Derivative Instruments

9 Months Ended

Sep. 30, 2011

Derivative Instruments [Abstract]

Derivative Instruments

Note 9 – Derivative Instruments

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We may use derivative financial instruments with respect to a portion of our oil and gas production or a portion of our variable rate debt to achieve a more predictable cash flow by reducing our exposure to price fluctuations. These transactions are likely to be swaps, collars or options and to be entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural gas that we produce and sell, or to increases in interest rates and to manage cash flows in support of our annual capital expenditure budget. We also have embedded derivatives related to our debt instruments and convertible preferred stock.

The fair market value of these derivative instruments is included in our balance sheet as follows for the periods indicated:

					September 30,		December 31,
					2011		2010
Derivatives not designated as hedges:
	Oil and gas commodity derivatives:
		Assets:
			Prepaid expenses and other current assets	$	1,062	$	709
			Other assets - long term		331		1,296
				$	1,393	$	2,005
	Embedded derivatives related to debt and equity instruments:
		Assets:
			Other assets - long-term	$	-	$	315
		Liabilities:
			Other liabilities - long-term	$	(14,547)	$	(27,810)

If all counterparties failed to perform, our maximum loss wouldhave been$1.4 million as of September 30, 2011.

The effect of the derivatives not designated as hedges on our results of operations was as follows for the periods indicated:

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2011		2010		2011		2010
Derivatives not designated as hedges:
	Oil and gas commodity derivatives
		Realized gains (losses)	$	-	$	(452)	$	-	$	(1,552)
		Realized loss on early termination		-		(10,201)		-		(10,201)
		Unrealized gains (losses)		538		8,057		(1,850)		12,815
				538		(2,596)		(1,850)		1,062
	Embedded derivatives related to debt
		and equity instruments
		Unrealized gains (losses)	$	12,543	$	(1,616)	$	12,948	$	(1,338)

Under our Senior Term Loan, we are required to maintain commodity derivatives to manage our cash flows from operations. As of September 30, 2011, our outstanding commodity derivatives covered approximately 169 Mbbls of oil and 842 MMcf of natural gas cumulative through 2012 and consisted of twelve oil and six natural gas option contracts with three major counterparties.