Derivative Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Note 5—Derivative 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 and oil. The Company currently uses a mix of over-the-counter (“OTC”) fixed price swaps, basis swaps and put options spreads and collars to manage its exposure to commodity 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. To mitigate this risk, the Company enters into derivative contracts only with counterparties that are rated “A” or higher by S&P or Moody’s. The creditworthiness of counterparties is subject to periodic review. As of September 30, 2015, the Company’s derivative instruments were with Bank of Montreal, Citibank, N.A., and Key Bank, N.A. The Company has not experienced any issues of non-performance by derivative counterparties. Below is a summary of the Company’s derivative instrument positions, as of September 30, 2015, for future production periods:

Natural Gas Derivatives

Description	Volume (MMBtu/d)		Production Period	Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
		60,000	October 2015 – December 2015	$	3.77
		7,000	October 2015	$	2.84
		40,000	November 2015 – December 2015	$	2.85
		65,000	January 2016 – December 2016	$	3.28
Natural Gas Collar:
Floor purchase price (put)		30,000	January 2016 – December 2017	$	3.00
Ceiling sold price (call)		30,000	January 2016 – December 2017	$	3.50
Natural Gas Three-way Collars:
Floor purchase price (put)		15,000	October 2015 – December 2015	$	3.60
Ceiling sold price (call)		15,000	October 2015 – December 2015	$	3.80
Floor sold price (put)		15,000	October 2015 – December 2015	$	3.00
Floor purchase price (put)		40,000	January 2016 – December 2016	$	2.90
Ceiling sold price (call)		20,000	January 2016 – December 2016	$	3.25
Ceiling sold price (call)		20,000	January 2016 – December 2016	$	3.22
Floor sold price (put)		40,000	January 2016 – December 2016	$	2.35
Natural Gas Call/Put Options:
Put sold		16,800	October 2015 – December 2015	$	3.35
Put sold		16,800	October 2015	$	2.87
Put purchased		16,800	October 2015	$	3.35
Put sold		16,800	January 2016 – December 2016	$	2.75
Call sold		40,000	January 2018 – December 2018	$	(3.75	)
Basis Swaps:
		25,000	October 2015	$	(1.21	)
		20,000	November 2015 – March 2016	$	0.83

Oil Derivatives

Description	Volume (Bbls/d)		Production Period	Weighted Average Price ($/Bbl)
Oil Collar:
Floor purchase price (put)		3,000	October 2015 – February 2016	$	55.00
Ceiling sold price (call)		3,000	October 2015 – February 2016	$	61.40
Oil Three-way Collar:
Floor purchase price (put)		1,000	March 2016 – December 2016	$	60.00
Ceiling sold price (call)		1,000	March 2016 – December 2016	$	70.10
Floor sold price (put)		1,000	March 2016 – December 2016	$	45.00

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). None of the derivative instruments are designated as hedges for accounting purposes.

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, 2015
Assets
Commodity derivatives—current	$	33,148		$	(9,399	)	$	23,749	Other current assets
Commodity derivatives—noncurrent		7,897			(6,552	)		1,345	Other assets
Total assets	$	41,045		$	(15,951	)	$	25,094
Liabilities
Commodity derivatives—current	$	(9,399	)	$	9,399		$	—
Commodity derivatives—noncurrent		(6,552	)		6,552			—
Total liabilities	$	(15,951	)	$	15,951		$	—
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 December 31, 2014
Assets
Commodity derivatives—current	$	22,349		$	(5,012	)	$	17,337	Other current assets
Commodity derivatives—noncurrent		1,741			(44	)		1,697	Other assets
Total assets	$	24,090		$	(5,056	)	$	19,034
Liabilities
Commodity derivatives—current	$	(5,012	)	$	5,012		$	—
Commodity derivatives—noncurrent		(44	)		44			—
Total liabilities	$	(5,056	)	$	5,056		$	—

(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.

The following table presents the Company’s reported gains and losses on derivative instruments and where such values are recorded in the condensed consolidated statements of operations 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,
		2015		2014		2015		2014
Commodity derivatives	Gain on derivative instruments	$	23,679	$	5,572	$	31,527	$	1,098