DERIVATIVE ACTIVITIES

6 Months Ended

Jun. 30, 2011

DERIVATIVE ACTIVITIES [Abstract]

DERIVATIVE ACTIVITIES

NOTE 4 – DERIVATIVE ACTIVITIES

Our business activities expose us to risks associated with changes in the market price of oil, natural gas and natural gas liquids. As such, future earnings are subject to fluctuations due to changes in both the market price of oil, natural gas and natural gas liquids. We use derivatives to reduce our risk of changes in the prices of oil and natural gas. Our policies do not permit the use of derivatives for speculative purposes. Although we have the ability to elect to enter into netting agreements under our derivative instruments with certain of our counterparties, we have presented all asset and liability positions without netting.

It is our policy to enter into derivative contracts, including interest rate swaps, only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. Each of the counterparties to our derivative contracts is a lender under our credit facility. We do not post collateral under any of these contracts as they are secured under our credit facility.

On February 28, 2011, the Predecessor novated to us fixed for floating interest rate swaps covering $225.0 million of our revolving credit facility. The fair value of these derivative instruments was a $2.9 million net asset position comprising $6.4 million of assets from interest rate derivative contracts and $3.5 million of liabilities from interest rate derivatives. These derivative contracts effectively fix the LIBOR component for $225.0 million of our credit facility at 1.9% through December 2015. As of June 30, 2011, when the interest rate derivative instruments are considered, we have an effective fixed interest rate of 4.4% comprising a 2.5% applicable margin and 1.9% fixed LIBOR rate.

On May 9, 2011 we entered into a 500 MMBtu/d natural gas collar transaction contract for the 2014 calendar year with a floor of $5.00 per MMBtu and a ceiling of $6.19 MMBtu. On the same day we entered into a 3,000 MMBtu/d natural gas collar transaction contract for the 2015 calendar year with a floor of $5.00 per MMBtu and a ceiling of $7.50 per MMBtu.

In June 2011, we entered into modifications of all our existing oil fixed price swap contracts, effectively settling those liability positions as of June 22, 2011. As part of these modifications, we paid $40.7 million to our counter parties to increase the fixed price on the contracts from their original prices at inception to market prices as of the closing dates of the modifications. The impact of the payment resulted in the recognition of a loss on commodity derivative contracts in the consolidated statement of operations of $40.7 million and is included in our net cash used in operating activities in our consolidated statement of cash flows for the six months ended June 30, 2011.

As of June 30, 2011, we held swap transaction contracts to manage our exposure to changes in the price of oil and natural gas related to our oil and natural gas production.

As of June 30, 2011, the notional volumes of our commodity derivative contracts were:

Commodity	Index	July 1 - December 31, 2011		2012		2013		2014		2015
Oil position:
Fixed price swaps
Hedged volume (Bbls/d)	WTI		2,238		2,039		2,076		2,090		2,000
Average price ($/Bbl)		$	96.40	$	98.50	$	98.50	$	97.75	$	97.10
Natural gas position:
Fixed price swaps
Hedged volume (MMBtu/d)	NYMEX		9,045		8,192		7,474		7,544		3,398
Average price ($/MMbtu)		$	7.15	$	6.45	$	6.45	$	6.30	$	5.52
Collars
Hedged volume (MMBtu/d)									500		3,000
Average floor price ($/MMbtu)								$	5.00	$	5.00
Average ceiling price ($/MMbtu)								$	6.19	$	7.50

As of December 31, 2010, the notional volumes of our derivative contracts were:

Commodity	Index	2011		2012		2013		2014		2015
Oil position:
Fixed price swaps
Hedged volume (Bbls/d)	WTI		2,238		2,039		2,076		2,090		2,000
Average price ($/Bbl)		$	85.00	$	85.25	$	85.35	$	84.58	$	87.40
Natural gas position:
Fixed price swaps
Hedged volume (MMBtu/d)	NYMEX		9,178		8,192		7,474		7,544		3,398
Average price ($/MMbtu)		$	7.26	$	6.45	$	6.45	$	6.30	$	5.52

We have elected not to designate any of our derivatives as hedging instruments. As a result, these derivative instruments are marked to fair value at the end of each reporting period, and changes in the fair value of the derivatives are recorded as gains or losses in the consolidated statements of operations. The fair value of these derivatives were as follows as of the dates indicated:

	June 30, 2011				December 31, 2010
	Asset Derivative Contracts		Liability Derivative Contracts		Asset Derivative Contracts		Liability Derivative Contracts
Commodity contracts	$	15,099	$	7,198	$	18,047	$	26,877
Interest rate contracts		1,761		3,535		-		-
	$	16,860	$	10,733	$	18,047	$	26,877
Commodity
Current	$	7,141	$	540	$	9,027	$	7,045
Long-term		7,958		6,658		9,020		19,832
	$	15,099	$	7,198	$	18,047	$	26,877
Interest
Current	$	-	$	3,535	$	-	$	-
Long-term		1,761		-		-		-
	$	1,761	$	3,535	$	-	$	-

The following table presents the impact of derivatives and their location within our unaudited consolidated statements of operations for the three and six months period ended June 30, 2011 and June 30, 2010:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
	Partnership			Predecessor			Partnership			Predecessor
Realized gains (losses):
Commodity contracts (1)	$	(42,161	)	$	2,071		$	(40,852	)	$	2,913
Interest rate swaps		(948	)		(529	)		(1,262	)		(529	)
Total	$	(43,109	)	$	1,542		$	(42,114	)	$	2,384
Unrealized gains (losses):
Commodity contracts (1)	$	55,575		$	44,352		$	16,732		$	44,933
Interest rate swaps		(5,079	)		(7,234	)		(4,650	)		(7,234	)
Total	$	50,496		$	37,118		$	12,082		$	37,699
Total gains (losses):
Commodity contracts	$	13,414		$	46,423		$	(24 120	)	$	47,846
Interest rate swaps (2)		(6,027	)		(7,763	)		(5,912	)		(7,763	)
Total	$	7,387		$	38,660		$	(30,032	)	$	40,083

(1) Gains (losses) on commodity derivative contracts are located in other income (expense) in the consolidated statement of operations.

(2) Losses on interest rate derivatives contracts are recorded as part of interest expense and is located in other income (expense) in the consolidated statement of operations.