Derivative Financial Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 5—Derivative Financial Instruments

Commodity derivatives

The Company is exposed to market risk from changes in energy commodity prices within its operations. The Company utilizes derivatives to manage exposure to the variability in expected future cash flows from forecasted sales of natural gas. The Company currently uses a mix of over-the-counter (“OTC”) natural gas fixed price swaps, basis swaps and put options spreads and collars to manage its exposure to natural gas price fluctuations. All of the Company’s derivative instruments are used for risk management purposes and none are held for trading or speculative purposes.

The Company is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.

Below is summary of the Company’s derivative instrument positions, as of September 30, 2014, for future production periods:

Description	Volume (MMBtu/d)		Production Period	Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
		30,000	October 2014—December 2014	$	4.121
		26,219	January 2015—December 2015	$	4.071
Natural Gas Put Spread:
Purchased put		20,000	October 2014—December 2014	$	4.50
Sold put		20,000	October 2014—December 2014	$	4.00
Natural Gas Put Sale:
Put sold		16,800	January 2015—December 2015	$	3.350
Natural Gas Collar:
Purchased put		5,000	October 2014—March 2015	$	4.000
Call sold		5,000	October 2014—March 2015	$	4.750
Basis Swaps:
		25,000	November 2014—March 2015	$	(1.067	)
		25,000	April 2015—October 2015	$	(1.208	)

Fair values and gains (losses)

The following table summarizes the fair value of the Company’s derivative instruments on a gross basis and on a net basis as presented in the condensed consolidated balance sheets (in thousands):

Derivatives not designated as hedging instruments under ASC 815	Gross Amount			Netting Adjustments(a)			Net Amount Presented in the Balance Sheets		Balance Sheet Location
As of September 30, 2014
Assets
Commodity derivatives—current	$	3,542		$	(1,462	)	$	2,080	Other current assets
Commodity derivatives—noncurrent		409			(184	)		225	Other assets
Total assets	$	3,951		$	(1,646	)	$	2,305
Liabilities
Commodity derivatives—current	$	(1,462	)	$	1,462		$	—
Commodity derivatives—noncurrent		(184	)		184			—
Total liabilities	$	(1,646	)	$	1,646		$	—

(a) The Company has agreements in place that allow for the financial right to offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements.

At December 31, 2013, the Company did not have any derivative instruments in place.

The following table presents the Company’s reported gains and losses on derivative instruments for the periods presented (in thousands):

		Amount of Gain (Loss) Recognized in Income
Derivatives not designated as hedging instruments under ASC 815	Location of Gain (Loss) Recognized in Income	Three Months Ended September 30,				Nine Months Ended September 30,
		2014		2013		2014		2013
Commodity derivatives	Gain on derivative instruments	$	5,572	$	—	$	1,098	$	—