Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments Not Designated as Hedging Instruments [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 September 30, 2015, the Company had commodity derivative contracts outstanding through the second quarter of 2020 for a total of 7.6 million Bbls of oil production, 190.4 million MMBtu of gas production, and 13.7 million Bbls of NGL production. Subsequent to September 30, 2015, the Company entered into one derivative contract through the third quarter of 2016 for 886,000 Bbls of NGL production with a contract price of $20.16 per Bbl. This subsequent derivative contract for propane production is based on Oil Price Information Service (“OPIS”) Propane Mont Belvieu Non-TET.

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 September 30, 2015:

Oil Contracts

Oil Swaps

Contract Period	NYMEX WTI Volumes	Weighted-Average  Contract Price
	(Bbls)	(per Bbl)
Fourth quarter 2015	1,137,000	$	90.15
2016	5,570,000	$	88.01
All oil swaps	6,707,000

Oil Collars

Contract Period	NYMEX WTI  Volumes	Weighted- Average Floor  Price		Weighted- Average Ceiling  Price
	(Bbls)	(per Bbl)		(per Bbl)
Fourth quarter 2015	869,000	$	85.00	$	92.19
All oil collars	869,000

Gas Contracts

Gas Swaps

Contract Period	Volumes	Weighted-Average  Contract Price
	(MMBtu)	(per MMBtu)
Fourth quarter 2015	12,499,000	$	4.01
2016	80,186,000	$	3.61
2017	37,527,000	$	4.09
2018	30,606,000	$	4.27
2019	24,415,000	$	4.34
All gas swaps*	185,233,000

*Gas swaps are comprised of IF El Paso Permian (2%), IF HSC (95%), IF NGPL TXOK (1%), and IF NNG Ventura (2%).

Gas Collars

Contract Period	Volumes	Weighted- Average Floor Price		Weighted- Average Ceiling Price
	(MMBtu)	(per MMBtu)		(per MMBtu)
Fourth quarter 2015	5,157,000	$	3.99	$	4.29
All gas collars*	5,157,000

*Gas collars are comprised of IF El Paso Permian (6%), IF HSC (89%), and IF NNG Ventura (5%).

NGL Contracts

NGL Swaps

	OPIS Purity Ethane Mont Belvieu			OPIS Propane Mont Belvieu Non-TET			OPIS Normal Butane Mont Belvieu Non-TET			OPS Isobutane Mont Belvieu Non-TET
Contract Period	Volumes	Weighted-Average  Contract Price		Volumes	Weighted-Average Contract Price		Volumes	Weighted-Average Contract Price		Volumes	Weighted-Average Contract Price
	(Bbls)	(per Bbl)		(Bbls)	(per Bbl)		(Bbls)	(per Bbl)		(Bbls)	(per Bbl)
Fourth quarter 2015	—	$	—	941,000	$	19.60	322,000	$	24.90	276,000	$	25.30
2016	3,193,000	$	8.47	2,746,000	$	19.09	273,000	$	25.62	233,000	$	25.87
2017	2,271,000	$	9.16	—	$	—	—	$	—	—	$	—
2018	1,671,000	$	10.65	—	$	—	—	$	—	—	$	—
2019	1,200,000	$	10.92	—	$	—	—	$	—	—	$	—
2020	539,000	$	11.13	—	$	—	—	$	—	—	$	—
Total NGL swaps	8,874,000			3,687,000			595,000			509,000

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 $489.9 million as of September 30, 2015, and a net asset of $592.1 million as of December 31, 2014.

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

	As of September 30, 2015
	Derivative Assets			Derivative Liabilities
	Balance Sheet  Classification	Fair Value		Balance Sheet  Classification	Fair Value
	(in thousands)
Commodity contracts	Current assets	$	347,299	Current liabilities	$	2,900
Commodity contracts	Noncurrent assets	147,530		Noncurrent liabilities	2,019
Derivatives not designated as hedging instruments		$	494,829		$	4,919

	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 September 30, 2015, and December 31, 2014, all derivative instruments held by the Company were subject to 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 settle 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	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
	(in thousands)
Gross amounts presented in the accompanying balance sheets	$	494,829		$	592,208		$	(4,919	)	$	(70	)
Amounts not offset in the accompanying balance sheets	(4,919		)	(70		)	4,919			70
Net amounts	$	489,910		$	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 September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Derivative settlement (gain) loss:
Oil contracts	$	(90,493	)	$	517		$	(270,622	)	$	27,435
Gas contracts (1)	(19,167		)	1,687			(92,279		)	28,563
NGL contracts	(4,035		)	(1,930		)	(24,818		)	6,896
Total derivative settlement (gain) loss (2)	$	(113,695	)	$	274		$	(387,719	)	$	62,894
Total derivative (gain) loss:
Oil contracts	$	(131,728	)	$	(140,912	)	$	(138,839	)	$	(15,367	)
Gas contracts	(66,538		)	(41,352		)	(142,807		)	46,263
NGL contracts	(13,987		)	(8,397		)	(3,845		)	2,574
Total derivative (gain) loss (3)	$	(212,253	)	$	(190,661	)	$	(285,491	)	$	33,470

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⁽¹⁾   Natural gas derivative settlements for the nine months ended September 30, 2015, include a $15.3 million gain recorded in the second quarter of 2015 on the early settlement of futures contracts as a result of divesting of the Company’s Mid-Continent assets.

⁽²⁾  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.

⁽³⁾  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 September 30, 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.