DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2011

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE J — 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, 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 for accounting purposes.

The following table summarizes the open financial derivative positions as of June 30, 2011, 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
Oil	Swap	07/01/11 - 12/31/11	840 Bbl/d	$61.80
Oil	Collar	09/01/11 - 12/31/11	700 Bbl/d	$70 - $101.00
Oil	Put	07/01/11 - 08/31/11	700 Bbl/d	$70.00
Oil	Long Call	01/01/12 - 01/31/12	25,000 Bbl	$80.00
Oil	Short Call	10/01/11 - 10/31/11	25,000 Bbl	$100.00
Oil	Call	01/01/12 - 01/31/12	200,000 Bbl	$120.00
Oil	Collar	01/01/12 - 12/31/12	500 Bbl/d	$70 - $106.50
Oil	Call	01/01/12 - 01/31/12	300,000 Bbl	$125.00
Oil	Put	01/01/12 - 12/31/12	219,600 Bbl	$70.00
Natural Gas	Swap	09/01/11 - 10/31/11	4,000 Mcf/d	$4.56
Natural Gas	Collar	11/01/11 - 12/31/11	4,000 Mcf/d	$4.00 - $6.28
Natural Gas	Collar	07/01/11 - 08/31/11	4,000 Mcf/d	$4.00 - $5.10
Natural Gas	Collar	07/01/11 - 12/31/11	3,000 Mcf/d	$4.25 - $5.03
Natural Gas Differentials	Swap	07/01/11 - 11/30/11	2,500 Mcf/d	–$0.71*
Natural Gas Differentials	Swap	07/01/11 - 12/31/11	6,500 Mcf/d	–$0.44*
Natural Gas Differentials	Swap	01/01/12 - 12/31/12	3,000 Mcf/d	–$0.51*

* This represents a differential spread between NYMEX and CIG pricing.

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

Derivatives not designated as	For the Three Months						For the Six Months
Hedging Instrument under	Ended June 30,						Ended June 30,
authoritative guidance	2011			2010			2011			2010
(in thousands)
Realized cash settlements on hedges	$	(3,383	)	$	(836	)	$	(5,221	)	$	(20	)
Unrealized gain (loss) on hedges	5,420			5,204			1,486			6,282
Total	$	2,037		$	4,368		$	(3,735	)	$	6,262

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

June 30, 2011

	Derivative Assets
(in thousands)	Balance Sheet Location	Fair Value
Commodity—Natural Gas	Non-current	$	(73	)
Commodity—Oil	Non-current	316
Total derivatives not designated as hedging instruments		$	243

June 30, 2011

	Derivative Liabilities
(in thousands)	Balance Sheet Location	Fair Value
Commodity—Natural Gas	current	(343		)
Commodity—Oil	current	(5,730		)
Commodity—Oil	Non-current	(644		)
Total derivatives not designated as hedging instruments		$	(6,717	)

December 31, 2010

	Derivative Assets
(in thousands)	Balance Sheet Location	Fair Value
Commodity—Natural Gas	Non-current	(92		)
Commodity—Oil	Non-current	484
Total derivatives not designated as hedging instruments		$	392

December 31, 2010

	Derivative Liabilities
(in thousands)	Balance Sheet Location	Fair Value
Commodity—Natural Gas	current	72
Commodity—Oil	current	(9,697		)
Commodity—Oil	Non-current	(603		)
Total derivatives not designated as hedging instruments		$	(10,228	)