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Derivatives | 12 Months Ended
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Dec. 31, 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 contract 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) loss on derivative contracts in the 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 December 31, 2015, 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.
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 | 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 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.
The Company recorded (gain) loss on commodity derivative contracts of $(73.1) million, $(334.0) million and $47.1 million for the years ended December 31, 2015, 2014 and 2013, respectively, as reflected in the accompanying consolidated statements of operations, which includes net cash (receipts) payments upon settlement of $(327.7) million, $32.3 million and $(0.8) million, respectively. Included in these net cash (receipts) payments are $69.6 million and $29.6 million of cash payments related to settlements of commodity derivative contracts with contractual maturities after the year in which they were settled primarily as a result of the sale of the Gulf Properties in February 2014 and the Permian Properties in February 2013, respectively. Derivatives Agreements with Royalty Trusts. During the years ended December 31, 2015, 2014 and 2013, the Company was 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 derivatives agreements with the Mississippian Trust I and the Mississippian Trust II contained commodity derivative contracts that covered volumes of oil and natural gas production through December 31, 2015, and the derivatives agreement with the Permian Trust contained commodity derivative contracts that covered volumes of oil production through March 31, 2015. 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 Mississippian Trust II received payment directly from the counterparty and paid any amounts owed directly to the counterparty during the terms of these novated contracts. 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. The derivatives agreements expired upon expiration of the associated underlying derivative contracts and were no longer in effect as of December 31, 2015. All activity related to the contracts underlying the derivatives agreements with the Royalty Trusts have been included in the Company’s consolidated derivative disclosures. 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 December 31, 2015, the counterparties to the Company’s open commodity derivative contracts consisted of eight financial institutions, three 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 certain 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 gave the counterparties to such contracts a lien on their respective royalty interests. As of December 31, 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): December 31, 2015
|  | Gross Amounts |  | Gross Amounts Offset |  | Amounts Net of Offset |  | Financial Collateral |  | Net Amount
Assets |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 85,524 |  |  | $ | (1,175 | ) |  | $ | 84,349 |  |  | $ | — |  |  | $ | 84,349 |
Derivative contracts - noncurrent |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 85,524 |  |  | $ | (1,175 | ) |  | $ | 84,349 |  |  | $ | — |  |  | $ | 84,349 |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivative contracts - current |  | $ | 1,748 |  |  | $ | (1,175 | ) |  | $ | 573 |  |  | $ | (573 | ) |  | $ | — |
Derivative contracts - noncurrent |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 1,748 |  |  | $ | (1,175 | ) |  | $ | 573 |  |  | $ | (573 | ) |  | $ | — |
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 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
At December 31, 2015, the Company’s open commodity derivative contracts consisted of the following: Oil Price Swaps
| Notional (MBbls) |  | Weighted Average Fixed Price
January 2016 - December 2016 | 1,464 |  |  | $ | 88.36 |
Natural Gas Basis Swaps
| Notional (MMcf) |  | Weighted Average Fixed Price
January 2016 - December 2016 | 10,980 |  |  | $ | (0.38 | )
Oil Collars - Three-way
| Notional (MBbls) |  | Sold Put |  | Purchased Put |  | Sold Call
January 2016 - December 2016 | 2,556 |  |  | $ | 83.14 |  |  | $ | 90.00 |  |  | $ | 100.85 |
Long-Term Debt - Embedded Derivatives Long-Term Debt Holder Conversion Feature. As discussed further in Note 5 and Note 12, 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 accompanying consolidated statement of operations for the year ended December 31, 2015. Mandatory Prepayment Feature - PGC Senior Secured Notes. As discussed further in Note 5 and Note 12, the Senior Secured Notes contain a mandatory prepayment feature that is triggered if the outstanding principal amount of the unsecured 8.75% Senior Notes due 2020 exceeds $100.0 million on October 15, 2019. With respect to the PGC Senior Secured Notes, which were issued at a substantial discount, this mandatory prepayment 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 PGC Senior Secured Notes, and (ii) separate, stand-alone instruments with the same terms would qualify as derivative instruments. As such, the mandatory prepayment feature contained in the PGC Senior Secured Notes has been bifurcated and accounted for separately from those notes. The mandatory prepayment feature contained in the PGC Senior Secured notes is recorded at fair value each reporting period with changes in fair value included in interest expense in the accompanying consolidated statement of operations for the year ended December 31, 2015. 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 its outstanding 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. The Company recorded a loss on its interest rate swaps of $0.01 million for the year ended December 31, 2013, which is included in interest expense in the accompanying consolidated statement of operations. Included in the loss for the year ended December 31, 2013 are cash payments upon contract settlement of $2.4 million. Fair Value of Derivatives The following table presents the fair value of the Company’s derivative contracts as of December 31, 2015 and 2014 on a gross basis without regard to same-counterparty netting (in thousands):
|  |  |  | December 31,
Type of Contract |  | Balance Sheet Classification |  | 2015 |  | 2014
Derivative assets |  |  |  |  |  |
Oil price swaps |  | Derivative contracts—current |  | $ | 68,224 |  |  | $ | 204,072 |
Natural gas price swaps |  | Derivative contracts—current |  | — |  |  | 29,648 |
Natural gas basis swaps |  | Derivative contracts—current |  | — |  |  | 350 |
Oil collars—three way |  | Derivative contracts—current |  | 17,300 |  |  | 56,289 |
Natural gas collars |  | Derivative contracts—current |  | — |  |  | 1,055 |
Oil price swaps |  | Derivative contracts—noncurrent |  | — |  |  | 36,288 |
Oil collars—three way |  | Derivative contracts—noncurrent |  | — |  |  | 10,715 |
Derivative liabilities |  |  |  |  |  |
Natural gas basis swaps |  | Derivative contracts—current |  | (1,748 | ) |  | — |
Long-term debt holder conversion feature |  | Long-term debt |  | (29,355 | ) |  | — |
Mandatory prepayment feature - PGC Senior Secured Notes |  | Long-term debt |  | (2,941 | ) |  | — |
Total net derivative contracts |  | $ | 51,480 |  |  | $ | 338,417 |
See Note 5 for additional discussion of the fair value measurement of the Company’s derivative contracts and Note 12 for discussion of the long-term debt holder conversion and mandatory prepayment features.

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