Fair Value Measurements

3 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 2 – Fair Value Measurements

The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of December 31, 2012 and September 30, 2012.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Recurring Fair Value Measures	At fair value as of December 31, 2012
(Thousands of Dollars)	Level 1	Level 2	Level 3	Netting Adjustments(1)	Total
Assets:
Cash Equivalents – Money Market Mutual Funds	$ 33,215	$            -	$            -	$              -	$ 33,215
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	2,841	-	-	(2,211)	630
Over the Counter Swaps – Oil	-	186	719	(1,332)	(427)
Over the Counter Swaps – Gas	-	58,983	-	(22,051)	36,932
Other Investments:
Balanced Equity Mutual Fund	28,586	-	-	-	28,586
Common Stock – Financial Services Industry	5,371	-	-	-	5,371
Other Common Stock	273	-	-	-	273
Total	$ 70,286	$ 59,169	$ 719	$ (25,594)	$ 104,580
Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$ 2,211	$             -	$            -	$ (2,211)	$            -
Over the Counter Swaps – Oil	-	1,133	14,808	(1,332)	14,609
Over the Counter Swaps – Gas	-	21,258	-	(22,051)	(793)
Total	$ 2,211	$ 22,391	$ 14,808	$ (25,594)	$ 13,816
Total Net Assets/(Liabilities)	$ 68,075	$ 36,778	$ (14,089)	$             -	$ 90,764

DDE
Recurring Fair Value Measures	At fair value as of September 30, 2012
(Thousands of Dollars)	Level 1	Level 2	Level 3	Netting Adjustments(1)	Total
Assets:
Cash Equivalents – Money Market Mutual Funds	$ 46,113	$             -	$           -	$              -	$ 46,113
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	4,348	-	-	(2,760)	1,588
Over the Counter Swaps – Gas	-	41,751	-	(15,723)	26,028
Over the Counter Swaps – Oil	-	-	559	(559)	-
Other Investments:
Balanced Equity Mutual Fund	24,767	-	-	-	24,767
Common Stock – Financial Services Industry	4,758	-	-	-	4,758
Other Common Stock	272	-	-	-	272
Hedging Collateral Deposits	364	-	-	-	364
Total	$ 80,622	$ 41,751	$ 559	$ (19,042)	$ 103,890
Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts – Gas	$ 2,760	$              -	$             -	(2,760)	$           -
Over the Counter Swaps – Gas	-	19,932	-	(15,723)	4,209
Over the Counter Swaps – Oil	-	654	20,223	(559)	20,318
Total	$ 2,760	$ 20,586	$ 20,223	$ (19,042)	$ 24,527
Total Net Assets/(Liabilities)	$ 77,862	$ 21,165	$ (19,664)	$             -	$ 79,363

(1) Amounts represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties.

Derivative Financial Instruments

At December 31, 2012 and September 30, 2012, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX futures contracts used in the Company’s Energy Marketing segment.  Hedging collateral deposits of $0.4 million (at September 30, 2012), which are associated with these futures contracts, have been reported in Level 1 as well (there were no hedging collateral deposits at December 31, 2012). The derivative financial instruments reported in Level 2 at December 31, 2012 and September 30, 2012 consist of natural gas price swap agreements used in the Company’s Exploration and Production and Energy Marketing segments and some of the crude oil price swap agreements used in the Company’s Exploration and Production segment.The fair value of the Level 2 price swap agreements is based on an internal, discounted cash flow model that uses observable inputs (i.e. LIBOR based discount rates and basis differential information, if applicable, at active natural gas and crude oil trading markets). The derivative financial instruments reported in Level 3 consist of the majority of the Company’s Exploration and Production segment’s crude oil price swap agreements at December 31, 2012 and September 30, 2012.  The fair value of the Level 3 crude oil price swap agreements is based on an internal, discounted cash flow model that uses both observable (i.e. LIBOR based discount rates) and unobservable inputs (i.e. basis differential information of crude oil trading markets with low trading volume). 

The significant unobservable input used in the fair value measurement of the majority of the Company’s over-the-counter crude oil swaps is the basis differential between Midway Sunset oil and NYMEX contracts.  Significant changes in the assumed basis differential could result in a significant change in value of the derivative financial instruments.  At December 31, 2012, it was assumed that Midway Sunset oil was 109.6% of NYMEX.  This is based on a historical twelve month average of Midway Sunset oil sales verses NYMEX settlements.  During this twelve-month period, the price of Midway Sunset oil ranged from 103.2% to 112.4% of NYMEX.  If thebasis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement calculation at December 31, 2012 had been 10 percentage points lower, the fair value of the Level 3 crude oil price swap agreements would have changed from a net liability of $14.1million to a net asset of $2.0million.  If the basis differential between Midway Sunset oil and NYMEX contracts used in the fair value measurement at December 31, 2012 had been 10 percentage points higher, the fair value measurement of the Level 3 crude oil price swap agreements liability would have been approximately $16.1 million higher.  These calculated amounts are based solely on basis differential changes and do not take into account any other changes to the fair value measurement calculation. 

The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.  At December 31, 2012, the Company determined that nonperformance risk would have no material impact on its financial position or results of operation.  To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty (for an asset) or the Company’s (for a liability) credit default swaps rates.

The tables listed below provide reconciliations of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 for the quarters ended December 31, 2012 and 2011, respectively. For the quarters ended December 31, 2012 and December 31, 2011, no transfers in or out of Level 1 or Level 2 occurred.  There were no purchases or sales of derivative financial instruments during the periods presented in the tables below.  All settlements of the derivative financial instruments are reflected in the Gains/Losses Realized and Included in Earnings column of the tables below.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	October 1, 2012	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	December 31, 2012
Derivative Financial Instruments(2)	$ (19,664)	$2,261(1)	$ 3,314	$         -	$ (14,089)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended December 31, 2012. 

⁽²⁾ Derivative Financial Instruments are shown on a net basis.

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)		Total Gains/Losses
	October 1, 2011	(Gains)/ Losses Realized and Included in Earnings	Gains/(Losses) Unrealized and Included in Other Comprehensive Income (Loss)	Transfer In/Out of Level 3	December 31, 2011
Derivative Financial Instruments(2)	$(5,410)	$12,612(1)	$(61,975)	$       -	$(54,773)

⁽¹⁾ Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended December 31, 2011. 

⁽²⁾ Derivative Financial Instruments are shown on a net basis.