DERIVATIVE ACTIVITIES

12 Months Ended

Dec. 31, 2011

DERIVATIVE ACTIVITIES [Abstract]

DERIVATIVE ACTIVITIES

NOTE 5 - DERIVATIVE ACTIVITIES

The Partnership

Interest Rate Derivatives

In an effort to mitigate exposure to changes in market interest rates, we have entered into interest rate swaps that effectively fix the interest rate on our outstanding debt.

On February 28, 2011, the Predecessor novated to us fixed-for-floating interest rate swaps covering $225.0 million of borrowings under 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.

On August 30, 2011, we entered into a fixed for floating interest rate swap agreement covering $40.0 million of borrowings under our revolving credit facility. This derivative contract fixed the LIBOR component for $40.0 million of our credit facility at 0.93% through September 2015.

On September 30, 2011, the Predecessor novated to us fixed-for-floating interest rate swaps covering an additional $120.0 million in weighted-average borrowings under our credit facility from October 1, 2011 to December 31, 2015. The fair value of these derivative instruments was an $8.5 million liability position.

On October 1, 2011, the Predecessor novated to us fixed-for-floating interest rate swaps to us covering an additional $98.4 million of weighted-average borrowings under our revolving credit facility from October 1, 2011 to December 31, 2015. The fair value of these derivative instruments was a $6.5 million liability position.

As of December 31, 2011, we had interest rate derivative contracts covering $481.5 million in weighted average principal with a fair value of a $24.0 million liability. The outstanding balance of our credit facility as of December 31, 2011 was $500.0 million. These contracts effectively fix the LIBOR component of our outstanding balance of our credit facility at 2.0% through December 2015. As of December 31, 2011, when the interest rate derivative instruments are considered, we had a weighted average effective fixed interest rate of 4.63% comprising a 2.5% applicable margin  and 2.13% fixed LIBOR rate.

Commodity Derivatives

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 fluctuation 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.

In May 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 per 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 nine months ended September 30, 2011.

In July 2011, the Predecessor novated to us basis swaps with contract dates through 2014. The average hedged differential of the basis swaps range from ($0.15) to ($0.16) during the life of the contract. The fair value of these derivative instruments was $0.3 million of liability positions.

On July 21 and July 22, 2011, we entered into natural gas basis swaps with contract dates through 2015. The average hedged differential of the basis swaps range from ($0.11) to ($0.19) during the life of the contract.

On October 1, 2011 the Predecessor novated to us oil and gas fixed swaps, natural gas basis swaps and oil and gas collars with contract dates through 2016.  The average hedged differential of the natural gas basis swaps range from ($0.10) to ($0.20) during the lives of the contracts. The fair value of these novated derivatives instruments was a $79.7 million net asset position.

As of December 31, 2011 and 2010, we held derivative instruments to manage our exposure to changes in the price of oil and natural gas related to the oil and gas properties. As of December 31, 2011, the notional volumes of our commodity contracts were:

Commodity	Index	2012			2013			2014			2015			2016
Oil positions:
Swaps
Hedged Volume (Bbls/d)	WTI		4,025			4,143			3,711			2,940			270
Average price ($/Bbls)		$	98.72		$	98.23		$	97.70		$	97.27		$	97.63
Collars
Hedged Volume (Bbls/d)	WTI								425			1,025
Average floor price ($/Bbls)								$	90.00		$	90.00
Average ceiling price ($/Bbls)								$	106.50		$	110.00
Natural gas positions:
Swaps
Hedged Volume (MMBtu/d)	NYMEX		30,392			29,674			25,907			6,100
Average price ($/MMBtu)		$	5.86		$	6.07		$	6.23		$	5.52
Basis Swaps
Hedged Volume (MMBtu/d)	NYMEX		20,723			18,466			17,066			14,400
Average price ($/MMBtu)		$	(0.15	)	$	(0.17	)	$	(0.19	)	$	(0.19	)
Collars
Hedged Volume (MMBtu/d)	Henry Hub		2,623			2,466			4,966			18,000
Average floor price ($/MMBtu)		$	6.50		$	6.50		$	5.74		$	5.00
Average ceiling price ($/MMBtu)		$	8.60		$	8.65		$	7.51		$	7.48

The Predecessor

Interest Rate Derivatives

During June 2010, the Predecessor entered into two tranches of derivative contracts with initial notional amounts of $275.0 million and $135.6 million to effectively fix the LIBOR component of the interest rate on its credit facility. Under the first tranche, the Predecessor made payments to the contract counterparties when the variable interest rate of the one-month LIBOR fell below the fixed rate of 2.74% during the period from June 2010 to December 2010. In addition, the Predecessor made payments to the contract counterparties when the one-month LIBOR fell below the fixed rate of 1.95% during the period from July 2010 to December 2010 under the second tranche.

