Derivative instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative instruments

The Company's policy allows the use of derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. As of March 31, 2013, the Company had no outstanding foreign currency hedges. The following information should be read in conjunction with Notes 1 and 7 in the Company's Notes to Consolidated Financial Statements in the 2012 Annual Report.

Cascade

Cascade has historically utilized natural gas swap agreements to manage a portion of its regulated natural gas supply portfolio in order to manage fluctuations in the price of natural gas related to core customers in accordance with authority granted by the WUTC and OPUC. Core customers consist of residential, commercial and smaller industrial customers. As of March 31, 2013 and December 31, 2012, Cascade has no outstanding swap agreements. As of March 31, 2012, Cascade held a natural gas swap agreement with total forward notional volumes of 214,000 MMBtu. The fair value of derivative instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Periodic changes in the fair market value of the derivative instruments are recorded on the Consolidated Balance Sheets as a regulatory asset or a regulatory liability, and settlements of these arrangements are expected to be recovered through the purchased gas cost adjustment mechanism. Gains and losses on the settlements of these derivative instruments are recorded as a component of purchased natural gas sold on the Consolidated Statements of Income as they are recovered through the purchased gas cost adjustment mechanism. Under the terms of these arrangements, Cascade either pays or receives settlement payments based on the difference between the fixed strike price and the monthly index price applicable to each contract. For the three months ended March 31, 2012, the change in the fair market value of the derivative instruments of $52,000 was recorded as an increase to regulatory assets.

Fidelity

At March 31, 2013 and 2012, and December 31, 2012, Fidelity held oil swap and collar agreements with total forward notional volumes of 2.8 million, 4.0 million and 2.6 million Bbl, respectively, and natural gas swap agreements with total forward notional volumes of 25.9 million, 10.9 million  and 11.0 million MMBtu, respectively. In addition, at March 31, 2012, Fidelity held natural gas basis swap agreements with total forward notional volumes of 2.6 million MMBtu. Some of these agreements were designated as cash flow hedging instruments. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of oil and natural gas and basis differentials on its forecasted sales of oil and natural gas production.

Centennial

At March 31, 2013 and 2012, and December 31, 2012, Centennial held interest rate swap agreements with total notional amounts of $40.0 million, $60.0 million and $50.0 million, respectively, which were designated as cash flow hedging instruments. Centennial entered into these interest rate derivative instruments to manage a portion of its interest rate exposure on the forecasted issuance of long-term debt. Centennial's interest rate swap agreements have mandatory termination dates ranging from May through June 2013.

Fidelity and Centennial

The fair value of the derivative instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or liability. Changes in the fair value attributable to the effective portion of hedging instruments, net of tax, are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). To the extent that the hedges are not effective, the ineffective portion of the changes in fair market value is recorded directly in earnings.

There were no components of the derivative instruments' gain or loss excluded from the assessment of hedge effectiveness. Gains and losses must be reclassified into earnings as a result of the discontinuance of cash flow hedges if it is probable that the original forecasted transactions will not occur, and there were no such reclassifications.

Gains and losses on the oil and natural gas derivative instruments are reclassified from accumulated other comprehensive income (loss) into operating revenues on the Consolidated Statements of Income at the date the oil and natural gas quantities are settled. The proceeds received for oil and natural gas production are generally based on market prices. Gains and losses on the interest rate derivatives are reclassified from accumulated other comprehensive income (loss) into interest expense on the Consolidated Statements of Income in the same period the hedged item affects earnings. The gains and losses on derivative instruments were as follows:

	Three Months Ended
	March 31,
	2013			2012
	(In thousands)
Commodity derivatives designated as cash flow hedges:
Amount of loss recognized in accumulated other comprehensive loss (effective portion), net of tax	$	(6,154	)	$	(4,659	)
Amount of gain reclassified from accumulated other comprehensive loss into operating revenues (effective portion), net of tax	2,843			2,343
Amount of loss recognized in operating revenues (ineffective portion), before tax	(1,422		)	(4,251		)
Interest rate derivatives designated as cash flow hedges:
Amount of gain recognized in accumulated other comprehensive loss (effective portion), net of tax	305			889
Amount of loss reclassified from accumulated other comprehensive loss into interest expense (effective portion), net of tax	(71		)	(14		)
Amount of loss recognized in interest expense (ineffective portion), before tax	(159		)	—
Commodity derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in operating revenues, before tax	(4,410		)	55

As of March 31, 2013, the maximum term of the derivative instruments, in which the exposure to the variability in future cash flows for forecasted transactions is being hedged, is 33 months.

