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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2011
Fair Value Measurements |
Fair Value Measurements |
E. Fair Value Measurements The Company records its financial instruments, principally derivative commodity instruments, at fair value in its Condensed Consolidated Balance Sheets. The Company has an established process for determining fair value which is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, broker quotes, volatilities and nonperformance risk. Nonperformance risk considers the effect of the Company’s credit standing on the fair value of liabilities and the effect of the counterparty’s credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company’s or counterparty’s credit rating and the yield of a risk free instrument. The Company also considers credit default swaps rates where applicable. The Company has categorized its assets and liabilities recorded at fair value into a three-level hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities included in Level 1 include the Company’s futures contracts. Assets and liabilities in Level 2 include the majority of the Company’s swap agreements and assets in Level 3 include the Company’s collar and option agreements and an insignificant portion of the Company’s swap agreements. Since the adoption of fair value accounting, the Company has not made any changes to its classification of assets and liabilities in each category. The fair value of assets and liabilities included in Level 2 is based on industry models that use significant observable inputs, including NYMEX forward curves and LIBOR-based discount rates. Swaps included in Level 3 are valued using internal models that use significant unobservable inputs; these internal models are validated each period with non-binding broker price quotes. The Company has not experienced significant differences between internally calculated values and broker price quotes. Collars and options included in Level 3 are valued using internal models calculated with market derived volatilities. The Company uses NYMEX forward curves to value futures, NYMEX swaps, collars and options. The NYMEX forward curves are validated to external sources at least monthly. The following assets and liabilities were measured at fair value on a recurring basis during the period:
|  |  |  | Fair value measurements at reporting date using
Description |  | June 30, 2011 |  | Quoted prices in active markets for identical assets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
|  | (Thousands)
Assets |  |  |  |  |  |  |  |
Derivative instruments, at fair value |  | $ | 211,986 |  |  | $ | 2,698 |  |  | $ | 107,316 |  |  | $ | 101,972
Total assets |  | $ | 211,986 |  |  | $ | 2,698 |  |  | $ | 107,316 |  |  | $ | 101,972
Liabilities |  |  |  |  |  |  |  |  |  |  |
Derivative instruments, at fair value |  | $ | 97,531 |  |  | $ | 3,339 |  |  | $ | 94,192 |  |  | $ | –
Total liabilities |  | $ | 97,531 |  |  | $ | 3,339 |  |  | $ | 94,192 |  |  | $ | –
|  | Fair value measurements using significant unobservable inputs (Level 3) |
|  | Derivative instruments, at fair value, net |
|  | (Thousands) |
Balance at January 1, 2011 |  | $ | 116,672 |  |
Total gains or losses: |  |  |  |
Included in earnings |  | 14 |  |
Included in other comprehensive income |  | 11,020 |  |
Settlements |  | (25,734) |  |
Transfers in and/or out of Level 3 |  | – |  |
Balance at June 30, 2011 |  | $ | 101,972 |  |
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of June 30, 2011 |  | $ | – |  |
The carrying value of cash equivalents and short-term loans approximates fair value due to the short maturity of the instruments. The estimated fair value of long-term debt on the Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 was approximately $2 billion. The fair value was estimated using the Company’s established fair value methodology based on quoted rates reflective of the remaining maturity and risk.

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- Definition This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 33 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 6 -Footnote 4 + Details
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