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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2014
Derivative Instruments and Hedging Activities |
Derivative Instruments and Hedging Activities | 5. Derivative Instruments and Hedging Activities The Company periodically enters into commodity derivatives to manage 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 derivatives 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. Effective April 1, 2014, the Company elected to discontinue hedge accounting for its commodity derivatives on a prospective basis. Through March 31, 2014, the Company elected to designate its commodity derivatives as cash flow hedges for accounting purposes. Accordingly, 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 realized cash settlements of derivatives not designated as hedges are recorded as a component of operating revenues in gain (loss) on derivative instruments in the Condensed Consolidated Statement of Operations. As a result of discontinuing hedge accounting, the unrealized loss included in accumulated other comprehensive income (loss) as of April 1, 2014 of $73.4 million ($44.2 million net of tax) was frozen and will be reclassified into natural gas and crude oil revenues in the Statement of Operations in future periods as the underlying hedge transactions occur. As of June 30, 2014, the Company expects to reclassify $30.4 million in after-tax losses associated with its commodity derivatives from accumulated other comprehensive income (loss) to natural gas and crude oil revenues in the Condensed Consolidated Statement of Operations over the next six months. As of June 30, 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 |  | 169.8 |  | Bcf |  | Jul. 2014 - Dec. 2014 |  | $3.60-$4.37 |  | $ | 4.13 |  | $4.22-$4.80 |  | $ | 4.51 |  |  |
Natural gas |  | 53.6 |  | Bcf |  | Jul. 2014 - Dec. 2014 |  |  |  |  |  |  |  |  |  | $ | 4.05 |
Crude oil |  | 368.0 |  | Mbbl |  | Jul. 2014 - Dec. 2014 |  |  |  |  |  |  |  |  |  | $ | 97.00 |
Natural gas prices are stated per Mcf and crude oil prices are stated per barrel. Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
|  |  |  | Fair Values of Derivative Instruments |
|  |  |  | Derivative Assets |  | Derivative Liabilities |
|  |  |  | June 30, |  | December 31, |  | June 30, |  | December 31, |
(In thousands) |  | Balance Sheet Location |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Derivatives Designated as Hedges |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | $ | — |  | $ | 3,019 |  | $ | — |  | $ | — |
Commodity contracts |  | Derivative instruments (current liabilites) |  | — |  | — |  | — |  | 13,912 |
Derivatives Not Designated as Hedges |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | 954 |  | — |  | — |  | — |
Commodity contracts |  | Derivative instruments (current liabilites) |  | — |  | — |  | 38,493 |  | — |
|  |  |  | $ | 954 |  | $ | 3,019 |  | $ | 38,493 |  | $ | 13,912 |
Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
|  | June 30, |  | December 31, |
(In thousands) |  | 2014 |  | 2013 |
Derivative Assets |  |  |  |  |
Gross amounts of recognized assets |  | $ | 13,312 |  | $ | 13,792 |
Gross amounts offset in the statement of financial position |  | (12,358 | ) | (10,773 | )
Net amounts of assets presented in the statement of financial position |  | 954 |  | 3,019 |
Gross amounts of financial instruments not offset in the statement of financial position |  | — |  | 373 |
Net amount |  | $ | 954 |  | $ | 3,392 |
Derivative Liabilities |  |  |  |  |
Gross amounts of recognized liabilities |  | $ | 50,851 |  | $ | 24,685 |
Gross amounts offset in the statement of financial position |  | (12,358 | ) | (10,773 | )
Net amounts of liabilities presented in the statement of financial position |  | 38,493 |  | 13,912 |
Gross amounts of financial instruments not offset in the statement of financial position |  | 490 |  | — |
Net amount |  | $ | 38,983 |  | $ | 13,912 |
Effect of Derivative Instruments on Accumulated Other Comprehensive Income (Loss) The amount of gain (loss) recognized in accumulated other comprehensive income (loss) on derivatives (effective portion) is as follows:
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
(In thousands) |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Commodity contracts |  | $ | — |  | $ | 115,113 |  | $ | (133,310 | ) | $ | 54,167 |
The amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (effective portion) is as follows:
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
(In thousands) |  | 2014 (1) |  | 2013 |  | 2014 (1) |  | 2013 |
Natural gas revenues |  | $ | (22,320 | ) | $ | (272 | ) | $ | (92,877 | ) | $ | 13,056 |
Crude oil and condensate revenues |  | (636 | ) | 2,094 |  | (854 | ) | 4,136 |
|  | $ | (22,956 | ) | $ | 1,822 |  | $ | (93,731 | ) | $ | 17,192 |
(1) The Company ceased hedge accounting effective April 1, 2014. For the three and six months ended June 30, 2014, approximately $23.0 million related to amounts previously frozen in accumulated other comprehensive income (loss) were reclassified into income. Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations The amount of gain (loss) recognized in the Condensed Consolidated Statement of Operations on derivative instruments is as follows:
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
(In thousands) |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Derivatives Designated as Hedges |  |  |  |  |  |  |  |  |
Realized |  |  |  |  |  |  |  |  |
Natural gas |  | $ | — |  | $ | (272 | ) | $ | (70,557 | ) | $ | 13,056 |
Crude oil and condensate |  | — |  | 2,094 |  | (218 | ) | 4,136 |
|  | $ | — |  | $ | 1,822 |  | $ | (70,775 | ) | $ | 17,192 |
Derivatives Not Designated as Hedges |  |  |  |  |  |  |  |  |
Realized |  |  |  |  |  |  |  |  |
Natural gas |  | $ | (22,320 | ) | $ | — |  | $ | (22,320 | ) | $ | — |
Crude oil and condensate |  | (636 | ) | — |  | (636 | ) | — |
Gain (loss) on derivative instruments |  | (15,262 | ) | — |  | (15,262 | ) | — |
Unrealized |  |  |  |  |  |  |  |  |
Gain (loss) on derivative instruments |  | 12,933 |  | — |  | 12,933 |  | — |
|  | $ | (25,285 | ) | $ | — |  | $ | (25,285 | ) | $ | — |
|  | $ | (25,285 | ) | $ | 1,822 |  | $ | (96,060 | ) | $ | 17,192 |
For the three and six months ended June 30, 2014 and 2013, respectively, there was no ineffectiveness recorded in the Condensed Consolidated Statement of Operations related to 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 each 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.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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