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Derivative Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Instruments

6. Derivative Instruments

The Company utilizes derivative financial instruments to manage risks related to changes in oil prices. As of March 31, 2013, 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 March 31, 2013, the Company had the following outstanding commodity derivative instruments, all of which settle monthly based on the average NYMEX West Texas Intermediate (“WTI”) crude oil index price:

 

Settlement

Period

   

Derivative
Instrument

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

2013

    Two-Way Collars      1,512,500             $ 86.82       $ 97.75       $ (2,930 ) 

2013

    Three-Way Collars      1,685,750          $ 65.92       $ 92.45       $ 111.45         2,588   

2013

    Put Spreads      1,400,250          $ 70.76       $ 91.20            2,242   

2013

    Swaps      1,100,000       $ 94.55                  (2,366 ) 

2014

    Two-Way Collars      170,500             $ 86.82       $ 97.75         (268 ) 

2014

    Three-Way Collars      2,695,030          $ 70.33       $ 90.79       $ 106.21         6,056   

2014

    Put Spreads      150,970          $  71.03       $  91.03            569   

2014

    Swaps      458,000       $ 92.80                  (311 ) 

2015

    Three-Way Collars      232,500          $ 70.67       $ 90.67       $ 105.81         660   

2015

    Swaps      31,000       $ 92.15                  31   
                    

 

 

  
                     $ 6,271   
                    

 

 

  

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

    March 31,
2013		     December 31,
2012		  
          (In thousands)  

Crude oil

    Derivative instruments — current assets    $ 5,647      $ 19,016   

Crude oil

    Derivative instruments — non-current assets      5,284        4,981   

Crude oil

    Derivative instruments — current liabilities      (4,660 )      (1,048 ) 

Crude oil

    Derivative instruments — non-current liabilities      —          (380 ) 
     

 

 

    

 

 

  

Total derivative instruments

       $ 6,271      $ 22,569   
     

 

 

    

 

 

  

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
March 31,		  
     Income Statement Location    2013     2012  
          (In thousands)  

Change in unrealized gain (loss) on derivative instruments

    Net loss on derivative instruments    $ (16,298 )    $ (17,295 ) 

Realized gain (loss) on derivative instruments

    Net loss on derivative instruments      1,686        (1,291 ) 
     

 

 

    

 

 

  

Total net loss on derivative instruments

       $ (14,612 )    $ (18,586 ) 
     

 

 

    

 

 

  

The Company has adopted the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, which requires entities to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement. The Company’s derivative instruments are presented as assets and liabilities on a net basis by counterparty, as all counterparty contracts provide for net settlement. No margin or collateral balances are deposited with counterparties, and as such, gross amounts are offset to determine the net amounts presented in the Company’s Condensed Consolidated Balance Sheet. The following tables summarize gross and net information about the Company’s commodity derivative instruments for the periods presented:

 

Offsetting of Derivative Assets

                    

Derivative Instruments

    Gross Amounts of Recognized Assets      Gross Amounts Offset
in the Balance Sheet		     Net Amounts of Assets Presented
in the Balance Sheet		  

As of March 31, 2013

    $ 32,140       $ (21,209 )    $ 10,931   

As of December 31, 2012

      68,970         (44,973 )      23,997   

Offsetting of Derivative Liabilities

                    

Derivative Instruments

    Gross Amounts of Recognized Liabilities      Gross Amounts Offset
in the Balance Sheet		     Net Amounts of Liabilities Presented
in the Balance Sheet		  

As of March 31, 2013

    $ 25,869       $ (21,209 )    $ 4,660   

As of December 31, 2012

      46,401         (44,973 )      1,428