Derivative Financial Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments Not Designated as Hedging Instruments [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 September 30, 2014, we had derivative instruments, which were comprised of collars, fixed-price swaps, basis protection swaps and physical sales and purchases, in place for a portion of our anticipated production through 2017 for a total of 46,913 BBtu of natural gas and 10,502 MBbls of crude oil. The majority of our derivative contracts are entered into at no cost to us as we hedge our anticipated production at the then-prevailing commodity market prices.

We have elected not to designate any of our derivative instruments as hedges, and therefore do not qualify for use of hedge accounting. Accordingly, changes in the fair value of our derivative instruments are recorded in the statements of operations. Changes in the fair value of derivative instruments related to our Oil and Gas Exploration and Production segment are recorded in commodity price risk management, net. Changes in the fair value of derivative instruments related to our Gas Marketing segment are recorded in sales from and cost of natural gas marketing.

The following table presents the balance sheet location and fair value amounts of our derivative instruments on the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013:

			Fair Value
Derivative instruments:		Balance sheet line item	September 30, 2014		December 31, 2013
			(in thousands)
Derivative assets:	Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	$	8,761	$	1,086
	Related to natural gas marketing	Fair value of derivatives	386		361
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	—		74
			9,147		1,521
	Non-current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	17,855		4,225
	Related to natural gas marketing	Fair value of derivatives	184		278
			18,039		4,503
Total derivative assets			$	27,186	$	6,024
Derivative liabilities:	Current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	$	1,948	$	14,437
	Related to natural gas marketing	Fair value of derivatives	334		247
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	74		—
	Related to natural gas marketing	Fair value of derivatives	—		5
			2,356		14,689
	Non-current
	Commodity contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	2,077		2,609
	Related to natural gas marketing	Fair value of derivatives	157		233
	Basis protection contracts
	Related to crude oil and natural gas sales	Fair value of derivatives	7		—
			2,241		2,842
Total derivative liabilities			$	4,597	$	17,531

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

	Three Months Ended September 30,						Nine Months Ended September 30,
Condensed consolidated statement of operations line item	2014			2013			2014			2013
	(in thousands)
Commodity price risk management income (loss), net
Net settlements	$	(4,459	)	$	(2,051	)	$	(21,511	)	$	9,629
Net change in fair value of unsettled derivatives	94,672			(22,087		)	34,172			(31,704		)
Total commodity price risk management income (loss), net	$	90,213		$	(24,138	)	$	12,661		$	(22,075	)
Sales from natural gas marketing
Net settlements	$	210		$	240		$	(376	)	$	267
Net change in fair value of unsettled derivatives	170			(311		)	123			340
Total sales from natural gas marketing	$	380		$	(71	)	$	(253	)	$	607
Cost of natural gas marketing
Net settlements	$	(182	)	$	(188	)	$	502		$	(125	)
Net change in fair value of unsettled derivatives	(191		)	278			(199		)	(281		)
Total cost of natural gas marketing	$	(373	)	$	90		$	303		$	(406	)

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 condensed consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities as of September 30, 2014 and December 31, 2013:

As of September 30, 2014	Derivative instruments, recorded in condensed consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	27,186	$	(4,106	)	$	23,080
Liability derivatives:
Derivative instruments, at fair value	$	4,597	$	(4,106	)	$	491

As of December 31, 2013	Derivative instruments, recorded in condensed consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	6,024	$	(4,637	)	$	1,387
Liability derivatives:
Derivative instruments, at fair value	$	17,531	$	(4,637	)	$	12,894

Derivative activity related to PDCM is included in Note 12, Assets Held for Sale, Divestitures and Discontinued Operations.