Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

(7) Fair Value Measurements

The Company follows accounting guidance which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. As required, the Company applied the following fair value hierarchy:

Level 1 — Assets or liabilities for which the item is valued based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Assets or liabilities valued based on observable market data for similar instruments.

Level 3 — Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.

The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Derivative liabilities consist of future oil, gas, and natural gas liquids commodity swap contracts valued using both quoted prices for identically traded contracts and observable market data for similar contracts (NYMEX WTI oil, CIG gas, and Mont Belvieu natural gas liquids swaps — Level 2).

Proved property impairments — The fair values of the proved properties are estimated using internal discounted cash flow calculations based upon the Company’s estimates of reserves and are considered to be level three fair value measurements.

Asset retirement obligations — The initial fair values of the asset retirement obligations are estimated using internal discounted cash flow calculations based upon the Company’s asset retirement obligations, including revisions of the estimated fair values during the six months ended June 30, 2011 and 2010, and are considered to be Level 3 fair value measurements.

The following table lists the Company’s fair value measurements by hierarchy as of June 30, 2011 and December 31, 2010 (in thousands):

	Fair Value Measurements
	Quoted Prices		Significant			Significant
	in Active Markets		Other Observable			Unobservable
	for Identical Assets		Inputs			Inputs
Assets (Liabilities)	(Level 1)		(Level 2)			(Level 3)		Total
Recurring
Derivative liabilities — June 30, 2011	$	—	$	(5,605	)	$	—	$	(5,605	)
Derivative liabilities — December 31, 2010		—		(2,993	)		—		(2,993	)