Derivatives

Commodity Derivatives

From time to time, we utilize commodity derivatives, consisting of swaps, floors and collars, to attempt to optimize the price received for our oil and gas production. When using swaps to hedge oil and natural gas production, we receive a fixed price for the respective commodity and pay a floating market price as defined in each contract (generally NYMEX futures prices), resulting in a net amount due to or from the counterparty. In floor transactions, we receive a fixed price (put strike price) if the market price falls below the put strike price for the respective commodity. If the market price is greater than the put strike price, no payments are due from either party. Costless collars are a combination of puts and calls, and contain a fixed floor price (put strike price) and ceiling price (call strike price). If the market price for the respective commodity exceeds the call strike price or falls below the put strike price, then we receive the fixed price and pay the market price. If the market price is between the call and the put strike prices, no payments are due from either party. Commodity derivatives are settled monthly as the contract production periods mature.

The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to December 31, 2012. The settlement prices of commodity derivatives are based on NYMEX futures prices.

Swaps



	Oil			Gas
	Bbls	Price		MMBtu^(a)	Price
Production Period:
1st Quarter 2013	665,000	$	93.70	400,000	$	3.34
2nd Quarter 2013	648,000	$	93.94	390,000	$	3.34
3rd Quarter 2013	300,000	$	104.60	360,000	$	3.34
4th Quarter 2013	300,000	$	104.60	330,000	$	3.34
2014	600,000	$	99.30	—	$	—
	2,513,000			1,480,000


(a)	One MMBtu equals one Mcf at a Btu factor of 1,000.

We use a sensitivity analysis technique to evaluate the hypothetical effect that changes in the market value of oil and gas may have on the fair value of our commodity derivatives. A $1 per barrel change in the price of oil and a $0.50 per MMBtu change in the price of gas would change the fair value of our outstanding commodity derivatives at December 31, 2012 by approximately $3.2 million.

Accounting for Derivatives

We did not designate any of our currently open commodity derivatives as cash flow hedges; therefore, all changes in the fair value of these contracts prior to maturity, plus any realized gains or losses at maturity, are recorded as other income (expense) in our consolidated statements of operations and comprehensive income (loss).

Effect of Derivative Instruments on the Consolidated Balance Sheets



	Fair Value of Derivative Instruments as of December 31, 2012
	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
		(In thousands)			(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives	Fair value of derivatives:			Fair value of derivatives:
	Current	$	7,495	Current	$	—
	Non-current	4,236		Non-current	—
Total		$	11,731		$	—



	Fair Value of Derivative Instruments as of December 31, 2011
	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
		(In thousands)			(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives	Fair value of derivatives:			Fair value of derivatives:
	Current	$	—	Current	$	5,633
	Non-current	—		Non-current	494
Total		$	—		$	6,127

Gross to Net Presentation Reconciliation of Derivative Assets and Liabilities



	December 31, 2012
	Assets			Liabilities
	(In thousands)
Fair value of derivatives — gross presentation	$	17,851		$	6,120
Effects of netting arrangements	(6,120		)	(6,120		)
Fair value of derivatives — net presentation	$	11,731		$	—



	December 31, 2011
	Assets			Liabilities
	(In thousands)
Fair value of derivatives — gross presentation	$	26		$	6,153
Effects of netting arrangements	(26		)	(26		)
Fair value of derivatives — net presentation	$	—		$	6,127

All of our derivative contracts are with JPMorgan Chase Bank, N.A. We have elected to net the outstanding positions with this counterparty between current and noncurrent assets or liabilities since we have the right to settle these positions on a net basis.

Effect of Derivative Instruments Recognized in Earnings on the Consolidated Statements of Operations and Comprehensive Income (Loss)



	Amount of Gain or (Loss) Recognized in Earnings
	Year Ended December 31, 2012
Location of Gain or (Loss) Recognized in Earnings	Realized			Unrealized		Total
	(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives:
Other income (expense) - Gain (loss) on derivatives	$	(3,410	)	$	17,858	$	14,448
Total	$	(3,410	)	$	17,858	$	14,448



	Amount of Gain or (Loss) Recognized in Earnings
	Year Ended December 31, 2011
Location of Gain or (Loss) Recognized in Earnings	Realized		Unrealized		Total
	(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives:
Other income (expense) - Gain (loss) on derivatives	$	42,521	$	4,506	$	47,027
Total	$	42,521	$	4,506	$	47,027



	Amount of Gain or (Loss) Recognized in Earnings
	Year Ended December 31, 2010
Location of Gain or (Loss) Recognized in Earnings	Realized		Unrealized			Total
	(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives:
Other income (expense) - Gain (loss) on derivatives	$	9,875	$	(9,153	)	$	722
Total	$	9,875	$	(9,153	)	$	722