Derivatives

9 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

5. Derivatives

At March 31, 2015, the Company had the following commodity derivatives positions outstanding:

Commodity and Time Period	Contract Type	Volume Transacted	Contract Price
Crude Oil
April 1, 2015 – December 31, 2015	Put	5,500-7,000 Bbls/month	$50.00/Bbl
January 1, 2016 – June 30, 2016	Put	5,000-5,500 Bbls/month	$58.00/Bbl

The following table summarizes the fair value of the Company’s open commodity derivatives as of March 31, 2015 and June 30, 2014:

	Balance Sheet Location	Fair Value
(in thousands)		March 31, 2015		June 30, 2014
Derivatives not designated as hedging
instruments
Commodity derivatives	Commodities derivative asset	$	292	$	37
Commodity derivatives	Commodities derivative liability	$	—	$	(121	)

The following tables summarize the change in the fair value of the Company’s commodity derivatives:

	Income Statement Location	Three Months Ended,
(in thousands)		March 31, 2015			March 31, 2014
Derivatives not designated as hedging
instruments
Commodity derivatives	Realized (loss) gain on commodity derivatives	$	—		$	(23	)
Commodity derivatives	Unrealized (loss) gain on commodity derivatives		(183	)		(41	)
		$	(183	)	$	(64	)

	Income Statement Location	Nine Months Ended,
(in thousands)		March 31, 2015		March 31, 2014
Derivatives not designated as hedging
instruments
Commodity derivatives	Realized (loss) gain on commodity derivatives	$	782	$	(74	)
Commodity derivatives	Unrealized (loss) gain on commodity derivatives		—		(272	)
		$	782	$	(346	)

Unrealized gains and losses, at fair value, are included on the Company’s Condensed Consolidated Balance Sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of the Company’s commodity derivatives contracts are recorded in earnings as they occur and included in other income (expense) on the Company’s Condensed Consolidated Statements of Operations. Realized gains and losses are also included in other income (expense) on the Company’s Condensed Consolidated Statements of Operations.

The Company estimates the fair values of swap contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. The Company internally valued the option contracts using industry-standard option pricing models and observable market inputs. The Company uses its internal valuations to determine the fair values of the contracts that are reflected on its Condensed Consolidated Balance Sheets.

The Company is exposed to credit losses in the event of nonperformance by the counterparties on its commodity derivatives positions and has considered the exposure in its internal valuations. However, the Company does not anticipate nonperformance by the counterparties over the term of the commodity derivatives positions.

In connection with the closing of the Senior First Lien Secured Credit Agreement (as amended, the “Credit Agreement”), the Company was required to enter into hedging agreements effectively hedging at least 50% of the oil volumes of the Company and its subsidiaries. At the same time, the Company entered into a Novation Agreement with BP Energy Company, LP (“BP Energy”) that transferred Cross Border’s then-existing swap agreements to the Company. Pursuant to an Inter-Borrower Agreement between the Company and Cross Border, the Company allocates these swap agreements back to Cross Border and may allocate future hedging agreements related to Cross Border’s production to Cross Border.