Derivative Instruments

12 Months Ended

Dec. 31, 2014

Derivative Instruments

Derivative Instruments

(9) Derivative Instruments

(a) Commodity Derivatives

The Company periodically enters into natural gas, NGLs, and oil derivative contracts with counterparties to hedge the price risk associated with a portion of its production.  These derivatives are not held for trading purposes.  To the extent that changes occur in the market prices of natural gas, NGLs, and oil, the Company is exposed to market risk on these open contracts.  This market risk exposure is generally offset by the change in market prices of natural gas, NGLs, and oil recognized upon the ultimate sale of The Company’s production.

For the years ended December 31, 2012,  2013, and 2014, the Company was party to various natural gas, NGLs, and oil fixed price swap contracts.  When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty; when actual commodity prices are below the contractually provided fixed price, the Company receives the difference from the counterparty.  In addition, the Company has entered into basis swap contracts in order to hedge the difference between the NYMEX index price and a local index price.  When the actual differential exceeds the fixed price provided by the basis swap contract, the Company receives the difference from the counterparty; when the differential is less than the fixed price provided by the basis swap contract, the Company pays the difference to the counterparty.  The Company’s natural gas, NGLs, oil, and basis swaps have not been designated as hedges for accounting purposes; therefore, all gains and losses were recognized in the Company’s statements of operations.

As of December 31, 2014, the Company’s fixed price natural gas, NGLs, and oil swap positions from January 1, 2015 through December 31, 2020 were as follows (abbreviations in the table refer to the index to which the swap position is tied: TCO=Columbia Gas Transmission; NYMEX=Henry Hub; CGTLA=Columbia Gas Louisiana Onshore; CCG=Chicago City Gate; NYMEX-WTI=West Texas Intermediate; Mont Belvieu-TET=Mont Belvieu Propane):

				Weighted
	Natural gas	Oil	Propane	average index
	MMbtu/day	Bbls/day	Bbls/day	price
Three months ending March 31, 2015:
TCO ($/MMBtu)	120,000	—	—	$	5.13
Dominion South ($/MMBtu)	230,000	—	—	$	5.78
NYMEX ($/MMBtu)	770,000	—	—	$	4.05
CGTLA ($/MMBtu)	40,000	—	—	$	4.13
NYMEX-WTI ($/Bbl)	—	3,000	—	$	63.55
Mont Belvieu-TET ($/Gallon)	—	—	23,000	$	0.60
Total	1,160,000	3,000	23,000
Three months ending June 30, 2015:
TCO ($/MMBtu)	120,000	—	—	$	4.86
Dominion South ($/MMBtu)	230,000	—	—	$	5.41
NYMEX ($/MMBtu)	770,000	—	—	$	3.75
CGTLA ($/MMBtu)	40,000	—	—	$	3.86
NYMEX-WTI ($/Bbl)	—	3,000	—	$	64.21
Mont Belvieu-TET ($/Gallon)	—	—	23,000	$	0.60
Total	1,160,000	3,000	23,000
Three months ending September 30, 2015:
TCO ($/MMBtu)	120,000	—	—	$	4.93
Dominion South ($/MMBtu)	230,000	—	—	$	5.48
NYMEX ($/MMBtu)	770,000	—	—	$	3.79
CGTLA ($/MMBtu)	40,000	—	—	$	3.93
NYMEX-WTI ($/Bbl)	—	3,000	—	$	64.84
Mont Belvieu-TET ($/Gallon)	—	—	23,000	$	0.62
Total	1,160,000	3,000	23,000
Three months ending December 31, 2015:
TCO ($/MMBtu)	120,000	—	—	$	5.14
Dominion South ($/MMBtu)	230,000	—	—	$	5.74
NYMEX ($/MMBtu)	770,000	—	—	$	3.92
CGTLA ($/MMBtu)	40,000	—	—	$	4.09
NYMEX-WTI ($/Bbl)	—	3,000	—	$	65.67
Mont Belvieu-TET ($/Gallon)	—	—	23,000	$	0.64
Total	1,160,000	3,000	23,000
Year ending December 31, 2016:
TCO ($/MMBtu)	60,000			$	4.91
Dominion South ($/MMBtu)	272,500			$	5.35
NYMEX ($/MMBtu)	440,000			$	4.00
CGTLA ($/MMBtu)	170,000			$	4.09
2015 Total	942,500
Year ending December 31, 2017:
NYMEX ($/MMBtu)	290,000			$	4.38
CGTLA ($/MMBtu)	420,000			$	4.27
CCG ($/MMBtu)	70,000			$	4.57
2016 Total	780,000
Year ending December 31, 2018:
NYMEX ($/MMBtu)	1,072,500			$	4.50
Year ending December 31, 2019:
NYMEX ($/MMBtu)	817,500			$	4.41
Year ending December 31, 2020:
NYMEX ($/MMBtu)	40,000			$	4.41

As of December 31, 2014, the Company’s natural gas basis swap positions, which settle on the pricing index to basis differential of TCO to the NYMEX Henry Hub natural gas price, are as follows:

	Natural gas MMbtu/day	Hedged Differential
Year ending December 31, 2015:	390,000	$	(0.35)
Year ending December 31, 2016:	220,000	$	(0.42)
Year ending December 31, 2017:	107,500	$	(0.50)

(b) Summary

The following is a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets as of December 31, 2013 and 2014.  None of the Company’s derivative instruments are designated as hedges for accounting purposes.

	December 31, 2013			December 31, 2014
	Balance sheet location	Fair value		Balance sheet location	Fair value
		(In thousands)			(In thousands)
Asset derivatives not designated as hedges for accounting purposes:
Commodity contracts	Current assets	$	183,000	Current assets	$	692,554
Commodity contracts	Long-term assets		677,780	Long-term assets		899,997
Total asset derivatives			860,780			1,592,551
Liability derivatives not designated as hedges for accounting purposes:
Commodity contracts	Current liabilities		646	Current liabilities		—
Commodity contracts	Long-term liabilities		—	Long-term liabilities		—
Total liability derivatives			646			—
Net derivatives		$	860,134		$	1,592,551

The following table presents the gross amounts of recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets for the periods presented, all at fair value (in thousands):

	December 31, 2013						December 31, 2014
	Gross amounts on balance sheet		Gross amounts offset on balance sheet		Net amounts of assets (liabilities) on balance sheet		Gross amounts on balance sheet		Gross amounts offset on balance sheet		Net amounts of assets on balance sheet
Commodity derivative assets	$	887,034		(26,254)		860,780	$	1,621,665		(29,114)		1,592,551
Commodity derivative liabilities	$	(646)		—		(646)	$	—		—		—

The following is a summary of derivative fair value gains and where such values are recorded in the consolidated statements of operations for the years ended December 31, 2012,  2013, and 2014 (in thousands):

	Statement of operations	Year ended December 31,
	location	2012		2013		2014
Commodity derivative fair value gains	Revenue	$	179,546		491,689		868,201
Commodity derivative fair value gains	Discontinued operations		46,358		—		—
Total commodity derivative fair value gains		$	225,904		491,689		868,201

The fair value of commodity derivative instruments was determined using Level 2 inputs.