Derivative Financial Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 10 – Derivative Financial Instruments

The Company has entered into various commodity derivative contracts to mitigate a portion of the exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. The Company’s derivative contracts in place include swap and collar arrangements for oil, gas, and NGLs. As of December 31, 2012, the Company has commodity derivative contracts outstanding through the third quarter of 2015 for a total of 10.1 million Bbls of oil production, 80.7 million MMBtu of gas production, and 1.2 million Bbls of NGL production. As of February 14, 2013, the Company had commodity derivative contracts in place through the fourth quarter of 2015 for a total of 14.5 million Bbls of oil, 114.8 million MMBtu of gas, and 2.0 million Bbls of NGLs.

The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities. The fair value of the commodity derivative contracts was a net asset of $38.7 million and $31.2 million at December 31, 2012, and 2011, respectively.

Discontinuance of Cash Flow Hedge Accounting

Prior to January 1, 2011, the Company designated its commodity derivative contracts as cash flow hedges, for which unrealized changes in fair value were recorded to AOCIL, to the extent the hedges were effective.  As of January 1, 2011, the Company elected to de-designate all of its commodity derivative contracts that had been previously designated as cash flow hedges at December 31, 2010. As a result, subsequent to December 31, 2010, the Company recognizes all gains and losses from changes in commodity derivative fair values immediately in earnings rather than deferring any such amounts in AOCIL. The Company had no derivatives designated as cash flow hedges for the years ended December 31, 2012, and 2011, and as such, no ineffectiveness was recognized in earnings for the respective periods.

As a result of discontinuing hedge accounting on January 1, 2011, such fair values at December 31, 2010, were frozen in AOCIL as of the de-designation date and are reclassified into earnings as the original derivative transactions settle.  As of December 31, 2012, AOCIL included $1.1 million of net unrealized losses, net of income tax, on commodity derivative contracts that had been previously designated as cash flow hedges, all of which will be reclassified to earnings from AOCIL during the next twelve months. Please refer to Note 11 – Fair Value Measurements for more information regarding the Company’s derivative instruments.

The following tables detail the fair value of derivatives recorded in the accompanying balance sheets, by category:

	As of December 31, 2012
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity Contracts	Current assets	$	37,873	Current liabilities	$	8,999
Commodity Contracts	Noncurrent assets	16,466		Noncurrent liabilities	6,645
Derivatives not designated as hedging instruments		$	54,339		$	15,644

	As of December 31, 2011
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity Contracts	Current assets	$	55,813	Current liabilities	$	42,806
Commodity Contracts	Noncurrent assets	31,062		Noncurrent liabilities	12,875
Derivatives not designated as hedging instruments		$	86,875		$	55,681

The following table summarizes the components of unrealized and realized derivative (gain) loss presented in the accompanying statements of operations:

	For the Years Ended December 31,
	2012			2011
	(in thousands)
Cash settlement (gain) loss:
Oil contracts	$	11,893		$	22,633
Gas contracts	(47,270		)	(10,711		)
NGL contracts	(8,887		)	13,749
Total cash settlement (gain) loss	(44,264		)	25,671
Unrealized (gain) loss on change in fair value:
Oil contracts	(31,981		)	(3,391		)
Gas contracts	31,777			(64,310		)
NGL contracts	(11,162		)	4,944
Total net unrealized (gain) on change in fair value	(11,366		)	(62,757		)
Total unrealized and realized derivative (gain)	$	(55,630	)	$	(37,086	)

The following table details the effect of derivative instruments on AOCIL and the accompanying statements of operations (net of income tax):

		Location on Accompanying Statements of Operations	For the Years Ended December 31,
	Derivatives		2012			2011		2010
			(in thousands)
Amount reclassified from AOCIL	Commodity Contracts	Realized hedge gain (loss)	$	(2,264	)	$	12,997	$	6,641

The realized net hedge gain for the year ended December 31, 2012, and net hedge loss for December 31, 2011, are comprised of realized cash settlements on commodity derivative contracts that were previously designated as cash flow hedges, whereas the realized net hedge gain for the year ended December 31, 2010, is comprised of realized cash settlements on all commodity derivative contracts.  Realized hedge gains or losses from the settlement of commodity derivatives previously designated as cash flow hedges are reported in the total operating revenues and other income section of the accompanying statements of operations.  The Company realized a pre-tax net gain of $3.9 million, a net loss of $20.7 million, and a net gain of $23.5 million from its commodity derivative contracts for the years ended December 31, 2012, 2011, and 2010, respectively.

As noted above, effective January 1, 2011, the Company elected to de-designate all of its commodity derivative contracts that had been previously designated as cash flow hedges. No new gains or losses are deferred in AOCIL at December 31, 2012, and 2011, respectively.

The Company had no derivatives designated as cash flow hedges at December 31, 2012, and 2011, respectively. The following table details the ineffective portion of derivative instruments classified as cash flow hedges on the accompanying statements of operations for the year ended December 31, 2010.

		Loss Recognized in Earnings (Ineffective Portion)
	Location on Accompanying  Statements of Operations
Derivatives Qualifying as Cash Flow Hedges
		For the Year Ended December 31, 2010
		(in thousands)
Commodity Contracts	Unrealized and realized derivative (gain) loss	$	8,899

Credit Related Contingent Features

As of December 31, 2012, and through the filing date of this report, all of the Company’s derivative counterparties were members of the Company’s credit facility syndicate. The Company’s obligations under its credit facility and derivative contracts are secured by liens on substantially all of the Company’s proved oil and gas properties.

Convertible Note Derivative Instrument

The contingent interest provision of the 3.50% Senior Convertible Notes was an embedded derivative instrument. The fair value of this derivative was determined to be immaterial as of December 31, 2011. The 3.50% Senior Convertible Notes were settled during the second quarter of 2012. Please refer to Note 5 - Long-term Debt for additional discussion.