Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

NOTE 4 – FAIR VALUE MEASURMENTS

Our financial instruments, including cash, 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). U.S. GAAP 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 requires 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 observable forward commodity price and volatility curves. The curves are obtained from independent pricing services. We validate the data provided by independent pricing services by comparing such pricing against other third party pricing data.

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 observable forward interest rates and volatility curves. The curves are obtained from independent pricing services. We validate the data provided by independent pricing services by comparing such pricing against other third party pricing data.

Long-Term Debt — The fair value of our long term debt depends primarily on the current active market LIBOR. The carrying value of our long term debt as of June 30, 2012 approximates fair value based on the current LIBOR and is classified as a Level 2 input in the fair value hierarchy.

Derivative Premiums – The fair value of the deferred premiums on our commodity derivatives is based on the current active market LIBOR.The carrying value of the premiums as of June 30, 2012 approximates fair value based on the current LIBOR and is classified as a Level 2 input in the fair value hierarchy.Refer to Note 5 – Derivative Activities for further information on the derivative premiums.

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 June 30, 2012 and December 31, 2011.

As of June 30, 2012		Total		Level 1		Level 2		Level 3
Assets from commodity derivative instruments	$	177,078	$	-	$	177,078	$	-
	$	177,078	$	-	$	177,078	$	-
Liabilities from commodity derivative instruments	$	3,622	$	-	$	3,622	$	-
Liabilities from interest rate derivative instruments		26,242		-		26,242		-
	$	29,864	$	-	$	29,864	$	-
As of December 31, 2011		Total		Level 1		Level 2		Level 3
Assets from commodity derivative instruments	$	103,233	$	-	$	103,233	$	-
Assets from interest rate derivative instruments		20		-		20		-
	$	103,253	$	-	$	103,253	$	-
Liabilities from commodity derivative instruments	$	2,502	$	-	$	2,502	$	-
Liabilities from interest rate derivative instruments		23,973		-		23,973		-
	$	26,475	$	-	$	26,475	$	-

There have been no transfers between levels within the fair value measurement hierarchy during the six months ended June 30, 2012.