Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

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 non-performance 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 March 31, 2017. 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, Net		Swap		Sold Put		Floor		Ceiling		Call
2017:
April — December	Swap with puts/calls	1,505	$	2.13	$	72.50	$	55.00	$	—	$	—	$	90.00
April — December	Swap with puts	1,505		—		64.95		50.00		—		—		—
April — December	Three-way collars	2,012		2.57		—		30.00		45.00		57.50		—
April — December	Sold calls(1)	1,500		—		—		—		—		85.00		—
2018:
January — December	Three-way collars	2,913	$	0.74	$	—	$	41.57	$	56.57	$	65.90	$	—
January — December	Four-way collars	2,000		0.93		—		40.00		50.00		61.00		70.00
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 April 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, and 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 $2.15 per barrel.

In May 2017, we sold 1.0 MMBbl of put contracts from January 2018 through December 2018 with a strike price of $40.00 per barrel. We used part of the proceeds to increase the ceiling for 1.0 MMBbl of sold calls in the second half of 2017 from $55.00 to $60.00. These contracts are indexed to Dated Brent prices.

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 March 31, 2017:

			Weighted Average
Term	Type of Contract	Floating Rate	Notional		Swap		Sold Call
			(In thousands)
April 2017 — 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, 2017 and December 31, 2016 and gain/(loss) from derivatives during the three months ended March 31, 2017 and 2016, respectively:

		Estimated Fair Value
		Asset (Liability)
		March 31,		December 31,
Type of Contract	Balance Sheet Location	2017		2016
		(In thousands)
Derivatives not designated as hedging instruments:
Derivative assets:
Commodity(1)	Derivatives assets—current	$	34,899	$	31,698
Commodity(2)	Derivatives assets—long-term		7,390		3,226
Interest rate	Derivatives assets—long-term		641		582
Derivative liabilities:
Commodity(3)	Derivatives liabilities—current		(8,883)		(19,163)
Interest rate	Derivatives liabilities—current		(33)		(529)
Commodity(4)	Derivatives liabilities—long-term		(5,299)		(14,123)
Total derivatives not designated as hedging instruments		$	28,715	$	1,691

(1) Includes net deferred premiums payable of $3.5 million and $3.9 million related to commodity derivative contracts as of March 31, 2017 and December 31, 2016, respectively.

(2) Includes net deferred premiums payable of $3.7 million and $2.5 million related to commodity derivative contracts as of March 31, 2017 and December 31, 2016, respectively.

(3) Includes zero and $30.9 thousand as of March 31, 2017 and December 31, 2016, respectively, which represents our provisional oil sales contract. Also includes net deferred premiums payable of $5.5 million and $6.2 million related to commodity derivative contracts as of March 31, 2017 and December 31, 2016, respectively.

(4) Includes net deferred premiums receivable of $0.4 million and net deferred premiums payable of $0.6 million related to commodity derivative contracts as of March 31, 2017 and December 31, 2016, respectively.

		Amount of Gain/(Loss)
		Three Months Ended
		March 31,
Type of Contract	Location of Gain/(Loss)	2017		2016
		(In thousands)
Derivatives not designated as hedging instruments:
Commodity(1)	Oil and gas revenue	$	(8)	$	610
Commodity	Derivatives, net		37,857		4,345
Interest rate	Interest expense		328		(2,578)
Total derivatives not designated as hedging instruments		$	38,177	$	2,377

(1) 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 March 31, 2017 and December 31, 2016, 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.