Derivative Financial Instruments

3 Months Ended

Mar. 31, 2014

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 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 associated with the Company's outstanding oil derivative contracts as of March 31, 2014 and the weighted average oil prices for those contracts:

	Nine Months Ending December 31,		Year Ending December 31,
	2014		2015		2016
Collar contracts with short puts:
Volume (BBL) (a)	69,000		86,500		25,000
Price per BBL:
Ceiling	$	114.05	$	99.01	$	93.30
Floor	$	93.70	$	88.09	$	85.00
Short put	$	77.61	$	73.18	$	70.00
Swap contracts:
Volume (BBL)	10,000		—		—
Price per BBL	$	93.87	$	—	$	—
Rollfactor swap contracts:
Volume (BBL)	9,455		5,000		—
NYMEX roll price (b)	$	1.08	$	0.60	$	—

 ____________________

(a) Counterparties have the option to extend for an additional year 1,500 BBLs per day of 2015 collar contracts with short puts with a ceiling price of $100.25 per BBL, a floor price of $90.00 per BBL and a short put price of $80.00 per BBL. The option to extend is exercisable on December 31, 2015. During the period from April 1, 2014 to May 5, 2014, the Company entered into additional collar contracts with short puts for 3,500 BBLs per day of the Company's 2015 production with a ceiling price of $100.00 per BBL, a floor price of $90.00 per BBL and a short put price of $80.00 per BBL. These contracts give the counterparties the option to extend the contracts under the same terms for an additional year if the option to extend is exercised by the counterparties on December 31, 2015.

(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.

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 prices.

The following table sets forth the volumes per day associated with the Company's outstanding NGL derivative contracts as of March 31, 2014 and the weighted average NGL prices for those contracts:

	Nine Months Ending December 31,
	2014
Collar contracts with short puts (a):
Volume (BBL)	1,000
Price per BBL:
Ceiling	$	109.50
Floor	$	95.00
Short put	$	80.00
Collar contracts (b):
Volume (BBL)	3,000
Price per BBL:
Ceiling	$	13.72
Floor	$	10.78
Swap contracts (c):
Volume (BBL)	2,556
Average price per BBL	$	48.15

____________________

(a) Represent collar contracts with short puts that reduce the price volatility of natural gasoline forecasted for sale by the Company at Mont Belvieu, Texas-posted prices. During the period from April 1, 2014 to May 5, 2014, the Company entered into additional natural gasoline collar contracts with short puts for (i) 1,000 BBLs per day of May through December 2014 production with a ceiling price of $93.24 per BBL, a floor price of $88.20 per BBL and a short put price of $81.90 per BBL and (ii) 1,500 BBLs per day of June through December 2014 production with a ceiling price of $93.35 per BBL, a floor price of $88.20 per BBL and a short put price of $81.90 per BBL.

(b) Represent collar contracts that reduce the price volatility of ethane forecasted for sale by the Company at Mont Belvieu, Texas-posted prices.

(c) Represent swap contracts that reduce the price volatility of propane forecasted for sale by the Company at Mont Belvieu, Texas-posted prices.

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 associated with the Company's outstanding gas derivative contracts as of March 31, 2014 and the weighted average gas prices for those contracts:

	Nine Months Ending December 31,			Year Ending December 31,
	2014			2015			2016
Collar contracts with short puts:
Volume (MMBTU)	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
Swap contracts:
Volume (MMBTU)	195,000			20,000			—
Price per MMBTU	$	4.04		$	4.31		$	—
Basis swap contracts:
Volume (MMBTU) (a)	123,382			30,000			—
Price per MMBTU	$	(0.22	)	$	(0.18	)	$	—

____________________

(a) During the period from April 1, 2014 to May 5, 2014, the Company entered into additional basis swap contracts for 20,000 MMBTU per day of the Company's 2015 production with a negative price differential of $0.25 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 fulfill firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swaps to mitigate price risk. As of March 31, 2014, the Company had (i) marketing gas index swap contracts for 37,782 MMBTU per day for the remainder of 2014 with a price differential of $0.31 per MMBTU between Permian Basin index prices and southern California index prices and (ii) marketing oil index swap contracts for 555 BBL per day for the remainder of 2014 with a price differential of $5.55 per BBL between Cushing WTI and Louisiana Light Sweet crude ("LLS").

Interest rate derivative activities. As of March 31, 2014, 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 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 March 31, 2014
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 millions)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	46	$	(13	)	$	33
Interest rate derivatives	Derivatives - current	$	10	$	—		10
Commodity price derivatives	Derivatives - noncurrent	$	67	$	(5	)	62
Interest rate derivatives	Derivatives - noncurrent	$	12	$	(12	)	—
							$	105
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	54	$	(13	)	$	41
Commodity price derivatives	Derivatives - noncurrent	$	6	$	(5	)	1
Interest rate derivatives	Derivatives - noncurrent	$	16	$	(12	)	4
							$	46

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 millions)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	73	$	(7	)	$	66
Interest rate derivatives	Derivatives - current	$	10	$	—		10
Commodity price derivatives	Derivatives - noncurrent	$	95	$	(4	)	91
Interest rate derivatives	Derivatives - noncurrent	$	15	$	(15	)	—
							$	167
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	19	$	(7	)	$	12
Commodity price derivatives	Derivatives - noncurrent	$	4	$	(4	)	—
Interest rate derivatives	Derivatives - noncurrent	$	25	$	(15	)	10
							$	22

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 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	Location of Gain / (Loss) Recognized in		Three Months Ended March 31,
Instruments	Earnings on Derivatives		2014			2013
		(in millions)
Commodity price derivatives	Derivative losses, net		$	(114	)	$	(46	)
Interest rate derivatives	Derivative losses, net		10			4
Total			$	(104	)	$	(42	)