Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 15 — Fair Value Measurements

The accounting standards for fair value measurement and disclosure applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The standards establish a framework for measuring fair value and expand disclosure about fair value measurements. The standards require fair value measurements be classified and disclosed in one of the following categories:

Level 1:	Measured based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Measured based on quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
Level 3:	Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our option pricing models are industry-standard and consider various inputs including forward commodity price estimates, volatility and time value of money.

Financial assets and liabilities are classified based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and determines the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

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 (see Note 13, "Derivative Instruments and Price Risk Management Activities"). The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during the year ended December 31, 2011 (in thousands):

	U.S. Gas Fixed-Price Physicals			U.S. Gas Calls			U.S. Oil Swaps(1)			U.S. Oil Swaps(2)			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 gains included in earnings		5,351			2,069			7,329			8,373			170			1,899			25,191
Sales		—			(2,133	)		(86,646	)		—			—			—			(88,779	)
Settlements and terminations		(3,446	)		—			37,775			3,654			(828	)		1,919			39,074
Balance at end of period	$	2,194		$	(64	)	$	(69,061	)	$	—		$	—		$	(213	)	$	(67,144	)
Changes in unrealized gain (loss) included in derivative income (expense) relating to derivatives still held at December 31, 2011	$	2,935		$	(64	)	$	(5,284	)	$	—		$	—		$	1,036		$	(1,377	)

(1) In 2011, we entered into certain off-market oil swap derivative contracts which provide us with $87.9 million of cash advances from the counterparty (of which $1.2 million will be received in 2012) and obligate us to pay market prices at the time of settlement.

(2) These swaps were 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 year ended December 31, 2010 (in thousands):

	U.S. Gas Fixed-Price Physicals			U.S. Gas Price Collars			U.S. Oil Swaps			U.S. Oil Swaps(1)			U.K. Gas Swaps			Total
Balance at beginning of period	$	(778	)	$	(339	)	$	(7,837	)	$	(14,910	)	$	—		$	(23,864	)
Derivative gains (losses) included in earnings		9,161			3,727			(24,276	)		(4,090	)		(5,751	)		(21,229	)
Settlements and terminations		(8,094	)		(2,730	)		4,594			6,973			1,720			2,463
Balance at end of period	$	289		$	658		$	(27,519	)	$	(12,027	)	$	(4,031	)	$	(42,630	)
Changes in unrealized gain (loss) included in derivative income (expense) relating to derivatives still held at December 31, 2010	$	289		$	1,170		$	(21,892	)	$	(10,520	)	$	(4,031	)	$	(34,984	)

(1) These swaps were matched with call options to allow us to reparticipate in price increases above certain levels.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Oil and gas properties are measured at fair value on a nonrecurring basis upon impairment and when acquired in a nonmonetary property exchange. During 2011, we recorded impairment expense of $57.6 million related to oil and gas properties. During 2010, we recorded impairment expense of $63.3 million related to oil and gas properties and gain on nonmonetary property exchange of $12.0 million 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 which is classified as Level 3 and which 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 potential market participants to determine the fair value of the assets.