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Derivatives | 9 Months Ended
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Sep. 30, 2015
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 fair values are recognized in earnings. 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, which 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 commodity 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. Cash settlements and valuation gains and losses on commodity derivative contracts are included in gain on derivative contracts in the unaudited condensed consolidated statements of operations. Commodity derivative contracts are settled on a monthly or quarterly basis. Derivative assets and liabilities arising from the Company’s commodity derivative contracts with the same counterparty that provide for net settlement are reported on a net basis in the consolidated balance sheets. At September 30, 2015, the Company’s commodity derivative contracts consisted of fixed price swaps, basis 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.
Basis swaps | The Company receives a payment from the counterparty if the settled price differential is greater than the stated terms of the contract and pays the counterparty if the settled price differential is less than the stated terms of the contract, which guarantees the Company a price differential for oil or natural gas from a specified delivery point.
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. If the market price is between the ceiling price and purchased put, no payments are due from either party.
Derivatives Agreements with Royalty Trusts. The Company is party to derivatives agreements with the Mississippian Trust I, Permian Trust and Mississippian Trust II to 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 for the Mississippian Trust I and Mississippian Trust II. 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. The derivatives agreement with the Permian Trust contained commodity derivative contracts that covered volumes of oil production through March 31, 2015 and is no longer in effect. In accordance with the terms of the respective derivatives agreements, the Company novated certain of the commodity 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 received payment directly from the counterparty and paid 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. As of September 30, 2015, there were no novated derivative contracts outstanding under the derivatives agreements. All contracts underlying the derivatives agreements with the Royalty Trusts have been included in the Company’s consolidated derivative disclosures. See Note 3 for the Royalty Trusts’ open derivative contracts. Long-Term Debt Holder Conversion Feature. As discussed further in Note 4 and Note 7, the Convertible Senior Unsecured Notes contain a conversion feature that is exercisable at the holders’ option. This conversion feature has been identified as an embedded derivative as the feature (i) possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, the Convertible Senior Unsecured Notes, and (ii) separate, stand-alone instruments with the same terms would qualify as derivative instruments. As such, the holders’ conversion feature has been bifurcated and accounted for separately from the Convertible Senior Unsecured Notes. The holders’ conversion feature is recorded at fair value each reporting period with changes in fair value included in interest expense in the unaudited condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2015. Fair Value of Derivatives. The following table presents the fair value of the Company’s derivative contracts as of September 30, 2015 and December 31, 2014 on a gross basis without regard to same-counterparty netting (in thousands):
Type of Contract |  | Balance Sheet Classification |  | September 30, 2015 |  | December 31, 2014
Derivative assets |  |  |  |  |  |
Oil price swaps |  | Derivative contracts-current |  | $ | 69,890 |  |  | $ | 204,072 |
Natural gas price swaps |  | Derivative contracts-current |  | 2,938 |  |  | 29,648 |
Natural gas basis swaps |  | Derivative contracts-current |  | — |  |  | 350 |
Oil collars - three way |  | Derivative contracts-current |  | 32,873 |  |  | 56,289 |
Natural gas collars |  | Derivative contracts-current |  | 357 |  |  | 1,055 |
Oil price swaps |  | Derivative contracts-noncurrent |  | 13,689 |  |  | 36,288 |
Oil collars - three way |  | Derivative contracts-noncurrent |  | 2,560 |  |  | 10,715 |
Derivative liabilities |  |  |  |  |  |
Natural gas basis swaps |  | Derivative contracts-current |  | (3,110 | ) |  | — |
Long-term debt holder conversion feature |  | Long-term debt |  | (5,474 | ) |  | — |
Natural gas basis swaps |  | Derivative contracts-noncurrent |  | (326 | ) |  | — |
Total net derivative contracts |  | $ | 113,397 |  |  | $ | 338,417 |
See Note 4 for additional discussion of the fair value measurement of the Company’s derivative contracts and Note 7 for discussion of the long-term debt holder conversion feature. Master Netting Agreements and the Right of Offset. The Company has master netting agreements with all of its commodity 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 commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of September 30, 2015, the counterparties to the Company’s open commodity derivative contracts consisted of nine financial institutions, four of which are also lenders under the Company’s senior credit facility. The Company is not required to post additional collateral under its commodity derivative contracts as the majority of the counterparties to the Company’s commodity derivative contracts share in the collateral supporting the Company’s senior credit facility. To secure their obligations under the commodity derivative contracts novated by the Company, the Permian Trust and the Mississippian Trust II each gave the counterparties to such contracts a lien on its royalty interests. As of September 30, 2015, the terms of all such novated contracts had expired. The following tables summarize (i) the Company's commodity 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 (in thousands): September 30, 2015
