Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

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.

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") associated with the Company's outstanding oil derivative contracts as of March 31, 2013 and the weighted average oil prices per BBL for those contracts:

	Nine Months Ending December 31,			Year Ending December 31,
	2013			2014		2015
Collar contracts with short puts:
Volume (BBL)	72,430			69,000		26,000
Average price per BBL:
Ceiling	$	119.89		$	114.05	$	104.45
Floor	$	92.26		$	93.70	$	95.00
Short put	$	74.36		$	77.61	$	80.00
Swap contracts:
Volume (BBL)	3,000			—		—
Average price per BBL	$	81.02		$	—	$	—
Rollfactor swap contracts:
Volume (BBL)	6,000			15,000		—
NYMEX roll price (a)	$	0.43		$	0.38	$	—
Basis swap contracts:
Midland-Cushing index swap volume (BBL)	1,655			—		—
Average price per BBL (b)	$	(5.75	)	$	—	$	—
Cushing-LLS index swap volume (BBL)	669			—		—
Average price per BBL (c)	$	(9.30	)	$	—	$	—

 ____________________

(a) 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.

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

(c) Basis differential price between Cushing WTI and Louisiana Light Sweet crude "LLS".

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.

The following table sets forth the volumes per day in BBLs associated with the Company's outstanding NGL derivative contracts as of March 31, 2013 and the weighted average NGL prices per BBL for those contracts:

	Nine Months Ending December 31,		Year Ending December 31,
	2013		2014
Collar contracts with short puts:
Volume (BBL)	1,064		1,000
Average price per BBL:
Ceiling	$	105.28	$	109.50
Floor	$	89.30	$	95.00
Short put	$	75.20	$	80.00

Subsequent to March 31, 2013, the Company entered into additional NGL collar contracts for (i) 2,000 BBLs per day of the Company's May through December 2013 ethane production with a ceiling price of $12.60 per BBL and a floor price of $10.50 per BBL, (ii) 500 BBLs per day of the Company's July through December 2013 ethane production with a ceiling price of $13.02 per BBL and a floor price of $10.50 per BBL and (iii) 3,000 BBLs per day of the Company's 2014 ethane production with a ceiling price of $13.72 per BBL and a floor price of $10.78 per BBL.

Gas production derivative activities. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX Henry Hub ("HH") gas prices or regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and reduce basis risk between 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") associated with the Company's outstanding gas derivative contracts as of March 31, 2013 and the weighted average gas prices per MMBTU for those contracts:

	Nine Months Ending December 31,			Year Ending December 31,
	2013			2014			2015		2016
Collar contracts with short puts:
Volume (MMBTU) (a)	—			65,000			235,000		20,000
Price per MMBTU:
Ceiling	$	—		$	4.70		$	5.09	$	5.36
Floor	$	—		$	4.00		$	4.00	$	4.00
Short put	$	—		$	3.00		$	3.00	$	3.00
Collar contracts:
Volume (MMBTU) (a)	150,000			—			—		—
Price per MMBTU:
Ceiling	$	6.25		$	—		$	—	$	—
Floor	$	5.00		$	—		$	—	$	—
Swap contracts:
Volume (MMBTU)	170,282			175,000			20,000		—
Price per MMBTU	$	5.07		$	4.02		$	4.31	$	—
Basis swap contracts:
Volume (MMBTU) (a)	162,500			10,000			—		—
Price per MMBTU	$	(0.22	)	$	(0.19	)	$	—	$	—

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(a) Subsequent to March 31, 2013, the Company entered into additional (i) collar contracts for 2,500 MMBTUs per day of the Company's June through December 2013 production with a ceiling price of $4.50 per MMBTU and a floor price of $4.00 per MMBTU, (ii) collar contracts with short puts for 50,000 MMBTUs per day of the Company's 2014 production with a ceiling price of $4.70 per MMBTU, a floor price of $4.00 per MMBTU and a short put price of $3.00 per MMBTU, (iii) collar contracts with short puts for 50,000 MMBTUs per day of the Company's 2015 production with a ceiling price of $5.03 per MMBTU, a floor price of $4.00 per MMBTU and a short put price of $3.00 per MMBTU, (iv) basis swap contracts for 22,500 MMBTU per day of the Company's 2014 production with a negative price differential of $0.18 per MMBTU between the relevant index price and the NYMEX price and (v) basis swap contracts for 7,500 MMBTU per day of the Company's 2015 production with a negative price differential of $0.13 per MMBTU between the relevant index price and the NYMEX price.

Marketing and basis transfer derivative activities. Periodically, the Company enters into buy and sell marketing arrangements to utilize unused firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swaps to mitigate the related price risk.

The following table sets forth the contract volumes associated with the Company's outstanding marketing derivative contracts as of March 31, 2013 and the weighted average prices for those contracts:

	Nine Months Ending December 31,
	2013
Average Daily Gas Production Associated with Marketing Derivatives:
Basis swap contracts:
Index swap volume (MMBTU)	4,364
Price differential ($/MMBTU)	$	0.34

Interest rates. As of March 31, 2013, the Company was a party to 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 in December 2015.

Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives as of March 31, 2013 and December 31, 2012 and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the earnings of the periods in which they occur. The Company classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty, as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty.

The aggregate fair value of the Company's derivative instruments reported in the consolidated balance sheets by commodity and counterparty, including the classification between current and noncurrent assets and liabilities, consists of the following:

Fair Value of Derivative Instruments as of March 31, 2013
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in thousands)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	160,149	$	(8,718	)	$	151,431
Commodity price derivatives	Derivatives - noncurrent	$	100,090	$	(4,969	)	95,121
							$	246,552
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	29,131	$	(8,718	)	$	20,413
Commodity price derivatives	Derivatives - noncurrent	$	12,557	$	(4,969	)	7,588
Interest rate derivatives	Derivatives - noncurrent	$	5,784	$	—		5,784
							$	33,785

Fair Value of Derivative Instruments as of December 31, 2012
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in thousands)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	286,805	$	(7,686	)	$	279,119
Commodity price derivatives	Derivatives - noncurrent	$	61,618	$	(6,361	)	55,257
							$	334,376
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	21,102	$	(7,686	)	$	13,416
Commodity price derivatives	Derivatives - noncurrent	$	8,944	$	(6,361	)	2,583
Interest rate derivatives	Derivatives - noncurrent	$	9,724	$	—		9,724
							$	25,723

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.

Derivatives in Cash Flow Hedging	Location of (Gain)/Loss Reclassified from
		Three Months Ended March 31,
Relationships	AOCI into Earnings	2013		2012
		(a)
Commodity price derivatives	Oil and gas revenue	$	—	$	809
Interest rate derivatives	Interest expense	—		1,699
Total		$	—	$	2,508

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(a) During 2012, all remaining Accumulated Other Comprehensive Income ("AOCI") related to hedging was transferred to earnings.

Derivatives Not Designated as Hedging	Location of (Gain) Loss Recognized in	Three Months Ended March 31,
Instruments	Earnings on Derivatives	2013			2012
Commodity price derivatives	Derivative (gains) losses, net	$	46,183		$	(88,130	)
Interest rate derivatives	Derivative (gains) losses, net	(3,940		)	(3,620		)
Total		$	42,243		$	(91,750	)