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Financial Instruments
9 Months Ended
Sep. 30, 2011
Financial Instruments [Abstract] 
Financial Instruments

(11) Financial Instruments

Fair Value measurements:

Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company's interest rate swaps, natural gas and crude oil price collars and swaps are designated as Level 3. The following fair value hierarchy table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010:

 

September 30, 2011

    Quoted Prices in
Active  Markets
For Identical
Assets (Level 1)		      Significant
Other
Observable
Inputs (Level 2)		      Significant
Unobservable
Inputs (Level 3)		      Balance as of
September 30,
2011		  
(Thousands of dollars)                            

Assets

            

Commodity derivative contracts

    $ —         $ —         $ 6,422       $ 6,422   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ —         $ —         $ 6,422       $ 6,422   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities

            

Commodity derivative contracts

    $ —         $ —         $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liability

    $ —         $ —         $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

 

December 31, 2010

    Quoted Prices in
Active Markets
For Identical
Assets (Level 1)		      Significant
Other
Observable
Inputs (Level 2)		      Significant
Unobservable
Inputs (Level 3)		     Balance as of
December 31,
2010		  
(Thousands of dollars)                           

Assets

           

Commodity derivative contracts

    $ —         $ —         $ 3,042      $ 3,042   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total assets

    $ —         $ —         $ 3,042      $ 3,042   
  

 

 

     

 

 

     

 

 

    

 

 

  

Liabilities

           

Commodity derivative contracts

    $ —         $ —         $ (5,635 )    $ (5,635 ) 
  

 

 

     

 

 

     

 

 

    

 

 

  

Total liability

    $ —         $ —         $ (5,635 )    $ (5,635 ) 
  

 

 

     

 

 

     

 

 

    

 

 

  

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy for the nine months ended September 30, 2011.

 

(Thousands of dollars)       

Net liabilities – December 31, 2010

    $ (2,593 ) 

Total realized and unrealized gains or losses:

   

Included in earnings (a)

      13,446   

Purchases, sales, issuances and settlements

      (4,431 ) 
  

 

 

  

Net assets – September 30, 2011

    $ 6,422   
  

 

 

  

(a) Derivative instruments are reported in revenues as realized gain/loss and on a separately reported line item captioned unrealized gain/loss on derivative instruments.

Derivative Instrument:

The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company's exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company's exposure to commodity price risk inherent in the Company's oil and gas production operations. The Company does not apply hedge accounting to any of its commodity based derivatives. Both realized and unrealized gains and losses associated with derivative instruments are recognized in earnings.

The following table sets forth the effect of derivative instruments on the condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010:

 

          Fair Value  
(Thousands of dollars)   

Balance Sheet Location

    September 30,
2011		      December 31,
2010		  

Asset Derivatives:

         

Derivatives not designated as hedging instruments:

         

Natural gas commodity contracts (a)

    Other current assets    $ 2,672       $ 3,038   

Crude oil commodity contracts

    Other current assets      467         —     

Natural gas commodity contracts (a)

    Other assets      471         —     

Crude oil commodity contracts

    Other assets      2,812         4   
     

 

 

     

 

 

  

Total

       $ 6,422       $ 3,042   
     

 

 

     

 

 

  

Liability Derivatives:

         

Derivatives not designated as hedging instruments:

         

Crude oil commodity contracts

    Derivative liability short term    $ —         $ (3,048 ) 

Crude oil commodity contracts

    Derivative liability long term      —           (2,587 ) 
     

 

 

     

 

 

  

Total

       $ —         $ (5,635 ) 
     

 

 

     

 

 

  

Total derivative instruments

       $ 6,422       $ (2,593 ) 
     

 

 

     

 

 

  

(a) Subsequent to September 30, 2011, the Company unwound and monetized natural gas swaps with original settlement dates from October 2011 through December 2012 for net proceeds of $2.9 million. These natural gas commodity contracts had an unrealized gain of $3.1 million at September 30, 2011.

 

The following table sets forth the effect of derivative instruments on the condensed consolidated statement of operations for the nine-month periods ended September 30, 2011 and 2010:

 

    

Location of gain/loss reclassified
from OCI into income

    Amount of gain/loss
reclassified from accumulated
OCI into income		  
(Thousands of dollars)       2011      2010  

Derivatives designated as cash-flow hedges

         

Interest rate swap derivatives

    Interest expense    $ —         $ (347 ) 
     

 

 

     

 

 

  
      $ —         $ (347 ) 
     

 

 

     

 

 

  
    

Location of gain/loss recognized
in income

    Amount of gain/loss
recognized in income		  
(Thousands of dollars)       2011      2010  

Derivatives not designated as cash-flow hedge instruments

      

Natural gas commodity contracts

    Unrealized gain on derivative instruments, net    $ 106       $ 4,026   

Crude oil commodity contracts

    Unrealized gain on derivative instruments, net      8,909         3,036   

Natural gas commodity contracts

    Realized gain on derivative instruments, net      2,969         2,659   

Crude oil commodity contracts (a)

    Realized gain (loss) on derivative instruments, net      1,462         (96 ) 
     

 

 

     

 

 

  
      $ 13,446       $ 9,625   
     

 

 

     

 

 

  

(a) In August 2011, the Company unwound and monetized crude oil swaps and collars with original settlement dates from September 2011 through December 2014 for net proceeds of $3.4 million. The $3.4 million gain associated with these early settlement transactions is included in realized gain on derivative instruments for the three and nine months ended September 30, 2011.