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Derivative Activities | 12 Months Ended
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Dec. 31, 2015
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Activities |
(10) | Derivative Activities
We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We do not utilize complex derivatives as we typically utilize commodity swap or collar contracts to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. Their fair value, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally NYMEX, approximated a net unrealized pretax gain of $283.3 million at December 31, 2015. These contracts expire monthly through December 2017. The following table sets forth the derivative volumes by year as of December 31, 2015:
Period |  | Contract Type |  | Volume Hedged |  | Weighted Average Hedge Price
Natural Gas |  |  |  |  |  |
2016 |  | Swaps |  | 745,874 Mmbtu/day |  | $3.24
2017 |  | Swaps |  | 20,000 Mmbtu/day |  | $3.49
Crude Oil |  |  |  |  |  |
2016 |  | Swaps |  | 4,247 bbls/day |  | $65.27
2017 |  | Swaps |  | 500 bbls/day |  | $55.00
NGLs (C3 - Propane) |  |  |  |  |  |
2016 |  | Swaps |  | 5,500 bbls/day |  | $0.60/gallon
NGLs (NC4 – Normal Butane) |  |  |  |  |  |
2016 |  | Swaps |  | 2,500 bbls/day |  | $0.72/gallon
NGLs (C5 - Natural Gasoline) |  |  |  |  |  |
2016 |  | Swaps |  | 2,749 bbls/day |  | $1.20/gallon
Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. Through February 28, 2013, changes in the fair value of our derivatives that qualified for hedge accounting were recorded as a component of AOCI in the stockholders’ equity section of the our consolidated balance sheets and were later transferred to natural gas, NGLs and oil sales when the underlying physical transaction occurred and the hedging contract was settled. Due to the discontinuance of hedge accounting in early 2013, all remaining AOCI hedging gains were transferred to earnings in 2014. See additional discussion below regarding the discontinuance of hedge accounting. If the derivative does not qualify as a hedge or is not designated as a hedge, changes in fair value of these non-hedge derivatives are recognized in earnings in derivative fair value income or loss. Basis Swap Contracts At December 31, 2015, we had natural gas basis swap contracts which lock in the differential between NYMEX and certain of our physical pricing points in Appalachia. These contracts settle monthly through March 2017 and include a total volume of 53,365,000 Mmbtu. The fair value of these contracts was a gain of $5.5 million on December 31, 2015. At December 31, 2015, we also had propane basis swap contracts which lock in the differential between Mont Belvieu and international propane indexes. The contracts settle monthly through December 2016 and include a total volume of 4,679 bbls/day. The fair value of these contracts was a loss of $1.1 million on December 31, 2015. Discontinuance of Hedge Accounting Effective March 1, 2013, we elected to de-designate all commodity contracts that were previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively. AOCI included gains of $103.6 million ($63.2 million after tax) as of February 28, 2013. As a result of discontinuing hedge accounting, the mark-to-market values included in AOCI as of the de-designation date were frozen and were reclassified into earnings in natural gas, NGLs and oil sales in future periods as the underlying hedged transactions occurred. As of December 31, 2014, all frozen values have been reclassified to earnings. For those derivative instruments that qualified for hedge accounting, settled transaction gains and losses were determined monthly and were included as increases or decreases to natural gas, NGLs and oil sales in the period the hedged production was sold. Through February 28, 2013, we had elected to designate our commodity instruments that qualified for hedge accounting as cash flow hedges. Natural gas, NGLs and oil sales include $10.2 million of gains in 2014 compared to gains of $116.5 million in 2013 related to settled hedging transactions. Any ineffectiveness associated with these hedge derivatives are reflected in derivative fair value income or loss in the accompanying consolidated statements of operations. The ineffective portion is calculated as the difference between the changes in fair value of the derivative and the estimated change in future cash flows from the item hedged. All of our derivative instruments continue to be recorded at fair value with all changes in fair value recognized immediately in earnings rather than in AOCI. These mark-to-market adjustments will produce a degree of earnings volatility that can be significant from period to period, but such adjustments will have no cash flow impact relative to changes in market prices. The impact to cash flow occurs upon settlement of the underlying contract. Derivative assets and liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of December 31, 2015 and 2014 is summarized below (in thousands). As of December 31, 2015, we are conducting derivative activities with seventeen counterparties, of which all but four are secured lenders in our bank credit facility. We believe all of these counterparties are acceptable credit risks. At times, such risks may be concentrated with certain counterparties. The credit worthiness of our counterparties is subject to periodic review. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements.
