Gathering and transportation expenses.
Gathering and transportation expenses increased $11.4
million, to $62.1 million in 2011 from $50.7 million in 2010, primarily reflecting an increase in production
from our Haynesville Shale properties, our Panhandle properties divested in December 2011 and our
Eagle Ford Shale properties, partially offset by a decrease due to the December 2010 divestment of
our U.S. Gulf of Mexico shallow water properties.
General and administrative expense.
G&A expense decreased $2.4 million, to $134.0 million in
2011 from $136.4 million in 2010, primarily due to lower franchise and other taxes and stock-based
compensation expense, partially offset by costs attributable to increased headcount.
Depreciation, depletion and amortization.
DD&A expense increased $131.1 million, to $664.5
million in 2011 from $533.4 million in 2010. The increase is attributable to our oil and gas depletion,
primarily due to increased production ($68.5 million) and a higher per unit rate ($61.7 million). Our oil
and gas unit of production rate increased to $17.76 per BOE in 2011 compared to $15.87 per BOE in
2010.
Interest expense
. Interest expense increased $54.6 million, to $161.3 million in 2011 from $106.7
million in 2010, primarily due to greater average debt outstanding partially offset by lower average
interest rates. Interest expense is net of interest capitalized on oil and natural gas properties not
subject to amortization but in the process of development. We capitalized $117.4 million and $130.9
million of interest in 2011 and 2010, respectively.
Debt extinguishment costs.
During 2011, we recognized $121.0 million of debt extinguishment
costs in connection with the retirement of portions of our 7
3
⁄
4
% Senior Notes, 10% Senior Notes and
7% Senior Notes. In connection with the reduction in the borrowing base on our senior revolving credit
facility, we recorded $1.2 million of debt extinguishment costs in 2010.
Gain (loss) on mark-to-market derivative contracts
. The derivative instruments we have in place
are not classified as hedges for accounting purposes. Consequently, these derivative contracts are
marked-to-market each quarter with fair value gains and losses, both realized and unrealized,
recognized currently as a gain or loss on mark-to-market derivative contracts in our income statement.
Cash flow is only impacted to the extent the actual settlements under the contracts result in making a
payment to or receiving a payment from the counterparty.
We recognized an $82.0 million gain related to mark-to-market derivative contracts in 2011, which
was primarily associated with an increase in fair value of our 2012 and 2013 natural gas derivative
contracts and our 2012 crude oil derivative contracts due to lower forward prices. In 2010, we
recognized a $60.7 million loss related to mark-to-market derivative contracts.
Loss on investment measured at fair value.
At December 31, 2011, we owned 51.0 million
shares of McMoRan common stock. We are deemed to exercise significant influence over the
operating and investing policies of McMoRan but do not have control. We have elected to measure our
equity investment in McMoRan at fair value, and the change in fair value of our investment is
recognized as loss on investment measured at fair value in our income statement.
We recognized a $52.7 million loss in 2011 related to our McMoRan investment, which was
primarily associated with a decrease in McMoRan’s stock price, partially offset by a lower discount to
reflect certain limitations on the marketability of the shares.
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