Derivative Financial Instruments

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness and forward currency exchange rate agreements to reduce the effect of exchange rate volatility.

Oil production derivative activities. All material physical sales contracts governing the Company's oil production are tied directly to, or are highly correlated with, New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices.

The following table sets forth the volumes per day in barrels ("BBLs") outstanding as of June 30, 2012 under the Company's oil derivative contracts and the weighted average oil prices per BBL for those contracts:

	Six Months Ending December 31,			Twelve Months Ending December 31,
	2012			2013		2014
Collar contracts with short puts:
Volume (BBL) (a)	51,610			67,290		40,000
Average price per BBL:
Ceiling	$	118.73		$	120.61	$	122.77
Floor	$	84.80		$	88.88	$	91.50
Short put	$	69.12		$	71.72	$	74.88
Collar contracts:
Volume (BBL)	2,000			—		—
Average price per BBL:
Ceiling	$	127.00		$	—	$	—
Floor	$	90.00		$	—	$	—
Swap contracts:
Volume (BBL) (a)	3,000			3,000		—
Average price per BBL	$	79.32		$	81.02	$	—
Rollfactor swap contracts:
Volume (BBL)	—			6,000		—
NYMEX roll price (b)	$	—		$	0.43	$	—
Basis swap contracts:
Index swap volume (BBL)	20,000			—		—
Average price per BBL (c)	$	(1.15	)	$	—	$	—

 ____________________

(a) Subsequent to June 30, 2012, the Company entered into additional NYMEX (i) swap contracts for 8,000 BBLs per day of August 2012 through December 2012 production with a price of $93.09 per BBL and (ii) collar contracts with short puts for 5,000 BBLs per day of 2014 production with a ceiling price of $102.22 per BBL, a floor price of $95.00 per BBL and a short put price of $80.00 per BBL.

(b) Represents swaps that fix the difference between (i) each day's price per BBL of WTI for the first nearby month less (ii) the price per BBL of WTI for the second nearby NYMEX month, multiplied by .6667; plus (iii) each day's price per BBL of WTI for the first nearby month less (iv) the price per BBL of WTI for the third nearby NYMEX month, multiplied by .3333.

(c) Basis differential price between Midland WTI and Cushing WTI.

NGL production derivative activities. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to either Mont Belvieu or Conway fractionation facilities' NGL product component prices. As of June 30, 2012, the Company had NGL swap derivatives for 750 BBLs per day of July 2012 through December 2012 NGL sales at an average price of $35.03 per BBL and NGL collar contracts with short put derivatives for 3,000 BBLs per day of July 2012 through December 2012 sales with a ceiling price of $79.99 per BBL, a floor price of $67.70 per BBL and a short put price of $55.76 per BBL. Subsequent to June 30, 2012, the Company entered into additional NGL swap contracts for 2,000 BBLs per day of August 2012 through December 2012 production priced at $80.06 per BBL.

Gas production derivative activities. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and reduce basis risk between NYMEX Henry Hub ("HH") prices and actual index prices at which the gas is sold.

The following table sets forth the volumes per day in millions of British thermal units ("MMBTU") outstanding as of June 30, 2012 under the Company's gas derivative contracts and the weighted average gas prices per MMBTU for those contracts:

	Six Months Ending December 31,			Twelve Months Ending December 31,
	2012			2013			2014 (a)			2015 (a)
Collar contracts with short puts:
Volume (MMBTU)	—			—			30,000			135,000
Price per MMBTU:
Ceiling	$	—		$	—		$	7.66		$	5.44
Floor	$	—		$	—		$	5.67		$	4.22
Short put	$	—		$	—		$	4.33		$	3.22
Collar contracts:
Volume (MMBTU)	65,000			150,000			80,000			50,000
Price per MMBTU:
Ceiling	$	6.60		$	6.25		$	6.39		$	7.92
Floor	$	5.00		$	5.00		$	5.00		$	5.00
Swap contracts:
Volume (MMBTU)	275,000			112,500			10,000			—
Price per MMBTU	$	4.97		$	5.62		$	6.18		$	—
Basis swap contracts:
Volume (MMBTU)	136,000			142,500			140,000			—
Price per MMBTU	$	(0.34	)	$	(0.22	)	$	(0.21	)	$	—

____________________

(a) Subsequent to June 30, 2012, the Company (i) terminated its 2014 gas derivative positions, including basis swaps, for net proceeds of $47.1 million, (ii) terminated its 2015 collar contracts for proceeds of $19.4 million and (iii) terminated 2015 collar contracts with short puts for 30,000MMBTU per day with a ceiling price of $7.11 per MMBTU, a floor price of $5.00 per MMBTU and a short put price of $4.00 per MMBTU for proceeds of $4.7 million.

Marketing and basis transfer derivative activities. Periodically, the Company enters into gas buy and sell marketing arrangements to utilize unused firm pipeline transportation commitments. Associated with these gas marketing arrangements, the Company may enter into gas index swaps to mitigate the related price risk. From time to time, the Company also enters into long and short gas swap contracts that transfer gas basis risk from one sales index to another sales index.

