Derivative Financial Instruments

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE E.     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 Company uses derivative contracts to manage oil price volatility and basis swap contracts to reduce basis risk between NYMEX prices and actual index prices at which the oil is sold.

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

	2014		2015		2016
Swap contracts:
Volume (BBLs)	10,000		—		—
Average price per BBL	$	93.87	$	—	$	—
Collar contracts with short puts:
Volume (BBLs)	69,000		85,000		25,000
Average price per BBL:
Ceiling	$	114.05	$	98.98	$	93.30
Floor	$	93.70	$	88.06	$	85.00
Short put	$	77.61	$	73.06	$	70.00

Subsequent to December 31, 2013, the Company entered into rollfactor swap contracts for 5,000 BBLs per day of the Company's March through December 2014 production with a NYMEX roll price of $0.82 per BBL and 5,000 BBLs per day of the Company's 2015 production with a NYMEX roll price of $0.60 per BBL. Rollfactor swap contracts 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.

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 component product posted prices. The Company uses derivative contracts to manage the NGL component product price volatility.

As of December 31, 2013, the Company had natural gasoline collar contracts with short put derivatives for 1,000 BBLs per day of 2014 production with a ceiling price of $109.50 per BBL, a floor price of $95.00 per BBL and short put price of $80.00 per BBL; and ethane collar contracts for 3,000 BBLs per day of 2014 production with a ceiling price of $13.72 per BBL and a floor price of $10.78 per BBL.

Subsequent to December 31, 2013, the Company entered into propane swap contracts for 1,000 BBLs per day of March through December 2014 production with a price of $47.57 per BBL and 2,000 BBLs per day of April through October 2014 production with a price of $48.51 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 basis swap contracts to 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 MMBTUs associated with the Company's outstanding gas derivative contracts as of December 31, 2013 and the weighted average gas prices per MMBTU for those contracts:

	2014			2015			2016
Swap contracts:
Volume (MMBTUs)	195,000			20,000			—
Price per MMBTU	$	4.04		$	4.31		$	—
Collar contracts with short puts:
Volume (MMBTUs)	115,000			285,000			20,000
Price per MMBTU:
Ceiling	$	4.70		$	5.07		$	5.36
Floor	$	4.00		$	4.00		$	4.00
Short put	$	3.00		$	3.00		$	3.00
Basis swap contracts:
Volume (MMBTUs) (a)	85,082			30,000			—
Price per MMBTU	$	(0.20	)	$	(0.18	)	$	—

_________________

(a) Subsequent to December 31, 2013, the Company entered into additional basis swap contracts for 35,000 MMBTU per day of April through December 2014 production with a negative price differential of $0.27 per MMBTU between the relevant index price and the NYMEX price.

Marketing and basis transfer derivatives. Periodically, the Company enters into buy and sell marketing arrangements to fulfill firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swaps to mitigate price risk. As of December 31, 2013, the Company had no open marketing derivative positions. Subsequent to December 31, 2013, the Company entered into marketing gas index swap contracts for 20,000 MMBTU per day of March 2014 volumes with a price differential of $0.34 per MMBTU, 10,000 MMBTU per day of April through October 2014 volumes with a price differential of $0.36 per MMBTU and 30,000 MMBTU per day of April through December 2014 volumes with a price differential of $0.30 per MMBTU.

Interest rates. During the second quarter of 2013, the Company terminated its interest rate derivative contracts that locked 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 and received cash proceeds of $482 thousand.

As of December 31, 2013, the Company was a party to interest rate derivative contracts whereby the Company will receive a fixed interest rate of 3.95 percent in exchange for paying a floating interest rate comprised of the three-month LIBOR plus an average rate of 1.11 percent on a notional amount of $400 million through July 15, 2022.

Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives as of December 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 as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty. The Company enters into derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty.

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

Fair Value of Derivative Instruments as of December 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	$	73,431	$	(7,724	)	$	65,707
Interest rate derivatives	Derivatives - current	$	9,530	$	—		$	9,530
Commodity price derivatives	Derivatives - noncurrent	$	95,358	$	(4,504	)	90,854
Interest rate derivatives	Derivatives - noncurrent	$	15,493	$	(15,493	)	$	—
							$	166,091
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	19,350	$	(7,724	)	$	11,626
Commodity price derivatives	Derivatives - noncurrent	$	4,504	$	(4,504	)	—
Interest rate derivatives	Derivatives - noncurrent	$	25,426	$	(15,493	)	$	9,933
							$	21,559

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 following table details the location of gains and losses reclassified from AOCI-Hedging into earnings on the Company's discontinued cash flow hedging contracts in the accompanying consolidated statements of operations:

Derivatives in Cash Flow Hedging Relationships	Location of Gain/(Loss) Reclassified from AOCI into Earnings	Amount of Gain/(Loss) Reclassified from AOCI into Earnings
		Year Ended December 31,
		2013		2012			2011
		(in thousands)
Interest rate derivatives	Interest expense	$	—	$	(1,699	)	$	(282	)
Commodity price derivatives	Oil and gas revenue	—		(3,156		)	32,918
Total		$	—	$	(4,855	)	$	32,636

The following table details the location of gains and losses recognized on the Company's derivative contracts in the accompanying consolidated statements of operations:

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Earnings on Derivatives	Amount of Gain (Loss) Recognized in Earnings on Derivatives
		Year Ended December 31,
		2013			2012			2011
		(in thousands)
Interest rate derivatives	Derivative gains, net	$	9,803		$	(22,428	)	$	3,098
Commodity price derivatives	Derivative gains, net	(5,793		)	352,679			389,654
Total		$	4,010		$	330,251		$	392,752

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 net derivative assets or liabilities by counterparty as of December 31, 2013:

	Net Assets (Liabilities)
	(in thousands)
JP Morgan Chase	$	46,908
Morgan Stanley	17,411
Merrill Lynch	16,979
Barclays Capital	16,923
Den Norske Bank	8,928
Societe Generale	8,754
Macquarie Bank	8,146
J. Aron & Company	6,817
Wells Fargo Bank, N.A.	4,969
Citibank, N.A.	4,857
Deutsche Bank	1,374
BMO Financial Group	1,041
Credit Suisse	992
BP Corporation North America	793
Royal Bank of Canada	752
BNP Paribas	473
Toronto Dominion	(476		)
Mitsubishi UFJ Financial Group	(504		)
Credit Agricole	(605		)
Total	$	144,532