XML 120 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivative Instruments
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments
The Company utilizes derivative financial instruments to manage risks related to changes in oil prices. As of December 31, 2013, the Company utilized two-way and three-way costless collar options, put spreads, swaps and swaps with sub-floors to reduce the volatility of oil prices on a significant portion of the Company’s future expected oil production. A two-way collar is a combination of options: a sold call and a purchased put. The purchased put establishes a minimum price (floor) and the sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract. A three-way collar is a combination of options: a sold call, a purchased put and a sold put. The purchased put establishes a minimum price (floor), unless the market price falls below the sold put (sub-floor), at which point the minimum price would be NYMEX West Texas Intermediate (“WTI”) crude oil index price plus the difference between the purchased put and the sold put strike price. The sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract. A put spread is a combination of a purchased put and a sold put, and in this case does not include a sold call, allowing the volumes under this contract to have no established maximum price (ceiling). A swap is a sold call and a purchased put established at the same price (both ceiling and floor). A swap with a sub-floor is a swap coupled with a sold put (sub-floor) at which point the minimum price would be WTI crude oil index price plus the difference between the swap and the sold put strike price.
All derivative instruments are recorded on the Consolidated Balance Sheet as either assets or liabilities measured at their fair value (see Note 3 — 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 the fair value, both cash settlements and non-cash changes in fair value, are recognized in the other income (expense) section of the Company’s 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 Consolidated Statement of Cash Flows.
As of December 31, 2013, the Company had the following outstanding commodity derivative instruments, all of which settle monthly based on the WTI crude oil index price:
 
Settlement
Period
 
Derivative
Instrument
 
Total Notional
Amount of Oil
 
Weighted Average Prices
 
Fair Value
Asset
(Liability)
 
 
 
Swap
 
Sub-Floor
 
Floor
 
Ceiling
 
 
 
 
 
(Barrels)
 
($/Barrel)
 
(In thousands)
2014
 
Two-way collars
 
1,510,000

 

 


 
$
90.77

 
$
102.06

 
$
302

2014
 
Three-way collars
 
3,530,530

 

 
$
70.30

 
$
90.65

 
$
105.64

 
2,927

2014
 
Put spreads
 
11,470

 


 
$
70.00

 
$
90.00

 


 
—

2014
 
Swaps
 
2,218,500

 
$
95.87

 


 


 


 
(2,042
)
2014
 
Swaps with subfloors
 
2,004,000

 
$
92.60

 
$
70.00

 


 


 
(7,111
)
2015
 
Two-way collars
 
108,500

 

 


 
$
90.00

 
$
99.86

 
275

2015
 
Three-way collars
 
263,500

 

 
$
70.59

 
$
90.59

 
$
105.25

 
777

2015
 
Swaps
 
108,500

 
$
93.07

 


 


 


 
148

2015
 
Swaps with subfloors
 
186,000

 
$
92.60

 
$
70.00

 


 


 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(4,730
)

The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the Consolidated Balance Sheet for the periods presented:
 
Fair Value of Derivative Instrument Assets (Liabilities)
 
 
 
 
Fair Value
December 31,
Commodity
 
Balance Sheet Location
 
2013
 
2012
 
 
 
 
(In thousands)
Crude oil
 
Derivative instruments — current assets
 
$
2,264

 
$
19,016

Crude oil
 
Derivative instruments — non-current assets
 
1,333

 
4,981

Crude oil
 
Derivative instruments — current liabilities
 
(8,188
)
 
(1,048
)
Crude oil
 
Derivative instruments — non-current liabilities
 
(139
)
 
(380
)
Total derivative instruments
 
 
 
$
(4,730
)
 
$
22,569



The following table summarizes the location and amounts of gains and losses from the Company’s commodity derivative instruments for the periods presented:
 
 
 
 
December 31,
 
Statement of Operations Location
 
2013
 
2012
 
2011
 
 
 
(In thousands)
Change in fair value of derivative instruments
Net gain (loss) on derivative instruments
 
$
(27,299
)
 
$
27,619

 
$
5,436

Derivative settlements
Net gain (loss) on derivative instruments
 
(8,133
)
 
6,545

 
(3,841
)
Total net gain (loss) on derivative instruments
 
 
$
(35,432
)
 
$
34,164

 
$
1,595



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
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts of Assets Presented in the Balance Sheet
 
 
(In thousands)
As of December 31, 2013
 
$
22,743

 
$
(19,146
)
 
$
3,597

As of December 31, 2012
 
$
68,970

 
$
(44,973
)
 
$
23,997

 
 
 
 
 
 
 
Offsetting of Derivative Liabilities
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts of Liabilities Presented in the Balance Sheet
 
 
(In thousands)
As of December 31, 2013
 
$
27,473

 
$
(19,146
)
 
$
8,327

As of December 31, 2012
 
$
46,401

 
$
(44,973
)
 
$
1,428