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Derivative Instruments
 12 Months Ended
Dec. 31, 2012
Derivative Instruments [Abstract]  
Derivative Instruments [Text Block]

Note 10 – Derivative Instruments

 

We have entered into certain derivative or physical arrangements with respect to portions of our crude oil production to reduce our sensitivity to volatile commodity prices and/or to meet hedging requirements under our Credit Facility.  We believe that these derivative arrangements, although not free of risk, allow us to achieve a more predictable cash flow and to reduce exposure to commodity price fluctuations.  However, derivative arrangements limit the benefit of increases in the prices of crude oil.  Moreover, our derivative arrangements apply only to a portion of our production.

 

We have an Intercreditor Agreement in place between the Company; our counterparty, BP Corporation North America, Inc. (“BP”); and our agent, Texas Capital Bank, N.A., which allows Texas Capital Bank to also act as agent for BP for the purpose of holding and enforcing any liens or security interests resulting from our derivative arrangements.  Therefore, we generally are not required to post additional collateral, including cash.

 

 

The following derivative contracts were in place at December 31, 2012:

 

 

    Term     Monthly Volumes   Price/Bbl     Fair Value  
Crude oil swap     1/13-12/14     1,933 Bbls   $ 76.74     $ (1,077,333 )
Crude oil swap     7/11-12/15     2,517 Bbls   $ 83.70       (722,962 )
                        $ (1,800,295 )

   

Monthly volume is the weighted average throughout the period.

 

The total fair value is shown as a derivative instrument in both the current and non-current liabilities on the balance sheet.  We recorded losses on the derivative contracts for the years ended December 31, 2012 and 2011 of $871,331 and $409,399 respectively.