DERIVATIVES

Commodity Derivatives

We have entered into various types of derivative transactions covering some of our projected natural gas 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 are based, in part, on our view of current and future market conditions. As of June 30, 2015, our derivative transactions comprised the following 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 transactions. We do not engage in derivative transactions for speculative purposes. The change in fair value on all commodity derivatives is reflected in the statement of operations and not in accumulated other comprehensive income (OCI).

At June 30, 2015, the following non-designated hedges were outstanding:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price	Contracted Market
Jul’15 – Dec’15	Crude oil – swap	1,000 Bbl/day	$95.00	WTI – NYMEX
Jul’15 – Dec’15	Crude oil – collar	2,000 Bbl/day	$58.00-$64.40	WTI – NYMEX
Jul’15 – Dec’15	Natural gas – swap	40,000 MMBtu/day	$3.98	NYMEX (HH)
Jul'15 – Sep'15	Natural gas – collar	30,000 MMBtu/day	$2.58-$3.04	NYMEX (HH)
Jan'16 - Dec'16	Natural gas – swap	10,000 MMBtu/day	$3.25	NYMEX (HH)

The following tables present the fair values and locations of the derivative transactions recorded in our Unaudited Condensed Consolidated Balance Sheets:



		Derivative Assets
		Fair Value
	Balance Sheet Location	June 30, 2015		December 31, 2014
		(In thousands)
Commodity derivatives:
Current	Current derivative asset	$	14,587	$	31,139
Long-term	Non-current derivative asset	137		—
Total derivative assets		$	14,724	$	31,139

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

For our economic hedges any changes in fair value occurring before maturity (i.e., temporary fluctuations in value) are reported in gain (loss) on derivatives not designated as hedges in our Unaudited Condensed Consolidated Statements of Operations.

Effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations (derivatives not designated as hedging instruments) for the three months ended June 30:



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
		2015			2014
		(In thousands)
Commodity derivatives	Loss on derivatives not designated as hedges⁽¹⁾	$	(1,919	)	$	(10,709	)
Total		$	(1,919	)	$	(10,709	)

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(1)	Amounts settled during the 2015 and 2014 periods include a gain of $10.1 million and a loss of $9.1 million, respectively.

Effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations (derivatives not designated as hedging instruments) for the six months ended June 30:



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
		2015		2014
		(In thousands)
Commodity derivatives	Gain (loss) on derivatives not designated as hedges ⁽¹⁾	$	4,667	$	(29,075	)
Total		$	4,667	$	(29,075	)

_______________________


(1)	Amounts settled during the 2015 and 2014 periods include a gain of $21.1 million and a loss of $18.0 million, respectively.