v2.4.0.6
Fair value of financial instruments
 12 Months Ended
Dec. 31, 2012
Fair value of financial instruments  
Fair value of financial instruments

11. Fair value of financial instruments

        The estimated carrying values and fair values of our recorded financial instruments related to operations are as follows:

 
   2012   2011  
 
   Carrying
Amount		   Fair
Value		   Carrying
Amount		   Fair
Value		  

Cash and cash equivalents

   $ 60,191   $ 60,191   $ 60,651   $ 60,651  

Restricted cash

     28,618     28,618     21,412     21,412  

Derivative assets current

     9,456     9,456     10,411     10,411  

Derivative assets non-current

     11,115     11,115     22,003     22,003  

Derivative liabilities current

     33,038     33,038     20,592     20,592  

Derivative liabilities non-current

     118,070     118,070     33,170     33,170  

Revolving credit facility and long-term debt, including current portion

     1,647,341     1,701,811     1,483,858     1,462,474  

Convertible debentures

     424,246     416,677     189,563     207,888  

        Our financial instruments that are recorded at fair value have been classified into levels using a fair value hierarchy.

        The three levels of the fair value hierarchy are defined below:

  •         Level 1—Unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. Financial assets utilizing Level 1 inputs include active exchange-traded securities.

            Level 2—Quoted prices available in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are directly observable, and inputs derived principally from market data.

            Level 3—Unobservable inputs from objective sources. These inputs may be based on entity-specific inputs. Level 3 inputs include all inputs that do not meet the requirements of Level 1 or Level 2.

        The following represents the recurring measurements of fair value hierarchy of our financial assets and liabilities that were recognized at fair value as of December 31, 2012 and December 31, 2011. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

 
   December 31, 2012  
 
   Level 1   Level 2   Level 3   Total  

Assets:

                          

Cash and cash equivalents

   $ 60,191   $ —   $ —   $ 60,191  

Restricted cash

     28,618     —     —     28,618  

Derivative instruments asset

     —     20,571     —     20,571  
                   

Total

   $ 88,809   $ 20,571   $ —   $ 109,380  
                   

Liabilities:

                          

Derivative instruments liability

   $ —   $ 151,108   $ —   $ 151,108  
                   

Total

   $ —   $ 151,108   $ —   $ 151,108  
                   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   December 31, 2011  
 
   Level 1   Level 2   Level 3   Total  

Assets:

                          

Cash and cash equivalents

   $ 60,651   $ —   $ —   $ 60,651  

Restricted cash

     21,412     —     —     21,412  

Derivative instruments asset

     —     32,414     —     32,414  
                   

Total

   $ 82,063   $ 32,414   $ —   $ 114,477  
                   

Liabilities:

                          

Derivative instruments liability

   $ —   $ 53,762   $ —   $ 53,762  
                   

Total

   $ —   $ 53,762   $ —   $ 53,762  
                   

        The fair values of our derivative instruments are based upon trades in liquid markets. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy. We use our best estimates to determine the fair value of commodity and derivative contracts we hold. These estimates consider various factors including closing exchange prices, time value, volatility factors and credit exposure. The fair value of each contract is discounted using a risk free interest rate.

        We also adjust the fair value of financial assets and liabilities to reflect credit risk, which is calculated based on our credit rating and the credit rating of our counterparties. As of December 31, 2012, the credit valuation adjustments resulted in a $18.4 million net increase in fair value, which consists of a $1.1 million pre-tax gain in other comprehensive income and a $13.8 million gain in change in fair value of derivative instruments and $3.6 million related to interest rate swaps assumed in the acquisition of Ridgeline. As of December 31, 2011, the credit valuation adjustments resulted in a $5.8 million net increase in fair value, which consists of a $0.9 million pre-tax gain in other comprehensive income and a $5.1 million gain in change in fair value of derivative instruments, offset by a $0.2 million loss in foreign exchange.

        The carrying amounts for cash and cash equivalents and restricted cash approximate fair value due to their short-term nature. The fair value of long-term debt, subordinated notes and convertible debentures was determined using quoted market prices, as well as discounting the remaining contractual cash flows using a rate at which we could issue debt with a similar maturity as of the balance sheet date.