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Derivatives | 3 Months Ended
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Mar. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives The Company has not designated any of its derivative contracts as hedges for accounting purposes. The Company records all derivative contracts at fair value. Changes in derivative contract fair values are recognized in earnings. Cash settlements and valuation gains and losses are included in loss on derivative contracts for commodity derivative contracts and in interest expense for interest rate swaps in the consolidated statement of operations. Commodity derivative contracts are settled on a monthly or quarterly basis. Derivative assets and liabilities arising from the Company’s derivative contracts with the same counterparty that provide for net settlement are reported on a net basis in the consolidated balance sheets. Commodity Derivatives. The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. The Company seeks to manage this risk through the use of commodity derivative contracts. These derivative contracts allow the Company to limit its exposure to commodity price volatility on a portion of its forecasted oil and natural gas sales. None of the Company’s derivative contracts may be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. At March 31, 2014, the Company’s commodity derivative contracts consisted of fixed price swaps and collars, which are described below:
Fixed price swaps | The Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume.
Collars | Two-way collars contain a fixed floor price (put) and a fixed ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, the Company receives the fixed price and pays the market price. If the market price is between the call and the put strike price, no payments are due from either party.
| Three-way collars have two fixed floor prices (a purchased put and a sold put) and a fixed ceiling price (call). The purchased put establishes a minimum price unless the market price falls below the sold put, at which point the minimum price would be New York Mercantile Exchange (“NYMEX”) plus the difference between the purchased put and the sold put strike price. The call establishes a maximum price (ceiling) the Company will receive for the volumes under the contract.
Interest Rate Swaps. The Company is exposed to interest rate risk on its long-term fixed rate debt and will be exposed to variable interest rates if it draws on its senior credit facility. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes the Company to (i) changes in market interest rates reflected in the fair value of the debt and (ii) the risk that the Company may need to refinance maturing debt with new debt at a higher rate. Variable rate debt, where the interest rate fluctuates, exposes the Company to short-term changes in market interest rates as the Company’s interest obligations on these instruments are periodically redetermined based on prevailing market interest rates, primarily LIBOR and the federal funds rate. Prior to its maturity on April 1, 2013, the Company had a $350.0 million notional interest rate swap agreement which effectively fixed the variable interest rate on the Senior Floating Rate Notes due 2014 (“Senior Floating Rate Notes”) at an annual rate of 6.69% for periods prior to their repurchase and redemption in the third quarter of 2012. The interest rate swap was not designated as a hedge. Derivatives Agreements with Royalty Trusts. The Company is party to derivatives agreements with the Mississippian Trust I, Permian Trust and Mississippian Trust II, respectively, that provide each Royalty Trust with the economic effect of certain oil and natural gas derivative contracts entered into by the Company with third parties. The underlying commodity derivative contracts cover volumes of oil and natural gas production through December 31, 2015, March 31, 2015 and December 31, 2014 for the Mississippian Trust I, Permian Trust and Mississippian Trust II, respectively. Under these arrangements, the Company pays the Royalty Trusts amounts it receives from its counterparties in accordance with the underlying contracts, and the Royalty Trusts pay the Company any amounts that the Company is required to pay its counterparties under such contracts. In accordance with the terms of the respective derivatives agreements, the Company has novated certain of the derivative contracts underlying the derivatives agreements to each of the Permian Trust and the Mississippian Trust II. As a party to these contracts, the Permian Trust and the Mississippian Trust II receive payment directly from the counterparty and pay any amounts owed directly to the counterparty. To secure its obligations under the respective derivative contracts novated to it, each of the Permian Trust and the Mississippian Trust II granted the counterparties liens on the royalty interests held by each respective Royalty Trust. Under the derivatives agreements, as additional development wells are drilled for the benefit of the Permian Trust and the Mississippian Trust II, the Company has the right, under certain circumstances, to assign or novate to the Permian Trust and the Mississippian Trust II additional derivative contracts. All contracts underlying the derivatives agreements with the Royalty Trusts, including those novated to the Permian Trust and the Mississippian Trust II, have been included in the Company’s consolidated derivative disclosures. See Note 4 for the Royalty Trusts’ open derivative contracts. Fair Value of Derivatives. The following table presents the fair value of the Company’s derivative contracts as of March 31, 2014 and December 31, 2013 on a gross basis without regard to same-counterparty netting (in thousands):
Type of Contract |  | Balance Sheet Classification |  | March 31, 2014 |  | December 31, 2013
Derivative assets |  |  |  |  |  |
Oil price swaps |  | Derivative contracts-current |  | $ | 9,952 |  |  | $ | 15,887 |
Natural gas price swaps |  | Derivative contracts-current |  | 1,090 |  |  | 1,598 |
Oil collars - three way |  | Derivative contracts-current |  | 1,605 |  |  | 706 |
Natural gas collars |  | Derivative contracts-current |  | 108 |  |  | 177 |
Oil price swaps |  | Derivative contracts-noncurrent |  | 8,534 |  |  | 19,376 |
Natural gas price swaps |  | Derivative contracts-noncurrent |  | 791 |  |  | — |
Oil collars - three way |  | Derivative contracts-noncurrent |  | 8,466 |  |  | 12,189 |
Natural gas collars |  | Derivative contracts-noncurrent |  | 257 |  |  | 341 |
Derivative liabilities |  |  |  |  |  |
