(ii) management's estimate of the fair value of undeveloped land;
(iii) a review of the values indicated by the metrics of recent market transactions of similar assets within the oil and gas industry; and
(iv) management's estimate of additional fair value from asset development not included in (i) above.
The market value of other items of property, plant and equipment is based on the quoted market prices for similar items.
(b) Cash and cash equivalents, accounts receivable and accruals and accounts payable and accruals. The fair value of cash and cash equivalents, accounts receivable and accruals and accounts payable and accruals is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. At December 31, 2012 and December 31, 2011, the fair value of these balances approximated their carrying value due to their short term to maturity.
(c) Bank loans. The fair value of bank loans approximates their carrying value, as they bear interest at floating rates and the premium charged at December 31, 2012 and December 31, 2011 was indicative by the Company's current credit spreads.
(d) Derivatives. The fair value of forward contracts and swaps is derived from quoted prices received from financial institutions and is based on published forward price curves as at the measurement date, using the remaining contracted oil and natural gas volumes.
(e) Stock options. The fair value of employee stock options is measured using a Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments and forfeiture rate (both based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds).
The Company classified the fair value of its financial instruments measured at fair value according to the following hierarchy based on the amount of observable inputs used to value the instrument:
-- Level 1 - observable inputs such as quoted prices in active markets;-- Level 2 - inputs, other than the quoted market prices in active markets, which are observable, either directly and/or indirectly; and-- Level 3 - unobservable inputs for the asset or liability in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value of the derivative contracts used for risk management as shown in the consolidated statements of financial position as at December 31, 2012 and December 2011 is measured using level 2.
During the years ended December 31, 2012 and 2011, there were no transfers between level 1, level 2 and level 3 classified assets and liabilities.
6. PROPERTY, PLANT AND EQUIPMENT
Cost or deemed cost
Oil and natural gas Other assets equipment TotalBalance at December 31, 2010 $ 585,495 $ 1,779 $ 587,274Additions 183,182 84 183,266Disposals (14,802) - (14,802) -------------------------------------------Balance at December 31, 2011 753,875 1,863 755,738Additions 40,732 41 40,773Disposals (201,559) - (201,559) -------------------------------------------Balance at December 31, 2012 $ 593,048 $ 1,904 $ 594,952----------------------------------------------------------------------------Accumulated depletion, depreciation and impairment losses Oil and natural gas Other assets equipment Total -------------------------------------------Balance at December 31, 2010 $ 265,358 $ 1,243 $ 266,601Depletion and depreciation for the year 52,794 135 52,929Impairment loss (note 7) 35,230 - 35,230Disposals (5,969) - (5,969) -------------------------------------------Balance at December 31, 2011 $ 347,413 $ 1,378 $ 348,791Depletion and depreciation for the year 44,247 149 44,396Impairment loss (note 7) 20,000 - 20,000Disposals (104,409) - (104,409) -------------------------------------------Balance at December 31, 2012 $ 307,251 $ 1,527 $ 308,778----------------------------------------------------------------------------Carrying amounts Oil and natural gas Other assets equipment TotalAt December 31, 2011 $ 406,462 $ 485 $ 406,947At December 31, 2012 $ 285,797 $ 377 $ 286,174----------------------------------------------------------------------------
