XML 42 R17.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Note 10 - Derivative Financial Instruments

Summary of Oil, Gas, and NGL Derivative Contracts in Place
    
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. All contracts are entered into for other-than-trading purposes. The Company’s derivative contracts include swap and costless collar arrangements for oil, gas, and NGLs.
    
As of September 30, 2014, the Company had commodity derivative contracts outstanding through the second quarter of 2018 for a total of 17.6 million Bbls of oil production, 164.1 million MMBtu of gas production, and 1.8 million Bbls of NGL production.
    
In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference.  For collar agreements, the Company receives the difference between an index price and the floor price if the index price is below the floor price.  The Company pays the difference between the ceiling price and the index price if the index price is above the ceiling price.  No amounts are paid or received if the index price is between the floor and ceiling prices.
The following tables summarize the approximate volumes and average contract prices of contracts the Company had in place as of September 30, 2014:

Oil Contracts

Oil Swaps


Contract Period
 
NYMEX WTI Volumes
 
Weighted-Average
 Contract Price
 
 
(Bbls)
 
(per Bbl)
Fourth quarter 2014
 
2,016,000

 
$
96.01

2015
 
5,741,000

 
$
91.14

2016
 
5,570,000

 
$
88.01

All oil swaps
 
13,327,000

 
 

Oil Collars
Contract Period
 
NYMEX WTI
 Volumes
 
Weighted-
Average Floor
 Price
 
Weighted-
Average Ceiling
 Price
 
 
(Bbls)
 
(per Bbl)
 
(per Bbl)
Fourth quarter 2014
 
923,000

 
$
85.00

 
$
102.63

2015
 
3,366,000

 
$
85.00

 
$
94.25

All oil collars
 
4,289,000

 
 
 
 

Gas Contracts

Gas Swaps
Contract Period
 
Volumes
 
Weighted-Average
 Contract Price
 
 
(MMBtu)
 
(per MMBtu)
Fourth quarter 2014
 
22,014,000

 
$
4.02

2015
 
57,943,000

 
$
4.04

2016
 
37,472,000

 
$
4.17

2017
 
23,430,000

 
$
4.21

2018
 
10,200,000

 
$
4.31

All gas swaps*
 
151,059,000

 
 

*Gas swaps are comprised of IF El Paso Permian (4%), IF HSC (83%), IF NGPL TXOK (2%), IF NNG Ventura (2%), IF Enable East (8%), and IF CIG (1%).

Gas Collars
Contract Period
 
Volumes
 
Weighted-
Average Floor
Price
 
Weighted-
Average Ceiling
Price
 
 
(MMBtu)
 
(per MMBtu)
 
(per MMBtu)
2015
 
13,002,000

 
$
3.98

 
$
4.30

All gas collars*
 
13,002,000

 
 
 
 

*Gas collars are comprised of IF El Paso Permian (4%), IF HSC (80%), IF NNG Ventura (8%), and IF Enable East (8%).
NGL Contracts

NGL Swaps
Contract Period
 
Volumes
 
Weighted-Average
 Contract Price
 
 
(Bbls)
 
(per Bbl)
Fourth quarter 2014
 
980,000

 
$
61.69

2015
 
781,000

 
$
55.42

All NGL swaps*
 
1,761,000

 
 

*NGL swaps are comprised of Oil Price Information System (“OPIS”) Mont Belvieu LDH Propane (67%) and OPIS Mont Belvieu NON-LDH Natural Gasoline (33%).

Derivative Assets and Liabilities Fair Value

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 $50.9 million and net asset of $21.5 million as of September 30, 2014, and December 31, 2013, respectively.

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

 
As of September 30, 2014
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity contracts
Current assets
 
$
41,295

 
Current liabilities
 
$
4,649

Commodity contracts
Noncurrent assets
 
22,510

 
Noncurrent liabilities
 
8,243

Derivatives not designated as hedging instruments
 
 
$
63,805

 
 
 
$
12,892


 
As of December 31, 2013
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity contracts
Current assets
 
$
21,559

 
Current liabilities
 
$
26,380

Commodity contracts
Noncurrent assets
 
30,951

 
Noncurrent liabilities
 
4,640

Derivatives not designated as hedging instruments
 
 
$
52,510

 
 
 
$
31,020



Offsetting of Derivative Assets and Liabilities

As of September 30, 2014, and December 31, 2013, all derivative instruments held by the Company were subject to enforceable master netting arrangements by various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for settlements that occur on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions in its accompanying balance sheets.
 
The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts:

 
 
Derivative Assets
 
Derivative Liabilities
 
 
As of
 
As of
Offsetting of Derivative Assets and Liabilities
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
 
 
(in thousands)
Gross amounts presented in the accompanying balance sheets
 
$
63,805

 
$
52,510

 
$
(12,892
)
 
$
(31,020
)
Amounts not offset in the accompanying balance sheets
 
(12,744
)
 
(30,652
)
 
12,744

 
30,652

Net amounts
 
$
51,061

 
$
21,858

 
$
(148
)
 
$
(368
)

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

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
Derivative cash settlement (gain) loss:
 
 
 
 
 
 
 
Oil contracts
$
517

 
$
13,538

 
27,435

 
$
13,786

Gas contracts
1,687

 
(11,019
)
 
28,563

 
(18,752
)
NGL contracts
(1,930
)
 
(1,231
)
 
6,896

 
(7,749
)
Total derivative cash settlement (gain) loss(1)
274


1,288


62,894


(12,715
)
 
 
 
 
 
 
 
 
Derivative (gain) loss:
 
 
 
 
 
 
 
Oil contracts
(141,429
)
 
30,488

 
(42,802
)
 
8,233

Gas contracts
(43,039
)
 
(2,264
)
 
17,700

 
(12,462
)
NGL contracts
(6,467
)
 
10,421

 
(4,322
)
 
2,259

Total derivative (gain) loss (2)
$
(190,661
)

$
39,933


$
33,470


$
(14,685
)
____________________________________________
(1) 
Total derivative cash settlement (gain) loss is reported in the derivative cash settlement gain (loss) line item on the condensed consolidated statements of cash flows within net cash provided by operating activities.
(2) 
Total derivative (gain) loss is reported in the derivative (gain) loss line item on the condensed consolidated statements of cash flows within net cash provided by operating activities.

Credit Related Contingent Features

As of September 30, 2014, and through the filing date of this report, all of the Company’s derivative counterparties were members of the Company’s credit facility lender group. The Company’s obligations under its derivative contracts are secured by liens on at least 75 percent of the Company’s proved oil and gas properties.