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Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2012
Derivative Instruments and Hedging Activities  
Derivative Instruments and Hedging Activities

13. Derivative Instruments and Hedging Activities

        The Company periodically enters into commodity derivative instruments to hedge its exposure to price fluctuations on natural gas and crude oil production. The Company's credit agreement restricts the ability of the Company to enter into commodity hedges other than to hedge or mitigate risks to which the Company has actual or projected exposure or as permitted under the Company's risk management policies and not subjecting the Company to material speculative risks. All of the Company's derivatives are used for risk management purposes and are not held for trading purposes.

        As of December 31, 2012, the Company had the following outstanding commodity derivatives designated as hedging instruments:

Commodity and Derivative Type
  Weighted-Average Contract Price   Volume   Contract Period

Natural gas collars

   $3.09 Floor / $4.12 Ceiling   per Mcf     35.5   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $3.35 Floor / $4.01 Ceiling   per Mcf     35.5   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $3.40 Floor / $4.12 Ceiling   per Mcf     17.7   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $3.60 Floor / $4.17 Ceiling   per Mcf     17.7   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $3.76 Floor / $4.16 Ceiling   per Mcf     17.7   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $3.86 Floor / $4.34 Ceiling   per Mcf     17.7   Bcf   Jan. 2013 - Dec. 2013

Natural gas collars

   $5.15 Floor / $6.20 Ceiling   per Mcf     17.7   Bcf   Jan. 2013 - Dec. 2013

Crude oil swaps

   $101.90   per Bbl     1,095   Mbbl   Jan. 2013 - Dec. 2013

        The change in fair value of derivatives designated as hedges that is effective is recorded to Accumulated other comprehensive income in Stockholders' equity in the Consolidated Balance Sheet. The ineffective portion of the change in the fair value of derivatives designated as hedges, and the change in fair value of derivatives not designated as hedges, are recorded currently in earnings as a component of Natural gas revenue and Crude oil and condensate revenue in the Consolidated Statement of Operations.

        The following tables reflect the fair value of derivative instruments on the Company's consolidated financial statements:

  • Effect of Derivative Instruments on the Consolidated Balance Sheet

 
   Fair Values of Derivative Instruments  
 
   Asset Derivatives    
   Liability Derivatives  
 
    
   December 31,    
    
   December 31,  
 
    
    
    
  
 
   Balance Sheet Location   2012   2011    
   Balance Sheet Location   2012   2011  
(In thousands)
   
  

Derivatives Designated as Hedging Instruments

                                      

Commodity contracts

  

Derivative instruments (current assets)

   $ 50,824   $ 177,389      

Derivative instruments (current assets)

   $ —   $ —  

Commodity contracts

  

Accrued liabilities

     —     —      

Accrued liabilities

     (192 )   (385 )

Commodity contracts

  

Derivative instruments (non-current assets)

     —     21,249      

Derivative instruments (non-current assets)

     —     —  

Commodity contracts

  

Other liabilities

     —     —      

Other liabilities

     —     —  
                               

 

         50,824     198,638             (192 )   (385 )

Derivatives Not Designated as Hedging Instruments

                                      

Commodity contracts

  

Derivative instruments (current assets)

     —     —      

Derivative instruments (current assets)

     —     (3,126 )
                               

       $ 50,824   $ 198,638           $ (192 ) $ (3,511 )
                               

        At December 31, 2012 and 2011, unrealized gains of $50.6 million ($30.7 million, net of tax) and $198.3 million ($121.3 million, net of tax), respectively, were recorded in Accumulated other comprehensive income in the Consolidated Balance Sheet. Based upon estimates at December 31, 2012, the Company expects to reclassify $30.7 million in after-tax income associated with its commodity hedges from Accumulated other comprehensive income to the Consolidated Statement of Operations over the next 12 months.

  • Effect of Derivative Instruments on the Consolidated Statement of Operations

 
   Amount of Gain (Loss)
Recognized in OCI on
Derivative (Effective Portion)		    
   Amount of Gain (Loss)
Reclassified from Accumulated
OCI into Income (Effective
Portion)		  
 
   Year Ended December 31,   Location of Gain (Loss)
Reclassified from Accumulated
OCI into Income
(In thousands)		   Year Ended December 31,  
Derivatives Designated
as Hedging Instruments
(In thousands)
 
  2012   2011   2010   2012   2011   2010  

Commodity Contracts

   $ 88,705   $ 267,667   $ 75,655  

Natural gas revenues

   $ 225,108   $ 84,937   $ 154,960  

 

                    

Crude oil and condensate revenues

     11,218     1,403     18,030  
                                     

 

                         $ 236,326   $ 86,340   $ 172,990  
                                     

        For the years ended December 31, 2012, 2011 and 2010, respectively, there was no ineffectiveness recorded in our Consolidated Statement of Operations related to our derivative instruments.

 
    
   Year Ended December 31,  
Derivatives Not Designated
as Hedging Instruments
(In thousands)
  Location of Gain (Loss)
Recognized in Income on
Derivative		  
  2012   2011   2010  

Commodity Contracts

   Natural gas revenues   $ (494 ) $ (965 ) $ (226 )

Additional Disclosures about Derivative Instruments and Hedging Activities

        The use of derivative instruments involves the risk that the counterparties will be unable to meet their obligation under the agreement. The Company enters into derivative contracts with multiple counterparties in order to limit its exposure to individual counterparties. The Company also has netting arrangements with all of its counterparties that allow it to offset payables against receivables from separate derivative contracts with that counterparty.

        The counterparties to the Company's derivative instruments are also lenders under its credit facility. The Company's credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of its derivative liability in certain situations.