Oil price swaps |  | Derivative contracts-current |  | (3,181 | ) |  | (38,396 | )
Natural gas price swaps |  | Derivative contracts-current |  | (7,634 | ) |  | (1,460 | )
Oil collars - three way |  | Derivative contracts-current |  | (7,113 | ) |  | — |
Oil price swaps |  | Derivative contracts-noncurrent |  | — |  |  | (38,344 | )
Total net derivative contracts |  | $ | 12,875 |  |  | $ | (27,926 | )
See Note 5 for additional discussion of the fair value measurement of the Company’s derivative contracts. Master Netting Agreements and the Right of Offset. The Company has master netting agreements with all of its derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis in the consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of March 31, 2014, the counterparties to the Company’s open derivative contracts consisted of 11 financial institutions, 10 of which are also lenders under the Company’s senior credit facility. The Company is not required to post additional collateral under its derivative contracts as the majority of the counterparties to the Company’s derivative contracts share in the collateral supporting the Company’s senior credit facility. To secure their obligations under the derivative contracts novated by the Company, the Permian Trust and the Mississippian Trust II have each given the counterparties to such contracts a lien on its royalty interests. The following tables summarize (i) the Company's derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the senior credit facility (for SandRidge's derivative contracts) and under liens granted on royalty interests (for the Permian Trust’s and the Mississippian Trust II’s novated derivative contracts) (in thousands): March 31, 2014
|  | Gross Amounts |  | Gross Amounts Offset |  | Amounts Net of Offset |  | Financial Collateral |  | Net Amount
Assets |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 12,755 |  |  | $ | (3,753 | ) |  | $ | 9,002 |  |  | $ | — |  |  | $ | 9,002 |
Derivative contracts - noncurrent |  | 18,048 |  |  | — |  |  | 18,048 |  |  | — |  |  | 18,048 |
Total |  | $ | 30,803 |  |  | $ | (3,753 | ) |  | $ | 27,050 |  |  | $ | — |  |  | $ | 27,050 |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 17,928 |  |  | $ | (3,753 | ) |  | $ | 14,175 |  |  | $ | (14,175 | ) |  | $ | — |
Total |  | $ | 17,928 |  |  | $ | (3,753 | ) |  | $ | 14,175 |  |  | $ | (14,175 | ) |  | $ | — |
December 31, 2013
|  | Gross Amounts |  | Gross Amounts Offset |  | Amounts Net of Offset |  | Financial Collateral |  | Net Amount
Assets |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 18,368 |  |  | $ | (5,589 | ) |  | $ | 12,779 |  |  | $ | — |  |  | $ | 12,779 |
Derivative contracts - noncurrent |  | 31,906 |  |  | (17,780 | ) |  | 14,126 |  |  | — |  |  | 14,126 |
Total |  | $ | 50,274 |  |  | $ | (23,369 | ) |  | $ | 26,905 |  |  | $ | — |  |  | $ | 26,905 |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 39,856 |  |  | $ | (5,589 | ) |  | $ | 34,267 |  |  | $ | (34,267 | ) |  | $ | — |
Derivative contracts - noncurrent |  | 38,344 |  |  | (17,780 | ) |  | 20,564 |  |  | (20,564 | ) |  | — |
Total |  | $ | 78,200 |  |  | $ | (23,369 | ) |  | $ | 54,831 |  |  | $ | (54,831 | ) |  | $ | — |
The Company recorded a loss on commodity derivative contracts of $42.5 million and $40.9 million for the three-month periods ended March 31, 2014, and 2013, respectively, as reflected in the accompanying unaudited condensed consolidated statements of operations, which includes net cash payments upon settlement of $23.4 million and $16.1 million, respectively. For the three-month periods ended March 31, 2014 and 2013, $69.6 million of the cash payments related to settlements of commodity derivative contracts with contractual maturities after the period in which they were settled (“early settlements”) as a result of the sale of the Gulf Properties and $29.6 million of the cash payments related to early settlements of commodity derivative contracts as a result of the sale of the Permian Properties, respectively. At March 31, 2014, the Company’s open commodity derivative contracts consisted of the following: Oil Price Swaps
| Notional (MBbls) |  | Weighted Average Fixed Price
April 2014 - December 2014 | 2,936 |  |  | $ | 99.45 |
January 2015 - December 2015 | 5,314 |  |  | $ | 92.55 |
Natural Gas Price Swaps
| Notional (MMcf) |  | Weighted Average Fixed Price
April 2014 - December 2014 | 38,490 |  |  | $ | 4.27 |
January 2015 - December 2015 | 15,400 |  |  | $ | 4.50 |
Oil Collars - Three-way
| Notional (MBbls) |  | Sold Put | Purchased Put | Sold Call
April 2014 - December 2014 | 6,066 |  |  | $70.00 | $90.21 | $100.00
January 2015 - December 2015 | 2,920 |  |  | $73.13 | $90.82 | $103.13
Natural Gas Collars
| Notional (MMcf) |  | Collar Range
April 2014 - December 2014 | 706 |  |  | $4.00 | — | $7.78
January 2015 - December 2015 | 1,010 |  |  | $4.00 | — | $8.55

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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=7668309&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 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 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=7476318&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 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 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 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 8: 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=7476318&loc=SL5624258-113959 Reference 9: 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=7476318&loc=SL5624163-113959 Reference 10: 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=7476318&loc=SL5624181-113959 Reference 11: 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=7476318&loc=SL5708773-113959 Reference 12: 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=7668309&loc=d3e80784-113994 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=7476318&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 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: 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=7476318&loc=SL5579245-113959 Reference 16: 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=7476318&loc=SL5580258-113959 Reference 17: 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=7476318&loc=SL5579240-113959 Reference 18: 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=7476318&loc=d3e41641-113959 Reference 19: 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=7476318&loc=d3e41638-113959 Reference 20: 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=7476318&loc=SL5624171-113959 + Details
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