Derivative Instruments

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

11. Derivative Instruments

The Company uses commodity derivative instruments, primarily fixed price swaps and costless collars, to reduce its exposure to commodity price volatility for a substantial, but varying, portion of its forecasted oil and gas production up to 60 months and thereby achieve a more predictable level of cash flows to support the Company’s drilling and completion capital expenditure program. Costless collars are designed to establish floor and ceiling prices on anticipated future oil and gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. The Company does not enter into derivative contracts for speculative or trading purposes.

The Company typically has numerous hedge positions that span several time periods and often result in both fair value asset and liability positions held with that counterparty, which positions are all offset to a single fair value asset or liability at the end of each reporting period. The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The fair value of derivative instruments where the Company is in a net asset position with its counterparties at December 31, 2013 and 2012 totaled $9.3 million and $29.2 million, respectively and is summarized by counterparty in the table below:

Counterparty	December 31, 2013		December 31, 2012
Credit Suisse	46	%	40	%
Societe Generale	31	%	22	%
Wells Fargo	23	%	2	%
BNP Paribas	—	%	33	%
BBVA Compass	—	%	3	%
Total	100	%	100	%

Because the counterparties to the Company’s derivative instruments are high credit quality financial institutions that are lenders under the Company’s credit agreement, the Company believes it has minimal credit risk and accordingly does not currently require its counterparties to post collateral to support the net asset positions of its derivative instruments. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties to its derivative instruments. Although the Company does not currently anticipate such nonperformance, it continues to monitor the financial viability of its counterparties. The fair value of derivative instruments where the Company is in a net liability position with its counterparties at December 31, 2013 and 2012 totaled $10.1 million and $0, respectively. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of the Company’s bank debt, which eliminates the potential need to post collateral when the Company is in a net derivative liability position.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded in the consolidated statements of income a loss on derivative instruments, net of $18.4 million and gains on derivative instruments, net of $31.4 million and $48.4 million, respectively.

The following sets forth a summary of the Company’s crude oil derivative positions at average NYMEX prices as of December 31, 2013.

Period	Type of Contract	Volume (in Bbls/d)	Weighted Average Floor Price ($/Bbls)		Weighted Average Ceiling Price ($/Bbls)		Weighted Average Short Put Price ($/Bbl)		Weighted Average Put Spread ($/Bbl)
FY 2014	Swaps	7,500	$	92.59
	Collars	3,000	$	88.33	$	104.26
	Three-way collars	500	$	85.00	$	107.75	$	65.00	$	20.00
FY 2015	Swaps	4,250	$	91.30
	Collars	700	$	90.00	$	100.65
	Three-way collars	1,000	$	85.00	$	105.00	$	65.00	$	20.00
FY 2016	Three-way collars	667	$	85.00	$	104.00	$	65.00	$	20.00

The following sets forth a summary of the Company’s natural gas derivative positions at average NYMEX prices as of December 31, 2013.

Period	Type of Contract	Volume (in MMBtu/d)	Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
FY 2014	Swaps	45,000	$	4.09
	Collars	10,000			$	5.50
FY 2015	Swaps	10,000	$	4.33