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Derivative Instruments
 9 Months Ended
Sep. 30, 2012
Derivative Instruments

6. Derivative Instruments

The Company utilizes derivative financial instruments to manage risks related to changes in oil prices. As of September 30, 2012, the Company utilized two-way and three-way collar options, swaps and put spreads to reduce the volatility of oil prices on a significant portion of the Company’s future expected oil production. All derivative instruments are recorded on the balance sheet as either assets or liabilities measured at fair value (see Note 5 — Fair Value Measurements). Derivative assets and liabilities arising from the Company’s derivative contracts with the same counterparty are also reported on a net basis, as all counterparty contracts provide for net settlement. The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value, both realized and unrealized, are recognized in the Other Income (Expense) section of the Condensed Consolidated Statement of Operations as a gain or loss on derivative instruments. The Company’s cash flow is only impacted when the actual settlements under the derivative contracts result in making or receiving a payment to or from the counterparty. These cash settlements are reflected as investing activities in the Company’s Condensed Consolidated Statement of Cash Flows.

As of September 30, 2012, the Company had the following outstanding commodity derivative instruments, all of which settle monthly based on the average West Texas Intermediate crude oil index price:

 

Settlement

Period

   Derivative
Instrument		    Total
Notional
Amount of
Oil (Barrels)		      Average
Swap
Price		      Average
Sub-Floor
Price		      Average
Floor Price		      Average
Ceiling Price		      Fair Value
Asset
(Liability)		  
                                            (In thousands)  

2012

   Two-Way Collars      819,000             $ 88.61       $ 105.59       $ 975   

2012

   Three-Way Collars      910,000          $ 66.25       $ 90.25       $ 110.04         841   

2012

   Swaps      91,000       $ 94.61                  130   

2013

   Two-Way Collars      1,782,000             $ 86.50       $ 98.93         (1,164 ) 

2013

   Three-Way Collars      2,023,420          $ 65.30       $ 92.51       $ 112.63         8,561   

2013

   Put Spreads      1,717,080          $ 70.71       $ 91.24            9,931   

2013

   Swaps      699,000       $ 96.41                  1,850   

2014

   Two-Way Collars      139,500             $ 86.11       $ 97.69         (84 ) 

2014

   Three-Way Collars      1,495,030          $ 70.60       $ 91.43       $ 110.30         3,229   

2014

   Put Spreads      150,970          $ 71.03       $ 91.03            1,019   

2014

   Swaps      62,000       $ 96.49                  215   

2015

   Three-Way Collars      124,000          $ 71.25       $ 91.25       $ 109.96         231   
                   

 

 

  
                    $ 25,734   
                   

 

 

  

The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the balance sheet for the periods presented:

 

Fair Value of Derivative Instrument Assets (Liabilities)  
          Fair Value  

Commodity

   

Balance Sheet Location

    September 30,
2012		     December 31,
2011		  
          (In thousands)  

Crude oil

    Derivative instruments — current assets    $ 17,320      $ —     

Crude oil

    Derivative instruments — non-current assets      10,047        4,362   

Crude oil

    Derivative instruments — current liabilities      (1,273 )      (5,907 ) 

Crude oil

    Derivative instruments — non-current liabilities      (360 )      (3,505 ) 
     

 

 

    

 

 

  

Total derivative instruments

       $ 25,734      $ (5,050 ) 
     

 

 

    

 

 

  

 

The following table summarizes the location and amounts of realized and unrealized gains and losses from the Company’s commodity derivative instruments for the periods presented:

 

          Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    

Income Statement Location

    2012     2011     2012      2011  
          (In thousands)     (In thousands)  

Change in unrealized gain (loss) on derivative instruments

   

Net gain (loss) on

derivative instruments

    $ (27,690 )    $ 71,403      $ 30,784       $ 71,936   

Realized gain (loss) on derivative instruments

    Net gain (loss) on derivative instruments      5,249        (179 )      2,784         (4,831 ) 
     

 

 

    

 

 

    

 

 

     

 

 

  

Total net gain (loss) on derivative instruments

       $ (22,441 )    $ 71,224      $ 33,568       $ 67,105