Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments

Note 5. Derivative Instruments

The Company is required to recognize all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized changes in fair value in the consolidated statements of income under the caption “Gain (loss) on derivative instruments, net.”

The Company has utilized swap and collar derivative contracts to hedge against the variability in cash flows associated with the forecasted sale of future 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.

With respect to a 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 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, the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price, and 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.

All of the Company’s derivative contracts are carried at their fair value in the 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 and subject to contractual terms which provide for net settlement are reported on a net basis in the consolidated balance sheets. The Company’s derivative contracts are settled based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX West Texas Intermediate (“WTI”) pricing or 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, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars requires the use of an option-pricing model. See Note 6. Fair Value Measurements.

At December 31, 2012, the Company had outstanding derivative contracts with respect to future production as set forth in the tables below.

Crude Oil–NYMEX WTI			Swaps Weighted Average Price		Collars
	Bbls				Floors				Ceilings
Period and Type of Contract					Range		Weighted Average Price		Range		Weighted Average Price
January 2013 - December 2013
Swaps - WTI		11,862,500	$	92.66
Collars - WTI		8,760,000			$	80.00-$95.00	$	86.92	$	92.30-$110.33	$	99.46
January 2014 - December 2014
Swaps - WTI		10,311,250	$	96.20

Crude Oil–ICE Brent			Swaps Weighted Average Price		Collars
	Bbls				Floors				Ceilings
Period and Type of Contract					Range		Weighted Average Price		Range		Weighted Average Price
January 2013 - December 2013
Swaps - ICE Brent		3,467,500	$	108.49
January 2014 - December 2014
Swaps - ICE Brent		6,570,000	$	100.66
Collars - ICE Brent		2,190,000			$	90.00-$95.00	$	90.83	$	104.70-$108.85	$	107.13
January 2015 - December 2015
Swaps - ICE Brent		1,277,500	$	98.48

Natural Gas–NYMEX Henry Hub	MMBtus		Swaps Weighted Average Price
Period and Type of Contract
January 2013 - December 2013
Swaps - Henry Hub		18,250,000	$	3.76

Derivative Fair Value Gain (Loss)

The following table presents realized and unrealized gains and losses on derivative instruments for the periods presented.

	Year ended December 31,
	2012			2011			2010
	In thousands
Realized gain (loss) on derivatives:
Crude oil fixed price swaps	$	(40,238	)	$	(14,900	)	$	11,386
Crude oil collars		(15,341	)		(56,511	)		1,809
Natural gas fixed price swaps		9,858			37,305			25,246
Natural gas basis swaps		—			—			(2,946	)
Total realized gain (loss) on derivatives	$	(45,721	)	$	(34,106	)	$	35,495
Unrealized gain (loss) on derivatives:
Crude oil fixed price swaps	$	142,567		$	(23,486	)	$	(85,870	)
Crude oil collars		59,911			42,239			(100,143	)
Natural gas fixed price swaps		(2,741	)		(14,696	)		17,161
Natural gas basis swaps		—			—			2,595
Total unrealized gain (loss) on derivatives	$	199,737		$	4,057		$	(166,257	)
Gain (loss) on derivative instruments, net	$	154,016		$	(30,049	)	$	(130,762	)

The table below provides balance sheet data about the fair value of derivatives for the periods presented.

	December 31, 2012							December 31, 2011
	Assets		(Liabilities)			Net		Assets		(Liabilities)			Net
In thousands	Fair Value		Fair Value			Fair Value		Fair Value		Fair Value			Fair Value
Commodity swaps and collars	$	50,620	$	(15,172	)	$	35,448	$	10,294	$	(174,583	)	$	(164,289	)