Derivative Financial Instruments

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 10 – Derivative Financial Instruments

Summary of Oil, Gas, and NGL Derivative Contracts in Place

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, 2013, the Company has commodity derivative contracts outstanding through the second quarter of 2018 for a total of 18.8 million Bbls of oil production, 265.9 million MMBtu of gas production, and 2.5 million Bbls of NGL production. As of February 12, 2014, the Company had commodity derivative contracts in place through the second quarter of 2018 for a total of 17.5 million Bbls of oil, 237.9 million MMBtu of gas, and 4.0 million Bbls of NGLs. These volumes are net of scheduled January 2014 settlements, as well as the early settlement of 18.0 million MMBtu of gas swaps and collars in January 2014 due to the divestiture of assets in our Mid-Continent region at the end of 2013.

In a typical commodity swap agreement, if the agreed upon published third-party index price is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For collar agreements, the Company receives the difference between an agreed upon index and the floor price if the index price is below the floor price.  The Company pays the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price.  No amounts are paid or received if the index price is between the floor and ceiling prices.

The following tables summarize the approximate volumes and average contract prices of contracts the Company had in place as of December 31, 2013:

Oil Contracts

Oil Swaps

Contract Period	Volumes	Weighted- Average Contract Price
	(Bbls)	(per Bbl)
First quarter 2014	2,600,000	$	96.92
Second quarter 2014	2,373,000	$	94.95
Third quarter 2014	973,000	$	95.25
Fourth quarter 2014	891,000	$	95.16
2015	2,911,000	$	89.06
2016	2,704,000	$	85.19
All oil swaps*	12,452,000

*Oil swaps are comprised of NYMEX WTI (97%) and Argus LLS (3%).

Oil Collars

Contract Period	NYMEX WTI Volumes	Weighted- Average Floor Price		Weighted- Average Ceiling Price
	(Bbls)	(per Bbl)		(per Bbl)
First quarter 2014	694,000	$	80.97	$	115.07
Second quarter 2014	431,000	$	85.00	$	102.50
Third quarter 2014	973,000	$	85.00	$	102.58
Fourth quarter 2014	923,000	$	85.00	$	102.63
2015	3,366,000	$	85.00	$	94.25
All oil collars	6,387,000

Natural Gas Contracts

Gas Swaps

Contract Period	Volumes	Weighted- Average Contract Price
	(MMBtu)	(per MMBtu)
First quarter 2014	33,651,000	$	4.25
Second quarter 2014	25,729,000	$	3.96
Third quarter 2014	26,398,000	$	4.01
Fourth quarter 2014	23,965,000	$	4.01
2015	63,317,000	$	4.03
2016	39,014,000	$	4.18
2017	23,430,000	$	4.21
2018	10,200,000	$	4.31
All gas swaps*	245,704,000

*Natural gas swaps are comprised of IF El Paso Permian (3%), IF HSC (77%), IF NGPL TXOK (3%), IF NNG Ventura (2%), IF PEPL (6%), IF Reliant N/S (8%), and IF NGPL MidCon (1%).

Gas Collars

Contract Period	Volumes	Weighted- Average Floor Price		Weighted- Average Ceiling Price
	(MMBtu)	(per MMBtu)		(per MMBtu)
First quarter 2014	1,540,000	$	4.39	$	5.58
Second quarter 2014	4,194,000	$	4.38	$	5.29
2015	14,480,000	$	3.96	$	4.30
All gas collars*	20,214,000

*Natural gas collars are comprised of IF El Paso Permian (2%), IF HSC (57%), IF NGPL TXOK (3%), IF NNG Ventura (5%), IF PEPL (7%), IF Reliant N/S (14%), and IF TETCO STX (12%).

NGL Contracts

NGL Swaps

Contract Period	Volumes	Weighted- Average Contract Price
	(Bbls)	(per Bbl)
First quarter 2014	913,000	$	59.72
Second quarter 2014	565,000	$	63.22
Third quarter 2014	544,000	$	62.34
Fourth quarter 2014	527,000	$	61.57
All NGL swaps*	2,549,000

*NGL swaps are comprised of OPIS IsoButane Mt Belv Non TET (2%), OPIS Natural Gasoline Mt Belv Non TET (34%), OPIS NButane Mt Belv Non TET (3%), and OPIS Propane Mt Belv TET (61%).