The following table sets forth the contract volumes outstanding as of June 30, 2012 under the Company's marketing and basis transfer derivative contracts and the weighted average gas prices per MMBTU for those contracts:

	Six Months Ending December 31,
	2012
Average Daily Gas Production Associated with Marketing Derivatives (MMBTU):
Basis swap contracts:
Index swap volume	26,739
Price differential ($/MMBTU)	$	0.25
Average Daily Gas Production Associated with Basis Transfer Derivatives (MMBTU):
Basis swap contracts:
Short index swap volume	3,343
NGI-So Cal Border Monthly price differential to NYMEX HH ($/MMBTU)	$	0.12
Long index swap volume	$	(3,343	)
IF-HSC price differential to NYMEX HH ($/MMBTU)	$	(0.05	)

Diesel derivative activities. The Company utilizes diesel derivative swap contracts to mitigate its fuel price risk associated with diesel used in Company-owned drilling rigs and fracture stimulation fleet equipment. As of June 30, 2012, the Company has diesel derivative swap contracts for 250 BBLs per day for 2013 at an average per BBL fixed price of $111.30. The diesel derivative contracts are priced at an index that is highly correlated to the prices that the Company incurs to fuel its drilling rigs and fracture stimulation fleet equipment.

Interest rates. As of June 30, 2012, the Company was a party to interest rate derivative contracts that lock in a fixed forward annual interest rate of 3.06 percent, for a 10-year period ending in August 2022, on a notional amount of $200 million. These derivative contracts mature and settle by their terms during August 2012. Subsequent to June 30, 2012, the Company terminated its 2012 interest rate swap positions at a cost of $28.4 million.

During April 2012, the Company entered into interest rate derivative contracts that lock in a fixed forward annual interest rate of 3.21 percent, for a 10-year period ending in December 2025, on a notional amount of $250 million. These derivative contracts mature and settle by their terms during December 2015.

Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives as of June 30, 2012 and December 31, 2011. The following tables provide disclosure of the Company's derivative instruments:

Fair Value of Derivative Instruments as of June 30, 2012
	Asset Derivatives (a)			Liability Derivatives (a)
Type	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(in thousands)			(in thousands)
Derivatives not designated as hedging instruments
Commodity price derivatives	Derivatives - current	$	318,503	Derivatives - current	$	17,108
Interest rate derivatives	Derivatives - current	—		Derivatives - current	23,283
Commodity price derivatives	Derivatives - noncurrent	270,681		Derivatives - noncurrent	16,127
Interest rate derivatives	Derivatives - noncurrent	—		Derivatives - noncurrent	11,410
		$	589,184		$	67,928

Fair Value of Derivative Instruments as of December 31, 2011
	Asset Derivatives (a)			Liability Derivatives (a)
Type	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(in thousands)			(in thousands)
Derivatives not designated as hedging instruments
Commodity price derivatives	Derivatives - current	$	248,809	Derivatives - current	$	68,735
Interest rate derivatives	Derivatives - current	—		Derivatives - current	15,654
Commodity price derivatives	Derivatives - noncurrent	257,368		Derivatives - noncurrent	47,689
		$	506,177		$	132,078

 ___________________

(a) Derivative assets and liabilities shown in the tables above are presented as gross assets and liabilities, without regard to master netting arrangements which are considered in the presentations of derivative assets and liabilities in the accompanying consolidated balance sheets.

Derivatives in Cash Flow Hedging	Location of Gain/(Loss) Reclassified from	Amount of Gain/(Loss) Reclassified from AOCI into Earnings
		Three Months Ended June 30,						Six Months Ended June 30,
Relationships	AOCI into Earnings	2012			2011			2012			2011
		(in thousands)
Commodity price derivatives	Oil and gas revenue	$	(2,347	)	$	8,208		$	(3,156	)	$	16,332
Interest rate derivatives	Interest expense	—			(69		)	(1,699		)	(137		)
Total		$	(2,347	)	$	8,139		$	(4,855	)	$	16,195

		Amount of Gain (Loss) Recognized in Earnings on Derivatives
Derivatives Not Designated as Hedging	Location of Gain (Loss) Recognized in	Three Months Ended June 30,					Six Months Ended June 30,
Instruments	Earnings on Derivatives	2012			2011		2012			2011
		(in thousands)
Commodity price derivatives	Derivative gains (losses), net	$	298,471		$	214,903	$	386,601		$	(27,377	)
Interest rate derivatives	Derivative gains (losses), net	(22,659		)	14,575		(19,039		)	12,423
Total		$	275,812		$	229,478	$	367,562		$	(14,954	)

AOCI - Hedging. As of December 31, 2011, the Company had $3.2 million and $1.7 million of net deferred losses on the effective portions of discontinued oil and interest rate hedges, respectively, and $1.8 million of associated net deferred tax benefits classified in AOCI—Hedging in the accompanying consolidated balance sheet. During the six months ended June 30, 2012, the Company transferred the respective AOCI - Hedging balances to oil revenue, interest expense and income tax provisions.

Derivative counterparties. The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.

The following table provides the Company's derivative assets and liabilities by counterparty as of June 30, 2012:

	Assets		Liabilities
	(in thousands)
JP Morgan Chase	$	119,358	$	15,217
Citibank, N.A.	87,788		438
Barclays Capital	53,131		—
BMO Financial Group	42,192		—
BNP Paribas	40,677		—
J. Aron & Company	33,071		—
Wells Fargo Bank, N.A.	31,419		20,981
Credit Suisse	29,795		—
Toronto Dominion	29,206		—
Credit Agricole	28,179		2,177
Societe Generale	24,356		—
Merrill Lynch	16,880		2,775
Morgan Stanley	16,184		885
Den Norske Bank	9,790		—
BP Corporation North America	4,040		—
Deutsche Bank	2,194		2,363
Vitol	1,345		—
Macquarie Bank	86		—
Royal Bank of Canada	—		262
UBS	—		3,337
Total	$	569,691	$	48,435