Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives

Derivatives

6. Derivatives

Commodity Derivatives

From time to time, we utilize commodity derivatives in the form of swap contracts to attempt to optimize the price received for our oil and gas production.  Under swap contracts, 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.  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 June 30, 2011, including contracts entered into subsequent to June 30, 2011.  The settlement prices of commodity derivatives are based on NYMEX futures prices.

Swaps:

	Oil			Gas
	Bbls	Price		MMBtu (a)	Price
Production Period:
3rd Quarter 2011	547,000	$	83.78	1,560,000	$	7.07
4th Quarter 2011	729,000	$	87.56	1,500,000	$	7.07
2012	2,649,000	$	95.75	—	$	—
2013	1,189,000	$	99.92	—	$	—
	5,114,000			3,060,000

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

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 statements of operations.  For the three months ended June 30, 2011, we reported a $28.2 million net gain on derivatives, consisting of a $35.6 million non-cash gain related to changes in mark-to-market valuations and a $7.4 million realized loss for settled contracts.  For the three months ended June 30, 2010, we reported a $21 million net gain on derivatives, consisting of a $17.3 million non-cash gain related to changes in mark-to-market valuations and a $3.7 million realized gain for settled contracts.  For the six months ended June 30, 2011, we reported an $18.2 million net loss on derivatives, consisting of a $9.1 million non-cash loss related to changes in mark-to-market valuations and a $9.1 million realized loss for settled contracts.  For the six months ended June 30, 2010, we reported a $31.3 million net gain on derivatives, consisting of a $25.9 million non-cash gain related to changes in mark-to-market valuations and a $5.4 million realized gain for settled contracts.

Effect of Derivative Instruments on the Consolidated Balance Sheets

	Fair Value of Derivative Instruments as of June 30, 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	$	11,712
	Non-current	—		Non-current	7,990
Total		$	—		$	19,702

	Fair Value of Derivative Instruments as of December 31, 2010
	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	$	7,224
	Non-current	—		Non-current	3,409
Total		$	—		$	10,633

Gross to Net Presentation Reconciliation of Derivative Assets and Liabilities

	June 30, 2011
	Assets			Liabilities
	(In thousands)
Fair value of derivatives — gross presentation	$	7,918		$	27,620
Effects of netting arrangements	(7,918		)	(7,918		)
Fair value of derivatives — net presentation	$	—		$	19,702

	December 31, 2010
	Assets			Liabilities
	(In thousands)
Fair value of derivatives — gross presentation	$	16,051		$	26,684
Effects of netting arrangements	(16,051		)	(16,051		)
Fair value of derivatives — net presentation	$	—		$	10,633

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 non-current assets or liabilities.

Effect of Derivative Instruments on the Consolidated Statements of Operations

	Amount of Gain or (Loss) Recognized in Earnings
	Three Months Ended							Six Months Ended
Location of Gain or (Loss)	June 30, 2011							June 30, 2011
Recognized in Earnings	Realized			Unrealized		Total		Realized			Unrealized			Total
				(In thousands)							(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives:
Other income (expense) -
Gain (loss) on derivatives	$	(7,371	)	$	35,558	$	28,187	$	(9,089	)	$	(9,069	)	$	(18,158	)
Total	$	(7,371	)	$	35,558	$	28,187	$	(9,089	)	$	(9,069	)	$	(18,158	)

	Amount of Gain or (Loss) Recognized in Earnings
	Three Months Ended						Six Months Ended
Location of Gain or (Loss)	June 30, 2010						June 30, 2010
Recognized in Earnings	Realized		Unrealized		Total		Realized		Unrealized		Total
			(In thousands)						(In thousands)
Derivatives not designated as hedging instruments:
Commodity derivatives:
Other income (expense) -
Gain (loss) on derivatives	$	3,714	$	17,269	$	20,983	$	5,413	$	25,871	$	31,284
Total	$	3,714	$	17,269	$	20,983	$	5,413	$	25,871	$	31,284