Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

(8)  FAIR VALUE MEASUREMENTS

The carrying amounts and estimated fair values of the Company's financial instruments as of September 30, 2011 and December 31, 2010 were as follows:

	September 30, 2011		December 31, 2010
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
	(in thousands)
Cash and cash equivalents	$          13,293	$          13,293	$          16,055	$          16,055
Restricted cash	$          69,261	$          69,261	$                 0	$                 0
Unsecured revolving credit facility	$        599,800	$        599,800	$        421,200	$        421,200
Senior notes	$        672,400	$        774,915	$        673,000	$        761,372
Derivative instruments, net	$        398,916	$        398,916	$        160,452	$        160,452

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, other current assets and current liabilities on the condensed consolidated balance sheets approximate fair value because of their short-term nature. For debt and derivative instruments, the following methods and assumptions were used to estimate fair value:

Debt: The fair values of the Company's senior notes were based on the market for the Company's publicly-traded debt as determined based on yield of the Company's 7.5% Senior Notes due 2018, which was 4.7% at September 30, 2011 and 5.2% at December 31, 2010. The carrying values of the borrowings under the Company's unsecured revolving credit facility at September 30, 2011 and December 31, 2010 approximate fair value.

Derivative Instruments: The fair value of all derivative instruments is the amount at which the instrument could be exchanged currently between willing parties. The amounts are based on quoted market prices, best estimates obtained from counterparties and an option pricing model, when necessary, for price option contracts.

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

Level 1 valuations -    Consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority.

Level 2 valuations -    Consist of quoted market information for the calculation of fair market value.

Level 3 valuations -    Consist of internal estimates and have the lowest priority.

Pursuant to GAAP, the Company has classified its derivatives into these levels depending upon the data utilized to determine their fair values. The Company's Level 2 fair value measurements include fixed-price and floating-price swaps and are estimated using internal discounted cash flow calculations using the NYMEX futures index. The Company's Level 3 fair value measurements include costless-collars and basis swaps. The Company's costless-collars are valued using the Black-Scholes model, an industry standard option valuation model, and takes into account inputs such as contract terms, including maturity, and market parameters, including assumptions of the NYMEX futures index, interest rates, volatility and credit worthiness. The Company's basis swaps are estimated using internal discounted cash flow calculations based upon forward commodity price curves. 

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

	September 30, 2011
	Fair Value Measurements Using:
	Quoted Prices	Significant
	in Active	Other	Significant
	Markets	Observable Inputs	Unobservable Inputs	Assets (Liabilities)
	(Level 1)	(Level 2)	(Level 3)	at Fair Value
Derivative assets	$                      0	$                 286,131	$                      126,438	$              412,569
Derivative liabilities	0	(9,040)	(4,613)	(13,653)
Total	$                      0	$                 277,091	$                      121,825	$              398,916
	December 31, 2010
	Fair Value Measurements Using:
	Quoted Prices	Significant
	in Active	Other	Significant
	Markets	Observable Inputs	Unobservable Inputs	Assets (Liabilities)
	(Level 1)	(Level 2)	(Level 3)	at Fair Value
Derivative assets	$                      0	$                   86,883	$                    121,442	$              208,325
Derivative liabilities	0	(24,108)	(23,765)	(47,873)
Total	$                      0	$                   62,775	$                      97,677	$              160,452

The table below presents reconciliations for the change in net fair value of derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three- and nine-month periods ended September 30, 2011. The fair values of Level 3 derivative instruments are estimated using proprietary valuation models that utilize both market observable and unobservable parameters. Level 3 instruments presented in the table consist of net derivatives valued using pricing models incorporating assumptions that, in the Company's judgment, reflect the assumptions a marketplace participant would have used at September 30, 2011.

	For the three months ended		For the nine months ended
	September 30,		September 30,
	2011	2010	2011	2010
	(in thousands)
Balance at beginning of period	$      89,395	$      53,566	$      97,677	$      24,720
Total gains or losses (realized/unrealized):
Included in earnings	11,102	14,956	38,694	48,743
Included in other comprehensive income	35,223	68,834	23,913	91,224
Purchases, issuances, and settlements:
Purchases	0	0	0	0
Issuances	0	0	0	0
Settlements	(13,895)	(13,493)	(38,601)	(40,824)
Transfers into/out of Level 3	0	0	142	0
Balance at end of period	$     121,825	$    123,863	$      121,825	$     123,863
Change in unrealized gain (loss) included in earnings relating to derivatives still held as of September 30	$        (2,793)	$         1,463	$                93	$         7,919