Derivative Activities

3 Months Ended

Mar. 31, 2013

Derivative Activities [Abstract]

Derivative Activities

NOTE 5 – DERIVATIVE ACTIVITIES

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 consolidated statements of operations.

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.  We do not post collateral under any of these contracts as they are secured under our credit facility.

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 fluctuations due to changes in the market price of oil and natural gas. We use derivatives to reduce our exposure to changes in the prices of oil and natural gas. Our policies do not permit the use of derivatives for speculative purposes.

During the three months endedMarch 31, 2013, we entered into new oil swap and basis swap contracts with settlement dates ranging from 2013 through 2014.  All of the new contracts were entered into with the same counterparties as our existing contracts.

The deferred premiums associated with certain of our oil and natural gas derivative instruments were $4.9 million and classified as other non-current liabilities on the consolidated balance sheet as ofMarch 31, 2013and December 31, 2012. These deferred premiums will be paid to the counterparty with each monthly settlement (January 2015 – December 2017)  and recognized as an adjustment of realized gain (loss) on derivative instruments.

We hold commodity derivative 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 March 31, 2013, the notional volumes of our commodity derivative contracts were:

Commodity	Index		April 1 - Dec 31, 2013		2014		2015		2016		2017
Oil positions:
Swaps
Hedged Volume (Bbls/d)	WTI		7,635		7,125		6,721		5,698		4,997
Average price ($/Bbls)		$	98.61	$	96.17	$	94.52	$	90.81	$	86.88
Hedged Volume (Bbls/d)	LLS		1,400		1,900
Average price ($/Bbls)		$	99.51	$	98.77
Basis
Hedged Volume (Bbls/d)	WTS/WTI		2,400		2,400
Average price ($/Bbls)		$	(1.90)	$	(2.10)
Collars
Hedged Volume (Bbls/d)	WTI				425		1,025		1,500
Average floor price ($/Bbls)				$	90.00	$	90.00	$	80.00
Average ceiling price ($/Bbls)				$	106.50	$	110.00	$	102.00
Natural gas positions:
Swaps
Hedged Volume (MMBtu/d)	Henry Hub		30,419		26,622		7,191		11,350		10,445
Average price ($/MMBtu)		$	5.97	$	6.18	$	5.34	$	4.27	$	4.47
Basis Swaps
Hedged Volume (MMBtu/d)	Henry Hub		18,455		17,066		14,400
Average price ($/MMBtu)		$	(0.17)	$	(0.19)	$	(0.19)
Collars
Hedged Volume (MMBtu/d)	Henry Hub		2,455		4,966		18,000		630		595
Average floor price ($/MMBtu)		$	6.50	$	5.74	$	5.00	$	4.00	$	4.00
Average ceiling price ($/MMBtu)		$	8.65	$	7.51	$	7.48	$	5.55	$	6.15
Puts
Hedged Volume (MMBtu/d)	Henry Hub						420		11,350		10,445
Average price ($/MMBtu)						$	4.00	$	4.00	$	4.00

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 LIBOR component on our outstanding variable rate debt.  The changes in the fair value of these instruments are recorded in current earnings.

The fair value of our derivatives as recorded on our balance sheet was as follows as of the dates indicated:

	March 31, 2013				December 31, 2012
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Commodity contracts	$	98,500	$	15,157	$	122,143	$	13,484
Interest rate contracts		-		11,209		-		12,236
	$	98,500	$	26,366	$	122,143	$	25,720
Commodity
Current	$	29,762	$	7,676	$	45,522	$	4,130
Noncurrent		68,738		7,481		76,621		9,354
	$	98,500	$	15,157	$	122,143	$	13,484
Interest
Current	$	-	$	4,578	$	-	$	4,597
Noncurrent		-		6,631		-		7,639
	$	-	$	11,209	$	-	$	12,236
Total Derivatives
Current	$	29,762	$	12,254	$	45,522	$	8,727
Noncurrent		68,738		14,112		76,621		16,993
	$	98,500	$	26,366	$	122,143	$	25,720

The following table presents our derivatives on a net basis as of the dates indicated:

	March 31, 2013				December 31, 2012
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Gross derivatives	$	98,500		26,366	$	122,143	$	25,720
Netting		(10,613)		(10,613)		(11,594)		(11,594)
Net derivatives	$	87,887	$	15,753	$	110,549	$	14,126

The following table presents the impact of derivatives and their location within our unaudited consolidated statements of operations for the three months endedMarch 31, 2013 and 2012:

	Three Months Ended
		March 31, 2013		March 31, 2012
Realized gains (losses):
Commodity contracts (1)	$	9,310	$	8,071
Interest rate swaps (2)		(1,145)		(2,303)
Total	$	8,165	$	5,768
Unrealized gains (losses):
Commodity contracts (1)	$	(25,316)	$	(33,206)
Interest rate swaps (2)		1,027		414
Total	$	(24,289)	$	(32,792)
Total gains (losses):
Commodity contracts (1)	$	(16,006)	$	(25,135)
Interest rate swaps (2)		(118)		(1,889)
Total	$	(16,124)	$	(27,024)

⁽¹⁾ Gain (loss) on commodity derivative contracts is located in other income (expense) in the consolidated statements of operations.

⁽²⁾ Gain (loss) on interest rate derivatives contracts is recorded as part of interest expense and is located in other income (expense) in the consolidated statements of operations.