Commodity Derivative Contracts Entered into After December 31, 2013

The following tables summarize all commodity derivative contracts entered between January 1, 2014 and February 12, 2014:

Gas Contracts

Gas Swaps

Contract Period	Volumes	Weighted- Average Contract Price
	(MMBtu)	(per MMBtu)
First quarter 2014	261,000	$	4.39
Second quarter 2014	365,000	$	3.84
Third quarter 2014	341,000	$	3.89
Fourth quarter 2014	321,000	$	3.97
2015	1,133,000	$	3.72
2016	69,000	$	4.12
All gas swaps*	2,490,000

*Natural gas swaps are comprised of IF NNG Ventura (30%) and IF CIG N System (70%).

NGL Contracts

NGL Swaps

Contract Period	Volumes	Weighted- Average Contract Price
	(Bbls)	(per Bbl)
First quarter 2014	516,000	$	54.85
Second quarter 2014	531,000	$	52.53
Third quarter 2014	416,000	$	52.47
Fourth quarter 2014	334,000	$	52.52
All NGL swaps*	1,797,000

*NGL swaps are comprised of OPIS Natural Gasoline Mt Belv Non TET (17%) and OPIS Propane Mt Belv TET (83%).

Derivative Assets and Liabilities Fair Value

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 $21.5 million and $38.7 million at December 31, 2013 and 2012, respectively.

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

	As of December 31, 2013
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity Contracts	Current assets	$	21,559	Current liabilities	$	26,380
Commodity Contracts	Noncurrent assets	30,951		Noncurrent liabilities	4,640
Derivatives not designated as hedging instruments		$	52,510		$	31,020

	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

Offsetting of Derivative Assets and Liabilities

As of December 31, 2013 and 2012, all derivative instruments held by the Company were subject to enforceable master netting arrangements held by various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company's accounting policy is to not offset these positions in its accompanying balance sheets.

The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company's derivative contracts:

	Derivative Assets						Derivative Liabilities
	As of December 31,						As of December 31,
Offsetting of Derivative Assets and Liabilities	2013			2012			2013			2012
	(in thousands)
Gross amounts presented in the accompanying balance sheets	$	52,510		$	54,339		$	(31,020	)	$	(15,644	)
Amounts not offset in the accompanying balance sheets	(30,652		)	(13,400		)	30,652			13,400
Net amounts	$	21,858		$	40,939		$	(368	)	$	(2,244	)

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, 2013, and 2012.

As a result of discontinuing hedge accounting on January 1, 2011, fair values at December 31, 2010, were frozen in AOCIL as of the de-designation date and were reclassified into earnings as the original derivative transactions settled.  As of December 31, 2013, all commodity derivative contracts that had been previously designated as cash flow hedges have settled and have been reclassified into earnings from AOCIL. Please refer to Note 11 - Fair Value Measurements for more information regarding the Company’s derivative instruments, including its valuation techniques.

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

	For the Years Ended December 31,
	2013			2012			2011
	(in thousands)
Derivative cash settlement (gain) loss:
Oil contracts	$	15,161		$	11,893		$	22,633
Gas contracts	(30,338		)	(47,270		)	(10,711		)
NGL contracts	(6,885		)	(8,887		)	13,749
Total derivative cash settlement (gain) loss (1)	(22,062		)	(44,264		)	25,671
Derivative (gain) loss:
Oil contracts	(496		)	(31,981		)	(3,391		)
Gas contracts	16,285			31,777			(64,310		)
NGL contracts	3,193			(11,162		)	4,944
Total derivative gain (2)	$	(3,080	)	$	(55,630	)	$	(37,086	)

⁽¹⁾  Total derivative cash settlement gain (loss) is reported in the derivative cash settlement gain (loss) line item on the consolidated statements of cash flows within net cash provided by operating activities.

⁽²⁾  Total derivative gain is reported in the derivative gain line item on the consolidated statements of cash flows within net cash provided by operating activities.

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		2013		2012			2011
			(in thousands)
Amount reclassified from AOCIL	Commodity Contracts	Realized hedge gain (loss)	$	1,115	$	(2,264	)	$	12,997

The realized net hedge loss for the year ended December 31, 2013, net hedge gain for the year ended December 31, 2012, and net hedge loss for the year ended December 31, 2011, shown net of income tax in the table above, are comprised of realized cash settlements on commodity derivative contracts that were previously designated as cash flow hedges. 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 loss of $1.8 million, a pre-tax net gain of $3.9 million, and a pre-tax net loss of $20.7 million from its commodity derivative contracts for the years ended December 31, 2013, 2012, and 2011, 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, 2013, and 2012, respectively.

Credit Related Contingent Features

As of December 31, 2013, 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 3.50% Senior Convertible Notes were settled during the second quarter of 2012. Please refer to Note 5 - Long-term Debt for additional discussion.