30,816	)		-			(30,816	)
Unrealized change in fair value of Gas Purchase Commitment reported in costs of purchased gas		-			5,960			-			-			5,960
Change in fair value of effective interest swaps		-			-			46,736			-			46,736
Ineffectiveness reported in other revenue		1,698			-			-			(2,399	)		(2,399	)
Unrealized gains reported in other revenue		48,852			-			-			-			-
Unrealized gains reported in OCI		65,964			-			-			259,222			259,222
Derivative fair value at end of period	$	206,173		$	(665	)	$	-		$	227,259		$	226,594

                Gains and losses from the effective portion of derivative assets and liabilities held in AOCI expected to be reclassified into earnings during the twelve months ending September 30, 2012 would result in a gain of $53.7 million net of income taxes.  Hedge derivative ineffectiveness resulted in net gains of $1.7 million and losses of $2.4 million for the nine months ended September 30, 2011 and 2010, respectively.