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Derivative Instruments
 9 Months Ended
Sep. 30, 2016
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 and natural gas prices. The Company’s crude oil and natural gas contracts will settle monthly based on the average NYMEX West Texas Intermediate crude oil index price (“WTI”) and the average NYMEX Henry Hub natural gas index price (“Henry Hub”), respectively. At September 30, 2016, the Company utilized swaps and two-way and three-way costless collar options to reduce the volatility of oil and natural gas prices on a significant portion of its future expected oil and natural gas production. A swap is a sold call and a purchased put established at the same price (both ceiling and floor). 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 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.
All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheet as either assets or liabilities measured at fair value (see Note 4 – 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 represent the cumulative gains and losses on the Company’s derivative instruments and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled. Cash settlements are reflected as investing activities in the Company’s Condensed Consolidated Statement of Cash Flows.
At September 30, 2016, the Company had the following outstanding commodity derivative instruments:
Commodity

Settlement
Period

Derivative
Instrument

Volumes

Weighted Average Prices

Fair Value
Asset (Liability)




Swap

Sub-Floor

Floor

Ceiling



 

 






(In thousands)
Crude oil

2016

Swaps

2,973,000

Bbl

$
49.18











$
4,765

Crude oil

2017

Swaps

5,059,000

Bbl

$
48.04










(14,742
)
Crude oil

2017

Two-way collar

1,002,000

Bbl






$
41.67


$
50.58


(4,092
)
Crude oil

2017

Three-way collar

1,670,000

Bbl



$
30.00


$
45.00


$
60.11


241

Crude oil

2018

Swaps

522,000

Bbl

$
50.07








(1,349
)
Crude oil

2018

Two-way collar

93,000

Bbl





$
41.67


$
50.58


(471
)
Crude oil

2018

Three-way collar

155,000

Bbl



$
30.00


$
45.00


$
60.11


(122
)
Natural gas

2017

Swaps

1,336,000

MMbtu

$
3.12








52

Natural gas

2018

Swaps

124,000

MMbtu

$
3.12








(9
)

















$
(15,727
)

The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheet: 
 
 
 
 
Fair Value Asset (Liability)
Type
 
Balance Sheet Location
 
September 30, 2016
 
December 31, 2015
 
 
 
 
(In thousands)
Commodity contracts
 
Derivative instruments — current assets
 
$
9,142

 
$
139,697

Commodity contracts
 
Derivative instruments — non-current assets
 
194

 
15,776

Commodity contracts
 
Derivative instruments — current liabilities
 
(17,308
)
 
—

Commodity contracts
 
Derivative instruments — non-current liabilities
 
(7,755
)
 
—

Total derivative instruments
 
$
(15,727
)
 
$
155,473


The following table summarizes the location and amounts of gains and losses from the Company’s commodity derivative instruments recorded in the Company’s Condensed Consolidated Statement of Operations for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Statement of Operations Location
 
2016
 
2015
 
2016
 
2015
 
 
(In thousands)
Net gain (loss) on derivative instruments
 
$
20,847

 
$
103,637

 
$
(55,624
)
 
$
111,285


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:
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)
At September 30, 2016
 
$
23,713

 
$
(14,377
)
 
$
9,336

At December 31, 2015
 
155,473

 
—

 
155,473


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)
At September 30, 2016
 
$
39,440

 
$
(14,377
)
 
$
25,063

At December 31, 2015
 
—

 
—

 
—