DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company periodically enters into commodity derivative instruments to hedge its exposure to price fluctuations related to its natural gas and crude oil production. The Company’s credit agreement restricts the ability of the Company to enter into commodity hedges other than to hedge or mitigate risks to which the Company has actual or projected exposure or as permitted under the Company’s risk management policies and not subjecting the Company to material speculative risks. All of the Company’s derivatives are used for risk management purposes and are not held for trading purposes.

As of March 31, 2013, the Company had the following outstanding commodity derivatives:

Commodity and Derivative Type	Weighted-Average Contract Price	Volume	Contract Period
Derivatives Designated as Hedging Instruments
Natural gas collars	$3.09 Floor / $4.12 Ceiling  per Mcf	26.7   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.35 Floor / $4.01 Ceiling  per Mcf	26.7   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.40 Floor / $4.12 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.60 Floor / $3.99 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.60 Floor / $4.17 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.76 Floor / $4.16 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.86 Floor / $4.34 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.96 Floor / $4.41 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$5.15 Floor / $6.20 Ceiling  per Mcf	13.4   Bcf	Apr. 2013 - Dec. 2013
Natural gas collars	$3.60 Floor / $4.58 Ceiling  per Mcf	31.1   Bcf	Apr. 2013 - Dec. 2014
Natural gas collars	$3.96 Floor / $4.56 Ceiling  per Mcf	31.1   Bcf	Apr. 2013 - Dec. 2014
Natural gas collars	$3.86 Floor / $4.66 Ceiling  per Mcf	17.7   Bcf	Jan. 2014 - Dec. 2014
Natural gas collars	$4.12 Floor / $4.64 Ceiling  per Mcf	35.5   Bcf	Jan. 2014 - Dec. 2014
Crude oil swaps	$101.90  per Bbl	825   Mbbl	Apr. 2013 - Dec. 2013

The changes in the fair value of derivatives designated as hedges that are effective are recorded to accumulated other comprehensive income / (loss) in stockholders’ equity in the Condensed Consolidated Balance Sheet. The ineffective portion of the change in fair value of derivatives designated as hedges, if any, and the change in fair value of derivatives not designated as hedges are recorded currently in earnings as a component of natural gas revenue and crude oil and condensate revenue in the Condensed Consolidated Statement of Operations.

The following disclosures reflect the impact of derivative instruments on the Company’s condensed consolidated financial statements:

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet

		Fair Values of Derivative Instruments
		Derivative Assets				Derivative Liabilities
(In thousands)		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Derivatives Designated as Hedging Instruments
Commodity contracts	Derivative instruments (current assets)	$	4,215	$	50,824	$	—	$	—
Commodity contracts	Derivative instruments (current liabilities)	—		—		26,100		192
Commodity contracts	Derivative instruments (non-current liabilities)	—		—		3,799		—
		$	4,215	$	50,824	$	29,899	$	192

At March 31, 2013 and December 31, 2012, unrealized losses of $25.7 million ($15.6 million, net of tax) and unrealized gains of $50.6 million ($30.7 million, net of tax), respectively, were recorded in accumulated other comprehensive income / (loss) in stockholder’s equity in the Condensed Consolidated Balance Sheet. Based upon estimates at March 31, 2013, the Company expects to reclassify $13.3 million in after-tax income associated with its commodity hedges from accumulated other comprehensive income / (loss) to the Condensed Consolidated Statement of Operations over the next 12 months.

Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet

(In thousands)	March 31, 2013			December 31, 2012
Derivative Assets
Gross amounts of recognized assets	$	18,353		$	54,454
Gross amounts offset in the statement of financial position	(14,138		)	(3,630		)
Net amounts of assets presented in the statement of financial position	4,215			50,824
Gross amounts of financial instruments not offset in the statement of financial position	832			1,892
Net amount	$	5,047		$	52,716
Derivative Liabilities
Gross amounts of recognized liabilities	$	44,037		$	3,822
Gross amounts offset in the statement of financial position	(14,138		)	(3,630		)
Net amounts of liabilities presented in the statement of financial position	29,899			192
Gross amounts of financial instruments not offset in the statement of financial position	—			—
Net amount	$	29,899		$	192

Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

Derivatives Designated	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated OCI into	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
as Hedging Instruments	Three Months Ended March 31,					Income	Three Months Ended March 31,
(In thousands)	2013			2012		(In thousands)	2013		2012
Commodity Contracts	$	(60,946	)	$	70,728	Natural gas revenues	$	13,328	$	56,996
						Crude oil and condensate revenues	2,042		(1,326		)
							$	15,370	$	55,670

For the three months ended March 31, 2013 and 2012, respectively, there was no ineffectiveness recorded in our Condensed Consolidated Statement of Operations related to our derivative instruments.

Derivatives Not Designated as	Location of Gain (Loss)	Three Months Ended
Hedging Instruments	Recognized in Income on	March 31,
(In thousands)	Derivatives	2013		2012
Commodity Contracts	Natural gas revenues	$	—	$	42

Additional Disclosures about Derivative Instruments and Hedging Activities

The use of derivative instruments involves the risk that the counterparties will be unable to meet their obligation under the agreement. The Company enters into derivative contracts with multiple counterparties in order to limit its exposure to individual counterparties. The Company also has netting arrangements with each of its counterparties that allow it to offset assets and liabilities from separate derivative contracts with that counterparty.

Certain counterparties to the Company’s derivative instruments are also lenders under its credit facility. The Company’s credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of its derivative liability in certain situations.