Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

8. 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 36 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 instruments 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 as of September 30, 2014 and December 31, 2013 totaled $36.0 million and $9.3 million, respectively, and is summarized by counterparty in the table below:

Counterparty	September 30, 2014		December 31, 2013
Wells Fargo	41	%	23	%
Credit Suisse	23	%	46	%
Societe Generale	22	%	31	%
Regions	8	%	—	%
Union Bank	4	%	—	%
Royal Bank of Canada	2	%	—	%
Total	100	%	100	%

The counterparties to the Company’s derivative instruments are lenders under the Company’s credit agreement. Because each of the lenders have investment grade credit ratings, 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 as of September 30, 2014 and December 31, 2013 totaled $0.2 million and $10.1 million, respectively.

For the three months ended September 30,2014 and 2013, the Company recorded in the consolidated statements of income a gain on derivative instruments, net of $71.8 million and a loss on derivative instruments, net of $27.7 million, respectively. For the nine months ended September 30,2014 and 2013, the Company recorded in the consolidated statements of income a gain on derivative instruments, net of $11.2 million and a loss on derivative instruments, net of $16.5 million, respectively.

The following sets forth a summary of the Company’s crude oil derivative positions at average NYMEX prices as of September 30, 2014:

Period	Type of Contract	Volumes (in Bbls/d)	Weighted Average Floor  Price ($/Bbl)		Weighted Average Ceiling  Price ($/Bbl)		Weighted Average Short Put  Price ($/Bbl)		Weighted Average Put Spread ($/Bbl)
October - December 2014	Fixed Price Swaps	11,500		$93.55
	Costless Collars	3,000		$88.33		$104.26
	Three-way Collars	500		$85.00		$107.75		$65.00		$20.00
January - December 2015	Fixed Price Swaps	10,370		$92.97
	Costless Collars	700		$90.00		$100.65
	Three-way Collars	1,000		$85.00		$105.00		$65.00		$20.00
January - December 2016	Fixed Price Swaps	3,000		$91.09
	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 September 30, 2014:

Period	Type of Contract	Volumes (in MMBtu/d)	Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
October - December 2014	Fixed Price Swaps	54,380		$4.16
	Calls	10,000				$5.50
January - December 2015	Fixed Price Swaps	30,000		$4.29