Derivative Activities

6 Months Ended

Jun. 30, 2014

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 NGLs. 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 six months endedJune 30, 2014, we did not enter into any new oil swap and basis swap contracts. All existing 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 $0.1 million and $5.0millionand are classified as accrued and other liabilities and other non-current liabilities on the consolidated balance sheet as of June 30, 2014The deferred premiums associated with certain of our oil and natural gas derivative instruments were zero and $5.0 million and are classified as accrued and other liabilities and other non-current liabilities on the consolidated balance sheet as ofDecember 31, 2013. 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 June 30, 2014,  the notional volumes of our commodity derivative contracts were:

Commodity	Index		July 1 - Dec 31, 2014		2015		2016		2017
Oil positions:
Swaps
Hedged Volume (Bbls/d)	WTI		6,709		7,356		6,293		5,547
Average price ($/Bbls)		$	95.30	$	93.74	$	90.03	$	86.23
Hedged Volume (Bbls/d)	LLS		3,000		-		-		-
Average price ($/Bbls)		$	99.62		-		-		-
Basis
Hedged Volume (Bbls/d)	WTS/WTI		2,400		-		-		-
Average price ($/Bbls)		$	(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		26,169		7,191		11,350		10,445
Average price ($/MMBtu)		$	6.13	$	5.34	$	4.27	$	4.47
Basis Swaps (1)
Hedged Volume (MMBtu/d)	Henry Hub		17,046		14,400		-		-
Average price ($/MMBtu)		$	(0.19)	$	(0.19)		-		-
Collars
Hedged Volume (MMBtu/d)	Henry Hub		4,946		18,000		630		595
Average floor price ($/MMBtu)		$	5.74	$	5.00	$	4.00	$	4.00
Average ceiling price ($/MMBtu)		$	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 six months ended June 30, 2014, we did not enter into any new interest rate swaps. All existing 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:

	June 30, 2014				December 31, 2013
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Commodity contracts	$	29,330	$	35,771	$	89,616	$	7,093
Interest rate contracts		-		9,709		-		10,391
	$	29,330	$	45,480	$	89,616	$	17,484
Commodity
Current	$	15,065	$	20,268	$	27,485	$	5,651
Noncurrent		14,265		15,503		62,131		1,442
	$	29,330	$	35,771	$	89,616	$	7,093
Interest
Current	$	-	$	5,741	$	-	$	5,582
Noncurrent		-		3,968		-		4,809
	$	-	$	9,709	$	-	$	10,391
Total Derivatives
Current	$	15,065	$	26,009	$	27,485	$	11,233
Noncurrent		14,265		19,471		62,131		6,251
	$	29,330	$	45,480	$	89,616	$	17,484

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

	June 30, 2014				December 31, 2013
		Asset		Liability		Asset		Liability
		Derivatives		Derivatives		Derivatives		Derivatives
Gross derivatives	$	29,330	$	45,480	$	89,616	$	17,484
Netting		(12,188)		(12,188)		(2,960)		(2,960)
Net derivatives	$	17,142	$	33,292	$	86,656	$	14,524

The following table presents the impact of derivatives and their location within our consolidated statements of operations for thethree and six months endedJune 30, 2014 and 2013:

	Three Months Ended				Six Months Ended
		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Total gains (losses):
Commodity contracts (1)	$	(65,757)	$	49,523	$	(88,922)	$	33,517
Interest rate swaps (2)		(1,810)		806		(2,293)		688
Total	$	(67,567)	$	50,329	$	(91,215)	$	34,205

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

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