Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

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 collar arrangements for oil, gas, and NGLs.

As of March 31, 2015, the Company had commodity derivative contracts outstanding through the fourth quarter of 2019 for a total of 12.1 million Bbls of oil production, 204.7 million MMBtu of gas production, and 1.5 million Bbls of NGL production. Subsequent to March 31, 2015, the Company entered into derivative contracts through the second quarter of 2018 for a total of 387,000 Bbls of NGL production with contract prices ranging from $9.66 per Bbl to $10.19 per Bbl. These subsequent derivative contracts for ethane production are based on Oil Price Information Service (“OPIS”) Purity Ethane Mont Belvieu pricing.

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 March 31, 2015:

Oil Contracts

Oil Swaps

Contract Period	NYMEX WTI Volumes	Weighted-Average  Contract Price
	(Bbls)	(per Bbl)
Second quarter 2015	1,639,000	$	91.26
Third quarter 2015	1,254,000	$	90.78
Fourth quarter 2015	1,137,000	$	90.15
2016	5,570,000	$	88.01
All oil swaps	9,600,000

Oil Collars

Contract Period	NYMEX WTI  Volumes	Weighted- Average Floor  Price		Weighted- Average Ceiling  Price
	(Bbls)	(per Bbl)		(per Bbl)
Second quarter 2015	709,000	$	85.00	$	94.06
Third quarter 2015	906,000	$	85.00	$	91.25
Fourth quarter 2015	869,000	$	85.00	$	92.19
All oil collars	2,484,000

Gas Contracts

Gas Swaps

Contract Period	Volumes	Weighted-Average  Contract Price
	(MMBtu)	(per MMBtu)
Second quarter 2015	15,985,000	$	3.90
Third quarter 2015	14,950,000	$	4.03
Fourth quarter 2015	13,570,000	$	4.02
2016	48,896,000	$	4.12
2017	37,414,000	$	4.16
2018	35,241,000	$	4.21
2019	28,159,000	$	4.28
All gas swaps*	194,215,000

*Gas swaps are comprised of IF El Paso Permian (2%), IF HSC (83%), IF NGPL TXOK (1%), IF NNG Ventura (3%), and IF Enable East (11%).

Gas Collars

Contract Period	Volumes	Weighted- Average Floor Price		Weighted- Average Ceiling Price
	(MMBtu)	(per MMBtu)		(per MMBtu)
Second quarter 2015	2,297,000	$	4.00	$	4.30
Third quarter 2015	2,005,000	$	4.00	$	4.30
Fourth quarter 2015	6,176,000	$	3.97	$	4.30
All gas collars*	10,478,000

*Gas collars are comprised of IF El Paso Permian (4%), IF HSC (79%), IF NNG Ventura (7%), and IF Enable East (10%).

NGL Contracts

NGL Swaps

Contract Period	OPIS Purity Ethane Mt Belv. Volumes	Weighted-Average  Contract Price
	(Bbls)	(per Bbl)
2016	710,000	$	9.12
2017	542,000	$	10.13
2018	210,000	$	10.74
All NGL swaps	1,462,000

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 $585.1 million and net asset of $592.1 million as of March 31, 2015, and December 31, 2014, respectively.

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

	As of March 31, 2015
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity contracts	Current assets	$	380,633	Current liabilities	$	—
Commodity contracts	Noncurrent assets	204,841		Noncurrent liabilities	398
Derivatives not designated as hedging instruments		$	585,474		$	398

	As of December 31, 2014
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity contracts	Current assets	$	402,668	Current liabilities	$	—
Commodity contracts	Noncurrent assets	189,540		Noncurrent liabilities	70
Derivatives not designated as hedging instruments		$	592,208		$	70

Offsetting of Derivative Assets and Liabilities

As of March 31, 2015, and December 31, 2014, 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 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						As of
Offsetting of Derivative Assets and Liabilities	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
	(in thousands)
Gross amounts presented in the accompanying balance sheets	$	585,474		$	592,208		$	(398	)	$	(70	)
Amounts not offset in the accompanying balance sheets	(398		)	(70		)	398			70
Net amounts	$	585,076		$	592,138		$	—		$	—

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

	For the Three Months Ended March 31,
	2015			2014
	(in thousands)
Derivative settlement (gain) loss:
Oil contracts	$	(106,214	)	$	6,758
Gas contracts	(34,232		)	13,404
NGL contracts	(20,783		)	8,778
Total derivative settlement (gain) loss (1)	$	(161,229	)	$	28,940
Total derivative (gain) loss:
Oil contracts	$	(73,860	)	$	31,950
Gas contracts	(82,339		)	59,461
NGL contracts	2,032			6,251
Total derivative (gain) loss (2)	$	(154,167	)	$	97,662

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

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

Credit Related Contingent Features

As of March 31, 2015, 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 mortgages on assets having a value equal to at least 75 percent of the total value of the Company’s proved oil and gas properties.