Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 3. Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk. Derivative contracts are utilized to economically hedge the Company’s exposure to price fluctuations and reduce the variability in the Company’s cash flows associated with anticipated sales of future oil and natural gas production. The Company follows FASB ASC Topic 815 Derivatives and Hedging (“ASC Topic 815”), to account for its derivative financial instruments. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive. The counterparties to the Company’s current derivative contracts are lenders in the Company’s credit agreement, which is described in Note 6 Long-Term Debt below. The Company did not post collateral under any of these contracts as they are secured under the Company’s credit agreement with the same counterparties.

The Company’s crude oil and natural gas derivative positions are swaps. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. The Company has elected to not designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net gain on derivative contracts” on the Condensed Consolidated Statements of Operations. All derivative contracts are recorded at their fair market value and are included in the Company’s Condensed Consolidated Balance Sheets as assets or liabilities.

With an individual derivative counterparty, the Company may have multiple hedge positions that expire at various points in the future and result in fair value asset and liability positions. At the end of each reporting period, those positions are offset to a single fair value asset or liability for each commodity per counter party, and the netted balance is reflected in the Company’s Consolidated Balance Sheets as an asset or a liability.

The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to an International Swap Dealers Association Master Agreement (“ISDA”), which provides for net settlement over the term of the contract. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

The Company had the following open crude oil derivative contracts as of September 30, 2015:

Period	Instrument	Commodity	Volume in Bbls		Fixed Price
October 2015 - December 2015	Swap	Crude Oil		16,500	$	95.10
October 2015 - March 2016	Swap	Crude Oil		30,000	$	57.00
October 2015 - June 2016	Swap	Crude Oil		90,000	$	58.00
October 2015 - December 2016	Swap	Crude Oil		150,000	$	60.80

The following table summarizes the location and fair value amounts of all derivative instruments in the Condensed Consolidated Balance Sheets as well as the gross recognized derivative assets, liabilities, and amounts offset in the Condensed Consolidated Balance Sheets (in thousands):

		September 30, 2015						December 31, 2014
Derivatives not designated as hedging contracts under ASC Topic 815	Balance Sheet Location	Gross Recognized Assets / Liabilities		Gross Amounts Offset		Net Recognized Assets / Liabilities		Gross Recognized Assets / Liabilities		Gross Amounts Offset		Net Recognized Assets / Liabilities
Commodity contracts	Current derivative assets	$	3,626	$	—	$	3,626	$	3,569	$	—	$	3,569
Commodity contracts	Noncurrent derivative assets	$	287	$	—	$	287	$	—	$	—	$	—

The follow table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative instruments in the Company’s Condensed Consolidated Statements of Operations (in thousands):

		Three months ended September 30,				Nine months ended September 30,
Derivatives not designated as hedging contracts under ASC Topic 815	Statement of Operations Location	2015		2014		2015		2014
Unrealized gain on commodity    contracts	Net gain on derivative contracts	$	3,425	$	2,369	$	344	$	1,155
Realized gain (loss) on commodity    contracts	Net gain on derivative contracts	$	1,741	$	120	$	4,178	$	(969	)
		$	5,166	$	2,489	$	4,522	$	186