Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

Note 15 — Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair values of our derivative contracts are classified as Level 3 based on the significant unobservable inputs into our expected present value models. The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during the six months ended June 30, 2011 (in thousands):

	U.S Gas Fixed- Price Physicals			U.S Gas Calls			U.S. Oil Swaps			U.S Oil Swaps(1)			U.S Gas Price Collars			U.K. Gas Swaps			Total
Balance at beginning of period	$	289		$	—		$	(27,519	)	$	(12,027	)	$	658		$	(4,031	)	$	(42,630	)
Derivative income (expense)		1,443			513			(21,511	)		7,262			170			(2,221	)		(14,344	)
Premium received		—			(2,133	)		—			—			—			—			(2,133	)
Settlements		(1,526	)		—			12,542			4,610			(828	)		1,895			16,693
Balance at end of period	$	206		$	(1,620	)	$	(36,488	)	$	(155	)	$	—		$	(4,357	)	$	(42,414	)
Changes in unrealized gain (loss) included in derivative income (expense) relating to derivatives still held at June 30, 2011	$	1,155		$	(1,620	)	$	(19,300	)	$	3,467		$	—		$	(2,413	)	$	(18,711	)

(1) These swaps include those which have been matched with call options to allow us to reparticipate in price increases above certain levels.

The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during the six months ended June 30, 2010 (in thousands):

	Gas Fixed- Price Physicals			Gas Price Collars			Oil Swaps			Oil Swaps(1)			Oil Puts			Subtotal U.S.
U.S.
Balance at beginning of period	$	(778	)	$	(339	)	$	(7,837	)	$	(14,910	)	$	2		$	(23,862	)
Derivative income (expense)		6,212			2,487			13,894			10,311			(2	)		32,902
Settlements and terminations		(2,682	)		(935	)		2,221			3,036						1,640
Balance at end of period	$	2,752		$	1,213		$	8,278		$	(1,563	)	$	—		$	10,680
Changes in unrealized gain (loss) included in derivative income (expense) relating to derivatives still held at June 30, 2010	$	3,195		$	1,762		$	15,682		$	3,687		$	(2	)	$	24,324

	Gas Fixed- Price Physicals			Financial Gas Swaps			Subtotal U.K.			Grand Total
U.K.
Balance at beginning of period	$	1,321		$	—		$	1,321		$	(22,541	)
Derivative income		(1,213	)		(4,225	)		(5,438	)		27,464
Settlements and terminations		(472	)		99			(373	)		1,267
Balance at end of period	$	(364	)	$	(4,126	)	$	(4,490	)	$	6,190
Changes in unrealized gain (loss) included in derivative income (expense) relating to derivatives still held at June 30, 2010	$	(802	)	$	(4,126	)	$	(4,928	)	$	19,396

Assets Measured at Fair Value on a Nonrecurring Basis

Oil and gas property is measured at fair value on a nonrecurring basis upon impairment and when acquired in a nonmonetary property exchange. During the six months ended June 30, 2011 and 2010, we recorded impairment expense of $45.7 million and $12.1 million, respectively, related to proved and unproved Gulf of Mexico properties. In the six months ended June 30, 2010, we recorded gain on nonmonetary property exchange of $12.0 related to proved Gulf of Mexico properties. The impairment charges reduce the oil and gas properties' carrying values to their estimated fair values and are classified as Level 3. Fair value is calculated as the estimated discounted future net cash flows attributable to the assets. The gain on nonmonetary property exchange reflects the difference between the carrying value of the property surrendered and the estimated fair value of the property received, classified as Level 3, and is calculated based on the estimated discounted future net cash flows attributable to that asset.

The Company's primary assumptions in preparing the estimated discounted future net cash flows to be recovered from oil and gas properties are based on (i) proved reserves and risk-adjusted probable and possible reserves, (ii) commodity forward-curve prices and assumptions as to costs and expenses, and (iii) the estimated discount rate that would be used by market participants to determine the fair value of the assets.