During 2009, the Predecessor had interest rate derivatives for a notional amount of $100 million to effectively fix the LIBOR component of the interest rate on its credit facility at 4.29%.  These derivatives expired on October 31, 2009.

Commodity Derivatives

In July 2010, the Predecessor entered into an oil collar related to forecast production from January 2014 through December 2015. In September 2010, the Predecessor entered into an offsetting oil collar to reduce hedge volumes from January 2015 through December 2015 associated with the July 2010 oil collar and entered into a swap contract covering the amount of offset volumes.

As of December 31, 2009, the notional volumes of the Predecessor's commodity hedges were:

Commodity	Index	2010		2011			2012			2013			2014
Oil positions:
Swaps
Hedged Volume (Bbls/d)	WTI		3,640		2,961			2,611			2,455			766
Average price ($/Bbls)		$	71.20	$	68.25		$	67.54		$	66.80		$	67.93
Collars
Hedged Volume (Bbls/d)	WTI		-		700			-			70			70
Average floor price ($/Bbls)		$	-	$	70.00		$	-		$	60.00		$	60.00
Average ceiling price ($/Bbls)		$	-	$	110.00		$	-		$	77.93		$	77.93
Natural gas positions:
Swaps
Hedged Volume (MMBtu/d)	NYMEX		11,272		10,079			4,738			4,387			2,632
Average price ($/MMBtu)		$	7.53	$	7.32		$	7.04		$	6.82		$	6.53
Basis Swaps
Hedged Volume (MMBtu/d)	NYMEX		-		2,967			2,630			2,473			2,473
Average price ($/MMBtu)		$	-	$	(0.16	)	$	(0.16	)	$	(0.15	)	$	(0.15	)
Collars
Hedged Volume (MMBtu/d)	NYMEX		1,611		-			-			-			-
Average floor price ($/MMBtu)		$	7.00	$	-		$	-		$	-		$	-
Average ceiling price ($/MMBtu)		$	8.90	$	-		$	-		$	-		$	-
Collars
Hedged Volume (MMBtu/d)	Henry Hub		-		-			2,518			2,518			2,518
Average floor price ($/MMBtu)		$	-	$	-		$	6.50		$	6.50		$	6.50
Average ceiling price ($/MMBtu)		$	-	$	-		$	8.70		$	8.70		$	8.70

We have elected not to designate any of our derivatives as hedging instruments. As a result, these derivative instruments are marked to market at the end of each reporting period and changes in the fair value of the derivatives are recorded as gains or losses in the accompanying consolidated statements of operations. The fair value of these derivatives was as follows as of December 31:

	Partnership
	2011				2010
	Asset		Liability		Asset		Liability
	Derivatives		Derivatives		Derivatives		Derivatives
Commodity contracts	$	103,233	$	2,502	$	36,302	$	55,773
Interest rate contracts		20		23,973		-		1,914
	$	103,253	$	26,475	$	36,302	$	57,687
Commodity
Current	$	32,683	$	1,284	$	9,887	$	9,727
Noncurrent		70,550		1,218		26,415		46,046
	$	103,233	$	2,502	$	36,302	$	55,773
Interest
Current	$	-	$	8,285	$	-	$	1,159
Noncurrent		20	$	15,688		-		755
	$	20	$	23,973	$	-	$	1,914
Total Derivatives
Current	$	32,683	$	9,569	$	9,887	$	10,886
Noncurrent		70,570		16,906		26,415		46,801
	$	103,253	$	26,475	$	36,302	$	57,687

The following table presents the impact of derivatives and their location within the consolidated statements of operations for the indicated periods:

	Partnership						Predecessor
	Year Ended			December 22 to			January 1 to			Year Ended December 31,
	December 31,			December 31,			December 21,
	2011			2010			2010			2009
Realized gains (losses):
Commodity contracts (1)	$	(72,053	)	$	(289	)	$	5,373		$	47,993
Interest rate swaps		(4,512	)		-			(4,808	)		(3,299	)
Total	$	(76,565	)	$	(289	)	$	565		$	44,694
Unrealized gains (losses):
Commodity contracts (1)	$	120,478		$	(12,068	)	$	8,204		$	(111,113	)
Interest rate swaps		(24,914	)		(594	)		(2,606	)		2,949
Total	$	95,564		$	(12,662	)	$	5,598		$	(108,164	)
Total gains (losses):
Commodity contracts	$	48,425		$	(12,357	)	$	13,577		$	(63,120	)
Interest rate swaps (2)		(29,426	)		(595	)		(7,414	)		(350	)
Total	$	18,999		$	(12,952	)	$	6,163		$	(63,470	)

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

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

See Note 2 and Note 4 for additional disclosures related to derivative instruments.