Derivative Financial Instruments

6 Months Ended

Jun. 30, 2014

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 its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. All contracts are entered into for other-than-trading purposes. The Company’s derivative contracts include swap and costless collar arrangements for oil, gas, and NGLs.

As of June 30, 2014, the Company had commodity derivative contracts outstanding through the second quarter of 2018 for a total of 15.1 million Bbls of oil production, 188.6 million MMBtu of gas production, and 2.6 million Bbls of NGL production. Subsequent to June 30, 2014, the Company entered into derivative contracts through the fourth quarter of 2016 for a total of 4.2 million Bbls of oil production with contract prices ranging from $89.35 per Bbl to $100.58 per Bbl.

In a typical commodity swap agreement, if the agreed upon published third-party index price (“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 index price and the floor price if the index price is below the floor price.  The Company pays the difference between the 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 June 30, 2014:

Oil Contracts

Oil Swaps

Contract Period	NYMEX WTI Volumes	Weighted-Average  Contract Price
	(Bbls)	(per Bbl)
Third quarter 2014	1,533,000	$	96.04
Fourth quarter 2014	1,353,000	$	94.88
2015	4,248,000	$	89.64
2016	2,704,000	$	85.19
All oil swaps	9,838,000

Oil Collars

Contract Period	NYMEX WTI  Volumes	Weighted- Average Floor  Price		Weighted- Average Ceiling  Price
	(Bbls)	(per Bbl)		(per Bbl)
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	5,262,000

Gas Contracts

Gas Swaps

Contract Period	Volumes	Weighted-Average  Contract Price
	(MMBtu)	(per MMBtu)
Third quarter 2014	24,541,000	$	4.02
Fourth quarter 2014	22,014,000	$	4.02
2015	57,943,000	$	4.04
2016	37,472,000	$	4.17
2017	23,430,000	$	4.21
2018	10,200,000	$	4.31
All gas swaps*	175,600,000

*Gas swaps are comprised of IF El Paso Permian (3%), IF HSC (82%), IF NGPL TXOK (2%), IF NNG Ventura (3%), IF Reliant N/S (9%), and IF CIG N System (1%).

Gas Collars

Contract Period	Volumes	Weighted- Average Floor Price		Weighted- Average Ceiling Price
	(MMBtu)	(per MMBtu)		(per MMBtu)
2015	13,002,000	$	3.98	$	4.30
All gas collars*	13,002,000

*Gas collars are comprised of IF El Paso Permian (4%), IF HSC (80%), IF NNG Ventura (8%), and IF Reliant N/S (8%).

NGL Contracts

NGL Swaps

Contract Period	Volumes	Weighted-Average  Contract Price
	(Bbls)	(per Bbl)
Third quarter 2014	960,000	$	58.06
Fourth quarter 2014	861,000	$	58.06
2015	781,000	$	55.42
All NGL swaps*	2,602,000

*NGL swaps are comprised of Oil Price Information System (“OPIS”) Mont Belvieu LDH Propane (72%) and OPIS Mont Belvieu NON-LDH Natural Gasoline (28%).

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 liability of $140.0 million and net asset of $21.5 million at June 30, 2014, and December 31, 2013, respectively.

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

	As of June 30, 2014
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity contracts	Current assets	$	3,613	Current liabilities	$	92,088
Commodity contracts	Noncurrent assets	1,300		Noncurrent liabilities	52,847
Derivatives not designated as hedging instruments		$	4,913		$	144,935

	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

Offsetting of Derivative Assets and Liabilities

As of June 30, 2014, and December 31, 2013, all derivative instruments held by the Company were subject to enforceable master netting arrangements 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 settlements 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						As of
Offsetting of Derivative Assets and Liabilities	June 30, 2014			December 31, 2013			June 30, 2014			December 31, 2013
	(in thousands)
Gross amounts presented in the accompanying balance sheets	$	4,913		$	52,510		$	(144,935	)	$	(31,020	)
Amounts not offset in the accompanying balance sheets	(4,913		)	(30,652		)	4,913			30,652
Net amounts	$	—		$	21,858		$	(140,022	)	$	(368	)

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

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2014		2013			2014		2013
	(in thousands)
Derivative cash settlement loss (gain):
Oil contracts	$	20,160	$	(29	)	26,918		$	248
Gas contracts	13,472		2,091			26,876		(7,733		)
NGL contracts	48		(4,273		)	8,826		(6,518		)
Total derivative cash settlement loss (gain) (1)	33,680		(2,211		)	62,620		(14,003		)
Derivative loss (gain):
Oil contracts	73,435		(26,044		)	98,627		(22,255		)
Gas contracts	14,682		(50,267		)	60,739		(10,198		)
NGL contracts	4,672		(6,668		)	2,145		(8,162		)
Total derivative loss (gain) (2)	$	126,469	$	(85,190	)	$	224,131	$	(54,618	)

____________________________________________

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

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

Credit Related Contingent Features

As of June 30, 2014, and through the filing date of this report, all of the Company’s derivative counterparties were members of the Company’s credit facility lender group. The Company’s obligations under its derivative contracts are secured by liens on at least 75 percent of the Company’s proved oil and gas properties.