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Commodity Price Risk Management
 6 Months Ended
Jun. 30, 2012
Commodity Price Risk Management [Abstract]  
Commodity Price Risk Management
6) 
Commodity Price Risk Management

Through our wholly-owned subsidiary Energy One, we have entered into commodity derivative contracts ("economic hedges") with BNP Paribas ("BNP"), as described below.  The derivative contracts are priced using West Texas Intermediate ("WTI") quoted prices.  The Company is a guarantor of Energy One's obligations under the economic hedges.  The objective of utilizing the economic hedges is to reduce the effect of price changes on a portion of our future oil production, achieve more predictable cash flows in an environment of volatile oil and gas prices and to manage our exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements.  However, there is a risk that such use may limit our ability to benefit from favorable price movements. Energy One may, from time to time, add incremental derivatives to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of its existing positions. The Company does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features.

Energy One's commodity derivative contracts as of June 30, 2012 are summarized below:
 
 
 
 
Quantity
 
 
 
 
Settlement Period
 
Counterparty
 
Basis
 
(Bbl/d)
 
Strike Price
 
 
 
 
 
 
 
 
 
Crude Oil Costless Collar
 
 
 
 
 
 
 
 
10/01/11 - 09/30/12
 
BNP Parabis
 
 WTI
 
 
400
 
Put:
 
$
80.00
 
 
 
 
 
 
 
Call:
 
$
99.00
 
Crude Oil Costless Collar
 
 
 
 
 
 
 
 
 
 
01/01/12 - 12/31/12
 
BNP Parabis
 
 WTI
 
 
200
 
Put:
 
$
90.00
 
 
 
 
 
 
 
Call:
 
$
106.50
 
Crude Oil Costless Collar
 
 
 
 
 
 
 
 
 
 
10/01/12 - 09/30/13
 
BNP Parabis
 
 WTI
 
 
200
 
Put:
 
$
95.00
 
Call
$
116.60
 
The following table details the fair value of the derivatives recorded in the applicable condensed consolidated balance sheet, by category:
 
As of June 30, 2012
 
(in thousands)
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 
Fair
 
Balance Sheet
 
Fair
 
Classification
 
Value
 
Classification
 
Value
 
 
 
 
 
 
 
Crude oil costless collars
Current Asset
 
$
 1,112
 
Current Liability
 
$
           -
 
 
Unrealized gains and losses resulting from derivatives are recorded at fair value on the condensed consolidated balance sheet and changes in fair value are recognized in the unrealized gain (loss) on risk management activities line on the condensed consolidated statement of operations. Realized gains and losses resulting from the contract settlement of derivatives are recorded in the commodity price risk management activities line on the condensed consolidated statement of income.