Based on March 31, 2013, fair values, over the next 12 months net gains of approximately $1.5 million (after tax) are estimated to be reclassified from accumulated other comprehensive income (loss) into earnings, as the hedged transactions affect earnings.

Certain of Fidelity's and Centennial's derivative instruments contain cross-default provisions that state if Fidelity or any of its affiliates or Centennial fails to make payment with respect to certain indebtedness, in excess of specified amounts, the counterparties could require early settlement or termination of derivative instruments in liability positions. The aggregate fair value of Fidelity's and Centennial's derivative instruments with credit-risk-related contingent features that are in a liability position at March 31, 2013, was $12.4 million. The aggregate fair value of assets that would have been needed to settle the instruments immediately if the credit-risk-related contingent features were triggered on March 31, 2013, was $12.4 million.

The location and fair value of the gross amount of the Company's derivative instruments on the Consolidated Balance Sheets were as follows:

Asset Derivatives	Location on Consolidated Balance Sheets	Fair Value at March 31, 2013		Fair Value at March 31, 2012		Fair Value at December 31, 2012
		(In thousands)
Designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	1,623	$	25,560	$	18,084
	Other assets - noncurrent	—		537		—
		1,623		26,097		18,084
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	4,313		1,138		220
	Other assets - noncurrent	243		45		—
		4,556		1,183		220
Total asset derivatives		$	6,179	$	27,280	$	18,304

Liability Derivatives	Location on Consolidated Balance Sheets	Fair Value at March 31, 2013		Fair Value at March 31, 2012		Fair Value at December 31, 2012
		(In thousands)
Designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	5,994	$	18,964	$	—
	Other liabilities - noncurrent	534		6,098		—
Interest rate derivatives	Other accrued liabilities	4,458		1,168		6,255
	Other liabilities - noncurrent	—		2,153		—
		10,986		28,383		6,255
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	1,385		1,219		—
	Other liabilities - noncurrent	74		49		—
		1,459		1,268		—
Total liability derivatives		$	12,445	$	29,651	$	6,255

All of the Company's commodity and interest rate derivative instruments at March 31, 2013 and 2012, and December 31, 2012, were subject to legally enforceable master netting agreements. However, the Company's policy is to not offset fair value amounts for derivative instruments and, as a result, the Company's derivative assets and liabilities are presented gross on the Consolidated Balance Sheets. The gross derivative assets and liabilities (excluding settlement receivables and payables that may be subject to the same master netting agreements) presented on the Consolidated Balance Sheets and the amount eligible for offset under the master netting agreements is presented in the following table:

March 31, 2013	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	6,179	$	(3,578	)	$	2,601
Total assets	$	6,179	$	(3,578	)	$	2,601
Liabilities:
Commodity derivatives	$	7,987	$	(3,578	)	$	4,409
Interest rate derivatives	4,458		—			4,458
Total liabilities	$	12,445	$	(3,578	)	$	8,867

March 31, 2012	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	27,280	$	(15,805	)	$	11,475
Total assets	$	27,280	$	(15,805	)	$	11,475
Liabilities:
Commodity derivatives	$	26,330	$	(15,805	)	$	10,525
Interest rate derivatives	3,321		—			3,321
Total liabilities	$	29,651	$	(15,805	)	$	13,846

December 31, 2012	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets		Net
	(In thousands)
Assets:
Commodity derivatives	$	18,304	$	—	$	18,304
Total assets	$	18,304	$	—	$	18,304
Liabilities:
Interest rate derivatives	$	6,255	$	—	$	6,255
Total liabilities	$	6,255	$	—	$	6,255

Effective April 1, 2013, the Company has elected to de-designate all of its commodity derivative contracts that existed at March 31, 2013, that had been previously designated as cash flow hedges, and has elected to discontinue hedge accounting for its commodity derivatives prospectively. As a result, Fidelity will recognize all future gains and losses from prospective changes in commodity derivative fair values immediately in earnings rather than deferring any such amounts in accumulated other comprehensive income (loss).