Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

(6)  FAIR VALUE MEASUREMENTS

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

	December 31, 2011		December 31, 2010
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
	(in thousands)
Cash and cash equivalents	$          15,627	$         15,627	$          16,055	$          16,055
Unsecured revolving credit facility	$        671,500	$       671,500	$        421,200	$        421,200
Senior notes	$        671,800	$       773,578	$        673,000	$        761,372
Derivative instruments, net	$        704,830	$        704,830	$        160,452	$        160,452

The carrying values of cash and cash equivalents, 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 4.6% at December 31, 2011 and 5.2% at December 31, 2010. The carrying values of the borrowings under the Company's unsecured revolving credit facility at December 31, 2011 and 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):

	December 31, 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	$                 534,560	$                     182,783	$              717,343
Derivative liabilities	0	(11,849)	(664)	(12,513)
Total	$                      0	$                 522,711	$                     182,119	$              704,830
	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 years ended December 31, 2011 and 2010. 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 December 31, 2011 and at December 31, 2010.

Total net gains and losses for Level 3 derivatives for the years ended December 31, 2011 and 2010 are provided below:

	For the years ended December 31,
	2011	2010
	(in thousands)
Balance at beginning of period	$           97,677	$           24,720
Total gains or losses (realized/unrealized):
Included in earnings	67,998	68,111
Included in other comprehensive income	79,215	63,522
Purchases, issuances and settlements
Purchases	—	—
Issuances	—	—
Settlements	(62,913)	(58,676)
Transfers into/out of Level 3	142	—
Balance at end of period	$         182,119	$           97,677
Change in unrealized gain (loss) included in earnings relating to derivatives still held as of December 31	$              5,085	$              9,435