Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

(13) 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. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.

     The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:

• Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

• Level 3 — Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

     Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.

Fair Values-Recurring

     We use a market approach for our fair value measurements and endeavor to use the best information available. Accordingly, valuation techniques that maximize the use of observable inputs are favored. The following presents the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):

	Fair Value Measurements at September 30, 2011 Using:
	Quoted Prices in		Significant					Total
	Active Markets		Other			Significant		Carrying
	for Identical		Observable			Unobservable		Value as of
	Assets		Inputs			Inputs		September 30,
	(Level 1)		(Level 2)			(Level 3)		2011
Trading securities held in our deferred compensation plans	$	49,199	$	—		$	—	$	49,199
Derivatives — swaps		—		56,185			—		56,185
— collars		—		148,161			—		148,161
— call options		—		(20,737	)		—		(20,737	)

     Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using September 30, 2011 market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes.

     Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in our accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends and mark-to-market gains/losses are included in deferred compensation plan expense in our consolidated statements of operations. For the three months ended September 30, 2011, interest and dividends were $84,000 and mark-to-market was a loss of $7.9 million. For the three months ended September 30, 2010, interest and dividends were $44,000 and mark-to-market was a gain of $3.5 million. For the nine months ended September 30, 2011, interest and dividends were $179,000 and mark-to-market was a loss of $6.6 million. For the nine months ended September 30, 2010 interest and dividends were $118,000 and mark-to-market was a gain of $8.2 million. For additional information on the accounting for our deferred compensation plan, see Note 14.

Fair Values-Nonrecurring

     We review our long-lived assets to be held and used, including proved natural gas and oil properties, whenever events or circumstances indicate the carrying value of those assets may not be recoverable. Several long-lived assets held for use were evaluated for impairment during 2011 and 2010 due to reductions in estimated reserves and natural gas prices. The fair value of our onshore Gulf Coast assets in both 2011 and 2010 was measured using an income approach based upon internal estimates of future production levels, prices, drilling and operating costs and discount rates, which are Level 3 inputs. Our projected undiscounted cash flows associated with these assets was less than their carrying value and therefore, we recorded an impairment of $7.5 million in third quarter 2011 and $6.5 million in the nine months 2010 related to our onshore Gulf Coast proved properties.

     During third quarter 2011, we evaluated our East Texas properties for impairment which included a consideration for the potential sale of some of these assets, along with a reduction in estimated reserves and lower natural gas prices. This analysis reflected undiscounted cash flows for these properties was less than their carrying value and we recognized an impairment charge of $31.2 million. Some of these properties were sold in third quarter 2011 for proceeds of $11.0 million.

     The following table presents the value of these assets measured at fair value on a nonrecurring basis (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2011				2010				2011				2010
	Fair				Fair				Fair				Fair
	Value		Impairment		Value		Impairment		Value		Impairment		Value		Impairment
Natural gas and oil properties	$	24,388	$	38,681	$	—	$	—	$	24,388	$	38,681	$	16,075	$	6,505

Fair Values-Reported

     The following table presents the carrying amounts and the fair values of our financial instruments as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011						December 31, 2010
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets:
Commodity swaps, collars, call options and basis swaps	$	183,609		$	183,609		$	123,255		$	123,255
Commodity collars — discontinued operations		—			—			8,195			8,195
Marketable securities(a)		49,199			49,199			47,794			47,794
Liabilities:
Commodity swaps, collars, call options and basis swaps		—			—			(13,764	)		(13,764	)
Bank credit facility(b)		—			—			(274,000	)		(274,000	)
6.375% senior subordinated notes due 2015(b)		—			—			(150,000	)		(153,000	)
7.5% senior subordinated notes due 2016(b)		—			—			(249,683	)		(259,375	)
7.5% senior subordinated notes due 2017(b)		(250,000	)		(265,000	)		(250,000	)		(263,438	)
7.25% senior subordinated notes due 2018(b)		(250,000	)		(266,250	)		(250,000	)		(263,750	)
8.0% senior subordinated notes due 2019(b)		(287,678	)		(328,500	)		(286,853	)		(326,625	)
6.75% senior subordinated notes due 2020(b)		(500,000	)		(532,500	)		(500,000	)		(515,625	)
5.75% senior subordinated notes due 2021(b)		(500,000	)		(518,750	)		—			—

(a)	Marketable securities are held in our deferred compensation plans.
(b)	The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior subordinated notes is based on end of period market quotes.

Concentration of Credit Risk

     Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate security are obtained as deemed necessary to limit risk of loss. Our allowance for uncollectible receivables was $4.2 million at September 30, 2011 and $5.0 million at December 31, 2010. Commodity-based contracts expose us to the credit risk of nonperformance by the counterparty to the contracts. As of September 30, 2011, these contracts consist of swaps, collars and call options. This exposure is diversified among major investment grade financial institutions and we have master netting agreements with the counterparties that provide for offsetting payables against receivables from separate derivative contracts. Our derivative counterparties include ten financial institutions, of which all but one are secured lenders in our bank credit facility. At September 30, 2011, our net derivative receivable includes a receivable from the one counterparty not included in our bank credit facility of $15.4 million. Our natural gas and oil properties provide collateral under our credit facility and our derivative exposure. None of our derivative contracts have margin requirements or collateral provisions that would require funding prior to the scheduled cash settlement date.