Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

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Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
15. FAIR VALUE MEASUREMENTS

The Company adopted FASB ASC 820 for all financial assets and liabilities measured at fair value on a recurring basis. The Company adopted FASB ASC 820 effective January 1, 2009 for all non-financial assets and liabilities. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The statement establishes market or observable inputs as the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Significant inputs to the valuation model are unobservable.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The following tables summarize the Company's financial and nonfinancial liabilities by FASB ASC 820 valuation level as of December 31, 2011 and 2010:

 

     As of December 31, 2011  
     Level 1      Level 2      Level 3  

Assets:

         

Fixed price swaps

    $ —         $ 1,601,000       $ —     

Liabilities:

         

Fixed price swaps

    $ —         $ —         $ —     
     As of December 31, 2010  
     Level 1      Level 2      Level 3  

Assets:

         

Fixed price swaps

    $ —         $ —         $ —     

Liabilities:

         

Fixed price swaps

    $ —         $ 4,720,000       $ —     

The estimated fair value of the Company's fixed price swap contracts was based upon forward commodity prices based on quoted market prices, adjusted for differentials.

 

The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, "Asset Retirement and Environmental Obligations" ("FASB ASC 410"). The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs. See Note 4 for further discussion of the Company's asset retirement obligations. Asset retirement obligations incurred during the twelve months ended December 31, 2011 were approximately $1,390,000.