DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE I—DERIVATIVE FINANCIAL INSTRUMENTS

        To minimize the effect of a downturn in oil and gas prices and protect our profitability and the economics of our development plans, we enter into crude oil and natural gas hedge contracts. The terms of contracts depend on various factors, including management's view of future crude oil and natural gas prices. This price hedging program is designed to moderate the effects of a crude oil and natural gas price downturn while allowing us to participate in some commodity price increases. Management regularly monitors the crude oil and natural gas markets and our financial commitments to determine if, when, and at what level some form of crude oil and/or natural gas hedging and/or basis adjustments or other price protection is appropriate. Currently, our derivatives are in the form of swaps, long and short calls and costless collars. However, we may use a variety of derivative instruments in the future to hedge. The Company has not designated these derivatives as hedges.

        The following table summarizes the open financial derivative positions as of December 31, 2012 related to oil and gas production. The Company will receive prices as noted in the table below and will pay a counterparty market price based on the NYMEX (for natural gas production) or WTI (for oil production) index price, settled monthly.

Product	Type	Contract Period		Volume		Price per Mcf or Bbl
BRENT Oil	Put		01/01/13 - 09/30/13		1,375 Bbl/d	$	70
NYMEX Gas	Swap		01/01/13 - 12/31/13		7,000 MMbtu/d	$	3.39
NYMEX Gas	Swap		01/01/14 - 12/31/14		7,000 MMbtu/d	$	3.79

        The tables below summarize the amount of gains (losses) recognized in income from derivative instruments not designated as hedging instruments under authoritative guidance.

	For the Years Ended December 31,
Derivatives not designated as Hedging Instrument under authoritative guidance	2012			2011			2010
	(in thousands)
Realized cash settlements on hedges	$	(2,780	)	$	(12,216	)	$	2,745
Unrealized gain (loss) on hedges		(195	)		9,490			(1,217	)
Total	$	(2,975	)	$	(2,726	)	$	1,528

        The table below reflects the line item in our Consolidated Balance Sheet where the fair value of our net derivatives, are included.

	Derivative Liabilities
December 31, 2012	Balance Sheet Location	Fair Value
	(in thousands)
Commodity—Natural Gas	current	$	(457	)
Commodity—Oil	current		72
Commodity—Oil	Non-current		(567	)
Total derivatives not designated as hedging instruments		$	(952	)

	Derivative Assets
December 31, 2011	Balance Sheet Location	Fair Value
	(in thousands)
Commodity—Natural Gas	current	$	309
Total derivatives not designated as hedging instruments		$	309

	Derivative Liabilities
December 31, 2011	Balance Sheet Location	Fair Value
	(in thousands)
Commodity—Oil	current	$	(980	)
Total derivatives not designated as hedging instruments		$	(980	)

Derivative's Credit risk

        The Company does not require collateral or other security from counterparties to support derivative instruments. However, the agreements with those counterparties typically contain netting provisions such that if a default occurs, the non-defaulting party can offset the amount payable to the defaulting party under the derivative contract with the amount due from the defaulting party. As a result of the netting provisions the Company's maximum amount of loss due to credit risk is limited to the net amounts due to and from the counterparties under the derivative contracts.

        As of December 31, 2012, the counterparty to the Company's commodity derivative contracts consists of one financial institution. The Company's counterparty or their affiliates are also lenders under the Company's Senior Credit Agreement. As a result, the counterparty to the Company's derivative agreements share in the collateral supporting the Company's Senior Credit Agreement. The Company is not generally required to post additional collateral under derivative agreements.

        The Company's derivative agreements contain provisions that require cross defaults and acceleration of those instruments to any material debt. If the Company were to default on any of its material debt agreements, it would be a violation of these provisions, and the counterparties to the derivative instruments could request immediate payment on derivative instruments that are in a net liability position at that time.