Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 3 — Derivative Financial Instruments

     The Company is exposed to commodity price risk and management believes it prudent to periodically reduce exposure to cash-flow variability resulting from this volatility. Accordingly, the Company enters into certain derivative financial instruments in order to manage exposure to commodity price risk inherent in its oil and gas production. Derivative financial instruments are also used to manage commodity price risk inherent in customer pricing requirements and to fix margins on the future sale of natural gas. Specifically, the Company may utilize futures, swaps and options.

     Derivative instruments expose the Company to counterparty credit risk. The Company’s commodity derivative instruments are currently with several counterparties. The Company generally executes commodity derivative instruments under master agreements which allow it, in the event of default, to elect early termination of all contracts with the defaulting counterparty. If the Company chooses to elect early termination, all asset and liability positions with the defaulting counterparty would be net cash settled at the time of election.

     The Company monitors the creditworthiness of its counterparties; however, it is not able to predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, it may be limited in its ability to mitigate an increase in counterparty credit risk. Possible actions would be to transfer its position to another counterparty or request a voluntary termination of the derivative contracts resulting in a cash settlement. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments under lower commodity prices as well as incur a loss. The Company includes a measure of counterparty credit risk in its estimates of the fair values of derivative instruments in an asset position.

     The Company does not designate its derivative financial instruments as hedging instruments for financial accounting purposes; as a result, it recognizes the change in the respective instruments’ fair value currently in earnings. The table below outlines the classification of derivative financial instruments on the condensed consolidated balance sheet and their financial impact on the condensed consolidated statements of operations at and for the periods indicated (in thousands):

		December 31,			September 30,
Derivative Financial Instruments	Balance Sheet location	2010			2011
Commodity contracts	Current derivative financial instrument asset	$	31,588		$	35,366
Commodity contracts	Long-term derivative financial instrument asset		39,633			29,229
Commodity contracts	Current derivative financial instrument liability		(3,792	)		(4,737	)
Commodity contracts	Long-term derivative financial instrument liability		(6,681	)		(5,581	)
		$	60,748		$	54,277

     Gains and losses associated with derivative financial instruments related to oil and gas production were as follows for the periods indicated (in thousands):

					(Predecessors)
	Three Months		Three Months		January 1,		March 6, 2010		Nine Months
	Ended September		Ended September		2010 to March		to September		Ended September
	30, 2010		30, 2011		5, 2010		30, 2010		30, 2011
Realized gains (losses)	$	6,826	$	7,264	$	3,673	$	17,435	$	23,171
Unrealized gains (losses)		25,445		4,689		21,573		32,804		(6,471	)
Total	$	32,271	$	11,953	$	25,246	$	50,239	$	16,700

     The following table summarizes the estimated volumes, fixed prices and fair values attributable to all of the Company’s oil and gas derivative contracts at September 30, 2011.

	Remainder of			Year Ending December 31,
	2011			2012			2013			Total
				($ in thousands, except per unit data)
Natural Gas Swaps
Contract volumes (Mmbtu)		3,411,309			11,000,004			9,000,003			23,411,316
Weighted-average fixed price per Mmbtu	$	6.95		$	7.13		$	7.28		$	7.16
Fair value, net	$	10,869		$	31,671		$	21,693		$	64,233
Natural Gas Basis Swaps
Contract volumes (Mmbtu)		2,155,068			9,000,000			9,000,003			20,155,071
Weighted-average fixed price per Mmbtu	$	(0.70	)	$	(0.70	)	$	(0.71	)	$	(0.70	)
Fair value, net	$	(1,248	)	$	(4,679	)	$	(4,391	)	$	(10,318	)
Crude Oil Swaps
Contract volumes (Bbl)		12,000			42,000			—			54,000
Weighted-average fixed price per Bbl	$	85.90		$	87.90		$	—		$	87.46
Fair value, net	$	78		$	284		$	—		$	362
Total fair value, net	$	9,699		$	27,276		$	17,302		$	54,277

     The following table summarizes the estimated volumes, fixed prices and fair values attributable to all of the Company’s oil and gas derivative contracts at December 31, 2010:

	Year Ending December 31,
	2011			2012			2013			Total
				($ in thousands, except per unit data)
Natural Gas Swaps
Contract volumes (Mmbtu)		13,550,302			11,000,004			9,000,003			33,550,309
Weighted-average fixed price per Mmbtu	$	6.80		$	7.13		$	7.28		$	7.04
Fair value, net	$	31,588		$	22,728		$	16,905		$	71,221
Natural Gas Basis Swaps
Contract volumes (Mmbtu)		8,549,998			9,000,000			9,000,003			26,550,001
Weighted-average fixed price per Mmbtu	$	(0.67	)	$	(0.70	)	$	(0.71	)	$	(0.69	)
Fair value, net	$	(3,417	)	$	(3,405	)	$	(3,031	)	$	(9,853	)
Crude Oil Swaps
Contract volumes (Bbl)		48,000			42,000			—			90,000
Weighted-average fixed price per Bbl	$	85.90		$	87.90		$	—		$	86.83
Fair value, net	$	(375	)	$	(245	)	$	—		$	(620	)
Total fair value, net	$	27,796		$	19,078		$	13,874		$	60,748