Production and ad valorem taxes.
Production and ad valorem taxes decreased $9.3 million, to
$29.4 million in 2010 from $38.7 million in 2009, primarily reflecting lower ad valorem taxes and
production tax abatements. The reduction in ad valorem taxes reflects lower commodity prices at the
time of assessment. The valuation of our oil and gas properties and related ad valorem taxes has a
direct relationship to commodity price movements, and will increase as prices increase.
Gathering and transportation expenses.
Gathering and transportation expenses increased $14.0
million, to $50.7 million in 2010 from $36.7 million in 2009, primarily reflecting an increase in production
from our Haynesville Shale properties, partially offset by a decrease in rates and volumes at our Gulf of
Mexico properties prior to the December 2010 sale.
General and administrative expense.
G&A expense decreased $8.2 million, to $136.4 million in
2010 from $144.6 million in 2009, primarily due to a decrease in stock-based compensation expense.
Depreciation, depletion and amortization.
DD&A expense increased $126.2 million, to $533.4
million in 2010 from $407.2 million in 2009. The increase is attributable to our oil and gas depletion,
primarily due to a higher per unit rate ($94.1 million) and increased production ($32.0 million). Our oil
and gas unit of production rate increased to $15.87 per BOE in 2010 compared to $12.79 per BOE in
2009. Our oil and gas DD&A rate for 2011, after the effect of our fourth quarter 2010 acquisitions and
divestments, is expected to be $16.28 per BOE.
Impairment of oil and gas properties.
During the second quarter of 2010, we completed our
interpretation of seismic and drilling data from our two offshore Vietnam exploratory wells and decided
not to pursue additional exploratory activities in this area. The costs related to our Vietnam oil and gas
properties not subject to amortization were transferred to our Vietnam full cost pool where they were
subject to the ceiling limitation. Because our Vietnam full cost pool had no associated proved oil and
gas reserves, we recorded a non-cash pre-tax impairment charge of $59.5 million. At December 31,
2010, the ceiling with respect to our domestic oil and gas properties exceeded the net capitalized costs
and we did not record an impairment.
Legal recovery.
We received a net recovery of $8.4 million in 2010 and $87.3 million in 2009 as
our share of a portion of the judgments in the Amber Resources Company et al. v. United States
related lawsuits.
Interest expense
. Interest expense increased $32.9 million, to $106.7 million in 2010 from $73.8
million in 2009, primarily due to greater average debt outstanding attributed to the Senior Notes issued
in March 2010 and increased borrowings under our senior revolving credit facility related to the
purchase of our Eagle Ford Shale properties during the fourth quarter 2010. 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 $130.9 million and $116.2 million of interest in 2010 and 2009,
respectively.
Debt extinguishment costs.
In connection with reductions of the borrowing base on our senior
revolving credit facility, we recorded $1.2 million and $12.1 million of debt extinguishment costs in 2010
and 2009, respectively.
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 or
receiving a payment from the counterparty.
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