Derivative Instruments

6 Months Ended

Jun. 30, 2014

Derivative Instruments [Abstract]

Derivative Instruments

Note 5 - Derivative Instruments

We have entered into certain derivative or physical arrangements with respect to portions of our crude oil production to reduce our sensitivity to volatile commodity prices and/or to meet hedging requirements under our Credit Facility. We believe that these derivative arrangements, although not free of risk, allow us to achieve a more predictable cash flow and to reduce exposure to commodity price fluctuations. However, derivative arrangements limit the benefit of increases in the prices of crude oil. Moreover, our derivative arrangements apply only to a portion of our production.

We have an Intercreditor Agreement in place between us, our counterparties, BP Corporation North America, Inc. ("BP") and Cargill Incorporated (“Cargill”) and our agent Texas Capital Bank, N.A., which allows Texas Capital Bank to also act as agent for the counterparties for the purpose of holding and enforcing any liens or security interests resulting from our derivative arrangements. Therefore, we are not required to post additional collateral, including cash.

The following derivative contracts were in place at June 30, 2014:

	Term	Monthly Volumes	Price/Bbl		Fair Value
Deferred premium put	1/16-6/16	9,000 Bbls	$	85.00	$	(79,830)
Crude oil swap	1/15-12/15	5,800 Bbls	$	88.55		(591,774)
Crude oil swap	9/13-12/14	3,000 Bbls	$	95.15		(148,830)
Crude oil swap	7/11-12/15	2,750 Bbls	$	83.70		(746,888)
Crude oil collar	1/14-12/14	1,900 Bbls	$	96.00		(84,569)
Crude oil swap	7/12-12/15	1,400 Bbls	$	76.74		(595,524)
Crude oil swap	1/14-12/14	1,380 Bbls	$	90.25		(109,070)
					$	(2,356,485)

Monthly volume is the weighted average throughout the period.

The total fair value is shown as a derivative instrument in both the current and non-current liabilities on the balance sheet.