DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

DERIVATIVE FINANCIAL INSTRUMENTS

Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas and NGLs. To manage a portion of our exposure to price volatility from producing crude oil and natural gas, we utilize the following economic hedging strategies for each of our business segments.

• For crude oil and natural gas sales, we enter into derivative contracts to protect against price declines in future periods. While we structure these derivatives to reduce our exposure to changes in price associated with the derivative commodity, they also limit the benefit we might otherwise have received from price increases in the physical market; and

• For natural gas marketing, we enter into fixed-price physical purchase and sale agreements that qualify as derivative contracts. In order to offset the fixed-price physical derivatives in our natural gas marketing, we enter into financial derivative instruments that have the effect of locking in the prices we will receive or pay for the same volumes and period, offsetting the physical derivative.

We believe our derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of December 31, 2013, we had derivative instruments in place for a portion of our anticipated production through 2017 for a total of 59,971 BBtu of natural gas and 8,613 MBbls of crude oil.

As of December 31, 2013, our derivative instruments were comprised of commodity swaps, collars, basis protection swaps and physical sales and purchases.

• Collars contain a fixed floor price and ceiling price (call). If the index price falls below the fixed put strike price, we receive the market price from the purchaser and receive the difference between the put strike price and index price from the counterparty. If the index price exceeds the fixed call strike price, we receive the market price from the purchaser and pay the difference between the call strike price and index price to the counterparty. If the index price is between the put and call strike price, no payments are due to or from the counterparty;

• Swaps are arrangements that guarantee a fixed price. If the index price is below the fixed contract price, we receive the market price from the purchaser and receive the difference between the index price and the fixed contract price from the counterparty. If the index price is above the fixed contract price, we receive the market price from the purchaser and pay the difference between the index price and the fixed contract price to the counterparty. If the index price and contract price are the same, no payment is due to or from the counterparty;

• Basis protection swaps are arrangements that guarantee a price differential for natural gas from a specified delivery point. For CIG-basis protection swaps and TCO-basis protection swaps, which currently have negative differentials to NYMEX, we receive a payment from the counterparty if the price differential is greater than the stated terms of the contract and pay the counterparty if the price differential is less than the stated terms of the contract. If the market price and contract price are the same, no payment is due to or from the counterparty; and

• Physical sales and purchases are derivatives for fixed-priced physical transactions where we sell or purchase third-party supply at fixed rates. These physical derivatives are offset by financial swaps: for a physical sale the offset is a swap purchase and for a physical purchase the offset is a swap sale.

The following table presents the location and fair value amounts of our derivative instruments on the consolidated balance sheets as of December 31, 2013 and 2012:

Derivatives instruments:		Balance sheet line item	2013		2012
			(in thousands)
Derivative assets:	Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	$	2,016	$	46,657
	Related to affiliated partnerships (1)	Fair value of derivatives	—		4,707
	Related to natural gas marketing	Fair value of derivatives	361		319
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	195		359
			2,572		52,042
	Non Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	5,055		6,653
	Related to natural gas marketing	Fair value of derivatives	278		212
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	268		18
			5,601		6,883
Total derivative assets			$	8,173	$	58,925
Derivative liabilities:	Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	$	15,263	$	1,698
	Related to natural gas marketing	Fair value of derivatives	247		226
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	—		14,375
	Related to affiliated partnerships (2)	Fair value of derivatives	—		2,140
	Related to natural gas marketing	Fair value of derivatives	5		—
			15,515		18,439
	Non Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	2,782		9,828
	Related to natural gas marketing	Fair value of derivatives	233		168
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	—		141
			3,015		10,137
Total derivative liabilities			$	18,530	$	28,576

__________

(1) Represents derivative positions designated to our affiliated partnerships. Accordingly, our accompanying consolidated balance sheets include a corresponding payable to our affiliated partnerships representing their proportionate share of the derivative assets.

(2) Represents derivative positions designated to our affiliated partnerships. Accordingly, our accompanying consolidated balance sheets include a corresponding receivable from our affiliated partnerships representing their proportionate share of the derivative liabilities.

The following table presents the impact of our derivative instruments on our consolidated statements of operations:

	Year Ended December 31,
Consolidated statement of operations line item	2013			2012			2011
Commodity price risk management gain (loss), net
Net settlements	$	12,913		$	49,416		$	17,243
Net change in fair value of unsettled derivatives	(36,818		)	(17,077		)	28,847
Total commodity price risk management gain (loss), net	$	(23,905	)	$	32,339		$	46,090
Sales from natural gas marketing
Net settlements	$	446		$	2,170		$	2,970
Net change in fair value of unsettled derivatives	429			(1,658		)	(161		)
Total sales from natural gas marketing	$	875		$	512		$	2,809
Cost of natural gas marketing
Net settlements	$	(257	)	$	(2,029	)	$	(2,571	)
Net change in fair value of unsettled derivatives	(412		)	1,601			(85		)
Total cost of natural gas marketing	$	(669	)	$	(428	)	$	(2,656	)

All of our financial derivative agreements contain master netting provisions that provide for the net settlement of all contracts through a single payment in the event of early termination. Our fixed-price physical purchase and sale agreements that qualify as derivative contracts are not subject to master netting provisions and are not significant. We have elected not to offset the fair value positions recorded on our consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities as of December 31, 2013 and 2012:

As of December 31, 2013	Derivatives instruments, recorded in consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	8,173	$	(5,623	)	$	2,550
Liability derivatives:
Derivative instruments, at fair value	$	18,530	$	(5,623	)	$	12,907

As of December 31, 2012	Derivatives instruments, recorded in consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	58,925	$	(11,437	)	$	47,488
Liability derivatives:
Derivative instruments, at fair value	$	28,576	$	(11,437	)	$	17,139