FAIR VALUE MEASUREMENTS AND DISCLOSURES

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Financial Instruments

Determination of fair value. Our fair value measurements are estimated pursuant to a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability, and may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The three levels of inputs that may be used to measure fair value are defined as:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability and (iv) inputs that are derived from observable market data by correlation or other means. Includes our fixed-price swaps, basis swaps and physical purchases.

Level 3 – Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability. Includes our natural gas and crude oil collars, crude oil puts and physical sales.

Derivative Financial Instruments. We measure the fair value of our derivative instruments based on a pricing model that utilizes market-based inputs, including but not limited to the contractual price of the underlying position, current market prices, natural gas and crude oil forward curves, discount rates such as the LIBOR curve for a similar duration of each outstanding position, volatility factors and nonperformance risk. Nonperformance risk considers the effect of our credit standing on the fair value of derivative liabilities and the effect of our counterparties' credit standings on the fair value of derivative assets. Both inputs to the model are based on published credit default swap rates and the duration of each outstanding derivative position.

We validate our fair value measurement through (1) the review of counterparty statements and other supporting documentation, (2) the determination that the source of the inputs is valid, (3) the corroboration of the original source of inputs through access to multiple quotes, if available, or other information and (4) monitoring changes in valuation methods and assumptions. While we use common industry practices to develop our valuation techniques, changes in our pricing methodologies or the underlying assumptions could result in significantly different fair values. While we believe our valuation method is appropriate and consistent with those used by other market participants, the use of a different methodology, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value.

We have evaluated the credit risk of the counterparties holding our derivative assets, which are primarily financial institutions who are also major lenders in our corporate credit facility agreement, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on our evaluation, we have determined that the impact of the nonperformance of our counterparties on the fair value of our derivative instruments is insignificant.

The following table presents, for each hierarchy level, our assets and liabilities, including both current and non-current portions, measured at fair value on a recurring basis.

	As of December 31,
	2011						2010 (a)
	Significant other observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Significant other observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets:
Commodity based derivatives	$	76,104	$	25,837	$	101,941	$	72,880	$	14,426	$	87,306
Basis protection derivative contracts	5		38		43		10		101		111
Total assets	76,109		25,875		101,984		72,890		14,527		87,417
Liabilities:
Commodity based derivatives	9,888		3,768		13,656		16,304		3,758		20,062
Basis protection derivative contracts	35,424		—		35,424		46,573		7		46,580
Total liabilities	45,312		3,768		49,080		62,877		3,765		66,642
Net asset (liability)	$	30,797	$	22,107	$	52,904	$	10,013	$	10,762	$	20,775

__________

(a) We reclassified our NYMEX-based natural gas fixed-price swaps from Level 1 to Level 2 (decreasing the previously reported net asset in Level 1 by $64.1 million, with a corresponding increase in Level 2), Panhandle Eastern Pipeline ("PEPL") and Colorado Interstate Gas ("CIG") -based natural gas fixed-price swaps, crude oil fixed-price swaps, basis swaps and natural gas physical purchases from Level 3 to Level 2 (decreasing the previously reported net liability in Level 3 by $54.1 million, with a corresponding increase in Level 2). The amounts presented reflect these reclassifications and conform to current period presentation.

The following table presents a reconciliation of our Level 3 fair value measurements.

	2011			2010 (1)			2009 (1)
	(in thousands)
Fair value, net asset beginning of year, January 1	$	10,762		$	15,048		$	51,229
Changes in fair value included in statement of operations line item:
Commodity price risk management gain (loss), net	13,487			11,591			20,686
Sales from natural gas marketing	114			580			(388		)
Cost of natural gas marketing	—			23			—
Changes in fair value included in balance sheet line item (2):
Accounts receivable affiliates	49			231			(10		)
Accounts payable affiliates	(454		)	(1,737		)	(8,941		)
Settlements included in statement of operations line items:
Commodity price risk management gain (loss), net	(1,712		)	(14,467		)	—
Sales from natural gas marketing	(139		)	(484		)	(47,469		)
Cost of natural gas marketing	—			(23		)	(59		)
Fair value, net asset end of year, December 31	$	22,107		$	10,762		$	15,048
Changes in unrealized gains (losses) relating to assets (liabilities) still held
as of December 31, 2011, included in statement of operations line item:
Commodity price risk management gain (loss), net	$	11,669		$	9,594		$	2,614
Sales from natural gas marketing	(3		)	54			29
	$	11,666		$	9,648		$	2,643

__________

(1) We reclassified our PEPL and CIG-based natural gas fixed-price swaps, crude oil fixed-price swaps, basis swaps and natural gas physical purchases from Level 3 to Level 2 (decreasing the reported net liability at the beginning of 2010 by $44 million and the reported net asset at the beginning of 2009 by $83.6 million). The amounts presented reflect these reclassifications and conform to current period presentation.

(2) Represents the change in fair value related to derivative instruments entered into by us and designated to our affiliated partnerships.

See Note 4 for additional disclosure related to our derivative financial instruments.

Non-Derivative Financial Assets and Liabilities

The carrying values of the financial instruments comprising current assets and current liabilities approximate fair value due to the short-term maturities of these instruments.

The portion of our long-term debt related to our credit facility approximates fair value due to the variable nature of its related interest rate. We have not elected to account for the portion of our long-term debt related to our senior notes under the fair value option; however, as of December 31, 2011, we estimate the fair value of the portion of our long-term debt related to the 3.25% convertible senior notes due 2016 to be $123.8 million or 107.7% of par value and the portion related to our 12% senior notes due 2018 to be $222.3 million or 109.5% of par value. We determined these valuations based upon measurements of trading activity and broker and/or dealer quotes, respectively.

See Note 2, subsections Property and Equipment, Natural Gas and Crude Oil Properties and Asset Retirement Obligations for a discussion of how we determined fair value for these assets and liabilities.