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Financial Instruments
 9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [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, 2016 and December 31, 2015:

 

September 30, 2016

    Quoted Prices in
Active Markets
For Identical
      Significant
Other
Observable
      Significant
Unobservable
      Balance as of
September 30,
  
(Thousands of dollars)    Assets (Level 1)      Inputs (Level 2)      Inputs (Level 3)      2016  

Assets

            

Commodity derivative contracts

    $ —        $ —        $ 506       $ 506   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ —        $ —        $ 506         506   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities

            

Commodity derivative contracts

      —          —          (860 )       (860 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilities

    $ —        $ —        $ (860 )     $ (860 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

December 31, 2015

    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,
2015		  
(Thousands of dollars)                            

Liabilities

            

Interest rate derivative contracts

    $ —        $ —        $ (7 )     $ (7 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilities

    $ —        $ —        $ (7 )     $ (7 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness.

The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.

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, 2016.

 

(Thousands of dollars)       

Net Liabilities – December 31, 2015

    $ (7 ) 

Total realized and unrealized (gains) / losses:

   

Included in earnings (a)

      (354 ) 

Included in other comprehensive income

      7  

Purchases, sales, issuances and settlements

      —    
  

 

 

  

Net Liabilities – September 30, 2016

    $ (354 )
  

 

 

  

 

(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, and interest rate swap instruments are reported as an increase or reduction to interest expense.

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 continue to be treated as cash-flow hedges and are used to fix our float interest rates on existing debt. The value of these interest rate swaps at September 30, 2016 and December 31, 2015 are located, if applicable, in accumulated other comprehensive loss, net of tax. Settlements of the swaps, which began in January 2014 and concluded in January 2016, are recognized within interest expense.

 

The following table sets forth the effect of derivative instruments on the condensed consolidated balance sheets at September 30, 2016 and December 31, 2015:

 

         Fair Value  
(Thousands of dollars)  

Balance Sheet Location

    September 30,
2016		      December 31,
2015		  

Asset Derivatives:

        

Derivatives not designated as cash-flow hedging instruments:

        

Natural gas commodity contracts

  

Other current assets

    $ 178       $ —     

Natural gas commodity contracts

  

Other Assets

      328         —     
    

 

 

     

 

 

  

Total

      $ 506       $ —     
    

 

 

     

 

 

  

Liability Derivatives:

        

Derivatives designated as cash-flow hedging instruments:

        

Interest rate swap contracts

  

Derivative liability short-term

    $ —         $ (7 ) 

Derivatives not designated as cash-flow hedging instruments:

        

Crude oil commodity contracts

  

Derivative liability short-term

      (207 )       —     

Natural gas commodity contracts

  

Derivative liability short-term

      (132 )       —     

Natural gas commodity contracts

  

Derivative liability long-term

      (197 )       —     

Crude oil commodity contracts

  

Derivative liability long-term

      (324 )       —     
    

 

 

     

 

 

  

Total

      $ (860 )     $ (7 ) 
    

 

 

     

 

 

  

Total derivative instruments

      $ (354 )     $ (7 ) 
    

 

 

     

 

 

  

 

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, 2016 and 2015:

 

(Thousands of dollars)  

Location of gain (loss) recognized

in income

    Amount of gain/loss
recognized in income		  
     2016      2015  

Derivative designated as cash-flow hedge instruments:

        

Interest rate swap contracts

   Interest expense    $ (7 )     $ (217 ) 

Derivatives not designated as cash-flow hedge instruments

        

Natural gas commodity contracts

   Unrealized gain (loss) on Derivative instruments, net      177        (1,484 ) 

Crude oil commodity contracts

   Unrealized gain (loss) on derivative instruments, net      (531 )      (9,768 ) 

Natural gas commodity contracts

   Realized gain (loss) on derivative instruments, net      —          2,061   

Crude oil commodity contracts

   Realized gain (loss) on derivative instruments, net      —          12,878   
    

 

 

     

 

 

  
     $ (361 )     $ 3,470