Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivative Financial Instruments

Derivative Financial Instruments

9. Derivative Financial Instruments

We use financial derivative contracts to manage exposures to commodity price and interest rate fluctuations. We do not hold or issue derivative financial instruments for trading purposes. We manage market and counterparty credit risk in accordance with our policies and guidelines. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions.

Oil Derivative Contracts

The following table sets forth the volumes in barrels underlying the Company’s outstanding oil derivative contracts and the weighted average Dated Brent prices per Bbl for those contracts as of March 31, 2015.

			Weighted Average Dated Brent Price per Bbl
Term	Type of Contract	MBbl	Net Deferred Premium Payable		Swap		Put		Floor		Ceiling		Call
2015:
April — December	Three-way collars	3,184	$	0.46	$	—	$	—	$	87.43	$	110.00	$	133.82
April — December	Swaps with calls	1,505	—		93.59		—		—		—		115.00
2016:
January — December	Purchased puts	2,000	$	3.41	$	—	$	—	$	85.00	$	—	$	—
January — December	Three-way collars	2,000	—		—		—		85.00		110.00		135.00
January — December	Swaps with puts	2,000	—		75.00		60.00		—		—		—
2017(1):
January — December	Sold calls	2,000	$	—	$	—	$	—	$	—	$	85.00	$	—

(1) In April 2015, we entered into swaps, sold puts and purchased call contracts for 2.0 MMBbl from January 2017 through December 2017 with a fixed price of $72.50 per barrel, a short put price of $55.00 per barrel and a call price of $90.00 per barrel. The contracts are indexed to Dated Brent prices and have a weighted average deferred premium payable of $2.13 per barrel.

Interest Rate Derivative Contracts

The following table summarizes our open interest rate swaps, whereby we pay a fixed rate of interest and the counterparty pays a variable LIBOR-based rate, and our capped interest rate swaps whereby we pay a fixed rate of interest if LIBOR is below the cap, and pay the market rate less the spread between the cap (sold call) and the fixed rate of interest if LIBOR is above the cap as of March 31, 2015:

			Weighted Average
Term	Type of Contract	Floating Rate	Notional		Swap		Sold Call
			(In thousands)
April 2015 — December 2015	Swap	6-month LIBOR	$	45,319	2.03	%	—
January 2016 — June 2016	Swap	6-month LIBOR	12,500		2.27	%	—
January 2016 — December 2018	Capped swap	1-month LIBOR	200,000		1.23	%	3.00	%

The following tables disclose the Company’s derivative instruments as of March 31, 2015 and December 31, 2014 and gain/(loss) from derivatives during the three months ended March 31, 2015 and 2014, respectively:

		Estimated Fair Value Asset (Liability)
		March 31,			December 31,
Type of Contract	Balance Sheet Location	2015			2014
		(In thousands)
Derivatives not designated as hedging instruments:
Derivative assets:
Commodity(1)	Derivatives assets—current	$	163,869		$	163,275
Commodity(2)	Derivatives assets—long-term	77,375			89,210
Interest rate	Derivatives assets—long-term	100			—
Derivative liabilities:
Interest rate	Derivatives liabilities—current	(973		)	(721		)
Commodity	Derivatives liabilities—long-term	(7,731		)	—
Interest rate	Derivatives liabilities—long-term	(90		)	(68		)
Total derivatives not designated as hedging instruments		$	232,550		$	251,696

(1) Includes net deferred premiums payable of $2.6 million and $1.8 million related to commodity derivative contracts as of March 31, 2015 and December 31, 2014, respectively.

(2) Includes net deferred premiums payable of $5.6 million and $6.9 million related to commodity derivative contracts as of March 31, 2015 and December 31, 2014, respectively.

		Amount of Gain/(Loss)
		Three Months Ended March 31,
Type of Contract	Location of Gain/(Loss)	2015			2014
		(In thousands)
Derivatives in cash flow hedging relationships:
Interest rate(1)	Interest expense	$	194		$	406
Total derivatives in cash flow hedging relationships		$	194		$	406
Derivatives not designated as hedging instruments:
Commodity(2)	Oil and gas revenue	$	2,633		$	(1,526	)
Commodity	Derivatives, net	32,327			2,028
Interest rate	Interest expense	(174		)	(98		)
Total derivatives not designated as hedging instruments		$	34,786		$	404

(1) Amounts were reclassified from accumulated other comprehensive income or loss (“AOCI”) into earnings upon settlement.

(2) Amounts represent the mark-to-market portion of our provisional oil sales contracts.

Offsetting of Derivative Assets and Derivative Liabilities

Our derivative instruments which are subject to master netting arrangements with our counterparties only have the right of offset when there is an event of default. As of March 31, 2015 and December 31, 2014, there was not an event of default and, therefore, the associated gross asset or gross liability amounts related to these arrangements are presented on the consolidated balance sheets. Additionally, if an event of default occurred the offsetting amounts would be immaterial as of March 31, 2015 and December 31, 2014.