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Derivative Instruments | 9 Months Ended
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Sep. 30, 2014
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 September 30, 2014, the Company utilized two-way and three-way costless collar options, swaps, swaps with sub-floors and deferred premium puts to reduce the volatility of oil prices on a significant portion of its 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 the 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 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 the WTI crude oil index price plus the difference between the swap and the sold put strike price. For the deferred premium puts, the Company agrees to pay a premium to the counterparty at the time of settlement. At settlement, if the WTI price is below the floor price of the put, the Company receives the difference between the floor price and the WTI price multiplied by the contract volumes, less the premium. If the WTI price settles at or above the floor price of the put, the Company pays only the premium. All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheet as either assets or liabilities measured at fair value (see Note 6 – Fair Value Measurements). 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 are recognized in the other income (expense) section of the Company’s Condensed Consolidated Statement of Operations as a net 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 a payment to or receiving a payment 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, 2014, the Company had the following outstanding commodity derivative instruments, all of which settle monthly based on the average WTI crude oil index price:
|  |  |  |  |  |  |  |  |  |  |  |  |  | Weighted Average Deferred Premium |  |
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 |  | 1,088,000 |  |  |  |  |  |  | $ | 95.07 |  |  | $ | 106.42 |  |  |  |  | $ | 4,893 |
2014 |  | Three-way collars |  | 842,000 |  |  |  |  | $ | 70.55 |  |  | $ | 90.55 |  |  | $ | 105.16 |  |  |  |  | 1,066 |
2014 |  | Swaps |  | 994,000 |  |  | $ | 96.32 |  |  |  |  |  |  |  |  |  |  | 3,942 |
2014 |  | Swaps with sub-floors |  | 552,000 |  |  | $ | 92.60 |  |  | $ | 70.00 |  |  |  |  |  |  |  |  | 690 |
2015 |  | Two-way collars |  | 2,388,500 |  |  |  |  |  |  | $ | 87.98 |  |  | $ | 103.21 |  |  |  |  | 9,574 |
2015 |  | Three-way collars |  | 263,500 |  |  |  |  | $ | 70.59 |  |  | $ | 90.59 |  |  | $ | 105.25 |  |  |  |  | 869 |
2015 |  | Swaps |  | 5,263,500 |  |  | $ | 90.81 |  |  |  |  |  |  |  |  |  |  | 14,093 |
2015 |  | Swaps with sub-floors |  | 186,000 |  |  | $ | 92.60 |  |  | $ | 70.00 |  |  |  |  |  |  |  |  | 538 |
2015 |  | Deferred premium puts |  | 1,086,000 |  |  |  |  |  |  | $ | 90.00 |  |  |  |  | $ | 2.55 |  |  | 2,919 |
2016 |  | Two-way collars |  | 155,000 |  |  |  |  |  |  | $ | 86.00 |  |  | $ | 103.42 |  |  |  |  | 692 |
2016 |  | Swaps |  | 310,000 |  |  | $ | 90.15 |  |  |  |  |  |  |  |  |  |  | 1,020 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 40,296 |
The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheet for the periods presented:
Fair Value of Derivative Instrument Assets (Liabilities)
|  |  |  | Fair Value
Commodity |  | Balance Sheet Location |  | September 30, 2014 |  | December 31, 2013
|  |  |  | (In thousands)
Crude oil |  | Derivative instruments — current assets |  | $ | 33,874 |  |  | $ | 2,264 |
Crude oil |  | Derivative instruments — non-current assets |  | 6,422 |  |  | 1,333 |
Crude oil |  | Derivative instruments — current liabilities |  | — |  |  | (8,188 | )
Crude oil |  | Derivative instruments — non-current liabilities |  | — |  |  | (139 | )
Total derivative instruments |  | $ | 40,296 |  |  | $ | (4,730 | )
The following table summarizes the location and amounts of gains and losses from the Company’s commodity derivative instruments for the periods presented:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Statement of Operations Location |  | 2014 |  | 2013 |  | 2014 |  | 2013
|  |  | (In thousands)
Non-cash change in fair value of derivative instruments | Net gain (loss) on derivative instruments |  | $ | 114,555 |  |  | $ | (31,750 | ) |  | $ | 45,026 |  |  | $ | (36,703 | )
Derivative settlements | Net gain (loss) on derivative instruments |  | (11,129 | ) |  | (8,067 | ) |  | (24,773 | ) |  | (5,135 | )
Total net gain (loss) on derivative instruments |  | $ | 103,426 |  |  | $ | (39,817 | ) |  | $ | 20,253 |  |  | $ | (41,838 | )
In accordance with the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, the Company is required 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 September 30, 2014 |  | $ | 56,752 |  |  | $ | (16,456 | ) |  | $ | 40,296 |
As of December 31, 2013 |  | 22,743 |  |  | (19,146 | ) |  | 3,597 |
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 September 30, 2014 |  | $ | 16,456 |  |  | $ | (16,456 | ) |  | $ | — |
As of December 31, 2013 |  | 27,473 |  |  | (19,146 | ) |  | 8,327 |

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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=35736893&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 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 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=35706170&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 4E -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624181-113959 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 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624258-113959 Reference 8: 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=35706170&loc=SL5624163-113959 Reference 9: 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 10: 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=35706170&loc=SL5708773-113959 Reference 11: 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=35736893&loc=d3e80784-113994 Reference 12: 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=35706170&loc=SL5624177-113959 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=35706170&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 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 15: 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=35706170&loc=SL5580258-113959 Reference 16: 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=35706170&loc=SL5579240-113959 Reference 17: 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=35706170&loc=d3e41641-113959 Reference 18: 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=35706170&loc=d3e41638-113959 Reference 19: 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=35706170&loc=SL5624171-113959 + Details
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