Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities

Derivative Financial Instruments

8. 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. We have included an estimate of nonperformance risk in the fair value measurement of our derivative contracts as required by ASC 820—Fair Value Measurements and Disclosures.

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 December 31, 2016. Volumes are net of any offsetting derivative contracts entered into.

			Weighted Average Dated Brent Price per Bbl
			Net Deferred
			Premium
Term	Type of Contract	MBbl	Payable		Swap		Sold Put		Floor		Ceiling		Call
2017:
January — December	Swap with puts/calls	2,000	$	2.13	$	72.50	$	55.00	$	—	$	—	$	90.00
January — December	Swap with puts	2,000		—		64.95		50.00		—		—		—
January — December	Three-way collars	3,002		2.29		—		30.00		45.00		57.50		—
January — December	Sold calls(1)	2,000		—		—		—		—		85.00		—
2018:
January — December	Three-way collars	2,913	$	0.74	$	—	$	41.57	$	56.57	$	65.90	$	—
January — December	Sold calls(1)	2,000		—		—		—		—		65.00		—
2019:
January — December	Sold calls(1)	913	$	—	$	—	$	—	$	—	$	80.00	$	—

(1) Represents call option contracts sold to counterparties to enhance other derivative positions.

In February 2017, we entered into three-way collar contracts for 1.0 MMBbl from January 2018 through December 2018 with a floor price of $50.00 per barrel, a ceiling price of $62.00 per barrel and a purchased call price of $70.00 per barrel. The contracts are indexed to Dated Brent prices and have a weighted average deferred premium payable of $2.32 per barrel.

Interest Rate Derivative Contracts

The following table summarizes 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 December 31, 2016:

			Weighted Average
Term	Type of Contract	Floating Rate	Notional		Swap		Sold Call
			(In thousands)
January 2017 — December 2018	Capped swap	1-month LIBOR	$	200,000	1.23	%	3.00	%

Effective June 1, 2010, we discontinued hedge accounting on all interest rate derivative instruments. Therefore, from that date forward, changes in the fair value of the instruments have been recognized in earnings during the period of change. The effective portions of the discontinued hedges as of May 31, 2010, were included in AOCI in the equity section of the accompanying consolidated balance sheets, and were transferred to earnings when the hedged transaction settled. As of December 31, 2015 all instruments previously designated as hedges have settled and there is no balance remaining in AOCI. See Note 9—Fair Value Measurements for additional information regarding the Company’s derivative instruments.

The following tables disclose the Company’s derivative instruments as of December 31, 2016 and 2015 and gain/(loss) from derivatives during the years ended December 31, 2016,  2015 and 2014

		Estimated Fair Value
		Asset (Liability)
		December 31,
Type of Contract	Balance Sheet Location	2016		2015
		(In thousands)
Derivatives not designated as hedging instruments:
Derivative assets:
Commodity(1)	Derivatives assets—current	$	31,698	$	182,640
Commodity(2)	Derivatives assets—long-term		3,226		59,197
Interest rate	Derivatives assets—long-term		582		659
Derivative liabilities:
Commodity(3)	Derivatives liabilities—current		(19,163)		—
Interest rate	Derivatives liabilities—current		(529)		(1,155)
Commodity(4)	Derivatives liabilities—long-term		(14,123)		(4,196)
Total derivatives not designated as hedging instruments		$	1,691	$	237,145

(1) Includes net deferred premiums payable of $3.9 million and $6.2 million related to commodity derivative contracts as of December 31, 2016 and 2015, respectively.

(2) Includes net deferred premiums payable of $2.5 million and $6.9 million related to commodity derivative contracts as of December 31, 2016 and 2015, respectively.

(3) Includes $30.9 thousand and zero as of December 31, 2016 and December 31, 2015, respectively which represents our provisional oil sales contract. Also, includes net deferred premiums payable of $6.2 million and zero related to commodity derivative contracts as of December 31, 2016 and 2015, respectively.

(4) Includes net deferred premiums payable of $0.6 million and zero related to commodity derivative contracts as of December 31, 2016 and 2015, respectively.

		Amount of Gain/(Loss)
		Years Ended December 31,
Type of Contract	Location of Gain/(Loss)	2016		2015		2014
		(In thousands)
Derivatives in cash flow hedging relationships:
Interest rate(1)	Interest expense	$	—	$	767	$	1,391
Total derivatives in cash flow hedging relationships		$	—	$	767	$	1,391
Derivatives not designated as hedging instruments:
Commodity(2)	Oil and gas revenue	$	2,538	$	3	$	(11,661)
Commodity	Derivatives, net		(48,021)		210,649		281,853
Interest rate	Interest expense		(1,076)		(462)		(285)
Total derivatives not designated as hedging instruments		$	(46,559)	$	210,190	$	269,907

(2)

(1) Amounts were reclassified from AOCI into earnings upon settlement.

(2) Amounts represent the change in fair value 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 December 31, 2016 and 2015, 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.