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Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2014
Derivative Instruments and Hedging Activities  
Derivative Instruments and Hedging Activities

5. 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 where such derivatives do not subject 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 March 31, 2014, the Company had the following outstanding commodity derivatives:

 

 

 

 

 

 

 

Collars

 

Swaps

 

 

 

 

 

 

 

Floor

 

Ceiling

 

 

 

Type of Contract

 

Volume

 

Contract Period

 

Range

 

Weighted-
Average

 

Range

 

Weighted-
Average

 

Weighted-
Average

 

Natural gas

 

253.8

 

Bcf

 

Apr. 2014 - Dec. 2014

 

$3.60-$4.37

 

$

4.13

 

$4.22-$4.80

 

$

4.51

 

 

 

Natural gas

 

80.1

 

Bcf

 

Apr. 2014 - Dec. 2014

 

 

 

 

 

 

 

 

 

$

4.05

 

Crude oil

 

550.0

 

Mbbl

 

Apr. 2014 - Dec. 2014

 

 

 

 

 

 

 

 

 

$

97.00

 

 

Natural gas prices are stated per Mcf and crude oil prices are stated per barrel.

 

The change in the fair value of derivatives designated as hedges that are effective is recorded to accumulated other comprehensive income / (loss) in stockholders’ equity in the Condensed 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 Condensed Consolidated Statement of Operations.

 

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

 

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet

 

 

 

 

 

Fair Values of Derivative Instruments

 

 

 

 

 

Derivative Assets

 

Derivative Liabilities

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

(In thousands)

 

Balance Sheet Location

 

2014

 

2013

 

2014

 

2013

 

Commodity contracts

 

Other current assets

 

$

—

 

$

3,019

 

$

—

 

$

—

 

Commodity contracts

 

Derivative instruments (current liabilites)

 

—

 

—

 

73,428

 

13,912

 

 

 

 

 

$

—

 

$

3,019

 

$

73,428

 

$

13,912

 

 

At March 31, 2014 and December 31, 2013, unrealized losses of $73.4 million ($44.2 million, net of tax) and $10.9 million ($6.6 million, net of tax), respectively, were recorded in accumulated other comprehensive income / (loss) in stockholders’ equity in the Condensed Consolidated Balance Sheet. Based upon estimates at March 31, 2014, the Company expects to reclassify $44.2 million in after-tax losses associated with its commodity hedges from accumulated other comprehensive income / (loss) to the Condensed Consolidated Statement of Operations over the next nine months.

 

Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2014

 

2013

 

Derivative Assets

 

 

 

 

 

Gross amounts of recognized assets

 

$

4,041

 

$

13,792

 

Gross amounts offset in the statement of financial position

 

(4,041

)

(10,773

)

Net amounts of assets presented in the statement of financial position

 

—

 

3,019

 

Gross amounts of financial instruments not offset in the statement of financial position

 

—

 

373

 

Net amount

 

$

—

 

$

3,392

 

 

 

 

 

 

 

Derivative Liabilities

 

 

 

 

 

Gross amounts of recognized liabilities

 

$

77,469

 

$

24,685

 

Gross amounts offset in the statement of financial position

 

(4,041

)

(10,773

)

Net amounts of liabilities presented in the statement of financial position

 

73,428

 

13,912

 

Gross amounts of financial instruments not offset in the statement of financial position

 

218

 

—

 

Net amount

 

$

73,646

 

$

13,912

 

 

Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

 

Derivatives Designated as Hedging Instruments

 

The amount of gain (loss) recognized in other comprehensive income / (loss) on derivatives (effective portion) is as follows:

 

 

 

Three Months Ended
March 31,

 

(In thousands)

 

2014

 

2013

 

Commodity contracts

 

$

(133,310

)

$

(60,946

)

 

The amount of gain (loss) reclassified from accumulated other comprehensive income / (loss) into income (effective portion) is as follows:

 

(In thousands)

 

Three Months Ended
March 31,

 

 

 

2014

 

2013

 

Natural gas revenues

 

$

(70,557

)

$

13,328

 

Crude oil and condensate revenues

 

(218

)

2,042

 

 

 

$

(70,775

)

$

15,370

 

 

For the three months ended March 31, 2014 and 2013, respectively, there was no ineffectiveness recorded in the Company’s Condensed Consolidated Statement of Operations related to its derivative instruments designated as hedges.

 

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 obligations under the agreements. 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 assets and liabilities from separate derivative contracts with that counterparty.

 

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