The first step of the goodwill impairment test requires that we make an estimate of the fair value of
the reporting unit. Quoted market prices in active markets are the best evidence of fair value. We
estimate the fair value of the reporting unit by applying a control premium to the quoted market price of
our common stock. We determine the control premium through reference to control premiums in
merger and acquisition transactions for our industry and other comparable industries. This requires that
we make certain judgments about the selection of merger and acquisition transactions and transaction
premiums.
We perform our goodwill impairment test annually as of December 31 and have recorded no
impairment. We also perform interim impairment tests if events occur or circumstances change that
would indicate the fair value of our reporting unit may be below its carrying amount.
Events affecting oil and gas prices may cause a decrease in the fair value of the reporting unit,
and we could have an impairment of our goodwill in future periods. An impairment of goodwill could
significantly reduce earnings during the period in which the impairment occurs and would result in a
corresponding reduction to goodwill and equity.
Income Taxes.
The amount of income taxes recorded by us requires interpretations of complex
rules and regulations of various tax jurisdictions. We recognize deferred tax assets and liabilities for
temporary differences, operating losses and tax credit carryforwards. Also, we routinely assess the
realizability of our deferred tax assets and reduce such assets by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax assets will not be realized. We routinely
assess potential uncertain tax positions and, if required, establish accruals for such amounts. The
accruals for deferred tax assets and liabilities are subject to a significant amount of judgment and are
reviewed and adjusted routinely based on changes in facts and circumstances. Although we consider
our tax accruals adequate, material changes in these accruals may occur in the future, based on the
progress of ongoing tax audits, changes in legislation and resolution of other pending tax matters.
Recent Accounting Pronouncements
In December 2010, the FASB issued authoritative guidance clarifying the acquisition date that
should be used for reporting the pro forma financial information disclosures when comparative financial
statements are presented. The guidance also improves the usefulness of the pro forma revenue and
earnings disclosures by requiring a description of the nature and amount of material, nonrecurring pro
forma adjustments that are directly attributable to the business combination. We adopted the
provisions of this standard effective January 1, 2011, and it did not have a significant impact on our
consolidated financial position, results of operations or cash flows.
In December 2010, the FASB issued authoritative guidance amending the criteria for performing
the second step of the goodwill impairment test for companies with reporting units with zero or negative
carrying amounts. The amended guidance requires performance of the second step if qualitative
factors indicate that it is more likely than not that a goodwill impairment exists. We adopted the
provisions of this standard effective January 1, 2011, and it did not have a significant impact on our
consolidated financial position, results of operations or cash flows.
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