Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 8 – Fair Value Measurements

We apply fair value measurements to certain assets and liabilities including derivative instruments, marketable securities and embedded derivatives relating to conversion and change in control features in certain of our debt instruments.We seek to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value measurements are classified and disclosed in one of the following categories:

Level 1:       Fair value is based on actively-quoted market prices, if available.

Level 2:       In the absence of actively-quoted market prices, we seek price information from external sources, including broker quotes and industry publications. Substantially all of these inputs are observable in the marketplace during the entire term of the instrument, derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:       If valuations require inputs that are both significant to the fair value measurement and less observable from objective sources, we must estimate prices based on available historical and near-term future price information and certain statistical methods that reflect our market assumptions.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following table summarizes the valuation of our investments and financial instruments by pricing levels as of September 30, 2011 and December 31, 2010:

		Quoted Market Prices			Significant Other			Significant
		in Active Markets -			Observable Inputs -			Unobservable Inputs			Total
		Level 1			Level 2			Level - 3			Fair Value
As of September 30, 2011:
Oil and gas derivative contracts:
	Oil and gas puts		$	-		$	1,295		$	98		$	1,393
Embedded derivatives				-			-			(14,547)			(14,547)
Total derivative liabilities			$	-		$	1,295		$	(14,449)		$	(13,154)
As of December 31, 2010:
Oil and gas derivative contracts:
	Oil and gas puts		$	-		$	1,213		$	792		$	2,005
Embedded derivatives				-			-			(27,495)			(27,495)
Total derivative liabilities			$	-		$	1,213		$	(26,703)		$	(25,490)

Our commodity derivative contracts have been derived using models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term. The inputs for the fair value models for our swaps are all observable market data, and as a result these instruments have been classified as Level 2.

The following is a reconciliation of changes in fair value of net derivative assets and liabilities classified as Level 3:

			Nine Months Ended
			September 30,
				2011		2010
Balance at beginning of period			$	(26,703)	$	(28,843)
		Realized and unrealized gains (losses) included in earnings		12,254		(1,338)
Balance at end of period			$	(14,449)	$	(30,181)
Changes in unrealized gains (losses) relating to derivatives assets and liabilities
	still held at the end of the period		$	12,254	$	(1,338)