Derivative Financial Instruments

6 Months Ended

Jun. 30, 2014

Derivative Financial Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.  DERIVATIVE FINANCIAL INSTRUMENTS:

Objectives and Strategy:The Company’s major market risk exposure is in the pricing applicable to its natural gas and oil production. Realized pricing is currently driven primarily by the prevailing price for the Company’s natural gas production. Historically, prices received for natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. As a result of its hedging activities, the Company may realize prices that are less than or greater than the spot prices that it would have received otherwise.

The Company relies on various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in the Company’s forward cash flows supporting the Company’s capital investment program.

The Company’s hedging policy limits the amounts of resources hedged to not more than 50% of its forecast production without Board approval.

Fair Value of Commodity Derivatives:FASB ASC 815 requires that all derivatives be recognized on the Consolidated Balance Sheets as either an asset or liability and be measured at fair value. Changes in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not apply hedge accounting to any of its derivative instruments.

Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value on the Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current income or expense in the Consolidated Statements of Income. Unrealized gains or losses on commodity derivatives represent the non-cash change in the fair value of these derivative instruments and do not impact operating cash flows on the cash flow statement. See Note 7 for the detail of the fair value of the following derivatives.

Commodity Derivative Contracts:At June 30,2014, the Company had the following open commodity derivative contracts to manage price risk on a portion of its production. The reference prices of these commodity derivative contracts are typically referenced to index prices as published by independent third parties.

Fixed price swaps: The Company receives the fixed price for the contract and pays the variable price to the counterparty.

Basis Swaps: Arrangements that guarantee a price differential for natural gas from a specified delivery point. The Company receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract.

Natural Gas:
Type	Commodity Reference Price	Remaining Contract Period	Volume - MMBTU/Day	Average Price /MMBTU	Average Basis Differential /MMBTU		Fair Value - June 30, 2014
							(Liability)
Fixed price swap	NYMEX-Henry Hub	July - Oct 2014	480,000	$3.90	-	$	(31,754)
Fixed price swap	NYMEX-Henry Hub	Nov - Dec 2014	85,000	$4.35	-	$	(803)
Basis swap	Rocky Mtns (NWPL)	July 2014	30,000	-	-$0.105	$	(107)
Crude Oil:
Type	Commodity Reference Price	Remaining Contract Period	Volume - Bbls/Day	Average Price/Bbl	Average Basis Differential /Bbl		Fair Value - June 30, 2014
							(Liability)
Fixed price swap	NYMEX-WTI	July - Dec 2014	4,000	$93.19	-	$	(7,343)

The following table summarizes the pre-tax realized and unrealized (loss) gain the Company recognized related to its derivative instruments in the Consolidated Statements of Income for the periods ended June 30,2014 and 2013:

		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
Commodity Derivatives:		2014		2013		2014		2013
Realized loss on commodity derivatives-natural gas (1)	$	(33,729)	$	(19,764)	$	(40,843)	$	(19,764)
Realized loss on commodity derivatives-crude oil (1)		(3,562)		-		(5,402)		-
Unrealized gain (loss) on commodity derivatives (1)		22,189		41,855		(14,130)		(2,860)
Total (loss) gain on commodity derivatives	$	(15,102)	$	22,091	$	(60,375)	$	(22,624)
(1) Included in (loss) gain on commodity derivatives in the Consolidated Statements of Income.

The realized gain or loss on commodity derivatives relates to actual amounts received or paid orto be received or paid under the Company’s derivative contracts and the unrealized gain or loss on commodity derivatives represents the change in the fair value of these derivative instruments over the remaining term of the contract.