DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

Our hedging strategy is designed to protect our near and intermediate term cash flows from future declines in oil and natural gas prices. This protection is essential to capital budget planning, which is sensitive to expenditures that must be committed to in advance, such as rig contracts and the purchase of tubular goods. We enter into derivative transactions to secure a commodity price for a portion of our expected future production that is acceptable at the time of the transaction. These derivatives are generally designated as cash flow hedges upon entering into the contracts. We do not enter into derivative transactions for trading purposes. We have no fair value hedges.

We have entered into fixed-price swaps and costless collars with various counterparties for a portion of our expected 2016 oil and natural gas production from the Gulf Coast Basin. Our fixed-price oil swap settlements and oil collar settlements are based on an average of the New York Mercantile Exchange (“NYMEX”) closing price for West Texas Intermediate crude oil during the entire calendar month. Our fixed-price gas swap settlements are based on the NYMEX price for the last day of a respective contract month. Swaps typically provide for monthly payments by us if prices rise above the swap price or monthly payments to us if prices fall below the swap price. Collar contracts typically require payments by us if the NYMEX average closing price is above the ceiling price or payments to us if the NYMEX average closing price is below the floor price. Our fixed-price swap contracts are with The Toronto-Dominion Bank, The Bank of Nova Scotia and Natixis. Our oil collar contract is with The Bank of Nova Scotia.

All of our derivative transactions have been carried out in the over-the-counter market and are not typically subject to margin-deposit requirements. The use of derivative instruments involves the risk that the counterparties will be unable to meet the financial terms of such transactions. The counterparties to all of our derivative instruments have an "investment grade" credit rating. We monitor the credit ratings of our derivative counterparties on an ongoing basis. Although we have entered into derivative contracts with multiple counterparties to mitigate our exposure to any individual counterparty, if any of our counterparties were to default on its obligations to us under the derivative contracts or seek bankruptcy protection, we may not realize the benefit of some of our derivative instruments and incur a loss. At December 31, 2015, two counterparties accounted for approximately 86% of our contracted volumes. All of our derivative instruments are with lenders under our bank credit facility.

The following tables illustrate our derivative positions for calendar year 2016 as of February 22, 2016:

	Fixed-Price Swaps (NYMEX)
	Natural Gas		Oil
	Daily Volume (MMBtus/d)	Swap Price ($/MMBtu)	Daily Volume (Bbls/d)	Swap Price ($/Bbl)
2016	10,000	4.110	1,000	49.75
2016	10,000	4.120	1,000	52.78
2016			1,000	90.00

	Costless Collar (NYMEX)
	Oil
	Daily Volume (Bbls/d)	Floor Price ($)	Ceiling Price ($)
2016	1,000	45.00	54.75

All of our derivative instruments at December 31, 2013 were designated as effective cash flow hedges. During 2014, certain of our natural gas derivative instruments no longer qualified as cash flow hedges, as it was no longer probable, subsequent to the sale of our non-core GOM conventional shelf properties (see Note 6 – Divestitures), that GOM natural gas production would be sufficient to cover the GOM volumes hedged. Accordingly, we discontinued hedge accounting for certain contracts for the months of August through December 2014 and January through December 2015. Additionally, a small portion of our cash flow hedges are typically determined to be ineffective because oil and natural gas price changes in the markets in which we sell our products are not 100% correlative to changes in the underlying price basis indicative in the derivative contract. At December 31, 2015, we had accumulated other comprehensive income of $24,025, net of tax, related to the fair value of our effective cash flow hedges that were outstanding as of December 31, 2015.The $24,025 of accumulated other comprehensive income will be reclassified into earnings in the next 12 months.

Derivatives qualifying as hedging instruments:

The following tables disclose the location and fair value amounts of derivatives qualifying as hedging instruments, as reported in our balance sheet, at December 31, 2015 and 2014:

Fair Value of Derivatives Qualifying as Hedging Instruments at
December 31, 2015
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of derivative contracts	$	38,576	Current liabilities: Fair value of derivative contracts	—
	Long-term assets: Fair value of derivative contracts	—		Long-term liabilities: Fair value of derivative contracts	—
		$	38,576		$	—

Fair Value of Derivatives Qualifying as Hedging Instruments at
December 31, 2014
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of derivative contracts	$	127,033	Current liabilities: Fair value of derivative contracts	$	—
	Long-term assets: Fair value of derivative contracts	14,333		Long-term liabilities: Fair value of derivative contracts	—
		$	141,366		$	—

The following table discloses the before tax effect of derivatives qualifying as hedging instruments, as reported in the statement of operations, for the years ended December 31, 2015, 2014 and 2013:

Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
for the Years Ended December 31, 2015, 2014, and 2013
Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives			Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) (a)			Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)
				Location			Location
	2015				2015			2015
Commodity contracts	$	52,630		Operating revenue - oil/natural gas production	$	149,955	Derivative income (expense), net	$	2,713
Total	$	52,630			$	149,955		$	2,713
	2014				2014			2014
Commodity contracts	$	136,097		Operating revenue - oil/natural gas production	$	526	Derivative income (expense), net	$	5,721
Total	$	136,097			$	526		$	5,721
	2013				2013			2013
Commodity contracts	$	(26,945	)	Operating revenue - oil/natural gas production	$	20,289	Derivative income (expense), net	$	(2,090	)
Total	$	(26,945	)		$	20,289		$	(2,090	)

(a) For the year ended December 31, 2015, effective hedging contracts increased oil revenue by $135,617 and increased natural gas revenue by $14,338. For the year ended December 31, 2014, effective hedging contracts increased oil revenue by $7,929 and (decreased) natural gas revenue by $7,403. For the year ended December 31, 2013, effective hedging contracts increased oil revenue by $3,520 and increased natural gas revenue by $16,769.

Derivatives not qualifying as hedging instruments:

The following table discloses the location and fair value amounts of our derivatives not qualifying as hedging instruments, as reported in our balance sheet, at December 31, 2015 and 2014:

Fair Value of Derivatives Not Qualifying as Hedging Instruments
Description	Balance Sheet Location	December 31, 2015		December 31, 2014
Commodity contracts	Current assets: Fair value of derivative contracts	$	—	$	12,146

Gains or losses related to changes in fair value and cash settlements for derivatives not qualifying as hedging instruments are recorded as derivative income (expense) in the statement of operations. The following table discloses the before tax effect of our derivatives not qualifying as hedging instruments on the statement of operations for the years ended December 31, 2015 and 2014. All of our derivatives for the year ended December 31, 2013 qualified as hedging instruments.

Gain (Loss) Recognized in Derivative Income (Expense)
	Year Ended
Description	December 31, 2015			December 31, 2014
Commodity contracts:
Cash settlements	$	17,385		$	1,484
Change in fair value	(12,146		)	12,146
Total gain on non-qualifying derivatives	$	5,239		$	13,630

Offsetting of derivative assets and liabilities:

Our derivative contracts are subject to netting arrangements. It is our policy to not offset our derivative contracts in presenting the fair value of these contracts as assets and liabilities in our balance sheet. As of December 31, 2015 and 2014, all of our derivative contracts were in an asset position and therefore, there was no potential impact of the rights of offset.