Derivative Activities

9 Months Ended

Sep. 30, 2013

Derivative Activities [Abstract]

Derivative Activities

NOTE 6 – 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, natural gas and natural gas liquids. 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 nine months endedSeptember 30, 2013, we entered into new oil swap and basis swap contracts with settlement dates ranging from 2013 through 2017.  All of the new contracts were entered into with the counterparties under our revolving credit facility.

The deferred premiums associated with certain of our oil and natural gas derivative instruments were $5.0 million and $4.9 million and are classified as other non-current liabilities on the consolidated balance sheets as ofSeptember 30, 2013and December 31, 2012. These deferred premiums will be paid to the counterparty with each monthly settlement (January 2015 – December 2017)  and will be recognized as an adjustment of gain (loss) on commodity derivative contracts, net.

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 September 30, 2013, the notional volumes of our commodity derivative contracts were:

Commodity	Index		Oct 1 - Dec 31, 2013		2014		2015		2016		2017
Oil positions:
Swaps
Hedged Volume (Bbls/d)	WTI		8,282		7,815		7,356		6,293		5,547
Average price ($/Bbls)		$	98.34	$	95.65	$	93.74	$	90.03	$	86.23
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		30,337		26,622		7,191		11,350		10,445
Average price ($/MMBtu)		$	6.05	$	6.18	$	5.34	$	4.27	$	4.47
Basis Swaps (1)
Hedged Volume (MMBtu/d)	Henry Hub		18,446		17,066		14,400
Average price ($/MMBtu)		$	(0.17)	$	(0.19)	$	(0.19)
Collars
Hedged Volume (MMBtu/d)	Henry Hub		2,446		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

⁽¹⁾ Our natural gas basis swaps are used to hedge the differential between Henry Hub and various price points.

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.

During the nine months ended September 30, 2013, we entered into new interest rate swaps with settlement dates through 2016.  The new contracts were entered into with various financial institutions.

Financial Statement Presentation of Derivatives

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

	September 30, 2013				December 31, 2012
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Commodity contracts	$	93,469	$	13,328	$	122,143	$	13,484
Interest rate contracts		-		11,225		-		12,236
	$	93,469	$	24,553	$	122,143	$	25,720
Commodity
Current	$	30,399	$	9,982	$	45,522	$	4,130
Noncurrent		63,070		3,346		76,621		9,354
	$	93,469	$	13,328	$	122,143	$	13,484
Interest
Current	$	-	$	5,324	$	-	$	4,597
Noncurrent		-		5,901		-		7,639
	$	-	$	11,225	$	-	$	12,236
Total Derivatives
Current	$	30,399	$	15,306	$	45,522	$	8,727
Noncurrent		63,070		9,247		76,621		16,993
	$	93,469	$	24,553	$	122,143	$	25,720

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

	September 30, 2013				December 31, 2012
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Gross derivatives	$	93,469	$	24,553	$	122,143	$	25,720
Netting		(4,742)		(4,742)		(11,594)		(11,594)
Net derivatives	$	88,727	$	19,811	$	110,549	$	14,126

The following table presents the impact of derivatives and their location within our consolidated statements of operations for the three and nine months endedSeptember 30, 2013 and 2012:

	Three Months Ended				Nine Months Ended
		September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Total gains (losses):
Commodity contracts (1)	$	(45,377)	$	(49,461)	$	(11,860)	$	52,001
Interest rate swaps (2)		(3,242)		(3,172)		(2,554)		(10,092)
Total	$	(48,619)	$	(52,633)	$	(14,414)	$	41,909

⁽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.