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Financial Instruments
 9 Months Ended
Sep. 30, 2012
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, 2012 and December 31, 2011:

 

                                 

September 30, 2012

(Thousands of dollars)

   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,
2012		  

Assets

                                

Commodity derivative contracts

   $ —       $ —       $ 244     $ 244  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets

   $ —       $ —       $ 244     $ 244  
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

                                

Commodity derivative contracts

   $ —       $ —       $ (1,302 )    $ (1,302 ) 

Interest rate derivative contracts

     —         —         (78 )      (78 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities

   $ —       $ —       $ (1,380 )    $ (1,380 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

 

                                 

December 31, 2011

(Thousands of dollars)

   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,
2011		  

Assets

                                

Commodity derivative contracts

   $ —       $ —       $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets

   $ —       $ —       $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

                                

Commodity derivative contracts

   $ —       $ —       $ (3,507 )    $ (3,507 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities

   $ —       $ —       $ (3,507 )    $ (3,507 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

 

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, 2012.

 

         
(Thousands of dollars)      

Net liabilities – December 31, 2011

   $ (3,507 ) 
   

Total realized and unrealized gains or losses:

        

Unrealized gains included in earnings, net (a)

     2,828  

Included in other comprehensive loss

     (78 ) 

Realized gains from purchases, sales, issuances and settlements, net

     (379 ) 
   

 

 

  

Net liabilities – September 30, 2012

   $ (1,136 ) 
   

 

 

  

 

(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 Instruments:

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.

Interest rate swap derivatives are treated has cash-flow hedges and are used to fix or float interest rates on existing debt. The value of these interest rate swaps at September 30, 2012 is located in accumulated other comprehensive loss, net of tax. Settlement of the swaps, currently scheduled to begin in January 2014, will be recorded within interest expense.

The following table sets forth the effect of derivative instruments on the condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011:

 

                     
        Fair Value  
(Thousands of dollars)  

Balance Sheet Location

   September 30,
2012		     December 31,
2011		  

Asset Derivatives:

                    

Derivatives not designated as cash-flow hedging instruments:

                    
       

Crude oil commodity contracts

  

Other assets

   $ 244     $ —    
       

 

 

    

 

 

  

Total

       $ 244     $ —    
       

 

 

    

 

 

  

Liability Derivatives:

                    

Derivatives designated as cash-flow hedging instruments:

                    

Interest rate swap contracts

   Derivative liability long-term   $ (78 )    $ —    

Derivatives not designated as cash-flow hedging instruments:

                    

Crude oil commodity contracts

   Derivative liability short-term   $ (837 )    $ (2,046 ) 

Crude oil commodity contracts

   Derivative liability long-term     (465 )      (1,461 ) 
       

 

 

    

 

 

  

Total

       $ (1,380 )    $ (3,507 ) 
       

 

 

    

 

 

  

Total derivative instruments

       $ (1,136 )    $ (3,507 ) 
       

 

 

    

 

 

  

 

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, 2012 and 2011:

 

                     
   

Location of gain/loss recognized
in income

   Amount of gain/loss
recognized in income		  
(Thousands of dollars)     2012     2011  

Derivatives not designated as cash-flow hedge instruments

                    

Natural gas commodity contracts

   Unrealized gain on derivative instruments, net   $ —       $ 106  

Crude oil commodity contracts

   Unrealized gain on derivative instruments, net     2,449       8,909  

Natural gas commodity contracts

   Realized gain on derivative instruments, net     —         2,969  

Crude oil commodity contracts (a)

   Realized gain on derivative instruments, net     379       1,462  
       

 

 

    

 

 

  
        $ 2,828     $ 13,446  
       

 

 

    

 

 

  

 

(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. In January 2012, March 2012 and May 2012, the Company unwound and monetized crude oil swaps with original settlement dates from January 2012 through December 2013 for net proceeds of $1.03 million. The gains associated with these early settlement transactions is included in realized gain on derivative instruments for the nine months ended September 30, 2012.