Commodity Derivatives

We have entered into various types of derivative transactions covering some of our projected natural gas, NGLs, and oil production. These transactions are intended to reduce our exposure to market price volatility by setting the price(s) we will receive for that production. Our decisions on the price(s), type, and quantity of our production subject to a derivative contract is based, in part, on our view of current and future market conditions. As of December 31, 2014, our derivative transactions consisted of the following types of hedges:


•	Swaps. We receive or pay a fixed price for the commodity and pay or receive a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.


•	Collars. A collar contains a fixed floor price (put) and a ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative purposes. In August 2012, we determined–on a prospective basis–that we would no longer elect to use cash flow hedge accounting for our economic hedges. As a result, the change in fair value, on all commodity derivatives entered into after that determination, is reflected in the income statement and not in accumulated other comprehensive income (OCI). As of December 31, 2013, all cash flow hedges had expired.

At December 31, 2014, the following non-designated hedges were outstanding:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Jan’15 – Dec’15	Natural gas – swap	40,000 MMBtu/day	$3.98	IF – NYMEX (HH)
Jan’15 – Mar’15	Natural gas – collar	30,000 MMBtu/day	$4.20-$5.03	IF – NYMEX (HH)
Jan’15 – Dec'15	Crude oil – swap	1,000 Bbl/day	$95.00	WTI – NYMEX

Subsequent to December 31, 2014, the following non-designated hedges were entered into:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Apr’15 – Jun'15	Natural gas – swap	30,000 MMBtu/day	$3.10	IF – NYMEX (HH)
Apr’15 – Jun'15	Natural gas – collar	30,000 MMBtu/day	$2.92-$3.26	IF – NYMEX (HH)
Jul’15 – Sep'15	Natural gas – collar	30,000 MMBtu/day	$2.58-$3.04	IF – NYMEX (HH)

The following tables present the fair values and locations of the derivative transactions recorded in our Consolidated Balance Sheets at December 31:



		Derivative Assets Fair Value
	Balance Sheet Location	2014		2013
		(In thousands)
Commodity derivatives:
Current	Current derivative assets	$	31,139	$	515
Long-term	Non-current derivative assets	—		—
Total derivative assets		$	31,139	$	515



		Derivative Liabilities Fair Value
	Balance Sheet Location	2014		2013
		(In thousands)
Commodity derivatives:
Current	Current derivative liabilities	$	—	$	5,561
Long-term	Non-current derivative liabilities	—		—
Total derivative liabilities		$	—	$	5,561

If a legal right of set-off exists, we net the value of the derivative transactions we have with the same counterparty in our Consolidated Balance Sheets.

For hedges designated under cash flow accounting, we recognized in OCI the effective portion of any changes in fair value and reclassified the recognized gains (losses) on the sales to oil and natural gas revenue as the underlying transactions were settled. Because our cash flow hedges expired as of December 31, 2013, we had no balance in accumulated OCI at December 31, 2014 or 2013.

For our economic hedges that we elected not to apply cash flow accounting to, any changes in their fair value occurring before their maturity (i.e., temporary fluctuations in value) are reported in gain (loss) on derivatives not designated as hedges and hedge ineffectiveness, net in our Consolidated Statements of Income. Changes in the fair value of derivatives that were designated as cash flow hedges, to the extent they were effective in offsetting cash flows attributable to the hedged risk, were recorded in OCI until the hedged item was recognized into earnings. When the hedged item was recognized into earnings, it was reported in oil and natural gas revenues. Any change in fair value that resulted from ineffectiveness was recognized in gain (loss) on derivatives not designated as hedges and hedge ineffectiveness, net.

Effect of derivative instruments on the Consolidated Statements of Income (cash flow hedges) for the year ended December 31:



Derivative Instrument	Location of Gain or (Loss) Reclassified from Accumulated OCI into Income & Location of Gain or (Loss) Recognized in Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income ⁽¹⁾				Amount of Gain or (Loss) Recognized in Income ⁽²⁾
		2014		2013		2014		2013
		(In thousands)
Commodity derivatives	Oil and natural gas revenue ⁽¹⁾	$	—	$	603	$	—	$	—
Commodity derivatives	Gain (loss) on derivatives not designated as hedges and hedge ineffectiveness, net⁽²⁾	—		—		—		(190		)
	Total	$	—	$	603	$	—	$	(190	)

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(1)	Effective portion of gain (loss).


(2)	Ineffective portion of gain (loss).

Effect of Derivative Instruments on the Consolidated Statements of Income (derivatives not designated as hedging instruments) for the year ended December 31:



Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments		2014		2013
		(In thousands)
Commodity derivatives	Gain (loss) on derivatives not designated as hedges and hedge ineffectiveness, net ⁽¹⁾	$	30,147	$	(8,184	)
Total		$	30,147	$	(8,184	)

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(1)	Amount settled during the period is a loss of $6,038 and $1,764, respectively.