|  | December 31, 2015 |
|  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps | $ | 219,357 |  |  | $ | (10,245 | ) |  | $ | 209,112 |
| –natural gas basis swaps |  | 8,251 |  |  |  | (2,765 | ) |  |  | 5,486 |
Crude oil | –swaps |  | 38,699 |  |  |  | ¾ |  |  |  | 38,699 |
NGLs | –C3 swaps |  | 15,884 |  |  |  | ¾ |  |  |  | 15,884 |
| –C3 basis |  | 2,497 |  |  |  | (2,497 | ) |  |  | ¾ |
| –C4 swaps |  | 6,968 |  |  |  | ¾ |  |  |  | 6,968 |
| –C5 swaps |  | 12,694 |  |  |  | (81 | ) |  |  | 12,613 |
|  | $ | 304,350 |  |  | $ | (15,588 | ) |  | $ | 288,762 |
|  | December 31, 2015 |
|  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps | $ | (10,245 | ) |  | $ | 10,245 |  |  | $ | ¾ |
| –natural gas basis swaps |  | (2,786 | ) |  |  | 2,765 |  |  |  | (21 | )
NGLs | –C3 basis |  | (3,633 | ) |  |  | 2,497 |  |  |  | (1,136 | )
| –C5 swaps |  | (81 | ) |  |  | 81 |  |  |  | ¾ |
|  | $ | (16,745 | ) |  | $ | 15,588 |  |  | $ | (1,157 | )
|  | December 31, 2014 |
|  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps | $ | 198,740 |  |  | $ | ¾ |  |  | $ | 198,740 |
| –collars |  | 57,460 |  |  |  | ¾ |  |  |  | 57,460 |
| –basis swaps |  | 2,442 |  |  |  | (755 | ) |  |  | 1,687 |
Crude oil | –swaps |  | 128,578 |  |  |  | ¾ |  |  |  | 128,578 |
NGLs | –C3 swaps |  | 14,727 |  |  |  | ¾ |  |  |  | 14,727 |
| –C5 swaps |  | 2,171 |  |  |  | ¾ |  |  |  | 2,171 |
|  | $ | 404,118 |  |  | $ | (755 | ) |  | $ | 403,363 |
|  | December 31, 2014 |
|  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |
Natural gas | –basis swaps | $ | (755 | ) |  | $ | 755 |  |  | $ | − |
|  | $ | (755 | ) |  | $ | 755 |  |  | $ | − |
The effects of our non-hedge derivatives (or those derivatives that do not qualify or are not designated for hedge accounting) on our consolidated statements of operations for the last three years are summarized below (in thousands). Derivative fair value for the year ended December 31, 2014 includes no ineffective gains or losses compared to ineffective loss of $2.9 million in the year ended December 31, 2013.
|  | Year Ended December 31, |
|  | Derivative Fair Value Income (Loss) |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Swaps |  | $ | 398,020 |  |  | $ | 367,484 |  |  | $ | (50,526 | )
Re-purchased swaps |  |  | 851 |  |  |  | ¾ |  |  |  | 1,323 |
Collars |  |  | 16,539 |  |  |  | 42,836 |  |  |  | (16,062 | )
Basis swaps |  |  | 954 |  |  |  | (26,800 | ) |  |  | 3,440 |
Total |  | $ | 416,364 |  |  | $ | 383,520 |  |  | $ | (61,825 | )

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