Fair value of financial instruments

3 Months Ended

Mar. 31, 2012

Fair value of financial instruments

Fair value of financial instruments

6. Fair value of financial instruments

        The following represents the recurring measurements of fair value hierarchy of our financial assets and liabilities that were recognized at fair value as of March 31, 2012 and December 31, 2011. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

	March 31, 2012
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	106,609	$	—	$	—	$	106,609
Restricted cash		27,761		—		—		27,761
Derivative instruments asset		—		27,199		—		27,199
Total	$	134,370	$	27,199	$	—	$	161,569
Liabilities:
Derivative instruments liability	$	—	$	159,903	$	—	$	159,903
Total	$	—	$	159,903	$	—	$	159,903

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	60,651	$	—	$	—	$	60,651
Restricted cash		21,412		—		—		21,412
Derivative instruments asset		—		32,414		—		32,414
Total	$	82,063	$	32,414	$	—	$	114,477
Liabilities:
Derivative instruments liability	$	—	$	53,762	$	—	$	53,762
Total	$	—	$	53,762	$	—	$	53,762

        The fair values of our derivative instruments are based upon trades in liquid markets. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy. We use our best estimates to determine the fair value of commodity and derivative contracts we hold. These estimates consider various factors including closing exchange prices, time value, volatility factors and credit exposure. The fair value of each contract is discounted using a risk free interest rate.

        We also adjust the fair value of financial assets and liabilities to reflect credit risk, which is calculated based on our credit rating and the credit rating of our counterparties. As of March 31, 2012, the credit valuation adjustments resulted in a $27.1 million net increase in fair value, which consists of a $0.6 million pre-tax gain in other comprehensive income and a $26.6 million gain in change in fair value of derivative instruments, offset by a $.01 million loss in foreign exchange. As of December 31, 2011, the credit valuation adjustments resulted in a $5.8 million net increase in fair value, which consists of a $0.9 million pre-tax gain in other comprehensive income and a $5.1 million gain in change in fair value of derivative instruments, offset by a $0.2 million loss in foreign exchange.