FAIR VALUE MEASURMENTS

9 Months Ended

Sep. 30, 2011

FAIR VALUE MEASURMENTS [Abstract]

FAIR VALUE MEASURMENTS

NOTE 3 – FAIR VALUE MEASURMENTS

Our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Our financial and non-financial assets and liabilities that are being measured on a recurring basis are measured and reported at fair value.

Fair value is defined as 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 statement establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows:

Level 1 – Defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Defined as inputs other than quoted prices in active markets that are either directly or indirectly observable for the asset or liability.

Level 3 – Defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions for the asset or liability.

Commodity Derivative Instruments - The fair value of the commodity derivative instruments is estimated using a combined income and market valuation methodology based upon forward commodity price and volatility curves. The curves are obtained from independent pricing services.

Interest Rate Derivative Instruments - The fair value of the interest rate derivative instruments is estimated using a combined income and market valuation methodology based upon forward interest rates and volatility curves. The curves are obtained from independent pricing services.

We utilize the most observable inputs available for the valuation technique utilized. The financial assets and liabilities are classified in their entirety based on the lowest level of input that is of significance to the fair value measurement. The following table sets forth, by level within the hierarchy, the fair value of our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2011 and December 31, 2010.

As of September 30, 2011	Total			Level 1		Level 2			Level 3
Assets from commodity derivative contracts	$	61,298		$	-	$	61,298		$	-
Assets from interest rate derivative contracts		146			-		146			-
	$	61,444		$	-	$	61,444		$	-
Liabilities from commodity derivative contracts	$	(499	)	$	-	$	(499	)	$	-
Liabilities from interest rate derivative contracts		(17,288	)		-		(17,288	)		-
	$	(17,787	)	$	-	$	(17,787	)	$	-
As of December 31, 2010	Total			Level 1		Level 2			Level 3
Assets from commodity derivative contracts	$	18,047		$	-	$	18,047		$	-
Liabilities from commodity derivative contracts	$	(26,877	)	$	-	$	(26,877	)	$	-

There have been no transfers between levels within the fair value measurement hierarchy during the three or nine months ended September 30, 2011.

On February 28, 2011, the Predecessor novated certain interest rate derivative instruments to us. These derivative instruments were accounted for at fair value of a $2.9 million net asset position (See Note 4). These derivative instruments are classified as Level 2 fair value measurements.

In June 2011, we entered into modifications of all our existing oil fixed price swap derivative contracts, effectively settling those liability positions as of June 22, 2011. These modifications were accounted for at fair value  of $40.7 million (See Note 4). These modifications are classified as Level 2 fair value measurements.

On July 1, 2011, the Predecessor novated certain basis swap derivative instruments to us. These derivative instruments were accounted for at fair value of a $0.3 million liability position (See Note 4). These derivative instruments are classified as Level 2 fair value measurements.

On September 30, 2011, the Predecessor novated certain interest rate derivative instruments to us. These derivative instruments were accounted for at fair value of a $8.5 million liability position (See Note 4). These derivative instruments are classified as Level 2 fair value measurements. This novation was done in anticipation of our acquisition of oil and gas properties from the Fund effective October 1, 2011 (See Note 6 and Note 15).