DERIVATIVES

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, 2015, 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.

•

Three-way collars. A three-way collar contains a fixed floor price (long put), fixed subfloor price (short put) and a fixed ceiling price (short call). If the market price exceeds the ceiling strike price, we receive the ceiling strike price and pay the market price. If the market price is between the ceiling and the floor strike price, no payments are due from either party. If the market price is below the floor price but above the subfloor price, we receive the floor strike price and pay the market price. If the market price is below the subfloor price, we receive the market price plus the difference between the floor and subfloor strike prices and pay the market price.

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 statement of operations and not in accumulated other comprehensive income (OCI). As of December 31, 2013, all cash flow hedges had expired.

At December 31, 2015, the following non-designated hedges were outstanding:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Jan’16 – Dec’16	Natural gas – swap	35,000 MMBtu/day	$2.625	IF – NYMEX (HH)
Jan’16 – Dec'16	Natural gas – collar	42,000 MMBtu/day	$2.40 - $2.88	IF – NYMEX (HH)
Jan’16 – Dec'16	Natural gas – three-way collar	13,500 MMBtu/day	$2.70 - $2.20 - $3.26	IF – NYMEX (HH)
Jan’17 – Dec'17	Natural gas – three-way collar	15,000 MMBtu/day	$2.50 - $2.00 - $3.32	IF – NYMEX (HH)
Jan’16 – Jun'16	Crude oil – collar	2,150 Bbl/day	$46.36 - $55.62	WTI – NYMEX
Jul’16 – Dec'16	Crude oil – collar	1,450 Bbl/day	$47.50 - $56.40	WTI – NYMEX
Jan’16 – Dec'16	Crude oil – three-way collar	700 Bbl/day	$46.50 - $35.00 - $57.00	WTI – NYMEX
Jul’16 – Dec'16	Crude oil – three-way collar ⁽¹⁾	700 Bbl/day	$47.50 - $35.00 - $63.50	WTI – NYMEX
Jan’17 – Dec'17	Crude oil – three-way collar	750 Bbl/day	$50.00 - $37.50 - $63.90	WTI – NYMEX

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(1)	We pay our counterparty a premium, which can be and is being deferred until settlement.

Subsequent to December 31, 2015, the following non-designated hedges were entered into:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Feb’16 – Dec'16	Natural gas – swap	10,000 MMBtu/day	$2.495	IF – NYMEX (HH)
Jan’17 – Dec'17	Natural gas – swap	10,000 MMBtu/day	$2.795	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	2015		2014
		(In thousands)
Commodity derivatives:
Current	Current derivative assets	$	10,186	$	31,139
Long-term	Non-current derivative assets	968		—
Total derivative assets		$	11,154	$	31,139



		Derivative Liabilities Fair Value
	Balance Sheet Location	2015		2014
		(In thousands)
Commodity derivatives:
Current	Current derivative liabilities	$	—	$	—
Long-term	Non-current derivative liabilities	285		—
Total derivative liabilities		$	285	$	—

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, 2015 or 2014.

Effect of Derivative Instruments on the Consolidated Statements of Operations (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		2015		2014
		(In thousands)
Commodity derivatives	Gain on derivatives not designated as hedges and hedge ineffectiveness, net ⁽¹⁾	$	26,345	$	30,147
Total		$	26,345	$	30,147

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(1)	Amount settled during the period is a gain of $46,615 and a loss of $6,038, respectively.