Derivative instruments

3 Months Ended

Mar. 31, 2014

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, 2014, the Company had no outstanding foreign currency or interest rate hedges.

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.

Fidelity

At March 31, 2014 and 2013, and December 31, 2013, Fidelity held oil swap and collar agreements with total forward notional volumes of 2.7 million, 2.8 million and 2.9 million Bbl, respectively, and natural gas swap agreements with total forward notional volumes of 14.7 million, 25.9 million and 18.3 million MMBtu, respectively. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of oil and natural gas on its forecasted sales of oil and natural gas production.

Effective April 1, 2013, Fidelity elected to de-designate all commodity derivative contracts previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively for all of its commodity derivative instruments. When the criteria for hedge accounting is not met or when hedge accounting is not elected, realized gains and losses and unrealized gains and losses are both recorded in operating revenues on the Consolidated Statements of Income. As a result of discontinuing hedge accounting on commodity derivative instruments, gains and losses on the oil and natural gas derivative instruments remain in accumulated other comprehensive income (loss) as of the de-designation date and are reclassified into earnings in future periods as the underlying hedged transactions affect earnings. At April 1, 2013, accumulated other comprehensive income (loss) included $1.8 million of unrealized gains, representing the mark-to-market value of the Company's commodity derivative instruments that qualified as cash flow hedges as of the balance sheet date. The Company expects to reclassify into earnings from accumulated other comprehensive income (loss) the remaining value related to de-designating commodity derivative instruments over the next 9 months.

Prior to April 1, 2013, changes in the fair value attributable to the effective portion of the hedging instruments, net of tax, were recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). To the extent that the hedges were not effective or did not qualify for hedge accounting, the ineffective portion of the changes in fair market value was recorded directly in earnings. Gains and losses on the oil and natural gas derivative instruments were 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 were settled.

Centennial

As of March 31, 2014 and December 31, 2013, Centennial had no outstanding interest rate swap agreements. At March 31, 2013, Centennial held interest rate swap agreements with total notional amounts of $40.0 million 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.

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. 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.

Fidelity and Centennial

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.

The gains and losses on derivative instruments were as follows:

	Three Months Ended
	March 31,
	2014			2013
	(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	)
Amount of (gain) loss reclassified from accumulated other comprehensive loss into operating revenues (effective portion), net of tax	244			(2,843		)
Amount of loss recognized in operating revenues (ineffective portion), before tax	—			(1,422		)
Interest rate derivatives designated as cash flow hedges:
Amount of gain recognized in accumulated other comprehensive loss (effective portion), net of tax	—			305
Amount of loss reclassified from accumulated other comprehensive loss into interest expense (effective portion), net of tax	100			71
Amount of loss recognized in interest expense (ineffective portion), before tax	—			(159		)
Commodity derivatives not designated as hedging instruments:
Amount of loss recognized in operating revenues, before tax	(6,712		)	(4,410		)

Over the next 12 months net losses of approximately $449,000 (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 the 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, 2014 and 2013, and December 31, 2013, were $12.2 million, $12.4 million and $7.5 million, respectively. 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, 2014 and 2013, and December 31, 2013, were $12.2 million, $12.4 million and $7.5 million, respectively.

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, 2014		Fair Value at March 31, 2013		Fair Value at December 31, 2013
		(In thousands)
Designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	—	$	1,623	$	—
		—		1,623		—
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	81		4,313		1,447
	Other assets - noncurrent	249		243		503
		330		4,556		1,950
Total asset derivatives		$	330	$	6,179	$	1,950

Liability Derivatives	Location on Consolidated Balance Sheets	Fair Value at March 31, 2014		Fair Value at March 31, 2013		Fair Value at December 31, 2013
		(In thousands)
Designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	—	$	5,994	$	—
	Other liabilities - noncurrent	—		534		—
Interest rate derivatives	Other accrued liabilities	—		4,458		—
		—		10,986		—
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	12,186		1,385		7,483
	Other liabilities - noncurrent	—		74		—
		12,186		1,459		7,483
Total liability derivatives		$	12,186	$	12,445	$	7,483

All of the Company's commodity and interest rate derivative instruments at March 31, 2014 and 2013, and December 31, 2013, 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, 2014	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	330	$	(330	)	$	—
Total assets	$	330	$	(330	)	$	—
Liabilities:
Commodity derivatives	$	12,186	$	(330	)	$	11,856
Total liabilities	$	12,186	$	(330	)	$	11,856

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

December 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	$	1,950	$	(1,950	)	$	—
Total assets	$	1,950	$	(1,950	)	$	—
Liabilities:
Commodity derivatives	$	7,483	$	(1,950	)	$	5,533
Total liabilities	$	7,483	$	(1,950	)	$	5,533