Derivative Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

10. 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 crude oil and natural 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 production. While the use of collars limit the downside risk of adverse price movements below the floor price, collars also limit the benefit of favorable price movements above the ceiling price. 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 June 30, 2015 and December 31, 2014 totaled $134.4 million and $214.8 million, respectively, and is summarized by counterparty in the table below:

Counterparty	June 30, 2015		December 31, 2014
Wells Fargo	57	%	37	%
Societe Generale	27	%	26	%
Regions	10	%	8	%
Union Bank	5	%	4	%
Royal Bank of Canada	1	%	1	%
Credit Suisse	—	%	24	%
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 does not have significant 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 credit ratings of its counterparties.

For the three months ended June 30,2015 and 2014, the Company recorded in the consolidated statements of operations a loss on derivatives, net of $12.6 million and $40.0 million, respectively. For the six months ended June 30,2015 and 2014, the Company recorded in the consolidated statements of operations a gain on derivatives, net of $13.8 million and a loss on derivatives, net of $60.6 million, respectively.

On February 11, 2015, the Company entered into derivative transactions offsetting its then existing crude oil derivative positions covering the periods from March 2015 through December 2016. As a result of the offsetting derivative transactions, the Company locked in $166.4 million of cash flows, of which $40.0 million was received due to contract settlements during the three and six months ended June 30, 2015. As of June 30, 2015, the remaining locked in value of cash flows is $126.4 million, of which $106.5 million is classified as a current derivative asset and $19.9 million is classified as a noncurrent derivative asset in the consolidated balance sheets. These locked in cash flows are not subject to price risk and will be received as the applicable contracts settle. Included in the $13.8 million gain on derivatives, net for the six months ended June 30, 2015, is an $8.4 million gain representing the increase in fair value of the crude oil derivative positions from December 31, 2014 to February 11, 2015. Additionally, on February 13, 2015, the Company entered into costless collars for the periods from March 2015 through December 2016 which will continue to provide the Company with downside protection at crude oil prices below the weighted average floor prices yet allow the Company to benefit from an increase in crude oil prices up to the weighted average ceiling prices.

The following sets forth a summary of the Company’s crude oil derivative positions, including additional costless collars entered into subsequent to the February 13, 2015 costless collars described above, at average NYMEX prices as of June 30, 2015:

Period	Type of Contract	Volumes (in Bbls/d)	Weighted Average Floor  Price ($/Bbl)		Weighted Average Ceiling  Price ($/Bbl)
July - December 2015	Costless Collars	16,200		$50.00	$67.34
January - December 2016	Costless Collars	5,490		$50.96	$74.73

The following sets forth a summary of the Company’s natural gas derivative positions at average NYMEX prices as of June 30, 2015:

Period	Type of Contract	Volumes (in MMBtu/d)	Weighted Average Floor Price ($/MMBtu)
July - December 2015	Fixed Price Swaps	30,000		$4.29