Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

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 Financial Accounting Standards Board (FASB) has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  This hierarchy consists of three broad levels.  Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities.  Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  Level 3 are unobservable inputs for an asset or liability.

The following tables provide fair value measurement information for certain assets and liabilities as of June 30, 2013 and December 31, 2012:

June 30, 2013: (in thousands)	Carrying Amount			Fair Value
Financial Assets (Liabilities):
Bank debt	$	(142,000	)	$	(142,000	)
5.875% Notes due 2022	$	(750,000	)	$	(780,000	)
Derivative instruments — assets	$	10,351		$	10,351
Derivative instruments — liabilities	$	(59	)	$	(59	)

December 31, 2012: (in thousands)	Carrying Amount			Fair Value
Financial (Liabilities):
5.875% Notes due 2022	$	(750,000	)	$	(825,750	)

Assessing the significance of a particular input to the fair value measurement requires judgment, including the consideration of factors specific to the asset or liability.  The following methods and assumptions were used to estimate the fair value of the assets and liabilities in the table above.

Debt (Level 1)

The fair value of our bank debt at June 30, 2013 was estimated to approximate the carrying amount because the floating rate interest paid on such debt was set for periods of three months or less.

The fair value for our 5.875% fixed rate notes was based on their last traded value before period end.

Derivative Instruments (Level 2)

The fair value of our derivative instruments was estimated using internal discounted cash flow calculations.  Cash flows are based on the stated contract prices and current and published forward commodity price curves, adjusted for volatility.  The cash flows are risk adjusted relative to nonperformance for both our counterparties and our liability positions.  Please see Note 2 for further information on the fair value of our derivative instruments.

Other Financial Instruments

The carrying amounts of our cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities.

Most of our accounts receivable balances are uncollateralized and result from transactions with other companies in the oil and gas industry.  Concentration of customers may impact our overall credit risk because our customers may be similarly affected by changes in economic or other conditions within the industry.

We routinely assess the recoverability of all material accounts receivable to determine their collectability.  We accrue a reserve to the allowance for doubtful accounts when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of the reserve may be reasonably estimated.  At June 30, 2013 and December 31, 2012, the allowance for doubtful accounts was $6.5 million.