|  | Gross Amounts |  | Gross Amounts Offset |  | Amounts Net of Offset |  | Financial Collateral |  | Net Amount
Assets |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 106,058 |  |  | $ | (2,741 | ) |  | $ | 103,317 |  |  | $ | — |  |  | $ | 103,317 |
Derivative contracts - noncurrent |  | 16,249 |  |  | — |  |  | 16,249 |  |  | — |  |  | 16,249 |
Total |  | $ | 122,307 |  |  | $ | (2,741 | ) |  | $ | 119,566 |  |  | $ | — |  |  | $ | 119,566 |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 3,110 |  |  | $ | (2,741 | ) |  | $ | 369 |  |  | $ | (369 | ) |  | $ | — |
Derivative contracts - noncurrent |  | 326 |  |  | — |  |  | 326 |  |  | (326 | ) |  | — |
Total |  | $ | 3,436 |  |  | $ | (2,741 | ) |  | $ | 695 |  |  | $ | (695 | ) |  | $ | — |
December 31, 2014
|  | Gross Amounts |  | Gross Amounts Offset |  | Amounts Net of Offset |  | Financial Collateral |  | Net Amount
Assets |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 291,414 |  |  | $ | — |  |  | $ | 291,414 |  |  | $ | — |  |  | $ | 291,414 |
Derivative contracts - noncurrent |  | 47,003 |  |  | — |  |  | 47,003 |  |  | — |  |  | 47,003 |
Total |  | $ | 338,417 |  |  | $ | — |  |  | $ | 338,417 |  |  | $ | — |  |  | $ | 338,417 |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivative contracts - noncurrent |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The Company recorded a gain on commodity derivative contracts of $42.2 million and $132.6 million for the three-month periods ended September 30, 2015 and 2014, respectively, which includes net cash receipts upon settlement of $67.3 million and $3.4 million, respectively. The Company recorded a gain on commodity derivative contracts of $59.0 million and $4.8 million for the nine-month periods ended September 30, 2015 and 2014, respectively, which includes net cash (receipts) payments upon settlement of $(278.6) million and $92.9 million, respectively. Included in the net cash payments for the nine-month period ended September 30, 2014 are $69.6 million of cash payments related to the settlements of commodity derivative contracts with contractual maturities after the period in which they were settled (“early settlements”) primarily as a result of the sale of the Gulf Properties in February 2014. At September 30, 2015, the Company’s open commodity derivative contracts consisted of the following: Oil Price Swaps
| Notional (MBbls) |  | Weighted Average Fixed Price
October 2015 - December 2015 | 555 |  |  | $ | 94.11 |
January 2016 - December 2016 | 1,464 |  |  | $ | 88.36 |
Natural Gas Price Swaps
| Notional (MMcf) |  | Weighted Average Fixed Price
October 2015 - December 2015 | 1,840 |  |  | $ | 4.20 |
Natural Gas Basis Swaps
| Notional (MMcf) |  | Weighted Average Fixed Price
October 2015 - December 2015 | 15,640 |  |  | $ | (0.30 | )
January 2016 - December 2016 | 10,980 |  |  | $ | (0.38 | )
Oil Collars - Three-way
| Notional (MBbls) |  | Sold Put | Purchased Put | Sold Call
October 2015 - December 2015 | 1,564 |  |  | $78.15 | $90.03 | $103.65
January 2016 - December 2016 | 2,556 |  |  | $83.14 | $90.00 | $100.85
Natural Gas Collars
| Notional (MMcf) |  | Collar Range
October 2015 - December 2015 | 255 |  |  | $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 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: 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=56946850&loc=SL5624171-113959 Reference 3: 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=56946850&loc=d3e41620-113959 Reference 4: 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=56946850&loc=SL5624163-113959 Reference 5: 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=56946850&loc=SL5579240-113959 Reference 6: 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=56946850&loc=SL5624177-113959 Reference 7: 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 8: 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=56946850&loc=d3e41641-113959 Reference 9: 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=56946850&loc=SL5579245-113959 Reference 10: 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=56946850&loc=SL5624258-113959 Reference 11: 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 12: 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=56946850&loc=SL5708775-113959 Reference 13: 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=56946850&loc=SL5708773-113959 Reference 14: 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=56946850&loc=SL5618551-113959 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=56946850&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 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 17: 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 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=56946850&loc=d3e41638-113959 Reference 19: 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 + Details
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