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 has the ability to 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 June 30, 2011 and September 30, 2010. 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 June 30, 2011
(Thousands of Dollars)	Level 1		Level 2			Level 3			Total
Assets:
Cash Equivalents ' Money Market Mutual Funds	$	118,652	$	'		$	'		$	118,652
Derivative Financial Instruments:
Commodity Futures Contracts ' Gas		56		'			'			56
Over the Counter Swaps ' Oil		'		(176	)		'			(176	)
Over the Counter Swaps ' Gas		'		43,367			'			43,367
Other Investments:
Balanced Equity Mutual Fund		22,030		'			'			22,030
Common Stock ' Financial Services Industry		6,979		'			'			6,979
Other Common Stock		237		'			'			237
Hedging Collateral Deposits		37,984		'			'			37,984

Total	$	185,938	$	43,191		$	'		$	229,129

Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts ' Gas	$	2,960	$	'		$	'		$	2,960
Over the Counter Swaps ' Oil		'		'			50,453			50,453
Over the Counter Swaps ' Gas		'		(8,806	)		'			(8,806	)

Total	$	2,960	$	(8,806	)	$	50,453		$	44,607

Total Net Assets/(Liabilities)	$	182,978	$	51,997		$	(50,453	)	$	184,522


Recurring Fair Value Measures	At fair value as of September 30, 2010
(Thousands of Dollars)	Level 1		Level 2		Level 3			Total
Assets:
Cash Equivalents ' Money Market Mutual Funds	$	277,423	$	'	$	'		$	277,423
Derivative Financial Instruments:
Over the Counter Swaps ' Gas		'		67,387		'			67,387
Over the Counter Swaps ' Oil		'		'		(2,203	)		(2,203	)
Other Investments:
Balanced Equity Mutual Fund		17,256		'		'			17,256
Common Stock ' Financial Services Industry		4,991		'		'			4,991
Other Common Stock		241		'		'			241
Hedging Collateral Deposits		11,134		'		'			11,134

Total	$	311,045	$	67,387	$	(2,203	)	$	376,229

Liabilities:
Derivative Financial Instruments:
Commodity Futures Contracts ' Gas	$	5,840	$	'	$	'		$	5,840
Over the Counter Swaps ' Oil		'		'		14,280			14,280
Over the Counter Swaps ' Gas		'		40		'			40

Total	$	5,840	$	40	$	14,280		$	20,160

Total Net Assets/(Liabilities)	$	305,205	$	67,347	$	(16,483	)	$	356,069

Derivative Financial Instruments

At June 30, 2011 and September 30, 2010, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX futures contracts used in the Company's Energy Marketing and Pipeline and Storage segments. Hedging collateral deposits of $5.6 million (at June 30, 2011) and $10.1 million (at September 30, 2010), which are associated with these futures contracts have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at June 30, 2011 consist of crude oil and natural gas price swap agreements used in the Company's Exploration and Production and Energy Marketing segments. At September 30, 2010, the derivative financial instruments reported in Level 2 consist of natural gas price swap agreements used in the Company's Exploration and Production and Energy Marketing segments. 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 June 30, 2011 and all of its crude oil price swap agreements at September 30, 2010. Hedging collateral deposits of $32.4 million and $1.0 million associated with these crude oil price swap agreements have been reported in Level 1 at June 30, 2011 and September 30, 2010, respectively. 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). Based on an assessment of the counterparties' credit risk, the fair market value of the price swap agreements reported as Level 2 assets have been reduced by $0.4 million and $1.0 million at June 30, 2011 and September 30, 2010, respectively. Based on an assessment of the Company's credit risk, the fair market value of the price swap agreements reported as Level 2 and Level 3 liabilities have been reduced by $0.1 million and $0.3 million at June 30, 2011 and September 30, 2010, respectively. These credit reserves were determined by applying default probabilities to the anticipated cash flows that the Company is either expecting from its counterparties or expecting to pay to its counterparties.

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 and nine months ended June 30, 2011 and 2010, respectively. For the quarters and nine months ended June 30, 2011 and June 30, 2010, 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
	April 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		June 30, 2011
Derivative Financial Instruments⁽²⁾	$	(71,913	)	$	15,377	⁽¹⁾	$	6,083	$	'	$	(50,453	)

⁽¹⁾	Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended June 30, 2011.

⁽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, 2010			Gains/Losses Realized and Included in Earnings			Gains/Losses Unrealized and Included in Other Comprehensive Income (Loss)			Transfer In/Out of Level 3		June 30, 2011
Derivative Financial Instruments⁽²⁾	$	(16,483	)	$	28,545	⁽¹⁾	$	(62,515	)	$	'	$	(50,453	)

⁽¹⁾	Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the nine months ended June 30, 2011.

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


Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)				Total Gains/Losses
	April 1, 2010			Gains/Losses Realized and Included in Earnings			Gains/Losses Unrealized and Included in Other Comprehensive Income (Loss)		Transfer In/Out of Level 3		June 30, 2010
Derivative Financial Instruments⁽²⁾	$	(14,100	)	$	(2,172	)⁽¹⁾	$	16,126	$	'	$	(146	)

⁽¹⁾	Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended June 30, 2010.

⁽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, 2010		Gains/Losses Realized and Included in Earnings			Gains/Losses Unrealized and Included in Other Comprehensive Income (Loss)			Transfer In/Out of Level 3		June 30, 2010
Derivative Financial Instruments⁽²⁾	$	26,969	$	(6,969	)⁽¹⁾	$	(20,146	)	$	'	$	(146	)

⁽¹⁾	Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the nine months ended June 30, 2010.

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