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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Note 10 - Derivative Financial Instruments

The Company has entered into various commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. The Company’s derivative contracts include swap and collar arrangements for oil, gas, and NGLs. As of September 30, 2012, and through the filing date of this report, the Company has commodity derivative contracts outstanding through the second quarter of 2015 for a total of 10.8 million Bbls of oil production, 79.3 million MMBtu of gas production, and 1.5 million Bbls of NGL production.

The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities. The fair value of the commodity derivative contracts was a net asset of $36.1 million and $31.2 million at September 30, 2012, and December 31, 2011, respectively.

Discontinuance of Cash Flow Hedge Accounting

Prior to January 1, 2011, the Company designated its commodity derivative contracts as cash flow hedges, for which unrealized changes in fair value were recorded to accumulated other comprehensive income (loss) (“AOCIL”), to the extent the hedges were effective. As of January 1, 2011, the Company elected to de-designate all of its commodity derivative contracts that had been previously designated as cash flow hedges at December 31, 2010. As a result, subsequent to December 31, 2010, the Company recognizes all gains and losses from changes in commodity derivative fair values immediately in earnings rather than deferring any such amounts in AOCIL. The Company had no derivatives designated as cash flow hedges for the three-month and nine-month periods ended September 30, 2012, and 2011, and as such, no ineffectiveness was recognized in earnings for the respective periods.

As a result of discontinuing hedge accounting on January 1, 2011, such fair values at December 31, 2010, were frozen in AOCIL as of the de-designation date and are reclassified into earnings as the original derivative transactions settle. As of September 30, 2012, AOCIL included $315,000 of net unrealized losses, net of income tax, on commodity derivative contracts that had been previously designated as cash flow hedges, all of which will be reclassified into earnings from AOCIL during the next twelve months. Please refer to Note 11 - Fair Value Measurements for more information regarding the Company’s derivative instruments, including its valuation techniques.

The following table details the fair value of derivatives recorded in the accompanying balance sheets, by category:

 
As of September 30, 2012
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity Contracts
Current Assets
 
$
41,865

 
Current Liabilities
 
$
19,352

Commodity Contracts
Noncurrent Assets
 
22,383

 
Noncurrent Liabilities
 
8,802

Derivatives not designated as hedging instruments
 
 
$
64,248

 
 
 
$
28,154


 
As of December 31, 2011
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity Contracts
Current Assets
 
$
55,813

 
Current Liabilities
 
$
42,806

Commodity Contracts
Noncurrent Assets
 
31,062

 
Noncurrent Liabilities
 
12,875

Derivatives not designated as hedging instruments
 
 
$
86,875

 
 
 
$
55,681



    
The following table summarizes the components of unrealized and realized derivative (gain) loss presented in the accompanying statements of operations:

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
(in thousands)
Cash settlement (gain) loss:
 
 
 
 
 
 
 
Oil contracts
$
2,472

 
$
1,058

 
$
13,142

 
$
18,421

Gas contracts
(9,031
)
 
(1,434
)
 
(40,495
)
 
(3,751
)
NGL contracts
(4,362
)
 
4,131

 
(5,450
)
 
9,478

Total cash settlement (gain) loss
$
(10,921
)
 
$
3,755

 
$
(32,803
)
 
$
24,148

 
 
 
 
 
 
 
 
Unrealized (gain) loss on change in fair value:
 
 
 
 
 
 
 
Oil contracts
$
30,667

 
$
(106,780
)
 
$
(32,616
)
 
$
(90,629
)
Gas contracts
28,231

 
(19,083
)
 
40,464

 
(21,504
)
NGL contracts
7,879

 
(6,317
)
 
(15,085
)
 
4,113

Total net unrealized (gain) loss on change in fair value
$
66,777


$
(132,180
)

$
(7,237
)

$
(108,020
)
Total unrealized and realized derivative (gain) loss
$
55,856

 
$
(128,425
)
 
$
(40,040
)
 
$
(83,872
)

    
The following table summarizes the effect of derivative instruments on AOCIL and the accompanying statements of operations (net of income tax):

 
 
 
Location in
Statements of
Operations
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
Derivatives
 
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
(in thousands)
Amount reclassified from AOCIL
Commodity Contracts
 
Realized hedge gain (loss)
 
$
(315
)
 
$
4,271

 
$
(1,465
)
 
$
9,149



The Company realized a net hedge gain of $501,000 and a net hedge loss of $6.8 million for the three months ended September 30, 2012, and 2011, respectively, and a net hedge gain of $2.3 million and a net hedge loss of $14.5 million from its commodity derivative contracts for the nine months ended September 30, 2012, and 2011, respectively, shown net of income tax in the table above. Realized hedge gains and losses are comprised of settlements on commodity derivative contracts that were previously designated as cash flow hedges and are reported in the total operating revenues and other income section of the accompanying statements of operations. 

Credit Related Contingent Features

As of September 30, 2012, and through the filing date of this report, all of the Company’s derivative counterparties were members of the Company’s credit facility syndicate. The Company’s obligations under its credit facility and derivative contracts are secured by liens on substantially all of the Company’s proved oil and gas properties.

Convertible Note Derivative Instruments

The contingent interest provision of the 3.50% Senior Convertible Notes was an embedded derivative instrument. The fair value of this derivative was determined to be immaterial as of December 31, 2011. The 3.50% Senior Convertible Notes were settled during the second quarter of 2012. Please refer to Note 5 - Long-Term Debt for additional discussion.