Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 4. Derivative Financial Instruments

Our hedging activities consist of derivative instruments entered into in order to hedge against changes in oil and natural gas prices through the use of fixed price swap agreements. Swaps exchange floating price risk in the future for a fixed price at the time of the hedge. Consistent with our hedging policy, we have entered into a series of derivative instruments to hedge a significant portion of our expected oil and natural gas production through 2018. Typically, these derivative instruments require payments to (receipts from) counterparties based on specific indices as required by the derivative agreements. Although not risk free, we believe these instruments reduce our exposure to oil and natural gas price fluctuations and, thereby, allow us to achieve a more predictable cash flow.

Our derivative instruments are cash flow hedge transactions in which we are hedging the variability of cash flow related to a forecasted transaction. We do not enter into derivative instruments for trading or other speculative purposes. These transactions are recorded in our Condensed Consolidated Financial Statements in accordance with FASB ASC Topic 815. We have accounted for these transactions using the mark-to-market accounting method. Generally, we incur accounting losses on derivatives during periods where prices are rising and gains during periods where prices are falling which may cause significant fluctuations in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.

The Company nets its derivative instrument fair value amounts executed with each 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 and natural gas derivative contracts as of March 31, 2017:    

	Price Swaps
Period	Commodity	Volume (Bbls / MMBtu)		Weighted Average Price ($/Bbl / $/MMBtu)
Q2 - Q4 2017	Crude Oil		427,500	$	50.80
Q1 - Q4 2018	Crude Oil		270,000	$	50.70
Q2 - Q4 2017	Natural Gas		1,305,000	$	2.997
Q1 - Q4 2018	Natural Gas		600,000	$	2.907

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): 

		March 31, 2017						December 31, 2016
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
Commoditycontracts	Derivative asset - noncurrent	$	38	$	37	$	1	$	—	$	—	$	—
Commodity contracts	Derivative liability - current	$	1,256	$	457	$	799	$	4,595	$	—	$	4,595
Commodity contracts	Derivative liability - noncurrent	$	326	$	—	$	326	$	1,575	$	—	$	1,575

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

		Three Months Ended March 31,
		2017			2016
Derivatives not designated as hedging contracts under ASC Topic 815	Statement of Operations Location
Total gain (loss) on commodity contracts	Gain on derivative contracts, net	$	5,046		$	(1,226	)
Cash (paid) received in settlements on commodity contracts	Gain on derivative contracts, net		(586	)		1,991
Gain on commodity contracts, net		$	4,460		$	765