DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT

12 Months Ended

Dec. 31, 2015

DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT [Abstract]

DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT

NOTE 14     DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT

The Company utilizes commodity swap contracts, swaptions and collars (purchased put options and written call options) to (i) reduce the effects of volatility in price changes on the crude oil commodities it produces and sells, (ii) reduce commodity price risk and (iii) provide a base level of cash flow in order to assure it can execute at least a portion of its capital spending.

All derivative instruments are recorded on the Company's balance sheet as either assets or liabilities measured at their fair value (see Note 12).  The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes.  If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in the fair value are recognized in the revenues section of the Company's statements of operations as a gain or loss on derivative instruments.  Mark-to-market gains and losses represent changes in fair values of derivatives that have not been settled.  The Company's cash flow is only impacted when the actual settlements under the derivative contracts result in making or receiving a payment to or from the counterparty.  These cash settlements represent the cumulative gains and losses on the Company's derivative instruments for the periods presented and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled.

The following table presents cash settlements on matured or liquidated derivative instruments and non-cash gains and losses on open derivative instruments for the periods presented.  Cash receipts and payments below reflect proceeds received upon early liquidation of derivative positions and gains or losses on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price of matured contracts.  Non-cash gains and losses below represent the change in fair value of derivative instruments which continue to be held at period-end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured or were liquidated during the period.

	Year Ended December 31,
	2015			2014			2013
Cash Received (Paid) on Derivatives(1)	$	161,098,510		$	(7,863,104	)	$	(12,198,633	)
Non-Cash Gain (Loss) on Derivatives		(88,715,603	)		171,275,719			(21,259,018	)
Gain (Loss) on Derivative Instruments, Net	$	72,382,907		$	163,412,615		$	(33,457,651	)

(1) Net cash receipts for crude oil collars for the year ended December 31, 2015 include approximately $202,000 of proceeds received from crude oil derivative contracts that were settled in the second quarter of 2015 prior to their contractual maturities.

The Company has master netting agreements on individual crude oil contracts with certain counterparties and therefore the current asset and liability are netted on the balance sheet and the non-current asset and liability are netted on the balance sheet for contracts with these counterparties.

Crude Oil Derivative Contracts Cash-flow Not Designated as Hedges

The following table reflects open commodity swap contracts as of December 31, 2015, the associated volumes and the corresponding fixed price.

Settlement Period	Oil (Barrels)	Fixed Price ($)
Swaps-Crude Oil
01/01/16 – 06/30/16	180,000	89.00
01/01/16 – 06/30/16	180,000	90.00
01/01/16 – 06/30/16	180,000	91.00
01/01/16 – 06/30/16	180,000	90.00
01/01/16 – 06/30/16	90,000	90.00
01/01/16 – 06/30/16	90,000	90.00
07/01/16 – 12/31/16	180,000	65.00
07/01/16 – 12/31/16	180,000	64.93
07/01/16 – 12/31/16	90,000	65.00
07/01/16 – 12/31/16	180,000	65.00
07/01/16 – 12/31/16	180,000	64.93
07/01/16 – 12/31/16	90,000	65.30

As of December 31, 2015, the Company had a total volume on open commodity swaps of 1.8 million barrels at a weighted average price of approximately $77.50 per barrel.

The following table reflects the weighted average price of open commodity swap derivative contracts as of December 31, 2015, by year with associated volumes.

Weighted Average Price Of Open Commodity Swap Contracts
Year	Volumes (Bbl)	Weighted Average Price ($)
2016	1,800,000	77.50
2017 and beyond	-	-

The Company determines the estimated fair value of derivative instruments using a market approach based on several factors, including quoted market prices in active markets and quotes from third parties, among other things.  The Company also performs an internal valuation to ensure the reasonableness of third party quotes.  In consideration of counterparty credit risk, the Company assessed the possibility of whether the counterparty to the derivative would default by ailing to make any contractually required payments.  Additionally, the Company considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions.  For further details regarding the Company's derivative contracts see Note 12, Fair Value in the Notes to the Financial Statements.

The following table sets forth the amounts, on a gross basis, and classification of the Company's outstanding derivative financial instruments at December 31, 2015 and 2014, respectively.  Certain amounts may be presented on a net basis on the consolidated financial statements when such amounts are with the same counterparty and subject to a master netting arrangement:

		December 31, Estimated Fair Value
Type of Crude Oil Contract	Balance Sheet Location	2015		2014
Derivative Assets:
Swap Contracts	Current Assets	$	64,611,558	$	128,893,220
Swap Contracts	Non-Current Assets		-		25,013,011
Total Derivative Assets		$	64,611,558	$	153,906,231
Derivative Liabilities:
Swaption Contracts	Non-Current Liabilities	$	-	$	(579,070	)
Total Derivative Liabilities		$	-	$	(579,070	)

The use of derivative transactions involves the risk that the counterparties will be unable to meet the financial terms of such transactions.  When the Company has netting arrangements with its counterparties that provide for offsetting payables against receivables from separate derivative instruments these assets and liabilities are netted on the balance sheet.  The tables presented below provide reconciliation between the gross assets and liabilities and the amounts reflected on the balance sheet.  The amounts presented exclude derivative settlement receivables and payables as of the balance sheet dates.

	Estimated Fair Value at December 31, 2015
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets Presented in the Balance Sheet
Offsetting of Derivative Assets:
Current Assets	$	64,611,558	$	-	$	64,611,558
Total Derivative Assets	$	64,611,558	$	-	$	64,611,558

	Estimated Fair Value at December 31, 2014
	Gross Amounts of Recognized Assets			Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets Presented in the Balance Sheet
Offsetting of Derivative Assets:
Current Assets	$	128,893,220		$	-	$	128,893,220
Non-Current Assets		25,013,011			-		25,013,011
Total Derivative Assets	$	153,906,231		$	-	$	153,906,231
Offsetting of Derivative Liabilities:
Current Liabilities	$	-		$	-	$	-
Non-Current Liabilities		(579,070	)		-		(579,070	)
Total Derivative Liabilities	$	(579,070	)	$	-	$	(579,070	)

All of the Company's outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements ("ISDAs") entered into with counterparties that are also lenders under the Company's Revolving Credit Facility.  The Company's obligations under the derivative instruments are secured pursuant to the Revolving Credit Facility, and no additional collateral had been posted by the Company as of December 31, 2015.  The ISDAs may provide that as a result of certain circumstances, such as cross-defaults, a counterparty may require all outstanding derivative instruments under an ISDA to be settled immediately.  See Note 12 for the aggregate fair value of all derivative instruments that were in a net liability position at December 31, 2015 and 2014.