Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 14 – FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants (in either case, an exit price). To estimate an exit price, a three-level hierarchy is used prioritizing the valuation techniques used to measure fair value into three levels with the highest priority given to Level 1 and the lowest priority given to Level 3. The levels are summarized as follows:

• Level 1—unadjusted quoted prices in active markets for identical assets and liabilities.

• Level 2—significant observable pricing inputs other than quoted prices included within level 1 that are either directly or indirectly observable as of the reporting date. Essentially, inputs (variables used in the pricing models) that are derived principally from or corroborated by observable market data.

• Level 3—generally unobservable inputs which are developed based on the best information available and may include our own internal data.

The inputs available to us determine the valuation technique we use to measure the fair values of our financial instruments.

The following tables set forth our recurring fair value measurements:

	December 31, 2012
	Level 2			Level 3			Effect of Netting			Total
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	18,555		$	—		$	(2,003	)	$	16,552
Liabilities	(3,918		)	(595		)	2,003			(2,510		)
	$	14,637		$	(595	)	$	—		$	14,042

	December 31, 2011
	Level 2			Level 3			Effect of Netting			Total
	(In thousands)
Financial assets (liabilities):
Commodity derivatives:
Assets	$	9,698		$	34,321		$	(7,567	)	$	36,452
Liabilities	(9,518		)	(706		)	7,567			(2,657		)
	$	180		$	33,615		$	—		$	33,795

Certain natural gas fixed price swaps were transferred from Level 3 to Level 2 as of March 31, 2012 because of improvements in our ability to obtain and corroborate observable significant inputs to assess the fair value. Our policy is to recognize transfers either in or out of fair value hierarchy levels as of the end of the quarterly reporting period in which the event or change in circumstances causing the transfer occurred.

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.

Level 2 Fair Value Measurements

Commodity Derivatives.    We measure the fair values of our crude oil swaps using estimated internal discounted cash flow calculations based on the NYMEX futures index.

Level 3 Fair Value Measurements

Interest Rate Swaps.    The fair values of our interest rate swaps are based on estimates provided by our respective counterparties and reviewed internally against established index prices and other sources.

Commodity Derivatives.    The fair values of our natural gas, NGLs and basis swaps are estimated using internal discounted cash flow calculations based on forward price curves, quotes obtained from brokers for contracts with similar terms, or quotes obtained from counterparties to the agreements.

The following tables are reconciliations of our level 3 fair value measurements:

	Net Derivatives
	For the Year Ended, December 31, 2012					For the Year Ended, December 31, 2011
	Interest Rate Swaps		Commodity Swaps			Interest Rate Swaps			Commodity Swaps
	(In thousands)
Beginning of period	$	—	$	33,615		$	(1,614	)	$	10,868
Total gains or losses (realized and unrealized):
Included in earnings (1)	—		24,484			(1,734		)	20,086
Included in other comprehensive income (loss)	—		(11,641		)	1,614			22,503
Settlements	—		(25,129		)	1,734			(19,842		)
Transfers out of Level 3 into Level 2	—		(21,924		)	—			—
End of period	$	—	$	(595	)	$	—		$	33,615
Total gains (losses) for the period included in earnings attributable to the change in unrealized gain relating to assets still held at end of period	$	—	$	(645	)	$	—		$	244

_________________________

(1) Interest rate swaps and commodity sales swaps and collars are reported in the consolidated statements of operations in interest expense, oil and gas revenues (for cash flow hedges), and gain (loss) on derivatives not designated as hedges and hedge ineffectiveness, net, respectively.

The following table provides quantitative information about our Level 3 unobservable inputs at December 31, 2012:

	Fair Value			Valuation Technique	Unobservable Input	Range
	(In thousands)
Commodity collars (1)	$	(595	)	Discounted cash flow	Forward commodity price curve	$0.09-$0.56

 _________________________

(1) The commodity contracts detailed in this category include non-exchange-traded natural gas collars that are valued based on NYMEX. The forward pricing range represents the low and high price expected to be received within the settlement period.

Based on our valuation at December 31, 2012, we determined that the non-performance risk with regard to our counterparties was immaterial.

Fair Value of Other Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with accounting guidance for financial instruments. We have determined the estimated fair values by using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

At December 31, 2012, the carrying values on the consolidated balance sheets for cash and cash equivalents (classified as Level 1), accounts receivable, accounts payable, other current assets, and current liabilities approximate their fair value because of their short term nature.

Based on the borrowing rates currently available to us for credit agreement debt with similar terms and maturities and also considering the risk of our non-performance, long-term debt under our credit agreement at December 31, 2012 approximates its fair value. This debt would be classified as Level 2.

The carrying amounts of long-term debt, net of unamortized discount, associated with the Notes reported in the consolidated balance sheets at December 31, 2012 and December 31, 2011 were $645.3 million and $250.0 million, respectively. We estimate the fair value of these Notes using quoted marked prices at December 31, 2012 and December 31, 2011 were $687.7 million and $250.6 million, respectively. These Notes would be classified as Level 2.