Derivative Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Crude oil and natural gas derivatives

The Company may utilize crude oil and natural gas swap and collar derivative contracts to economically hedge against the variability in cash flows associated with future sales of crude oil and natural gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements.

The Company recognizes all crude oil and natural gas derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its crude oil and natural gas derivative instruments as hedges for accounting purposes and, as a result, marks such derivative instruments to fair value and recognizes the changes in fair value in the unaudited condensed consolidated statements of comprehensive loss under the caption “Gain (loss) on crude oil and natural gas derivatives, net”, which is a component of "Total revenues".

With respect to a crude oil or natural gas fixed price swap contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. For a crude oil or natural gas collar contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is below the floor price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price. Neither party is required to make a payment to the other party if the settlement price for any settlement period is between the floor price and the ceiling price.

The Company’s crude oil and natural gas derivative contracts are settled based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on Inter-Continental Exchange (“ICE”) pricing for Brent crude oil and natural gas derivative settlements based on NYMEX Henry Hub pricing. The estimated fair value of derivative contracts is based upon various factors, including commodity exchange prices, over-the-counter quotations, and, in the case of collars and written call options, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars and written call options requires the use of an option-pricing model. See Note 5. Fair Value Measurements.

At September 30, 2016, the Company had outstanding crude oil and natural gas derivative contracts with respect to future production as set forth in the tables below. The hedged volumes reflected below represent an aggregation of multiple derivative contracts that have varying durations and may not be realized on a ratable basis over the periods indicated.

Crude Oil - ICE Brent
Period and Type of Contract	Bbls	Ceiling Price
October 2016 - December 2016
Written call options - ICE Brent (1)	368,000	$	107.70

(1) Written call options represent the ceiling positions remaining from the Company's previous crude oil collar contracts. The floor positions of the collars were liquidated in the fourth quarter of 2014. For these written call options, the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price.

				Collars
Natural Gas - NYMEX Henry Hub		Swaps Weighted Average Price		Floors			Ceilings
					Weighted Average Price			Weighted Average Price
Period and Type of Contract	MMBtus			Range			Range
October 2016 - December 2016
Swaps - Henry Hub	34,870,000	$	3.09
January 2017 - December 2017
Swaps - Henry Hub	25,550,000	$	3.35
Collars - Henry Hub	65,700,000			$2.40 - $3.00	$	2.47	$2.92 - $3.88	$	3.08

Crude oil and natural gas derivative gains and losses

Cash receipts and payments in the following table reflect the gain or loss on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of derivative instruments which continue to be held at period end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the period.

	Three months ended September 30,					Nine months ended September 30,
In thousands	2016		2015			2016			2015
Cash received on derivatives:
Natural gas fixed price swaps	$	5,174	$	5,142		$	83,141		$	29,084
Natural gas collars	—		6,775			—			19,450
Cash received on derivatives, net	5,174		11,917			83,141			48,534
Non-cash gain (loss) on derivatives:
Crude oil written call options	—		617			38			4,544
Natural gas fixed price swaps	5,298		36,257			(93,617		)	33,453
Natural gas collars	5,196		(2,264		)	(14,039		)	(11,986		)
Non-cash gain (loss) on derivatives, net	10,494		34,610			(107,618		)	26,011
Gain (loss) on crude oil and natural gas derivatives, net	$	15,668	$	46,527		$	(24,477	)	$	74,545

Diesel fuel derivatives

In March 2016, the Company entered into diesel fuel swap derivative contracts to economically hedge against the variability in cash flows associated with future purchases of diesel fuel for use in drilling activities. The Company has hedged approximately 15 million gallons of diesel fuel over the period from October 2016 to December 2017 at a weighted average price of $1.42 per gallon. With respect to these diesel fuel swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is greater than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is less than the swap price. The diesel fuel swap contracts are settled based upon reported NYMEX settlement prices for New York Harbor ultra-low sulfur diesel fuel.

The Company recognizes its diesel fuel derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The estimated fair value is based upon various factors, including commodity exchange prices, over-the-counter quotations, the risk-free interest rate, and time to expiration. The Company has not designated its diesel fuel derivative instruments as hedges for accounting purposes and, as a result, marks the derivative instruments to fair value and recognizes the changes in fair value in the unaudited condensed consolidated statements of comprehensive loss under the caption “Operating costs and expenses—Net gain on sale of assets and other.” For both the three and nine months ended September 30, 2016, the Company recognized cash gains of $0.1 million on its matured diesel fuel derivatives. For the three and nine months ended September 30, 2016, the Company recognized a non-cash loss of $0.5 million and a non-cash gain of $2.6 million, respectively, on its diesel fuel derivatives.

Balance sheet offsetting of derivative assets and liabilities

The Company’s derivative contracts are recorded at fair value in the condensed consolidated balance sheets under the captions “Derivative assets”, “Noncurrent derivative assets”, “Derivative liabilities”, and “Noncurrent derivative liabilities”. Derivative assets and liabilities with the same counterparty that are subject to contractual terms which provide for net settlement are reported on a net basis in the condensed consolidated balance sheets.

The following table presents the gross amounts of recognized crude oil, natural gas, and diesel fuel derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, all at fair value.

In thousands	September 30, 2016			December 31, 2015
Commodity derivative assets:
Gross amounts of recognized assets	$	25,241		$	120,385
Gross amounts offset on balance sheet	(10,978		)	(11,903		)
Net amounts of assets on balance sheet	14,263			108,482
Commodity derivative liabilities:
Gross amounts of recognized liabilities	(29,057		)	(19,192		)
Gross amounts offset on balance sheet	10,978			11,903
Net amounts of liabilities on balance sheet	$	(18,079	)	$	(7,289	)

The following table reconciles the net amounts disclosed above to the individual financial statement line items in the condensed consolidated balance sheets.

In thousands	September 30, 2016			December 31, 2015
Derivative assets	$	12,587		$	93,922
Noncurrent derivative assets	1,676			14,560
Net amounts of assets on balance sheet	14,263			108,482
Derivative liabilities	(13,780		)	(3,583		)
Noncurrent derivative liabilities	(4,299		)	(3,706		)
Net amounts of liabilities on balance sheet	(18,079		)	(7,289		)
Total derivative assets (liabilities), net	$	(3,816	)	$	101,193